<PAGE>
As filed with the Securities and Exchange Commission on January 28, 1998,
Registration No. 333-_______.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
DIGITAL MICROWAVE CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
3663
(Primary Standard Industrial Classification Code Number)
77-0016028
(I.R.S. Employer Identification No.)
170 ROSE ORCHARD WAY
SAN JOSE, CALIFORNIA 95134
(408) 943-0777
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
CHARLES D. KISSNER
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
DIGITAL MICROWAVE CORPORATION
170 ROSE ORCHARD WAY
SAN JOSE, CALIFORNIA 95134
(408) 943-0777
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
COPIES TO:
BRUCE ALAN MANN, ESQ. THOMAS A. BEVILACQUA, ESQ.
MATTHEW S. CROWLEY, ESQ. CURTIS L. MO, ESQ.
VALERIE A. VILLANUEVA, ESQ. PETER D. ROSENTHAL, ESQ.
Morrison & Foerster LLP Brobeck, Phleger & Harrison LLP
425 Market Street Two Embarcadero Place, 2200 Geng Road
San Francisco, California 94105 Palo Alto, California 94303-0913
(415) 268-7000 (650) 424-0160
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: At the effective time of the amalgamation of the wholly owned subsidiary
of the Registrant with MAS Technology Limited, which shall occur as soon as
practicable after the effective date of this Registration Statement and the
satisfaction of all conditions to the closing of such amalgamation.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering: / /
---------------------------
<PAGE>
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act,
check the following box and list the Securities Act registration statement
number of the earlier registration statement for the same
offering: / /
----------------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
AMOUNT PROPOSED
TITLE OF EACH CLASS TO BE MAXIMUM PROPOSED MAXIMUM
OF SECURITIES REGISTERED OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED (1) PER SHARE (2) PRICE (2) REGISTRATION FEE (3)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, 8,600,000
$0.01 par value shares $17.50 $150,500,000 $44,397.50
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
</TABLE>
(1) Represents the number of shares of the Common Stock of the Registrant
which may be issued to former shareholders of MAS Technology Limited
("MAS") pursuant to the Reorganization described herein giving effect to
the exercise of outstanding and exercisable options and shares expected
to be issued pursuant to the MAS 1997 Stock Option Plan.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f)(1) and Rule 457(c), based on the average of the
high and low sale prices of MAS American Depositary Shares on the Nasdaq
National Market on January 21, 1998 of $21.008 and the Exchange Ratio of
1.20 shares of the Common Stock of the Registrant for each MAS American
Depositary Share pursuant to the Reorganization described herein.
(3) $20,400 of the registration fee was previously paid pursuant to Section
14(g) of the Securities Exchange Act of 1934, as amended, in connection
with the filing of preliminary proxy materials on January 16, 1998.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
<PAGE>
[DMC Logo/Letterhead]
February 9, 1998
TO THE STOCKHOLDERS OF
DIGITAL MICROWAVE CORPORATION:
You are cordially invited to attend a Special Meeting of Stockholders (the
"Special Meeting") of Digital Microwave Corporation ("DMC") on March 23, 1998,
at 11:00 a.m., Pacific Standard Time, which will be held at DMC's executive
offices located at 170 Rose Orchard Way, San Jose, California.
The purpose of the Special Meeting is to consider and vote upon a proposal
(the "Reorganization Proposal") to approve the Agreement and Plan of
Reorganization and Amalgamation dated as of December 22, 1997 (as the same may
be amended, supplemented or modified, the "Reorganization Agreement"), pursuant
to which MAS Technology Limited, a New Zealand company ("MAS"), will become a
wholly owned subsidiary of DMC.
Under the terms of the Reorganization Agreement, each outstanding ordinary
share of MAS capital stock (the "MAS Capital Stock") will be converted into the
right to receive 1.20 shares of common stock of DMC ("DMC Common Stock") as more
fully described in the enclosed Joint Proxy Statement/Prospectus. The
Reorganization Agreement also provides that options to purchase shares of MAS
Capital Stock will, unless such options are exercised prior to the effective
date of the Reorganization, be assumed by DMC and converted into options to
purchase DMC Common Stock on substantially the same terms and conditions as the
MAS options, but adjusted to reflect the conversion ratio in the Reorganization.
In addition, stockholders will consider and vote upon proposals to
(i) amend DMC's Restated Certificate of Incorporation to (a) increase the total
number of shares that DMC has authority to issue from 65,000,000 shares to
100,000,000 shares, (b) increase the number of authorized shares of DMC Common
Stock from 60,000,000 shares to 95,000,000 shares and (c) increase the number of
shares of DMC Common Stock authorized for issuance under DMC's 1994 Stock
Incentive Plan from 4,666,660 to 7,166,660 (the "1994 Plan Amendment").
AFTER CAREFUL CONSIDERATION, DMC'S BOARD OF DIRECTORS HAS UNANIMOUSLY
APPROVED THE REORGANIZATION AGREEMENT. THE BOARD BELIEVES THAT THE TERMS OF THE
REORGANIZATION AGREEMENT ARE FAIR TO, AND IN THE BEST INTERESTS OF, DMC AND ITS
STOCKHOLDERS, AND UNANIMOUSLY RECOMMENDS THAT HOLDERS OF SHARES OF DMC COMMON
STOCK VOTE FOR APPROVAL OF THE ISSUANCE OF DMC COMMON STOCK PURSUANT TO THE
REORGANIZATION AGREEMENT, THE PROPOSED AMENDMENT TO DMC'S RESTATED CERTIFICATE
OF INCORPORATION AND THE ADOPTION OF THE 1994 PLAN AMENDMENT.
You do not need to attend the Special Meeting. Whether or not you plan to
attend, after reading the Joint Proxy Statement/Prospectus, please mark, date,
sign and return the enclosed proxy card in the accompanying reply envelope. If
you decide to attend the Special Meeting, please notify the Secretary of DMC if
you wish to vote in person and your proxy will not be voted.
Sincerely yours,
Charles D. Kissner
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
<PAGE>
DIGITAL MICROWAVE CORPORATION
170 Rose Orchard Way
San Jose, California 95134
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
- --------------------------------------------------------------------------------
The Special Meeting of Stockholders of Digital Microwave Corporation, a
Delaware corporation ("DMC"), will be held at DMC's executive offices located at
170 Rose Orchard Way, San Jose, California, on Monday, March 23, 1998, at
11:00 a.m. Pacific Standard Time, to:
1. Approve the issuance of shares of Common Stock of DMC ("DMC Common
Stock") pursuant to an Agreement and Plan of Reorganization and Amalgamation,
dated as of December 22, 1997 (as the same may be amended, supplemented or
modified, the "Reorganization Agreement") by and among DMC, South Amalgamation
Sub Ltd., a New Zealand company and a wholly owned subsidiary of DMC
("Amalgamation Sub"), and MAS Technology Limited, a New Zealand company ("MAS").
The Reorganization is more completely described in the accompanying Joint Proxy
Statement/Prospectus, and a copy of the Reorganization Agreement is attached as
Appendix A thereto;
2. Approve an amendment to the Restated Certificate of Incorporation of
DMC to (a) increase the total number of shares that DMC has authority to issue
from 65,000,000 shares to 100,000,000 shares and (b) increase the number of
authorized shares of DMC Common Stock from 60,000,000 shares to 95,000,000
shares;
3. Approve the adoption of an amendment to DMC's 1994 Stock Incentive
Plan to increase the number of shares of DMC Common Stock authorized for
issuance thereunder from 4,666,660 shares to 7,166,660 shares (the "1994 Plan
Amendment"); and
4. Transact any other business which may properly come before the meeting
and any adjournments or postponements thereof.
The foregoing items of business are more fully described in the Joint Proxy
Statement/Prospectus that accompanies this Notice.
Stockholders of record at the close of business on January 30, 1998, will
be entitled to notice of and to vote at the Special Meeting and at any
continuation or adjournment thereof. The affirmative vote of the holders of a
majority of the shares of DMC Common Stock present, or represented, and entitled
to vote at the DMC Special Meeting is necessary for approval of the proposed
issuance of DMC Common Stock in connection with the Reorganization. The
affirmative vote of the holders of a majority of the outstanding shares of DMC
Common Stock entitled to vote thereon is necessary for approval of the proposal
to amend DMC's Restated Certificate of Incorporation. The affirmative vote of
the holders of a majority of the shares of DMC Common Stock present, or
represented, and entitled to vote at the DMC Special Meeting is necessary for
approval of the adoption of the 1994 Plan Amendment.
All stockholders are cordially invited and encouraged to attend the Special
Meeting. In any event, to ensure your representation at the Special Meeting,
please carefully read the accompanying Joint Proxy Statement/Prospectus which
describes the matters to be voted on at the Special Meeting and sign, date and
return the enclosed proxy card in the reply envelope provided. Should you
receive more than one proxy because your shares are registered in different
names and addresses, each proxy should be returned to assure that all your
shares will be voted. If you attend the Special Meeting and vote by ballot,
your proxy will be revoked automatically and only your vote at the Special
Meeting will be counted. The prompt return of your proxy card will assist us in
preparing for the Special Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
Charles D. Kissner
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
San Jose, California
February 9, 1998
<PAGE>
[MAS Logo/Letterhead]
February 9, 1998
Dear Shareholder:
A Special Meeting of Shareholders (the "Special Meeting") of MAS
Technology Limited ("MAS") will be held on March 23, 1998 at 1:00 p.m., New
Zealand Daylight Time, at the corporate offices of MAS, located at 24 Bridge
Street, Lower Hutt, Wellington, New Zealand.
The purpose of the Special Meeting is to consider and vote upon a proposal
to approve and adopt the Agreement and Plan of Reorganization and Amalgamation
dated as of December 22, 1997, (as the same may be amended, supplemented or
modified, the "Reorganization Agreement"), by and among Digital Microwave
Corporation, a Delaware corporation ("DMC"), South Amalgamation Sub Ltd., a
New Zealand company and a wholly owned subsidiary of DMC ("Amalgamation Sub"),
and MAS and the related amalgamation proposal required under New Zealand law
(the "Reorganization Proposal"). Pursuant to the Reorganization Agreement, the
Amalgamation Sub will be amalgamated with and into MAS, with MAS as the
surviving company (the "Reorganization"). Upon consummation of the
Reorganization, MAS will become a wholly owned subsidiary of DMC.
Under the terms of the Reorganization Agreement, the Reorganization will
result in the conversion of each ordinary share of the MAS capital stock,
whether represented by American Depositary Shares or otherwise (the "MAS Capital
Stock"), outstanding prior to the time the Reorganization becomes effective into
a number of shares of common stock of DMC (the "DMC Common Stock") determined in
accordance with the provisions of the Reorganization Agreement as more fully
described in the enclosed Joint Proxy Statement/Prospectus. The Reorganization
Agreement also provides that options to purchase shares of MAS Capital Stock
will, unless such options are exercised prior to the effective date of the
Reorganization, be assumed by DMC and converted into options to purchase DMC
Common Stock on substantially the same terms and conditions as the MAS options,
but adjusted to reflect the conversion ratio in the Reorganization. Attached as
Appendix A to the Joint Proxy Statement/Prospectus is a copy of the
Reorganization Agreement and attached as Appendix H to the Joint Proxy
Statement/Prospectus is a copy of the Reorganization Proposal. You are urged to
read the Joint Proxy Statement/Prospectus, the Reorganization Proposal and the
Reorganization Agreement carefully.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE REORGANIZATION
PROPOSAL AND THE REORGANIZATION AGREEMENT AS BEING FAIR TO, AND IN THE BEST
INTERESTS OF, MAS AND ITS SHAREHOLDERS AND RECOMMENDS THAT YOU VOTE "FOR"
APPROVAL AND IMPLEMENTATION OF THE REORGANIZATION PROPOSAL AND THE
REORGANIZATION AGREEMENT. In making this recommendation, the Board of Directors
has considered numerous factors including the consideration offered by DMC.
Whether or not you plan to attend the Special Meeting of Shareholders of
MAS, please mark, sign, date and promptly return your proxy card in the enclosed
postage-paid envelope. If you attend the meeting, you may vote in person if you
wish, even though you have previously returned your proxy.
Sincerely,
Neville Jordan
Chief Executive Officer and
Deputy Chairman of the Board of Directors
Wellington, New Zealand
February 9, 1998
<PAGE>
MAS TECHNOLOGY LIMITED
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON MARCH 23, 1998
To the Shareholders of MAS Technology Limited:
NOTICE IS HEREBY GIVEN that a Special Meeting of the Shareholders (the
"Special Meeting") of MAS Technology Limited ("MAS") will be held at the
corporate offices of MAS, located at 24 Bridge Street, Lower Hutt, Wellington,
New Zealand, on March 23, 1998, at 1:00 p.m. New Zealand Daylight Time, for the
following purposes, all of which are more fully described in the accompanying
Joint Proxy Statement/Prospectus:
1. To consider and vote upon the amalgamation proposal (the
"Reorganization Proposal") enclosed with this notice, as required
under New Zealand law, to approve and adopt the Agreement and Plan of
Reorganization and Amalgamation dated as of December 22, 1997, (as the
same may be amended, supplemented or modified, the "Reorganization
Agreement"), by and among Digital Microwave Corporation, a Delaware
corporation ("DMC"), South Amalgamation Sub Ltd., a New Zealand
company and a wholly owned subsidiary of DMC ("Amalgamation Sub"),
and MAS, pursuant to which Amalgamation Sub will be merged with and
into MAS, with MAS as the surviving corporation (the
"Reorganization"). In connection with the Reorganization, each
outstanding ordinary share of the capital stock of MAS, whether
represented by American Depositary Shares or otherwise, (the "MAS
Capital Stock") will be converted into the right to receive one and
two-tenths (1.20) shares of common stock, $0.01 par value, of DMC
(the "DMC Common Stock"), as described in the accompanying Joint
Proxy Statement/Prospectus and in the Reorganization Agreement, a
copy of which is attached thereto as Appendix A (a copy of the
Reorganization Proposal is also attached thereto as Appendix H). In
addition, each option to purchase shares of MAS Capital Stock will,
unless such options are exercised prior to the effective date of
the Reorganization, be assumed by DMC and converted into an option
to purchase DMC Common Stock on substantially the same terms and
conditions as the assumed options, but adjusted to reflect the
exchange ratio in the Reorganization.
2. To transact such other business as may properly come before the
Special Meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on January 30, 1998
as the record date for the determination of the holders of MAS Capital Stock
entitled to notice of, and to vote at, the Special Meeting. THE REORGANIZATION
PROPOSAL AND THE REORGANIZATION AGREEMENT AND OTHER MATTERS RELATED THERETO ARE
MORE FULLY DESCRIBED IN THE ACCOMPANYING JOINT PROXY STATEMENT/PROSPECTUS AND
THE APPENDICES THERETO, WHICH FORM A PART OF THIS NOTICE.
ALL SHAREHOLDERS ARE CORDIALLY INVITED TO ATTEND THE SPECIAL MEETING. TO
ENSURE YOUR REPRESENTATION AT THE SPECIAL MEETING, HOWEVER, YOU ARE URGED TO
COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE. A
POSTAGE-PAID ENVELOPE IS ENCLOSED FOR THAT PURPOSE. ANY SHAREHOLDER ATTENDING
THE SPECIAL MEETING MAY VOTE IN PERSON EVEN IF THAT SHAREHOLDER HAS RETURNED A
PROXY.
By Order of the Board of Directors,
Neville Jordan
Chief Executive Officer and Deputy Chairman
of the Board of Directors
February 9, 1998
<PAGE>
-------------------------------------------
DIGITAL MICROWAVE CORPORATION
and
MAS TECHNOLOGY LIMITED
JOINT PROXY STATEMENT
-------------------------------------------
DIGITAL MICROWAVE CORPORATION
PROSPECTUS
-------------------------------------------
This Joint Proxy Statement/Prospectus ("Proxy Statement/Prospectus") is
being furnished to holders of common stock, $0.01 par value per share (the "DMC
Common Stock"), of Digital Microwave Corporation, a Delaware corporation
("DMC"), in connection with the solicitation of proxies by the Board of
Directors of DMC for use at the Special Meeting of Stockholders of DMC to be
held at the corporate offices of DMC, located at 170 Rose Orchard Way, San Jose,
California, on March 23, 1998, at 11:00 a.m., Pacific Standard Time, and at any
and all adjournments or postponements thereof (the "DMC Special Meeting").
This Proxy Statement/Prospectus also is being furnished to holders of
ordinary shares, whether or not represented by American Depositary Shares
("ADSs") (collectively, the "MAS Capital Stock"), of MAS Technology Limited, a
New Zealand company ("MAS"), in connection with the solicitation of proxies by
the Board of Directors of MAS for use at the Special Meeting of Shareholders of
MAS to be held at the corporate offices of MAS, located at 24 Bridge Street,
Lower Hutt, Wellington, New Zealand, on March 23, 1998, at 1:00 p.m.,
New Zealand Daylight Time, and at any and all adjournments or postponements
thereof (the "MAS Special Meeting"). This Proxy Statement/Prospectus also is
being furnished to holders of options to purchase shares of MAS Capital Stock.
("MAS shareholders," "holders of MAS Capital Stock" or any derivation thereof
shall mean the holders of MAS Capital Stock or holders of options to purchase
shares of MAS Capital Stock.)
This Proxy Statement/Prospectus relates to the Agreement and Plan of
Reorganization and Amalgamation, dated as of December 22, 1997 (as the same may
be amended, supplemented or modified, the "Reorganization Agreement"), by and
between DMC, South Amalgamation Sub Ltd., a New Zealand company and a wholly
owned subsidiary of DMC ("Amalgamation Sub"), and MAS, as well as the
Reorganization Proposal (as defined below). Pursuant to the Reorganization
Agreement, Amalgamation Sub will be amalgamated with MAS, with MAS as the
surviving company (the "Surviving Company") and a wholly owned subsidiary of DMC
(the "Reorganization"). A copy of the Reorganization Agreement is attached as
Appendix A to this Proxy Statement/Prospectus. See "The Reorganization" and
"The Reorganization Agreement."
In the Reorganization, each outstanding share of MAS Capital Stock (other
than shares held in the treasury of MAS, which will be canceled) will be
converted into the right to receive one and two-tenths (1.20) shares of fully
paid and nonassessable DMC Common Stock, and cash in lieu of any fractional
shares, subject to minority buyout rights under New Zealand law, if applicable.
In addition, each option to purchase shares of MAS Capital Stock will, unless
such options are exercised prior to the effective date of the Reorganization, be
assumed by DMC and converted into an option to purchase DMC Common Stock on
substantially the same terms and conditions as the assumed options, but adjusted
to reflect the exchange ratio in the Reorganization.
DMC has filed a Registration Statement on Form S-4 (the "Registration
Statement") under the Securities Act of 1933, as amended, with the Securities
and Exchange Commission (the "Commission") covering the shares of DMC Common
Stock to be issued in connection with the Reorganization. This Proxy
Statement/Prospectus also constitutes the prospectus of DMC with respect to such
shares and has been filed as part of the Registration Statement. Consummation
of the Reorganization is subject to various conditions, including approval at
the MAS Special Meeting of the Reorganization Agreement and the related
amalgamation proposal required under New Zealand law ("Reorganization Proposal")
by the holders of 75% of the shares of MAS Capital Stock voted thereon and
approval of the proposed issuance of shares of DMC Common Stock in connection
with the Reorganization by a majority of the total votes cast on such proposal
at the DMC Special Meeting. At the DMC Special Meeting, DMC stockholders will
also be asked to approve a proposed amendment to the Restated Certificate of
Incorporation of DMC to increase the total number of shares that DMC has
authority to issue and the number of authorized shares of DMC Common Stock, and
an amendment to DMC's 1994 Stock Incentive Plan.
DMC Common Stock is listed and traded on the Nasdaq National Market
("Nasdaq") under the Symbol "DMIC." On February __, 1998, the closing sale
price for DMC Common Stock as reported on Nasdaq was $_______ per share.
All information contained in this Proxy Statement/Prospectus with respect
to DMC has been provided by DMC. All information contained in this Proxy
Statement/Prospectus with respect to MAS has been provided by MAS. This Proxy
Statement/Prospectus and the accompanying forms of proxy are first being mailed
to stockholders of DMC and shareholders of MAS on or about January 30, 1998.
Any stockholder of DMC or shareholder of MAS who has given a proxy may revoke it
at any time prior to its exercise. See "The DMC Special Meeting -- Record Date;
Voting Rights; Proxies" and "The MAS Special Meeting -- Record Date; Voting
Rights; Proxies."
SEE "RISK FACTORS" AT PAGE 12 FOR CERTAIN INFORMATION THAT SHOULD BE
CONSIDERED BY BOTH DMC STOCKHOLDERS AND MAS SHAREHOLDERS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS FEBRUARY 9, 1998.
<PAGE>
AVAILABLE INFORMATION
Under the rules and regulations of the Securities and Exchange Commission
(the "Commission"), the solicitation of proxies from the stockholders of DMC and
the shareholders of MAS to approve the Reorganization Agreement and the
consummation of the Reorganization constitutes an offering of the DMC Common
Stock to be issued in connection with the Reorganization. Accordingly, DMC has
filed with the Commission the Registration Statement under the Securities Act of
1933, as amended (the "Securities Act"), with respect to such offering. This
Proxy Statement/Prospectus constitutes the prospectus of DMC that is filed as
part of the Registration Statement. Other parts of the Registration Statement
are omitted from this Proxy Statement/Prospectus in accordance with the rules
and regulations of the Commission. For further information, reference is hereby
made to the Registration Statement. Statements made in this Proxy
Statement/Prospectus as to the contents of any contract, agreement or other
document are not necessarily complete. With respect to each such contract,
agreement or other document filed as an exhibit to the Registration Statement or
incorporated by reference herein, reference is made to the exhibit for a more
complete description of the matters involved, and each such statement shall be
deemed qualified in its entirety by such reference. The Registration Statement,
including exhibits filed as a part thereof, is available at the Commission for
inspection and copying as set forth below.
DMC and MAS are subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith file reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information filed may be
inspected and copied at the public reference facilities of the Commission
located at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington D.C.
20549, and at the Commission's Regional Offices at Seven World Trade Center,
Suite 1300, New York, New York 10048, and Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials also can
be obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates. The Commission
maintains a web site at http://www.sec.gov that contains reports, proxy and
information statements and other information regarding DMC and MAS. DMC Common
Stock and the ADSs of MAS, which represent each ordinary share of MAS Capital
Stock, are quoted on the Nasdaq National Market. Reports and other information
concerning DMC and MAS may be inspected at the offices of the Nasdaq Stock
Market at 1735 K Street, N.W., Washington, D.C. 20006.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES BY REFERENCE DOCUMENTS
RELATING TO DMC THAT ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. DMC WILL
PROVIDE WITHOUT CHARGE TO ANY PERSON TO WHOM THIS PROXY STATEMENT/PROSPECTUS IS
DELIVERED, INCLUDING ANY BENEFICIAL OWNER OF DMC COMMON STOCK OR MAS CAPITAL
STOCK UPON WRITTEN OR ORAL REQUEST OF SUCH PERSON, A COPY OF ANY OR ALL SUCH
DOCUMENTS RELATING TO DMC (OTHER THAN EXHIBITS TO SUCH DOCUMENTS THAT ARE NOT
SPECIFICALLY INCORPORATED HEREIN BY REFERENCE). WRITTEN OR ORAL REQUESTS SHOULD
BE DIRECTED TO CARL A. THOMSEN, VICE PRESIDENT, CHIEF FINANCIAL OFFICER AND
SECRETARY, AT THE CORPORATE HEADQUARTERS OF DMC, 170 ROSE ORCHARD WAY, SAN JOSE,
CALIFORNIA 95134 (TELEPHONE NUMBER (408) 943-0777). IN ORDER TO ENSURE TIMELY
DELIVERY OF THE DOCUMENTS, ANY REQUESTS SHOULD BE MADE BY MARCH 16, 1998.
COPIES OF DOCUMENTS SO REQUESTED WILL BE SENT BY FIRST CLASS MAIL, POSTAGE PAID,
WITHIN ONE BUSINESS DAY OF THE RECEIPT OF SUCH REQUEST.
i
<PAGE>
INFORMATION INCORPORATED BY REFERENCE
The following documents heretofore filed by DMC with the Commission
pursuant to the Exchange Act are hereby incorporated by reference into this
Proxy Statement/Prospectus:
1. DMC's Annual Report on Form 10-K for the year ended March 31, 1997;
2. DMC's Quarterly Reports on Form 10-Q for the quarters ended June 30,
1997 and September 30, 1997; and
3. The description of DMC's Common Stock contained in DMC's Registration
Statements on Form 8-A filed under the Exchange Act with the
Commission on May 29, 1987 and November 5, 1991, as amended on
December 27, 1996.
In addition, all reports and other documents filed by DMC pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date
hereof and prior to the date of the DMC Special Meeting, with respect to such
materials filed by DMC, shall be deemed to be incorporated by reference herein
and to be a part hereof from the date of filing of such reports and documents.
Any statement contained in a document incorporated or deemed to be incorporated
by reference herein shall be deemed to be modified or superseded for the
purposes of this Proxy Statement/Prospectus to the extent that a statement
contained herein, or in any other subsequently filed document that also is or is
deemed to be incorporated by reference herein, modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Proxy
Statement/Prospectus.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS
WITH RESPECT TO THE MATTERS DESCRIBED IN THIS PROXY STATEMENT/PROSPECTUS OTHER
THAN THOSE CONTAINED HEREIN. ANY INFORMATION OR REPRESENTATIONS WITH RESPECT TO
SUCH MATTERS NOT CONTAINED HEREIN MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY DMC OR MAS. THIS PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE
AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, SECURITIES, OR THE
SOLICITATION OF A PROXY, IN ANY JURISDICTION TO OR FROM ANY PERSON TO OR FROM
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER, SOLICITATION OF AN OFFER OR PROXY
SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROXY
STATEMENT/PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF DMC OR
MAS SINCE THE DATE HEREOF OR THAT THE INFORMATION IN THIS PROXY
STATEMENT/PROSPECTUS IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
- --------------------------------------------------------------------------------
This Proxy Statement/Prospectus includes trademarks and registered
trademarks and service marks of DMC and MAS and trademarks and registered
trademarks and service marks of other companies.
ii
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TABLE OF CONTENTS
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AVAILABLE INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .i
INCORPORATION OF DOCUMENTS BY REFERENCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii
SUMMARY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
The Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
DMC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
MAS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
Amalgamation Sub. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
The Special Meetings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
Time, Place and Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
Purpose of Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Votes Required; Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Minority Buyout Rights of MAS Shareholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
Surrender of Stock Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
Recommendations of the Boards of Directors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
Risk Factors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
The Reorganization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
Conversion of Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
Conditions to the Reorganization; Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
Regulatory Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
Accounting Treatment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
Opinions of Financial Advisors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
Interests of Certain Persons in the Reorganization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
Certain Tax Consequences. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
New Zealand Tax Consequences. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
United States Tax Consequences. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
Comparison of Rights of DMC Stockholders and MAS Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
Selected Historical Financial Data of DMC and MAS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
Selected Unaudited Pro Forma Combined Condensed Financial Data. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Comparative Per Share Data. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Integration of the Businesses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Fixed Exchange Ratio; Change in Relative Stock Prices May Change Value of Consideration Received. . . . . . . . . . . . 12
Failure to Qualify for Pooling-of-Interests Accounting Treatment May Impact Reported Operating Results. . . . . . . . . 13
Changes in the Rights of MAS Shareholders Will Occur. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Taxation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Fluctuations in Quarterly Operating Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Importance of New Products; Rapid Technological Change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Markets for the Products of DMC are Highly Competitive. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Risks Associated with International Operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Dependence on Component Availability, Subcontractor Performance and Key Suppliers . . . . . . . . . . . . . . . . . . . 16
Management of Growth; Expansion Strategy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Customer Concentration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Multiple Regulatory Environments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
No Assurance of Product Quality; Performance and Reliability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Reliance on Key OEM Relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Dependence on Key Personnel; New Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Importance of Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
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Possible Volatility of Stock Price. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Effect of Antitakeover Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
COMPARATIVE PER SHARE PRICES AND DIVIDEND POLICIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
THE DMC SPECIAL MEETING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Date, Time and Place. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Record Date; Voting Rights; Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Solicitation of Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Required Vote; Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
THE MAS SPECIAL MEETING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Date, Time and Place. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Record Date; Voting Rights; Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Solicitation of Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Required Vote; Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
THE REORGANIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Effective Time. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Conversion of Shares; Procedures for Exchange of Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Background of the Reorganization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Recommendation of the DMC Board; Reasons of DMC for the Reorganization and Other Proposals. . . . . . . . . . . . . . . 28
Recommendation of the MAS Board; Reasons of MAS for the Reorganization and Other Proposals. . . . . . . . . . . . . . . 29
Opinions of Broadview Associates and Hambrecht & Quist. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Interests of Certain Persons in the Reorganization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Stock Option Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Indemnification and Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
DMC Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Certain Tax Consequences. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Certain New Zealand Income Tax Consequences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Certain U.S. Federal Income Tax Consequences. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Accounting Treatment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Regulatory Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Resale Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
MINORITY BUYOUT RIGHTS OF MAS SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
THE REORGANIZATION AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
The Reorganization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Effective Time of the Reorganization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Conversion of Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Stock Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Exchange of Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Representations and Warranties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Certain Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
No Solicitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Certain Employee Benefit Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Director and Officer Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Access and Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Agreements Relating to Approval of the Reorganization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Additional Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Conditions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
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Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Termination Generally . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Effect of Termination; Termination Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Amendment; Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
COMPARISON OF CAPITAL STOCK. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Description of DMC Capital Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
DMC Common Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
DMC Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
DMC Stockholders' Rights Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
DMC Transfer Agent and Registrar. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Description of MAS Capital Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
COMPARISON OF RIGHTS OF DMC STOCKHOLDERS AND MAS SHAREHOLDERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Comparison of Current MAS Shareholder Rights and Rights of DMC Stockholders Following the
Reorganization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Authorized Capital Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Board of Directors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Special Meetings of Stockholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Amendment of Constitution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Voting Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Removal of Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Rights Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Liability of Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Buy-Back Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Shareholder Meetings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Voting Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Issue of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Variation of Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Minority Buyout Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Rights on a Liquidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Certain Provisions Relating to Business Combinations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Pro Forma Basis of Presentation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Pro Forma Combined Balance Sheet. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Pro Forma Combined Statements of Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Pro Forma Net Income Per Share. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
PROPOSAL NO. 1 -- APPROVAL OF THE REORGANIZATION AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
PROPOSAL NO. 2 -- APPROVAL OF THE AMENDMENT TO DMC'S RESTATED
CERTIFICATE OF INCORPORATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Purposes and Effects of the DMC Charter Amendment Proposal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
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PROPOSAL NO. 3 -- APPROVAL OF THE AMENDMENT TO DMC'S 1994 STOCK INCENTIVE PLAN . . . . . . . . . . . . . . . . . . . . . . 68
General Description . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Summary of 1994 Plan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
General Provisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Certain Federal Income Tax Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Amended Plan Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
DIGITAL MICROWAVE CORPORATION --
BUSINESS OF DMC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
The DMC Strategy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Products. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Sales, Marketing and Service. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
Research and Development. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
Manufacturing and Suppliers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
MANAGEMENT OF DMC AFTER THE REORGANIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
Executive Officers and Directors After the Reorganization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
Security Ownership of DMC Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF
DMC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
COMPENSATION OF DIRECTORS AND CERTAIN EXECUTIVE OFFICERS OF DMC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
Stock Option Exercises and Holdings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
Employment and Termination Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
Compensation of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
Compensation Committee Interlocks and Insider Participation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
MAS TECHNOLOGY LIMITED --
BUSINESS OF MAS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
Overview. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
Recent Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
Industry Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
Strategy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
Products and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
System Architecture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
DXR 200 Product Family. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
DXR 100 Product Family. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
Network Management System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
Quality Assurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
Services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
Customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
Applications. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
Trunked Network Applications. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
Rural Telephony . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
Cellular and Mobile Network Applications. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
Private Business Applications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
Sales and Marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
Research and Product Development. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .100
Manufacturing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .100
</TABLE>
vi
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Defense Products. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .101
Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .101
Proprietary Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .101
Government Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .102
Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .102
Facilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .102
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF MAS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .103
Overview. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .103
Results of Operation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .104
Six Months Ended September 30, 1997 Compared to Six Months Ended September 30, 1996 . . . . . . . . . . . . . . . . . .104
Fiscal Year Ended March 31, 1997 Compared to Fiscal Year ended March 31, 1996 . . . . . . . . . . . . . . . . . . . . .105
Fiscal Year Ended March 31, 1996 Compared to Fiscal Year ended March 31, 1995 . . . . . . . . . . . . . . . . . . . . .106
Fiscal Year Ended March 31, 1995 Compared to Fiscal Year ended March 31, 1994 . . . . . . . . . . . . . . . . . . . . .107
Liquidity and Capital Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .107
Quarterly Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .110
CERTAIN TRANSACTIONS OF MAS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .112
MAS MANAGEMENT AND EXECUTIVE COMPENSATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .112
Management of MAS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .112
Executive Compensation of MAS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .115
PRINCIPAL SHAREHOLDERS OF MAS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .116
OTHER MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .117
LEGAL MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .117
EXPERTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .117
STOCKHOLDER PROPOSALS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .117
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .F-1
APPENDICES TO THE PROXY STATEMENT/PROSPECTUS
</TABLE>
vii
<PAGE>
APPENDICES
APPENDIX A -- Agreement and Plan of Reorganization and Amalgamation
APPENDIX B -- Forms of Proxy of DMC and MAS
APPENDIX C -- Opinion of Broadview Associates LLC
APPENDIX D -- Opinion of Hambrecht & Quist LLC
APPENDIX E -- Sections 110-115 of the Companies Act 1993 of New Zealand
APPENDIX F -- Form of the MAS Constitution
APPENDIX G -- Form of Amendment to DMC's Restated Certificate of Incorporation
APPENDIX H -- Amalgamation Proposal
viii
<PAGE>
SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE IN
THIS PROXY STATEMENT/PROSPECTUS AND THE APPENDICES HERETO. THIS SUMMARY DOES
NOT PURPORT TO CONTAIN A COMPLETE STATEMENT OF ALL MATERIAL INFORMATION RELATING
TO THE REORGANIZATION AGREEMENT, THE REORGANIZATION, AND THE OTHER MATTERS
DISCUSSED HEREIN AND IS SUBJECT TO, AND IS QUALIFIED IN ITS ENTIRETY BY, THE
MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS CONTAINED IN OR ATTACHED TO
THIS PROXY STATEMENT/PROSPECTUS. STOCKHOLDERS OF DMC AND SHAREHOLDERS OF MAS
SHOULD CAREFULLY READ THIS PROXY STATEMENT/PROSPECTUS IN ITS ENTIRETY. CERTAIN
CAPITALIZED TERMS USED IN THIS SUMMARY ARE DEFINED ELSEWHERE IN THIS PROXY
STATEMENT/PROSPECTUS.
THIS PROXY STATEMENT/PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WITHIN
THE MEANING OF SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE EXCHANGE
ACT, INCLUDING STATEMENTS REGARDING DMC'S AND MAS'S EXPECTATIONS, BELIEFS,
INTENTIONS OR STRATEGIES REGARDING THE FUTURE. ALL FORWARD-LOOKING STATEMENTS
INCLUDED IN THIS PROXY STATEMENT/PROSPECTUS WITH RESPECT TO DMC ARE BASED ON
INFORMATION AVAILABLE TO DMC AS OF THE DATE HEREOF, AND ALL FORWARD-LOOKING
STATEMENTS INCLUDED IN THIS PROXY STATEMENT/PROSPECTUS WITH RESPECT TO MAS ARE
BASED ON INFORMATION AVAILABLE TO MAS AS OF THE DATE HEREOF, AND NEITHER DMC NOR
MAS ASSUMES ANY OBLIGATION TO UPDATE ANY SUCH FORWARD-LOOKING STATEMENTS. IT IS
IMPORTANT TO NOTE THAT DMC'S AND MAS'S ACTUAL RESULTS MAY DIFFER MATERIALLY FROM
THE RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. AMONG THE FACTORS THAT
COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY ARE THE FACTORS DETAILED IN
"RISK FACTORS" BELOW.
THE COMPANIES
DMC. DMC designs, manufactures and markets advanced wireless solutions for
worldwide telephone network interconnection and access. DMC provides its
customers with a broad product line, which contains products that operate using
a variety of transmission frequencies, ranging from 2 Gigahertz ("GHz") to 38
GHz, and a variety of transmission capacities, typically ranging from T-1 (1.5
Megabits per second) to DS-3 (45 Megabits per second). DMC's broad product line
allows it to market and sell its products to service providers in many locations
worldwide with varying interconnection and access requirements. DMC designs its
products to meet the requirements of mobile communications networks and fixed
access networks worldwide. DMC's products enable its customers to deploy and
upgrade their wireless infrastructure and market their services rapidly to
subscribers, so that service providers can realize a return on their investments
in frequency allocation licenses and network equipment.
DMC believes that it is well-positioned to address worldwide market
opportunities for wireless infrastructure suppliers in developed and undeveloped
countries. For example, there are substantial telecommunications
infrastructures being built for the first time in many Asian countries;
infrastructures are being expanded in Europe; and personal communications
services ("PCS") interconnect networks are being constructed in the United
States. DMC believes that maintaining close proximity to its customers provides
it with a competitive advantage in securing orders for its products and in
servicing its customers. Local offices enable DMC to better understand the
local issues and requirements of its customers and to address its customers'
individual geographic, regulatory, and infrastructure requirements. As a
result, DMC has developed a global sales, service and support organization,
with offices in North America, South America, Europe, the Middle East and Asia.
With its 23 sales or support offices in 19 countries, DMC can respond quickly to
its customers' needs with support from local offices and can provide prompt
on-site technical support.
DMC has sold over 80,000 radios, which have been installed in over 60
countries. DMC markets its products to service providers directly, as well as
indirectly through its relationships with original equipment manufacturers
("OEMs") of base stations, such as Motorola, Inc., Siemens AG, and L.M.
Ericsson. Between December 31, 1996 and December 31, 1997, DMC sold its
products to service providers, including Beijing Telecom, Heibei Unicom,
Pilipino Telephone Corp., Sterling Cellular and SMART Communications, Inc. in
the Asia/Pacific region; Panafon SA, E-Plus Mobilfunk GmbH, Comviq GSM AB,
Jordon Mobile Telephone Services and IONICA in Europe and the Middle East;
BellSouth PCS, Pacific Bell Mobile Services, Avantel S.A. and Rogers Network
Services in the Americas.
1
<PAGE>
DMC's strategy is to build on the strength of its current products, which
offer point-to-point solutions, and its strong global sales, service and support
organization to become a leading worldwide supplier of wireless network
connectivity solutions. To achieve this strategy, DMC intends to leverage its
core technical competencies and reputation for service and support to capitalize
on emerging market opportunities such as wireless local loop, wireless data
transport and alternative local telephone facilities access.
As used herein, the term "DMC" refers to Digital Microwave Corporation and
its subsidiaries. DMC's executive offices are located at 170 Rose Orchard Way,
San Jose, California 95134, and its telephone number at that address is
(408) 943-0777.
MAS. MAS designs, manufactures, markets and supports low and medium
frequency, medium to long-haul digital microwave radio links for use in the
worldwide telecommunications market. MAS's DXR systems are used as digital
links by network operators to interconnect wired and wireless networks,
including cellular and local loop systems with switching centers and are used by
telephone companies to provide voice and data services to their customers. The
integrated architecture and substantial software content of MAS's systems are
designed to offer cost-effective, high-performance products with a high degree
of flexibility and functionality. Sales of MAS's DXR products and related
services during fiscal years 1995, 1996 and 1997 accounted for 27.7%, 54.5% and
63.8% of sales, respectively. MAS's products have been installed in more than
100 customer networks in approximately 40 countries worldwide.
MAS provides a broad range of highly reliable, standards-compliant
microwave transmission systems and complementary services. MAS's initial
product family, the DXR 200, provides an integrated, modular, networking
solution for a wide variety of communications systems in markets with low to
medium capacity transmission requirements. The DXR 200 is well suited for
cellular base station linking, network trunking, telephone services in less
developed regions and private networks such as those used by oil, electricity
and public utility concerns. The recently introduced DXR 100 product family is
designed specifically for higher capacity trunking applications, particularly in
urban areas. MAS's products incorporate flexible architectures and components
that allow MAS to rapidly deploy new products and product enhancements to
satisfy customer, industry and market needs. MAS markets its products and
services primarily through its direct sales organization which is complemented
by other sales channels, including system integrators, brand labelers and
international distributors.
General market and industry trends exist such as a growing global demand
for higher quality and cost-effective telecommunications infrastructure and the
replacement and upgrade of existing networks. To take advantage of these
trends, MAS has adopted several strategic initiatives such as targeting regions
and customers with a need for low to medium capacity networks and expanding
MAS's product offerings to address industry demands and standards. MAS believes
that its future success depends on its ability to develop and introduce products
which meet the rapidly changing demands of customers and markets, including
evolving industry and regulatory standards. MAS anticipates continuing to
expand its direct sales force and support capabilities in targeted regions such
as Asia, Africa, and the Americas and to leverage its proven record of product
quality and innovation with new and existing customers. During fiscal year
1997, MAS derived approximately 35%, 20%, 18%, 14% and 13% of its revenues from
sales to customers in Africa, the Pacific, the Americas, Asia and Europe,
respectively.
MAS's executive offices are located at 24 Bridge Street, Lower Hutt,
Wellington, New Zealand, and its telephone number at that address is
64-4-569-2170.
AMALGAMATION SUB. Amalgamation Sub is a New Zealand company organized by
DMC for the purpose of effecting the Reorganization. It has no material assets
and has not engaged in any activities except in connection with the
Reorganization. Amalgamation Sub's executive offices are located at Level 3,
89 The Terrace, Wellington, New Zealand.
THE SPECIAL MEETINGS
TIME, PLACE AND DATE. A Special Meeting of Stockholders of DMC will be
held at its executive offices located at 170 Rose Orchard Way, San Jose,
California on March 23, 1998, at 11:00 a.m., Pacific Standard Time (including
any and all adjournments or postponements thereof, the "DMC Special Meeting").
2
<PAGE>
A Special Meeting of Shareholders of MAS will be held at its executive
offices located at 24 Bridge Street, Lower Hutt, Wellington, New Zealand, on
March 23, 1998, at 1:00 p.m., New Zealand Daylight Time (including any and
all adjournments or postponements thereof, the "MAS Special Meeting").
PURPOSE OF THE SPECIAL MEETINGS. At the DMC Special Meeting, holders of
DMC Common Stock will consider and vote upon a proposal to approve the
Reorganization Agreement, a copy of which is attached to this Proxy
Statement/Prospectus as Appendix A, including the issuance of the shares of DMC
Common Stock pursuant to the Reorganization Agreement (the "DMC Share
Proposal"). In addition, holders of DMC Common Stock will consider and vote
upon proposals to (i) amend DMC's Restated Certificate of Incorporation to
(a) increase the total number of shares that DMC has the authority to issue from
65,000,000 shares to 100,000,000 shares and (b) increase the number of
authorized shares of DMC Common Stock from 60,000,000 shares to 95,000,000
shares (the "DMC Charter Amendment Proposal") and (ii) adopt an amendment to
increase the number of shares of DMC Common Stock authorized for issuance under
DMC's 1994 Stock Incentive Plan from 4,666,660 shares to 7,166,660 shares (the
"1994 Plan Amendment Proposal"). Approval of the DMC Charter Amendment Proposal
and the 1994 Plan Amendment Proposal is not a condition to the consummation of
the Reorganization, and such proposals will be implemented, if approved by DMC
stockholders, even if the Reorganization is not consummated. For more detailed
descriptions of the DMC Share Proposal, the DMC Charter Amendment Proposal, and
the 1994 Plan Amendment Proposal, see "The Reorganization," "The Reorganization
Agreement," "Proposed Amendment to DMC's Restated Certificate of Incorporation,"
and "The Amendment to DMC's 1994 Stock Incentive Plan." Stockholders of DMC
will also consider and vote upon any other matter that may properly come before
the meeting.
At the MAS Special Meeting, holders of MAS Capital Stock will consider
and vote to approve the Reorganization Proposal (a copy of the Reorganization
Proposal is attached hereto as Appendix H) and the Reorganization Agreement.
As a result of the Reorganization, MAS will become a wholly owned subsidiary
of DMC. In the Reorganization, each outstanding share of MAS Capital Stock
(other than shares held in the treasury of MAS, which will be canceled), will
be converted into the right to receive one and two-tenths (1.20) shares of
fully paid and nonassessable DMC Common Stock. Cash will be delivered in
lieu of fractional shares. Shareholders of MAS will also consider and vote
upon any other matter that may properly come before the meeting.
VOTES REQUIRED; RECORD DATE. Consummation of the Reorganization requires
approval of the DMC Share Proposal by the affirmative vote of the holders of a
majority of the shares of DMC Common Stock present, or represented, and entitled
to vote at the DMC Special Meeting. Approval of the DMC Charter Amendment
Proposal requires the affirmative vote of the holders of a majority of the
outstanding shares of DMC Common Stock entitled to vote at the DMC Special
Meeting. Approval of the 1994 Plan Amendment Proposal requires the affirmative
vote of the holders of a majority of the shares of DMC Common Stock present, or
represented, and entitled to vote at the DMC Special Meeting. Holders of DMC
Common Stock are entitled to one vote per share. Only holders of DMC Common
Stock at the close of business on January 30, 1998 (the "DMC Record Date") are
entitled to notice of and to vote at the DMC Special Meeting. See "The DMC
Special Meeting." As of the DMC Record Date, directors and executive officers
of DMC and their affiliates were beneficial owners of an aggregate of 1,551,752
shares of DMC Common Stock (exclusive of any shares issuable upon the exercise
of stock options remaining unexercised as of such date), or approximately 4.10%
of the 38,132,594 shares of DMC Common Stock that were issued and outstanding
as of such date. See "Management of DMC After the Reorganization -- Security
Ownership of Management."
Consummation of the Reorganization also requires approval of the proposal
to adopt the Reorganization Proposal and the Reorganization Agreement by the
holders of seventy-five percent (75%) of the shares of MAS Capital Stock voted
thereon at the MAS Special Meeting. Holders of MAS Capital Stock are entitled
to one vote per share. Only holders of MAS Capital Stock at the close of
business on January 30, 1998 (the "MAS Record Date") are entitled to notice of
and to vote at the MAS Special Meeting. See "The MAS Special Meeting." As of
the MAS Record Date, directors and executive officers of MAS and their
affiliates were beneficial owners of an aggregate of 3,230,492 shares of
MAS Capital Stock (exclusive of any shares issuable upon the exercise of stock
options remaining unexercised as of such date), or approximately 47.51% of the
6,800,000 shares of MAS Capital Stock that were issued and outstanding as of
such date.
3
<PAGE>
MINORITY BUYOUT RIGHTS OF MAS SHAREHOLDERS
MAS shareholders who vote against the Reorganization and give the required
notice can require MAS to purchase their shares of MAS Capital Stock for a "fair
and reasonable price." The procedure for exercising such rights is detailed in
Sections 110-115 of the Companies Act 1993 of New Zealand (the "Companies Act"),
attached hereto as Appendix E. MAS shareholders who wish to exercise such
rights should obtain legal advice and should note that tight time-frames are
stipulated for exercising such rights. Holders of DMC Common Stock are not
entitled to appraisal rights under the Delaware General Corporation Law in
connection with the Reorganization. See "Minority Buyout Rights of MAS
Shareholders."
SURRENDER OF STOCK CERTIFICATES
DMC has authorized ChaseMellon Shareholder Services L.L.C. to act as
exchange agent (the "Exchange Agent") under the Reorganization Agreement. As
soon as reasonably practical after the Effective Time (as hereinafter defined)
of the Reorganization, the Exchange Agent will send a letter of transmittal to
each MAS shareholder. The letter of transmittal will contain instructions with
respect to the surrender of certificates representing MAS Capital Stock to be
exchanged for DMC Common Stock. The Exchange Agent will effect the cancellation
of the American Depositary Receipts ("ADRs") representing MAS ADSs upon receipt
by the Exchange Agent from the holders thereof of a duly completed letter of
surrender and surrender of such ADRs, as provided in the Exchange Agent's
transmittal letter and related instructions. See "The Reorganization --
Conversion of Shares; Procedures for Exchange of Certificates."
MAS SHAREHOLDERS SHOULD NOT FORWARD CERTIFICATES FOR MAS CAPITAL STOCK TO
THE EXCHANGE AGENT UNTIL THEY HAVE RECEIVED TRANSMITTAL LETTERS. MAS
SHAREHOLDERS SHOULD NOT RETURN SHARE CERTIFICATES OR CERTIFICATES EVIDENCING ANY
ADSs (SUCH SHARE CERTIFICATES AND CERTIFICATES EVIDENCING ANY ADSs, COLLECTIVELY
"MAS CERTIFICATES") WITH THE ENCLOSED PROXY.
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
THE BOARDS OF DIRECTORS OF DMC AND MAS HAVE EACH UNANIMOUSLY APPROVED THE
REORGANIZATION AGREEMENT. THE BOARD OF DIRECTORS OF DMC (THE "DMC BOARD")
BELIEVES THAT THE TERMS OF THE REORGANIZATION AGREEMENT AND ACCORDINGLY, THE
REORGANIZATION PROPOSAL ARE FAIR TO, AND IN THE BEST INTERESTS OF, DMC AND ITS
STOCKHOLDERS, AND UNANIMOUSLY RECOMMENDS THAT HOLDERS OF SHARES OF DMC COMMON
STOCK VOTE "FOR" APPROVAL OF THE REORGANIZATION PROPOSAL, "FOR" APPROVAL OF THE
CHARTER AMENDMENT PROPOSAL, AND "FOR" THE 1994 PLAN AMENDMENT PROPOSAL. THE
BOARD OF DIRECTORS OF MAS ("THE MAS BOARD") BELIEVES THAT THE TERMS OF THE
REORGANIZATION PROPOSAL AND THE REORGANIZATION AGREEMENT ARE FAIR TO, AND IN THE
BEST INTERESTS OF, MAS AND ITS SHAREHOLDERS, AND UNANIMOUSLY RECOMMENDS THAT
HOLDERS OF ORDINARY SHARES OF MAS CAPITAL STOCK OR ADSs VOTE "FOR" APPROVAL OF
THE REORGANIZATION AGREEMENT AND THE REORGANIZATION PROPOSAL. THE APPROVAL OF
THE REORGANIZATION BY THE STOCKHOLDERS OF DMC AND THE SHAREHOLDERS OF MAS SHALL
CONSTITUTE ADOPTION OF THE REORGANIZATION AGREEMENT AND EACH OF THE TRANSACTIONS
CONTEMPLATED THEREBY, INCLUDING, WITHOUT LIMITATION, CERTAIN PROVISIONS
BENEFITING DIRECTORS, EXECUTIVE OFFICERS AND EMPLOYEES OF MAS, AS MORE FULLY
DESCRIBED HEREIN. See "The Reorganization -- Background of the Reorganization,"
"-- Recommendation of the DMC Board," "-- Reasons for the Reorganization and
Other Proposals," " -- Recommendation of the MAS Board; Reasons of MAS for the
Reorganization" and " -- Interests of Certain Persons in the Reorganization."
RISK FACTORS
In addition to the conditions to consummation of the Reorganization set
forth below under "The Reorganization Agreement -- Conditions," see "Risk
Factors" below for a discussion of certain factors pertaining to the
Reorganization and the business of DMC and MAS after the Reorganization. IN
CONSIDERING WHETHER TO
4
<PAGE>
APPROVE THE DMC SHARE PROPOSAL, THE REORGANIZATION AGREEMENT OR THE
REORGANIZATION PROPOSAL, AS APPLICABLE, AS THE CASE MAY BE, DMC STOCKHOLDERS AND
MAS SHAREHOLDERS SHOULD CAREFULLY REVIEW AND CONSIDER THE INFORMATION CONTAINED
IN "RISK FACTORS."
THE REORGANIZATION
CONVERSION OF SECURITIES. Upon consummation of the transactions
contemplated by the Reorganization Agreement, (i) Amalgamation Sub will be
amalgamated with MAS, whereby MAS will become a wholly owned subsidiary of DMC
and (ii) each issued and outstanding share of MAS Capital Stock (other than
shares of MAS Capital Stock held in the treasury of MAS, which will be canceled)
will be converted into the right to receive one and two-tenths (1.20) shares of
fully paid and nonassessable DMC Common Stock (the "Exchange Ratio") subject to
minority buyout rights under New Zealand Law, if applicable. Fractional shares
of DMC Common Stock will not be issued in connection with the Reorganization. A
holder of MAS Capital Stock otherwise entitled to a fractional share of DMC
Common Stock will be paid cash in lieu of such fractional share in an amount of
cash (rounded up to the nearest whole cent U.S.$), without interest, equal to
the product of (i) such fraction, multiplied by (ii) the average of the last
reported sales prices of DMC Common Stock for the fifteen trading days prior to
the date which is two days prior to the Effective Time (as defined herein). See
"The Reorganization -- Conversion of Shares; Procedures for Exchange of
Certificates."
CONDITIONS TO THE REORGANIZATION; TERMINATION. The obligations of DMC and
MAS to effect the Reorganization are subject to the satisfaction of certain
conditions, including, among others: (i) obtaining the approval of DMC
stockholders and MAS shareholders; (ii) receipt of all necessary government
consents and approvals (other than the filing of the Reorganization Documents
(as hereinafter defined)), including the approval of the New Zealand Overseas
Investment Commission, other than such consents or approvals the failure to
obtain which would not materially adversely affect the consummation of the
Reorganization or in the aggregate have a material adverse effect on DMC or MAS;
(iii) receipt of accountants' letters with respect to the qualification of the
Reorganization as a "pooling of interests"; (iv) receipt of legal opinions with
respect to the tax consequences of the Reorganization and other matters; (v) no
more than ten percent (10%) of the shareholders of MAS shall vote against the
transactions contemplated in the Reorganization Agreement at a shareholders'
meeting called for the purpose of approving such transactions; and (vi) the
absence of any change, occurrence or circumstance in the other party's business,
results of operations or financial condition which has had, or is reasonably
likely to have, individually or in the aggregate, a material adverse effect on
such party. See "The Reorganization Agreement -- Representations and
Warranties," "-- Conditions" and "-- Certain Covenants."
The Reorganization Agreement is subject to termination by either DMC or
MAS if, among other things, the Reorganization is not consummated by March
31, 1998. The Reorganization Agreement also may be terminated by either DMC
or MAS under other circumstances, including the failure of the stockholders
of DMC Common Stock to approve the DMC Share Proposal or of the shareholders
of MAS Capital Stock to approve the proposal to adopt the Reorganization
Agreement. Under certain circumstances leading to termination of the
Reorganization Agreement, DMC or MAS, as the case may be, may be entitled to
receive a cancellation fee or expenses. See "The Reorganization Agreement --
Termination" and "-- Cancellation Fees; Expenses."
At any time on or prior to the Reorganization, to the extent legally
allowed, each of DMC and MAS, without the approval of the DMC stockholders or
MAS shareholders, may waive compliance with any of the agreements or
satisfaction of any of the conditions contained in the Reorganization Agreement
for its respective benefit.
REGULATORY APPROVALS. Certain aspects of the Reorganization will require
notifications to, and/or approvals from, certain New Zealand authorities. DMC
and MAS believe that all material notifications, filings and approvals have been
made or obtained, or will be made or obtained, as the case may be. See "The
Reorganization -- Regulatory Approvals."
ACCOUNTING TREATMENT. The Reorganization is expected to be treated by DMC
as a "pooling of interests" transaction for accounting and financial reporting
purposes. Consummation of the Reorganization is conditioned upon the delivery
of letters from Arthur Andersen LLP, DMC's independent accountants, and KPMG,
MAS's
5
<PAGE>
independent chartered accountants, to this effect. See "The Reorganization
- --Accounting Treatment" and "The Reorganization Agreement -- Conditions."
OPINIONS OF FINANCIAL ADVISORS
Broadview Associates LLC ("Broadview Associates") has acted as financial
advisor to DMC in connection with the Reorganization and has delivered a written
opinion, dated December 22, 1997, to the DMC Board to the effect that the
Exchange Ratio was fair to DMC and its stockholders, from a financial point of
view, as of the date of such opinion.
Hambrecht & Quist LLC ("Hambrecht & Quist") has acted as financial advisor
to MAS in connection with the Reorganization and has delivered a written
opinion, dated December 22, 1997, to the MAS Board that the Exchange Ratio was
fair to the holders of MAS Capital Stock, from a financial point of view, as of
the date of such opinion.
Copies of the written opinions of Broadview Associates and Hambrecht &
Quist, which set forth the respective assumptions made, matters considered and
limitations on the reviews undertaken, are attached as Appendices C and D,
respectively, to this Proxy Statement/Prospectus and should be carefully read in
their entirety. See "The Reorganization -- Opinion of Broadview Associates" and
"The Reorganization -- Opinion of Hambrecht & Quist."
INTERESTS OF CERTAIN PERSONS IN THE REORGANIZATION
In considering the recommendation of the MAS Board with respect to the
approval by the MAS shareholders of the Reorganization Proposal and the
Reorganization Agreement, shareholders should be aware that certain members of
MAS management and the MAS Board have interests in the Reorganization that are
in addition to the interests of shareholders of MAS generally. These interests
arise from, among other things, certain employee benefit plans, indemnification,
insurance arrangements among DMC, MAS and directors and certain executive
officers of MAS and a voting agreement with an officer of MAS. In addition, one
member of the MAS Board will become a member of the DMC Board. See "The
Reorganization -- Interests of Certain Persons in the Reorganization."
CERTAIN TAX CONSEQUENCES
NEW ZEALAND TAX CONSEQUENCES. For New Zealand tax purposes no taxable gain
or loss will be recognized as a result of the Reorganization by MAS shareholders
in respect of (i) the conversion of their shares of MAS Capital Stock; and
(ii) the receipt of cash in lieu of fractional shares, unless those MAS
shareholders are in the business of dealing in shares or the shares were
acquired by those MAS shareholders for the purpose of resale or as part of a
profit-making scheme.
Any dissenting MAS shareholders who receive cash from MAS by properly
exercising their applicable minority buyout rights under New Zealand law, if
any, may be taxable on that cash as if they had derived a dividend from MAS. A
dividend will be deemed to be derived to the extent that the cash received in
respect of each share of MAS Capital Stock exceeds the available subscribed
capital per share cancelled. Any dividend amount deemed to be paid to a
New Zealand non-resident dissenting shareholder will be subject to New Zealand
non-resident withholding tax.
If a dissenting MAS shareholder is in the business of dealing in shares or
the shares were acquired for the purpose of resale or as part of a profit-making
scheme and the MAS shareholder receives cash from MAS by properly exercising
their applicable minority buyout rights under New Zealand law, that MAS
shareholder should recognize a taxable gain or loss in respect of the cash
received for the acquisition of the shares of MAS Capital Stock.
No taxable gain or loss will be recognized by DMC, Amalgamation Sub or MAS
(i) in respect of the amalgamation of Amalgamation Sub and MAS on the basis that
the amalgamation is a "qualifying amalgamation"
6
<PAGE>
for New Zealand tax purposes and (ii) in respect of the conversion of the shares
of MAS Capital Stock to DMC Common Stock at the agreed Exchange Ratio.
Subject to certain limitations, the United States/New Zealand Double Tax
Relief Order ("the Treaty") may provide relief for MAS shareholders from double
taxation.
UNITED STATES TAX CONSEQUENCES. The Reorganization is intended to qualify
as a "reorganization" for U.S. federal income tax purposes and, assuming the
Reorganization does so qualify, generally no gain or loss will be recognized by
(i) MAS shareholders (except with respect to cash received by shareholders who
properly exercise applicable minority buyout rights under New Zealand law, if
any, or in lieu of fractional shares), (ii) DMC stockholders, (iii) DMC or (iv)
MAS as a result of the Reorganization. Consummation of the Reorganization is
conditioned upon the delivery of opinions of counsel that the Reorganization
will qualify as a "reorganization" within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code") and that DMC and MAS each
will be a party to that reorganization within the meaning of Section 368(b) of
the Code. However, all MAS shareholders are urged to consult their own tax
advisors. See "The Reorganization -- Certain Tax Consequences" and "The
Reorganization Agreement -- Conditions."
COMPARISON OF RIGHTS OF DMC STOCKHOLDERS AND MAS SHAREHOLDERS
The rights of MAS shareholders are currently governed by the Companies Act
and MAS's Constitution. Upon consummation of the Reorganization and subject to
minority buyout rights of MAS shareholders under New Zealand law, if applicable,
MAS shareholders will become stockholders of DMC, which is a Delaware
corporation, and their rights as DMC stockholders will be governed by the
Delaware General Corporation Law, DMC's Restated Certificate of Incorporation,
DMC's Bylaws and the DMC Rights Agreement. For a discussion of the various
differences between the rights of shareholders of MAS and stockholders of DMC,
see "Comparison of Stockholder Rights."
7
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA OF DMC AND MAS
The following selected historical financial data of DMC and MAS have been
derived from their respective audited and historical financial statements and
should be read in conjunction with such consolidated financial statements and
the notes thereto included or incorporated by reference herein. All share and
per share amounts for DMC Common Stock have been restated to give effect
retroactively to a stock dividend, which effected a two-for-one stock split, in
November 1997. The consolidated financial statements for DMC and MAS for the
three fiscal years ended March 31, 1997 are included elsewhere in this Proxy
Statement/Prospectus. The selected historical financial information as of
September 30, 1997 and for the six month periods ended September 30, 1996 and
1997, for DMC and MAS has been derived from the unaudited consolidated
statements of DMC and MAS as of and for such periods which are included
elsewhere in this Proxy Statement/Prospectus, and which, in the opinion of DMC's
and MAS's respective management, reflect all adjustments necessary for the fair
presentation of this unaudited interim financial information. The results of
operations for these interim periods are not necessarily indicative of the
results to be expected for the entire year.
DMC SELECTED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED MARCH 31, SEPTEMBER 30,
------------------------------------------------------------ --------------------------------
1993 1994 1995 1996 1997 1996 1997
---- ---- ---- ---- ---- ---- ----
(UNAUDITED)
US$ US$ US$ US$ US$ US$ US$
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL CONSOLIDATED
STATEMENT OF OPERATIONS DATA:
Sales. . . . . . . . . . . . . $ 103,937 $ 116,010 $ 153,650 $ 150,419 $178,344 $ 78,332 $ 123,839
Income (loss) from operations. (7,412) (22,518) 2,748 (8,023) 13,899 4,090 14,355
Net income (loss). . . . . . . (6,708) (22,495) 1,982 (5,955) 11,707 3,245 13,203
Net income (loss) per share. . $ (0.28) $ (0.90) $ 0.07 $ (0.20) $ 0.35 $ 0.10 $ 0.33
Common and common stock
equivalent shares used in per
share calculation. . . . . . . 24,179 24,895 27,690 29,791 33,881 32,872 39,501
</TABLE>
<TABLE>
<CAPTION>
MARCH 31,
------------------------------------------------------------ SEPTEMBER 30,
1993 1994 1995 1996 1997 1997
---- ---- ---- ---- ---- ----
(UNAUDITED)
US$ US$ US$ US$ US$ US$
<S> <C> <C> <C> <C> <C> <C>
HISTORICAL CONSOLIDATED
BALANCE SHEET DATA:
Working capital . . . . . . . $ 35,461 $ 17,650 $ 26,996 $ 37,456 $ 99,960 $99,950
Total assets. . . . . . . . . 72,990 84,003 102,585 95,797 170,206 180,121
Total stockholders' equity. . 46,335 28,604 34,611 49,735 117,528 136,466
</TABLE>
8
<PAGE>
MAS SELECTED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED MARCH 31, SEPTEMBER 30,
---------------------------------------------------------------- -----------------------------
1993 1994 1995 1996 1997 1996 1997
---- ---- ---- ---- ---- ---- ----
(UNAUDITED)
NZ$ NZ$ NZ$ NZ$ NZ$ NZ$ NZ$
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL CONSOLIDATED
STATEMENT OF OPERATIONS DATA:
Sales. . . . . . . . . . . . . $ 11,529 $ 18,489 $ 22,593 $ 40,160 $ 51,311 $ 16,403 $ 39,421
Income (loss) from operations. 320 (686) 1,603 3,364 5,039 502 3,038
Net income (loss). . . . . . . 186 (464) 951 2,230 3,099 161 3,618
Net income (loss) per share. . $ 0.08 $ (0.20) $ 0.29 $ 0.54 $ 0.74 $ 0.04 $ 0.62
Common and common stock
equivalent shares used in per
share calculation. . . . . . . 2,362 2,362 3,235 4,113 4,210 4,163 5,813
</TABLE>
<TABLE>
<CAPTION>
MARCH 31,
---------------------------------------------------------- SEPTEMBER 30,
1993 1994 1995 1996 1997 1997
---- ---- ---- ---- ---- ----
(UNAUDITED)
NZ$ NZ$ NZ$ NZ$ NZ$ NZ$
<S> <C> <C> <C> <C> <C> <C>
HISTORICAL CONSOLIDATED
BALANCE SHEET DATA:
Working capital (1). . . . . . $ 1,560 $ 885 $ 4,058 $ 5,784 $ 5,499 $ 52,331
Total assets . . . . . . . . . 5,893 6,238 11,155 16,934 34,331 69,309
Total shareholders' equity . . 2,552 1,948 5,199 7,570 11,316 56,186
</TABLE>
- ---------------------------------
(1) Included in the Working Capital at March 31, 1997 is a cash overdraft
totaling NZ$518,000 and short-term borrowings totaling NZ$6,600,000.
9
<PAGE>
SELECTED UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA
The following selected unaudited pro forma combined condensed financial
data are derived from the unaudited pro forma combined condensed financial
statements and notes thereto appearing elsewhere herein, which give effect to
the Reorganization as a pooling of interests, and should be read in conjunction
with such unaudited pro forma statements and notes thereto and the separate
audited consolidated financial statements and related notes thereto of DMC and
MAS, respectively, included in or attached to this Proxy Statement/Prospectus.
See "Unaudited Pro Forma Combined Condensed Financial Statements." For purposes
of the unaudited pro forma operating data, DMC's consolidated financial
statements for each of the three fiscal years ended March 31, 1997, and for the
six-month periods ended September 30, 1996 and 1997, have been combined with
MAS's consolidated financial statements for the same periods.
The unaudited pro forma information is presented for comparative purposes
only and does not purport to be indicative of the operating results or financial
position that would have occurred if the Reorganization had been consummated at
the beginning of the periods presented, nor is such information necessarily
indicative of the future operating results or financial position of DMC and MAS.
SELECTED UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED MARCH 31, SEPTEMBER 30,
---------------------------------------------------- ----------------------------
1995 1996 1997 1996 1997
---------- ----------- ----------- ---------- ----------
US$ US$ US$ US$ US$
<S> <C> <C> <C> <C> <C>
PRO FORMA STATEMENT OF
OPERATIONS DATA:
Sales. . . . . . . . . . . $ 165,148 $ 172,418 $ 211,747 $ 88,936 $ 145,494
Income (loss) from
operations. . . . . . . . 3,734 (5,786) 17,419 4,437 16,240
Net income (loss). . . . . 2,567 (4,472) 13,872 3,357 15,507
Net income (loss) per
share . . . . . . . . . . $ 0.08 $ (0.13) $ 0.36 $ 0.09 $ 0.33
Common and common stock
equivalent shares used in
per share calculation . . 31,572 34,727 38,933 37,868 46,477
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30,
1997
------------
US$
<S> <C>
PRO FORMA COMBINED BALANCE
SHEET DATA:
Working capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 128,431
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 222,905
Total stockholders'
equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167,414
</TABLE>
10
<PAGE>
COMPARATIVE PER SHARE DATA
The following table presents historical unaudited pro forma combined and
unaudited pro forma equivalent per share data of DMC and MAS after giving effect
to the Reorganization using the pooling of interests method of accounting,
assuming the Reorganization had been effective during all periods presented.
The pro forma equivalent data for MAS have been calculated by multiplying the
DMC pro forma combined amounts by the Exchange Ratio of 1.20. The pro forma
data do not purport to be indicative of the results of future operations or the
results that would have occurred had the Reorganization been consummated at the
beginning of the periods presented. The information set forth below should be
read in conjunction with the historical financial statements and notes thereto
of DMC and MAS incorporated by reference in this Proxy Statement/Prospectus, and
the unaudited pro forma combined condensed financial statements included
elsewhere in this Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED MARCH 31, SEPTEMBER 30,
-------------------------------------- --------------
1995 1996 1997 1997
-------- -------- -------- --------
US$ US$ US$ US$
<S> <C> <C> <C> <C>
HISTORICAL -- DMC COMMON STOCK
Net income (loss) per share: $ 0.07 $ (0.20) $ 0.35 $ 0.33
Book value per share (1) : $ 1.28 $ 1.57 $ 3.17 $ 3.59
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED MARCH 31, SEPTEMBER 30,
-------------------------------------- --------------
1995 1996 1997 1997
-------- -------- -------- --------
NZ$ NZ$ NZ$ NZ$
<S> <C> <C> <C> <C>
HISTORICAL -- MAS CAPITAL STOCK
Net income per share: $ 0.29 $ 0.54 $ 0.74 $ 0.62
Book value per share (1): $ 1.27 $ 1.68 $ 2.51 $ 8.26
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED MARCH 31, SEPTEMBER 30,
-------------------------------------- --------------
1995 1996 1997 1997
-------- -------- -------- --------
US$ US$ US$ US$
<S> <C> <C> <C> <C>
PRO FORMA COMBINED NET INCOME
(LOSS) PER SHARE
Per DMC share: $ 0.08 $ (0.13) $ 0.36 $ 0.33
Equivalent MAS share (2): $ 0.10 $ (0.16) $ 0.43 $ 0.40
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30,
1997
-------------
US$
<S> <C>
PRO FORMA COMBINED BOOK VALUE PER
SHARE (3)
Per DMC share: $ 3.62
Equivalent MAS share: $ 4.35
- -----------------------------------------------------------------------------------------
</TABLE>
(1) The historical book value per share is computed by dividing stockholders'
equity by the number of shares of common stock and preferred stock, on an
as if converted basis, outstanding at the end of the period.
(2) The MAS equivalent pro forma combined per share amounts are calculated by
multiplying the combined pro forma per share amounts by the Exchange Ratio
of 1.20 shares of DMC Common Stock for each share of MAS Capital Stock.
(3) The pro forma combined book value per share is computed by dividing pro
forma stockholders' equity by the pro forma number of shares of common
stock outstanding at the end of each period.
11
<PAGE>
RISK FACTORS
THIS PROXY STATEMENT/PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT
INVOLVE RISKS AND UNCERTAINTIES. DMC'S ACTUAL RESULTS COULD DIFFER MATERIALLY
FROM THOSE ANTICIPATED IN SUCH FORWARD-LOOKING STATEMENTS AS A RESULT OF A
VARIETY OF FACTORS, INCLUDING THOSE SET FORTH IN THE FOLLOWING RISK FACTORS AND
ELSEWHERE IN, OR INCORPORATED BY REFERENCE INTO, THIS PROXY
STATEMENT/PROSPECTUS. THE FOLLOWING RISK FACTORS, IN ADDITION TO THE OTHER
INFORMATION PRESENTED IN THIS PROXY STATEMENT/PROSPECTUS, SHOULD BE CONSIDERED
CAREFULLY.
INTEGRATION OF THE BUSINESSES
The Reorganization involves the effective integration of MAS into DMC.
Among the factors considered by the DMC Board and the MAS Board in connection
with their approval of the Reorganization Agreement were the opportunities for
operating efficiencies that they expect will ultimately result from the
Reorganization. The integration of the operations of MAS into DMC following the
Reorganization will require the dedication of management resources in order to
achieve the anticipated operating efficiencies of the Reorganization, which may
temporarily distract attention from the day-to-day business of the combined
company. There can be no assurance that such integration will be accomplished
smoothly or successfully. No assurance can be given that difficulties
encountered in integrating the operations of MAS into DMC will be overcome or
that the benefits expected from such integration will be realized. The
difficulties of combining the operations of MAS into DMC are exacerbated by the
necessity of coordinating geographically separated organizations, integrating
personnel with disparate business backgrounds and combining different corporate
cultures. Successful integration of the two companies' sales and marketing
organizations will require the sales and marketing personnel of each company to
learn about the often technically complex products, services and technologies of
the other company. The process of integrating operations could cause an
interruption of, or loss of momentum in, the activities of DMC's businesses,
including the business acquired in the Reorganization. Difficulties encountered
in connection with the Reorganization and the integration of the operations of
MAS could have an adverse effect on the business, results of operations or
financial condition of DMC. In addition, as commonly occurs with mergers of
technology companies, during the pre-merger and integration phases, aggressive
competitors may undertake initiatives to attract customers and to recruit key
employees through various incentives which could have a material adverse effect
on the business, results of operations and financial condition of the combined
company.
Subsequent to the Reorganization, DMC expects to incur a charge in the
quarter ending March 31, 1998, currently estimated to be in the range of $5.0
million to $6.0 million, to reflect transaction-related expenses, as well as
expenses relating to the integration of the two companies, including costs
relating to severance and employee relocation, the elimination of duplicate
systems and facilities and other integration costs. This amount is a
preliminary estimate only and is therefore subject to change. In addition,
there can be no assurance that DMC will not incur additional charges in
subsequent quarters to reflect costs associated with the Reorganization.
FIXED EXCHANGE RATIO; CHANGE IN RELATIVE STOCK PRICES MAY CHANGE VALUE OF
CONSIDERATION RECEIVED
The Exchange Ratio is expressed in the Reorganization Agreement as a fixed
ratio of 1.20 shares of DMC Common Stock for each share of MAS Capital Stock.
Accordingly, the Exchange Ratio will not be adjusted in the event of any
increase or decrease in the price of either DMC Common Stock or shares of MAS
Capital Stock. Therefore, the value of the consideration received by
shareholders of MAS may change. The price of DMC Common Stock at the closing of
the Reorganization is likely to vary from its price at the date of this Proxy
Statement/Prospectus and at the date of the DMC Special Meeting. Such
variations may be the result of changes in the business, operations or prospects
of DMC or MAS, market assessments of the likelihood that the Reorganization will
be consummated and the timing thereof, regulatory considerations, general market
and economic conditions and other factors. Shareholders of MAS are urged to
obtain current market quotations for DMC Common Stock and shares of MAS Capital
Stock. No assurance can be given as to the market prices of DMC or MAS at any
time before the Effective Time or as to the market price of DMC Common Stock at
any time thereafter.
12
<PAGE>
FAILURE TO QUALIFY FOR POOLING-OF-INTERESTS ACCOUNTING TREATMENT MAY IMPACT
REPORTED OPERATING RESULTS
The Reorganization is intended to qualify for pooling-of-interests
treatment under U.S. generally accepted accounting principles. Under
pooling-of-interests treatment, the accounts of DMC will be combined with those
of MAS at their historical carrying amount and DMC's financial statements for
all prior periods will be restated to reflect the accounts of DMC as if the two
companies had been combined for all periods.
Should the Reorganization become or be declared unconditional in all
respects and not qualify for pooling-of-interests treatment, the purchase method
of accounting would be applied. Under that method, the estimated fair value of
the DMC Common Stock issued to effect the Reorganization would be recorded as
the cost of acquiring the business of MAS. That cost would be allocated to the
individual assets acquired and liabilities assumed according to their respective
fair values with the excess of the estimated fair value of DMC Common Stock over
the fair value of net assets acquired recorded as goodwill, to be amortized over
a period up to 40 years. The estimated fair value of the DMC Common Stock to be
issued pursuant to the Reorganization is substantially in excess of the amount
at which the net assets are carried in the accounts of MAS. Accordingly,
purchase accounting treatment may have a material adverse impact on the reported
operating results of the combined companies as compared to that under
pooling-of-interests treatment. See "The Reorganization -- Accounting
Treatment." Nevertheless, should the Reorganization not be qualified as a
pooling-of-interests transaction under U.S. generally accepted accounting
principles, then the parties may decide not to effect the Reorganization. See
"The Reorganization Agreement -- Conditions."
CHANGES IN THE RIGHTS OF MAS SHAREHOLDERS WILL OCCUR
MAS is incorporated under New Zealand law. Those shareholders of MAS who
exchange their shares of MAS Capital Stock for DMC Common Stock and whose rights
as shareholders of MAS are currently governed by New Zealand law, including the
Companies Act, and by the MAS Constitution, will, upon the exchange of shares of
MAS Capital Stock, become stockholders of DMC and their rights as stockholders
of DMC will be governed by the laws of the U.S., and by the Delaware General
Corporation Law, the Restated Certificate of Incorporation of DMC, and the
Bylaws of DMC. DMC and MAS are both currently subject to the U.S. securities
laws and the rules and regulations of Nasdaq.
Certain differences between the rights of the shareholders of MAS and the
stockholders of DMC arise from differences between New Zealand law and the laws
of the U.S. and the Delaware General Corporation Law, as well as from the
differences between the corporate governing instruments of the two companies,
and the rules and regulations of the regulatory bodies governing the two
companies. These differences may have a material effect on the rights of the
shareholders of MAS to nominate, vote for and remove directors, approve certain
corporate action, receive dividends, and inspect corporate records, among other
things. See "Description of DMC Capital Stock" and "Comparison of Stockholder
Rights."
TAXATION
The combined entity's operations will be subject to taxation in
jurisdictions outside the U.S. Specifically, as a result of the Reorganization,
certain of DMC's operations will be subject to both U.S. taxation and
New Zealand taxation, and may be subject to taxation in other jurisdictions.
The U.S. taxation system provides a credit for income taxes paid to other
jurisdictions, subject to certain limitations. If such limitations on available
credits apply, and excess foreign tax credits exist, the effective tax rate on
income relating to the foreign operations of DMC in any one taxable period could
exceed the U.S. federal income tax rate to which such income would be subject if
derived solely from U.S. operations of DMC. DMC's management intends to
implement planning such that foreign tax credits are fully utilized. In
addition, the tax laws of the U.S. and New Zealand could change which may result
in additional taxes.
If a beneficial owner of shares of DMC Common Stock (e.g., a MAS
shareholder receiving shares of DMC Common Stock at the Effective Time) who is
not a citizen or resident of the United States owns shares of DMC Common Stock
at the time of his or her death, such shares of DMC Common Stock would be
subject to U.S. federal
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estate tax imposed on the estates of nonresident aliens, in the absence of a
contrary provision in any applicable estate tax treaty.
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
The quarterly operating results of DMC and MAS can vary significantly
depending on several factors, any of which could have a material adverse effect
on DMC's business, financial condition or results of operations. In particular,
DMC's and MAS's quarterly results of operations can vary due to the volume and
timing of product orders received and delivered during the quarter, the ability
of DMC and MAS and their key suppliers to respond to changes made by customers
in their orders, and the timing of new product introductions by DMC and MAS and
their competitors. DMC's and MAS's quarterly operating results may also vary
significantly depending on other factors, including the mix of products sold,
the cost and availability of components and subsystems, relative prices of DMC's
and MAS's products, adoption of new technologies and industry standards,
competition, fluctuations in foreign currency exchange rates, regulatory
developments, and general economic conditions. In addition, wireless
infrastructure suppliers are experiencing, and are likely to continue to
experience, intense price pressure, which has resulted, and is expected to
continue to result, in downward pricing pressure on DMC's and MAS's products.
As a result, DMC and MAS have experienced, and expect to continue to experience,
declining average sales prices for their products. DMC's and MAS's ability to
maintain their gross profit margins depends upon their ability to continue to
improve manufacturing efficiencies, lower material costs of products and to
continue to introduce new products and product enhancements. There can be no
assurance that after the Reorganization DMC or MAS will be able to offset such
downward price pressure through corresponding cost reductions. Any inability of
DMC or MAS to respond to increased price competition would have a material
adverse effect on DMC's or MAS's business, financial condition and results of
operations. Since DMC's and MAS's customers frequently negotiate supply
arrangements far in advance of delivery dates, DMC and MAS often must commit to
price reductions for their products before they are aware of how, or if, such
cost reductions can be obtained. As a result, such current or future price
reduction commitments could have, and any inability of DMC or MAS to respond to
increased price competition would have, a material adverse effect on DMC's or
MAS's business, financial condition and results of operations. The combined
company may also increase spending in response to competition or to pursue new
market opportunities. Accordingly, there can be no assurance that either DMC or
MAS will be able to sustain profitability in the future, particularly on a
quarter-to-quarter basis.
IMPORTANCE OF NEW PRODUCTS; RAPID TECHNOLOGICAL CHANGE
The market for DMC's and MAS's products is characterized by rapidly
changing technologies and evolving industry standards. Accordingly, DMC's
future performance, and the future performance of MAS, depends on a number of
factors, including their ability to identify emerging technological trends in
their target markets, to develop and to maintain competitive products, to
enhance their products by adding innovative features that differentiate their
products from those of their competitors and to manufacture and to bring
products to market quickly at cost-effective prices. DMC and MAS believe that
to remain competitive in the future they will need to continue to develop new
products, which will require the investment of significant financial resources
in new product development. For the three months ended September 30, 1997, net
sales derived from DMC's latest generation of products, the SPECTRUM II product
line, represented approximately 65% of DMC's net sales, and DMC expects that net
sales from the SPECTRUM II product line will continue to account for a
significant portion of DMC's net sales for the foreseeable future. However, DMC
and MAS believe that to remain competitive in the future they will need to
continue to develop new products, which will require the investment of
significant financial resources in product development. There can be no
assurance, however, that DMC or MAS will successfully complete the development
of any future products, that such products will achieve market acceptance or
that such products will be capable of being manufactured at competitive prices
in sufficient volumes. In the event that such products are not timely
developed, do not gain market acceptance or are not manufacturable at
competitive prices, DMC's and MAS's business, financial condition or results of
operations could be materially adversely affected. In some instances, DMC and
MAS enter into agreements to supply products to customers where the products are
not fully developed at the time of entering into the agreement. The failure of
DMC and MAS to develop products required for timely performance under such
agreements can have a material impact on DMC's or MAS's business, financial
condition and results of operations. Although DMC and MAS extensively test
their products prior to their introduction, design errors may be discovered
after initial product sampling, resulting in delays in volume
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production or recalls of products sold. The occurrence of such errors could
have a material adverse effect on their respective business, financial condition
and results of operations. Any significant delay or failure to develop,
manufacture or ship new or enhanced products by either DMC or MAS could also
have a material adverse effect on their respective business, financial condition
and results of operations.
MARKETS FOR THE PRODUCTS OF DMC AND MAS ARE HIGHLY COMPETITIVE
The microwave interconnection and access business is a specialized segment
of the wireless telecommunications industry and is extremely competitive. DMC
and MAS expect such competition to increase in the future. Several established
and emerging companies offer a variety of microwave, fiber optic and other
connectivity products for applications similar to those of DMC's and MAS's
products. Competitors of DMC and MAS may have more extensive engineering,
manufacturing and marketing capabilities and substantially greater financial,
technical and personnel resources than DMC or MAS. In addition, competitors of
DMC and MAS may have greater name recognition, a larger installed base of
products and longer-standing customer relationships. DMC considers its primary
competitors to be L.M. Ericsson, Siemens AG, P-COM, Inc., Alcatel and the
Farinon Division of Harris Corporation. In addition, other existing competitors
include California Microwave, Inc., Innova, Nokia, SIAE, NEC, and NERA. Both
L.M. Ericsson and Siemens AG have product lines that compete with those of DMC,
and are also OEMs through which DMC markets and sells its products. Some of
DMC's and MAS's largest customers could develop the capability to manufacture
products similar to those manufactured by DMC and MAS. DMC and MAS believe that
competition in their markets is based primarily on customer service and support,
breadth of product line, price, performance, rapid delivery, and reliability.
Failure to keep pace with technological advances would adversely affect the
combined company's competitive position and could have a material adverse effect
on their respective businesses, results of operations and financial conditions.
DMC's future success after the Reorganization will depend upon the ability of
DMC and MAS to address the increasingly sophisticated needs of their customers
by enhancing current products, by developing and introducing new products in a
timely manner that keep pace with technological developments and emerging
wireless telecommunications services, and by providing such products at
competitive prices. DMC's major contractual awards are often subject to the
receipt of firm orders, which, in turn, may be subject to many conditions,
including that the equipment purchased be competitive in the wireless
telecommunications marketplace with respect to technology, price, quantity, and
other commercial concerns. In addition, because DMC's major orders often
require deliveries for periods over 12 months, such products are subject to
risks associated with obsolescence due to rapidly changing technology. There
can be no assurance that DMC or MAS will have the financial resources, technical
expertise, or marketing, sales, distribution, and customer service and support
capabilities to compete successfully. Moreover, the Reorganization may have the
effect of inducing certain of DMC's or MAS's competitors to enter into
additional business combinations, to accelerate product development or to engage
in aggressive price reductions or other competitive practices thereby creating
even more powerful or aggressive competitors.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
In fiscal year 1996, fiscal year 1997 and the six-months ended
September 30, 1997, sales to international customers accounted for 88%, 95% and
95%, respectively, of DMC's net sales. DMC and MAS expect that international
sales will continue to account for the majority of the net sales of DMC and MAS
for the foreseeable future. As a result, DMC and MAS are subject to the risks
of doing business internationally, including unexpected changes in regulatory
requirements, fluctuations in foreign currency exchange rates, imposition of
tariffs and other trade barriers and restrictions, the burdens of complying with
a variety of foreign laws, and general economic conditions, including inflation.
In addition, recent economic events in Asia, including depreciation of certain
Asian currencies, failures of financial institutions, stock market declines, and
reduction in planned capital investment at key enterprises, may adversely impact
DMC's or MAS's revenues in Asian markets. DMC and MAS are also subject to
general geopolitical risks, such as political and economic instability and
changes in diplomatic and trade relationships, in connection with its
international operations. Potential markets for DMC's and MAS's products exist
in developing countries that may deploy wireless communications networks. Such
countries may decline to construct wireless communications networks, experience
delays in the construction of such networks or use the products of a competitor
of DMC or MAS to construct such networks. As a result, any demand for DMC's or
MAS's products in such countries will be similarly limited or delayed. In
addition, DMC or MAS may experience more volatile political, economic and
foreign currency fluctuations in developing countries. There can be no
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assurance that currency fluctuations, changes in the rate of inflation or any of
the aforementioned factors will not have a material adverse effect on DMC's or
MAS's business, financial condition or results of operations.
DEPENDENCE ON COMPONENT AVAILABILITY, SUBCONTRACTOR PERFORMANCE AND KEY
SUPPLIERS
The manufacturing operations of DMC and MAS are highly dependent upon the
delivery of materials by outside suppliers in a timely manner. In addition, DMC
and MAS depend, in part, upon subcontractors to assemble major components and
subsystems used in their products in a timely and satisfactory manner. The
failure of an outside supplier or subcontractor to deliver such materials,
components or subsystems in a timely and satisfactory manner could have a
material adverse effect on DMC's or MAS's business, financial condition and
results of operations. DMC or MAS may increase their reliance on outside
suppliers and subcontractors to provide materials, components and subsystems.
DMC does not generally enter into long-term or volume purchase agreements with
any of their suppliers, and no assurance can be given that such materials,
components and subsystems will be available in the quantities required by DMC,
if at all. The inability of DMC or MAS to develop alternative sources of supply
quickly and on a cost-effective basis could materially impair the ability of DMC
or MAS to manufacture and deliver its products in a timely manner. There can be
no assurance that DMC or MAS will not experience material supply problems or
component or subsystem delays in the future.
MANAGEMENT OF GROWTH; EXPANSION STRATEGY
The growth in the business of DMC and MAS has placed, and is expected to
continue to place, a significant strain on the management and operations of DMC
and MAS. This growth has resulted in a continuing increase in the level of
responsibility for existing and new management personnel of both companies.
Continued growth of MAS and DMC would require each of them to recruit and hire a
substantial number of new engineering, technical support, sales, marketing and
managerial personnel. Competition for such highly qualified personnel is
intense. There can be no assurance that DMC or MAS will be successful at hiring
or retaining these personnel. To manage its growth and address the year 2000
issue, as described below, DMC must continue to implement and improve its
operational, financial and management information systems and expand, train and
manage its employees. DMC's failure to manage growth effectively and implement
new computer systems could have a material adverse effect on DMC's business,
financial condition and results of operations. The year 2000 issue exists
because DMC's current computer programs, which process its operational and
financial transactions, use only two digits to identify a year in the date
fields. Such programs were designed and developed without considering the
impact of the upcoming change in the century. If not corrected, DMC's computer
programs could fail or create erroneous results by or at the year 2000. DMC has
purchased new computer programs to address this issue and intends to implement
these applications during fiscal year 1999.
Future growth of DMC's operations depends, in part, on its ability to
introduce new products and product enhancements to meet the emerging trends in
the wireless telecommunications industry. DMC has pursued, and after the
Reorganization will continue to pursue, growth opportunities through internal
development and acquisitions of complementary businesses and technologies. DMC
is unable to predict whether and when any prospective acquisition candidate will
become available or the likelihood that any acquisition will be completed. DMC
competes for acquisition and expansion opportunities with many entities that
have substantially greater resources than DMC. In addition, acquisitions may
involve difficulties in the retention of personnel, diversion of management's
attention, unexpected legal liabilities, and tax and accounting issues. There
can be no assurance that DMC will be able to successfully identify suitable
acquisition candidates, complete acquisitions, integrate acquired businesses
into its operations, or expand into new markets. Once integrated, acquired
businesses may not achieve comparable levels of revenues, profitability, or
productivity as the existing business of DMC or otherwise perform as expected.
The occurrence of any of these events could have a material adverse effect on
DMC's business, financial condition or results of operation.
CUSTOMER CONCENTRATION
During any given quarter, a small number of customers may account for a
significant portion of the net sales of DMC and MAS. At September 30, 1997, the
top three customers accounted for 21% of DMC's net sales. At September 30,
1997, three customers accounted for approximately 23% of DMC's $103.5 million
backlog.
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There can be no assurance that DMC's or MAS's current customers will continue to
place orders with DMC or MAS, that orders by existing customers will continue to
be at levels of previous periods, or that DMC or MAS will be able to obtain
orders from new customers. DMC's and MAS's customers typically are not
contractually obligated to purchase any quantity of products in any particular
period and product sales to major customers have varied widely from period to
period. The loss of any existing customer, a significant reduction in the level
of sales to any existing customer, or the failure of DMC or MAS to gain
additional customers could have a material adverse effect on DMC's or MAS's
business, financial condition and results of operations.
MULTIPLE REGULATORY ENVIRONMENTS
Radio communications are subject to regulation by United States and foreign
laws and international treaties. Generally, DMC's and MAS's products must
conform to a variety of United States and international requirements established
to avoid interference among users of transmission frequencies and to permit
interconnection of telecommunications equipment. In addition, both in the
United States and internationally, DMC and MAS are affected by the allocation
and auction of the radio frequency spectrum by governmental authorities.
Historically, in many developed countries, the unavailability of frequency
spectrum has inhibited the growth of wireless telecommunications networks. In
addition, to operate in a jurisdiction, DMC and MAS must obtain regulatory
approval for their products. Each jurisdiction in which DMC and MAS market
their products has its own regulations governing radio communications. Products
that support emerging wireless telecommunications services can be marketed in a
jurisdiction only if permitted by suitable frequency allocations, auctions and
regulations, and the process of establishing new regulations is complex and
lengthy. Failure by the governmental regulatory authorities to allocate
suitable frequency spectrum or to establish suitable regulations for emerging
wireless telecommunications services could have a material adverse effect on
DMC's or MAS's business, financial condition or results of operations. There
can be no assurance that governmental authorities, both in the United States and
internationally, will allocate sufficient radio frequency spectrum for use by
the products of DMC or MAS or that DMC or MAS will be successful in obtaining
approval for their products from such authorities.
NO ASSURANCE OF PRODUCT QUALITY; PERFORMANCE AND RELIABILITY
DMC's and MAS's customers typically require demanding specifications for
quality, performance and reliability. There can be no assurance that problems
will not occur with respect to the quality, performance and reliability of the
systems or related software tools of DMC or MAS. If such problems occur, DMC or
MAS could experience increased costs, delays in or cancellations or
reschedulings of orders of shipments, delays in collecting accounts receivable
and product returns and discounts, any of which would have a material adverse
effect on DMC's or MAS's business, financial condition and results of
operations.
RELIANCE ON KEY OEM RELATIONSHIPS
DMC has informal relationships with OEM base station suppliers. Such
relationships increase DMC's ability to pursue the limited number of major
contract awards each year. In addition, such relationships provide DMC's
customers with easier access to financing and to integrated systems providers
with a variety of equipment and service capabilities. There can be no assurance
that after the Reorganization DMC will continue to be able to maintain and
develop such relationships or that, if such relationships are developed, they
will be successful. In selected countries, DMC also markets its products
through independent agents and distributors.
DEPENDENCE ON KEY PERSONNEL; NEW MANAGEMENT
Due to the specialized nature of the business of DMC, DMC's future
performance is highly dependent upon the continued services of its key
engineering personnel and executive officers, including Charles D. Kissner, who
currently serves as DMC's Chairman of the Board, President and Chief Executive
Officer. The loss of any key personnel could have a material adverse effect on
DMC's business, financial condition and results of operations. DMC's Chief
Executive Officer, Chief Financial Officer, Senior Vice President of Operations
and Senior Vice President of Worldwide Sales, Service and Marketing joined DMC
in 1995. In addition, DMC's Treasurer and Vice President of Engineering joined
DMC in 1996, its Corporate Controller in 1997, and its President and Chief
Operating Officer in 1998. DMC's and MAS's prospects depend upon their ability
to attract and retain qualified engineering, manufacturing, marketing, sales and
management personnel for their operations. Competition for such
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personnel is intense and there can be no assurance that DMC or MAS will be
successful in attracting or retaining such personnel. The failure of any key
employee to perform in his or her current position or DMC's or MAS's inability
to attract and retain qualified personnel could have a material adverse effect
on DMC's or MAS's business, financial condition and results of operations. See
"Management of DMC after the Reorganization."
IMPORTANCE OF INTELLECTUAL PROPERTY
The ability of DMC and MAS to compete will depend, in part, on their
ability to obtain and enforce intellectual property protection for their
technology in the United States and internationally. DMC and MAS rely upon a
combination of trade secrets, trademarks, copyrights, patents and contractual
rights to protect their intellectual property. DMC enters into confidentiality
and invention assignment agreements with its employees, and enters into
non-disclosure agreements with its suppliers and appropriate customers so as to
limit access to and disclosure of its proprietary information. There can be no
assurance that any steps taken by DMC or MAS will be adequate to deter
misappropriation or impede independent third party development of similar
technologies. In the event that such intellectual property arrangements are
insufficient, DMC's or MAS's business, financial condition and results of
operations could be materially adversely affected. Moreover, there can be no
assurance that the protection provided to the intellectual property of DMC or
MAS by the laws and courts of foreign nations will be substantially similar to
the remedies available under United States law or that third parties will not
assert infringement claims against DMC or MAS.
The wireless telecommunications industry is characterized by numerous
allegations of patent infringement among competitors and considerable related
litigation. Accordingly, either DMC or MAS may in the future be notified that
it is infringing certain patent or other intellectual property rights of others.
Although there are no such pending lawsuits against DMC or MAS or unresolved
notices that DMC or MAS is infringing upon intellectual property rights of
others, there can be no assurance that litigation or infringement claims will
not occur in the future. Such litigation or claims could result in substantial
costs and diversion of resources and could have a material adverse effect on
DMC's or MAS's business, financial condition and results of operations. The
wireless telecommunications industry is subject to frequent litigation regarding
patent and other intellectual property rights. Certain companies and
organizations in the wireless telecommunications industry have patents that
protect their intellectual property rights in these areas. In the event of an
adverse result of any such litigation, DMC or MAS could be required to expend
significant resources to develop non-infringing technology or to obtain licenses
to the technology which is the subject of the litigation. There can be no
assurance that DMC or MAS would be successful in such development or that any
such license would be available on commercially reasonable terms.
POSSIBLE VOLATILITY OF STOCK PRICE
Announcements of developments related to the business of DMC and MAS,
announcements by competitors, quarterly fluctuations in the financial results of
DMC and MAS and general conditions in the telecommunications industry in which
DMC and MAS compete or the national economies in which DMC and MAS do business,
and other factors could cause the price of DMC Common Stock and MAS Capital
Stock to fluctuate, perhaps substantially. In addition, in recent years the
stock market has experienced extreme price fluctuations, which have often been
unrelated to the operating performance of affected companies. Such fluctuations
could have a material adverse effect on the market price of DMC Common Stock.
The value of DMC Common Stock to be issued in the Reorganization could be
affected by fluctuations in the market price of DMC Common Stock. See "The
Reorganization Agreement -- Conversion of Securities."
EFFECT OF ANTITAKEOVER PROVISIONS
Certain provisions of DMC's Restated Certificate of Incorporation and
Bylaws could discourage potential acquisition proposals and could delay or
prevent a change in control of DMC. Such provisions could diminish the
opportunities for a stockholder to participate in tender offers, including
tender offers at a price above the then current market value of DMC Common
Stock. Such provisions may also inhibit fluctuations in the market price of DMC
Common Stock that could result from takeover attempts. In addition, the DMC
Board, without further stockholder approval, may issue DMC Preferred Stock, with
such terms as the DMC Board may determine, that could have the effect of
delaying or preventing a change in control of DMC. The issuance of DMC
Preferred Stock
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could also adversely affect the voting power of the holders of DMC Common Stock,
including the loss of voting control to others. DMC also has a stockholders'
rights plan that is triggered by certain change in control transactions and is
afforded the protections of Section 203 of the Delaware General Corporation Law,
each of which could delay or prevent a change in control of DMC or could impede
a merger, consolidation, takeover or other business combination involving DMC or
discourage a potential acquirer from making a tender offer or otherwise
attempting to obtain control of DMC. See "Description of DMC Capital Stock" and
"Comparison of Stockholder Rights."
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COMPARATIVE PER SHARE PRICES AND DIVIDEND POLICIES
Both the DMC Common Stock and the ADSs representing MAS Capital Stock are
listed and traded on Nasdaq. DMC Common Stock has traded under the trading
symbol DMIC since May 19, 1987. Prior to that time, there was no public market
for DMC Common Stock. ADSs representing MAS Capital Stock have traded under the
symbol MASSY since June 19, 1997. Prior to that time, there was no public
market for MAS Capital Stock. The following table sets forth the high and low
sale prices per share of DMC Common Stock and MAS Capital Stock represented by
ADSs for the periods indicated, as reported by Nasdaq:
DMC COMMON MAS CAPITAL
STOCK(1) STOCK(2)
--------------- --------------
HIGH LOW HIGH LOW
------- ------- ------- ------
Fiscal Year Ended March 31, 1995:
First Quarter . . . . . . . . . . . . $ 7.75 $ 4.44 -- --
Second Quarter . . . . . . . . . . . . 9.38 5.13 -- --
Third Quarter . . . . . . . . . . . . 10.31 6.06 -- --
Fourth Quarter . . . . . . . . . . . . 10.06 6.06 -- --
Fiscal Year Ended March 31, 1996:
First Quarter . . . . . . . . . . . . $ 6.94 $ 4.81 -- --
Second Quarter . . . . . . . . . . . . 7.25 5.38 -- --
Third Quarter . . . . . . . . . . . . 6.31 4.91 -- --
Fourth Quarter . . . . . . . . . . . . 5.50 4.19 -- --
Fiscal Year Ended March 31, 1997: -- --
First Quarter . . . . . . . . . . . . $ 9.13 $ 4.00 -- --
Second Quarter . . . . . . . . . . . . 11.94 6.13 -- --
Third Quarter . . . . . . . . . . . . 14.59 10.13 -- --
Fourth Quarter . . . . . . . . . . . . 18.81 9.63 -- --
Fiscal Year Ending March 31, 1998:
First Quarter . . . . . . . . . . . . $ 16.00 $ 9.63 $ 16.13 $ 14.88
Second Quarter . . . . . . . . . . . . 22.63 13.63 24.25 14.63
Third Quarter . . . . . . . . . . . . 25.50 12.63 23.25 12.00
Fourth Quarter (through February __, 1998) [_____] [_____] [_____] [_____]
- --------------------------------------------------------------------------------
(1) Per share amounts for DMC Common Stock have been restated to give effect
retroactively to a stock dividend, which effected a two-for-one stock
split, in November 1997.
(2) There was no public market for MAS Capital Stock until June 19, 1997.
On December 22, 1997, the last trading day prior to the public announcement
of the Reorganization Agreement, the closing sale prices of DMC Common Stock and
MAS ADSs as reported by Nasdaq were $13.375 per share and $12.25 per share,
respectively. Based on the Exchange Ratio of 1.20, the equivalent per share
value of DMC Common Stock as of such date was $16.05.
Because the Exchange Ratio is fixed at 1.20 and because the market price of
DMC Common Stock is subject to fluctuation, the market value of the shares of
DMC Common Stock that holders of MAS Capital Stock will receive in the
Reorganization may increase or decrease prior to and following the
Reorganization. HOLDERS OF DMC COMMON STOCK AND HOLDERS OF MAS CAPITAL STOCK
ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS OF DMC COMMON STOCK AND MAS
CAPITAL STOCK. NO ASSURANCE CAN BE GIVEN AS TO THE FUTURE PRICES OR MARKETS FOR
DMC COMMON STOCK OR MAS CAPITAL STOCK.
No cash dividends have been paid on the DMC Common Stock. DMC intends to
retain all available funds and any future earnings for use in the operation of
its business and does not anticipate paying any cash dividends in the
foreseeable future. Since the initial quotation of MAS Capital Stock on Nasdaq
on June 19, 1997, MAS has never declared or paid cash dividends on the MAS
Capital Stock and does not anticipate paying any cash dividends in the
foreseeable future.
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THE DMC SPECIAL MEETING
DATE, TIME AND PLACE
The DMC Special Meeting will be held at the corporate offices of DMC,
located at 170 Orchard Way, San Jose, California on March 23, 1998 at
11:00 a.m., Pacific Standard Time.
PURPOSE
At the DMC Special Meeting, holders of DMC Common Stock will consider and
vote upon proposals to approve (i) the issuance of shares of DMC Common Stock
pursuant to the Reorganization Agreement (the "DMC Share Proposal"); (ii) an
amendment to DMC's Restated Certificate of Incorporation to (a) increase the
total number of shares that DMC has authority to issue from 65,000,000 shares to
100,000,000 shares and (b) increase the number of authorized shares of DMC
Common Stock from 60,000,000 shares to 95,000,000 shares (the "DMC Charter
Amendment Proposal"); and (iii) an amendment to DMC's 1994 Stock Incentive Plan
to increase the number of shares of DMC Common Stock available for grant
thereunder from 4,666,660 shares to 7,166,660 shares (the "1994 Plan Amendment
Proposal"). For a description of the DMC Share Proposal, see "Proposal No. 1 --
Approval of the Reorganization Agreement." For a description of the DMC Charter
Amendment Proposal, see "Proposal No. 2 -- Approval of the Amendment to DMC's
Restated Certificate of Incorporation." For a description of the 1994 Plan
Amendment Proposal, see "Proposal No. 3 -- Approval of the Amendment to DMC's
1994 Stock Incentive Plan." Stockholders of DMC will also consider and vote on
any other matter that may properly come before the meeting.
Neither the Delaware General Corporation Law nor the DMC Restated
Certificate of Incorporation requires DMC to obtain stockholder approval of the
Reorganization, because MAS is merging with Amalgamation Sub, a wholly owned
subsidiary of DMC, rather than with DMC itself. However, due to the number of
shares of DMC Common Stock to be issued in the Reorganization, Nasdaq rules
require DMC to obtain stockholder approval of the issuance of such shares.
Stockholder approval of the DMC Share Proposal will constitute the approval
required by Nasdaq for the issuance of the DMC Common Stock in connection with
the Reorganization. Stockholder approval of the DMC Charter Amendment Proposal
is required by the Delaware General Corporation Law. Stockholder approval of
the 1994 Plan Amendment Proposal is also being sought to (i) comply with Nasdaq
rules; (ii) permit options under the 1994 Plan to qualify as incentive stock
options under Section 422 of the Code; and (iii) permit options and stock
appreciation rights granted to certain DMC executives under the 1994 Plan to
qualify as "performance-based compensation" under 162(m) of the Code.
THE DMC BOARD HAS UNANIMOUSLY APPROVED THE TERMS OF THE REORGANIZATION
AGREEMENT AND BELIEVES THAT THE TERMS OF THE REORGANIZATION AGREEMENT ARE FAIR
TO, AND IN THE BEST INTERESTS OF, DMC AND ITS STOCKHOLDERS, AND UNANIMOUSLY
RECOMMENDS THAT HOLDERS OF DMC COMMON STOCK VOTE FOR APPROVAL OF THE DMC SHARE
PROPOSAL, THE DMC CHARTER AMENDMENT PROPOSAL AND THE 1994 PLAN AMENDMENT
PROPOSAL. SEE "THE REORGANIZATION -- RECOMMENDATION OF THE DMC BOARD; REASONS
FOR THE REORGANIZATION AND OTHER PROPOSALS."
RECORD DATE; VOTING RIGHTS; PROXIES
Only holders of record of DMC Common Stock at the close of business on
January 30, 1998 (the "DMC Record Date") are entitled to notice of and to vote
at the DMC Special Meeting. As of the DMC Record Date, there were 38,132,594
shares of DMC Common Stock issued and outstanding, each of which entitled the
holder thereof to one vote.
All shares of DMC Common Stock represented by properly executed proxies
will, unless such proxies have been previously revoked, be voted in accordance
with the instructions indicated in such proxies. IF NO INSTRUCTIONS ARE
INDICATED, SUCH SHARES OF DMC COMMON STOCK WILL BE VOTED FOR THE DMC SHARE
PROPOSAL, THE DMC CHARTER AMENDMENT PROPOSAL AND THE 1994 PLAN AMENDMENT
PROPOSAL. DMC does not know of any matters other than as described in the
Notice of Special Meeting that are to come before the DMC Special Meeting. If
any other matter or matters are properly presented for action at the DMC Special
Meeting, the persons named in the enclosed form of proxy and acting thereunder
will have the discretion to vote on such matters in accordance with
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their best judgment. A stockholder who has given a proxy may revoke it at any
time prior to its exercise by giving written notice thereof to the Secretary of
DMC, by signing and returning a later dated proxy, or by voting in person at the
DMC Special Meeting. However, mere attendance at the DMC Special Meeting will
not in and of itself have the effect of revoking the proxy. Votes cast by proxy
or in person at the DMC Special Meeting will be tabulated by the inspector of
election appointed for the meeting.
SOLICITATION OF PROXIES
Proxies are being solicited by and on behalf of the DMC Board. DMC will
bear all expenses in connection with such solicitation. In addition to
solicitation by use of the mails, proxies may be solicited by directors,
officers and employees of DMC, in person or by telephone, telegram or other
means of communication. Such directors, officers and employees will not be
additionally compensated for, but may be reimbursed for out-of-pocket expenses
incurred in connection with, such solicitation. Arrangements have also been
made with brokerage firms, banks, custodians, nominees and fiduciaries for the
forwarding of proxy and solicitation materials to owners of DMC Common Stock
held of record for such persons, and in connection therewith such firms will be
reimbursed for reasonable expenses incurred in forwarding such materials. DMC
has retained Corporate Investor Communications, Inc. to aid in the solicitation
of proxies from its stockholders. The aggregate fees of such firm for the
solicitation of proxies from the stockholders of DMC and the shareholders of MAS
are estimated to be $7,000, plus reimbursement for out-of-pocket expenses.
REQUIRED VOTE; QUORUM
Approval of the DMC Share Proposal requires the affirmative vote of the
holders of a majority of the shares of DMC Common Stock present, or represented,
and entitled to vote on that proposal at the DMC Special Meeting. Approval of
the DMC Charter Amendment Proposal requires the affirmative vote of the holders
of a majority of the outstanding shares of DMC Common Stock entitled to vote
thereon at the DMC Special Meeting. Approval of the 1994 Plan Amendment
Proposal requires the affirmative vote of the holders of a majority of the
shares of DMC Common Stock present, or represented, and entitled to vote on that
proposal at the DMC Special Meeting. Approval of the DMC Charter Amendment
Proposal and the 1994 Plan Amendment Proposal is not a condition to the
consummation of the Reorganization, and such proposals will be implemented, if
approved by DMC stockholders, even if the Reorganization is not consummated.
For purposes of determining whether the DMC Share Proposal has been
approved, the inspector of election will include abstentions, but exclude broker
non-votes, from the number of shares deemed to be present, or represented, and
entitled to vote on such matter at the DMC Special Meeting. Accordingly,
abstentions will have the effect of a "NO" vote, and broker non-votes will have
no effect, on the voting on the DMC Share Proposal. For purposes of determining
whether the DMC Charter Amendment Proposal has been approved, the inspector of
election will include abstentions and broker non-votes in the number of
outstanding shares of DMC Common Stock entitled to vote thereon at the DMC
Special Meeting. Accordingly, abstentions and broker non-votes will have the
effect of a "NO" vote on the DMC Charter Amendment Proposal. For purposes of
determining whether the 1994 Plan Amendment Proposal has been approved, the
inspector of election will include abstentions, but exclude broker non-votes,
from the number of shares of DMC Common Stock deemed to be present, or
represented, and entitled to vote at the DMC Special Meeting. Accordingly,
abstentions will have the effect of a "NO" vote, and broker non-votes will have
no effect, on the 1994 Plan Amendment Proposal.
As of the DMC Record Date, directors and executive officers of DMC and
their affiliates were beneficial owners of an aggregate of 1,551,752 shares
of DMC Common Stock (exclusive of any shares issuable upon the exercise of
stock options remaining unexercised as of such date), or approximately 4.10%
of the 38,132,594 shares of DMC Common Stock that were issued and outstanding
as of such date. See "Management of DMC After the Reorganization -- Security
Ownership of Management."
THE MATTERS TO BE CONSIDERED AT THE DMC SPECIAL MEETING ARE OF GREAT
IMPORTANCE TO THE STOCKHOLDERS OF DMC. ACCORDINGLY, STOCKHOLDERS ARE URGED TO
READ AND CAREFULLY CONSIDER THE INFORMATION PRESENTED IN THIS PROXY
STATEMENT/PROSPECTUS AND TO COMPLETE, DATE, SIGN AND PROMPTLY RETURN THE
ENCLOSED PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
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THE MAS SPECIAL MEETING
DATE, TIME AND PLACE
The MAS Special Meeting will be held at the offices of MAS, located at
24 Bridge Street, Lower Hutt, Wellington, New Zealand on March 23, 1998
at 1:00 p.m. New Zealand daylight time.
PURPOSE
At the MAS Special Meeting, holders of MAS Capital Stock will consider and
vote upon the MAS Reorganization Proposal and the Reorganization Agreement.
THE MAS BOARD HAS UNANIMOUSLY APPROVED THE TERMS OF THE REORGANIZATION
AGREEMENT AND BELIEVES THAT THE TERMS OF THE REORGANIZATION PROPOSAL AND THE
REORGANIZATION AGREEMENT ARE FAIR TO, AND IN THE BEST INTERESTS OF, MAS AND ITS
SHAREHOLDERS, AND UNANIMOUSLY RECOMMENDS THAT HOLDERS OF MAS CAPITAL STOCK VOTE
FOR APPROVAL OF THE MAS REORGANIZATION PROPOSAL AND THE REORGANIZATION
AGREEMENT. SEE "THE REORGANIZATION -- RECOMMENDATION OF THE MAS BOARD; REASONS
FOR THE REORGANIZATION."
RECORD DATE; VOTING RIGHTS; PROXIES
Only holders of record of MAS Capital Stock at the close of business on
January 30, 1998 (the "MAS Record Date") are entitled to notice of and to vote
at the MAS Special Meeting. As of the MAS Record Date, there were 6,800,000
shares of MAS Capital Stock issued and outstanding, each of which entitled the
holder thereof to one vote.
All shares of MAS Capital Stock represented by properly executed proxies
will, unless such proxies have been previously revoked, be voted in accordance
with the instructions indicated in such proxies. Unless contrary instructions
or an alternate proxy holder are indicated, such shares of MAS Capital Stock
will be voted FOR the MAS Reorganization Proposal and the Reorganization
Agreement. MAS does not know of any matters other than as described in the
Notice of Special Meeting that are to come before the MAS Special Meeting. If
any other matter or matters are properly presented for action at the MAS Special
Meeting, the persons named in the enclosed form of proxy and acting thereunder
will have the discretion to vote on such matters in accordance with their best
judgment. A MAS shareholder who has given a proxy may revoke it at any time
prior to its exercise by giving written notice thereof to the Secretary of MAS,
by signing and returning a later dated proxy, or by voting in person at the MAS
Special Meeting. However, mere attendance at the MAS Special Meeting will not
in and of itself have the effect of revoking the proxy. Votes cast by proxy or
in person at the MAS Special Meeting will be tabulated by the inspector of
election appointed for the meeting.
SOLICITATION OF PROXIES
Proxies are being solicited by and on behalf of the MAS Board. MAS will
bear all expenses in connection with such solicitation. In addition to
solicitation by use of the mails, proxies may be solicited by directors,
officers and employees of MAS, in person or by telephone, telegram or other
means of communication. Such directors, officers and employees will not be
additionally compensated for, but may be reimbursed for out-of-pocket expenses
incurred in connection with, such solicitation. Arrangements have also been
made with brokerage firms, banks, custodians, nominees and fiduciaries for the
forwarding of proxy and solicitation materials to owners of MAS Capital Stock
held of record for such persons, and in connection therewith such firms will be
reimbursed for reasonable expenses incurred in forwarding such materials. MAS
has retained Morgen-Walke Associates, Inc. to aid in the solicitation of proxies
from its shareholders. The fees of such firm for the solicitation of proxies
from the shareholders of MAS are estimated to be $10,000, plus reimbursement for
out-of-pocket expenses.
REQUIRED VOTE; QUORUM
Approval of the Reorganization Proposal and the Reorganization Agreement
requires the approval of a special resolution receiving the affirmative vote of
75% of the shareholders attending and voting (in person or by
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proxy) at the MAS Special Meeting. For the purpose of determining whether the
Reorganization Proposal and the Reorganization Agreement have been approved, no
account will be taken of abstentions or non-votes.
A quorum is required to be present at the MAS Special Meeting. The holders
of the majority of voting shares (or the proxies of such shareholders)
constitute a quorum.
THE MATTERS TO BE CONSIDERED AT THE MAS SPECIAL MEETING ARE OF GREAT
IMPORTANCE TO THE SHAREHOLDERS OF MAS. ACCORDINGLY, SHAREHOLDERS ARE URGED TO
READ AND CAREFULLY CONSIDER THE INFORMATION PRESENTED IN THIS PROXY
STATEMENT/PROSPECTUS, AND TO COMPLETE, DATE, SIGN AND PROMPTLY RETURN THE
ENCLOSED PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
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THE REORGANIZATION
THIS SECTION OF THE PROXY STATEMENT/PROSPECTUS DESCRIBES CERTAIN ASPECTS OF
THE PROPOSED REORGANIZATION. TO THE EXTENT THAT IT RELATES TO THE
REORGANIZATION AGREEMENT AND THE TERMS OF THE REORGANIZATION, THE FOLLOWING
DESCRIPTION DOES NOT PURPORT TO BE COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE REORGANIZATION AGREEMENT, WHICH IS ATTACHED AS APPENDIX A TO
THIS PROXY STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE. ALL
STOCKHOLDERS OF DMC AND SHAREHOLDERS OF MAS ARE URGED TO READ THE REORGANIZATION
AGREEMENT.
GENERAL
The Reorganization Agreement provides that the Reorganization will be
consummated if the approvals of the DMC stockholders and the MAS shareholders
required therefore are obtained and all other conditions to the Reorganization
are satisfied or waived as provided in the Reorganization Agreement. Upon
consummation of the Reorganization, Amalgamation Sub will be amalgamated with
and into MAS, and MAS will become a wholly owned subsidiary of DMC.
Upon consummation of the Reorganization, each outstanding share of MAS
Capital Stock (other than shares held in the treasury of MAS, which will be
canceled), will be converted into the right to receive 1.20 fully paid and
nonassessable shares of DMC Common Stock subject to minority buyout rights under
New Zealand law, if applicable. Cash will be delivered in lieu of fractional
shares as described in the Reorganization Agreement.
Based upon the capitalization of DMC and MAS as of December 31, 1997, the
shareholders of MAS will own approximately 17.7% of the outstanding DMC Common
Stock following consummation of the Reorganization assuming no exercise of
outstanding options to acquire DMC or MAS stock options. Such percentage could
change depending on whether and to what extent shares of DMC Common Stock and
MAS Capital Stock issuable upon exercise of outstanding DMC or MAS stock options
are issued.
EFFECTIVE TIME
The effective time of the Reorganization (the "Effective Time") will occur
upon the filing of all necessary documentation (the "Reorganization Documents"),
together with any required related certificates, with the New Zealand Registrar
of Companies, in such form as required by, and executed in accordance with the
relevant provisions of, New Zealand Law. The filing of the Reorganization
Documents will occur as soon as practicable after the closing of the
transactions contemplated by the Reorganization Agreement. The Reorganization
Agreement may be terminated by either party if the Reorganization has not been
consummated on or before March 31, 1998 and under certain other conditions. See
"The Reorganization Agreement -- Conditions" and "The Reorganization Agreement
- -- Termination."
CONVERSION OF SHARES; PROCEDURES FOR EXCHANGE OF CERTIFICATES
The conversion of MAS Capital Stock into the right to receive DMC Common
Stock and cash in lieu of fractional shares will occur automatically at the
Effective Time, subject to minority buyout rights under New Zealand law, if
applicable.
As soon as practicable after the Effective Time, a transmittal letter will
be mailed by the Exchange Agent to each holder of MAS Certificates informing
such holder of the procedures to follow in forwarding MAS Certificates to the
Exchange Agent. Upon receipt of the MAS Certificates, the Exchange Agent will
deliver whole shares of DMC Common Stock to the shareholder and cash in lieu of
fractional shares pursuant to the terms of the Reorganization Agreement and in
accordance with the transmittal letter, together with any dividends or other
distributions to which such shareholder may be entitled.
If any issuance of shares of DMC Common Stock in exchange for shares of MAS
Capital Stock is to be made to a person other than the holder in whose name the
MAS Certificate is registered at the Effective Time, it will be a condition of
such exchange that the MAS Certificate so surrendered be properly endorsed or
otherwise be in
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proper form for transfer and that the holder requesting such issuance either pay
any transfer or other tax required or establish to the satisfaction of the
Exchange Agent that such tax has been paid or is not payable.
After the Effective Time, there will be no further transfers of MAS Capital
Stock on the stock transfer books of MAS or ADSs on the books of the ADS
depositary. If a MAS Certificate representing MAS Capital Stock is presented
for transfer, it will be canceled and a certificate representing the appropriate
number of full shares of DMC Common Stock and cash in lieu of fractional shares
and any dividends and distributions will be issued in exchange therefore.
After the Effective Time and until surrendered, shares of MAS Capital Stock
will be deemed for all corporate purposes, other than the payment of dividends
and distributions, to evidence ownership of the number of full shares of DMC
Common Stock into which such shares of MAS Capital Stock were converted at the
Effective Time. No dividends or other distributions, if any, payable to holders
of DMC Common Stock will be paid to the holders of any MAS Certificates for
shares of MAS Capital Stock until such MAS Certificates are surrendered. Upon
surrender of such MAS Certificates, all such declared dividends and
distributions which shall have become payable with respect to such DMC Common
Stock in respect of a record date after the Effective Time will be paid to the
holder of record of the full shares of DMC Common Stock represented by the MAS
Certificate issued in exchange therefore, without interest.
MAS SHAREHOLDERS SHOULD NOT FORWARD MAS CERTIFICATES FOR MAS CAPITAL STOCK
TO THE EXCHANGE AGENT UNTIL THEY HAVE RECEIVED TRANSMITTAL LETTERS. MAS
SHAREHOLDERS SHOULD NOT RETURN MAS CERTIFICATES WITH THE ENCLOSED PROXY.
BACKGROUND OF THE REORGANIZATION
All dates referred to in the "Background of the Reorganization" section are
based on the U.S. calendar.
During 1996, DMC developed a strategic objective to expand its product line
and enhance its competitive position in the wireless telecommunications industry
by growth through acquisitions and strategic combinations. As part of this
growth strategy, DMC retained Broadview Associates in November 1996 to identify
possible candidates for acquisition by or strategic combinations with DMC.
Since the time Broadview Associates was retained, DMC has acquired Granger,
Inc., which is now a wholly owned subsidiary of DMC. DMC regularly identifies
and evaluates acquisition opportunities and has from time to time engaged in
discussions with potential candidates, including MAS. However, none of the
discussions since the acquisition of Granger, Inc. has gone beyond the
preliminary stages, and accordingly, no firm offers were made or received
concerning these acquisition candidates. In addition, as of the date of this
Proxy Statement/Prospectus, there are no agreements or arrangements between DMC
and any other party other than MAS concerning any acquisition.
On October 20, 1997, Mr. Charles D. Kissner, Chairman of the Board,
President and Chief Executive Officer of DMC, and Mr. Neville Jordan, Chief
Executive Officer and Deputy Chairman of the Board of MAS, held a telephone
discussion in which they agreed that DMC and MAS would proceed with an OEM
agreement, as previously negotiated between various members of the management of
each company.
On October 22, 1997, in response to DMC's request to Broadview Associates
to review various merger and acquisition candidates to broaden DMC's product
line, Broadview Associates provided DMC with an initial transaction analysis for
a pooling of interests reorganization with MAS.
On November 11, 1997, during a general review of business development
activities during a regular meeting of the DMC Board, Mr. Kissner advised the
DMC Board of the current status of DMC's relationship with MAS. The DMC Board
was informed of the possible strategic fit of the merger of DMC and MAS and of
the intention of the management of DMC to explore such a possibility in the near
future.
On November 18, 1997, the mutual OEM agreement between DMC and MAS was
signed by each company. Later, on the same day, Mr. Kissner, Mr. Tim Hansen,
Vice President of New Business Development of
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DMC, Mr. Jordan and Mr. Peter Wright, Vice President Finance and Chief Financial
Officer of MAS, met to discuss the potential benefits that would possibly result
from the merger of DMC and MAS.
During the weeks of November 23, 1997 and November 30, 1997, Mr. Kissner of
DMC, with the assistance of Mr. Mike Kelly of Broadview Associates, and
Mr. Jordan of MAS, with the assistance of Mr. Mark Zanoli of Hambrecht & Quist,
negotiated a term sheet that outlined the key points to an agreement of
principle of the potential merger of DMC and MAS.
On December 4, 1997, a final draft of the term sheet was agreed to by
Mr. Kissner and Mr. Jordan.
On December 5, 1997, a confidentiality agreement was executed by the
parties. Thereafter, during the week of December 8, 1997, the senior management
teams of each company met to explore the feasibility of a business combination
and nonpublic information was exchanged by DMC and MAS. During this time,
various representatives of DMC and MAS conducted due diligence investigations on
behalf of DMC and MAS, respectively. During and subsequent to this time, the
management of each company continued to negotiate with each other, and each
other's representatives. At a December 8, 1997 meeting at which a
representative from outside legal counsel was present, the MAS Board reviewed
the terms of the term sheet and discussed timing and concerns for matters going
forward.
On December 10, 1997, DMC provided MAS with a preliminary draft form of a
reorganization agreement and discussions ensued between outside counsel of DMC
and outside counsel of MAS regarding the proposed structure and other principal
terms of the proposed reorganization agreement.
On December 16, 1997, at a telephonic meeting of the DMC Board, at which
representatives from Broadview Associates and outside legal counsel were present
to advise the DMC Board, Mr. Kissner informed the DMC Board of the status of
discussions with MAS, various proposals that had been suggested by DMC and MAS
and the likely direction of future negotiations. DMC's management reviewed the
material terms of the proposed reorganization agreement, which had previously
been circulated to the DMC Board. Representatives of Broadview Associates
indicated to the DMC Board that, provided the exchange ratio formulation did not
change in the final negotiations, Broadview Associates would be in a position to
render its opinion that the Exchange Ratio was fair, from a financial point of
view, to DMC's stockholders once the parties completed negotiations of the
definitive reorganization agreement. In addition to the foregoing, the DMC
Board also considered the financial and strategic business implications of the
Reorganization, together with the potential risks and benefits of the
transaction. The DMC Board also reviewed the accounting treatment of the
Reorganization with DMC's accountants. The DMC Board concluded that, provided
that the exchange ratio formulation did not change in final negotiations, the
Reorganization was fair to and in the best interests of DMC and its
stockholders. Accordingly, it was the consensus of the DMC Board that
management should actively continue discussions with MAS. The DMC Board created
a committee (the "DMC Committee"), which, subject to receipt of the fairness
opinion prepared by Broadview Associates, was granted full authority on behalf
of the DMC Board to approve the Reorganization, if the DMC Committee deemed such
to be in the best interests of DMC and its stockholders.
On December 15, 1997, DMC received MAS's comments on the draft
reorganization agreement. On December 18, 1997, DMC's counsel circulated a
revised reorganization agreement. Following conversations among DMC, MAS, and
their respective counsel, a revised reorganization agreement and related
documents were circulated on December 21 and December 22, 1997.
On December 19, 1997, at a meeting at which representatives from
Hambrecht & Quist and outside legal counsel were present, the MAS Board further
considered certain terms of the proposed Reorganization Agreement, as well as
the financial and strategic business implications of the proposed Reorganization
and the attendant risks and benefits. Concluding that doing so would be in the
best interest of MAS and its shareholders, the MAS Board resolved to continue
working with DMC towards the proposed Reorganization, subject to a fairness
opinion to be requested of Hambrecht & Quist.
On December 22, 1997, at a telephonic meeting of the DMC Committee, Mr.
Kissner updated the DMC Committee regarding the status of the proposed
transaction, and Broadview Associates presented its analysis of the financial
terms of the Reorganization and the financial impact to DMC and its stockholders
of the Reorganization.
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Broadview Associates provided its oral opinion, which was subsequently confirmed
in writing, that the Exchange Ratio was fair to DMC and its stockholders from a
financial point of view. The DMC Committee unanimously voted to approve the
Reorganization, approved the final terms of the Reorganization Agreement,
authorized management to execute, deliver and perform the Reorganization
Agreement and to recommend on behalf of the DMC Board to DMC stockholders that
the DMC stockholders vote in favor of the Reorganization Agreement.
Also on December 22, 1997, the MAS Board, at a meeting called for that
purpose, reviewed the fairness opinion of Hambrecht & Quist. In reliance
thereon, the MAS Board concluded that the proposed Reorganization is fair to,
and in the best interests of, MAS and its shareholders. Consequently, the MAS
Board voted unanimously to approve the proposed Reorganization, approved the
final terms of the Reorganization Agreement, authorized certain officers to
execute, deliver and perform the Reorganization Agreement and voted to recommend
that MAS shareholders vote in favor of the Reorganization Proposal and the
Reorganization Agreement. After such approval, DMC and MAS executed and
delivered the Reorganization Agreement. Subsequently, MAS has had no
discussions with other potential acquirers with respect to a possible
acquisition, and DMC has had no such discussions regarding acquisitions valued
at US$50 million or more.
RECOMMENDATION OF THE DMC BOARD; REASONS OF DMC FOR THE REORGANIZATION AND OTHER
PROPOSALS
THE DMC BOARD HAS UNANIMOUSLY APPROVED THE TERMS OF THE REORGANIZATION
AGREEMENT, BELIEVES THAT THE TERMS OF THE REORGANIZATION AGREEMENT ARE FAIR TO,
AND IN THE BEST INTERESTS OF, DMC AND ITS STOCKHOLDERS, AND UNANIMOUSLY
RECOMMENDS THAT HOLDERS OF SHARES OF DMC COMMON STOCK VOTE FOR APPROVAL OF THE
DMC SHARE PROPOSAL, THE DMC CHARTER AMENDMENT PROPOSAL AND THE 1994 PLAN
AMENDMENT PROPOSAL.
The DMC Board has concluded that the financial aspects of the proposed
Reorganization are fair to, and in the best interests of, DMC and its
stockholders. The DMC Board also has concluded that the proposed Reorganization
is in the best interests of DMC and its stockholders because, among other
reasons, the Reorganization would further DMC's strategic objectives of
enhancing its competitive position in the wireless telecommunications industry,
primarily by growth through acquisition and expansion of its existing product
line and distribution channels to provide a full range of wireless connection
products to customers worldwide.
The DMC Board concluded that the proposed Reorganization will further such
strategic objectives because of its belief that:
1. The additional product offerings will enable DMC to respond more fully
to the demands of the rapidly growing wireless telecommunications
industry and the current economic and market conditions in the
industry, including the trend toward competitive pricing. The DMC
Board is of the view that the Reorganization will increase DMC's
ability to address wider market segments efficiently.
2. The product line, distribution channel and product development efforts
of MAS complements that of DMC, expands the low-capacity end of DMC's
product line and enhances the market presence of DMC in the
interconnection segment of the industry so that DMC and MAS together
may provide a full range of wireless connection solutions to customers
worldwide.
3. DMC may be able to realize manufacturing, marketing, research and
development and distribution efficiencies through greater economies of
scale and the elimination of redundancies. The DMC Board is of the
view that, with both competition increasing and pricing pressures
becoming more acute, the most effective way to achieve profitability
and more favorable operating margins is through reduction of operating
expenses. The DMC Board also recognized that any initial cost savings
from operating synergies could be offset, in whole or in part, by the
costs associated with the negotiation and consummation of the
Reorganization. The DMC Board believed there were opportunities for
synergies in revenue, earnings growth and new product development
resulting from the Reorganization, based on the quantification of such
synergies or cost savings by DMC management. The presence or absence
of such synergies or cost savings was a material factor in the DMC
Board's decision to approve the Reorganization. The DMC Board
determined that the expansion of its product line after the
Reorganization could improve DMC's ability to enter new markets on a
more cost-effective basis and
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to realize the growth and critical mass necessary to compete
effectively and profitably in the current climate of the industry.
In reaching its conclusion that the proposed Reorganization is fair to, and
in the best interests of, DMC and its stockholders, the DMC Board also
considered, among other factors, (i) its knowledge of the business, operations,
properties, assets, financial condition, operating results and prospects of DMC
and MAS; (ii) current industry, economic and market conditions; (iii)
presentations by DMC's management with respect to, and the analysis of Broadview
Associates of, DMC, MAS and the Reorganization (see "-- Opinion of Broadview
Associates"); (iv) the terms of the Reorganization Agreement (see "The
Reorganization Agreement"); (v) the accounting and tax treatment of the
Reorganization; and (vi) the opportunity for DMC stockholders to participate in
a larger, more diversified company.
In view of the variety of factors considered in connection with its
evaluation of the Reorganization, the DMC Board did not find it practicable to
and did not quantify or otherwise assign relative weights to the specific
factors considered in reaching its determination. In addition, individual
members of the DMC Board may have given different weights to different factors.
RECOMMENDATION OF THE MAS BOARD; REASONS OF MAS FOR THE REORGANIZATION AND OTHER
PROPOSALS
THE MAS BOARD HAS UNANIMOUSLY APPROVED THE TERMS OF THE REORGANIZATION
AGREEMENT, BELIEVES THAT THE TERMS OF THE REORGANIZATION PROPOSAL AND THE
REORGANIZATION AGREEMENT ARE FAIR TO, AND IN THE BEST INTERESTS OF, MAS AND ITS
SHAREHOLDERS, AND UNANIMOUSLY RECOMMENDS THAT HOLDERS OF SHARES OF MAS CAPITAL
STOCK VOTE FOR APPROVAL OF THE REORGANIZATION PROPOSAL AND THE REORGANIZATION
AGREEMENT.
The MAS Board has concluded that the financial aspects of the proposed
Reorganization are fair to, and in the best interests of, MAS and its
shareholders. The MAS Board has also concluded that the proposed Reorganization
is in the best interests of MAS and its shareholders because, among other
reasons, the Reorganization would advance MAS's current strategic objectives of
expanding the distribution network for its products, increasing sales of its
products, diversifying its product range and approaching market dominance.
The MAS Board concluded that the proposed Reorganization will further such
strategic objectives because of its belief that:
1. The product line of DMC is complementary to that of MAS, and would add
significant diversity to MAS's product offerings. MAS has had a
beneficial commercial relationship with DMC for approximately eight
years which would assist the realization of synergies.
2. DMC offers the distribution network necessary to increase sales of
MAS's DXR range of products, particularly in the important North
American market. Increased market presence and product diversity
could result in the surviving company achieving dominance as an
independent supplier of microwave systems worldwide.
3. Amalgamation with DMC would complement the MAS worldwide distribution
channel. The fairness opinion received from Hambrecht & Quist is
supportive of the proposed Reorganization's terms for MAS
shareholders.
In reaching the conclusion that the proposed Reorganization is fair to, and
in the best interests of, MAS and its shareholders, the MAS Board also
considered, among other factors, (i) its knowledge of the business, operations,
properties, assets, financial condition, operating results and prospects of MAS
and DMC; (ii) current industry, economic and market conditions;
(iii) presentations by MAS's management with respect to, and the analysis of
Hambrecht & Quist of, MAS, DMC and the proposed Reorganization (see "-- Opinion
of Hambrecht & Quist"); (iv) the terms of the Reorganization Agreement (see "The
Reorganization Agreement"); (v) the accounting and tax treatment of the
Reorganization; and (vi) the opportunity for MAS shareholders to participate in
a larger, more diversified company.
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In view of the variety of factors considered in connection with the
evaluation of the proposed Reorganization, the MAS Board did not find it
practicable to, and did not, quantify or otherwise assign relative weights to
the specific factors considered in reaching its determination. Further,
individual members of the MAS Board may have ascribed different weight to
different factors.
OPINIONS OF BROADVIEW ASSOCIATES AND HAMBRECHT & QUIST
OPINION OF BROADVIEW ASSOCIATES. DMC retained Broadview Associates to act
as its financial advisor in connection with the Reorganization. Broadview
Associates was retained based on Broadview Associates' experience as a financial
advisor in connection with mergers and acquisitions as well as Broadview
Associates' industry knowledge and familiarity with DMC.
At the December 22, 1997 special meeting of the DMC Committee, Broadview
Associates delivered an oral opinion, which was subsequently confirmed in
writing (the "Broadview Associates Opinion"), that, subject to the assumptions
set forth below, as of such date and based on the matters described therein, the
Exchange Ratio was fair to the stockholders of DMC from a financial point of
view. Broadview Associates did not recommend to DMC that any specific ratio
constituted the appropriate Exchange Ratio for the Reorganization. In rendering
its opinion, Broadview Associates assumed, among other things, that the
Reorganization will be treated as a tax free reorganization and as a pooling of
interests in accordance with generally accepted accounting principles. The
Broadview Associates Opinion to the DMC Board addresses only the fairness of the
Exchange Ratio to the stockholders of DMC from a financial point of view, and
does not constitute a recommendation to any stockholder as to how such
stockholder should vote at the DMC Special Meeting. Broadview Associates
expresses no opinion as to the tax consequences of the Reorganization, and the
Broadview Associates Opinion as to the fairness of the Exchange Ratio does not
take into account the particular tax status or position of any holder of DMC
Common Stock. In rendering its opinion, Broadview Associates was not engaged as
an agent or fiduciary of DMC stockholders or any other third party.
THE FULL TEXT OF THE BROADVIEW ASSOCIATES OPINION, DATED DECEMBER 22, 1997,
WHICH SETS FORTH ASSUMPTIONS MADE, MATTERS CONSIDERED, AND LIMITATIONS ON THE
REVIEW UNDERTAKEN, IS ATTACHED AS APPENDIX C TO THIS PROXY STATEMENT/PROSPECTUS.
DMC STOCKHOLDERS ARE URGED TO READ THE BROADVIEW ASSOCIATES OPINION CAREFULLY IN
ITS ENTIRETY. THE SUMMARY OF THE BROADVIEW ASSOCIATES OPINION SET FORTH IN THIS
PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL
TEXT OF SUCH OPINION.
In connection with the preparation of the Broadview Associates Opinion,
Broadview Associates, among other things: (i) reviewed the terms of the
Reorganization Agreement; (ii) reviewed publicly available information relating
to both companies; (iii) reviewed certain internal financial and operating
information, including certain projections, relating to MAS prepared by MAS
management; (iv) participated in discussions with the management of both DMC and
MAS concerning the independent and combined operations, business strategy,
financial performance and prospects of both companies; (v) reviewed the stock
price and trading histories of both companies; (vi) compared certain aspects of
the financial performance of MAS with public companies Broadview Associates
deemed comparable; (vii) analyzed available information, both public and
private, concerning other mergers and acquisitions Broadview Associates believed
to be comparable in whole or in part to the Reorganization; (viii) discussed
with the management of DMC the management's view of the strategic rationale for
the Reorganization; (ix) considered the total number of shares of DMC Common
Stock outstanding and the average weekly trading volume of DMC Common Stock; (x)
reviewed recent equity analyst reports covering DMC and MAS; (xi) analyzed the
anticipated effect of the Reorganization on the future financial performance of
the consolidated entity; (xii) assisted in negotiations and discussions related
to the Reorganization among DMC, MAS and their financial and legal advisors; and
(xiii) conducted other financial studies, analyses and investigations as
Broadview Associates deemed appropriate for purposes of the Broadview Associates
Opinion.
Based on past activities, Broadview Associates has a certain degree of
familiarity with DMC and the industry in which it operates. In addition, in the
course of its engagement, Broadview Associates made further investigations of
both DMC and MAS. In arriving at its opinion, however, Broadview Associates did
not independently verify any of the foregoing information and relied on all such
information being complete and accurate in all material respects. Furthermore,
Broadview Associates did not obtain any independent evaluation or appraisal of
the properties or assets and liabilities of DMC or MAS or of any of their
subsidiaries, nor was
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Broadview Associates furnished with any such evaluations or appraisals. The
Broadview Associates Opinion is necessarily based upon market, economic and
other conditions that existed and could be evaluated as of the date of such
opinion, and on information available to Broadview Associates as of such
date. It should be understood that, although subsequent developments may
affect its opinion, Broadview Associates does not have any obligation to
update, revise or reaffirm its opinion.
In performing its analyses as described below, Broadview Associates used
and relied upon projections for DMC that were provided by DMC's management and
various research analysts, and projections for MAS that were provided by MAS's
management and various research analysts. With respect to the financial and
operating forecasts and estimated potential savings costs and synergies (and the
assumptions and bases therefore) of DMC and MAS which Broadview Associates
reviewed, Broadview Associates assumed that such forecasts and estimates had
been reasonably prepared in good faith on the basis of reasonable assumptions
and reflected the best available estimates and judgments of the respective
managements of DMC and MAS, and assumed that such forecasts will be realized in
the amounts and in the time periods currently estimated by such managements of
DMC and MAS. In addition, Broadview Associates relied upon estimates and
judgments of DMC and MAS managements as to the future financial performance of
both companies and as to such potential cost savings and synergies that could
result from the Reorganization. The forecasts, estimates and judgments of DMC
and MAS on which Broadview Associates relied constitute forward-looking
information, are based on numerous factors and events beyond the control of the
parties, and are inherently subject to significant uncertainty. See "Risk
Factors." Accordingly, actual future results may vary materially from those
projected.
The following paragraphs summarize the most significant quantitative and
qualitative analyses performed by Broadview Associates in arriving at the
Broadview Associates Opinion and reviewed with the DMC Board and do not purport
to be a complete description of the analyses performed by Broadview Associates.
The information presented below is based on the financial condition of DMC and
MAS as of a date or dates shortly before the Reorganization Agreement was
executed on December 22, 1997 and stock price information through the close of
the market on December 19, 1997.
PUBLIC COMPANY COMPARABLES ANALYSIS. Total market capitalization/revenue
("TMC/R") and price/earnings ("P/E") multiples indicate the value public markets
place on companies in a particular market segment. Several companies are
comparable to MAS based on revenue size, products offered, business model and
management structure. Broadview Associates reviewed eight public company
comparables in the wireless communications systems market from a financial point
of view including each company's (i) trailing twelve month ("TTM") revenue; (ii)
TTM revenue growth; (iii) TTM earnings before interest and taxes ("EBIT")
margin; (iv) 5-year earnings per share ("EPS") compound annual growth rate
("CAGR"); (v) equity market capitalization; (vi) TTM P/E ratio; (vii)
price/forward calendar 1998 EPS ratio ("Forward P/E"); (viii) TTM TMC/R ratio;
(ix) price/forward calendar 1998 revenue ratio ("Forward TMC/R"); (x) TTM
TMC/earnings before interest, taxes, depreciation and amortization
("TMC/EBITDA") ratio; and (xi) TTM TMC/EBIT ratio. Companies deemed by
Broadview Associates to be comparable to MAS included P-COM, Inc., SR Telecom,
Inc., Electromagnetic Sciences Inc., DMC, Proxim, Gilat Satellite Networks Ltd.,
Allen Telecom Inc. and Innova Corp. (the "Comparable Companies").
The Comparable Companies had a TTM P/E ratio range of 16.3 to 40.5 with a
median of 23.0. The per share valuation of MAS implied by the median Comparable
Companies TTM P/E multiple was $20.05. The Forward P/E ratio range of the
Comparable Companies was 12.3 to 27.5 with a median of 15.1. The per share
valuation of MAS implied by the median Forward P/E multiple of the Comparable
Companies was $13.24. The Comparable Companies had a TMC/R ratio range of 1.07
to 5.19 with a median of 1.97. MAS's per share valuation implied by the
median Comparable Companies TTM TMC/R multiple was $17.46. The Forward TMC/R
ratio range of the Comparable Companies was 0.81 to 2.40 with a median of
1.28. The per share valuation of MAS implied by the median Comparable
Companies Forward TMC/R multiple was $15.23. The Comparable Companies TTM
TMC/EBITDA ratio range was 6.7 to 22.4 with a median of 11.2. MAS's per
share valuation implied by the median Comparable Companies TMC/EBITDA
multiple was $12.11. The TTM TMC/EBIT ratio range of the Comparable
Companies was 8.7 to 29.2 with a median of 19.7. The per share valuation of
MAS implied by the median TMC/EBIT multiple of the Comparable Companies was
$17.70.
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TRANSACTION COMPARABLES ANALYSIS. Valuation statistics from transaction
comparables indicate the price/revenue and equity price/pretax income multiples
acquirers have paid for comparable companies in a particular market segment.
Broadview Associates reviewed eight comparable merger and acquisition
transactions from 1995 through December 1997, which involved consideration of
over $10 million and sellers that shared many characteristics with MAS,
including products offered and business models. The transactions represented
eight private sellers in the wireless communications segment of the
telecommunications systems market. However, the equity price/pretax income
multiple was not available to Broadview Associates in their analysis due to the
lack of available information regarding the pretax income of the sellers in the
transactions.
The price/revenue multiples of the eight transactions analyzed by Broadview
Associates ranged from 1.36 to 28.95 with a median of 2.16. The per share
valuation implied by the median price/revenue multiple of all eight transaction
comparables was $18.78.
TRANSACTION PREMIUMS PAID ANALYSIS. Premiums paid in comparable public
seller transactions indicate the amount of consideration acquirers are willing
to pay above the seller's equity market capitalization. In this analysis, the
value of consideration paid in transactions involving stock is computed using
the buyer's stock price immediately prior to announcement, while the seller's
equity market capitalization is measured one day prior, 20 trading days prior to
announcement and the average for the 20 trading days preceding the announcement
date. Broadview Associates reviewed 23 comparable merger and acquisition
transactions involving hardware vendors from January 1, 1995 to December 22,
1997, with total consideration greater than $25 million and less than $250
million.
Based upon Broadview Associates' analysis of premiums paid in comparable
hardware transactions, Broadview Associates found that premiums/(discounts) paid
to sellers' equity market capitalizations (using the buyer's share price on the
day prior to the announcement date of the transaction to calculate consideration
in stock transactions) 20 trading days prior to announce date ranged from 3.3%
to 105.6% with a median of 39.0%. The premiums/(discounts) paid to each
sellers' equity market capitalization one day prior to the announcement date
ranged from (14.3%) to 61.5% with a median of 9.7%. The premiums/(discounts)
paid to each sellers' equity market capitalization for the 20 trading day
average share price prior to the announcement date ranged from 2.7% to 84.2%
with a median of 26.3%.
In the comparable hardware transactions, the per share valuation of MAS
implied by the median premium paid 20 trading days prior to the announcement
date was $20.85. The per share valuation of MAS implied by the median premium
paid one day prior to the announcement date was $14.27. The per share valuation
of MAS implied by the median premium paid for the 20 trading day average prior
to the announcement date was $17.58.
STOCK PERFORMANCE ANALYSIS. For comparative purposes, Broadview Associates
examined the weekly historical volume and trading prices for both MAS Capital
Stock and DMC Common Stock. Broadview Associates examined (i) DMC actual share
prices and trading volumes from December 13, 1996 to December 19, 1997; (ii) MAS
actual share prices and trading volumes from June 20, 1997 (the date of MAS's
initial public offering, (the "MAS IPO Date") to December 19, 1997; (iii) DMC,
MAS and the set of Comparable Companies indexed share prices from June 20, 1997
(MAS IPO Date) to December 19, 1997; and (iv) the relative ratio of MAS to DMC
actual share prices on a daily basis from June 20, 1997 (MAS IPO Date) to
December 19, 1997.
RELATIVE CONTRIBUTION ANALYSIS. A relative contribution analysis measures
each of the merging companies' contributions to items such as revenue and
operating income on a percentage basis. Broadview Associates examined the
actual relative contributions during the TTM ended September 30, 1997, projected
fiscal year ending March 31, 1998 and projected fiscal year ending March 31,
1999, based upon analyst estimates for each of the two companies for the
following income statement items: (i) revenue; (ii) operating income; (iii)
pretax income; and (iv) net income.
MAS's relative contribution for revenue for the TTM ended September 30,
1997, projected fiscal year ending March 31, 1998 and projected fiscal year
ending March 31, 1999 was 18.3%, 17.4% and 17.5%, respectively. MAS's
relative contribution for operating income for the TTM ended September 30,
1997, projected fiscal year ending March 31, 1998 and projected fiscal year
ending March 31, 1999 was 17.4%, 16.3% and 18.2%, respectively. MAS's
relative contribution for pretax income for the TTM ended September 30, 1997,
projected fiscal year ending
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March 31, 1998 and projected fiscal year ending March 31, 1999 was 22.0%,
20.0% and 19.1%, respectively. MAS's relative contribution for net income
for the TTM ended September 30, 1997, projected fiscal year ending March 31,
1998 and projected fiscal year ending March 31, 1999 was 16.7%, 15.2% and
16.7%, respectively.
RELATIVE OWNERSHIP ANALYSIS. A relative ownership analysis measures
each of the merging companies' relative equity ownership and relative entity
values (net of cash) at various exchange ratios. Broadview Associates examined
the relative equity ownership and relative entity value at exchange ratios
ranging from 0.951 through 1.460. At an exchange ratio of 0.951, the implied
equity ownership was 86.0% for DMC and 14.0% for MAS, while the implied entity
value was 88.5% for DMC and 11.5% for MAS. At an exchange ratio of 1.460, the
implied equity ownership was 80.0% for DMC and 20.0% for MAS, while the implied
entity value was 82.0% for DMC and 18.0% for MAS. At an exchange ratio of 1.20,
the implied equity ownership was 83.0% for DMC and 17.0% for MAS while the
implied entity value was 85.2% for DMC and 14.8% for MAS.
PRO FORMA POOLING MODEL ANALYSIS. A pro forma merger analysis calculates
the earnings per share accretion/dilution of the pro forma combined entity
taking into consideration various financial affects which will result from a
consummation of the transaction. This analysis relies upon certain financial
and operating assumptions provided by equity research analysts and on publicly
available data about MAS and DMC. Based on analysts' forecasts for each of the
two companies, the pro forma pooling analysis indicates earnings per share
accretion/(dilution) without acquisition expenses for the fiscal year ending
March 31, 1998 and 1999 of 3.6% and 0.3%, respectively.
While the foregoing summary describes all analyses and factors that
Broadview Associates deemed material in its presentation to the DMC Board of
Directors, it is not a comprehensive description of all analyses and factors
considered by Broadview Associates. The preparation of an opinion is a complex
process that involves various determinations as to the most appropriate and
relevant methods of a financial analysis and the application of these methods to
the particular circumstances and, therefore, such an opinion is not readily
susceptible to summary description. Broadview Associates believes that its
analyses must be considered as a whole and that selecting portions of its
analyses and of the factors considered by it, without considering all analyses
and factors, would create an incomplete view of the evaluation process
underlying the Broadview Associates Opinion. In performing its analyses,
Broadview Associates considered general economic, market and financial
conditions and other matters, many of which are beyond the control of DMC and
MAS. Any estimates contained in these analyses are not necessarily indicative
of actual values or predictive of future results or values, which may be
significantly more or less favorable than as set forth therein. In addition,
analyses relating to the value of business do not purport to be appraisals or to
reflect the prices at which businesses may actually be sold.
DMC formally engaged Broadview Associates on November 21, 1996 by means of
an engagement letter to provide financial advisory service in connection with
potential merger or acquisition transactions. Such engagement letter was
jointly amended by DMC and Broadview Associates by means of an amendment letter
dated December 19, 1997. The engagement letter as amended provides that, for
its services, Broadview Associates is to be paid a transaction fee (the
"Transaction Fee") currently estimated to be approximately $1.35 million based
upon the closing stock price of DMC Common Stock of $13.50 on January 9, 1998.
The actual Transaction Fee could be higher or lower, based upon DMC's stock
price, and the number of fully diluted shares outstanding of MAS on the date of
the closing of the Reorganization. DMC also has agreed to pay Broadview
Associates a fee (the "Fairness Opinion Fee") of $200,000 in connection with the
delivery of a fairness opinion. The Fairness Opinion Fee will be credited
against the Transaction Fee. In addition, DMC has agreed to reimburse Broadview
Associates for its reasonable out-of-pocket expenses incurred in connection with
rendering financial advisory services, including reasonable fees and
disbursements of its legal counsel. DMC has also agreed to indemnify Broadview
Associates for certain liabilities, including liabilities under the federal
securities laws or relating to or arising out of Broadview Associates'
engagement as financial advisor to DMC.
Broadview Associates is a nationally recognized investment banking firm,
Broadview Associates focuses on providing merger and acquisition advisory
services to information technology ("IT") companies. In this capacity,
Broadview Associates is continually engaged in valuing such businesses, and
maintains an extensive database of IT mergers and acquisitions for comparative
purposes.
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OPINION OF HAMBRECHT & QUIST. MAS engaged Hambrecht & Quist to act as its
financial advisor in connection with the Reorganization and to render an opinion
as to the fairness from a financial point of view to the holders of the
outstanding shares of MAS Capital Stock of the consideration to be received by
such holders in the Reorganization. Hambrecht & Quist was selected by the MAS
Board based on Hambrecht & Quist's qualifications, expertise and reputation, as
well as Hambrecht & Quist's historic investment banking relationship and
familiarity with MAS. Hambrecht & Quist rendered its oral opinion (subsequently
confirmed in writing) on December 22, 1997 to the MAS Board that, as of such
date, the consideration to be received by the holders of the MAS Capital Stock
in the Reorganization is fair to the holders of Common Stock from a financial
point of view. A copy of Hambrecht & Quist's opinion dated December 22, 1997,
which sets forth the assumptions made, matters considered, the scope and
limitations of the review undertaken and the procedures followed by Hambrecht &
Quist is attached as Appendix D to this Proxy Statement/Prospectus. MAS
shareholders are advised to read the opinion in its entirety. The assumptions
made, matters considered and limits of review contained in Hambrecht & Quist's
written opinion delivered December 22, 1997 were substantially the same as those
contained in the opinion attached hereto. No limitations were placed on
Hambrecht & Quist by the MAS Board with respect to the investigation made or the
procedures followed in preparing and rendering its opinion.
In its review of the Reorganization, and in arriving at its opinion,
Hambrecht & Quist, among other things: (i) reviewed the publicly available
consolidated financial statements of DMC for recent years and interim periods to
date and certain other relevant financial and operating data of DMC made
available to Hambrecht & Quist from published sources and from the internal
records of DMC; (ii) reviewed certain internal financial and operating
information, including certain projections, relating to DMC based upon
information provided by the management of DMC; (iii) discussed the business,
financial condition and prospects of DMC with certain of its officers; (iv)
reviewed the financial statements of MAS for recent years and interim periods to
date and certain other relevant financial and operating data of MAS made
available to Hambrecht & Quist from published sources and from the internal
records of MAS; (v) reviewed certain internal financial and operating
information relating to MAS prepared by the management of MAS; (vi) discussed
the business, financial condition and prospects of MAS with certain of its
officers; (vii) reviewed the recent reported prices and trading activity for DMC
Common Stock and MAS Capital Stock and compared such information and certain
financial information for DMC and MAS with similar information for certain other
companies engaged in businesses Hambrecht & Quist considered comparable; (viii)
reviewed the financial terms, to the extent publicly available, of certain
comparable merger and acquisition transactions; (ix) reviewed the Reorganization
Agreement; and (x) performed such other analyses and examinations and considered
such other information, financial studies, analyses and investigations and
financial, economic and market data as Hambrecht & Quist deemed relevant.
Hambrecht & Quist did not independently verify any of the information
concerning MAS or DMC considered in connection with their review of the
Reorganization and, for purposes of its opinion, Hambrecht & Quist assumed and
relied upon the accuracy and completeness of all such information. In connection
with its opinion, Hambrecht & Quist did not prepare or obtain any independent
evaluation or appraisal of any of the assets or liabilities of MAS or DMC, nor
did they conduct a physical inspection of the properties and facilities of MAS
or DMC. With respect to the financial forecasts and projections used in their
analysis, Hambrecht & Quist assumed that they reflected the best currently
available estimates and judgments of the expected future financial performance
of DMC and MAS. For the purposes of their opinion, Hambrecht & Quist also
assumed that neither MAS nor DMC was a party to any pending transactions,
including external financings (other than those contemplated that have been
disclosed to Hambrecht & Quist), recapitalizations or merger discussions, other
than the Reorganization and those in the ordinary course of conducting their
respective businesses. For purposes of their opinion, Hambrecht & Quist assumed
that the Reorganization will qualify as a tax-free reorganization under the Code
for the shareholders of MAS and that the Reorganization will be accounted for
as a pooling of interests. Hambrecht & Quist's opinion is necessarily based
upon market, economic, financial and other conditions as they existed and can
be evaluated as of the date of the opinion and any subsequent change in such
conditions would require a reevaluation of such opinion.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. The summary
of the Hambrecht & Quist analyses set forth below does not purport to be a
complete description of the presentation by Hambrecht & Quist to the MAS Board.
In arriving at its opinion, Hambrecht & Quist did not attribute any particular
weight to any analyses or factor considered by it, but rather made
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qualitative judgments as to the significance and relevance of each analysis
and factor. Accordingly, Hambrecht & Quist believes that its analyses and the
summary set forth below must be considered as a whole and that selecting
portions of its analyses, without considering all analyses, or of the
following summary, without considering all factors and analyses, could create
an incomplete view of the processes underlying the analyses set forth in the
Hambrecht & Quist presentation to the MAS Board and its opinion. In
performing its analyses, Hambrecht & Quist made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of MAS and DMC. The
analyses performed by Hambrecht & Quist (and summarized below) are not
necessarily indicative of actual values or actual future results, which may
be significantly more or less favorable than suggested by such analyses.
Additionally, analyses relating to the values of businesses do not purport to
be appraisals or to reflect the prices at which businesses actually may be
acquired.
In performing its analyses, Hambrecht & Quist used Hambrecht & Quist
published research projections of MAS's fiscal year 1998 and 1999 financial
performance. Hambrecht & Quist also used CIBC Oppenheimer published research
estimates to project DMC's fiscal year 1998 and 1999 financial performance.
The following is a brief summary of certain financial analyses performed by
Hambrecht & Quist in connection with providing its written opinion to the MAS
Board on December 22, 1997:
CONTRIBUTION ANALYSIS: Hambrecht & Quist analyzed the contribution of each
of MAS and DMC to certain fiscal 1999 financial statement categories of the pro
forma combined company with no revenue or expense adjustments. The financial
statement categories included revenue, operating income, pretax income, cash,
and total assets. This contribution analysis was then compared to the pro forma
ownership percentage of the shareholders of MAS and the stockholders of DMC in
the pro forma post-Reorganization combined company (the "Combined Company").
Hambrecht & Quist observed that, calculated on a fully-diluted basis using the
treasury stock method, MAS shareholders are expected to own approximately 17% of
the Combined Company equity at the close of the Reorganization and DMC
stockholders are expected to own approximately 83% of the Combined Company
equity at the close of the Reorganization. At the close of the Reorganization,
it was estimated that MAS and DMC would contribute approximately 38% and 62%,
respectively, of the combined cash and MAS would contribute 20% of total assets.
Hambrecht & Quist examined the expected contributions to the Combined Company's
revenues, operating income and pretax income by MAS for fiscal year 1999 (i.e.,
the four quarters ending March 31). It was estimated that MAS and DMC would
contribute approximately 17% and 83%, respectively, of the combined revenues and
approximately 18% and 82%, respectively, of the combined operating income. It
was also estimated that MAS would contribute 19% of pretax income and that DMC
would contribute approximately 81%.
PRO FORMA REORGANIZATION ANALYSIS: Hambrecht & Quist analyzed the pro forma
impact of the Reorganization on the Combined Company's fiscal 1999 earnings per
share ("EPS") using (i) CIBC Oppenheimer's estimate of DMC's EPS in fiscal 1999
of $0.80 and (ii) its estimate of MAS's EPS in fiscal 1999 of $0.97. The
analysis indicated that the EPS of the pro forma Combined Company would be $0.81
in fiscal 1999, slightly higher than for DMC as a stand-alone company. The
actual results and savings achieved by the Combined Company resulting from the
Reorganization may vary from the projected results and variations may be
material.
PREMIUM ANALYSIS: Hambrecht & Quist compared the implied price per share of
the offer as of December 22, 1997 to similar premiums for certain technology
transactions announced since 1994. Hambrecht & Quist analyzed 14 such public
company transactions in the communications industry. Hambrecht & Quist observed
that the average one trading-day premium paid in the selected public company
technology transactions was 34%. This compared with the proposed acquisition
in which, as of December 22, 1997, the premium offered over the closing price
for MAS Capital Stock was 31%.
Hambrecht & Quist also analyzed the implied premiums to average historical
closing prices for the 10, 20, 30, 60 and 90 trading days ending December 22,
1997 using the implied offer price based on the 1.20 exchange ratio and found
that the implied premiums were 31%, 32%, 33%, 31% and 22%, respectively.
DISCOUNTED CASH FLOW ANALYSIS: Hambrecht & Quist performed discounted cash
flow analyses for MAS using projected financial performance through 2002. The
analysis aggregated (i) the present value of the projected
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free cash flow (defined as earnings before interest and taxes ("EBIT"), less
increases in working capital, plus depreciation and amortization, and less
capital expenditures) through 2002 and (ii) the present value of a range of
terminal values for the year 2002.
The terminal values for MAS were determined by applying multiples ranging
from 2 to 4 times MAS's estimated revenue for 2002. MAS's free cash flow
streams and terminal values were discounted to present values using discount
rates ranging from 20% to 30%. Such analyses indicated a range of equity values
for MAS of between $13.10 per share and $34.60 per share. These results
compared to an implied offer per share of approximately $16.05 per share of MAS
Capital Stock in the proposed acquisition, based on the closing price of DMC
Common Stock on December 22, 1997.
ANALYSIS OF PUBLICLY TRADED COMPARABLE COMPANIES: Hambrecht & Quist
compared selected historical and projected financial information of MAS to
publicly traded companies Hambrecht & Quist deemed to be comparable to MAS (the
"Wireless Communication Comparables"). Such information included the ratio of
market value to historical net income, market value to book value, and price per
share to projected EPS. Hambrecht & Quist also examined the ratio of the
enterprise value (market value plus debt less cash) to historical revenue,
historical earnings before interest and taxes, historical earnings before
interest, taxes, depreciation and amortization ("EBITDA"), and projected
calendar year 1997 and 1998 revenue. Companies deemed comparable included
selected wireless communication companies such as California Microwave, Inc.,
DMC, Innova Corporation, and P-Com, Inc. The foregoing multiples were applied
to historical financial results of MAS for the latest-twelve-month ("LTM")
period ended September 30, 1997 and projected financial results of MAS from
Hambrecht & Quist Research. Hambrecht & Quist determined average multiples for
the Wireless Communication Comparables of 3.7 times LTM revenue, 18.5 times LTM
EBITDA, 26.7 times LTM EBIT, 58.3 times LTM net income, 3.0 times projected
calendar year 1997 revenue, 1.9 times projected calendar 1998 revenue, 29.0
times projected calendar 1997 net income, 18.6 times projected calendar 1998 net
income, and 4.0 time book value.
Based on the analysis of publicly traded comparable companies, the implied
equity value per share of MAS applying the multiples of the Wireless
Communication Comparables to historical results and the projections from
Hambrecht & Quist research ranged from $16.66 per share and approximately $37.09
per share. This compared with an offer in the proposed acquisition of
approximately $16.05 per share for MAS, based on the closing price of DMC Common
Stock on December 22, 1997.
DMC's multiples of 2.2 times LTM revenue, 15.8 times LTM EBITDA, 20.8 times
LTM EBIT, 34.7 times LTM net income, 2.1 times projected calendar year 1997
revenue, 1.6 times projected calendar 1998 revenue, 20.3 times projected
calendar 1997 net income, 16.9 times projected calendar 1998 net income, and 3.9
time book value were applied to the historical financial results of MAS and
projected financial results from Hambrecht & Quist research. The resulting
implied equity value per share ranged from $15.17 per share to $22.04, based on
the closing price of DMC Common Stock on December 22, 1997.
ANALYSIS OF SELECTED REORGANIZATION AND ACQUISITION TRANSACTIONS: Hambrecht
& Quist compared the proposed acquisition with selected merger and acquisition
transactions. This analysis included 5 transactions involving companies in the
wireless communication industry. In examining these transactions, Hambrecht &
Quist analyzed certain income statement and balance sheet parameters of the
acquired company relative to the consideration offered. The foregoing multiples
were applied to historical financial results of MAS for the twelve-month period
ended September 30, 1997. Multiples analyzed included consideration offered to
LTM revenue, LTM EBIT, LTM EBITDA and LTM net income. The consideration
offered in the Wireless Communication Comparables was an average multiple of
2.2 times LTM revenue, 12.4 times LTM EBITDA, 14.5 times LTM EBIT, and 22.7
times LTM net income. Based on the analysis of selected merger and
acquisition transactions, MAS's implied equity value per share applying the
multiples of the Wireless Communications Comparables to historical results
ranged from values between approximately $10.82 per share and approximately
$18.82 per share. This result compared with an implied value in the proposed
acquisition of approximately $16.05 per share of MAS Capital Stock, based on
the closing price of DMC Common Stock on December 22, 1997.
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No company or transaction used in the above analyses is identical to MAS or
the Reorganization. Accordingly, an analysis of the results of the foregoing is
not mathematical; rather it involves complex considerations and judgments
concerning differences in financial and operating characteristics of the
companies and other factors that could affect the public trading values of the
companies or company to which they are compared.
The foregoing description of Hambrecht & Quist's opinion is qualified in
its entirety by reference to the full text of such opinion which is attached as
Appendix D to this Proxy Statement/Prospectus.
Hambrecht & Quist, as part of its investment banking services, is regularly
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, corporate restructurings, strategic alliances,
negotiated underwriting, secondary distributions of listed and unlisted
securities, private placements and valuations for corporate and other purposes.
Hambrecht & Quist is familiar with MAS, having acted as managing underwriter of
its initial public offering in June 1997. Hambrecht & Quist received customary
compensation in connection with such transaction. In the ordinary course of
business, Hambrecht & Quist acts as a market maker and broker in the publicly
traded securities of MAS and of DMC and receives customary compensation in
connection therewith, and also provides research coverage for MAS. In the
ordinary course of business, Hambrecht & Quist actively trades in the securities
of MAS and of DMC for its own account and for the accounts of its customers and,
accordingly, may at any time hold a long or short position in such securities.
Hambrecht & Quist may in the future provide additional investment banking or
other financial advisory services to DMC.
Pursuant to an engagement letter dated November 18, 1997, MAS has agreed to
pay Hambrecht & Quist a fee (a "Fairness Opinion Fee") of $300,000 in connection
with the delivery of a fairness opinion. MAS has also agreed to pay Hambrecht &
Quist, in connection with its services as financial advisor to MAS in connection
with the Reorganization, an additional fee payable upon the closing of the
Reorganization (the "Transaction Fee") equal to 1.5% of the aggregate
consideration received in the Reorganization. MAS also has agreed to reimburse
Hambrecht & Quist for its reasonable out-of-pocket expenses and to indemnify
Hambrecht & Quist against certain liabilities, including liabilities under the
federal securities laws or relating to or arising out of Hambrecht & Quist's
engagement as financial advisor.
INTERESTS OF CERTAIN PERSONS IN THE REORGANIZATION
In considering the recommendation of the DMC Board and the MAS Board with
respect to the Reorganization Agreement and the transactions contemplated
thereby, stockholders of DMC and shareholders of MAS should be aware that
certain members of the Boards and management of DMC and MAS have interests in
the Reorganization that are in addition to the interests of the stockholders of
DMC and shareholders of MAS generally.
STOCK OPTION PLANS. Under the terms of the Reorganization Agreement, DMC
has agreed that all stock options of MAS outstanding as of the Effective Time of
the Reorganization will be assumed by DMC at such time. Such assumed options
shall entitle the holder thereof to purchase that number of shares of DMC Common
Stock equal to the number (rounded down to the nearest whole number) of shares
of DMC Common Stock as the holder of such stock option would have been entitled
to receive pursuant to the Reorganization had such holder exercised such option
in full immediately prior to the Effective Time (not taking into account whether
or not such option was in fact exercisable at that time). The exercise price
for the DMC Common Stock issuable upon the exercise of such option will be at a
price per share (rounded up to the nearest whole cent) equal to (i) the
aggregate exercise price for MAS Capital Stock otherwise purchasable pursuant to
such stock option divided by (ii) the number of shares of DMC Common Stock
purchasable pursuant to such assumed option. The exercise schedule of the
assumed options shall continue to be determined by reference to the MAS stock
option plan.
The assumption of such options enables participants in MAS's 1997 Stock
Option Plan to hold options to acquire DMC Common Stock after the Reorganization
rather than having their options accelerate and terminate upon consummation of
the Reorganization. However, under the provisions of the MAS 1995 Employee
Share Purchase Program, the shares of MAS Capital Stock held in trust
automatically vest upon a change in ownership of MAS. As of December 22, 1997,
employees (or former employees) of MAS held options to purchase an aggregate
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of 341,200 shares of MAS Capital Stock at a weighted average price of $15.21 per
share (at exercise prices ranging from $14.00 to $21.50 per share).
INDEMNIFICATION AND INSURANCE. DMC has agreed that, following the
Effective Time, the directors, officers, employees or agents of MAS or its
subsidiaries shall be entitled to be indemnified by the Surviving Company in
their capacities as directors, officers, employees, fiduciaries or agents of MAS
or its subsidiaries prior to the Effective Time to the extent provided by MAS's
Constitution, DMC's Restated Certificate of Incorporation and Bylaws and the
indemnification agreements entered into with such officers and directors, as
well as to any such rights provided by New Zealand law. DMC has agreed to, and
to cause the Surviving Company to, honor such rights of indemnification for at
least six years following the Effective Time, and has further agreed that the
constitution of the Surviving Company shall contain the same indemnification
provisions set forth in MAS's Constitution and shall not be amended in any
manner adverse to MAS's directors, officers, employees or agents with respect to
such matters for at least six years following the Effective Time.
For a period of three years after the Effective Time, DMC has agreed to use
its best efforts to maintain in effect directors' and officers' liability
insurance covering the officers and directors of MAS, if available, with terms
which are comparable to those applicable to the then current officers and
directors of DMC or those applicable as of December 22, 1997 to directors and
officers of MAS, whichever is more favorable to such directors and officers,
subject to certain limitations on premiums. See "The Reorganization --
Interests of Certain Persons in the Reorganization."
Effective upon consummation of the Reorganization, Mr. Oringer, who will
become a director of DMC, will enter into an indemnification agreement with DMC
in the form entered into by DMC with its current directors and executive
officers. These agreements, among other things, provide for the indemnification
of DMC's directors and executive officers for certain expenses (including
attorneys' fees), judgments, fines and settlement amounts incurred by any such
person in any action or proceeding, including any action by or in the right of
DMC, arising out of such person's services as a director or executive officer of
DMC, any subsidiary of DMC or any other company or enterprise to which such
person provides services at the request of DMC to the fullest extent permitted
by applicable law.
DMC BOARD. Howard Oringer, a member of the MAS Board, will become a member
of the DMC Board upon the effectiveness of the Reorganization and shall be
nominated to serve as a member of the DMC Board for a one-year term at DMC's
annual meeting of stockholders to be held in 1998. As a non-employee director
of DMC, Mr. Oringer will receive, based on amounts currently provided to other
non-employee directors, $1,000 in fees for attendance at each in-person DMC
Board meeting, $500 in fees for attendance at each telephone meeting of the DMC
Board and a retainer of $3,000 per quarter. Each non-employee director of DMC
receives fees of $750 for each in-person committee meeting attended and $375 in
fees for each telephone committee meeting attended. In addition, Mr. Oringer
will be able to participate in DMC's 1994 Plan, whereby each new non-employee
DMC Board member, upon his or her initial appointment or election to the DMC
Board, receives an automatic option grant for 21,000 shares with an exercise
price equal to the fair market value of the option shares on the grant date. In
addition, each non-employee DMC Board member receives an option grant of 7,000
shares after he or she has served on the DMC Board for at least three years.
The amount of compensation for attendance at DMC Board and committee meetings,
and the number of shares granted to non-employee DMC Board members under the
1994 Plan, is subject to change. See "Management of DMC After the
Reorganization -- Directors and Executive Officers After the Reorganization."
CERTAIN TAX CONSEQUENCES
CERTAIN NEW ZEALAND INCOME TAX CONSEQUENCES. The following discussion
summarizes the anticipated material New Zealand income tax consequences of the
Reorganization that are generally applicable to DMC, MAS and the MAS
shareholders under the New Zealand Income Tax Act 1994. This discussion does
not deal with all New Zealand income tax considerations that may be relevant to
particular MAS shareholders in light of their particular circumstances. In
addition, the following discussion does not address the tax consequences of
transactions effectuated before or after the Reorganization (whether or not such
transactions are or were undertaken in connection with the Reorganization),
including transactions in which shares of MAS Capital Stock were or are
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acquired or transactions in which shares of DMC Common Stock are disposed of.
For New Zealand tax purposes no taxable gain or loss will be recognized as a
result of the Reorganization by:
(i) MAS shareholders in respect of the conversion of their shares of MAS
Capital Stock unless those MAS shareholders are in the business of dealing in
shares or the shares were acquired by those MAS shareholders for the purpose of
resale or as part of a profit-making scheme;
(ii) MAS shareholders who receive cash in lieu of fractional shares,
unless those MAS shareholders are in the business of dealing in shares or the
shares were acquired by those MAS shareholders for the purpose of resale or as
part of a profit-making scheme;
(iii) DMC, Amalgamation Sub or MAS in respect of the amalgamation of
Amalgamation Sub and MAS on the basis that the amalgamation is a "qualifying
amalgamation" for New Zealand tax purposes; or
(iv) DMC or MAS in respect of the conversion of the shares of MAS Capital
Stock to DMC Common Stock at the agreed Exchange Ratio.
Any dissenting MAS shareholders who receive cash from MAS by properly
exercising their applicable minority buyout rights under New Zealand law, if
any, may be taxable on that cash as if they had derived a dividend from MAS. A
dividend will be deemed to be derived to the extent that the cash received by
the dissenting MAS shareholders in respect of each share of MAS Capital Stock
exceeds the available subscribed capital per share cancelled. Any dividend
amount deemed to be derived by a U.S. tax resident dissenting MAS shareholder
will be subject to a reduced New Zealand non-resident withholding tax of 15% on
the gross amount of the dividend deemed to be derived. Some relief may be
available from New Zealand non-resident withholding tax if MAS elects to attach
imputation credits to the dividends it is deemed to pay.
If a dissenting MAS shareholder is in the business of dealing in shares or
acquired shares for the purpose of resale or as part of a profit-making scheme
and the MAS shareholder receives cash from MAS by properly exercising their
applicable minority buyout rights under New Zealand law, that MAS shareholder
should recognize a taxable gain or loss in respect of the cash received for the
acquisition of the shares of MAS Capital Stock.
Subject to certain limitations, the Treaty should relieve any MAS
shareholders who are tax residents in one country from any income tax liability
arising in the other country as a result of the Reorganization. Following the
Reorganization, DMC may be subject to New Zealand withholding taxes in respect
of its shareholding in MAS.
New Zealand has an imputation system of taxation that permits New Zealand
tax resident recipients of certain dividends from New Zealand companies to claim
a credit against their New Zealand tax liability equal to a share of the tax
paid by the company on its income. As a result of the Reorganization, MAS will
forfeit any imputation credits it has accumulated, with the effect that those
credits will not be available to be distributed to its shareholders.
No stamp duty is payable in New Zealand on share transfers and Goods and
Services Tax does not apply to share issues or transfers.
THE DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY.
EACH MAS SHAREHOLDER SHOULD CONSULT HIS OR HER OWN TAX ADVISOR REGARDING THE
SPECIFIC TAX CONSEQUENCES OF THE REORGANIZATION TO HIM OR HER.
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES. The following discussion
summarizes the anticipated material U.S. federal income tax consequences of the
Reorganization that are generally applicable to DMC, MAS and MAS shareholders
under the Code. This discussion does not deal with all U.S. federal income tax
considerations that may be relevant to particular MAS shareholders in light of
their particular circumstances, such as shareholders owning, directly or
indirectly, five percent or more of either the total voting power or the total
value of DMC Common Stock following the Reorganization; shareholders who are
dealers in securities; shareholders who are subject to the alternative minimum
tax provisions of the Code; shareholders who are foreign persons;
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shareholders who acquired their shares in connection with stock option or
stock purchase plans or in other compensatory transactions; and shareholders
who otherwise hold convertible securities, warrants or options. In addition,
the following discussion does not address the tax consequences of
transactions effectuated before or after the Reorganization (whether or not
such transactions are or were undertaken in connection with the
Reorganization), including transactions in which shares of MAS Capital Stock
were or are acquired or transactions in which shares of DMC Common Stock are
disposed of. Furthermore, no foreign, state or local tax considerations are
addressed in this discussion.
SHAREHOLDERS OF MAS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE
SPECIFIC TAX CONSIDERATIONS OF THE REORGANIZATION, INCLUDING THE APPLICABLE
FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO THEM OF THE
REORGANIZATION.
The following discussion is based on the Code, applicable U.S. Treasury
Regulations, judicial authority, and administrative rulings and practice, all as
of the date of this Proxy Statement/Prospectus. The Internal Revenue Service
(the "IRS") is not precluded from adopting a contrary position. In addition,
there can be no assurance that future legislative, judicial, or administrative
changes or interpretations will not adversely affect the accuracy of the
statements and conclusions set forth in this discussion. Any such changes or
interpretations could be applied retroactively and could affect the tax
consequences of the Reorganization to DMC, MAS and the MAS shareholders. The
parties have not requested and will not request a ruling from the IRS as to the
U.S. tax consequences of the Reorganization.
The anticipated U.S. federal income tax consequences of the Reorganization
are as follows:
(i) the Reorganization will constitute a "reorganization" within the
meaning of Section 368(a) of the Code, and DMC and MAS will each be a party to
that reorganization within the meaning of Section 368(b) of the Code;
(ii) no gain or loss will be recognized by the MAS shareholders upon the
conversion of their MAS Capital Stock into shares of DMC Common Stock pursuant
to the Reorganization, except with respect to cash, if any, received in lieu of
fractional shares of DMC Common Stock;
(iii) a MAS shareholder will recognize gain or loss equal to the
difference between the cash received in lieu of a fractional share interest of
DMC Common Stock and such shareholder's tax basis in the fractional share for
which cash is received;
(iv) the aggregate tax basis of the shares of DMC Common Stock received in
exchange for shares of MAS Capital Stock pursuant to the Reorganization
(including fractional shares for which cash is received) will be the same as the
aggregate tax basis for such shares of MAS Capital Stock, decreased by the
amount of any tax basis allocable to the fractional share interests for which
cash is received;
(v) the holding period for shares of DMC Common Stock received in exchange
for shares of MAS Capital Stock pursuant to the Reorganization will include the
period that such shares of MAS Capital Stock were held by the holder, provided
such shares of MAS Capital Stock were held as capital assets by the MAS
shareholder at the Effective Time;
(vi) a MAS shareholder exercising his or her minority buyout right, if
any, who receives payment for shares in cash will generally recognize capital
gain or loss (if the shares were held as a capital asset at the Effective Time)
equal to the difference between the cash received and the holder's basis in such
shares, provided the payment neither is essentially equivalent to a dividend
within the meaning of Section 302 of the Code nor has the effect of the
distribution of a dividend within the meaning of Section 356(a)(2) of the Code
(collectively, a "Dividend Equivalent Transaction"). A sale of shares pursuant
to an exercise of minority buyout rights will generally not be a Dividend
Equivalent Transaction if, as a result of such exercise, the stockholder owns no
shares of DMC Common Stock (either actually or constructively within the meaning
of Section 318 of the Code);
(vii) no gain or loss will be recognized by DMC or MAS as a result of the
Reorganization; and
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(viii) MAS shareholders who are required to file U.S. income tax returns
may be required to comply with certain notice requirements prescribed in
Treasury Department temporary regulations promulgated under Section 367 of the
Code by reason of their participation in the Reorganization. Such MAS
shareholders are urged to consult their own tax advisors in this regard.
It is a condition to the consummation of the Reorganization that DMC
receive an opinion from its counsel, Morrison & Foerster LLP, and that MAS
receive an opinion from its counsel, Brobeck, Phleger & Harrison LLP, to the
effect that the Reorganization will constitute a "reorganization" within the
meaning of Section 368(a) of the Code and that DMC and MAS will each be a party
to that reorganization within the meaning of Section 368(b) of the Code (such
opinions, collectively, the "Tax Opinions"). The Tax Opinions neither bind the
IRS nor preclude the IRS from adopting a contrary position. The Tax Opinions
are subject to certain assumptions and qualifications and the accuracy of
certain representations made by DMC, Amalgamation Sub and MAS, including
representations in certificates to be delivered to counsel by the respective
managements of DMC, Amalgamation Sub and MAS.
ACCOUNTING TREATMENT
The Reorganization is intended to qualify as a pooling of interests for
accounting and financial reporting purposes. Under this method of accounting,
the recorded historical cost basis of the assets and liabilities of DMC and MAS
will be carried forward to the operations of the combined companies at their
recorded amounts. Results of operations of the combined companies will include
income of DMC and MAS for the entire fiscal period in which the combination
occurs and the historical results of operations of the separate companies for
fiscal years prior to the Reorganization will be combined and reported as the
results of operations of the combined companies. Adjustments have been made to
the unaudited combined condensed pro forma financial statements of DMC and MAS
to eliminate certain intercompany and Reorganization related transactions.
Consummation of the Reorganization is conditioned upon receipt by each of
DMC and MAS of a letter from their respective independent public accountants
stating that, in their respective opinions, they concur with the conclusions of
the management of DMC and of MAS that the Reorganization will qualify as a
pooling of interests for accounting purposes. See "The Reorganization
Agreement -- Conditions." Certain events, including certain transactions with
respect to DMC Common Stock or MAS Capital Stock by affiliates of DMC and MAS,
respectively, may prevent the Reorganization from qualifying as a pooling of
interests for accounting and financial reporting purposes. For information
concerning certain restrictions to be imposed on the transferability of DMC
Common Stock to be received by affiliates in order, among other things, to
ensure the availability of pooling of interests accounting treatment, see "The
Reorganization -- Resale Restrictions."
REGULATORY APPROVALS
The Reorganization is subject to any necessary approval being obtained from
the Overseas Investment Commission of New Zealand (the "OIC") for the effective
acquisition by DMC of ownership of one hundred percent (100%) of the shares of
MAS Capital Stock by virtue of the Reorganization. Kensington Swan, DMC's legal
counsel in New Zealand, has advised DMC that such approval should be forthcoming
upon filing the necessary documentation with the OIC.
RESALE RESTRICTIONS
All shares of DMC Common Stock received by MAS shareholders in the
Reorganization will be freely transferable, except that shares of DMC Common
Stock received by persons who are deemed to be "affiliates" (as such term is
defined under the Securities Act) of MAS may be resold by them only in
transactions permitted by the resale provisions of Rule 145 promulgated under
the Securities Act or as otherwise permitted under the Securities Act. Persons
who may be deemed to be affiliates of MAS generally include individuals or
entities that control, are controlled by, or are under common control with, MAS
and may include certain officers and directors of MAS as well as principal
stockholders of MAS.
Commission guidelines regarding qualifying for the pooling of interests
method of accounting also limit sales by affiliates of the acquiring and
acquired companies in a business combination. Commission guidelines
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indicate further that the pooling of interests method of accounting generally
will not be challenged on the basis of sales by affiliates of the acquiring
or acquired company if they do not dispose of any of the shares they own or
shares they receive in connection with a merger during the period beginning
30 days before the merger and ending when financial results covering at least
30 days of combined operations have been published. See "The Reorganization
- -- Accounting Treatment."
The Reorganization Agreement requires MAS to use all reasonable efforts to
cause each of its affiliates to execute a written agreement restricting the
disposition by such person of the shares of DMC Common Stock to be received by
such person in the Reorganization.
The Reorganization Agreement provides that DMC shall register the DMC
Common Stock received by holders of MAS Capital Stock pursuant to the
Reorganization. DMC shall use reasonable efforts to register such DMC Common
Stock under U.S. (under a Form S-3 or a post-effective amendment to a Form S-4
registration statement) and/or New Zealand securities laws, as applicable,
subject to customary blackout restrictions, upon the request of holders of such
DMC Common Stock who in the aggregate held 5% or more of the outstanding MAS
Capital Stock prior to the Reorganization and who require such registration to
resell the DMC Common Stock received by them in the Reorganization. Such
registration shall occur only after the date upon which financial results of at
least 30 days of post-merger combined operations have been first published by
DMC. See "The Reorganization Agreement -- Additional Agreements."
MINORITY BUYOUT RIGHTS OF MAS SHAREHOLDERS
The following summary of the provisions of Sections 110-115 of the
Companies Act regarding the minority buyout rights of shareholders of a
New Zealand company is not intended to be a complete statement of such
provisions and is qualified in its entirety by reference to the full text of
Section 110 of the Companies Act, a copy of which is attached to this Proxy
Statement/Prospectus as Appendix E and incorporated by reference.
To be effective, the Reorganization Proposal and the Reorganization
Agreement must be approved by a special resolution of the shareholders of MAS
and a special resolution of the shareholders of Amalgamation Sub. A special
meeting of shareholders of MAS will be held on March 23, 1998 to consider and
vote on the Reorganization Proposal and the Reorganization Agreement.
Sections 110-115 of the Companies Act gives certain rights to shareholders
who vote against the resolutions to require MAS to purchase their shares if the
Reorganization Proposal and the Reorganization Agreement are approved by
shareholders of MAS. Any shareholder who casts all votes attached to shares
registered in his/her name (and having the same beneficial owner) against the
resolution approving the Reorganization Proposal and the Reorganization
Agreement, is entitled to require MAS to purchase his or her shares. While all
issued and outstanding shares of MAS Capital Stock will be exchanged for shares
of DMC Common Stock at the Effective Time, the minority buyout rights of
dissenting MAS shareholders pursuant to Sections 110-115 of the Companies Act
will be unaffected.
The right to have shares purchased must be exercised within 10 working days
of the passing of the resolution to approve the Reorganization Proposal and the
Reorganization Agreement at the special meeting of MAS by a shareholder giving
written notice to MAS that such shareholder requires MAS to purchase their
shares. Within 20 working days of receipt of the notice the MAS Board must:
(a) agree to purchase the shares; or
(b) arrange for some other person to agree to purchase the shares; or
(c) apply to the appropriate New Zealand court (the "New Zealand Court")
for an order exempting MAS from the obligation to purchase the shares
on the grounds that the purchase would be disproportionately damaging
to MAS or that MAS cannot reasonably be required to finance the
purchase or it would not be just and equitable to require MAS to
purchase the shares. The
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New Zealand Court may also exempt MAS from the obligation to
purchase the shares or may suspend such obligation if the MAS Board
has resolved that the purchase by MAS of the relevant shares would
result in failing to satisfy the solvency test and MAS has, having
made reasonable efforts to do so, been unable to arrange for the
shares to be purchased by any other person. In exempting MAS from
the obligation to purchase the shares, the New Zealand Court may
make an order setting aside the resolution of shareholders approving
the Reorganization Proposal and the Reorganization Agreement or
directing MAS to take or refrain from taking any action specified in
the order, requiring MAS to pay compensation to the shareholders
affected or putting MAS into liquidation; or
(d) arrange for the special resolution approving the Reorganization
Proposal and the Reorganization Agreement to be rescinded by special
resolution of shareholders, or decide in the appropriate manner not to
take the action concerned, as the case may be.
Written notice of the MAS Board's decision must be given to the relevant
shareholder(s).
Where the MAS Board agrees to the purchase of the shares by MAS, it must
give a notice to the relevant shareholder(s), within five working days after the
notice referred to in the preceding paragraph, nominating what the MAS Board
considers a fair and reasonable price for the shares to be acquired. A
shareholder who considers that the price nominated by the MAS Board is not fair
or reasonable must forthwith give a notice of objection to MAS. If, within 10
working days of the MAS Board giving notice to the shareholder, no objection to
the price has been received by MAS, it must, on such date as MAS and the
shareholder agree or, in the absence of agreement, as soon as practicable,
purchase the shares at the nominated price. If within 10 working days an
objection to the price has been received by MAS, it must refer the question of
what is a fair and reasonable price to arbitration and within five working days
pay on a provisional basis in the price nominated by the MAS Board. The
arbitration is to be conducted in accordance with the Arbitration Act 1996 (NZ).
The arbitrator must expeditiously determine a fair and reasonable price for the
shares to be purchased. If the price determined by the arbitrator:
(a) exceeds the provisional price paid by MAS, then it must pay the
balance owing to the shareholder;
(b) is less than the provisional price paid by MAS, then it may recover
the excess paid from the shareholder.
The arbitrator may award interest on any balance payable or excess to be
repaid.
If the MAS Board arranges for some other person to agree to purchase the
shares, the provisions set out in the preceding paragraphs shall (with all
appropriate modifications) apply to the purchase of shares by such person and,
in addition, MAS must indemnify the shareholder in respect of any losses
suffered by the shareholder by reason of the failure by the person to purchase
the shares at the price nominated or fixed by arbitration, as the case may be.
Holders of DMC Common Stock are not entitled to appraisal rights under the
Delaware General Corporation Law in connection with the Reorganization.
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THE REORGANIZATION AGREEMENT
THE FOLLOWING IS A BRIEF SUMMARY OF CERTAIN PROVISIONS OF THE
REORGANIZATION AGREEMENT, A COPY OF WHICH IS ATTACHED AS APPENDIX A TO THIS
PROXY STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE. THIS
SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE
REORGANIZATION AGREEMENT.
THE REORGANIZATION
Pursuant to the Reorganization Agreement, and subject to the terms and
conditions thereof, at the Effective Time, Amalgamation Sub will be amalgamated
with and into MAS, with MAS as the Surviving Company, and the separate existence
of Amalgamation Sub shall thereupon cease.
Effective at the Effective Time, the Constitution of MAS will be the
Constitution of the Surviving Company until duly amended. The directors of
Amalgamation Sub will be the initial directors of the Surviving Company and the
officers of MAS will be the initial officers of the Surviving Company.
EFFECTIVE TIME OF THE REORGANIZATION
The closing of the transactions contemplated by the Reorganization
Agreement (the "Closing") will take place as promptly as practicable after all
of the conditions to the Reorganization are satisfied or waived, but in no event
later than three days thereafter (the "Closing Date"). See "The Reorganization
Agreement -- Conditions."
CONVERSION OF SECURITIES
As a result of the Reorganization and without any action on the part of the
holders thereof, each share of MAS Capital Stock issued and outstanding
immediately prior to the Effective Time will be converted into the right to
receive 1.20 shares of fully paid and nonassessable DMC Common Stock, subject to
any minority buyout rights under New Zealand law, if applicable, will cease to
be outstanding, and will be canceled and retired, except as described below.
Each holder of a MAS Certificate upon consummation of the Reorganization
will cease to have any rights with respect to such MAS Capital Stock, except the
right to receive, without interest, shares of DMC Common Stock and cash in lieu
of fractional shares (as described in "The Reorganization -- Exchange of
Shares") upon the surrender of such MAS Certificate, subject to any minority
buyout rights under New Zealand law, if applicable. If, prior to the Effective
Time, DMC should split or combine the shares of DMC Common Stock, or pay a stock
dividend or other stock distribution in, or in exchange of, shares of DMC Common
Stock, or engage in any similar transaction, then the Exchange Ratio will be
appropriately adjusted to reflect such split, combination, dividend, exchange or
other distribution or similar transaction.
STOCK OPTIONS
As of the Effective Time, each of the options to acquire shares of MAS
Capital Stock not expired as of the Effective Date, will be assumed by DMC and
converted into an option to purchase that number of shares of DMC Common Stock
(rounded down to the nearest whole number) to which the holder thereof would
have been entitled to receive under the Reorganization Agreement had the stock
option been exercised immediately prior to the Effective Time, and the
replacement option shall have an aggregate exercise price equal to the aggregate
exercise price for MAS Capital Stock subject to the option divided by the number
of shares of DMC Common Stock purchasable under the assumed option, rounded up
to the nearest whole cent.
Except as described above, the assumed stock options will be subject to the
same terms and conditions (including, without limitation, expiration date,
vesting and exercise provisions) as were applicable to such stock options
immediately prior to the Effective Time. Consummation of the Reorganization
will not be treated as a termination of employment for purposes of such stock
options. In addition, no such option will be converted into a stock option to
purchase a partial share of DMC Common Stock.
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The assumption of such options enables participants in MAS's 1997 Stock
Option Plan to hold options to acquire DMC Common Stock after the
Reorganization, rather than having their options accelerate and terminate upon
consummation of the Reorganization. As of December 22, 1997, there were
outstanding options to purchase an aggregate of 341,200 shares of MAS Capital
Stock, at a weighted average exercise price of $15.21 per share (at exercise
prices ranging from $14.00 to $21.50 per share).
As soon as practicable, but in no event later than fifteen days after the
Effective Time, DMC will file a registration statement on Form S-8 under the
Securities Act in order to register the shares of DMC Common Stock issuable upon
exercise of the aforesaid assumed MAS stock options under the MAS 1997 Stock
Option Plan.
EXCHANGE OF SHARES
As soon as reasonably practicable after the Effective Time, the Exchange
Agent will mail to each holder of record of MAS Capital Stock (i) a letter of
transmittal and (ii) instructions for use in effecting the surrender of the MAS
Certificates in exchange for certificates representing shares of DMC Common
Stock and, in lieu of any fractional shares thereof, cash. Upon surrender of a
MAS Certificate to the Exchange Agent together with such letter of transmittal,
duly executed, and such other customary documents as may be reasonably required
pursuant to such instructions, the holder of such MAS Certificate will be
entitled to receive in exchange therefore (i) a certificate representing that
number of whole shares of DMC Common Stock (ii) any dividends or other
distributions to which such holder is entitled to prior to the Effective Time
and (iii) a check representing the amount of cash in lieu of fractional shares,
if any, which such holder has the right to receive in respect of the MAS
Certificate so surrendered. MAS SHAREHOLDERS SHOULD NOT SEND IN THEIR MAS
CERTIFICATES UNTIL THEY RECEIVE A LETTER OF TRANSMITTAL.
No fractional shares of DMC Common Stock will be issued pursuant to the
Reorganization. In lieu thereof, cash adjustments will be paid in an amount
equal to the product of (i) the fraction of a share of DMC Common Stock that
would otherwise be issuable multiplied by (ii) the average of the last reported
sales prices of a share of DMC Common Stock for the fifteen trading days prior
to the date which is two days prior to the Effective Time.
If any certificates for shares of DMC Common Stock are to be issued in a
name other than that in which the MAS Certificate surrendered in exchange
therefore is registered, the person requesting such exchange must (i) pay to DMC
or any agent designated by it any transfer or other taxes required by reason
thereof, or (ii) establish to the satisfaction of DMC or any agent designated by
it that such tax has been paid or is not applicable.
At the Effective Time, the stock transfer books of MAS will be closed and
no further transfers of shares of MAS Capital Stock will be made.
Neither the Exchange Agent nor any party to the Reorganization Agreement is
liable to a holder of shares of MAS Capital Stock for any shares of DMC Common
Stock or dividends thereon or the cash payment for fractional interests
delivered to a public official pursuant to applicable abandoned property,
escheat or similar laws.
In the event that any MAS Certificate has been lost, stolen or destroyed,
upon (i) the making of an affidavit of that fact by the person claiming such MAS
Certificate to be lost, stolen or destroyed, and (ii) if required by DMC, in its
discretion, the posting by such person of a bond in such sum as DMC may direct
as indemnity, against any claim that may be made against DMC with respect to
such MAS Certificate, DMC will issue or cause to be issued in exchange for such
MAS Certificate the number of whole shares of DMC Common Stock and cash in lieu
of fractional shares into which the shares of MAS Capital Stock represented by
the MAS Certificate are converted in the Reorganization.
Holders of MAS Capital Stock are entitled to dissent from the
Reorganization and demand minority buyout rights with respect to any such MAS
Capital Stock in accordance with their statutory rights under New Zealand law.
Although all issued and outstanding shares of MAS Capital Stock will be
exchanged for shares of DMC Common Stock at the Effective Time, the minority
buyout rights of dissenting MAS shareholders pursuant to Sections 110-115 of the
Companies Act will be unaffected. See "Minority Buyout Rights of MAS
Shareholders."
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REPRESENTATIONS AND WARRANTIES
The Reorganization Agreement contains certain representations and
warranties by MAS relating to, among other things: (i) organization and
qualification; subsidiaries; (ii) form of constitution in effect;
(iii) capitalization; (iv) authority relative to the Reorganization Agreement;
(v) absence of breaches or violations of its Constitution, agreements and
instruments and law; required filings and consents; (vi) compliance; permits;
(vii) filings with the Commission; financial statements; (viii) absence of
certain changes or events; (ix) absence of undisclosed liabilities; (x) absence
of litigation; (xi) employee benefit plans; employment agreements;
(xii) employment matters; (xiii) registration statement; joint proxy
statement/prospectus; (xiv) title to property; (xv) taxes; (xvi) environmental
matters; (xvii) brokers; (xviii) full disclosure; (xix) opinion of financial
advisor; (xx) intellectual property; (xxi) interested party transactions;
(xxii) insurance; (xxiii) vote required; (xxiv) pooling matters; and (xxv) fair
value.
The Reorganization Agreement also contains certain representations and
warranties by DMC and Amalgamation Sub relating to, among other things:
(i) organization and qualification; subsidiaries; (ii) form of certificate of
incorporation and bylaws of DMC and constitution of Amalgamation Sub in effect;
(iii) capitalization; (iv) authority relative to the Reorganization Agreement;
(v) absence of breaches or violations of the Constitution of Amalgamation Sub or
DMC's Restated Certificate of Incorporation or Bylaws, agreements and
instruments and law; required filings and consents; (vi) compliance; permits;
(vii) filings with the Commission; financial statements; (viii) absence of
certain changes or events; (ix) absence of undisclosed liabilities; (x) absence
of litigation; (xi) employee benefit plans; employment agreements;
(xii) employment matters; (xiii) registration statement; joint proxy
statement/prospectus; (xiv) title to property; (xv) taxes; (xvi) environmental
matters; (xvii) brokers; (xviii) full disclosure; (xix) opinion of financial
advisor; (xx) intellectual property; (xxi) interested party transactions;
(xxii) insurance; (xxiii) vote required; and (xxiv) pooling matters.
CERTAIN COVENANTS
The Reorganization Agreement provides that MAS and its subsidiaries will,
prior to the earlier of the termination of the Reorganization Agreement or the
Effective Time, except as agreed to in writing by DMC, (i) conduct its business
and shall cause the business of its subsidiaries to be conducted in the ordinary
course of business and in a manner consistent with past practice, and (ii) not,
except as contemplated by the Reorganization Agreement, (a) amend its
Constitution, (b) issue, sell, pledge, dispose of or encumber, or authorize the
issuance, sale, pledge, disposition or encumbrance of, any shares of capital
stock of any class, or any options, warrants, convertible securities or other
rights of any kind to acquire any shares of capital stock, or any other
ownership interest (including, without limitation, any phantom interest) of MAS,
any of its subsidiaries or affiliates (except for the issuance of (x) shares of
MAS Capital Stock issuable pursuant to employee stock options under the MAS 1997
Stock Option Plan which options were outstanding on December 22, 1997, or
pursuant to rights to purchase such shares under the MAS 1995 Employee Share
Purchase Program and (y) the grant of options consistent with past practice to
purchase up to 30,000 shares of MAS Capital Stock to newly hired employees
(excluding officers); provided that the vesting of such new options is not in
any manner accelerated by the Reorganization); (c) sell, pledge, dispose of or
encumber any assets of MAS or any of its subsidiaries (except for (x) sales of
assets in the ordinary course of business and in a manner substantially
consistent with past practice, (y) dispositions of obsolete, worthless or
useless assets and (z) sales of immaterial assets not in excess of $50,000); or
(d) except as is contemplated by Section 5.05 of the Reorganization Agreement,
accelerate, amend or change the period (or permit any acceleration, amendment or
change) of exercisability of options or restricted stock granted under MAS's
employee benefit, bonus, stock option or other employee plans (including the MAS
1997 Stock Option Plan) or authorize cash payments in exchange for any options
granted under any of such plans.
The Reorganization Agreement also provides that MAS and its subsidiaries
will not, prior to the earlier of the termination of the Reorganization
Agreement or the Effective Time, except as agreed to in writing by DMC, (i)
(a) declare, set aside, make or pay any dividend or other distribution (whether
in cash, stock or property or any combination thereof) in respect of any of its
capital stock, except that a wholly owned subsidiary of MAS may declare and pay
a dividend to MAS, (b) split, combine or reclassify 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 or (c) amend
the terms of, repurchase, redeem or otherwise acquire, or permit any subsidiary
to repurchase, redeem or otherwise acquire, any of its securities or any
securities of its subsidiaries, or propose to do any of the foregoing; (ii)
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(a) acquire (by amalgamation, consolidation, or acquisition of stock or assets)
any company, corporation, partnership or other business organization or division
thereof; (b) incur any indebtedness for borrowed money or issue any debt
securities or assume, guarantee (other than guarantees of bank debt of MAS's
subsidiaries entered into in the ordinary course of business) or endorse or
otherwise as an accommodation become responsible for, the obligations of any
person, or make any loans or advances, except in the ordinary course of business
substantially consistent with past practice; (c) enter into or amend any
material contract or agreement other than in the ordinary course of business;
(d) authorize any capital expenditures or purchase of fixed assets which are, in
the aggregate, in excess of MAS's budget and operating plan previously furnished
to DMC, or (e) enter into or amend any contract, agreement, commitment or
arrangement to effect any of the matters prohibited by Section 4.01(f) of the
Reorganization Agreement; (iii) increase the compensation payable or to become
payable to its officers or employees, except for increases in salary or wages of
employees of MAS or its subsidiaries who are not officers of MAS in accordance
with past practices, or grant any severance or termination pay to, or enter into
any employment or severance agreement with any director, officer (except for
officers who are terminated on an involuntary basis) or other employee of MAS or
any of its subsidiaries, or establish, adopt, enter into or amend any collective
bargaining, bonus, profit sharing, thrift, compensation, stock option,
restricted stock, pension, retirement, deferred compensation, employment,
termination, severance or other plan, agreement, trust, fund, policy or
arrangement for the benefit of any current or former directors, officers or
employees, except, in each case, as may be required by law; (iv) take any action
to change accounting policies or procedures (including, without limitation,
procedures with respect to revenue recognition, payments of accounts payable and
collection of accounts receivable), except as required by generally accepted
accounting principles applied on a consistent basis or applicable New Zealand
law; (v) make any material tax election inconsistent with past practices or
settle or compromise any material federal, state, local or foreign tax liability
or agree to an extension of a statute of limitations except to the extent the
amount of any such settlement has been reserved for on MAS's most recent filing
with the Commission; (vi) pay, discharge or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction in the ordinary
course of business and consistent with past practice of liabilities reflected or
reserved against in the financial statements of MAS or incurred in the ordinary
course of business and consistent with past practice; or (vii) take, or agree in
writing or otherwise to take, any of the actions described above, or any action
which would make any of the representations or warranties of MAS contained in
the Reorganization Agreement untrue or incorrect or prevent MAS from performing
or cause MAS not to perform its covenants under the Reorganization Agreement.
The Reorganization Agreement provides that, among other things, (i) at the
Effective Time, Howard Oringer shall be appointed to the DMC Board and shall be
nominated to serve as a member of the DMC Board for a one-year term at the
annual meeting of DMC's stockholders held in 1998; and (ii) upon reasonable
notice from the other party, MAS or DMC will use its respective reasonable best
efforts to cause the transactions contemplated by the Reorganization Agreement
to be accounted for as a pooling transaction by each party's independent
certified public accountants, by the National Association of Securities Dealers
(the "NASD") and by the Commission, respectively, and each of the parties agreed
that it will take no action that would cause such accounting treatment not to be
obtained.
The Reorganization Agreement provides that DMC will not, except as agreed
to in writing by MAS, until the earlier of the termination of the Reorganization
Agreement, the Effective Time or March 31, 1998 (a) amend or otherwise change
DMC's Restated Certificate of Incorporation; (b) acquire (by amalgamation,
merger, consolidation, or acquisition of stock or assets) any company,
corporation, partnership or other business organization or division thereof for
an aggregate purchase price greater than fifty million dollars ($50,000,000); or
(c) issue, sell, pledge, dispose of or encumber, or authorize the issuance,
sale, pledge, disposition or encumbrance of, any shares of capital stock of any
class, or any options, warrants, convertible securities (except convertible debt
securities) or other rights of any kind to acquire any shares of capital stock,
or any other ownership interest (including, without limitation, any phantom
interest) of DMC, any of its subsidiaries or affiliates (other than with respect
to (i) acquisitions permitted pursuant to Section 4.03(b) of the Reorganization
Agreement or (ii) grants and exercises of options under DMC's existing stock
option plans and for sales of stock pursuant to DMC's existing stock purchase
plans); (d) take, or agree in writing or otherwise to take, any of the actions
described above, or any action which would make any of the representations or
warranties of DMC contained in the Reorganization Agreement untrue or incorrect
or prevent DMC from performing or cause DMC not to perform its covenants under
the Reorganization Agreement.
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The Reorganization Agreement provides that MAS will provide DMC with a
letter, prior to the date the Registration Statement becomes effective,
containing a list of persons who are or may be deemed to be "affiliates" of MAS
for purposes of Rule 145 under the Securities Act ("Affiliates"). MAS agreed to
use best efforts to cause each of its Affiliates to deliver to DMC, prior to the
Effective Time a written agreement in a form mutually agreeable to DMC and MAS
that such Affiliate will not sell, pledge, transfer or otherwise dispose of any
shares of DMC Common Stock, except pursuant to an effective registration
statement or in compliance with such Rule 145 or an exemption from the
registration requirements of the Securities Act. See "The Reorganization --
Resale Restrictions."
NO SOLICITATION
The Reorganization Agreement provides that MAS shall not initiate, solicit
or encourage (including by way of furnishing information or assistance), or take
any other action to facilitate, any inquiries or the making of any proposal
relating to, or that may reasonably be expected to lead to, any Alternative
Transaction (as defined below), or enter into discussions or negotiate with any
person or entity in furtherance of such inquiries or to obtain an Alternative
Transaction, or agree to, or endorse, any Alternative Transaction, or authorize
or permit any of the officers, directors, employees or agents of MAS or any of
its subsidiaries or any investment banker, financial advisor, attorney,
accountant or other representative retained by MAS or any of MAS's subsidiaries
to take any such action and MAS shall promptly notify DMC, subject to
confidentiality restrictions existing on December 22, 1997, of all relevant
terms of any such inquiries or proposals received by MAS or any of its
subsidiaries or by any such officer, director, employee, agent, investment
banker, financial advisor, attorney, accountant or other representative relating
to any of such matters and if such inquiry or proposal is in writing, MAS shall
promptly deliver or cause to be delivered orally to DMC a detailed summary of
such inquiry or proposal, subject to confidentiality restrictions existing on
December 22, 1997; provided, however, that nothing in Section 4.02(a) of the
Reorganization Agreement prohibits the MAS Board from (i) furnishing information
to, or entering into discussions or negotiations with, any persons or entity in
connection with an unsolicited bona fide proposal by such person or entity
relating to an Alternative Transaction (as defined below) if, and only to the
extent that (a) the MAS Board, after duly considering the advice of specified
New Zealand counsel determines in good faith that such action is required for
the MAS Board to comply with its fiduciary duties to its shareholders as imposed
by New Zealand law and (b) prior to furnishing such information to, or entering
into discussions or negotiations with, such person or entity MAS provides
written notice to DMC to the effect that it is furnishing information to, or
entering into discussions or negotiations with, such person or entity; or
(ii) complying with Rule 14e-2 promulgated under the Exchange Act or other
applicable law or other requirement with regard to an Alternative Transaction.
CERTAIN EMPLOYEE BENEFIT MATTERS
Upon consummation of the Reorganization, all options to purchase MAS
Capital Stock granted under the MAS 1997 Stock Option Plan will become options
to acquire DMC Common Stock. See "The Reorganization -- Interests of Certain
Persons in the Reorganization."
DIRECTOR AND OFFICER INDEMNIFICATION
DMC has agreed that, following the Effective Time, the directors, officers,
employees or agents of MAS or its subsidiaries shall be entitled to be
indemnified by the Surviving Company in their capacities as directors, officers,
employees, fiduciaries or agents of MAS or its subsidiaries prior to the
Effective Time to the extent provided by MAS's Constitution, DMC's Restated
Certificate of Incorporation and Bylaws and the indemnification agreements
entered into with such officers and directors, as well as to any such rights
provided by New Zealand law. DMC has agreed to, and shall cause the Surviving
Company to, honor such rights of indemnification for at least six years
following the Effective Time, and has further agreed that the constitution of
the Surviving Company shall contain the same indemnification provisions set
forth in MAS's Constitution and shall not be amended in any manner adverse to
MAS's directors, officers, employees or agents with respect to such matters for
at least six years following the Effective Time.
For a period of three years after the Effective Time, DMC has agreed to use
its best efforts to maintain in effect directors' and officers' liability
insurance covering the officers and directors of MAS, if available, with terms
which are comparable to those applicable to the then current officers and
directors of DMC or those applicable as of
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December 22, 1997 to directors and officers of MAS, whichever is more favorable
to such directors and officers, subject to certain limitations on premiums. See
"The Reorganization -- Interests of Certain Persons in the Reorganization."
ACCESS AND INFORMATION
The Reorganization Agreement provides that, until the Effective Time, MAS
and DMC, and their respective subsidiaries, shall each afford to the other
access to all of its properties, books, contracts, commitments and records, and
each shall furnish promptly to the other all information concerning its
business, properties and personnel as such other party may reasonably request
and each shall make available to the other the appropriate individuals
(including attorneys, accountants and other professionals) for discussion of the
other's business, properties and personnel as either party may reasonably
request.
The parties will hold any information which is nonpublic in confidence in
accordance with the current confidentiality agreement between the parties.
DMC and MAS will each obtain the written approval of the other prior to
issuing any press release or any other public statement with respect to the
Reorganization or the Reorganization Agreement, provided however, that a party
may, without prior written consent of the other party, issue such press release
or make such public statement as may upon the advice of counsel be required by
law or the rules and regulations of the NASD if it has used all reasonable
efforts to obtain the prior written consent of the other party.
AGREEMENTS RELATING TO APPROVAL OF THE REORGANIZATION
The Reorganization Agreement provides that MAS and DMC shall call and hold
their respective stockholders' meetings as promptly as practicable for the
purpose of voting upon the approval of the Reorganization, and MAS and DMC shall
use their reasonable best efforts to hold such stockholders' meetings on the
same day (and at the same time of such day) and as soon as practicable after the
date on which the Registration Statement filed in connection with this Proxy
Statement/Prospectus (the "Registration Statement") becomes effective. MAS and
DMC shall use their best efforts to hold such stockholders' meetings not later
than March 27, 1998. MAS and DMC shall use their respective reasonable best
efforts to solicit from their respective stockholders proxies in favor of the
approval of the Reorganization and the issuance of DMC Common Stock in
connection with the Reorganization, respectively, and shall take all other
action necessary or advisable to secure the vote or consent of stockholders
required by the Delaware General Corporation Law with respect to DMC and
New Zealand law with respect to MAS and the Restated Certificate of
Incorporation and Bylaws of DMC and the Constitution of MAS to obtain such
approvals, unless otherwise necessary under the applicable fiduciary duties of
the respective directors of MAS and DMC, as determined by such directors in good
faith after consultation with and based upon the advice of outside legal
counsel.
ADDITIONAL AGREEMENTS
The Reorganization Agreement provides that MAS and DMC will cooperate with
one another and use all reasonable efforts to take, or cause to be taken, all
action and to do, or cause to be done, all things necessary, proper or advisable
to consummate and make effective the transactions contemplated by the
Reorganization Agreement.
The Reorganization Agreement also provides that at the Effective Time,
Howard Oringer shall be appointed to the DMC Board and shall be nominated to
serve as a member of the DMC Board for a one-year term at the annual meeting of
DMC's stockholders held in 1998.
The Reorganization Agreement provides that DMC shall register the DMC
Common Stock received by holders of MAS Capital Stock pursuant to the
Reorganization. DMC shall use reasonable efforts to register such DMC Common
Stock under U.S. (under a Form S-3 or a post-effective amendment to a Form S-4
registration statement) and/or New Zealand securities laws, as applicable,
subject to customary blackout restrictions, upon the request of holders of such
DMC Common Stock who in the aggregate held 5% or more of the outstanding MAS
Capital Stock prior to the Reorganization and who require such registration to
resell the DMC Common Stock
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received by them in the Reorganization. Such registration shall occur only
after the date upon which financial results of at least 30 days of post-merger
combined operations have been first published by DMC. See "The
Reorganization -- Resale Restrictions."
CONDITIONS
The obligations of DMC and MAS to effect the Reorganization are subject to
the satisfaction of certain conditions, including, among others: (a) this
Registration Statement shall have been declared effective by the Commission
under the Securities Act and no stop order suspending the effectiveness of this
Registration Statement shall have been issued by the Commission and no
proceedings for that purpose and no similar proceeding in respect of the Proxy
Statement/Prospectus shall have been initiated or threatened by the Commission;
(b) the Reorganization Agreement and the Reorganization (and in the case of MAS
a Reorganization proposal) shall have been approved and adopted by the requisite
vote of the shareholders of MAS and stockholders of DMC; (c) no temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal restraint or prohibition
preventing the consummation of the Reorganization shall be in effect, and there
shall not be any action taken, or any statute, rule, regulation or order
enacted, entered, enforced or deemed applicable to the Reorganization, which
makes the consummation of the Reorganization illegal; and (d) DMC and MAS shall
have received the opinions of their respective counsel, Morrison & Foerster LLP
and Brobeck, Phleger & Harrison LLP, in form and substance reasonably
satisfactory to each, on the basis of certain facts, representations and
assumptions set forth in such opinion, dated the Effective Time, to the effect
that the Reorganization will be treated for federal income tax purposes as a
reorganization qualifying under the provisions of Section 368(a) of the Code and
that DMC and MAS will each be a party to the Reorganization within the meaning
of Section 368(b) of the Code; (e) the New Zealand OIC shall have consented to
the Reorganization with respect to the shares of the MAS Capital Stock of MAS
becoming owned or controlled by DMC; and (f) the exchange of shares of DMC
Common Stock for shares of MAS Capital Stock shall be permitted to be effected
(if required) pursuant to the provisions of the Securities Act 1978 (NZ) on
terms and conditions reasonably acceptable to DMC and MAS.
The obligations of DMC and Amalgamation Sub to effect the Reorganization
are also subject to the following additional conditions: (a) the representations
and warranties of MAS contained in the Reorganization Agreement shall be true
and correct in all respects on and as of the Effective Time, except for
(i) changes contemplated by the Reorganization Agreement, (ii) those
representations and warranties which address matters only as of a particular
date (which shall remain true and correct as of such date) and (iii) where the
failure to be true and correct would not have a material adverse effect, with
the same force and effect as if made on and as of the Effective Time, and DMC
and Amalgamation Sub shall have received a certificate to such effect signed by
the President and Chief Financial Officer of MAS; (b) MAS shall have performed
or complied in all material respects with all agreements and covenants required
by the Reorganization Agreement to be performed or complied with by it on or
prior to the Effective Time, and DMC and Amalgamation Sub shall have received a
certificate to such effect signed by the President and Chief Financial Officer
of MAS; (c) all material consents, waivers, approvals, authorizations or orders
required to be obtained, and all filings required to be made ("Material
Consents"), by MAS for the authorization, execution and delivery of the
Reorganization Agreement and the consummation by it of the transactions
contemplated hereby shall have been obtained and made by MAS, except where the
failure to receive such Material Consents would not have a material adverse
effect on MAS or DMC; (d) since December 22, 1997, there shall have been no
change, occurrence or circumstance in the business, results of operations or
financial condition of MAS or any subsidiary of MAS having, or reasonably likely
to have, individually or in the aggregate, a material adverse effect; (e) DMC
shall have received (i) an opinion of Arthur Andersen LLP, independent public
accountants, to the effect that the Reorganization qualifies for a pooling of
interests accounting treatment if consummated in accordance with the
Reorganization Agreement and (ii) a copy of the opinion referred to in Section
6.03(e) of the Reorganization Agreement; (f) no more than ten percent (10%) of
the shareholders of MAS shall vote against the transactions contemplated in the
Reorganization Agreement at a shareholders' meeting called for the purpose of
approving such transactions; and (g) DMC shall have received from each person
who is identified by DMC in writing as an affiliate of MAS, an affiliate
agreement, and such affiliate agreement shall be in full force and effect as of
the Effective Time.
The obligations of MAS to effect the Reorganization are also subject to the
following additional conditions: (a) the representations and warranties of DMC
and Amalgamation Sub contained in the Reorganization Agreement shall be true and
correct in all respects on and as of the Effective Time, except for (i) changes
contemplated by the
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Reorganization Agreement, (ii) those representations and warranties which
address matters only as of a particular date (which shall remain true and
correct as of such date) and (iii) where the failure to be true and correct
would not have a material adverse effect, with the same force and effect as if
made on and as of the Effective Time, and MAS shall have received a certificate
or certificates to such effect signed by the President and Chief Financial
Officer of each of DMC and Amalgamation Sub; (b) DMC and Amalgamation Sub shall
have performed or complied in all material respects with all agreements and
covenants required by the Reorganization Agreement to be performed or complied
with by them on or prior to the Effective Time, and MAS shall have received a
certificate or certificates to such effect signed by the President and Chief
Financial Officer of each of DMC and Amalgamation Sub; (c) all Material Consents
required to be obtained or made by DMC and Amalgamation Sub for the
authorization, execution and delivery of the Reorganization Agreement and the
consummation by them of the transactions contemplated in the Reorganization
Agreement shall have been obtained and made by DMC and Amalgamation Sub, except
where the failure to receive such Material Consents would not have a Material
Adverse Effect on MAS or DMC; (d) since December 22, 1997, there shall have been
no change, occurrence or circumstance in the business, results of operations or
financial condition of DMC or any subsidiary of DMC having or reasonably likely
to have, individually or in the aggregate, a material adverse effect; (e) MAS
shall have received (i) a letter of KPMG, independent chartered accountants,
concurring with MAS's management's conclusion that the Reorganization qualifies
for a pooling of interests accounting treatment if consummated in accordance
with the Reorganization Agreement and (ii) a copy of the opinion referred to in
Section 6.02(e) of the Reorganization; and (f) the shares of DMC Common Stock to
be issued in the Reorganization shall have been approved for quotation on
Nasdaq, subject only to official notice of issuance.
At the Effective Time or at any time prior thereto, to the extent legally
allowed, each of DMC and MAS, without the approval of the MAS shareholders, may
waive compliance with any of the agreements or satisfaction of any of the
conditions contained in the Reorganization Agreement for its respective benefit.
See " -- Amendment; Waiver."
TERMINATION
TERMINATION GENERALLY. The Reorganization Agreement may be terminated at
any time prior to the Effective Time and the Reorganization abandoned
notwithstanding approval thereof by the DMC stockholders or the MAS
shareholders: (a) by mutual written consent duly authorized by the DMC Board and
the MAS Board; or (b) by either DMC or MAS if the Reorganization shall not have
been consummated by March 31, 1998 (provided that the right to terminate the
Reorganization Agreement under Section 7.01(b) of the Reorganization Agreement
shall not be available to any party whose failure to fulfill any obligation
under the Reorganization Agreement has been the cause of or resulted in the
failure of the Reorganization to occur on or before such date); or (c) by either
DMC or MAS if a court of competent jurisdiction or governmental, regulatory or
administrative agency or commission shall have issued a non-appealable final
order, decree or ruling or taken any other action, in each case having the
effect of permanently restraining, enjoining or otherwise prohibiting the
Reorganization, except if the party relying on such order, decree or ruling or
other action has not complied with its obligations under Section 5.08 of the
Reorganization Agreement; or (d) by DMC or MAS, if, at the DMC stockholders' or
MAS shareholders' meetings (including any adjournment or postponement thereof),
the requisite vote of the stockholders of DMC or the shareholders of MAS shall
not have been obtained; or (e) by DMC, if (i) the MAS Board shall withdraw,
modify or change its recommendation of the Reorganization Agreement or the
Reorganization in a manner adverse to DMC or shall have resolved to do any of
the foregoing; (ii) the MAS Board shall have recommended to the shareholders of
MAS an Alternative Transaction (as defined below); or (iii) a tender offer or
exchange offer for 15% or more of the outstanding shares of MAS Capital Stock is
commenced (other than by DMC or an affiliate of DMC), and the MAS Board
recommends that the shareholders of MAS tender their shares in such tender or
exchange offer; or (f) by DMC or MAS, upon a breach of any representation,
warranty, covenant or agreement on the part of MAS or DMC, respectively, set
forth in the Reorganization Agreement which cannot be cured prior to March 31,
1998, such that the conditions set forth in Section 6.02(a) or 6.02(b) of the
Reorganization Agreement, or Section 6.03(a) or 6.03(b) of the Reorganization
Agreement, respectively, would not be satisfied (a "Terminating Breach"),
provided that if such Terminating Breach is curable prior to March 31, 1998 by
DMC or MAS, as the case may be, through the exercise of its reasonable best
efforts and for so long as DMC or MAS, as the case may be, continues to exercise
such reasonable best efforts, neither MAS nor the DMC, respectively, may
terminate the Reorganization Agreement under Section 7.01 of the Reorganization
Agreement; or (g) by MAS, if the DMC Board shall withdraw, modify or change its
recommendation of the Reorganization Agreement or the Reorganization, including
without limitation
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approval of the issuance of shares of DMC Common Stock in connection with the
Reorganization, in a manner adverse to MAS or shall have resolved to do any of
the foregoing.
EFFECT OF TERMINATION; TERMINATION FEES. In the event of termination, the
Reorganization Agreement will be of no further effect except for Sections 5.09,
7.03 and 8.01 of the Reorganization Agreement and, except for a termination
resulting from a willful breach by a party to the Reorganization Agreement,
there will be no liability or obligation on the part of either DMC or MAS or
their respective affiliates, directors, officers or stockholders. Except as set
forth in Section 7.03 of the Reorganization Agreement, (a) all fees and expenses
incurred in connection with the Reorganization Agreement and the transactions
contemplated thereby shall be paid by the party incurring such expenses, if the
Reorganization is not consummated or (b) if the Reorganization is consummated,
then the Surviving Company shall pay all such fees and expenses.
MAS shall pay DMC a fee of $3,250,000 in cash (the "Fee"), plus actual,
documented and reasonable out-of-pocket expenses of DMC relating to the
transactions contemplated by the Reorganization Agreement (including, but not
limited to, fees and expenses of DMC's counsel, accountants and financial
advisers, but excluding any "success" fees paid to such financial advisors),
upon the earlier to occur of (a) the termination of the Reorganization Agreement
by DMC pursuant to Section 7.01(e) of the Reorganization or (b) the closing of
an Alternative Transaction ("Alternative Transaction" means either (i) a
transaction pursuant to which any person (or group of persons) other than DMC or
its affiliates (a "Third Party") acquires more than 15 percent of the
outstanding shares of MAS Capital Stock, whether from MAS or pursuant to a
tender offer or exchange offer or otherwise, (ii) a Reorganization or other
business combination involving MAS pursuant to which any Third Party acquires
more than 15 percent of the outstanding equity securities of MAS or the entity
surviving such Reorganization or business combination or (iii) any other
transaction pursuant to which any Third Party acquires control of assets
(including for this purpose the outstanding equity securities of subsidiaries of
MAS, and the entity surviving any Reorganization or business combination
including any of them) of MAS, any of its subsidiaries having a fair market
value (as determined by the MAS Board in good faith) equal to more than 15
percent of the fair market value of all the assets of MAS and its subsidiaries,
taken as a whole, immediately prior to such transaction; provided, however, that
the term "Alternative Transaction" does not include any acquisition of
securities by a broker dealer in connection with a bona fide public offering of
such securities).
DMC shall pay MAS the Fee, plus actual, documented and reasonable
out-of-pocket expenses of MAS relating to the transactions contemplated by the
Reorganization Agreement (including, but not limited to, fees and expenses of
MAS's counsel, accountants and financial advisors, but excluding any
discretionary fees paid to such financial advisors), upon the termination of the
Reorganization Agreement by MAS pursuant to Section 7.01(g) of the
Reorganization Agreement, unless the DMC Board withdraws its recommendation of
the Reorganization Agreement or the Reorganization because DMC terminates the
Reorganization Agreement pursuant to Section 7.01(e) of the Reorganization
Agreement.
The Fee payable pursuant to Sections 7.03(b) or 7.03(d) of the
Reorganization Agreement shall be paid within one business day after the
occurrence of an event described in Section 7.03(b) or 7.03(d) of the
Reorganization Agreement, as applicable.
AMENDMENT; WAIVER
The Reorganization Agreement may be amended by DMC and MAS at any time
before or after approval thereof by the shareholders of MAS, but, after any such
approval, no amendment may be made which by law requires further approval by
such shareholders without such further approval. The Reorganization Agreement
may not be amended except by an instrument in writing signed on behalf of MAS,
DMC and Amalgamation Sub.
At the Effective Time or any time prior thereto, to the extent legally
allowed, the parties to the Reorganization Agreement may (i) extend the time for
the performance of any of the obligations or other acts of the other parties
thereto, (ii) waive any inaccuracies in the representations and warranties
contained in the Reorganization Agreement or in any document delivered pursuant
thereto, and (iii) waive compliance with any of the agreements or conditions
contained in the Reorganization Agreement. Any agreement on the part of a party
thereto to any such extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such party.
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EXPENSES
Except as provided in the Reorganization Agreement, all costs and expenses
incurred in connection with the Reorganization Agreement and the transactions
contemplated thereby will be paid by (a) the party incurring such expenses if
the Reorganization is not consummated or (b) by the Surviving Company if the
Reorganization is consummated.
COMPARISON OF CAPITAL STOCK
DESCRIPTION OF DMC CAPITAL STOCK
DMC COMMON STOCK. DMC is authorized to issue up to 60,000,000 shares of
DMC Common Stock, par value $0.01 per share. Holders of shares of DMC's Common
Stock are entitled to one vote per share on all matters to be voted on by
stockholders. The holders of DMC's Common Stock are entitled to receive such
dividends, if any, as may be declared from time to time by the DMC Board of
Directors out of funds legally available therefore. Upon liquidation or
dissolution of DMC, the holders of DMC Common Stock are entitled to share
ratably in the distribution of assets, subject to the rights of the holders of
DMC Preferred Stock. Holders of DMC Common Stock have no preemptive rights,
subscription rights or conversion rights. There are no redemption or sinking
fund provisions with respect to the DMC Common Stock. On December 31, 1997,
there were 194 holders of record of DMC's Common Stock.
DMC PREFERRED STOCK. Under its Restated Certificate of Incorporation. DMC
has authority to issue 5,000,000 shares of preferred stock, $0.01 par value per
share (the "DMC Preferred Stock"), in one or more series as determined by the
DMC Board of Directors. No shares of DMC Preferred Stock are currently issued
or outstanding. The DMC Board of Directors may, without further action by the
stockholders of DMC, issue a series of DMC Preferred Stock and fix the rights
and preferences of those shares, including the dividend rights, dividend rates,
conversion rights, exchange rights, voting rights, terms of redemption,
redemption price or prices, liquidation preferences and the number of shares
constituting any series or the designation of such series. The rights of the
holders of DMC Common Stock will be subject to, and may be adversely affected
by, the rights of the holders of any DMC Preferred Stock issued by DMC in the
future.
DMC STOCKHOLDERS' RIGHTS AGREEMENT. In October 1991, DMC adopted a
Stockholders' Rights Agreement (the "Rights Agreement") pursuant to which one
Preferred Share Purchase Right (a "Right") was distributed for each outstanding
share of DMC Common Stock. Each Right (as adjusted to give effect to a stock
dividend, which effected a two-for-one stock split, in November 1997) entitles
DMC stockholders to buy one two-hundredth of a share of Series A Junior
Participating DMC Preferred Stock at an exercise price of $50.00 upon certain
events. The Rights expire on October 23, 2001, unless earlier redeemed by DMC.
The Rights become exercisable if a person acquires 15% or more of DMC
Common Stock or announces a tender offer that would result in such person owning
15% or more of DMC Common Stock, other than a person who has reported or is
required to report beneficial ownership of DMC Common Stock on Schedule 13G
under the Exchange Act, with respect to whom the threshold is 20%. If the
Rights become exercisable, the holder of each Right (other than the person whose
acquisition triggered the exercisability of the Rights) will be entitled to
purchase, at the Right's then-current exercise price, a number of shares of DMC
Common Stock having a market value of twice the exercise price. In addition, if
DMC were to be acquired in a merger or business combination after the Rights
became exercisable, each Right would entitle its holder to purchase, at the
Right's then-current exercise price, stock of the acquiring company having a
market value of twice the exercise price. The Rights (as adjusted to give
effect to a stock dividend, which effected a two-for-one stock split, in
November 1997) are redeemable by DMC at a price of $0.005 per Right at any time
within ten days after a person has acquired 15% (or 20% in the case of a
Schedule 13G filer) or more of DMC Common Stock.
DMC'S TRANSFER AGENT AND REGISTRAR. DMC has appointed ChaseMellon
Shareholder Services L.L.C. as the transfer agent and registrar of the DMC
Common Stock.
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DESCRIPTION OF MAS CAPITAL STOCK
Set forth below is certain information concerning the MAS Capital Stock and
certain provisions of the MAS Constitution. The following description does not
purport to be complete and is qualified in its entirety by the provisions of the
Companies Act and by the MAS Constitution. On December 31, 1997 there were
approximately 373 holders of record of MAS Capital Stock.
As of December 22, 1997, MAS's share capital consists of 6,800,000 shares
of MAS Capital Stock issued and outstanding. New Zealand company law does not
recognize the concept of "nominal value" or "par value" in relation to companies
which are initially registered or are re-registered under the Companies Act.
Nor is such a company permitted to have authorized but unissued share capital.
MAS has been re-registered under the Companies Act.
COMPARISON OF RIGHTS OF DMC STOCKHOLDERS AND MAS SHAREHOLDERS
The rights of DMC stockholders are currently governed by the Delaware
General Corporation Law and the Restated Certificate of Incorporation and Bylaws
of DMC (the "DMC Charter" and the "DMC Bylaws," respectively). The rights of
MAS shareholders are currently governed by New Zealand law and the MAS
Constitution. Accordingly, upon consummation of the Reorganization, the rights
of DMC stockholders and of MAS shareholders who become DMC stockholders in the
Reorganization will be governed by the Delaware General Corporation Law, the DMC
Charter and the DMC Bylaws. The following is a summary of the principal
differences between the current rights of MAS shareholders and those of DMC
stockholders following the Reorganization.
The following summary is not intended to be complete and is qualified in
its entirety by reference to the Delaware General Corporation Law, New Zealand
law, the DMC Charter, the DMC Bylaws and the MAS Constitution. Copies of the
DMC Charter and the DMC Bylaws are incorporated by reference herein and will be
sent to holders of shares of DMC Capital Stock and MAS Capital Stock upon
request of DMC's Secretary. See "Available Information." A copy of the MAS
Constitution is attached hereto as Appendix F.
COMPARISON OF CURRENT MAS SHAREHOLDER RIGHTS AND RIGHTS OF DMC STOCKHOLDERS
FOLLOWING THE REORGANIZATION
The DMC Charter is not being amended in connection with the Reorganization.
The DMC Bylaws are not being amended in connection with the Reorganization,
other than to increase the number of directors on the DMC Board from six to
seven so that Mr. Oringer may become a director of DMC at the Effective Time.
See "-- Board of Directors" below.
The rights of MAS shareholders under New Zealand law and the MAS
Constitution prior to the Reorganization are substantially the same as the
rights of DMC stockholders (including MAS shareholders who become DMC
stockholders as a result of the Reorganization) under the Delaware General
Corporation Law and the DMC Charter and DMC Bylaws, with the following principal
exceptions.
AUTHORIZED CAPITAL STOCK. The capital stock of MAS consists of 2,300,000
ordinary shares represented by ADSs, and 4,500,000 ordinary shares not
represented by ADSs, all of which were issued and outstanding as of December 22,
1997. The authorized capital of DMC is set forth under "Comparison of Capital
Stock -- Description of DMC Capital Stock."
BOARD OF DIRECTORS. The MAS Constitution provides for a minimum of four
directors and a maximum of ten directors. MAS currently has five directors.
New directors may be appointed by the shareholders of MAS by ordinary
resolution, or by the MAS Board to fill a vacancy, and any director so appointed
will hold office until the next annual meeting of shareholders and until their
successors have been duly elected and qualified. The MAS Constitution provides
that the directors are subject to removal by ordinary resolution of the
shareholders or upon attaining the age of 70 years.
The DMC Bylaws provide that the number of directors that shall constitute
the DMC Board shall be six. DMC currently has six directors. In connection
with the Reorganization, the DMC Bylaws will be amended to
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increase the number of directors to seven. Under the DMC Bylaws, DMC directors
are elected at the annual meeting of stockholders for a one-year term. Neither
the DMC Charter nor the DMC Bylaws provide for cumulative voting for election of
directors. Nominations of persons for election to the DMC Board may be made by
or at the direction of the DMC Board, or by DMC stockholders according to the
procedures described in the DMC Bylaws. Under the DMC Bylaws, vacancies in the
DMC Board may be filled by resolution of a majority of the DMC Board (or a sole
director, if applicable), and any director so appointed will hold office until
the next annual meeting of stockholders. The DMC Charter and the DMC Bylaws do
not contain provisions regarding the removal of directors, and accordingly such
matter would be governed by the Delaware General Corporation Law. The Delaware
General Corporation Law provides that directors may be removed (with or without
cause) by vote of the holders of a majority of shares entitled to vote at an
election of directors.
SPECIAL MEETINGS OF STOCKHOLDERS. The MAS Board may convene a special
meeting of shareholders at any time. The MAS Board must convene a special
meeting of shareholders upon the receipt of a written request from shareholders
who hold shares carrying together not less than five percent of the voting
rights entitled to be exercised on the matter in respect of which the meeting is
called. MAS shareholders must receive at least 10 working days notice of a
special meeting.
The DMC Bylaws provide that special meetings of stockholders may be called
by the president or secretary of DMC at the request in writing of a majority of
the DMC Board or upon written application of one or more stockholders who hold
at least 40% of the capital stock entitled to vote at such meeting.
AMENDMENT OF CONSTITUTION. The MAS Constitution may be amended by special
resolution, which requires the affirmative vote of not less than 75% of those
shareholders attending and voting on such special resolution at a properly
constituted meeting. In the event that the amendment to the MAS Constitution
will affect different classes of shareholders differently, such amendment must
be approved by each class of shareholders.
The DMC Charter provides that DMC may amend, alter, change or repeal any
provision contained in the DMC Charter as prescribed pursuant to the Delaware
General Corporation Law. The Delaware General Corporation Law provides that a
charter amendment requires the approval of a majority of a company's board of
directors and the approval of the holders of a majority of the voting power of
the then outstanding capital stock of such company.
The DMC Bylaws expressly provide for their amendment by either the DMC
Board or a majority of the DMC stockholders.
VOTING RIGHTS. The MAS Capital Stock is the only outstanding class of MAS
Capital Stock entitled to vote generally on all matters submitted to MAS
shareholders, including the election of directors and the approval of the
Reorganization and the Reorganization Agreement. Each outstanding share of MAS
Capital Stock is entitled to one vote on all matters submitted to MAS
shareholders. Under the MAS Constitution, an ordinary resolution requires the
affirmative vote of shareholders holding not less than a majority of the votes
cast and a special resolution requires the affirmative vote of not less than 75%
of the votes cast. The election and removal of MAS directors, appointment of
auditors and other general matters may be passed by ordinary resolution. In
addition, all share issuances must be made by ordinary resolution other than pro
rata issuances to all shareholders, issuances of shares less than 10% of the
total number of shares of that class issued and outstanding, issuances made to
employees that do not exceed five percent of the aggregate number of shares
issued and outstanding, and issuances made as consideration in an offer by MAS
in respect of a takeover or merger proposal or in lieu of a dividend.
Amendments to the MAS Constitution, any transaction involving the acquisition or
disposition of assets or the incurring of liabilities, the value of which is
more than half the value of MAS's assets prior to the transaction, certain
amalgamations and the voluntary liquidation of MAS must be approved by special
resolution.
The outstanding voting securities of DMC are the shares of DMC Common
Stock. Under the Delaware General Corporation Law each share of DMC Common
Stock is entitled to one vote on all matters submitted to DMC stockholders. For
a discussion of the voting rights of DMC Preferred Stock, see "Comparison of
Capital Stock -- Description of DMC Capital Stock."
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REMOVAL OF OFFICERS. Directors of MAS can be removed from office by
ordinary resolution (50% of those shareholders attending and voting on a
resolution at a properly constituted meeting) passed at a meeting called for the
purpose or purposes that include the removal of the director. The office of the
director shall also be vacated at the annual general meeting following the
attainment by the director of the age of 70 years.
The DMC Bylaws permit the DMC Board to remove at any time, by the
affirmative vote of a majority of the DMC Board, any officer elected or
appointed by the DMC Board.
RIGHTS PLAN. MAS has no rights plan. For a description of DMC's Rights
Agreement, see "Comparison of Capital Stock -- DMC's Stockholders' Rights
Agreement."
LIABILITY OF SHAREHOLDERS. By virtue of the Companies Act, MAS is a
limited liability company, which principally limits the liability of MAS
shareholders to the amount, if any, unpaid on the shares held by such
shareholders. However, MAS shareholders may be, in limited circumstances,
liable to repay any distribution made to them when the statutory solvency test
is not met. See "-- Distributions."
Under the Delaware General Corporation Law, a stockholder of a dissolved
corporation, the assets of which were distributed under the Delaware General
Corporation Law, is generally not liable for any claims against the dissolved
corporation in excess of the amount distributed to him or her in dissolution;
however, unlike pursuant to the Companies Act, there is no similar statutory
solvency test concept under the Delaware General Corporation Law.
BUY-BACK RIGHTS. Under the Companies Act and the MAS Constitution, MAS has
the right to make an offer to buy back shares of MAS Capital Stock from its
shareholders. The ability to make a buy back offer is subject to certain
procedural safeguards under New Zealand law, including satisfaction of the
statutory solvency test (see "-- Distributions"). The MAS Board is required to
resolve and certify that the buy-back is either in the best interests of MAS (if
the buy-back is offered proportionately to all shareholders) or that it is of
benefit to existing shareholders (if it is a selective, i.e. non-pro rata,
buy-back). MAS directors must disclose all material information to
shareholders. MAS may also issue redeemable shares under the MAS Constitution.
The DMC Charter does not contemplate the repurchase of shares of DMC Common
Stock, but DMC is allowed to repurchase such shares pursuant to the Delaware
General Corporation Law. DMC Common Stock is not redeemable pursuant to the DMC
Charter.
INDEMNIFICATION. The Companies Act and the MAS Constitution allow certain
indemnities and permit MAS to effect certain insurances in favor of MAS
directors and employees. Insurance or an indemnity may be available for costs
if criminal proceedings fail. Insurance or an indemnity may be available for
the costs of successfully defending proceedings. Insurance or an indemnity may
be available for the costs of and liability from unsuccessfully defending civil
hearings provided MAS is not the plaintiff and the breach is not of a MAS
director's duty of good faith and to act in the best interests of MAS.
The Delaware General Corporation Law provides that the indemnification
provided for in the Delaware General Corporation Law shall not be deemed
exclusive of any other rights under any bylaw, agreement, vote of stockholders
or disinterested directors, or otherwise, and provides that expenses may be
advanced to officers and directors in a specific case upon receipt of an
undertaking to repay such amount if it is ultimately determined that the
indemnified party is not entitled to be indemnified. In addition, the Delaware
General Corporation Law permits the determination as to whether an officer or
director has met the applicable standard of conduct to be made in certain
circumstances by independent legal counsel.
The Delaware General Corporation Law permits a corporation to indemnify
officers, directors, employees and agents for actions taken in good faith and in
a manner they reasonably believe to be in, or not opposed to, the best interest
of the corporation, and with respect to any criminal action, which they had no
reasonable cause to believe was unlawful. The Delaware General Corporation Law
provides that a corporation may advance expenses of defense (upon receipt of a
written undertaking to reimburse the corporation if indemnification is not
appropriate) and must reimburse a successful defendant for expenses, and permits
a corporation to purchase and maintain liability insurance for its directors and
officers. The Delaware General Corporation Law provides that indemnification
may
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not be made for any claim, issue or matter as to which a person has been
adjudged to be liable to the corporation, unless and only to the extent a court
determines that the person is entitled to indemnity for such expenses as the
court deems proper.
The DMC Charter provides that no director of DMC shall be liable to DMC or
its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to DMC or its stockholders; (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law; (iii) in
respect of certain unlawful dividend payments or stock redemptions or
repurchases; or (iv) for any transaction from which the director derived an
improper personal benefit. The effect of these provisions is to eliminate the
rights of DMC and its stockholders (through stockholders' derivative suits on
behalf of DMC) to recover monetary damages against a director for breach of
certain fiduciary duties as a director (including breaches resulting from
grossly negligent behavior), except in the situations described above. These
provisions will not limit the liability of directors under federal securities
laws.
Under the Delaware General Corporation Law, directors also have a duty of
loyalty to the corporation and its stockholders. The duty of loyalty requires
that, in making a business decision, directors act in good faith and in the
honest belief that the action taken was in the best interests of the
corporation.
Pursuant to the DMC Bylaws, DMC shall indemnify to the full extent
permitted by, and in the manner permissible under, the laws of the State of
Delaware any person made, or threatened to be made, a party to an action or
proceeding, whether criminal, civil, administrative or investigative, by reason
of the fact that he or she, or his or her testator or intestate, is or was a
director of DMC, or served any enterprise as a director or officer at the
request of DMC. Expenses incurred by a director of DMC in defending a civil or
criminal action, suit or proceeding by reason of the fact that he or she was a
director of DMC (or was serving at DMC's request as a director or officer of
another enterprise or corporation) shall be paid by DMC in advance of the final
disposition of such action, suit or proceeding upon receipt of an undertaking by
or on behalf of such director to repay such amount if it shall ultimately be
determined that he or she is not entitled to be indemnified by DMC as authorized
by relevant sections of the Delaware General Corporation Law.
Pursuant to the DMC Bylaws, the DMC Board has the power on behalf of DMC to
indemnify any person, other than a director, made a party to any action, suit or
proceeding by reason of the fact that he or she, or his or her testator or
intestate, is or was an officer or employee of DMC.
The indemnification provided by the DMC Bylaws is not deemed exclusive of
any other rights to which those seeking indemnification may be entitled under
the DMC Charter, the DMC Bylaws, any agreement, vote of DMC stockholders or
disinterested directors, or otherwise, both as to actions of a director in his
or her official capacity and as to actions in another capacity while holding
such office.
SHAREHOLDER MEETINGS. MAS is required to hold an annual meeting of MAS
shareholders in each calendar year not later than six months after the balance
date of MAS and within fifteen months of the date of the preceding annual
meeting. MAS shareholders must receive at least 10 working days notice of an
annual meeting. The MAS Board must send to every MAS shareholder, at least 20
working days before an annual meeting, a copy of the annual report for MAS. The
annual report must include the statutory consolidated financial statements of
MAS and its subsidiaries and a report by the MAS Board on the state of affairs
of MAS and its subsidiaries as a group, incorporating certain information
required by statute.
The MAS Board may convene a special meeting of MAS shareholders at any
time. The MAS Board must convene a special meeting of MAS shareholders upon the
receipt of a written request from MAS shareholders who hold shares carrying
together not less than five per cent of the voting rights entitled to be
exercised on the matter in respect of which the meeting is called. MAS
shareholders must receive at least 10 working days notice of a special meeting.
The quorum required for a meeting of MAS shareholders is equal to the MAS
shareholders who are able to exercise a majority of the votes to be cast on the
business to be transacted by the meeting.
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New Zealand law does not require shareholders meetings to be held in New
Zealand, but the time and place of the meeting must be stipulated in the
requisite notice of meeting.
Under the Delaware General Corporation Law, DMC is required to hold an
annual meeting of stockholders. The DMC Bylaws provide that the annual meeting
shall be held on the third Thursday in July if not a legal holiday, in San Jose,
California or at such other date and place as shall be designated from time to
time by the DMC Board. Special stockholder meetings may be called only by a
majority of the DMC Board or upon written application of one or more
stockholders who hold at least 40% of the capital stock entitled to vote at such
meeting. DMC stockholders are not otherwise permitted to call a special meeting
or to require that the DMC Board call a special meeting of stockholders except
as applicable law may require. Under the DMC Bylaws, DMC stockholders must
receive written notice of any special meeting not less than 10 but not more than
60 days prior to such meeting. DMC stockholders are entitled to written notice
of any annual meeting not less than 10 days nor more than 60 days prior to such
annual meeting. The record date for the meetings of the DMC stockholders shall
not be less than 10 days before the date of such meetings.
Pursuant to the DMC Bylaws, the holders of a majority of the DMC Common
Stock issued and outstanding and entitled to vote at a stockholders' meeting,
present in person or represented by proxy, shall constitute a quorum at such
meeting for the transaction of business.
VOTING RIGHTS. Voting at a meeting of MAS shareholders is by voice or show
of hands unless a poll is duly demanded. On a show of hands each MAS
shareholder who is present in person, or by proxy or by an authorized
representative, has one vote. On a poll each MAS shareholder present in person,
or by proxy or by an authorized representative, has one vote for each fully paid
share of MAS Capital Stock held.
A poll may be called by: (a) not less than three (3) shareholders having
the right to vote at the meeting; or (b) a shareholder or shareholders
representing not less than 10 percent of the total voting rights of all
shareholders having the right to vote at the meeting; or (c) by a shareholder or
shareholders holding shares in MAS which confer a right to vote at the meeting
which are paid up to an aggregate amount of at least 10 percent of the total
voting shares.
Under the MAS Constitution, an ordinary resolution requires the affirmative
vote of shareholders holding not less than a majority of the votes cast and a
special resolution requires the affirmative vote of not less than 75% of the
votes cast. The election of directors, certain issues of new shares,
appointment of auditors and other general matters may be passed by ordinary
resolution. Amendments to the MAS Constitution, any transaction involving the
acquisition or disposition of assets or the incurring of liabilities, the value
of which is more than half the value of MAS's assets prior to the transaction,
certain amalgamations and the voluntary liquidation of MAS must be approved by
special resolution.
Under New Zealand law, shareholders who are not residents of New Zealand
may hold, vote and transfer their shares in the same manner as New Zealand
residents.
Under the Delaware General Corporation Law, each holder of DMC Common Stock
at the record date set for a meeting of stockholders is entitled to one vote per
share owned, subject to certain limitations. Under the Delaware General
Corporation Law, a corporation with stock outstanding or subscribed ordinarily
may amend its charter provided that the amendment is recommended by the board of
directors and approved by the affirmative vote of a majority of all the votes
entitled to be cast. Holders of a class of stock may vote as a class if the
amendment would increase or decrease the number of authorized shares of such
class or the par value of shares of such class, or would alter the preferences,
powers, or special rights of any class so as to affect them adversely.
The DMC Charter does not provide any supermajority requirements or any
special voting rights for DMC Common Stock. However, see "Description of DMC
Capital Stock" regarding the DMC Rights Agreement.
DISTRIBUTIONS. Under New Zealand law, a distribution is the transfer of
any money or property (other than shares in MAS) to or for the benefit of a
shareholder, or the incurring of a debt to, or for the benefit of, a
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shareholder, in relation to shares in MAS held by the shareholder. The term
distribution therefore includes a dividend.
The MAS Board, if satisfied on reasonable grounds that MAS will immediately
after the distribution satisfy the solvency test, may authorize distributions to
MAS shareholders at times and of amounts as it thinks fit. There is no
requirement for shareholder approval of such distributions.
For the solvency test to be satisfied, MAS must be able to pay its debts as
they become due in the normal course of business and the value of MAS's assets
must be greater than the value of its liabilities (including contingent
liabilities).
Except with the prior approval of MAS shareholders or where the holders of
any class of MAS Capital Stock issued by MAS have particular rights, the MAS
Board may not differentiate between shareholders as to the form in which a
distribution is made.
The MAS Board may not authorize a dividend that is disproportionate among
members of the same class of MAS Capital Stock unless such dividend is
proportionate to the amount paid to MAS for such shares of MAS Capital Stock.
Entitlement of a MAS shareholder to receive a distribution is dependent
upon such shareholder being listed on MAS's share register on the date set by
the MAS Board as the date for determining entitlement to such distribution.
The holders of DMC Common Stock are entitled to receive such dividends, if
any, as may be declared from time to time by the DMC Board out of funds legally
available therefor. Pursuant to the DMC Bylaws, dividends may be paid in cash,
in property, or in shares of DMC Common Stock.
ISSUE OF SHARES. The Directors of MAS have the ability to issue further
shares in different classes, or with special, limited or conditional voting
rights, non-voting shares, redeemable shares, shares with preferential rights to
capital or income, or ordinary shares ranking equally, or in priority to,
existing ordinary shares. The issuance of additional shares can take place
without shareholder approval in certain limited situations, which are listed in
detail in the MAS Constitution. Unless the share issuance falls within one or
more of the stated grounds, the shareholders of MAS must, by a simple majority,
approve the precise terms of any proposal to issue shares.
The MAS Constitution places certain restrictions on the issuance of new
shares and options. The MAS Board may issue shares, provided that such
issuances are either approved by existing shareholders, offered to existing
shareholders in proportion to the number of shares already held by them, made
pursuant to certain takeover offers, made to employees under certain
circumstances, or do not exceed in any 12 month period more than 10% of the
total number of securities of the relevant class outstanding, and in certain
other limited circumstances. Before issuing any shares, the MAS Board must
resolve that in its opinion the consideration for, and the terms of, the
issuance are fair and reasonable to MAS and to all existing MAS shareholders,
and not less than the amount to be credited in respect of the shares.
The DMC Charter presently authorizes DMC to issue up to 60,000,000 shares
of DMC Common Stock, par value $0.01 per share. At the Special Meeting of DMC
Stockholders to be held in March 1998, the stockholders of DMC will be asked to
increase the number of authorized shares of DMC Common Stock that DMC may issue
to 95,000,000 shares.
The DMC Charter has no restrictions on the issuance of new shares and
options. Limitations on the number of options granted under DMC's stock plans
are contained within such plans.
VARIATION OF RIGHTS. The rights attached to any shares of MAS Capital
Stock may, subject to the provisions of the Companies Act, be modified,
abrogated or altered, and the capital thereof may be repaid (otherwise than on
liquidation or in accordance with the terms of issue of those shares), only with
the sanction of a special resolution of
59
<PAGE>
each interest group. An interest group is a group of shareholders (who may hold
shares of the same or different class) whose affected rights are identical and
whose rights are affected by the action or proposal in the same way.
Under the Delaware General Corporation Law, the rights of the holders of
DMC Common Stock may not be altered adversely unless the majority of the holders
of DMC Common Stock approve any such alteration in the form of an amendment to
the DMC Charter.
MINORITY BUYOUT RIGHTS. Under New Zealand law, shareholders voting against
certain matters requiring a special resolution (including alteration of a
company's constitution, a major transaction referred to in "-- Voting Rights"
above, and amalgamation or liquidation of such a company) have a minority buyout
right. See "Minority Buyout Rights of MAS Shareholders."
Under the Delaware General Corporation Law, a stockholder of a corporation
participating in certain major corporate transactions may, under varying
circumstances, be entitled to receive cash equal to the fair market value of the
shares held by such stockholder (as determined by a court of competent
jurisdiction or by agreement of the stockholder and the corporation), in lieu of
the consideration such stockholder would otherwise receive in the transaction.
The Delaware General Corporation Law does not require dissenters' rights with
respect to (a) a sale of assets; (b) a merger by a corporation, if the shares of
the corporation are either (i) listed on a national securities exchange, (ii)
designated as a national market security on an interdealer quotation system by
the National Association of Securities Dealers, Inc., (iii) held by more than
2,000 stockholders of record, (iv) stockholders receive shares of the surviving
corporation or (v) of a listed or widely-held corporation; or (c) a merger in
which a corporation is a surviving corporation if no vote of its stockholders is
required to approve the merger.
RIGHTS ON A LIQUIDATION. In the event of a liquidation of MAS, the assets
of MAS shall be applied to satisfy its debts and liabilities. After payment of
liabilities, and after provision has been made for any shares having preference
over ordinary shares (if any) on a liquidation of MAS, the holders of ordinary
shares shall receive a share of any surplus assets in proportion to the number
of ordinary shares held by them and the amounts paid up by them on those
ordinary shares.
Upon liquidation or dissolution of DMC the holders of DMC Common Stock are
entitled to share ratably in the distribution of assets, subject to the rights
of the holders of DMC Preferred Stock. Holders of DMC Common Stock have no
preemptive rights, subscription rights or conversion rights. There are no
redemption or sinking fund provisions with respect to the DMC Common Stock.
CERTAIN PROVISIONS RELATING TO BUSINESS COMBINATIONS. MAS is not listed on
the New Zealand Stock Exchange. Under New Zealand law, takeover offers as
defined in the Companies Amendment Act 1963 (the "1963 Act") apply to companies
which are not listed on the New Zealand Stock Exchange in certain circumstances.
The 1963 Act requires that certain procedures be followed and that shareholders
of such a company be advised of the specific terms of the takeover proposal
pursuant to the notice provisions thereof. The 1963 Act does not include
mandatory bid provisions.
DMC is subject to Section 203 of the Delaware General Corporation Law
("Section 203"). Section 203 restricts certain transactions and business
combinations between a corporation and an "Interested Stockholder" owning 15% or
more of the corporation's outstanding voting stock, for a period of three years
from the date the stockholder becomes an Interested Stockholder. Subject to
certain exceptions, unless the transaction is approved by the DMC Board and the
holders of at least 66.67% of the outstanding voting stock of the corporation
(excluding shares held by the Interested Stockholder), Section 203 prohibits
significant business transactions such as a merger with, disposition of assets
to, or receipt of disproportionate financial benefits by, the Interested
Stockholder, or any other transaction that would increase the Interested
Stockholder's proportionate ownership of any class or series of the
corporation's stock. The statutory ban does not apply if, upon consummation of
the transaction in which any person becomes an Interested Stockholder, the
Interested Stockholder owns at least 85% of the outstanding voting stock of the
corporation (excluding shares held by persons who are both directors and
officers or by certain employee stock plans).
60
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed financial statements
have been prepared to give effect to the Reorganization, using the pooling of
interests method of accounting.
The unaudited pro forma combined condensed financial statements reflect
certain assumptions deemed probable by management regarding the Reorganization
(for example, that share information used in the unaudited pro forma information
approximates actual share information at the Effective Date). No adjustments to
the unaudited pro forma combined condensed financial information have been made
to account for different possible results in connection with the foregoing, as
management believes that the impact on such information of the varying outcomes,
individually or in the aggregate, would not be materially different.
The unaudited pro forma combined balance sheet as of September 30, 1997
gives effect to the Reorganization as if it had occurred on September 30, 1997,
and combines the unaudited consolidated balance sheet of DMC and the unaudited
consolidated balance sheet of MAS as of September 30, 1997. The unaudited pro
forma combined statements of income for all periods presented give effect to the
Reorganization as if it had occurred on April 1, 1994. For purposes of the pro
forma statement of income, MAS's consolidated statement of income for each of
the three fiscal years ended March 31, 1997, and for the six month periods ended
September 30, 1996 and 1997, have been combined with DMC's consolidated
statement of income (loss) for each of the three fiscal years ended March 31,
1997, and the six month periods ended September 30, 1996 and 1997.
DMC and MAS estimate they will incur direct transaction costs of
approximately $5,000,000 associated with the Reorganization, consisting of
transaction fees for investment bankers, attorneys, accountants, financial
printing and other related charges. These nonrecurring transaction costs will
be charged to operations upon consummation of the Reorganization. It is
expected that following the Reorganization, the combined companies will incur an
additional significant charge to operations, which is not currently reasonably
estimable, to reflect costs associated with integrating the two companies. This
charge has not been reflected in the pro forma condensed balance sheet or pro
forma condensed statements of income. There can be no assurance that the
combined companies will not incur additional charges to reflect costs associated
with the Reorganization or that management will be successful in its efforts to
integrate the operations of the two companies.
Such unaudited pro forma combined condensed financial information is
presented for illustrative purposes only and is not necessarily indicative of
the financial position or results of operations that would have actually been
reported had the Reorganization occurred at the beginning of the periods
presented, nor is it necessarily indicative of future financial position or
results of operations. These unaudited pro forma combined financial statements
are based upon the respective historical consolidated financial statements and
notes thereto of DMC and MAS included elsewhere in this Proxy
Statement/Prospectus, and do not incorporate, nor do they assume, any benefits
from cost savings or synergies of operations of the combined companies.
61
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
SEPTEMBER 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
ASSETS DMC MAS ADJUSTMENTS COMBINED
--- --- ----------- ---------
US$ US$ US$ US$
<S> <C> <C> <C> <C>
Current assets:
Cash, cash equivalents and short
term investments . . . . . . . . . . . . $ 33,304 $ 20,527 $ - $ 53,831
Accounts receivable, net . . . . . . . . . 57,250 11,895 (1,560)(c) 67,585
Inventories. . . . . . . . . . . . . . . . 48,014 8,153 - 56,167
Other current assets . . . . . . . . . . . 4,858 1,302 - 6,160
-------- -------- -------- --------
Total current assets . . . . . . . . 143,426 41,877 (1,560) 183,743
Property and equipment, net. . . . . . . . 21,240 1,547 - 22,787
Other assets . . . . . . . . . . . . . . . 15,455 920 - 16,375
-------- -------- -------- --------
Total assets. . . . . . . . . . . . . $180,121 $ 44,344 $ (1,560) $222,905
-------- -------- -------- --------
-------- -------- -------- --------
LIABILITIES & STOCKHOLDERS'
EQUITY
Current liabilities:
Current maturities of capital lease
obligations. . . . . . . . . . . . . . . $ 490 $ - $ - $ 490
Accounts payable . . . . . . . . . . . . . 21,936 6,779 (1,560)(c) 27,155
Accrued merger costs . . . . . . . . . . . - - 5,000 (a) 5,000
Income taxes payable . . . . . . . . . . . 2,453 814 - 3,267
Accrued liabilities. . . . . . . . . . . . 18,597 803 - 19,400
-------- -------- -------- --------
Total current liabilities . . . . . . 43,476 8,396 3,440 55,312
Capital lease obligations, net of
current maturities . . . . . . . . . . . 179 - - 179
-------- -------- -------- --------
Total liabilities . . . . . . . . . . 43,655 8,396 3,440 55,491
Common stock and paid-in capital . . . . . 127,367 29,198 - 156,565
Other stockholders' equity . . . . . . . . (20) (778) - (798)
Retained earnings. . . . . . . . . . . . . 9,119 7,528 (5,000)(a) 11,647
-------- -------- -------- --------
Total stockholders' equity. . . . . . 136,466 35,948 (5,000) 167,414
-------- -------- -------- --------
Total liabilities and equity. . . . . $180,121 $ 44,344 $ (1,560) $222,905
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
62
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED MARCH 31, SEPTEMBER 30,
------------------------------------------ --------------------------
1995 1996 1997 1996 1997
---- ---- ---- ---- ----
US$ US$ US$ US$ US$
<S> <C> <C> <C> <C> <C>
Sales. . . . . . . . . . . . . . . . . . . $165,148 $172,418 $211,747 $ 88,936 $145,494
Cost of sales. . . . . . . . . . . . . . . 121,313 133,612 137,589 59,107 92,942
-------- -------- -------- -------- --------
Gross profit. . . . . . . . . . . . . 43,835 38,806 74,158 29,829 52,552
Operating costs and expenses:
Research and development. . . . . . . 12,545 12,885 13,224 6,099 8,901
Selling, general and
administrative. . . . . . . . . . . 27,556 31,707 43,515 19,293 27,411
-------- -------- -------- -------- --------
Total operating costs and
expenses. . . . . . . . . . . . . . . . . 40,101 44,592 56,739 25,392 36,312
-------- -------- -------- -------- --------
Income (loss) from operations. . . . . . . 3,734 (5,786) 17,419 4,437 16,240
Other income (expense) . . . . . . . . . . (652) 139 (913) (592) 1,974
-------- -------- -------- -------- --------
Net income (loss) before tax . . . . . . . 3,082 (5,647) 16,506 3,845 18,214
Provision (benefit) for income taxes . . . 515 (1,175) 2,634 488 2,707
-------- -------- -------- -------- --------
Net income (loss). . . . . . . . . . . . . $ 2,567 $ (4,472) $ 13,872 $ 3,357 $ 15,507
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Net income (loss) per share. . . . . . . . $ 0.08 $ (0.13) $ 0.36 $ 0.09 $ 0.33
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Shares used in per share
calculation . . . . . . . . . . . . . . . 31,572 34,727 38,933 37,868 46,477
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
</TABLE>
63
<PAGE>
NOTES TO UNAUDITED PRO FORMA
COMBINED FINANCIAL STATEMENTS
(1) PRO FORMA BASIS OF PRESENTATION
The unaudited pro forma combined financial statements for the years ended
March 31, 1995, 1996 and 1997 reflect the combination of the financial
statements of DMC for the years ended March 31, 1995, 1996 and 1997 and the
financial statements of MAS for the years ended March 31, 1995, 1996 and 1997.
The unaudited pro forma combined statements of income for the six month periods
ended September 30, 1996 and 1997 reflect the combination of the statements of
income (loss) of DMC and MAS for the six month periods ended September 30, 1996
and 1997.
These unaudited pro forma combined financial statements reflect the
issuance of 8,160,000 shares of DMC Common Stock in exchange for an aggregate of
6,800,000 shares of MAS Capital Stock (outstanding as of September 30, 1997) in
connection with the Reorganization, based on the Exchange Ratio of 1.20 set
forth in the following table:
MAS Capital Stock outstanding as of September 30, 1997 . . . . 6,800,000
Exchange Ratio . . . . . . . . . . . . . . . . . . . . . . . . 1.20:1.00
Number of shares of DMC Common Stock exchanged . . . . . . . . 8,160,000
Number of shares of DMC Common Stock Outstanding
as September 30, 1997. . . . . . . . . . . . . . . . . . . . 38,054,932
----------
Number of shares of Combined Company Common Stock outstanding
at September 30, 1997 after giving effect to the
Reorganization . . . . . . . . . . . . . . . . . . . . . . . 46,214,932
----------
----------
The actual number of shares of DMC Common Stock to be issued will be
determined at the Effective Time based on the number of shares of MAS Capital
Stock outstanding at that date.
(2) PRO FORMA COMBINED BALANCE SHEET
(a) DMC and MAS estimate they will incur direct transaction costs of
approximately $5,000,000 associated with the Reorganization, consisting of
transaction fees for investment bankers, attorneys, accountants, financial
printing and other related charges. These nonrecurring transaction costs will
be charged to operations upon consummation of the Reorganization. These charges
have been reflected in the unaudited pro forma combined balance sheet but have
not been included in the unaudited pro forma combined statements of income.
(b) It is expected that following the Reorganization, the combined
companies will incur an additional significant charge to operations, which is
not currently reasonably estimable, to reflect costs associated with integrating
the two companies. This charge has not been reflected in the pro forma
condensed balance sheet or condensed statements of income. There can be no
assurance that the combined companies will not incur additional charges to
reflect costs associated with the Reorganization or that management will be
successful in its efforts to integrate the operations of the two companies.
(c) Represents the elimination of the intercompany accounts receivable and
accounts payable balances at September 30, 1997.
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<PAGE>
(3) PRO FORMA COMBINED STATEMENTS OF INCOME
The following are the historical results of operations of DMC and MAS and
their pro forma combined amounts to reflect the Reorganization as if it were
effected for all periods presented below:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED MARCH 31, SEPTEMBER 30,
----------------------------------------------- ----------------------------
1995 1996 1997 1996 1997
---- ---- ---- ---- ----
US $ US $ US $ US $ US $
<S> <C> <C> <C> <C> <C>
Total Sales:
DMC $ 153,650 $ 150,419 $ 178,344 $ 78,332 $ 123,839
MAS 13,899 26,702 $ 35,710 11,275 $ 25,949
Less: Intercompany Sales (2,401) (4,703) (2,307) (671) (4,294)
--------- --------- --------- -------- ---------
$ 165,148 $ 172,418 $ 211,747 $ 88,936 $ 145,494
--------- --------- --------- -------- ---------
--------- --------- --------- -------- ---------
Cost of Sales
DMC $ 114,760 $ 119,918 $ 118,778 $ 52,685 $ 80,623
MAS 8,954 18,397 $ 21,118 7,093 $ 16,613
Less: Intercompany Sales (2,401) (4,703) (2,307) (671) (4,294)
--------- --------- --------- -------- ---------
$ 121,313 $ 133,612 $ 137,589 $ 59,107 $ 92,942
--------- --------- --------- -------- ---------
--------- --------- --------- -------- ---------
Research and development:
DMC $ 11,379 $ 11,108 $ 10,596 $ 4,928 $ 7,191
MAS 1,166 1,777 $ 2,628 1,171 $ 1,710
--------- --------- --------- -------- ---------
$ 12,545 $ 12,885 $ 13,224 $ 6,099 $ 8,901
--------- --------- --------- -------- ---------
--------- --------- --------- -------- ---------
Selling, general and
administrative:
DMC $ 24,763 $ 27,416 $ 35,071 $ 16,629 $ 21,670
MAS 2,793 4,291 $ 8,444 2,664 $ 5,741
--------- --------- --------- -------- ---------
$ 27,556 $ 31,707 $ 43,515 $ 19,293 $ 27,411
--------- --------- --------- -------- ---------
--------- --------- --------- -------- ---------
Other income (expense):
DMC $ (546) $ 115 $ (891) $ (485) $ 315
MAS (106) 24 (22) (107) $ 1,659
--------- --------- --------- -------- ---------
$ (652) $ 139 $ (913) $ (592) $ 1,974
--------- --------- --------- -------- ---------
--------- --------- --------- -------- ---------
Provision (benefit) for income
taxes:
DMC $ 220 $ (1,953) $ 1,301 $ 360 $ 1,467
MAS 295 778 1,333 128 1,240
--------- --------- --------- -------- ---------
$ 515 $ (1,175) $ 2,634 $ 488 $ 2,707
--------- --------- --------- -------- ---------
--------- --------- --------- -------- ---------
Net income (loss):
DMC $ 1,982 $ (5,955) $ 11,707 $ 3,245 $ 13,203
MAS 585 1,483 2,165 112 2,304
--------- --------- --------- -------- ---------
$ 2,567 $ (4,472) $ 13,872 $ 3,357 $ 15,507
--------- --------- --------- -------- ---------
--------- --------- --------- -------- ---------
</TABLE>
65
<PAGE>
(4) PRO FORMA NET INCOME PER SHARE
The following table reconciles the number of shares used in the pro forma
per share computations to the numbers set forth in DMC's and MAS's historical
statements of operations.
SHARES USED IN PRO FORMA PER SHARE CALCULATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED MARCH 31, SEPTEMBER 30,
----------------------------------------------- ----------------------------
1995 1996 1997 1996 1997
(IN THOUSANDS EXCEPT CONVERSION NUMBER)
<S> <C> <C> <C> <C> <C>
SHARES USED IN CALCULATIONS
Historical - DMC . . . . . . . . 27,690 29,791 33,881 32,872 39,501
------ ------ ------ ------ ------
Historical - MAS . . . . . . . . 3,235 4,113 4,210 4,163 5,813
Conversion Number. . . . . . . . 1.20 1.20 1.20 1.20 1.20
------ ------ ------ ------ ------
3,882 4,936 5,052 4,996 6,976
Pro forma combined . . . . . . . 31,572 34,727 38,933 37,868 46,477
------ ------ ------ ------ ------
------ ------ ------ ------ ------
</TABLE>
66
<PAGE>
PROPOSAL NO. 1
APPROVAL OF THE REORGANIZATION AGREEMENT
At the DMC Special Meeting, the holders of DMC Common Stock will vote upon
a proposal to approve the Reorganization Agreement and the issuance of
additional shares of DMC Common Stock. See "The DMC Special Meeting" and "The
Reorganization." At the MAS Special Meeting, the MAS shareholders will vote
upon a proposal to approve the Reorganization Proposal and the Reorganization
Agreement. See "The MAS Special Meeting" and "The Reorganization."
PROPOSAL NO. 2
APPROVAL OF THE AMENDMENT TO DMC'S
RESTATED CERTIFICATE OF INCORPORATION
In connection with the DMC Share Proposal and the Reorganization Agreement,
the DMC Board has approved an amendment to Article IV of DMC's Restated
Certificate of Incorporation to (i) increase the total number of authorized
shares of stock that DMC is authorized to issue from 65,000,000 shares to
100,000,000 shares and (ii) increase the number of shares of authorized DMC
Common Stock from 60,000,000 shares to 95,000,000 shares. The DMC Charter
Amendment Proposal would accomplish the share increase. The form of proposed
amendment to DMC's Restated Certificate of Incorporation is attached as
Appendix G to this Proxy Statement/Prospectus. Approval of the DMC Charter
Amendment Proposal is not a condition to the consummation of the Reorganization,
and the DMC Charter Amendment Proposal will be implemented, if approved by DMC
stockholders, even if the Reorganization is not consummated.
THE DMC BOARD HAS UNANIMOUSLY APPROVED THE DMC CHARTER AMENDMENT PROPOSAL
AND UNANIMOUSLY RECOMMENDS THAT HOLDERS OF SHARES OF DMC COMMON STOCK VOTE FOR
APPROVAL OF SUCH PROPOSAL.
If the DMC Share Proposal is approved by the stockholders of DMC at the DMC
Special Meeting, the DMC Charter Amendment Proposal would be effected on the
soonest practicable date following the DMC Special Meeting.
PURPOSES AND EFFECTS OF THE DMC CHARTER AMENDMENT PROPOSAL
The proposed increase in the authorized number of shares of DMC Common
Stock is necessary to provide DMC with a sufficient number of shares to effect
the Reorganization and to provide DMC with flexibility for the future.
As of December 31, 1997, DMC had 38,103,944 shares of DMC Common Stock and
no shares of DMC Preferred Stock outstanding. In addition, as of the same date,
approximately 6,054,679 shares of DMC Common Stock were reserved for issuance as
follows: Approximately 350,110 shares were reserved for issuance under the DMC
1984 Stock Option Plan; approximately 3,838,304 shares were reserved for
issuance under the 1994 Plan; approximately 907,820 shares were reserved for
issuance under the DMC 1996 Non-Officer Employee Stock Option Plan;
approximately 458,445 shares were reserved for issuance under the DMC 1996
Employee Stock Purchase Plan, and approximately 500,000 shares were reserved for
issuance under the DMC 1998 Non-Officer Employee Stock Option Plan.
Furthermore, upon approval of the DMC Share Proposal, the consummation of the
Reorganization will require the issuance of approximately 8,600,000 shares of
DMC Common Stock, including the shares of DMC Common Stock necessary to assume
the MAS options in the MAS 1997 Stock Option Plan. Accordingly, if the
Reorganization is effected, only 7,241,377 shares of unissued and unreserved DMC
Common Stock will remain. Therefore, the DMC Board believes it is in the best
interests of DMC and its stockholders to provide DMC with flexibility in meeting
its future opportunities and requirements for issuing shares of DMC
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<PAGE>
Common Stock by approving the DMC Charter Amendment Proposal to increase the
number of authorized shares of DMC Common Stock from 60,000,000 shares to
95,000,000 shares.
Increasing the number of authorized shares of stock to a number that
provides for a substantial number of additional authorized but unissued shares
of stock is a common occurrence among publicly held companies. The authorized
shares of DMC Common Stock in excess of those outstanding after the
Reorganization will be available for issuance at such times and for such
purposes as the DMC Board may deem advisable without further action by DMC's
stockholders, except as may be required by applicable laws or regulations,
including stock exchange rules. These purposes may include additional stock
dividends, stock splits, retirement of indebtedness, employee benefit programs,
corporate business combinations, acquisitions of property, funding of product
programs or businesses, issuance of securities convertible into DMC Common Stock
or other corporate purposes. The DMC Board has no current plans to issue any
shares of DMC Common Stock for any such purposes, other than pursuant to the DMC
Share Proposal and the proposed Reorganization and pursuant to DMC's stock
option and stock purchase plans, and does not intend to issue any DMC Common
Stock except on terms or for reasons which the DMC Board deems to be in the best
interests of DMC.
The additional shares of DMC Common Stock that would become available for
issuance if the proposed amendment is adopted could also be used by DMC to
delay, defer or prevent a change of control of DMC or other transaction that
might involve a premium price for holders of DMC Common Stock or otherwise be in
their best interest. For example, in the event of a hostile attempt to take
over control of DMC, DMC could issue additional shares of DMC Common Stock,
thereby diluting the voting power of the other outstanding shares and increasing
the potential cost to acquire control of DMC. The DMC Board is not aware of any
attempt to take control of DMC and the DMC Board has not presented this proposal
with the intent that it be utilized as an anti-takeover device. The DMC Charter
Amendment Proposal does not alter DMC's existing power to issue up to 5,000,000
shares of DMC Preferred Stock.
Each additional share of DMC Common Stock authorized by the amendment to
Article IV of the DMC Restated Certificate of Incorporation described in this
DMC Charter Amendment Proposal would have the same rights and privileges as each
share of DMC Common Stock currently authorized or outstanding. Each new share
of DMC Common Stock authorized under this DMC Charter Amendment Proposal will
include one right, which, when exercisable upon the occurrence of certain
events, entitles the registered holder to certain rights under a Stockholders'
Rights Agreement between DMC and the Manufacturers Hanover Trust Company of
California, as Rights Agent, dated as of October 24, 1991, which could delay,
defer or prevent an unsolicited proposal to change the control of DMC. See
"Comparison of Capital Stock - Description of DMC Capital Stock." The number of
authorized shares of DMC Preferred Stock would remain unchanged.
PROPOSAL NO. 3
APPROVAL OF THE AMENDMENT TO DMC'S 1994 STOCK INCENTIVE PLAN
At the DMC Special Meeting, DMC stockholders will be asked to vote on the
proposed amendment and restatement of DMC's 1994 Stock Incentive Plan (the "1994
Plan") to increase the number of shares authorized for issuance thereunder from
4,666,660 to 7,166,660 and to reflect the amendments promulgated by the
Commission to Rule 16b-3 applicable to the 1994 Plan. Approval of the 1994 Plan
Amendment Proposal is not a condition to the consummation of the Reorganization,
and the 1994 Plan Amendment Proposal will be implemented, if approved by DMC
stockholders, even if the Reorganization is not consummated.
The 1994 Plan, which was approved by DMC's stockholders at the 1994 annual
meeting, provides for the issuance of stock options and stock awards covering up
to 4,666,660 shares of DMC Common Stock. Stock awards issued under the 1994
Plan may be made in the form of stock options, stock grants or purchases. The
DMC Board has concluded that the number of shares authorized under the 1994 Plan
will not be sufficient to achieve DMC's objectives following the Reorganization.
In particular, immediately following the Reorganization, DMC will have
outstanding 46,303,944 shares of DMC Common Stock, and will have approximately
210 additional employees. The DMC Board has concluded that, given DMC's
increased size as a result of the Reorganization, an increase in
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<PAGE>
the authorized number of shares under the 1994 Plan is in the best interests of
DMC and its stockholders. The increase will enable DMC to retain talented
employees and to attract talented new employees by offering them participation
in the 1994 Plan. Management of DMC believes that without such incentive it
will be unable to attract and retain the services of those individuals essential
to DMC's growth and financial success. In addition, many of the amendments to
the 1994 Plan correspond to amendments promulgated by the Commission to
Rule 16b-3 applicable to the 1994 Plan and generally give DMC more flexibility
in administering the 1994 Plan.
THE DMC BOARD HAS UNANIMOUSLY APPROVED THE 1994 PLAN AMENDMENT PROPOSAL AND
UNANIMOUSLY RECOMMENDS THAT HOLDERS OF SHARES OF DMC COMMON STOCK VOTE FOR
APPROVAL OF SUCH PROPOSAL.
GENERAL DESCRIPTION
In April 1994, the DMC Board adopted the 1994 Plan, which was approved by
the DMC stockholders in July 1994. Amendments to the 1994 Plan were approved by
the stockholders in August 1996 and August 1997. A total of 900,000 shares of
DMC Common Stock were initially reserved for issuance over the ten year term of
the 1994 Plan. The number of shares of DMC Common Stock available for issuance
automatically increases on the first trading day of each calendar year for five
years from the adoption of the 1994 Plan, beginning with the 1995 calendar year,
by an amount equal to one percent (1%) of the total number of shares of DMC
Common Stock outstanding on December 31 of the immediately preceding calendar
year, but in no event shall any such annual increase exceed 300,000 shares.
Options granted under the 1994 Plan may be either incentive stock options, as
defined in Section 422 of the Code, or nonstatutory stock options. See "Certain
Federal Income Tax Information" below for information concerning the tax
treatment of both incentive stock options and nonstatutory stock options. A
total of 4,666,660 shares are currently reserved for issuance under the 1994
Plan. As of December 31, 1997, options to purchase approximately 3,838,304
shares were outstanding under the 1994 Plan, 828,356 options to purchase shares
had been exercised under the 1994 Plan, and approximately 515,453 shares
remained reserved for issuance thereunder.
SUMMARY OF 1994 PLAN
The essential terms of the 1994 Plan, as proposed to be amended, are
summarized below. This summary is not intended to be a complete description of
all terms of the 1994 Plan. A copy of the 1994 Plan will be furnished to any
stockholder upon request. Such a request should be directed to the Corporate
Secretary at DMC's principal executive office.
PLAN ADMINISTRATION. The 1994 Plan shall be administered by the
Compensation Committee of the DMC Board. The Compensation Committee (the "Plan
Administrator") shall have complete discretion (subject to the provisions of the
1994 Plan) to authorize stock option grants and direct stock issuances under the
1994 Plan. In addition, a subcommittee of the Compensation Committee comprised
solely of two or more "outside directors" (within the meaning of Section 162(m)
of the Code, and the regulations thereunder) shall have sole and exclusive
authority to administer the participation of "covered employees" (within the
meaning of Section 162(m)(3) of the Code) in the 1994 Plan in order to qualify
grants to covered employees under the 1994 Plan as performance-based
compensation under Section 162(m) of the Code.
RULE 16B-3 AMENDMENTS. The following summarizes the amendments to the 1994
Plan to reflect the amendments promulgated by the Commission to Rule 16b-3
applicable to stock compensation plans generally. Prior to recent amendments to
Rule 16b-3, the 1994 Plan was required to be administered by a committee of two
or more non-employee DMC Board members appointed by the DMC Board. In addition,
a board member was prevented from serving on the committee, if during the
one-year period preceding appointment to the committee, such member received a
grant or award of equity securities under the 1994 Plan unless the award was
made pursuant to a non-discretionary formula award program. Consistent with the
amendments to Rule 16b-3, the amended 1994 Plan removes the administrative and
amendment limitations applicable to the formula award programs for non-employee
directors previously established under the 1994 Plan. In addition, the DMC
Board has greater flexibility in appointment of members to the committee serving
as the Plan Administrator. Finally, the amendment procedures applicable to the
1994 Plan have been revised to remove the restrictions imposed by the prior
version of Rule 16b-3.
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ELIGIBILITY. Officers and other key employees of DMC and its subsidiaries
(whether now existing or subsequently established) and independent consultants
and advisors to DMC and its subsidiaries shall be eligible to participate in the
Discretionary Grant and Stock Issuance Programs. Officers and other key
employees shall also be eligible to participate in the Salary Reduction Grant
Program. Non-employee members of the DMC Board shall only be eligible to
participate in the Automatic Grant and the Stock Fee Programs. In no event may
any one participant in the 1994 Plan be granted stock options, separately
exercisable stock appreciation rights and direct stock issuances for more than
1,000,000 shares in the aggregate over the term of the 1994 Plan.
VALUATION. The fair market value per share of DMC Common Stock on any
relevant date under the 1994 Plan shall be the closing selling price per share
on that date on Nasdaq. If there is no reported sale for such date, then the
closing selling price for the last previous date for which such quotation exists
shall be determinative of fair market value.
EQUITY INCENTIVE PROGRAMS. The 1994 Plan contains five separate equity
incentive programs: (i) a Discretionary Grant Program under which key employees
and consultants may be granted stock options to purchase shares of DMC Common
Stock; (ii) an Automatic Grant Program under which option grants shall be made
at specified intervals to non-employee directors of the DMC Board; (iii) a
Salary Reduction Grant Program under which officers and other key employees may
elect to have a portion of their base salary reduced each year in return for
options to purchase shares of DMC Common Stock at a discount from current fair
market value equal to the amount of their salary reduction; (iv) a Stock Fee
Program under which non-employee directors of the DMC Board may elect to apply
all or a portion of their annual retainer fee and meeting fees to the
acquisition of shares of DMC Common Stock; and (v) a Stock Issuance Program
under which eligible individuals may be issued shares of DMC Common Stock
directly, through the immediate purchase of the shares, as a bonus tied to their
performance of services or DMC's attainment of financial milestones, or pursuant
to their individual elections to receive such shares in lieu of their base
salary. The implementation and use of any of these equity incentive programs is
within the sole discretion of the Plan Administrator.
DISCRETIONARY GRANT PROGRAM. Under the Discretionary Grant Program, the
exercise price per share for options shall not be less than 100% of the fair
market value per share of DMC Common Stock on the grant date. For incentive
stock options granted to employees possessing 10% or more of the total combined
voting power of all classes of stock of DMC or any of its subsidiaries (a "10%
Holder"), the exercise price per share may not be less than 110% of such fair
market value. The Plan Administrator shall have complete discretion to grant
options (i) which are immediately exercisable for vested shares, (ii) which are
immediately exercisable for unvested shares subject to DMC's repurchase rights
or (iii) which become exercisable in installments for vested shares over the
optionee's period of service. No granted option shall, however, have a maximum
term in excess of ten years. No incentive stock option granted to a 10% Holder
shall have a maximum term in excess of five years.
Any option held by the optionee at the time of cessation of service
normally shall not remain exercisable beyond the limited period designated by
the Plan Administrator (not to exceed 36 months) at the time of the option
grant. During that period the option generally shall be exercisable only for
the number of shares of DMC Common Stock in which the optionee is vested at the
time of cessation of service. However, the Plan Administrator shall have
complete discretion to extend the period following the optionee's cessation of
service during which his or her outstanding option may be exercised and/or to
accelerate the exercisability or vesting of such options in whole or in part.
Such discretion may be exercised at any time while the options remain
outstanding, whether before or after the optionee's actual cessation of service.
Any unvested share of DMC Common Stock shall be subject to repurchase by DMC, at
the original exercise price paid per share, upon the optionee's cessation of
service prior to vesting in those shares. The Plan Administrator shall have
complete discretion in establishing the vesting schedule for any such unvested
shares and shall have full authority to cancel DMC's outstanding repurchase
rights with respect to those shares in whole or in part at any time.
The Plan Administrator is authorized to issue two types of stock
appreciation rights in connection with option grants made under the
Discretionary Grant Program: tandem stock appreciation rights and limited stock
appreciation rights. Tandem stock appreciation rights provide holders with the
right to surrender their options for an appreciation distribution from DMC equal
in amount to the excess of (i) the fair market value of the vested shares of
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DMC Common Stock subject to the surrendered option over (ii) the aggregate
exercise price payable for such shares. Such appreciation distribution may, at
the discretion of the Plan Administrator, be made in cash or in shares of DMC
Common Stock. Limited stock appreciation rights may be granted to officers of
DMC as part of their option grants. Any option with such a limited stock
appreciation right in effect for at least six months may be surrendered to DMC
upon the successful completion of a hostile tender offer for securities
possessing more than 50% of the total combined voting power of DMC's outstanding
securities. In return for the surrendered option, the officer shall be entitled
to a cash distribution from DMC in an amount per surrendered option share equal
to the excess of (i) the highest price per share of DMC Common Stock paid in
such hostile tender offer over (ii) the exercise price payable for such share.
AUTOMATIC GRANT PROGRAM. Under the Automatic Grant Program, each
individual who first becomes a non-employee director of the DMC Board on or
after the date of the 1994 DMC Annual Stockholders Meeting, whether through
election by the stockholders or appointment by the DMC Board, shall
automatically be granted at the time of such initial election or appointment, an
option grant for 21,000 shares of DMC Common Stock, provided such individual has
not been in DMC's prior employ. In addition, option grants for 7,000 shares of
DMC Common Stock shall automatically be made to non-employee directors of the
DMC Board who have served for at least three years annually thereafter.
Accordingly, on the date of each DMC annual stockholders meeting, each
individual who is re-elected to serve as a non-employee director of the DMC
Board and who has served for at least three years shall automatically be granted
a stock option to purchase 7,000 shares of DMC Common Stock. There shall be no
limit on the number of such additional 7,000-share option grants any one
non-employee director of the DMC Board may receive over his or her period of DMC
Board service, and non-employee directors of the DMC Board shall be eligible to
receive these option grants for 7,000 shares of DMC Common Stock, regardless of
whether they joined the DMC Board prior to the 1994 DMC Annual Meeting or were
previously in DMC's employ.
Under the Automatic Grant Program, the exercise price per share shall be
equal to 100% of the fair market value per share of DMC Common Stock on the
automatic grant date. Each option shall have a maximum term of ten years from
the grant date and each option shall be immediately exercisable for all option
shares, but any purchased shares shall be subject to repurchase by DMC until
vested, at the exercise price paid per share, upon the optionee's cessation of
DMC Board service. The option shares shall vest and DMC's repurchase rights
shall lapse with respect to option shares in three equal annual installments
over the optionee's period of DMC Board service, with the first such installment
to vest upon the completion of one year of DMC Board service measured from the
automatic grant date.
Should the optionee die or become permanently disabled while serving as a
DMC Board member, then DMC's repurchase rights subject to each automatic option
grant held by that individual optionee shall immediately lapse in full and those
vested shares may be purchased at any time within the twelve-month period
following the date of the optionee's cessation of DMC Board service.
DMC's repurchase rights subject to each automatic option grant shall
immediately lapse upon certain changes in control or ownership of DMC, as
discussed in more detail below under "General Provisions." In addition, upon
the successful completion of a hostile tender offer for securities possessing
more than 50% of the total combined voting power of DMC's outstanding
securities, each automatic option grant which has been outstanding for at least
six months may be surrendered to DMC for a cash distribution per surrendered
option share in an amount equal to the excess of (i) the highest price per share
of DMC Common Stock paid in such hostile tender offer over (ii) the exercise
price payable for such share.
The remaining terms and conditions of the option grants under the Automatic
Grant Program shall conform in general to the terms described above for option
grants made under the Discretionary Grant Program and shall be incorporated into
the option agreement evidencing the automatic grant.
SALARY REDUCTION GRANT PROGRAM. In the event that DMC chooses to implement
a Salary Reduction Grant Program, the Plan Administrator shall have complete
discretion in selecting the individuals, if any, who are to participate. Under
the Salary Reduction Grant Program, participants may elect to have a portion of
their base salary reduced each year in return for options to purchase shares of
DMC's Common Stock at a discount from current market value. The formula for
determining how many option shares shall be granted at the discounted exercise
price
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insures that the total value of the spread on the option shall not exceed the
dollar amount of the optionee's salary reduction.
Each option shall be subject to substantially the same terms and conditions
applicable to option grants made under the Discretionary Grant Program, except
that the exercise price per share shall be equal to one-third of the fair market
value per share of DMC Common Stock on the grant date and the number of option
shares shall be determined by dividing the total dollar amount of the approved
reduction in the participant's base salary by two-thirds of the fair market
value per share of DMC Common Stock on the grant date. As a result, the total
spread on the option (the fair market value of the option shares on the grant
date less the aggregate exercise price payable for those shares) shall equal the
dollar amount of the reduction to the optionee's base salary in effect for the
calendar year for which the grant is made.
Provided the optionee continues in DMC's employ, the option shall become
exercisable for 50% of the option shares on the last day of June in the calendar
year for which the grant is made and shall become exercisable for the balance of
the option shares in a series of successive monthly installments on the last day
of each of the next six calendar months. Should the optionee die or become
disabled while in service, the option shall immediately become exercisable for
that number of option shares equal to (i) one-twelfth of the total number of
option shares multiplied by (ii) the number of full calendar months which have
elapsed from the first day of the calendar year for which the option is granted
and the last day of the calendar month during which the optionee ceases service.
Each option shall have a term of ten years measured from the grant date, whether
or not the individual continues in service for DMC.
STOCK FEE PROGRAM. Under the Stock Fee Program, each individual serving as
a non-employee director of the DMC Board shall be eligible to elect to apply all
or any portion of the annual retainer fee and/or meeting fees otherwise payable
in cash to him or her to the acquisition of shares of DMC Common Stock. The
non-employee director of the DMC Board must make the stock election prior to the
start of the calendar year for which the election is to be in effect. On the
first trading day in January of the calendar year for which the election is in
effect, the portion of the annual retainer fee subject to such election shall be
applied to the acquisition of DMC Common Stock by dividing the elected dollar
amount by the fair market value per share of DMC Common Stock on that trading
day. The issued shares shall be held in escrow by DMC until the individual
vests in those shares. The non-employee director of the DMC Board shall have
full stockholder rights, including voting and dividend rights, with respect to
all issued shares held in escrow on his or her behalf.
Upon completion of each month of DMC Board service during the year for
which the election is in effect, the non-employee director of the DMC Board
shall vest one-twelfth of the issued shares, and the stock certificate for those
shares shall be released from escrow. Immediate vesting in all the issued
shares shall occur in the event the individual dies or becomes disabled during
his or her period of DMC Board service or certain changes in control or
ownership of DMC are effected during such period. Should the DMC Board member
cease service prior to vesting in one or more monthly installments of the issued
shares, then those installments shall be forfeited.
On the first trading day following any meeting, in a calendar year for
which the election is effective, the portion of the meeting fee subject to such
election shall automatically be applied to the acquisition of DMC Common Stock
by dividing the elected dollar amount by the fair market value per share of DMC
Common Stock on that trading day. The number of issuable shares shall be
rounded down to the next whole share, and the shares shall be issued as soon as
practicable to the non-employee director.
STOCK ISSUANCE PROGRAM. Shares may be sold under the Stock Issuance
Program at a price per share not less than 85% of fair market value, payable in
cash or through a promissory note payable to DMC. Shares may also be issued
solely as a bonus for past services or pursuant to an irrevocable election by
the individual to receive such shares in lieu of a portion of his or her salary.
The issued shares may either be immediately vested upon issuance or subject
to a vesting schedule tied to the performance of service or the attainment of
financial milestones. Unvested shares shall be subject to certain transfer
restrictions and to repurchase or cancellation by DMC if the vesting
requirements are not satisfied. The Plan Administrator shall, however, have the
discretionary authority to accelerate the vesting of any issued shares in
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whole or in part at any time. Individuals holding shares under the Stock
Issuance Program shall have full stockholder rights with respect to those
shares, whether the shares are vested or unvested.
GENERAL PROVISIONS
OPTION VESTING ACCELERATION. Outstanding options under the 1994 Plan shall
become immediately exercisable, and unvested shares issued or issuable under the
1994 Plan shall be subject to accelerated vesting, in the event of certain
changes in the ownership or control of DMC. Such option vesting acceleration is
triggered by (i) the acquisition of DMC by any person or entity through merger,
consolidation or asset sale (a "Corporate Acquisition") or (ii) a hostile
takeover of DMC through a successful tender offer for securities of more than
50% of the total combined voting power of DMC's outstanding securities or a
change in the majority of the DMC Board effected through one or more contested
elections for DMC Board membership (a "Change in Control").
Each option outstanding under the Discretionary Grant Program or Salary
Reduction Program at the time of a Corporate Acquisition shall automatically
become fully and immediately exercisable. However, an outstanding option under
the Discretionary Grant Program shall not accelerate to the extent such option
is to be assumed by the successor corporation or replaced by a comparable option
to purchase shares of the capital stock of the successor corporation. The Plan
Administrator shall have the discretion to provide for the subsequent
acceleration of any option which does not accelerate at the time of a Corporate
Acquisition, in the event the optionee's service terminates within a designated
period following a Corporation Acquisition.
Upon a Corporate Acquisition, DMC's outstanding repurchase rights under the
Discretionary Grant and Stock Issuance Programs shall also terminate, and the
shares subject to those terminated rights shall become fully vested, except to
the extent one or more of those repurchase rights are expressly assigned to the
successor corporation. The Plan Administrator shall have the discretion to
provide for the subsequent termination of any repurchase rights which remain in
existence after a Corporate Acquisition, in the event the optionee's service
terminates within a designated period following a Corporate Acquisition.
Upon a Corporate Acquisition, the Plan Administrator shall also have the
authority to provide for the acceleration of options outstanding under the
Discretionary Grant Program at the time of any Change in Control so that each
such option shall become fully and immediately exercisable. The Plan
Administrator may also provide for the automatic termination of all of the
outstanding repurchase rights held by DMC under the Discretionary Option Grant
and Stock Issuance Programs (with the concurrent vesting of the shares subject
to those terminated rights) in the event of such a Change in Control.
Alternatively, the Plan Administrator may condition such accelerated option
vesting and termination of the repurchase rights upon the individual's cessation
of service under certain circumstances following a Change in Control.
The shares of DMC Common Stock subject to each option outstanding under the
Salary Reduction and the Automatic Grant Programs at the time of any Corporate
Acquisition or Change in Control shall immediately vest, and the options shall
accordingly become exercisable. In addition, all unvested shares issued under
the Stock Fee Program or issued under the Stock Issuance Program in lieu of base
salary shall immediately vest at that time. The acceleration of options in the
event of a Corporate Acquisition or Change in Control may be seen as an
anti-takeover provision and may have the effect of discouraging a merger
proposal, a takeover attempt or other efforts to gain control of DMC.
CHANGES IN CAPITALIZATION. In the event any change is made to the
outstanding shares of DMC Common Stock by reason of any recapitalization, stock
dividend, stock split, combination of shares, exchange of shares or other change
in corporate structure effected without DMC's receipt of consideration,
appropriate adjustments shall be made to (i) the maximum number and/or class of
securities issuable under the 1994 Plan and the maximum number and/or class of
securities for which the share reserve is to increase annually during the first
five years pursuant to the automatic 1% increase provisions of the 1994 Plan;
(ii) the maximum number and/or class of securities for which any one individual
may be granted stock options, separately exercisable stock appreciation rights
and direct stock issuances over the term of the 1994 Plan; (iii) the number
and/or class of securities and price per share in effect under each outstanding
option; and (iv) the number and/or class of securities for which option grants
shall subsequently be made under the Automatic Grant Program to each
newly-elected or continuing non-employee Director.
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TRANSFERABILITY OF OPTIONS AND STOCK APPRECIATION RIGHTS. Any option shall
be assignable or transferable to the extent determined by the Plan Administrator
and provided in the agreement evidencing such option. However, any assignee or
transferee shall be entitled to exercise any such option or any related tandem
rights or limited rights in the same manner and only to the same extent as the
optionee or right holder would have been entitled to exercise such option or
such related rights had it not been transferred and shall be subject to the same
restrictions, repurchase rights, and other limitations that bound the optionee
or right holder, unless otherwise determined by the Plan Administrator.
FINANCIAL ASSISTANCE. The Plan Administrator may institute a loan program
in order to assist one or more optionees in financing their exercise of
outstanding options under the Discretionary Grant or Salary Reduction Grant
Program or the purchase of shares under the Stock Issuance Program. The form in
which such assistance is to be made available (including loans or installment
payments) and the terms upon which such assistance is to be provided shall be
determined by the Plan Administrator. However, the maximum amount of financing
provided any participant may not exceed the amount of cash consideration payable
for the issued shares plus all applicable federal, state and local taxes
incurred in connection with the acquisition of the shares. Any such financing
may be subject to forgiveness in whole or in part, at the discretion of the Plan
Administrator, over the participant's period of service.
SPECIAL TAX ELECTION. The Plan Administrator may provide one or more
holders of nonstatutory options or unvested shares under the Discretionary
Grant, Salary Reduction Grant and Stock Issuance Programs with the right to have
DMC withhold a portion of the shares of DMC Common Stock otherwise issuable to
such individuals in satisfaction of the federal and state income and employment
tax liability incurred by such individuals in connection with the exercise of
those options or the vesting of the shares. Alternatively, the Plan
Administrator may allow such individuals to deliver previously acquired shares
of DMC Common Stock in payment of such tax liability.
AMENDMENT AND TERMINATION. The DMC Board may amend or modify the 1994 Plan
in any or all respects whatsoever, subject to obtaining any required stockholder
approval. The 1994 Plan shall in all events terminate on April 28, 2004, unless
sooner terminated by the DMC Board.
CERTAIN FEDERAL INCOME TAX INFORMATION
The following summary of the U.S. federal income tax consequences of 1994
Plan transactions is based upon U.S. federal income tax laws in effect on the
date of this Proxy Statement/Prospectus. This summary does not purport to be
complete, and does not discuss foreign, state or local tax consequences.
INCENTIVE OPTIONS. No taxable income is recognized by the optionee at the
time of the option grant, and no taxable income is generally recognized at the
time the option is exercised. However, the difference between the fair market
value of the shares on the exercise date and the exercise price paid for the
shares is classified as an item of adjustment in the year of exercise for
purposes of the alternative minimum tax. In addition, the optionee shall
recognize taxable income in the year in which the purchased shares are sold or
otherwise made the subject of disposition. For federal tax purposes,
dispositions are divided into two categories: (i) qualifying and
(ii) disqualifying. The optionee makes a qualifying disposition of the
purchased shares if the sale or other disposition of such shares is made after
the optionee has held the shares for more than two years after the grant date of
the option and more than one year after the exercise date. If the optionee
fails to satisfy either of these two minimum holding periods prior to the sale
or other disposition of the purchased shares, then a disqualifying disposition
shall result.
Upon a qualifying disposition of the shares, the optionee shall recognize
long-term capital gain in an amount equal to the excess of (i) the amount
realized upon the sale or other disposition of the purchased shares over
(ii) the exercise price paid for those shares. If there is a disqualifying
disposition of the shares then the lesser of (i) the difference between the
amount realized on disposition of the shares and the exercise price paid for
those shares or (ii) the difference between the fair market value of the shares
on the exercise date and the exercise price paid for the shares shall be taxable
as ordinary income. Any additional gain recognized upon the disposition shall
be a capital gain.
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If the optionee makes a disqualifying disposition of the purchased shares,
then DMC shall be entitled to an income tax deduction, for the taxable year in
which such disposition occurs, equal to the amount of ordinary income recognized
by the optionee. In no other instance shall DMC be allowed a deduction with
respect to the optionee's disposition of the purchased shares.
NONSTATUTORY OPTIONS. No taxable income is recognized by an optionee upon
the grant of a nonstatutory option. The optionee shall in general recognize
ordinary income in the year in which the option is exercised equal to the excess
of the fair market value of the purchased shares on the exercise date over the
exercise price paid for the shares, and the optionee shall be required to
satisfy the tax withholding requirements applicable to such income.
Special provisions of the Code apply to the acquisition of unvested shares
of DMC Common Stock under a nonstatutory option. These special provisions are
summarized below.
If the shares acquired upon exercise of the nonstatutory option are subject
to repurchase by DMC at the original exercise price in the event of the
optionee's termination of service prior to vesting in those shares, then the
optionee shall not recognize any taxable income at the time of exercise but
shall have to report as ordinary income, as and when DMC's repurchase right
lapses, an amount equal to the excess of (i) the fair market value of the shares
on the date the repurchase right lapses with respect to those shares over
(ii) the exercise price paid for the shares.
The optionee may, however, elect under Section 83(b) of the Code to include
as ordinary income in the year of exercise of the nonstatutory option an amount
equal to the excess of (i) the fair market value of the purchased shares on the
exercise date over (ii) the exercise price paid for such shares. If the Section
83(b) election is made, the optionee shall not recognize any additional ordinary
income as and when the repurchase right lapses.
DMC shall be entitled to an income tax deduction equal to the amount of
ordinary income recognized by the optionee with respect to the exercised
nonstatutory option. In general, the deduction shall be allowed for the taxable
year of DMC in which such ordinary income is recognized by the optionee.
APPRECIATION RIGHTS. An optionee who is granted a stock appreciation right
shall recognize ordinary income in the year exercised equal to the amount of the
appreciation distribution. DMC shall be entitled to an income tax deduction
equal to the appreciation distribution for the taxable year in which the
ordinary income is recognized by the optionee.
DIRECT STOCK ISSUANCE. The tax principles applicable to direct stock
issuances under the 1994 Plan shall be substantially the same as those
summarized above for the exercise of unvested shares of DMC Common Stock under
nonstatutory option grants.
PARACHUTE PAYMENTS. If the exercisability of an option or the vesting of
shares issued under the 1994 Plan were accelerated as a result of a Change in
Control or Corporate Acquisition, all or a portion of the value of the option or
stock subject to such acceleration may constitute a parachute payment for
purposes of the excess parachute provisions of the Code. If total parachute
payments exceed three times an employee's average compensation for the five tax
years preceding the Change in Control or Corporate Acquisition, the employer
loses its deduction for, and the recipient is subject to a 20% excise tax on the
amount of the parachute payments in excess of one times such average
compensation.
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AMENDED PLAN BENEFITS
DMC cannot now determine the number of options to be granted in the future
under the 1994 Plan, as proposed to be amended, to all current executive
officers as a group, all current members of the DMC Board excluding current
executive officers as a group or all employees (excluding current executive
officers) as a group. The following table sets forth information with respect
to options granted under the 1994 Plan during the 1997 fiscal year:
WEIGHTED
AVERAGE
OPTIONS % OF TOTAL EXERCISE PRICE
IDENTITY OF GROUP GRANTED (1) OPTIONS GRANTED PER SHARE (1)
----------------- ---------- --------------- --------------
Executive Officers as a group 486,000 37.16% $ 7.71
Employees that are not
Executive Officers, as a
group 792,000 60.55% $11.25
Directors that are
not Executive
Officers, as a group 30,000 2.29% $ 9.25
- ---------------------
(1) The number of options granted and the weighted average exercise price per
share have been restated to give effect retroactively to a stock dividend,
which effected a two-for-one stock split of DMC Common Stock in
November 1997.
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DIGITAL MICROWAVE CORPORATION
BUSINESS OF DMC
THE FOLLOWING SECTION CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE
RISKS AND UNCERTAINTIES. DMC'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM
THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN
FACTORS, INCLUDING THOSE SET FORTH UNDER "RISK FACTORS" AND ELSEWHERE IN, OR
INCORPORATED BY REFERENCE INTO, THIS PROXY STATEMENT/PROSPECTUS.
INTRODUCTION
DMC designs, manufactures and markets advanced wireless solutions for
worldwide telephone network interconnection and access. DMC provides its
customers with a broad product line, which contains products that operate using
a variety of transmission frequencies, ranging from 2 GHz to 38 GHz, and a
variety of transmission capacities, typically ranging from T-1 (1.5 Megabits per
second) to DS-3 (45 Megabits per second). DMC's broad product line allows it to
market and sell its products to service providers in many locations worldwide
with varying interconnection and access requirements. DMC designs its products
to meet the requirements of mobile communications networks and fixed access
networks worldwide. DMC's products typically enable its customers to deploy
and expand their wireless infrastructure and market their services rapidly to
subscribers, so that service providers can realize a return on their investments
in frequency allocation licenses and network equipment.
DMC believes that it is well-positioned to address worldwide market
opportunities for wireless infrastructure suppliers. For example, there are
substantial telecommunications infrastructures being built for the first time in
many Asian countries, infrastructures are being expanded in Europe, and PCS
interconnect networks are being constructed in the United States. DMC believes
that maintaining close proximity to its customers provides it with a competitive
advantage in securing orders for its products and in servicing its customers.
Local offices enable DMC to better understand the local issues and requirements
of its customers and to address its customers' individual geographic,
regulatory, and infrastructure requirements. As a result, DMC has developed a
global sales, service and support organization, with offices in North America,
South America, Europe, the Middle East and Asia. With its 23 sales or support
offices in 19 countries, DMC can respond quickly to its customers' needs and can
provide prompt on-site technical support.
DMC has sold over 80,000 radios, which have been installed in over 60
countries. DMC markets its products to service providers directly, as well as
indirectly through its relationships with OEM base station suppliers, such as
Motorola, Inc., Siemens AG, and L.M. Ericsson. Between December 31, 1996 and
December 31, 1997, DMC sold its products to service providers, including Beijing
Telecom, Heibei Unicom, Pilipino Telephone Corp., Sterling Cellular and SMART
Communications, Inc. in the Asia/Pacific region; Panafon SA, E-Plus Mobilfunk
GmbH, Comviq GSM AB, Jordon Mobile Telephone Services and IONICA in Europe and
the Middle East; and BellSouth PCS, Pacific Bell Mobile Services, Avantel S.A.
and Rogers Network Services in the Americas.
THE DMC STRATEGY
DMC's strategy is to build on the strength of its current products, which
offer point-to-point solutions, and its strong customer sales, service and
support organization to become a leading worldwide supplier of wireless network
connectivity solutions. Key elements of DMC's strategy include the following:
MAINTAIN COMPREHENSIVE PRODUCT LINE. DMC anticipates that the requirements
of its customers will continue to evolve as the telecommunications services
market changes and expands. In this regard, since DMC's customers often do not
know the exact frequency band and capacity needs of their networks at the time
they are awarded franchises, DMC's broad product line provides them with the
flexibility to respond to individual market needs, and to coordinate frequencies
with existing infrastructure and other significant variables. DMC believes that
the use of standard design platforms for both hardware and software components
in its products enables DMC to quickly introduce and commercially ship new
products and product enhancements to address changing market demands. DMC
intends to continue to expand its product line in response to the varying
worldwide requirements of wireless networks.
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PURSUE WORLDWIDE MARKET OPPORTUNITIES. DMC believes that the deployment of
new wireless telecommunications networks and the upgrade and expansion of
existing networks provide it with many global market opportunities. In many
emerging markets in Asia, substantial telecommunications networks are being
built for the first time; in Europe, infrastructures are being expanded and in
the United States, PCS interconnect networks are being constructed. DMC intends
to continue to pursue global market opportunities through its established
worldwide sales, service and support organization, as well as through its
relationships with OEM base station suppliers.
ENHANCE GLOBAL SALES, SERVICE AND SUPPORT ORGANIZATION. DMC believes
maintaining close proximity to its customers provides it with a competitive
advantage in securing orders and servicing its customers. Local offices provide
DMC with a better understanding of its customers' needs and enable DMC to
respond to local issues and unique local requirements. As a result, DMC has
developed a global sales, service and support organization, with offices in
North America, South America, Europe, the Middle East and Asia. DMC intends to
continue to provide its customers with direct sales, service and support from
local offices.
LEVERAGE DISTRIBUTION CHANNELS. DMC markets its products to service
providers directly, as well as indirectly through its relationships with OEM
base station suppliers, such as Motorola, Inc., Siemens AG, and L.M. Ericsson.
DMC also markets its products through independent agents and distributors in
certain countries. DMC intends to leverage upon such relationships and its
direct worldwide presence with service providers, to expand its customer base
and enhance its global presence.
FOCUS ON BUSINESS EXPANSION INTO EMERGING APPLICATIONS. DMC believes that
it can leverage its core technical competencies and its global sales, service
and support organization to enter into emerging applications including wireless
local loop, wireless data transport and alternative local telephone facilities
access. DMC intends to migrate and expand its product line from a full
point-to-point product line to offer multipoint distribution products with a
broader range of traffic handling capacities to meet emerging market demands.
PRODUCTS
DMC's principal product families include the SPECTRUM II, M Series,
QUANTUM, and DMC Net. Each product family has characteristics designed to meet
the needs of specific markets or applications and are described further below.
EXISTING PRODUCTS
As the following table illustrates, DMC has products that operate at the
commonly used frequencies worldwide:
MOBILE COMMUNICATIONS NETWORKS ACCESS NETWORKS
SOUTH USA & SOUTH USA &
FREQUENCY ASIA EUROPE AMERICA CANADA ASIA EUROPE AMERICA CANADA
2 GHz DMC -- DMC -- DMC -- -- --
6 GHz -- -- -- DMC -- -- -- --
7 GHz DMC DMC DMC -- DMC DMC DMC --
8 GHz DMC DMC DMC -- DMC DMC DMC --
10 GHz -- -- -- DMC -- -- -- --
11 GHz -- -- -- DMC -- -- -- --
13 GHz DMC DMC -- -- DMC DMC -- --
15 GHz DMC DMC DMC -- DMC DMC DMC --
18 GHz DMC DMC DMC DMC DMC DMC DMC DMC
23 GHz -- DMC DMC DMC -- DMC DMC DMC
26 GHz -- DMC DMC -- -- DMC DMC --
38 GHz -- DMC DMC DMC -- DMC DMC DMC
- ----------------------
DMC = Commonly used and covered by DMC's products
- -- = Not commonly used frequencies
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SPECTRUM II. The SPECTRUM II product line is the latest generation of
products offered by DMC and supercedes the M Series product line. The SPECTRUM
II product line is smaller in size, less expensive and easier to install than
the M Series product line. In addition, significantly more functionality is
available in the SPECTRUM II product line because of its enhanced software
configurability which provides DMC's customers with greater flexibility and
control. The SPECTRUM II family consists of products that operate at 7, 8, 13,
15, 18, 23, 26 and 38 GHz.
FIBRENEX. The FibreNex product solution introduced in June 1997 consists
of a compact add/drop multiplexer (ADM), Spectrum II radios, and the DMC Net
network management system. By using the FibreNex solution, telcos/PTTs,
competitive access providers (CAPs), local exchange carriers, and others can
distribute voice, data, and video transport service of a 155 Mbps SONET/SDH
communications network to multiple end users. Using the ADM, the service
provider can tap into fiber infrastructures. The provider can then apply
microwave radio operating at various capacities and frequencies to provide
wireless extensions of network capability into numerous different locations. The
integrated network management system enables centralized monitoring of the
entire network, including both fiber and radio elements.
M SERIES. The M Series product line was the principal product family of
DMC until the second quarter of fiscal 1996 when DMC began commercial shipment
of the SPECTRUM II product line. As of September 30, 1997, DMC has sold over
30,000 units in the M Series product line.
QUANTUM. The QUANTUM product line complements the SPECTRUM II and M Series
products and is used in conjunction with these products. The QUANTUM product
line is used in trunking applications within a network. The QUANTUM product
line features lower transmission frequencies (2 to 15 GHz) and higher
transmission capacities (up to 68 Megabits per second) than the SPECTRUM II and
M Series product lines.
DMC NET. DMC Net is a sophisticated network monitoring and control system
that is designed to facilitate remote operation and maintenance of microwave
radio networks. DMC Net contains a Unix-based software system that is capable
of monitoring up to several thousand radios on a network, as well as certain
base station functions. DMC Net is currently in use in networks ranging in size
from small regional systems containing a few microwave radio links to large
nationwide systems containing several thousand microwave radio links.
Centralized management and control allows early warning of fault conditions and
rapid diagnosis of problems, which help to reduce down time and lower the cost
of maintenance.
SALES, MARKETING AND SERVICE
DMC believes that a direct and continuing relationship with service
providers is a competitive advantage in attracting new customers and satisfying
existing ones. As a result, DMC offers its products and services principally
through its own sales, service and support organization, which allows DMC to
closely monitor the needs of its customers. DMC has offices in the United
States, Canada, the United Kingdom, Germany, Jordan, Mexico, Colombia, India,
China, Singapore, Argentina, Brazil, Greece, Indonesia, Malaysia, Russia, Sweden
and the Philippines. DMC's local offices provide it with a better understanding
of its customers' needs and enable DMC to respond to local issues and unique
local requirements.
As of September 30, 1997, DMC employed approximately 272 people in its
sales, service and support organization, approximately 38% of whom primarily
support sales outside the United States. Sales personnel are highly trained to
provide the customer with assistance in selecting and configuring a digital
microwave system suitable for the customer's particular needs. DMC's customer
service and support personnel provide customers with training, installation,
service and maintenance of DMC's systems under contract. DMC generally offers
a standard two-year warranty for all customers. DMC provides warranty and
post-warranty services from its San Jose, California manufacturing location
and its full-service centers in the United Kingdom and the Philippines.
RESEARCH AND DEVELOPMENT
DMC believes that its ability to enhance its current products, develop and
introduce new products on a timely basis, maintain technological competitiveness
and meet customer requirements is essential to DMC's continued success.
Accordingly, DMC allocates, and intends to continue to allocate, a significant
portion of its
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resources to research and development efforts. During fiscal 1996, fiscal 1997
and the six months ended September 30, 1997, DMC invested $11.1 million,
$10.6 million, and $7.2 million, respectively.
MANUFACTURING AND SUPPLIERS
DMC's manufacturing operations consist primarily of final assembly, testing
and quality control of materials and components. The manufacturing process,
performed at DMC's San Jose, California facility, consists primarily of
materials management, extensive unit and environmental testing of components and
subassemblies at each stage of the manufacturing process, final assembly of the
terminals, and prior to shipment, quality assurance testing and inspection of
all products. DMC's manufacturing operation in San Jose, California is
certified to ISO 9001, a recognized international quality standard. DMC is in
the process of opening a new manufacturing facility in Scotland, which is
expected to be operational in mid-1998.
EMPLOYEES
As of September 30, 1997, DMC employed 810 full-time and temporary
employees. None of DMC's employees are represented by a collective bargaining
agreement. DMC's future performance will depend in large measure on its ability
to attract and retain highly skilled employees. DMC has never experienced a
work stoppage and believes its relationship with its employees to be good.
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MANAGEMENT OF DMC AFTER THE REORGANIZATION
EXECUTIVE OFFICERS AND DIRECTORS AFTER THE REORGANIZATION
Pursuant to the Reorganization Agreement, DMC has agreed to appoint
Howard Oringer, who is presently a director of MAS, to the DMC Board,
effective as of the Effective Time, and to nominate Mr. Oringer to serve as a
member of the DMC Board for a one-year term at DMC's annual meeting of
stockholders in 1998. Upon the appointment of Mr. Oringer, the DMC Board
will consist of seven persons, six of whom were directors of DMC as of the
date of the Reorganization Agreement.
Set forth below is certain information about each person who is expected
to be a member of the Board of Directors of DMC or an executive officer of
DMC as of the Effective Time, with the information expected to be true at the
Effective Time.
Name Age Position
- ---------------------- ---- -------------------------------------------------
Charles D. Kissner 50 Chairman of the Board and Chief Executive Officer
Sam Smookler 58 President and Chief Operating Officer
Frank Carretta, Jr. 53 Senior Vice President, Worldwide Sales, Service
and Marketing
Jack Hillson 47 Senior Vice President and General Manager,
Operations
Timothy R. Hansen 37 Vice President, New Business Development
Paul A. Kennard 46 Vice President, Engineering
Shaun McFall 37 Vice President, Corporate Marketing
John P. O'Neil 60 Vice President, Personnel
Carl A. Thomsen 53 Vice President, Chief Financial Officer and
Secretary
Carol A. Goudey 50 Treasurer and Assistant Secretary
John C. Brandt 41 Corporate Controller
Richard C. Alberding 67 Director
John W. Combs 50 Director
Clifford H. Higgerson 58 Director
James D. Meindl 64 Director
Billy B. Oliver 73 Director
Howard Oringer 55 Director
Mr. Charles D. Kissner joined DMC as President and Chief Executive
Officer and was elected Director of DMC in July 1995 and Chairman of the
Board in August 1996. He currently serves as Chairman of the Board and Chief
Executive Officer of DMC. Prior to joining DMC, he served as Vice President
and General Manager of the Microelectronics Division of M/A-COM, Inc., a
manufacturer of radio and microwave communication products, from July 1993 to
July 1995. From February 1990 to July 1993, Mr. Kissner served as President,
Chief Executive Officer, and a Director of Aristacom International, Inc., a
communications software company. Mr. Kissner currently is a director of
American Medical Flight Support, Inc., a non-profit medical transportation
company.
Mr. Sam Smookler joined DMC as President and Chief Operating Officer in
January 1998. Prior to joining DMC, he served as President and Chief
Operating Officer of Signal Technology Corporation, a manufacturer of
electronic components and subsystems, from September 1997 to January 1998 and
President of East Coast Operations from February 1997 to September 1997.
Prior to such time, he served as Vice President and General Manager of the
Interconnection Products Division of Augat Corporation, a manufacturer of
telecommunications connection products, from November 1994 to February 1997.
From February 1992 to October 1994, he served as General Manager of a
division of M/A-COM, a manufacturer of RF and microwave devices, components
and systems. In addition, Mr. Smookler served as Group Vice President of
Sipex Corporation, a manufacturer of hybrid semiconductors from 1986 to
January 1992.
Mr. Frank Carretta, Jr. joined DMC as Vice President, Worldwide Sales
and Service in October 1995 and was appointed Senior Vice President,
Worldwide Sales, Service and Marketing in November 1996. Prior to joining
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DMC, Mr. Carretta served as Area Sales Director of M/A-COM, Inc., a
manufacturer of radio and microwave communications products, from July 1992
to September 1995. From 1988 to June 1992, Mr. Carretta was Vice President
of Ward Davis Associates, a manufacturers' representative company selling
electronic test instrumentation and software development tools.
Mr. Jack Hillson was appointed Senior Vice President and General
Manager, Operations of DMC in November 1996. He previously served as Vice
President and General Manager, QUANTUM/Magnum Division of DMC from December
1995 to November 1996. Prior to joining DMC, Mr. Hillson was with M/A-COM,
Inc. for eleven years, serving in various technical and management positions
with the Semiconductor and Microelectronics Divisions. Most recently, Mr.
Hillson served as the Director of Operations for M/A COM, Inc.'s Power
Hybrids Division, which manufactures transistors and amplifier modules for
the wireless communications market.
Mr. Timothy R. Hansen has served as Vice President, New Business
Development of DMC since August 1996. He previously served as Vice President
and General Manager, SPECTRUM Division of DMC from February 1995 to August
1996, and as Vice President and Program Manager of the SPECTRUM product line.
He joined DMC in August 1984 as product manager, and has held management
positions in marketing, planning, sales and order management.
Mr. Paul Kennard joined DMC as Vice President, Engineering in April
1996. From 1989 to March 1996, Mr. Kennard was with California Microwave
Corporation, a satellite and wireless communications company, serving as
Director of the Signal Processing Technology Department until his promotion
in 1994 to Vice President of Engineering, and then to Senior Vice President
of Engineering in 1995 for the Microwave Network Systems Division.
Mr. Shaun McFall has served as Vice President, Corporate Marketing of
DMC since February 1995. He joined DMC's UK operations in January 1989, and
has held several management positions in marketing. Prior to joining DMC, he
worked for GEC Telecommunications Ltd. in Germany and Ferranti Industrial
Electronics PLC, in Edinburgh, Scotland, both of which are telecommunications
companies.
Mr. John O'Neil joined DMC as Vice President, Personnel in May 1993.
Mr. O'Neil was Vice President of Personnel and Administration of BEI
Electronics, Inc., a defense electronics firm, from January 1989 to April
1993.
Mr. Carl A. Thomsen joined DMC as Vice President, Chief Financial
Officer and Secretary in February 1995. Prior to joining DMC, he was Senior
Vice President and Chief Financial Officer of Measurex Corporation, a
manufacturer of sensor based process control systems. Mr. Thomsen joined
Measurex Corporation in 1983 as Corporate Controller, was promoted to Vice
President in 1986, to Chief Financial Officer in 1992, and to Senior Vice
President in 1993.
Ms. Carol A. Goudey joined DMC as Treasurer in April 1996 and was
additionally appointed Assistant Secretary in May 1996. Prior to joining
DMC, she served as Acting Treasurer of California Micro Devices Corporation,
a manufacturer of semiconductor devices, since 1994. Ms. Goudey has also
previously held the position of Corporate Treasurer at both Ungermann-Bass,
Inc., a network systems company, and System Industries, Inc., a computer
peripheral company.
Mr. John C. Brandt joined DMC as Controller in June 1997. Prior to
joining DMC, Mr. Brandt was employed with Honeywell-Measurex, a manufacturer
of control systems, from 1981 to June 1997, where he served in a variety of
financial positions, and most recently served as Operations Controller from
1988 to June 1997.
Mr. Richard C. Alberding has served as a Director of DMC since July 1993
and served as DMC's Co-Chairman of the Board and Co-Chief Executive Officer
from September 1994 to July 1995. Mr. Alberding retired from Hewlett-Packard
Company in 1991, where he had served since 1984 as an Executive Vice
President with responsibility for worldwide company sales, support and
administration activities for measurement and computation products, as well
as all corporate-level marketing activities. He also served on the corporate
Executive Committee. Mr. Alberding is a director of Kennametal Corporation,
a machine tool company, Walker Interactive Systems, a software company,
Quickturn Design Systems, a CAD tools company, SyBase, Inc., a computer
database and tools
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company, Digital Link Corp., a network tools company, Paging Network, Inc., a
paging services company, and numerous private companies.
Mr. John W. Combs has served as a Director of DMC since May 1997. Since
June 1993, Mr. Combs has served as President of the Southern
California/Southern Nevada market for Nextel Communications, Inc., a digital
communications system provider. From March 1990 to June 1993, he served as
Executive Vice President of Sales, Marketing and Customer Care of Los Angeles
Cellular Telephone Company, a provider of wireless telecommunications
products.
Mr. Clifford H. Higgerson has served as a Director of DMC since March
1984. He also served as DMC's Chairman of the Board from July 1995 to August
1996 and as Co-Chairman of the Board and Co-Chief Executive Officer from
September 1994 to July 1995. Mr. Higgerson has been a partner with Vanguard
Associates, a private venture capital investment partnership, since July 1991
and, since 1986, managing partner of Communications Ventures, a private
venture capital investment partnership. Mr. Higgerson also serves as a
director of Advanced Fibre Communications, Inc., a manufacturer of
telecommunications systems, and CIENA Corp., a manufacturer of light wave
amplifiers and wave division multiplexing equipment.
Dr. James D. Meindl has served as a Director of DMC since November 1995.
Since 1993, Dr. Meindl has held the Joseph M. Pettit Chaired Professorship in
Microelectronics at the Georgia Institute of Technology. Prior to his
professorship at the Georgia Institute of Technology, Dr. Meindl served as
Senior Vice President for Academic Affairs and Provost at Rensselaer
Polytechnic Institute from 1986 to 1993. Dr. Meindl serves as a director of
SanDisk Corp., which designs, develops and markets flash memory data storage
products, and Zoran Corp., a semiconductor and related devices company.
Mr. Billy B. Oliver has served as a Director of DMC since February 1987.
Since 1985, Mr. Oliver has been a private communications consultant. Mr.
Oliver has held various engineering and management positions with AT&T,
including Vice President, Planning and Design from 1972 until 1985. Mr.
Oliver is also a director of Communications Network Enhancements, a
telecommunications service company, and CIENA Corp., a manufacturer of light
wave amplifiers and wave division multiplexing equipment.
Mr. Howard Oringer has served as a Director of MAS since April 1997.
Mr. Oringer will cease serving in such capacity as of the Effective Time.
Mr. Oringer has been Managing Director of Communications Capital Group, a
management consulting firm, since November 1993. From February 1986 to
November 1993, Mr. Oringer was the President, Chief Executive Officer and
Chairman of the Board of Directors of TeleSciences, a manufacturer of
telecommunications equipment.
SECURITY OWNERSHIP OF DMC MANAGEMENT
As of the DMC Record Date, directors and executive officers of DMC and
their affiliates were beneficial owners of approximately 4.10% of the
outstanding shares of DMC Common Stock (exclusive of any shares issuable upon
the exercise of stock options remaining unexercised as of the DMC Record
Date).
Additional information concerning voting securities of DMC and the
principal holders thereof is included in the documents filed by DMC with the
Commission under the Exchange Act. See "Available Information" and
"Information Incorporated by Reference."
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF DMC
The following table sets forth information regarding the beneficial
ownership of DMC Common Stock of DMC as of December 31, 1997, by (i) each
person known by DMC to own beneficially more than five percent (5%) of the
outstanding Common Stock of DMC; (ii) each of DMC's directors; (iii) the
Chief Executive Officer and each of the four other most highly compensated
executive officers of DMC, determined for DMC's fiscal year ended March 31,
1997; and (iv) all directors and executive officers as a group.
APPROXIMATE
SHARES PERCENT
BENEFICIALLY BENEFICIALLY
NAME OWNED(1) OWNED(2)
- ------------------------------------ ------------ ------------
Kopp Investment Advisors, Inc. 4,761,586(3) 12.50%
7701 France Avenue South, Suite 500
Edina, Minnesota 55435
Nicholas-Applegate Capital Management 4,011,832(4) 10.53%
600 West Broadway, 29th Floor
San Diego, California 92101
Charles D. Kissner 374,404(5) 1.00%
Richard C. Alberding 30,000(6) *
John W. Combs 44,224(7) *
Clifford H. Higgerson 593,180(8) 1.56%
James D. Meindl 38,000(9) *
Billy B. Oliver 45,824(10) *
Frank Carretta, Jr. 61,000(11) *
Jack Hillson 34,000(12) *
Paul A. Kennard 65,000(13) *
Carl A. Thomsen 138,694(14) *
All directors and executive officers
as a group (16 persons) 1,573,752(15) 4.12%
___________________
* Less than 1%
(1) To DMC's knowledge, except as set forth in the footnotes to this table,
and subject to applicable community property laws, each person named in
this table has sole voting and investment power with respect to the shares
set forth opposite such person's name.
(2) Beneficial ownership is determined in accordance with the rules of the
Commission and generally includes voting or investment power with respect
to securities. Shares of DMC Common Stock subject to options currently
exercisable or exercisable on or before February 28, 1998, are deemed
outstanding for computing the percentage of the person holding such options
but are not deemed outstanding for computing the percentage of any other
person. On December 31, 1997, there were 38,103,944 shares of DMC's Common
Stock outstanding. Options granted to directors under DMC's 1994 Plan are
immediately exercisable; however, any shares purchased under such options
are subject to repurchase by DMC, upon the director's cessation of DMC
Board service prior to vesting in those shares. Such options vest, and
DMC's repurchase rights lapse, annually over a period of three years
commencing on the first anniversary of the grant date.
(3) Kopp Investment Advisors, Inc. filed a Schedule 13G, dated January 28,
1997, with the Commission on behalf of itself, Kopp Investment Advisors,
Inc. Profit Sharing Plan, Kopp Family Foundation, LeRoy C. Kopp Individual
Retirement Account and LeRoy C. Kopp (collectively, "Kopp"). Kopp reported
shared dispositive power over 2,285,793 shares, sole dispositive power over
95,000 shares, sole voting power over 265,000 shares and shared voting
power over 65,000 shares. Kopp's total share amount has been restated to
give effect retroactively to a stock dividend, which was effected by a
two-for-one stock split of DMC Common Stock in November 1997.
(4) Nicholas-Applegate Capital Management ("Nicholas-Applegate") filed a
Schedule 13G, dated November 10, 1997 with the Commission on behalf of
itself. Nicholas-Applegate reported sole dispositive power over 2,005,916
shares, sole voting power over 1,327,716 shares
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and shared voting power over 678,200 shares. Nicholas-Applegate's total
share amount has been restated to give effect retroactively to a stock
dividend, which was effected by a two-for-one stock split of DMC Common
Stock in November 1997.
(5) Includes 374,404 shares of DMC Common Stock subject to options which are
currently exercisable or will become exercisable on or before February 28,
1998. Also includes 200 shares held of record by a trust for the benefit
of Mr. Kissner's children.
(6) Includes 24,000 shares of DMC Common Stock subject to options which are
currently exercisable or will become exercisable on or before February 28,
1998, of which 14,000 shares are subject to repurchase rights.
(7) Includes 42,000 shares of DMC Common Stock subject to options which are
currently exercisable or will become exercisable on or before February 28,
1998, all of which are subject to repurchase rights.
(8) Includes 64,000 shares of DMC Common Stock subject to options which are
currently exercisable or will become exercisable on or before February 28,
1998, of which 14,000 shares are subject to repurchase rights.
(9) Includes 38,000 shares of DMC Common Stock subject to options which are
currently exercisable or will become exercisable on or before February 28,
1998, of which 10,000 shares are subject to repurchase rights.
(10) Includes 34,000 shares of DMC Common Stock subject to options which are
currently exercisable or will become exercisable on or before February 28,
1998, of which 14,000 shares are subject to repurchase rights.
(11) Includes 40,000 shares of DMC Common Stock subject to options which are
currently exercisable or will become exercisable on or before February 28,
1998.
(12) Includes 34,000 shares of DMC Common Stock subject to options which are
currently exercisable or will become exercisable on or before February 28,
1998.
(13) Includes 65,000 shares of DMC Common Stock subject to options which are
currently exercisable or will become exercisable on or before February 28,
1998.
(14) Includes 110,914 shares of DMC Common Stock subject to options which are
currently exercisable or will become exercisable on or before February 28,
1998.
(15) See Footnotes (5) through (14). Includes 650,808 shares of DMC Common
Stock subject to options which are currently exercisable or will become
exercisable on or before February 28, 1998, of which 52,000 shares are
subject to repurchase rights.
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COMPENSATION OF DIRECTORS AND CERTAIN
EXECUTIVE OFFICERS OF DMC
GENERAL
This section of the Proxy Statement/Prospectus sets forth certain summary
information concerning the compensation earned by DMC's Chief Executive Officer
and each of the four other most highly compensated executive officers of DMC for
the fiscal year ended March 31, 1997 ("DMC's Fiscal 1997"), as well as
information pertaining to the compensation of members of the DMC Board.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
----------------------------------------------- ------------
Securities
Fiscal Other Annual Underlying All Other
Name and Principal Position Year Salary ($) Bonus(1) ($) Compensation($) Options(2) Compensation(3) ($)
- --------------------------- ------ ------------ ------------ --------------- ---------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Charles D. Kissner 1997 $326,009 $224,400 -- 100,000 $1,823
Chairman of the Board, 1996 212,500(4) 75,000(5) $197,961(6) 511,008 120
President and Chief 1995 -- -- -- -- --
Executive Officer
Frank Carretta, Jr. 1997 216,407 129,320(7) -- 30,000 1,980
Senior Vice President, 1996 103,662(8) -- -- 170,000 60
Worldwide Sales, Service 1995 -- -- -- -- --
and Marketing
Jack Hillson 1997 140,734 62,795(9) 58,376(10) 70,000 810
Senior Vice President and 1996 34,575(11) -- 16,779(12) 100,000 --
General Manager, 1995 -- -- -- --
Operations
Paul A. Kennard 1997 136,346 83,055(13) -- 150,000 834
Vice President, Engineering 1996 -- (14) -- -- -- --
1995 -- -- -- -- --
Carl A. Thomsen 1997 188,104 80,125 -- -- 1,902
Vice President, Chief 1996 175,625 -- -- 109,734 120
Financial Officer and 1995 25,702(15) -- -- 100,000 20
Secretary
</TABLE>
- --------------------
(1) DMC's executive officers are eligible for annual cash bonuses. Such
bonuses are generally based upon achievement of individual, as well as
corporate performance objectives determined by the Compensation
Committee of DMC.
(2) The number of options have been restated to give effect retroactively to
a stock dividend, which effected a two-for-one stock split of DMC Common
Stock in November 1997.
(3) Represents compensation paid in the form of premiums for group life
insurance.
(4) Represents Mr. Kissner's salary from his appointment as Chief Executive
Officer and President of DMC in July 1995.
(5) Represents Mr. Kissner's signing bonus.
(6) Includes a relocation expense reimbursement of $187,761.
(7) Represents (i) a $30,000 signing bonus earned in fiscal year 1996, but
paid in fiscal year 1997, and (ii) a $99,320 bonus earned in fiscal year
1997.
(8) Represents Mr. Carretta's salary from joining DMC in September 1995.
(9) Represents (i) a $10,000 signing bonus earned in fiscal year 1996, but
paid in fiscal year 1997, and (ii) a $52,795 bonus earned in fiscal year
1997.
(10) Includes $32,269 in housing expenses, $24,709 in transportation
expenses, and $1,398 in miscellaneous expenses.
(11) Represents Mr. Hillson's salary from joining DMC in January 1996.
(12) Includes a relocation expense reimbursement of $16,301.
(13) Represents (i) a $30,000 signing bonus and (ii) a $53,055 bonus earned
in fiscal year 1997.
(14) Mr. Kennard did not join DMC until April 1996.
(15) Represents Mr. Thomsen's salary from his appointment as Vice President,
Chief Financial Officer of DMC in February 1995.
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The following table contains information concerning stock option grants in DMC's
Fiscal 1997 to the named executive officers. No stock appreciation rights were
granted during such fiscal year to the persons named in the Summary Compensation
Table.
<TABLE>
<CAPTION>
OPTION GRANTS IN DMC'S FISCAL 1997(1)
INDIVIDUAL GRANTS
----------------------------------------------------- Potential Realizable Value at
Number of Assumed Annual Rates of
Securities % of Total Stock Price Appreciation for
Underlying Options Granted Exercise Option Term ($)(2)
Options to Employees in Price Expiration ------------------------------
Name Granted (#) 1997 Fiscal Year ($/Share) Date 5% 10%
- ------------------------- ------------ ---------------- --------- ---------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Charles D. Kissner 100,000 4.67% $9.25 08/08/06 $581,728 $1,474,212
Frank Carretta, Jr. 30,000 1.40 11.57 11/20/06 218,195 552,949
Jack Hillson 20,000 0.93 9.25 08/08/06 116,346 294,842
50,000 2.33 11.57 11/20/06 363,658 921,582
Paul A. Kennard 150,000 7.00 4.00 04/19/06 377,337 956,245
Carl A. Thomsen -- -- -- -- -- --
</TABLE>
- -------------------
(1) The number of options and the exercise price have been restated to give
effect retroactively to a stock dividend, which effected a two-for-one
stock split of DMC Common Stock in November 1997.
(2) The 5% and 10% annual rates of compounded stock price appreciation are
mandated by rules of the Commission. There is no assurance provided to
any named executive officer or any other holder of DMC's securities that
the actual stock price appreciation over the 10-year option term will be
at the assumed 5% and 10% levels or at any other defined level. Unless
the market price of DMC Common Stock does in fact appreciate over the
option term, no value will be realized from the option grants made to
the named executive officers.
STOCK OPTION EXERCISES AND HOLDINGS
The following table provides information concerning the exercise of stock
options during DMC's Fiscal 1997 by the persons named in the Summary
Compensation Table and the unexercised options held by such persons as of the
end of DMC's Fiscal 1997.
AGGREGATED OPTION EXERCISES IN DMC'S FISCAL 1997(1)
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Value of Unexercised in-the-
Money Options at March 31,
Number of Securities 1997 (market price of shares
Underlying Unexercised at March 31, 1997 ($9.625
Options at March 31, 1997 (#) less exercise price)($)(2)
----------------------------- ----------------------------
Value Realized
(market price at
Shares Acquired exercise date less
Name on Exercise (#) exercise price)($) Exercisable Unexercisable Exercisable Unexercisable
- ----------------------- --------------- ------------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Charles D. Kissner -- -- 402,202 208,806 $1,131,193 $343,517
Frank Carretta, Jr. -- -- 85,000 115,000 334,688 452,813
Jack Hillson -- -- 70,000 100,000 323,750 146,250
Paul A. Kennard -- -- 75,000 75,000 421,875 421,875
Carl A. Thomsen -- -- 161,948 47,786 367,183 131,211
</TABLE>
- -------------------
(1) The number of options and the exercise price have been restated to give
effect retroactively to a stock dividend, which effected a two-for-one
stock split of DMC Common Stock in November 1997.
(2) "In-the-money" options are options with an exercise price less than the
market price of DMC Common Stock on March 31, 1997.
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EMPLOYMENT AND TERMINATION ARRANGEMENTS
Mr. Kissner, Mr. Carretta, Mr. Hillson, Mr. Kennard and Mr. Thomsen, the
named executive officers, each have written employment agreements with DMC.
In May 1996, Mr. Kissner entered into an employment agreement with DMC
pursuant to which Mr. Kissner is to serve as President and Chief Executive
Officer. The term of the agreement extends through May 1998, after which the
agreement may be renewed annually by the mutual consent of DMC and Mr. Kissner.
The agreement provides that (1) if Mr. Kissner is terminated without cause, he
shall be entitled to receive (i) severance pay for twelve months at his normal
monthly salary; (ii) the continuation of vesting of his stock options for one
year from the date of his termination; and (iii) a proration of his incentive
bonus, if earned, for the then current fiscal year based on the number of months
he was employed during the year by DMC and (2) if DMC is merged or acquired in a
transaction in which there is a change in control of DMC, Mr. Kissner shall be
entitled to receive (i) severance pay in the amount of two times his base annual
salary; (ii) a bonus payment equal to the average of the bonuses paid to him in
the last two fiscal years; and (iii) a proration of his incentive bonus, if
earned, for the then current fiscal year based on the number of months he was
employed during the year by DMC. In connection with Mr. Kissner entering into
the employment agreement with DMC, the Board of Directors authorized the
immediate vesting of 100,000 shares of Mr. Kissner's stock option grants,
effective as of the date of the employment agreement.
Mr. Carretta, Mr. Hillson and Mr. Thomsen entered into employment
agreements with DMC, effective as of May 1996. The term of each of the
agreements extends through May 1998, after which each of the agreements may be
renewed annually by the mutual consent of DMC and the officer. In connection
with each of these officers signing employment agreements with DMC, the Board of
Directors authorized the immediate vesting of fifty percent of each of the stock
option grants awarded to these officers in 1995, effective as of the date of the
employment agreements. The employment agreements for these officers include the
following provisions: (1) if the officer is terminated without cause, the
officer shall be entitled to receive (i) severance pay for six months at his
normal monthly salary; (ii) the continuation of vesting of his stock options for
six months from the date of his termination; and (iii) a proration of his
incentive bonus, if earned, for the then current fiscal year based on the number
of months he was employed during the year by DMC and (2) if DMC is merged or
acquired in a transaction in which there is a change in control of DMC, the
officer shall be entitled to receive (i) severance pay in the amount of two
times his base annual salary; (ii) a bonus payment equal to that of the average
of the bonuses paid to him in the last two fiscal years; and (iii) a proration
to him of his incentive bonus, if earned, for the then current fiscal year based
on the number of months he was employed during the year by DMC.
In June 1996, Mr. Kennard entered into an employment agreement with DMC.
The term of the agreement extends through June 1998, after which the agreement
may be renewed annually by the mutual consent of DMC and Mr. Kennard. In
connection with Mr. Kennard signing the employment agreement with DMC, the Board
of Directors authorized the immediate vesting of fifty percent of the stock
option grants awarded to Mr. Kennard in 1996, effective as of the date of the
employment agreement. The employment agreement provides that: (1) if Mr.
Kennard is terminated without cause, he shall be entitled to receive
(i) severance pay for six months at his normal monthly salary; (ii) the
continuation of vesting of his stock options for six months from the date of his
termination; and (iii) a proration of his incentive bonus, if earned, for the
then current fiscal year based on the number of months he was employed during
the year by DMC and (2) if DMC is merged or acquired in a transaction in which
there is a change in control of DMC, he shall be entitled to receive
(i) severance pay in the amount of two times his base annual salary; (ii) a
bonus payment equal to that of the average of the bonuses paid to him in the
last two fiscal years; and (iii) a proration to him of his incentive bonus, if
earned, for the then current fiscal year based on the number of months he was
employed during the year by DMC.
COMPENSATION OF DIRECTORS
During DMC's Fiscal 1997, DMC paid each non-employee director $1,000 in
fees for each in-person meeting and $500 per telephone meeting, a retainer of
$3,000 per quarter, and committee meeting fees of $500 for each in-person
committee meeting and $250 for each telephone committee meeting unless, in
either case, such committee meeting was held in conjunction with a DMC Board
meeting. Directors were also reimbursed for their out-of-pocket expenses
incurred in attending meetings of the DMC Board and committees thereof. DMC
also pays consulting fees to members of the DMC Board of $1,000 per day, in one
half day increments, for DMC Board approved projects (including transportation
time) plus reimbursement of all expenses.
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In May 1997, the DMC approved that, effective as of April 1, 1997, each
non-employee director of DMC shall be paid committee fees of $750 for each in-
person committee meeting and $375 for each telephone committee meeting, unless,
in either case, such committee meeting was held in conjunction with a DMC Board
meeting.
Pursuant to DMC's 1994 Incentive Plan, during the year ended March 31,
1997, each new non-employee DMC Board member, upon his or her initial
appointment or election to the DMC Board, received an automatic option grant for
15,000 shares with an exercise price equal to the fair market value of the
option shares on the grant date. Each individual reelected as a non-employee
DMC Board member at the 1996 annual stockholders meeting, and who had been a DMC
Board member for the three prior years, received an option grant at that time
for 5,000 shares. Each initial or periodic option grant is immediately
exercisable for all the option shares, but the shares purchased under the option
are subject to repurchase by DMC, at the option exercise price, upon the
optionee's cessation of DMC Board service. The option shares vest, and DMC's
repurchase right lapses with respect to option shares, in three equal annual
installments over the optionee's period of DMC Board service, measured from the
grant date. However, upon certain changes in control of DMC, DMC's repurchase
rights immediately lapse in full. Each option grant has a maximum term of ten
years, subject to earlier termination upon the optionee's cessation of DMC Board
service.
In May 1997, the DMC Board approved the amendment and restatement of the
1994 Plan, and in August 1997 DMC stockholders approved such amendment and
restatement, to increase (i) the total number of shares that each non-employee
DMC Board member receives upon becoming a member of the DMC Board from 15,000
shares to 21,000 shares; and (ii) the total number of shares that each non-
employee DMC Board member who has served for at least three years receives
annually thereafter from 5,000 shares to 7,000 shares.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the DMC Board currently consists of two
members of the Board: James D. Meindl and Billy B. Oliver. No member of this
committee is a present or former officer or employee of DMC or any of its
subsidiaries.
No executive officer of DMC served on the board of directors or
compensation committee of any entity which has one or more executive officers
serving as a member of DMC's Board or DMC's Compensation Committee.
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MAS TECHNOLOGY LIMITED
BUSINESS OF MAS
OVERVIEW
MAS designs, manufactures, markets and supports low and medium frequency,
medium to long-haul digital microwave radio links for use in the worldwide
telecommunications market. MAS's DXR systems are used as digital links by
network operators to interconnect wired and wireless networks, including
cellular and local loop systems with switching centers and are used by local
telephone companies to provide voice and data services to their customers
through wireless local loop systems. The integrated architecture and substantial
software content of MAS's systems are designed to offer cost-effective, high-
performance products with a high degree of flexibility and functionality.
MAS provides a broad range of highly reliable, standards-compliant
microwave transmission systems and complementary services. MAS's initial product
family, the DXR 200, provides an integrated, modular, networking solution for a
wide variety of communications systems in markets with low to medium capacity
transmission requirements. The DXR 200 is well suited for cellular base station
linking, network trunking, basic telephone service in less developed regions and
private networks such as those used by oil, electricity and public utility
concerns. The DXR 100 product family is designed specifically for higher
capacity trunking applications, particularly in urban areas. MAS's products
incorporate flexible architectures and components that allow MAS to rapidly
deploy new products and product enhancements to satisfy customer, industry and
market needs. MAS markets its products and services primarily through its direct
sales organization which is complemented by other sales channels, including
system integrators, brand labelers and international distributors.
General market and industry trends exist such as a growing global demand
for higher quality and cost-effective telecommunications infrastructure and the
replacement and upgrade of existing networks. To take advantage of these trends,
MAS has adopted several strategic initiatives such as targeting regions and
customers with a need for low to medium capacity networks and expanding MAS's
product offerings to address industry demands and standards. MAS believes that
its future success depends on its ability to develop and introduce products
which meet the rapidly changing demands of customers and markets, including
evolving industry and regulatory standards. MAS is expanding its direct sales
force and support capabilities in targeted regions and leveraging its proven
record of product quality and innovation with new and existing customers. During
fiscal year 1997, MAS derived approximately 35%, 20%, 18%, 14% and 13% of its
revenues from sales to customers in Africa, the Pacific, the Americas, Asia and
Europe, respectively.
RECENT DEVELOPMENTS
In September 1997, MAS was awarded a three-year $5.6 million supply
contract with the Zimbabwe Post and Telecommunications Corporation to supply
MAS's DXR 200 family of integrated digital microwave radios, providing a radio
transmission network for cellular base stations and supporting additional
telephone services to rural communities in Zimbabwe.
Additionally, in October 1997, MAS received a $1.7 million order for DXR
200 digital microwave radios from the exclusive telecommunications provider to
the Maldive Islands, Dhivehi Raajjeyge Gulhun Private Limited ("Dhiraagu"). The
order resulted from a partnership between Dhiraagu and the government of the
Maldives Islands designed to expand the Maldives' inter-island
telecommunications network.
In June 1997, MAS was awarded a contract worth US$2.2 million from Siemens
for DXR 200 digital microwave radios to transport voice, fax and data
communications for National Railway Corporation of Zimbabwe.
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The recently launched DXR 700 product family is designed for higher
capacity customer access and trunking applications, particularly as a "fiber
extender." This new product range extends the frequency coverage of MAS
equipment to the 7 GHz band.
INDUSTRY BACKGROUND
In recent years, there has been a significant increase in worldwide demand
for telecommunications services, including basic voice telephony, mobile
cellular communications, high speed data transmission, video broadcast and
paging. This demand has been driven by a growing recognition that communications
technology plays a critical role in accelerating economic growth and enhancing
business productivity. The demand has also been driven by the emergence of
enabling technologies that allow the development and deployment of cost-
effective, reliable and bandwidth-efficient telecommunication systems.
In many regions, governments are responding to growing demand for
telecommunications services by removing regulatory barriers, licensing new
services and service providers, and pursuing privatization initiatives. In
developing regions, where there is often a lack of telecommunication
infrastructure, governments are especially interested in pursuing policies and
adopting technologies that accelerate the development of telecommunication
networks. Corporate and other private end users are also meeting their growing
need for telecommunications services by implementing their own private
communications networks to serve operational or administrative requirements. In
addition, service providers are seeking to maximize the capacity of existing and
emerging networks and are making infrastructure investments designed to increase
system capacity in a bandwidth-efficient manner.
The increased demand for communications services has resulted in an
increased need for cost effective and reliable telecommunications equipment. All
networks require interconnections and transmission systems to link
geographically dispersed nodes and to provide communications access to customers
and end users. Available transmission technologies include twisted-pair copper,
coaxial cable, fiber optic cable and wireless systems using microwave radio
technology. For several applications, digital microwave transmission systems
offer numerous advantages over competing transmission technologies, including
lower cost of implementation and rapid deployment. Digital microwave systems can
be deployed in a matter of weeks and typically require lower infrastructure
investments and installation lead times than alternative transmission
technologies. Digital microwave systems are especially advantageous where
geographically dispersed customers or operations, environmental constraints,
difficult terrain or limited installation times render the installation and
implementation of copper and optical fiber lines impracticable or too costly.
MAS believes that as telecommunication requirements grow, digital microwave
systems will continue to be used as transmission links to support a variety of
existing and expanding communications networks and applications. In this regard,
MAS believes that digital microwave systems will be used to address the
connection requirements of the following markets and applications:
INFRASTRUCTURE DEVELOPMENT MARKET. Additional communications
infrastructure is needed to support the growing demand for telecommunications
services in both developed and developing countries. As demand increases for
telecommunications infrastructure and higher quality services, service providers
must seek methods for connecting communications networks that provide such
services. In this regard, digital microwave systems can be used to provide the
primary service platform for fixed telecommunications applications. In addition,
they can be used instead of wireline networks to connect wired or wireless local
loop systems to the public switched telephone network (the "PSTN").
In many developing regions, such as Latin America, Africa, Asia, Eastern
Europe, the Pacific Basin and the Middle East, current teledensity is frequently
low. Connecting geographically dispersed sets of communities and regions to the
PSTN is often difficult and expensive by conventional methods such as copper
wire, coaxial or fiber optic cable systems. The implementation and maintenance
of digital microwave links is often quicker, less expensive and less difficult
than establishing and maintaining a comparable wireline network.
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In many developed countries, market trends such as deregulation and
increased competition for subscribers, often lead to the increased use of
wireless links to connect various local loop systems to existing wireline
networks. This is particularly the case where a new entrant to an existing
market is seeking to by-pass existing wireline carriers or where the provision
of service to geographically dispersed communities and users is required.
Wireless links are often the choice of new entrants in deregulated regions as
such systems provide a technological means of by-passing incumbent wireline
carriers which, in many cases, have not adequately served the demand for
telecommunication services. In addition, in developed countries, wireless links
such as digital microwave links, can be used as a cost effective, reliable means
to extend existing networks to dispersed communities and private operations.
CELLULAR APPLICATIONS. Cellular communication services have become an
integral part of the telecommunications market. In addition to growth in the
United States, many developing countries, such as those in Latin America and
Asia, are building cellular networks. According to the Personal Communications
Industry Association, current global subscriber growth is estimated to be 70%
per year. The Department of Commerce estimates that there will be approximately
50,000 cell sites in the U.S. and 100,000 cell sites worldwide by the year 2000.
The growth in cellular and other communication systems has required, and will
continue to require, substantial investment by service providers in network
infrastructure equipment, including microwave radio linking systems. These
systems frequently serve as links across the cellular network backbone,
interconnecting cellular base stations with switching centers and wire-line
networks. Digital microwave systems link cellular sites or base transmission
stations with each other and with mobile switching centers or base station
controllers while allowing for efficient, high quality signal transmission.
These systems are generally implemented for low cost and bandwidth-efficient
linking in low capacity wireless environments and enable linking in environments
that are difficult to serve using other terrestrial alternatives.
PRIVATE NETWORKS. Private communications networks are becoming
increasingly prevalent. Typical users of private networks include government
agencies, oil, gas and electric utilities, and companies with widely deployed
assets such as railroads, mining concerns and financial service providers. These
networks typically span medium to long distances and must transmit a wide
variety of information between offices and operational sites. Digital microwave
systems allow users to establish private networks which bypass existing third
party telecommunication service providers and transmit information securely,
efficiently and at less cost.
WIRELESS ANALOG REPLACEMENT. Digital microwave systems are being used by
service providers to augment or supplant existing analog equipment. Wireless
analog equipment is typically used to provide links for single and two channel
voice telephony. Service providers choose to replace analog equipment with
digital solutions to upgrade the reliability, quality, capacity and range of
existing networks.
To remain competitive, service providers seek digital microwave systems
that address market needs and provide for the breadth of applications discussed
above. Early microwave transmission systems were primarily hardware based and
were expensive to enhance or upgrade. In addition, new features, increased
capacity and more efficient spectrum usage required significant development time
and expense. MAS believes that a significant opportunity continues to exist for
software-based digital microwave systems that provide the necessary flexibility,
scalability and bandwidth efficiency to address these changing markets and
applications in a cost-effective manner.
SOLUTIONS
MAS has developed and markets two product families of microwave
transmission systems, the DXR 200 and the DXR 100, to provide telecommunications
service providers with cost-effective, flexible, reliable and bandwidth-
efficient microwave transmission solutions. MAS's products complement
telecommunications infrastructures as well as cellular and private networks by
providing digital microwave links to a wide variety of wired and wireless
communications networks. MAS believes its products offer the following benefits:
SOFTWARE BASED ARCHITECTURE. MAS's products are driven by proprietary
software modules which are installed prior to shipment and which can be
subsequently modified or enhanced after installation from remote locations or at
a customer site. This allows MAS or the customer to configure, quickly and at a
low incremental cost, each product to meet customer or application specific
requirements.
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SCALABLE SOLUTIONS. MAS's products can support a range of users and uses,
which largely obviates the need for customers to install, implement and support
multiple components from different sources and/or replace MAS's products as the
demand for features and bandwidth increases. As a result of the range of
features and available configurations, customers can incorporate MAS's products
as part of comprehensive communication systems or link-by-link as they expand or
upgrade existing networks.
RELIABILITY. MAS's products operate with a high degree of reliability as
a result of MAS's strict adherence to quality assurance measures at all stages
of product design, manufacture, assembly and support. For the DXR 200 product
family, Mean Time Between Failure ("MTBF") is approximately 16 years, calculated
by MAS using performance data gathered over three years from approximately 2,000
terminals installed worldwide.
SPECTRUM EFFICIENT MODULATION. MAS's products use proprietary
implementations of spectrum-efficient QPSK or QAM modulation techniques. These
techniques allow much higher traffic rates per unit of allocated spectrum than
the more common FSK modulation.
COMPLIANCE WITH INDUSTRY STANDARDS. MAS designs its products to comply
with several regulatory and industry standards, including those developed by the
European Telecommunications Standards Institute (the "ETSI") and with existing
ITU regulations such as the digital E-1 interface. By complying with these
industry and regulatory standards, MAS believes it can sell its products to a
variety of customers and offer its products in regions where non-compliant
competitive products cannot be sold.
STRATEGY
MAS's objective has been to become a leading provider of high-performance
digital microwave transmission systems for low to medium capacity, medium to
long haul communications and networking applications. MAS strives to build on
its proven record of product innovation and quality, to strengthen its worldwide
distribution channels in targeted regions and to remain highly responsive to
customer and industry needs. MAS's strategy includes the following key elements:
TARGET LOW TO MEDIUM CAPACITY NETWORKS. MAS is developing and selling
digital microwave systems that serve low to medium capacity, medium to long haul
networks. MAS believes that these systems provide significant opportunities for
growth in regions with low teledensity characteristics, with a significant level
of dispersed urban and suburban areas and/or where telecommunication
infrastructure development, enhancement, replacement or other customer access
initiatives are in progress. In addition, MAS focuses efforts on selling digital
microwave systems for use in private communication networks such as those used
in oil and gas, transportation, mining and financial industries.
OFFER A RANGE OF HIGH-QUALITY PROPRIETARY TRANSMISSION SOLUTIONS. Through
its three product families, MAS offers a range of high-quality proprietary
wireless transmission systems for markets with low to medium capacity
transmission requirements. MAS believes that the wide range of features offered
in its family of modular DXR 200 products, the higher capacities supported by
its family of DXR 100 and recently launched DXR 700 products, and the ability to
customize each product easily by loading the appropriate software modules, allow
MAS's products to support a wide variety of applications such as linking trunked
networks and cellular base stations, providing access to higher capacity
networks and fixed wireless networks and supporting a variety of private network
applications. MAS expects to continue emphasizing its proprietary products and
its quality assurance measures to enhance overall product and corporate brand
equity.
INTRODUCE NEW PRODUCTS TO ADDRESS INDUSTRY DEMANDS AND STANDARDS. MAS is
committed to continually enhancing its product offerings to support the demands
of telecommunications service providers. These demands include the need to
establish communication access and services in targeted regions, the need to
expand existing networks and services, new applications, technologies and
protocols, and evolving regulatory or industry standards in existing and new
markets such as ETSI in Europe, T-1 in the United States and emerging protocols
for network management. MAS is also developing bandwidth-efficient products to
support higher capacity environments and continues to modify, enhance and
develop new products that comply with regulatory requirements in existing and
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new markets. MAS believes it can leverage its existing technologies to reduce
the time to market of its products. MAS's development personnel incorporate
customer, market and industry information and feedback into the development
process, thereby increasing the opportunities for market acceptance of MAS's
products.
OFFER COMPREHENSIVE SERVICES TO SUPPORT PRODUCT SALES. MAS is committed
to its value added service offerings, including network and microwave path
planning, and project management, system integration, repair, training and
support. In addition, MAS assists some customers in obtaining third party
financing for the purchase of MAS's products. MAS believes that providing these
services facilitates the installation process and the sale of its products and
services.
EXPAND SALES AND SUPPORT CAPABILITIES IN TARGETED REGIONS. MAS is
currently expanding its sales, marketing and distribution capabilities in
targeted geographic regions such as Asia, Africa and the Americas. MAS intends
to expand its direct sales force and technical support staff to increase its
presence in international markets and to ensure a consistently high level of
product support and customer service. In addition, MAS's strategy has involved
increasing its regional manufacturing and product customization capabilities to
provide greater flexibility in its product delivery processes, lower production
costs and encourage product adaptation to support region-specific needs.
LEVERAGE STRONG RELATIONSHIPS WITH KEY CUSTOMERS. MAS strives to develop
and leverage strong relationships with key systems integrators, original
equipment manufacturers, private labelers and end users in targeted geographic
markets and industries. MAS believes that it can leverage these relationships by
using them as reference points for potential new customers and by generating
additional sales of its products in connection with expanding communications
networks. MAS also believes that these relationships allow for significant
efficiencies in the product development and sales process as many of these
customers have a significant presence in their respective markets and industries
and have developed a considerable understanding of the regional communication
needs.
PRODUCTS AND SERVICES
Through its three product families, MAS provides a broad range of highly
reliable, standards-compliant, medium to long haul microwave transmission
systems and complementary services for use by network operators to interconnect
wired and wireless networks including cellular and local loop systems with
switching centers and public switches. MAS's initial product family, the DXR
200, provides an integrated, modular, linking solution for a wide variety of
communications systems in markets with low to medium capacity transmission
requirements. The DXR 100 and the recently launched DXR 700 families are
designed specifically for higher capacity trunking applications. MAS also offers
several services to complement its product offerings and sales efforts including
network planning, project management, systems integration, maintenance, training
and support.
SYSTEM ARCHITECTURE
MAS's products are driven by proprietary software modules which facilitate
system scalability, allow customers to acquire additional features at a low
incremental cost, reduce the development time of new features and facilitate the
efficient customization of MAS's products. MAS's family of DXR 200 products uses
these software modules to support and control a wide range of multiplex, cross-
connect, interface, transmitter and receiver frequency, and control parameters.
MAS's family of DXR 100 products uses these software modules to control
transmitter and receiver frequencies, alarm and interface parameters. Each of
MAS's products support broad frequency coverage between 0.3 and 7.5 GHz. Certain
higher frequencies are under development for MAS's DXR 100 and DXR 700 product
families. In addition, each product supports optional features such as voice and
data orderwire capabilities enabling communication between DXR terminals without
affecting traffic. All of MAS's products are fully compatible with each other
and can be assembled into systems to perform a variety of linking functions
within a comprehensive communication network.
The design of MAS's products incorporates several common elements including
a common hardware platform, a set of pre-programmed software modules and radio
frequency elements. This design allows MAS to deliver feature sets that are not
hardware dependent and to build products using open systems to support a variety
of
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evolving regulatory and industry standards such as the ITU-T, Q.421 and G.704,
that allow E-1 interfacing directly to the PSTN and microwave equipment from
other vendors. This hardware and software commonality and connectivity provide
MAS with the ability to leverage the design of its current product families to
offer cost-effective, scalable solutions tailored to each customer's
communication needs. MAS simultaneously pursues several product development
projects and allocates its research and product development resources in
response to market and/or customer demands for additional features and products.
DXR 200 PRODUCT FAMILY
First shipped in 1994, the DXR 200 digital microwave link is MAS's first
product family. The DXR 200 is a low capacity networking product that, as a
complementary transmission system or as replacement for analog single and two-
channel subscriber systems, can be used to serve clusters of subscribers such as
small villages in remote rural networks. The DXR 200 is also ideally suitable
for the complexities of cellular base station linking, network trunking,
providing thin route telephone service in less developed regions and private
networks such as those used by oil, electricity and public utility concerns.
As a result of its integrated modular design, the DXR 200 can incorporate
multiple features in the unit, including all critical components of a low
capacity, medium to long range digital microwave link. By installing different
feature sets, MAS can easily meet the communication needs of each customer,
overcome difficult radio frequency environments, accommodate multiple data
speeds and support multiple communication protocols. Using different
configurations, the DXR 200 can readily be installed into existing or new
trunking, cellular, rural telephony and private network applications in a wide
variety of environments. The DXR 200's modular design also allows
reconfiguration, upgrades and repairs at a low incremental cost as features can
be installed, upgraded or replaced quickly by adding or replacing one or more
plug-in modules and loading the appropriate software.
The DXR 200 can accommodate a multiplex interface for voice and data, a
cross connect switch (a facility for interchanging digital circuits), orderwire
and testing capabilities, a comprehensive software-based network management
system and 4, 10, 30 or 60 channels (120 with ADPCM) and can operate on every
microwave frequency band up to 2.7 GHz. The DXR 200 is designed to allow the
direct attachment of both analog and digital subscriber equipment and, as a
result of its modular architecture, is cost effective and can support multiple
communication protocols such as ISDN and high/low speed computer data. The DXR
200 is spectrum efficient, using a proprietary implementation of QPSK
modulation. Additional software features and modules currently include: ADPCM
line compression, pay phone signaling, single chassis hot standby, network
management, data modules and orderwire modules. The integrated, modular design
of MAS's family of DXR 200 products allows the DXR 200 to support over 2,000
different configurations.
The DXR 200 overcomes space constraints, the use of cumbersome wire
connections and compatibility issues caused by assembling components from
different manufacturers and vendors. This reduces the overall purchase cost of a
communications system, enhances reliability and reduces the required time to
implement and maintain a comprehensive network management system.
DXR 100 PRODUCT FAMILY
First shipped in 1996, the DXR 100 has been specifically designed to
address medium to long haul, trunking applications and capacities higher than
the DXR 200. MAS's family of DXR 100 products support these higher capacity
environments using spectrum efficient transmission techniques such as QPSK or
QAM modulation and low error rate technologies such as forward error correction
and adaptive equalization. The DXR 100 provides the low to medium capacity
plesiochronous digital hierarchy ("PDH") digital microwave links required for
cellular, basic telephony transmission and customer access applications,
particularly in urban areas.
The DXR 100 family is one of the first of its type designed to meet the
ETSI microwave radio design standards. The DXR 100 offers excellent bandwidth
efficiency through the use of advanced QAM technology. The DXR 100 incorporates
Forward Error Correction ("FEC"), a transmission technique that permits a
damaged signal to be restored in the event of error, and transversal equalizer
technologies which reduce the effects of noise
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(including impulse noise) and multipath interference, allow a variety of data
rates to be supported with high spectrum efficiencies and allow the DXR 100 to
maintain signal reception in harsh or difficult radio frequency environments.
The DXR 100 includes an extended frequency range above DXR 200 and supports
higher capacity applications, but without the full range of DXR 200 analog
interface capabilities. The DXR 100 can be linked with the DXR 200 as part of
larger network implementations.
NETWORK MANAGEMENT SYSTEM
The DXR 100, 200 and 700 product families are supported by MAS's
proprietary network management system (the "NMS") that allows for network and
terminal configuration, modification to module functions, network monitoring and
error and statistical measurements. The NMS is a flexible software control
system, developed in SNMP, that allows the customer or MAS to quickly configure
or reconfigure any or all of MAS's products used in the customer's communication
network on site or from remote locations. With the NMS, network configuration
can be achieved within minutes, eliminating the need for costly and time-
consuming hardware replacement or service at the site. The NMS is sold as an
optional component on the DXR 100, 200 and 700 equipment. MAS is enhancing the
NMS to adhere to new standard protocols to assist it in working with third party
systems such as Hewlett Packard Operview. MAS believes these enhancements will
assist it in penetrating additional new markets.
QUALITY ASSURANCE
In delivering its products and services, MAS provides customers with the
assurance of high quality and integrity through the implementation of extensive
and standardized product design, production and administration processes. As a
result of implementing these processes, MAS received ISO 9001 certification in
April 1990, a standard established by the International Standards Organization.
Many telecommunications customers will not purchase products or incorporate
systems from suppliers that have not received quality assurance certification
for their processes or whose products do not comply with regional regulatory or
industry standards. This standard provides quality assurance across all facets
of MAS's operations including design, manufacture and staff safety and welfare.
Based on updated standards, MAS received recertification in 1996. MAS has also
received ISO 14001 certification, an environmental quality assurance
certification which covers MAS's Environmental Management System. The ISO 14001
certification covers such topics as use of environmentally-friendly materials in
MAS's products and in packaging materials, instructions for disposal at the end
of equipment economic life, energy usage in manufacturing processes, effluent
control and waste disposal processes. The ISO 14001 qualification is especially
important in many countries where non-tariff barriers can be encountered by
companies who do not have such certification. Thorough environmental testing of
all sub-systems and sub-system compatibility also helps ensure reliable
performance and operation.
SERVICES
MAS offers value-added services through its network of regional offices.
These services include network planning, path planning, systems integration,
installation, commissioning, training and ongoing support, and repair services.
MAS believes that offering these value-added services facilitates the sale and
installation of its products. Maintenance and repair of MAS's products is
provided through local distributors who are supported by MAS's regional offices.
Repair services range from component-level repair to dispatching modules for
change-out and return to MAS. MAS utilizes a number of procedures to ensure
prompt service, including maintaining an adequate supply of inventories and
spare parts. All of MAS's products are covered by warranty on parts and labor
for a minimum period of twelve months.
MAS markets and sells a limited number of third-party complementary product
lines to offer comprehensive solutions on large contracts. These third-party
products are typically sold at lower margins than MAS's proprietary products.
MAS regularly sources such products from several suppliers to expand product
capacity, provide additional communication protocols and fulfill additional
customer needs.
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CUSTOMERS
MAS has sold its products and services to over 100 customers across six
continents. MAS's customers include: (i) large telecommunications companies and
utilities, which use MAS's products in providing medium and long range wireless
communications services to their own customers; (ii) large systems integrators
which combine MAS's products with other third party products; (iii) other end
users, which incorporate MAS's products into network systems either to provide
remote access to communications services, or as part of private or corporate
networks; and (iv) distributors. In selecting resellers, MAS works with
organizations that are experienced in microwave communications and that possess
the technical support resources and systems expertise necessary to effectively
represent MAS and its products.
APPLICATIONS
MAS's products are used in a variety of applications such as increasing the
availability, quality, and range of telecommunication services in developing and
deregulated regions, establishing competing communication services, and
installing corporate and other private networks to accommodate operational and
other communication needs. MAS has designed its products for use in
comprehensive communications networks, complementary networks allowing customer
access to higher capacity public switched networks and private networks serving
geographically dispersed operations and users. The following section presents
examples of the ways in which MAS's products have addressed specific customer
needs:
TRUNKED NETWORK APPLICATIONS
The DXR 200 and DXR 100 product families can be used together in the same
network to provide flexibility in a wide variety of communications networks such
as trunked network applications.
VIETNAM. As part of a nationwide program to significantly increase
teledensity in Vietnam, the national telecom provider and its regional operating
departments sought to install a wireless transmission solution. The limited
channel allocation and large number of long distance paths posed particular
challenges. The DXR 100 was chosen specifically for its bandwidth efficient
modulation and its ability to provide 4 x 2 Mbps medium capacity links over
distances of approximately 50 km. The DXR 100 links are used to connect small
(1,000 to 5,000 line) central office switches to regional switching centers.
BOTSWANA. The Botswana police needed to link together their new regional
depots spread throughout the country. Of primary importance was the integrity
and reliability of service in a harsh environment and establishing a
comprehensive network management system. The DXR 200 was chosen because of
demonstrated high reliability and advanced data and voice features that ensured
compatibility with third-party equipment, specifically, Motorola trunked mobile
radio.
RURAL TELEPHONY
Digital microwave systems enable rural businesses, clusters of rural
subscribers, destination points, small towns and other geographically dispersed
locations to connect to public switched and other higher capacity networks.
Digital microwave systems can transmit and receive signals across obstacles such
as long distances, difficult terrain and harsh climates. Low frequency digital
microwave signals can provide high quality communications services up to 150 km
between sites.
BRAZIL. Several regional telecommunications companies which make up the
Telebras' network needed to connect geographically dispersed rural communities
over difficult paths, long distances and adverse atmospheric conditions. As of
January 31, 1997, more than 180 DXR 200 terminals had been supplied with a
mixture of 4, 10, and 30 channel capacities in the 400 MHz, 900 MHz and 1.5 GHz
bands. Some of the links have been configured with integrated multiplexers to
connect rural subscribers to existing networks and other links are being used as
2 Mbps digital paths to interconnect exchanges.
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MALDIVE ISLANDS. Dhiraagu, the local telephone company, needed to connect
individual subscribers and resorts on the outer Maldive Islands to the existing
public telephone network. Dhiraagu selected MAS's DXR 200 system because of its
flexibility, scalability, upgrade capabilities and, in particular, because of
its wide range of analog interface and signaling options, which are required to
integrate a large variety of different telephones (including pay phones), PBXs
and PSTN exchanges. MAS's DXR 200 was successfully tested over a 70 km sea path
in an adverse tropical environment between two islands. The successful test of
the DXR 200 resulted in a three year rural communication expansion project
currently being undertaken by Dhiraagu.
CELLULAR AND MOBILE NETWORK APPLICATIONS
Cellular systems consist of a number of cellular sites or base transceiver
stations linked together under the control of a mobile switching center.
ARGENTINA. CTI Compania de Telefonos del Interior S.A. ("CTI"), a company
jointly owned by GTE and Argentinean interests, is one of two cellular service
providers in Argentina. CTI needed to expand its cellular network into low
density areas. CTI chose the DXR 200 because of its fully integrated design
which reduced the need for a multi-vendor system, and thereby reduced cost and
improved reliability. In particular, CTI selected the DXR 200 to connect its
cellular base stations because of the built-in cross connect feature which
allows multiple individual circuits to be combined thus reducing the cost of the
network. MAS had full responsibility for system design, installation, project
management and commissioning, and has installed over 400 DXR 200 systems for CTI
to date.
INDONESIA. A regional subsidiary of a large multinational corporation
needed to interconnect several base stations within a wireless local loop
system. Of particular importance was the need for an extensive network
management system. The DXR 100 was selected because of its industry standard
network management system and its compatibility with the network management
system of the wireless local loop access equipment.
NEW ZEALAND. BellSouth is a cellular operator in New Zealand. It operates
a network which now provides coverage to more than 90% of New Zealand's
population. BellSouth needed turnkey installation of digital microwave links
which could operate inside the cellular band, between frequencies already used
by the base stations. MAS's DXR 200 was selected because of the inherent
immunity of the DXR from adjacent channel interference. These features allowed
BellSouth to reduce its capital expenditures by reducing the need for BellSouth
to purchase frequency spectrum in operating their network.
PRIVATE BUSINESS APPLICATIONS
Private business networks are implemented in a variety of industries
including oil and gas, mining, transportation and financial services. Because of
the DXR product families' ability to provide links over long distances and
difficult terrain, digital microwave transmission systems often provide the only
linking option for private networks. Additionally, digital microwave systems can
be implemented in private networks to provide data-stream solutions that allow
users to implement system controls cost-effectively and exchange data between
two remote sites.
NEW ZEALAND. Broadcast Communications Ltd. needed a maritime
communications network to provide routine and emergency communications to ships
in the waters around New Zealand and the South Pacific by means of HF
transmitting and receiving stations and a network of VHF coast stations. Because
of the safety implications for this network, there were stringent customer
requirements on outage time. A 10 channel DXR 200 network was selected for this
long distance, low capacity application as it offered reduced spectrum usage
compared with other radios. To fit in with available spectrum, a mixture of 900
and 1500 MHz terminals was used and the commonality between different bands
reduced the spares requirements. The DXR 200 was able to meet the high MTBF
requirement without the need for the high cost of redundant configurations.
BELGIUM. AEG Belgium, a subsidiary of a large multinational corporation,
needed a digital microwave network to interconnect two-way radio base stations
as part of a nationwide private transport communications
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network. AEG Belgium selected MAS's DXR 200 for its built-in multiplexer and
integrated 4-wire interfaces. More than 90 DXR 200 terminals operating in the
1.5 GHz band with 10 channel capacity have been installed, providing links
between trunked radio base stations and enabling efficient digital networking.
UNITED KINGDOM. Shell Oil, for its North Sea operations, required highly
reliable data and voice transmission, linking oil platforms over long distances.
The DXR 200 was chosen because of the QAM option, providing efficient spectrum
use, plus frequency diversity in a protected configuration, providing secure
operation for long hops over water paths.
SALES AND MARKETING
MAS markets its products and services primarily through its direct sales
organization which is complemented by other sales channels, including system
integrators, brand labelers and international distributors. As of December 31,
1997, MAS's direct field sales force consisted of 25 full time sales personnel
supported by 55 sales and engineering support staff. For several years, a
significant portion of MAS's sales have been generated from international
distributors and system integrators, who incorporate MAS's products in network
solutions for their own end user customers. Sales to international distributors
and systems integrators accounted for approximately 27% and 24% of total sales
during fiscal years 1996 and 1997, respectively. MAS believes that its
continued success depends on its ability to expand its regional sales and
marketing efforts and direct those efforts from its central office in the
regions specified below.
AFRICA. Through the acquisition of the assets of its distributor in South
Africa, MAS established an office in Pretoria to serve MAS's customers in South
Africa and has subsequently opened offices in Zimbabwe and Botswana to serve
those particular markets. Current sales and marketing efforts in Africa are
focused on expanding MAS's customer base by targeting the emerging African
wireless telecommunications market.
THE PACIFIC. MAS currently coordinates and manages all sales and
marketing efforts from its executive offices in Wellington, New Zealand. In
addition to servicing customers in New Zealand and the Pacific Islands,
initiatives for customer, agent and other sales programs also originate from
this office. Personnel at the New Zealand office work with the other offices to
close sales, to set sales and marketing strategies and to ensure the efficient
deployment of Company resources.
THE AMERICAS. MAS serves the North and Latin American markets through a
sales and support force in the Americas. MAS has an office in San Jose,
California that serves systems integrators, such as GTE and Motorola, who
operate internationally. This office is also responsible for serving Central
America and the northern countries of Latin America, such as Venezuela and
Colombia. MAS also maintains an office in Brazil and works with several
distributors and representatives to service Brazil, Argentina, Chile and Peru.
ASIA. MAS's Asia sales and support staff serve MAS's customers in
Malaysia, Indonesia, India, the Maldive Islands, the Philippines, Pakistan and
Korea and are based in various regional offices outside of New Zealand. The
Singapore office functions as the regional headquarters for sales and support
offices in Manila and Jakarta. MAS works with several resellers and
telecommunication companies in this region to serve the transmission needs of
the growing wireless local loop and cellular markets as well as customers in
mining, exploration, transport and utility industries and government
administration.
EUROPE. MAS currently serves the European market from its United Kingdom
office. MAS also maintains an office in Denmark and works with several
distributors and resellers to service the European and North African markets.
MAS's current European sales efforts are focused on the ETSI band replacement
market and coordination of sales to Europe and North Africa.
MAS has a number of marketing programs to support the sale and distribution
of its products. The objective of these programs is to inform customers of the
capabilities and benefits of MAS's products and of the wide range of value added
services offered by MAS. Marketing programs include visiting customer sites,
sales training, preparation of competitive product analysis, distribution
support and participation in industry trade shows.
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MAS conducts significant market research from its headquarters to identify
markets with favorable telephone density characteristics and growing telephone
infrastructure initiatives and to identify and target the customers whose
expanding networks and operations provide significant opportunities for MAS's
products. MAS's sales and marketing personnel provide a high level of technical
support. MAS's current sales process is typically a lengthy one which involves
large orders from a limited number of customers.
RESEARCH AND PRODUCT DEVELOPMENT
MAS believes that its future success depends on its ability to develop and
introduce products which meet the rapidly changing demands of customers and
markets, including evolving industry or regulatory standards. MAS believes that
its products must incorporate flexible architectures and components to rapidly
deploy new products and product enhancements to satisfy customer, industry and
market needs.
MAS simultaneously pursues several product development projects and
allocates its research and product development resources in response to market
and customer demands for additional features and products. MAS's product
development process begins with extensive research designed to identify and
quantify the market need and sales potential of a particular product concept and
continues through to design, prototyping and testing. MAS's product development
strategy involves rolling out initial versions of its products and subsequently
adding features over time. MAS regularly incorporates product feedback received
from customers and contract manufacturers into its product development process.
MAS's research and development efforts are principally focused on two key areas,
(i) the development and enhancement of software configurations and components to
support a broader range of communication protocols and applications for MAS's
existing product platforms, and (ii) developing new products capable of
supporting high capacity, dynamic applications and networks. MAS is currently
developing several products which will support higher capacity applications and
additional industry-specific standards, including T-1 in the United States.
MAS employs highly qualified engineers and other key development expertise
in-house enabling design processes to be efficiently managed to shorten product
introduction lead times. MAS has experienced low staff turnover through the
years which has contributed to its high level of accumulated expertise within
its software, hardware and radio frequency groups. To the extent possible, MAS
seeks to maximize the use of existing technology to minimize time to market.
All product development is carried out in accordance with MAS's
certification to ISO 9001 and ISO 14001 thereby providing a high level of design
integrity and maintainability. As of December 31, 1997, MAS's research and
development staff consisted of 56 full-time employees in software, radio
frequency and hardware, all of whom are located at its headquarters. Most of
MAS's research and development personnel hold engineering and other advanced
technical degrees. This research and development team maintains close
relationships with customers by visits and seminars and, accordingly, is
sensitive and responsive to customer needs. In fiscal years 1995, 1996 and 1997
and for the six months ended September 30, 1997, MAS's gross research and
development expenditures and the percentage of sales for its wireless
telecommunications products were approximately NZ$1.9 million, NZ$2.7 million,
NZ$3.8 million and NZ$2.6 million and 8.4%, 6.7%, 7.4% and 6.5%, respectively.
MANUFACTURING
MAS's internal manufacturing process consists primarily of component and
material planning and procurement, final assembly, customer software
configuration, test and burn-in, quality assurance and packaging for shipment.
Since MAS believes its efforts and resources are best employed in the
development of intellectual property, it has pursued a strategy of out-sourcing
low level product assembly. For example, printed circuit board production is
out-sourced to Alcatel, EDAC Systems and Harding Electronics, all of which are
located in New Zealand and are certified to ISO 9001 or ISO 9002. MAS provides
detailed product specifications and requires contract manufacturers or
contractors to adhere to rigorous standards to ensure that all products meet
quality requirements. MAS's products are subjected to several levels of testing
which exposes each product to a variety of conditions, including heat and rapid
temperature change in order to determine how products will function in their
intended applications and to reduce the likelihood of product failure. MAS
assembles products at its headquarters
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near Wellington, New Zealand and, as of December 31, 1997, maintained a staff
of 38 assembly, technical and support personnel. MAS has received several
national awards recognizing its manufacturing excellence.
MAS has entered into, and intends to continue entering into, agreements
with regional manufacturers. By outsourcing the manufacturing of MAS's
products in selected regions, MAS believes it improves its ability to serve
those regions and meet certain regional industry and regulatory requirements.
MAS also believes that entering into these regional manufacturing
relationships provides manufacturing diversity, allowing MAS to meet customer
delivery and application-specific requirements.
MAS's reliance on contract manufacturers and a limited group of
suppliers involves several risks. These risks include a potential inability
to obtain adequate finished products and required components, timely
delivery, reliability and quality of finished products and components. MAS
has experienced, and may in the future experience, delays in the production
and delivery of its products and certain components and subassemblies.
Manufacture of MAS's products and associated components and subassemblies is
an extremely complex process, and there can be no assurance that delays
caused by contract manufacturers and suppliers will not occur in the future.
Certain of MAS's suppliers have relatively limited financial and other
resources. Although MAS has no supply agreements with component vendors, it
expects these sources to continue to satisfy its component requirements. An
extended interruption in the supply of certain components could materially
adversely affect MAS's results of operations.
DEFENSE PRODUCTS
Between March 1993 and March 1997, 11.9% of MAS's cumulative revenues
were derived from sales of certain defense related products such as radio
controlled simulation, radio controlled detonation, computing systems for
ballistics and associated radio/line communications equipment. Since April 1,
1996, MAS has not devoted significant resources to selling such products and
has devoted minimal resources to the development or enhancement of such
products. In fiscal year 1997 and the six months ended September 30, 1997,
MAS believes that sales of defense products were not material and currently
commits no significant resources to its defense and related businesses.
COMPETITION
The wireless communications market is intensely competitive. MAS's
digital microwave transmission systems compete with other telecommunication
products and terrestrial based transmission systems sold as twisted-pair
copper, coaxial cable and fiber optic cable. MAS believes that a number of
competitive factors affect its ability to sell its products, including the
performance, quality and price of MAS's and competing products, the
announcement, timing and success of new product introductions by MAS and its
competitors, the emergence of new technologies and competing technologies,
the development of technological innovations, the efficiency of MAS's
production, the number and nature of MAS's competitors in a given regional or
application-specific market, the assertion of intellectual property rights
and general market and economic conditions. Within the market for digital
microwave links and transmission systems, MAS has encountered direct
competition from large, established microwave link suppliers such as Siemens
AG, Nokia, Fujitsu Limited and Harris Corporation and smaller competitors
such as Mosely Associates Incorporated and AWA Australia Pty Ltd. MAS expects
competition to continue to intensify from various competitors and new market
entrants, some of which may be current customers of MAS, as they begin to
offer products, services or systems which compete with MAS's products. There
can be no assurance that MAS's current or future competitors, many of whom
have substantially greater financial resources, research and development
resources, greater distribution, marketing and other capabilities than MAS,
will not apply these resources and capabilities to compete successfully
against MAS.
PROPRIETARY RIGHTS
MAS attempts to protect its intellectual property rights through patents,
trademarks, trade secrets and a variety of other measures, such as encryption of
its software. However, there can be no assurance that such measures will provide
adequate protection for MAS's trade secrets or other proprietary information,
that disputes with respect
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to the ownership of its intellectual property rights will not arise, that
MAS's trade secrets or proprietary technology will not otherwise become known
or be independently developed by competitors or that MAS can otherwise
meaningfully protect its intellectual property rights. There can be no
assurance that any patent owned by MAS will not be invalidated, circumvented
or challenged, that the rights granted thereunder will provide competitive
advantages to MAS or that any of MAS's pending or future patent applications
will be issued within the scope of the claims sought by MAS, if at all.
Furthermore, there can be no assurance that the others will not develop
similar products or software, duplicate MAS's products or design around the
patents owned by MAS or that third parties will not assert intellectual
property infringement claims against MAS. In addition, there can be no
assurance that foreign intellectual property laws will adequately protect
MAS's intellectual property rights abroad. The failure of MAS to protect its
proprietary rights could have a material adverse effect on its business,
financial condition and results of operations.
GOVERNMENT REGULATION
MAS's equipment must conform to a variety of domestic and international
requirements including foreign laws and international treaties. In order for
MAS to operate in a particular jurisdiction, it must obtain regulatory
approval for its products. The failure to comply with current or future
regulations or changes in the interpretation of existing regulations could
result in the suspension or cessation of MAS's operations within a country or
region. Such regulations or such changes in interpretation could require MAS
to modify its digital microwave systems and incur significant costs to comply
with such time-consuming regulations and changes. In addition, MAS is
affected to the extent that domestic and international authorities regulate
the allocation of the radio frequency spectrum. Equipment to support new
services can be marketed only if permitted by suitable frequency allocations
and regulations, and the process of establishing new regulations is complex
and lengthy. Failure by the regulatory authorities to allocate suitable
frequency spectrum could have a material adverse effect on MAS's business,
financial condition and results of operations.
The regulatory environment in which MAS operates is subject to change.
Regulatory changes, which are affected by political, economic and technical
factors, could significantly impact MAS's operations by restricting development
efforts by MAS and its customers, making current systems obsolete or increasing
the opportunity for additional competition. Any such regulatory changes could
have a material adverse effect on MAS's business, financial condition and
results of operations. MAS might deem it necessary or advisable to modify its
systems to operate in compliance with such regulations. Such modifications could
be extremely expensive and time-consuming.
EMPLOYEES
As of December 31, 1997, MAS had a total of 210 employees, of whom 152 were
based in New Zealand. MAS's success depends in significant part on the continued
service of its key management, sales, product development and operational
personnel and on its ability to continue to attract, motivate and retain highly
qualified employees. Competition for such personnel is intense and there can be
no assurance that MAS will be successful in attracting, retaining or motivating
key personnel. None of MAS's employees are represented by a labor union. Since
its inception, MAS has never experienced any work stoppages.
FACILITIES
MAS's headquarters are located in Lower Hutt near Wellington, New Zealand
where it owns and leases approximately 45,000 square feet for its executive
offices and product development facilities. MAS also maintains facilities in
each of the regions in which it operates. MAS's research and development,
manufacturing, and administrative operations may require additional facilities.
MAS believes that additional space will be available as needed.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF MAS
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE DISCUSSION IN
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF MAS" CONTAINS FORWARD-LOOKING STATEMENTS, WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE EXCHANGE ACT, THAT
INVOLVE RISKS AND UNCERTAINTIES, SUCH AS STATEMENTS OF MAS'S PLANS, OBJECTIVES,
EXPECTATIONS AND INTENTIONS. MAS'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM
THOSE DISCUSSED HERE. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES
INCLUDE THOSE DISCUSSED IN MAS'S REGISTRATION STATEMENT ON FORM F-1 (REG.
NO. 333-6952) AND MAS'S MOST RECENT QUARTERLY REPORT ON FORM 10-Q, AS WELL AS
THOSE DISCUSSED IN "RISK FACTORS" AND ELSEWHERE HEREIN.
OVERVIEW
Based in Wellington, New Zealand, MAS designs, manufactures, markets and
supports low and medium frequency, medium to long-haul digital microwave radio
links for use in the worldwide telecommunications market. In 1994, MAS began
selling its DXR 200 family of network products which offer modular, integrated
digital microwave links to telecommunication service providers for use in a wide
variety of applications. The DXR 200 has been installed in more than 100
customer networks in approximately 40 countries. MAS recently introduced its DXR
100 family of products that offer telecommunications service providers with
digital microwave links designed to fulfill high performance trunking
applications where analog interfaces are not required but where additional
capacity and spectrum-efficiency is needed. Since the beginning of fiscal year
1989 and through fiscal year 1995, MAS also sold a significant amount of
defense- and other government-related products. Since April 1, 1996, MAS has
not devoted significant resources to selling, developing or enhancing its
defense business.
MAS's revenues from sales of telecommunications products consist primarily
of the following two components: (i) sales of MAS's DXR products and related
services such as network planning, installation and training services; and (ii)
sales of third party products and related services which are complementary to
MAS's products such as antennas, other microwave equipment necessary to complete
a transmission system and non-proprietary telecommunications products sold under
distributor agreements. Sales of MAS's DXR products and related services during
fiscal years 1995, 1996 and 1997 and for the six months ended September 30, 1997
accounted for 27.7%, 54.5%, 63.8% and 60.9% of sales, respectively. Gross
margins on sales of MAS's DXR products and the provision of related services are
typically higher than gross margins on sales of third party products and related
services. Sales of third party telecommunications products and related services
have historically accounted for a significant percentage of MAS's historical
revenues. Sales of third party telecommunications products and related services
during fiscal years 1995, 1996 and 1997 and for the six months ended
September 30, 1997 accounted for 48.8%, 29.7%, 35.7% and 37.5% of sales,
respectively.
During the three years ended March 31, 1997, a majority of MAS's revenues
were denominated in US$ while a majority of the operating expenses were
denominated in NZ$. If the value of the NZ$ increases relative to either the US$
or other international currencies in which MAS's revenues are denominated, MAS's
overall gross profit and net income could be materially adversely affected. Over
the last three years, the value of the NZ$ has appreciated by approximately 24%
relative to the US$. The cumulative effect of this appreciation has been a
decrease in MAS's gross margin percentage of approximately 16% over these
periods.
During fiscal years 1996 and 1997, MAS significantly expanded its
international sales and marketing operations which resulted in increased costs.
Over this period MAS established offices in several regions and increased its
sales staff across these regions. On September 1, 1996, MAS acquired certain net
assets of a South African based distributor, NZ Telecoms (Proprietary) Limited,
and the shares of two of its affiliates. This distributor sells MAS's and third
party telecommunications products. The aggregate purchase price was NZ$1,293,000
with an additional contingent earn-out that provides for further payments
through October 1998 of a maximum of US$2,726,000. Substantially all of the
acquisition price and potential earn-out payments will be treated as goodwill
and will be amortized on a straight line basis from the date of payment until
August 31, 2001. See Note 13 of Notes to Consolidated Financial Statements. MAS
expects that its sales and marketing expenses will increase in future
103
<PAGE>
periods, and if MAS's sales do not correspondingly increase, MAS's results of
operations would be materially adversely affected.
RESULTS OF OPERATIONS
The following table sets forth certain income and expenditure items as a
percentage of total sales for the periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED MARCH 31, SEPTEMBER 30,
-------------------------------------- ----------------
1993 1994 1995 1996 1997 1996 1997
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Sales 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales 60.3 77.5 64.4 68.9 59.2 62.9 63.9
----- ----- ----- ----- ----- ----- -----
Gross profit 39.7 22.5 35.6 31.1 40.8 37.1 36.1
Operating expenses:
Research and development 6.7 9.5 8.4 6.7 7.4 10.4 6.5
Selling and marketing 5.9 5.0 11.9 9.7 16.0 15.1 15.2
General and administration 24.3 11.7 8.2 6.3 7.6 8.6 6.7
----- ----- ----- ----- ----- ----- -----
Total operating expenses 36.9 26.2 28.5 22.7 31.0 34.1 28.4
----- ----- ----- ----- ----- ----- -----
Income (loss) from operations 2.8 (3.7) 7.1 8.4 9.8 3.0 7.7
Interest income (expense) (0.3) (0.5) (0.8) (0.4) (1.0) (0.9) 0.7
Other income (expense) (0.1) 1.1 -- 0.5 0.9 -- 5.7
----- ----- ----- ----- ----- ----- -----
Income (loss) before income taxes 2.4 (3.1) 6.3 8.5 9.7 2.1 14.1
Income tax expense (benefit) 0.8 (0.6) 2.1 2.9 3.7 1.1 4.9
----- ----- ----- ----- ----- ----- -----
Net income (loss) 1.6% (2.5)% 4.2% 5.6% 6.0% 1.0% 9.2%
----- ----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- ----- -----
</TABLE>
SIX MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO SIX MONTHS ENDED SEPTEMBER 30,
1996.
SALES. Sales increased by 140.3% to NZ$39.4 million in the six months
ended September 30, 1997 from NZ$16.4 million in the six months ended September
30, 1996. Sales of DXR products and related services increased by 117.7% to
NZ$24.0 million in the six months ended September 30, 1997 from NZ$11.0 million
in the six months ended September 30, 1996. Sales of third party products and
related services and other sales increased by 176.3% to NZ$14.8 million for the
six months ended September 30, 1997 from NZ$5.4 million in the six months ended
30 September, 1996. The increase in the sales of third party products and
services is due to sales by NZ Telecoms (Proprietary) Limited and sales to a
customer expanding its cellular network totaling NZ$5.0 million and NZ$7.9
million, respectively, for the six months ended September 30, 1997 as compared
to NZ$0 and NZ$512,000 in the comparable period. NZ Telecoms (Proprietary)
Limited also distributed NZ$9.4 million of MAS's DXR products and related
services as compared to NZ$1.9 million in the comparable period prior to the
acquisition by MAS. Telecommunications products and services accounts for 98.4%
of sales in the six months ended September 30, 1997 compared to 99.9% in the six
months ended September 30, 1996. In the six months ended September 30, 1997,
60.9% of sales were generated from DXR products and services and 37.5% of sales
were generated from third party products and services, compared to 67.3% and
32.6%, respectively in 1996.
GROSS PROFIT. Gross profit increased 133.6% to NZ$14.2 million in the six
months ended September 30, 1997 from NZ$6.1 million in the six months ended
September 30, 1996. Gross margin decreased to 36.1% in the six months ended
September 30, 1997 from 37.1% in the six months ended September 30, 1996. The
decrease in gross margin is due to the increase in the sales of third party
products and related services as a percentage of total sales, which are
typically sold at gross margins lower than DXR products and related services.
RESEARCH AND DEVELOPMENT COSTS. Research and development costs primarily
consist of salaries of research and development personnel, materials and
allocated overhead associated with the development and enhancement of MAS's DXR
product families.
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<PAGE>
Research and development costs increased 50.4% to NZ$2.6 million, or 6.5%
of sales, in the six months ended September 30, 1997 from NZ$1.7 million or
10.4% of sales in the six months ended September 30, 1996. This increase is
primarily attributable to the expenditures on additional staff of NZ$228,000 and
NZ$292,000 for materials respectively for developing enhancement of the DXR 100
product family. Substantially all of the research and development expenditures
in the six months ended September 30, 1997 were expended on the enhancement and
development of new features for MAS's DXR product families. MAS believes that
significant ongoing investments in research and development are required to
remain competitive.
SELLING AND MARKETING EXPENSES. Selling and marketing expenses primarily
consist of salaries of sales and marketing personnel, investment in
international operations and offices, sales commissions, travel expenses,
customer service and support expenses, trade show related activities and
advertising costs.
Selling and marketing expenses increased 142.0% to NZ$6.0 million, or 15.2%
of sales, in the six months ended September 30, 1997 from NZ$2.5 million, or
15.1% of sales, in the six months ended September 30, 1996. This increase is
primarily attributable to the expansion of MAS's sales and marketing efforts,
including the cost of maintaining the new sales offices totaling NZ$2.3 million,
increased costs due to the acquisition of NZ Telecoms (Proprietary) Limited
totaling NZ$881,000 and the additional marketing and sales personnel in the
Europe, Africa, the Americas and Asia/Pacific sales regions.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
primarily consist of salaries and other expenses for management, finance,
accounting, legal and other professional services.
General and administrative expenses increased 86.9% to NZ$2.6 million, or
6.7% of sales, in the six months ended September 30, 1997 from NZ$1.4 million,
or 8.6% of sales, in the six months ended September 30, 1996. This increase was
primarily attributable to the increased costs due to the acquisition of NZ
Telecoms (Proprietary) Limited totaling NZ$914,000.
OTHER INCOME. Other income primarily consists of foreign exchange gains
and losses. Other income increased 100% to NZ$2.2 million or 5.7% of sales in
the six months ended September 30, 1997 from NZ$0 in the six months ended
September 30, 1996. This increase is primarily due to the conversion of the
cash and cash equivalents which are denominated in US$ to NZ$ at September 30,
1997, resulting in unrealized foreign exchange gains totaling NZ$1.7 million.
Other income also includes realized foreign exchange gains of NZ$400,000 for the
six months ended September 30, 1997 as compared to NZ$0 in the six months ended
September 30, 1996.
FISCAL YEAR ENDED MARCH 31, 1997 COMPARED TO FISCAL YEAR ENDED MARCH 31, 1996
SALES. Sales increased by 27.8% to NZ$51.3 million in fiscal year 1997
from NZ$40.2 million in fiscal year 1996. Sales of DXR products and related
services increased by 49.6% to NZ$32.7 million in fiscal year 1997 from NZ$21.9
million in fiscal year 1996. Sales of third party products and related services,
defense products and other sales declined by NZ$6.4 million for the year, but
this decline was offset by sales of third party products and services by NZ
Telecoms (Proprietary) Limited of NZ$6.8 million (subsequent to the date of
acquisition). NZ Telecoms (Proprietary) Limited also distributed NZ$9.9 million
of MAS's DXR products and related services (subsequent to the date of
acquisition). Telecommunications products and services accounted for 99.5% of
sales in fiscal year 1997 compared to 84.2% in fiscal year 1996. In fiscal year
1997, 63.8% of sales were generated from DXR products and services and 35.7% of
sales were generated from third party products and services, compared to 54.5%
and 29.7%, respectively, in fiscal year 1996. During the fiscal year 1997, sales
denominated in US$ represent 66% of total sales. The value of the NZ$ increased
approximately 2% relative to the US$ during fiscal year 1997, which resulted in
US$ denominated sales (expressed in NZ$) decreasing by approximately 4%.
GROSS PROFIT. Gross profit increased 67.8% to NZ$21.0 million in fiscal
year 1997 from NZ $12.5 million in fiscal year 1996. Gross margin increased to
40.8% in fiscal year 1997 from 31.1% in fiscal year 1996. This increase is
primarily attributable to an increase in the number of DXR products sold and an
increase in the average selling price.
105
<PAGE>
RESEARCH AND DEVELOPMENT COSTS. Research and development costs primarily
consist of salaries of research and development personnel and allocated overhead
associated with the development and enhancement of MAS's two DXR product
families. Research and development costs increased 41.6% to NZ$3.8 million, or
7.4% of sales, in fiscal year 1997 from NZ$2.7 million, or 6.7% of sales, in
fiscal year 1996. Substantially all of the research and development expenditures
in fiscal year 1997 were expended on the enhancement and development of new
features for MAS's DXR product families, particularly the development of the DXR
100. MAS believes that significant ongoing investments in research and
development are required to remain competitive.
SELLING AND MARKETING EXPENSES. Selling and marketing expenses primarily
consist of salaries of sales and marketing personnel, investment in
international operations and offices, sales commissions, travel expenses,
customer service and support expenses, trade show related activities and
advertising costs. Selling and marketing expenses increased 111.1% to NZ$8.2
million, or 16.0% of sales, in fiscal year 1997 from NZ$3.9 million, or 9.7% of
sales, in fiscal year 1996. This increase is primarily attributable to a
substantial expansion of MAS's sales and marketing efforts, including the cost
of establishing new sales offices totaling NZ$2.2 million, increased costs due
to the acquisition of NZ Telecoms (Proprietary) Limited totaling NZ$929,000 and
the recruitment of additional marketing and sales personnel in the Europe,
Africa, the Americas and Asia/Pacific sales regions.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
primarily consist of salaries and other expenses for management, finance,
accounting, legal and other professional services. General and administrative
expenses increased 52.8% to NZ$3.9 million, or 7.6% of sales, in fiscal year
1997 from NZ$2.6 million, or 6.4% of sales, in fiscal year 1996. This increase
was primarily attributable to the increased costs due to the acquisition of NZ
Telecoms (Proprietary) Limited totaling NZ$354,000, the hiring of additional
management personnel and other staff in New Zealand to support MAS's expanding
operations and in connection with the administration of additional regional
sales offices.
FISCAL YEAR ENDED MARCH 31, 1996 COMPARED TO FISCAL YEAR ENDED MARCH 31, 1995
SALES. Sales increased 77.8% to NZ$40.2 million in fiscal year 1996 from
NZ$22.6 million in fiscal year 1995. This increase was primarily attributable to
an increase in sales of MAS's DXR 200 product family. Sales of the DXR products
and services increased 250.0% to NZ$21.9 million in fiscal year 1996 from NZ$6.3
million in fiscal year 1995. Telecommunications products and services accounted
for 84.2% of sales in fiscal year 1996, compared to 76.4% in fiscal year 1995.
In fiscal year 1996, 54.5% of sales were generated from DXR products and
services and 29.7% of sales were generated from third party products and
services, compared to 27.7% and 48.8%, respectively, in fiscal year 1995. In
addition, MAS recognized NZ$3.9 million of non-recurring revenue as a result of
subcontracting a one-time joint project with a distributor. During the fiscal
year 1996, sales denominated in US$ represent 62% of total sales. The value of
the NZ$ increased approximately 4% relative to the US$ during fiscal year 1996,
which resulted in US$ denominated sales (expressed in NZ$) decreasing by
approximately 8%.
GROSS PROFIT. Gross profit increased 55.4% to NZ$12.5 million in fiscal
year 1996 from NZ$8.0 million in fiscal year 1995. Gross margin decreased to
31.1% in fiscal year 1996 from 35.6% in fiscal year 1995. This decrease is
primarily attributable to a decline in the sales of MAS's defense related
products which had high margins. This decrease is also partly attributable to
the one-time joint project with a distributor at a low margin.
RESEARCH AND DEVELOPMENT COSTS. Research and development costs increased
41.0% to NZ$2.7 million, or 6.7% of sales, in fiscal year 1996 from NZ$1.9
million, or 8.4% of sales, in fiscal year 1995. This increase is primarily
attributable to the expenditures on additional staff of NZ$215,000 for the
initial design and development of enhancements, including new frequency bands
and features for the DXR 200 product family and for the initial development of
the new DXR 100 product family.
SELLING AND MARKETING EXPENSES. Selling and marketing expenses increased
44.5% to NZ$3.9 million, or 9.7% of sales, in fiscal year 1996 from NZ$2.7
million, or 11.9% of sales, in fiscal year 1995. This increase is primarily
attributable to expansion of MAS's selling and marketing efforts including the
hiring of additional marketing, product management and network planning
personnel totaling NZ$998,000 and the establishment of additional overseas sales
offices.
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<PAGE>
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased 38.6% to NZ$2.6 million, or 6.4% of sales, in fiscal year 1996 from
NZ$1.8 million, or 8.2% of sales, in fiscal year 1995. This increase was
primarily attributable to the hiring of additional management personnel and
other staff to support expanding operations.
FISCAL YEAR ENDED MARCH 31, 1995 COMPARED TO FISCAL YEAR ENDED MARCH 31, 1994
SALES. Sales increased 22.2% to NZ$22.6 million in fiscal year 1995 from
NZ$18.5 million in fiscal year 1994. This increase was primarily attributable to
a large order received from a South American cellular operator which accounted
for 18% of sales in fiscal year 1995. Telecommunication products and services
accounted for 76.5% of sales in fiscal year 1995, compared to 89.2% in fiscal
year 1994. In fiscal year 1995, 27.7% of sales were generated from DXR products
and services and 48.8% were generated from third party products and services,
compared to 5.4% and 83.8%, respectively in fiscal year 1994.
GROSS PROFIT. Gross profit increased 93.3% to NZ$8.0 million in fiscal
year 1995 from NZ$4.2 million in fiscal year 1994. Gross margin increased to
35.6% in fiscal year 1995 from 22.5% in the same period in fiscal year 1994.
This increase was primarily attributable to increased sales of DXR products and
services compared to sales of third party products and services.
RESEARCH AND DEVELOPMENT COSTS. Research and development costs increased
8.0% to NZ$1.9 million, or 8.4% of sales, in fiscal year 1995 from NZ$1.8
million, or 9.5% of sales, in fiscal year 1994. This increase was attributable
to the development of the DXR product family, mainly the DXR 200, for release
and production.
SELLING AND MARKETING EXPENSES. Selling and marketing expenses increased
193.4% to NZ$2.7 million, or 11.9% of sales, in fiscal year 1995 from
NZ$920,000, or 5.0% of sales, in fiscal year 1994. This increase was primarily
attributable to the significant increase in sales and marketing staff.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
decreased 15.2% to NZ$1.8 million, or 8.2% of sales, in fiscal year 1995 from
NZ$2.2 million, or 11.7% of sales, in fiscal year 1994. This decrease was
attributable to the introduction of stronger financial control over
expenditures.
LIQUIDITY AND CAPITAL RESOURCES
MAS has historically financed its operations to date through cash flow from
operations, bank loans and bank advances and the issuance of equity securities.
During June and July, 1997 MAS completed its initial public offering including
the exercising of the over-allotment of ADSs, raising net proceeds of NZ$41.8
million (US$26.7 million). These funds have been and will be used to fund (i)
the repayment of NZ$7.1 million (approximately US$4.5 million) in bank loans and
advances and (ii) working capital and general corporate purposes. The current
bank facilities available to MAS extend to a composite facility totaling
NZ$10.8 million. This is secured by a NZ$15.0 million floating debenture over
MAS's assets. See Note 7 of Notes to MAS's Financial Statements.
MAS's principal sources of liquidity as of March 31, 1997 consisted of a
line of credit and cash overdraft facilities for NZ$7.0 million and NZ$450,000,
respectively, with the National Bank of New Zealand. These facilities expired
on June 30, 1997 upon completion of the MAS's initial public offering and the
repayment of the line of credit. As of September 30, 1997, the cash overdraft
facilities total NZ$1.2 million. The facilities carry an interest rate equal to
the bank's standard annual commercial rate of 8.05% and contain certain
covenants, including those relating to profitability, interest expense coverage
and minimum levels of working capital, limitations of debt and liens and various
financial ratios that must be met by MAS. As at March 31, 1997, MAS had an
outstanding composite balance of NZ$6.8 million. MAS also has a cash overdraft
facility in South Africa for NZ$680,000 and MAS had an outstanding balance of
NZ$339,000. MAS used a portion of the net proceeds of this offering to repay
the amounts owed under these credit and cash overdraft facilities and believes
that the remaining proceeds, together with cash flow from operations, will be
adequate to fund product development projects, to further develop and expand
international sales channels, for working capital and general corporate
purposes, including future capital equipment purchases, infrastructure and any
contingent earn-out payments required to be paid in connection with
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<PAGE>
MAS's acquisition of NZ Telecoms (Proprietary) Limited. Accordingly, assuming
the consummation of the offering, MAS does not anticipate extending existing
credit facilities at current levels.
MAS has provided (used) cash flows from operations of NZ$(2.0) million and
NZ$3.8 million for the fiscal years 1995 and 1996, respectively. In fiscal year
1997 operating activities used net cash of NZ$6.1 million primarily due to
funding increases in accounts receivable and inventory of NZ$11.4 million and
NZ$3.4 million, respectively. This was partially offset by operating income and
an increase in accounts payable and accrued employee benefits of NZ$3.5 million
and NZ$1.1 million, respectively. MAS has used cash flows from operations of
NZ$5.7 million and NZ$3.1 million for the six months ended September 30, 1996
and 1997, respectively. In the six months ended September 30, 1997, operating
activities used net cash of NZ$3.1 million primarily due to the funding of
inventory and prepaid and other of NZ$4.6 million and NZ$1.1 million,
respectively, and an increase in unrealized foreign exchange gains of NZ$1.7
million. This was partially offset by operating income and a decrease in
accounts receivable of NZ$800,000. Cash flows from operations are expected to
contribute to working capital, primarily accounts receivable. The accounts
receivable policy permits open account transactions within limits approved by
the MAS Board. However, for most international accounts receivable, letters of
credit or other bankable documents are arranged between the customer and MAS
before the product is shipped. In recent quarters, most of MAS's sales have been
realized near the end of the quarter, resulting in significant investment in
accounts receivable at the end of the quarter. MAS expects that its investments
in accounts receivable and inventories will be significant and will continue to
represent a significant portion of working capital. Significant investments in
accounts receivable and inventories may subject MAS to increased risks,
including bad debts, which could materially adversely affect MAS's business,
financial condition and results of operations.
Purchase of property and equipment has utilized cash flow of NZ$535,000,
NZ$580,000 and NZ$1.1 million, for fiscal years 1995, 1996 and 1997,
respectively. This expenditure has been predominantly utilized in expanding the
research and development and testing facilities of the Lower Hutt plant. Net
cash flows used in investing activities in the six months ended September 30,
1997 were NZ$1.2 million. The cash flows used in investing activities have
resulted primarily from the first earn-out payment for the acquisition of NZ
Telecoms (Proprietary) Limited totaling NZ$728,000, and the purchases of plant
and equipment totaling NZ$520,000.
Financing activities have generated (used) the following cash flows, NZ$2.5
million, NZ$(2.0) million and NZ$7.1 million for fiscal years 1995, 1996 and
1997, respectively. In fiscal year 1995, MAS raised NZ$1.9 million through a
private placement of Ordinary Shares with two institutional investors. MAS used
these funds in fiscal years 1995 and 1996 to reduce its bank borrowings and to
fund working capital requirements for the research and development of the DXR
product families.
Some of MAS's consolidated assets and liabilities are denominated in
currencies other than the related functional currency. MAS's consolidated assets
and liabilities that are subject to foreign currency risk relate to foreign
currency denominated receivables and payables totaling approximately 11% of
MAS's total assets and 9% of MAS's total liabilities, respectively, as of March
31, 1997. MAS engages in limited transactions to manage its foreign exchange
risks through the use of forward foreign currency contracts. MAS enters into
forward foreign exchange contracts to offset the effect of exchange rate changes
on foreign currency denominated assets and liabilities. MAS also enters into
forward foreign exchange contracts to offset the effect of future exchange rate
changes on anticipated revenues denominated in currencies other than the NZ$,
principally the US$. As of March 31, 1997 and September 30, 1997, MAS had open
forward foreign exchange contracts with an aggregate notional amount of
US$5,450,000 and US$8,900,000 to sell US$ in exchange for NZ$.
The functional currencies of MAS's international operations are the local
currencies in which the international operations operate. Assets and liabilities
of MAS's international operations are translated into NZ$ at the period end
exchange rate and revenues and expenses are translated at average exchange rates
during the period. MAS does not engage in transactions to manage the foreign
exchange translation risks of its investments in international operations. The
net assets of MAS's international operations that are subject to foreign
currency translation risk represent approximately 3% of MAS's total assets as of
March 31, 1997.
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<PAGE>
At present, MAS does not have any material commitments for capital
equipment purchases. However, MAS's future capital requirements will depend upon
many factors, including the development of new microwave radio systems and
related software tools, potential acquisitions, the extent, timing and market
acceptance of MAS's radio systems, requirements to maintain adequate
manufacturing facilities, working capital requirements, the progress of MAS's
research and development efforts, expansion of MAS's marketing and sales
efforts, MAS's results of operations and the status of competitive products. MAS
believes it will have such amounts to adequately fund all capital expenditures,
working capital requirements, expansion of its research and development efforts
and its selling and marketing network. MAS believes that cash and cash
equivalents from the offering, anticipated cash flow from operations, if any,
and funds available from MAS's credit facilities will be adequate to fund its
operations for at least the next twelve months. There can be no assurance,
however, that MAS will not require additional financing after such date to fund
its operations. There can be no assurance that any additional financing will be
available to MAS on acceptable terms, or at all, when required by MAS. If
additional funds are raised by issuing equity securities, further dilution to
the existing shareholders will result. If adequate funds are not available, MAS
may be required to delay, scale back or eliminate one or more of its research
and development or manufacturing programs or obtain funds through arrangements
with partners or others that may require MAS to relinquish rights to certain of
its technologies or potential products or other assets that MAS would not
otherwise relinquish. Accordingly, the inability to obtain such funding could
have a material adverse effect on MAS's business, financial condition and
results of operations.
109
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth unaudited quarterly information for the ten
quarters in the period ended September 30, 1997. This information should be read
in conjunction with MAS's Consolidated Financial Statements and Notes thereto
included in the Prospectus. In the opinion of MAS's management, this information
reflects the adjustments (consisting of normal recurring adjustments) that MAS
considers necessary for the fair presentation of this information. The operating
results for any quarter are not necessarily indicative of the results for any
future period.
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------------------------------------------------
JUNE 30, SEPT 30, DEC 31, MAR 31, JUNE 30, SEPT 30, DEC 31, MAR 31, JUNE 30, SEPT 30,
1995 1995 1995 1996 1996 1996 1996 1997 1997 1997
-------- -------- ------- ------- ------- -------- ------- ------- -------- --------
NZ$ NZ$ NZ$ NZ$ NZ$ NZ$ NZ$ NZ$ NZ$ NZ$
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Sales $ 4,460 $10,873 $9,507 $15,320 $8,075 $8,328 $12,323 $22,585 $14,478 $24,943
Cost of sales 3,666 7,453 6,679 9,872 5,042 5,276 7,348 12,687 9,382 15,824
------- ------- ------ ------- ------ ------ ------- ------- ------- -------
Gross profit 794 3,420 2,828 5,448 3,033 3,052 4,975 9,898 5,096 9,119
Operating expenses:
Research and development 638 656 677 702 845 861 875 1,205 1,183 1,383
Selling and marketing 714 934 1,085 1,167 970 1,499 2,181 3,582 2,763 3,216
General administrative 529 584 587 853 719 689 1,152 1,341 1,256 1,376
------- ------- ------ ------- ------ ------ ------- ------- ------- -------
Total operating expenses 1,881 2,174 2,349 2,722 2,534 3,049 4,208 6,128 5,202 5,975
Income (loss) from operations (1,087) 1,246 479 2,726 499 3 767 3,770 (106) 3,144
Interest income (expense) (40) 15 (105) (33) (56) (99) (136) (219) (143) 424
Other income (expense) 18 (48) 53 175 -- -- 117 361 314 1,929
------- ------- ------ ------- ------ ------ ------- ------- ------- -------
Income (loss) before income taxes (1,109) 1,213 427 2,868 443 (96) 748 3,912 65 5,497
Income tax expense (benefit) (369) 401 152 985 183 3 357 1,365 61 1,883
------- ------- ------ ------- ------ ------ ------- ------- ------- -------
Net income (loss) $ (740) $ 812 $ 275 $ 1,883 $ 260 $ (99) $ 391 $ 2,547 $ 4 $ 3,614
------- ------- ------ ------- ------ ------ ------- ------- ------- -------
------- ------- ------ ------- ------ ------ ------- ------- ------- -------
Net income (loss) per share (0.18) 0.19 0.07 0.45 0.06 (0.02) 0.09 0.60 0.00 0.53
<CAPTION>
PERCENTAGE OF SALES
--------------------------------------------------------------------------------------------------
JUNE 30, SEPT 30, DEC 31, MAR 31, JUNE 30, SEPT 30, DEC 31, MAR 31, JUNE 30, SEPT 30,
1995 1995 1995 1996 1996 1996 1996 1997 1997 1997
-------- -------- ------- ------- -------- -------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sales 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales 82.2 68.5 70.3 64.4 62.4 63.4 59.6 56.2 64.8 63.4
------- ------ ------ ------ ------ ------- ----- ----- ----- -----
Gross profit 17.8 31.5 29.7 35.6 37.6 36.6 40.4 43.8 35.2 36.6
Operating expenses:
Research and development 14.3 6.0 7.1 4.6 10.5 10.3 7.1 5.3 8.2 5.6
Selling and marketing 16.0 8.6 11.4 7.6 12.0 18.0 17.7 15.9 19.1 12.9
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<PAGE>
General administrative 11.9 5.4 6.2 5.6 8.9 8.3 9.4 5.9 8.7 5.5
------- ------ ------ ------ ------ ------- ----- ----- ----- -----
Total operating expenses 42.2 20.0 24.7 17.8 31.4 36.6 34.2 27.1 36.0 24.0
Income (loss) from operations (24.4) 11.5 5.0 17.8 6.2 -- 6.2 16.7 (0.8) 12.6
Interest income (expense) (0.9) 0.1 (1.1) (0.2) (0.7) (1.2) (1.1) (1.0) (1.0) 1.7
Other income (expense) 0.4 (0.4) 0.6 1.1 -- -- 1.0 1.6 2.2 7.7
------- ------ ------ ------ ------ ------- ----- ----- ----- -----
Income (loss) before income taxes (24.9) 11.2 4.5 18.7 5.5 (1.2) 6.1 17.3 0.4 22.0
Income tax expense (benefit) (8.3) 3.7 1.6 6.4 2.3 -- 2.9 6.0 0.4 7.5
------- ------ ------ ------ ------ ------- ----- ----- ----- -----
Net income (loss) (16.6)% 7.5% 2.9% 12.3% 3.2% (1.2)% 3.2% 11.3% 0.0% 14.5%
------- ------ ------ ------ ------ ------- ----- ----- ----- -----
------- ------ ------ ------ ------ ------- ----- ----- ----- -----
</TABLE>
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MAS has experienced, and may in the future experience, significant
fluctuations in quarterly sales, gross profits and results of operations
including certain seasonal effects. MAS's sales in any period are generally
derived from sales of products pursuant to large orders from a limited number of
customers. As MAS's gross margins on such orders can differ substantially as a
result of a variety of factors, including competitive factors, product sales
mix, or exchange rate fluctuations, MAS's overall gross margins may vary
significantly on a period-to-period basis. Several of MAS's existing customers
have fiscal years and capital investment budget cycles that end in March. These
same customers typically purchase products towards the end of such fiscal years
or budgetary cycles. Consequently, MAS's sales have been characterized by
seasonality, with a disproportionate amount of MAS's revenues typically
occurring in the quarter ending March 31 of each fiscal year. Sales in the
quarters ended March 31 accounted for 48.8%, 38.1% and 44.0% of the total sales
in fiscal years 1995, 1996 and 1997, respectively.
In addition, because MAS's products are often incorporated into a
customer's larger networking initiative, sales of MAS's products typically
involve a significant and lengthy technical evaluation, commitment of
management, sales and other resources and the delays frequently associated with
large capital expenditures. The sales cycle for MAS's products typically range
from six to twelve months. Consequently, MAS may incur a significant amount of
expenses in a period without recognizing a corresponding sale. Moreover, MAS
expects that the average selling price of its products will also decline as such
products mature and as competition increases. Because of these as well as other
factors, MAS believes that period-to-period comparisons of its quarterly results
of operations are not necessarily meaningful and that such comparisons should
not be relied upon as indications of future performance.
CERTAIN TRANSACTIONS OF MAS
Under the terms of the Reorganization Agreement, MAS will continue
operations as a subsidiary of DMC, and MAS and DMC anticipate that the current
management of MAS will largely remain as the management of the subsidiary.
Following the Reorganization, Neville Jordan, MAS's Chief Executive Officer,
will remain as the Chief Executive Officer responsible for MAS operations and
Howard Oringer, currently a director of MAS, will join the DMC Board.
In connection with the Reorganization, DMC will exchange each outstanding
option to purchase MAS Capital Stock for an option to purchase 1.20 shares of
DMC Common Stock. As a result, approximately 8.2 million shares, or
approximately 17%, of DMC Common Stock may be issued to MAS shareholders and
option holders.
A director of MAS, Peter Taylor is also a partner in Ernst & Young, which
has been engaged by MAS to provide consulting and advisory services. In the
fiscal years 1995, 1996 and 1997 and for the six months ended September 30,
1997, Ernst & Young provided services to MAS totaling NZ$2,010, NZ$5,340,
NZ$121,000 and NZ$18,000, respectively. MAS believes that the terms of these
arrangements, awarded through a competitive tender process, are no less
favorable to MAS than MAS could have received from any other consulting or
accounting firm.
All future transactions, if any, between MAS and its officers, directors,
principal shareholders and affiliates will be approved by a majority of MAS's
independent directors and will be on terms no less favorable to MAS than can be
obtained from unaffiliated third parties.
MAS MANAGEMENT AND EXECUTIVE COMPENSATION
MANAGEMENT OF MAS
The executive officers and directors of MAS and their ages as of
December 31, 1997, are as follows:
NAME AGE POSITIONS
- ---- --- ---------
Neville Jordan . . . . 54 Chief Executive Officer; Deputy Chairman of
the Board of Directors; Director
Peter Williams . . . . 42 Chief Technical Officer; Director
112
<PAGE>
Peter Wright(1). . . . 45 Vice President, Finance and Chief Financial
Officer
Grant Dow . . . . . . 33 Vice President, Sales and Marketing
Royce Pullman. . . . . 48 Vice President, Research and Development
John Yaldwyn . . . . . 39 Vice President, Advanced Systems
Mark Powell. . . . . . 35 Vice President, Manufacturing
Peter Troughton(3) . . 54 Chairman of the Board of Directors; Director
Peter Taylor(2)(3) . . 56 Director
Max Bowyer(2)(3) . . . 57 Director
Howard Oringer . . . . 55 Director
(1) Member of the MAS Contracts Committee
(2) Member of the MAS Audit Committee
(3) Member of the MAS Compensation Committee
NEVILLE JORDAN founded MAS in 1975 and currently serves as Chief Executive
Officer, Deputy Chairman of the Board, and Director. Prior to founding MAS, Mr.
Jordan was employed in various capacities in technology industries, including as
a radar engineer for the Civil Aviation Authority, Vice President for Magnavox
Overseas Ltd. and in various marketing and management positions with IBM. Mr.
Jordan received his bachelors degree in engineering and electronics from
Canterbury University, New Zealand in 1966 and is a Distinguished Fellow of the
Institution of Engineers, New Zealand.
PETER WILLIAMS has served as Chief Technical Officer for MAS since 1984 and
is also a Director of MAS. Prior to joining MAS, Mr. Williams was the Research
and Development Manager of Computer Consultants Ltd. and was responsible for the
design, technical planning and support of microprocessor and computer systems.
Mr. Williams received his bachelors degree in physics and computer science from
Victoria University, New Zealand in 1977.
PETER WRIGHT has served as Vice President, Finance and Chief Financial
Officer for MAS since 1995. From 1994 to 1995, Mr. Wright served as MAS's
Financial Controller. From 1991 to 1993, he worked for a subsidiary of Hays Plc
in Australia where he served as Executive Director of Accounting Placements
(Pty) Ltd. Previously Mr. Wright was employed by Hays Personnel Services Ltd. as
Financial Director leading that division of Hays Plc through a trade sale,
management buy-out and listing on the United Kingdom Stock Exchange. Mr. Wright
is a Fellow of the Institute of Chartered Accountants in England and Wales and
as an Associate Chartered Accountant of New Zealand.
GRANT DOW has served as Vice President, Sales and Marketing for MAS since
1996. From 1991 to 1996, Mr. Dow was employed by GEC Australia where he was a
Divisional Chief Executive from 1992 to 1996, and a National Sales Manager from
1991 to 1992. Mr. Dow received his bachelors degree, with honors, in engineering
from Swinburne University, Australia in 1987 and his graduate diploma in
engineering from Swinburne University in 1991. Mr. Dow is a member of the
Institute of Engineers, Australia and the Australia Institute of Company
Directors.
ROYCE PULLMAN has served as Vice President, Research and Development for
MAS since 1990. From 1971 to 1990, Dr. Pullman worked at the Department of
Scientific and Industrial Research where he served as a project leader. Dr.
Pullman received his bachelors degree in engineering from the University of
Auckland, New Zealand in 1971 and his doctorate in Control Engineering from the
University of Liverpool, England in 1978. Dr. Pullman is a member of the
Institute of Professional Engineers, New Zealand.
JOHN YALDWYN has served as Vice President, Advanced Systems for MAS since
1989. From 1985 to 1989, Mr. Yaldwyn served as MAS's Engineering Design Manager.
Mr. Yaldwyn has been involved in a wide range of early market research,
technical design and project management activities. Mr. Yaldwyn is responsible
for the original architecture and system design of the DXR 200 and DXR 100
product families. Mr. Yaldwyn received his bachelors degree in physics and
computer science at Victoria University, New Zealand in 1984.
113
<PAGE>
MARK POWELL has served as Vice President, Manufacturing for MAS since July
1996. From 1988 to 1996, Mr. Powell worked for RM Plc in the United Kingdom
where he served as a general manager, project manager, logistics and purchasing
manager, senior buyer and section manager. Mr. Powell received his HNC in
Electronic Engineering from the Business and Technician Education Council,
London in 1988.
PETER TROUGHTON is Chairman of the Board and has served in this capacity
and as a Director since 1993. From 1992 to 1993, Dr. Troughton served as
Chairman of the New Zealand Electricity Grid and as a director of Crown Health
Enterprise. From 1988 to 1992, Dr. Troughton worked for Telecom New Zealand
Ltd., where he served as Chief Executive Officer and was responsible for its
turnaround and privatization. Dr. Troughton received his bachelors degree in
electrical engineering in 1967 from City University, London, England, and his
doctorate in electrical engineering from University College, England in 1970.
PETER TAYLOR has served as a Director of MAS since 1994. Since 1986 Mr.
Taylor has been a management consulting partner of Ernst & Young in Wellington,
New Zealand. Since 1994 Mr. Taylor has been a Director of Turners & Growers Ltd.
and is a Director of a number of private companies. Mr. Taylor has obtained
Associate Chartered Accountant of New Zealand certification and completed the
Executive Program at the Darden School of Business Administration at the
University of Virginia in 1993. He has been an Associate Member of the Institute
of Chartered Accountants of New Zealand since 1966.
MAX BOWYER has been a Director of MAS since 1991. Mr. Bowyer has been
employed by R.E.W. Agency Ltd. since 1989 as an Executive Director and
Property Sales Consultant providing real estate services to private and
institutional investors in the Central Business District Property Market,
Wellington. From 1964 to 1989, Mr. Bowyer was employed by BP New Zealand Ltd.
in various marketing and management capacities, and served as director of BP
Oil New Zealand Ltd. and a number of subsidiary companies. Mr. Bowyer
received his bachelors degree in engineering from the University of
Canterbury, New Zealand in 1964, completed the Executive Program at the
Darden School of Business Administration at the University of Virginia and
obtained his diploma of Business Studies from Massey University, New Zealand.
Mr. Bowyer is an Associate of the Real Estate Institute of New Zealand.
HOWARD ORINGER has been a Director of MAS since April 1997. Mr. Oringer has
been the Managing Director of Communications Capital Group, a management
consulting firm, since November 1993. From February 1986 to November 1993 Mr.
Oringer was the President, Chief Executive Officer and Chairman of the Board of
Directors of TeleSciences, a manufacturer of telecommunications equipment. Mr.
Oringer received his bachelors degree in engineering from the Stevens Institute
of Technology, his masters in electrical engineering from the California
Institute of Technology and his MBA from Santa Clara University.
114
<PAGE>
EXECUTIVE COMPENSATION OF MAS
The following table provides certain summary information concerning the
compensation earned for services rendered in all capacities to MAS for fiscal
year 1997, by MAS's Chief Executive Officer and each of the other executive
officers whose salary and bonus for such fiscal year was in excess of US$100,000
(collectively, the "MAS Named Executive Officers").
<TABLE>
<CAPTION>
MAS SUMMARY COMPENSATION TABLE(1)
LONG-
ANNUAL COMPENSATION(2)(3) TERM
------------------------- COMPENSATION(3)
---------------
RESTRICTED
NAME AND PRINCIPAL POSITION SALARY(US$) BONUS(US$) SHARES(US$)(4)
- --------------------------- ----------- ---------- --------------
<S> <C> <C> <C>
Neville Jordan $ 154,571 $ 69,470 $ 146,095
Chief Executive Officer, Deputy
Chairman of the Board of
Directors and Director
Peter Williams 95,521 27,788 97,397
Chief Technical Officer and Director
Peter Wright 90,177 62,523 170,445
Vice President, Finance and Chief
Financial Officer
Royce Pullman 73,812 27,788 63,308
Vice President, Research and
Development
John Yaldwyn 73,812 27,788 248,362
Vice President, Advanced Systems
Grant Dow 78,875 69,470 --
Vice President, Sales and Marketing
- ------------------
</TABLE>
(1) In accordance with the rules of the Commission, the compensation
described in this table does not include medical or other benefits
received by the MAS Named Executive Officers that are available
generally to all salaried employees of MAS, and certain perquisites
and other personal benefits received by the MAS Named Executive
Officers that do not exceed the lesser of US$50,000 or 10% of any
such officer's salary and bonus disclosed in this table.
(2) Includes all compensation earned in fiscal year 1997.
(3) NZ$ amounts have been translated into US$ amounts solely for the
convenience of the reader at the rate of NZ$1.00 = US$0.6947, the Noon
Buying Rate on March 31, 1997. See "Exchange Rates."
(4) Restricted share awards are held in trust for the benefit of certain
employees of MAS by Marine-Air Systems Employee Share Trustee Limited.
The individuals referenced in the table hold a beneficial interest in
the underlying ordinary shares referenced by their names. All awards
were based on performance and were granted to the individuals
referenced in the table in their capacity as employees of MAS.
Dividends of NZ$3.89 per shares of MAS Capital Stock were declared
with respect to the underlying shares of MAS Capital Stock. The
employees returned the dividends to MAS as payment in full for the
issuance of the restricted share awards. For financial reporting
purposes the transactions have been treated as grants of restricted
shares to employees. As such, MAS has recognized deferred compensation
associated with these awards at NZ$4.58 per share of MAS Capital Stock
based upon the fair value of shares of MAS Capital Stock in accordance
with US GAAP. Upon cessation of employment, employees may, in lieu of
shares of MAS Capital Stock and at the discretion of the trustees,
receive NZ$3.89 per share of MAS Capital Stock based upon a 15%
discount allowable under New Zealand income tax legislation.
The aggregate amount of compensation paid by MAS and its subsidiaries
during fiscal year 1997 to all directors and officers as a group was
US$1,336,000.
115
<PAGE>
PRINCIPAL SHAREHOLDERS OF MAS
The following table sets forth certain information regarding beneficial
ownership of MAS Capital Stock as of December 31, 1997, by (i) each shareholder
who is known by DMC to own beneficially more than 5% of outstanding MAS Capital
Stock, (ii) each director and executive officer of MAS and (iii) all directors
and executive officers of MAS as a group. The information in the table was
obtained from the books and records of MAS or, where applicable, supplied to MAS
by the beneficial owners below.
<TABLE>
<CAPTION>
Approximate Percent
Shares Beneficially Beneficially
Name Owned(1) Owned(1)(2)
- ------------------------------------- ------------------- -------------------
<S> <C> <C>
Neville Jordan(3) . . . . . . . . . . 2,098,570 30.9%
Peter Williams(3) . . . . . . . . . . 546,480 8.0
Marine-Air Systems Employee Share
Trustee Limited(3) . . . . . . . . . 392,400 5.8
New Zealand Funds Management
Limited(4) . . . . . . . . . . . . . 288,000 4.2
Bowyer Family Trusts(5) . . . . . . . 248,123 3.6
Vivienne Cathie . . . . . . . . . . . 237,359 3.5
Ronald Doggett . . . . . . . . . . . 237,359 3.5
Peter Troughton . . . . . . . . . . . 69,120 1.0
Howard Oringer. . . . . . . . . . . . ----- -----
Peter Wright . . . . . . . . . . . . ----- -----
John Yaldwyn . . . . . . . . . . . . ----- -----
Royce Pullman . . . . . . . . . . . . ----- -----
Grant Dow . . . . . . . . . . . . . . ----- -----
All executive officers and directors
as a group (twelve persons). . . . . 3,230,492 47.5
- ------------------
</TABLE>
(1) Excludes 318,600 options granted to executive officers and directors
that may be exercised after a period of one, two or three years.
(2) Based on 6,800,000 shares of MAS Capital Stock outstanding subsequent
to the initial public offering of MAS. Calculations of percentage of
beneficial ownership include the shares of MAS Capital Stock held on
behalf of each executive officer by the Marine-Air System Employee
Share Program, all of which will be transferred to such executive
officers in December 1998.
(3) The following persons hold beneficial interests in the number of
shares referenced next to their respective names as held by the
Marine-Air Systems Employee Share Trustee Limited: (i) Neville
Jordan-54,000; (ii) Peter Williams-36,000; (iii) Peter Wright-63,000;
(iv) Royce Pullman-23,400; and (v) John Yaldwyn-91,800. Neville
Jordan, Peter Wright and Max Bowyer are Trustees of the Marine-Air
Systems Employee Share Trustee Limited.
(4) Includes 162,000 shares of MAS Capital Stock registered in the name of
ANZ Nominees Account and 126,000 shares of MAS Capital Stock
registered in the name of Sheath Holdings NZ Equity Trust.
(5) Includes 124,063 shares of MAS Capital Stock registered in the name of
the Maxwell Bowyer Family Trust and 124,060 shares of MAS Capital
Stock registered in the name of the Janice Bowyer Family Trust.
116
<PAGE>
OTHER MATTERS
It is not expected that any matters other than those described in this
Proxy Statement/Prospectus will be brought before the DMC Special Meeting or the
MAS Special Meeting. If any other matters are presented, however, it is the
intention of the persons named in the DMC proxy and the MAS proxy to vote such
proxies in accordance with their respective discretion.
It is expected that representatives of Arthur Andersen LLP, DMC's
independent public accountants, will be present at the DMC Special Meeting and
representatives of KPMG, MAS's independent chartered accountants, will be
present at the MAS Special Meeting, where they will have an opportunity to
respond to appropriate questions of stockholders of DMC and shareholders of MAS,
respectively, and to make statements if they so desire.
LEGAL MATTERS
Certain legal matters with respect to the validity of the securities
offered hereby and the U.S. federal income tax consequences of the
Reorganization will be passed upon for DMC by Morrison & Foerster LLP, San
Francisco, California. Certain legal matters with respect to the U.S. federal
income tax consequences of the Reorganization will be passed upon for MAS by
Brobeck, Phleger & Harrison LLP, Palo Alto, California.
EXPERTS
The audited consolidated financial statements of Digital Microwave
Corporation as of March 31, 1996 and 1997 and for each of the three years in the
period ended March 31, 1997 have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports with respect
thereto, and are included in this Proxy Statement/Prospectus in reliance upon
the authority of said firm as experts in giving said reports.
The Consolidated Financial Statements and schedule of MAS Technology
Limited as of March 31, 1996 and 1997, and for each of the years in the
three-year period ended March 31, 1997, have been included herein and in the
registration statement in reliance upon the report of KPMG, Wellington, New
Zealand independent chartered accountants, appearing elsewhere herein and in
the registration statement, and upon the authority of said firm as experts in
accounting and auditing.
The combined financial statements of NZ Telecoms (Proprietary) Limited and
Affiliates as of February 28, 1995 and February 29, 1996 and for each of the
years in the two year period then ended, have been included herein and in the
registration statement in reliance upon the report of KPMG, Pretoria, South
Africa, independent chartered accountants, appearing elsewhere herein and in the
registration statement, and upon the authority of said firm as experts in
accounting and auditing.
STOCKHOLDER PROPOSALS
The deadline for stockholder proposals intended to be considered for
inclusion in DMC's proxy statement for its 1998 Annual Meeting of Stockholders
is expected to be March 5, 1998.
Proposals of shareholders of MAS to be considered for inclusion in the
proxy statement of the 1998 Annual Meeting of Shareholders of MAS (if the
Reorganization is not consummated), must be received by the Secretary of MAS no
later than five working days before the last day on which notice of the 1998
Annual Meeting of Shareholders is required to be given by the MAS Board.
117
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DIGITAL MICROWAVE CORPORATION
Report of Independent Public Accountants......................................................... F-2
Consolidated Financial Statements:
Consolidated Balance Sheets as of March 31, 1997 and 1996
and September 30, 1997(unaudited).......................................................... F-3
Consolidated Statements of Operations for the three years
in the period ended March 31, 1997 and for the six months
in the period ended September 30, 1997 and 1996 (unaudited)................................ F-4
Consolidated Statements of Stockholders' Equity for the
three years in the period ended March 31, 1997............................................. F-5
Consolidated Statements of Cash Flows for the three years
in the period ended March 31, 1997 and for the six months
in the period ended September 30, 1997 and 1996 (unaudited)................................ F-6
Notes to Consolidated Financial Statements....................................................... F-7
MAS TECHNOLOGY LIMITED
CONSOLIDATED FINANCIAL STATEMENTS OF MAS TECHNOLOGY LIMITED
AND SUBSIDIARIES
Independent Auditors' Report..................................................................... F-18
Consolidated Balance Sheets, March 31, 1997 and 1996 and September 30, 1997(unaudited)...... F-19
Consolidated Statements of Operations, years ended March 31, 1995, 1996 and 1997
and for the six months in the period ended September 30, 1997 and 1996 (unaudited)......... F-20
Consolidated Statements of Shareholders' Equity, years ended March 31, 1995, 1996 and 1997.. F-21
Consolidated Statements of Cash Flows, years ended March 31, 1995, 1996 and 1997
and for the six months in the period ended September 30, 1997 and 1996 (unaudited)......... F-22
Notes to Consolidated Financial Statements....................................................... F-23
COMBINED FINANCIAL STATEMENTS OF NZ TELECOMS (PROPRIETARY) LIMITED
AND AFFILIATES
Report of the Independent Auditors............................................................... F-39
Combined Balance Sheets, February 28, 1995 and 1996 and August 31, 1995
and 1996 (unaudited)....................................................................... F-40
Combined Statements of Operations, years ended February 28, 1995 and 1996
and six months ended August 31, 1995 and 1996 (unaudited).................................. F-41
Combined Statements of Shareholders' Equity, years ended February 28, 1995 and 1996 and
six months ended August 31, 1996 (unaudited)............................................... F-42
Combined Statements of Cash Flows, years ended February 28, 1995 and 1996
and six months ended August 31, 1995 and 1996 (unaudited).................................. F-43
Notes to the Combined Financial Statements....................................................... F-44
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS OF
MAS TECHNOLOGY LIMITED
Description of Unaudited Pro Forma Condensed Combined Financial Statements
of MAS Technology Limited................................................................... F-50
Unaudited Pro Forma Condensed Combined Statement of Operations, year ended March 31, 1997........ F-51
Notes to Unaudited Pro Forma Condensed Combined Financial Statements............................. F-52
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Digital Microwave Corporation:
We have audited the accompanying consolidated balance sheets of Digital
Microwave Corporation (a Delaware Corporation) and subsidiaries as of March
31, 1997 and 1996, and the related Consolidated Statements of Operations,
Stockholders' Equity and Cash Flows for each of the three years in the period
ended March 31, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by 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 Digital Microwave Corporation
and subsidiaries as of March 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
March 31, 1997 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
San Jose, California
April 21, 1997
F-2
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, September 30,
-------------------------------------
(IN THOUSANDS, EXCEPT SHARE AMOUNTS) 1997 1996 1997
-------------------------------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS:
CURRENT ASSETS:
Cash and cash equivalents $ 40,367 $ 9,018 $ 20,098
Short-term investments 17,947 -- 13,206
Accounts receivable, net of allowance of $3,362 at
March 31, 1997; $1,373 at March 31, 1996; and
$3,894 at September 30, 1997 44,623 33,398 57,250
Inventories 45,900 35,347 48,014
Other current assets 3,643 2,973 4,858
-------- -------- --------
Total current assets 152,480 80,736 143,426
-------- -------- --------
PROPERTY AND EQUIPMENT:
Machinery and equipment 39,477 36,609 44,703
Land and buildings 1,262 1,262 1,066
Furniture and fixtures 7,108 7,602 7,584
Leasehold improvements 2,119 2,262 2,524
------- -------- ------
49,966 47,735 55,877
Accumulated depreciation and amortization (32,240) (32,674) (34,637)
-------- -------- --------
Net property and equipment 17,726 15,061 21,240
-------- -------- --------
Other Assets -- -- 15,455
-------- -------- --------
$170,206 $ 95,797 $180,121
-------- -------- --------
-------- -------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Lines of credit $ 2,016 $ 3,106 $ --
Current maturities of note payable -- 3,334 --
Current maturities of capital lease obligations 681 1,025 490
Accounts payable 22,890 16,252 21,936
Income taxes payable 1,649 973 2,453
Accrued liabilities 25,284 18,590 18,597
-------- -------- --------
Total current liabilities 52,520 43,280 43,476
LONG-TERM LIABILITIES:
Note payable, net of current maturities -- 1,944 --
Capital lease obligations, net of current maturities 158 838 179
-------- -------- --------
Total liabilities 52,678 46,062 43,655
-------- -------- --------
COMMITMENTS AND CONTINGENCIES (NOTE 4)
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; 5,000,000 shares
authorized; none outstanding -- -- --
Common stock, $.01 par value; 60,000,000 shares
authorized; 37,021,138 shares at March 31, 1997;
31,641,566 shares at March 31, 1996; and
38,054,932 shares at September 30, 1997 issued
and outstanding 370 316 380
Additional paid-in capital 121,306 65,211 126,987
Unrealized holding loss on available-for-sale securities (63) -- (20)
Retained earnings (accumulated deficit) (4,085) (15,792) 9,119
-------- -------- --------
Total stockholders' equity 117,528 49,735 136,466
-------- -------- --------
$170,206 $ 95,797 $180,121
-------- -------- --------
-------- -------- --------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED BALANCE
SHEETS.
F-3
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED MARCH 31, SEPTEMBER 30,
1997 1996 1995 1997 1996
- -------------------------------------------------------------------------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net Sales $178,344 $150,419 $153,650 $123,839 $78,332
Cost of sales 118,778 119,918 114,760 80,623 52,685
--------- --------- --------- --------- --------
Gross profit 59,566 30,501 38,890 43,216 25,647
--------- --------- --------- --------- --------
Operating Expenses:
Research and development 10,596 11,108 11,379 7,191 4,928
Selling, general and
administrative 35,071 27,416 24,763 21,670 16,629
--------- --------- --------- --------- --------
Total operating
expenses 45,667 38,524 36,142 28,861 21,557
--------- --------- --------- --------- --------
Income (loss) From
Operations 13,899 (8,023) 2,748 14,355 4,090
Other Income (expense):
Interest income 371 538 151 1,063 98
Interest expense (978) (1,860) (530) (222) (581)
Other income (expense), net (284) 1,437 (167) (526) (2)
--------- --------- --------- --------- --------
Total other income
(expense) (891) 115 (546) 315 (485)
--------- --------- --------- --------- --------
Income (loss) before
provision (credit)
for income taxes 13,008 (7,908) 2,202 14,670 3,605
Provision (credit) for income
taxes 1,301 (1,953) 220 1,467 360
--------- --------- --------- --------- --------
Net Income (Loss) $ 11,707 $ (5,955) $ 1,982 $ 13,203 $ 3,245
--------- --------- --------- --------- --------
Net Income (Loss) Per Shar e $ 0.35 $ (0.20) $ 0.07 $ 0.33 $ 0.10
--------- --------- --------- --------- --------
Weighted Average Number of
Common and Common Equivalent
Shares of Outstanding 33,881 29,791 27,690 39,501 32,872
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-4
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL UNREALIZED TOTAL
------------------------ PAID-IN HOLDING ACCUMULATED STOCKHOLDERS'
YEARS ENDED MARCH 31, 1997, 1996, AND 1995 SHARES AMOUNT CAPITAL LOSS DEFICIT EQUITY
- -----------------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE, MARCH 31, 1994 25,647,418 $256 $ 40,167 $ - $(11,819) $ 28,604
Stock options and warrants exercised 1,287,968 13 4,012 - - 4,025
Net income - - - - 1,982 1,982
---------- ---- -------- ---- -------- --------
BALANCE, MARCH 31, 1995 26,935,386 269 44,179 - (9,837) 34,611
Sale of stock to private investors 4,127,964 41 19,051 - - 19,092
Stock options exercised 578,216 6 1,926 - - 1,932
Tax benefits related to employee stock
transaction - - 55 - - 55
Net loss - - - - (5,955) (5,955)
---------- ---- -------- ---- -------- --------
BALANCE, MARCH 31, 1996 31,641,566 316 65,211 - (15,792) 49,735
Sale of stock in secondary offering 4,400,000 44 51,546 - - 51,590
Stock options exercised 979,572 10 4,264 - - 4,274
Tax benefit related to employee stock transaction - - 285 - - 285
Unrealized holding loss on available-for-sale
securities - - - (63) - (63)
Net Income - - - - 11,707 11,707
---------- ---- -------- ---- -------- --------
BALANCE, MARCH 31, 1997 37,021,138 $370 $121,306 $(63) $ (4,085) $117,528
---------- ---- -------- ---- -------- --------
---------- ---- -------- ---- -------- --------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS
F-5
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
Year Ended March 31, September 30,
----------------------------------------------------------
1997 1996 1995 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 11,707 $ (5,955) $ 1,982 $ 13,203 $ 3,245
Adjustments to reconcile net income (loss) to net cash provided
by (used for) operating activities:
Depreciation and amortization 5,790 6,332 6,356 4,436 2,716
Provision for uncollectable accounts 1,400 580 276 592 700
Provision for inventory reserves 4,271 8,795 958 2,481 1,683
Provision for warranty reserves 2,385 1,678 1,911 2,072 915
Changes in assets and liabilities:
(Increase) in accounts receivable (12,674) (1,492) (5,774) (11,199) (2,611)
(Increase) decrease in inventories (14,846) 904 (12,212) (3,602) (13,648)
Decrease in tax refund receivable - 1,820 778
(Increase) decrease in other current assets (575) 1,559 (1,503) (1,074) (737)
Increase (decrease) in accounts payable 6,638 (5,144) 5,398 (1,408) 265
Increase (decrease) in income tax payable 967 (602) 168 787 -
(Decrease) in accrued litigation - - (19,900) - -
Increase (decrease) in other accrued liabilities 4,215 (639) 4,119 (9,133) 1,433
------- ------ ------- ------ ------
Net cash provided by (used for) operating activities 9,278 7,836 (17,443) (2,845) (6,039)
------- ------ ------- ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (8,509) (4,527) (8,111) (6,808) (2,531)
Purchase of available-for-sale securities (17,947) -- -- (3,193) --
Proceeds from available for-sale securities -- -- -- 7,933 --
Purchase of Granger Inc., net of cash acquired -- -- -- (11,383) --
Investment in Granger Associates, Ltd. -- -- -- (4,000) --
------- ------ ------- ------ ------
Net cash used for investing activities (26,456) (4,527) (8,111) (17,451) (2,531)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings from banks 15,300 16,188 36,744 - 4,500
Repayments to banks (21,561) (28,423) (16,124) (2,016) (1,611)
Payments of capital lease obligations (1,025) (1,019) (695) (583) (553)
Sale of common stock 55,864 15,812 4,025 5,689 1,613
Payment of assumed Granger, Inc. debt -- -- -- (3,286) --
Net cash provided by (used for) financing activities 48,578 2,558 23,950 (196) 3,949
------- ------ ------- ------ ------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (51) 132 (39) 223 149
------- ------ ------- ------ ------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 31,349 5,999 (1,643) (20,269) (4,472)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 9,018 3,019 4,662 40,367 9,018
------- ------ ------- ------ ------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 40,367 $ 9,018 $ 3,019 $ 20,098 $ 4,546
------- ------ ------- ------ ------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS
F-6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. DESCRIPTION OF BUSINESS
Digital Microwave Corporation (the "Company") designs,
manufactures, and markets advanced wireless solutions for worldwide
telephone network interconnection and access. Transmitting and
receiving multiple digital lines, Digital Microwave's high
performance digital microwave systems carry voice, data, and
digitized video signals across a full spectrum of frequencies and
capacities. The Company has sold over 70,000 radios, which operate
in nearly every kind of environment around the world. Digital
Microwave Corporation was founded in January 1984, and is traded
under the symbol DMC on the Nasdaq National Market.
In November 1997, the Company declared and paid a two-for-one stock
split in the form of a stock dividend. All common and common
equivalent shares and per share amounts in the accompanying
consolidated financial statements have been restated to give effect
to the stock split.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION. The consolidated financial statements
include the accounts of Digital Microwave Corporation and its
wholly owned subsidiaries. Intercompany accounts and transactions
have been eliminated.
ESTIMATES. The preparation of financial statements in conformity
with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reported
period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS. For purposes of the Consolidated
Statements of Cash Flows, the Company considers all highly liquid
debt instruments with an original maturity of three months or less
to be cash equivalents.
The Company is required to segregate and maintain certain cash
balances as security for letters of credit provided to secure
performance or bid bonds under some of the Company's revenue
contracts. As of March 31, 1997 and 1996, this amounted to $574,000
and $719,000, respectively, and are included in cash and cash
equivalents in the accompanying Consolidated Balance Sheets.
The following is a summary of cash and cash equivalents as of
March 31:
1997 1996
---------------------------------------------------------------------
(IN THOUSANDS)
Cash and money market funds $16,576 $9,018
U.S. Treasuries and government agencies 4,844 -
Commercial paper 18,947 -
------- ------
Total $40,367 $9,018
------- ------
------- ------
---------------------------------------------------------------------
SHORT-TERM INVESTMENTS. The Company invests its excess cash in
high-quality and easily marketable instruments to ensure cash is
readily available for use in its current operations. Accordingly,
all of the Company's marketable securities are classified as
"available-for-sale" in accordance with the provisions of the
Statement of Financial Accounting Standards No. 115. At March 31,
1997, the Company's available-for-sale securities had contractual
maturities ranging from 4 months to 30 months, and the weighted
average maturity was 15 months.
All short-term investments are reported at fair market value with the
related unrealized holding gains and losses reported as a component
of stockholders' equity. Unrealized holding losses on the portfolio
of approximately
F-7
<PAGE>
$63,000 were recorded as of March 31, 1997. There were no realized
gains or losses on sales of available-for-sale securities during
Fiscal 1997, 1996, or 1995.
The following is a summary of short-term investments as of March 31:
1997
---------------------------------------------------------
Market
Value at Unrealized
Cost at Balance Sheet Holding
Each Issue Date Gain (Loss)
---------------------------------------------------------------------
(IN THOUSANDS)
Auction rate preferred notes $ 3,000 $ 3,000 $ -
Corporate notes 15,010 14,947 (63)
------- ------- --------
Total $18,010 $17,947 $ (63)
---------------------------------------------------------------------
SUPPLEMENTAL STATEMENTS OF CASH FLOWS DISCLOSURES. Cash paid for
interest and income taxes for each of the three fiscal years
presented in the consolidated statements of cash flows was as
follows:
Years Ended March 31, 1997 1996 1995
---------------------------------------------------------------------
(IN THOUSANDS)
Interest $1,003 $1,753 $1,556
Income taxes $381 $172 $62
---------------------------------------------------------------------
The following non-cash transactions occurred during the Fiscal years
ended:
March 31, 1997 1996 1995
---------------------------------------------------------------------
(IN THOUSANDS)
Tax benefit related to employee
stock transactions $285 $55 $ -
Property purchased under capital
leases - $1,324 $1,314
Reduction of accounts payable to
vendor in connection with the
sale of stock $ - $5,000 $ -
---------------------------------------------------------------------
INVENTORIES. Inventories are stated at the lower of cost (first-in,
first-out) or market, where cost includes material, labor, and
manufacturing overhead. Inventories consisted of:
September 30,
March 31, 1997 1996 1997
---------------------------------------------------------------------
(IN THOUSANDS) (UNAUDITED)
Raw materials $16,594 $11,840 $18,439
Work-in-process 15,122 16,342 15,610
Finished goods 14,184 7,165 13,965
------- ------- -------
$45,900 $35,347 $48,014
------- ------- -------
------- ------- -------
---------------------------------------------------------------------
Inventories contained components and assemblies in excess of the
Company's current estimated requirements and were reserved at
March 31, 1997 and 1996. In the third quarter of Fiscal 1996, the
Company charged cost of sales for approximately $7.0 million for
excess and obsolete inventories as a result of product transitions.
Due to competitive pressures, it is possible that these estimates
could change in the foreseeable future.
F-8
<PAGE>
PROPERTY AND EQUIPMENT. Property and equipment is stated at cost.
Depreciation and amortization are calculated using the straight-line
method over the shorter of the estimated useful lives of the assets
(ranging from three to five years for equipment and furniture, and
forty years for buildings) or the lease term. Included in property and
equipment are assets held under capital leases with a cost of
$2,691,000 and $3,641,000 for Fiscal 1997 and 1996, respectively.
Accumulated amortization on leased assets was $1,016,000 and
$1,044,000 as of March 31, 1997 and 1996, respectively.
ACCRUED LIABILITIES. Accrued liabilities included the following:
March 31, 1997 1996
---------------------------------------------------------------------
(IN THOUSANDS)
Customer deposits $9,954 $4,839
Accrued contract obligations (See Note 7) 1,632 3,759
Accrued payroll and benefits 3,606 1,522
Accrued commissions 4,131 3,246
Accrued warranty 2,923 3,076
Other 3,038 2,148
------- -------
$25,284 $18,590
------- -------
------- -------
---------------------------------------------------------------------
FOREIGN CURRENCY TRANSLATION. The functional currency of the Company's
subsidiaries is the U.S. dollar. Accordingly, all of the monetary
assets and liabilities of these subsidiaries are remeasured into U.S.
dollars at the current exchange rate as of the applicable balance
sheet date, and all non-monetary assets and liabilities are remeasured
at historical rates. Sales and expenses are remeasured at the average
exchange rate prevailing during the period. Gains and losses resulting
from the remeasurement of the subsidiaries' financial statements are
included in the Consolidated Statements of Operations.
Gains and losses resulting from foreign exchange transactions are
included in other income (expense) in the accompanying Consolidated
Statements of Operations. For Fiscal 1997 the aggregate net foreign
exchange loss was $344,000; for Fiscal 1996 the net foreign exchange
gain was $506,000; and for Fiscal 1995 the aggregate net foreign
exchange loss was $39,000.
CONCENTRATION OF CREDIT RISK. Financial instruments that
potentially subject the Company to concentrations of credit risk
consist principally of temporary cash investments and trade
receivables. The Company has cash investment policies that limit
the amount of credit exposure to any one financial institution and
restrict placement of investments to financial institutions
evaluated as highly credit worthy. Trade receivables concentrated
with certain customers primarily in the telecommunications industry
and in certain geographic locations potentially subject the Company
to concentration of credit risk. In addition to sales in Western
Europe and North America, the Company actively markets and sells
products in the Far East, Eastern Europe, the Middle East, and
Latin and South America. The Company performs ongoing credit
evaluations of its customers' financial conditions and generally
requires no collateral.
REVENUE RECOGNITION. Revenue from product sales is generally
recognized upon shipment and is net of third-party commissions,
freight, and duty charges. Service revenue, which is less than 10%
of net sales for each of the three Fiscal years presented, is
recognized when the related services are performed.
PRODUCT WARRANTY. The Company provides, at the time of sale, for
the estimated cost to repair or replace products under warranty.
RESEARCH AND DEVELOPMENT. All research and development costs are
expensed as incurred.
NET INCOME (LOSS) PER SHARE. Net income per share is computed using
the weighted average number of common and common equivalent shares
outstanding during the period. Net loss per share is computed using
only the weighted average number of common shares outstanding
during the period, as the inclusion of common equivalent shares
would be antidilutive.
F-9
<PAGE>
In February 1997, the Financial Accounting Standards Board issued
Statement on Financial Accounting Standards No. 128 (SFAS 128),
"Earnings per Share," which is required to be adopted by the
Company in its third quarter of Fiscal 1998. At that time, the
Company will be required to change the method currently used to
compute earnings per share and to restate all prior periods. Under
the new requirements for calculating earnings per share, primary
earnings per share will be replaced with basic earnings per share
and fully diluted earnings per share will be replaced with diluted
earnings per share. Under basic earnings per share, the dilutive
effect of stock options will be excluded. Under SFAS 128, basic
earnings (loss) per share for Fiscal 1997, 1996 and 1995 would have
been $0.36, $(0.20) and $0.08 per share, respectively. Diluted
earnings per share would be substantially the same as the reported
primary earnings per share.
STOCK COMPENSATION. Effective April 1, 1996, the Company adopted
the disclosure provisions of Financial Accounting Standards No. 123
(SFAS 123), Accounting for Stock-Based Compensation. In accordance
with the provisions of SFAS 123, the Company applies APB Opinion 25
and related interpretations in accounting for its stock option
plans. Note 6 of these Consolidated Financial Statements contains a
summary of the pro forma effects on reported net income and
earnings per share for Fiscal 1997 and 1996 based on the fair
market value of the options granted at grant date as prescribed by
SFAS 123.
NOTE 3. CREDIT ARRANGEMENTS
At March 31, 1997, the Company had a $25.0 million credit facility
with a U.S. bank and a credit company that expires on June 30,
1997. Borrowings bear interest at the prime rate plus 1.0% per
annum (9.50% at March 31, 1997) and are secured by certain assets
of the Company. At March 31, 1997, $2.0 million was outstanding
under this credit facility, and $23.0 million of credit was
available based on the underlying collateral. The agreement
requires the Company to maintain certain financial covenants,
including minimum tangible net worth and profitability
requirements. In April 1997, the Company notified the lender of its
intent to terminate the facility as of June 30, 1997. The Company
concurrently accepted a commitment from a major bank for a
one-year, unsecured $20.0 million revolving credit facility. The
facility provides borrowing at either the bank's prime reference
rate or the applicable London Interbank Offering Rate plus 1.0% per
annum.
In October 1994, the Company signed a three-year, $10.0 million
promissory note, payable to a financing company in equal monthly
installments of approximately $278,000. The note was secured by all
equipment in the Company's San Jose, California facility and bore
interest at prime plus 2.25% per annum. The note was prepaid in
full on December 2, 1996, including a 1% prepayment penalty.
NOTE 4. COMMITMENTS AND CONTINGENCIES
The Company leases certain property and equipment, as well as its
headquarters and manufacturing facilities, under noncancelable
operating and capital leases, which expire at various periods
through 2018. At March 31, 1997, future minimum payment obligations
under these leases were as follows:
Years Ending March 31, Capital Operating
---------------------------------------------------------------------
(IN THOUSANDS)
1998 $736 $2,490
1999 162 2,123
2000 - 1,837
2001 - 1,821
2002 - 956
2003 and beyond - 1,576
----- -------
Future minimum lease payments 898 $10,803
-------
-------
Less amount representing interest
(9% to 14%) (59)
-----
Present value of future minimum lease
payments 839
Less current maturities (681)
-----
Long-term lease obligations $158
-----
-----
---------------------------------------------------------------------
F-10
<PAGE>
Rent expense under operating leases was approximately $3,472,000,
$3,679,000 and $3,458,000 for the years ended March 31, 1997, 1996 and
1995, respectively.
LEGAL CONTINGENCIES. The Company is a defendant in various suits
and is subject to various claims which arise in the normal course
of business. In the opinion of management, the ultimate disposition
of these claims will not have a material adverse effect on the
consolidated financial position, liquidity or results of operations
of the Company.
CONTINGENCIES IN MANUFACTURING AND SUPPLIERS. The Company's
manufacturing operations are highly dependent upon the timely
delivery of materials and components by outside suppliers. The
Company uses local and offshore subcontractors to assemble major
components and subassemblies used in its microwave products.
Certain microwave integrated circuit subassemblies which are used
in all of the Company's microwave radio products are supplied by a
limited number of vendors. The Company believes that most materials
and components are, and will continue to be, available from
existing or alternative suppliers. The inability of the Company to
develop alternative sources of supply quickly and on a
cost-effective basis could materially impair the Company's ability
to manufacture and deliver its products. There can be no assurance
that the Company will not experience component delays or other
supply problems.
NOTE 5. INCOME TAXES
The Company provides for income taxes using an asset and liability
approach, under which deferred income taxes are provided based upon
enacted tax laws and rates applicable to periods in which the taxes
become payable.
The domestic and foreign components of income (loss) before
provision for income taxes were as follows:
Years Ended March 31, 1997 1996 1995
---------------------------------------------------------------------
(IN THOUSANDS)
Domestic $11,962 $(9,845) $1,182
Foreign 1,046 1,937 1,020
------- ------- ------
$13,008 $(7,908) $2,202
------- ------- ------
------- ------- ------
---------------------------------------------------------------------
The provision (credit) for income taxes consisted of the following:
Years Ended March 31, 1997 1996 1995
---------------------------------------------------------------------
(IN THOUSANDS)
Current:
Federal $1,118 $(2,018) $220
State 44 - -
Foreign 139 65 -
------- ------- ------
Total current $1,301 $(1,953) $220
Deferred: - - -
------- ------- ------
$1,301 $(1,953) $220
------- ------- ------
------- ------- ------
---------------------------------------------------------------------
F-11
<PAGE>
The provision (credit) for income taxes differs from the amount
computed by applying the statutory Federal income tax rate as
follows:
Years Ended March 31, 1997 1996 1995
---------------------------------------------------------------------
(IN THOUSANDS)
Expected tax provision (credit) $4,553 $(2,689) $749
State taxes net of Federal benefit 367 (343) -
Change in valuation allowance (3,079) 3,346 (624)
Reversal of previously provided
taxes upon settlement of the IRS
audit - (2,018) -
FSC commission (581) - -
Other 41 (249) 95
------- ------- ------
$1,301 $(1,953) $220
------- ------- ------
------- ------- ------
---------------------------------------------------------------------
The major components of the net deferred tax asset consisted of the
following:
March 31, 1997 1996
---------------------------------------------------------------------
(IN THOUSANDS)
Inventory reserves $ 4,583 $6,041
Depreciation - 685
Warranty reserves 1,023 1,158
Bad debt reserves 696 655
Net operating loss carry-forwards 1,032 3,879
Tax credits 5,084 5,514
Other 3,397 1,430
------- -------
15,815 19,362
Less: Valuation reserve - Operations (15,815) (18,894)
Less: Valuation reserve - Equity - (468)
------- -------
Net deferred tax asset $ - $ -
------- -------
------- -------
---------------------------------------------------------------------
The valuation allowance provides a reserve against deferred tax
assets that may expire or go unutilized by the Company. In
accordance with Statement of Financial Accounting Standards No. 109
"Accounting for Income Taxes," the Company believes it is more
likely than not that the Company will not realize these benefits
and, accordingly, has continued to provide a valuation allowance
for them. Foreign net operating loss carry-forwards of $1.9 million
will expire at various dates from 1999 through 2004. State net
operating loss carry-forwards totaling $6.5 million will expire at
various dates from the year 1998 through 2001. The tax credit
carry-forwards will expire at various dates from the year 2005
through 2012.
Note 6: COMMON STOCK
STOCK OPTION PLANS. The Company's 1984 Stock Option Plan ("1984
Plan") provides for the grant of both incentive and nonqualified
stock options to key employees and certain independent contractors
of the Company. At March 31, 1997, options to purchase 640,536
common shares were outstanding under the 1984 Plan, of which
365,336 options were exercisable at prices ranging from $2.63 to
$13.00 per share. As a result of the adoption of the 1994 Stock
Incentive Plan ("1994 Plan") there were no shares available for
future grants under the 1984 Plan.
In July 1994, the stockholders approved 2,366,660 shares of common
stock to be issued under the 1994 Plan over a ten-year term. In
August 1996, the stockholders approved 2,000,000 additional shares
of common stock under the 1994 Plan. This Plan also provides for an
automatic increase on the first trading day of each calendar year
for five years after the adoption of the 1994 Plan, beginning
January 1995, of an amount equal to one percent (1%) of the number
of shares of common stock outstanding, but in no event will any
such annual increase exceed 300,000 shares. The total authorized
number of shares of common stock under the 1994 Plan is
F-12
<PAGE>
4,666,660. At March 31, 1997, options to purchase 3,206,032 shares
were outstanding, of which 1,017,484 were exercisable at prices
ranging from $4.13 to $17.75 per share. At March 31, 1997, the
number of shares available for future grants is 1,298,612.
The 1994 Plan contains: (i) a discretionary grant program for key
employees and consultants whereby options generally vest over five
years and expire after 10 years, (ii) an automatic grant program
for non-employee Board members, whereby options vest over three
years and expire after 10 years, (iii) a salary reduction grant
program under which key employees may elect to have a portion of
their base salary reduced each year in return for stock options,
(iv) a stock fee program under which the non-employee Board members
may elect to apply all or a portion of their annual retainer fee to
the acquisition of shares of common stock, and (v) a stock issuance
program under which eligible individuals may be issued shares of
common stock as a bonus tied to their performance of services or
the Company's attainment of financial milestones, or pursuant to
their individual elections to receive such shares in lieu of base
salary. The implementation and use of any of these equity incentive
programs (other than the automatic grant program and the stock fee
program) is within the sole discretion of the Compensation
Committee of the Board of Directors of the Company.
On April 18, 1996, the Company adopted the 1996 Non-Officer
Employee Stock Option Plan ("1996 Plan"). The 1996 Plan authorizes
1,000,000 shares of common stock to be reserved for issuance to
non-officer key employees as an incentive to continue in the
service of the Company. The 1996 Plan will terminate on the date on
which all shares available are issued. At March 31, 1997, 774,900
shares were outstanding, none of which were exercisable, at prices
ranging from $4.13 to $9.75, and 225,100 shares were available for
future grants.
At March 31, 1997, the Company had reserved 6,145,180 shares for
future issuance under the 1984, 1994, and 1996 Plans.
The following table summarizes the Company's stock option activity
under all Plans:
<TABLE>
<CAPTION>
1997 1996 1995
-----------------------------------------------------------------------
Wdg Avg Wdg Avg Option Price
Fiscal Years Ended March 31, Shares Ex Price* Shares Ex Price* Shares Per Share
-------------------------------------------------------------------------------------------------------
(SHARES IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at 3,620 $5.75 2,927 $5.24 2,724 $0.11 - $13.00
beginning of year
Granted 2,235 8.19 1,795 6.15 1,710 4.94 - 9.07
Exercised (919) 4.37 (541) 3.22 1,063 0.11 - 6.63
Expired or canceled (314) 6.47 (561) 6.88 (444) 2.63 - 13.00
Options outstanding at end of
year 4,622 $7.13 3,620 $5.75 2,927 $0.25 - $13.00
Exercisable at end of year 1,383 1,200 674
Weighted average fair
value of options
granted $4.51 $2.94
-------------------------------------------------------------------------------------------------------
</TABLE>
*WEIGHTED AVERAGE EXERCISE PRICE
F-13
<PAGE>
The following summarizes the stock options outstanding at March 31,
1997:
<TABLE>
Options Outstanding Options Excercisable
----------------------------------------------------------------------------
Weighted
Average Weighted
Number Remaining Average Number Weighted
Actual Range of Outstanding Contractual Exercise Exercisable Average
Exercise Prices 3/31/97 Life Price 3/31/97 Exercise Price
-----------------------------------------------------------------------------------------------
(SHARES IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
$ 2.625 - 5.313 1,368 8.01 $ 4.25 439 $ 3.84
5.625 - 9.25 2,276 8.36 7.00 888 6.72
9.625 - 17.75 978 9.27 11.49 56 11.87
------- -----
$ 2.625 - 17.75 4,622 8.45 $ 7.13 1,383 $ 6.02
------- -----
-----------------------------------------------------------------------------------------------
</TABLE>
In accordance with the disclosure requirements of SFAS 123, if the
Company had elected to recognize compensation cost based on the
fair market value of the options granted at grant date as
prescribed, income and earnings per share would have been reduced
to the pro forma amounts indicated in the table below. The pro
forma effect on net income for Fiscal 1997 and 1996 is not
representative of the pro forma effect on net income in future
years because it does not take into consideration pro forma
compensation expense related to grants made prior to Fiscal 1996.
1997 1996
----------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net income (loss)-as reported $11,707 $(5,955)
Net income (loss)-pro forma $ 7,844 $(8,282)
Net income (loss) per share-as reported $ 0.35 $ (0.20)
Net income (loss) per share-pro forma $ 0.23 $ (0.28)
----------------------------------------------------------------------
The fair value of each option grant is estimated on the date of
grant using the Black-Scholes option-pricing model with the
following assumptions:
----------------------------------------------------------------------
Expected dividend yield 0.0%
Expected stock volatility 74.3%
Risk-free interest rate 5.3% - 7.1%
Expected life of options from vest date 0.7 years
Forfeiture rate actual
----------------------------------------------------------------------
EMPLOYEE STOCK PURCHASE PLAN. In August 1996, the Company adopted
an Employee Stock Purchase Plan ("The Plan") and reserved 600,000
shares of common stock for issuance under the Plan. Employees,
subject to certain restrictions, may purchase common stock under
this Plan through payroll withholding at a price per share of 85%
of the fair market value at the beginning or end of the purchase
period, as defined under the Plan. The Company sold 60,624 shares
in Fiscal 1997 under this Plan at a price per share of $7.07 and
539,376 shares remained available for future issuance under the
Plan at March 31, 1997.
STOCKHOLDERS' RIGHTS AGREEMENT. In October 1991, the Company
adopted a Stockholders' Rights Agreement pursuant to which one
Preferred Share Purchase Right was distributed for each outstanding
share of common stock. Each Right entitles stockholders to buy one
two-hundredth of a share of Series A Junior Participating Preferred
Stock at an exercise price of $50.00 upon certain events. The
Rights expire on October 23, 2001, unless earlier redeemed by the
Company.
F-14
<PAGE>
The Rights become exercisable if a person acquires 15% or more of the
Company's common stock or announces a tender offer that would result
in such person owning 15% or more of the Company's common stock. If
the Rights become exercisable, the holder of each Right (other than
the person whose acquisition triggered the exercisability of the
Rights) will be entitled to purchase, at the Right's then-current
exercise price, a number of shares of the Company's common stock
having a market value of twice the exercise price. In addition, if
the Company were to be acquired in a merger or business combination
after the Rights became exercisable, each Right will entitle its
holder to purchase, at the Right's then-current exercise price,
common stock of the acquiring company having a market value of twice
the exercise price. The Rights are redeemable by the Company at a
price of $0.005 per Right at any time within ten days after a person
has acquired 15% or more of the Company's common stock.
NOTE 7: CUSTOMER AGREEMENT
In November 1993, the Company entered into an agreement with Siemens
AG to supply SPECTRUM(TM) II digital microwave radios to E-Plus
Mobilfunk GmbH. As of March 31, 1995, the Company had not met its
product acceptance or delivery schedule, and, as a result, recorded
significant reserves for product discounts on interim equipment,
equipment returns and other related costs. In July 1995, the Company
received product acceptance from E-Plus, and began delivery and
installation of the SPECTRUM II equipment. During the third quarter
of Fiscal 1996, the Company provided additional reserves of
approximately $1.0 million related to the final resolution of other
remaining open issues on this contract.
NOTE 8: INDUSTRY SEGMENT, GEOGRAPHIC AND CUSTOMER INFORMATION
The Company operates in a single industry segment, the design and
manufacture of short- and medium-haul digital transmission products.
One customer (Siemens AG) accounted for 14% and 22% of net sales for
Fiscal 1997 and 1996, respectively. No other customers accounted for
more than 10% of net sales during Fiscal 1997, 1996, or 1995.
Geographic information for Fiscal 1997, 1996, and 1995 is as follows:
<TABLE>
United United
States Kingdom Others Eliminations Total
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
1997
SALES TO UNAFFILIATED
CUSTOMERS $149,882 $22,416 $6,046 -- $178,344
INTERCOMPANY SALES 22,233 -- -- (22,233) --
-------- ------- ------ -------- --------
NET SALES $172,115 $22,416 $6,046 $(22,233) $178,344
-------- ------- ------ -------- --------
OPERATING INCOME (LOSS) $ 12,533 $ 2,893 $ 141 $ (1,668) $ 13,899
-------- ------- ------ -------- --------
IDENTIFIABLE ASSETS $155,341 $15,858 $ 759 $ (1,752) $170,206
-------- ------- ------ -------- --------
1996
Sales to unaffiliated
customers $133,370 $13,935 $3,114 -- $150,419
Intercompany sales 9,981 -- -- (9,981) --
Net sales $143,351 $13,935 $3,114 $ (9,981) $150,419
Operating income (loss) $(10,138) $ 1,767 $ 220 $ 128 $ (8,023)
Identifiable assets $ 92,760 $ 6,539 $2,016 $ (5,518) $ 95,797
1995
Sales to unaffiliated
customers $126,171 $24,995 $2,484 -- $153,650
Intercompany sales 20,287 -- -- (20,287) --
-------- ------- ------ -------- --------
Net sales $146,458 $24,995 $2,484 $(20,287) $153,650
-------- ------- ------ -------- --------
Operating income $ 1,384 $ 1,159 $ 199 $ 6 $ 2,748
-------- ------- ------ -------- --------
Identifiable assets $102,687 $ 7,269 $1,469 $ (8,840) $102,585
-------- ------- ------ -------- --------
- ----------------------------------------------------------------------------------------
</TABLE>
F-15
<PAGE>
Intercompany sales to the Company's foreign subsidiaries are
transacted at prices comparable to those offered to unaffiliated
customers, after taking into account the value added to products and
services by the subsidiaries.
The following table represents export sales from the United States to
unaffiliated customers by geographic region:
Year Ended March 31, 1997 1996 1995
-------------------------------------------------------------------
(IN THOUSANDS
Canada and South America $ 28,718 $ 14,876 $ 30,565
Europe 54,594 59,732 52,105
Asia/Pacific 55,738 40,570 23,601
-------- -------- --------
Total export sales $139,050 $115,178 $106,271
-------- -------- --------
-------- -------- --------
Export sales as a % of net sales 78% 77% 69%
-------------------------------------------------------------------
NOTE 9: EVENT SUBSEQUENT TO DATE OF AUDITORS' REPORT (UNAUDITED)
In May 1997, the Company acquired Granger, Inc., a U.S. manufacturer
of wireless products and provider of installation services. The
purchase price of Granger, Inc., including the assumption of debt and
the purchase of certain product rights, totaled $14.5 million. The
acquisition will be accounted for under the purchase method of
accounting.
In addition, concurrent with the acquisition of Granger, Inc., the
Company made a minority investment in Granger Associates, Ltd., a
privately held company based in the United Kingdom, for $4.0 million.
This minority investment will be accounted for under the cost method
of accounting.
NOTE 10 : EVENT SUBSEQUENT TO DATE OF AUDITORS' REPORT (UNAUDITED)
On December 22, 1997, the Company entered into a Reorganization
Agreement pursuant to which the Company will acquire MAS Technology
Limited ("MAS"), a manufacturer of microwave radio equipment (the
"Reorganization"). In the Reorganization, each outstanding share of
common stock of MAS shall be converted into 1.20 shares of capital
stock of the Company. The Company will also assume all outstanding
options, warrants and other rights to acquire MAS capital stock. The
Reorganization is subject to approval by the stockholders of both
companies and certain other conditions, including the receipt of
opinion that the Reorganization may be accounted for as a pooling of
interests.
If the Reorganization is accounted for under the pooling of interests
method, historical financial data in future reports will be restated
to include MAS data. The following unaudited pro forma summary
presents the combined consolidated results of operations as of the
reorganization had been completed on April 1, 1994.
(unaudited pro forma)
(in thousands, except per share data)
<TABLE>
YEAR ENDED MARCH 31, SIX MONTHS ENDED SEPTEMBER 30,
-------------------- ------------------------------
1997 1996 1995 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Sales ......................... $211,747 $172,418 $165,148 $145,494 $88,936
Net income (loss) ............. 13,872 (4,472) 2,567 15,507 3,357
Net income (loss) per share ... $ 0.36 $ (0.13) $ 0.08 $ 0.33 $ 0.09
</TABLE>
MAS has a fiscal year that ends on March 31 of each year, which is
consistent with that of the Company. For purposes of the unaudited
pro forma summary financial data, the Company's consolidated
financial statements for each of the three fiscal years ended March
31, 1997, and for the six month periods ended September 30, 1996 and
1997, have been combined with MAS's consolidated financial statements
for the same periods.
The Company and MAS estimate that they will incur direct transaction
costs of approximately $5,000,000 associated with the Reorganization,
consisting of transaction fees for investment bankers, attorneys,
accountants, financial printing and other related charges. These
nonrecurring transaction costs will be charged
F-16
<PAGE>
to operations upon consummation of the Reorganization. It is
expected that following the Reorganization the combined companies
will incur an additional significant charge to operations, which is
not currently reasonably estimable, to reflect costs associated with
integrating the two companies. This charge and the direct
transaction costs have not been reflected in the pro forma financial
data. There can be no assurance that the combined company will not
incur additional charges to reflect costs associated with the
Reorganization or that management will be successful in its efforts
to integrate the operations of the two companies.
Pursuant to the Reorganization Agreement, it may be terminated by
either party under certain circumstances. The Company and MAS have
each agreed that if the Reorganization is not consummated as a result
of certain specified events, it will pay to the other party a
termination fee of $ 3,250,000.
If the Reorganization is not consummated, expenses incurred in
connection with the proposed Reorganization (including the possible
"termination" fees described above) could have a material adverse
effect on the Company's results of operations.
F-17
<PAGE>
MAS TECHNOLOGY LIMITED
AND SUBSIDIARIES
(Incorporated in New Zealand)
INDEPENDENT AUDITORS' REPORT
The Board of Directors
MAS Technology Limited and subsidiaries:
We have audited the accompanying consolidated balance sheets of MAS
Technology Limited and subsidiaries as of March 31, 1996 and 1997, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for the years then ended. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with New Zealand generally
accepted auditing standards which are essentially the same as United States
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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of MAS
Technology Limited and subsidiaries as of March 31, 1996 and 1997, and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles in the United States.
KPMG
April 16, 1997
Wellington, New Zealand
F-18
<PAGE>
MAS TECHNOLOGY LIMITED
AND SUBSIDIARIES
(Incorporated in New Zealand)
CONSOLIDATED BALANCE SHEETS
(in thousands of dollars)
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
--------------------------------- ---------------------------
1996 1997 1997 1997 1997
NZ$ NZ$ US$ NZ$ US$
(NOTE 2) (note 2)
<S> <C> <C> <C> <C> <C>
ASSETS (note 7) (AUDITED) (AUDITED) (AUDITED) (UNAUDITED) (UNAUDITED)
Current assets
Cash and cash equivalents $ 1,300 $ 10 $ 7 $32,084 $20,527
Accounts receivables, net of allowance of NZ$97,
NZ$97, US$67, NZ$143 and US$91, respectively 8,790 20,189 14,025 18,592 11,895
Inventory (note 3) 4,705 8,135 5,651 12,743 8,153
Cost and estimated earnings in excess of billings
on uncompleted contracts(note 4) 133 - - - -
Prepaids and other 176 137 95 2,035 1,302
-------- -------- -------- -------- --------
Total current assets 15,104 28,471 19,778 65,454 41,877
Deferred taxes, (note 9) 243 519 361 530 339
Property and equipment, net (note 6) 1,587 2,122 1,474 2,418 1,547
Intangible assets (note 1) - 1,069 743 917 587
Other asset (note 5) - 2,150 1,494 - -
-------- -------- -------- -------- --------
Total assets $16,934 $34,331 $23,850 $69,319 $44,350
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Cash overdraft (note 7) $ - $ 518 $ 360 $ - $ -
Short-term borrowings (note 7) - 6,600 4,585 - -
Accounts payable 7,150 10,576 7,347 10,595 6,779
Billing in excess of cost and estimated earnings on
uncompleted contracts (note 4) 173 - - - -
Accrued employee benefits payable 680 1,733 1,204 779 498
Accrued professional fees payable - 1,380 959 146 93
Other accrued liabilities 373 315 219 331 212
Income taxes payable 944 1,095 761 1,272 814
Acquisition costs payable - 755 524 - -
-------- -------- -------- -------- --------
Total current liabilities 9,320 22,972 15,959 13,123 8,396
Deferred taxes (note 9) 44 43 30 10 6
-------- -------- -------- -------- --------
Total Liabilities 9,364 23,015 15,989 13,133 8,402
Commitments (note 13)
Shareholders equity (note 10)
Ordinary shares, no par value; 4,500,000; 4,500,000;
4,500,000; 6,800,000; 6,800,000 issued and outstanding,
respectively 4,734 4,734 3,288 45,636 29,198
Retained earnings 4,494 7,593 5,275 11,211 7,173
Cumulative translation adjustment - (12) (8) 38 24
Deferred compensation (note 10) (1,658) (999) (694) (699) (447)
-------- -------- -------- -------- --------
Total shareholders' equity 7,570 11,316 7,861 56,186 35,948
-------- -------- -------- -------- --------
Total shareholders' equity and liabilities $16,934 $34,331 $23,850 $69,319 $44,350
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-19
<PAGE>
MAS TECHNOLOGY LIMITED
AND SUBSIDIARIES
(Incorporated in New Zealand)
CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, SIX MONTHS ENDED SEPTEMBER 30,
-------------------------------------------------- -------------------------------------
1995 1996 1997 1997 1996 1997 1997
NZ$ NZ$ NZ$ US$ NZ$ NZ$ US$
(NOTE 2) (NOTE 2)
(AUDITED) (UNAUDITED)
--------------------------------------------------- -------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Sales
Products and services revenue $22,593 $36,272 $51,311 $35,646 $16,403 $39,421 $25,222
Sub-contractor revenue - 3,888 - - - - -
------- ------- ------- ------- ------- ------- -------
Total sales 22,593 40,160 51,311 35,646 16,403 39,421 25,222
Cost of sales
Products and services 14,554 24,559 30,353 21,086 10,318 25,206 16,127
Sub-contractor - 3,111 - - - - -
------- ------- ------- ------- ------- ------- -------
Total cost of sales 14,554 27,670 30,353 21,086 10,318 25,206 16,127
Gross profit 8,039 12,490 20,958 14,560 6,085 14,215 9,095
Operating expenses:
Research and development 1,895 2,673 3,786 2,630 1,706 2,566 1,642
Selling and marketing 2,699 3,900 8,232 5,719 2,469 5,979 3,825
General and administration 1,842 2,553 3,901 2,710 1,408 2,632 1,684
------- ------- ------- ------- ------- ------- -------
Total operating expenses 6,436 9,126 15,919 11,059 5,583 11,177 7,151
------- ------- ------- ------- ------- ------- -------
Income from operations 1,603 3,364 5,039 3,501 502 3,038 1,944
Interest income (expense) (173) (163) (510) (354) (155) 281 180
Other income - 198 478 332 - 2,243 1,435
------- ------- ------- ------- ------- ------- -------
Net income before income taxes 1,430 3,399 5,007 3,479 347 5,562 3,559
Income tax expense (note 9) 479 1,169 1,908 1,325 186 1,944 1,244
------- ------- ------- ------- ------- ------- -------
Net income $ 951 $ 2,230 $ 3,099 $ 2,154 $ 161 $ 3,618 $ 2,315
------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- -------
Net income per ordinary share $ 0.29 $ 0.54 $ 0.74 $ 0.51 $ 0.04 $ 0.62 $ 0.40
------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- -------
Weighted average ordinary shares
and ordinary share equivalents
outstanding 3,235 4,113 4,210 4,210 4,163 5,813 5,813
------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- -------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-20
<PAGE>
MAS TECHNOLOGY LIMITED
AND SUBSIDIARIES
(Incorporated in New Zealand)
CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
(in thousands)
<TABLE>
<CAPTION>
ORDINARY SHARES DEFERRED CUMULATIVE
---------------- RETAINED SUBSCRIPTION COMPEN- TRANSLATION
NUMBER AMOUNT EARNINGS RECEIVABLE SATION ADJUSTMENT TOTAL
-----------------------------------------------------------------------------
NZ$ NZ$ NZ$ NZ$ NZ$ NZ$
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT MARCH 31, 1994 2,362 $656 $1,313 $(56) - - $1,913
Forgiveness of subscription
receivable due from a former
employee - - - 56 - - 56
Issuance of ordinary shares
for dividends declared in
prior years (note 10) 1,296 360 - - - - 360
Issuance of ordinary shares
for cash (note 10) 450 1,919 - - - - 1,919
Net income - - 951 - - - 951
-----------------------------------------------------------------------------
BALANCE AT MARCH 31, 1995 4,108 2,935 2,264 - - - 5,199
Ordinary shares awarded to
employees (note 10) 392 1,799 - - (1,799) - -
Amortization of deferred
compensation - - - - 141 - 141
Net income - - 2,230 - - - 2,230
-----------------------------------------------------------------------------
BALANCE AT MARCH 31, 1996 4,500 4,734 4,494 - (1,658) - 7,570
Amortization of deferred
compensation - - - - 659 - 659
Currency translation
adjustment - - - - - (12) (12)
Net income - - 3,099 - - - 3,099
-----------------------------------------------------------------------------
BALANCE AT MARCH 31, 1997 4,500 4,734 7,593 - (999) (12) 11,316
Issuance of ordinary shares
in Initial Public Offering
(unaudited) 2,300 40,902 - - - - 40,902
Amortization of deferred
compensation (unaudited) - - - - 300 - 300
Currency translation
adjustment (unaudited) - - - - - 50 50
Net income (unaudited) - - 3,618 - - - 3,618
-----------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 1997
(UNAUDITED) 6,800 $45,636 $11,211 - ($699) $38 $56,186
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-21
<PAGE>
MAS TECHNOLOGY LIMITED
AND SUBSIDIARIES
(Incorporated in New Zealand)
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands of dollars)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, SIX MONTHS ENDED SEPTEMBER 30,
---------------------------------------- ------------------------------------
1995 1996 1997 1997 1996 1997 1997
NZ$ NZ$ NZ$ US$ NZ$ NZ$ US$
(NOTE 2) (NOTE2)
<S> <C> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES: (audited) (audited) (audited) (audited) (unaudited) (unaudited) (unaudited)
Net income $ 951 $ 2,230 $ 3,099 $ 2,153 $ 161 $ 3,618 $ 2,315
Adjustments to reconcile net income to net cash
provided/ (used) in operating activities:
Depreciation and amortization expense 394 451 675 469 277 335 214
Unrealized foreign exchange (gains) loss (123) (133) (40) (28) - (1,741) (1,114)
Provision for inventory obsolescence 218 - - - - - -
Amortization of deferred compensation - 141 659 458 224 300 192
Deferred taxes 206 (516) (277) (192) 40 (44) (28)
Changes in assets and liabilities:
Accounts receivable (2,350) (3,593) (11,399) (7,919) 2,330 800 512
Prepaids and other - (173) 39 27 49 (1,101) (704)
Inventory (1,450) (1,516) (3,430) (2,383) (2,727) (4,608) (2,948)
Billings on uncompleted contracts (1,268) 1,308 (40) (28) - - -
Accounts payable 924 4,463 3,466 2,407 (4,720) 19 12
Accrued employee benefits 60 31 1,053 732 (428) (954) (610)
Other accrued liabilities 1 369 (58) (40) (113) 54 34
Income taxes payable 456 743 151 105 (757) 177 113
--------- --------- --------- --------- ----------- ----------- ----------
Net cash provided/ (used) by operating activities (1,981) 3,805 (6,102) (4,239) (5,664) (3,145) (2,012)
--------- --------- --------- --------- ----------- ----------- ----------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase consideration for NZ Telecoms
(Pty) Limited, net of cash acquired - - (538) (374) - (728) (466)
Proceeds from disposal of fixed assets - - 88 61 - 14 9
Acquisition of property and equipment (535) (580) (1,074) (746) (152) (520) (333)
Other assets - - (770) (535) - - -
--------- --------- --------- --------- ----------- ----------- ----------
Net cash used by investing activities (535) (580) (2,294) (1,594) (152) (1,234) (790)
--------- --------- --------- --------- ----------- ----------- ----------
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from the issuance of ordinary shares,
net of offering costs 1,919 - - - - 41,780 26,731
Proceeds from short-term borrowing 550 - 6,600 4,585 3,750 - -
Principal repayment of obligations under
capitalized leases 4 (147) - - - - -
Repayment of short-term borrowing - (1,850) - - - (6,600) (4,223)
Increase / (decrease) in cash overdraft - - 518 360 773 (518) (331)
--------- --------- --------- --------- ----------- ----------- ----------
Net cash provided by financing activities 2,473 (1,997) 7,118 4,945 4,523 34,662 22,177
--------- --------- --------- --------- ----------- ----------- ----------
Net increase / (decrease) in cash held (43) 1,228 (1,278) (888) (1,293) 30,283 19,375
Adjustment for foreign currency differences - - (12) (8) (7) 1,791 1,146
Cash and cash equivalents, beginning of period 115 72 1,300 903 1,300 10 6
--------- --------- --------- --------- ----------- ----------- ----------
Cash and cash equivalents, end of period $ 72 $ 1,300 $ 10 $ 7 $ - $ 32,084 $ 20,527
--------- --------- --------- --------- ----------- ----------- ----------
--------- --------- --------- --------- ----------- ----------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-22
<PAGE>
MAS TECHNOLOGY LIMITED
AND SUBSIDIARIES
(Incorporated in New Zealand)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1995, 1996 and 1997
(Information as of and for the six months ended September 30, 1997 is unaudited)
(Dollars in thousands, except per share amounts)
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
MAS Technology Limited (formerly Marine-Air Systems Limited) and
subsidiaries ("MAS" or the "Company") was incorporated in Wellington, New
Zealand. The Company designs, manufactures and markets medium to long haul
digital microwave radio systems for use in the world-wide telecommunications
market. The Company's systems are sold internationally through strategic
partners, systems providers, OEMs and distributors as well as directly to end
users, and domestically and internationally through its direct sales force.
UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
The consolidated balance sheet as of September 30, 1997 and the
consolidated statements of operations, shareholders' equity and cash flows
for the six months ended September 30, 1996 and 1997 were prepared by the
Company without audit. In the opinion of management, all adjustments,
consisting of normal recurring adjustments, necessary for the fair
presentation of the financial position as of September 30, 1997 and the
results of operations and cash flows for the six months ended September 30,
1996 and 1997 have been included. The data disclosed in these notes to the
consolidated financial statements for these periods is unaudited.
The results of operations for the six months ended September 30,
1997 are not necessarily indicative of the results that may be expected for
the year ending March 31, 1998.
BASIS OF PRESENTATION
These consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States.
BASIS OF CONSOLIDATION
The accompanying consolidated financial statements include the
accounts of MAS and its wholly-owned subsidiaries, MAS Technology (Pty)
Limited (incorporated in Australia), Marine-Air Services Limited, Marine-Air
Systems Employee Share Trustee Ltd, MAS Technology Limited Company
(incorporated in United States), MAS Technology (Pty) Limited (incorporated
in Republic of South Africa) (effective from September 1, 1996 due to the
acquisition of NZ Telecoms (Pty) Limited), NZ Telecoms (Pty) Limited
(incorporated in Republic of South Africa), Radio Communications and
Engineering Services (Botswana) (Pty) Limited (incorporated in Botswana) and
NZ Telecomms Botswana (Pty) Limited (incorporated in Botswana, Non-trading).
All significant intercompany transactions have been eliminated in
consolidation.
REVENUE RECOGNITION
Revenue from product sales is recognized once customer acceptance
testing is complete and the product is shipped provided the Company has not
contracted with a customer to provide value-added services, no significant
obligations remain and collectability is probable. Provisions for estimated
warranty repairs, returns and allowances are recorded at the time products
are shipped.
Deferred payments from customers are held under retention clauses
which are collectable within nine-twelve months after invoicing, typically
this is applicable in Southern Africa. Included in prepaids and other are
retention payments totalling NZ$1,563 as of September 30, 1997.
F-23
<PAGE>
MAS TECHNOLOGY LIMITED
AND SUBSIDIARIES
(Incorporated in New Zealand)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, 1995, 1996 and 1997
(Information as of and for the six months ended September 30, 1997 is unaudited)
(Dollars in thousands, except per share amounts)
CONTRACTS
A portion of the Company's revenue is derived from contracts to
perform value-added services, such as network planning, path planning,
systems integration and installation. These value-added services may be
provided in connection with the delivery and installation of the Company's
products.
In these situations, the Company recognizes revenue according to
two methods: (i) the percentage-of-completion and (ii) completed contract
method. The Company uses the percentage-of-completion method to recognize
revenues and costs on contracts that include value-added service components
if the expected completion date exceeds three months. Such contracts
generally are fixed price and do not exceed 18 months to complete. Revenues
and costs are recognized on these contracts (including the portion of these
contracts that relate to product sales) based on the costs for value-added
services incurred to date compared to estimated total costs for value-added
services under the contract. Contract costs include all direct material,
direct labor and indirect costs related to contract performance. If the
expected completion date is less than three months, revenues and costs are
accounted for using the completed contract method.
Selling, general and administrative costs are charged to expense as
incurred. Provisions for estimated losses on uncompleted contracts are
recorded in the period in which such losses become probable based on the
current contract estimates.
Cost and estimated earnings in excess of billings on uncompleted
contracts represent those contracts in progress for which revenue recognized
exceeds amounts billed. Billings in excess of costs and estimated earnings
on uncompleted contracts represent those contracts in progress for which
billings exceed revenues recognized. Billings are made in accordance with
contract terms.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of highly liquid debt instruments
with remaining maturities of three months or less at the date of purchase.
PROPERTY AND EQUIPMENT
Property and equipment are presented in the consolidated financial
statements at historical cost less accumulated depreciation.
All property and equipment (except land) are depreciated over their
useful lives using the straight-line method of depreciation. Depreciation of
property and equipment under capitalized leases is computed using the
straight-line method over the shorter of estimated lives or lease terms.
The average depreciable lives for major categories of fixed assets
are as follows:
Buildings........................................... 25 years
Office furniture.................................... 5 years
Furniture and fittings.............................. 5 years
Plant and equipment................................. 5 years
Other fixed assets.................................. 5 years
F-24
<PAGE>
MAS TECHNOLOGY LIMITED
AND SUBSIDIARIES
(Incorporated in New Zealand)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, 1995, 1996 and 1997
(Information as of and for the six months ended September 30, 1997 is unaudited)
(Dollars in thousands, except per share amounts)
INVENTORY
Inventory consists of raw material, work in progress and finished
goods which are presented in the consolidated financial statements at the
lower of cost (determined on a first in, first out basis) or net realizable
value.
INTANGIBLE ASSETS
Intangible assets consist of goodwill, which has an estimated
useful life of five years, resulting from the acquisition of the net assets
of NZ Telecoms (Pty) Limited (see Note 13). Intangible assets at March 31,
1997 and September 30, 1997 comprised cost of NZ$1,105 and accumulated
amortization of NZ$36 and NZ$161, respectively.
INCOME TAXES
Income taxes are accounted for by the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the consolidated financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carry forwards.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized in income
in the period that includes the enactment date.
FOREIGN CURRENCY TRANSLATION
The functional currencies of the Company's foreign subsidiaries are
the local currencies in which the foreign subsidiaries operate. Assets and
liabilities of the Company's foreign subsidiaries are translated into New
Zealand dollars at period-end exchange rates and revenues and expenses are
translated at average rates prevailing during the period. Translation gains
and losses are included in a separate component of shareholders' equity.
FOREIGN CURRENCY TRANSACTIONS
The Company uses forward foreign exchange contracts to manage its
foreign currency risks. The Company enters into forward foreign currency
contracts to limit the effect of exchange rate changes on anticipated but not
firmly committed transactions, principally future revenues. Gains and losses
on these contracts are recognized in the statement of operations as incurred.
The Company also enters into forward foreign currency contracts to
limit the effect of exchange rate changes on the foreign currency denominated
receivables and payables as losses and gains on forward foreign currency
exchange contracts are offset by gains and losses on the foreign currency
receivables and payables. Gains and losses on the forward foreign currency
contracts and on the underlying receivables and payables are recognized in
the statement of operations as incurred.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as incurred. The
Company's internally developed products include both system and application
software. Software development costs are expensed as incurred until both
technological feasibility is achieved and all research and development
activities for the other components of the product have been completed as
demonstrated by a working model. Software development costs incurred
subsequent to these two milestones have been minimal and have been expensed
as incurred.
F-25
<PAGE>
MAS TECHNOLOGY LIMITED
AND SUBSIDIARIES
(Incorporated in New Zealand)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, 1995, 1996 and 1997
(Information as of and for the six months ended September 30, 1997 is unaudited)
(Dollars in thousands, except per share amounts)
NET INCOME PER ORDINARY SHARE
Net income per ordinary share is computed using the weighted
average number of ordinary shares outstanding and dilutive ordinary share
equivalents from the assumed exercise of options outstanding during the
period, if any, using the treasury stock method.
Pursuant to certain Securities and Exchange Commission Staff
Accounting Bulletins, ordinary shares issued for consideration below the
assumed initial public offering ("IPO") price and stock options granted with
exercise prices below the assumed IPO price during the twelve month period
prior to the date of the initial filing of the Company's Registration
Statement, even when antidilutive, have been included in the calculation of
income per ordinary share as if they were outstanding for all periods
presented using the treasury stock method based on the assumed IPO price.
The Financial Accounting Standard Board recently issued SFAS No.
128, EARNINGS PER SHARE. This statement requires the presentation of basic
earnings per share ("EPS") and, for companies with complex capital
structures, diluted EPS. SFAS No. 128 is effective for annual and interim
periods ending after December 15, 1997. The Company does not expect that the
basic EPS will differ materially from the net income per share data presented
in the accompanying consolidated financial statements.
USE OF ESTIMATES
The preparation of the consolidated financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the consolidated financial statements and the reported amounts of
expenses during the reporting period. Actual results could differ from these
estimates.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to
significant concentrations of credit risk consist principally of cash, cash
equivalents, and trade accounts receivable. The Company invests its cash and
cash equivalents in a variety of financial instruments. The Company, by
policy, limits the amount of credit exposure to any one financial institution
or commercial issuer.
The Company performs on-going credit evaluations of its customers'
financial condition and, generally, requires no collateral from its
customers. It is the Company policy to obtain confirmed letters of credit or
other insurance or guarantees from all customers whose unpaid balance exceeds
a pre-determined threshold set by the Board of Directors. The Company
maintains an allowance for doubtful accounts to cover potential credit losses.
RECOVERABILITY OF LONG-LIVED ASSETS
The Financial Accounting Standards Board recently issued SFAS No.
121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED
ASSETS TO BE DISPOSED OF. This statement requires long-lived assets to be
evaluated for impairment whenever events or changes in circumstances indicate
the carrying amount of an asset may not be recoverable. The Company adopted
SFAS No. 121 in fiscal 1996. The adoption of SFAS No. 121 did not have a
material effect on the Company's results of operations.
Pursuant to SFAS No. 121, the Company assesses the recoverability
of the carrying amount of its long lived assets whenever events or changes in
circumstances indicate that the carrying amount of an asset may be impaired.
If the estimated future undiscounted operating cash flows over the remaining
useful life of the long lived asset is in excess of the carrying amount of
the asset, a charge to income would be recognized for the excess carrying
amount of the asset over its fair value.
F-26
<PAGE>
MAS TECHNOLOGY LIMITED
AND SUBSIDIARIES
(Incorporated in New Zealand)
DIVIDEND POLICY
Pursuant to the Deposit Agreement between the Company and the Bank of
New York, should the Company declare and pay dividends, such dividends will be
declared in New Zealand Dollars and paid in United States Dollars with respect
to holders of American Depository Receipts.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values of the Company's cash and cash equivalents,
accounts receivable, cash overdraft, accounts payable and short term borrowings
approximates their respective fair values due to the relatively short maturity
of these instruments.
STOCK-BASED COMPENSATION
The Company accounts for its stock-based compensation arrangements in
accordance with the provisions of Accounting Principles Board (APB) Opinion
No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and related interpretations.
As such, compensation expense would be recorded on the date of grant only if the
fair value of the underlying stock exceeded the exercise price. On April 1,
1996, the Company adopted the disclosure provisions of SFAS No. 123, ACCOUNTING
FOR STOCK-BASED COMPENSATION, which requires entities to provide pro forma net
income and pro forma earnings per share disclosures for employee stock option
grants made in fiscal year 1996 and future years as if the fair value-based
method defined in SFAS No. 123 had been applied. For the years ended March 31,
1996 and 1997, pro forma net income and pro forma earnings per share would not
have differed materially from the amounts reported in the accompanying
consolidated financial statements.
2. CONVERSION OF NEW ZEALAND DOLLAR AMOUNTS TO UNITED STATES DOLLAR
AMOUNTS
The consolidated financial statements as of March 31, 1997 and
September 30, 1997 have been translated for convenience purposes from New
Zealand dollar amounts into United States dollars. Unless otherwise stated, the
translations of New Zealand dollars into United States dollars have been made at
NZ$1.00 to US$0.6790 as of March 31, 1997 and at NZ$1.00 to US$0.6947, as of
September 30, 1997, the noon buying rates in New York City for cable transfers
in New Zealand dollars as reported by the Federal Reserve Bank of New York.
These translations should not be construed as representations that the New
Zealand dollar amounts actually represent such United States dollar amounts or
could be converted into United States dollars at the rate indicated.
3. INVENTORY
Inventory consists of the following:
MARCH 31, SEPTEMBER 30,
----------------------- -------------
1996 1997 1997
-------- -------- -------------
NZ$ NZ$ NZ$
(audited) (audited) (unaudited)
Raw materials 2,959 5,093 9,714
Finished goods 688 2,348 2,237
Work in progress 1,058 694 792
------ ------ -------
4,705 8,135 12,743
------ ------ -------
------ ------ -------
F-27
<PAGE>
MAS TECHNOLOGY LIMITED
AND SUBSIDIARIES
(Incorporated in New Zealand)
4. UNCOMPLETED CONTRACTS
Uncompleted contracts consist of the following:
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
--------------------- -------------
1996 1997 1997
-------- -------- --------
NZ$ NZ$ NZ$
(audited) (audited) (unaudited)
<S> <C> <C> <C>
Costs incurred on uncompleted contracts 1,286 - -
Estimated earnings on such contracts 498 - -
------ ------ ------
Cost incurred and estimated earnings 1,784 - -
Progress billings charged to contract
receivables (1,824) - -
------ ------ ------
(40) - -
------ ------ ------
------ ------ ------
Costs and estimated earnings in excess of
billings on uncompleted contracts 133 - -
Billings in excess of costs and estimated
earnings on uncompleted contracts (173) - -
------ ------ ------
(40) - -
------ ------ ------
------ ------ ------
</TABLE>
At March 31, 1997 and September 30, 1997, the Company did not have any
material contracts that were not complete.
5. OTHER ASSETS
Other assets as at March 31, 1997 include NZ$2,150 (1996:NZ$0)
relating to Initial Public Offering costs and expenses which was
offset against the equity proceeds as a debit to shareholders equity.
6. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
----------------------- -------------
1996 1997 1997
-------- -------- --------
NZ$ NZ$ NZ$
(audited) (audited) (unaudited)
<S> <C> <C> <C>
Land 110 110 110
Buildings 340 340 340
Office equipment 849 1,661 1,833
Furniture & fittings 294 335 495
Plant & equipment 1,340 1,519 1,608
Other fixed assets 171 341 424
------- ------- -------
3,104 4,306 4,810
Less accumulated depreciation (1,517) (2,184) (2,392)
------- ------- -------
1,587 2,122 2,418
------- ------- -------
------- ------- -------
</TABLE>
F-28
<PAGE>
MAS TECHNOLOGY LIMITED
AND SUBSIDIARIES
(Incorporated in New Zealand)
7. SHORT TERM BORROWINGS
The Company has a financing agreement (the "agreement") with the
National Bank of New Zealand (the "Bank") which provides for three credit
facilities. The security under the agreement with the Bank is a secured first
debenture charge over all of the Company's assets to a maximum of NZ$15,000 and
a first mortgage over the Company's land and buildings to a maximum of NZ$450.
The terms and conditions of the agreement included certain financial covenants,
including those whereby the Company agrees to the maintenance of certain
financial ratios. As of March 31, 1997 and September 30, 1997, the Company is
in compliance with the terms and conditions of the agreement. NZ Telecoms (Pty)
Limited has a cash overdraft facility with the Standard Bank of South Africa
with a limit of NZ$4,565 as of September 30, 1997 (NZ$680 as of March 31, 1997).
This facility is guaranteed by the Company up to a maximum of NZ$4,565 as of
September 30, 1997 (NZ$680 as of March 31, 1997).
CASH OVERDRAFT FACILITIES
The cash overdrafts facilities (the "overdraft") are renewable lines
of credit with no fixed term, are due for payment on demand and have total
limits of NZ$1,230. The amount of the overdraft outstanding was NZ$0, NZ$518
and NZ$0 at March 31, 1996 and 1997 and September 30, 1997, respectively. The
overdraft bears interest at a rate related to the wholesale money market
interest rate. As of March 31, 1996 and 1997 and September 30, 1997, the
interest rate ranges were between 6.7% to 11.0%, 11.15% to 20.25% and 1.58% to
12.25%, respectively.
SHORT TERM BORROWING FACILITY
The short term borrowing facility (the "facility") is for no fixed
term, although draw down periods are in increments of 30, 60, 90 or 180 days
terms. The facility is due for payment at the end of each draw down period and
has a limit as of September 30, 1997 of NZ$5,000 (NZ$7,000 as of March 31,
1997). The facility bears interest at 1%, 1% and 0.45% as of March 31, 1996 and
1997 and September 30, 1997 above the 90 day New Zealand bank bill rate (9.85%,
8.25% and 8.05% as of March 31, 1996 and 1997 and September 30, 1997,
respectively). As of March 31, 1996 and 1997 and September 30, 1997, the
outstanding balance on the facility was NZ$0 and NZ$6,600 and NZ$0,
respectively.
GUARANTEE/PERFORMANCE BOND FACILITY
The Company uses the guarantee/performance bond facility in the normal
operation of its business to meet the request of foreign customers who require
guarantee of the Company's performance to fulfill sales orders and product
warranties. Generally, the foreign customer will request a bond for a specific
sales order which is drawn against the Company's bond facility held with the
Bank. The bond is discharged by the Bank at the request of the customer
generally when the customer is satisfied that the transaction is complete.
These bonds and guarantees are generally for fixed periods or are discharged by
contracted terms being satisfied or product warranties becoming effective.
The guarantee/performance bond facility (the "facility") expires on
July 31, 1998 for NZ$3,000. The Bank charges the Company a bank fee of 0.3% per
annum on the full amount of the facility and a fee of 0.3% per annum on the
outstanding balance. As of March 31, 1996 and 1997 and September 30, 1997, the
outstanding balance on the facility was NZ$2,744, NZ$1,305 and NZ$1,295,
respectively.
8. OPERATING LEASE OBLIGATIONS
The Company leases equipment under non-cancelable operating leases.
These leases generally contain no renewal options and require the Company to pay
all executory costs such as maintenance, taxes and insurance. Future minimum
payments required under the leases are: 1998 NZ$240, 1999 NZ$298, 2000 NZ$206,
2001 NZ$111 and 2002 NZ$66. Lease and rental expense for operating leases was
NZ$130 in 1995, NZ$85 in 1996 and NZ$225 in 1997 respectively and NZ$133 for the
six months ending September 30, 1997.
F-29
<PAGE>
MAS TECHNOLOGY LIMITED
AND SUBSIDIARIES
(Incorporated in New Zealand)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, 1995, 1996 and 1997
(Information as of and for the six months ended September 30, 1997 is unaudited)
(Dollars in thousands, except per share amounts)
9. INCOME TAXES
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
MARCH 31, SEPTEMBER 30,
--------------------------------------- -------------
1995 1996 1997 1997
--------- --------- --------- -------------
NZ$ NZ$ NZ$ NZ$
(audited) (audited) (audited) (unaudited)
<S> <C> <C> <C> <C>
Net income before income taxes consists of:
New Zealand $1,430 $1,753 $2,504 $5,243
Foreign - 1,646 2,503 319
------ ------ ------ ------
$1,430 $3,399 $5,007 $5,562
------ ------ ------ ------
------ ------ ------ ------
Income tax expense consists of:
New Zealand $ 479 $ 626 $1,016 $1,829
Foreign - 543 892 115
------ ------ ------ ------
$ 479 $1,169 $1,908 $1,944
------ ------ ------ ------
------ ------ ------ ------
Income tax expense (benefit) consists of:
Current tax $ 273 $1,685 $2,185 $1,988
Deferred tax 206 (516) (277) (44)
------ ------ ------ ------
$ 479 $1,169 $1,908 $1,944
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
Income tax expense differs from the amounts computed by applying
the New Zealand income tax rate of 33% to net income before income taxes as a
result of the following:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
MARCH 31, SEPTEMBER 30,
--------------------------------- -------------
1995 1996 1997 1997
--------- --------- --------- -------------
NZ$ NZ$ NZ$ NZ$
(audited) (audited) (audited) (unaudited)
<S> <C> <C> <C> <C>
Expected income tax expense 472 1,122 1,652 1,837
Increase (decrease) resulting from:
Amortization of deferred compensation - 47 217 99
Amortization of intangible assets - - 13 -
Adjustment for foreign income tax rates - - 52 12
Other 7 - (26) (4)
---- ------ ------ ------
Income tax expense $479 $1,169 $1,908 $1,944
---- ------ ------ ------
---- ------ ------ ------
</TABLE>
F-30
<PAGE>
MAS TECHNOLOGY LIMITED
AND SUBSIDIARIES
(Incorporated in New Zealand)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, 1995, 1996 and 1997
(Information as of and for the six months ended September 30, 1997 is unaudited)
(Dollars in thousands, except per share amounts)
The tax effect of temporary differences that give rise to
significant portions of deferred tax assets and liabilities are presented
below:
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
------------------------ -------------
1996 1997 1997
--------- --------- -------------
NZ$ NZ$ NZ$
(audited) (audited) (unaudited)
<S> <C> <C> <C>
DEFERRED TAX ASSETS:
Uncompleted contracts, principally due to recognition of
actual expenses $ 57 $ - $ -
Allowance for doubtful accounts, principally due to
recognition of actual expense 32 32 62
Warranty provision, due to recognition of actual expense 86 104 70
Property and equipment, due to differences in depreciation 18 138 136
Employee benefits, due to recognition of actual expense 50 73 112
Future income tax benefit from subsidiary losses - 172 150
----- ----- -----
Deferred tax assets 243 519 530
----- ----- -----
DEFERRED TAX LIABILITIES:
Uncompleted contracts, principally due to recognition of
income (44) - -
Foreign exchange contracts, principally due to recognition of
income - (36) -
Accounts receivable, principally due to recognition of income - (7) (10)
----- ----- -----
Deferred tax liabilities (44) (43) (10)
----- ----- -----
Net deferred tax assets $199 $476 $520
----- ----- -----
----- ----- -----
</TABLE>
10. SHAREHOLDERS' EQUITY
ORDINARY SHARES
As of September 30, 1997, the capital of the Company is 6,800,000
ordinary shares with no par value. The Board of Directors must seek approval
by the shareholders, to designate and issue ordinary shares in one or more
classes and to designate the dividend rate, voting rights and other rights,
preferences and restrictions of each class.
On June 19, 1997, the Company closed an initial public offering of
2,000,000 Ordinary Shares, each represented by one American Depositary Share,
at a price per share of US$14.00. On July 7, 1997, the Underwriters
exercised an over-allotment option to purchase 300,000 additional ADSs.
After underwriting discounts and expenses totalling NZ$2,883, the net
proceeds to the Company from the sale of such shares were approximately
NZ$41,780 (approximately US$26,731).
On September 16, 1994, the Company agreed with the shareholders to
settle the outstanding dividends declared of NZ$222 and NZ$138 in 1993 and
1994 by issuing 1,296,000 fully paid ordinary shares.
Also during fiscal 1995, the Company received cash proceeds of
approximately NZ$1,919, net of offering expenses of NZ$143.5 from the
issuance of 450,000 ordinary shares at NZ$4.58 per share.
F-31
<PAGE>
MAS TECHNOLOGY LIMITED
AND SUBSIDIARIES
(Incorporated in New Zealand)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, 1995, 1996 and 1997
(Information as of and for the six months ended September 30, 1997 is unaudited)
(Dollars in thousands, except per share amounts)
1995 EMPLOYEE SHARE PURCHASE PROGRAM
On December 15, 1995, the Board of Directors of the Company adopted
the Marine-Air Systems Employee Share Program (the "Plan"). The Plan permits
the issuance of Ordinary Shares to certain employees at the discretion of the
Board. Unless terminated by the Board of Directors of the Company, the Plan
has no termination date. As of March 31, 1997, the Company had issued
392,400 ordinary shares pursuant to the Plan and had not reserved any
additional shares of the Company's Ordinary Shares for further issuance
pursuant to the Plan.
Ordinary Shares granted under the Plan are typically subject to
various vesting provisions, all of which are contingent upon the continuous
service of the employee. Ordinary Shares granted under the Plan generally
expire three years following the date of the grant and are subject to
limitations on transfer. The Board may not impose vesting criterion more
restrictive than 33% per year. During the year ended March 31, 1996, the
Company awarded 392,400 ordinary shares to certain employees based upon such
employee's performance. Although fully paid, the ordinary shares vest over a
three-year period.
Ordinary Shares granted to employees under the Plan are held in
trust, for the benefit of such employees, until such shares are paid in full
by the employee through payroll deductions or by the application of dividends
declared and paid in respect of the ordinary shares in the Plan. Until such
shares are released to the employee, employees hold a beneficial interest in
the ordinary shares granted to such employee under the Plan. As of March 31,
1997, the Company had declared and paid dividends totaling NZ$3.89 per share
in respect of the ordinary shares in the Plan. As a result of these
dividends, all ordinary shares granted to employees under the Plan are fully
paid, with no further liability on the part of the employees to contribute in
respect of the issuance price. For financial reporting purposes, the Plan
has been treated as grants of restricted shares to employees. As such the
Company has recorded a deferred compensation charge of NZ$1,799 for the year
ended March 31, 1996, based upon the fair value of the ordinary shares at the
date of grant of NZ$4.58 per share. The deferred compensation charge of
NZ$1,799 is being amortized to income over the three-year vesting period
applicable to the Ordinary Shares granted under the Plan. Under the
provisions of the Plan, if the employee leaves before the completion of the
vesting period such employee may receive a cash payment of up to NZ$3.89 per
Ordinary Share.
As of March 31, 1997, certain employees who had received ordinary
share awards under the Plan left the Company and received a cash payment of
NZ$3.89 per share for their beneficial interest in the ordinary shares
granted under the Plan. The aggregate cash payment of NZ$10 has been
recognized as a compensation expense in the statement of operations. The
number of unissued ordinary shares with no beneficial interest to any
employee total 3,672 and 4,356 ordinary shares as of March 31, 1997 and
September 30, 1997. As of March 31, 1996 and 1997 and September 30, 1997,
there were no vested ordinary shares under the Plan.
Under the provisions of the Plan the Company's ordinary shares
automatically vest upon a change in ownership of the Company.
1997 STOCK OPTION PLAN
The Company's 1997 Stock Option Plan (the "1997 Plan") was adopted
by the Board on February 15, 1997 and approved by the shareholders on
February 15, 1997. A maximum of 540,000 Ordinary Shares have been authorized
for issuance under the 1997 Plan. As of March 31, 1997, no options have been
granted under the 1997 Plan. As of September 30, 1997, options to acquire
341,200 ordinary shares have been granted under the 1997 Plan. Under the 1997
Plan, employees and non-employee members of the Board may, at the discretion of
the plan administrator, be granted options to purchase Ordinary Shares at an
exercise price not less than 85% of their fair market value on the grant date.
The 1997 Plan is administered by the Compensation Committee (the
"Plan Administrator"). The Plan Administrator has complete discretion to
determine which eligible individuals are to receive option grants, the time
or times when such
F-32
<PAGE>
MAS TECHNOLOGY LIMITED
AND SUBSIDIARIES
(Incorporated in New Zealand)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, 1995, 1996 and 1997
(Information as of and for the six months ended September 30, 1997 is unaudited)
(Dollars in thousands, except per share amounts)
option grants are to be made, the number of Ordinary Shares subject to each
such grant, the vesting schedule to be in effect for the option grant and the
maximum term for which any granted option is to remain outstanding.
The Plan Administrator has the authority to provide for accelerated
vesting of the outstanding options in connection with certain changes in
control of the Company or the subsequent termination of employment following
a change in control event.
Under the 1997 Plan options issued by the Company automatically
vest upon the involuntary termination of employment of an option holder
within 18 months of the change in ownership of the Company.
Stock appreciation rights are authorized for issuance under the
1997 Plan which provide the holders with the election to surrender their
outstanding options for a distribution from the Company equal to the excess
of (i) the fair market value of the vested Ordinary Shares subject to the
surrendered option over (ii) the aggregate exercise price payable for such
Ordinary Shares. Such distribution may be made in cash or in Ordinary Shares.
The Plan Administrator has the authority to effect the cancellation
of outstanding options under the 1997 Plan in return for the grant of new
options for the same or different number of Ordinary Shares with an exercise
price per Ordinary Share based upon the fair market value of the Ordinary
Shares on the new grant date.
The Board may amend or modify the 1997 Plan at any time. The 1997
Plan will terminate on February 14, 2007, unless sooner terminated by the
Board.
COMPANY RE-REGISTRATION
On December 9, 1996 the Company re-registered under the New Zealand
Companies Act 1993 (the "Act"). In accordance with the provisions of the
Act, the Company has no authorized capital and the ordinary shares have no
par value. All applicable share and per share data have been adjusted for all
periods presented.
ORDINARY SHARE SPLIT
On April 11, 1997 the Company effected a 3.6-for-1 share split of
the Company's ordinary shares. All share, per share and stock option data
for all periods presented has been restated to reflect the share split.
11. GEOGRAPHIC SALES AND MAJOR CUSTOMERS
The Company operates predominantly in the telecommunications
industry segment.
The following is a summary of the Company's sales by geographic
area:
SIX MONTHS
ENDED
YEAR ENDED MARCH 31, SEPTEMBER 30,
------------------------------- -------------
1995 1996 1997 1997
--------- --------- --------- -------------
(audited) (audited) (audited) (unaudited)
Europe 7% 7% 13% 18%
The Americas 26% 27% 18% 4%
Africa 11% 22% 35% 36%
Asia /Pacific 13% 12% 20% 12%
New Zealand 43% 32% 14% 30%
---- ---- ---- ----
100% 100% 100% 100%
---- ---- ---- ----
---- ---- ---- ----
Export Sales 57% 68% 86% 70%
---- ---- ---- ----
---- ---- ---- ----
F-33
<PAGE>
MAS TECHNOLOGY LIMITED
AND SUBSIDIARIES
(Incorporated in New Zealand)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, 1995, 1996 and 1997
(Information as of and for the six months ended September 30, 1997 is unaudited)
(Dollars in thousands, except per share amounts)
Included in sales to Africa are sales to NZ Telecoms (Pty) Limited ("NZT")
prior to its acquisition (see note 13) which total 0%, 18% and 1% for the years
ended March 31, 1995, 1996 and 1997, respectively. These sales to NZT were made
on terms substantially equivalent to those made with independent third parties.
The following table summarizes the percentage of sales accounted for by the
Company's significant customers with sales of 10% or more:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED MARCH 31, SEPTEMBER 30,
----------------------- -------------------------
1995 1996 1997 1997
-------- -------- -------- ----------
(audited) (audited) (audited) (unaudited)
<S> <C> <C> <C> <C>
Bellsouth (New Zealand) Limited 30% 19% - 20%
Compania de Telefonos del Interior 10% 24% - -
NZ Telecoms (Pty) Limited - 18% - -
Telkom SA Limited - - 15% 12%
Zimbabwe Post & Telecommunications Corporation - - 12% -
</TABLE>
Geographic information for the fiscal years ended March 31, 1995, 1996 and
1997 and the six months ended September 30, 1997 is as follows:-
<TABLE>
<CAPTION>
NEW THE ELIMI-
ZEALAND AFRICA AMERICAS OTHERS NATIONS TOTAL
NZ$ NZ$ NZ$ NZ$ NZ$ NZ$
<S> <C> <C> <C> <C> <C> <C>
Year ended March 31, 1995
(audited)
Sales to unaffiliated customers $9,481 - 2,193 10,919 - $22,593
Intercompany sales - - - - - -
--------- --------- --------- -------- --------- ---------
Net Sales $9,481 - 2,193 10,919 - $22,593
--------- --------- --------- -------- --------- ---------
Income from Operations $726 - 877 - - $1,603
--------- --------- --------- -------- --------- ---------
Total assets $11,155 - - - - $11,155
--------- --------- --------- -------- --------- ---------
Year ended March 31, 1996
(audited)
Sales to unaffiliated customers $14,420 7,049 9,983 8,708 - $40,160
Intercompany sales $3,823 - - - (3,823) -
--------- --------- --------- -------- --------- ---------
Net Sales $18,243 7,049 9,983 8,708 (3,823) $40,160
--------- --------- --------- -------- --------- ---------
Income from Operations $2,196 - 1,646 - - $3,364
--------- --------- --------- -------- --------- ---------
Total assets $13,541 - 3,393 - - $16,934
--------- --------- --------- -------- --------- ---------
Year ended March 31, 1997 (audited)
Sales to unaffiliated customers $9,810 16,741 593 24,167 - $51,311
Intercompany sales $7,731 - - - (7,731)
--------- --------- --------- -------- --------- ---------
Net Sales $17,541 16,741 593 24,167 (1,932) $51,311
--------- --------- --------- -------- --------- ---------
Income from Operations $4,399 3,063 (26) (465) - $5,039
--------- --------- --------- -------- --------- ---------
Total assets $22,643 11,426 105 157 - $34,331
--------- --------- --------- -------- --------- ---------
Six months ended September 30,
1997 (unaudited)
Sales to unaffiliated customers $12,044 14,208 1,488 11,681 - $39,421
Intercompany sales $7,436 - - - (7,436) -
--------- --------- --------- -------- --------- ---------
Net sales $19,480 14,208 1,488 11,681 (7,436) $39,421
--------- --------- --------- -------- --------- ---------
Income from operations $1,650 629 (719) 2,246 (768) $3,038
--------- --------- --------- -------- --------- ---------
Total assets $54,065 14,236 - 1,008 - $69,309
--------- --------- --------- -------- --------- ---------
</TABLE>
F-34
<PAGE>
MAS TECHNOLOGY LIMITED
AND SUBSIDIARIES
(Incorporated in New Zealand)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, 1995, 1996 and 1997
(Information as of and for the six months ended September 30, 1997 is unaudited)
(Dollars in thousands, except per share amounts)
12. DERIVATIVE FINANCIAL INSTRUMENTS
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
The Company enters into foreign currency exchange contracts to limit the
Company's exposure to changes in exchange rates on transactions that are
denominated in currencies other than the New Zealand dollar, primarily the
United States dollar.
The counterparty to the Company's forward foreign currency contracts is
generally with the National Bank of New Zealand. The Company does not believe
that the risks or economic consequences of nonperformance by the counterparty
are material. The Company does not require collateral from the counterparty to
support the forward foreign exchange contracts.
To date, the Company has sold most of its products in international
markets. The Company bills its customers in United States dollars wherever
possible. Approximately 46%, 62% and 66% of sales for the years ended March 31,
1995, 1996 and 1997 were denominated in United States dollars. As of March 31,
1996 and 1997 and September 30, 1997, accounts receivable due in United States
dollars was US$1,973, US$8,689 and US$7,230, respectively, and were translated
at an exchange rate of $1.5378, $1.4468 and $1.5309 per United States dollar.
The amount of foreign exchange gains and (losses) included in income was
NZ$(30) in 1995, NZ$214 in 1996, NZ$423 in 1997 and NZ$400 for the six months
ended September 30, 1997. The amount of net unrealized foreign exchange gains
and (losses) was NZ$(126), NZ$(133), and NZ$(40) for the years ended March 31,
1995, 1996 and 1997, respectively, and NZ$1,956 for the six months ended
September 30, 1997.
F-35
<PAGE>
MAS TECHNOLOGY LIMITED
AND SUBSIDIARIES
(Incorporated in New Zealand)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, 1995, 1996 and 1997
(Information as of and for the six months ended September 30, 1997 is unaudited)
(Dollars in thousands, except per share amounts)
The table below summarizes by currency the contractual amounts of the
Company's open forward foreign exchange contracts as of March 31,1995, 1996 and
1997 and September 30, 1997. The "sell" amounts represent the New Zealand
dollar equivalent of contracts to sell foreign currencies, and the "buy" amounts
represent the New Zealand dollar equivalent of contracts to purchase foreign
currencies.
<TABLE>
<CAPTION>
CONTRACT
YEAR TYPE OF CONTRACT MATURITY EXCHANGE FAIR VALUE
ENDED CONTRACT CURRENCY AMOUNT DATE/PERIOD RATE NZ$
- ------------- -------- ---------- ----------- ------------- ---------- ----------
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
March 31, Sell United $5,450 1 - 9 0.6897- $(40)
1997 (audited) States months 0.6915
dollars
- -------------------------------------------------------------------------------------------------------------------
March 31, Sell United $3,515 3 - 4 0.6380- $(151)
1996 (audited) States months 0.6767
dollars
Sell Australian $380 1 month 0.8968 $18
dollars
- ---------------------------------------------------------------------------------------------------------------------
March 31, Sell United $3,853 1 - 5 0.6185- $(126)
1995 (audited) States months 0.6419
dollars
Buy United $230 1 month 0.6490 $3
States
dollars
- ---------------------------------------------------------------------------------------------------------------------
Six months Sell United $8,900 1-8 months 0.6277- $99
ended States 0.6502
September 30, 1997 dollars
(unaudited) Buy Australian $50 1 month 0.8760 -
dollars
Buy British L60 1 month 0.3874 $(3)
Pounds
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
13. BUSINESS COMBINATION
Effective September 1, 1996, the Company acquired substantially all
the net assets of NZ Telecoms (Pty) Limited and Affiliates ("NZT"), a group of
companies under common control, incorporated in South Africa, in a business
combination accounted for by the purchase method. The results of operations of
NZT have been included in the consolidated statement of operations since
September 1, 1996. The initial purchase price of NZ$1,293 has been allocated to
property and equipment totaling NZ$188 and intangible assets totaling NZ$1,105.
The acquisition agreement provides for contingent consideration of up to
US$2,726 paid to former shareholders of NZT, subject to the performance of NZT
in reaching certain financial targets by June 30, 1998. The contingent
consideration is payable in incremental amounts based on a multiple of the
average annual income from operations through June 30, 1998. The contingent
consideration will be recognized as additional goodwill in the periods in which
the financial targets are achieved and the amounts are payable. As at March 31,
1997 intangible assets and acquisition costs payable included NZ$755 for the
earn out amount due on April 30, 1997 as calculated based upon the results of
NZT for the seven months ended March 31, 1997.
F-36
<PAGE>
MAS TECHNOLOGY LIMITED
AND SUBSIDIARIES
(Incorporated in New Zealand)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, 1995, 1996 and 1997
(Information as of and for the six months ended September 30, 1997 is unaudited)
(Dollars in thousands, except per share amounts)
The following unaudited condensed pro forma information presents the
unaudited results of operations of the Company as if the acquisition had
occurred on April 1, 1995 and 1996:-
Year Ended
March 31,
-------------------
1996 1997
-------- --------
NZ$ NZ$
Sales $ 42,056 $ 52,202
-------- --------
-------- --------
Net income $ 2,072 $ 2,750
-------- --------
-------- --------
Income per ordinary share $ 0.50 $ 0.65
-------- --------
-------- --------
The pro forma results do not necessarily represent results which would
have occurred if the acquisition had taken place on the dates indicated nor
are they necessarily indicative of the results of future operations.
F-37
<PAGE>
MAS TECHNOLOGY LIMITED
AND SUBSIDIARIES
(Incorporated in New Zealand)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, 1995, 1996 and 1997
(Information as of and for the six months ended September 30, 1997 is unaudited)
(Dollars in thousands, except per share amounts)
14. SUPPLEMENTAL DISCLOSURE TO CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED MARCH 31, SEPTEMBER 30,
---------------------------------- ---------------
1995 1996 1997 1997
--------- --------- -------- ---------------
NZ$ NZ$ NZ$ NZ$
(audited) (audited) (audited) (unaudited)
<S> <C> <C> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid for interest $173 $163 $462 $206
--------- --------- -------- ---------------
--------- --------- -------- ---------------
Cash for paid income taxes $70 $942 $1,976 $1,797
--------- --------- -------- ---------------
--------- --------- -------- ---------------
Supplemental schedule of non-cash financing and
investing activities:
Conversion of accrued divided liabilities included
in accounts payable to ordinary shares $360 $ - $ - $ -
--------- --------- -------- ---------------
--------- --------- -------- ---------------
Issuance of ordinary shares under 1995 share
purchase scheme $ - $1,799 $ - $ -
Increase in acquisition costs payable and
intangible assets for payment of earn-out from
acquisition of net assets of NZ Telecoms (Pty) $ - $ - $ 755 $ -
Ltd.
--------- --------- -------- ---------------
--------- --------- -------- ---------------
Reclassification of deferred offering costs to ordinary
shares on closing of the initial public offering $ - $ - $ - $2,150
--------- --------- -------- ---------------
--------- --------- -------- ---------------
</TABLE>
15. SUBSEQUENT EVENTS (UNAUDITED)
REORGANIZATION AGREEMENT
On December 22, 1997, the Company signed a definitive agreement (the
"Reorganization Agreement") to effect a tax-free amalgamation (the
"Amalgamation") of South Amalgamation Sub Limited ("Amalgamation Sub"), a
wholly-owned subsidiary of Digital Microwave Corporation ("DMC") with and
into the Company. The Amalgamation is intended to qualify as a
pooling-of-interests transaction. The Company will be the surviving company
of the Amalgamation. Like the Company, DMC provides advanced wireless
solutions for worldwide telephone network interconnection and access.
Pursuant to the Amalgamation Agreement, each fully diluted share of MAS
ordinary share, no par value, (the "Ordinary Share"), will be converted into
the right to receive approximately 1.20 shares of common stock of DMC, par
value US$0.01 per share, assuming approximately 6,800,000 shares of MAS
ordinary shares are outstanding, on a fully diluted basis, at the effective
time of the Amalgamation. Based upon that assumption, DMC will issue
approximately 8,200,000 shares of its common stock and stock equivalents in
exchange for the ordinary shares and ordinary share equivalents of MAS upon
consummation of the Amalgamation.
There is no assurance as to whether or when the conditions to consummate
the Amalgamation will be satisfied. The transaction has been approved by the
respective company's Board of Directors, and is expected to close within
approximately 90 days subject to regulatory reviews, approval by each
company's stockholders and shareholders, and other customary closing
conditions.
F-38
<PAGE>
March 18, 1997
REPORT OF THE INDEPENDENT AUDITORS
TO THE MEMBERS OF NZ TELECOMS (PROPRIETARY) LIMITED:
We have audited the accompanying combined balance sheets of NZ Telecoms
(Proprietary) Limited and Affiliates as at February 28, 1995 and February 29,
1996 and the related combined statements of operations, shareholders equity
and cash flows for the years then ended. The combined financial statements,
which include unaudited information, provide information about the past
financial performance of the company and its financial position as at
February 28, 1995 and February 29, 1996. These financial statements are the
responsibility of the company's directors. Our responsibility is to report
on these financial statements.
We conducted our audit in accordance with generally accepted auditing
standards in South Africa which are essentially the same as the United States
generally accepted auditing standards. These standards require that we plan
and perform the audit to obtain reasonable assurance that, in all material
respects, fair presentation is achieved in the combined financial statements.
An audit includes an evaluation of the appropriateness of the accounting
policies, an examination, on a test basis, of evidence supporting the amounts
and disclosures included in the combined financial statements, an assessment
of the reasonableness of significant estimates and a consideration of the
appropriateness of the overall financial statement presentation. We consider
that our audit procedures were appropriate in the circumstances to express
our opinion presented below.
In our opinion these combined financial statements fairly present the
financial position of NZ Telecoms (Proprietary) Limited and Affiliates at
February 28, 1995 and February 29, 1996 and the results of its operations and
cash flow information for the years ended February 28, 1995 and February 29,
1996, in conformity with generally accepted accounting practice in South
Africa.
Generally accepted accounting practice in South Africa varies in certain
respects from generally accepted accounting principles in the United States.
Application of generally accepted accounting principles applicable in the
United States would not have materially affected the results of operations,
cash flows or financial position, or shareholders' equity for each of the
years in the two year period ended February 29, 1996.
KPMG
Chartered Accountants (S.A.)
Pretoria, South Africa
F-39
<PAGE>
NZ TELECOMS (PROPRIETARY) LIMITED
AND AFFILIATES
(INCORPORATED IN SOUTH AFRICA)
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
February 28, August 31,
1995 1996 1996 1995 1996 1996
---- ---- ---- ---- ---- ----
(R000s) (R000s) (US$000s) (R000s) (R000s) (US$000s)
(note 2) (note 2)
(audited) (audited) (audited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash 217 5,477 1,279 53 891 208
Accounts receivable (note 4) 1,643 6,237 1,456 1,872 946 221
Inventories 580 434 101 727 413 97
--- --- --- --- --- ---
Total current assets 2,440 12,148 2,836 2,652 2,250 526
Fixed assets, net (note 5) 925 948 221 1,009 1,016 237
Due from related entities (note 6) 337 218 51 182 210 49
--- --- -- --- --- --
Total assets 3,702 13,314 3,108 3,843 3,476 812
----- ------ ----- ----- ----- ---
----- ------ ----- ----- ----- ---
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable 1,490 10,470 2,446 1,853 2,279 532
Bank overdraft (note 4) - 1,762 410 160 881 206
Hire purchase obligations -
current (note 7) 84 98 23 42 67 16
Taxation payable 323 108 25 390 91 21
--- --- -- --- -- --
Total current liabilities 1,897 12,438 2,904 2,445 3,318 775
Hire purchase obligations (note 7) 267 168 39 273 225 53
--- --- -- --- --- --
Total liabilities 2,164 12,606 2,943 2,718 3,543 828
----- ------ ----- ----- ----- ---
Shareholders' equity:
Share capital (note 8) 27 27 6 27 27 6
Non-distributable reserve
(note 8) 19 13 3 16 9 2
Retained earnings 1,492 668 156 1,082 (103) (24)
----- --- --- ----- ---- ---
Total shareholders' equity 1,538 708 165 1,125 (67) (16)
----- --- --- ----- --- ---
Total liabilities and shareholders' 3,702 13,314 3,108 3,843 3,476 812
equity ----- ------ ----- ----- ----- ---
----- ------ ----- ----- ----- ---
</TABLE>
The accompanying notes form an integral part of,
and should be read in conjunction with, these
combined financial statements
F-40
<PAGE>
NZ TELECOMS (PROPRIETARY) LIMITED
AND AFFILIATES
(INCORPORATED IN SOUTH AFRICA)
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended February 28, Six Months Ended August 31,
----------------------- ---------------------------
1995 1996 1996 1995 1996 1996
---- ---- ---- ---- ---- ----
(R000s) (R000s) (US$000s) (R000s) (R000s) (US$000s)
(note 2) (note 2)
(audited) (audited) (audited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
Revenue 13,660 26,612 6,214 4,829 7,614 1,778
Cost of sales 7,427 22,213 5,186 2,774 5,708 1,333
------ ------ ----- ----- ----- -----
Gross profit 6,233 4,399 1,028 2,055 1,906 445
Selling, general and 4,267 4,317 1,008 2,120 2,518 588
administration expenses
(note 3)
Depreciation expense 417 320 75 156 173 40
------ ------ ----- ----- ----- -----
Net income / (loss) before 1,549 (238) (55) (221) (785) (183)
taxation
Taxation expense (note 10) (441) (25) (6) - 10 2
------ ------ ----- ----- ----- -----
Net income / (loss) after 1,108 (263) (61) (221) (775) (181)
taxation ------ ------ ----- ----- ----- -----
------ ------ ----- ----- ----- -----
</TABLE>
The accompanying notes form an integral part of,
and should be read in conjunction with, these
combined financial statements
F-41
<PAGE>
NZ TELECOMS (PROPRIETARY) LIMITED
AND AFFILIATES
(INCORPORATED IN SOUTH AFRICA)
COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Ordinary Shares
--------------- Non-distributable Retained
Number Amount Reserve Earnings Total
------ ------ ------- -------- -----
(R000s) (R000s) (R000s) (R000s)
<S> <C> <C> <C> <C> <C>
BALANCE AT MARCH 1, 1994 1,075 2 32 968 1,002
Transfer from non-distributable reserve - - (13) 13 -
(note 8)
Issue of ordinary shares 5 25 - - 25
Net income after taxation - - - 1,108 1,108
Dividends paid - - - (597) (597)
----- -- -- ----- -----
BALANCE AT FEBRUARY 28, 1995 1,080 27 19 1,492 1,538
Transfer from non-distributable reserve - - (6) 6 -
(note 8)
Dividends paid - - - (567) (567)
Net loss after taxation - - - (263) (263)
----- -- -- ----- -----
BALANCE AT FEBRUARY 28, 1996 1,080 27 13 668 708
Transfer from non-distributable reserve - - (4) 4 -
(unaudited) (note 8)
Net loss for period (unaudited) - - - (775) (775)
----- -- -- ----- -----
BALANCE AT AUGUST 31, 1996 (UNAUDITED) 1,080 27 9 (103) (67)
----- -- -- ----- -----
----- -- -- ----- -----
</TABLE>
The accompanying notes form an integral part of,
and should be read in conjunction with, these
combined financial statements
F-42
<PAGE>
NZ TELECOMS (PROPRIETARY) LIMITED
AND AFFILIATES
(INCORPORATED IN SOUTH AFRICA)
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended February 28, Six Months Ended August 31,
----------------------- ---------------------------
1995 1996 1996 1995 1996 1996
---- ---- ---- ---- ---- ----
(R000s) (R000s) (US$000s) (R000s) (R000s) (US$000s)
(note 2) (note 2)
(audited) (audited) (audited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Receipts from customers 14,447 22,018 5,141 4,600 12,905 3,013
Payments to suppliers (12,631) (17,645) (4,120) (4,611) (16,403) (3,830)
------- ------- ------ ------ ------- ------
Net cash flows generated by / 1,816 4,373 1,021 (11) (3,498) (817)
(utilized in) operating activities ------- ------- ------ ------ ------- ------
Cash flows used in investing activities:
Purchase of fixed assets (776) (343) (80) (240) (241) (56)
Proceeds on disposal of fixed assets 108 1 - - - -
------- ------- ------ ------ ------- ------
Net cash used in investing activities (668) (342) (80) (240) (241) (56)
------- ------- ------ ------ ------- ------
Cash flows used in financing activities:
Proceeds from issue of shares 25 - - - - -
Dividends paid (597) (567) (131) (192) - -
Repayments from related parties 8 139 32 157 9 2
Advances to related parties (298) (20) (5) (2) (1) -
Proceeds from hire purchase 587 43 10 43 90 21
obligations
Repayments of hire purchase (589) (128) (30) (79) (64) (15)
obligations ------- ------- ------ ------ ------- ------
(864) (533) (124) (73) 34 8
------- ------- ------ ------ ------- ------
Net increase / (decrease) in cash 284 3,498 817 (324) (3,705) (865)
held
Cash, beginning of period (67) 217 50 217 3,715 867
------- ------- ------ ------ ------- ------
Cash, end of period 217 3,715 867 (107) 10 2
------- ------- ------ ------ ------- ------
------- ------- ------ ------ ------- ------
Reconciliation of net income after
taxation to net cash flow from
operating activities:
Net income / (loss) after taxation 1,108 (263) (61) (221) (775) (181)
Depreciation expense 417 320 75 156 173 40
Gain on disposal of fixed assets (91) (1) - - - -
(Increase) / decrease in operating assets:
Accounts receivable 787 (4,593) (1,072) (229) 5,291 1,235
Inventories (215) 146 34 (147) 21 5
Increase / (decrease) in operating
liabilities:
Accounts payable (2) 8,979 2,095 363 (8,191) (1,912)
Taxation payable (188) (215) (50) 67 (17) (4)
------- ------- ------ ------ ------- ------
Net cash flows generated by / 1,816 4,373 1,021 (11) (3,498) (817)
(utilized in) operating activities ------- ------- ------ ------ ------- ------
------- ------- ------ ------ ------- ------
</TABLE>
The accompanying notes form an integral part of,
and should be read in conjunction with, these
combined financial statements
F-43
<PAGE>
NZ TELECOMS (PROPRIETARY) LIMITED
AND AFFILIATES
(INCORPORATED IN SOUTH AFRICA)
NOTES TO THE COMBINED FINANCIAL STATEMENTS
(1) STATEMENT OF ACCOUNTING POLICIES
ORGANIZATION AND BASIS OF FINANCIAL STATEMENT PRESENTATION
NZ Telecoms (Proprietary) Limited ("NZTL"), NZ Telecoms Botswana
(Proprietary) Limited ("NZB") and Radio Communication Engineering Services
Botswana (Proprietary) Limited ("RCE") (collectively referred to herein as
"NZT") are private companies incorporated in South Africa and Botswana
under the South Africa Companies Act, 1973 and Chapter 42.01 of the
Botswana Companies Act, 1959, as amended, respectively. They were
incorporated to sell telecommunications equipment in South Africa and
Botswana.
These accompanying combined financial statements include the accounts of
NZTL and its related affiliates RCE and NZB. All significant intercompany
transactions have been eliminated in consolidation.
Effective September 1, 1996, certain assets of the Company were acquired by
MAS Technology (Pty) Limited in a business combination transaction.
STATUTORY BASE
The combined financial statements have been prepared in accordance with the
generally accepted accounting principles in South Africa and in compliance
with the South African Companies Act, 1973. These accounting principles
differ in certain respects from accounting principles generally accepted in
the United States. These differences and the approximate related effect on
the combined financial statements are not material.
MEASUREMENT BASE
The combined financial statements have been prepared on the basis of
historical cost.
STATEMENT OF ACCOUNTING POLICIES
FIXED ASSETS
Fixed assets are recorded at historical cost less depreciation. Cost
includes the price to acquire the assets and other directly
attributable expenses incurred to bring the asset to the location and
condition for its intended use.
FOREIGN CURRENCIES
All foreign currency transactions are converted at the South African
exchange rate ruling at transaction date. At the balance date,
foreign assets and liabilities denominated in foreign currencies are
translated at the closing exchange rate and exchange losses and gains
are included in the statement of operations.
F-44
<PAGE>
NZ TELECOMS (PROPRIETARY) LIMITED
AND AFFILIATES
(INCORPORATED IN SOUTH AFRICA)
NOTES TO THE COMBINED FINANCIAL STATEMENTS(CONTINUED)
DEPRECIATION
Depreciation is provided on a straight-line basis on all fixed assets,
other than office furniture and fittings, at rates calculated to
allocate the cost over their estimated useful lives. Office furniture
and fittings are depreciated on the reducing balance method at a rate
of 10% per annum.
The average depreciable lives for major categories of fixed assets are
as follows:
Computers. . . . . . . . . . .4 years
Equipment. . . . . . . . . . .5 years
Leasehold improvements . . . .4 years
Vehicles . . . . . . . . . . .4 - 5 years
REVENUE RECOGNITION
Revenue consists of sales to customers excluding value added tax,
investment income, and non-operating income. Revenues are recognized
upon shipment provided that all the significant risks and rewards of
ownership have been transferred to the buyer.
INVENTORIES
Inventories are valued at the lower of cost and net realizable value.
The cost of inventories comprises all costs of purchase and other
costs incurred in bringing the inventories to their present location
and condition, and is determined using the first-in, first-out method.
TAXATION
The taxation expense is chargeable to the combined statement of
operations. Deferred tax is calculated on the comprehensive basis
using the liability method. A deferred tax benefit is only recognized
if there is certainty of realization.
COMBINED STATEMENT OF CASHFLOWS
The following is the definition of the terms used in the combined
statement of cash flows:
# Cash means coins, notes, cash on deposit with banks and cash
overdrafts.
# Investing activities comprise the purchase and sale of fixed
assets.
# Financing activities comprise the movements in long term loans
and long term debt.
F-45
<PAGE>
NZ TELECOMS (PROPRIETARY) LIMITED
AND AFFILIATES
(INCORPORATED IN SOUTH AFRICA)
NOTES TO THE COMBINED FINANCIAL STATEMENTS(CONTINUED)
# Operating activities include all transactions and events that are
not investing or financing activities.
CHANGES IN ACCOUNTING POLICIES
All accounting policies have been applied on a consistent basis
during the periods presented.
(2) TRANSLATIONS OF SOUTH AFRICA RAND AMOUNTS INTO UNITED STATES DOLLARS
AMOUNTS
The combined financial statements are stated in South Africa rand
("Rand" or "R"). The translations of the South Africa rand
amounts into United States dollars are included solely for the
convenience of the readers, using the average exchange rate of
R4.2829 to US$1 as at August 31, 1996. The convenience
translation should not be constructed as representations that the
South Africa rand amounts have been, could have been, or could in
the future be, converted into United States dollars at this or
any other rate of exchange.
(3) SELLING, GENERAL AND ADMINISTRATION EXPENSES
The following items are included in selling, general and
administration expenses:
Year Ended Year Ended
February 28, 1996 February 28, 1995
----------------- -----------------
(R000s) (R000s)
INCOME:
Interest received 116 -
Surplus on disposal of
fixed assets 1 91
EXPENDITURE:
Audit fee 14 7
Depreciation expense 320 417
Directors' remuneration 1,070 744
Interest paid 88 48
Operating lease - vehicles 108 112
Rental expense 148 103
(4) ACCOUNTS RECEIVABLE
The accounts receivable are pledged as collateral against the bank
overdraft facilities with Nedbank Limited.
F-46
<PAGE>
NZ TELECOMS (PROPRIETARY) LIMITED
AND AFFILIATES
(INCORPORATED IN SOUTH AFRICA)
NOTES TO THE COMBINED FINANCIAL STATEMENTS(CONTINUED)
(5) FIXED ASSETS
Fixed assets were as follows:
February 28, 1996
------------------
Cost Accumulated Net Book
---- Depreciation Value
------------ -----
(R000s) (R000s) (R000s)
Computers 188 111 77
Equipment 672 326 346
Leasehold improvements 102 33 69
Office furniture and fittings 330 105 225
Vehicles 521 290 231
----- --- ---
Total fixed assets 1,813 865 948
----- --- ---
----- --- ---
February 28, 1995
------------------
Cost Accumulated Net Book
---- Depreciation Value
------------ -----
(R000s) (R000s) (R000s)
Computers 163 74 89
Equipment 508 226 282
Leasehold improvements 55 14 41
Office furniture and fittings 319 83 236
Vehicles 506 229 277
----- --- ---
Total fixed assets 1,551 626 925
----- --- ---
----- --- ---
(6) DUE FROM (TO) RELATED ENTITIES
Included under this heading are the following items:
a) due from related entities
The explanation for the above is as follows:
February 28
-----------
1996 1995
---- ----
(R000s) (R000s)
a) Due From Related Entities
(i) Fellow subsidiaries 10 9
(ii) Companies controlled by directors
of vendor company 55 194
(iii) Owners of property occupied by
company 153 134
--- ---
218 337
--- ---
Due from related entities are unsecured amounts which bear no interest
and are due for repayment after one year.
F-47
<PAGE>
NZ TELECOMS (PROPRIETARY) LIMITED
AND AFFILIATES
(INCORPORATED IN SOUTH AFRICA)
(7) HIRE PURCHASE OBLIGATIONS
Hire purchase obligations are secured by motor vehicles, office
furniture and equipment, and leasehold improvements with a book value of
R128,965. These obligations are repayable in monthly installments of
R12,040 including interest. The interest rate is calculated at the
bank's prime overdraft interest rate and is currently between 18.5% and
21.75% per annum.
Future minimum hire purchase obligations at February 28, 1996 are as
follows:
(R000s)
1997 149
1998 149
1999 15
---
313
Less imputed interest (47)
---
Present value of obligations 266
Less current portion (98)
---
168
---
---
(8) SHARE CAPITAL
The authorized and issued share capital of the company is 1,080 ordinary
shares with a par value of R1 each. The non-distributable reserve is
for the revaluation of certain assets. These revaluations are
written-off on a straight-line basis over the useful life of the asset.
(9) LEASE COMMITMENTS
Commitments under non-cancelable operating leases are (in thousands):
1996 1995
---- ----
(R000s) (R000s)
Within one year 61 108
One to two years 36 61
Two to five years - 36
-- ---
97 205
-- ---
-- ---
F-48
<PAGE>
NZ TELECOMS (PROPRIETARY) LIMITED
AND AFFILIATES
(INCORPORATED IN SOUTH AFRICA)
(10) INCOME TAXES
Taxation expense differs from the amounts computed by applying South
African federal income tax rate of 35% to pretax income as a result of
the following:
<TABLE>
<CAPTION>
Year Ended February 28, Six Months Ended August 31,
----------------------- ---------------------------
1995 1996 1996 1995 1996 1996
---- ---- ---- ---- ---- ----
(R000s) (R000s) (US$000s) (R000s) (R000s) (US$000s)
(note 2) (note 2)
(audited) (audited) (audited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
Net income/(loss) before taxation 1,549 (238) (55) (221) (785) (183)
Expected taxation expense/(benefit) @ 35% 542 (83) (19) (77) (275) (64)
Permanent differences (95) 83 19 - - -
Other (6) 25 6 - - -
Taxation benefit not recognized - - - 77 265 62
----- ---- --- --- ---- ----
Taxation expense (benefit) 441 25 6 - (10) (2)
----- ---- --- --- ---- ----
----- ---- --- --- ---- ----
</TABLE>
There are no material temporary differences and accordingly the Company
has not accounted for deferred taxation. The Company has gross tax
losses available to carry forward to offset future taxable income,
totaling R785,000 for the period ended August 31, 1996. The Company has
not recognized any future income tax benefit from these losses because
the Company currently does not expect that any future benefit will be
realized.
(11) INTERIM COMBINED FINANCIAL STATEMENTS
In the opinion of management, the accompanying unaudited interim
combined financial statements reflect all adjustments (consisting of
normal recurring adjustments) considered necessary for a fair
presentation of the company's financial position, results of operations,
and cash flows for the periods presented. These interim combined
financial statements should be read in conjunction with the Company's
audited combined financial statements as at February 28, 1996, including
the notes thereto. The results for the six months ended August 31, 1996
are not necessarily indicative of the results that may be expected for
the year ending February 28, 1997.
F-49
<PAGE>
MAS TECHNOLOGY LIMITED
(INCORPORATED IN NEW ZEALAND)
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
On September 1, 1996, MAS Technology (Pty) Limited ("MAS") acquired
substantially all of the net assets of NZ Telecoms (Proprietary) Limited
("NZTL"), NZ Telecoms Botswana (Proprietary) Limited ("NZB") and Radio
Communications and Engineering Services Botswana (Proprietary) Limited
("RCE"), (collectively herein referred to as "NZT"), for a purchase
price of NZ$538,000 and contingent consideration up to a maximum of
US$3,250,000 based on the future performance of NZT.
The following unaudited pro forma condensed combined statement of
operations for the year ended March 31, 1997 assumes that the
acquisition had occurred on April 1, 1996, and includes the historical
consolidated financial statements of operations of MAS, adjusted for the
pro forma effects of the acquisition. The unaudited pro forma condensed
statements of operations are not necessarily indicative of the results
of operations that would have actually occurred if the transactions had
been consummated as of April 1, 1996. These financial statements should
be read in conjunction with the historical consolidated financial
statements and related notes of MAS and NZT included herein. MAS's
historical consolidated balance sheet as of March 31, 1997 includes the
assets acquired and liabilities assumed of NZT.
F-50
<PAGE>
MAS TECHNOLOGY LIMITED
(INCORPORATED IN NEW ZEALAND)
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED MARCH 31, 1997
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
MAS PRO FORMA PRO FORMA
HISTORICAL NZT ADJUSTMENTS COMBINED MAS
---------- --- ----------- -----------------------
NZ$ NZ$ NZ$ (NOTE C) NZ$ US$ (NOTE D)
<S> <C> <C> <C> <C> <C>
Sales ............................... $51,311 $2,559 $(1,668) $52,202 $36,265
Cost of sales ....................... 30,353 1,919 (1,440) 30,832 21,419
------- ------ ------- ------- -------
Gross profit ........................ 20,958 640 (228) 21,370 14,846
Operating expenses
Research and development ............ 3,786 -- -- 3,786 2,630
Selling and marketing ............... 8,232 459 (60) 8,631 5,996
General and administration .......... 3,901 475 (43) 4,333 3,010
------- ------ ------- ------- -------
Total operating expenses ......... 15,919 934 (103) 16,750 11,636
------- ------ ------- ------- -------
Income (loss) from operations .... 5,039 (294) (125) 4,620 3,210
Interest expenses, net .............. (510) (6) 2 (514) (357)
Other income ........................ 478 36 -- 514 357
Income tax expense .................. 1,908 (3) 35 1,870 1,299
------- ------ ------- ------- -------
Net income (loss) ................ $ 3,099 $ (261) $ (88) $ 2,750 $ 1,911
------- ------ ------- ------- -------
------- ------ ------- ------- -------
Pro forma net income per share ...... $ 0.74 $ 0.65 $ 0.45
------- ------- -------
------- ------- -------
Pro forma weighted average number of
ordinary shares outstanding and
ordinary share equivalents ......... 4,210 4,210 4,210
------- ------- -------
------- ------- -------
</TABLE>
F-51
<PAGE>
MAS TECHNOLOGY LIMITED
(INCORPORATED IN NEW ZEALAND)
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(A) BASIS OF PRESENTATION
On September 1, 1996 MAS acquired substantially all the net assets of NZ
Telecoms (Proprietary) Limited, NZ Telecomms (Botswana) (Proprietary) Limited
and Radio Communications and Engineering Services (Botswana) (Proprietary)
Limited (herein referred to as "NZT"), in South Africa for a purchase price
of NZ$538,000 (including acquisition costs) and contingent consideration up
to a maximum of US$3,250,000 based on the future performance of NZT. The
acquisition was accounted for by the purchase method and consisted entirely
of cash paid in October 1996.
The unaudited pro forma condensed combined statements of operations for
the year ended March 31, 1997 include historical results of operations of MAS
and NZT, adjusted for the pro forma effects of the acquisition.
(B) HISTORICAL CONDENSED COMBINED STATEMENT OF OPERATIONS INFORMATION
The historical condensed statement of operations includes MAS for the
year ended March 31, 1997 and NZT for the six months ended August 31, 1996.
(C) PRO FORMA ADJUSTMENTS
The following pro forma adjustments have been made to the condensed
combined statements of operations of MAS and the acquired business ("NZT")
for the year ended March 31, 1997:
YEAR ENDED
MARCH 31, 1997
--------------
NZ$
(IN THOUSANDS)
Sales ................................................ (1,668)
Cost of sales ........................................ (1,440)
(To eliminate sales and cost of sales for intercompany
transactions that occurred prior to the date of
acquisition).
Selling and marketing ................................ 60
General and Administrative ........................... 43
(To increase general and administrative for the
amortization of goodwill).
Interest expense ..................................... 2
(Income taxes)/income tax credits .................... 35
NZT historical accounts for the six months ended August 31, 1996
included the month of March 1996 which has been eliminated from the year
ended March 31, 1997 in the pro forma adjustments.
(D) CONVERSION OF NEW ZEALAND DOLLAR AMOUNTS TO UNITED STATES DOLLAR AMOUNTS
The pro forma condensed combined financial statements as of March 31,
1997 and for the year then ended have been translated for convenience
purposes from New Zealand dollar amounts into United States dollars. Unless
otherwise stated, the translations of New Zealand dollars into United States
dollars have been made at NZ$1.00 to US$0.6947, the March 31, 1997 noon
buying rate in New York City for cable transfers in New Zealand dollars as
reported by the Federal Reserve Bank of New York. These translations should
not be construed as representations that the New Zealand dollar amounts
actually represent such United States dollar amounts or could be converted
into United States dollars at the rate indicated.
F-52
<PAGE>
APPENDICES TO THE
PROXY STATEMENT/PROSPECTUS
APPENDIX A REORGANIZATION AGREEMENT
APPENDIX B FORMS OF PROXY OF DMC AND MAS
APPENDIX C OPINION OF BROADVIEW ASSOCIATES LLC
APPENDIX D OPINION OF HAMBRECHT & QUIST LLC
APPENDIX E SECTIONS 110-115 OF THE COMPANIES ACT 1993 OF NEW ZEALAND
APPENDIX F FORM OF THE MAS CONSTITUTION
APPENDIX G FORM OF AMENDMENT TO DMC'S RESTATED CERTIFICATE OF INCORPORATION
APPENDIX H AMALGAMATION PROPOSAL
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF
REORGANIZATION AND AMALGAMATION
AMONG
DIGITAL MICROWAVE CORPORATION
SOUTH AMALGAMATION SUB LTD.
AND
MAS TECHNOLOGY LTD.
DECEMBER 22, 1997
<PAGE>
TABLE OF CONTENTS
ARTICLE I THE AMALGAMATION . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.01. The Amalgamation. . . . . . . . . . . . . . . . . . 1
SECTION 1.02. Effective Time. . . . . . . . . . . . . . . . . . . 1
SECTION 1.03. Effect of the Amalgamation. . . . . . . . . . . . . 2
SECTION 1.04. Constitution. . . . . . . . . . . . . . . . . . . . 2
SECTION 1.05. Directors and Officers. . . . . . . . . . . . . . . 2
SECTION 1.06. Amalgamation Consideration; Conversion and
Cancellation of Securities . . . . . . . . . . . . 2
SECTION 1.07. Exchange of Certificates. . . . . . . . . . . . . . 3
SECTION 1.08. Stock Transfer Books. . . . . . . . . . . . . . . . 5
SECTION 1.09. Lost, Stolen or Destroyed Certificate . . . . . . . 5
SECTION 1.10. Tax and Accounting Consequences . . . . . . . . . . 5
SECTION 1.11. Material Adverse Effect . . . . . . . . . . . . . . 5
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . . . . . . . . 5
SECTION 2.01. Organization and Qualification; Subsidiaries. . . . 5
SECTION 2.02. Constitution. . . . . . . . . . . . . . . . . . . . 6
SECTION 2.03. Capitalization. . . . . . . . . . . . . . . . . . . 6
SECTION 2.04. Authority Relative to this Agreement. . . . . . . . 6
SECTION 2.05. No Conflict; Required Filings and Consents. . . . . 7
SECTION 2.06. Compliance; Permits.. . . . . . . . . . . . . . . . 7
SECTION 2.07. SEC Filings; Financial Statements.. . . . . . . . . 8
SECTION 2.08. Absence of Certain Changes or Events. . . . . . . . 8
SECTION 2.09. No Undisclosed Liabilities. . . . . . . . . . . . . 8
SECTION 2.10. Absence of Litigation . . . . . . . . . . . . . . . 9
SECTION 2.11. Employee Benefit Plans; Employment Agreements.. . . 9
SECTION 2.12. Employment Matters. . . . . . . . . . . . . . . . . 9
SECTION 2.13. Registration Statement; Joint Proxy Statement
Prospectus. . . . . . . . . . . . . . . . . . . . .10
SECTION 2.14. Title to Property . . . . . . . . . . . . . . . . .10
SECTION 2.15. Taxes.. . . . . . . . . . . . . . . . . . . . . . .11
SECTION 2.16. Environmental Matters . . . . . . . . . . . . . . .11
SECTION 2.17. Brokers . . . . . . . . . . . . . . . . . . . . . .12
SECTION 2.18. Full Disclosure . . . . . . . . . . . . . . . . . .12
SECTION 2.19. Opinion of Financial Advisor. . . . . . . . . . . .12
SECTION 2.20. Intellectual Property . . . . . . . . . . . . . . .12
SECTION 2.21. Interested Party Transactions . . . . . . . . . . .12
SECTION 2.22. Insurance . . . . . . . . . . . . . . . . . . . . .12
SECTION 2.23. Vote Required . . . . . . . . . . . . . . . . . . .12
SECTION 2.24. Pooling Matters . . . . . . . . . . . . . . . . . .12
SECTION 2.25. Fair Value. . . . . . . . . . . . . . . . . . . . .12
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND AMALGAMATION SUB. .13
SECTION 3.01. Organization and Qualification; Subsidiaries. . . .13
SECTION 3.02. Certificate of Incorporation and By-Laws. . . . . .13
SECTION 3.03. Capitalization. . . . . . . . . . . . . . . . . . .13
SECTION 3.04. Authority Relative to this Agreement. . . . . . . .14
SECTION 3.05. No Conflict; Required Filings and Consents. . . . .14
SECTION 3.06. Compliance; Permits.. . . . . . . . . . . . . . . .15
i
<PAGE>
SECTION 3.07. SEC Filings; Financial Statements.. . . . . . . . .15
SECTION 3.08. Absence of Certain Changes or Events. . . . . . . .15
SECTION 3.09. No Undisclosed Liabilities. . . . . . . . . . . . .16
SECTION 3.10. Absence of Litigation . . . . . . . . . . . . . . .16
SECTION 3.11. Employee Benefit Plans; Employment Agreements.. . .16
SECTION 3.12. Employment Matters. . . . . . . . . . . . . . . . .17
SECTION 3.13. Registration Statement; Joint Proxy Statement
Prospectus. . . . . . . . . . . . . . . . . . . 17
SECTION 3.14. Title to Property . . . . . . . . . . . . . . . . .17
SECTION 3.15. Taxes.. . . . . . . . . . . . . . . . . . . . . . .18
SECTION 3.16. Environmental Matters . . . . . . . . . . . . . . .18
SECTION 3.17. Brokers . . . . . . . . . . . . . . . . . . . . . .19
SECTION 3.18. Full Disclosure . . . . . . . . . . . . . . . . . .19
SECTION 3.19. Opinion of Financial Advisor. . . . . . . . . . . .19
SECTION 3.20. Intellectual Property . . . . . . . . . . . . . . .19
SECTION 3.21. Interested Party Transactions . . . . . . . . . . .19
SECTION 3.22. Insurance . . . . . . . . . . . . . . . . . . . . .19
SECTION 3.23. Vote Required . . . . . . . . . . . . . . . . . . .19
SECTION 3.24. Pooling Matters . . . . . . . . . . . . . . . . . .19
ARTICLE IV CONDUCT OF BUSINESS PENDING THE AMALGAMATION . . . . . . . . .19
SECTION 4.01. Conduct of Business by the Company Pending the
Amalgamation . . . . . . . . . . . . . . . . . . 19
SECTION 4.02. No Solicitation. . . . . . . . . . . . . . . . . . 21
SECTION 4.03. The Conduct of Business by Parent Pending the
Amalgamation . . . . . . . . . . . . . . . . . . 22
ARTICLE V ADDITIONAL AGREEMENTS . . . . . . . . . . . . . . . . . . . . .22
SECTION 5.01. Joint Proxy Statement Prospectus; Registration
Statement. . . . . . . . . . . . . . . . . . . . .22
SECTION 5.02. Stockholders' Meetings. . . . . . . . . . . . . . .23
SECTION 5.03. Access to Information; Confidentiality. . . . . . .23
SECTION 5.04. Consents; Approvals . . . . . . . . . . . . . . . .23
SECTION 5.05. Agreements of Affiliates. . . . . . . . . . . . . .23
SECTION 5.06. Notification of Certain Matters . . . . . . . . . .24
SECTION 5.07. Indemnification and Insurance.. . . . . . . . . . .24
SECTION 5.08. Further Assurances; Tax Treatment.. . . . . . . . .25
SECTION 5.09. Public Announcements. . . . . . . . . . . . . . . .25
SECTION 5.10. Listing of Parent Common Shares . . . . . . . . . .25
SECTION 5.11. Conveyance Taxes. . . . . . . . . . . . . . . . . .25
SECTION 5.12. Accountant's Letters. . . . . . . . . . . . . . . .25
SECTION 5.13. Pooling Accounting Treatment. . . . . . . . . . . .25
SECTION 5.14. Blue Sky Laws . . . . . . . . . . . . . . . . . . .26
SECTION 5.15. Appointment of Director . . . . . . . . . . . . . .26
SECTION 5.16. Registration of Shares. . . . . . . . . . . . . . .26
ARTICLE VI CONDITIONS TO THE AMALGAMATION . . . . . . . . . . . . . . . .26
SECTION 6.01. Conditions to Obligation of Each Party to Effect
the Amalgamation . . . . . . . . . . . . . . . .26
SECTION 6.02. Additional Conditions to Obligations of Parent
and Amalgamation Sub . . . . . . . . . . . . . . .27
SECTION 6.03. Additional Conditions to Obligation of the
Company. . . . . . . . . . . . . . . . . . . . . .27
ARTICLE VII TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . .28
SECTION 7.01. Termination . . . . . . . . . . . . . . . . . . . .28
SECTION 7.02. Effect of Termination . . . . . . . . . . . . . . .29
ii
<PAGE>
SECTION 7.03. Fees and Expenses.. . . . . . . . . . . . . . . . .29
ARTICLE VIII GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . .30
SECTION 8.01. Effectiveness of Representations, Warranties and
Agreements; Knowledge, Etc. . . . . . . . . . . .30
SECTION 8.02. Notices . . . . . . . . . . . . . . . . . . . . . .30
SECTION 8.03. Certain Definitions . . . . . . . . . . . . . . . .31
SECTION 8.04. Amendment . . . . . . . . . . . . . . . . . . . . .32
SECTION 8.05. Waiver. . . . . . . . . . . . . . . . . . . . . . .32
SECTION 8.06. Headings. . . . . . . . . . . . . . . . . . . . . .32
SECTION 8.07. Severability. . . . . . . . . . . . . . . . . . . .32
SECTION 8.08. Entire Agreement. . . . . . . . . . . . . . . . . .32
SECTION 8.09. Assignment, Amalgamation Sub. . . . . . . . . . . .33
SECTION 8.10. Parties in Interest . . . . . . . . . . . . . . . .33
SECTION 8.11. Governing Law . . . . . . . . . . . . . . . . . . .33
SECTION 8.12. Counterparts. . . . . . . . . . . . . . . . . . . .33
SECTION 8.13. WAIVER OF JURY TRIAL. . . . . . . . . . . . . . . .34
iii
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION AND AMALGAMATION
AGREEMENT AND PLAN OF REORGANIZATION AND AMALGAMATION, dated as of December 22,
1997 (this "Agreement"), among DIGITAL MICROWAVE CORPORATION, a Delaware
corporation ("Parent"), SOUTH AMALGAMATION SUB LTD., a New Zealand company and a
wholly owned subsidiary of Parent ("Amalgamation Sub"), and MAS TECHNOLOGY LTD,
a New Zealand company (the "Company").
WITNESSETH:
WHEREAS, the Boards of Directors of Parent, Amalgamation Sub and the
Company have each determined that it is advisable and in the best interests of
their respective stockholders and shareholders for Parent to enter into a
strategic business combination with the Company upon the terms and subject to
the conditions set forth herein;
WHEREAS, in furtherance of such combination, the Boards of Directors of
Parent, Amalgamation Sub and the Company have each approved the amalgamation
(the "Amalgamation") of Amalgamation Sub with and into the Company in accordance
with the applicable provisions of the Companies Act 1993 of New Zealand ("New
Zealand Law"), and upon the terms and subject to the conditions set forth
herein;
WHEREAS, Parent, Amalgamation Sub and the Company intend, by approving
resolutions authorizing this Agreement, to adopt this Agreement as a plan of
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
of 1986, as amended (the "Code"), and the regulations thereunder; and
WHEREAS, pursuant to the Amalgamation, each ordinary share (a "Share") of
the Company's share capital (the "Company Capital Stock") shall be exchanged for
the right to receive the Amalgamation Consideration (as defined in
Section 1.07(b)), upon the terms and subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements herein contained, and intending to be legally bound hereby,
Parent, Amalgamation Sub and the Company hereby agree as follows:
ARTICLE I
THE AMALGAMATION
SECTION 1.01. THE AMALGAMATION.
(a) At the Effective Time (as defined in Section 1.02 hereof), and subject
to and upon the terms and conditions of this Agreement and New Zealand Law,
Amalgamation Sub shall be amalgamated with and into the Company, the separate
corporate existence of Amalgamation Sub shall cease by removal from the New
Zealand company register, and the Company shall continue as the surviving
company being the successor to all the property, rights, powers, privileges,
liabilities and obligations of both the Amalgamation Sub and the Company. The
Company as the surviving company after the Amalgamation is hereinafter sometimes
referred to as the "Surviving Company."
(b) The exchange and delivery of all documents required to be delivered as
a condition to the Amalgamation shall be held immediately prior to the Effective
Time at the offices of Morrison & Foerster LLP, 755 Page Mill Road, Palo Alto,
California, unless another date, time or place is agreed to in writing by the
parties hereto.
SECTION 1.02. EFFECTIVE TIME. As promptly as practicable after the
satisfaction or waiver of the conditions set forth in Article VI, but in no
event later than three days thereafter, the parties hereto shall cause the
Amalgamation to be consummated by filing all necessary documentation (the
A-1
<PAGE>
"Amalgamation Documents"), together with any required related certificates, with
the New Zealand Registrar of Companies, in such form as required by, and
executed in accordance with the relevant provisions of, New Zealand Law (the
time of such filing being the "Effective Time").
SECTION 1.03. EFFECT OF THE AMALGAMATION. At the Effective Time, the
effect of the Amalgamation shall be as provided in this Agreement, the
Amalgamation Documents and the applicable provisions of New Zealand Law.
Without limiting the generality of the foregoing, and subject thereto, at the
Effective Time all the property, rights, privileges, powers and privileges of
the Company and Amalgamation Sub shall vest in the Surviving Company, and all
liabilities and obligations of the Company and Amalgamation Sub shall become the
liabilities and obligations of the Surviving Company.
SECTION 1.04. CONSTITUTION. At the Effective Time, the Constitution of
the Company, as in effect immediately prior to the Effective Time shall be the
Constitution of the Surviving Company until thereafter amended as provided by
New Zealand Law and such Constitution.
SECTION 1.05. DIRECTORS AND OFFICERS. The directors of Amalgamation
Sub immediately prior to the Effective Time shall be the initial directors of
the Surviving Company, each to hold office in accordance with the Constitution
of the Surviving Company, and the officers of the Company immediately prior to
the Effective Time shall be the initial officers of the Surviving Company, in
each case until their respective successors are duly elected or appointed and
qualified.
SECTION 1.06. AMALGAMATION CONSIDERATION; CONVERSION AND CANCELLATION OF
SECURITIES. At the Effective Time, by virtue of the Amalgamation and without
any action on the part of Parent, Amalgamation Sub, the Company or the Holders
of any of the following securities:
(a) CONVERSION OF SECURITIES. Each Share issued and outstanding
immediately prior to the Effective Time (excluding any Shares to be canceled
pursuant to Section 1.06(b)) shall be converted into and exchanged for, subject
to Section 1.06(f), the right to receive one and two-tenths (1.2) (the "Exchange
Ratio") validly issued, fully paid and nonassessable shares of Parent common
stock, $0.01 par value ("Parent Common Shares"), subject to any minority buyout
rights under New Zealand Law, if applicable.
(b) CANCELLATION. Each Share held in the treasury of the Company and each
Share owned by Parent, Amalgamation Sub or any direct or indirect wholly owned
subsidiary of the Company or Parent immediately prior to the Effective Time
shall, by virtue of the Amalgamation and without any action on the part of the
holder thereof, be canceled without payment of any consideration therefor and
cease to exist.
(c) ASSUMPTION OF STOCK OPTIONS AND STOCK PURCHASE RIGHTS.
(i) At the Effective Time, the Company's 1997 Stock Option
Plan (the "Company Stock Option Plan") and each outstanding option to
purchase Company Capital Stock (a "Stock Option") granted thereunder,
whether vested or unvested, shall be assumed by Parent and converted into
an option to acquire, on the same terms and conditions (including the
exercise schedule) as were applicable under such Stock Option prior to the
Effective Time, except that such option will be exercisable for that number
of Parent Common Shares equal to the number (rounded down to the nearest
whole number) of Parent Common Shares as the holder of such Stock Option
would have been entitled to receive pursuant to the Amalgamation had such
holder exercised such option in full immediately prior to the Effective
Time (not taking into account whether or not such option was in fact
exercisable), and the exercise price for the Parent Common Shares issuable
upon exercise of such option will be at a price per share rounded up to the
nearest whole cent equal to (x) the aggregate exercise price for Company
Capital Stock otherwise purchasable pursuant to such Stock Option divided
by (y) the number of Parent Common Shares deemed purchasable pursuant to
such Stock Option; PROVIDED, HOWEVER, that the vesting schedule of the
assumed options shall continue to be determined by reference to the Company
Stock
A-2
<PAGE>
Option Plan. The above is subject to satisfaction of any applicable
securities regulations under New Zealand Law.
(ii) As soon as practicable, but in no event later than ten
(10) days after the Effective Time, Parent shall deliver to each holder of
an outstanding Stock Option an appropriate notice (in form and substance
satisfactory to the Company) setting forth such holder's rights pursuant
thereto as a result of the Amalgamation. Parent shall comply with the
terms of all such Stock Options and ensure, to the extent required by, and
subject to the provisions of, any such Company Stock Option Plan that Stock
Options which qualified for special tax treatment prior to the Effective
Time continue to so qualify after the Effective Time. Prior to the
Effective Time, Parent shall have taken all corporate action necessary to
reserve for issuance a sufficient number of Parent Common Shares for
delivery pursuant to the terms set forth in this Section 1.06(c).
(iii) As soon as practicable, but in no event later than
fifteen (15) days after the Effective Time, Parent shall file with the SEC
a registration statement on Form S-8 covering the shares of Parent Common
Stock issuable pursuant to the exercise of outstanding Stock Options
assumed by Parent. The shares of Parent Common Stock to be issued upon
exercise of such options shall be duly authorized, validly issued, fully-
paid and nonassessable.
(d) CAPITAL STOCK OF AMALGAMATION SUB. Each ordinary share of
Amalgamation Sub issued and outstanding immediately prior to the Effective Time
shall be converted into and exchanged for a validly issued, fully paid and
nonassessable ordinary share of the Surviving Company. Each share certificate
of Amalgamation Sub evidencing ownership of any such shares shall continue to
evidence ownership of such shares of the Surviving Company.
(e) ADJUSTMENTS TO EXCHANGE RATIO. The Exchange Ratio shall be adjusted
to reflect fully the effect of any share split, reverse split, share dividend
(including any dividend or distribution of securities convertible into Parent
Common Shares or Company Capital Stock), reorganization, recapitalization or
other like change with respect to Parent Common Shares or Company Capital Stock
occurring after the date hereof and prior to the Effective Time.
(f) FRACTIONAL SHARES. No fraction of a share of Parent Common Shares
will be issued, but in lieu thereof each holder of Company Capital Stock who
would otherwise be entitled to a fraction of a share of Parent Common Shares
(after aggregating all fractional shares of Parent Common Shares to be received
by such holder) shall receive from Parent an amount of cash (rounded up to the
nearest whole cent U.S.$), without interest, equal to the product of (i) such
fraction, multiplied by (ii) the average of the last reported sales prices of a
share of Parent Common Shares for the fifteen trading days prior to the date
which is two days prior to the Effective Time.
SECTION 1.07. EXCHANGE OF CERTIFICATES.
(a) EXCHANGE AGENT. Parent shall supply, or shall cause to be supplied,
to or for the account of a bank or trust company designated by Parent reasonably
acceptable to the Company (the "Exchange Agent"), in trust for the benefit of
the holders of Company Capital Stock, for exchange in accordance with this
Section 1.7, through the Exchange Agent, certificates evidencing the Parent
Common Shares issuable pursuant to Section 1.6 in exchange for outstanding
Shares.
(b) EXCHANGE PROCEDURES. As soon as reasonably practicable after the
Effective Time, Parent will instruct the Exchange Agent to mail to each holder
of record of a certificate or certificates which immediately prior to the
Effective Time evidenced outstanding Shares and to each holder of record of an
American Depository Receipt ("ADR") which immediately prior to the Effective
Time evidenced an American Depository Share representing outstanding Shares
("ADS") (the "Certificates") (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 proper delivery of the Certificates to the Exchange Agent
and shall be in such form
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and have such other provisions as Parent may reasonably specify) and
(ii) instructions to effect the surrender of the Certificates in exchange for
the certificates evidencing shares of Parent Common Shares and, in lieu of any
fractional shares thereof, cash. Upon surrender of a Certificate for
cancellation to the Exchange Agent together with such letter of transmittal,
duly executed, and such other customary documents as may be reasonably required
pursuant to such instructions, the holder of such Certificate shall be entitled
to receive in exchange therefor (A) certificates evidencing that number of whole
Parent Common Shares which such holder has the right to receive in accordance
with Section 1.06 in respect of the Shares formerly evidenced by such
Certificate, (B) any dividends or other distributions to which such holder is
entitled to prior to the Effective Time, and (C) cash in lieu of fractional
Parent Common Shares to which such holder is entitled pursuant to
Section 1.06(f) (the Parent Common Shares, dividends, distributions and cash
described in clauses (A)-(C) being, collectively, the "Amalgamation
Consideration"), and the Certificate so surrendered shall forthwith be canceled.
In the event of a transfer of ownership of Shares or ADSs which is not
registered in the transfer records of the Company as of the Effective Time,
Parent Common Shares and cash may be issued and paid in accordance with this
Article I to a transferee if the Certificate evidencing such Shares or ADSs is
presented to the Exchange Agent, accompanied by all documents required to
evidence and effect such transfer pursuant to this Section 1.07(b) and by
evidence that any applicable stock/share transfer taxes have been paid. Until
so surrendered, each outstanding Certificate that, prior to the Effective Time,
represented Shares or ADSs representing Shares will be deemed from and after the
Effective Time, for all corporate purposes, other than the payment of dividends,
to evidence the ownership of the number of full shares of Parent Common Shares
into which such Shares or ADSs representing Shares shall have been so converted
and the right to receive an amount in cash in lieu of the issuance of any
fractional shares in accordance with Section 1.6.
(c) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED PARENT COMMON SHARES. No
dividends or other distributions declared or made after the Effective Time with
respect to Parent Common Shares with a record date after the Effective Time
shall be paid to the holder of any unsurrendered Certificate with respect to the
Parent Common Shares such holder is entitled to receive until the holder of such
Certificate shall surrender such Certificate. Subject to applicable law,
following surrender of any such Certificate, there shall be paid to the record
holder of the certificates representing whole shares of Parent Common Shares
issued in exchange therefor, without interest, at the time of such surrender,
the amount of dividends or other distributions with a record date after the
Effective Time theretofore paid with respect to such whole shares of Parent
Common Shares.
(d) TRANSFERS OF OWNERSHIP. If any certificate for shares of Parent
Common Shares is to be issued in a name other than that in which the Certificate
surrendered in exchange therefor is registered, it will be a condition of the
issuance thereof that the Certificate so surrendered will be properly endorsed
and otherwise in proper form for transfer and that the person requesting such
exchange will have paid to Parent or any agent designated by it any transfer or
other taxes required by reason of the issuance of a certificate for shares of
Parent Common Shares in any name other than that of the registered holder of the
Certificate surrendered, or established to the satisfaction of Parent or any
agent designated by it that such tax has been paid or is not payable.
(e) NO LIABILITY. Neither Parent, Amalgamation Sub nor the Company shall
be liable to any holder of Shares for any Amalgamation Consideration (or
dividends or distributions with respect thereto) delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law.
(f) WITHHOLDING RIGHTS. Parent or the Exchange Agent shall be entitled to
deduct and withhold from the Amalgamation Consideration otherwise payable
pursuant to this Agreement to any holder of Shares such amounts as Parent or the
Exchange Agent is required to deduct and withhold with respect to the making of
such payment under the Code, or any provision of state, local or foreign tax
law. To the extent that amounts are so withheld by Parent or the Exchange
Agent, such withheld amounts shall be treated for all purposes of this Agreement
as having been paid to the holder of the Shares in respect of which such
deduction and withholding was made by Parent or the Exchange Agent.
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SECTION 1.08. STOCK TRANSFER BOOKS. At the Effective Time, the share
register of the Company shall be closed, and the Amalgamation Consideration
delivered upon the surrender for exchange of Shares or ADSs representing
Shares in accordance with the terms hereof shall be deemed to have been
issued in full satisfaction of all rights pertaining to such Shares, and
there shall be no further registration of transfers on the records of the
Surviving Company of Shares which were outstanding immediately prior to the
Effective Time. If, after the Effective Time, Certificates are presented to
the Surviving Company for any reason, they shall be canceled and exchanged as
provided in this Article I.
SECTION 1.09. LOST, STOLEN OR DESTROYED CERTIFICATE. In the event any
Certificates shall have been lost, stolen or destroyed, the Exchange Agent
shall issue in exchange for such lost, stolen or destroyed Certificates, upon
the making of an affidavit of that fact by the holder thereof, such Parent
Common Shares as may be required pursuant to Section 1.06; PROVIDED, HOWEVER,
that Parent may, in its reasonable discretion and as a condition precedent to
the issuance thereof, require the owner of such lost, stolen or destroyed
Certificates to deliver a bond in such sum as it may reasonably direct as
indemnity against any claim that may be made against Parent or the Exchange
Agent with respect to the Certificates alleged to have been lost, stolen or
destroyed.
SECTION 1.10. TAX AND ACCOUNTING CONSEQUENCES. It is intended by the
parties hereto that the Amalgamation shall (i) constitute a reorganization
within the meaning of Section 368(a) of the Code and (ii) qualify for accounting
treatment as a pooling of interests under United States generally accepted
accounting principles ("U.S. GAAP"). The parties hereto hereby adopt this
Agreement as a "plan of reorganization" within the meaning of Section 368 of the
Code.
SECTION 1.11. MATERIAL ADVERSE EFFECT. For purposes of this
Agreement, when used in connection with the Company or any of its
subsidiaries, or Parent or any of its subsidiaries, as the case may be, the
term "Material Adverse Effect" means any change or effect that, individually
or when taken together with all other such changes or effects that have
occurred prior to the date of determination of the occurrence of the Material
Adverse Effect, is or is reasonably likely to be materially adverse to the
business, assets (including intangible assets), financial condition or
results of operations of the Company and its subsidiaries or Parent and its
subsidiaries, respectively, in each case taken as a whole; PROVIDED, HOWEVER,
that a "Material Adverse Effect" with respect to the Company or any of its
subsidiaries shall not include (i) any change or effect resulting from
execution, delivery or performance of this Agreement or the announcement of
the transactions contemplated by this Agreement including any change or
effect resulting from the overlap in customers of the Company and the Parent,
(ii) any change or effect resulting from the failure of Parent or
Amalgamation Sub to perform any of its obligations hereunder or under any
agreement or instrument in connection with the transactions contemplated
hereby, or (iii) any change or effect generally applicable to the industries
in which the Company or any of its subsidiaries operates.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and Amalgamation
Sub that, except as set forth in the written disclosure schedule previously
delivered by the Company to Parent (the "Company Disclosure Schedule") or as
set forth in the Company SEC Reports (as defined below):
SECTION 2.01. ORGANIZATION AND QUALIFICATION; SUBSIDIARIES.
Each of the Company and each of its subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has the requisite corporate power and
corporate authority and is in possession of all franchises, grants,
authorizations, licenses, permits, easements, consents, certificates,
approvals and orders ("Approvals") necessary to own, lease and operate the
properties it purports to own, operate or lease and to carry on its business
as it is now being conducted, except where the failure to have such power,
authority and Approvals would not, individually or
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in the aggregate, have a Material Adverse Effect. Each of the Company and each
of its subsidiaries is duly qualified or licensed as a foreign corporation to do
business, and is in good standing, in each jurisdiction where the character of
its properties owned, leased or operated by it or the nature of its activities
makes such qualification or licensing necessary, except for such failures to be
so duly qualified or licensed and in good standing that would not, either
individually or in the aggregate, have a Material Adverse Effect.
SECTION 2.02. CONSTITUTION. The Company has heretofore furnished to
Parent a complete and correct copy of the Constitution, if any, as most
recently amended to date of the Company and each of its subsidiaries. Each
such Constitution is in full force and effect. Neither the Company nor any
of its subsidiaries is in material violation of any of the provisions of its
respective Constitution.
SECTION 2.03. CAPITALIZATION. As of December 22, 1997, (i) 2,300,000
Shares represented by ADSs and 4,500,000 Shares not represented by ADSs were
issued and outstanding, all of which are validly issued, fully paid and
nonassessable, (ii) no shares of Company Capital Stock were held in treasury
or by subsidiaries of the Company and (iii) 126,200 shares of Company Capital
Stock were authorized for future issuance pursuant to outstanding employee
stock options granted pursuant to the Company Stock Option Plan. No shares
of Company Capital Stock have been issued between December 1, 1997 and the
date hereof. There are no options, warrants or other rights, agreements,
arrangements or commitments of any character to which the Company is a party,
or of which the Company has knowledge, relating to the issued or unissued
shares of the Company or any of its subsidiaries or obligating the Company or
any of its subsidiaries to issue or sell any shares of, or other equity
interests in, the Company or any of its subsidiaries. All shares of Company
Capital Stock subject to issuance as aforesaid, upon issuance in accordance
with the terms and conditions specified in the instruments pursuant to which
they are issuable, shall be duly authorized, validly issued, fully paid and
nonassessable. There are no obligations, contingent or otherwise, of the
Company or any of its subsidiaries to repurchase, redeem or otherwise acquire
any shares of Company Capital Stock or the share of any subsidiary or to
provide funds to or make any investment (in the form of a loan, capital
contribution or otherwise) in any such subsidiary or any other entity other
than guarantees of bank obligations of subsidiaries entered into in the
ordinary course of business. All of the outstanding shares of each of the
Company's subsidiaries are duly authorized, validly issued, fully paid and
nonassessable, and all such shares are owned by the Company or another
subsidiary free and clear of all security interests, liens, claims, pledges,
agreements, limitations in the Company's voting rights, charges or other
encumbrances of any nature whatsoever.
SECTION 2.04. AUTHORITY RELATIVE TO THIS AGREEMENT. The Company has
all necessary corporate power and corporate authority to execute and deliver
this Agreement and subject to obtaining any necessary stockholder approval of
this Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
by the Company and the consummation by the Company of the transactions
contemplated hereby have been duly and validly authorized by all necessary
corporate action on the part of the Company and no other corporate proceedings
on the part of the Company are necessary to authorize this Agreement or to
consummate the transactions so contemplated (other than the approval and
adoption of the Amalgamation by the holders of the outstanding Shares entitled
to vote in accordance with New Zealand Law and the Company's Constitution and
the board signing certificates as required by New Zealand Law). The Board of
Directors of the Company has determined that it is advisable and in the best
interest of the Company's shareholders for the Company to enter into a strategic
business combination with Parent upon the terms and subject to the conditions of
this Agreement. This Agreement has been duly and validly executed and delivered
by the Company and, assuming the due authorization, execution and delivery by
Parent and Amalgamation Sub, as applicable, constitutes a legal, valid and
binding obligation of the Company, except as enforceability may be limited by
bankruptcy, insolvency and other laws affecting the rights and remedies of
creditors generally and general principles of equity (regardless of whether they
are enforced in a court of law or in equity).
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SECTION 2.05. NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) For purposes hereof, "Material Contracts" shall mean all material
agreements which, as of the date hereof, will be required to be filed with the
U.S. Securities and Exchange Commission ("SEC") pursuant to the requirements of
the Securities Exchange Act of 1934, as amended, and the SEC's rules thereunder
(collectively, the "Exchange Act") as "material contracts" of the Company and
its subsidiaries or Parent and its subsidiaries, as applicable.
(b) The execution and delivery of this Agreement by the Company does not,
and the performance of this Agreement by the Company shall not, (i) conflict
with or violate the Constitution of the Company, (ii) conflict with or violate
any law, rule, regulation, order, judgment or decree applicable to the Company
or any of its subsidiaries or by which its or any of their respective properties
are bound or affected, or (iii) result in any breach of or constitute a default
(or an event that with notice or lapse of time or both would become a default)
under, or impair the Company's or any of its subsidiaries' rights or alter the
rights or obligations of any third party under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any Material Contract,
or result in the creation of a lien or encumbrance on any of the properties or
assets of the Company or any of its subsidiaries pursuant to, any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation to which the Company or any of its subsidiaries
is a party or by which the Company or any of its subsidiaries or its or any of
their respective properties are bound or affected, except in the case of clauses
(ii) and (iii) for any such conflicts, violations, breaches, defaults, liens,
encumbrances or other items or occurrences that would not, individually or in
the aggregate, have a Material Adverse Effect.
(c) The execution and delivery of this Agreement by the Company does not,
and the performance of this Agreement by the Company will not, require any
consent, approval, authorization or permit of, or filing with or notification
to, any governmental or regulatory authority, domestic or foreign, except
(i) for applicable requirements, if any, of the Securities Act of 1933, as
amended (the "Securities Act"), the Exchange Act, the Securities Act 1978 (NZ),
the rules of the Nasdaq National Market, state securities laws and the rules and
regulations thereunder ("Blue Sky Laws"), the consent of the New Zealand
Overseas Investment Commission, and the filing and recordation of appropriate
Amalgamation Documents as required by New Zealand Law and Delaware corporate
law, and (ii) where the failure to obtain such consents, approvals,
authorizations or permits, or to make such filings or notifications, would not
prevent or delay consummation of the Amalgamation, or otherwise prevent or delay
the Company from performing its obligations under this Agreement, or would not
otherwise have a Material Adverse Effect.
(d) The Company, its subsidiaries and its affiliates do not have assets in
the United States having an aggregate book value of $15,000,000 (U.S.) or more
and did not have sales in the United States during the year ended March 31, 1997
in excess of $25,000,000 (U.S.).
SECTION 2.06. COMPLIANCE; PERMITS.
(a) Neither the Company nor any of its subsidiaries is in conflict with,
or in default or violation of, (i) any law, rule, regulation, order, judgment or
decree applicable to the Company or any of its subsidiaries or by which its or
any of their respective properties is bound or affected or (ii) any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation to which the Company or any of its subsidiaries
is a party or by which the Company or any of its subsidiaries or its or any of
their respective properties is bound or affected, except for any such conflicts,
defaults or violations which would not, individually or in the aggregate, have a
Material Adverse Effect.
(b) The Company and its subsidiaries hold all permits, licenses,
easements, variances, exemptions, consents, certificates, orders and approvals
from governmental authorities which are material to the operation of the
business of the Company and its subsidiaries taken as a whole as it is now being
conducted (collectively, the "Company Permits"). The Company and its
subsidiaries are in compliance
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with the terms of the Company Permits, except where the failure to so comply
would not have a Material Adverse Effect.
SECTION 2.07. SEC FILINGS; FINANCIAL STATEMENTS.
(a) The Company has filed all forms, reports and documents required to be
filed with the SEC since June 19, 1997 and has made available to Parent (i) its
Quarterly Reports on Form 10-Q for the periods ended June 30, and September 30,
1997, respectively, (ii) all proxy statements relating to the Company's meetings
of stockholders (whether annual or special) held since May 22, 1997, (iv) all
other reports or registration statements filed by the Company with the SEC since
May 22, 1997, and (v) all amendments and supplements to all such reports and
registration statements filed by the Company with the SEC (collectively, the
"Company SEC Reports"). The Company SEC Reports (i) were prepared in accordance
(in all material respects) with the requirements of the Securities Act or the
Exchange Act, as the case may be, and (ii) did not at the time they were filed
(or if amended or superseded by a filing prior to the date of this Agreement,
then on the date of such filing) 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 the light of the circumstances under
which they were made, not misleading. None of the Company's subsidiaries is
required to file any forms, reports or other documents with the SEC.
(b) Each of the consolidated financial statements (including, in each
case, any related notes thereto) contained in the Company SEC Reports was
prepared in accordance with U.S. GAAP applied on a consistent basis throughout
the periods involved (except as may be indicated in the notes thereto) and each
fairly presented the consolidated financial position of the Company and its
subsidiaries as at the respective dates thereof and the consolidated results of
its operations and cash flows for the periods indicated, except that the
unaudited interim financial statements were or are subject to normal and
recurring year-end adjustments.
(c) As of the date hereof, there have been no amendments or modifications,
which have not yet been filed with the SEC but which are required to be filed,
to agreements, documents or other instruments which previously had been filed by
the Company with the SEC pursuant to the Securities Act or the Exchange Act.
The Company will file between the date hereof and the Effective Time any
amendments or modifications, which have not yet been filed with the SEC but
which are required to be filed, to agreements, documents or other instruments
which previously had been filed by the Company with the SEC pursuant to the
Securities Act or the Exchange Act.
SECTION 2.08. ABSENCE OF CERTAIN CHANGES OR EVENTS. Except in
connection with the transactions contemplated by this agreement, since
September 30, 1997, the Company has conducted its business substantially in
the ordinary course and there has not occurred: (i) any Material Adverse
Effect; (ii) any amendments or changes in the Constitution of the Company;
(iii) any damage to, destruction or loss of any assets of the Company,
(whether or not covered by insurance) that constitutes a Material Adverse
Effect; (iv) any material change by the Company in its accounting methods,
principles or practices (other than changes in U.S. GAAP); (v) any material
revaluation by the Company of any of its material assets, including, without
limitation, writing down the value of material inventory or writing off
material notes or accounts receivable other than in the ordinary course of
business; or (vi) any sale of a material amount of assets of the company,
except in the ordinary course of business.
SECTION 2.09. NO UNDISCLOSED LIABILITIES. Neither the Company nor any
of its subsidiaries has any liabilities (absolute, accrued, contingent or
otherwise) which are, in the aggregate, material to the business, operations
or financial condition of the Company and its subsidiaries taken as a whole,
except liabilities (a) reflected or adequately provided for in the Company's
audited balance sheet (including any related notes thereto) for the fiscal
year ended March 31, 1997 (The "1997 Company Balance Sheet"); (b) not
required under U.S. GAAP to be reflected on the 1997 Company Balance Sheet;
(c) incurred since March 31, 1997 in the ordinary course of business; or (d)
incurred in connection with this Agreement or any transaction contemplated
hereby.
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SECTION 2.10. ABSENCE OF LITIGATION. There are no claims, actions,
suits, proceedings or investigations pending or, to the knowledge of the
Company, threatened against the Company or any of its subsidiaries, or any
properties or rights of the Company or any of its subsidiaries, before any
court, arbitrator or administrative, governmental or regulatory authority or
body, domestic or foreign, that, individually or in the aggregate, would have
a Material Adverse Effect.
SECTION 2.11. EMPLOYEE BENEFIT PLANS; EMPLOYMENT AGREEMENTS.
(a) Section 2.11 of the Company Disclosure Schedule lists all employee
benefit plans and all bonus, stock option, stock purchase, incentive, deferred
compensation, supplemental retirement superannuation, severance and other
similar fringe or employee benefit plans, programs or arrangements, and any
current or former employment or executive compensation or severance agreements,
written or otherwise, for the benefit of, or relating to, any employee of the
Company, any trade or business (whether or not incorporated) which is a member
of a controlled group including the Company or which is under common control
with the Company (an "Affiliate"), or any subsidiary of the Company, as well as
each plan with respect to which the Company or an Affiliate could incur
liability under applicable law (if such plan has been or were terminated)
(together, the "Company Employee Plans"), excluding agreements with former
employees under which the Company has no remaining monetary obligations. A copy
of each such written Company Employee Plan has been made available to Parent.
(b) (i) None of the Company Employee Plans promises or provides retiree
medical or other retiree welfare or superannuation benefits to any person;
(ii) there has been no prohibited transaction with respect to any Company
Employee Plan, which could result in any material liability of the Company or
any of its subsidiaries; (iii) all Company Employee Plans are in compliance in
all material respects with the requirements prescribed by any and all statutes,
orders, or governmental rules and regulations currently in effect with respect
thereto, and the Company and each of its subsidiaries have performed all
material obligations required to be performed by them under, are not in any
material respect in default under or violation of, and have no knowledge of any
default or violation by any other party of, any of the Company Employee Plans;
and (iv) all contributions required to be made to any Company Employee Plan
pursuant to the terms of the Company Employee Plan or any collective bargaining
agreement, have been made on or before their due dates and a reasonable amount
has been accrued for contributions to each Company Employee Plan for the current
plan years.
(c) Section 2.11(c) of the Company Disclosure Schedule sets forth a true
and complete list of each current or former employee, officer or director of the
Company or any of its subsidiaries who holds any option to purchase Company
Capital Stock as of the date hereof, together with the number of shares of
Company Capital Stock subject to such option, the date of grant of such option,
the extent to which such option is exercisable (or will become exercisable
within six months from the date hereof, or as a result of, the Amalgamation),
the exercise price of such option and the expiration date of such option.
Section 2.11(c) of the Company Disclosure Schedule also sets forth the total
number of such options.
(d) The Company has made available to Parent (i) copies of all employment
agreements with officers of the Company; (ii) copies of all agreements with
consultants who are individuals, which agreements obligate the Company to make
annual cash payments in an amount exceeding $50,000, (iii) a schedule listing
all officers of the Company who have executed a non-competition agreement with
the Company; (iv) copies (or descriptions) of all severance agreements, programs
and policies of the Company with or relating to its employees, excluding
programs and policies required to be maintained by law, and (v) copies of all
plans, programs, agreements and other arrangements of the Company with or
relating to its employees which contain change in control provisions.
SECTION 2.12. EMPLOYMENT MATTERS. There are no controversies pending
or, to the knowledge of the Company, threatened, between the Company or any of
its subsidiaries and any of their respective employees, which controversies
would have a Material Adverse Effect. Neither the Company nor any of its
subsidiaries is a party to any collective bargaining agreement or other labor
union contract
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applicable to persons employed by the Company or its subsidiaries nor does the
Company or any of its subsidiaries know of any activities or proceedings of any
labor union to organize any such employees. Neither the Company nor any of its
subsidiaries has any knowledge of any general strikes, slowdowns (relating to a
workplace grievance), work stoppages, lockouts, or threats thereof, by or with
respect to the employees of the Company or any of its subsidiaries.
SECTION 2.13. REGISTRATION STATEMENT; JOINT PROXY STATEMENT PROSPECTUS.
Subject to the accuracy of the representations of Parent in Section 3.13, the
information supplied by the Company expressly for inclusion in the
registration statement to be filed with the SEC by Parent in connection with
the issuance of shares of Parent Common Stock in the Amalgamation (the
"Registration Statement") shall not at the time the Registration Statement is
declared effective by the SEC 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 the light of the circumstances
under which they were made, not misleading. The information supplied by the
Company expressly for inclusion in the joint proxy statement/prospectus to be
sent to the shareholders of the Company in connection with the meeting of the
shareholders of the Company to consider the Amalgamation (the "Company
Shareholders' Meeting") and to be sent to the stockholders of Parent in
connection with the meeting of the stockholders of Parent to consider the
Amalgamation (the "Parent Stockholders' Meeting," and together with the
Company Stockholder Meeting, the "Stockholders' Meetings") (such joint proxy
statement/prospectus as amended or supplemented is referred to herein as the
"Joint Proxy Statement/Prospectus") will not, on the date the Joint Proxy
Statement/Prospectus (or any amendment thereof or supplement thereto) is
first mailed to shareholders or stockholders, at the time of the
Stockholders' Meetings, or at the Effective Time, contain any statement
which, at such time and in light of the circumstances under which it shall be
made, is false or misleading with respect to any material fact, or shall omit
to state any material fact necessary in order to make the statements made
therein, not false or misleading; or omit to state any material fact
necessary to correct any statement in any earlier communication with respect
to the solicitation of proxies for the Stockholders' Meetings which has
become false or misleading. If at any time prior to the Effective Time any
event relating to the Company or any of its respective affiliates, officers
or directors should be discovered by the Company which should be set forth in
an amendment to the Registration Statement or a supplement to the Joint Proxy
Statement/Prospectus, the Company shall promptly inform Parent and
Amalgamation Sub. Insofar as it relates to information supplied by the
Company expressly for inclusion in the Joint Proxy Statement/Prospectus, the
Joint Proxy Statement/Prospectus shall comply in all material respects as to
form and substance with the requirements of the Securities Act, the Exchange
Act and the rules and regulations thereunder. Notwithstanding the foregoing,
the Company makes no representation or warranty with respect to any
information supplied by Parent or Amalgamation sub which is contained in any,
or furnished in connection with the preparation, of the foregoing documents.
SECTION 2.14. TITLE TO PROPERTY. The Company and its subsidiaries own
and lease no real property other than as set forth on Schedule 2.14 hereto. The
Company and each of its subsidiaries have good and defensible title to all of
their owned properties and assets, free and clear of all liens, charges and
encumbrances except (i) liens for taxes not yet due and payable; (ii) such liens
or other imperfections of title, if any, as do not materially detract from the
value of or interfere with the present use of the property affected thereby or
which, individually or in the aggregate, would not have a Material Adverse
Effect; and (iii) liens and encumbrances securing debt reflected in the 1997
Company Balance Sheet; and, to the knowledge of the Company, all leases pursuant
to which the Company or any of its subsidiaries lease from others material
amounts of real or personal property, are in good standing, valid and effective
in accordance with their respective terms, and there is not, to the knowledge of
the Company, under any of such leases, any existing material default or event of
default (or event which with notice or lapse of time, or both, would constitute
a material default and in respect of which the Company or such subsidiary has
not taken adequate steps to prevent such a default from occurring) except where
the lack of such good standing, validity and effectiveness or the existence of
such default or event of default would not have a Material Adverse Effect.
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SECTION 2.15. TAXES.
(a) For purposes of this Section 2.15, "Tax" or "Taxes" shall mean taxes,
fees, levies, duties, tariffs, imposts and governmental impositions or charges
of any kind in the nature of (or similar to) taxes, payable to any New Zealand
or foreign taxing authority, including (without limitation) (i) income,
franchise, profits, gross receipts, ad valorem, net worth, goods and services,
fringe benefits, withholding, sales, use, service, real or personal property,
special assessments, capital stock, license, payroll, withholding, employment,
social security, accident compensation, unemployment compensation, utility,
severance, production, excise, stamp, occupation, premiums, windfall profits,
transfer and gains taxes and (ii) interest, penalties, additional taxes and
additions to tax imposed with respect thereto; and "Tax Returns" shall mean
returns, reports and information statements with respect to Taxes required to be
filed with the New Zealand tax authority or any other taxing authority, domestic
or foreign, including, without limitation, consolidated, combined and unitary
tax returns.
(b) The Company and its subsidiaries have filed all New Zealand Tax
Returns and all other material Tax Returns required to be filed by them, and
have duly paid or made adequate provision on their books for the payment of all
Taxes which have been incurred or are due and payable. There are no pending
audits, examinations or proposed audits or examinations of any Tax Returns filed
by the Company or any of its subsidiaries. Neither the Company nor any of its
subsidiaries has given or been requested to give waivers or extensions of any
statute of limitations relating to the payment of Taxes for which the Company or
any of its subsidiaries may be liable. As of the date of this Agreement the Tax
Returns of the Company and its subsidiaries have been audited by the Inland
Revenue Department (NZ) (or the appropriate statute of limitations has expired)
for all fiscal years through 1991.
(c) Neither the Company nor any subsidiary: (i) is a party to any
agreement providing for the allocation, payment or sharing of Taxes among the
Company, its subsidiaries, or any third parties; (ii) is liable under U.S.
Treasury Regulation Section 1-1502-6, or any similar provision of New Zealand,
foreign, federal, state or local laws or regulations, for the Taxes of another
person or entity or (iii) has an application pending with respect to any Tax
requesting permission for a change in accounting method.
(d) Neither the Company nor any of its subsidiaries is or has been a
"passive foreign investment company" within the meaning of Section 1297 of the
Code.
SECTION 2.16. ENVIRONMENTAL MATTERS. Except in all cases as, in the
aggregate, have not had and could not reasonably be expected to have a
Material Adverse Effect, the Company and each of its subsidiaries to the best
of the Company's knowledge (i) have obtained all applicable permits, licenses
and other authorization which are required under New Zealand laws relating to
pollution or protection of the environment, including laws relating to
emissions, discharges, releases or threatened releases of pollutants,
contaminants or hazardous or toxic materials or wastes into ambient air,
surface water, ground water or land or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of pollutants, contaminants or hazardous or toxic materials or
wastes by the Company or its subsidiaries (or their respective agents); (ii)
are in compliance with all terms and conditions of such required permits,
licenses and authorization, and also are in compliance with all other
limitations, restrictions, conditions, standards, prohibitions, requirements,
obligations, schedules and timetables contained in such laws or contained in
any regulation, code, plan, order, decree, judgment, notice or demand letter
issued, entered, promulgated or approved thereunder; (iii) as of the date
hereof, are not aware of nor have received written notice of any event,
condition, circumstance, activity, practice, incident, action or plan which
is likely to interfere with or prevent continued compliance with or which
would give rise to any common law or statutory liability, or otherwise form
the basis of any claim, action, suit or proceeding, based on or resulting
from the Company's or any of its subsidiaries' (or any of their respective
agents') manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling, or the emission, discharge or release into
the environment, of any pollutant, contaminant or hazardous or toxic material
or waste, and (iv) have taken all actions necessary under applicable
requirements of New Zealand
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laws, rules or regulations to register any products or materials required to be
registered by the company or its subsidiaries (or any of their respective
agents) thereunder.
SECTION 2.17. BROKERS. No broker, finder or investment banker (other
than Hambrecht & Quist LLC) is entitled to any brokerage, finder's or other
fee or commission in connection with the transactions contemplated by this
agreement based upon arrangements made by or on behalf of the Company. The
Company has heretofore furnished to Parent a complete and correct copy of all
agreements between the Company and Hambrecht & Quist LLC pursuant to which
such firm would be entitled to any payment relating to the transactions
contemplated hereunder.
SECTION 2.18. FULL DISCLOSURE. To the knowledge of the Company, no
statement contained in any certificate or schedule furnished or to be
furnished by the Company or its subsidiaries to Parent or Amalgamation Sub
in, or pursuant to the provisions of, this Agreement contains or shall
contain any untrue statement of a material fact or omits or will omit to
state any material fact necessary, in the light of the circumstances under
which it was made, in order to make the statements herein or therein not
misleading.
SECTION 2.19. OPINION OF FINANCIAL ADVISOR. Company has been advised by
its financial advisor, Hambrecht & Quist LLC, that in its opinion, as of
December 22, 1997, the Exchange Ratio is fair from a financial point of view to
Company and has delivered a written copy of such opinion to the Company.
SECTION 2.20. INTELLECTUAL PROPERTY. To the Company's knowledge,
neither the Company nor any of its subsidiaries utilizes or has utilized any
patent, trademark, tradename, service mark, copyright, software, trade secret
or know-how, except for those which are owned, possessed or lawfully used by
the Company or its subsidiaries in their operations, and, to the best
knowledge of the Company, neither the Company nor any of its subsidiaries
infringes upon or unlawfully or wrongfully uses any patent, trademark,
tradename, service mark, copyright or trade secret owned or validly claimed
by another, except for such infringements or uses that would not have a
Material Adverse Effect.
SECTION 2.21. INTERESTED PARTY TRANSACTIONS. Since March 31, 1997, no
event has occurred that would be required to be reported as a Certain
Relationship or Related Transaction, pursuant to Item 404 of Regulation S-K
promulgated by the SEC.
SECTION 2.22. INSURANCE. The Company and its subsidiaries maintain fire
and casualty, general liability, business interruption, product liability and
water damage insurance that the Company believes to be reasonably prudent for
its business.
SECTION 2.23. VOTE REQUIRED. The affirmative vote of the holders
(entitled to vote and voting on the Amalgamation) of at least 75% of the shares
of the Company Capital Stock held by such holders is the only vote of the
holders of the Company's capital stock necessary to approve the Amalgamation.
SECTION 2.24. POOLING MATTERS. Neither the Company nor any of its
affiliates has, to the Company's knowledge and based upon consultation with
its independent accountants, taken or agreed to take any action that (without
giving effect to any action taken or agreed to be taken by Parent or any of
its affiliates) would affect the ability of Parent to account for the
business combination to be effected by the Amalgamation as a pooling of
interests.
SECTION 2.25. FAIR VALUE. The Company's board of directors has
determined that the Company will receive fair value pursuant to the
Amalgamation and other transactions evidenced by this Agreement.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND AMALGAMATION SUB
Parent and Amalgamation Sub hereby represent and warrant to the Company
that, except as set forth in the written disclosure schedule previously
delivered by Parent to the Company (the "Parent Disclosure Schedule") or as set
forth in the Parent's SEC Reports as defined below:
SECTION 3.01. ORGANIZATION AND QUALIFICATION; SUBSIDIARIES.
(a) Each of Parent and each of its subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has the requisite corporate power and
authority and is in possession of all Approvals necessary to own, lease and
operate the properties it purports to own, operate or lease and to carry on its
business as it is now being conducted, except where the failure to have such
power, authority and Approvals would not, individually or in the aggregate, have
a Material Adverse Effect. Each of Parent and each of its subsidiaries is duly
qualified or licensed as a foreign corporation to do business, and is in good
standing, in each jurisdiction where the character of its properties owned,
leased or operated by it or the nature of its activities makes such
qualification or licensing necessary, except for such failures to be so duly
qualified or licensed and in good standing that would not, either individually
or in the aggregate, have a Material Adverse Effect.
SECTION 3.02. CERTIFICATE OF INCORPORATION AND BY-LAWS. Parent has
heretofore furnished to the Company a complete and correct copy of the
Certificate of Incorporation and By-laws, as amended to date, of Parent and the
Constitution, as amended to date, of Amalgamation Sub. Such Certificate of
Incorporation and By-laws of Parent and Constitution of Amalgamation Sub are in
full force and effect. Parent is not in violation of any of the provisions of
its Certificate of Incorporation or By-laws. Amalgamation Sub is not in
material violation of any of the provisions of its Constitution.
SECTION 3.03. CAPITALIZATION.
(a) As of November 24, 1997, the authorized capital stock of Parent
consisted of (i) 60,000,000 shares of Parent Common Stock of which:
(x) 38,093,812 shares were issued and outstanding, (y) no shares were held in
treasury, (z) 5,113,966 shares were reserved for issuance pursuant to
outstanding options under Parent's Stock Option Plans; and (ii) 5,000,000 shares
of Preferred Stock, $0.01 par value ("Parent Preferred Stock"), none of which
were issued and outstanding. No shares of Parent Common Stock have been issued
between March 31, 1997 and the date hereof, except for shares issued upon
exercise of options outstanding under Parent's Stock Option Plans. The
authorized capital stock of Amalgamation Sub consists of 100 ordinary shares,
all of which, as of the date hereof, are issued and outstanding. All of the
outstanding shares of Parent's and Amalgamation Sub's respective capital stock
have been duly authorized and validly issued and are fully paid and
nonassessable. Except for options outstanding under Parent's Stock Option Plans
and as set forth in Section 3.03 or Section 3.11 of the Parent Disclosure
Schedule, there are no options, warrants or other rights, agreements,
arrangements or commitments of any character to which Parent or Amalgamation Sub
is a party or of which Parent or Amalgamation Sub has knowledge, relating to the
issued or unissued capital stock of Parent or any of its subsidiaries or
obligating Parent or any of its subsidiaries to issue or sell any shares of
capital stock of, or other equity interests in, Parent or any of its
subsidiaries. There are no obligations, contingent or otherwise, of Parent or
any of its subsidiaries to repurchase, redeem or otherwise acquire any shares of
Parent Common Stock or the Capital Stock of any subsidiary. Except as will not
have a Material Adverse Effect, all of the outstanding shares of capital stock
of each of Parent's subsidiaries are duly authorized, validly issued, fully paid
and nonassessable and all such shares are owned by Parent or another subsidiary
free and clear of all security interests, liens, claims, pledges, agreements,
limitations in Parent's voting rights, charges or other encumbrances of any
nature whatsoever.
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(b) The shares of Parent Common Stock to be issued pursuant to the
Amalgamation will be duly authorized, and when issued in accordance with this
Agreement, will be validly issued, fully paid and nonassessable and shall be
available for trading on the Nasdaq National Market.
SECTION 3.04. AUTHORITY RELATIVE TO THIS AGREEMENT. Each of Parent
and Amalgamation Sub has all necessary corporate power and corporate authority
to execute and deliver this Agreement and subject to obtaining any necessary
stockholder approval of this Agreement, to perform its obligations hereunder and
to consummate the transactions contemplated hereby. The execution and delivery
of this agreement by Parent and Amalgamation Sub and the consummation by Parent
and Amalgamation Sub of the transactions contemplated hereby have been duly and
validly authorized by all necessary corporate action on the part of Parent and
Amalgamation Sub, and no other corporate proceedings on the part of Parent or
Amalgamation Sub as are necessary to authorize this Agreement or to consummate
the transactions so contemplated (other than approval and adoption of the
Amalgamation by the holders of the outstanding shares of Parent Common Stock
entitled to vote in accordance with Delaware Law and Parent's Certificate of
Incorporation and By-Laws). The Board of Directors of each of Parent and
Amalgamation Sub has determined that it is advisable and in the best interest of
Parent's stockholders and Amalgamation Sub's stockholders for Parent and
Amalgamation Sub to enter into a strategic business combination with the Company
upon the terms and subject to the conditions of this Agreement. This Agreement
has been duly and validly executed and delivered by Parent and Amalgamation Sub
and, assuming the due authorization, execution and delivery by the Company,
constitutes a legal, valid and binding obligation of Parent and Amalgamation
Sub, except as enforceability may be limited by bankruptcy, insolvency and other
laws affecting the rights and remedies of creditors generally and general
principles of equity (regardless of whether they are enforced in a court of law
or in equity).
SECTION 3.05. NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) Section 3.05(a) of the Parent Disclosure Schedule includes a list of
all Material Contracts of Parent and its subsidiaries.
(b) The execution and delivery of this Agreement by Parent and
Amalgamation Sub do not, and the performance of this Agreement by Parent and
Amalgamation Sub shall not, (i) conflict with or violate the Certificate of
Incorporation or By-Laws of Parent or the Constitution of Amalgamation Sub,
(ii) conflict with or violate any law, rule, regulation, order, judgment or
decree applicable to Parent or any of it subsidiaries or by which its or any of
their respective properties are bound or affected, or (iii) result in any breach
of or constitute a default (or an event that with notice or lapse of time or
both would become a default) under, or impair Parent's or any of its
subsidiaries' rights or alter the rights or obligations of any third party
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, any Material Contract or result in the creation of a lien or
encumbrance on any of the properties or assets of Parent or any of its
subsidiaries pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which Parent or any of its subsidiaries is a party or by which Parent or any
of its subsidiaries or its or any of their respective properties are bound or
affected, except in the case of clauses (ii) and (iii) for any such conflicts,
violations, breaches, defaults, liens, encumbrances, or other items or
occurrences that would not, individually or in the aggregate, have a Material
Adverse Effect.
(c) The execution and delivery of this Agreement by each of Parent and
Amalgamation Sub does not, and the performance of this Agreement by each of
Parent and Amalgamation Sub shall not, require any consent, approval,
authorization or permit of, or filing with or notification to, any governmental
or regulatory authority, domestic or foreign, except (i) for applicable
requirements, if any, of the Securities Act, the Exchange Act, the Securities
Act 1978 (NZ), the rules of the Nasdaq National Market, the Blue Sky Laws, the
consent of the New Zealand Overseas Investment Commission, and the filing and
recordation of appropriate Amalgamation Documents as required by New Zealand Law
and Delaware corporate law, and (ii) where the failure to obtain such consents,
approvals, authorizations or permits, or to make such filings or notifications,
would not prevent or delay consummation of the Amalgamation, or
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otherwise prevent or delay Parent or Amalgamation Sub from performing their
respective obligations under this Agreement, or would not otherwise have a
Material Adverse Effect.
SECTION 3.06. COMPLIANCE; PERMITS.
(a) Neither Parent nor any of its subsidiaries is in conflict with, or in
default or violation of, (i) any law, rule, regulation, order, judgment or
decree applicable to Parent or any of its subsidiaries or by which its or any of
their respective properties is bound or affected or (ii) any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation to which Parent or any of its subsidiaries is a
party or by which Parent or any of its subsidiaries or its or any of their
respective properties is bound or affected, except for any such conflicts,
defaults or violations which would not, individually or in the aggregate, have a
Material Adverse Effect.
(b) Parent and its subsidiaries hold all permits, licenses, easements,
variances, exemptions, consents, certificates, orders and approvals from
governmental authorities which are material to the operation of the business of
Parent and its subsidiaries taken as a whole as it is now being conducted
(collectively, the "Parent Permits"). Parent and its subsidiaries are in
compliance with the terms of the Parent Permits, except where the failure to so
comply would not have a Material Adverse Effect.
SECTION 3.07. SEC FILINGS; FINANCIAL STATEMENTS.
(a) Parent has filed all forms, reports and documents required to be filed
with the SEC since March 31, 1997 and has heretofore delivered to the Company,
in the form filed with the SEC, (i) its Annual Reports on Form 10-K for the
fiscal year ended March 31, 1997, (ii) all proxy statements relating to Parent's
meetings of stockholders (whether annual or special) held since March 31, 1997,
(iii) all other reports or registration statements (other than Reports on Form
3, 4 or 5 filed on behalf of affiliates of the Parent) filed by Parent with the
SEC since March 31, 1997 and (iv) all amendments and supplements to all such
reports and registration statements filed by Parent with the SEC (collectively,
the "Parent SEC Reports"). The Parent SEC Reports (i) were prepared in
accordance (in all material respects) with the requirements of the Securities
Act or the Exchange Act, as the case may be, and (ii) did not at the time they
were filed (or if amended or superseded by a filing prior to the date of this
Agreement, then on the date of such filing) 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 the light of the
circumstances under which they were made, not misleading. None of Parent's
subsidiaries is required to file any forms, reports or other documents with the
SEC.
(b) Each of the consolidated financial statements (including, in each
case, any related notes thereto) contained in the Parent SEC Reports was
prepared in accordance with U.S. GAAP applied on a consistent basis throughout
the periods involved (except as may be indicated in the notes thereto) and each
fairly presents the consolidated financial position of Parent and its
subsidiaries as of the respective dates thereof and the consolidated results of
its operations and cash flows for the periods indicated, except that the
unaudited interim financial statements were or are subject to normal and
recurring year-end adjustments which were not or are not expected to be material
in amount.
(c) Parent has heretofore furnished to the Company a complete and correct
copy of any amendments or modifications, which have not yet been filed with the
SEC but which are required to be filed, to agreements, documents or other
instruments which previously had been filed by Parent with the SEC pursuant to
the Securities Act or the Exchange Act.
SECTION 3.08. ABSENCE OF CERTAIN CHANGES OR EVENTS. Except in
connection with the transactions contemplated by this Agreement, since March
31, 1997, Parent has conducted its business substantially in the ordinary
course and there has not occurred: (i) any Material Adverse Effect; (ii) any
amendments or changes in the Certificate of Incorporation or Bylaws of
Parent; (iii) any damage to, destruction or loss of any assets of the parent,
(whether or not covered by insurance) that constitutes a
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Material Adverse Effect; (iv) any material change by parent in its accounting
methods, principles or practices (other than changes in U.S. GAAP); (v) any
material revaluation by Parent of any of its material assets, including without
limitation, writing down the value of material inventory or writing off material
notes or accounts receivable other than in the ordinary course of business; or
(vi) any sale of a material amount of assets of parent, except in the ordinary
course of business.
SECTION 3.09. NO UNDISCLOSED LIABILITIES. Neither the Parent nor any
of its subsidiaries has any liabilities (absolute, accrued, contingent or
otherwise) which are, in the aggregate, material to the business, operations
or financial condition of the Parent and its subsidiaries taken as a whole,
except liabilities (a) reflected or adequately provided for in the Parent's
balance sheet (including any related notes thereto) as of March 31, 1997 (the
"1997 Parent Balance Sheet"), (b) not required under U.S. GAAP to be
reflected on such balance sheet, (c) incurred since March 31, 1997 in the
ordinary course of business, or (d) incurred in connection with this
Agreement or any transaction contemplated hereby.
SECTION 3.10. ABSENCE OF LITIGATION. There are no claims, actions,
suits, proceedings or investigations pending or, to the knowledge of Parent,
threatened against Parent or any of its subsidiaries, or any properties or
rights of Parent or any of its subsidiaries, before any court, arbitrator or
administrative, governmental or regulatory authority or body, domestic or
foreign, that, individually or in the aggregate, would have a Material
Adverse Effect.
SECTION 3.11. EMPLOYEE BENEFIT PLANS; EMPLOYMENT AGREEMENTS.
(a) Section 3.11 of the Parent Disclosure Schedule lists all employee
benefit plans (as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")) and all bonus, stock option, stock
purchase, incentive, deferred compensation, supplemental retirement,
superannuation, severance and other similar fringe or employee benefit plans,
programs or arrangements, and any current or former employment or executive
compensation or severance agreements, written or otherwise, for the benefit of,
or relating to, any employee of Parent, any trade or business (whether or not
incorporated) which is a member of a controlled group including Parent or which
is under common control with Parent (an "ERISA Affiliate") within the meaning of
Section 414 of the Code, or any subsidiary of Parent, as well as each plan with
respect to which Parent or an ERISA Affiliate could incur liability under
Section 4069 (if such plan has been or were terminated) or Section 4212(c) of
ERISA (together, the "Parent Employee Plans"), excluding agreements with former
employees under which Parent has no remaining obligations and any of the
foregoing that are required to be maintained by Parent under the laws of any
foreign jurisdiction. A copy of each such written Parent Employee Plan (other
than those referred to in Section 4(b)(4) of ERISA) has been made available to
the Company.
(b) (i) None of the Parent Employee Plans promises or provides retiree
medical or other retiree welfare or superannuation benefits to any person and
none of the Parent Employee Plans is a "multiemployer plan" as such term is
defined in Section 3(37) of ERISA; (ii) there has been no "prohibited
transaction", as such term is defined in Section 406 of ERISA and Section 4975
of the Code, with respect to any Parent Employee Plan, which could result in any
material liability of Parent or any of its subsidiaries; (iii) all Parent
Employee Plans are in compliance in all material respects with the requirements
prescribed by any and all statutes (including ERISA and the Code), orders, or
governmental rules and regulations currently in effect with respect thereto
(including all applicable requirements for notification to participants or the
Department of Labor, the IRS or Secretary of the Treasury), and Parent and each
of its subsidiaries have performed all material obligations required to be
performed by them under, are not in any material respect in default under or
violation of, and have no knowledge of any default or violation by any other
party of, any of the Parent Employee Plans; (iv) each Parent Employee Plan
intended to qualify under Section 401(a) of the Code and each trust intended to
qualify under Section 501(a) of the Code is the subject of a favorable
determination letter from the IRS, and nothing has occurred which may reasonably
be expected to impair such determination; (v) all contributions required to be
made to any Parent Employee Plan pursuant to Section 412 of the Code, or the
terms of the Parent Employee Plan or any collective bargaining agreement, have
been made on or before their due dates and a reasonable amount has been
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accrued for contributions to each Parent Employee Plan for the current plan
years; (vi) with respect to each Parent Employee Plan, no "reportable event"
within the meaning of Section 4043 of ERISA (excluding any such event for which
the thirty (30) day notice requirement has been waived under the regulations to
Section 4043 of ERISA) nor any event described in Section 4062, 4063 or 4041 of
ERISA has occurred, and (vii) neither Parent nor any ERISA Affiliate has
incurred, nor reasonably expects to incur, any liability under Title IV of ERISA
(other than liability for premium payments to the Pension Benefit Guaranty
Corporation arising in the ordinary course).
SECTION 3.12. EMPLOYMENT MATTERS. There are no controversies pending
or, to the knowledge of Parent, threatened between Parent or any of its
subsidiaries and any of their respective employees, which controversies would
have a Material Adverse Effect. Neither Parent nor any of its subsidiaries is a
party to any collective bargaining agreement or other labor union contract
applicable to persons employed by Parent or its subsidiaries nor does Parent or
any of its subsidiaries know of any activities or proceedings of any labor union
to organize any such employees. Neither Parent nor any of its subsidiaries has
any knowledge of any general strikes, slowdowns (relating to a workplace
grievance), work stoppages, lockouts or threats thereof, by or with respect to
the employees of Parent or any of its subsidiaries.
SECTION 3.13. REGISTRATION STATEMENT; JOINT PROXY STATEMENT PROSPECTUS.
Subject to the accuracy of the representations of the Company and its
subsidiaries in Section 2.13, the Registration Statement pursuant to which the
Parent Common Shares to be issued in the Amalgamation will be registered with
the SEC shall not, at the time the Registration Statement (including any
amendments or supplements thereto) is declared effective by the SEC, contain any
untrue statement of a material fact or omit to state any material fact necessary
in order to make the statements included therein, in light of the circumstances
under which they were made, not misleading. The information supplied by Parent
expressly for inclusion in the Joint Proxy Statement/Prospectus will not, on the
date the Joint Proxy Statement/Prospectus is first mailed to stockholders (or at
the time of any subsequent amendment or supplement), at the time of the
Stockholders' Meetings and at the Effective Time, contain any statement which,
at such time and in light of the circumstances under which it shall be made, is
false or misleading with respect to any material fact, or will omit to state any
material fact necessary in order to make the statements therein not false or
misleading; or omit to state any material fact necessary to correct any
statement in any earlier communication with respect to the solicitation of
proxies for the Stockholders' Meetings which has become false or misleading. If
at any time prior to the Effective Time any event relating to Parent,
Amalgamation Sub or any of their respective affiliates, officers or directors
should be discovered by Parent or Amalgamation Sub which should be set forth in
an amendment to the Registration Statement or a supplement to the Joint Proxy
Statement/Prospectus, Parent or Amalgamation Sub will promptly inform the
Company. Notwithstanding the foregoing, Parent and Amalgamation Sub make no
representation or warranty with respect to any information supplied by the
Company which is contained in any of the foregoing documents. The Registration
Statement and Joint Proxy Statement/ Prospectus shall comply in all material
respects as to form and substance with the requirements of the Securities Act,
the Exchange Act and the rules and regulations thereunder. Notwithstanding the
foregoing, Parent makes no representation or warranty with respect to any
information supplied by the Company which is contained in, or furnished in
connection with the preparation of, the Registration Statement.
SECTION 3.14. TITLE TO PROPERTY. Parent and each of its subsidiaries
have good and defensible title to all of their owned properties and assets,
free and clear of all liens, charges and encumbrances except liens for taxes
not yet due and payable and such liens or other imperfections of title, if
any, as do not materially detract from the value of or interfere with the
present use of the property affected thereby or which, individually or in the
aggregate, would not have a Material Adverse Effect; and, to Parent's
knowledge, all leases pursuant to which Parent or any of its subsidiaries
lease from others material amounts of real or personal property are in good
standing, valid and effective in accordance with their respective terms, and
there is not, to the knowledge of Parent, under any of such leases, any
existing material default or event of default (or event which with notice or
lapse of time, or both, would constitute a material default or event of
default (or event which with notice or lapse of time, or both, would
constitute a
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material default and in respect of which Parent or such subsidiary has not taken
adequate steps to prevent such a default from occurring) except where the lack
of such good standing, validity and effectiveness, or the existence of such
default or event of default would not have a Material Adverse Effect.
SECTION 3.15. TAXES.
(a) For purposes of this Section 3.15, "Tax" or "Taxes" shall mean taxes,
fees, levies, duties, tariffs, imposts and governmental impositions or charges
of any kind in the nature of (or similar to) taxes, payable to any U.S. federal
or state taxing authority, including (without limitation) (i) income, franchise,
profits, gross receipts, ad valorem, net worth, goods and services, fringe
benefits, withholding, sales, use, service, real or personal property, special
assessments, capital stock, license, payroll, withholding, employment, social
security, accident compensation, unemployment compensation, utility, severance,
production, excise, stamp, occupation, premiums, windfall profits, transfer and
gains taxes and (ii) interest, penalties, additional taxes and additions to tax
imposed with respect thereto; and "Tax Returns" shall mean returns, reports and
information statements with respect to Taxes required to be filed with U.S.
federal, state or any other taxing authority, domestic or foreign, including,
without limitation, consolidated, combined and unitary tax returns.
(b) Parent and its subsidiaries have filed all United States federal
income Tax Returns and all other material Tax Returns required to be filed by
them, and have duly paid or made adequate provision on their books for the
payment of all Taxes which have been incurred or are due and payable. There are
no pending audits, examinations or proposed audits or examinations of any Tax
Returns filed by Parent or any of its subsidiaries. Neither Parent nor any of
its subsidiaries has given or been requested to give waivers or extensions of
any statute of limitations relating to the payment of Taxes for which Parent or
any of its subsidiaries may be liable. As of the date of this Agreement the Tax
Returns of Parent and its subsidiaries have been audited by the Internal Revenue
Service (or the appropriate statute of limitations has expired) for all fiscal
years through March 31, 1994.
(c) Neither Parent nor any subsidiary: (i) is a party to any agreement
providing for the allocation, payment or sharing of Taxes among Parent, its
subsidiaries, or any third parties; or (ii) has an application pending with
respect to any Tax requesting permission for a change in accounting method.
SECTION 3.16. ENVIRONMENTAL MATTERS. Except in all cases as, in the
aggregate, have not had and could not reasonably be expected to have a Material
Adverse Effect, Parent and each of its subsidiaries to the best of Parent's
knowledge (i) have obtained all applicable permits, licenses and other
authorization which are required under federal, state or local laws relating to
pollution or protection of the environment, including laws relating to
emissions, discharges, releases or threatened releases of pollutants,
contaminants, or hazardous or toxic materials or wastes into ambient air,
surface water, ground water or land or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of pollutants, contaminants or hazardous or toxic materials or wastes
by Parent or its subsidiaries (or their respective agents); (ii) are in
compliance with all terms and conditions of such required permits, licenses and
authorization, and also are in compliance with all other limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules and timetables contained in such laws or contained in any regulation,
code, plan, order, decree, judgment, notice or demand letter issued, entered,
promulgated or approved thereunder; (iii) as of the date hereof, are not aware
of nor have received written notice of any event, condition, circumstance,
activity, practice, incident, action or plan which is likely to interfere with
or prevent continued compliance with or which would give rise to any common law
or statutory liability, or otherwise form the basis of any claim, action, suit
or proceeding, based on or resulting from Parent's or any of its subsidiaries'
(or any of their respective agents') manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling or the emission, discharge
or release into the environment, of any pollutant, contaminant, or hazardous or
toxic material or waste, and (iv) have taken all actions necessary under
applicable requirements of federal, state or local laws, rules or regulations to
register any products or materials required to be registered by Parent or its
subsidiaries (or any of their respective agents) thereunder.
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SECTION 3.17. BROKERS. No broker, finder or investment banker (other than
Broadview Associates) is entitled to any brokerage, finder's or other fee or
commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of Parent or Amalgamation Sub.
Parent has heretofore furnished to the Company a complete and correct copy of
all agreements between Parent and Broadview Associates pursuant to which such
firm would be entitled to any payment relating to the transaction contemplated
hereunder.
SECTION 3.18. FULL DISCLOSURE. To the knowledge of Parent and
Amalgamation Sub, as applicable, no statement contained in any certificate or
schedule furnished or to be furnished by Parent or Amalgamation Sub to the
Company in, or pursuant to the provisions of, this Agreement contains or shall
contain any untrue statement of a material fact or omits or shall omit to state
any material fact necessary, in the light of the circumstances under which it
was made, in order to make the statements herein or therein not misleading.
SECTION 3.19. OPINION OF FINANCIAL ADVISOR. Parent has been advised by
its financial advisor, Broadview Associates, that, in its opinion, as of
December 22, 1997 the Exchange Ratio is fair from a financial point of view to
Parent and has delivered a written copy of such opinion to Parent.
SECTION 3.20. INTELLECTUAL PROPERTY. To Parents' knowledge, neither
Parent, nor any of its subsidiaries utilizes or has utilized any patent,
trademark, tradename, service mark, copyright, software, trade secret or
know-how, except for those which are owned, possessed or lawfully used by Parent
or its subsidiaries in their operations, and, to the best knowledge of Parent,
neither Parent nor any of its subsidiaries infringes upon or unlawfully or
wrongfully uses any patent, trademark, tradename, service mark, copyright or
trade secret owned or validly claimed by another, except for such infringements
or uses that would not have a Material Adverse Effect.
SECTION 3.21. INTERESTED PARTY TRANSACTIONS. Since July 3, 1997, no event
has occurred that would be required to be reported as a Certain Relationship or
Related Transaction, pursuant to Item 404 of Regulation S-K promulgated by the
SEC.
SECTION 3.22. INSURANCE. Parent and its subsidiaries maintain fire and
casualty, general liability, business interruption, product liability and water
damage insurance that Parent believes to be reasonably prudent for its business.
SECTION 3.23. VOTE REQUIRED. The affirmative vote of the holders of at
least a majority of the outstanding Parent Common Shares held by such holders in
favor of approval of the issuance of Parent Common Shares in connection with the
Amalgamation is the only vote of the holders of the Parent's capital stock
necessary to approve the Amalgamation.
SECTION 3.24. POOLING MATTERS. Neither Parent nor any of its affiliates
has, to Parent's knowledge and based upon consultation with its independent
accountants, taken or agreed to take any action that (without giving effect to
any action taken or agreed to be taken by the Company or any of its affiliates)
would affect the ability of the Parent to account for the business combination
to be effected by the Amalgamation as a pooling of interests.
ARTICLE IV
CONDUCT OF BUSINESS PENDING THE AMALGAMATION
SECTION 4.01. CONDUCT OF BUSINESS BY THE COMPANY PENDING THE AMALGAMATION.
During the period from the date of this Agreement and continuing until the
earlier of the termination of this Agreement or the Effective Time, except as
set forth in Section 4.01 of the Company Disclosure Schedule or contemplated in
the SEC Documents or in this Agreement, the Company covenants and agrees that,
unless Parent shall otherwise agree in writing, the Company shall conduct its
business and shall cause the
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businesses of its subsidiaries to be conducted in the ordinary course of
business and in a manner substantially consistent with past practice; and the
Company shall use reasonable commercial efforts to preserve substantially intact
the business organization of the Company and its subsidiaries, to keep available
the services of the present officers, employees and consultants of the Company
and its subsidiaries and to preserve the present relationships of the Company
and its subsidiaries with customers, suppliers and other persons with which the
Company or any of its subsidiaries has significant business relations. By way
of amplification and not limitation, except as set forth in Section 4.01 of the
Company Disclosure Schedule or contemplated in the SEC Documents or in this
Agreement, neither the Company nor any of its subsidiaries shall, during the
period from the date of this Agreement and continuing until the earlier of the
termination of this Agreement or the Effective Time, directly or indirectly do,
or propose to do, any of the following without the prior written consent of
Parent:
(a) amend or otherwise change the Company's Constitution;
(b) issue, sell, pledge, dispose of or encumber, or authorize the
issuance, sale, pledge, disposition or encumbrance of, any shares of capital
stock of any class, or any options, warrants, convertible securities or other
rights of any kind to acquire any shares of capital stock, or any other
ownership interest (including, without limitation, any phantom interest) of the
Company, any of its subsidiaries or affiliates (except for the issuance of
(i) shares of Company Capital Stock issuable pursuant to employee stock options
under the Company Stock Option Plan which options are outstanding on the date
hereof, or pursuant to rights to purchase such shares under the Company 1995
Employee Share Purchase Program and (ii) the grant of options consistent with
past practice to purchase up to 30,000 shares of Company Capital Stock to newly
hired employees (excluding officers); PROVIDED THAT the vesting of such new
options is not in any manner accelerated by the Amalgamation);
(c) sell, pledge, dispose of or encumber any assets of the Company or any
of its subsidiaries (except for (i) sales of assets in the ordinary course of
business and in a manner substantially consistent with past practice,
(ii) dispositions of obsolete, worthless or useless assets and (iii) sales of
immaterial assets not in excess of $50,000);
(d) except as is contemplated by Section 5.05, accelerate, amend or change
the period (or permit any acceleration, amendment or change) of exercisability
of options or restricted stock granted under the Company Employee Plans
(including the Company Stock Option Plan) or authorize cash payments in exchange
for any options granted under any of such plans;
(e) (i) declare, set aside, make or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in respect of
any of its capital stock, except that a wholly owned subsidiary of the Company
may declare and pay a dividend to its parent, (ii) split, combine or reclassify
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 or (iii) amend the terms of, repurchase, redeem or otherwise
acquire, or permit any subsidiary to repurchase, redeem or otherwise acquire,
any of its securities or any securities of its subsidiaries, or propose to do
any of the foregoing;
(f) (i) acquire (by Amalgamation, consolidation, or acquisition of stock
or assets) any company, corporation, partnership or other business organization
or division thereof; (ii) incur any indebtedness for borrowed money or issue any
debt securities or assume, guarantee (other than guarantees of bank debt of the
Company's subsidiaries entered into in the ordinary course of business) or
endorse or otherwise as an accommodation become responsible for, the obligations
of any person, or make any loans or advances, except in the ordinary course of
business substantially consistent with past practice; (iii) enter into or amend
any material contract or agreement other than in the ordinary course of
business; (iv) authorize any capital expenditures or purchase of fixed assets
which are, in the aggregate, in excess of the Company's budget and operating
plan previously furnished to Parent, or (v) enter into or amend any contract,
agreement, commitment or arrangement to effect any of the matters prohibited by
Section 4.01(f);
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(g) increase the compensation payable or to become payable to its officers
or employees, except for increases in salary or wages of employees of the
Company or its subsidiaries who are not officers of the Company in accordance
with past practices, or grant any severance or termination pay to, or enter into
any employment or severance agreement with any director, officer (except for
officers who are terminated on an involuntary basis) or other employee of the
Company or any of its subsidiaries, or establish, adopt, enter into or amend any
collective bargaining, bonus, profit sharing, thrift, compensation, stock
option, restricted stock, pension, retirement, deferred compensation,
employment, termination, severance or other plan, agreement, trust, fund, policy
or arrangement for the benefit of any current or former directors, officers or
employees, except, in each case, as may be required by law;
(h) take any action to change accounting policies or procedures
(including, without limitation, procedures with respect to revenue recognition,
payments of accounts payable and collection of accounts receivable), except as
required by U.S. GAAP or applicable New Zealand Law;
(i) make any material tax election inconsistent with past practices or
settle or compromise any material federal, state, local or foreign tax liability
or agree to an extension of a statute of limitations except to the extent the
amount of any such settlement has been reserved for on the Company's most recent
SEC Report;
(j) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other than
the payment, discharge or satisfaction in the ordinary course of business and
consistent with past practice of liabilities reflected or reserved against in
the financial statements of the Company or incurred in the ordinary course of
business and consistent with past practice; or
(k) take, or agree in writing or otherwise to take, any of the actions
described in Sections 4.01(a) through (j) above, or any action which would make
any of the representations or warranties of the Company contained in this
Agreement untrue or incorrect or prevent the Company from performing or cause
the Company not to perform its covenants hereunder.
SECTION 4.02. NO SOLICITATION.
(a) The Company shall not initiate, solicit or encourage (including by way
of furnishing information or assistance), or take any other action to
facilitate, any inquiries or the making of any proposal relating to, or that may
reasonably be expected to lead to, any Alternative Transaction (as defined in
Section 7.03(c) hereto), or enter into discussions or negotiate with any person
or entity in furtherance of such inquiries or to obtain a Alternative
Transaction, or agree to, or endorse, any Alternative Transaction, or authorize
or permit any of the officers, directors, employees or agents of the Company or
any of its subsidiaries or any investment banker, financial advisor, attorney,
accountant or other representative retained by the Company or any of the
Company's subsidiaries to take any such action and the Company shall promptly
notify Parent, subject to confidentiality restrictions existing on the date
hereof, of all relevant terms of any such inquiries or proposals received by the
Company or any of its subsidiaries or by any such officer, director, employee,
agent, investment banker, financial advisor, attorney, accountant or other
representative relating to any of such matters and if such inquiry or proposal
is in writing, the Company shall promptly deliver or cause to be delivered
orally to Parent a detailed summary of such inquiry or proposal, subject to
confidentiality restrictions existing on the date hereof; provided, however,
that nothing contained in this subsection (a) shall prohibit the Board of
Directors of the Company from (i) furnishing information to, or entering into
discussions or negotiations with, any persons or entity in connection with an
unsolicited bona fide proposal by such person or entity relating to an
Alternative Transaction (as defined in Section 7.03(c)) if, and only to the
extent that (A) the Board of Directors of the Company, after duly considering
the advice of Buddle Findlay determines in good faith that such action is
required for the Board of Directors of the Company to comply with its fiduciary
duties to stockholders imposed by New Zealand Law and (B) prior to furnishing
such information to, or entering into discussions or negotiations with, such
person or entity the Company provides written notice to Parent to the effect
that
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it is furnishing information to, or entering into discussions or negotiations
with, such person or entity; or (ii) complying with Rule 14e-2 promulgated under
the Exchange Act or other applicable law or other requirement with regard to a
Alternative Transaction.
(b) The Company shall immediately cease and cause to be terminated any
existing discussions or negotiations with any parties (other than Parent and
Amalgamation Sub) conducted heretofore with respect to any of the foregoing.
The Company agrees not to release any third party from any confidentiality or
standstill agreement to which the Company is a party.
(c) The Company shall ensure that the officers, directors and employees of
the Company and its subsidiaries and any investment banker or other advisor or
representative retained by the Company are aware of the restrictions described
in this Section.
SECTION 4.03. THE CONDUCT OF BUSINESS BY PARENT PENDING THE AMALGAMATION.
During the period from the date of this Agreement and continuing until the
earlier of: (i) the termination of this Agreement, (ii) the Effective Time or
(iii) March 31, 1998, except as set forth in Section 4.01 of the Company
Disclosure Schedule or contemplated in the SEC Documents or in this Agreement,
Parent covenants and agrees that, unless the Company shall otherwise agree in
writing, Parent shall not directly or indirectly do any of the following without
the prior written consent of the Company:
(a) amend or otherwise change Parent's Certificate of Incorporation;
(b) acquire (by Amalgamation, merger, consolidation, or acquisition of
stock or assets) any company, corporation, partnership or other business
organization or division thereof for an aggregate purchase price greater than
fifty million dollars ($50,000,000); or
(c) issue, sell, pledge, dispose of or encumber, or authorize the
issuance, sale, pledge, disposition or encumbrance of, any shares of capital
stock of any class, or any options, warrants, convertible securities (except
convertible debt securities) or other rights of any kind to acquire any shares
of capital stock, or any other ownership interest (including, without
limitation, any phantom interest) of Parent, any of its subsidiaries or
affiliates (other than with respect to (i) acquisitions permitted pursuant to
Section 4.03(b) hereto or (ii) grants and exercises of options under Parent's
existing stock option plans and for sales of stock pursuant to Parent's existing
stock purchase plans);
(d) take, or agree in writing or otherwise to take, any of the actions
described in Sections 4.03(a), (b) or (c) above, or any action which would make
any of the representations or warranties of Parent contained in this Agreement
untrue or incorrect or prevent Parent from performing or cause Parent not to
perform its covenants hereunder.
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.01. JOINT PROXY STATEMENT PROSPECTUS; REGISTRATION STATEMENT.
(a) As promptly as practicable (but in no event later than January 15,
1998), the Company and Parent shall prepare and file with the SEC the Joint
Proxy Statement/Prospectus and the Registration Statement of the Parent with
respect to the Parent Common Shares to be issued in connection with the
Amalgamation. As promptly as practicable after comments are received from the
SEC thereon and after the furnishing by the Company and Parent of all
information required to be contained therein, the Company and Parent shall file
with the SEC a combined proxy and Registration Statement on Form S-4 (or on such
other form as shall be appropriate) relating to the approval of the Amalgamation
and the transactions
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contemplated hereby by the stockholders of the Company and of Parent and shall
use all reasonable efforts to cause the Registration Statement to become
effective as soon thereafter as practicable. The Joint Proxy
Statement/Prospectus shall include the recommendation of the Board of Directors
of the Company in favor of the Amalgamation and the recommendation of the Board
of Directors of Parent in favor of the issuance of Parent Common Shares in
connection with the Amalgamation.
SECTION 5.02. STOCKHOLDERS' MEETINGS. The Company and Parent shall call
and hold their respective Stockholders' Meetings as promptly as practicable for
the purpose of voting upon the approval of the Amalgamation, and Parent and the
Company shall use their reasonable best efforts to hold the Stockholders'
Meetings on the same day (and at the same time of such day) and as soon as
practicable after the date on which the Registration Statement becomes
effective. The Company and Parent shall use their best efforts to hold the
Stockholders' Meetings not later than March 27, 1998. The Company and Parent
shall use their respective reasonable best efforts to solicit from their
respective stockholders proxies in favor of the approval of the Amalgamation and
the issuance of Parent Common Shares in connection with the Amalgamation,
respectively, and shall take all other action necessary or advisable to secure
the vote or consent of stockholders required by Delaware Law with respect to
Parent and New Zealand Law with respect to the Company and the Certificate of
Incorporation and By-Laws of Parent and the Constitution of the Company to
obtain such approvals, unless otherwise necessary under the applicable fiduciary
duties of the respective directors of the Company and Parent, as determined by
such directors in good faith after consultation with and based upon the advice
of outside legal counsel.
SECTION 5.03. ACCESS TO INFORMATION; CONFIDENTIALITY. Upon reasonable
notice and subject to restrictions contained in confidentiality agreements to
which such party is subject (from which such party shall use reasonable efforts
to be released solely for purposes hereof), the Company and Parent shall each
(and shall cause each of their subsidiaries to) afford to the officers,
employees, accountants, counsel and other representatives of the other,
reasonable access, during the period prior to the Effective Time, to all its
properties, books, contracts, commitments and records. Subject to such
confidentiality restrictions, the Company and Parent each shall (and shall cause
each of their subsidiaries to) furnish promptly to the other all information
concerning its business, properties and personnel as such other party may
reasonably request, and each shall make available to the other the appropriate
individuals (including attorneys, accountants and other professionals) for
discussion of the other's business, properties and personnel as either party may
reasonably request. Each party shall keep such information confidential in
accordance with the terms of the Mutual Non-Disclosure Agreement, entered into
on December 5, 1997, (the "Confidentiality Agreement") between Parent and the
Company.
SECTION 5.04. CONSENTS; APPROVALS. The Company and Parent shall each use
their reasonable best efforts to obtain all consents, waivers, approvals,
authorizations or orders (including, without limitation, all governmental and
regulatory rulings and approvals), and the Company and Parent shall make all
filings (including, without limitation, all filings with governmental or
regulatory agencies) required in connection with the authorization, execution
and delivery of this Agreement by the Company and Parent and the consummation by
them of the transactions contemplated hereby. The Company and Parent shall
furnish all information required to be included in the Joint Proxy
Statement/Prospectus and the Registration Statement, or for any application or
other filing to be made pursuant to the rules and regulations of any
governmental body in connection with the transactions contemplated by this
Agreement.
SECTION 5.05. AGREEMENTS OF AFFILIATES. The Company shall deliver to
Parent, prior to the date the Registration Statement becomes effective under the
Securities Act, a letter (the "Affiliate Letter") identifying all persons who
are, or may be deemed to be, at the time of the Company Stockholders' Meetings,
"affiliates" of the Company for purposes of Rule 145 under the Securities Act.
The Company shall use its best efforts to cause each person who is identified as
an "affiliate" in the Affiliate Letter to deliver to Parent, prior to the
Effective Time, a written agreement (an "Affiliate Agreement") in a form
mutually agreeable to the Company and Parent.
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SECTION 5.06. NOTIFICATION OF CERTAIN MATTERS. The Company shall give
prompt notice to Parent, and Parent shall give prompt notice to the Company, of
(i) the occurrence or non-occurrence of any event of which it becomes aware or
of which it should reasonably have been aware, the occurrence or non-occurrence
of which would be likely to cause any representation or warranty contained in
this Agreement to be materially untrue or inaccurate and (ii) any failure of the
Company, Parent or Amalgamation Sub, as the case may be, to materially comply
with or satisfy any covenant, condition or agreement to be complied with or
satisfied by it hereunder; PROVIDED, HOWEVER, that the delivery of any notice
pursuant to this Section shall not limit or otherwise affect the remedies
available hereunder to the party receiving such notice and FURTHER PROVIDED that
failure to give such notice shall not be treated as a breach of covenant for the
purposes of Section 6.02(b) or 6.03(b) unless the failure to give such notice
results in material prejudice to the other party.
SECTION 5.07. INDEMNIFICATION AND INSURANCE.
(a) The Constitution of the Surviving Company shall contain the provisions
with respect to indemnification set forth in the Constitution of the Company,
which provisions shall not be amended, repealed or otherwise modified for a
period of six years from the Effective Time in any manner that would adversely
affect the rights thereunder of individuals who at the Effective Time were
directors, officers, employees or agents of the Company, unless such
modification is required by law.
(b) The Company shall, to the fullest extent permitted under applicable
law or under the Company's Constitution and regardless of whether the
Amalgamation becomes effective, indemnify and hold harmless, and after the
Effective Time, the Surviving Company and the Parent shall, to the fullest
extent permitted under applicable law or under the Surviving Company's
Constitution or the Parent's Certificate of Incorporation and Bylaws, as the
case may be, indemnify and hold harmless, each present and former director,
officer, employee, fiduciary and agent of the Company or any of its subsidiaries
(collectively, the "Indemnified Parties") against any costs or expenses
(including attorneys' fees), judgments, fines, losses, claims, damages,
liabilities and amounts paid in settlement in connection with any claim, action,
suit, proceeding or investigation, whether civil, criminal, administrative or
investigative, arising out of or pertaining to any action or omission occurring
at or prior to the Effective Time (including, without limitation, the
transactions contemplated by this Agreement) for a period of six years after the
date hereof. In the event of any such claim, action, suit, proceeding or
investigation (whether arising before or after the Effective Time), (i) any
counsel retained by the Indemnified Parties for any period after the Effective
Time shall be reasonably satisfactory to the Surviving Company, (ii) after the
Effective Time, the Surviving Company shall pay the reasonable fees and expenses
of such counsel, promptly after statements therefor are received and (iii) the
Surviving Company will cooperate in the defense of any such matter; provided,
HOWEVER, that the Surviving Company shall not be liable for any settlement
effected without its written consent (which consent shall not be unreasonably
withheld); AND PROVIDED FURTHER, that, in the event that any claim or claims for
indemnification are asserted or made within such six-year period, all rights to
indemnification in respect of any such claim or claims shall continue until the
disposition of any and all such claims. The Indemnified Parties as a group may
retain only one law firm to represent them with respect to any single action
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.
(c) The Surviving Company and Parent shall honor and fulfill in all
respects the obligations of the Company pursuant to indemnification agreements
with the Company's directors and officers existing at or before the Effective
Time.
(d) For a period of three years after the Effective Time, Parent shall
cause the Surviving Company to use its best efforts to maintain in effect, if
available, directors' and officers' liability insurance covering those persons
who are currently covered by the Company's directors' and officers' liability
insurance policy (a copy of which has been heretofore delivered to Parent) on
terms comparable to those applicable to the then current directors and officers
of Parent, or (ii) those now applicable to directors and officers of the
Company, whichever is more favorable to such directors and officers; PROVIDED,
HOWEVER,
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that in no event shall Parent or the Surviving Company be required to expend in
excess of 150 percent of the annual premium currently paid by the Company for
such coverage, and provided further, that if the premium for such coverage
exceeds such amount, Parent or the Surviving Company shall purchase a policy
with the greatest coverage available for such 150% of the annual premium.
(e) This Section shall survive any termination of this Agreement and the
consummation of the Amalgamation at the Effective Time is intended to benefit
the Company, the Surviving Company and the Indemnified Parties, and shall be
binding on all successors and assigns of the Surviving Company and shall be
enforceable by the Indemnified Parties.
SECTION 5.08. FURTHER ASSURANCES; TAX TREATMENT.
(a) Upon the terms and subject to the conditions hereof, each of the
parties hereto shall use all reasonable efforts to take, or cause to be taken,
all actions and to do, or cause to be done, all other things necessary, proper
or advisable to consummate and make effective as promptly as practicable the
transactions contemplated by this Agreement, to obtain in a timely manner all
necessary waivers, consents and approvals and to effect all necessary
registrations and filings, and to otherwise satisfy or cause to be satisfied all
conditions precedent to its obligations under this Agreement. The foregoing
covenant shall not include any obligation by Parent to agree to divest, abandon,
license or take similar action with respect to any assets (tangible or
intangible) of Parent or the Company.
(b) Each of Parent, Amalgamation Sub and the Company shall use its
reasonable best efforts to cause the Amalgamation to qualify, and will not (both
before and after consummation of the Amalgamation) take any actions which could
prevent the Amalgamation from qualifying, as a reorganization under the
provisions of Section 368 of the Code.
SECTION 5.09. PUBLIC ANNOUNCEMENTS. Parent and the Company shall consult
with each other before issuing any press release with respect to the
Amalgamation or this Agreement and shall not issue any such press release or
make any such public statement without the prior written consent of the other
party, which shall not be unreasonably withheld; PROVIDED, HOWEVER, that a party
may, without the prior written consent of the other party, issue such press
release or make such public statement as may upon the advice of counsel be
required by law or the rules and regulations of the National Association of
Securities Dealers ("NASD") if it has used all reasonable efforts to obtain the
prior written consent of the other party.
SECTION 5.10. LISTING OF PARENT COMMON SHARES. Parent shall cause the
Parent Common Shares to be issued in the Amalgamation to be approved for
quotation on the Nasdaq National Market, and shall use reasonable efforts to
effect such quotation prior to the Effective Time.
SECTION 5.11. CONVEYANCE TAXES. Parent and the Company shall cooperate in
the preparation, execution and filing of all returns, questionnaires,
applications, or other documents regarding any real property transfer or gains,
sales, use, transfer, value added, stock transfer and stamp taxes, any transfer,
recording, registration and other fees, and any similar taxes which become
payable in connection with the transactions contemplated hereby that are
required or permitted to be filed on or before the Effective Time.
SECTION 5.12. ACCOUNTANT'S LETTERS. Upon reasonable notice from the
other, the Company or Parent shall use their respective best efforts to cause
Arthur Andersen LLP and KPMG, respectively, to deliver to Parent or the Company,
as the case may be, a letter covering such matters as are requested by Parent or
the Company, as the case may be, and as are customarily addressed in
accountant's "comfort" letters.
SECTION 5.13. POOLING ACCOUNTING TREATMENT. Each of the Parties will use
its reasonable best efforts to cause the transactions contemplated by this
Agreement to be accounted for as a pooling
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transaction by each Party's independent certified public accountants, by the
NASD and by the SEC, respectively, and each of the Parties agrees that it will
take no action that would cause such accounting treatment not to be obtained.
SECTION 5.14. BLUE SKY LAWS. Parent shall take all actions required to
cause the Parent Common Shares issued pursuant to the Amalgamation to be exempt
from registration under all applicable Blue Sky Laws, or shall register such
Parent Common Shares pursuant to and in accordance with all applicable Blue Sky
Laws.
SECTION 5.15. APPOINTMENT OF DIRECTOR. At the Effective Time, Howard
Oringer shall be appointed to the board of directors of Parent and shall be
nominated to serve as a member of the board of directors of Parent for a
one-year term at the annual meeting of Parent's stockholders held in 1998.
SECTION 5.16. REGISTRATION OF SHARES. Parent shall register the Parent
Common Shares received by holders of Company Capital Stock pursuant to the
Amalgamation. Parent shall use reasonable efforts to register such Parent
Company Shares under U.S. (under a Form S-3 or a post-effective amendment to a
Form S-4 registration statement) and/or New Zealand securities laws, as
applicable, subject to customary blackout restrictions, upon the request of
holders of such Parent Common Shares who in the aggregate held 5% or more of the
outstanding Company Capital Stock prior to the Amalgamation and who require such
registration to resell the Parent Common Shares received by them in the
Amalgamation. Such registration shall occur only after the date upon which
financial results of at least 30 days of post-merger combined operations have
been first published by Parent.
ARTICLE VI
CONDITIONS TO THE AMALGAMATION
SECTION 6.01. CONDITIONS TO OBLIGATION OF EACH PARTY TO EFFECT THE
AMALGAMATION. The respective obligations of each party to effect the
Amalgamation shall be subject to the satisfaction at or prior to the
Effective Time of the following conditions:
(a) EFFECTIVENESS OF THE REGISTRATION STATEMENT. The Registration
Statement shall have been declared effective by the SEC under the Securities
Act. No stop order suspending the effectiveness of the Registration Statement
shall have been issued by the SEC and no proceedings for that purpose and no
similar proceeding in respect of the Joint Proxy Statement/Prospectus shall have
been initiated or threatened by the SEC;
(b) STOCKHOLDER APPROVAL. This Agreement and the Amalgamation (and in the
case of the Company an Amalgamation proposal) shall have been approved and
adopted by the requisite vote of the stockholders of the Company and Parent;
(c) NO INJUNCTIONS OR RESTRAINTS; ILLEGALITY. No temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition (an "Injunction")
preventing the consummation of the Amalgamation shall be in effect; and there
shall not be any action taken, or any statute, rule, regulation or order
enacted, entered, enforced or deemed applicable to the Amalgamation, which makes
the consummation of the Amalgamation illegal; and
(d) TAX OPINIONS. Parent and the Company shall have received the opinions
of their respective counsel, Morrison & Foerster LLP and Brobeck, Phleger &
Harrison LLP, in form and substance reasonably satisfactory to each, on the
basis of certain facts, representations and assumptions set forth in such
opinion, dated the Effective Time, to the effect that the Amalgamation will be
treated for federal income tax purposes as a reorganization qualifying under the
provisions of Section 368(a) of the Code and that Parent and the Company will
each be a party to the reorganization within the meaning of
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<PAGE>
Section 368(b) of the Code. In rendering such opinions, such counsel shall be
entitled to rely upon representations of officers of Parent and the Company
substantially in the form of Exhibits A and B hereto.
(e) GOVERNMENTAL APPROVAL. The New Zealand Overseas Investment Commission
shall have consented to the Amalgamation with respect to the Shares of the
Company becoming owned or controlled by the Parent.
(f) NEW ZEALAND SECURITIES LAW. The exchange of Parent Common Shares for
Shares of the Company shall be permitted to be effected (if required) pursuant
to the provisions of the Securities Act 1978 (NZ) on terms and conditions
reasonably acceptable to Parent and the Company.
SECTION 6.02. ADDITIONAL CONDITIONS TO OBLIGATIONS OF PARENT AND
AMALGAMATION SUB. The obligations of Parent and Amalgamation Sub to effect the
Amalgamation are also subject to the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of
the Company contained in this Agreement shall be true and correct in all
respects on and as of the Effective Time, except for (i) changes contemplated by
this Agreement, (ii) those representations and warranties which address matters
only as of a particular date (which shall remain true and correct as of such
date) and (iii) where the failure to be true and correct would not have a
Material Adverse Effect, with the same force and effect as if made on and as of
the Effective Time, and Parent and Amalgamation Sub shall have received a
certificate to such effect signed by the President and Chief Financial Officer
of the Company;
(b) AGREEMENTS AND COVENANTS. The Company shall have performed or
complied in all material respects with all agreements and covenants required by
this Agreement to be performed or complied with by it on or prior to the
Effective Time, and Parent and Amalgamation Sub shall have received a
certificate to such effect signed by the President and Chief Financial Officer
of the Company;
(c) CONSENTS OBTAINED. All material consents, waivers, approvals,
authorizations or orders required to be obtained, and all filings required to be
made ("Material Consents"), by the Company for the authorization, execution and
delivery of this Agreement and the consummation by it of the transactions
contemplated hereby shall have been obtained and made by the Company, except
where the failure to receive such Material Consents would not have a Material
Adverse Effect on the Company or Parent;
(d) MATERIAL ADVERSE CHANGE. Since the date of this Agreement, there
shall have been no change, occurrence or circumstance in the business, results
of operations or financial condition of the Company or any subsidiary of the
Company having, or reasonably likely to have, individually or in the aggregate,
a Material Adverse Effect;
(e) OPINION OF ACCOUNTANT. Parent shall have received (i) an opinion of
Arthur Andersen LLP, independent public accountants, to the effect that the
Amalgamation qualifies for a pooling of interests accounting treatment if
consummated in accordance with this Agreement and (ii) a copy of the opinion
referred to in Section 6.03(e) below;
(f) SHAREHOLDER APPROVAL. No more than ten percent (10%) of the
shareholders of the Company shall vote against the transactions contemplated
hereby at a shareholders' meeting called for the purpose of approving such
transactions.
(g) AFFILIATE AGREEMENTS. Parent shall have received from each person who
is identified in the Affiliate Letter as an "affiliate" of the Company, an
Affiliate Agreement, and such Affiliate Agreement shall be in full force and
effect.
SECTION 6.03. ADDITIONAL CONDITIONS TO OBLIGATION OF THE COMPANY. The
obligation of the Company to effect the Amalgamation is also subject to the
following conditions:
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<PAGE>
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of
Parent and Amalgamation Sub contained in this Agreement shall be true and
correct in all respects on and as of the Effective Time, except for (i) changes
contemplated by this Agreement, (ii) those representations and warranties which
address matters only as of a particular date (which shall remain true and
correct as of such date) and (iii) where the failure to be true and correct
would not have a Material Adverse Effect, with the same force and effect as if
made on and as of the Effective Time, and the Company shall have received a
certificate or certificates to such effect signed by the President and Chief
Financial Officer of each of Parent and Amalgamation Sub;
(b) AGREEMENTS AND COVENANTS. Parent and Amalgamation Sub shall have
performed or complied in all material respects with all agreements and covenants
required by this Agreement to be performed or complied with by them on or prior
to the Effective Time, and the Company shall have received a certificate or
certificates to such effect signed by the President and Chief Financial Officer
of each of Parent and Amalgamation Sub;
(c) CONSENTS OBTAINED. All Material Consents required to be obtained or
made by Parent and Amalgamation Sub for the authorization, execution and
delivery of this Agreement and the consummation by them of the transactions
contemplated hereby shall have been obtained and made by Parent and Amalgamation
Sub, except where the failure to receive such Material Consents would not have a
Material Adverse Effect on the Company or Parent;
(d) MATERIAL ADVERSE CHANGE. Since the date of this Agreement, there
shall have been no change, occurrence or circumstance in the business, results
of operations or financial condition of the Parent or any subsidiary of the
Parent having or reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect;
(e) OPINION OF ACCOUNTANT. The Company shall have received (i) an opinion
of KPMG, independent public accountants, to the effect that the Amalgamation
qualifies for a pooling of interests accounting treatment if consummated in
accordance with this Agreement and (ii) a copy of the opinion referred to in
Section 6.02(e) above; and
(f) APPROVAL FOR QUOTATION ON NASDAQ NATIONAL MARKET. The Parent Common
Shares to be issued in the Amalgamation shall have been approved for quotation
on the Nasdaq National Market, subject only to official notice of issuance.
ARTICLE VII
TERMINATION
SECTION 7.01. TERMINATION. This Agreement may be terminated at any time
prior to the Effective Time, notwithstanding approval thereof by the
stockholders of the Company or Parent:
(a) by mutual written consent duly authorized by the Boards of Directors
of Parent and the Company; or
(b) by either Parent or the Company if the Amalgamation shall not have
been consummated by March 31, 1998 (provided that the right to terminate this
Agreement under this Section 7.01(b) shall not be available to any party whose
failure to fulfill any obligation under this Agreement has been the cause of or
resulted in the failure of the Amalgamation to occur on or before such date); or
(c) by either Parent or the Company if a court of competent jurisdiction
or governmental, regulatory or administrative agency or commission shall have
issued a non-appealable final order, decree or ruling or taken any other action,
in each case having the effect of permanently restraining, enjoining or
A-28
<PAGE>
otherwise prohibiting the Amalgamation, except if the party relying on such
order, decree or ruling or other action has not complied with its obligations
under Section 5.08; or
(d) by Parent or the Company, if, at the Parent or Company Stockholders'
Meetings (including any adjournment or postponement thereof), the requisite vote
of the stockholders of the Parent or Company shall not have been obtained; or
(e) by Parent, if (i) the Board of Directors of the Company shall
withdraw, modify or change its recommendation of this Agreement or the
Amalgamation in a manner adverse to Parent or shall have resolved to do any of
the foregoing; (ii) the Board of Directors of the Company shall have recommended
to the shareholders of the Company an Alternative Transaction (as defined in
Section 7.03(c)); or (iii) a tender offer or exchange offer for 15% or more of
the outstanding shares of Company Capital Stock is commenced (other than by
Parent or an affiliate of Parent), and the Board of Directors of the Company
recommends that the stockholders of the Company tender their shares in such
tender or exchange offer; or
(f) by Parent or the Company, upon a breach of any representation,
warranty, covenant or agreement on the part of the Company or Parent,
respectively, set forth in this Agreement which cannot be cured prior to March
31, 1998, such that the conditions set forth in Section 6.02(a) or 6.02(b), or
Section 6.03(a) or 6.03(b), would not be satisfied (a "Terminating Breach"),
PROVIDED THAT if such Terminating Breach is curable prior to March 31, 1998 by
Parent or the Company, as the case may be, through the exercise of its
reasonable best efforts and for so long as Parent or the Company, as the case
may be, continues to exercise such reasonable best efforts, neither the Company
nor the Parent, respectively, may terminate this Agreement under this
Section 7.01; or
(g) by the Company, if the Board of Directors of Parent shall withdraw,
modify or change its recommendation of this Agreement or the Amalgamation,
including without limitation approval of the issuance of Parent Common Shares in
connection with the Amalgamation, in a manner adverse to the Company or shall
have resolved to do any of the foregoing.
SECTION 7.02. EFFECT OF TERMINATION. In the event of the termination of
this Agreement pursuant to Section 7.01, this Agreement shall forthwith become
void and there shall be no liability on the part of any party hereto or any of
its affiliates, directors, officers or stockholders except (i) as set forth in
Sections 5.09, 7.03 and 8.01 hereof, and (ii) nothing herein shall relieve any
party from liability for any willful breach hereof.
SECTION 7.03. FEES AND EXPENSES.
(a) Except as set forth in this Section 7.03, (i) all fees and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such expenses, if the Amalgamation
is not consummated or (ii) if the Amalgamation is consummated, then the
Surviving Company shall pay all such fees and expenses.
(b) The Company shall pay Parent a fee of $3,250,000 in cash (the "Fee"),
plus actual, documented and reasonable out-of-pocket expenses of Parent relating
to the transactions contemplated by this Agreement (including, but not limited
to, fees and expenses of Parent's counsel, accountants and financial advisers,
but excluding any "success" fees paid to such financial advisors), upon the
earlier to occur of (i) the termination of this Agreement by Parent pursuant to
Section 7.01(e) or (ii) the closing of an Alternative Transaction.
(c) As used herein, "Alternative Transaction" means either (i) a
transaction pursuant to which any person (or group of persons) other than Parent
or its affiliates (a "Third Party") acquires more than 15 percent of the
outstanding Shares, whether from the Company or pursuant to a tender offer or
exchange offer or otherwise, (ii) an Amalgamation or other business combination
involving the Company pursuant to which any Third Party acquires more than 15
percent of the outstanding equity securities of the Company
A-29
<PAGE>
or the entity surviving such Amalgamation or business combination or (iii) any
other transaction pursuant to which any Third Party acquires control of assets
(including for this purpose the outstanding equity securities of subsidiaries of
the Company, and the entity surviving any Amalgamation or business combination
including any of them) of the Company, any of its subsidiaries having a fair
market value (as determined by the Board of Directors of the Company in good
faith) equal to more than 15 percent of the fair market value of all the assets
of the Company and its subsidiaries, taken as a whole, immediately prior to such
transaction; PROVIDED, HOWEVER, that the term Alternative Transaction shall not
include any acquisition of securities by a broker dealer in connection with a
bona fide public offering of such securities.
(d) Parent shall pay the Company the Fee, plus actual, documented and
reasonable out-of-pocket expenses of the Company relating to the transactions
contemplated by this Agreement (including, but not limited to, fees and expenses
of the Company's counsel, accountants and financial advisors, but excluding any
discretionary fees paid to such financial advisors), upon the termination of
this Agreement by the Company pursuant to Section 7.01(g), unless Parent's board
of directors withdraws its recommendation of this Agreement or the Amalgamation
because Parent terminates the Agreement pursuant to Section 7.01(e).
(e) The Fee payable pursuant to Sections 7.03(b) or 7.03(d) shall be paid
within one business day after the occurrence of an event described in
Section 7.03(b) or 7.03(d), as applicable.
ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.01. EFFECTIVENESS OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS;
KNOWLEDGE, ETC.
(a) Except as otherwise provided in this Section 8.01, the
representations, warranties and agreements of each party hereto shall remain
operative and in full force and effect regardless of any investigation made by
or on behalf of any other party hereto, any person controlling any such party or
any of their officers or directors, whether prior to or after the execution of
this Agreement. The representations, warranties and agreements in this
Agreement shall terminate at the Effective Time or upon the termination of this
Agreement pursuant to Section 7.01, as the case may be, except that the
agreements set forth in Article I and Sections 1.06(c)(iii), 5.05, 5.08, 5.09,
5.13 and 8.03 shall survive the Effective Time indefinitely and those set forth
in Section 7.03 shall survive termination indefinitely. The Confidentiality
Agreement shall survive termination of this Agreement as provided therein.
(b) Any disclosure made with reference to one or more Sections of the
Company Disclosure Schedule or the Parent Disclosure Schedule shall be deemed
disclosed with respect to each other section therein as to which such disclosure
is relevant provided that such relevance is reasonably apparent.
SECTION 8.02. NOTICES. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been duly given
or made as of the date delivered or mailed if delivered personally or mailed by
registered or certified mail (postage prepaid, return receipt requested) to the
parties at the following addresses (or at such other address for a party as
shall be specified by like changes of address which shall be effective upon
receipt) or sent by electronic transmission, with confirmation received, to the
telecopy number specified below:
(a) If to Parent or Amalgamation Sub:
DIGITAL MICROWAVE CORPORATION
170 Rose Orchard Way
San Jose, CA 95134
A-30
<PAGE>
With copies to:
Morrison & Foerster LLP
425 Market Street
San Francisco, CA 94105
U.S.A.
Telecopier No. (415) 268-7522
Attention: Bruce A. Mann, Esq.
Kensington Swan
89 The Terrace
Wellington, New Zealand
Telecopier No. 64-4-472-2291
Attention: David J. Quigg, Esq.
(b) If to the Company:
MAS TECHNOLOGY LTD
24 Bridge Street
Lower Hutt
Wellington, New Zealand
With copies to:
Brobeck, Phleger & Harrison LLP
2200 Geng Road
Palo Alto, CA 94303
U.S.A.
Telecopier No. (650) 496-2885
Attention: Thomas A. Bevilacqua, Esq.
Curtis L. Mo, Esq.
Buddle Findlay
Telstra Centre
191-201 Queen Street
P.O. Box 1433, DX CP24024
Auckland, New Zealand
Telecopier No. 64-9-358-7069
Attention: Sarah Roberts, Esq.
SECTION 8.03. CERTAIN DEFINITIONS. For purposes of this Agreement, the
term:
(a) "affiliates" means a person that directly or indirectly, through one
or more intermediaries, controls, is controlled by, or is under common control
with, the first mentioned person;
(b) "beneficial owner" with respect to any shares of Company Capital
Stock, means a person who shall be deemed to be the beneficial owner of such
shares (i) which such person or any of its affiliates or associates beneficially
owns, directly or indirectly, (ii) which such person or any of its affiliates or
associates (as such term is defined in Rule 12b-2 of the Exchange Act) has,
directly or indirectly, (A) the right to acquire (whether such right is
exercisable immediately or subject only to the passage of time), pursuant to any
agreement, arrangement or understanding or upon the exercise of consideration
rights, exchange rights, warrants or options, or otherwise, or (B) the right to
vote pursuant to any agreement, arrangement or understanding or (iii) which are
beneficially owned, directly or indirectly, by any other
A-31
<PAGE>
persons with whom such person or any of its affiliates or person with whom such
person or any of its affiliates or associates has any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting or disposing of any
shares;
(c) "business day" means any day other than a day on which banks in San
Francisco (California) or New Zealand are required or authorized to be closed;
(d) "control" (including the terms "controlled by" and "under common
control with") means the possession, directly or indirectly or as trustee or
executor, of the power to direct or cause the direction of the management or
policies of a person, whether through the ownership of stock, as trustee or
executor, by contract or credit arrangement or otherwise;
(e) "Person" means an individual, corporation, partnership, association,
trust, unincorporated organization, other entity or group (as defined in
Section 13(d)(3) of the Exchange Act); and
(f) "subsidiary" or "subsidiaries" of the Company, the Surviving Company,
Parent or any other person means any corporation, partnership, joint venture or
other legal entity of which the Company, the Surviving Company, Parent or such
other person, as the case may be, (either alone or through or together with any
other subsidiary) owns, directly or indirectly, more than 50% of the stock or
other equity interests, the holders of which are generally entitled to vote for
the election of the board of directors or other governing body of such
corporation or other legal entity.
SECTION 8.04. AMENDMENT. This Agreement may be amended by the parties
hereto by action taken by or on behalf of their respective Boards of Directors
at any time prior to the Effective Time; PROVIDED, HOWEVER, that, after approval
of the Amalgamation by the stockholders of the Company, no amendment may be made
which by law requires further approval by such stockholders without such further
approval. This Agreement may not be amended except by an instrument in writing
signed by the parties hereto.
SECTION 8.05. WAIVER. At any time prior to the Effective Time, any party
hereto may with respect to any other party hereto (a) extend the time for the
performance of any of the obligations or other acts, (b) waive any inaccuracies
in the representations and warranties contained herein or in any document
delivered pursuant hereto and (c) waive compliance with any of the agreements or
conditions contained herein. Any such extension or waiver shall be valid if set
forth in an instrument in writing signed by the party or parties to be bound
thereby.
SECTION 8.06. HEADINGS. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 8.07. SEVERABILITY. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law,
or public policy or would violate pooling of interest treatment, all other
conditions and provisions of this Agreement shall nevertheless remain in full
force and effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner adverse to any party. Upon
such determination that any term or other provision is invalid, illegal or
incapable of being enforced or would violate pooling of interest treatment, the
parties hereto shall negotiate in good faith to modify this Agreement so as to
effect the original intent of the parties as closely as possible in an
acceptable manner to the end that transactions contemplated hereby are fulfilled
to the extent possible.
SECTION 8.08. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement and supersedes all prior agreements and undertakings (other than the
Confidentiality Agreement), both written and oral, among the parties, or any of
them, with respect to the subject matter hereof and, except as otherwise
expressly provided herein, are not intended to confer upon any other person any
rights or remedies hereunder.
A-32
<PAGE>
SECTION 8.09. ASSIGNMENT, AMALGAMATION SUB. This Agreement shall not be
assigned by operation of law or otherwise, except that Parent and Amalgamation
Sub may assign all or any of their rights hereunder to any affiliate provided
that no such assignment shall relieve the assigning party of its obligations
hereunder.
SECTION 8.10. PARTIES IN INTEREST. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to or shall confer upon any other
person any right, benefit or remedy of any nature whatsoever under or by reason
of this Agreement, other than Section 5.07 (which is intended to be for the
benefit of the Indemnified Parties and may be enforced by such Indemnified
Parties).
SECTION 8.11. GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the internal laws of the State of Delaware
applicable to contracts executed and fully performed within the State of
Delaware, without regard to the conflicts of laws provisions thereof, except
that the Amalgamation (but not the conditions thereto) shall be governed by, and
construed in accordance with, the internal laws of New Zealand.
SECTION 8.12. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
A-33
<PAGE>
SECTION 8.13. WAIVER OF JURY TRIAL. EACH OF THE PARENT, AMALGAMATION SUB
AND THE COMPANY HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY
LAW, ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM
(WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY. NOTHING
CONTAINED HEREIN SHALL AFFECT THE RIGHT OF ANY PARTY TO SEEK SPECIFIC
PERFORMANCE, INJUNCTIVE RELIEF OR OTHER EQUITABLE REMEDIES IN CONNECTION WITH
THIS AGREEMENT OR ANY OF THE PROVISIONS HEREOF, WHETHER IN A COURT OF LAW OR
OTHERWISE.
IN WITNESS WHEREOF, Parent, Amalgamation Sub and the Company have caused
this Agreement to be executed as of the date first written above by their
respective officers thereunto duly authorized.
DIGITAL MICROWAVE CORPORATION
By /s/ TIMOTHY R. HANSEN
--------------------------------------
Name: Timothy R. Hansen
Title: Vice President, New Business
Development
SOUTH AMALGAMATION SUB LTD.
By /s/ CHARLES D. KISSNER
--------------------------------------
Name: CHARLES D. KISSNER
Title: Director
MAS TECHNOLOGY LTD.
By /s/ NEVILLE JORDAN
--------------------------------------
Name: Neville Jordan
Title: Chief Executive Officer
A-34
<PAGE>
APPENDIX B
THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS OF DIGITAL MICROWAVE CORPORATION
FOR THE SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON MARCH 23, 1998
The undersigned stockholder of DIGITAL MICROWAVE CORPORATION, a Delaware
corporation, hereby acknowledges receipt of the Notice of Special Meeting of
Stockholders and Proxy Statement, each dated February 9, 1998, and hereby
appoints Charles D. Kissner, Carl A. Thomsen and Carol A. Goudey or any one of
them, proxies, with full power to each of substitution, on behalf and in the
name of the undersigned, to represent the undersigned at the Special Meeting of
Stockholders of DIGITAL MICROWAVE CORPORATION ("DMC") to be held on March 23,
1998 at 11:00 a.m., Pacific Standard Time, at its executive offices located at
170 Rose Orchard Way, San Jose, California, and at any adjournment or
adjournments thereof, and to vote all shares of Common Stock which the
undersigned would be entitled to vote if then and there personally present, on
the matters set forth below.
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS
INDICATED, WILL BE VOTED FOR PROPOSALS 1, 2, and 3 SET FORTH BELOW, IN EACH CASE
AS MORE FULLY DESCRIBED IN THE ACCOMPANYING JOINT PROXY STATEMENT/PROSPECTUS,
AND AS SAID PROXIES DEEM ADVISABLE ON SUCH MATTERS AS MAY PROPERLY COME BEFORE
THE MEETING.
1. PROPOSAL TO APPROVE THE ISSUANCE OF DMC COMMON STOCK IN CONNECTION
WITH THE AGREEMENT AND PLAN OF REORGANIZATION AND AMALGAMATION, DATED AS OF
DECEMBER 22, 1997, AMONG DMC, SOUTH AMALGAMATION SUB LTD., A NEW ZEALAND COMPANY
AND A WHOLLY OWNED SUBSIDIARY OF DMC ("AMALGAMATION SUB"), AND MAS TECHNOLOGY
LIMITED ("MAS"), PURSUANT TO WHICH AMALGAMATION SUB WILL BE MERGED WITH AND INTO
MAS, AND MAS WILL BECOME A WHOLLY OWNED SUBSIDIARY OF DMC:
FOR AGAINST ABSTAIN
----- ----- -----
2. PROPOSAL TO APPROVE THE AMENDMENT TO ARTICLE IV OF THE RESTATED
CERTIFICATE OF INCORPORATION OF DMC TO (i) INCREASE THE TOTAL NUMBER OF
AUTHORIZED SHARES OF STOCK TO 100,000,000 AND (ii) INCREASE THE NUMBER OF
AUTHORIZED SHARES OF DMC COMMON STOCK TO 95,000,000:
FOR AGAINST ABSTAIN
----- ----- -----
3. PROPOSAL TO APPROVE THE AMENDMENT TO DMC'S 1994 STOCK INCENTIVE PLAN
TO INCREASE THE NUMBER OF SHARES RESERVED FOR ISSUANCE THEREUNDER TO 7,166,660
SHARES:
FOR AGAINST ABSTAIN
----- ----- -----
B-1
<PAGE>
DATED: _____________________, 1998
----------------------------------------
Signature
----------------------------------------
Signature
This Proxy should be marked, dated and signed
by the stockholder(s) exactly as his or her
name appears hereon, and returned promptly in
the enclosed envelope. Persons signing in a
fiduciary capacity should so indicate. If
shares are held by joint tenants or as
community property, both should sign.
B-2
<PAGE>
MAS TECHNOLOGY/DIGITAL MICROWAVE CORPORATION
AMALGAMATION PROPOSAL
Freepost/BRP Authority Number 3554
POST PAID
MAS Technology Limited
PO Box 30 248
LOWER HUTT
B-3
<PAGE>
PROXY FORM
USE THIS FORM IF YOU ARE NOT COMING TO THE SPECIAL MEETING BUT WANT SOMEONE ELSE
TO VOTE FOR YOU
TO MAS TECHNOLOGY LIMITED
PO BOX 30 248
LOWER HUTT
OR
C/- MAS TECHNOLOGY LIMITED Shareholder No.
24 BRIDGE STREET, LOWER HUTT No. Shares
ATTENTION SECRETARY TO THE BOARD
I, We being an abovenamed shareholder of MAS Technology Limited ("the Company")
appoint,
A. PETER TROUGHTON OR NEVILLE JORDAN
---------------------------------
DELETE IF YOU WISH TO APPOINT AN ALTERNATIVE PERSON
B. ----------------------------------------------------------------------
INSERT ALTERNATIVE NAME IF YOU DON NOT WISH EITHER PETER TROUGHTON OR
NEVILLE JORDAN TO BE APPOINTED AS YOUR PROXY
as my/our proxy at the Special Meeting of the Company to be held on 23 March
1998 at 24 Bridge Street, Lower Hutt at 1:00 p.m. or at any adjournment.
Unless otherwise instructed, your Proxy will vote as he or she thinks fit.
If you are entitled to vote on the resolution below and you wish to direct
your Proxy how to vote, then please indicate with a (check) either in favour
or against. Your Proxy will vote as he or she thinks fit on any procedural
resolutions.
- REFER NOTICE OF MEETING IN FAVOUR AGAINST
To approve the Amalgamation Proposal / / / /
Please date and sign the form. Joint shareholders are all to sign
Signed this day of 1998
- --------------------------------------------------------------------------------
1. YOUR PROXY DOES NOT HAVE TO BE A SHAREHOLDER IN THE COMPANY. YOU
MAY STILL ATTEND THE MEETING IF YOU APPOINT A PROXY, BUT HE/SHE
WILL VOTE ON YOUR BEHALF.
2. THIS PROXY FORM MUST BE SIGNED BY YOU OR YOUR ATTORNEY. IF SIGNED BY
YOUR ATTORNEY, THE ATTORNEY MUST HAVE BEEN AUTHORISED IN WRITING,
AND THAT AUTHORITY (OR A COPY OF IT CERTIFIED BY A NOTARY PUBLIC)
MUST BE ENCLOSED WITH THIS FORM. A CORPORATION MUST EXECUTE THIS
FORM IN ACCORDANCE WITH ITS CONSTITUTION OR THE RELEVANT GOVERNING
AUTHORITY. ANY POWER OF ATTORNEY, OR OTHER AUTHORITY, MUST BE
ENCLOSED WITH THIS FORM IF NOT ALREADY NOTED BY THE COMPANY.
3. THIS COMPLETED PROXY FORM (AND ANY REQUIRED AUTHORITIES) SHOULD BE
FOLDED AND POSTED (POSTAGE ALREADY PAID) OR DELIVERED TO THE
COMPANY AT THE STREET ADDRESS NOTED ABOVE TO ENSURE THAT IT IS
RECEIVED NOT LESS THAN 48 HOURS BEFORE THE MEETING.
4. A SHAREHOLDER MAY EXERCISE THE RIGHT TO VOTE AT A MEETING OF
SHAREHOLDERS EITHER BY BEING PRESENT IN PERSON OR BY PROXY.
5. A PROXY FOR A SHAREHOLDER IS ENTITLED TO ATTEND AND BE HEARD AT A
MEETING OF SHAREHOLDERS AS IF THE PROXY
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WERE THE SHAREHOLDER.
6. A PROXY MUST BE APPOINTED BY NOTICE IN WRITING SIGNED BY THE
SHAREHOLDER AND THE NOTICE MUST STATE WHETHER THE APPOINTMENT IS
FOR A PARTICULAR MEETING OR A SPECIFIED TERM NOT EXCEEDING TWELVE
MONTHS.
7. THE PROXY FORM MUST BE SIGNED BY THE PERSON APPOINTING THE PROXY,
OR BY THAT PERSON'S ATTORNEY. IF SIGNED BY AN ATTORNEY THE ATTORNEY
MUST HAVE BEEN AUTHORISED IN WRITING. IF THE PERSON APPOINTING THE
PROXY IS A CORPORATION THE PROXY MUST BE SIGNED FOR ON BEHALF OF
THAT CORPORATION BY TWO DIRECTORS OR OTHERWISE IN ACCORDANCE WITH
THE CONSTITUTION OF THAT CORPORATION.
8. THE PROXY FORM, AND ANY POWER OF ATTORNEY OR OTHER AUTHORITY (IF
ANY) UNDER WHICH IT IS SIGNED, OR A COPY OF THAT POWER OF ATTORNEY
CERTIFIED BY A NOTARY PUBLIC, OR A COPY OF A RESOLUTION PASSED BY A
CORPORATION APPOINTING A REPRESENTATIVE DULY CERTIFIED BY THE
CORPORATION, MUST BE DEPOSITED WITH THE COMPANY BY SENDING IT TO
THE ADDRESS SHOWN ON THE PROXY FORM NOT LESS THAN 48 HOURS BEFORE
THE TIME FOR HOLDING THE MEETING TO WHICH THE PROXY OR APPOINTMENT
APPLIES.
9. IF YOU ARE UNABLE TO ATTEND THE SPECIAL MEETING BUT WOULD LIKE TO
VOTE AT THAT MEETING, THE CHAIRMAN OF THE BOARD OF DIRECTORS, PETER
TROUGHTON AND THE DEPUTY CHAIRMAN, NEVILLE JORDAN ARE BOTH PREPARED
TO ACT AS PROXIES TO VOTE ON YOUR BEHALF. IF YOU WOULD LIKE TO
EXERCISE THIS OPTION, YOU MUST COMPLETE THE ENCLOSED PROXY FORM BY
APPOINTING EITHER OF THESE PERSONS AS YOUR PROXY.
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Admission Card AMALGAMATION PROPOSAL VOTING FORM
MAS TECHNOLOGY / DIGITAL MICROWAVE
CORPORATION
AMALGAMATION PROPOSAL
SHAREHOLDER NO. NO. SHARES BRING THIS FORM WITH YOU TO THE
SPECIAL MEETING.
FOR EACH RESOLUTION THAT YOU HAVE A
RIGHT TO VOTE ON, PLEASE TICK THE YOU WILL NEED TO USE THIS FORM TO
BOX "IN FAVOUR" OR THE BOX VOTE IF A POLL IS REQUIRED
"AGAINST".
- -------------------------------------------------------------------------------
SHAREHOLDER NO. NO. SHARES SHAREHOLDER NO. NO. SHARES
RESOLUTION /1/ - REFER NOTICE
OF MEETING
To approve the Amalgamation Proposal
In Favour / / Against / / In Favour / / Against / /
- -------------------------------------------------------------------------------
SHAREHOLDER NO. NO. SHARES SHAREHOLDER NO. NO. SHARES
In Favour / / Against / / In Favour / / Against / /
- -------------------------------------------------------------------------------
B-6
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APPENDIX C
[Broadview Associates LLC Letterhead]
December 22, 1997
CONFIDENTIAL
Board of Directors
Digital Microwave Corporation
170 Rose Orchard Way
San Jose, CA 95134
Dear Members of the Board:
We understand that Digital Microwave Corporation ("Digital Microwave"),
MAS Amalgamation Sub Ltd., a wholly owned subsidiary of Digital Microwave (the
"Amalgamation Sub"), and MAS Technology Ltd. ("MAS") propose to enter into an
Agreement and Plan of Reorganization and Amalgamation (the "Agreement") pursuant
to which, through the amalgamation of the Amalgamation Sub with and into MAS
(the "Amalgamation"), each ordinary share of MAS ("MAS Capital Stock"), shall be
converted into the right to receive 1.2 shares (the "Exchange Ratio") of Digital
Microwave common stock, $0.01 par value per share ("Digital Microwave Common
Stock"). The transaction is intended to be a tax-free reorganization within the
meaning of section 368(a) of the United States Internal Revenue Code of 1986, as
amended, and to be accounted for as a pooling of interests pursuant to Opinion
No. 16 of the Accounting Principles Board. The terms and conditions of the
above described transaction (the "Transaction") are more fully detailed in the
Agreement.
You have requested our opinion as to whether the Exchange Ratio is fair, from a
financial point of view, to Digital Microwave Shareholders.
Broadview Associates focuses on providing merger and acquisition advisory
services to information technology ("IT") companies. in this capacity, we are
continually engaged in valuing such businesses, and we maintain an extensive
database of IT mergers and acquisitions for comparative purposes. We are
currently acting as financial advisor to Digital Microwave's Board of Directors
and will receive a fee from Digital Microwave upon the successful conclusion of
the Transaction.
In rendering our opinion, we have, among other things:
1.) reviewed the terms of the Agreement and Plan of Reorganization and
Amalgamation and the associated exhibits thereto in the form of the
draft dated December 21, 1997 furnished to us by Morrison & Foerster LLP
on December 21, 1997 (which, for the purposes of this opinion, we have
assumed, with your permission, to be identical in all material respects
to the agreement to be executed);
2.) reviewed MAS' prospectus dated June 19, 1997, including the audited
financial statements included therein, and MAS Form 10-Q for the six
months ended September 30, 1997, including the unaudited financial
statements included therein;
3.) reviewed certain internal financial and operating information, including
certain projections, relating to MAS prepared by MAS management;
4.) participated in discussions with MAS management concerning the
operations, business strategy, financial performance and prospects for
MAS;
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5.) reviewed the recent reported closing prices and trading activity for MAS
American Depositary Shares;
6.) compared certain aspects of the financial performance of MAS with public
companies we deemed comparable;
7.) analyzed available information, both public and private, concerning
other mergers and acquisitions we believe to be comparable in whole or
in part to the Transaction;
8.) reviewed Digital Microwave's annual report and Form 10-K for the fiscal
year ended March 31, 1997, including the audited financial statements
included therein, and Digital Microwave's Form 10-Q for the six months
ended September 30, 1997, including the unaudited financial statements
included therein;
9.) participated in discussions with Digital Microwave management concerning
the operations, business strategy, financial performance and prospects
for Digital Microwave;
10.) reviewed the recent reported closing prices and trading activity for
Digital Microwave Common Stock;
11.) discussed with Digital Microwave management its view of the strategic
rationale for the Merger;
13.) considered the total number of shares of Digital Microwave Common Stock
outstanding and the average weekly trading volume of Digital Microwave
Common Stock;
14.) reviewed recent equity analyst reports covering Digital Microwave and
MAS;
15.) analyzed the anticipated effect of the Merger on the future financial
performance of the consolidated entity;
16.) assisted in negotiations and discussions related to the Merger among
Digital Microwave, MAS and their financial and legal advisors; and
17.) conducted other financial studies, analyses and investigations as we
deemed appropriate for purposes of this opinion.
In rendering our opinion, we have relied, without independent verification, on
the accuracy and completeness of all the financial and other information
(including without limitation the representations and warranties contained in
the Agreement) that was publicly available or furnished to us by Digital
Microwave, MAS or MAS' financial advisor. With respect to the financial
projections examined by us, we have assumed that they were reasonably prepared
and reflected the best available estimates and good faith judgments of the
management of MAS as to the future performance of MAS. We have neither made nor
obtained an independent appraisal or valuation of any of MAS' assets.
Based upon and subject to the foregoing, we are of the opinion that the Exchange
Ratio is fair, from a financial point of view, to Digital Microwave
shareholders.
For purposes of this opinion, we have assumed that neither Digital Microwave nor
MAS is currently involved in any material transaction other than the Transaction
and those activities undertaken in the ordinary course of conducting their
respective businesses. Our opinion is necessarily based upon market, economic,
financial and other conditions as they exist and can be evaluated as of the date
of this opinion, and any change in such conditions may impact this opinion. We
express no opinion as to the price at which Digital Microwave Common Stock will
trade subsequent to the Effective Time (as defined in the Agreement).
This opinion speaks only as of the date hereof. It is understood that this
opinion is for the information of the Board of Directors of Digital Microwave in
connection with its consideration of the Transaction and does not constitute a
recommendation to any Digital Microwave shareholder as to how such shareholder
should vote on the Transaction.
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This opinion may not be published or referred to, in whole or part, without
our prior written permission, which shall not be unreasonably withheld.
Broadview Associates hereby consents to references to and the inclusion of
this opinion in its entirety in the Proxy Statement/Prospectus to be
distributed to Digital Microwave shareholders in connection with the
Transaction.
Sincerely,
/s/ BROADVIEW ASSOCIATES LLC
Broadview Associates LLC
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APPENDIX D
[Hambrecht & Quist LLC Letterhead]
December 22, 1997
Confidential
- ------------
The Board of Directors
MAS Technology Limited
P.O. Box 30 - 248
24 Bridge Street
Lower Hutt, Wellington
New Zealand
Gentlemen:
You have requested our opinion as to the fairness from a financial point of
view to the holders of the outstanding shares of common stock (the
"Common Stock") of MAS Technology Limited ("MAS" or the "Company") of
the consideration to be received by such shareholders in connection with
the proposed merger of MAS Amalgamation Sub Ltd. ("Merger Sub"), a
wholly owned subsidiary Digital Microwave Corporation. ("DMC"), with
and into DMC (the "Proposed Transaction") pursuant to the Agreement and
Plan of Merger dated as of December 22, 1997, by and among MAS, Merger
Sub, and DMC (the "Agreement").
We understand that the terms of the Agreement provide, among other things,
that each issued and outstanding share of Common Stock shall be converted
into the right to receive 1.2 shares of common stock of DMC, as more fully
set forth in the Agreement. For purposes of this opinion, we have assumed
that the Proposed Transaction will qualify as a tax-free reorganization under
the United States Internal Revenue Code for the shareholders of the Company
and that the Proposed Transaction will be accounted for as a pooling of
interests.
Hambrecht & Quist LLC ("Hambrecht & Quist"), as part of its investment
banking services, is regularly engaged in the valuation of businesses and
their securities in connection with mergers and acquisitions, strategic
transactions, corporate restructurings, negotiated underwritings, secondary
distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes. We have acted as a financial
advisor to the Board of Directors of MAS in connection with the Proposed
Transaction, and we will receive a fee for our services, which include the
rendering of this opinion.
In the past, we have provided investment banking and other financial advisory
services to MAS and have received fees for rendering these services.
Hambrecht & Quist acted as a lead managing underwriter in the Company's
initial public offering in 1997. In the ordinary course of business,
Hambrecht & Quist acts as a market maker and broker in the publicly traded
securities of MAS and receives customary compensation in connection
therewith, and also provides research coverage for MAS. In the ordinary
course of business, Hambrecht & Quist actively trades in the equity
securities of MAS for its own account and for the accounts of its customers
and, accordingly, may at any time hold a long or short position in such
securities.
In connection with our review of the Proposed Transaction, and in arriving at
our opinion, we have, among other things:
(i) reviewed the publicly available consolidated financial statements
of DMC for recent years and interim periods to date and certain
other relevant financial and operating data of DMC made available
to us from published sources and from the internal records of DMC;
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(ii) reviewed certain internal financial and operating information,
including certain projections, relating to DMC prepared by
DMC's management;
(iii) discussed the business, financial condition and prospects of DMC
with certain of its officers;
(iv) reviewed the consolidated financial statements of MAS for recent
years and interim periods to date and certain other relevant
financial and operating data of MAS made available to us from
published sources and from the internal records of MAS;
(v) reviewed certain internal financial and operating information,
including certain projections, relating to MAS prepared by the
management of MAS;
(vi) discussed the business, financial condition and prospects of MAS
with certain of its officers;
(vii) reviewed the recent reported prices and trading activity for the
common stocks of DMC and MAS and compared such information and
certain financial information for DMC and MAS with similar
information for certain other companies engaged in businesses
we consider comparable;
(viii) reviewed the financial terms, to the extent publicly available,
of certain comparable merger and acquisition transactions;
(ix) reviewed the Agreement; and
(x) performed such other analyses and examinations and considered
such other information, financial studies, analyses and
investigations and financial, economic and market data as we
deemed relevant.
In rendering our opinion, we have assumed and relied upon the accuracy and
completeness of all of the information concerning DMC or MAS considered in
connection with our review of the Proposed Transaction, and we have not
assumed any responsibility for independent verification of such information.
We have not undertaken any independent valuation or appraisal of any of the
assets or liabilities of DMC or MAS; nor have we conducted a physical
inspection of the properties and facilities of either company. With respect
to the financial forecasts and projections used in our analysis, we have
assumed that they reflect the best currently available estimates and
judgments of the expected future financial performance of DMC and MAS. For
purposes of this Opinion, we have assumed that neither DMC nor MAS is a party
to any pending transactions, including external financings, recapitalizations
or material merger discussions, other than the Proposed Transaction and those
activities undertaken in the ordinary course of conducting their respective
businesses. Our opinion is necessarily based upon market, economic, financial
and other conditions as they exist and can be evaluated as of the date of
this letter and any change in such conditions would require a reevaluation of
this opinion. We express no opinion as to the price at which DMC Common Stock
will trade subsequent to the Effective Date (as defined in the Agreement).
It is understood that this letter is for the information of the Board of
Directors in connection with their evaluation of the Proposed Transaction and
may not be used for any other purpose without our prior written consent;
provided, however, that this letter may be reproduced in full in the proxy
statement relating to the Proposed Transaction. This letter does not
constitute a recommendation to any stockholder as to how such stockholder
should vote on the Proposed Transaction.
Based upon and subject to the foregoing and after considering such other
matters as we deem relevant, we are of the opinion that as of the date hereof
the consideration to be received by the holders of MAS Common Stock in the
Proposed Transaction is fair to such holders from a financial point of view.
We express no opinion, however, as to the adequacy of any consideration
received in the Proposed Transaction by DMC or any of its affiliates.
Very truly yours,
D-2
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HAMBRECHT & QUIST LLC
By /S/ DAVID G. GOLDEN
--------------------
David G. Golden
Managing Director
D-3
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APPENDIX E
SECTION 110 OF THE COMPANIES ACT 1993 (NZ)
MINORITY BUY-OUT RIGHTS
110. SHAREHOLDER MAY REQUIRE COMPANY TO PURCHASE SHARES -- Where --
(a) A shareholder is entitled to vote on the exercise of one or more of
the powers set out in --
(i) Section 106(1)(a) of this Act, and the proposed alteration
imposes or removes a restriction on the activities of the
company; or
(ii) Section 106(1)(b) or (c) of this Act; and
(b) The shareholders resolved, pursuant to section 106 of this Act, to
exercise the power; and
(c) The shareholder cast all the votes attached to shares registered in
the shareholder's name and having the same beneficial owner against
the exercise of the power; or
(d) Where the resolution to exercise the power was passed under section
122 of this Act, the shareholder did not sign the resolution, --
that shareholder is entitled to require the company to purchase those shares
in accordance with section 111 of this Act.
111. NOTICE REQUIRING PURCHASE -- (1) A shareholder of a company who is
entitled to require the company to purchase shares by virtue of section
110 or section 118 of this Act may, --
(a) Within 10 working days of the passing of the resolution at a meeting
of shareholders; or
(b) Where the resolution was passed under section 122 of this Act, before
the expiration of 10 working days after the date on which notice of
the passing of the resolution is given to the shareholder, --
give a written notice to the company requiring the company to purchase those
shares.
(2) Within 20 working days of receiving a notice under subsection (1)
of this section, the board must --
(a) Agree to the purchase of the shares by the company; or
(b) Arrange for some other person to agree to purchase the shares; or
(c) Apply to the Court for an order under section 114 or section 115
of this Act; or
(d) Arrange, before taking the action concerned, for the resolution to
be rescinded in accordance with section 106 of this Act or decide
in the appropriate manner not to take the action concerned, as the
case may be; and
(e) Give written notice to the shareholder of the board's decision under
this subsection.
112. PURCHASE BY COMPANY -- (1) Where the board agrees under section 111
(2)(a) of this Act to the purchase of the shares by the company, it must, on
giving notice under that subsection or within 5 working days thereafter, --
(a) Nominate a fair and reasonable price for the shares to be acquired;
and
(b) Give notice of the price to the holder of those shares.
(2) A shareholder who considers that the price nominated by the board
is not fair or reasonable, must forthwith give notice of objection
to the company.
(3) If, within 10 working days of giving notice to a shareholder under
subsection (1) of this section, no objection to the price has been
received by the company, the company must, on such date as the
company and the shareholder agree or, in the absence of agreement,
as soon as practicable, purchase all the shares at the nominated
price.
(4) If, within 10 working days of giving notice to a shareholder under
subsection (1) of this section, an objection to the price has been
received by the company, the company must -
(a) Refer the question of what is a fair and reasonable price to
arbitration; and
(b) Within 5 working days, pay a provisional price in respect of each
share equal to the price nominated by the board.
(5) A reference to arbitration under this section is deemed to be a
"submission" for the purpose of the Arbitration Act 1908.
(6) The arbitrator must expeditiously determine a fair and reasonable
price for the shares to be purchased.
(7) If the price determined --
(a) Exceeds the provisional price, the company must forthwith pay the
balance owing to the shareholder:
(b) Is less than the provisional price paid, the company may recover the
excess paid from the shareholder.
(8) The arbitrator may --
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Award interest on any balance payable or excess to be repaid
under subsection (7) of this section at such rate as he or
she thinks fit having regard to whether the provisions price
paid or the reference to arbitration, as the case may be,
was reasonable; and
Provide for interest to be paid to or by the shareholder
whose shares are to be purchased.
113. PURCHASE OF SHARES BY THIRD PARTY -- (1) Section 112 of this Act applies
to the purchase of shares by a person with whom the company has entered into
an agreement for purchase in accordance with section 111 (2)(b) of this Act
subject to such modifications as may be necessary, and, in particular, as if
references in that section to the board and the company were references to
that person.
(2) Every holder of shares that are to be purchased in accordance with
the arrangement is indemnified by the company in respect to loss suffered by
reason of the failure by the person who has agreed to purchase the shares to
purchase them at the price nominated or fixed by arbitration, as the case may
be.
114. COURT MAY GRANT EXEMPTION -- (1) A company to which a notice has been
given under section 111 of this Act may apply to the Court for an order
exempting it from the obligation to purchase the shares to which the notice
relates on the grounds that --
(a) The purchase would be disproportionately damaging to the company; or
(b) The company cannot reasonably be required to finance the purchases;
or
(c) It would not be just and equitable to require the company to
purchase the shares.
(2) On an application under this section, the Court may make an order
exempting the company from the obligation to purchase the shares,
and may make any other order it thinks fit, including an order --
(a) Setting aside a resolution of the shareholders:
(b) Directing the company to take, or refrain from taking, any action
specified in the order:
(c) Requiring the company to pay compensation to the shareholders
affected:
(d) That the company be put into liquidation.
(3) The Court shall not make an order under subsection (2) of this
section on either of the grounds set out in paragraph (a) or paragraph (b) of
subsection (1) of this section unless it is satisfied that the company has
made reasonable efforts to arrange for another person to purchase the shares
in accordance with section 111(2)(b) of this Act.
115. COURT MAY GRANT EXEMPTION IF COMPANY INSOLVENT -- (1) If --
(a) A notice is given to a company under section 111 of this Act; and
(b) The board has resolved that the purchase by the company of the
shares to which the notice relates would result in it failing to
satisfy the solvency tests; and
(c) The company has, having made reasonable efforts to do so, been
unable to arrange for the shares to be purchased by another person
in accordance with section 111 (2)(b) of this Act, --
the company must comply to the Court for an order exempting it from the
obligation to purchase the shares.
(2) The Court may, on an application under subsection (1) of this
section, if it is satisfied that --
(a) The purchase of the shares would result in the company failing to
satisfy the solvency test; and
(b) The company has made reasonable efforts to arrange for the shares
to be purchased by another person in accordance with section 111
(2)(b) of this Act, --
make --
(c) An order exempting the company from the obligation to purchase
the shares:
(d) An order suspending the obligation to purchase the shares:
(e) Such other order as it thinks fit, including any order referred
to in section 114(2) of this Act.
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APPENDIX F
CONSTITUTION
OF
MAS TECHNOLOGY LIMITED
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RECITALS
A. Section 26 of the Companies Act 1993 ("the Act") provides a
company may have a constitution and the Company has determined to exercise
this right.
B. Section 27 of the Act (which provides that where a company has a
constitution that company, the board, each director and each shareholder of
that company have the rights, powers, duties and obligations set out in the
Act except to the extent they are negated or modified, in accordance with
the Act, by the constitution of that company) shall accordingly apply.
C. Section 29 of the Act provides the constitution of a company may
take one of a number of specified forms and this constitution was adopted
on a reregistration of the Company pursuant to the Companies Registration
Act 1993.
D. Section 30 of the Act provides the constitution of a company may
contain:
(a) Matters contemplated by the Act for inclusion in the constitution
of a company. These are found in Parts B, C and E of this
constitution.
(b) Such other matters as a company wishes to include in its
constitution. These are found in Part D of this constitution.
Part A of this constitution contains some preliminary matters relating to all
parts of this constitution.
E. Section 31 of the Act provides:
(a) The constitution of a company has no effect to the extent that it
contravenes, or is inconsistent with, the Act.
(b) Subject to the Act the constitution of a company is binding
between:
(i) That company and each shareholder; and
(ii) Each shareholder in accordance with its terms and this
constitution shall apply accordingly.
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OPERATIVE PARTS
PART A - PRELIMINARY
1. INTERPRETATION
1.1 In this constitution, unless the context otherwise requires:
"ACT" means the Companies Act 1993 as amended from time to time or any Act
which replaces that Act.
"THE COMPANY" means MAS Technology Limited.
"SHARE" means a share in the Company.
"SHAREHOLDER" means a shareholder of the Company.
"FIXED REDEEMABLE SHARES" means a share which is redeemable in terms of
section 68 of the Act for a fixed amount and entitled to a dividend for a
fixed amount both such amounts determined without reference to the
Company's assets or profitability and is not entitled pursuant to the terms
of issue to be offered new issues of shares.
"TREASURY STOCK" means shares which have been acquired by the Company in
accordance with section 67A of the Act.
1.2 Terms defined in the Act shall where used in this constitution have
the same meaning as given to those terms by the Act.
1.3 References to section numbers are to sections of the Act.
1.4 Headings are for guidance only and shall not affect the interpretation
of this constitution.
1.5 Except where prohibited by the Act in the event of any conflict
between the Act and this constitution this constitution shall prevail.
1.6 Clauses in this constitution which expressly refer to a section in the
Act shall not prevent other clauses in this constitution from
affecting or relating to that section.
1.7 The Schedules form part of this constitution.
1.8 References to any legislation or provision of any legislation are
deemed to be a reference to that legislation or provision as amended,
substituted or re-enacted and unless the context requires otherwise
include any statutory instrument issued under that legislation or
provision.
1.9 The singular includes the plural and vice versa and words importing
one gender includes the other genders.
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2. LIABILITY OF SHAREHOLDERS (SECTION 97)
2.1 Notwithstanding anything else in this constitution the liability of
the shareholders of the Company is limited.
PART B - POWERS OF COMPANY: COMPANIES ACT 1993
3. PURCHASE OF OWN SHARES PRO-RATA (SECTION 59(1))
3.1 The Company is permitted to purchase or otherwise acquire shares
issued by it in accordance with section 61 of the Act.
4. TREASURY STOCK
4.1 The Company may hold its own shares. The transfer by the Company of
treasury stock shall be subject to the provisions of this constitution
relating to the issue of shares.
5. SHARES IN LIEU OF DIVIDENDS
5.1 Subject to this Constitution, the board may issue shares to any
shareholders who have agreed to accept the issue of shares, wholly or
partly, in lieu of a proposed dividend or proposed future dividends if-
(a) The right to receive shares, wholly or partly, in lieu of the
proposed dividend or proposed future dividends has been offered
to all shareholders of the same class on the same terms; and
(b) If all shareholders elected to receive the shares in lieu of the
proposed dividend, relative voting or distribution rights, or
both, would be maintained; and
(c) The shareholders to whom the right is offered are afforded a
reasonable opportunity of accepting it; and
(d) The shares issues to each shareholder are issued on the same
terms and subject to the same rights as the shares issued to all
shareholders in that class who agree to receive the shares; and
(e) The provisions of section 47 of the Act are complied with by the
board.
6. REDEEMABLE SHARES
6.1 The Company may issue shares which are redeemable at the option of:
(a) the Company; or
(b) a shareholder,
for a consideration that is:
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(c) specified by the Board; or
(d) calculated by reference to a formula specified by the Board; or
(e) fixed by a suitably qualified person selected by the Board who is
not associated with or interested in the Company.
6.2 The Company may exercise an option to redeem shares in relation to all
shareholders in accordance with section 69(1)(a), but not to less than
all shareholders.
7. INDEMNITY AND INSURANCE (SECTION 162)
7.1 The Company may give such indemnities and effect such insurances as
are referred to in section 162 to the full extent permitted by section
162.
PART C - MANAGEMENT AND OWNERSHIP: COMPANIES ACT 1993
8. TRANSFERABILITY OF SHARES (SECTION 39(1))
[This clause has been deleted pursuant to an amendment approved by the
shareholders on February 15, 1997.]
9. TRANSFER OF SHARES (SECTION 84)
9.1 For the purposes of section 84(4) and section 85(1) the Board may, in
its sole discretion, refuse or delay registration of any transfer of
shares in the following circumstances:
(a) Where the Company has a lien on the share or shares;
(b) Where the proposed transferee is indebted or under any liability
to the Company;
(c) Unless the instrument of transfer is accompanied by the
certificate(s) of the shares to which it relates (if any) and
such other evidence as the directors may reasonably require to
show the right of the transferor to make the transfer;
(d) Unless the instrument of transfer is in respect of only one class
of share;
(e) Where the transferee would cause the Company to become subject to
any regulatory or statutory control; and
(f) Where the Board has notice or on reasonable ground believes, that
the registration of the transfer would or may result in the
Transferor breaching a contractual obligation entered into by the
Transferor with the Company or any third party not to transfer
some or all of the shares comprised in the share transfer;
PROVIDED THAT the board shall not in any circumstance be liable to the
Transferor or any other person or entity for exercising, or refusing or
failing to exercise, its discretion to refuse to register a share transfer
on any of the above grounds.
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9.2 The registration of transfers may be suspended and the Share Register
closed at such times and for such period as the directors from time to
time determine PROVIDED THAT registration shall not be suspended for
more than thirty days in any one year.
10. ISSUE OF SHARES (SECTION 42)
10.1 No shares of the Company shall be issued unless:
(a) The precise terms and conditions of the specific proposal to
issue those shares have been approved by separate resolutions
(passed by a simple majority of votes) in accordance with this
constitution and the Act of holders of each class of shares of
the Company whose rights or entitlements could be affected by the
issue or the issue is made in accordance with any of the clauses
10.2 to 10.6.
(b) An issue authorised by resolutions passed pursuant to clause
10.1(a) shall be completed:
(i) If that issue is made solely to employees as defined in
clause 10.5 within 12 months after the passing of those
resolutions; or
(ii) In all other circumstances within six months after the
passing of those resolutions.
10.2 A resolution pursuant to clause 10.1(a) of the holders of the class of
shares shall not be required if the terms of issue of those shares
expressly reserve the right to make the issue of new shares in
question and specify the maximum number and class of new shares which
could be issued.
10.3 The directors may issue shares if:
(a) Those shares are offered to holders of existing shares of the
Company on a basis which, if the offer is accepted by all such
holders would maintain the existing proportionate rights of each
existing holder (relative to other holders of shares) to votes
and to distribution rights and that offer is renouncable; or
(b) Those shares are issued to holders of existing shares on a basis
which maintains the existing proportion rights of each existing
holder (relative to other holders of shares) to votes and to
distribution rights.
Notwithstanding (a) and (b) above, the directors of the Company shall be
entitled:
(c) To issue any shares in respect of which an offer is not accepted
or which because fractional entitlements are not otherwise
offered, to such persons in such manner as the directors consider
equitable and in the interests of the Company PROVIDED THAT the
price and terms and conditions of the issue of such shares are
not materially or more favourable to the persons to whom they are
issued than the terms of the original offer;
(d) To offer and issue shares to the holders of existing shares in
accordance with specific rights attached to those existing shares
to participate in issues of shares, notwithstanding that the
effect may be that existing proportionate rights to shares and
distribute rights are not maintained;
(e) To not offer or issue shares to holders of existing shares the
terms of which expressly exclude the right to participate in the
relevant issue or offer.
10.4 The directors may issue equity securities if:
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(a) The issue is not made in whole or in part to any director or an
associated person of a director or employee; and
(b) The total number of shares issued, and all other shares of the
same class issued pursuant to this clause 10.4 during the period
of 12 months preceding the date of the issue to the date of the
issue will not exceed the aggregate of:
(i) 10% of the total number of shares of that class on issue at
the commencement of the period; and
(ii) 10% of the number of shares of that class to issue during
that period pursuant to clause 10.1(a), 10.4, 10.6 or 10.7;
and
(iii) any shares of that class issued pursuant to this clause 10.4
during that period, the issue of which being ratified by an
ordinary resolution of the Company passed in accordance with
this constitution or the Act;
(iv) 10% of the number of shares of that class which have been
acquired or redeemed by the Company during the period (other
than shares held as treasury stock).
For the purposes of this clause shares which will or may convert to other
shares shall be deemed to be of the same class as, and to correspond in
number to the shares into which they will or may convert.
10.5 EMPLOYEE SHARE ISSUES: The directors may issue shares if:
(a) the issue is made to employees of the Company;
(b) the total number of shares issued to employees of the Company
pursuant to this clause 10.5 during 12 months following (and
including) the date of reregistration of the Company under the
Companies Act 1993 does not exceed 5% of the aggregate of:
(i) the total number of shares on issue at the commencement of
that period; and
(ii) the total number of shares of that class issued during that
period pursuant to clauses 8.3(g) and 10.6.
For the purposes of this clause, shares which will or may convert into
other shares shall be deemed to be the same class and to correspond in
number to, the shares into which they will or may convert.
10.6 Subject to clause 10.2, the directors may issue shares if the issue is
made as consideration in an offer made by the Company in accordance
with:
(a) Part I of the Companies Amendment Act 1993; or
(b) any takeover code approved under section 28 of the Takeovers Act
1993; or
(c) any takeover law regime with jurisdiction other than New Zealand
which provides for prior notice, publicity and disclosure; and
(d) that offer is made to all holders (other than the Company and its
related companies) of shares in any company or other entity
listed on any recognised stock exchange which is not a company or
other entity that is an associated person of the Company or of
any director of the Company; or
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(e) the issue is made upon conversion of any shares from time to time
issued by the Company the terms of issue of those shares provided
for conversion to shares of the kind issued; or
(f) the issue is made pursuant to an amalgamation proposal effected
pursuant to Part XIII of the Act or pursuant to a scheme approved
under Part XV of the Act; or
(g) the issue is made pursuant to a plan for the issue of securities
in lieu of dividend.
10.7 The transfer by the Company of treasury stock of the Company shall for
the purposes of this clause 10 (so far as may be relevant) be deemed
to constitute the issue of shares as if the sale price was the issue
price.
10.8 The requirements of section 45 of the Act shall not apply provided the
relevant issue of shares complies with this clause 10.
11. ALTERATION OF SHAREHOLDER RIGHTS
11.1 For the purposes of section 117(3) of the Act the issue of further
shares ranking equally with, or in priority to, existing shares,
whether as to voting rights or distributions, is permitted provided
such issue is made in accordance with this constitution.
12. APPOINTMENT OF DIRECTORS (SECTION 153)
The provisions of section 153(2) shall be read subject to the following:
12.1 The minimum number of directors shall be four, and unless otherwise
determined by an ordinary resolution of the shareholders, the maximum
number shall be ten.
12.2 Any director (not being an alternate) may appoint any person approved
by the other directors and not being a director, to be an alternate
director during his or her absence or inability to act as a director.
The appointee, while he or she holds office as an alternate director,
shall be entitled to all notices of meetings of the directors and any
paper minutes or documents sent to directors and to attend and vote at
any meetings of directors but shall not vote at that meeting except in
the place of the director for whom he or she is an alternate and he or
she shall not require any qualification and shall not be entitled to
be remunerated otherwise than out of the remuneration of the director
appointing him or her. Any appointment under this clause shall be
effected by notice in writing to the Company.
12.3 Subject to clause 12.1 the directors shall have power at any time, and
from time to time, to appoint any person to be a director as an
addition to the existing directors.
13. REMOVAL OF DIRECTORS (SECTION 156)
13.1 In addition to the provisions of section 156(1) the appointment of an
alternate director shall be cancelled and the alternate director shall
cease to hold office whenever the director who appointed him or her
shall cease to be a director or whenever such director revokes such
appointment such revocation to be made in the same manner as is
required for appointment of an alternate.
13.2 Without limiting section 151 or any other provision in the Act or this
constitution, the office of a director shall be vacated at the annual
general meeting following the attainment by the director of the age of
70 years.
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14. DELEGATION BY DIRECTORS
Without limiting section 130 of the Act but excluding from any such delegation
any of the matters set out in the Second Schedule to the Act:
14.1 The directors may from time to time appoint one or more of their body
to the office of managing director or managing directors of the Company
either for a fixed term not exceeding five years or without any
limitation as to the period for which he or she is or they are to
hold such office. The directors may fix his, her or their
remuneration which may be in addition to his, her or their
remuneration as an ordinary director or directors and may be either
by way of salary, commission on profits earned or participation in
the profits of the Company or by a combination of two or more of
those modes.
14.2 A managing director shall not while he or she continues to hold that
office be liable to retire by rotation and he or she shall not be
taken into account in determining the number of other directors to
retire by rotation, and, subject to any contract, he or she shall be
subject to the same provisions as regards resignation, removal and
disqualification as the other directors of the Company, and if he or
she ceases to hold the office of director from any cause he or she
shall ipso facto cease to be a managing director.
14.3 The directors may entrust to and confer upon a managing director any of
the powers exercisable by the directors (except the power to make
calls, forfeit shares, borrow money or issue debentures) upon such
terms and conditions and with such restrictions as they may think
fit and either collaterally with or to the exclusion of their own
powers and may from time to time revoke, withdraw, alter or vary all
or any of those powers.
14.4 The directors may delegate any of their powers to committees consisting
of such member or members of their body as they think fit and may
from time to time remove such delegation. Any committee so formed
shall in the exercise of the powers so delegated conform to any
regulation that may be imposed upon it by the directors. Save as
aforesaid the meetings and proceedings of a committee consisting of
more than two members shall be governed by the provisions of this
constitution regulating the proceedings and meetings of directors.
15. INTERESTED DIRECTORS
15.1 The directors must comply with section 139 to section 149 of the Act.
15.2 A director is deemed to be 'interested' in a transaction to which the
Company is a party, if, and only if, the director -
(a) Is a party to, or will or may derive a material financial benefit
from, the transaction; or
(b) Has a material financial interest in another party to the
transaction; or
(c) Is a director, officer, or trustee of another party to, or person
who will or may derive a material financial benefit from, the
transaction, not being a person or party that is -
(i) The Company's holding company being a holding company of
which the Company is a wholly-owned subsidiary; or
(ii) A wholly-owned subsidiary of the Company; or
(iii) A wholly-owned subsidiary of a holding company of which the
Company is also a wholly-owned subsidiary; or
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(d) Is the parent, child or spouse of another party to, or person who
will or may derive a material financial benefit from, the
transaction; or
(e) Is otherwise directly or indirectly materially interested in the
transaction.
15.3 A director who is interested in a transaction entered into, or to be
entered into, by the Company, may not vote on a matter relating to
the transaction or sign a document relating to the transaction on
behalf of the Company but such director shall be entitled to attend
any meeting, and participate in any discussion in respect of or
affecting the matter in which the director is deemed to be
interested.
PART D - OTHER PROVISIONS
16. LOST CERTIFICATES
If a share certificate is defaced, lost or destroyed it may be renewed on such
terms (if any) as to evidence and indemnity and the payment of out-of-pocket
expenses of the Company of investigating evidence as the directors may in each
case think fit.
17. CALLS ON SHARES
17.1 The directors may from time to time make calls upon the shareholders in
respect of any money which is unpaid on their shares and which is
not by the terms of issue made payable at a specified time or times.
Subject to receiving at least fourteen days' notice specifying the
time or times and place of payment each shareholder shall pay to the
Company at the time or times and place so specified the amount
called on his or her shares provided that a shareholder may make
payment without first receiving such notice or prior to the expiry
of any such notice. A call may be revoked or postponed as the
directors may determine.
17.2 A call shall be deemed to have been made at the time when the
resolution of the directors authorising the call was passed and may be
required to be paid by instalments.
17.3 The joint holders of a share shall be jointly and severally liable to
pay all calls in respect thereof.
17.4 If a sum called in respect of a share is not paid before or on the day
appointed for payment thereof the person from whom the sum is due
shall pay interest on the sum from the day appointed for payment
thereof to the time of actual payment at such rate not exceeding
fifteen per centum per annum as the directors may determine, but the
directors shall be at liberty to waive payments of that interest
wholly or in part.
17.5 Any sum which by the terms of issue of a share is payable on allotment
or at any specified time shall for the purposes of this constitution
be deemed to be a call duly made and payable on the date on which by
the terms of issue the same becomes payable and in case of
non-payment all the relevant provisions of this constitution as to
payment of interest and expenses, forfeiture or otherwise shall
apply as if the sum had become payable by virtue of a call duly made
and notified.
17.6 On the trial or hearing of any action for the recovery of any money due
for any call it shall be sufficient to prove that the name of the
shareholder sued is entered in the Register of the Company as the
holder or one of the holders of the shares in respect of which such
debt accrued, that the resolution making the call is duly recorded
in the Minute Book and that notice of such call was duly given to
the shareholder sued in pursuance of this constitution; and it shall
not be necessary
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to prove the appointment or qualification of the directors who made
such call nor any other matter whatsoever; and the proof of the matters
aforesaid shall be conclusive evidence of the debt.
17.7 The directors may on the issue of shares, differentiate between the
holders as to the amount of calls to be paid and the times of payment.
17.8 The directors may if they think fit receive from any shareholder
willing to advance the same all or any part of the money uncalled
and unpaid upon any shares held by him or her and upon all or any
part of the money so advanced may (until the same would, but for the
advance, become payable) pay interest at such rate not exceeding
(unless the Company in general meeting shall otherwise direct) ten
percent per annum as may be agreed upon between the directors and
the shareholder paying the sum in advance; but no shareholder shall
be entitled as of right to any interest on any money so paid in
advance and the directors may decline to pay any interest. The
directors may at any time repay the amount so advanced upon giving
to the shareholder three months' notice in writing.
18. FORFEITURE AND LIEN
18.1 If a shareholder fails to pay any call or instalment of a call on
the day appointed for payment thereof the directors may, at any time
thereafter during such time as any part of the call or instalment
remains unpaid, serve a notice on him or her requiring payment of so
much of the call or instalment as is unpaid together with any
interest which may have accrued and all expenses that may have been
incurred by the Company by reason of such non-payment.
18.2 The notice shall name a further day (not earlier than the expiration
of fourteen days from the date of service of the notice) on or
before which the payment required by the notice is to be made and
shall state that in the event of non-payment at or before the time
appointed the shares in respect of which the call was made will be
liable to be forfeited.
18.3 If the requirements of any such notice as aforesaid are not complied
with, any share in respect of which the notice has been given may at
any time thereafter before the payment required by the notice has
been made, be forfeited by a resolution of the directors to that
effect. Such forfeiture shall include all dividends declared in
respect of the forfeited shares and not actually paid before the
forfeiture.
18.4 When any share shall have been so forfeited notice of the resolution
shall be given to the shareholder in whose name it stood immediately
prior to the forfeiture; and an entry of the forfeiture, with the
date thereof, shall forthwith be made in the Register, and the share
certificate of any shares so forfeited as aforesaid shall be
immediately cancelled by the Company and the shareholder in whose
name such cancelled share stood immediately prior to such
cancellation shall return the share certificate for such share so
forfeited to the Company within fourteen (14) days of receiving
notice of such resolution as aforesaid.
18.5 A forfeited share may be sold or otherwise disposed of on such terms
and in such manner as the directors think fit provided such shares
are first offered to the existing shareholders of the Company as if
such shares were being sold in accordance with this constitution and
at any time before a sale or disposition the forfeiture may be
cancelled on such terms as the directors think fit.
18.6 A person whose shares have been forfeited shall cease to be a
shareholder in respect of the forfeited shares, but shall,
notwithstanding, remain liable to pay to the Company all money which
at the date of forfeiture was payable by him or her to the Company
in respect of the shares but his or her liability shall cease if and
when the Company receives payment in full of all such money in
respect of the shares.
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18.7 The provisions of this constitution as to forfeiture shall apply in
the case of non-payment of any sum which by the terms of issue of a
share becomes payable at a fixed time as if the same had been
payable by virtue of a call duly made and notified.
18.8 The Company shall have a first and paramount lien upon all the
shares registered in the name of each shareholder whether solely or
jointly with others and upon the proceeds of sale thereof for unpaid
calls and instalments in respect of such shares and any other
payments at law required in respect of such shares and for all
debts, obligations, engagements, liabilities of such shareholder,
whether absolute or contingent, and whether solely or jointly with
any other person and whether payable or to be performed or
discharged presently or in future, to or with the Company, or to or
with any subsidiary of the Company or whether or not the date for
payment fulfilment or discharge shall have arrived or not and no
equitable interest in any share shall be created except upon the
footing and condition that the provisions of this constitution are
to have full effect and such lien shall extend to all dividends,
rebates, bonuses, allowances, and other payments which may be
declared in respect of such shares and to all moneys due to that
shareholder for any products supplied or services rendered by him or
her to the Company AND for the purpose of giving better effect to
the provisions of this clause each shareholder irrevocably appoints
the Company and each officer of the Company his or her attorney
authorising the Company to complete an assignment to the Company of
any moneys owing by that shareholder to any subsidiary or associate
company and the shareholder agrees to ratify and confirm any act
carried out by the Company in that behalf.
18.9 The Company may sell in such manner as the directors think fit any
shares on which the Company has a lien but no sale shall be made
unless a sum in respect of which the lien exists is presently
payable nor until the expiration of fourteen days after a notice in
writing, stating and demanding payment of such part of the amount in
respect of which the lien exists as is presently payable has been
given to the registered holder for the time being of the share or
the person entitled thereto by reason of his or her death or
bankruptcy.
18.10 The net proceeds of the sale of any forfeited share which is sold
within twelve months of the date of forfeiture or of shares sold for
the purpose of enforcing a lien shall be applied in or towards
satisfaction of any unpaid calls or instalments, interest thereon
and expenses and any other moneys (if any) in respect whereof the
lien existed and the residue, if any, paid to the former holder of
the share, his or her legal personal representatives or assigns.
18.11 A certificate under the hand of a director and countersigned by a
second director that the power of sale hereinbefore mentioned has
arisen and is exercisable by the Company under this constitution, or
that a share in the Company has been duly forfeited on the date
stated therein, shall be conclusive evidence of the facts stated
therein.
18.12 For giving effect to any such sale after forfeiture or for enforcing
a lien in purported exercise of the powers hereinbefore given the
directors may authorise some person to transfer the shares sold to
the purchaser thereof. The purchaser shall be registered as the
holder of the shares comprised in any such transfer and he or she
shall not be bound to see to the application of the purchase money
nor shall his or her title to the shares be affected by any
irregularity or invalidity in the proceedings in reference to the
sale. The remedy of any person aggrieved by the sale shall be in
damages only and against the Company exclusively. If the
certificate for forfeited shares be not delivered up to the Company
the directors may issue a new certificate distinguishing it as they
think fit from the certificate not delivered up.
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19. DIVIDENDS AND RESERVES
19.1 Subject to the rights of persons, if any, entitled to shares with
special rights as to dividend, all dividends shall be declared and
paid according to the amounts paid or credited as paid on the shares
in respect whereof the dividend is paid, but no amount paid or
credited as paid on a share in advance of calls shall be treated for
the purpose of this clause as paid on the shares subject to clause
19.2. All dividends shall be apportioned and paid proportionately
to the amounts paid or credited as paid on the shares during any
portion or portions of the period in respect of which the dividend
is paid; but if any share is issued on terms providing that it shall
rank for dividend as from a particular date that share shall rank
for dividend accordingly.
19.2 The directors may from time to time in their absolute discretion
declare a special dividend in respect of any ordinary A, ordinary B
and ordinary C shares (in the event there are any) if such ordinary
A, ordinary B or ordinary C (as the case may be) shares were issued
with a right to special dividends over the issued ordinary shares of
the Company but shall only have such right to entitlement to
dividend as and when dividends apply to the ordinary A, ordinary B
or ordinary C (as the case may be) shares are declared by the
directors of the Company. The declaration of a dividend for
ordinary A, ordinary B and/or ordinary C (as the case may be) shares
shall be entirely in the discretion of the directors who shall be
entitled to declare a dividend on all or each of the classes of
ordinary A, ordinary B or ordinary C (as the case may be) shares
without regard to the amount paid up on such shares and such special
dividend shall be paid in priority to any dividend declared in
respect of the ordinary shares of the Company. The ordinary A,
ordinary B or ordinary C shares (as the case may be) shall rank
equally with the ordinary shares for dividends from such date as the
directors may in their discretion declare.
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SCHEDULE 1
All meetings of the shareholders of the Company shall be conducted in accordance
with the First Schedule to the Act, except where varied by the following
provisions:
1. CHAIRPERSON
1.1 If the directors have elected a chairperson of the board, and the
chairperson of the board is present at a meeting of shareholders, he
or she must chair the meeting.
1.2 If no chairperson of the board has been elected, or if at any
meeting of shareholders the chairperson of the board is not present
within 15 minutes of the time appointed for the commencement of the
meeting, the directors present shall elect one of their number to be
chairperson of the meeting.
2. NOTICE OF MEETINGS
2.1 Written notice of the time and place of a meeting of shareholders
must be sent to every shareholder entitled to receive notice of the
meeting and to every director and auditor of the company not less
than 10 working days before the meeting.
2.2 The notice must state -
(a) The nature of the business to be transacted at the meeting in
sufficient detail to enable a shareholder to form a reasoned
judgment in relation to it; and
(b) The text of any special resolution to be submitted to the meeting.
2.3 An irregularity in a notice of a meeting is waived if all the
shareholders entitled to attend and vote at the meeting attend the
meeting without protest as to the irregularity, or if all such
shareholders agree to the waiver.
2.4 The accidental omission to give notice of a meeting to, or the
failure to receive notice of a meeting by, a shareholder does not
invalidate the proceedings at that meeting.
2.5 If a meeting of shareholders is adjourned for less than 30 days it
is not necessary to give notice of the time and place of the
adjourned meeting other than by announcement at the meeting which is
adjourned.
3. METHODS OF HOLDING MEETINGS
A meeting of shareholders may be held either -
3.1 By a number of shareholders, who constitute a quorum, being assembled
together at the place, date, and time appointed for the meeting; or
3.2 By means of audio, or audio and visual, communication by which all
shareholders participating and constituting a quorum can
simultaneously hear each other throughout the meeting.
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4. QUORUM
4.1 Subject to clause 4.3, no business may be transacted at a meeting of
shareholders if a quorum is not present.
4.2 A quorum for a meeting of shareholders is present if shareholders or
their proxies are present who are between them able to exercise a
majority of the votes to be cast on the business to be transacted by
the meeting.
4.3 If a quorum is not present within 30 minutes after the time
appointed for the meeting, -
(a) In the case of a meeting called under section 121(b) of the Act,
the meeting is dissolved:
(b) In the case of any other meeting, the meeting is adjourned to the
same day in the following week at the same time and place, or to
such other date, time, and place as the directors may appoint, and
if, at the adjourned meeting, a quorum is not present within 30
minutes after the time appointed for the meeting, the shareholders
or their proxies present are a quorum.
5. VOTING
5.1 In the case of a meeting of shareholders held under clause 3.1(a)
the First Schedule unless a poll is demanded, voting at the meeting
shall be by whichever of the following methods is determined by the
chairperson of the meeting:
(a) Voting by voice; or
(b) Voting by show of hands.
5.2 In the case of a meeting of shareholders held under clause 3.1(b)
of the First Schedule, unless a poll is demanded, voting at the
meeting shall be by the shareholders signifying individually their
assent or dissent by voice.
5.3 A declaration by the chairperson of the meeting that a resolution is
carried by the requisite majority is conclusive evidence of that
fact unless a poll is demanded in accordance with clause 5.4.
5.4 At a meeting of shareholders a poll may be demanded by -
(a) Not less than 3 shareholders having the right to vote at the
meeting; or
(b) A shareholder or shareholders representing not less than 10
percent of the total voting rights of all shareholders having the
right to vote at the meeting; or
(c) By a shareholder or shareholders holding shares in the Company
that confer a right to vote at the meeting and on which the
aggregate amount paid up is not less than 10 percent of the total
amount paid up on all shares that confer that right.
5.5 A poll may be demanded either before or after the vote is taken on a
resolution.
5.6 If a poll is taken, votes must be counted according to the votes
attached to the shares of each shareholder present in person or by
proxy and voting.
5.7 The chairperson of a shareholders' meeting shall not be entitled to a
second or casting vote.
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5.8 For the purposes of this clause the instrument appointing a proxy to
vote at a meeting of the Company confers authority to demand or join
in demanding a poll and a demand by a person as proxy for a
shareholder has the same effect as a demand by the shareholder.
6. PROXIES
6.1 A shareholder may exercise the right to vote either by being present in
person or by proxy.
6.2 A proxy for a shareholder is entitled to attend and be heard at a
meeting of shareholders as if the proxy were the shareholder.
6.3 A proxy must be appointed by notice in writing signed by the
shareholder and the notice must state whether the appointment is for
a particular meeting or a specified term not exceeding twelve months.
6.4 No proxy is effective in relation to a meeting unless a copy of the
notice of appointment is produced before the start of the meeting.
7. MINUTES
7.1 The board must ensure that minutes are kept of all proceedings at
meetings of shareholders.
7.2 Minutes which have been signed correct by the chairperson of the
meeting are prima facie evidence of the proceedings.
8. SHAREHOLDER PROPOSALS
8.1 A shareholder may give written notice to the board of a matter the
shareholder proposes to raise for discussion or resolution at the
next meeting of shareholders at which the shareholder is entitled to
vote.
8.2 If the notice is received by the board not less than 20 working days
before the last day on which notice of the relevant meeting of
shareholders is required to be given by the Board, the board must,
at the expense of the Company, give notice of the shareholder
proposal and the text of any proposed resolution to all shareholders
entitled to receive notice of the meeting.
8.3 If the notice is received by the board not less than five working
days and not more than 20 working days before the last day on which
notice of the relevant meeting of shareholders is required to be
given by the board, the board must, at the expense of the
shareholder, give notice of the shareholder proposal and the text of
any proposed resolution to all shareholders entitled to receive
notice of the meeting.
8.4 If the notice is received by the board less than 5 working days
before the last day on which notice of the relevant meeting of
shareholders is required to be given by the board, the board may, if
practicable, and at the expense of the shareholder, give notice of
the shareholder proposal and the text of any proposed resolution to
all shareholders entitled to receive notice of the meeting.
8.5 If the directors intend that shareholders may vote on the proposal
by proxy they must give the proposing shareholder the right to
include in or with the notice given by the board a statement of not
more than 1000 words prepared by the proposing shareholder in
support of the proposal, together with the name and address of the
proposing shareholder.
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8.6 The board is not required to include in or with the notice given by
the board a statement prepared by a shareholder which the directors
consider to be defamatory, frivolous, or vexatious.
8.7 Where the costs of giving notice of the shareholder proposal and the
text of any proposed resolution are required to be met by the
proposing shareholder, the proposing shareholder must, on giving
notice to the board, deposit with the company or tender to the
company a sum sufficient to meet those costs.
9. CORPORATIONS MAY ACT BY REPRESENTATIVES
A body corporate which is a shareholder may appoint a representative to
attend a meeting of shareholders on its behalf in the same manner as
that in which it could appoint a proxy.
10. VOTES OF JOINT HOLDERS
Where two or more persons are registered as the holder of a share, the
vote of the person named first in the share register and voting on a
matter must be accepted to the exclusion of the votes of the other
joint holders.
11. LOSS OF VOTING RIGHT IF CALLS UNPAID
If a sum due to the Company in respect of a share has not been paid,
that share may not be voted at a shareholder's meeting.
12. PROCEDURE
Except as provided in this Schedule, the chairperson of the meeting
shall regulate the procedure at any meeting of shareholders.
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SCHEDULE 2
All meetings of the directors of the Company shall be conducted in accordance
with the Third Schedule to the Act, except where varied by the following
provisions:
1. PROCEDURE
The directors may meet together for the dispatch of business,
adjourn, or otherwise regulate their meetings and proceedings as
they may think fit and may determine the quorum necessary for the
transaction of business. Unless and until otherwise determined a
majority of the directors is a quorum and if there shall only be one
director appointed one director shall be a quorum. If a quorum
shall not be present at a meeting then the meeting may be adjourned
for at least 48 hours and notice of the day time and place for such
adjourned meeting shall be given to all directors and posted at
least 36 hours prior to the time of such adjourned meeting.
2. NOTICE
Every director in New Zealand shall be given 2 working days notice
of a meeting either by letter or by telephone it shall not be
necessary to give notice of a meeting of directors to any director
for the time being absent from New Zealand who has not left contact
details with the Company. The failure to give or non receipt of
such a notice to or by any director shall not invalidate any meeting
of directors. A meeting of the directors at which a quorum is
present shall be competent to exercise all or any of the
authorities, powers and discretions by or under this constitution or
the Act for the time being vested in or exercisable by the directors
generally.
3. NON PHYSICAL MEETING
3.1 For the purposes of this constitution the contemporaneous linking
together by simultaneous audio or audio and visual means of a number
of the directors not less than the quorum, whether or not any one or
more of the directors is out of New Zealand, shall be deemed to
constitute a meeting of the directors and all the provisions in this
constitution as to meetings of the directors shall apply to such
meetings by telephone so long as the following conditions are met:
(a) All the directors for the time being entitled to receive notice of
a meeting of the directors (including any alternate for any
director) shall be entitled to notice of such a meeting and to be
linked by such means for the purposes of such meeting. Notice of
any such meeting may be given by such means.
(b) Each of the directors taking part in such a meeting must be able
to hear each of the other directors taking part at the
commencement of the meeting.
(c) At the commencement of the meeting each director must acknowledge
his or her presence for the purpose of a meeting of the directors
of the Company to all the other directors taking part.
3.2 A director may not leave the meeting by disconnecting unless he or
she has previously obtained the express consent of the chairman of
the meeting and a director shall be conclusively presumed to have
been present
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and to have formed part of the quorum at all times such a meeting
unless he or she has previously obtained the express consent of the
chairman to leave the meeting as aforesaid.
3.3 A minute of the proceedings at such meeting by telephone shall be
sufficient evidence of such proceedings and of the observance of all
necessary formalities if certified as a correct minute by the
chairman of the meeting and by the employee referred to.
4. CALLING OF MEETING
The chairman of directors, the managing director or any two directors
may at any time summon a meeting of the directors.
5. VOTING
Questions arising at any meeting of the directors shall be
determined by vote of the directors. On any such vote each director
shall have one vote. The chairman shall not be entitled to a second
or casting vote.
6. CHAIRPERSON
The directors shall from time to time appoint a chairman and (if
they think fit) a deputy chairman and determine the period, not
exceeding three years, for which they respectively are to hold
office and may from time to time re-appoint such chairman or deputy
chairman for further periods not exceeding three years at any one
time. The chairman, or failing him or her the deputy chairman (if
any), shall preside at all meetings of the directors, but if no such
chairman or deputy chairman is present within ten minutes after the
time appointed for holding the meeting, the directors present may
choose one of their number to be chairman of such meeting, and the
director so chosen shall preside at such meeting accordingly.
7. PROCEEDINGS OF COMMITTEE
Any committee of directors shall in the exercise of the powers so
delegated conform to any regulation that may be imposed upon it by
the directors. Save as aforesaid the meetings and proceedings of a
committee consisting of more than two members shall be governed by
the provisions of this constitution regulating the proceedings and
meetings of directors.
8. DEFECTS
All acts done by any meeting of the directors of a committee of
directors or by any person acting as a director shall,
notwithstanding that it is afterwards discovered that there was some
defect in the appointment of any such director or person acting as
aforesaid or that they or any of them were disqualified, be as valid
as if every such person had been duly appointed and was qualified to
be a director.
9. RESOLUTION IN WRITING
A resolution in writing signed by all the directors for the time
being entitled to receive notice of a meeting of the directors
(including any alternate for any director) shall be as valid and
effective as if it had been passed at a meeting of the directors
duly called and constituted. Any such resolution may consist of
several documents (including facsimile or other similar means of
communication) in like form each signed by one or more directors.
The Company shall, within 7 days thereafter, forward to every
Director a copy of the resolution including signatures.
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10. MINUTES
The directors shall cause minutes to be made in books provided for the purpose
of recording:
10.1 The names of the directors present at each meeting of the directors and
of any committee of the directors.
10.2 All resolutions and proceedings at all meetings of the Company and of
the directors and of committees of directors.
Any such minutes of any meeting of the directors or of any committee if
purporting to be signed by the chairman of such meeting or by the chairman of
the next succeeding meeting shall be receivable as prima facie evidence of the
matters stated in such minutes.
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APPENDIX G
FORM OF AMENDMENT TO DMC'S
RESTATED CERTIFICATE OF INCORPORATION
The following is the text of the first paragraph of Article IV,
Section A, of DMC's Restated Certificate of Incorporation, as proposed to be
amended to effect the increase in the total number of authorized shares of
stock and the number of authorized shares of DMC Common Stock:
"This Corporation is authorized to issue two classes of stock to be
designated, respectively, "Preferred Stock" and "Common Stock." The
total number of shares that this Corporation is authorized to issue
is 100,000,000. Five million (5,000,000) shares shall be Preferred
Stock, consisting of 200,000 shares designated Series A Junior
Participating Preferred Stock, and ninety-five million (95,000,000)
shares shall be Common Stock. The Preferred Stock shall have a par
value of $.01 per share; the Common Stock shall have a par value of
$.0l per share."
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APPENDIX H
NOTICE TO SHAREHOLDERS
OF MAS TECHNOLOGY LIMITED
OF AMALGAMATION PROPOSAL
(SECTION 221(3) COMPANIES ACT 1993)
1. INTRODUCTION
This notice is sent to you pursuant to section 221(3) of the Companies Act 1993
which requires the board of directors of MAS Technology Limited ("MAS") to
provide to you certain information relating to the accompanying Amalgamation
Proposal affecting MAS attached as appendix 1.
The following terms, when used in this notice, mean as follows:
AMALGAMATED COMPANY means MAS which when amalgamated (the "Amalgamation") with
South Amalgamation Sub Limited ("Amalgamation Sub") will carry on the previous
activities of that company.
AMALGAMATING COMPANIES means MAS, and Amalgamation Sub each an Amalgamating
Company.
AMALGAMATION DATE means the date on which the Amalgamation takes effect which is
intended to be 24 March 1998, the date specified in the Amalgamation Proposal.
2. AMALGAMATION PROPOSAL
The Amalgamation Proposal involves the Amalgamation of MAS and Amalgamation Sub.
A copy of the Amalgamation Proposal accompanies this notice as appendix 1.
3. CERTIFICATES BY DIRECTORS
The Companies Act 1993 requires the directors of the Amalgamating Companies to
take certain steps before the Amalgamation Proposal can be implemented. These
include the completion of certificates by those directors of each Amalgamating
Company who voted in favour of the Amalgamation to the effect that:
(a) in their opinion the Amalgamation is in the best interests of the
Amalgamating Company of which they are a director; and
(b) they are satisfied on reasonable grounds that the Amalgamated
Company will, immediately after the Amalgamation Date, satisfy the
solvency test set out in section 4 of the Companies Act 1993.
Copies of these certificates accompany this notice as appendix 2.
4. CONSTITUTION OF THE AMALGAMATED COMPANY
A copy of the constitution for the Amalgamated Company will be supplied to any
shareholder upon request.
The liability of shareholders is limited to the amount paid up, or to be paid
up, on the issue of shares. The constitution of the Amalgamated Company
contains no restrictions on its powers other than certain procedural
requirements and accordingly, subject to compliance with such requirements, the
Amalgamated Company has the rights, powers and privileges of a natural person.
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A summary of the principal provisions of the constitution of the Amalgamated
Company is contained in the Amalgamation Proposal.
5. STATEMENT OF SHAREHOLDER RIGHTS
To be effective, the Amalgamation Proposal must be approved by a special
resolution of the shareholders of MAS and a special resolution of the
shareholders of the other Amalgamating Company. A special meeting of
shareholders of MAS will be held on 23 March 1998 to consider and vote on the
Amalgamation Proposal. It is also proposed that a special meeting of
shareholders of Amalgamation Sub be held on that day to consider and vote on the
Amalgamation Proposal.
Section 110 of the Companies Act 1993 gives certain rights to shareholders who
vote against the resolution to approve the Amalgamation Proposal to require MAS
to purchase their shares if the Amalgamation Proposal is approved by a special
resolution of the shareholders of MAS. Any shareholder who casts all votes
attached to shares registered in his/her name (and having the same beneficial
owner) against the resolution approving the Amalgamation Proposal, is entitled
to require MAS to purchase their shares.
The right to have shares purchased by MAS must be exercised within 10 working
days of the passing of the resolution approving the Amalgamation Proposal at the
special meeting of MAS by a shareholder giving written notice to MAS that such
shareholder requires MAS to purchase his or her shares. Within 20 working days
of receipt of the notice the board of MAS must:
(a) agree to purchase the shares; or
(b) arrange for some other person to agree to purchase the shares; or
(c) apply to the Court for an order exempting MAS from the obligation to
purchase the shares on the grounds that the purchase would be
disproportionately damaging to MAS or that MAS cannot reasonably be
required to finance the purchase or it would not be just and
equitable to require MAS to purchase the shares. A Court may also
exempt MAS from the obligation to purchase the shares or may suspend
such obligation if the board has resolved that the purchase by MAS
of the relevant shares would result in failing to satisfy the
solvency test and MAS has, having made reasonable efforts to do so,
been unable to arrange for the shares to be purchased by any other
person. In exempting MAS from the obligation to purchase the
shares, the Court may make an order setting aside the resolution of
shareholders approving the amalgamation or directing MAS to take or
refrain from taking any action specified in the order, requiring MAS
to pay compensation to the shareholders affected or putting MAS into
liquidation; or
(d) arrange for the special resolution approving the Amalgamation to be
rescinded by special resolution of shareholders, or decide in the
appropriate manner not to take the action concerned, as the case may
be
and written notice of the board's decision must be given to the relevant
shareholder(s).
Where the board agrees to the purchase of the shares by MAS, it must give notice
to the relevant shareholder(s), within five working days after the notice
referred to in the preceding paragraph, nominating what the directors consider a
fair and reasonable price for the shares to be acquired. A shareholder who
considers that the price nominated by the board is not fair or reasonable must
forthwith give notice of objection to MAS. If, within 10 working days of the
board giving notice to the shareholder, no objection to the price has been
received by MAS, it must, on such date as MAS and the shareholder agree or, in
the absence of agreement, as soon as practicable, purchase the shares at the
nominated price. If within such 10 working days an objection to the price has
been received by MAS, it must refer the question of what is a fair and
reasonable price to arbitration and within five working days pay on a
provisional basis in the price nominated by the board. The arbitration is to be
conducted in accordance with the Arbitration Act 1996. The arbitrator must
expeditiously determine a fair and reasonable price for the shares to be
purchased. If the price determined by the arbitrator:
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(a) exceeds the provisional price paid by MAS, then it must forthwith pay
the balance owing to the shareholder;
(b) is less than the provisional price paid by MAS, then it may recover
the excess paid from the shareholder.
The arbitrator may award interest on any balance payable or excess to be repaid.
If the board arranges for some other person to agree to purchase the shares, the
provisions set out in the preceding paragraphs shall (with all appropriate
modifications) apply to the purchase of shares by such person and, in addition,
MAS must indemnify the shareholder in respect of any losses suffered by the
shareholder by reason of the failure by the person to purchase the shares at the
price nominated or fixed by arbitration, as the case may be.
6. MATERIAL INTERESTS OF DIRECTORS
The only directors of the Amalgamating Companies that have any material interest
(in that capacity or otherwise) in the Amalgamation Proposal are:
(a) Howard Oringer will be appointed as a director of Digital Microwave
Corporation a Delaware Corporation ("DMC"), the beneficial owner of
all of the shares in Amalgamation Sub.
(b) Neville Jordan will remain as Chief Executive Officer of MAS.
7. AMALGAMATION PROCEDURE
The boards of directors of the Amalgamating Companies must provide the
information contained or referred to in this notice to their shareholders not
less than 20 working days before the Amalgamation Date.
The board of each Amalgamating Company must also provide a copy of the
Amalgamation Proposal to any secured creditor of the Amalgamating Company of
which they are a director or give public notice of the Amalgamation Proposal not
less than 20 working days before the Amalgamation Date.
The Amalgamation Proposal must be approved, by a special resolution of the
shareholder of MAS and a special resolution of the shareholders of Amalgamation
Sub. A special resolution is one which has been passed by not less than 75% of
the votes entitled to vote and voting on the resolution, at a general meeting
(whether in person or by proxy) of which not less than 10 clear working days'
notice specifying the intention to propose the special resolution has been duly
given.
A special meeting of MAS will be held on 23 March 1998 to consider the
Amalgamation Proposal.
Following the passing of all required resolutions by MAS, Amalgamation Sub and
DMC, delivery of the necessary documents to the Registrar of Companies, and
immediately upon issuance of a certificate confirming that the Amalgamation is
effective DMC will issue the appropriate number of shares in DMC to the holders
of shares of MAS. It is a condition precedent to the Amalgamation that all
actions necessary to issue the shares in DMC to the holders of shares in MAS
have been satisfied so that such issue of shares is contemporaneous with the
Amalgamation being effected.
8. EFFECT OF AMALGAMATION PROPOSAL
On the Amalgamation Date:
(a) the Amalgamated Company will succeed to all the property, rights,
powers and privileges of Amalgamation Sub;
(b) the Amalgamated Company will succeed to all the liabilities and
obligations of Amalgamation Sub;
(c) Amalgamation Sub will be removed from the Companies Register;
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(d) proceedings pending by, or against Amalgamation Sub may be continued
by, or against, the Amalgamated Company;
(e) the provisions of the Amalgamation Proposal that provide for the
conversion of rights and interests of the shareholders of the
Amalgamating Companies will take effect according to their tenor.
9. ADDITIONAL INFORMATION
The following additional information which accompanies this notice is provided
to assist shareholders in understanding the nature and implications for MAS and
its shareholders of the Amalgamation Proposal:
(a) a Joint Proxy/Prospectus Statement
(b) an Investment Statement on NZ regulatory authorities
Dated 9 February 1998
signed by Order of the Board
P Troughton
Chairman
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APPENDIX 1
MAS TECHNOLOGY LIMITED
("MAS")
SOUTH AMALGAMATION SUB LIMITED
("Amalgamation Sub")
AMALGAMATION PROPOSAL
(SECTION 220 COMPANIES ACT 1993)
Introduction
This document sets out the terms of a proposal ("Amalgamation Proposal") under
Part XIII of the Companies Act 1993 to amalgamate MAS Technology Limited
("MAS"), and South Amalgamation Sub Limited ("Amalgamation Sub") (the
"Amalgamating Companies" and each an "Amalgamating Company").
Amalgamation Date
The Amalgamation Proposal is intended to take effect on 24 March 1998. For the
purposes of this Amalgamation Proposal the Amalgamation Date will be 24 March
1998 or such later date as all necessary documents are filed with the Registrar
of Companies and an amalgamation certificate is issued.
Amalgamation Proposal
(a) The Amalgamating Companies will amalgamate with and continue as MAS
(an "Amalgamating Company" and the "Amalgamated Company").
(b) All ordinary shares in MAS will be converted into fully paid shares of
the Common Stock in Digital Microwave Corporation, a Delaware Corporation
("DMC") the beneficial owner of all the shares in Amalgamation Sub. On the
basis of relative values, shareholders of MAS will receive 1.2 of the
securities issued by DMC for each share held in MAS.
(c) Neither of the Amalgamating Companies holds shares issued by the other
Amalgamating Company.
(d) The shareholder of Amalgamation Sub will receive all of the fully paid
ordinary shares of MAS.
(e) The shareholders of MAS will receive 8,160,000 fully paid ordinary
shares of DMC.
(f) Fractional entitlements to shares will be paid in cash.
Existing Share Structures
THE EXISTING AND CAPITAL STRUCTURES OF EACH OF THE AMALGAMATING COMPANIES AND
DMC ARE:
MAS Technology Limited 6,800,000 ordinary shares
South Amalgamation Sub Limited 100 ordinary shares
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Digital Microwave Corporation Limited (a) 60,000,00 shares of common stock
authorised, of which 38,103,944
shares were issued and
outstanding as of 31 December
1998
(b) 5,000,000 shares of preferred
stock authorised, with no
shares issued and outstanding
as of 31 December 1998
THE PROPOSED SHARE AND CAPITAL STRUCTURE OF THE AMALGAMATED COMPANY IS:
6,800,000 fully paid ordinary shares
Amalgamated Company
THE REGISTERED OFFICE AND ADDRESS FOR SERVICE OF THE AMALGAMATED COMPANY IS:
24 Bridge Street
Lower Hutt
New Zealand
THE BOARD OF DIRECTORS OF THE AMALGAMATED COMPANY IS:
Charles Daniel Kissner 27778 Stirrup Way
Los Altos
California 94022
Carl Andrew Thomsen 1701 Edgewood Drive
Palo Alto
California 94303
Rights attaching to shares of Amalgamated Company
The following is a summary of the principal rights, privileges, limitations and
conditions that will attach to each share of the Amalgamated Company on the
Amalgamation Date. These rights are substantially the same as those set out in
section 36 of the Companies Act 1993.
VOTING: Subject to the exceptions noted below, on any resolution including,
without limitation, any resolution to appoint or remove a director or auditor,
adopt a constitution, alter the Amalgamated Company's constitution, approve a
Major Transaction, approve an amalgamation of the Amalgamated Company under
section 221 of the Companies Act 1993 and put the Amalgamated Company into
liquidation proposed at a meeting of the Amalgamated Company every shareholder
present in person or by proxy, attorney or representative has one vote on a show
of hands and, on a poll, one vote for each fully paid share held.
TRANSFER OF SHARES: Shares may be transferred by a shareholder to any other
person by any instrument commonly used for transferring shares.
SHAREHOLDER MEETINGS AND NOTICES: Each shareholder is entitled to receive
notice of, to attend and, subject to the constitution, vote at meetings of the
Amalgamated Company and to receive all notices, accounts and other documents
required to be sent to shareholders by law.
DIVIDENDS: Each share carries the right to receive an equal share of all
dividends declared by the Amalgamated Company. The directors may offer
shareholders the right to elect to receive shares in the Amalgamated Company
instead of receiving a dividend.
ISSUE OF SHARES: All new shares must be offered on a pro rata basis to existing
shareholders. However, the directors may in limited circumstances, as permitted
by the constitution, issue shares other than on a pro rata basis. These
circumstances include the ability to issue shares on a take-over of another
listed company or entity, or on an
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amalgamation, or to issue a limited number of shares to employees each year,
or to issue up to 5% of the Amalgamated Company's issued capital each year.
LIQUIDATION: Shareholders may, by special resolution, liquidate the
Amalgamated Company.
SURPLUS ASSETS: If the Amalgamated Company is liquidated, or if the directors
otherwise resolve to distribute any surplus assets to shareholders, holders of
shares will participate equally in the surplus assets pro rata according to the
amounts paid up or credited as paid up on the shares held by them. At the
Amalgamation Date all shares will be fully paid.
The following is a summary of the principal rights, privileges, limitations and
conditions that will attach to each share of DMC Common Stock on the
Amalgamation Date. These rights substantially differ from those set out in
section 36 of the Companies Act 1993 as DMC is a corporation constituted under
the laws of Delaware a state of the United States of America.
VOTING: Pursuant to the DMC Bylaws each holder of shares of DMC's Common Stock
is entitled to one vote in person or by proxy for each share of DMC Common Stock
on all matters submitted to a vote of DMC stockholders.
TRANSFER OF SHARES: Shares may be transferred by a DMC stockholder to any other
person by any instrument commonly used for transferring shares. In addition,
DMC has appointed ChaseMellon Shareholder Services L.L.C. as the transfer agent
and registrar of the DMC Common Stock.
SHAREHOLDER MEETINGS AND NOTICES: The DMC Bylaws provide that written notice of
an annual or special meeting of stockholders shall be given to each stockholder
entitled to vote at such meeting not less than ten (10) nor more than sixty (60)
days before such meeting.
The DMC Bylaws provide that special meetings of stockholders may be called by
the president or secretary of DMC at the request in writing of a majority of the
DMC Board or upon written application of one or more DMC stockholders who hold
at least 40% of the capital stock entitled to vote at such meeting.
DIVIDENDS: The holders of DMC Common Stock are entitled to receive such
dividends, if any, as may be declared from time to time by the DMC Board of
Directors out of funds legally available therefore. Pursuant to the DMC Bylaws,
dividends may be paid in cash, in property, or in shares of DMC Common Stock.
ISSUE OF SHARES: DMC's Restated Certificate of Incorporation presently
authorizes DMC to issue up to 60,000,000 shares of DMC Common Stock, par value
$0.01 per share. At the Special Meeting of DMC Stockholders to be held in March
1998, the stockholders of DMC will be asked to increase the number of authorized
shares of DMC Common Stock that DMC may issue to 95,000,000 shares.
LIQUIDATION: Upon liquidation or dissolution of DMC, the holders of DMC Common
Stock are entitled to share ratably in the distribution of assets, subject to
the rights of the holders of DMC Preferred Stock. Holders of DMC Common Stock
have no preemptive rights, subscription rights or conversion rights. There are
no redemption or sinking fund provisions with respect to the DMC Common Stock.
SURPLUS ASSETS: Under the Delaware General Corporation Law, a company is
entitled to pay dividends out of surplus or out of its net profits for the
fiscal year in which the dividend is declared or its net profits for the
preceding fiscal year, subject to certain limitations for the benefit of certain
preference shares.
Constitution of Amalgamated Company
The following is a summary of the principal provisions of the constitution for
the Amalgamated Company (other than those which prescribe rights, privileges,
limitations and conditions attaching to shares).
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DIRECTORS: The maximum number of directors that may be appointed is 4 and the
minimum number is 10 unless otherwise determined by an ordinary resolution of
the shareholders. The shareholders may remove a director from office by
ordinary resolution passed at a meeting called for the purpose or for
purposes that include the removal of the director. The shareholders may
appoint a director by ordinary resolution. The directors shall have the power
at any time, and from time to time, to appoint any person to be a director.
AUDITORS: Auditors appointed subsequent to the first auditors, must be
appointed by the shareholders at each annual meeting and, unless the auditors
resign, will hold office until the conclusion of the next annual meeting.
QUORUM FOR SHAREHOLDERS' MEETING: A quorum for a meeting of shareholders is
present if shareholders or their proxies are present who are between them
able to exercise a majority of the votes to be cast on the business to be
transacted by the meeting.
Restated Certificate of Incorporation and Bylaws
The following is a summary of the principal provisions of the Restated
Certificate of Incorporation of DMC and of the DMC Bylaws.
DIRECTORS: The DMC Bylaws provide that the number of directors that shall
constitute the DMC Board shall be six. DMC currently has six directors. In
connection with the Amalgamation, the DMC Bylaws will be amended to increase the
number of directors to seven. Under the DMC Bylaws, DMC directors are elected
at the annual meeting of stockholders for a one-year term. Neither the DMC
Restated Certificate of Incorporation nor the DMC Bylaws provide for cumulative
voting for the election of directors. Nominations of persons for election to
the DMC Board may be made by or at the direction of the DMC Board, or by DMC
stockholders according to the procedures described in the DMC Bylaws. Under the
DMC Bylaws, vacancies in the DMC Board may be filled by resolution of a majority
of the DMC Board (or a sole director, if applicable), and any director so
appointed will hold office until the next annual meeting of stockholders. The
DMC Restated Certificate of Incorporation and the DMC Bylaws do not contain
provisions regarding the removal of directors, and accordingly such matter would
be governed by the Delaware General Corporation Law. The Delaware General
Corporation Law provides that directors may be removed (with or without cause)
by the vote of the holders of a majority of shares entitled to vote at an
election of directors.
AUDITORS: Auditors of DMC are appointed by the DMC Board for each fiscal year.
While such appointment of auditors is not required to be submitted to a vote of
the DMC stockholders, DMC believes it appropriate as a matter of policy to
request that the stockholders ratify the appointment of the auditors for each
fiscal year at the DMC annual meeting of stockholders. In the event that a
majority of the votes cast at an annual stockholders' meeting are not voted in
favor of ratification, the adverse vote will be considered as a direction to the
DMC Board to select other auditors for the next fiscal year.
QUORUM FOR STOCKHOLDERS' MEETING: Pursuant to the DMC Bylaws, the holders of a
majority of the DMC Common Stock issued and outstanding and entitled to vote at
a stockholders' meeting, present in person or represented by proxy, shall
constitute a quorum at such meeting for the transaction of business.
Arrangements to complete amalgamation
Arrangements necessary to complete the amalgamation and to provide for the
subsequent management and operation of the Amalgamated Company are:
(a) approval by a special resolution of the shareholders of each
Amalgamating Companies of the Amalgamation Proposal in accordance
with Part XIII of the Companies Act 1993 and completion of the
other procedures referred to in Part XIII; and
(b) the issue of common stock, in DMC issued in accordance with this
Amalgamation Proposal.
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General
The Amalgamation Proposal does not involve the making of any payment to a
shareholder or director of any Amalgamating Company except as detailed in
section 3 of this Amalgamation Proposal (unless any shareholder properly
exercises its dissenters buy out rights in which event a payment may be made to
such shareholder(s)).
DATED 9 February 1998
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APPENDIX 2
MAS TECHNOLOGY LIMITED
DIRECTORS' CERTIFICATE RELATING TO THE AMALGAMATION PROPOSAL
(SECTION 221(2) COMPANIES ACT 1993)
The persons named below, being all of the directors of MAS Technology Limited
("MAS"), who have voted in favour of a resolution under section 221(1) of the
Companies Act 1993 in relation to MAS amalgamating with South Amalgamation Sub
Limited ("Amalgamation Sub") state that:
(a) in their opinion the amalgamation is in the best interests of MAS; and
(b) they are satisfied on reasonable grounds that MAS, as the Amalgamated
Company will, immediately after the amalgamation becomes effective,
satisfy the solvency test set out in section 4(1) of the
Companies Act 1993;
upon the following grounds:
AMALGAMATION IN THE BEST INTERESTS OF MAS TECHNOLOGY LIMITED
In the directors' opinion, having taken account of the assessment carried out by
Hambrecht & Quist and relevant legal and financial due diligence reviews:
(a) the amalgamation should provide a greater ability to take advantage of
opportunities to realise certain strategic benefits including business
growth opportunities, new products and services and new customers;
(b) that the Amalgamated Company as a wholly owned subsidiary of DMC will
have a greater opportunity to advance MAS's current strategic objectives of
expanding the distribution network for its products, increasing sales of
its products, diversifying its product range and approaching market
dominance on the basis that:
(i) The product line of DMC is complementary to that of MAS, would
add significant diversity to MAS's product offerings and MAS has had a
beneficial commercial relationship with DMC for approximately eight
years.
(ii) DMC offers the distribution network necessary to increase sales
of MAS's DXR range of products, particularly in the important North
American market. Increased market presence and product diversity
could result in the surviving company achieving dominance as a
independent supplier of microwave systems world-wide.
(iii) Amalgamation with DMC would be cost-effective and the
fairness opinion received from Hambrecht & Quist is strongly
supportive of the proposed Reorganisation's terms for MAS
shareholders.
AMALGAMATED COMPANY SATISFYING THE SOLVENCY TEST SET OUT IN SECTION 4(1) OF THE
COMPANIES ACT 1993
(a) The directors of MAS and Digital Microwave Corporation ("DMC") in its
own capacity and in its capacity as sole shareholder of all of the shares
in Amalgamation Sub have commissioned and taken account of relevant legal
and financial due diligence reports;
(b) The directors of MAS and DMC have had regard to the financial
statements of each of MAS and DMC;
H-10
<PAGE>
(c) The directors of MAS have had regard to all other circumstances of
which they are aware or which have been noted in the reports prepared by
MAS and which would affect or may affect the value of the Amalgamated
Company's assets and the value of its liabilities, including contingent
liabilities. In particular, the directors of MAS believe that none of
MAS, Amalgamation Sub or DMC has any significant contingent liabilities
or any significant increase in liabilities since 31 March 1997 which in
either case is material in the context of the directors' consideration
and recommendations in relation to the Amalgamation;
(d) The directors of MAS, Amalgamation Sub and DMC have had prepared, and
considered, the trading prospects for each of the Amalgamated Company and
DMC from the proposed amalgamation date and on the basis of the
assumptions upon which the trading prospects have been prepared (which
the directors consider reasonable) the directors believe those
demonstrate that the Amalgamated Company will immediately after the
amalgamation becomes effective satisfy the solvency test set out in
section 4(1) of the Companies Act 1993.
Dated 9 February 1998
/s/ NEVILLE JORDAN
- -----------------------------------
Neville Jordan
/s/ PETER REGINALD WILLIAMS
- -----------------------------------
Peter Reginald Williams
/s/ MAX BOYER
- -----------------------------------
Max Boyer
/s/ PETER JOHN MORGAN TAYLOR
- -----------------------------------
Peter John Morgan Taylor
/s/ PETER TROUGHTON
- -----------------------------------
Peter Troughton
/s/ HOWARD ORINGER
- -----------------------------------
Howard Oringer
H-11
<PAGE>
SOUTH AMALGAMATION SUB LIMITED
DIRECTORS' CERTIFICATE RELATING TO THE AMALGAMATION PROPOSAL
(SECTION 221(2) COMPANIES ACT 1993)
The persons named below, being all of the directors of South Amalgamation Sub
Limited ("Amalgamation Sub"), who have voted in favour of a resolution under
section 221(1) of the Companies Act 1993 in relation to Amalgamation Sub
amalgamating with MAS Technology Limited ("MAS") state that:
(a) in their opinion the amalgamation is in the best interests of
Amalgamation Sub; and
(b) they are satisfied on reasonable grounds that MAS, as the Amalgamated
Company will, immediately after the amalgamation becomes effective,
satisfy the solvency test set out in section 4(1) of the Companies Act
1993;
upon the following grounds:
AMALGAMATION IN THE BEST INTERESTS OF SOUTH AMALGAMATION SUB LIMITED
(a) Amalgamation Sub has not yet commenced any business, and has no assets
or liabilities.
(b) the directors having had regard to their knowledge of the business of
MAS, and the recommendations and reports of MAS and Digital Microwave
Corporation ("DMC") (the sole shareholder of Amalgamation Sub) and their
directors, managers and advisors, believe that proceeding with the
amalgamation pursuant to arrangements made with MAS is in the best
interests of Amalgamation Sub.
AMALGAMATED COMPANY SATISFYING THE SOLVENCY TEST SET OUT IN SECTION 4(1) OF THE
COMPANIES ACT 1993
(a) The directors of MAS and Digital Microwave Corporation ("DMC") in its
own capacity and in its capacity as sole shareholder of all of the shares
in Amalgamation Sub have commissioned and taken account of relevant legal
and financial due diligence reports;
(b) The directors of MAS and DMC have had regard to the financial
statements of each of MAS and DMC;
(c) The directors of Amalgamation Sub have had regard to all other
circumstances of which they are aware or which have been noted in the
reports prepared by Amalgamation Sub and which would affect or may affect
the value of the Amalgamated Company's assets and the value of its
liabilities, including contingent liabilities. In particular, the
directors of MAS believe that none of MAS, Amalgamation Sub or DMC has any
significant contingent liabilities or any significant increase in
liabilities since 31 March 1997 which in either case is material in the
context of the directors' consideration and recommendations in relation
to the amalgamation;
(d) The directors of MAS, Amalgamation Sub and DMC have had prepared, and
considered, the trading prospects for each of the Amalgamated Company and
DMC from the proposed amalgamation date and on the basis of the
assumptions upon which the trading prospects have been prepared (which the
directors consider reasonable) the directors believe those demonstrate that
the Amalgamated Company will immediately after the amalgamation becomes
effective satisfy the solvency test set out in section 4(1) of the
Companies Act 1993.
Dated 9 February 1998
/s/ CHARLES D. KISSNER
- -----------------------------------
Charles Daniel Kissner
/s/ CARL A. THOMSEN
- -----------------------------------
Carl Andrew Thomsen
H-12
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145(a) of the Delaware General Corporation Law (the "DGCL")
provides in relevant part that "a corporation may indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation), by
reason of the fact that he is or was a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interest of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful." With respect to
derivative actions, Section 145(b) of the DGCL provides in relevant part that
"[a] corporation may indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action or suit by or
in the right of the corporation to procure a judgment in its favor. . . . [by
reason of his service in one of the capacities specified in the preceding
sentence] against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit if he acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interest of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper."
The Registrant's Restated Certificate of Incorporation provides that each
person who is or was or who had agreed to become a director or officer of the
Registrant or who had agreed at the request of the Registrant's Board of
Directors or an officer of the Registrant to serve as an employee or agent of
the Registrant or as a director, officer, employee or agent or another
corporation, partnership, joint venture, trust or other enterprise, shall be
indemnified by the Registrant to the full extent permitted by the DGCL or any
other applicable laws. Such Restated Certificate of Incorporation also provides
that the Registrant may enter into one or more agreements with any person which
provides for indemnification greater or different than that provided in such
Certificate, and that no amendment or repeal of such Certificate shall apply to
or have any effect on the right to indemnification permitted or authorized
thereunder for or with respect to claims asserted before or after such amendment
or repeal arising from acts or omissions occurring in whole or in part before
the effective date of such amendment or repeal.
The Registrant's Bylaws provide that the Registrant shall indemnify to the
full extent authorized by law any person made or threatened to be made a party
to an action or a proceeding, whether criminal, civil, administrative or
investigative, by reason of the fact that he, his testator or intestate was or
is a director, officer or employee of the Registrant or any predecessor of the
Registrant or serves or served any other enterprise as a director, officer or
employee at the request of the Registrant or any predecessor of the Registrant.
The Registrant has entered into indemnification agreements with its
directors and certain of its officers.
The Registrant has purchased and maintains insurance on behalf of any
person who is or was a director or officer against loss arising from any claim
asserted against him and incurred by him in any such capacity, subject to
certain exclusions.
See also the undertakings set out in response to Item 22 herein.
II-1
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Exhibit
NO. EXHIBIT
- ------- -------
2.1 Agreement and Plan of Reorganization and Amalgamation (Reorganization
Agreement), dated as of December 22, 1997, by and between Digital
Microwave Corporation, South Amalgamation Sub Ltd. and MAS Technology
Limited (MAS) (included as Appendix A to the Joint Proxy Statement/
Prospectus filed as part of this Registration Statement).
5.1 Opinion of Morrison & Foerster LLP together with consent.
8.1 Tax Opinion of Morrison & Foerster LLP together with consent.
8.2 Tax Opinion of Brobeck, Phleger & Harrison LLP together with consent.
23.1 Consent of Arthur Andersen LLP, independent auditors.
23.2 Consent of KPMG, Wellington, New Zealand, independent chartered
accountants.
23.3 Consent of KPMG, Pretoria, South Africa, independent chartered
accountants
24.1 Power of Attorney (See Page II-4 of this Registration Statement).
99.1 Consent of Person to Become a Director
ITEM 22. UNDERTAKINGS.
(1) That, for purposes of determining any liability under the Securities
Act of 1933, each filing of the registrant's annual report pursuant to
section 13(a) or section 15(d) of the Securities Exchange Act of 1934 that is
incorporated by reference in the registration statement shall be deemed to be
a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(2) The undersigned Registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is part of this Registration Statement, by any person or party
who is deemed to be an underwriter within the meaning of Rule 145(c), the issuer
undertakes that such reoffering prospectus will contain the information called
for by the applicable registration form with respect to reofferings by persons
who may be deemed underwriters, in addition to the information called for by the
other items of the applicable form.
(3) The Registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Securities Act of 1933 (the "Act")
and is used in connection with an offering of securities subject to Rule 415,
will be filed as part of an amendment to the Registration Statement and will not
be used until such amendment is effective, and that for purposes of determining
any liability under the Act, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(4) The undersigned Registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Items 4, 10(b), 11 or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through the
date of responding to the request.
(5) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
II-2
<PAGE>
(6) Insofar as indemnification for liabilities arising under the Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions hereof, or otherwise, the
Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of San Jose, State of
California, on this 28th day of January, 1998.
DIGITAL MICROWAVE CORPORATION
By: /s/ CHARLES D. KISSNER
-----------------------------------
Charles D. Kissner
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints, severally and not jointly, Charles D.
Kissner and Carl A. Thomsen with full power to act alone, his true and lawful
attorneys-in-fact, with the power of substitution, for him and in his name,
place and stead, in any and all capacities, to sign any and all amendments to
this Registration Statement and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact full power and authority to do
and perform each and every act and thing requisite and necessary to be done as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
SIGNATURE TITLE DATE
--------- ----- ----
/s/ CHARLES D. KISSNER Chairman of the Board and January 28, 1998
-------------------------- Chief Executive Officer
Charles D. Kissner
/s/ RICHARD C. ALBERDING Director January 28, 1998
--------------------------
Richard C. Alberding
/s/ JOHN W. COMBS Director January 28, 1998
--------------------------
John W. Combs
/s/ CLIFFORD H. HIGGERSON Director January 28, 1998
--------------------------
Clifford H. Higgerson
/s/ JAMES D. MEINDL Director January 28, 1998
--------------------------
James D. Meindl
/s/ BILLY B. OLIVER Director January 28, 1998
--------------------------
Billy B. Oliver
/s/ CARL A. THOMSEN Vice President, Chief January 28, 1998
-------------------------- Financial Officer and
Carl A. Thomsen Secretary (Principal
Financial and Accounting
Officer)
II-4
<PAGE>
EXHIBIT 5.1
MORRISON & FOERSTER LLP
ATTORNEYS AT LAW
425 MARKET STREET
SAN FRANCISCO, CALIFORNIA 94105-2482
January 27, 1998
Digital Microwave Corporation
170 Rose Orchard Way
San Jose, CA 95134
Re: Digital Microwave Corporation:
8,600,000 Shares of Common Stock
--------------------------------
Ladies and Gentlemen:
At your request, we have examined the Registration Statement on Form S-4
(the "Registration Statement") filed by you with the Securities and Exchange
Commission on January 27, 1998, in connection with the registration under the
Securities Act of 1933, as amended, of 8,600,000 shares of your Common Stock,
par value of $0.01 (the "Common Stock"). The Common Stock is to be issued to
the former shareholders of MAS Technology Limited, a New Zealand company
("MAS"), pursuant to the terms of that certain Agreement and Plan of
Reorganization and Amalgamation, dated as of December 22, 1997, by and between
you, South Amalgamation Sub Ltd., a New Zealand company and your wholly owned
subsidiary, and MAS.
In connection with this opinion, we have examined all proceedings taken by
you relating to the issuance of up to 8,600,000 shares of the Common Stock.
It is our opinion that the up to 8,600,000 shares of the Common Stock being
issued by you, when issued in the manner referred to in the Registration
Statement, will be legally and validly issued, fully paid, and nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to all references to us in the Registration
Statement, the Joint Proxy Statement/Prospectus constituting a part thereof,
and any amendments thereto.
Very truly yours,
/s/ MORRISON & FOERSTER LLP
<PAGE>
EXHIBIT 8.1
MORRISON & FOERSTER LLP
ATTORNEYS AT LAW
425 MARKET STREET
SAN FRANCISCO, CALIFORNIA 94105-2482
__________ 1998
Digital Microwave Corporation
170 Rose Orchard Way
San Jose, CA 95134
Re: Agreement and Plan of Reorganization and Amalgamation, dated as of
December 22, 1997, by and among Digital Microwave Corporation, a
Delaware Corporation, South Amalgamation Sub Ltd., a New Zealand
Company, and MAS Technology Limited, a New Zealand Company
Ladies and Gentlemen:
This opinion is being delivered to you pursuant to Section 6.01(d) of
the Agreement and Plan of Reorganization and Amalgamation, dated as of
December 22, 1997 (the "Reorganization Agreement"), by and among Digital
Microwave Corporation, a Delaware corporation ("DMC"), South Amalgamation Sub
Ltd., a New Zealand company and a wholly- owned subsidiary of DMC ("Sub") and
MAS Technology Limited, a New Zealand company ("MAS"). Pursuant to the
Reorganization Agreement, Sub will amalgamate with and into MAS (the
"Reorganization"). As a result of the Reorganization, MAS will become a
wholly-owned subsidiary of DMC and the former shareholders of MAS will
receive shares of DMC common stock, all on the terms set forth in the
Reorganization Agreement.
The Reorganization Agreement and certain proposed transactions incident
thereto are described in the Registration Statement on Form S-4 filed by DMC
with the Securities and Exchange Commission (the "Registration Statement"),
which includes the Proxy Statement/Prospectus of DMC and MAS (the "Proxy
Statement/Prospectus"). Unless otherwise indicated, any capitalized terms used
herein and not otherwise defined have the meaning ascribed to them in the Proxy
Statement/Prospectus.
We have acted as legal counsel to DMC and Sub in connection with the
Reorganization. As such, and for purposes of rendering this opinion, we have
examined (or will examine on or prior to the Effective Date) and are familiar
with the Reorganization Agreement, the Registration Statement, and such other
presently existing documents, records and matters of law as we have deemed
necessary or appropriate in connection with rendering this opinion.
<PAGE>
MORRISON & FOERSTER LLP
Digital Microwave Corporation
__________, 1998
Page Two
In addition, we have assumed (i) that the Reorganization will be
consummated in the manner contemplated by the Proxy Statement/Prospectus and in
accordance with the provisions of the Reorganization Agreement, (ii) the truth
and accuracy of the representations and warranties made by DMC and MAS in the
Reorganization Agreement, (iii) the truth and accuracy of the certificates of
representations to be provided to us by DMC and MAS, and (iv) that any
representation made "to the knowledge" or similarly qualified is correct
without such qualification.
The conclusions expressed herein represent our judgement of the proper
treatment of certain aspects of the Reorganization under the income tax laws of
the United States based upon the Internal Revenue Code of 1986, as amended (the
"Code"), Treasury Regulations, rulings and other pronouncements of the Internal
Revenue Service (the "IRS") currently in effect, and judicial decisions, all of
which are subject to change, prospectively or retroactively. No assurance can
be given that such changes will not take place, or that such changes would not
affect the conclusions expressed herein. Furthermore, our opinion represents
only our best judgment of how a court would conclude if presented with the
issues addressed herein and is not binding upon either the IRS or any court.
Thus, no assurance can be given that a position taken in reliance on our
opinion will not be challenged by the IRS or rejected by a court.
Our opinion relates solely to the tax consequences of the Reorganization
under the federal income tax laws of the United States, and we express no
opinion (and no opinion should be inferred) regarding the tax consequences of
the Reorganization under the laws of any other jurisdiction. This opinion
addresses only the specific issues set forth below, and does not address any
other tax consequences that may result from the Reorganization or any other
transaction (including any transaction undertaken in connection with the
Reorganization).
No opinion is expressed as to any transaction other than the
Reorganization as described in the Reorganization Agreement or as to any
transaction whatsoever, including the Reorganization, if all of the
transactions described in the Reorganization Agreement are not consummated in
accordance with the terms of such Reorganization Agreement and without waiver
or breach of any material provision thereof, or if all the representation,
warranties, statements and assumptions upon which we rely are not true and
accurate at all relevant times. In the event any one of the statements,
representations, warranties or assumptions upon which we rely to issue this
opinion are incorrect, our opinion might be adversely affected and may not be
relied upon.
Based upon and subject to the foregoing, we are of the opinion that:
(1) The Reorganization will be a reorganization within the meaning
of Section 368(a) of the Code; and
<PAGE>
MORRISON & FOERSTER LLP
Digital Microwave Corporation
__________, 1998
Page Three
(2) DMC and MAS will each be a party to the reorganization within
the meaning of Section 368(b) of the Code.
We note that persons who are shareholders of MAS and who are otherwise
required to file a U.S. income tax return will be required to comply with
certain notice requirements prescribed in the Treasury Department temporary
regulations promulgated under Section 367 of the Code.
This opinion has been delivered to you for the purpose of satisfying the
conditions set forth in Section 6.01(d) of the Reorganization Agreement and
is intended solely for your benefit; it may not be relied upon for any other
purpose or by any other person or entity, and may not be made available to
any other person or entity without our prior written consent. We hereby
consent to the filing of this opinion as an exhibit to the Registration
Statement and further consent to all references to us in the Registration
Statement. In giving this consent, we do not thereby admit that we are in the
category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder, nor do we thereby admit that
we are experts with respect to any part of such Registration Statement within
the meaning of the term "experts" as used in the Securities Act of 1933, as
amended, or the rules and regulations of the Securities and Exchange
Commission thereunder.
Very truly yours,
DRAFT
/s/ Morrison & Foerster LLP
<PAGE>
___________ 1998
MAS Technology Limited
P.O. Box 30-248
24 Bridge Street
Lower Hutt, Wellington
New Zealand
Ladies and Gentlemen:
This opinion is being delivered to you pursuant to Section 6.01(d) of the
Agreement and Plan of Reorganization and Amalgamation (the "Agreement") among
Digital Microwave Corporation, a Delaware corporation ("DMC"), its wholly owned
subsidiary, South Amalgamation Sub Ltd., a corporation organized under the laws
of New Zealand ("Sub"), and MAS Technology Limited, a corporation organized
under the laws of New Zealand ("MAS"), dated December 22, 1997. Pursuant to the
Agreement, Sub will merge with and into MAS (the "Reorganization"), and MAS will
become a wholly owned subsidiary of DMC.
Except as otherwise provided, capitalized terms referred to herein have the
meanings set forth in the Agreement. All section references, unless otherwise
indicated, are to the Internal Revenue Code of 1986, as amended (the "Code").
We have acted as legal counsel to MAS in connection with the
Reorganization. As such, and for the purpose of rendering this opinion, we have
examined (or will examine on or prior to the Effective Date) and are relying (or
will rely) upon (without any independent investigation or review thereof) the
truth and accuracy, at all relevant times, of the statements, covenants,
representations and warranties contained in the following documents (including
all schedules and exhibits thereto):
1. The Agreement;
2. Representations made to us by DMC and Sub in a letter reproduced as
Exhibit A hereto;
3. Representations made to us by MAS in a letter reproduced as Exhibit B
hereto;
4. The Registration Statement;
5. An opinion of Morrison & Foerster LLP substantially identical in
substance to this opinion (the "Morrison Tax Opinion"); and
<PAGE>
MAS Technology Limited ___________ 1998
Page 2
6. Such other instruments and documents related to the formation,
organization and operation of DMC, Sub and MAS or to the consummation of the
Reorganization and the transactions contemplated thereby as we have deemed
necessary or appropriate.
In connection with rendering this opinion, we have assumed or obtained
representations (and are relying thereon, without any independent investigation
or review thereof) that:
1. Original documents (including signatures) are authentic, documents
submitted to us as copies conform to the original documents, and there has been
(or will be by the Effective Time) due execution and delivery of all documents
where due execution and delivery are prerequisites to effectiveness thereof;
2. The Reorganization will be consummated in accordance with the
Agreement and will be effective under the laws of New Zealand;
3. The shareholders of MAS do not, and will not on or before the
Effective Date, have an existing plan or intent to dispose of any amount of DMC
Common Stock to be received in the Reorganization (or to dispose of MAS Capital
Stock in anticipation of the Reorganization) such that the shareholders of MAS
will not receive and retain a meaningful continuing equity ownership in DMC that
is sufficient to satisfy the continuity of interest requirement as specified in
Treasury Regulations Section 1.368-1(b) and as interpreted in certain Internal
Revenue Service rulings and federal judicial decisions;
4. MAS will pay its dissenting shareholders the value of their MAS
Capital Stock out of its own funds. No funds will be supplied for that purpose,
directly or indirectly, by DMC, nor will DMC directly or indirectly reimburse
MAS for any payments to dissenters.
5. No MAS shareholder guaranteed any MAS indebtedness outstanding during
the period immediately prior to the Reorganization, and at all relevant times,
including as of the Effective Time, (i) no outstanding indebtedness of MAS, DMC
or Sub has or will represent equity for tax purposes; and (ii) no outstanding
equity of MAS, DMC or Sub has or will represent indebtedness for tax purposes;
and
6. The Morrison Tax Opinion has been delivered and not withdrawn.
Based on our examination of the foregoing items and subject to the
assumptions, exceptions, limitations and qualifications set forth herein, we are
of the opinion that, for federal income tax purposes, the Reorganization will be
a "reorganization" as defined in
<PAGE>
MAS Technology Limited ___________ 1998
Page 3
Section 368(a) of the Code. Further, we are of the opinion that DMC and MAS
will each be a party to the reorganization within the meaning of Section
368(b) of the Code.
In addition to the assumptions set forth above, this opinion is subject to
the exceptions, limitations and qualifications set forth below.
1. This opinion represents and is based upon our best judgment regarding
the application of federal income tax laws arising under the Code, existing
judicial decisions, administrative regulations and published rulings and
procedures. Our opinion is not binding upon the Internal Revenue Service or the
courts, and there is no assurance that the Internal Revenue Service will not
successfully assert a contrary position. Furthermore, no assurance can be given
that future legislative, judicial or administrative changes, on either a
prospective or retroactive basis, would not adversely affect the accuracy of the
conclusions stated herein. Nevertheless, we undertake no responsibility to
advise you of any new developments in the application or interpretation of the
federal income tax laws.
2. This opinion addresses only the classification of the Reorganization
as a reorganization under Section 368(a) of the Code and the qualification of
each of DMC and MAS as a party to the reorganization within the meaning of
Section 368(b) of the Code, and does not address any other federal, state, local
or foreign tax consequences that may result from the Reorganization or any other
transaction (including any transaction undertaken in connection with the
Reorganization). In particular, we express no opinion regarding (i) whether and
the extent to which any MAS shareholder who has provided or will provide
services to MAS, DMC or Sub will have compensation income under any provision of
the Code; (ii) the effects of such compensation income, including but not
limited to the effect upon the basis and holding period of the DMC stock
received by any such shareholder in the Reorganization; (iii) the potential
application of the "golden parachute" provisions (Sections 280G, 3121(v)(2) and
4999) of the Code, the alternative minimum tax provisions (Sections 55, 56 and
57) of the Code or Sections 305, 306, 357 424, and 708, or the regulations
promulgated thereunder; (iv) other than that the Reorganization will be a
reorganization within the meaning of Code Section 368 and the consequences that
follow directly and solely from such characterization, the corporate level tax
consequences of the Reorganization to MAS, DMC or Sub, including without
limitation the survival and/or availability, after the Reorganization, of any of
the federal income tax attributes or elections of MAS, after application of any
provision of the Code, as well as the regulations promulgated thereunder and
judicial interpretations thereof; (v) the basis of any equity interest in MAS
acquired by DMC in the Reorganization; (vi) the tax consequences of any
transaction in which MAS stock or a right to acquire MAS stock was received;
(vii) the tax consequences of the Reorganization to holders of options or
warrants for MAS stock; or (viii) the tax consequences that may be relevant to
particular classes of MAS stockholders such as dealers
<PAGE>
MAS Technology Limited ___________ 1998
Page 4
in securities, corporate shareholders subject to the alternative minimum tax,
foreign persons, and holders of shares acquired upon exercise of stock
options or in other compensatory transactions.
3. No opinion is expressed as to any transaction other than the
Reorganization as described in the Agreement or to any transaction whatsoever,
including the Reorganization, if all the transactions described in the Agreement
are not consummated in accordance with the terms of such Agreement and without
waiver or breach of any material provision thereof or if all of the
representations, warranties, statements and assumptions upon which we relied are
not true and accurate at all relevant times. In the event any one of the
statements, representations, warranties or assumptions upon which we have relied
to issue this opinion is incorrect, our opinion might be adversely affected and
may not be relied upon.
4. We note that persons who are shareholders of MAS and who are otherwise
required to file a U.S. income tax return will be required to comply with
certain notice requirements prescribed in the Treasury Department temporary
regulations promulgated under Section 367 of the Code.
5. This opinion has been delivered to you for the purpose of satisfying
the conditions set forth in Section 6.01(d) of the Agreement and is intended
solely for your benefit; it may not be relied upon for any other purpose or by
any other person or entity, and may not be made available to any other person or
entity without our prior written consent. We hereby consent to the filing of
this opinion as an exhibit to the Registration Statement and further consent to
all references to us in the Registration Statement.
Very truly yours,
DRAFT
/s/ BROBECK, PHLEGER & HARRISON LLP
Enclosures
<PAGE>
EXHIBIT 23.1
CONSENT OF ARTHUR ANDERSEN LLP, INDEPENDENT PUBLIC AUDITORS
As independent public accountants, we hereby consent to the use of our
report included in this registration statement and to the incorporation by
reference in this registration statement of our report dated April 21, 1997
included in Digital Microwave Corporation's Form 10-K for the year ended March
31, 1997.
ARTHUR ANDERSEN LLP
San Jose, California
January 27, 1998
<PAGE>
EXHIBIT 23.2
CONSENT OF KPMG, WELLINGTON, NEW ZEALAND,
INDEPENDENT CHARTERED ACCOUNTANTS
The Board of Directors
MAS Technology Limited:
We consent to the use of our reports included herein and to the reference
to our firm under the heading "Experts" in the prospectus.
KPMG
Chartered Accountants
Wellington
New Zealand
January 27, 1998
<PAGE>
EXHIBIT 23.3
CONSENT OF KPMG, PRETORIA, SOUTH AFRICA,
INDEPENDENT CHARTERED ACCOUNTANTS
The Board of Directors
MAS Technology Limited:
We consent to the use of our report dated March 18, 1997, on the combined
balance sheets of NZ Telecoms (Proprietary) Limited and Affiliate as at
February 29, 1996 and February 28, 1995, and the related combined statements of
operations, statements of shareholders' equity and cash flows for each of the
years in the two-year period ended February 29, 1996, included herein, and to
the reference to our firm in the form and context in which they are contained in
the registration statement.
KPMG
Chartered Accountants
Pretoria
South Africa
January 27, 1998
<PAGE>
EXHIBIT 99.1
CONSENT OF PERSON TO BECOME A DIRECTOR
I hereby consent to being named in this Registration Statement as a
person who may become a director of Digital Microwave Corporation.
/s/ HOWARD ORINGER
--------------------------
Howard Oringer
Dated: January 27, 1998
