SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Exchange
Act of 1934 For the fiscal year ended December 31, 1996
[ ] Transition Report Pursuant to Section 13 of 15(d) of the Securities Exchange
Act of 1934
For the Transition period from to
----------------- ----------------
Commission file number 000-21770
SIGNAL TECHNOLOGY CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 04-2758268
(State or other jurisdiction (I.R.S. employer identification no.)
of incorporation or organization)
975 Benecia Avenue, Sunnyvale, CA 94086
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (408) 730-6318
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01 per share
---------------------------------------
(Title of class)
Indicate by check whether the Registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for each shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
On March 14, 1997, the aggregate fair value of the Registrants' Common Stock
held by non-affiliates was $28,807,800. On March 14, 1997, there were 7,186,924
shares of the Registrant's Common Stock issued and outstanding.
Documents Incorporated By Reference
Part III incorporates information by reference from the definitive Proxy
Statement in connection with the Registrant's Annual Meeting of Shareholders to
be held on May 6, 1997 (the "Proxy Statement"). Certain exhibits are
incorporated by reference from the Registrant's Registration Statement on Form
S-1, as amended (File No. 33-61124) and Form 8-K dated November 24, 1993, the
Registrant's 1993 and 1994 Annual Reports on Form 10-K and the Proxy Statement.
<PAGE>
INDEX TO ANNUAL REPORT ON FORM 10-K
PART I Page
- --------------------------------------------------------------------------------
Item 1: Business 15
Item 2: Properties 18
Item 3: Legal Proceedings 19
Item 4: Submission of Matters to a Vote of Security Holders 19
PART II
- --------------------------------------------------------------------------------
Item 5: Market for the Registrant's Common Equity and Related
Stockholder Matters 19
Item 6: Selected Consolidated Financial Data 20
Item 7: Management's Discussion and Analysis of Financial Condition and
Results of Operations 20
Item 8: Financial Statements and Supplementary Data 22
Item 9: Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 34
PART III
- --------------------------------------------------------------------------------
Item 10: Directors and Executive Officers of the Registrant 34
Item 11: Executive Compensation 34
Item 12: Security Ownership of Certain Beneficial Owners
and Management 34
Item 13: Certain Relationships and Related Transactions 34
PART IV
- --------------------------------------------------------------------------------
Item 14: Exhibits, Financial Statement Schedules and
Reports on Form 8-K 35
Signatures 37
<PAGE>
PART I
Item I. Business
General
Signal Technology Corporation (the "Company" or "Signal Technology") designs,
develops, manufactures and markets sophisticated electronic components and
subsystems that are utilized in a broad range of advanced defense, space and
communication applications. The Company's principal strategy for growth is to
acquire complementary businesses and product lines while aggressively marketing
growth areas in defense, space and communication. While consolidation continues
in the defense industry, the budget down cycle appears to have ended and we
expect to take advantage of being one of the remaining companies in defense
electronics.
In 1996 the Company acquired certain products lines and associated assets and
backlog of Military Power Systems a division of Transistor Devices Inc. The
Company acquired certain assets and backlog of four companies in 1995: Western
Microwave, Inc., Tecnetics Incorporated, Adaptive Power Solutions L.L.C., and
Benecia Communications Corporation (Benecia Communications was sold in 1996).
During 1994 the Company acquired the business of Hughes Power Supply
Corporation.
The Company integrates acquired businesses and product lines where possible
with existing operations, reducing costs by eliminating redundancies in
administration, operations, facilities and other areas. In addition, the Company
is diversifying its customer base by directing marketing and product development
resources to commercial and non-military applications of its technologies in
domestic and international markets.
The Company's core technology involves precision control, management and
generation of radio and microwave frequencies and electrical currents. Principal
uses for the Company's products include communication networks, satellite
communications, electronic countermeasures, intelligence and guidance systems.
The Company's major customers are prime government contractors which integrate
the Company's products into complex systems sold to agencies of the United
States government and foreign countries. In recent years, changes in the global
political situation have resulted in reductions in defense budgets and an
apparent increase in United States military reliance upon sophisticated
electronic equipment. However, it appears the defense downturn has ceased with
budget forecasts flat to slightly increasing in the coming years. In addition,
military agencies are seeking to maximize resources by enhancing and upgrading
existing systems and platforms. The Company believes that its products are well
positioned to take advantage of current defense trends due to its substantial
incumbency on key existing programs and platforms. The Company's operating
strategy of enhancing its manufacturing and engineering capabilities to improve
product quality and reduce cost will also enable it to compete effectively in
the future.
The Company reports its operations within one principal industry segment:
electronic components and equipment.
During 1996 all of the Company's operating subsidiaries merged with and into
the Company, with the Company as the sole surviving corporation. Accordingly,
Signal Technology currently operates through the former "parent" entity rather
than through various operating subsidiaries.
Products and Customers
The Company's products are integrated into complex electronic systems and
subsystems that require precision generation, control and management of radio
and microwave frequencies. The Company is dedicated to supplying high quality
products that meet rigid customer requirements for performance and on-time
delivery, while at the same time being competitively priced. The Company is
continually investing in product design and engineering capability and in
state-of-the-art manufacturing and testing systems and processes.
<TABLE>
The following table sets forth information concerning net sales of the
Company's principal classes of applications for the periods indicated:
<CAPTION>
Year Ended December 31
-------------------------------------------------------------
1996 1995 1994
-------------------------------------------------------------
(dollars in thousands) $ % $ % $ %
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Defense $ 74,443 65% $ 57,691 64% $ 68,937 74%
Space 7,115 6 3,675 4 2,103 2
Communication 32,683 29 28,362 32 22,054 24
- -------------------------------------------------------------------------------------
Total $114,241 100% $ 89,728 100% $ 93,094 100%
=====================================================================================
</TABLE>
<PAGE>
Defense
Signal Technology is a leading supplier of sophisticated, state-of-the-art
electronic components and systems for missile guidance, airborne and ground
based radars, electronic countermeasures (ECM), and electronic intelligence. The
Company supplies products on key missiles programs such as the AMRAAM, Tomahawk,
Sparrow, and PAC3/Patriot missile system. Key programs in ECM include the
ALQ-135, ALQ-156, ALQ-184 and ATRJ. The Company provides microwave and radio
frequency components and subsystems that primarily generate, manage and control
frequencies in the range of 1 Khz to 40Ghz. A typical example is a radar jamming
system which incorporates a microwave oscillator that generates a signal to
render enemy radar ineffective.
Power supply products are typically used for direct electric current (DC) to
DC conversion or alternating electric current (AC) to DC conversion, and high or
low voltage power at varied currents. For example, power supply products would
be used to convert 400 Hz AC current generated by an aircraft's generators into
the high voltage high current required for the aircraft's radar.
Space
Signal Technology provides products for manned and unmanned spacecraft.
Principal space applications include satellite communications, intelligence,
surveillance and sensing. The Company designs, develops and manufactures
components such as isolators, circulators and DC to DC power converters for use
on satellite-based digital communication systems such as Globalstar(TM) and
Iridium(TM). Such systems are designed to offer voice, data, paging, and
facsimile to telephones and data terminals in areas underserved or not served by
existing systems. The Company also provides power converters currently being
used in the U.S. Air Force MILSTAR II Program. Substantially all space products
are sold to prime contractors or subcontractors.
Communication
The Company offers a wide selection of communication products including digital
switching equipment, transceivers, power supplies, and microwave components. The
Company's communication products cover a diverse range of applications such as
cellular phone systems, modems, air traffic control, local area and wide area
networks, digital radios, and intelligence gathering. Unlike space and defense
electronics applications, sales of communication products are primarily to
commercial entities, government agencies and foreign companies rather than to
prime contractors on specific programs.
The Company's principal customers are prime contractors and military agencies
of the United States government and certain foreign countries. With the
exception of Raytheon Company, which accounted for 22%, 14%, and 13% of the
Company's net sales in 1996, 1995, and 1994, respectively, the loss of any
customer would not have a material adverse effect on the Company.
The following table sets forth information concerning net sales of the
Company's products to categories of customers and geographic markets. The sales
information includes direct sales by the Company to the customer or market and
indirect sales to prime contractors selling to the customer or market.
Year Ended December 31
-------------------------------------------------------
1996 1995 1994
-------------------------------------------------------
(dollars in thousands) $ % $ % $ %
- --------------------------------------------------------------------------------
U.S. government
Military $ 75,558 66% $ 62,682 70% $ 66,401 71%
Non-Military 2,988 3 3,100 3 3,502 4
U.S. Commercial 17,441 15 9,211 10 6,011 6
International
Military 11,425 10 9,742 11 12,594 14
Commercial 6,829 6 4,993 6 4,586 5
- --------------------------------------------------------------------------------
Total $114,241 100% $ 89,728 100% $ 93,094 100%
================================================================================
Government Contracts
A substantial portion of the Company's business is conducted under United States
government contracts and subcontracts. These contracts are either competitively
bid or sole source contracts. Competitively bid contracts are awarded after a
formal bid and proposal competition among suppliers. Sole source contracts are
awarded when a single contractor is deemed to have an expertise or technology
that is superior to that of competing contractors.
<PAGE>
Virtually all of the Company's United States government contracts and
subcontracts are fixed price contracts, pursuant to which the Company agrees to
develop a product or to manufacture a product for a fixed price and assumes the
risk of cost overruns. Substantially all of the Company's net sales are derived
from fixed price manufacturing contracts. The Company's experience is that the
risk of cost overruns is lower on fixed price manufacturing contracts than it is
on fixed price product development contracts.
Sales and Marketing
The Company markets its products through its own sales force and a network of
knowledgeable and active independent sales representatives and distributors. The
Company's sales force is comprised of its Vice President-Marketing, regional
sales managers, sales personnel and support staff. The Company has independent
sales representatives in the U.S. and numerous foreign countries.
The Company's sales managers are responsible for coordinating the independent
sales representatives and for having extensive knowledge of government and
commercial programs in their respective regions. They also keep the Company's
engineering, manufacturing and management personnel advised of possible future
trends and requirements of customers.
The key to the Company's sales and marketing strategy is the development of
long-term relationships with its customers. This is achieved by regular
communications and meetings between Company personnel at all levels and their
counterparts in the customer's organization. The Company is active in forming
strategic alliances and buying agreements. These activities are critical as the
Company intends to acquire other businesses and product lines.
Product Engineering, Manufacturing and Development
The Company believes that a principal reason for its success is the quality of
its product design, engineering, manufacturing and testing capabilities. These
capabilities enable the Company to design and engineer products that meet or
exceed its customers' demanding specifications for performance and reliability
and to manufacture the products at competitive prices. The Company has acquired
manufacturing, engineering and testing know-how and technology in connection
with its acquisitions at costs that it believes are considerably lower than
would have been incurred had the Company developed the know-how and technologies
itself.
The Company maintains engineering, product design and manufacturing
operations and related support systems at all of its operating facilities. In
addition, all operations utilize computer systems for product design and product
documentation and to control product performance testing. A key to the Company's
ability to reduce manufacturing cost has been the reduction of direct labor
through the introduction of automated or semi-automated manufacturing and
product testing systems and processes.
The Company invests in product development, principally engineering, to meet
and anticipate customer requirements for new products or enhancements of
existing products. In addition, the Company undertakes customer-sponsored
product development contracts. Accordingly, the Company's development
activities, whether Company-funded or customer-sponsored, are generally product
or program specific. The amounts of Company-funded and customer-sponsored
development work performed in each of the last three years are as follows:
Year Ended December 31
-------------------------------------------------------
(dollars in thousands) 1996 1995 1994
- --------------------------------------------------------------------------------
Company Funded $ 522 $1,610 $2,391
Customer-sponsored 4,820 3,602 2,029
- --------------------------------------------------------------------------------
Total $5,342 $5,212 $4,420
================================================================================
Sources of Raw Materials
The raw materials and sub-components which the Company requires for the
manufacture of its products are generally available from several sources. The
Company purchases some raw materials and components from single sources, but has
no reason to believe it could not purchase from alternative sources of supply on
comparable terms. From time to time, the Company experiences minor delays in
obtaining raw materials and components; however, delays have not materially
affected its operations.
Backlog
At December 31, 1996 and 1995, the Company had a backlog of unshipped firm
orders of $87,887,000 and $92,837,000, respectively. The Company expects to ship
all of the December 31, 1996 backlog within 1997, except for approximately
$17,480,000 which will be shipped in later periods.
<PAGE>
Competition
Competition is based primarily on price, product performance, reliability and
customer support. The Company believes that it competes effectively in all of
these areas. The Company's continued success will depend in part on its ability
to develop and introduce low cost, quality products that meet or exceed
customer's specifications.
There is no single competitor that competes with the Company in all of its
product lines. However, there are a number of competitors in each of the
Company's product lines. Some of the Company's competitors have greater
financial and operating resources than the Company. In addition, certain of the
Company's customers have technological capabilities in the Company's product
areas and could choose to manufacture certain products themselves rather than
purchase from suppliers such as the Company.
Employees
As of December 31, 1996, the Company had 993 full-time employees at its various
divisions and subsidiaries. No employees are represented by unions. The Company
believes its relations with its employees are satisfactory.
Patents
The Company holds a number of patents issued in the United States and certain
European countries. While the Company considers its patents to be of some value,
its technological position depends primarily on the technical competence and
creative ability of its engineering staff in the areas of product design and
manufacturing processes. All of the Company's key personnel are subject to
confidentiality agreements.
Government Regulation
All of the Company's operations are subject to compliance with regulatory
requirements of federal, state and municipal authorities, including regulations
concerning employment obligations and affirmative action, workplace safety and
protection of the environment. While compliance with applicable regulations has
not adversely affected the Company's operations in the past, there can be no
assurance that the Company will continue to be in compliance in the future or
that these regulations will not change.
In particular, the Company must comply with detailed government procurement
and contracting regulations and with United States government security
regulations, certain of which carry substantial penalty provisions for
nonperformance or misrepresentation in the course of negotiations. Failure of
the Company to comply with its government procurement, contracting or security
obligations could result in penalties or suspension of the Company from
government contracting, which would have a material adverse effect on the
Company's results of operations.
The Company is required to maintain a United States government facility
clearance at each of its locations. This clearance could be suspended or revoked
if the Company is found not to be in compliance with applicable security
regulations. Any such revocation or suspension would delay the Company's
delivery of its products to customers. Although the Company has adopted policies
directed at assuring its compliance with applicable regulations and there have
been no suspensions or revocations of any of its facilities, there can be no
assurance that the approved status of the Company's facilities will continue
without interruption. United States government regulations require a license for
the export of advanced weapons systems. Changes in United States government
policies towards the export of these systems may impact the Company's
international business.
Item 2 Properties
The Company's principal executive offices are located in Sunnyvale, California.
The Company's principal operating facilities, containing light manufacturing and
associated engineering and support services are located in four states:
Arizona: The Company owns a modern 84,260 square foot building in
Chandler.
California: The Company leases a modern 54,280 square foot building in
Sunnyvale. The lease is triple net and expires in November 2003.
The current annual rent is $619,000 with an average annual
escalation of approximately 6.6% through the term of the lease.
Florida: The Company owns a modern 68,000 square foot building in Fort
Walton Beach.
Massachusetts: The Company owns a modern 25,000 square foot building in Webster.
In Beverly, the Company leases a modern 40,350 square foot
building under a triple net lease that expires in December 1997.
The annual rent is $230,000.
<PAGE>
The Company believes that its properties are in good operating condition and
repair and considers its facilities to be suitable and adequate for the
Company's current and reasonably foreseeable future activities. There is
capacity at the Company's facilities to absorb acquired businesses and product
lines. The properties owned by the Company, are subject to either mortgages or
industrial revenue bond financing.
Item 3 Legal Proceedings
The Company is involved from time to time in litigation incidental to its
business.
In April 1996, the Company sold its facility in Weymouth, Massachusetts but
retained the environmental liability and responsibility associated with
groundwater contaminants present at the site. This facility has been classified
as a tier 1A disposal site by the Massachusetts Department of Environmental
Protection ("DEP"), as a result of past releases of petroleum based solvents.
Environmental assessment reports prepared by independent consultants indicate
that contaminants present in the Town of Weymouth well field across the street
from the facility are similar to those reportedly released at the facility and
still present in the groundwater at the facility; however, these reports also
indicate that the contaminants do not exceed safe drinking water levels in the
finished water after normal treatment. Other contaminants which did not
originate at the facility have also been detected in the well field.
The Company is continuing to conduct investigations of the facility for soil
and groundwater contamination and operates a pilot remediation system in
cooperation with the DEP. It is not possible at this stage of the proceedings to
predict what additional remediation, if any, will be required.
Item 4 Submission of Matters to a Vote of Security Holders
None.
- --------------------------------------------------------------------------------
PART II
Item 5 Market for Registrant's Common Equity and Related Stockholder Matters
The Company's Common Stock is listed on the American Stock Exchange ("AMEX"),
under the symbol STZ. Prior to its listing on the AMEX in August, 1994, the
Company's Common Stock was traded in the over-the-counter market and was
included in the NASDAQ National Market System under the trading symbol STCX. The
high and low sales prices for shares of the Company's Common Stock for the past
two years were as follows:
1996 1995
-------------------------------------------------------
High Low High Low
- --------------------------------------------------------------------------------
First Quarter 7 7/8 5 1/4 4 1/2 3 3/8
Second Quarter 9 3/4 6 7/8 4 11/16 3 1/8
Third Quarter 7 7/8 5 5 7/16 3 3/16
Fourth Quarter 8 5/8 7 1/4 6 4 5/8
================================================================================
There were approximately 98 holders of record of the Company's Common Stock on
March 14, 1997. The closing price per share of the Company's Common Stock on
March 14, 1997 as reported on the AMEX was $7.50.
The Company has never paid cash dividends on its Common Stock. The Company
currently anticipates that it will retain all available funds for use in
operations and expansion of its business and does not anticipate paying any cash
dividends in the foreseeable future.
<PAGE>
<TABLE>
Item 6 Selected Consolidated Financial Data
SELECTED CONSOLIDATED FINANCIAL DATA
<CAPTION>
----------------------------------------------------------------------------------
(in thousands, except per share amounts) 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATIONS
Net sales $ 114,241 $ 89,728 $ 93,094 $ 97,054 $ 81,593
====================================================================================================================================
Operating income (1) 5,042 1,040 6,685 8,337 6,875
Income (loss) before taxes 3,697 (123) 5,839 7,890 6,028
Net income (loss) 2,245 (269) 3,562 4,930 3,665
Net income (loss) per share (1) $ 0.29 $ (0.04) $ 0.48 $ 0.70 $ 0.61
- ------------------------------------------------------------------------------------------------------------------------------------
Shares used in calculating
net income (loss) per share 7,676 6,880 7,362 6,997 6,051
(1) In 1995, includes restructuring expense of $779 or $(0.07) per share.
====================================================================================================================================
FINANCIAL POSITION
Current assets $ 48,043 $ 46,421 $ 39,216 $ 33,756 $ 24,085
Current liabilities 16,465 15,682 12,035 15,459 14,540
Total assets 66,591 66,117 58,431 55,124 37,866
Long-term debt, less current maturities 13,408 17,283 12,903 10,032 8,312
Total debt 14,729 17,658 13,278 10,407 9,562
Stockholders' equity 34,909 31,944 31,913 28,086 13,858
Shares outstanding at year-end 7,172 6,949 6,827 6,711 5,373
Book value per share $ 4.87 $ 4.60 $ 4.67 $ 4.19 $ 2.58
- ------------------------------------------------------------------------------------------------------------------------------------
SELECTED DATA
New orders $ 103,829 $ 110,656 $ 90,249 $ 78,109 $ 75,865
Year-end backlog $ 87,887 $ 92,837 $ 65,998 $ 64,489 $ 70,610
Employees at year-end 993 894 854 996 955
Revenue per employee $ 115 $ 100 $ 109 $ 97 $ 85
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Item 7 Management's Discussion and Analysis of Financial Condition
and Results of Operations
Overview
The Company's principal business is the design, development, manufacture and
marketing of sophisticated electronic components and subsystems that are
utilized in a broad range of advanced space, communication and defense
applications. The Company's principal strategy for growth is to acquire
complementary businesses and product lines while aggressively marketing growth
areas in space, communication and defense.
Results of Operations for the Years Ended December 31, 1996, 1995 and 1994
Overall, net sales increased approximately 27% in 1996 as compared to 1995. Net
Sales in defense electronic applications increased 29% while net sales in Space
and Communication grew 94% and 15% respectively. The sales growth is
attributable to the increased level of bookings the Company has experienced in
1995 and 1996.
Net sales decreased 4% in 1995 as compared to 1994. The lower level of net
sales in 1995 resulted from the completion of a major missile supply contract,
closing of the Company's Systron Donner facility, and the engineering effort
required prior to entering the production phase on new programs.
<PAGE>
Gross profit as a percentage of net sales decreased to 21.7% in 1996 from
21.9% in 1995. The slight decrease in the gross profit percentage can be
attributed to higher than expected costs on development contracts. Higher net
sales accounted for the increase in the amount of gross profit for 1996. From
1994 to 1995, gross profit as a percentage of sales dropped from 27.9% to 21.9%.
The decrease in the gross profit percentage can be partially attributed to
difficulty transitioning from longer, sub-systems contracts to quicker turning,
component manufacturing at the California facility. In addition, the closure of
the Systron Donner facility and relocation of the business to California and
Arizona facilities caused slippage in deliveries and subsequent cost overruns in
certain programs. These factors, as well as lower net sales were responsible for
the overall decrease in the amount of gross profit for 1995.
Selling, general and administrative expenses in 1996 increased $3,022
thousand (18.6%) as compared to a decrease in 1995 of $617 thousand (4%).
However, as a percentage of sales, these expenses were 16.9% in 1996, 18.1% in
1995 and 18.1% in 1994. The decrease, as a percentage of sales, from the
previous years resulted from economies of scale which required less of an
increase in selling, general and administration expense to support the
significant sales increase for the year.
Company-funded research and development expenses decreased $1,088 thousand
(68%) from 1995 levels as the development activities on technologies and
products for use in commercial satellite communication markets were completed in
1995 and the product line was sold in 1996. In addition the Company was able to
shift the emphasis from Company-funded to customer sponsored R&D. Customer -
sponsored R&D increased 34% to $4,820 thousand. Research and development
expenses decreased $781 thousand in 1995 from 1994 levels. The decrease in 1995
was also attributable to less funding required in the year to complete the
development of commercial satellite technologies and product mentioned above.
In 1995 the Company recorded a restructuring expense pursuant to the shut
down of its ST Systron Donner facility in Sylmar, California. The $779 thousand
restructuring expense included employee severance costs, write-down of inventory
and costs related to the consolidation of the business into the Company's
Chandler, Arizona and Sunnyvale, California facilities.
Interest expense in 1996 increased to $1,345 thousand from $1,163 thousand in
1995 and $846 thousand in 1994. The increased interest expense reflects higher
levels of borrowings throughout the year as well as higher interest rates.
The provision for income taxes in 1996 was $1,452 thousand on pretax income
of $3,697 thousand. The effective tax rate was 39.3% in 1996 compared to 118.7%
in 1995 and 39.0% in 1994. In 1995 tax on the pretax loss rose from the
non-deductibility of goodwill and restriction on carry forward of state tax
loses.
Liquidity and Capital Resources
The Company's primary source of liquidity in 1996 was cash flow from operations.
Primary sources of liquidity in 1995 arose from cash flow from operations and
bank borrowings. In 1994 the Company's primary source of liquidity was bank
borrowings. The bank borrowing arrangement requires the Company to maintain
certain minimum balances and ratios, the most significant of which requires the
maintenance of a minimum net worth of $29.5 million. The Company was in
compliance with all covenants at December 31, 1996, and had approximately $5.0
million available for borrowing.
At December 31, 1996, the Company had working capital of $31.6 million,
including cash of $1.9 million, as compared to working capital and cash of $30.7
million and $1.6 million, respectively at December 31, 1995. Operating
activities in 1996 generated cash totaling $6.1 million as compared to $0.8
million in 1995. Investing activities were less than the previous year. In 1996,
cash used for acquisitions and associated costs decreased to $1.0 million from
$4.0 million in 1995 and $2.1 million in 1994.
The Company continues to investigate acquisition opportunities in
complementary businesses, product lines and markets, but has no agreements,
understandings or commitments for additional acquisitions at this time. The
Company believes that it has adequate cash, working capital and available
financing facilities to meet its operating and capital requirements in the
foreseeable future and to continue its acquisition program.
Recent Pronouncements
During October 1996, the AICPA issued Statement of Position 96-1 "Environmental
Remediation Liabilities" (SOP 96-1) which establishes guidelines for the
recognition, measurement, and disclosure of environmental remediation
liabilities. It also includes benchmarks to aid in the determination of when
environmental remediation liabilities should be recognized in accordance with
the criteria of Financial Accounting Standards Boards (FASB) Statement No. 5
"Accounting for Contingencies" (SFAS No. 5). The Company does not believe that
adoption of SOP 96-1, which will become effective for fiscal years beginning
after December 15, 1996, will have material impact on its financial condition or
operating results.
During February 1997, the Financial Accounting Standards Board issued
Financial Accounting Standard No. 128 "Earnings per share" (FAS 128) which
establishes standards for computing earnings per share ("EPS"). FAS 128
simplifies the standards for computing EPS and makes them comparable to
international standards. The Company has not yet determined the impact that the
adoption of FAS 128, which is effective for financial statements issued for
periods ending after December 15, 1997, will have on its EPS calculation.
<PAGE>
<TABLE>
Item 8 Financial Statements and Supplementary Data
Consolidated Statements of Operations
<CAPTION>
Year ended December 31,
---------------------------------------------------------
(amounts in thousands, except per share data) 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $114,241 $ 89,728 $ 93,094
Cost of sales 89,407 70,051 67,153
- ------------------------------------------------------------------------------------------------------------------------------------
Gross profit 24,834 19,677 25,941
Selling, general and administrative expenses 19,270 16,248 16,865
Research and development expenses 522 1,610 2,391
Restructuring expense -- 779 --
- ------------------------------------------------------------------------------------------------------------------------------------
Operating income 5,042 1,040 6,685
Interest expense 1,345 1,163 846
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 3,697 (123) 5,839
Provision for income taxes 1,452 146 2,277
- ------------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 2,245 $ (269) $ 3,562
- ------------------------------------------------------------------------------------------------------------------------------------
Net income (loss) per share $ 0.29 $ (0.04) $ 0.48
- ------------------------------------------------------------------------------------------------------------------------------------
Shares used in calculating net income (loss)
per share 7,676 6,880 7,362
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
The accompanying notes are an integral part of the consolidated financial statements
</FN>
</TABLE>
<PAGE>
<TABLE>
Consolidated Balance Sheets
<CAPTION>
December 31,
---------------------------
(dollar amounts in thousands) 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 1,870 $ 1,584
Accounts receivable, net of allowance for doubtful accounts of $170 and $166 18,383 15,983
Inventories 24,293 25,598
Deferred taxes 2,989 2,202
Other assets 508 1,054
- ------------------------------------------------------------------------------------------------------------------------------------
Total current assets 48,043 46,421
- ------------------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment, net 14,310 16,441
Intangible assets, net 3,374 3,217
Other assets 864 38
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $ 66,591 $ 66,117
====================================================================================================================================
LIABILITIES
Current liabilities:
Current maturities of long-term debt $ 1,321 $ 375
Accounts payable 5,289 6,159
Accrued expenses 8,512 5,292
Income taxes payable 295 --
Customer advances 1,048 3,856
- ------------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 16,465 15,682
- ------------------------------------------------------------------------------------------------------------------------------------
Deferred income taxes 1,809 1,208
Long-term debt, net of current maturities 13,408 17,283
- ------------------------------------------------------------------------------------------------------------------------------------
Commitments and contingencies (Note 10 )
STOCKHOLDERS' EQUITY
Preferred stock, $0.01 par value; 5,000,000 shares authorized; none issued -- --
Common stock, $0.01 par value; 30,000,000 authorized;
7,171,506 and 6,948,683 issued and outstanding 72 69
Additional paid-in-capital 12,095 11,432
Unearned compensation -- (54)
Retained earnings 22,742 20,497
- ------------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 34,909 31,944
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 66,591 $ 66,117
====================================================================================================================================
<FN>
The accompanying notes are an integral part of the consolidated financial statements
</FN>
</TABLE>
<PAGE>
<TABLE>
Consolidated Statements of stockholders' Equity
(dollar amounts in thousands)
<CAPTION>
Years ended December 31, 1996, 1995 and 1994
-----------------------------------------------------------------------------
Additional Total
Common Stock Paid-in Unearned Retained Stockholders'
Shares Amount Capital Compensation Earnings Equity
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
December 31, 1993 6,710,635 $ 67 $ 10,977 $ (162) $ 17,204 $ 28,086
Exercise of stock options 115,957 1 210 -- -- 211
Unearned compensation -- -- -- 54 -- 54
Net income -- -- -- -- 3,562 3,562
- ------------------------------------------------------------------------------------------------------------------------------------
December 31, 1994 6,826,592 68 11,187 (108) 20,766 31,913
Exercise of stock options 122,091 1 245 -- -- 246
Unearned compensation -- -- -- 54 -- 54
Net loss -- -- -- -- (269) (269)
- ------------------------------------------------------------------------------------------------------------------------------------
December 31, 1995 6,948,683 69 11,432 (54) 20,497 31,944
Exercise of stock options 222,823 3 663 -- -- 666
Unearned compensation -- -- -- 54 -- 54
Net income -- -- -- -- 2,245 2,245
- ------------------------------------------------------------------------------------------------------------------------------------
December 31, 1996 7,171,506 $ 72 $ 12,095 $ -- $ 22,742 $ 34,909
====================================================================================================================================
<FN>
The accompanying notes are an integral part of the consolidated financial statements
</FN>
</TABLE>
<PAGE>
<TABLE>
Consolidated Statements of Cash Flows
(dollar amounts in thousands)
<CAPTION>
Years ended December 31,
------------------------------------
1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 2,245 $ (269) $ 3,562
Adjustments to reconcile net income (loss)
to net cash provided (used) by operating activities;
Depreciation 3,368 3,527 3,381
Amortization 390 186 154
(Gain) or Loss on disposal of property, plant and equipment (95) (18) 147
Unearned compensation 54 54 54
Deferred taxes (186) (58) (415)
Changes in operating assets and liabilities:
Accounts receivable (2,400) 638 (801)
Inventory 2,751 (5,777) (1,858)
Other current assets 546 (95) (279)
Accounts payable (1,266) 1,997 264
Accrued expenses 3,220 (212) (4,434)
Income taxes payable 295 (40) (504)
Customer advances (2,808) 880 (27)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by operating activities 6,114 813 (756)
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Acquisitions and associated costs (1,000) (4,070) (2,138)
Additions to property, plant and equipment (1,960) (1,584) (1,077)
Proceeds from disposal of property, plant and equipment 356 175 72
Other (15) (45) 37
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (2,619) (5,524) (3,106)
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from exercise of stock options 666 246 211
Borrowings under bank revolving credit facilities 24,029 26,955 38,445
Repayment of borrowings under bank revolving credit facilities (27,529) (22,200) (35,200)
Payments of long-term debt (375) (375) (374)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities (3,209) 4,626 3,082
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash 286 (85) (780)
Cash, beginning of year 1,584 1,669 2,449
Cash, end of year $ 1,870 $ 1,584 $ 1,669
====================================================================================================================================
<FN>
The accompanying notes are an integral part of the consolidated financial statements
</FN>
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
1. NATURE OF OPERATIONS
The Company designs, develops, manufactures and markets sophisticated electronic
components and subsystems that are utilized in a broad range of advanced
defense, space and communication applications. The Company's principal strategy
for growth is to acquire complementary businesses and product lines while
aggressively marketing growth areas in defense, space and communication.
The Company's core technology involves precision control, management and
generation of radio and microwave frequencies and electrical currents. Principal
uses for the Company's products include communication networks, satellite
communications, electronic countermeasures, intelligence and guidance systems.
The Company's major customers are prime government contractors which integrate
the Company's products into complex systems sold to agencies of the United
States government and foreign countries. The Company believes that its products
are well positioned to take advantage of current defense trends due to its
substantial incumbency on key existing programs and platforms. The Company's
operating strategy of enhancing its manufacturing and engineering capabilities
to improve product quality and reduce cost will also enable it to compete
effectively in the future.
The Company reports its operations within one principal industry segment:
electronic components and equipment.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation
The consolidated financial statements include the amounts of Signal Technology
Corporation and its wholly-owned subsidiaries, which during 1996, were all
merged with and into the Company. Intercompany accounts and transactions have
been eliminated.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Revenue Recognition
The Company records revenue upon shipment or customer acceptance, in accordance
with the terms of individual contracts. Revenue is determined based on sales
value per unit and costs are based on estimated average cost per unit over the
entire contract. Estimated losses on contracts are recognized in full in the
period they become known. Provision is made currently for estimated returns and
warranty costs.
Research and Development
Research and development expenditures are charged to operations as incurred.
Research and development expenses include approximately $534 in 1995 and $1,206
in 1994 of funding provided to Benecia Communications, Inc., a company which
became an operating division of the Company. Benecia Communications was sold in
May 1996. (See Note 3)
Income Taxes
Deferred tax assets and liabilities consist of differences between the tax basis
of assets and liabilities and their basis for financial reporting purposes and
are measured based on the enacted tax rates and laws that will be in effect when
the differences are expected to reverse. Deferred tax assets are stated at their
estimated realizable value.
The provision for income taxes consists of estimated federal and state income
taxes currently payable adjusted for changes between periods in the measurement
of deferred tax assets and liabilities. Tax credits are recognized as a
reduction of income tax expense in the years in which the credits are utilized
for tax purposes.
Earnings per Share
Earnings per share have been computed based on the weighted average number of
shares of common stock and common stock equivalents outstanding during each
period. Common stock equivalents are included in the per share calculations
where the effect of their inclusion would be dilutive. Dilutive common stock
equivalents consist of the incremental common shares issuable upon conversion of
the stock options and warrants using the treasury stock method.
Inventories
Inventories are valued at the lower of cost, determined by the first-in,
first-out (FIFO) method, or market, and are presented net of progress payments
and foreseeable losses.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except per share data)
Property, Plant and Equipment
Property, plant and equipment are carried at cost, and depreciation is provided
using the straight-line method over the estimated useful life of the asset, as
follows:
Buildings 33 years
Building improvements 15 years
Machinery and equipment 7 years
Furniture and fixtures 5-7 years
Leasehold improvements are amortized over the lesser of their useful lives or
the life of the lease. Maintenance and repairs are charged to expense as
incurred; improvements are capitalized. Upon retirement or sale, the cost of the
assets disposed of and the related accumulated depreciation are removed from the
accounts; any resulting gain or loss is credited or charged to income.
Intangible Assets
Intangible assets consist principally of goodwill which is being amortized on
the straight line basis over periods of five to twenty years. At December 31,
1996 and 1995 accumulated amortization was $888 and $498 respectively.
Concentrations of Risk
A significant portion of the Company's sales are to customers whose activities
are related to the defense industry, including some who are located in foreign
countries. The Company generally extends credit to these customers and,
therefore, collection of receivables is affected by the defense industry
economy. The Company closely monitors extensions of credit, maintaining reserves
for potential credit losses, and such losses have been within management's
expectations. Substantially all of the Company's cash is deposited with a single
bank.
The amounts reported for receivables and other financial instruments are
considered to approximate fair values based upon comparable market information
available at the respective balance sheet dates. Financial instruments that
potentially subject the Company to concentrations of credit risks consist
principally of cash and note and trade receivables.
The Company must comply with detailed government procurement and contracting
regulations and with United States government security regulations, certain of
which carry substantial penalty provisions for nonperformance or
misrepresentation in the course of negotiations. Failure of the Company to
comply with its government procurement, contracting or security obligations
could result in penalties or suspension of the Company from government
contracting, which would have a material adverse effect on the Company's results
of operations.
The Company's inventories include high-technology parts and components that
may be specialized in nature or subject to rapid technology obsolescence. While
the Company has programs to minimize the required inventories on hand and
considers technology obsolescence in estimating reserves to reduce recorded
amounts to market values, such estimates could change in the future.
Recent Pronouncements
During October 1996, the AICPA issued Statement of Position 96-1 "Environmental
Remediation Liabilities" (SOP 96-1) which establishes guidelines for the
recognition, measurement, and disclosure of environmental remediation
liabilities. It also includes benchmarks to aid in the determination of when
environmental remediation liabilities should be recognized in accordance with
the criteria of Financial Accounting Standards Boards (FASB) Statement No. 5
"Accounting for Contingencies" (SFAS No. 5). The Company does not believe that
adoption of SOP 96-1, which will become effective for fiscal years beginning
after December 15, 1996, will have material impact on its financial condition or
operating results.
During February 1997, the Financial Accounting Standards Board issued
Financial Accounting Standard No. 128 "Earnings per share" (FAS 128) which
establishes standards for computing earnings per share ("EPS"). FAS 128
simplifies the standards for computing EPS and makes them comparable to
international standards. The Company has not yet determined the impact that the
adoption of FAS 128, which is effective for financial statements issued for
periods ending after December 15, 1997, will have on its EPS calculation.
Reclassifications
Certain amounts in the financial statements have been reclassified to conform
with the current year's presentation. The reclassification had no impact on
previously reported net income.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except per share data)
3. ACQUISITIONS AND DISPOSALS
In December, 1996, the Company paid $2,342 for certain assets and the assumption
of certain liabilities of Military Power Systems a division of Transistor
Devices Inc.
In July, 1995, the Company paid $1,292 for certain assets and the assumption
of certain liabilities of Western Microwave, Inc. In September, 1995, the
Company paid $2,528 for certain assets and the assumption of certain liabilities
of Tecnetics, Incorporated. In October, 1995, the Company paid $250 for certain
assets relating to a power supply contract of Adaptive Power Solutions, L.L.C.
The acquisition included assets and the assumption of certain liabilities
relating to the contract.
In May, 1994, the Company paid $2,138 for certain assets and the assumption
of certain liabilities of Hughes Power Supply Corporation.
Each of these transactions was financed with cash with the exception of the
Military Power Systems transaction which the seller financed in the amount of
$946 and is payable $473 in June 1997, and $473 in December 1997. These
transactions have been accounted for as purchases. The purchase prices,
including costs of $20 in 1996, $95 in 1995 and $62 in 1994 associated with the
acquisitions, have been allocated to the acquired assets and liabilities assumed
based upon their fair value at the respective dates of the acquisitions. The
results of operations of the acquired businesses since the acquisition dates are
included in the consolidated statements of income.
Assuming the acquisitions described above had been made on January 1, 1995,
the Company's unaudited proforma condensed results of operations would have been
as follows:
--------------------------------
1996 1995
- --------------------------------------------------------------------------------
Net sales $ 120,241 $ 100,258
Net income (loss) $ 2,853 $ (81)
Net income (loss) per share $ 0.37 $ (0.01)
The proforma results have been prepared for comparative purposes only and do not
purport to be indicative of what would have occurred had the acquisitions been
made on January 1, 1995, or of results which may occur in the future.
In April 1995, the company exercised its option to acquire the assets of
Benecia Communications Corporation (BCC). BCC was a development stage company
performing research and development activities on technologies and products used
in commercial satellite communications. The Company had funded BCC since
September 1993. Consideration for the acquisition was the forgiveness of a
promissory note in the principal amount of $1,800. In May 1996, the Company sold
the Benecia product lines and associated assets to Communications & Power
Industries, Inc. for $800.
4. RESTRUCTURING
In 1995 the Company recorded a restructuring expense pursuant to the shutdown of
its Systron Donner facility in Sylmar, California. The $779 restructuring
expense includes severance costs of $225, write-down of assets of $275, removal
and transportation costs of $185 and other costs of $94 related to the
restructuring of the business. As of December 31, 1996, all cash expenditures as
a result of the restructuring have been incurred. Employees terminated as a
result of the restructuring totaled 46.
5. STATEMENT OF CASH FLOWS
Years ended December 31
---------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------
Cash paid during period for:
Interest $1,392 $1,135 $ 767
Taxes $ 736 $ 802 $3,196
- --------------------------------------------------------------------------------
Non cash activity:
Note payable in connection with acquisition $ 946
Forgiveness of Benecia Promissory Note $ -- $1,800
Building sold in exchange for note receivable $ 858
================================================================================
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except per share data)
6. INVENTORIES
December 31
--------------------------
1996 1995
- --------------------------------------------------------------------------------
Raw materials $ 8,225 $ 11,135
Work in progress 18,912 18,030
Finished goods 307 341
- --------------------------------------------------------------------------------
27,444 29,506
Less: unliquidated progress payments (3,151) (3,908)
- --------------------------------------------------------------------------------
$ 24,293 $ 25,598
================================================================================
7. PROPERTY, PLANT AND EQUIPMENT
December 31
--------------------------
1996 1995
- --------------------------------------------------------------------------------
Land $ 592 $ 722
Building and improvements 7,285 8,340
Machinery and equipment 24,217 22,534
Furniture and fixtures 2,285 2,492
- --------------------------------------------------------------------------------
34,379 34,088
- --------------------------------------------------------------------------------
Less accumulated depreciation (20,069) (17,647)
- --------------------------------------------------------------------------------
Net property plant and equipment $ 14,310 $ 16,441
================================================================================
8. ACCRUED EXPENSES
December 31
--------------------------
1996 1995
- --------------------------------------------------------------------------------
Accrued payroll & employee benefits $ 2,151 $ 776
Accrued vacation 1,293 1,103
Accrued warranty 833 832
Accrued commissions 1,275 993
Other accrued expenses 2,960 1,588
- --------------------------------------------------------------------------------
$ 8,512 $ 5,292
================================================================================
9. LONG-TERM DEBT AND NOTES PAYABLE
December 31
--------------------------
1996 1995
- --------------------------------------------------------------------------------
Massachusetts Industrial Revenue Bond,
maturing in 2009, interest at 62% of the
prime rate plus 1/2% effective interest
rate of 4.3% and 4.6%, payable in annual
principal payments of $80 $ 968 $ 1,048
Bank revolving credit facility 9,500 13,000
Bank real estate term loan facility 3,315 3,610
Note payable in connection with Acquisition 946 --
- --------------------------------------------------------------------------------
14,729 17,658
Less: current maturities 1,321 375
- --------------------------------------------------------------------------------
$ 13,408 $ 17,283
================================================================================
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except per share data)
The Massachusetts Industrial Revenue Bond is collateralized by real estate with
a net book value of $1,244 at December 31, 1996. The Company has a $15,000
unsecured bank revolving credit facility, (the "Revolver") and a $4,273 bank
real estate term loan facility, (the "Real Estate Loan") (collectively, the
"Agreement"). The Real Estate Loan is collateralized by real estate with a net
book value of $4,820 at December 31, 1996. Maturing in June, 2000, the Real
Estate Loan is payable in quarterly principal payments of $74, plus interest at
the bank's base rate (8.25% at December 31, 1996), with the last installment
equal to the remaining unpaid loan balance. The Revolver expires in June 2000,
and amounts may be borrowed, paid and reborrowed at the election of the Company
through the expiration date. Amounts available under the Revolver are reduced by
actual borrowings and outstanding letters of credit. The Company has the option
of borrowing under one or more differing interest rate formulas and at December
31, 1996, the weighted average interest rate was 7.81%. The Company also pays a
quarterly commitment fee at annual rates ranging from 1/8% to 3/8% depending
upon the amount of the unused facility.
The Agreement contains certain covenants related to tangible net worth and
interest coverage, as defined. Default on any covenant may affect the commitment
by the bank to continue to lend under the Agreement and, if not corrected, could
accelerate the maturity of any borrowings outstanding under the Agreement. At
December 31, 1996, the Company was in compliance with all covenants and after
reduction for outstanding letters of credit, had approximately $5,000 available
for borrowing under the Revolver portion of the Agreement. The Transistor
Devices Inc. note of $946 plus interest at 8.25% is payable $473 in June 1997
and $473 in December 1997.
10. COMMITMENTS AND CONTINGENCIES
The Company leases real estate and equipment under operating leases expiring at
various dates through September 2003. The leases include provisions for rent
escalation, renewals and purchase options and the Company is generally
responsible for taxes, maintenance and repairs. Aggregate rental expense
included in operations amounted to $915 in 1996, $1,384 in 1995 and $1,711 in
1994. Future minimum lease payments under noncancelable operating leases with an
initial term exceeding one year are as follows:
1997 $1,020
1998 $ 750
1999 $ 796
2000 $ 789
2001 $ 773
The Company is involved from time to time in litigation incidental to its
business.
In April 1996, the Company sold its facility in Weymouth, Massachusetts but
retained the environmental liability and responsibility associated with
groundwater contaminants present at the site. This facility has been classified
as a tier 1A disposal site by the Massachusetts Department of Environmental
Protection ("DEP"), as a result of past releases of petroleum based solvents.
Environmental assessment reports prepared by independent consultants indicate
that contaminants present in the Town of Weymouth well field across the street
from the facility are similar to those reportedly released at the facility and
still present in the groundwater at the facility; however, these reports also
indicate that the contaminants do not exceed safe drinking water levels in the
finished water after normal treatment. Other contaminants which did not
originate at the facility have also been detected in the well field.
The Company is continuing to conduct investigations of the facility for soil
and groundwater contamination and operate a pilot remediation system in
cooperation with the DEP. It is not possible at this stage of the proceedings to
predict what additional remediation, if any, will be required.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except per share data)
11. INCOME TAXES
Years ended December 31
-----------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------
Currently payable:
Federal $ 1,512 -- $ 2,149
State 174 $ 204 543
- --------------------------------------------------------------------------------
Deferred:
Federal (430) (50) (383)
State 196 (8) (32)
- --------------------------------------------------------------------------------
Provision for income taxes $ 1,452 $ 146 $ 2,277
================================================================================
The Company's effective tax rate differs from the statutory federal income tax
rate as follows:
Years ended December 31
-----------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------
Statutory federal income tax rate 34.0% (34.0)% 34.0%
State income taxes, net of federal benefit 5.8 86.3 5.8
Benefit from foreign sales corporation (1.9) -- (0.7)
Non-deductible expenses and other 1.4 66.4 (0.1)
- --------------------------------------------------------------------------------
Effective tax rate 39.3% 118.7% 39.0%
================================================================================
Non-deductible expense consists principally of goodwill, depreciation expense
resulting from certain of the Company's acquisitions and other amounts not
deductible for tax purposes. The tax effect of temporary differences that give
rise to the net deferred tax asset and liability are as follows:
December 31
--------------------------
1996 1995
- --------------------------------------------------------------------------------
Net tax asset:
Vacation accrual $ 455 $ 366
Inventory 1,646 1,337
Warranty 331 279
Deferred compensation 197 174
Other 360 46
- --------------------------------------------------------------------------------
Total $ 2,989 $ 2,202
================================================================================
Net tax liability:
Depreciation $ 1,809 $ 1,794
Operating loss carryforwards -- (586)
Other -- --
- --------------------------------------------------------------------------------
Total $ 1,809 $ 1,208
================================================================================
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except per share data)
12. STOCKHOLDERS' EQUITY
The Company has stock option plans under which a maximum of 3,167 options may be
granted generally at prices not less than 100 percent of the fair market value
of the Company's common stock at the date of option grant. Options vest ratably
over a four to five year period and expire not more than ten years from date of
grant. At December 31, 1996, 1,451 shares of common stock were reserved for
future issuance under the plans and 502 were available for future grant.
Additionally, non-qualified options to purchase a total of 93 shares of the
Company's common stock have been granted to certain non-employee directors and
others. These options were granted at the fair market value of the Company's
common stock at the date of option grant, vest generally over a five year period
and expire between 1999 and 2001.
For financial reporting purpose only, certain options granted in 1992 were
accounted for as if they had been granted at less than market value when
compared with the value of common stock issued in the Company's initial public
offering in 1993. Unearned compensation related to these options is being
recorded ratably over the vesting period. These options, as well as all other
options granted prior to the initial public offering, were granted at prices
determined by the Board of Directors to be not less than the fair market value
at the date of grant. The increase in available options of 500 shares is subject
to approval of the Stockholders at the 1997 annual meeting.
<TABLE>
Information concerning the plans and non-qualified stock options is as
follows:
<CAPTION>
Available Option Option Price Aggregate Weighted Avg.
for Grant per Share Price Exercise Price
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
December 31, 1993 347 1,245 $1.50 -- $7.25 $ 3,129 NA
Options granted (307) 307 307 3.94 -- 5.25 1,343 NA
Options canceled 132 (167) 1.57 -- 7.25 (826) NA
Options exercised -- (116) 1.50 -- 3.15 (211) NA
- --------------------------------------------------------------------------------------------------------------------------------
December 31, 1994 172 1,269 1.57 -- 7.25 3,435 $2.71
Options granted (138) 138 138 3.50 -- 5.06 569 4.13
Options canceled 75 (105) 1.57 -- 7.25 (427) 4.06
Options exercised -- (122) 1.57 -- 2.36 (246) 2.02
- --------------------------------------------------------------------------------------------------------------------------------
December 31, 1995 109 1,180 1.57 -- 7.25 3,331 2.82
Options granted (187) 187 187 5.25 -- 8.25 1,325 7.09
Options canceled 80 (102) 1.80 -- 8.25 (421) 4.09
Options exercised -- (223) 1.57 -- 4.75 (436) 1.96
Increase in available options, 1992 Plan 500 -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
December 31, 1996 502 1,042 $1.57 -- $8.25 $ 3,799 $3.65
================================================================================================================================
A total of 683 options were exercisable at December 31, 1996
</TABLE>
<TABLE>
The following table summarizes information with respect to stock options
outstanding of December 31, 1996:
<CAPTION>
Range of Outstanding Weighted-Average Weighted-Average Exercisable Weighted-Average
Exercise as of Remaining Exercise Price as of Exercise Price
Prices 12/31/96 Contractual Life Outstanding 12/31/96 Exercisable
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 1.57 $ 1.80 386 3.7 $ 1.62 386 $ 1.62
$ 2.00 $ 3.94 183 3.8 $ 2.48 147 $ 2.36
$ 4.19 $ 5.75 271 2.6 $ 4.66 124 $ 4.67
$ 6.06 $ 8.25 1,202 4.0 $ 7.78 26 $ 7.25
- ------------------------------------------------------------------------------------------------------------------------------
$ 1.57 $ 8.25 1,042 3.5 $ 3.42 683 $ 2.55
==============================================================================================================================
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except per share data)
The following information concerning the Company's stock option and employee
stock purchase plans is provided in accordance with SFAS No. 123, "Accounting
for Stock-Based Compensation." The Company accounts for such plans in accordance
with APB No. 25 and related Interpretations.
The fair value of each option grant has been estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted average
assumptions used for grants in 1996 and 1995:
Risk-free Interest Rates 6.20%
Expected Life 4.7 Years
Volatility 0.70
Dividend Yield -
The weighted average fair value of those options granted in 1996 and 1995 was
$4.51 and $2.49 respectively.
The following proforma income information has been prepared following the
provisions of SFAS No. 123:
(amounts in thousands except per share data) 1996 1995
- --------------------------------------------------------------------------------
Net income (loss) - proforma $ 2,045 $ (317)
Net income (loss) per share - proforma $ 0.27 $ (0.05)
- --------------------------------------------------------------------------------
The above proforma effects on income may not be representative of the effects on
net income for future years as option grants typically vest over several years
and additional options are generally granted each year.
13. EMPLOYEE BENEFIT PLAN
The Company maintains a 401(k) plan covering substantially all of its employees.
Eligible employees may contribute up to 15% of their annual compensation, as
defined, to this plan. The Company may also make a discretionary contribution.
The Company's contributions to this plan totaled $164 in 1996, $116 in 1995 and
$123 in 1994.
14. SEGMENT INFORMATION
The Company is engaged in one industry segment: the engineering, manufacturing
and marketing of electronic components and subsystems. The Company distributes
its products worldwide. Export sales were $18,254 in 1996, $14,735 in 1995 and
$17,180 in 1994. One customer accounted for 22% of net sales in 1996 and 14% of
sales in 1995 and 13% in 1994.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except per share data)
<TABLE>
15. UNAUDITED QUARTERLY FINANCIAL INFORMATION
The following quarterly financial information should be read in conjunction with
Note 2. The first three quarters in each year consist of thirteen week periods
with the fourth quarter ending on December 31.
<CAPTION>
1996:
First Quarter Second Quarter Third Quarter Fourth Quarter
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 22,048 $ 27,371 $ 31,624 $ 33,198
Gross profit 4,475 5,151 7,235 7,973
Operating income 125 648 1,903 2,366
Net income (loss) (155) 170 995 1,235
Net income (loss) per share $ (.02) $ .02 $ .13 $ .16
- ---------------------------------------------------------------------------------------------------
Shares used in calculating
Net income (loss) per share 6,977 7,711 7,652 7,720
===================================================================================================
</TABLE>
<TABLE>
<CAPTION>
1995:
First Quarter Second Quarter Third Quarter Fourth Quarter
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 21,525 $ 21,935 $ 22,310 $ 23,958
Gross profit 4,276 4,248 5,414 5,739
Operating income (508) 29 1,305 214
Net income (loss) (458) (160) 589 (240)
Net income (loss) per share $ (0.07) $ (0.02) $ 0.08 $ (0.03)
Shares used in calculating
Net income (loss) per share 6,845 6,855 7,369 6,915
===================================================================================================
</TABLE>
Net sales and net income are subject to fluctuations as a result of customer
actions including the timing of mandated delivery schedules, changes in the
timing of program funding, delays in obtaining qualification approvals and the
timing of preshipment inspections.
Item 9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
None.
- --------------------------------------------------------------------------------
PART III
Item 10 Directors and Executive Officers of the Registrant
Item 11 Executive Compensation
Item 12 Security Ownership of Certain Beneficial Owners and Management
Item 13 Certain Relationships and Related Transactions
All information required by Items 10, 11, 12 and 13 is incorporated herein by
reference to the Company's definitive proxy statement for its annual meeting of
stockholders to be held on May 6, 1997, which will be filed with the Securities
and Exchange Commission pursuant to Regulation 14A.
- --------------------------------------------------------------------------------
<PAGE>
PART IV
<TABLE>
<CAPTION>
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(1) Index to Financial Statements and Financial Statement Schedules Page
- ----------------------------------------------------------------------------------------------------
<S> <C>
Consolidated Balance Sheets as of December 31, 1996 and 1995 23
Financial Statements for the Years Ended December 31, 1996, 1995 and 1994:
Consolidated Statements of Operations 22
Consolidated Statements of Stockholders' Equity 24
Consolidated Statements of Cash Flows 25
Notes to Consolidated Financial Statements 26
Report of Independent Accountants 38
Schedule II Valuation and Qualifying Accounts 39
All other schedules are omitted because they are not applicable, not
required under the instructions, or all the information required is set
forth in the consolidated financial statements or notes thereto.
</TABLE>
(2) The following described exhibits are filed herewith or incorporated
herein by reference indicated:
- --------------------------------------------------------------------------------
Exhibit
Number Description
- --------------------------------------------------------------------------------
3.1 Certificate of Incorporation of Registrant, as amended to date.*
3.2 By-Laws of Registrant, as amended to date.***
10.1 Amended and Restated Credit Agreement among The First National Bank of
Boston, the Registrant and its subsidiaries, dated as of April 14,
1992.*
10.0.1 Second Amendment and Restatement of Credit Agreement with First National
Bank of Boston, dated as of September 30, 1993.***
10.4 Employee Incentive Stock Option Plan-1982 of the Registrant.* 10.5 1992
Equity Incentive Plan of the Registrant.*
10.6 Signal Technology Corporation 401(k) Plan.*
10.7 Lease dated as of December 28, 1990 by and between Varian Associates,
Inc. and ST Olektron Corporation (formerly known as RF Components,
Inc.).*
10.8 Lease dated as of October 18, 1990 by and between Benicia Associates and
ST Microwave Corp.*
10.9 Lease dated as of December 7, 1990 by and between Aetna Life Insurance
Company and ST Microwave Products Corporation (now known as ST Microwave
Corp.).*
10.18 Asset Purchase and Sale Agreement by and between Adaptive Power
Solutions, L.L.C. and ST Keltec Corporation, a wholly owned subsidiary
of Signal Technology Corporation, dated October 12, 1995. *****
10.19 Trade License and Purchase and Sale Agreement by and between Western
Microwave, Inc. and ST Microwave Corporation, a wholly owned subsidiary
of Signal Technology Corporation, dated July 21, 1995. *****
10.20 Purchase and Sale Agreement by and between Tecnetics, Incorporated. and
ST Keltec Corporation, a wholly owned subsidiary of Signal Technology
Corporation, dated September 7, 1995. *****
10.22 Amendment agreement No.1 to the Second Amendment and Restated Credit
Agreement, dated as of September 30, 1993, with the First National Bank
of Boston, dated as of July 20, 1995. *****
<PAGE>
Exhibit
Number Description
- --------------------------------------------------------------------------------
10.23 Amendment agreement No.2 to the Second Amendment and Restated Credit
Agreement dated as of September 30,1993, with the First National Bank of
Boston, dated as of September 30, 1995. *****
10.24 Amendment agreement No. 3 to the Second Amendment and Restated Credit
Agreement, dated as of September 30, 1993, with the First National Bank
of Boston, dated as of March 29, 1996.
10.25 Amendment agreement No. 4 to the Second Amendment and Restated Credit
Agreement, dated as of September 30, 1993, with the First National Bank
of Boston, dated as of March 10, 1997.
10.26 Asset Purchase Agreement by and between Transistor Devices Inc. and ST
Keltec Corporation, a wholly owned subsidiary of Signal Technology
Corporation, dated as of December 6, 1996.
10.27 Asset Purchase Agreement by and between Pulau Electronics Corporation
and ST Microwave (Arizona) Corporation, a wholly owned subsidiary of ST
Microwave Corporation, dated as of June 14, 1996.
10.28 Agreement and instrument of purchase and sale by and between
Communications & Power Industries, Inc. and ST Microwave Corporation, a
wholly owned subsidiary of Signal Technology Corporation, dated as of
May 24, 1996.
10.29 First Amendment to lease, dated as of September 9, 1996, by and between
Benicia Associates and Signal Technology Corporation.
10.30 Employee Stock Purchase Plan. ******
11.1 Computation of net income (loss) per share
21.1 Schedule of Registrant's subsidiaries.
23.1 Consent of Independent Accountants.
27.1 Financial Data Schedule
* Incorporated by reference to the corresponding exhibit filed as part of
the Registrant's registration statement on Form S-1, as amended (File
No. 33-61124).
*** Incorporated by reference to the corresponding exhibit filed as part of
the Registrant's 1993 Annual Report on Form 10-K.
**** Incorporated by reference to the corresponding exhibit filed as part of
the Registrant's 1994 Annual Report on Form 10-K.
***** Incorporated by reference to the corresponding exhibit filed as part of
the Registrant's 1995 Annual Report on Form 10-K.
****** Incorporated by reference to the definitive Proxy Statement to be filed
with the SEC in connection with the Company's Annual Meeting of
Shareholders to held on May 6, 1997.
(b) Reports on Form 8-K
None
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
SIGNAL TECHNOLOGY CORPORATION
By: \s\ Dale L. Peterson
--------------------------------------
Chairman and Chief Executive Officer
<TABLE>
Date: March 28, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the date indicated.
<S> <C>
\s\ Dale L. Peterson March 28, 1997 \s\ Joseph S. Schneider March 28, 1997
- ------------------------------------------ ----------------------------------------
Dale L. Peterson Joseph S. Schneider
Chairman and Chief Executive Officer Director
\s\ James S. Walsh March 28, 1997 \s\ Larry L, Hansen March 28, 1997
- ----------------------------------------- -----------------------------------------
James S. Walsh Larry L. Hansen
President Director
\s\ Bernard P. O'Sullivan March 28, 1997
- ----------------------------------------- \s\ Russ D. Kinsch March 28, 1997
Bernard P. O'Sullivan -----------------------------------------
Director Rush D. Kinsch
\s\ Harvey C. Krentzman March 28, 1997
- ------------------------------------------
Harvey C. Krentzman
Director
</TABLE>
<PAGE>
Report of Independent Accountants
To the Board of Directors and Stockholders
Signal Technology Corporation
We have audited the consolidated financial statements and financial statement
schedule of Signal Technology Corporation listed in Item 14 (a) (1) of this Form
10-K. These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedule 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 consolidated financial position of Signal Technology
Corporation and Subsidiaries as of December 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996 in conformity with generally
accepted accounting principles. In addition, in our opinion, the financial
statement schedule referred to above, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all material aspects,
the information required to be included therein.
San Jose, California COOPERS & LYBRAND L.L.P.
January 27, 1997
<PAGE>
<TABLE>
Schedule II Valuation and Qualifying Accounts
<CAPTION>
Years ended December 31, 1996, 1995 and 1994
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at Charged to Charged to Balance at
Beginning Costs and Other End
Description of Period Expenses Accounts of Period
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Inventory reserve $ 6,164,000 $ (101,000) $ 755,000 (2) $ 5,065,000
(1,753,000) (3)
Allowance for doubtful
accounts 347,000 (139,000) (42,000) (1) 166,000
- ------------------------------------------------------------------------------------------------------------------------------------
1995
Inventory reserve $ 5,065,000 $ 934,000 $(1,502,000) (3) $ 4,497,000
Allowance for doubtful
accounts 166,000 52,000 (52,000) (1) 166,000
- ------------------------------------------------------------------------------------------------------------------------------------
1996
Inventory reserve $ 4,497,000 $ 1,308,000 $(3,421,000) (3) $ 2,384,000
Allowance for doubtful
accounts 166,000 164,000 (160,000) (1) 170,000
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
Notes
(1) Write-off of bad debts.
(2) Increases due to acquisition of Hughes Power Supplies.
(3) Credit to inventory accounts for previously reserved amounts.
</FN>
</TABLE>
AMENDMENT AGREEMENT NO. 3 TO SECOND AMENDED
AND RESTATED CREDIT AGREEMENT
This AMENDMENT AGREEMENT NO. 3 (this "Amendment"), dated as of March
29, 1996, by and among SIGNAL TECHNOLOGY CORPORATION, a Delaware corporation
("STC"), those Subsidiaries of STC that are parties to the Credit Agreement
referred to below (together with STC, the "Companies"), and The First National
Bank of Boston, a national banking association (the "Bank"), amends the
Second Amended and Restated Credit Agreement dated as of September 30, 1993, as
the same may be amended, modified, or supplemented from time to time (the
"Credit Agreement"), by and among the Companies and the Bank. Capitalized terms
used but not defined herein shall have the meanings set forth for such terms in
the Credit Agreement.
WHEREAS, the Companies have requested that the Bank agree to certain
amendments to the Credit Agreement, including, without limitation, certain
changes to the financial covenants; and
WHEREAS, subject to the terms and provisions hereof, the Bank has
agreed to so amend the Credit Agreement;
NOW THEREFORE, the parties hereto hereby agree as follows:
ss. 1. Amendment to Credit Agreement. Subject to the satisfaction of
the conditions precedent set forth in ss. 3 hereof, the Credit Agreement is
hereby amended as follows:
ss. 1.1. Interest on Revolving Credit Loans. The text of Section 2.8 of
the Credit Agreement is hereby amended, effective as of April 1, 1996, to read
as follows:
"(a) Except as provided in ss. 5.1 hereof, each Base Rate Loan
shall bear interest at the rate per annum equal to the Base Rate plus
0.50% per annum.
(b) Except as provided in ss. 5.1 hereof, each Eurodollar Rate
Loan shall bear interest for the period commencing with the Drawdown
Date thereof and ending on the last day of the Interest Period
applicable thereto at the rate per annum equal to the Eurodollar Rate
determined for such Interest Period plus 2.25% per annum.
(c) The Companies hereby jointly and severally promise to pay
the interest on each Revolving Credit Loan in arrears on each Interest
Payment Date with respect thereto and at the stated or any accelerated
maturity of the Revolving Credit Loans."
ss. 1.2. Investments. Section 12.2(e) of the Credit Agreement is hereby
amended by deleting the phrase "with respect to each transaction shall not
exceed $4,000,000 (exclusive of any Indebtedness of the acquired Person)" from
the final two lines of Section 12.2(e), and
<PAGE>
-2-
inserting in place of such deleted language, and immediately before the
semi-colon at the end of ss. 12.2(e), the phrase "is permitted by the final
sentence of ss. 12.6 hereof".
ss. 1.3. Mergers and Acquisitions, Etc. Section 12.6 of the Credit
Agreement is hereby amended by inserting the phrase "which becomes a Subsidiary
of STC at such time" immediately after the word "Person", and immediately before
the word "provided" in the sixth line of Section 12.6. In addition, Section 12.6
of the Credit Agreement is hereby amended by deleting from the final sentence of
Section 12.6 the phrase "with respect to each such transaction in excess of
$4,000,000" and inserting in place of such deleted language, and immediately
before the period at the end of ss. 12.6. the phrase "exceeding $2,000,000 in
the aggregate, determined on a cumulative basis, in any fiscal year".
ss. 1.4. Net Worth. The Bank hereby waives any Default or Event of
Default directly resulting from a violation of Section 12.7 of the Credit
Agreement only as such Section 12.7 was in effect immediately prior to the
effectiveness of this Amendment, and then only with respect to the fiscal
quarter ended December 31, 1995. Section 12.7 of the Credit Agreement is hereby
amended by deleting the table set forth therein and replacing it with the
following table:
Period Amount
------ ------
December 31, 1995 through June 29, 1996 $28,500,000
June 30, 1996 through December 30, 1996 $29,200,000
December 31, 1996 through December 30, 1997 $29,500,000
December 31, 1997 through April 1, 1998 $30,500,000
ss. 1.5. Interest Coverage. The Bank hereby waives any Default or Event
of Default directly resulting from a violation of Section 12.8 of the Credit
Agreement only as such Section 12.8 was in effect immediately prior to the
effectiveness of this Amendment, and then only with respect to the fiscal period
ending December 31, 1995. The text of Section 12.8 of the Credit Agreement is
hereby amended to read as follows:
"Permit the ratio of (a) Consolidated Net Earnings Available
for Interest Charges for any period of four consecutive fiscal
quarters (a "Rolling Period") to (b) aggregate Interest
Charges for such Rolling Period, to be less than (a) 2 to 1,
for the Rolling Period ended December 31, 1995, (b) 2.5 to 1,
for the Rolling Period ending March 31, 1996, or (c) 3 to 1,
for any Rolling Period ending after March 31, 1996."
ss. 2. Representations and Warranties. The Companies hereby represent
and warrant to the Bank as follows:
(a) Representations and Warranties in Credit Agreement. Except as
specified in writing by the Companies to the Bank with respect
to the subject matter of this Amendment prior to the execution
and delivery hereof by the Bank and the Companies, the
representations and warranties of the Companies contained in
the Credit Agreement were true and correct in all material
respects when made and continue to be true and correct in all
material respects on the date hereof,
<PAGE>
-3-
except, in each case to the extent of changes resulting from
transactions contemplated or permitted by the Loan Documents
and this Amendment, and changes occurring in the ordinary
course of business which singly or in the aggregate are not
materially adverse, and to the extent that such
representations and warranties relate expressly to an earlier
date.
(b) Authority, No Conflicts, Enforceability of Obligations. Etc.
Each of the Companies hereby confirms that the representations
and warranties of the Companies contained in ss. 8.1 and ss.
8.2 of the Credit Agreement are true and correct on and as of
the date hereof as if made on the date hereof, treating this
Amendment, the Credit Agreement as amended hereby, and the
other Loan Documents as amended hereby, as "Loan Documents"
for the purposes of making said representations and
warranties.
ss. 3. Conditions to Effectiveness. The effectiveness of this Amendment
shall be subject to the delivery to the Bank by (or on behalf of) each of the
Companies, as the case may be, contemporaneously with the execution hereof, of
the following, in form and substance satisfactory to the Bank:
(a) this Amendment signed by each of the Companies and the Bank; and
(b) any other confirmatory or corporate authority document or
instrument the Bank may reasonably request.
ss. 4. Miscellaneous Provisions. Except as otherwise expressly provided
by this Amendment, all of the terms, conditions and provisions of the Credit
Agreement and the other Loan Documents shall remain in full force and effect.
Each of the Companies confirms and agrees that the joint and several Obligations
of the Companies to the Bank, as amended and supplemented hereby, are entitled
to the benefits of the Loan Documents. The parties hereto hereby acknowledge and
agree that all references to the Credit Agreement and the Obligations thereunder
contained in any of the Loan Documents shall be references to the Credit
Agreement and the Obligations, as amended hereby and as the same may be amended,
modified, supplemented, or restated from time to time. This Amendment may be
executed in any number of counterparts, but all such counterparts shall together
constitute but one instrument. In making proof of this Amendment it shall not be
necessary to produce or account for more than one counterpart signed by each
party hereto by and against which enforcement hereof is sought. The Companies
hereby jointly and severally confirm their obligations to pay promptly upon
request all reasonable out-of-pocket costs and expenses incurred or sustained by
the Bank in connection with this Amendment, including the reasonable fees and
expenses of the Bank's Special Counsel.
ss. 5. Governing Law. This Amendment shall be construed according to
and governed by the internal laws of the Commonwealth of Massachusetts without
reference to principles of conflicts of law.
<PAGE>
-4-
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized.
SIGNAL TECHNOLOGY CORPORATION,
ST OLEKTRON CORP., and each of the other
Companies that are parties to the Credit Agreement
By: /s/ Dale L. Peterson
------------------------------
Name: Dale L. Peterson
------------------------------
Title: CEO
------------------------------
THE FIRST NATIONAL BANK OF BOSTON
By: /s/ Amy B. Lyons
------------------------------
Name: Amy B. Lyons
------------------------------
Title: Vice President
------------------------------
362573
AMENDMENT AGREEMENT NO. 4 TO SECOND AMENDED
AND RESTATED CREDIT AGREEMENT
This AMENDMENT AGREEMENT NO. 4 (this "Amendment"), dated as of March
10, 1997, by and among SIGNAL TECHNOLOGY CORPORATION, a Delaware corporation
("STC"), those Subsidiaries of STC that are parties to the Credit Agreement
referred to below (together with STC, the "Companies"), and The First National
Bank of Boston, a national banking association (the "Bank"), amends the Second
Amended and Restated Credit Agreement dated as of September 30, 1993, as the
same may be amended, modified, or supplemented from time to time (the "Credit
Agreement"), by and among the Companies and the Bank. Capitalized terms used but
not defined herein shall have the meanings set forth for such terms in the
Credit Agreement.
WHEREAS, the Companies have requested that the Bank agree to certain
amendments to the Credit Agreement; and
WHEREAS, subject to the terms and provisions hereof, the Bank has
agreed to so amend the Credit Agreement;
NOW THEREFORE, the parties hereto hereby agree as follows:
ss. 1. Amendment to Credit Agreement. Subject to the satisfaction of
the conditions precedent set forth in ss. 3 hereof, the Credit Agreement is
hereby amended as follows:
ss. 1.1. Amendments to Certain Definitions. The definition of the term
"Revolving Credit Maturity Date" in ss. 1 of the Credit Agreement is hereby
amended by deleting the date "June 30, 1997" and replacing it with the date
"June 30, 2000".
ss. 1.2. Interest on Revolving Credit Loans. The text of Section 2.8 of
the Credit Agreement is hereby amended, effective as of March 10, 1997, for each
Base Rate Loan and effective as of the first day of the applicable Interest
Period for each Eurodollar Rate Loan with an Interest Period commencing on or
after March 10, 1997, to read as follows:
"(a) Except as provided in ss. 5.1 hereof, each Base Rate Loan
shall bear interest at the rate per annum equal to the Base Rate.
(b) Except as provided in ss. 5.1 hereof, each Eurodollar Rate
Loan shall bear interest for the period commencing with the Drawdown
Date thereof and ending on the last day of the Interest Period
applicable thereto at the rate per annum equal to the Eurodollar Rate
determined for such Interest Period plus 1.75% per annum.
(c) The Companies hereby jointly and severally promise to pay
the interest on each Revolving Credit Loan in arrears on each Interest
Payment Date with respect thereto and at the stated or any accelerated
maturity of the Revolving Credit Loans."
<PAGE>
-2-
ss. 1.3. Repayment of Real Estate Term Loans. The text of Section 3.3
of the Credit Agreement is hereby amended to read as follows:
"The Companies jointly and severally, and irrevocably and
unconditionally promise to repay to the Bank the Real Estate Term Loans
in quarterly installments due and payable on the first day of each
January, April, July and October of each year, with the final
installment due and payable in any event on June 30, 2000; each of such
installments shall be in the aggregate amount of $73,666.66, except
that the final installment shall instead be in an aggregate amount
equal to the unpaid balance of the Real Estate Term Loans."
ss. 1.4. Interest on Real Estate Term Loans. Section 3.4 of the Credit
Agreement is hereby amended, effective as of March 10, 1997, by deleting the
phrase "plus one percent (1%)" from the first sentence thereof, so that such
sentence ends with the words "Base Rate" followed by the period.
ss. 1.5. Mergers and Acquisitions, Etc. Section 12.6 of the Credit
Agreement is hereby amended, effective as of December 1, 1996, by deleting from
the final sentence of Section 12.6 (as amended by Amendment Agreement No. 3
dated as of March 29, 1996 (the "Third Amendment") to the Credit Agreement) the
phrase "exceeding $2,000,000 in the aggregate, determined on a cumulative basis,
in any fiscal year" and inserting in place of such deleted language, and
immediately prior to the period at the end of ss. 12.6, the phrase "exceeding
$2,400,000 with respect to any particular such transaction (or series of related
transactions)."
ss. 1.6. Net Worth. The text of Section 12.7 of the Credit Agreement is
hereby amended to read as follows:
"Permit at any time Consolidated Tangible Net Worth to be less than the
amount equal to the sum of $30,000,000 plus, on a cumulative basis, 50%
of positive Consolidated Net Income for each fiscal year ended after
December 31, 1996 (without deduction for any fiscal year in which
Consolidated Net Income is negative)."
ss. 1.7. Interest Coverage. The text of Section 12.8 of the Credit
Agreement is hereby amended to read as follows:
"Permit the ratio of (a) Consolidated Net Earnings Available
for Interest Charges for any period of four consecutive fiscal
quarters (a "Rolling Period") to (b) aggregate Interest
Charges for such Rolling Period, to be less than (a) 3 to 1."
ss. 2. Representations and Warranties. The Companies hereby represent
and warrant to the Bank as follows:
(a) Representations and Warranties in Credit Agreement. Except as
specified in writing by the Companies to the Bank with respect
to the subject matter of this Amendment prior to the execution
and delivery hereof by the Bank and the Companies, the
representations and warranties of the Companies contained in
the Credit Agreement were true and correct in all material
respects when made
<PAGE>
-3-
and continue to be true and correct in all material respects
on the date hereof, except, in each case to the extent of
changes resulting from transactions contemplated or permitted
by the Loan Documents and this Amendment, and changes
occurring in the ordinary course of business which singly or
in the aggregate are not materially adverse, and to the extent
that such representations and warranties relate expressly to
an earlier date.
(b) Authority, No Conflicts, Enforceability of Obligations, Etc.
Each of the Companies hereby confirms that the representations
and warranties of the Companies contained in ss. 8.1 and ss.
8.3 of the Credit Agreement are true and correct on and as of
the date hereof as if made on the date hereof, treating this
Amendment, the Credit Agreement as amended hereby, and the
other Loan Documents as amended hereby, as "Loan Documents"
for the purposes of making said representations and
warranties.
ss. 3. Conditions to Effectiveness. The effectiveness of this Amendment
shall be subject to the delivery to the Bank by (or on behalf of) each of the
Companies, as the case may be, contemporaneously with the execution hereof, of
the following, in form and substance satisfactory to the Bank:
(a) this Amendment signed by each of the Companies and the Bank;
and
(b) any other confirmatory or corporate authority document or
instrument the Bank may reasonably request.
ss. 4. Miscellaneous Provisions. Except as otherwise expressly
provided by this Amendment, all of the terms, conditions and provisions of the
Credit Agreement and the other Loan Documents shall remain in full force and
effect. Each of the Companies confirms and agrees that the joint and several
Obligations of the Companies to the Bank, as amended and supplemented hereby,
are entitled to the benefits of the Loan Documents. The parties hereto hereby
acknowledge and agree that all references to the Credit Agreement and the
Obligations thereunder contained in any of the Loan Documents shall be
references to the Credit Agreement and the Obligations, as amended hereby and as
the same may be amended, modified, supplemented, or restated from time to time.
This Amendment may be executed in any number of counterparts, but all such
counterparts shall together constitute but one instrument. In making proof of
this Amendment it shall not be necessary to produce or account for more than one
counterpart signed by each party hereto by and against which enforcement hereof
is sought. The Companies hereby jointly and severally confirm their obligations
to pay promptly upon request all reasonable out-of-pocket costs and expenses
incurred or sustained by the Bank in connection with this Amendment, including
the reasonable fees and expenses of the Bank's Special Counsel.
ss. 5. Governing Law. This Amendment shall be construed according to
and governed by the internal laws of the Commonwealth of Massachusetts without
reference to principles of conflicts of law.
<PAGE>
-4-
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized.
SIGNAL TECHNOLOGY CORPORATION,
and each of the other Companies that are parties to
the Credit Agreement
By: /s/ R. D. Kinsch
---------------------------------
Name: R. D. Kinsch
-------------------------------
Title: Chief Financial Officer
-------------------------------
THE FIRST NATIONAL BANK OF BOSTON
By:
---------------------------------
Name:
-------------------------------
Title:
-------------------------------
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement ("Agreement") made and entered into as of
this 6th day of December, 1996, by and between TRANSISTOR DEVICES INC., a New
Jersey corporation with a principal place of business at 85 Horsehill Road,
Cedar Knolls, NJ 07927 (the "Seller") and ST KELTEC CORPORATION, a Delaware
corporation with a principal place of business at 84 Hill Avenue, Fort Walton
Beach, Florida 32548 (the "Buyer").
WITNESSETH:
WHEREAS, Seller has conducted and currently conducts a business called
the "Military Power Systems Division" which designs, develops, manufactures,
markets and services electronic products, including but not limited to Low
Voltage Linear Power Supplies, for military applications (the "Business"); and
WHEREAS, Seller desires to sell and Buyer desires to purchase certain
rights, properties and assets of Seller pertaining to the Business as described
in this Agreement in consideration of the payment of the Purchase Price (as
defined in Section 2.1 hereof), the assumption and performance of certain
liabilities of such Business, and the performance of certain other obligations,
all on the terms and subject to the conditions contained in this Agreement; and
WHEREAS, Buyer is a wholly-owned subsidiary of Signal Technology
Corporation ("STC");
NOW, THEREFORE, in consideration of the mutual covenants and subject to
the terms and conditions herein contained, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
I. Purchase and Sale of Assets; Assumption of Liability.
1.1 On the "Closing Date" (as defined in Section 3.1
hereof) and subject to the terms and conditions set forth in this Agreement,
Seller shall convey, sell, assign, transfer, and deliver to Buyer, and Buyer
shall purchase from Seller, those assets and properties, consisting of
Inventory, Machinery, Drawings and rights related thereto, all as described on
Schedule 1.1 (the "Assets"), and shall assign to Buyer each and all of the
"Material Contracts" (as defined in Section 8.9 below).
1.2 On the Closing Date and subject to the terms and
conditions set forth in this Agreement, Buyer shall assume the liabilities
described on Schedule 1.2 (the "Assumed Liabilities"). Except for the Assumed
Liabilities, Buyer does not assume, and shall have no responsibility whatsoever
for, any
<PAGE>
other liabilities or obligations of Seller, whether known, unknown, liquidated,
unliquidated, contingent or otherwise.
II. Purchase Price.
2.1 The total purchase price to be paid by Buyer to Seller for
the Assets shall be the sum of the prices of each of "Machinery and Equipment",
the "Drawings" and the exclusive right with respect thereto and the "Total
Inventory", as set forth on Schedule 1.1 hereof, as the same may be adjusted, by
way of increase or decrease, as described hereinafter (the "Purchase Price").
The Purchase Price shall be paid by Buyer to Seller as follows:
a) One Million Dollars ($1,000,000) (the "Down
Payment") shall be paid at the "Closing" (as defined in Section 3.1) by wire
transfer or by certified or bank check.
b) The total price set forth in Schedule 1.1 for all
items of Machinery and Equipment shall be paid by wire transfer or by certified
or bank check on that date thirty (30) days after the completion of the
relocation of the machinery that is being purchased as a part of the Assets,
which relocation shall be at Buyer's sole expense and shall occur at a time
selected by Buyer, but in no event later than one hundred eighty (180) days
after the Closing;
c) The balance of the Purchase Price, subject to
adjustment as aforesaid, shall be paid in two installments, the first on the
sixth month anniversary of the Closing Date (the "First Payment Date"), in an
amount equal to Buyer's reasonable estimate of one half of such balance, and the
second on the first anniversary of the Closing Date (the "Second Payment Date"),
in an amount equal to the then unpaid balance, by wire transfer or by certified
or bank check, together with interest at the rate per annum announced to the
public and charged by Bank of Boston as its prime commercial lending rate on the
Closing Date at Boston, Massachusetts, for loans to prime commercial borrowers,
computed from the Closing Date to the date of payment thereof;
2.2 a) "Work in Process Inventory" shall mean
i) products the manufacture of which has not been
completed and the raw material of which has been issued out of stock and are in
the manufacturing process on the Closing Date and
ii) all of the products in and for a "Backlog Job"
(as hereinafter defined) the manufacture of which has been completed and which
products
[A] have not been shipped to the respective
customers as of the Closing Date, and
2
<PAGE>
[B] are listed on Schedule 2.2a) attached
hereto and made a part hereof ("Backlog Finished Goods Inventory"),
and shall be "Assets" hereunder. "Backlog Job" shall mean products to be
manufactured and shipped pursuant to a contract or purchase order in effect on
the Closing Date.
b) "Stock Inventory" shall mean items which are held
by Seller in stock on the Closing Date. Such items are not included in the
Assets, but will be accepted by Buyer on consignment and will be used by Buyer
from time to time at Buyer's sole option, except as hereinafter otherwise
provided. All Stock Inventory not used by Buyer will remain inventory of Seller.
With respect to each item of Stock Inventory used by Buyer, Buyer shall pay
Seller on the First Payment Date an amount equal to the sum of the cost to
Seller of such item plus ten percent (10%) of such cost (the "Stock Inventory
Price") for those items so used by Buyer after the Closing Date but before the
First Payment Date and shall pay Seller on the Second Payment Date an amount
equal to the Stock Inventory Price for those items so used by Buyer after the
First Payment Date but before the Second Payment Date. Seller shall have the
right to use those items of Stock Inventory that are in excess of then current
requirements to fulfill the Buyer's then production and delivery schedules, and
Buyer shall purchase those items of Stock Inventory that are required to fulfi11
production and delivery schedules of Backlog Jobs.
c) "Non-Backlog Finished Goods Inventory" shall mean
all of the products for each Non-Backlog Job (as defined in Section 2.7) below)
the manufacture of which has been completed and which products i) have been
returned to and are included in stores as of the Closing Date, and ii) are
listed on Schedule 2.2c) attached hereto and made a part hereof, and such items
are not included in the Assets, but will be accepted by Buyer on consignment and
will be acquired by Buyer from time to time as Buyer receives orders for such
items.
2.3 With respect to each item of Non-Backlog Finished Goods
Inventory listed on Schedule 2.2c), Buyer shall pay Seller on the First Payment
Date the amount of the price listed on Schedule 2.2c) for each item thereof that
has been so acquired by Buyer after the Closing Date but before the First
Payment Date and on the Second Payment Date the amount of the price listed on
Schedule 2.2c) for each item thereof that has been so acquired by Buyer after
the First Payment Date but before the Second Payment Date; provided that, with
respect to such items that have not been sold by Buyer prior to the Second
Payment Date, Buyer shall have the right thereafter to sell the same at any
price and shall thereafter remit to Seller Seventy-Five Percent (75%) of the
price actually received by Buyer for each sale thereof thereafter made.
2.4 Items received after the Closing Date that were under open
purchase orders from Seller to vendors as of the Closing Date are Stock
Inventory as the same are received.
3
<PAGE>
III. Closing.
3.1 Subject to the conditions precedent to closing set forth
herein, the consummation of the sale and purchase of Assets for which this
Agreement provides (the "Closing") shall take place at the offices of ST Keltec
Corporation on or about 6 December 1996 or at and on such other place, time, and
date as may be mutually agreed to by Seller and Buyer (the "Closing Date"), and
shall be deemed to occur as of the close of business on the Closing Date. If the
Closing has not occurred prior to 15 January 1997, then at any time thereafter a
party that is not in breach of this Agreement shall have the unilateral right to
terminate this Agreement without liability on its part.
3.2 At the Closing the following shall take place:
a) the receipt of the Down Payment shall be confirmed
to Buyer by Seller;
b) Seller shall deliver to Buyer a bill of sale in
the form attached hereto as Exhibit A and hereby made a part hereof;
c) At the close of business on the Closing Date,
Buyer shall take delivery of all of the Assets at the Seller's premises at 35
Hill Avenue, Fort Walton Beach, Florida 32548 (the "Plant"). Buyer shall remove
all Assets from the Plant within one hundred eighty (180) days after the
Closing.
IV. Conditions Precedent to Seller's Obligations. The obligations of
Seller hereunder are subject to the fulfillment to the reasonable satisfaction
of Seller and its counsel, at or prior to the Closing Date, of the following
conditions, unless otherwise waived by Buyer in writing:
4.1 All representations and warranties of Buyer made herein
shall be true and accurate in all material respects as of the Closing Date with
the same effect as though such representations and warranties had been made on
the Closing Date.
4.2 No action or proceeding shall be then pending or
threatened before a court or other governmental body or by any public authority
to restrict or prohibit the acquisition by Buyer of the Assets.
V. Conditions Precedent to Buyer's Obligations. The obligations of
Buyer hereunder are subject to the fulfillment to the reasonable satisfaction of
Buyer and its counsel, at or prior to the Closing Date, of the following
conditions, unless otherwise waived by Buyer in writing:
5.1 All representations and warranties of Seller made herein
shall be true and accurate in all material respects as of the Closing Date with
the
4
<PAGE>
same effect as though such representations and warranties had been made on the
Closing Date.
5.2 No action or proceeding shall be then pending or
threatened before a court or other governmental body or by any public authority
to restrict or prohibit the sale by Seller or the acquisition by Buyer of the
Assets, or which could terminate or cancel any of the contracts, the work
pursuant to which was then part of a Backlog Job.
VI. Seller's Continuing Obligations.
6.1 Seller shall authorize Buyer to use and occupy the Plant,
during the period from the Closing Date until the date upon which Buyer has
removed all of the Assets therefrom (the "Move Date"), all in accordance with
the provisions of Section 7.4 hereof.
6.2 Upon Buyer's request at any time during a period of one
(1) year following the Closing Date, Seller shall execute and deliver to Buyer
any documents not delivered to Buyer on the Closing Date that Buyer reasonably
requests from Seller for perfecting the transfer of the Assets to Buyer
contemplated by this Agreement.
6.3 a) For a period of five (5) years after the Closing,
Seller shall not, directly or indirectly, in any capacity whatsoever, propose to
design or manufacture, or design or manufacture any products listed in Schedule
6.3, or any products substantially similar to such products, or conduct or
assist others in conducting or be involved or interested in any manner in any
business which is in competition with the developing, manufacturing, production,
distribution, marketing or selling of any such products;
b) For a period of two (2) years after the Closing,
Seller shall not, directly or indirectly, in any capacity whatsoever:
i) propose to design or manufacture, or
design or manufacture any 1power supplies or DC to DC converters used or similar
to those used in the programs listed in Schedule 6.3, or conduct or assist
others in conducting or be involved or interested in any manner in any business
which is in competition with the developing, manufacturing, production,
distribution, marketing or selling of any such products used or similar to those
used in any of such programs; and
ii) recruit or solicit, or assist any other
person or party in recruiting or soliciting any "Employee" (as hereinafter
defined), or induce or attempt to induce or assist any other person or entity in
inducing or attempting to induce any Employee to terminate or alter his
relationship with Buyer (collectively "Recruiting Activity"). For the purposes
of this Section 6.3c), the term "Employee" shall mean any person who is, on the
Closing Date, an
5
<PAGE>
employee or consultant of Seller and who was engaged in any work in connection
with the Military Power Systems Division of Seller and whose employment or
consulting arrangement had not been terminated by Buyer as of the date of any
such Recruiting Activity.
6.4 Seller acknowledges that the business of Buyer is
international in scope, and that geographical limitations on the covenants set
forth in this Article VI are therefore not appropriate. Seller acknowledges that
the scope of each of the covenants contained in Section 6.3 is reasonable as to
time, area and persons and is necessary to protect the legitimate business
interests of Buyer. Furthermore, such covenants will be regarded as divisible
and if any such covenant is found by any court of competent jurisdiction to be
unenforceable because it extends for too long a period of time or over too great
a range of activities or persons or in too broad a geographic area, it shall be
interpreted to extend over the maximum period of time, range of activities or
persons, or geographic area as to which it may be enforceable. The provisions of
this Article VI shall survive the Closing and the termination of the Agreement.
6.5 All commissions incurred by Seller and which are, or are
to become, due to third-party sales representatives of Seller shall be the
responsibility of Seller, except as specifically otherwise provided in Section
7.6 below.
VII. Buyer's Continuing Obligations.
7.1 After the Closing Date, Buyer shall make available to
Seller any books of account, financial records, original bills of sale,
contracts, or other written instruments or records delivered to Buyer by Seller
pursuant to this Agreement at any reasonable time during business hours for any
proper purpose (including, but not limited to, performing all necessary
accounting functions in order for Seller to prepare year-end financial
statements).
7.2 Buyer shall honor Seller's warranty policy described on
Schedule 7.2 with respect to products of Seller shipped to customers within
twelve (12) months prior to the Closing in the ordinary course of business;
provided that Buyer shall have no such obligations with respect to any cost or
expense of any kind arising out of any design defect, whether patent or latent,
in any product shipped by Seller at any time, and all of such costs and expenses
shall be borne by Seller, but if any of such costs are borne by Buyer they may
be recovered by Buyer in any manner, including, without limitation, offset
against the unpaid balance of the Purchase Price. In any case of design defect
hereunder that comes to the attention of Buyer, Buyer shall give notice thereof
to Seller, and if, in any such case, in Buyer's reasonable opinion a cost of at
least Five Thousand Dollars ($5,000) will be involved, Seller shall have the
option promptly upon receipt of such notice either to elect to pay the cost
thereof as soon as the same is reasonably determined or to perform the services
required to
6
<PAGE>
remedy the matter, and in any such event, Seller shall deal directly with Buyer,
and Buyer shall deal with the customer involved therein
7.3 Buyer shall have the right granted by Seller in the nature
of a license (the "License") to use and occupy the Plant and to use in the
ordinary course of business all of Seller's equipment and other personalty
located therein, during the period from the Closing Date until the Move Date
(which Move Date shall, as hereinabove stated, be within One Hundred Eighty
(180) days from the date hereof) in order that Buyer may use the Assets in the
optimal manner, in its discretion, from and after the Closing. For such license
Buyer shall pay to Seller Eight Hundred Dollars ($800) per day (the "License
Fee") commencing on 1 March 1997 and ending on the Move Date. In addition to the
payment of the License Fee, during the License period, Buyer shall perform
normal maintenance of the Plant, pay the cost of utilities, and shall provide
liability insurance, in the amounts shown on Schedule 7.3, insuring both Buyer
and Seller. All other costs of ownership and use of the Plant shall be borne by
Seller. On the Move Date, the License shall terminate and Buyer shall leave the
Plant "broom clean", and shall leave the said equipment in the same condition as
at the Closing Date, reasonable wear and tear and damage by casualty excepted.
Buyer shall indemnify Seller from and against all loss, cost, damage and expense
caused by or arising from any act or omission to act of Buyer, its agents,
employees and invitees with respect to such licensed use of the Plant and the
equipment.
7.4 a) As of the Closing Date, Seller shall terminate each and
all of the employees employed in the Business, and shown on the list set forth
as part of Schedule 7.4 attached hereto and made a part hereof ("Employees of
the Business"), and Buyer shall thereupon, without interruption, employ the
Employees of the Business.
b) All costs of any type or amount, arising in any
way from the employment of employees by Seller prior to Closing shall be the
responsibility of Seller, and Buyer shall have no responsibility therefor.
c) Any employee of Seller who is absent from work
and who is receiving workmen's compensation, or who is on leave of absence, and
whose name is not on, or expressly excluded form the list set forth on Schedule
7.4 shall not be one of the Employees of the Business.
d) During the period from the Closing Date until the
Move Date or that date which is thirty (30) days after the Closing Date
(whichever first occurs) (hereinafter called the "Transition Period") Buyer
shall continue to employ, and to maintain the payroll with respect to, all of
the Employees of the Business.
e) Effective at the end of the Transition Period,
Buyer shall have the right to terminate Employees of the Business; provided,
7
<PAGE>
however, that Buyer shall retain in its employ thereafter for such period of
time as Buyer shall determine at least thirty (30) of the Employees of the
Business. Seller shall thereupon assume and be responsible for all costs of
severance pay, vacation pay, health insurance until 31 December 1996,
unemployment insurance and costs related thereto, worker's compensation arising
from incidents that occurred on or prior to the Closing Date, of each and every
of the Employees of the Business so terminated by Buyer ("Termination Costs"),
and Buyer will have no liability therefor.
g) If any of such Termination Costs are borne by
Buyer, Seller shall indemnify Buyer with respect thereto in accordance with the
provisions of Article XIII hereof.
7.5 Buyer shall pay commissions due with respect to products
shipped by Buyer in any Backlog Job in the amounts and to the third-party sales
representatives of Seller listed on Schedule 7.5 attached hereto.
VIII. Representations and Warranties of Seller. Seller hereby
represents and warrants to Buyer as follows:
8.1 a) Seller is a corporation duly organized, validly
existing and in good standing under the laws of the State of New Jersey and is
duly qualified to conduct business as a foreign corporation in the State of
Florida.
b) Seller has corporate power and authority to sell
the Assets, and to execute, deliver and perform this Agreement. The execution,
delivery and performance of this Agreement have been duly authorized by all
necessary corporate action on the part of Seller, including that of its Board of
Directors and its Shareholders, and no further approval of the Board of
Directors of Seller (or any committee thereof) or of the Shareholders is
necessary for the consummation of the transactions contemplated hereby.
c) The execution and delivery of this Agreement by
Seller and the consummation by Seller of the transactions contemplated hereby
are not prohibited by and do not violate any provision of the organic documents
of incorporation of Seller, or violate any provision of law, or violate any
provision, or result in the breach, of, or accelerate or permit the acceleration
of the performance required by, any term of any contract, agreement, indenture,
mortgage, note, bond, commitment, license or other instrument to which Seller is
a party or by which any of the Assets is bound, and has not resulted and will
not result in the creation or imposition of any lien on any of the Assets.
d) Seller has not filed, or had filed against it, a
petition in bankruptcy or a petition to take advantage of any other insolvency
act; admitted in writing its inability to pay its debts generally; made an
assignment for the benefit of creditors; consented to the appointment of a
receiver for itself or any
8
<PAGE>
substantial part of its property; or generally committed any act of insolvency
(including the failure to pay obligations as they become due) or bankruptcy.
8.2 All necessary tax returns of Seller for all of the
jurisdictions in which returns are due have been filed, and payment has been
made of all such taxes indicated as due on such returns (insofar as such taxes
are due and payable at the date hereof).
8.3 Seller has the power to sell all of the Assets being sold
and transferred hereunder, and will do so, free and clear of all liens, charges,
security interests, and encumbrances, and all of such Assets are listed on
Schedule 1.1.
8.4 This Agreement has been duly authorized, executed, and
delivered on behalf of Seller and is a valid obligation of Seller enforceable in
accordance with its terms.
8.5 a) There exists no default in the performance of any
of the contracts listed in Schedule 8.9;
b) There are no design defects in any products in any
Backlog Job;
c) All units manufactured or partially manufactured
by Seller have been so manufactured in a good and workmanlike manner and are in
compliance with the specifications under which they were to have been
manufactured.
8.6 Except as listed on Schedule 8.6 attached hereto, as of
the date hereof there are no actions, suits or proceedings pending or threatened
which involve transactions of or otherwise relate to Seller or the Assets or the
transactions contemplated by this Agreement, at law or in equity, or before any
arbitrator of any kind, or before or by any federal, state, municipal or other
governmental department, commission, board, bureau, agency or other
instrumentality, domestic or foreign.
8.7 There are no outstanding orders, writs, injunctions,
decrees, judgments, awards, determinations or directions, which involve
transactions of or otherwise relate to Seller or the Assets, of any courts or
arbitrators or under any outstanding order, regulation or demand of any federal,
state, municipal or other governmental instrumentality, domestic or foreign,
except those listed on Schedule 8.7.
8.8 Seller's ownership and use of the Assets, and the conduct
of the Business do not conflict with the rights of any other person, firm or
corporation or violate, or with or without the giving of notice or the passage
of time, or both, will violate, conflict with or result in a default, right to
accelerate or loss of rights under, any terms or provisions of any lien,
encumbrance,
9
<PAGE>
mortgage, deed of trust, lease, license, agreement, understanding law,
ordinance, rule or regulation, or any order, judgment or decree to which Seller
is a party or by which it may be bound or affected.
8.9 a) Schedule 8.9 hereto contains a complete and correct
list of all agreements, contracts and commitments, whether written or oral
relating to the Business (the "Material Contracts") by which Seller or any of
the Assets is bound.
b) Complete and correct copies or originals of all
written Material Contracts, together with all amendments thereto have been
delivered to Buyer. All Material Contracts are in full force and effect and
there is no default thereunder by any party thereto.
8.10 Seller has received no unliquidated advanced, milestone
or progress payments from or on behalf of its customers under or with respect to
any of the open Material Contracts, and there are no other funds due to
customers (i) on products to be shipped by Buyer in any Backlog Job or (ii) on
any products heretofore shipped by Seller.
8.11 No representation or warranty by Seller in this
Agreement, nor any statement or certificate furnished or to be furnished to
Buyer pursuant hereto or in connection with the transactions contemplated
hereby, contains or will contain any untrue statement of a material fact, or
omits or will omit to state a material fact necessary to make the statements
contained therein not misleading.
IX. Representation and Warranties of Buyer. Buyer hereby represents and
warrants to Seller as follows:
9.1 Buyer is a corporation duly organized, validly existing,
and in good standing under the laws of the State of Delaware.
9.2 The execution and delivery of this Agreement and the
performance by Buyer of all of its obligations to be performed hereunder have
been duly authorized by all necessary corporate action.
9.3 This Agreement and all obligations of Buyer contained
herein are legally binding on Buyer and enforceable in accordance with their
terms.
9.4 The execution and delivery of this Agreement by Buyer and
the consummation by Buyer of the transactions contemplated hereby are not
prohibited by and do not violate any provision of the organic documents of
incorporation of Buyer, or violate any provision of law, or violate any
provision, or result in the breach, of, or accelerate or permit the acceleration
of the performance required by, any term of any contract, agreement, indenture,
10
<PAGE>
mortgage, note, bond, commitment, license or other instrument to which Buyer is
a party.
9.5 No representation or warranty by Buyer in this Agreement,
nor any statement or certificate furnished or to be furnished to Seller pursuant
hereto or in connection with the transactions contemplated hereby, contain or
will contain any untrue statement of a material fact, or omits or will omit to
state a material fact necessary to make the statements contained therein not
misleading.
X. Access and Information. Seller will give to Buyer and its agents
full access during normal business hours, throughout the period prior to the
Closing, to such of the properties, books, contracts, commitments and other
records of Seller related to the Military Power Systems Division of Seller as
Buyer reasonably may request. If the Closing does not take place, Buyer will
return to Seller all written material received from Seller pursuant to such
access.
XI. Conduct of Business Pending Closing.
11.1 Prior to the Closing Seller shall:
a) conduct its business only in the ordinary course
and in compliance with applicable laws, and in furtherance of the foregoing
shall not engage in any transaction or make any contract or commitment except
for full value;
b) insure the items of tangible personal property
included within the Assets against damage or destruction for not less than their
fair market value;
11.2 To the extent that the assignment by Seller and the
assumption by Buyer of any Material Contract, or other contract, lease, license,
permit or approval shall require the consent or approval of any third party,
this Agreement shall not constitute an assignment, sublease, subcontract or
assumption thereof if such attempted assignment, sublease or assumption would
constitute a breach thereof.
11.3 Until any novation agreements legally required with
respect to any Material Contracts, or the required consents, approvals,
novations or waivers of third parties with respect to any other contract,
lease, license, permit or approval, have been executed, Buyer shall perform or
discharge all of such liabilities, responsibilities, obligations and commitments
thereunder, and shall enjoy all of the rights, benefits and entitlements, of
Seller under same. Pending any novation agreements required by law, Seller and
Buyer shall take all reasonable action to have Buyer recognized by the
respective Government
11
<PAGE>
agencies that are parties to each such Material Contract as the subcontractor
Seller.
XII. Bulk Sale.
12.1 Seller shall indemnify and save and hold Buyer harmless
from any liabilities arising from the failure of Buyer or Seller to comply with
any bulk sales or similar law applicable to the transactions contemplated by
this Agreement.
XIII. Indemnification
13.1 Buyer shall defend, indemnify and hold harmless Seller,
its employees, officers, directors, agents and affiliates from and against any
and all claims, demands, causes of action, suits, judgments, debts, damages,
losses, liabilities and expenses (including without limitation, court costs and
attorneys' fees) (each a "Loss" and collectively "Losses"), and shall reimburse
Seller upon demand for any and all Losses suffered or incurred by Seller or its
affiliates resulting from or arising out of any of the following:
(a) any untrue representation, breach of warranty or
nonfulfillment of any covenant or agreement by Buyer contained herein or in any
certificate, document or instrument delivered to Seller pursuant to or in
connection herewith;
(b) any liabilities of Seller expressly assumed by
Buyer pursuant to this Agreement and listed on Schedule 1.2;
(c) incident to any of the foregoing or incurred in
investigating or attempting to avoid the same or to oppose the imposition
thereof, or in enforcing this indemnity.
13.2 Seller shall defend, indemnify and hold harmless Buyer,
its employees, officers, directors, agents and affiliates from and against any
and all Losses, and shall reimburse Buyer upon demand for any and all Losses
suffered or incurred by Buyer or its affiliates resulting from or arising out of
any of the following:
(a) any untrue representation, breach of warranty or
nonfulfillment of any covenant by Seller contained herein or in any certificate,
document or instrument delivered to Buyer pursuant hereto or in connection
herewith;
b) any finder's fee or brokerage or other commission
arising by reason of any services alleged to have been rendered to or at the
instance of Seller with respect to this Agreement or any of the transactions
contemplated hereby;
12
<PAGE>
(c) the closing of the Plant or the termination by
Seller of its employees;
d) any claims of restitution or retribution by any
customer, or any fines or penalties arising or resulting from any proceeding
arising out of facts that arose on or prior to the Closing Date now pending or
hereafter imposed or levied by any competent entity whether the same is listed
on a Schedule attached hereto or not;
e) any costs, whether direct or indirect, of any kind
related to employees now employed by Seller who become employed by Buyer and are
thereafter debarred or otherwise prohibited by any entity other than Buyer from
working on government contracts, or whose employment is terminated by Buyer as a
result of demands by such an entity; provided, however, that with respect to
employees now employed by Seller who become employed by Buyer and who spend time
away from work for Buyer, whether in court or otherwise, in connection with any
legal proceedings related to Seller or its officers, shareholders, directors or
affiliates, Buyer shall not be indemnified for (i) the cost of the first two (2)
hours per week so spent away from work and (ii) a total of One Thousand Dollars
($1,000) of expenses incurred by such employees in that regard;
f) any curtailment, cancellation or other termination
of any Material Contract by any entity other than Buyer arising out of facts
that arose on or prior to the Closing Date; and
g) incident to any of the foregoing or incurred in
investigating or attempting to avoid the same or to oppose the imposition
thereof, or in enforcing this indemnity.
13.3 The party seeking indemnification hereunder (the
"Indemnitee") shall give to the party from which indemnification is sought
hereunder (the "Indemnitor") written notice of any claim which is subject to the
indemnity obligations set forth in Section l3.1 or 13.2, as applicable, with
sufficient promptness so as not to prejudice the other party's interests in
respect of such claim and any obligation of indemnity arising therefrom. Such
notice shall set forth all facts and other information which the party giving
the notice has as to the claim. The failure to give prompt notice shall not
affect the rights of the Indemnitee to indemnity hereunder except to the extent
that such failure either shall have materially prejudiced the Indemnitor in the
defense of such claim or shall have increased the amount of the obligation of
the Indemnitor. The Indemnitor receiving such notice shall, within thirty days
of receipt of such notice, (a) deny in writing the claim, (b) pay the amount of
the claim if a monetary amount is involved, or (c) if a claim of a third party
is involved, have the right to assume the defense of such claim. The Indemnitor
shall have the exclusive right to conduct and control, through counsel of its
own choosing, the defense of any such claim or any action arising therefrom,
provided, that in
13
<PAGE>
conducting the defense of any such claim or action, the Indemnitor shall, and
shall cause its counsel to, consult with the Indemnitee and counsel, if any,
selected by it (the costs and fees of which counsel shall be borne by
Indemnitee), and shall keep such counsel, if any, and the Indemnitee fully
advised of the progress thereof. If the Indemnitor fails or refuses to assume
the conduct and control of the defense of any such claim or action, then the
Indemnitee shall conduct and control such defense; provided, however, that in so
conducting the defense of any such claim or action, the Indemnitee shall, and
shall cause its counsel to, consult with the Indemnitor and counsel, if any,
selected by it, and shall keep such counsel, if any, and the Indemnitor fully
advised of the progress thereof. No settlement of any claim for which
indemnification is sought hereunder shall be made without either (x) the prior
written consent of both the Indemnitor and the Indemnitee, which consent shall
not be unreasonably withheld or delayed, or (y) the release of the Indemnitee
from all liability relating to such claim, in form and substance reasonable
satisfactory to the Indemnitee and its counsel.
13.4 In addition to Buyer's rights of offset against the
unpaid portion of the Purchase Price specifically set forth in other Sections of
this Agreement, Buyer has the right to set off against the unpaid portion of the
Purchase Price any judgment it may receive for indemnification hereunder in
addition to, and not in limitation of any other rights Buyer may have at law or
in equity.
13.5 The foregoing provisions of this Article XIII
notwithstanding, no claim for indemnification hereunder with respect to breaches
of any representation or warranty provided in Sections 8.1 through 8.4 and
Sections 8.6 through 8.11 and Article IX shall be valid unless such claim is
made by notice to the Indemnitor within two (2) years after the Closing Date.
Other claims for indemnification may be made at any time.
XIV Miscellaneous.
14.1 Seller and Buyer may amend this Agreement at any time,
but only by written instrument duly authorized and executed by each of them.
14.2 No waiver of any term, provision, or condition of this
Agreement, whether by conduct or otherwise, in any one of more instances, shall
be deemed to be, or construed as, a further or continuing waiver of any such
term, provision, or condition or of any other term, provision, or condition of
this Agreement.
14.3 If any one or more of the provisions contained in this
Agreement is held for any reason to be invalid, illegal, or unenforceable in any
respect, such invalidity, illegality, or unenforceability shall not affect any
other provision hereof and this Agreement shall be construed as if such invalid,
illegal, or unenforceable provision had never been contained herein.
14
<PAGE>
14.4 This Agreement, together with the Schedules and Exhibits
attached hereto, represents the entire agreement between the parties with
respect to the subject matter hereof.
14.5 All terms and provisions of this Agreement shall be
binding upon and inure to the benefit of and be enforceable by and against the
respective successors and assigns of the parties hereto. Nothing in this
Agreement, expressed or implied, is intended to confer upon any person, other
than the parties hereto and their respective successors and assigns, any rights
or remedies under or by reason of this Agreement.
14.6 All notices to a party shall be addressed to such party
at the address set forth below or to such other place as may be designated by
written notice to the other party. Notice shall be sufficient when delivered by
hand; when sent by telecopy with the original thereof posted first-class mail,
postage prepaid, within two (2) business days thereafter; when posted certified
mail, postage prepaid, return receipt requested; or when delivered by a private
courier, requesting evidence of receipt as part of its service. Any such notice
shall be addressed to the party at its telecopy number or its address described
below, and shall be effective when first received. Unless otherwise notified in
writing, each party shall direct all sums payable to the other party at its
address for notice purposes. For purposes hereof, the addresses of the parties
shall be as follows:
Seller:
85 Horsehill Road
Cedar Knolls, NJ 07927
Attention: Mr. Norman R. Wolf, III, President
Telecopier: 904-684-0630
With a copy to:
Robert A. Knee, Esquire
Rand, Algeier, Tosti & Woodruff
Courthouse Plaza
60 Washington Street
Morristown, NJ 07960
Telecopier: 201-984-0430
15
<PAGE>
Buyer:
ST Keltec Corporation
In care of Signal Technology Corporation
975 Benicia Avenue
Sunnyvale, California 94086
Attention: Mr. Michael D. Smith, President
Telecopier: 408-245-3396
With a copy to:
Harry R. Hauser, Esquire
Gadsby & Hannah LLP
125 Summer Street
Boston, MA 02110-1616
Telecopier: 617-345-7050
14.7 This Agreement shall in all respects be construed, enforced, and
given effect according to the laws of the State of Delaware.
14.8 The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the interpretation of substantive
provisions of this Agreement.
14.9 This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
16
<PAGE>
14.10 Each party represents and warrants to the other that (i) all
negotiations relative to this Agreement have been carried on by it directly with
the other, without the intervention of any person on behalf of the former, and
(ii) it will indemnify the other and hold it harmless against and in respect of
any claim for brokerage or other commissions relative to this Agreement, or to
the transactions contemplated hereby, in violation of the foregoing
representation and warranty.
IN WITNESS WHEREOF, the parties have executed this Agreement as a
sealed instrument on the date first above written.
TRANSISTOR DEVICES INC. ST KELTEC CORPORATION
/s/ Norman R. Wolf, III /s/ Michael D. Smith
- ------------------------------- --------------------------------
By: Norman R. Wolf, III By: Michael D. Smith
Title: President President
Military Power Systems & Division
The undersigned Signal Technology Corporation hereby unconditionally guaranties
the performance by ST Keltec Corporation of its obligations under and pursuant
to the foregoing Agreement.
SIGNAL TECHNOLOGY CORPORATION
/s/ Dale L. Peterson
----------------------------------------
By: Dale L. Peterson, Chairman of the
Board of Directors
17
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (the "Agreement") is made and entered
into this 14th day of June, 1996 and is by and between Pulau Electronics
Corporation ("Pulau"), a Florida corporation, and ST Microwave (Arizona)
Corporation ("STMA"), a Delaware corporation and wholly-owned subsidiary of
Signal Technology Corporation ("Parent"), a Delaware corporation.
Recitals
A. STMA is engaged in the manufacture, repair and sale of magnetic core
memory products, and related services (the "Business").
B. Pulau desires to purchase from STMA, and STMA desires to sell to
Pulau, the operating and intangible assets utilized in the conduct of the
Business, on and subject to the terms and conditions contained in this
Agreement.
Terms and Conditions
NOW, THEREFORE, in consideration of the premises and of other good and
valuable consideration, and intending to be legally bound hereby, Pulau and STMA
hereby agree as follows:
ARTICLE I
General Provisions
1.1 Certain Definitions and Meanings; Interpretation: For purposes of
this Agreement, the term "parties" means (except where the context otherwise
requires) Pulau and STMA; the term "person" includes any natural person, firm,
association, partnership, corporation, or other entity other than the parties;
and the words "hereof", "herein", "hereby" and other words of similar import
refer to this Agreement as a whole, including all Annexes and Schedules hereto.
Other terms used herein and identified with initial capital letters shall have
the meanings set forth herein. The table of contents and the headings of the
Articles and sections of this Agreement have been included herein for
convenience of reference only and shall not be deemed to affect the meaning of
the operative provisions of this Agreement. All dollar amounts referred to
herein are in United States Dollars.
<PAGE>
ARTICLE II
Purchase and Sale
2.1 Transactions: On and subject to the terms and conditions of this
Agreement, (a) Pulau will purchase from STMA, and STMA will sell to Pulau, or
cause to be sold to Pulau, all of the Acquired Assets (as hereinafter defined in
Section 2.2), free and clear of any and all liens, security interests, charges,
title restrictions and encumbrances of every kind and nature ("Encumbrances");
(b) Pulau will assume and become directly and solely responsible for the
payment, performance or discharge, as the case may be, of all of the Assumed
Liabilities (as hereinafter defined in Section 2.3); (c) Pulau will pay to STMA
the Purchase Price (as hereinafter defined in Section 2.5) with such payment to
be made as herein provided; (d) Pulau will place a purchase order with STMA for
STMA's supply to Pulau, on a sub-contract basis, of not less than 65 units of
Q65 core memories at such unit prices and delivery schedules as hereinafter
provided; and (e) Pulau will pay to STMA, upon the completion and delivery by
STMA to Pulau of the inventory, fixtures, machinery and equipment and
intellectual property, such additional amounts as provided herein.
Notwithstanding the consummation of such transactions, STMA will remain solely
responsible for the payment, performance or discharge, as the case may be, of
the Excluded Liabilities (as hereinafter defined in Section 2.4).
2.2 Acquired Assets: For purposes hereof, "Acquired Assets" means all
right, title and interest of STMA in and to the following:
(a) good and marketable title, free and clear of all
Encumbrances, to all inventories of STMA on the Closing Date (as hereinafter
defined in Section 4.2) of raw materials, loose core, work-in-process and
finished goods relating to the Business, all as listed or described on Schedule
2.2(a) hereto or otherwise located at or in transit to STMA's Chandler, Arizona
facility, but excluding such of the inventories which are required by STMA for
the manufacture and completion of STMA's backlog as such exists on the Closing
Date and for which STMA is contractually responsible, all of which are listed in
Schedule 2.2(a)(1) hereto ("STMA Backlog"), and to complete the purchase order
issued by Pulau to STMA in connection with the subcontract referred to in
Sections 2.1(d) and 2.7 hereof;
(b) good and marketable title, free and clear of all
Encumbrances, in and to fixtures, tooling and machinery and equipment, used in
the Business, all of which is listed on Schedule 2.2(b) hereto;
(c) those bids and quotations, and similar arrangements, if
any, relating to the sale of core memory goods or services, which have not been
accepted by customers or STMA as of the Closing Date all of which are listed on
Schedule 2.2(c) hereto;
2
<PAGE>
(d) as of the Closing Date, as it relates to the Business as
of the date of this Agreement, the following:
(i) good and marketable title, free and clear of all
Encumbrances, in and to the domestic and foreign patents and patent applications
related to the Business all of which are listed on Schedule 2.2(d)(i) hereto,
including the goodwill associated therewith;
(ii) good and marketable title, free and clear of all
Encumbrances, in and to the domestic and foreign tradenames, trademarks,
copyrights, service marks and all applications and registrations, all of which
are listed on Schedule 2.2(d)(ii) hereto, including the goodwill associated
therewith;
(iii) all of STMA's documentation directly related to
the Business which documentation evidences currently utilized (or under
development) product formulations and associated manufacturing and process
know-how, trade secrets, production methods and procedures, product testing and
quality control, engineering and other drawings, product applications and
specifications and associated know-how, unpatented inventions, research
developments and know-how, technology, product literature and related materials,
current customer and supplier lists and files, and similar marketing data in
writing, including, without limitation, those listed or described on Schedule
2.2(d)(iii) hereto; and
(iv) STMA's books and records (or copies thereof),
which books and records are directly related to the Business, provided that STMA
may utilize such of the foregoing as necessary to complete outstanding orders as
of the Closing Date and the Pulau purchase order and subcontract referred to in
Sections 2.1(e) and 2.7 hereof.
(e) to the extent assignable and relating to the Business, all
permits, approvals, qualifications, licenses and the like issued by any
government or governmental unit, agency, board, body, instrumentality or other
subdivision, whether federal, state or local, and all pending applications for
any of same, all of which are listed on Schedule 2.2(e) hereto; and
(f) subject to the provisions of Section 5.3 hereof, all books
and other records, whether written or in machine-readable form (including,
without limitation, computerized records maintained on tapes, disks and other
electronic or optical storage media), generated in connection with or otherwise
related to the conduct of the Business and the Acquired Assets, and not related
to any other business of STMA.
3
<PAGE>
2.3 Assumed Liabilities: For the purposes hereof, "Assumed Liabilities"
means only the following liabilities and obligations as the same exist at the
Closing Date and which arise from or relate to the conduct of the Business at or
prior to, or after (as hereinafter defined) the Closing Date:
(a) all liabilities and obligations with respect to claims
asserted by third parties after the Closing Date which seek relief in the form
of return, replacement or repair of magnetic core memory products made, repaired
or assembled by or on behalf of STMA in connection with the Business, which are
under warranty as of the Closing Date or are delivered from STMA backlog (as
defined herein) subsequent to the Closing Date, and which are asserted by third
parties on or after the Closing Date pursuant to express written magnetic core
memory product and/or repair warranties extended by STMA and all of which are
set forth on Schedule 2.3(a). The foregoing notwithstanding, in no event
whatsoever will Pulau be responsible for consequential damages, including loss
of profits, with respect to such claims.
2.4 Excluded Liabilities: For the purposes hereof, "Excluded
Liabilities" means, except for those matters referred to in Section 2.3(a)
hereof, all other debts, liabilities and obligations of STMA of every kind and
nature, including the following:
(a) all liabilities and obligations of STMA of whatever nature
and whether known, or unknown, absolute, fixed or contingent or otherwise,
arising out of, resulting from or relating to the conduct of the Business
including all indebtedness, trade accounts payable and accrued expenses;
(b) all liabilities and obligations incurred by STMA in
connection with the conduct of the Business which have been fully discharged or
satisfied at or prior to the Closing;
(c) all liabilities and obligations arising out of, resulting
from or relating to any violation by STMA of any statute, ordinance, regulation
or other governmental requirement in connection with the use and ownership of
the Acquired Assets or conduct of the Business, including environmental matters;
(d) except for product warranty matters which shall be handled
in accordance with Section 2.3(a) hereof, all other pending or threatened
claims, actions or litigation of the Business as of the Closing including
injuries to persons, damages to property and similar matters to the extent
arising out of or relating to the Business;
(e) all federal, state and local income, sales, franchise,
property, sales and other taxes of STMA and the Business;
(f) all liabilities and obligations arising out of, or
resulting from, or relating to claims, whether founded upon negligence, breach
of warranty, strict liability in tort, or other similar legal theory, seeking
compensation or recovery for or relating to injury to person or damage to
property which occurs prior to or after the Closing Date and arises out of or
relates to
4
<PAGE>
core memory products made, repaired or assembled by or on behalf of STMA and
sold by or on behalf of STMA or a representative, agent or distributor or
services rendered by STMA before the Closing, excluding inventories included
within the Acquired Assets which shall be the responsibility and liability of
Pulau and excluding any work done by Pulau on behalf of STMA; and
(g) all liabilities and obligations with respect to employees
of STMA and employee benefit and welfare plans of STMA.
2.5 Purchase Price: For purposes hereof, the term "Purchase Price"
means the aggregate sum of Three Hundred Thousand Dollars ($300,000).
2.6 Payment of Purchase Price. Pulau will pay the Purchase Price as
follows:
(a) Cash on the Closing Date. On the Closing Date, Pulau will
pay STMA the sum of One Hundred Thousand Dollars ($100,000) by means of either a
cashier's check drawn on immediately available funds or a wire transfer of
immediately available funds to an account designated by STMA.
(b) Additional Cash Payments. Pulau will pay to STMA
additional cash payments in the aggregate amount of Two Hundred Thousand Dollars
($200,000) for all inventory, fixtures, tooling, machinery and equipment and
intellectual property which are included in the Acquired Assets and are not
delivered on the Closing Date. Of such aggregate amount, One Hundred and Seventy
Thousand Dollars ($170,000) shall be paid at the time of completion of delivery
(as specified in Section 2.6(c)) to Pulau of the inventories and intellectual
property included in the Acquired Assets by means of either a cashier's check
drawn on immediately available funds or a wire transfer of immediately available
funds to an account which STMA has designated. The remaining Thirty Thousand
Dollars ($30,000) of such aggregate amount shall be paid at the time of
completion of delivery (as specified in Section 2.6(c)) of the fixtures,
tooling, machinery and equipment included in the Acquired Assets and described
on Schedule 2.2(b) hereto, by means of either a cashier's check drawn on
immediately available funds or a wire transfer of immediately available funds to
an account which STMA has designated.
(c) Delivery. Delivery (as defined below) of inventory and
intellectual property included in the Acquired Assets will be complete not later
than thirty (30) days after the Closing Date. Delivery of fixtures, tooling, and
machinery and equipment included in the Acquired Assets shall commence as soon
as possible from and after the Closing Date and continue to the extent possible
without adverse effect (at STMA's sole reasonable determination) to STMA's
contractual obligations with respect to the STMA backlog set forth in Schedule
2.2(a)(1) and the subcontract referred to in Sections 2.1(d) and 2.7 hereof.
Delivery of all Acquired Assets shall be complete not later than thirty (30)
days after delivery of the last Q65 core memory unit
5
<PAGE>
pursuant to the subcontract referred to in Sections 2.1(d) and 2.7 hereof. Pulau
shall pay all reasonable copying, reproduction, duplication, packaging,
labeling, insurance, and freight costs associated with delivery.
Delivery of inventory, fixtures, machinery and equipment, and
intellectual property which are included in the Acquired Assets shall be deemed
to have taken place when such items have been placed in the staging area of
STMA's Chandler, Arizona facility, packaged as specified below, and when STMA
has delivered to Pulau assignments of all patents listed on Schedule 2.2(d)(i)
hereto and trademarks listed on Schedule 2.2(d)(ii) hereto conveying to Pulau
STMA's right, title and interest thereto.
Packaging of inventory items shall be in commercial grade
cardboard boxes. Documentation shall be packaged in the same (or similar)
storage containers as it currently occupies in the ordinary course of business.
Equipment shall not be packaged, but loose cables, accessories and other
appendages shall be secured, and the equipment shall be in a condition
acceptable for shipment by padded van.
2.7 Subcontract. On or before the Closing Date, Pulau will issue its
purchase order to STMA, substantially in the form of Annex 1 hereto, whereby,
among other things, Pulau will subcontract the manufacture by STMA of not less
than 65 units of Q65 core memories and pay STMA a per-unit price of Sixteen
Thousand Five Hundred Dollars ($16,500). Additionally, STMA will, as provided in
Section 2.1(d) hereof, subcontract to Pulau elements of work in the production
of the units of Q65 core memories on such additional terms and conditions as may
be mutually agreed between STMA and Pulau, provided, however, that Pulau has
been qualified as a supplier at no cost to STMA for the anticipated elements of
work, and provided that Pulau must perform to STMA's requirements within the
cost, schedule and quality requirements outlined by STMA. STMA will retain the
right to terminate Pulau for non-performance to contract under the U.S.
Government Federal Acquisition Regulations.
ARTICLE III
Representations and Warranties
3.1 Representations and Warranties: STMA hereby represents and warrants
to Pulau as follows:
(a) Organization and Existence: STMA is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Delaware.
(b) Power and Authority: STMA has full corporate power and
authority to execute, deliver, and perform this Agreement and all other
agreements, certificates or documents to be delivered in connection herewith,
including, without limitation, the other agreements,
6
<PAGE>
certificates and documents contemplated hereby (collectively "Other
Agreements"). STMA has full corporate power and authority to own, lease and
operate the Acquired Assets and to conduct the Business, as same are currently
being conducted.
(c) Authorization: The execution, delivery and performance of
this Agreement and all Other Agreements, by STMA have been duly authorized by
all requisite shareholder and corporate action.
(d) Binding Effect: Upon execution and delivery by STMA, this
Agreement and the Other Agreements will be and constitute the valid, binding and
legal obligations of STMA, enforceable against STMA in accordance with the terms
hereof and thereof, except as the enforceability hereof or thereof may be
subject to the effect of (i) any applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to or affecting creditors'
rights generally, and (ii) general principles of equity (regardless of whether
such enforceability is considered in a proceeding in equity or at law).
(e) No Default: Neither the execution and delivery of this
Agreement or the Other Agreements nor full performance by STMA of its
obligations hereunder or thereunder will violate or breach, or otherwise
constitute or give rise to a default under, the terms or provisions of the
Certificate of Incorporation or By-Laws of STMA or, subject to obtaining any and
all necessary consents, of any contract, commitment or other obligation
included in Acquired Assets or necessary for the operation of the Business
following the Closing Date or any other material contract, commitment, or other
obligation to which STMA is a party, or create or result in the creation of any
encumbrance on any of the Acquired Assets.
(f) No Consents: STMA has, after reasonable inquiry, no
knowledge that any consent, approval or authorization of, or registration,
declaration or filing with any third party, including, but not limited to, any
governmental department, agency, commission or other instrumentality, is
required prior to Closing, except for consents, approvals or waivers to be
obtained pursuant to Section 4.3(a)(2) hereof.
(g) Finders: STMA has not engaged and is not directly or
indirectly obligated to anyone acting as a broker, finder, or in any other
similar capacity in connection with STMA's sale of the Acquired Assets.
(h) No Knowledge of Pulau Default: STMA has no knowledge that
any of the Pulau's representations and warranties contained in this Agreement or
the Other Agreements are untrue, inaccurate or incomplete or that Pulau is in
default under any term or provision of this Agreement or the Other Agreements.
(i) Inventories: STMA has good and marketable title, free and
clear of all liens, charges and encumbrances, to all inventories of every type
and description included in the Acquired Assets.
7
<PAGE>
(j) Personal Property: STMA has good and marketable title to
all of the machinery and equipment listed on Schedule 2.2(b) hereto. All of such
machinery and equipment is and on the Closing Date, will be, in generally good
and operable condition.
(k) Liabilities: STMA is not in default under any nonmonetary
provision, note, bond, debenture, mortgage, indenture, security agreement,
guaranty, or other instrument of indebtedness, and no condition exists which,
with the giving of notice or the passage of time, or both, would constitute such
a default, in either case, which default is or would be likely to have a
material adverse effect on the Business or Acquired Assets.
(1) Litigation: Except as otherwise disclosed on Schedule
3.1(1) hereto, (1) there presently exists no litigation, proceedings, actions,
claims or investigations pending in law or in equity, nor, to STMA's knowledge,
are there any of the foregoing which are threatened, relating to the Acquired
Assets or the Business; and (2) STMA is not subject to any notice, writ,
injunction, order, or decree of any court, agency, or other governmental
authority in connection with the Acquired Assets or the Business. Schedule 3.1
(1) hereto sets forth all pending litigation, proceedings, injunctions or
decrees of any court, agency or governmental authority pending against or
otherwise involving or relating to the Business, the Assumed Liabilities, or the
Acquired Assets.
(m) Permits and Approvals: Except as otherwise disclosed on
Schedule 3.1(m) hereto, insofar as the Business is concerned, (1) STMA is not in
default under any permit, approval or qualification included within the Acquired
Assets, nor to STMA's knowledge is there any existing condition which, with the
giving of notice or the passage of time, or both, would constitute such a
default; in either case which default is likely to have a material adverse
effect on the acquired assets or business, (2) to STMA's knowledge, no
additional permit, approval or qualification of any government or governmental
unit, agency, board, body or instrumentality, whether federal, state or local,
is necessary for the conduct of the Business as same has been and is being
conducted; and (3) there is no lawsuit or proceeding pending or, to STMA's
knowledge, threatened with respect to any of the foregoing.
(n) Compliance with Laws: Except as otherwise expressly
indicated on Schedule 3.1(n) hereto, (1) STMA is in material compliance, with
all laws, ordinances, codes, restrictions, regulations and other legal
requirements applicable to the conduct of the Business, the noncompliance with
which would be likely to have a material adverse effect on the Business; and (2)
there are no lawsuits or proceedings pending or, to STMA's knowledge, threatened
with respect to the foregoing.
(o) Payment of Taxes; Tax Liens: All tax returns and all
documents whether federal, state or local, required to be filed by STMA with
respect to the Business have been or will be filed on or before the date on
which such tax returns or other documents are required to
8
<PAGE>
be filed and all taxes due and payable for all periods ended on the dates for
which such tax returns and other documents cover have been or will be paid on or
before the date on which such taxes are required to be paid. The Acquired Assets
and Business are not and will not be encumbered by any liens arising out of or
relating to unpaid taxes.
(p) Ordinary Course: The Business has been conducted by STMA
in the ordinary and usual course since December 31, 1995. Further, except as
disclosed on Schedule 3.1(p) hereto, STMA knows of, after reasonable inquiry, no
dispute with any customer or vendor of STMA relating to the Business, which is
or would be likely to have a material adverse effect on the Business or Acquired
Assets.
(q) Intellectual Property: Other than those patents and patent
applications listed in Schedule 2.2(d)(i) hereto and those trademarks and other
items listed in Schedule 2.2(d)(ii) hereto, there are no patents and trademarks
or applications therefor which are owned by STMA and used by STMA solely in
connection with the Business as of the date of this Agreement. Except as
otherwise disclosed in Schedules 2.2(d)(i) and 2.2(d)(ii) hereto, no rights or
licenses to any of such intellectual property have been granted to any other
parties. At the Closing Date, STMA will deliver assignments of such intellectual
property conveying to Pulau STMA's right, title and interest thereto. After the
Closing Date, Pulau will grant STMA, Parent or other legal agency acting on
STMA or Parent's behalf, access to all intellectual property included in the
Acquired Assets to the extent required to defend threatened or pending legal
action against STMA or Parent.
Nothing herein shall be construed to grant or imply the grant
of any right or license in Pulau to the use of the trademark "ST"; nor shall
anything herein be construed to grant or imply the grant of any right or license
in Pulau to any patent now or hereafter owned by STMA other than those
specifically set forth in Schedule 2.2(d)(i) hereto.
(r) Products Liability: Except as otherwise disclosed in
Schedule 3.1(r) hereto, there have been no product liability lawsuits
instituted, or to STMA's knowledge threatened, from January 1, 1990 through the
Closing Date with respect to the Business.
3.2 Accuracy of STMA's Representations and Warranties: No
representation, warranty or other statement made by STMA in this Agreement, the
Other Agreements or the schedules hereto or thereto provided to Pulau contains
any untrue statement of a material fact, or omits to state any material fact
necessary to make such representation, warranty or other statement not
misleading, in light of the circumstances in which same was made.
3.3 Pulau's Representations and Warranties: Pulau hereby represents and
warrants to STMA as follows:
(a) Organization and Existence: Pulau is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Florida.
9
<PAGE>
(b) Power and Authority: Pulau has full corporate power and
authority to execute, deliver and perform this Agreement and the Other
Agreements.
(c) Authorization: The execution, delivery and performance of
this Agreement and the Other Agreements by Pulau have been duly authorized by
all requisite corporate action.
(d) Binding Effect: Upon execution and delivery by Pulau, this
Agreement and the Other Agreements will be and constitute the valid, binding and
legal obligations of Pulau enforceable against Pulau in accordance with the
terms hereof and thereof, except as the enforceability hereof and thereof may be
subject to the effect of (i) any applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to or affecting creditors'
rights generally, and (ii) general principles of equity (regardless of whether
such enforceability is considered in a proceeding in equity or at law).
(e) No Default: Neither the execution and delivery of this
Agreement or the Other Agreements nor full performance by Pulau of its
obligations hereunder or thereunder will violate or breach, or otherwise
constitute or give rise to a default under, the terms or provisions of Pulau's
Certificate of Incorporation or By-Laws or of any material contract, commitment,
or other obligation to which Pulau is a party.
(f) Finders: Pulau has not engaged, and is not directly or
indirectly obligated to, anyone acting as a broker, finder or in any other
similar capacity in connection with Pulau's purchase of the Acquired Assets.
(g) No Knowledge of STMA's Default: Pulau has no knowledge
that any of STMA's representations and warranties contained in this Agreement or
the Other Agreements are untrue, inaccurate or incomplete or that STMA is in
default under any term or provision of this Agreement or the Other Agreements.
(h) Pulau's Representations and Warranties True and Complete:
All representations and warranties of Pulau in this Agreement and the Other
Agreements are true, accurate and complete in all material respects as of the
Closing.
3.4 Survival: The parties' respective covenants to the extent
unperformed at Closing, representations and warranties contained in this
Agreement and the Other Agreements will survive the execution and delivery of
this Agreement and the Other Agreements at the Closing.
ARTICLE IV
Closing
4.1 The Closing: For purposes hereof, "Closing" means the time and
place at which the transactions contemplated by this Agreement are consummated
and the documents and instruments referred to in Section 4.3 hereof are executed
and delivered by the parties.
10
<PAGE>
4.2 Time. Date and Place of Closing: The Closing will occur as of the
close of business at 11:59 p.m. (Eastern Daylight Time) on the first business
day following satisfaction of all of the conditions referred to in Article VII
hereof but in no event whatsoever later than June 14, 1996 (the "Closing Date").
The Closing will take place at the offices of STMA in Chandler, Arizona.
4.3 Deliveries at Closing: At the Closing:
(a) STMA shall deliver to Pulau a certificate executed by an
officer of STMA with knowledge of the facts set forth to the effect that:
(1) all corporate and other proceedings or actions
required to be taken by STMA in connection with the transactions contemplated by
this Agreement have been taken;
(2) those consents or approvals, or effective waivers
thereof, to or of assignment, of those persons listed in Schedule 4.3(a)(2)
hereto have been obtained;
(3) all requisite governmental approvals and
authorizations necessary for consummation by STMA of the transactions
contemplated hereby have been duly issued or granted; and
(4) there has not been issued, and there shall not be
in effect, any injunction or similar legal order prohibiting or restraining
consummation by STMA of any of the transactions herein contemplated, and no
legal or governmental action, proceeding or investigation which might reasonably
be expected to result in any such injunction or order is pending.
(b) STMA shall deliver to Pulau:
(1) an executed Bill of Sale in the form set forth as
Annex 2 hereto conveying the owned personal property included in the Acquired
Assets; and
(2) copies of customer warranties as provided in
Section 2.3(a) hereof.
(c) All documents reflecting any actions taken, received or
delivered by STMA pursuant to Sections 4.3(a) and 4.3(b) hereof shall be
reasonably satisfactory in form and substance to Pulau.
(d) Pulau shall deliver to STMA a certificate executed by an
executive officer of Pulau with knowledge of the facts set forth to the effect
that:
(1) all corporate and other proceedings required to
be taken by Pulau in connection with the transactions contemplated by this
Agreement have been taken;
(2) all requisite governmental approvals and
authorizations necessary for consummation by Pulau of the transactions
contemplated hereby have been duly issued or granted; and
(3) there has not been issued, and there is not in
effect, any injunction or similar legal order prohibiting or restraining
consummation by Pulau of any of the transactions
11
<PAGE>
herein contemplated, and no legal or governmental action, proceeding or
investigation which might reasonably be expected to result in any such
injunction or order is pending.
(e) Pulau shall deliver to STMA:
(1) the cash portion of the Purchase Price to be
delivered on the Closing Date; and
(2) the purchase order referred to in Section 2.7
hereof.
(f) All documents reflecting any actions taken, received or
delivered by Pulau pursuant to Sections 4.3(d) and 4.3(e) hereof shall be
reasonably satisfactory in form and substance to STMA.
4.4 STMA's Indemnity Obligation: STMA shall, at its sole cost and
expense, indemnify and defend and hold harmless Pulau from and against the
Excluded Liabilities provided that: (i) STMA is notified as soon as reasonably
practicable in writing of any such claim; (ii) STMA shall have control of the
defense and settlement negotiations; (iii) Pulau shall not be in default,
subject to cure periods, in the payment of any amounts due under this Agreement;
and (iv) Pulau provides STMA information available to Pulau and assistance for
such defense provided STMA reimburses Pulau for all travel and out-of-pocket
expenses.
ARTICLE V
Actions After Closing
5.1 Further Conveyances and Assurances: After the Closing, STMA will,
without further cost or expense to, or consideration of any nature from Pulau,
execute and deliver, or cause to be executed and delivered, to Pulau, such
additional documentation and instruments of transfer and conveyance, and will
take such other and further actions, as Pulau may reasonably request as more
completely to sell, transfer and assign to and fully vest in Pulau ownership to
the Acquired Assets.
5.2 Further Consents to Assignment: With respect to those consents or
approvals (or effective waivers thereof) to or of assignment which are not
obtained on or prior to Closing:
(a) the parties will make all reasonable efforts to obtain
such consents or approvals (or an effective waiver thereof) at the written
request therefor by Pulau after Closing; and
(b) if the parties are unable to obtain such consents or
approvals, or an effective waiver thereof, then, with respect to the contract,
lease, license, permit, approval or other item to or of which such consent or
approval or effective waiver thereof is requested by Pulau in writing after the
Closing, (1) this Agreement shall not constitute or be deemed to be an
assignment or an agreement to assign such item if an attempted assignment
without such consent or approval, or
12
<PAGE>
an effective waiver thereof, would constitute a breach of or default under such
item or create in any party thereto the right or power to cancel or terminate
such item, and (2) STMA will cooperate with Pulau in entering into or effecting
any reasonable arrangement designed to provide Pulau with the benefit of STMA's
rights under or pursuant to such item, including enforcement (at Pulau's expense
which shall include without limitation out-of-pocket expenses of STMA but not
any expenses for the time and effort of STMA personnel) of any and all rights of
STMA against any other party as Pulau may reasonably request.
5.3 Access to Former Business Records: For a period of five (5) years
following the Closing, Pulau will retain all business records constituting part
of the Acquired Assets and Assumed Liabilities. During such period, Pulau will
afford authorized representatives of STMA free and full access to all of such
records at reasonable times and during normal business hours at the principal
business office of Pulau, or at such other location or locations at which such
business records may be stored or maintained from time to time, and will permit
such representatives to make abstracts from, or copies of, any of such records,
or to obtain temporary possession of any thereof as may be reasonably required
by STMA at STMA's sole cost and expense. During such period, Pulau will, at
STMA's expense, cooperate with STMA in furnishing information, evidence,
testimony, and other reasonable assistance in connection with any action,
proceeding, or investigation relating to STMA's conduct of the Business prior to
the Closing.
5.4 Customer Inquiries: STMA will, from and after the Closing Date,
refer to Pulau all customer inquiries, requests for bids and quotations and the
like as may relate to the Business.
5.5 Transitional Assistance: In the event that Pulau should request
assistance of STMA personnel with respect to the shipment of inventory,
machinery and equipment and process technology transfer or to support Pulau's
proposal and/or production activity which may be required prior to completion of
shipment of all machinery and equipment to Pulau, then in such event STMA would
provide all such assistance to the extent available and Pulau would reimburse
STMA, on a monthly basis, amounts set forth in Schedule 5.5 hereto.
ARTICLE VI
Covenant Not to Compete
As a material inducement to Pulau's becoming a party to this Agreement,
STMA agrees that, except for the subcontracting to be provided by STMA in
accordance with the provisions of Section 2.7, from and after the Closing Date,
STMA will not at any time, during the fifteen (15) years after the date hereof,
and will not cause or permit at any time during the fifteen (15) years after the
date hereof, any of its affiliates, including Parent, to, directly or
indirectly, alone or in
13
<PAGE>
association with any other person, firm, corporation or other business
organization, manufacture or repair or offer for sale, or solicit sales for, any
magnetic core memory products including those currently manufactured or sold by
STMA or any magnetic core memory products which STMA currently has plans to
manufacture or sell or any other magnetic core memory products similar thereto
which compete with such magnetic core memory products, or carry on, or be
engaged or concerned in, take part in, own, or share in the earnings of, any
person, firm, corporation or other business organization engaged in, a business
which manufactures or markets such magnetic core memory products (a "Similar
Business");
As a separate and independent covenant, STMA and Parent agree that,
except for the subcontracting to be provided by STMA in accordance with the
provisions of Section 2.7, from and after the Closing Date, STMA and Parent will
not at any time, during the fifteen (15) years after the date hereof, and STMA
and Parent will not at any time, during the fifteen (15) years after the date
hereof, cause or permit any of their affiliates to, in any way, directly or
indirectly, for the purpose of conducting or engaging in any Similar Business,
to take away or interfere or attempt to interfere with any customer, trade,
business or patronage of Pulau relating to the Acquired Assets or of any
affiliate of Pulau relating to a Similar Business, or interfere with or attempt
to interfere with any officers or employees of Pulau relating to the Purchased
Assets or of any affiliate of Pulau relating to a Similar Business, or induce or
attempt to induce any of them to leave the employ of Pulau or of any affiliate
of Pulau or violate the terms of their contract with any of them (provided that
STMA has knowledge of such contract.
ARTICLE VII
Conditions
7.1 Conditions to Pulau's Obligations: The obligation of Pulau to
consummate the transactions contemplated by this Agreement is subject to the
satisfaction of the following conditions at or before the Closing;
(a) Northrop Grumman: The award by Northrop Grumman,
Electronic Space and Systems Division ("Northrop") to Pulau of a contract for
the production and delivery by Pulau of not less than 95 units of Q65 core
memories to Northrop on terms and conditions acceptable to Pulau; provided,
however, that Pulau shall not accept an award by Northrop to Pulau of a contract
for the production and delivery by Pulau for the 95 units of Q65 core memories
on or before the Closing Date without prior written consent of STMA and issuance
of the subcontract referred to in Section 2.7 to STMA.
(b) Truth of Representations and Warranties: The
representations and warranties of STMA contained in this Agreement and STMA's
Schedules as updated from time to time from
14
<PAGE>
the date hereof through the Closing shall be true, accurate, and complete in all
material respects as of the Closing, except with respect to the effect of
transactions contemplated or permitted by this Agreement and except with respect
to the effect of the passage of time upon dated material in the Schedules and
Pulau shall have been given an officer's certificate to such effect.
(c) Performance of Covenants: STMA shall have performed and
complied with all agreements and conditions required by this Agreement to be
performed or satisfied by STMA, and STMA shall have delivered to Pulau all
documents, certificates, and instruments required to be delivered by STMA under
the terms of this Agreement and Pulau shall have been given an officer's
certificate to such effect.
(d) Corporate Proceedings: All corporate and other proceedings
or actions to be taken by STMA in connection with the transactions contemplated
by this Agreement, and all documents incidental thereto, shall be reasonably
satisfactory in form and substance to Pulau.
(e) Consents: All third party consents and approvals listed in
Schedule 4.3(a)(2) hereto shall have been obtained.
(f) No Restraints: There shall not have been issued and in
effect any injunction or similar legal order prohibiting or restraining
consummation of any of the transactions herein contemplated and no legal action
or governmental investigation which might reasonably be expected to result in
any such injunction or order shall be pending.
(g) Governmental Approvals: All requisite governmental
approvals and authorizations necessary for consummation of the transactions
contemplated hereby shall have been duly issued and granted.
(h) No Adverse Change: There shall have been no material
damage, destruction or loss (whether or not covered by insurance) materially and
adversely affecting the Business after March 31, 1996.
(i) Customer Notification: STMA shall have notified in writing
each of its customers with which it has at the Closing Date executory agreements
involving the Business that, from and after the Closing Date, (i) it will not
accept core memory products for repair or any orders for any such products, (ii)
Pulau is the owner of the Business and, (iii) with respect to the repairs and
other matters relating to the Business, such customers should communicate with
Pulau.
7.2 Conditions to STMA's Obligations: The obligation of STMA to
consummate the transactions contemplated by this Agreement is subject to the
satisfaction of the following conditions at or before the Closing:
(a) Truth of Representations and Warranties: The
representations and warranties of Pulau contained in this Agreement and Pulau's
Schedules as updated from time to time from the date hereof through the Closing
shall be true, accurate, and complete in all material
15
<PAGE>
respects as of the Closing, except with respect to the effect of the passage of
time upon dated material in the Schedules and STMA shall have been given an
officer's certificate to such effect.
(b) Performance of Covenants: Pulau shall have performed and
complied with all agreements and conditions required by this Agreement to be
performed or satisfied by Pulau, and Pulau shall have delivered all documents,
certificates, and instruments required to be delivered by Pulau under the terms
of this Agreement and STMA shall have been given an officer's certificate to
such effect.
(c) Corporate Proceedings: All corporate and other proceedings
to be taken by Pulau in connection with the transactions contemplated by this
Agreement, and all documents incidental thereto, shall be reasonably
satisfactory in form and substance to STMA.
(d) No Restraints: There shall not have been issued and in
effect any injunction or similar legal order prohibiting or restraining
consummation of any of the transactions herein contemplated and no legal action
or governmental investigation which might reasonably be expected to result in
any such injunction or order shall be pending.
(e) No Adverse Change: There shall have been no material
adverse changes (whether or not in the ordinary and usual course of business) in
the financial condition, net worth, assets, liabilities, personnel, business or
results of operations of Pulau after March 31, 1996.
(f) Governmental Approvals: All requisite governmental
approvals and authorizations necessary for consummation of the transactions
contemplated hereby shall have been duly issued and granted.
7.3 Termination: This Agreement may be terminated, without liability on
the part of either party to the other, by either STMA or Pulau if:
(a) Completion Date. The conditions precedent referred to in
Article VII hereof have not for whatever reason, or no reason at all, been
completed by June 14, 1996; or
(b) Non-Fulfillment of Conditions. Any of the conditions
precedent to the respective obligations of the parties under this Agreement have
not been satisfied or waived on or prior to the Closing Date, provided, however,
the parties hereto will from time to time after the date hereof, advise each
other as to the satisfaction of such conditions as and when they are completed.
7.4 Risk of Loss: Risk of loss shall pass at delivery. In the event of
any damage or destruction of any of the Acquired Assets prior to their delivery
to Pulau, STMA agrees to make an equitable adjustment to the Purchase Price but
in no event less than the actual insurance proceeds received by STMA
attributable to the damaged or destroyed Acquired Assets. STMA agrees to keep in
force such insurance with respect to the Acquired Assets as was in place prior
to December 31, 1995 until all remaining items of the Acquired Assets have been
delivered to
16
<PAGE>
Pulau. In the event of any loss or damage to any of the Acquired Assets listed
in Schedule 2.2(b) as to which STMA receives no insurance proceeds, STMA's
liability shall be limited to the actual cost of repair or replacement thereof,
including labor and parts, but in no event shall such liability in the aggregate
with respect to all such Acquired Assets exceed the sum of Thirty Thousand
Dollars ($30,000).
ARTICLE VIII
Indemnification
8.1 Indemnification of STMA: Pulau will indemnify, defend, and hold
STMA and its affiliates and their respective officers, directors and employees,
harmless from and against, any and all liabilities, damages, losses, claims,
costs and expenses (including reasonable attorneys' fees and court costs)
arising out of or resulting from any of the following:
(a) the inaccuracy or falsehood of any representation, or the
breach of any warranty by Pulau contained in this Agreement or the Other
Agreements;
(b) the breach by Pulau of any covenant contained in this
Agreement or the Other Agreements; and
(c) any failure by Pulau on or after the date of the Closing
(i) to pay or satisfy, or to cause to be paid or satisfied, any of the Assumed
Liabilities when due and/or payable, or (ii) to perform any other obligations
required to be performed by Pulau pursuant to this Agreement or the Other
Agreements.
8.2 Indemnification of Pulau: STMA will indemnify, defend and hold
Pulau and its affiliates and their respective officers, directors and employees,
harmless from and against any and all liabilities, damages, losses, claims,
costs and expenses (including reasonable attorneys' fees and court costs)
arising out of or resulting from any of the following:
(a) the inaccuracy or falsehood of any representation, or the
breach of any warranty by STMA contained in this Agreement, the Other Agreements
or the Schedules hereto;
(b) the breach by STMA of any covenant contained in this
Agreement or the Other Agreements; and
(c) any failure by STMA (i) to pay or satisfy, or to cause to
be paid or satisfied, any of the Excluded Liabilities, or any other liabilities
which are not Assumed Liabilities hereunder, when due and payable, or (ii) to
perform any other obligations required to be performed by STMA pursuant to this
Agreement and the Other Agreements.
8.3 Procedure for Claims: If either STMA or Pulau (including, in either
case, parent corporations, subsidiaries and affiliates) (the "Claimant") desires
to make a claim against any party obligated to provide indemnification under
Sections 8.1 or 8.2 hereof, respectively (the
17
<PAGE>
"Indemnitor"), with respect to any matter covered by such indemnification
obligation, the procedures for making such claim shall be as follows:
(a) Third Party Claims: If the claim is for indemnification
with respect to any action, suit, proceeding or demand at any time instituted or
asserted against, or made upon, the Claimant by or on the behalf of a third
party (a "Third Party Claim"), the Claimant will give prompt written notice to
the Indemnitor of the institution, assertion or making of the Third Party Claim,
and the nature thereof. Upon delivery of such notice the claim specified herein
shall be deemed to have been made for purposes of this Agreement. The Indemnitor
shall, within ten (10) days after receipt of such notice, give written notice to
the Claimant as to whether or not the Indemnitor accepts the responsibility to
defend and indemnify Claimant with respect to the Third Party Claim. If the
Indemnitor accepts the responsibility to defend and indemnify the Claimant with
respect to the Third Party Claim, the Claimant will then grant to the Indemnitor
authority, and the Indemnitor will defend and proceed, at its sole expense, to
cure, defend, compromise or settle the Third Party Claim, in the name of the
Claimant or otherwise; provided, however, that any such defense of the Third
Party Claim shall be conducted by counsel reasonably satisfactory to the
Claimant, and that the Indemnitor shall not enter into any final compromise or
settlement of the Third Party Claim without the prior written consent to
Claimant. If the Indemnitor denies the responsibility to defend and indemnify
the Claimant with respect to the Third Party Claim, or if the Indemnitor fails
to respond in a timely manner to Claimant's notice of the Third Party Claim or
fails to proceed in a diligent and timely manner to cure, defend, compromise or
settle a Third Party Claim for which it has accepted responsibility pursuant to
the foregoing provisions, the Claimant may then, proceed to cure, defend,
compromise or settle such Third Party Claim as it shall in its sole discretion
deem to be advisable, without prejudice to any right to indemnification Claimant
may have against the Indemnitor with respect thereto, whether pursuant to this
Agreement or otherwise.
(b) Non-Third Party Claims: If the claim is for
indemnification with respect to a matter other than a Third Party Claim, the
Claimant will give timely written notice to the Indemnitor of such claim,
setting forth with reasonable particularity the basis, nature and dollar amount
thereof. Upon delivery of such notice the claim specified therein shall be
deemed to have been made for purposes of this Agreement. The Indemnitor shall,
within thirty (30) days after receipt of such notice, give written notice to the
Claimant as to whether or not the Indemnitor accepts the responsibility to
indemnify Claimant with respect to such claim. If the Indemnitor accepts the
responsibility to indemnify the Claimant with respect to such claim, the
Indemnitor shall immediately pay to the Claimant the amount set forth in the
notice thereof, with such payment to be made in immediately available funds, and
upon actual receipt of such payment by the Claimant such claim shall be deemed
to have been satisfied. If the Indemnitor denies the
18
<PAGE>
responsibility to indemnify the Claimant with respect to such claim, or if the
Indemnitor fails to respond in a timely manner to notice of such claim, the
liability of the Indemnitor to the Claimant for indemnification with respect to
such claim shall be determined by a judgment entered by a court of competent
jurisdiction, or by written consent of the Indemnitor.
(c) Limitation: Claims pursuant to the foregoing provisions of
this Article VII must be made by claimant within two years after the Closing
Date, and in no event shall impose liability upon the Indemnitor an amount
greater than the Purchase Price. The foregoing limitation shall not in any
manner apply with respect to either the Assumed Liabilities or the Excluded
Liabilities.
ARTICLE IX
Miscellaneous
9.1 Cooperation: The provision of Section 5.2 notwithstanding, Pulau
and STMA will each cooperate with the other, at the other's request and expense,
in furnishing information, testimony, and other assistance in connection with
any actions, proceedings, arrangements, disputes with other persons or
governmental inquiries or investigations involving STMA's or Pulau's conduct of
the Business or the transactions contemplated hereby.
9.2 Severability: If any provision of this Agreement shall be finally
determined to be unlawful or unenforceable, then such provision shall be deemed
to be null and void and to be severed from this Agreement, and every other
provision of this Agreement shall remain in full force and effect provided,
however, that if this paragraph becomes applicable and if the effect thereof is
to substantially impair the value of this Agreement to either party, the
affected party may terminate this Agreement by written notice to the other.
9.3 Expenses: Except as otherwise provided in Section 9.4 or Section
9.5 hereof, each party will bear its own expenses incurred in connection with
this Agreement and the transactions contemplated hereby, whether or not such
transactions shall be consummated.
9.4 Transfer and Property Taxes: STMA and Pulau will share in equal
amounts any and all transfer taxes, if any, which may result from the transfer
of the Acquired Assets from STMA to Pulau. Notwithstanding the foregoing, Pulau
agrees to provide STMA with a tax exemption certificate acceptable to the taxing
authorities stating that the inventory is being purchased for resale. All
federal, state and local income taxes relating to the conduct of the Business
until the Closing Date shall be the sole responsibility of STMA. STMA has
currently paid property tax on the personal property involved in this
transaction through the last tax year ended prior to the Closing Date of the
applicable taxing authority, and will be liable for, and agrees to pay, personal
property taxes on this property through the Closing Date.
19
<PAGE>
9.5 Bulk Sales Compliance: Pulau waives compliance by STMA with the
applicable provisions of the Uniform Commercial Code regarding bulk sales, or
any other similar bulk sales law, as presently in effect, and STMA covenants and
agrees to pay and discharge when due all claims of creditors which could be
asserted against Pulau by reason of such non-compliance.
9.6 Notices: All notices, requests and other communications hereunder
shall be in writing and shall be effective upon receipt. Notices shall be
addressed:
If to Pulau: Pulau Electronics Corporation
12423 Research Parkway
Orlando, Florida 32826
Attn: Chief Financial Officer
Telefax: 407-381-9476
If to STMA: ST Microwave (Arizona) Corporation
340 N. Roosevelt Avenue
Chandler, Arizona 85226
Attn: President
Telefax: 602-961-6209
with a copy to: Signal Technology Corporation
955/975 Benicia Avenue
Sunnyvale, California 94086
Attn: President
Telefax: 408-730-6333
provided, however, that if either party shall have designated a different
address by notice to the other given as provided above, then any subsequent
notice shall be addressed to such party at the last address so designated.
9.7 Assignment: This Agreement shall be binding upon and inure to the
benefit of the successors of each of the parties hereto, but shall not be
assignable by either party without the prior written consent of the other party.
9.8 No Third Parties: This Agreement is not intended to, and shall not,
create any rights in or confer any benefit upon any person other than the
parties hereto. The assumption of any liability or obligation by Pulau pursuant
to this Agreement and the exclusion of any liability or obligation hereunder
shall have effect and shall create enforceable rights only as between the
parties to this Agreement, and is not intended to and shall not be enforceable
by, create any rights of whatever nature in, or confer any benefit upon any
person other than the parties to this Agreement.
9.9 Incorporation by Reference: The Schedules to this Agreement
constitute integral parts of this Agreement and are hereby incorporated into
this Agreement by this reference.
20
<PAGE>
9.10 Governing Law: This Agreement shall be interpreted and construed
and legal relations created shall be determined in accordance with the laws of
Arizona as though this Agreement were entered into by residents of Arizona to be
wholly performed in Arizona.
9.11 Counterparts: More than one counterpart of this Agreement may be
executed by the parties hereto, and each fully executed counterpart shall be
deemed an original without production of the others.
9.12 No Agency: Nothing in this Agreement shall make either party the
agent of the other for any purpose whatsoever. Neither party shall bind or
attempt to bind the other to any agreement or the performance of any obligation,
nor represent that it has any right to enter into any undertaking on behalf of
the other.
9.13 Force Majeure: Neither party shall be liable for any failure to
perform its obligations hereunder if such failure arises out of causes beyond
its control, including, but not limited to acts of God, governmental action,
nationalization, embargo, expropriation, labor disputes, strikes, riots,
insurrection or inability to secure materials, labor or transportation. In the
event of such delay, the time for such performance shall be extended for a
period equal to the duration of such delay so caused. Each party shall give the
other party notice of any event of force majeure immediately after it becomes
known to such party.
9.14 Complete Agreement: This Agreement sets forth the entire
understanding of the parties hereto with respect to the subject matter hereof
and supersedes all prior letters of intent, agreements, covenants, arrangements,
communications, representations, or warranties, whether oral or written, by any
officer, employee, or representative of either party relating thereto. It cannot
be modified or amended except by a writing signed by authorized representatives
of the parties. There are no warranties, representations or conditions except
those expressly stated in this Agreement and the Schedules hereto.
IN WITNESS WHEREOF, Pulau and STMA have each caused this Agreement to
be executed by their respective duly authorized officers, as of the date first
above written.
ATTEST: PULAU ELECTRONICS CORPORATION
By: Robert Esposito By: Gary Y. Nakata
--------------------- -------------------------
Title: Controller Title: Secretary
------------------ ----------------------
21
<PAGE>
ATTEST: ST MICROWAVE (ARIZONA) CORPORATION
By: Robert Esposito By: Gene L. Joles
--------------------- -------------------------
Title: Controller Title: President
------------------ ----------------------
ATTEST: SIGNAL TECHNOLOGY CORPORATION
(As to Article VI Only)
By: Robert Esposito By: Russ D. Kinsch
--------------------- -------------------------
Title: Controller Title: Assistant Secretary
------------------ ----------------------
22
AGREEMENT AND INSTRUMENT OF PURCHASE AND SALE
This agreement and instrument of purchase and sale (herein
"Instrument") entered into as of the 24th day of May, 1996 ("Instrument Date")
is by and between ST Microwave Corporation, a Delaware corporation with its
principal offices at 955 Benicia Avenue, Sunnyvale, California, 94086 ("Seller")
and Communications & Power Industries, Inc., a Delaware corporation, operating
through its Satcom Division located at 3200 Patrick Henry Drive, Santa Clara,
California, 95054 ("Buyer").
Subject to all of the terms and conditions of this Instrument, the
parties hereto represent, warrant, sell, assume and agree as follows:
1. Sale of Assets
Seller hereby sells, assigns and transfers to Buyer, and Buyer hereby
buys and accepts from Seller, all of Seller's right, title and interest in the
following assets (collectively "Assets") of Seller's Benecia Communications
Division ("Transceiver Business") whose business is the design, manufacture, and
sale of radio frequency transceivers ("Transceivers").
1.1 Equipment. All machinery, tooling, appliances, equipment (including
essential replacement parts), other tangible personal property of every
kind and description owned or leased by Seller and primarily utilized
by Seller in operation of the Transceiver Business and any transferable
supplier warranty rights related thereto, if any, (collectively
"Equipment"). A summary of Equipment as of _____________ is attached as
Exhibit 1.1.
1.2 Inventories. All of Seller's supplies and inventories of finished
parts, raw materials, work in process, and finished goods with respect
to the Transceiver Business as of the Instrument Date (collectively
"Inventories"). A summary of Inventory as of __________ is attached
as Exhibit 1.2.
1.3 Other Contracts and Open Bids. All other purchase orders
(acknowledged or otherwise), open bids, orders resulting from open
bids, contracts, claims against other parties (including without
limitation unliquidated rights under manufacturers' or vendors'
warranties or guarantees), rights under commitments, unbilled
receivables, down payments, progress or advance payments already
received and portions already deducted by the customer from the
billings related to sales contracts specifically assumed by Buyer
pursuant to this Instrument, and other agreements and licenses, if any,
of Seller relating primarily to the Transceiver Business on the
Instrument Date ("Contracts"). A definitive backlog list of open
purchase orders and contracts as of ______________ is attached as
Exhibit 1.3.
1
<PAGE>
1.4 Books and Records. Except those books, records and documents which
Seller is legally required to retain (copies of which have been and
will be provided to Buyer and made available to Buyer for inspection
and review during reasonable business hours), all records of the
Transceiver Business relating to any or all of the above-described
Assets or the operation of the Transceiver Business, including but not
limited to all trade secrets, engineering drawings, product design,
computer design data and programs, blueprints, specifications,
technical documentation, memoranda, data, marketing information and
customer lists related to the products designed, manufactured or sold
by the Transceiver Business.
1.5 Licenses. A fully paid up license to utilize all patents, trade
secrets and designs owned by Signal Technologies Corporation and any
Division or Subsidiary thereof which are necessary for the continuing
development, production, and support of the Transceiver Business.
1.6 Other Nonexcluded Assets. It is the intent of the parties that the
entire operation assets of the Transceiver Business shall be sold and
transferred to Buyer hereunder. Therefore, in the event that it is
discovered that other assets or properties possessed and used by Seller
primarily in the Transceiver Business of the type intended to be sold
and transferred hereunder are not reflected on the exhibits attached
hereto, such other assets and properties shall be deemed sold to Buyer
as Assets hereunder and Seller shall take such action as may be
necessary to transfer title thereof to Buyer.
1.7 No Other Assets or Rights Transferred to Buyer. Except as set forth
in Sections 1.1 through 1.6 above, nothing in this Agreement shall be
construed as conferring on Buyer, and Buyer shall not acquire hereby,
any right, title or interest to or in any other property or assets of
Seller, whether tangible or intangible. Buyer shall not have any right,
title or interest in or to the operation, products, property, patents,
technology, know-how, cash, cash equivalents, financial resources,
insurance coverages, management services or assets of Seller which are
not Assets as described herein, nor any others specifically excluded
herein, and Buyer shall not have any right, title or interest in or to
any other operation, subsidiary or division of Seller.
Buyer shall not acquire any right, title or interest in or right to use
the name "Benecia Communications" or any other trademarks or trade
names of Seller.
2. Payment
As consideration of the Assets purchased by Buyer pursuant to this
Instrument, Buyer hereby assumes the liabilities described in Section 4 below
and hereby agrees to pay Seller in United States currency EIGHT HUNDRED THOUSAND
DOLLARS (US$800,000) ("Purchase Price") as follows:
2
<PAGE>
2.1 Payment Terms. Buyer shall pay to Seller the sum of $640,000 by
wire transfer within five days of the signing of this Agreement by both
parties, with the balance of $160,000 payable seven (7) working days
thereafter.
2.2 Purchase Price Allocation. Buyer shall provide Seller with the
allocation of Purchase Price within sixty (60) days of the Instrument
Date. The Purchase Price allocation shall be based upon the estimated
fair market value of the Assets acquired. Buyer and Seller agree to
comply with Section 1060 of the Internal Revenue Code of 1986 in making
the allocation of the Purchase Price among the Assets and in making all
necessary filing including but not limited to Section 1060.
3. Bulk Transfer Waiver
Buyer waives compliance with the requirements or provision of the bulk
transfer laws of any state or jurisdiction in which the Assets are located or
are to be transferred, including but not limited to the Uniform Commercial Code,
the Uniform Fraudulent Transfers Act and California Commercial Code Section 6101
et seq. In addition to the general indemnity provided under Section 10 hereof,
Seller specifically agrees to indemnify and save Buyer harmless against any and
all loss, claim, expenses or damage, including attorneys fees, arising out of
noncompliance with such bulk transfer laws.
4. Liabilities
Buyer hereby assumes all the liabilities and obligations of the
Transceiver Business as disclosed or referenced on the Exhibits identified in
this Section 4, and in accordance with the terms and conditions thereof and
below, as follows:
4.1 Sales and Service Contracts. All executory or partially executory
Contracts, including but not limited to offers and firm quotations of
Seller for the sale of Transceiver Products, Transceiver Parts or
Transceiver Services as described in Section 1.3 and/or listed in
Exhibit 1.3 and which remain executory or open in whole or in part on
the Instrument Date;
4.2 Purchases of Material and Supply Contracts. Each executory or
partially executory Contract for the purchase or lease of Equipment and
Inventories, limited to those for related goods, supplies, materials
and/or services for the manufacture and sale of Transceiver Products,
Transceiver Parts or Transceiver Services, as described in Section 1.3
and/or listed in Exhibit 1.3, and further including advance and
progress payment obligations, if any, on and after the Instrument Date.
Seller will deliver or make available to Buyer a complete and correct
list of purchase commitments as of the Instrument Date;
4.3 Post Closing Liabilities. All liabilities for or arising out of
operation of the Transceiver Business after the Instrument Date,
including but not limited to sales, service,
3
<PAGE>
warranty obligations and liability to third parties for bodily injury
or property damage relating to all Transceiver Products, parts and
services, sold, delivered or rendered by Buyer after the Instrument
Date; and
4.4 Excluded Liabilities. Except as expressly and specifically set
forth above in this Section 4 and in Sections 5,6,7,10, and 15 hereof,
Buyer assumes no liability for any obligation, commitment or liability
of Seller or the Transceiver Business, and Seller agrees that it shall
remain liable for all such unassumed obligations, commitments or
liabilities.
5. Assignment or Novation of Specific Contracts, Rights, Etc.
This Instrument shall not constitute an agreement to assign any right,
title or interest in, to or under any contract, license, lease, commitment,
sales, order, purchase order or other agreement or any claim or right to any
benefit arising under this Instrument or resulting from it if an attempted
assignment thereof, without the consent of a third party, would constitute a
breach thereof, or any way adversely affect the rights of Buyer or Seller under
this Instrument. This shall be true despite anything contained in this
Instrument to the contrary.
Each party shall use all reasonable efforts to assist the other in
seeking novation or consent to assignment to Buyer if the specific agreements
between Seller and third parties in all cases in which the consent of third
parties is required for novation or assignment. Buyer shall accept such novation
or assignment on the same terms as the existing contract. Buyer and Seller will
continue to cooperate with each other in good faith after the Instrument Date to
effectuate the assignment or novation of remaining such contracts and
obligations and the economic benefits thereof to Buyer. If such novation or
assignment cannot be made as aforesaid, Buyer shall perform the remaining
obligations under such contracts as a subcontractor to Seller and shall receive
the rights and benefits of Seller thereunder to the extent that such obligations
can be so subcontracted and such rights and benefits can be so assigned. All
agreements that may be required to be novated or assigned are included among the
Contracts identified in Section 1.3 and listed on Exhibit 1.3. To the extent any
such Contracts are not assigned, novated or subcontracted by Buyer's de facto
performance, Seller shall remain responsible for their performance.
6. Taxes
Buyer shall pay all sales, use, transfer and similar taxes arising out
of the transfer of Assets herein, but not any income taxes of Seller. Buyer
shall provide Seller with appropriate resale certificates. State and local real
and personal property taxes related to the Transceiver Business for the current
tax year shall be prorated between Buyer and Seller on the following basis:
Seller shall be responsible for payment of all such taxes for the period up to
and including the Instrument Date; and Buyer shall be responsible for payment of
all such taxes for the period from and after the Instrument Date. Any
supplemental property taxes or assessments which arise from the change in
ownership of the assets shall be the sole responsibility of Buyer. Buyer shall
not be
4
<PAGE>
responsible for any business, occupation, withholding or similar tax, or for any
taxes of any kind for any period prior to the Instrument Date. Seller shall not
be responsible for any business, occupation, withholding or similar tax, or for
any taxes of any kind for any period after the Instrument Date. Any payments due
from one party to the other pursuant to this Section 6 shall be paid on or
within thirty (30) days following the Instrument Date. If the current year's
taxes and assessments are not available as of the Instrument Date, for purposes
of apportionment between Buyer and Seller and payment pursuant to this Section
6, the amount thereof shall be estimated on the basis of the prior year's taxes
and assessments and any incremental payment shall be adjusted within fifteen
(15) days of receipt of the final tax statements.
7. Representations and Warranties of Buyer
Buyer represents and warrants that the following facts and
circumstances are as of the Instrument Date true and correct:
7.1 Buyer is a corporation, duly organized, validly existing in good
standing under the laws of Delaware, with corporate power and authority
to enter into this Instrument and to perform its obligations hereunder;
7.2 This Instrument constitutes a legal and binding obligation of
Buyer, enforceable in accordance with its terms;
7.3 The execution and delivery of this Instrument and the consummation
of the transaction described herein ("Transaction") by Buyer has been
duly authorized by all necessary corporate actions of Buyer and no
further corporate authorization is or will be necessary on the part of
Buyer; and
7.4 The execution, delivery and performance of this Instrument by buyer
will not violate any provision of, conflict with, result in a breach
of, constitute a default under, result in the acceleration of or cause
any lien or encumbrance to arise from, the corporate charter or bylaws
of Buyer, or any court order judgment, arbitration award, decree,
mortgage, indenture, agreement or other instrument by which Buyer is
bound.
Except as provided in this Section 7, no warranties or representations,
express or implied, are made by Buyer to Seller. Buyer's representations and
warranties shall survive for a period of one year from the Instrument Date.
8. Representations and Warranties of Seller
Seller represents and warrants that the following facts and
circumstances are as of the Instrument Date true and correct:
8.1 Seller is a corporation duly organized, validly existing, and in
good standing under the
5
<PAGE>
laws of Delaware, with the corporate power and authority to enter into
this Instrument and to perform its obligations hereunder;
8.2 This Instrument constitutes a legal and binding obligation of
Seller, enforceable in accordance with its terms;
8.3 The execution and delivery of this Instrument and the consummation
of the Transaction by Seller, has been duly authorized by all necessary
corporate actions of Seller and no further authorization is or will be
necessary on the part of the Seller.
8.4 Title to Assets. Seller has good and marketable title to the Assets
free and clear of any liens or encumbrances;
8.5 Patents. Seller does not own or possess the legal right to any
patents for the Transceivers. Seller has not been informed by any third
party that products being designed, manufactured or sold by Seller in
the normal and ongoing operations of the Transceiver Business infringe
on patent rights of another; and
8.6 Contracts. Seller will deliver or make available to Buyer a
complete and correct list as of the Instrument Date of all of the
Transceiver Business's contracts, orders and commitments together with
all amendments thereto, directly and materially related to the
Transceiver Business.
Except as provided in this Section 8, no warranties or representations,
express or implied, are made by Seller to Buyer regarding the Transceiver
Business or the Assets. Seller specifically disclaims any warranty whatsoever as
to the continued viability of the Transceiver Business after its transfer to
Buyer. Seller's representations and warranties shall survive for a period of one
year from the Instrument Date.
9. Obligations of Seller
Within seven (7) working days of the Instrument Date, Seller shall put
Buyer or its designee into full possession of all the Assets. Seller shall at
Buyer's expense, execute, acknowledge and deliver any further deeds,
assignments, conveyances, and other assurances, documents and instruments of
transfer, reasonably required by Buyer pursuant to this Instrument, and Seller
shall take any other action consistent with the terms of this Instrument, that
may reasonably be requested by Buyer for the purpose of assigning, transferring,
granting, conveying, reducing to possession and confirming to Buyer or its
designee any and all Assets to be conveyed and transferred by this Instrument.
6
<PAGE>
10. Indemnifications
10.1 Seller's Indemnification. Seller shall indemnify and hold harmless
Buyer from and against loss arising out of or resulting from any
liability or claim in respect of any misrepresentation made by Seller
in this Instrument or any breach of a surviving representation by
Seller under this Instrument.
10.2 Buyer's Indemnification. Buyer shall indemnify and hold harmless
Seller from and against loss arising out of or resulting from any
liability or claim in respect of the operation by Buyer of the
Transceiver Business after the Instrument Date, any misrepresentation
or breach of warranty by Buyer under this Instrument, or any and all
liabilities and obligations assumed by Buyer pursuant to this
Instrument.
10.3 Indemnification, Notice and Counsel. The indemnification
obligations provided for in Sections 10.1 and 10.2 above shall extend
for a period of two (2) years after the Instrument Date. The party
seeking indemnification shall give notice promptly of any claim or
proceeding by reason of which indemnification may arise under Sections
10.1 and 10.2 and the party from which indemnification is sought shall
have the right to defend such claim or proceeding with counsel
reasonably satisfactory to the party seeking indemnification.
11. Access to Records
From and after the Instrument Date, Seller and Buyer shall afford each
other and their counsel, accountants and other representatives such access to
records which, after the Instrument Date, are in the custody or control of the
other party and which either party reasonably requires in order to comply with
its obligations under the law, including but not limited to audits by taxing
authorities, or which Buyer reasonably requires to comply with its obligations
under contracts assumed by it pursuant to this Instrument.
12. Transition Services
Seller shall provide to Buyer and Buyer shall provide to Seller upon
such reasonable terms as Buyer and Seller shall hereinafter agree to in writing,
such services and supplies as are reasonably necessary to complete the transfer
of assets and operation of the Transceiver Business following the Instrument
Date.
13. Termination of Existing Agreements
Upon signing this Agreement, the following existing agreements are
hereby terminated by mutual agreement of the parties:
7
<PAGE>
1. COOPERATIVE DEVELOPMENT AGREEMENT BETWEEN COMMUNICATIONS & POWER
INDUSTRIES, INC. AND ST MICROWAVE, INC. FOR RADIO FREQUENCY
TRANSCEIVERS FOR SATELLITE COMMUNICATIONS
2. CPI Purchase Order No. 178076
3. CPI Purchase Order No. 219063
4. CPI Purchase Order No. 246352
5. CPI Purchase Order No. 246365
14. Non-competition
For a period of five (5) years from the Instrument Date, Seller
covenants not to engage in any activities which are the same as or similar to
and directly competitive with Buyer's business activities involving the design,
manufacture, sales and service of Transceivers to third parties. This covenant
shall apply everywhere Seller has engaged in any business activity with respect
to Transceivers.
15. Costs
Each of the parties shall pay all of its own costs and expenses and any
fees, commissions or other charges incurred or to be incurred in negotiating and
preparing this Instrument and in carrying out its provisions.
16. Entire Agreement, Modifications
This Instrument constitutes the entire agreement between the parties
pertaining to the subject matter of this Instrument, and supersedes all prior
and contemporaneous agreements, representations and understandings of Buyer and
Seller. No supplement, modifications or amendment of this Instrument shall be
binding unless executed in writing by authorized representatives of Buyer and
Seller.
17. Waiver
No waiver of any of the provisions of this Instrument shall be deemed,
or shall constitute, a waiver of any other provision, whether or not similar,
nor shall any waiver constitute a continuing waiver. No waiver shall be binding
unless executed in writing by the party making the waiver.
18. Headings
8
<PAGE>
The subject headings of the Sections of this Instrument are included
for purposes of convenience only, and shall not affect the interpretation of
this Instrument.
19. Counterparts
This Instrument may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which shall be deemed an original,
but all of which together shall constitute one and the same instrument.
20. Parties
Nothing in this Instrument, whether express or implied, is intended to
confer any rights or remedies under or by reason of this Instrument on any
persons other than the parties to it and their respective successors and
assigns, nor is anything in this Instrument intended to relieve or discharge the
obligation or liability of any third person to any party to this Instrument, nor
shall any provision give any third persons any right of subrogation or action
over against any party to this Instrument.
21. Assignment
This Instrument shall be binding on, and shall inure to the benefit of,
the parties to it and their respective heirs, legal representatives, successors
and assigns.
22. Notices
All notices, requests, demands and other communications under this
Instrument shall be in writing, and shall be deemed to have been given on the
date of service if served personally on the party to whom notice is to be given,
or on the third day after mailing if mailed to the party to whom notice is
given, by First Class Certified or Express U.S. Mail, postage prepaid and
properly addressed to the address of such parties set forth below, or at such
other address as either party may hereinafter designate in writing and
communicate to the other party in the manner prescribed by this Section 22.
If to Seller:
ST Microwave Corporation
Attn: Russ Kinsch
955 Benicia Avenue
Sunnyvale, CA 94086
If to Buyer:
9
<PAGE>
CPI Satcom Division
Attn: Jim Commendatore, President
3200 Patrick Henry Drive
Santa Clara, CA 95054
23. Announcements
Neither party will make any announcements to the public or to employees
of Seller concerning this Instrument without the prior approval of the other
party, which approval will not be unreasonably withheld. Notwithstanding any
failure of the other party to approve it, Seller or Buyer may make any
announcement required by applicable law.
24. Severability
If any one or more of the provisions, or a portion of any such
provision, of this Instrument or attachments hereto shall be deemed to be
contrary to law, invalid, illegal or unenforceable in any respect by any
governmental commission, government organization or court of law having
competent jurisdiction over the subject matter and the parties hereto, the
remaining provisions shall be severable and enforceable in accordance with their
terms. It is the express intent of the parties that in the event that a
provision or portion of this Instrument is deemed invalid, illegal or
unenforceable, the parties shall make whatever reasonable adjustments in their
arrangements, if any are required, as may be mutually fair in light of their
original intent as reflected in this Instrument.
25. Governing Law
This Instrument shall be construed in accordance with, and governed by,
the laws of the State of California. Any claim or controversy relating to this
Instrument or arising out of the performance hereof, including any attachment
hereto, which is not disposed of by mutual agreement of the parties, shall be
disposed of solely by the adjudication of a court of competent jurisdiction in
the city or county of Seller's principal place of business and in no other
place. Seller and Buyer hereby consent to such exclusive venue and jurisdiction
of such court or courts and agree to appear in any action filed hereunder upon
written notice thereof.
IN WITNESSETH WHEREOF, the parties have executed this Instrument on the
day and year first above written.
ST MICROWAVE CORPORATION CPI SATCOM DIVISION
("Seller") ("Buyer")
By: /s/ R. D. Kinsch By: /s/ James J. Commendatore
---------------------------- ----------------------------
Secretary V.P. CPI
10
FIRST AMENDMENT TO LEASE
This First Amendment to Lease ("First Amendment"), dated as of
September 9, 1996, is entered into by and between Benicia Associates, a
California general partnership ("Lessor") and Signal Technology Corporation, a
Delaware corporation ("Lessee").
RECITALS
A. Lessor and ST Microwave Corporation, a Delaware corporation, entered
into a Standard Industrial Lease dated October 18, 1990 (the "Lease") for the
premises consisting of approximately 34,656 square feet ("Existing Premises") in
the building located at 975-977 Benicia Avenue, Sunnyvale, California.
B. The term of the Lease is scheduled to expire on November 30, 1996.
C. ST Microwave Corporation now agrees to assign all of its rights and
obligations under the Lease to Lessee and Lessor and Lessee desire to extend the
term of the Lease, to expand the premises to include the remaining 19,624 square
feet of space in the building (the "Additional Premises") and to amend certain
other provisions of the Lease as provided herein. The Existing Premises and the
Additional Premises are sometimes collectively referred to herein as the
"Premises."
AGREEMENT
In consideration of the mutual covenants set forth herein and other
valuable consideration, Lessor and Lessee agree to amend the Lease as follows:
1. Premises. As of December 1, 1996 (the "Effective Date"), Lessee
shall lease from Lessor the Additional Premises, in addition to the Existing
Premises, and paragraph 2 of the Lease shall be deleted and replaced with the
following:
2. Premises. Lessor hereby leases to Lessee and Lessee hereby
leases from Lessor for the term, at the rental, and upon all of the
conditions set forth herein, that certain real property situated in the
County of Santa Clara, State of California, commonly known as 975-977
Benicia Avenue, Sunnyvale, more fully described on Exhibit A attached
hereto and made a part hereof, consisting of a single-story building
containing approximately 54,280 square feet ("Building"), together with
the exclusive right to use the parking areas, driveways, sidewalks and
other outside areas surrounding the Building (the "Outside Area").
2. Term. Paragraph 3.1 of the Lease is amended to extend the term of
the Lease for a period of seven (7) years, so that the term shall expire on
November 30, 2003.
1
<PAGE>
3. Rent. Paragraph 4 of the Lease is amended to provide that rent shall
be paid at $32,923.20 per month (34,656 square feet x $0.95 per square foot)
from December l, 1996 until the date which is 60 days after possession of the
Additional Premises is tendered to Lessee; at that time rent will be paid at
$51,566.00 per month, i.e., 54,280 square feet x $0.95 per square foot.
Thereafter, rent shall be paid in accordance with the following schedule:
Months of Term Monthly Rent
-------------- ------------
Possession of Additional Premises
plus 60 days - Nov 30, 1998 $51,566.00/month
Dec l, 1998 - Nov 30, 2000 $55,908.00/month
Dec l, 2000 - Nov 30, 2002 $60,251.00/month
Dec l, 2002 - Nov 30, 2003 $65,136.00/month
4. Security Deposit. Paragraph 5 of the Lease is amended to provide
that, as of the date that Tenant takes possession of the Additional Space, the
Security Deposit shall be increased to $50,000.00. Within ten (10) days after
Tenant takes possession of the Additional Space, Lessee shall deliver to Lessor
the sum of $29,206.00 to increase the Security. Deposit to such amount.
5. Maintenance, Repairs and Alterations. As of the Effective Date,
paragraph 7.1 of the Lease shall be deleted and replaced with the following:
Subject to the obligations of Lessor as hereinafter set forth,
Lessee shall at all times and at its own expense maintain and
repair all parts of the Premises in good, order, condition and
repair, including all plumbing, heating, air conditioning,
ventilating, electrical, and lighting facilities and equipment
within or serving the Premises; fixtures, interior walls,
interior surfaces of exterior walls, ceilings, floors,
windows, doors, entrances, plateglass and skylights; and all
landscaping, driveways, parking lots, sidewalks, fences, signs
and exterior lighting located on the Premises. Lessee shall
obtain preventive maintenance contracts for the heating, air
conditioning and ventilating ("HVAC") system with monthly
service in accordance with manufacturer recommendations, which
shall provide for and include replacement of filters, oiling
and lubricating of machinery, parts replacement, adjustment of
drive belts, oil changes and other preventive maintenance,
including annual maintenance of duct work, interior unit
drains and caulking at sheet metal, and recaulking of jacks
and vents on an annual basis. Lessee shall have the benefit of
all warranties available to Lessor regarding the equipment in
the HVAC system. Lessor may, at Lessor's election, have the
HVAC system inspected by a licensed HVAC contractor at the
expiration of the term to confirm whether Lessee has
maintained the HVAC system as required
2
<PAGE>
herein. The cost of such inspection shall be paid by Lessee
within thirty (30) days after Lessor's written request
therefor. Additionally, if any repairs and/or replacements to
the HVAC system are recommended by the contractor, Lessee
shall perform such repairs and/or replacements and shall
provide Lessor with evidence that such repairs and/or
replacements have been completed in accordance with the
contractor's recommendations.
The first sentence of paragraph 7.2 shall be deleted and replaced with the
following:
On the last day of the term hereof, or on any sooner
termination, Lessee shall surrender the Premises to Lessor in
good condition and repair, ordinary wear and tear and damage
by fire or other casualty excepted. Lessee shall have the
right to remove Lessee's trade fixtures, furnishings,
equipment and other personal property from the Premises at any
time prior to the expiration or sooner termination of this
Lease.
The following language is added to paragraph 7.3:
If Lessor fails to perform any of its repair and maintenance
obligations under this paragraph 7, and such failure continues
for more than thirty (30) days after written notice from
Lessee, Lessee shall have the right, but not the obligation,
to perform such repairs and/or maintenance. If any repairs are
required to the roof of the Building, Lessee shall have the
right to perform such repairs if Lessor fails to do so within
ten (10) days after written notice from Lessee. In either
case, Lessor shall reimburse Lessee for the reasonable costs
incurred by Lessee to complete such repairs and/or maintenance
within thirty (30) days after receipt of Lessee's written
demand therefor, together with copies of paid invoices
evidencing the costs incurred by Lessee. If Lessor fails to
reimburse Lessee for such costs within such thirty (30) day
period, such amount shall accrue interest at the maximum rate
permitted by law from the date of expenditure by Lessee until
reimbursed by Lessor. Any repairs and/or maintenance permitted
herein shall be performed in a good and workmanlike manner by
licensed and insured contractors. If Lessor objects to the
repairs and/or maintenance performed by Lessee or the expenses
incurred by Lessee in performing such work, Lessor shall
deliver written notice of Lessor's objection to Lessee within
thirty (30) days after Lessor's receipt of Lessee's invoice
evidencing the expenses incurred by Lessee. Lessor's notice
shall set forth in reasonable detail Lessor's
3
<PAGE>
reasons for its claim that such repairs and/or maintenance
were not required or were not Lessor's obligation under the
terms of this Lease, and/or the reasons for Lessor's dispute
of the expenses incurred by Lessee in performing such work. If
Lessor and Lessee fail to resolve any such dispute within
thirty (30) days after Lessor has notified Lessee of Lessor's
objections, the matter shall be resolved by binding
arbitration in accordance with the provisions of California
Code of Civil Procedure Sections 1280 et seq.
As of the Effective Date, paragraph 7.4 shall be deleted and replaced with the
following:
Lessor shall at all times maintain the roof, foundation,
exterior walls of the Building (excluding interior surfaces of
exterior walls), and the structural condition of interior
loadbearing walls, in good order, condition and repair. Lessor
shall have no obligation to maintain or repair any other
portion of the Building or the Outside Area.
Lessor shall service all HVAC units in the Building prior to
delivering possession of the Additional Premises to Lessee so
that the HVAC system serving the Building shall be in good
working order and repair when Lessee assumes responsibility
for the maintenance and repair of HVAC system as provided in
paragraph 7.1. Lessee shall have thirty (30) days after
possession of the Additional Premises is delivered to Lessee
to inspect the HVAC system serving the Building. If the HVAC
system is not in good operating condition, Lessor shall
promptly perform such maintenance and/or repairs as are
necessary to the place the HVAC system in good operating
condition. In addition, prior to delivering possession of the
Additional Premises to Lessee, Lessor and Lessee shall inspect
the electrical system in the Additional Premises to determine
whether any repairs to such electrical system are necessary to
eliminate any electrical hazards and to determine whether the
existing electrical system in the Additional Premises was
installed in accordance with applicable code requirements.
Based upon the results of such inspection, Lessor and Lessee
shall agree upon the repairs and/or improvements to be made to
the electrical system in the Additional Premises and Lessor
shall perform such work at Lessor's expense as soon as
reasonably possible.
Subject to Lessor's completion of the foregoing, by taking
possession of the Additional Premises Lessee shall be deemed
to have accepted the Additional Premises and all
4
<PAGE>
improvements therein in their present condition, "as is,"
subject to all applicable zoning, municipal, county and state
laws, ordinances and regulations governing and regulating the
use of the Additional Premises. Lessee acknowledges that,
except as expressly stated herein, neither Lessor nor Lessor's
agents have made any representation or warranty as to the
condition of the Additional Premises nor any representation or
warranty as to the present or future suitability of the
Additional Premises for the conduct of Lessee's business.
Lessee expressly waives the benefit of any statute now or
hereafter in effect which would otherwise afford Lessee the
right to make repairs at Lessor's expense or to terminate this
Lease because of Lessor's failure to keep the Premises in good
order, condition and repair.
The first two sentences of paragraph 7.5(a) of the Lease are deleted and
replaced with the following:
Lessee shall not, without Lessor's prior written consent,
which consent shall not be unreasonably withheld, delayed or
conditioned, make any alterations, improvements, additions, or
Utility Installations, in, on or about the Premises, except
for (i) nonstructural alterations not exceeding in the
aggregate $50,000.00 during the term of this Lease, and (ii)
alterations, improvements or additions in or to the Outside
Area not exceeding in the aggregate $10,000.00 during the term
of this Lease. In any event, whether or not in excess of such
amounts, Lessee shall not make any change or alteration to the
exterior of the Building nor remove any landscaping from the
Outside Area without Lessor's prior written consent. Lessor
hereby consents to Lessee's installation of storage cages in
the Building and/or the Outside Area provided that Lessee
obtains all necessary permits and approvals for such
installation and installs such storage cages in compliance
with all applicable laws.
6. Property Insurance. As of the Effective Date, the third and fourth
sentences of paragraph 8.1 shall be deleted and replaced with the following:
Whether the insuring party is the Lessor or the Lessee, Lessee
shall, as additional rent for the Premises, pay the cost of
all insurance required hereunder, except for that portion of
the cost attributable to Lessor's liability coverage in excess
of $1,000,000 per occurrence. If Lessor is the insuring party,
Lessee shall, within ten (10) days following demand by
5
<PAGE>
Lessor, reimburse Lessor for the cost of the insurance so
obtained.
As of the Effective Date, Paragraph 8.3(a) of the Addendum to Lease shall be
deleted.
7. Real Property Taxes. As of the Effective Date, Paragraph 10.1 of the
Lease and the Addendum to Lease shall be deleted and replaced with the
following:
Lessee shall pay the real property tax, as defined in
paragraph 10.2, applicable to the Premises during the term of
this Lease. All such payments shall be made at least ten (10)
days prior to the delinquency date of such payment. Lessee
shall promptly furnish Lessor with satisfactory evidence that
such taxes have been paid. If any such taxes paid by Lessee
shall cover any period of time prior to or after the
expiration of the term hereof, Lessee's share of such taxes
shall be equitably prorated to cover only the period of time
within the tax fiscal year during which this Lease shall be in
effect, and Lessor shall reimburse Lessee to the extent
required. If Lessee shall fail to pay any such taxes, Lessor
shall have the right to pay the same, in which case Lessee
shall repay such amount to Lessor with Lessee's next rent
installment together with interest at the maximum rate then
allowable by law.
8. Utilities. As of the Effective Date, paragraph 11 of the Addendum to
Lease shall be deleted.
9. Late Charges. The second sentence of paragraph 13.4 is deleted and
replaced with the following:
Accordingly, if any payment of rent or any other sum due from
Lessee shall not be received by Lessor or Lessor's designee
within seven (7) days after such amount shall be due, then,
without any requirement for notice to Lessee, Lessee shall pay
to Lessor a late charge equal to 6% of such overdue amount.
10. Subordination. Paragraph 30(a) of the Lease is amended by adding
the following as the last sentence of that paragraph:
The nondisturbance and recognition agreement shall also
provide that, in the event of a foreclosure of the mortgage or
deed of trust, Lessee shall have the right to apply the
security deposit paid to Lessor by Lessee pursuant to
paragraph 5 of the Lease against the rent due for the last
month of the term, notwithstanding the fact that the mortgagee
or beneficiary or
6
<PAGE>
its successors or assigns may not have received the security
deposit from Lessor.
11. Consents. Paragraph 36 of the Lease is deleted and replaced with
the following:
Except for paragraph 33 hereof, wherever in this Lease the
consent of one party is required to an act of the other party,
such consent shall not be unreasonably withheld, delayed or
conditioned.
12. Parking. Paragraph 48 of the Lease shall be deleted and replaced
with the following:
As of the date that Lessor delivers possession of the
Additional Premises to Lessee, Lessee shall have the exclusive
right to use all parking spaces within the Outside Area of the
Premises.
13. Right of First Refusal. Paragraph 49 of the Lease is deleted.
14. Lessee's Remedy. The Lease shall be amended by adding the following
as paragraph 52:
52. Lessee's Remedy. If, as a consequence of a
default by Lessor under this Lease, Lessee recovers a money
judgment against Lessor, such judgment shall be satisfied only
out of the proceeds of sale received upon execution of such
judgment and levied thereon against the right, title and
interest of Lessor in the Premises and out of rent or other
income from such property received by Lessor or out of
consideration received by Lessor from the sale or other
disposition of all or any part of Lessor's right, title or
interest in the Premises, and neither Lessor nor its partners
shall be liable for any deficiency.
15. Option to Extend. The Lease shall be amended by adding the
following as paragraph 53:
53. Option to Extend.
53.1 Option Period. Provided that Lessee is not in
default hereunder, either at the time of exercise or at the
time the extended term commences, Lessee shall have the option
to extend the initial term of this Lease for two (2)
additional periods of five (5) years each (each an "Option
Period") on the same terms, covenants and conditions provided
herein,
7
<PAGE>
except that upon such renewal the monthly rent due hereunder
shall be determined pursuant to Paragraph 53.2. Lessee shall
exercise its option by giving Lessor written notice ("Option
Notice") at least one hundred eighty (180) days but not more
than two hundred seventy (270) days prior to the expiration of
the initial term of this Lease or the prior Option Period, as
applicable.
53.2 Option Period Monthly Rent. The monthly rent for
each Option Period shall be determined as follows:
(a) The parties shall have fifteen (15) days
after Lessor receives the Option Notice within which to agree
on the monthly rent for the Option Period in question based
upon the then fair market rental value of the Premises as
defined in Paragraph 53.2(b). If the parties agree on the
monthly rent for the Option Period within fifteen (15) days,
they shall immediately execute an amendment to this Lease
stating the monthly rent for the Option Period. If the parties
are unable to agree on the monthly rent for the Option Period
within fifteen (15) days, then, the monthly rent for the
Option Period shall be the then current fair market rental
value of the Premises as determined in accordance with
Paragraph 53.2(c).
(b) The "then fair market rental value of
the Premises" shall be defined to mean the fair market rental
value of the Premises as of the commencement of the Option
Period, taking into consideration the uses permitted under
this Lease, the quality, size, design and location of the
Premises, and the rent for comparable buildings located in
Sunnyvale. In no event shall the fair market monthly rental
value of the Premises for the Option Period be less than the
monthly rent last payable under the Lease.
(c) Within seven (7) days after the
expiration of the fifteen (15) day period set forth in
Paragraph 53.2(a), each party, at its cost and by giving
notice to the other party, shall appoint a real estate
appraiser with at least five (5) years' full-time commercial
appraisal experience in the area in which the Premises are
located to appraise and set the monthly rent. If a party does
not appoint an appraiser within ten (10) days after the other
party has given notice of the name of its appraiser, the
single appraiser appointed shall be the sole appraiser and
shall set the monthly rent. If the two (2) appraisers are
appointed by the parties as stated in this paragraph, they
shall meet promptly and attempt to set the monthly rent. If
they are unable to agree within thirty (30)
8
<PAGE>
days after the second appraiser has been appointed, they shall
attempt to elect a third appraiser meeting the qualifications
stated in this paragraph within ten (10) days after the last
day the two (2) appraisers are given to set the monthly rent.
If they are unable to agree on the third appraiser, either of
the parties to this Lease, by giving ten (10) days' notice to
the other party, can apply to the then Presiding Judge of the
Santa Clara County Superior Court for the selection of a third
appraiser who meets the qualifications stated in this
paragraph. Each of the parties shall bear one-half (1/2) of
the cost of appointing the third appraiser and of paying the
third appraiser's fee. The third appraiser, however selected,
shall be a person who has not previously acted in any capacity
for either party.
Within thirty (30) days after the selection of the
third appraiser, a majority of the appraisers shall set the
monthly rent. If a majority of the appraisers are unable to
set the monthly rent within the stipulated period of time, the
three (3) appraisals shall be added together and their total
divided by three (3); the resulting quotient shall be the
monthly rent.
If, however, the low appraisal and/or the high
appraisal are/is more than ten percent (10%) lower and/or
higher than the middle appraisal, the low appraisal and/or the
high appraisal shall be disregarded. If only one appraisal is
disregarded, the remaining two (2) appraisals shall be added
together and their total divided by two (2); the resulting
quotient shall be the monthly rent. If both the low appraisal
and the high appraisal are disregarded as stated in this
paragraph, then only the middle appraisal shall be used as the
result of the appraisal. After the monthly rent has been set,
the appraisers shall immediately notify the parties and the
parties shall amend this Lease to set forth such amount.
16. Delay in Possession of Additional Space. The Additional Premises
are currently occupied with a lease that expires on November 30, 1996. If Lessor
is unable to deliver possession of the Additional Premises to Lessee by December
1, 1996, Lessor shall use all commercially reasonable efforts, including
litigation, to regain possession of the Additional Premises as soon as legally
possible. However, if for any reason Lessor cannot deliver possession of the
Additional Premises to Lessee by December 1, 1996, Lessor shall not be subject
to any liability therefor, nor shall such failure affect the validity of this
Lease or the obligations of Lessee hereunder or extend the term of this Lease,
but in such event Lessee shall not be obligated to pay rent for the Additional
Premises until 60 days after possession of the Additional Premises is tendered
to Lessee, and Lessor shall reimburse Lessee for all reasonable attorneys' fees
incurred by Lessee as a direct result of Lessee's holdover of the premises at
955 Benicia Avenue due to Lessor's inability to deliver
9
<PAGE>
possession of the Additional Premises to Lessee by December 1, 1996, plus the
difference between the rent Lessee pays for such premises during Lessee's
holdover thereof and $18,642.80 per month (19,624 square feet x $0.95 per square
foot) for the period of such holdover, both amounts to be prorated for any
partial months.
17. Assignment and Assumption. ST Microwave Corporation hereby
assigns and transfers to Signal Technology Corporation all of its right, title
and interest in and to the Lease arising from and after the Effective Date.
Signal Technology Corporation hereby accepts the assignment and assumes and
agrees to perform as a direct obligation to Lessor all obligations of ST
Microwave Corporation as Lessee under the Lease arising from and after the
Effective Date.
Except as set forth in this First Amendment, the Lease is unmodified
and in full force and effect.
LESSOR LESSEE
Benicia Associates, a California Signal Technology Corporation, a
general partnership Delaware corporation
By: /s/ Larry L. Miller By: /s/ Dale L. Peterson
------------------------------ ----------------------------
Larry L. Miller,
General Partner Its CEO
----------------------------
ASSIGNOR
ST Microwave Corporation, a
Delaware corporation
By /s/ Dale L. Peterson
----------------------------
Its Sole Director
----------------------------
10
<TABLE>
Exhibit 11.1
COMPUTATION OF PRIMARY AND FULLY DILUTED NET INCOME
(LOSS) PER SHARE
<CAPTION>
Year Ended December 31
------------------------------------------------------
1996 1995 1994
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income (loss) $ 2,245,000 $ (269,000) $ 3,562,000
Weighted average number of shares
outstanding during the period 7,076,000 6,880,000 6,752,000
Add:
Assumed exercise of common share options 1,080,000 - 1,112,000
Less:
Purchase of common stock under
the treasury stock method (480,000) - (502,000)
- ----------------------------------------------------------------------------------------------
Common and common equivalent shares
outstanding for purpose of calculating
primary net income (loss) per share 7,676,000 6,880,000 7,362,000
Incremental shares to reflect full dilution - - -
- ----------------------------------------------------------------------------------------------
Total shares for purpose of calculating
fully diluted net income (loss) per share 7,676,000 6,880,000 7,362,000
==============================================================================================
Primary net income (loss) per share $0.29 $(0.04) $0.48
==============================================================================================
Fully diluted net income (loss) per share $0.29 $(0.04) $0.48
==============================================================================================
</TABLE>
Exhibit 21.1
Subsidiary of Registrant
Name Jurisdiction of Incorporation
Signal Technology Sales Corporation Virgin Islands
Exhibit 23.1
Consent of Independent Accountants
We consent to the incorporation by reference in the registration statements
of Signal Technology Corporation on Form S-8 (File No. 33-78248 and 33-78250) of
our report dated January 27, 1997, on our audits of the consolidated financial
statements and financial statement schedule of Signal Technology Corporation and
Subsidiaries as of December 31, 1996 and 1995, and for the years ended December
31, 1996, 1995, and 1994, which report is included in this Annual Report on Form
10-K.
San Jose, California COOPERS & LYBRAND L.L.P.
March 28, 1997
40 SIGNAL TECHNOLOGY CORPORATION
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,870
<SECURITIES> 0
<RECEIVABLES> 18,553
<ALLOWANCES> 170
<INVENTORY> 24,293
<CURRENT-ASSETS> 48,043
<PP&E> 34,379
<DEPRECIATION> 20,069
<TOTAL-ASSETS> 66,591
<CURRENT-LIABILITIES> 16,465
<BONDS> 13,408
<COMMON> 72
0
0
<OTHER-SE> 34,837
<TOTAL-LIABILITY-AND-EQUITY> 66,591
<SALES> 114,241
<TOTAL-REVENUES> 114,241
<CGS> 89,407
<TOTAL-COSTS> 109,199
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,345
<INCOME-PRETAX> 3,697
<INCOME-TAX> 1,452
<INCOME-CONTINUING> 2,245
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,245
<EPS-PRIMARY> 0.29
<EPS-DILUTED> 0.29
</TABLE>
