<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): April 27, 1998
BLUE WAVE SYSTEMS INC.
(Exact name of registrant as specified in its charter)
Delaware 000-26858 41-1425902
(State of Incorporation) (Commission File Number) (IRS employer
identification no.)
2410 Luna Road
Carrollton, Texas 75006
(Address of principal executive offices)
Registrant's telephone number, including area code 972-277-4600
Exhibit index on page 31
<PAGE>
Item 2. Acquisition or Disposition of Assets.
On April 27, 1998, the registrant, Blue Wave Systems Inc. (f/k/a Mizar,
Inc.), a Delaware corporation (the "Company"), completed an acquisition (the
"Acquisition") pursuant to which Loughborough Sound Images Limited, a company
registered in England and Wales ("LSI"), was acquired by the Company. In the
Acquisition, holders of LSI's ordinary shares and warrants and options
exercisable for ordinary shares of LSI received (or will receive upon conversion
or exercise of certain securities) a total of approximately 8,441,000 shares of
common stock, $.01 par value, of the Company (the "Common Stock"), which
represents approximately 60% of the outstanding shares of Common Stock, on a
fully diluted basis. The consideration for the purchase of the outstanding
capital of LSI was determined as a result of arms' length negotiation between
the Company and LSI, as more fully described in the Company's proxy statement
dated April 3, 1998. The Company's acquisition of LSI is being accounted for as
a pooling of interests.
LSI designs, manufactures and markets a broad range of digital signal
processing products targeted at the embedded computing market. These products
are used by a wide variety of commercial and industrial customers in application
markets that include telecommunications, test and measurement, industrial
inspection and medical imaging. LSI has offices in the United Kingdom
(Loughborough, England), France (Paris), Germany (Munich) and in the United
States (Lexington, Massachusetts).
None of the former LSI shareholders were affiliated with the Company as
of the time of the merger, although LSI was granted the right to designate three
nominees for director to the Board of Directors of the Company at the annual
meeting of the Company's stockholders held on April 27, 1998.
Because the consideration for the ordinary shares and related options
tendered to the Company in the Acquisition consisted entirely of shares of
Common Stock and options of the Company exercisable for shares of Common Stock
("New Options"), the Company did not have any material funding requirements in
order to effect the Acquisition, except for the approximately $4 million paid to
redeem the outstanding preference shares of LSI at the closing of the
Acquisition.
Item 5. Other Events.
In connection with the Acquisition, the Company amended its Certificate
of Incorporation to change its corporate name to "Blue Wave Systems Inc." The
combined operations of the Company and LSI will both operate under this new
name. In accordance with the share purchase agreement relating to the
Acquisition, Sam Smith resigned as interim Chief Executive Officer of the
Company and Simon Yates, the Managing Director of LSI, was elected as the
Company's President and Chief Executive Officer on April 27, 1998.
2
<PAGE>
Item 7. Financial Statements and Exhibits.
(a) Financial statements of businesses acquired.
(i) Consolidated financial statements of LSI as of September 30, 1996
and 1997, and for each of the three years in the period ended
September 30, 1997, accompanied by the report of Price Waterhouse
LLP thereon; and
(ii) Unaudited consolidated financial statements of LSI as of December
31, 1997, and for the three months ended December 31, 1997.
(b) Pro forma financial information. Unaudited pro forma combined financial
statements of the Company and LSI as of December 31, 1997, and for each of
the three years in the period ended June 30, 1997 (as to the Company) and
September 30, 1997 (as to LSI), and for the six month periods ending
December 31, 1996 and 1997.
(c) Exhibits.
2.1 Share Purchase Agreement (the "Purchase Agreement") dated as of November
17, 1997, between Mizar, Inc. and Loughborough Sound Images PLC.
2.2 Letter Agreement dated March 24, 1998 between Mizar, Inc. and
Loughborough Sound Images Limited (f/k/a Loughborough Sound Images PLC),
amending the Purchase Agreement.
Item 9. Sales of Equity Securities Pursuant to Regulation S.
In connection with the acquisition of the outstanding securities of LSI
on April 27, 1998, the Company issued 7,876,964 shares of Common Stock and New
Options exercisable for 564,001 shares of Common Stock to all of the former
holders of ordinary shares and securities exercisable for such shares. The
foregoing issuances were based upon the exchange ratio (the "Exchange Ratio") of
94.632 shares of Common Stock for each ordinary share of LSI transferred to the
Company (including shares issuable under options). In consideration for the
issuance of the approximately 8,441,000 shares of Common Stock (including shares
issuable under New Options), the Company received 100% of the outstanding
ordinary shares (including shares issuable under LSI's warrants, which were
converted immediately prior to the Acquisition) and options of LSI.
The Company issued the shares of Common Stock and New Options under the
exemption provided by Regulation S of the Securities Act of 1933, as amended
("Regulation S"). In relying on the foregoing exemption, the Company considered,
among other matters, representations from the former shareholders of LSI that
such shareholders were not residents of the United States nor were they
otherwise a "United States person," as defined under applicable provisions of
Regulation
3
<PAGE>
S. The Company also imposed the relevant offering restrictions required by the
provisions of Regulation S and received the agreement of the persons receiving
Common Stock and New Options of the Company to refrain from transferring such
shares or options other than as permitted by Regulation S.
The New Options that were issued by the Company to former holders of
LSI's options were issued in exchange for the LSI options that remained
outstanding on the date of closing of the Acquisition. The New Options have
substantially the same terms as the former LSI options, except that (i) the
holder of each New Option, upon its exercise in accordance with its terms, will
be entitled to receive that whole number of shares of Common Stock (rounded to
the nearest whole share) into which the number of ordinary shares of LSI subject
to such holder's LSI option would be exchanged for based upon the Exchange Ratio
and (ii) the exercise price per share of Common Stock under the New Options
shall be equal to the exercise price per share of the LSI ordinary shares
applicable to such LSI option immediately prior to the Acquisition, divided by
the Exchange Ratio, and converted into U.S. dollars. The New Options may be
exercised in full or in part at any time until January 31, 2003.
There were no net proceeds to the Company resulting from the issuance of
the Common Stock and the New Options.
4
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
BLUE WAVE SYSTEMS INC.
Date: May 11, 1998 By: /s/ SIMON YATES
--------------------------------
Simon Yates,
President and Chief Executive Officer
5
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of Loughborough Sound Images Limited
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of changes in shareholders' equity
(deficit) and of cash flows present fairly, in all material respects, the
financial position of Loughborough Sound Images Limited and its subsidiaries
at September 30, 1996 and 1997 and the results of their operations and their
cash flows for each of the three years in the period ended September 30, 1997,
in conformity with accounting principles generally accepted in the United
States. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with auditing standards generally accepted in the
United States which 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, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
/s/ Price Waterhouse
PRICE WATERHOUSE
Leicester, England
December 9, 1997
7
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Independent Accountants........................................ 7
Consolidated Balance Sheets of LSI as of September 30, 1996 and 1997
and December 31, 1997 (unaudited)....................................... 8
Consolidated Statements of Operations of LSI For the Years Ended
September 30, 1995, 1996, and 1997 and the Three Months Ended
December 31, 1996 and 1997 (unaudited).................................. 9
Consolidated Statements of Changes in Shareholder's Equity (Deficit
of LSI For the Years Ended September 30, 1995, 1996 and 1997 and the
Three Months Ended December 31, 1997 (unaudited)........................ 10
Consolidated Statements of Cash Flows of LSI For the Years Ended
September 30, 1995, 1996 and 1997 and the Three Months Ended December
31, 1996 and 1997 (unaudited)........................................... 11
Notes to Consolidated Financial Statements............................... 12
Unaudited Pro Forma Financial Information................................ 22
6
<PAGE>
LOUGHBOROUGH SOUND IMAGES LIMITED
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------- DECEMBER 31,
1996 1997 1997
------- ------- ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash.......................................... $ 195 $ 140 $ --
Restricted cash............................... -- 810 825
Accounts receivable, net of allowance for
doubtful accounts of $214, $183 and $183,
respectively................................. 4,453 6,026 4,130
Inventories, net.............................. 2,892 2,762 2,848
Prepaid expenses and other.................... 803 1,493 1,670
------- ------- -------
Total current assets........................ 8,343 11,231 9,473
------- ------- -------
Plant and equipment:
Buildings and equipment....................... 3,283 4,088 4,289
Furniture and fixtures........................ 2,845 2,929 2,949
------- ------- -------
6,128 7,017 7,238
Less--accumulated depreciation................ (2,573) (3,389) (3,617)
------- ------- -------
Plant and equipment, net...................... 3,555 3,628 3,621
------- ------- -------
Total assets................................ $11,898 $14,859 $13,094
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.............................. $ 2,269 $ 3,590 $ 2,946
Other current liabilities..................... 2,029 2,658 1,543
Line of credit................................ 2,341 -- 417
Current maturities of debt and capital lease
obligations.................................. 1,298 282 153
------- ------- -------
Total current liabilities................... 7,937 6,530 5,059
------- ------- -------
Deferred income taxes........................... 743 632 617
Long-term debt and capital lease obligations,
net of current maturities...................... 280 810 825
------- ------- -------
Total liabilities........................... 8,960 7,972 6,501
------- ------- -------
Commitments and contingencies (Note 12)
Mandatorily redeemable preference shares........ -- 8,173 8,450
Shareholders' equity (deficit):
Ordinary shares, (Pounds)1 par; 80,000 shares
authorized, 62,500, 56,497 and 62,748 shares
issued and outstanding, respectively......... 99 90 100
B ordinary shares, (Pounds)1 par; 25,000
shares authorized, 1 share issued and
outstanding in 1997.......................... -- -- --
Additional paid-in capital.................... -- 787 1,005
Retained earnings (accumulated deficit)....... 2,713 (1,554) (2,521)
Unearned ESOP shares.......................... -- (810) (810)
Cumulative translation adjustment............. 126 201 369
------- ------- -------
Total shareholders' equity (deficit)........ 2,938 (1,286) (1,857)
------- ------- -------
Total liabilities and shareholders' equity
(deficit).................................. $11,898 $14,859 $13,094
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
8
<PAGE>
LOUGHBOROUGH SOUND IMAGES LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE INFORMATION)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED SEPTEMBER 30, ENDED DECEMBER 31,
---------------------------- ------------------
1995 1996 1997 1996 1997
-------- -------- -------- ------ -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales............... $ 18,025 $ 21,142 $ 22,881 $5,353 $ 4,843
Cost of sales........... 7,780 9,098 9,366 2,196 2,018
-------- -------- -------- ------ -------
Gross margin........ 10,245 12,044 13,515 3,157 2,825
Operating expenses:
Sales and marketing... 2,376 2,655 3,960 680 1,412
Product development
and engineering...... 3,837 3,328 3,791 1,055 1,037
General and
administrative....... 2,358 3,313 5,174 977 1,117
Loss on assets held
for sale............. 204 -- -- -- --
-------- -------- -------- ------ -------
Total operating
expenses........... 8,775 9,296 12,925 2,712 3,566
-------- -------- -------- ------ -------
Operating income
(loss)................. 1,470 2,748 590 445 (741)
Other income (expense):
Interest expense...... (238) (339) (205) (85) (43)
Interest income....... 5 6 16 -- 10
Other, net............ 544 73 77 20 51
-------- -------- -------- ------ -------
Total other income
(expense).......... 311 (260) (112) (65) 18
-------- -------- -------- ------ -------
Income (loss) from
continuing operations
before income taxes.... 1,781 2,488 478 380 (723)
Provision (benefit) for
income taxes........... 768 798 365 290 (224)
-------- -------- -------- ------ -------
Income (loss) from
continuing operations.. 1,013 1,690 113 90 (499)
Loss from discontinued
operations, net of tax
benefit of $581, $661,
$560 and $191,
respectively........... (1,179) (1,341) (1,248) (426) --
-------- -------- -------- ------ -------
Net income (loss)....... $ (166) $ 349 $ (1,135) $ (336) $ (499)
======== ======== ======== ====== =======
Net income (loss)....... $ (166) $ 349 $ (1,135) $ (336) $ (499)
Preference share
dividends, accretion
and amortization of
issuance costs of
preference shares...... -- -- (874) -- (468)
-------- -------- -------- ------ -------
Net income (loss)
available to ordinary
shareholders........... $ (166) $ 349 $ (2,009) $ (336) $ (967)
======== ======== ======== ====== =======
Net income (loss) per
share (basic and
diluted):
Continuing
operations........... $ 16.21 $ 27.04 $ (12.79) $ 1.44 $(16.22)
Discontinued
operations........... (18.86) (21.46) (20.98) (6.82) --
-------- -------- -------- ------ -------
$ (2.65) $ 5.58 $ (33.77) $(5.38) $(16.22)
======== ======== ======== ====== =======
Weighted average shares
outstanding............ 62,500 62,500 59,499 62,500 59,622
======== ======== ======== ====== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
9
<PAGE>
LOUGHBOROUGH SOUND IMAGES LIMITED
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
ORDINARY SHARES AND RETAINED
B ORDINARY SHARE ADDITIONAL EARNINGS UNEARNED CUMULATIVE
--------------------- PAID-IN (ACCUMULATED ESOP TRANSLATION
NUMBER AMOUNT CAPITAL DEFICIT) SHARES ADJUSTMENT TOTAL
---------- --------- ---------- ------------ -------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at September 30,
1994................... 62,500 $ 99 $ -- $ 2,530 $ -- $134 $ 2,763
Net loss.............. -- -- -- (166) -- -- (166)
Foreign currency
translation.......... -- -- -- -- -- 20 20
---------- -------- ------ ------- ----- ---- -------
Balance at September 30,
1995................... 62,500 99 -- 2,364 -- 154 2,617
Net income............ -- -- -- 349 -- -- 349
Foreign currency
translation.......... -- -- -- -- -- (28) (28)
---------- -------- ------ ------- ----- ---- -------
Balance at September 30,
1996................... 62,500 99 -- 2,713 -- 126 2,938
Net loss.............. -- -- -- (1,135) -- -- (1,135)
Issuance of shares.... 602 1 204 -- -- -- 205
Issuance of warrants.. -- -- 583 -- -- -- 583
Dividends, accretion
and amortization of
issuance costs....... -- -- -- (874) -- -- (874)
Purchase and
cancellation of
treasury shares...... (6,604) (10) -- (2,258) -- -- (2,268)
Purchase of shares for
ESOP................. -- -- -- -- (810) -- (810)
Foreign currency
translation.......... -- -- -- -- -- 75 75
---------- -------- ------ ------- ----- ---- -------
Balance at September 30,
1997................... 56,498 90 787 (1,554) (810) 201 (1,286)
Net loss.............. -- -- -- (499) -- -- (499)
Exercise of stock
options.............. 6,250 10 218 -- -- -- 228
Dividends, accretion
and amortization of
issuance costs....... -- -- -- (468) -- -- (468)
Foreign currency
translation.......... -- -- -- -- -- 168 168
---------- -------- ------ ------- ----- ---- -------
Balance at December 31,
1997 (Unaudited)....... 62,748 $ 100 $1,005 $(2,521) $(810) $369 $(1,857)
========== ======== ====== ======= ===== ==== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
10
<PAGE>
LOUGHBOROUGH SOUND IMAGES LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED SEPTEMBER 30, ENDED DECEMBER 31,
-------------------------- --------------------
1995 1996 1997 1996 1997
-------- ---------------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income (loss)........... $ (166) $ 349 $ (1,135) $ (336) $ (499)
Adjustments to reconcile
net income (loss) to net
cash provided by (used in)
operating activities:
Depreciation............. 398 739 821 456 230
Loss on assets held for
sale.................... 204 -- -- -- --
Deferred tax provision
(benefit)............... 762 (194) (182) 10 (15)
Changes in assets and
liabilities:
Accounts receivable,
net..................... (438) (981) (1,572) 328 1,895
Inventories, net......... 610 (258) 131 (280) (86)
Prepaid expenses and
other................... (1,278) 852 (690) (231) (177)
Accounts payable and
accrued liabilities..... 500 (574) 2,020 2,570 (1,533)
-------- ------ -------- --------- ---------
Net cash provided by
(used in) operating
activities............ 592 (67) (607) 2,517 (185)
-------- ------ -------- --------- ---------
Cash flows from investing
activities:
Purchases of plant and
equipment................. (762) (517) (860) (690) (222)
Proceeds from dispositions
of plant and equipment and
assets held for sale...... -- 529 98 -- --
-------- ------ -------- --------- ---------
Net cash provided by
(used in) investing
activities.............. (762) 12 (762) (690) (222)
-------- ------ -------- --------- ---------
Cash flows from financing
activities:
Proceeds from sales of
preference shares......... -- -- 8,914 -- --
Proceeds from exercise of
stock options............. -- -- -- -- 228
Payment of preference
shares issuance costs..... -- -- (827) -- --
Purchase or ESOP shares.... -- -- (810) -- --
Purchase of treasury
shares.................... -- -- (2,268) -- --
Proceeds from debt......... 579 500 810 -- --
Restricted cash in escrow.. -- -- (810) -- --
Payments on debt........... (250) (523) (3,783) (2,306) (112)
-------- ------ -------- --------- ---------
Net cash provided by
(used in) financing
activities.............. 329 (23) 1,226 (2,306) 116
-------- ------ -------- --------- ---------
Effect of translation
exchange rates on cash...... 15 (32) 88 284 151
-------- ------ -------- --------- ---------
Net increase (decrease) in
cash........................ 174 (110) (55) (195) (140)
Cash at beginning of year.... 131 305 195 195 140
-------- ------ -------- --------- ---------
Cash at end of year.......... $ 305 $ 195 $ 140 $ -- $ --
======== ====== ======== ========= =========
Supplemental disclosures of
cash flow information:
Cash paid for interest..... $ 225 $ 339 $ 205 $ 85 $ 43
Cash paid for income
taxes..................... 14 381 977 -- --
Assets acquired under
capital leases............ 1,368 257 -- -- --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
11
<PAGE>
LOUGHBOROUGH SOUND IMAGES LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BUSINESS
Loughborough Sound Images Limited ("LSI") was incorporated in England in
1983 and is registered as a limited liability company under the Companies Act
of 1985 (registration number 1751065). In November 1997, LSI re-registered as
a private limited company and changed its name from Loughborough Sound Images
plc to Loughborough Sound Images Limited. LSI and its wholly-owned
subsidiaries are collectively referred to herein as the "Company". The Company
is a leading supplier of digital signal processing ("DSP") technology and
products used in a range of industries, including automotive electronics,
medical electronics, defense and communications intelligence. The Company's
products are generally comprised of a DSP board and related software which are
included in the products of OEM customers. During 1997, the Company
discontinued its Video Multimedia business activities, the details of which
are discussed in Note 14.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies are as follows:
Accounting convention--The accompanying consolidated financial statements
have been prepared in accordance with United States generally accepted
accounting principles.
Foreign currency translation--The financial statements have been translated
into U.S. dollars ("$") from United Kingdom pound sterling ("((Pounds))")
using the exchange rate at each balance sheet date for assets and liabilities
and an average exchange rate for each period for net sales, costs, expenses
and other income and expenses. Translation adjustments have been recorded as a
separate component of shareholders' equity.
Principles of consolidation--The accompanying consolidated financial
statements include the accounts of LSI and its wholly-owned subsidiaries after
elimination of intercompany transactions and balances.
Interim Financial Data--The interim financial data as of December 31, 1997
and for the three months ended December 31, 1996 and 1997 is unaudited;
however, in the opinion of management of the Company, the interim data
includes all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the results for the interim periods
presented.
Restricted cash--In connection with the establishment of an employee stock
ownership plan ("ESOP"), the Company has guaranteed the debt of the ESOP. The
guarantee required the Company to place cash in escrow in an amount equal to
the debt. Such cash has been reflected as restricted cash in the accompanying
consolidated financial statements. See Notes 6 and 12.
Inventories--Inventories are stated at the lower of cost (including direct
materials, labor and applied overhead) or market value using the first-in,
first-out method. The Company periodically reviews inventory items on hand to
determine that items are realizable and are included in current or future
products. The Company provides allowances, if necessary, to reduce inventory
to its realizable value.
Property, plant and equipment--Property, plant and equipment, including
assets under capital lease, are carried at acquisition cost. Depreciation and
amortization are computed on the straight-line basis over the estimated
remaining useful lives of the assets (ranging from 5 to 25 years). Repair and
maintenance expenditures are charged to operations as incurred, and
expenditures for major renewals and betterments are capitalized. When units of
property are disposed, the cost and related accumulated depreciation are
removed from the accounts, and the resulting gains or losses are included in
operations.
The Company applies Statement of Financial Accounting Standard No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of" to determine whether the carrying amount of long-lived
assets may not be recoverable. The Company has determined that no impairment
loss need be recognized for the period presented.
12
<PAGE>
LOUGHBOROUGH SOUND IMAGES LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Income taxes--The Company uses the liability method of accounting for income
taxes. Deferred taxes are based on the estimated future tax effects of
differences between the financial statement and tax bases of assets and
liabilities.
Revenue recognition--Sales, net of value added taxes, and related cost of
sales are recognized as products are shipped to customers.
Research and development--Product development and engineering primarily
include research and development costs which are charged to expense as
incurred.
Net income (loss) per share--Effective December 31, 1997, the Company
adopted Statement of Financial Accounting Standards No. 128, "Earnings per
Share" ("FAS 128"). This statement established a new methodology for
calculating earnings per share ("EPS"). All periods presented in the
accompanying consolidated financial statements have been restated to conform
with the requirements of FAS 128. See Note 9.
Use of estimates--Financial statements prepared in conformity with generally
accepted accounting principles require management to make estimates and
assumptions about reported amounts of assets and liabilities, disclosure of
contingent assets and liabilities and reported amounts of revenues and
expenses. Management must also make estimates and judgments about future
results of operations related to specific elements of the business in
assessing recoverability of assets and recorded values of liabilities. Actual
results could differ from those estimates.
Fair value of financial instruments--Management believes the recorded values
of financial instruments approximate their current fair values as such items
are current in nature and/or generally bear variable interest rates which
adjust yield to derive current market value.
Stock-based compensation--Effective October 1, 1996, the Company adopted
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
based Compensation" ("FAS 123"). This statement requires the fair value of
stock options and other stock-based compensation issued to employees to either
be included as compensation in the statement of operations, or the pro forma
effect on net income of such compensation expense to be disclosed in the notes
to the Company's consolidated statements. The Company has adopted FAS 123 on a
disclosure basis only and has opted to continue to apply the existing
accounting rules contained in Accounting Principles Board Opinion No. 25
"Accounting for Stock Issued to Employees" ("APB 25"). As such, implementation
of FAS 123 did not impact the Company's financial position or results of
operations.
3. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------- DECEMBER 31,
1996 1997 1997
------ ------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials..................................... $ 880 $1,099 $1,088
Work-in progress.................................. 638 977 1,075
Finished goods.................................... 1,374 686 685
------ ------ ------
$2,892 $2,762 $2,848
====== ====== ======
</TABLE>
13
<PAGE>
LOUGHBOROUGH SOUND IMAGES LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
At September 30, 1996 and 1997 and December 31, 1997, the Company had
recorded allowances for estimated excess and obsolete inventory of $255,000,
$681,000 and $654,000 (unaudited), respectively, which amounts are reflected
within the components of inventory. For the years ended September 30, 1995,
1996 and 1997 and the three months ended December 31, 1996 and 1997, the
Company reflected charges in its consolidated statements of operations of
$342,000, $148,000, $493,000, $ -- (unaudited) and $172,000 (unaudited),
respectively, for estimated excess and obsolete inventory.
4. PREPAID EXPENSES AND OTHER ASSETS
Prepaid expenses and other assets consist of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------
1996 1997
-------------
<S> <C> <C>
VAT taxes receivable........................................... $ 37 $ 301
Prepaid expenses............................................... 203 498
Other current assets........................................... 563 694
----- -------
$ 803 $ 1,493
===== =======
</TABLE>
At September 30, 1996, other current assets includes $431,000 related to
prepaid legal and professional fees associated with the financing completed by
the Company in April 1997 discussed in Note 7. At September 30, 1997, other
current assets includes a receivable for income taxes of $471,000.
5. OTHER CURRENT LIABILITIES
Other current liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------
1996 1997
------ ------
<S> <C> <C>
Accrued expenses.............................................. $1,182 $1,250
Income taxes payable.......................................... 350 47
Distributor settlement payable................................ -- 668
Taxes payable, other than income.............................. 306 407
Other current liabilities..................................... 191 286
------ ------
$2,029 $2,658
====== ======
</TABLE>
The distributor settlement payable relates to an amount due following an
agreement on a non-exclusivity arrangement.
6. DEBT
Line of Credit
The Company makes short-term borrowings under a short-term credit facility
made available by a commercial bank. At September 30, 1997, the Company had no
amounts outstanding, but had approximately $3,242,000 in aggregate
availability under such credit facility. The credit facility bears interest at
the bank's reference rate, plus 1.75% (8.75% at September 30, 1997).
14
<PAGE>
LOUGHBOROUGH SOUND IMAGES LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Long-term Debt
Long-term debt (including capital lease obligations) consists of the
following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------
1996 1997
------- -----
<S> <C> <C>
Note payable to a commercial bank, interest at the bank's
base rate, plus 1.5% (7.25% at September 30, 1997); payable
in 2002; secured by escrow of $810,000 cash................ $ -- $ 810
Note payable to a commercial bank, interest at the bank's
base rate, plus 3.75%, (9.5% at September 30, 1996);
payable monthly; secured by all assets of the Company; due
in 1997.................................................... 747 --
Capital lease obligations, secured by related equipment..... 831 282
------- -----
1,578 1,092
Less--current maturities.................................... (1,298) (282)
------- -----
$ 280 $ 810
======= =====
</TABLE>
The debt agreements related to the above contain warranties and covenants
and require maintenance of certain financial ratios. Default on any warranty
or covenant could, if not waived or corrected, accelerate the maturity of any
borrowings outstanding.
7. CAPITAL STOCK
General
Effective April 10, 1997, the Company restated its Articles of Association
resulting in an authorized share structure as follows: (a) 7,500,000
preference shares with a par value of (Pounds) 0.75 per share; (b) 80,000
ordinary shares with a par value of (Pounds) 1 per share; and (c) 25,000 "B"
ordinary shares with a par value of (Pounds) 1 per share.
The preference shares and accrued dividends thereon rank first in
liquidation priority over all other equity shares and accrue first preference
cumulative dividends of 6% per annum beginning on April 1, 1998, such
dividends being payable in cash biannually on March 31 and September 30. The
preference shares also accrue a second preference cumulative dividend of 8%
per annum until March 31, 1998, and 2% per annum thereafter, such dividends
being payable in cash (or in at the election of the preference shareholders,
one additional preference share for each (Pounds) 1 in dividends due) on March
31 and September 30. The preference shares are, to the extent possible,
mandatorily redeemable on the earlier of (a) the sale of the Company, (b) the
sale of businesses or assets comprising more than 50% of the net assets, sales
or profits of the Company, (c) a public offering of the Company's shares, or
(d) as follows:
<TABLE>
<CAPTION>
PROPORTION OF THEN
OUTSTANDING PREFERENCE
REDEMPTION DATE SHARES TO BE REDEEMED
--------------- ----------------------
<S> <C>
March 31, 2002........................................ One-quarter
March 31, 2003........................................ One-third
March 31, 2004........................................ One-half
March 31, 2005........................................ Balance
</TABLE>
The Company may, at its option, redeem a portion (in 100,000 share
increments) or all preference shares at any time for (Pounds) 1 per share plus
accrued and unpaid dividends.
"B" ordinary shares carry the same rights and privileges of ordinary shares.
In addition, the consent or sanction of the holders of "B" ordinary shares is
required before the Company or any of its subsidiaries can take
15
<PAGE>
LOUGHBOROUGH SOUND IMAGES LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
certain actions, including but not limited to (a) the authorization or
issuance of additional shares or rights to acquire additional shares, (b)
reacquire shares or make distributions to shareholders other than in
accordance with the terms of shares issued, (c) reduce any uncalled liability,
(d) sell, lease or otherwise dispose of the whole or substantially all of its
business undertakings or assets, or (e) acquire another company.
Preference Shares
On April 10, 1997, the Company entered into an agreement with Boston
Holdings Limited ("BHL"), a subsidiary of BancBoston Capital Limited, to sell
to BHL at a subscription price of (Pounds)5,500,001 ($8,914,000), 5,500,000
preference shares, one "B" ordinary share, and warrants to acquire an
additional 20,115 "B" ordinary shares. The warrants are exercisable in whole
or in part through March 31, 2012 at a price determined by a formula but will
be between (Pounds)165 to (Pounds)212 per share. If a controlling interest in
the Company has not been sold privately or through a public offering by March
31, 2000, the exercise price of the warrants will be reduced by 5% to 10% per
year. Under the terms of the Company's Articles of Association, any proceeds
resulting from the exercises of the warrants must be used to redeem the
preference shares.
The Company valued the warrants at (Pounds)360,000 ($583,000) and reflected
such amount of the proceeds noted above as an increase to additional paid-in
capital. In addition, the Company incurred $1,032,000 in costs ($827,000 cash
and the issuance of 601 ordinary shares valued at $205,000) to issue the
preference shares. Such amount has been reflected as a reduction of the
preference shares. Both the value of the warrants and the issuance costs are
being amortized to retained earnings over the estimated life of the warrants
and preference shares. The preference shares, net of the unamortized value of
the warrants and the issuance costs, has been reflected in the accompanying
consolidated financial statements as mandatorily redeemable preference shares.
Share Options
The Company granted options to directors and employees in 1993 to acquire
ordinary shares at an exercise price of (Pounds)22 per share which was
determined by the board of directors to be the per share fair value of the
Company's ordinary shares. Such options expire ten years after the date of
grant and are exercisable at any time after the third anniversary of the date
of grant. The Company also granted options in 1996 and 1997 to acquire
ordinary shares at an exercise price of (Pounds)22 per share which was
determined by the board of directors to be the per share fair value of the
Company's ordinary shares. These options are exercisable upon the (1) sale of
the Company, (2) sale of a majority ownership of the Company or (3) an initial
public offering of the Company's ordinary shares.
The Company applies APB 25 to account for its share options. Accordingly, no
compensation cost has been recognized for grants of share options. Had
compensation cost for the share option grants been determined based on their
fair value, net income and net income available to ordinary shareholders for
the year ended September 30, 1996, would have been $328,000, and net income
per share would have been $5.26. There were no grants of share options in
1995, and the grants in 1997 were not significant. The fair value of option
grants in 1996 was estimated on the date of grant using the Black-Scholes
option pricing model with the following assumptions:--% dividend yield,--%
expected volatility, 5.72% risk-free interest rate, and an expected life of
three years.
16
<PAGE>
LOUGHBOROUGH SOUND IMAGES LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A summary of the status of the Company's share options is presented below:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------------------------------------------------
1995 1996 1997
------------------- ------------------- --------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------ ------------ ------ ------------ ------ ------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning
of year................ 6,250 (Pounds) 22 6,250 (Pounds) 22 12,628 (Pounds) 22
Granted............... -- -- 6,378 22 990 22
Cancelled............. -- -- -- (1,033) 22
----- ------ ------
Outstanding, end of
year................... 6,250 22 12,628 22 12,585 22
===== ====== ======
Options exercisable..... 6,250 6,250 6,250
===== ====== ======
Weighted-average fair
value of options
granted during the
year................... (Pounds) -- (Pounds)3.47 (Pounds) --
($5.30)
</TABLE>
Of the 12,585 options outstanding at September 30, 1997, the weighted-
average remaining contractual life is 5.08 years and the weighted-average
exercise price is (Pounds)22. Of the 6,250 options exercisable at
September 30, 1997, the weighted-average exercise price is (Pounds)22.
8. INCOME TAXES
The provision (benefit) for income taxes consists of the following (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Continuing operations:
Current..................................... $ 6 $ 992 $ 547
Deferred.................................... 762 (194) (182)
-------- -------- --------
768 798 365
Discontinued operations--current.............. (581) (661) (560)
-------- -------- --------
$ 187 $ 137 $ (195)
======== ======== ========
</TABLE>
The Company's effective tax rates for continuing operations differs from the
statutory rate as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Provision at statutory rate.................... $ 588 $ 821 $ 148
Add (deduct) effect of--
Meals and entertainment...................... 14 14 18
Capital allowance on ineligible property..... 68 18 (57)
Unrecognized losses.......................... -- -- 332
Withholding taxes............................ 74 -- --
Other........................................ 24 (55) (76)
-------- -------- --------
$ 768 $ 798 $ 365
======== ======== ========
</TABLE>
17
<PAGE>
LOUGHBOROUGH SOUND IMAGES LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The significant
components of the Company's net deferred tax assets and liabilities were
comprised of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------
1996 1997
------ ------
<S> <C> <C>
Deferred tax assets:
Pension accrual............................................ $ 33 $ 47
Warranty accrual........................................... 28 27
Other...................................................... -- 26
Deferred tax liabilities:
Deferred gain.............................................. (60) (58)
Depreciation............................................... (743) (632)
------ ------
$ (742) $ (590)
====== ======
</TABLE>
9. EARNINGS PER SHARE
Earnings per share have been calculated in accordance with the provisions of
FAS 128. All prior years' earnings per share data have been restated to
reflect the provisions of FAS 128. The implementation of this standard has
resulted in the presentation of a basic EPS calculation in the consolidated
financial statements as well as a diluted EPS calculation. Basic EPS is
computed by dividing net income (loss) available to ordinary shareholders by
the weighted average number of ordinary shares outstanding during each period.
Diluted EPS is computed by dividing net income (loss) available to ordinary
shareholders by the weighted average number of ordinary and ordinary share
equivalents outstanding (if dilutive), using the treasury stock method, during
each period. Ordinary share equivalents include share options and warrants.
Following is a reconciliation of the basic and diluted per share computations
(dollars in thousands, except per share amounts):
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
SEPTEMBER 30, DECEMBER 31,
--------------------- --------------
1995 1996 1997 1996 1997
------ ------ ------- ------ -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Income (loss) from continuing
operations.......................... $1,013 $1,690 $ 113 $ 90 $ (499)
Less: Preference share dividends,
accretion and amortization of
issuance costs of preference
shares.............................. -- -- (874) -- (468)
------ ------ ------- ------ -------
Income (loss) available to ordinary
shareholders (basic)................ 1,013 1,690 (761) 90 (967)
Effect of dilutive securities........ -- -- -- -- --
------ ------ ------- ------ -------
Income (loss) available to ordinary
shareholders (diluted).............. $1,013 $1,690 $ (761) $ 90 $ (967)
====== ====== ======= ====== =======
Weighted average ordinary shares
outstanding (basic)................. 62,500 62,500 59,499 62,500 59,622
Share options........................ -- -- -- -- --
Warrants............................. -- -- -- -- --
------ ------ ------- ------ -------
Weighted average ordinary and
ordinary share equivalents
outstanding (dilutive).............. 62,500 62,500 59,499 62,500 59,622
====== ====== ======= ====== =======
Earnings (loss) per share
Basic.............................. $16.21 $27.04 $(12.79) $ 1.44 $(16.22)
====== ====== ======= ====== =======
Diluted............................ $16.21 $27.04 $(12.79) $ 1.44 $(16.22)
====== ====== ======= ====== =======
</TABLE>
18
<PAGE>
LOUGHBOROUGH SOUND IMAGES LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Share options to purchase 6,335 ordinary shares and a warrant to purchase
20,115 "B' ordinary shares were outstanding at December 31, 1997, but were not
included in the computation of EPS because their inclusion would be
antidilutive.
10. SIGNIFICANT CUSTOMERS AND CONCENTRATION OF CREDIT RISK
During the years ended September 30, 1995, 1996 and 1997, the Company had
certain customers which individually account for more than 10% of total sales
during such periods, as follows:
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
----------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Customer A.................................................... 15% 12% 21%
Customer B.................................................... 13% 12% --
Customer C.................................................... -- 11% --
</TABLE>
At September 30, 1997, customer A represented 36% of the net accounts
receivable. No other customer represented 10% or more of such balance.
In the normal course of business, the Company extends credit on open account
to its customers. Extensions of credit are closely monitored and no
significant credit losses have occurred during the years ended September 30,
1995, 1996 and 1997.
11. GEOGRAPHICAL INFORMATION
The Company's sales, operating income and identifiable assets by geographic
region were as follows (in thousands):
<TABLE>
<CAPTION>
UNITED EUROPE (EXCLUDING NORTH
KINGDOM UNITED KINGDOM) AMERICA TOTAL
------- ----------------- ------- -------
<S> <C> <C> <C> <C>
1995
Net sales............................ $16,394 $1,631 $ -- $18,025
Transfers between geographic areas... 910 -- --
------- ------ ----- -------
$17,304 $1,631 $ -- $18,025
======= ====== ===== =======
Operating income..................... $ 1,447 $ 23 $ -- $ 1,470
------- ------ ----- -------
Identifiable assets.................. $11,458 $ 980 $ -- $12,438
======= ====== ===== =======
1996
Net sales............................ $19,327 $1,815 $ -- $21,142
Transfers between
geographic areas..................... 1,132 -- --
------- ------ ----- -------
$20,459 $1,815 $ -- $21,142
======= ====== ===== =======
Operating income..................... $ 2,959 $ (211) $ -- $ 2,748
------- ------ ----- -------
Identifiable assets.................. $10,801 $1,097 $ -- $11,898
======= ====== ===== =======
1997
Net sales............................ $19,891 $2,990 $ -- $22,881
Transfers between geographic areas... 2,069 -- --
------- ------ ----- -------
$21,960 $2,990 $ -- $22,881
======= ====== ===== =======
Operating income..................... $ 1,583 $ (548) $(445) $ 590
======= ====== ===== =======
Identifiable assets.................. $12,961 $1,639 $ 259 $14,859
======= ====== ===== =======
</TABLE>
19
<PAGE>
LOUGHBOROUGH SOUND IMAGES LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Net sales outside the United Kingdom of products manufactured and exported
from the United Kingdom were $10,876,000, $11,732,000 and $14,357,000 for the
years ended September 30, 1995, 1996 and 1997, respectively. Products are
transferred between geographic areas on a basis intended to approximate the
market value of such products.
12. EMPLOYEE BENEFITS
Employee Savings Plan
The Company has an employee savings plan which allows for contributions by
the employees and the Company. The Company pays all general and administrative
expenses of the plan. During the years ended September 30, 1995, 1996 and
1997, the Company made contributions of $450,000, $430,000 and $409,000,
respectively.
Employee Stock Ownership Plan
In April of 1997, the Company established an employee stock ownership plan
(the "ESOP") for the benefit of employees of the Company. The ESOP borrowed
(Pounds)500,000 ($810,000) from a commercial bank and used the proceeds to
purchase 2,358 shares of the Company's ordinary shares from a director of the
Company at (Pounds)212 per share which was estimated to be the fair value of
the Company's ordinary shares. The Company has guaranteed the debt of the ESOP
and has placed in escrow cash in an equal amount of the debt. The Company has
reflected the guaranteed ESOP debt and a corresponding amount of guaranteed
ESOP obligations as a reduction of shareholders' equity in its consolidated
balance sheet at September 30, 1997. None of the shares acquired had been
allocated to the participants of the ESOP. Interest payments in 1997 were
$35,000.
13. COMMITMENTS AND CONTINGENCIES
Leases
The Company leases certain buildings and equipment under operating leases.
Rent expense applicable to operating leases was $472,000, $530,000 and
$872,000 for the years ended September 30, 1995, 1996 and 1997, respectively.
At September 30, 1997, the future minimum lease payments required by operating
leases were as follows (in thousands):
<TABLE>
<S> <C>
1998................................................................. $ 1,034
1999................................................................. 968
2000................................................................. 922
2001................................................................. 922
2002................................................................. 520
Thereafter........................................................... 14,820
</TABLE>
Litigation
The Company is party to certain legal proceedings incidental to its
business. Certain claims arising in the ordinary course of business have been
filed or are pending against the Company. The Company accrues for claims that
are both probable and for which expected loss can be reasonably estimated.
Management believes that the resolution of any such claims will not materially
affect the financial position or results of operations of the Company.
14. DISCONTINUED OPERATIONS
In April 1997, the Company adopted a plan to discontinue its Video
Multimedia Group ("VMG") operations in order to focus the Company's resources
on its digital signal processing activities. The VMG
20
<PAGE>
LOUGHBOROUGH SOUND IMAGES LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
operations principally designed, manufactured and sold products for the
videoconferencing industry. These activities operated as a distinct business
segment the results of which have been separately disclosed as discontinued
operations in the accompanying consolidated statements of operations. The VMG
operations were fully abandoned by September 30, 1997. Sales of VMG were
$189,000, $1,462,000 and $277,000 for the years ended September 30, 1995, 1996
and 1997, respectively.
15. SUBSEQUENT EVENT--MERGER WITH MIZAR, INC.
On November 17, 1997, the Company and Mizar, Inc. ("Mizar") executed a
definitive agreement and plan of merger. The merger is contingent upon, among
other matters, the approval of the shareholders of the Company. The merger, if
completed, will be effected by Mizar issuing its common shares for each
ordinary share of the Company in accordance with the exchange ratio set forth
in the agreement and plan of merger. In addition, the warrants for the "B"
ordinary shares discussed in Note 7 will be exercised and the proceeds used to
redeem a portion of the preference shares, and outstanding options to purchase
ordinary shares of the Company will be exchanged for options to purchase Mizar
common stock based on the exchange ratio discussed above. The agreement
contains provisions for the payment of expenses up to a maximum of $1.3
million by either party if certain conditions are met and the transaction is
not completed.
21
<PAGE>
PRO FORMA FINANCIAL INFORMATION
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed financial statements
assume a business combination between Mizar and LSI accounted for on a pooling
of interests basis. The pro forma combined condensed financial statements are
based on the respective historical financial statements and the notes thereto,
which are incorporated by reference or included elsewhere herein. The pro
forma combined balance sheet combines Mizar's December 31, 1997 unaudited
balance sheet with LSI's December 31, 1997 unaudited balance sheet. The pro
forma combined condensed statements of operations combine Mizar's historical
statements of operations for each of the three years in the period ended June
30, 1997 with the corresponding LSI historical statements of operations for
each of the three years in the period ended September 30, 1997. The pro forma
combined condensed statements of operations also combine Mizar's historical
unaudited statements of operations for the six months ended December 31, 1997
and 1996 with the corresponding LSI historical unaudited statements of
operations for the six months ended December 31, 1997 and 1996. The amounts
included as LSI historical amounts have been reclassified to conform to
classifications used by Mizar.
The pro forma information is presented for illustrative purposes only and is
not necessarily indicative of the operating results or financial position that
would have occurred if the business combination had been consummated at the
beginning of the periods presented, nor is the pro forma financial information
necessarily indicative of future operating results or financial position.
These pro forma combined condensed financial statements and the related
notes should be read in conjunction with the historical financial statements
and the related notes thereto of Mizar and LSI included elsewhere herein. See
"Index to Financial Statements."
22
<PAGE>
UNAUDITED PRO FORMA COMBINED BALANCE SHEETS
AS OF DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMBINED ADJUSTMENTS MIZAR LSI
-------- ----------- ------- -------
<S> <C> <C> <C> <C>
Cash and cash equivalents............... $ 4,489 $ -- $ 3,664 $ 825
Marketable securities, at fair value.... 2,478 (4,062) 6,540 --
Accounts receivable..................... 5,552 -- 1,422 4,130
Inventories............................. 5,517 -- 2,669 2,848
Prepaid expenses and other.............. 1,985 -- 315 1,670
Deferred tax asset...................... 1,103 -- 1,103 --
------- ------- ------- -------
Total current assets................ 21,124 (4,062) 15,713 9,473
Plant and equipment--
Buildings and equipment............... 6,310 -- 2,021 4,289
Furniture and fixtures................ 3,274 -- 325 2,949
------- ------- ------- -------
9,584 -- 2,346 7,238
Less--accumulated depreciation........ (5,174) -- (1,557) (3,617)
------- ------- ------- -------
Plant and equipment, net.............. 4,410 -- 789 3,621
Other assets............................ 36 -- 36 --
------- ------- ------- -------
Total assets............................ $25,570 $(4,062) $16,538 $13,094
======= ======= ======= =======
Current liabilities--
Accounts payable...................... $ 6,272 $ 2,500 $ 826 $ 2,946
Accrued compensation.................. 389 -- 389 --
Current portion of debt............... 570 -- -- 570
Other current liabilities............. 2,094 (191) 742 1,543
------- ------- ------- -------
Total current liabilities............... 9,325 2,309 1,957 5,059
Deferred income taxes................... 617 -- -- 617
Long-term debt, net of current portion.. 825 -- -- 825
------- ------- ------- -------
Total liabilities....................... 10,767 2,309 1,957 6,501
Preference shares....................... -- (8,450) -- 8,450
Stockholders' equity--
Common stock.......................... 235 78 57 100
Additional paid-in capital............ 23,880 8,801 14,074 1,005
Net unrealized loss on marketable
securities........................... (3) -- (3) --
Cumulative translation adjustment..... 369 -- -- 369
Retained earnings (deficit)........... (8,277) (6,800) 1,044 (2,521)
------- ------- ------- -------
16,204 2,079 15,172 (1,047)
Less--treasury stock.................. (1,401) -- (591) (810)
------- ------- ------- -------
Total stockholders' equity.............. 14,803 2,079 14,581 (1,857)
------- ------- ------- -------
Total liabilities and stockholders'
equity................................. $25,570 $(4,062) $16,538 $13,094
======= ======= ======= =======
</TABLE>
23
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED JUNE 30, 1995 (MIZAR) AND THE YEAR ENDED SEPTEMBER 30, 1995 (LSI)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
COMBINED ADJUSTMENTS MIZAR LSI
-------- ----------- ------- -------
<S> <C> <C> <C> <C>
Net sales............................. $32,043 $ -- $14,018 $18,025
Cost of sales......................... 14,110 -- 6,330 7,780
------- ----- ------- -------
Gross margin.......................... 17,933 -- 7,688 10,245
Operating expenses:
Product development and
engineering........................ 5,414 -- 1,577 3,837
Sales and marketing................. 4,728 -- 2,352 2,376
General and administrative.......... 3,230 -- 872 2,358
Loss on assets held for sale........ 204 -- -- 204
------- ----- ------- -------
Total operating expenses.............. 13,576 -- 4,801 8,775
------- ----- ------- -------
Operating income...................... 4,357 -- 2,887 1,470
Interest income....................... 117 -- 112 5
Interest expense...................... (447) -- (209) (238)
Other, net............................ 539 -- (5) 544
------- ----- ------- -------
Income from continuing operations
before income taxes.................. 4,566 -- 2,785 1,781
Provision for income taxes............ 899 -- 131 768
------- ----- ------- -------
Income from continuing operations..... $ 3,667 $ -- $ 2,654 $ 1,013
======= ===== ======= =======
Net income per share from continuing
operations:
Basic............................... $ 0.40 -- $ 0.83 $ 16.21
======= ===== ======= =======
Diluted............................. $ 0.34 -- $ 0.57 $ 16.21
======= ===== ======= =======
Weighted average shares outstanding:
Basic............................... 9,118 -- 3,203 63
======= ===== ======= =======
Diluted............................. 11,204 -- 4,803 63
======= ===== ======= =======
</TABLE>
24
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED JUNE 30, 1996 (MIZAR) AND THE YEAR ENDED SEPTEMBER 30, 1996 (LSI)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
COMBINED ADJUSTMENTS MIZAR LSI
-------- ----------- ------- -------
<S> <C> <C> <C> <C>
Net sales............................. $35,194 $ -- $14,052 $21,142
Cost of sales......................... 15,778 -- 6,680 9,098
------- ----- ------- -------
Gross margin.......................... 19,416 -- 7,372 12,044
Operating expenses:
Product development and
engineering........................ 4,980 -- 1,652 3,328
Sales and marketing................. 5,040 -- 2,385 2,655
General and administrative.......... 4,281 -- 968 3,313
------- ----- ------- -------
Total operating expenses.............. 14,301 -- 5,005 9,296
------- ----- ------- -------
Operating income...................... 5,115 -- 2,367 2,748
Interest income....................... 491 -- 485 6
Interest expense...................... (419) -- (80) (339)
Other, net............................ 68 -- (5) 73
------- ----- ------- -------
Income from continuing operations
before income taxes.................. 5,255 -- 2,767 2,488
Provision (benefit) for income taxes.. 291 -- (507) 798
------- ----- ------- -------
Income from continuing operations..... $ 4,964 $ -- $ 3,274 $ 1,690
======= ===== ======= =======
Net income per share from continuing
operations:
Basic............................... $ 0.47 -- $ 0.72 $ 27.04
======= ===== ======= =======
Diluted............................. $ 0.41 -- $ 0.60 $ 27.04
======= ===== ======= =======
Weighted average shares outstanding
Basic............................... 10,457 -- 4,543 63
======= ===== ======= =======
Diluted............................. 12,218 -- 5,532 63
======= ===== ======= =======
</TABLE>
25
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED JUNE 30, 1997 (MIZAR) AND THE YEAR ENDED SEPTEMBER 30, 1997 (LSI)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
COMBINED ADJUSTMENTS MIZAR LSI
-------- ----------- ------- -------
<S> <C> <C> <C> <C>
Net sales............................. $34,388 $ -- $11,507 $22,881
Cost of sales......................... 15,295 -- 5,929 9,366
------- ----- ------- -------
Gross margin.......................... 19,093 -- 5,578 13,515
Operating expenses:
Product development and
engineering........................ 6,451 -- 2,660 3,791
Sales and marketing................. 5,740 -- 1,780 3,960
General and administrative.......... 6,696 -- 1,522 5,174
------- ----- ------- -------
Total operating expenses.............. 18,887 -- 5,962 12,925
------- ----- ------- -------
Operating income (loss)............... 206 -- (384) 590
Interest income....................... 611 -- 595 16
Interest expense...................... (205) -- -- (205)
Other, net............................ 77 -- -- 77
------- ----- ------- -------
Income from continuing operations
before income taxes.................. 689 -- 211 478
Provision for income taxes............ 397 -- 32 365
------- ----- ------- -------
Income from continuing operations..... $ 292 $ -- $ 179 $ 113
======= ===== ======= =======
Net income (loss) per share from
continuing operations:
Basic............................... $ 0.03 -- $ 0.04 $(12.79)
======= ===== ======= =======
Diluted............................. $ 0.02 -- $ 0.03 $(12.79)
======= ===== ======= =======
Weighted average shares outstanding
Basic............................... 10,594 -- 4,950 60
======= ===== ======= =======
Diluted............................. 11,793 -- 5,475 60
======= ===== ======= =======
</TABLE>
26
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
SIX MONTHS ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
COMBINED ADJUSTMENTS MIZAR LSI
-------- ----------- ------ -------
<S> <C> <C> <C> <C>
Net sales............................... $17,116 $ -- $6,414 $10,702
Cost of sales........................... 7,724 -- 3,144 4,580
------- ----- ------ -------
Gross margin............................ 9,392 -- 3,270 6,122
Operating expenses:
Product development and engineering... 3,018 -- 1,133 1,885
Sales and marketing................... 2,466 -- 912 1,554
General and administrative............ 2,742 -- 634 2,108
------- ----- ------ -------
Total operating expenses................ 8,226 -- 2,679 5,547
------- ----- ------ -------
Operating income........................ 1,166 -- 591 575
Interest income......................... 287 -- 284 3
Interest expense........................ (162) -- -- (162)
Other, net.............................. 39 -- -- 39
------- ----- ------ -------
Income from continuing operations before
income taxes........................... 1,330 -- 875 455
Provision for income taxes.............. 410 -- 92 318
------- ----- ------ -------
Income from continuing operations....... $ 920 $ -- $ 783 $ 137
======= ===== ====== =======
Net income per share from continuing
operations:
Basic................................. $ 0.08 -- $ 0.16 $ 2.19
======= ===== ====== =======
Diluted............................... $ 0.07 -- $ 0.14 $ 2.19
======= ===== ====== =======
Weighted average shares outstanding
Basic................................. 10,881 -- 4,966 63
======= ===== ====== =======
Diluted............................... 12,485 -- 5,575 63
======= ===== ====== =======
</TABLE>
27
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
SIX MONTHS ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
COMBINED ADJUSTMENTS MIZAR LSI
-------- ----------- ------ -------
<S> <C> <C> <C> <C>
Net sales.............................. $17,657 $ -- $5,731 $11,926
Cost of sales.......................... 7,602 -- 2,933 4,669
------- ------ ------ -------
Gross margin........................... 10,055 -- 2,798 7,257
Operating expenses:
Product development and engineering.. 3,361 -- 1,191 2,170
Sales and marketing.................. 3,761 -- 1,033 2,728
General and administrative........... 2,988 -- 712 2,276
------- ------ ------ -------
Total operating expenses............... 10,110 -- 2,936 7,174
------- ------ ------ -------
Operating income (loss)................ (55) -- (138) 83
Interest income........................ 292 -- 280 12
Interest expense....................... (30) -- -- (30)
Other, net............................. 70 -- -- 70
------- ------ ------ -------
Income from continuing operations
before income taxes................... 277 -- 142 135
Provision (benefit) for income taxes... (41) -- 25 (66)
------- ------ ------ -------
Income from continuing operations...... $ 318 $ -- $ 117 $ 201
======= ====== ====== =======
Net income per share from continuing
operations:
Basic................................ $ 0.03 -- $ 0.02 $(11.81)
======= ====== ====== =======
Diluted.............................. $ 0.03 -- $ 0.02 $(11.81)
======= ====== ====== =======
Weighted average shares outstanding:
Basic................................ 10,489 -- 5,078 60
======= ====== ====== =======
Diluted.............................. 12,289 -- 5,398 60
======= ====== ====== =======
</TABLE>
28
<PAGE>
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
The unaudited pro forma combined financial statements give effect to the
business combination between Mizar, Inc. and Loughborough Sound Images, Ltd.
accounted for on a pooling-of-interests basis. The pro forma combined
financial statements are based on the respective historical financial
statements and the notes thereto. The pro forma combined balance sheet
combines Mizar's and LSI's balance sheet as of December 31, 1997. The pro
forma combined statements of operations combine Mizar's and LSI's historical
statements of operations for each of the three years in the period ended June
30, 1997, and September 30, 1997, respectively, and the unaudited statements
of operations for the six months ended December 31, 1997 and December 31,
1996. LSI's historical statements of operations for the years ended September
30, 1997 and 1996 include the same unaudited statement of operations
information for the quarter ended September 30, 1997 and 1996, which is
included in the six months ended December 31, 1997 and 1996.
The pro forma information is presented for illustrative purposes only and is
not necessarily indicative of the operating results or financial position that
would have occurred if the business combination had been consummated at the
beginning of the periods presented nor is it necessarily indicative of future
operating results or financial position.
These pro forma combined financial statements should be read in conjunction
with the historical financial statements and the related notes thereto of
Mizar and LSI included or incorporated elsewhere herein. See "Index to
Financial Statements."
Adjustments to the pro forma combined statements of operations assume the
merger of Mizar and LSI was consummated on July 1, 1994. The adjustments to
the pro forma balance sheet assume the business combination was consummated on
December 31, 1997. The business combination has been accounted for using the
pooling-of-interests method of accounting. The following adjustments have been
provided in connection with the business combination in accordance with
Accounting Principles Board Opinion No. 16:
1) Reflecting the redemption of Preferred Shares held by Bank Holdings and the
elimination of related interest expense. The amount of the redemption is
$9,441,000 and is reflected as a reduction in marketable securities and as
a reduction in the number of outstanding Preference Shares, retained
earnings, and accrued liabilities.
2) The exercise of warrants for ordinary shares in LSI held by Bank Holdings.
This adjustment is reflected as a $19,000 increase in common stock, a
$5,360,000 increase in paid-in-capital and a $5,379,000 increase in
marketable securities. The issuance of shares of Mizar Common Stock in
exchange for the outstanding shares of LSI is reflected as a $59,000
increase to common stock and a decrease in paid-in-capital.
29
<PAGE>
3) The accrual of expenses related to the business combination of $2,500,000.
This accrual is reflected as an increase in accounts payable and a reduction
in retained earnings. This charge will be reflected as an expense in the
first accounting period immediately following the consummation of the
business combination.
4) Retained earnings has been decreased and paid in capital has been increased
for a $3,500,000 compensation expense entry related to certain variable
options of LSI. This non-cash charge will be reflected as an expense in the
first accounting period immediately following the consummation of the
combination.
<TABLE>
<CAPTION>
PROFORMA ADJUSTMENTS
------------------------------------------------------------------
MARKETABLE SECURITIES ACCRUED LIABILITIES PREFERENCE SHARES
---------------------- --------------------- -------------------
DEBIT CREDIT DEBIT CREDIT DEBIT CREDIT
---------- ----------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Adjustment 1.......... -- (9,441) 191 -- 9,250
-- (505)
(295)
Adjustment 2.......... 5,379 -- -- -- -- --
Adjustment 3.......... -- -- -- (2,500) -- --
Adjustment 4.......... -- -- -- -- -- --
---------- ----------- -------- ----------- --------- --------
Total................. 5,379 (9,441) 191 (2,500) 9,250 (800)
========== =========== ======== =========== ========= ========
Net Adjustment........ -- (4,062) -- (2,309) 8,450 --
========== =========== ======== =========== ========= ========
<CAPTION>
ADDITIONAL PAID-
COMMON STOCK IN CAPITAL RETAINED EARNINGS
---------------------- --------------------- -------------------
DEBIT CREDIT DEBIT CREDIT DEBIT CREDIT
---------- ----------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Adjustment 1.......... -- -- -- -- 505 --
295
Adjustment 2.......... -- (19) 59 (5,360)
(59)
Adjustment 3.......... -- -- -- 2,500 --
Adjustment 4.......... -- -- -- (3,500) 3,500 --
---------- ----------- -------- ----------- --------- --------
Total................. -- (78) 59 (8,860) 6,800 --
========== =========== ======== =========== ========= ========
Net Adjustment........ -- (78) -- (8,801) 6,800 --
========== =========== ======== =========== ========= ========
</TABLE>
30
<PAGE>
Exhibit Index
-------------
2.1 Share Purchase Agreement (the "Purchase Agreement") dated as of November
17, 1997, between Mizar, Inc. and Loughborough Sound Images PLC.
2.2 Letter Agreement dated March 24, 1998 between Mizar, Inc. and
Loughborough Sound Images Limited (f/k/a Loughborough Sound Images PLC),
amending the Purchase Agreement.
<PAGE>
Exhibit 2.1
SHARE PURCHASE AGREEMENT
BETWEEN
MIZAR, INC.
(a Delaware corporation)
and
LOUGHBOROUGH SOUND IMAGES PLC
(a company registered in England and Wales)
Dated: November 17, 1997
<PAGE>
This Share Purchase Agreement (this "Agreement") is made as of the 17th
day of November, 1997, between Mizar, Inc., a Delaware corporation ("Mizar"),
and Loughborough Sound Images plc, a company registered in England and Wales
("LSI").
W I T N E S S E T H:
-------------------
WHEREAS, the respective Boards of Directors of Mizar and LSI each have
determined that it is in the best interests of their respective stockholders for
Mizar to acquire LSI through (i) an exchange of shares of common stock issued by
Mizar for all of the issued and outstanding ordinary shares of LSI, in an
acquisition that constitutes a tax-free transaction meeting the requirements of
Section 135 of the Taxation of Chargeable Gains Act 1992 (the "TCGA"), and (ii)
the partial redemption by LSI and partial purchase by Mizar of all of the issued
and outstanding preference shares of LSI, upon the terms and conditions set
forth herein;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and certain other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the parties hereto covenant and
agree as follows:
ARTICLE 1.
PURCHASE OF SHARES
1.1. Exchange. Upon the terms and subject to the conditions set forth in
--------
this Agreement, as soon as practicable after the execution of this Agreement,
LSI shall use its reasonable best efforts (a) to cause each of the registered
shareholders of LSI (collectively, the "LSI Shareholders") to accept an offer
made by Mizar to the LSI Shareholders by entering into a share exchange
agreement, in a mutually agreeable form, between such shareholder and Mizar (the
"Share Exchange Agreements"), which shall provide for each LSI Shareholder to
sell, assign, transfer, convey and deliver to Mizar, and for Mizar to purchase,
all right, title and interest in and to all of such shareholder's shares of LSI
Stock (as defined in Section 3.7 below), free and clear of all liens, security
interests, charges, encumbrances and rights of others and (b) to cause each
person holding Old Options (as defined in Section 2.4 below) (such persons shall
be collectively referred to herein as the "LSI Optionholders") to enter into an
option exchange agreement, in a mutually agreeable form, between such LSI
Optionholder and Mizar (the "Option Exchange Agreements"), which shall provide
for each LSI Optionholder either to exercise his Old Options for shares of LSI
Stock, which shall then be sold to Mizar, or to enter into a new option
agreement with Mizar as set forth in Section 2.4 below, at the option of such
LSI Optionholder. In addition, LSI shall use its reasonable best efforts to
cause Boston Holdings Limited ("Bank") to enter into an agreement, in a mutually
agreeable form, with LSI and Mizar (the "Bank Agreement," and together with the
Share Exchange Agreement and the Option Exchange Agreement, the "Exchange
Agreements"), which shall provide for (a) Bank to exercise all the Warrants (as
defined in Section 2.4 below) for shares of LSI Stock which shall then be
exchanged for shares of Mizar Common Stock, (b) LSI to use all of the proceeds
of such exercise to redeem Preferred Shares (as defined in Section 3.7 below),
and (c) Bank to sell any Preferred Shares not so redeemed (the "Remaining
Preferred Shares") to Mizar for an amount per share that is equal to the amount
payable upon redemption of the Remaining Preferred Shares. The Exchange
Agreements shall be mailed by
<PAGE>
Mizar to the other parties to such agreements with such covering letters or
other documentation as may be necessary or desirable to comply with any relevant
provisions of United States and United Kingdom law. No such mailing shall be
made unless and until the parties shall have agreed on the form of all documents
referred to in this agreement as being "in a mutually agreeable form," and until
LSI shall have re-registered as a private company under section 53 Companies Act
1985 (the "Companies Act") and shall have received a certificate of change of
name from the Registrar of Companies confirming such re-registration. In
consideration for the shares of LSI Stock so acquired by Mizar, Mizar shall
issue and deliver 94.632 shares of common stock, $.01 par value, of Mizar
("Mizar Common Stock") in exchange for each share of LSI Stock transferred to
Mizar pursuant to an Exchange Agreement, as soon as practicable following the
satisfaction or permissible waiver of the conditions set forth in Articles 6 and
7 (the exchange of shares of Mizar Common Stock for shares of LSI Stock,
including shares issued at the Closing (as defined in Section 1.2 below) upon
the exercise of the Options and Warrants, shall be referred to herein as the
"Exchange").
1.2. Closing. Consummation of the transactions contemplated by this
-------
Agreement and the Exchange Agreements (the "Closing"), shall take place at the
executive offices of Mizar in Carrollton, Texas, commencing at 10:00 a.m., local
time, as soon as practicable after the last to be fulfilled or waived of the
conditions set forth in Articles 6 and 7, or at such other place, time and date
as shall be fixed by mutual agreement between Mizar and LSI. The day on which
the Closing shall occur shall be referred to herein as the "Closing Date." Each
party will use its reasonable best efforts to cause to be prepared, executed and
delivered the documents to be delivered pursuant to Articles 6 and 7 and all
other appropriate and customary documents as any party or its counsel may
reasonably request for the purpose of consummating the transactions contemplated
by this Agreement or the Exchange Agreements. LSI will use its reasonable best
efforts to facilitate the consummation of the transactions contemplated by the
Exchange Agreements at or prior to the Closing. All actions taken at the Closing
shall be deemed to have been taken simultaneously at the time the last of any
such actions is taken or completed.
1.3. Tax Consequences. It is the intention of the parties hereto that no
----------------
taxable income or gain shall be recognized by holders of LSI Stock upon the
Exchange under Section 135 of the TCGA.
1.4. Pooling of Interests. It is the intention of the parties hereto
--------------------
that the Exchange will be treated for financial reporting purposes in the United
States as a pooling of interests.
ARTICLE 2.
EXCHANGE OF SHARES; TREATMENT OF OPTIONS AND WARRANTS
2.1. Warrants; Options; Exchange of Shares. On or before the Closing
-------------------------------------
Date, as provided in the applicable Exchange Agreements, but subject to the
Closing, the Warrants shall be exercised, in accordance with their terms, into
shares of LSI Stock, and each outstanding Old Option shall be, at the option of
the holder, exercised or converted into an option for shares of
2
<PAGE>
Mizar Common Stock, as described in Section 2.4. Immediately after the
satisfaction or permissible waiver of the conditions set forth in Articles 6 and
7 at the Closing, and after giving effect to the foregoing, each of the shares
of LSI Stock that are outstanding and tendered to Mizar pursuant to the Exchange
Agreements (the "Converted Shares") shall be exchanged for 94.632 (such number
being referred to herein as the "Exchange Ratio") shares of Mizar Common Stock.
2.2. Fractional Shares. No scrip or fractional shares of Mizar Common
-----------------
Stock shall be issued in the Exchange. All fractional shares of Mizar Common
Stock to which an LSI Shareholder would otherwise be entitled at the Closing
Date pursuant to a Share Exchange Agreement shall be aggregated. If a fractional
share results from such aggregation, then such shareholder shall be entitled,
after the later of (a) the Closing Date or (b) the surrender of such
shareholder's Certificate (as defined in Section 2.5 below) or Certificates that
represent such shares, to receive from Mizar an amount in cash in lieu of such
fractional share. The amount of such cash payment shall be equal to such
fractional proportion of the Average Closing Price (as defined below) of a share
of the Mizar Common Stock. For purposes of this Agreement, "Average Closing
Price" shall mean the average per share closing price for the Mizar Common Stock
as reported on the Nasdaq National Market System (the "NMS") over the twenty
(20) trading days ending on the fifth full trading day prior to the Closing
Date. Mizar will make available to the Exchange Agent (as defined in Section 2.5
below) the cash necessary for the purpose of paying cash for fractional shares.
2.3. Demand Rights. LSI shall use its reasonable best efforts to
-------------
provide that LSI Shareholders who have not, immediately prior to the Closing
Date, tendered their shares of LSI Stock and accepted the Exchange, and with
respect of which Mizar has validly exercised its rights properly demanded in
accordance with the applicable provisions of Section 429, the Companies Act,
comply with the provisions of Part XIIIA of the Companies Act, and both LSI and
Mizar agree that they shall comply with the provisions of Part XIIIA of the
Companies Act.
2.4. Stock Options.
-------------
(a) On the Closing Date, LSI shall use its reasonable best
efforts to provide that all share options (the "Old Options") then
outstanding under LSI's share option plans (the "Option Plans"), shall,
pursuant to the Option Exchange Agreements, be exercised for shares of
LSI Stock (immediately prior to the Exchange), or exchanged in
accordance with the Option Exchange Agreements for options for Mizar
Common Stock ("New Options"), to the effect that (i) the holder of each
such New Option, upon its exercise in accordance with its terms, shall
be entitled to receive that whole number of shares of Mizar Common Stock
(rounded to the nearest whole share) into which the number of shares of
LSI Stock subject to the Old Option exchanged for such New Option would
be converted based upon the Exchange Ratio, (ii) the exercise price per
share of Mizar Common Stock under the New Options shall be equal to the
exercise price per share of LSI Stock applicable to such Old Option
immediately prior to the Exchange, divided by the Exchange Ratio, and
converted into U.S. dollars using the average currency conversion rate
for converting
3
<PAGE>
British Pounds into U.S. dollars over the ten (10) days ending on the
second day before the Closing Date (and rounded to the nearest cent),
and (iii) all other terms and conditions of the New Options shall be
substantially the same as under the Old Options, as more explicitly set
forth in the Option Exchange Agreements. The terms of the New Options
shall acknowledge the fact that a triggering event shall have occurred
under the Old Options as a result of the Exchange. From and after the
date of this Agreement, no additional options shall be granted by LSI
under the Option Plans or otherwise.
(b) It is intended that the New Options, as set forth herein,
shall not give to any holder thereof any benefits in addition to those
which such holder had prior to the conversion of the Old Options into
New Options. Mizar shall take all corporate action necessary to reserve
for issuance a sufficient number of shares of Mizar Common Stock for
delivery upon exercise of the New Options. As soon as practicable after
the Closing Date, Mizar shall file a registration statement, or an
amendment to an existing registration statement, under the Securities
Act of 1933, as amended (the "Securities Act"), on Form S-8 (or other
successor form) with respect to the unissued shares of Mizar Common
Stock subject to any unexercised New Options and shall use its best
efforts to maintain the effectiveness of such registration statement for
so long as such New Options remain outstanding. In addition, Mizar will
cause the shares of Mizar Common Stock issuable under the New Options to
be listed on the NMS.
(c) Approval by the stockholders of Mizar of this Agreement shall
constitute authorization and approval of any and all of the actions
described in this Section 2.4.
2.5. Exchange Agent.
--------------
(a) Mizar shall authorize Securities Transfer Corp., or such
other firm as is reasonably acceptable to LSI, to serve as exchange
agent hereunder (the "Exchange Agent"). Promptly after the Closing Date,
Mizar shall deposit or shall cause to be deposited in trust with the
Exchange Agent (i) certificates representing the number of whole shares
of Mizar Common Stock to which the holders of LSI Stock are entitled
pursuant to the Exchange Agreements and Section 2.1(a), and (ii) cash
sufficient to pay for fractional shares then known to Mizar, if
applicable (such cash amounts and certificates being hereinafter
referred to as the "Exchange Fund"). The Exchange Agent shall, pursuant
to irrevocable instructions received from Mizar, deliver the number of
shares of Mizar Common Stock and pay the amounts of cash required under
this Article 2 with respect to each Converted Share out of the Exchange
Fund. Any cash needed from time to time by the Exchange Agent to make
payments for fractional shares shall be provided by Mizar and shall
become part of the Exchange Fund. The Exchange Fund shall not be used
for any other purpose, except as provided in this Agreement, or as
otherwise agreed to by Mizar and LSI prior to the Closing Date.
4
<PAGE>
(b) As soon as practicable after the Closing Date, the Exchange
Agent shall mail and otherwise make available to each LSI Shareholder
who, as of the Closing Date, was a record holder of an outstanding
certificate or certificates, which immediately prior to the Closing Date
represented shares of LSI Stock (the "Certificates"), a stock transfer
form or other appropriate documents of transfer and instructions for
their use in effecting the surrender of the Certificates for payment
therefor and exchange thereof, which transfer documents shall comply
with all applicable rules of the NMS.
(c) Delivery of Certificates shall be effected, and risk of loss
and title to the Certificates shall pass, only upon proper delivery of
the Certificates to the Exchange Agent, and the form of transfer
documents shall so reflect. Upon surrender to the Exchange Agent of a
Certificate, together with such transfer documents duly executed, the
holder of such Certificate shall be entitled to receive in exchange
therefor one or more certificates as requested by the holder (properly
issued, executed and countersigned, as appropriate) representing that
number of whole shares of Mizar Common Stock to which such holder of LSI
Stock shall have become entitled pursuant to the provisions of this
Article 2, and the Certificate so surrendered shall forthwith be
canceled.
(d) Mizar shall pay any stamp duty transfer taxes or other
transfer taxes under the laws of the United Kingdom and the United
States required by reason of the transfer to Mizar of LSI Stock or the
issuance of a certificate representing shares of Mizar Common Stock if
such certificate is issued in the name of the person in whose name the
Certificate surrendered in exchange therefor is registered. If any
portion of the consideration to be received pursuant to this Article 2
upon exchange of a Certificate is to be issued or paid to a person other
than the person in whose name the Certificate surrendered in exchange
therefor is registered, it shall be a condition of such issuance and
payment that the Certificate so surrendered shall be properly endorsed
or otherwise in proper form for transfer and that the person requesting
such exchange shall pay in advance any stamp duty transfer or other
taxes required by reason of the issuance of a certificate representing
shares of Mizar Common Stock to such other person, or establish to the
satisfaction of the Exchange Agent that such tax has been paid or that
no such tax is applicable. From the Closing Date until surrender in
accordance with the provisions of this Section 2.5, each Certificate
shall represent for all purposes only the right to receive the
consideration provided in Sections 2.1 and 2.2. No dividends that are
otherwise payable on Mizar Common Stock will be paid to persons entitled
to receive Mizar Common Stock until such persons surrender their
Certificates. After such surrender, there shall be paid to the person in
whose name Mizar Common Stock shall be issued any dividends on such
Mizar Common Stock that have a record date on or after the Closing Date
and prior to such surrender. In no event shall the persons entitled to
receive such dividends, if any, be entitled to receive interest on such
dividends.
(e) In the case of any lost, mislaid, stolen or destroyed
Certificates, the holder thereof may be required, as a condition
precedent to the delivery to such holder of the
5
<PAGE>
consideration described in this Article 2, to deliver to Mizar a bond in
such reasonable sum as Mizar may direct as indemnity against any claim
that may be made against the Exchange Agent, Mizar or LSI with respect
to the Certificate alleged to have been lost, mislaid, stolen or
destroyed.
(f) After the Closing Date, there shall be no transfers on the
share register of LSI of the shares of LSI Stock that were outstanding
immediately prior to the Closing Date.
2.6. Adjustments. If, between the date of this Agreement and the
-----------
Closing Date, (i) the outstanding shares of LSI Stock or Mizar Common Stock
shall have been changed into a different number of shares or a different class
by reason of any reclassification, recapitalization, split-up, combination,
exchange of shares, or readjustment or a stock dividend thereon shall be
declared with a record date within such period, or (ii) Mizar or LSI shall have
issued additional shares of its capital stock (except upon conversion or
exercise of outstanding convertible securities or options or warrants), or
options or warrants to purchase capital stock, or securities convertible into
capital stock (except for issuances of options by Mizar or LSI that are
consented to by the Managing Director of LSI and the chief executive officer of
Mizar and issuances of any New Options), then the consideration to be received
pursuant to Section 2.1(a) hereof by the holders of shares of LSI Stock shall be
adjusted to accurately reflect such change.
ARTICLE 3.
REPRESENTATIONS AND WARRANTIES OF LSI
LSI hereby represents and warrants to Mizar that, except as otherwise
set forth on the LSI Disclosure Schedule (herein so called) attached hereto:
3.1. Organization and Good Standing of LSI. LSI is a public limited
-------------------------------------
company duly organized, validly existing and in good standing under the laws of
the United Kingdom. Except for the LSI Subsidiaries, LSI has no subsidiaries and
no equity, profit sharing, participation or other ownership interest (including
any general partnership interest) in any corporation, partnership, limited
partnership or other entity.
3.2. Capital Stock of LSI Subsidiaries and Other Ownership Interests.
---------------------------------------------------------------
The membership interests of Data Beta Limited, Multimedia Video Products
Limited, MVP Limited, Stanford Court Technology Limited, Ultimate Vision plc,
Loughborough Sound Images France Sarl, Loughborough Sound Images Deutschland
GmbH and Loughborough Sound Images, Inc. (collectively, the "LSI Subsidiaries")
have been duly authorized and are validly issued, fully paid and nonassessable.
The number of authorized and outstanding membership interests or other equity
interests of the LSI Subsidiaries, and the record and beneficial owners of the
same, are set forth on the LSI Disclosure Schedule and, except as set forth on
the LSI Disclosure Schedule, are owned by LSI, either directly or indirectly,
free and clear of all liens, charges, encumbrances, equities or claims.
6
<PAGE>
3.3. Foreign Qualification. LSI is duly qualified or licensed to do
---------------------
business and is in good standing as a foreign corporation in every jurisdiction
where the failure so to qualify would have a material adverse effect on (a) the
current business, operations, assets or financial condition of LSI or (b) the
validity or enforceability of, or the ability of LSI to perform its obligations
under, this Agreement (an "LSI Material Adverse Effect").
3.4. Corporate Power and Authority. Each of LSI and each LSI
-----------------------------
Subsidiary has the corporate power and authority to own, lease and operate its
properties and assets and to carry on its business as currently being conducted.
LSI has the corporate power and authority to execute and deliver this Agreement
and to perform its obligations under this Agreement. The execution, delivery and
performance by LSI of this Agreement has been duly authorized by all necessary
corporate action.
3.5. Binding Effect. This Agreement has been duly executed and
--------------
delivered by LSI and is the legal, valid and binding obligation of LSI
enforceable in accordance with its terms, except that:
(a) enforceability may be limited by bankruptcy, insolvency or
other similar laws affecting creditors' rights;
(b) the availability of equitable remedies may be limited by
equitable principles of general applicability; and
(c) rights to indemnification may be limited by considerations of
public policy.
3.6. Absence of Restrictions and Conflicts. Except as set forth on
-------------------------------------
the LSI Disclosure Schedule, the execution, delivery and performance of this
Agreement and the consummation of the Exchange and the fulfillment of and
compliance with the terms and conditions of this Agreement do not and will not,
with the passing of time or the giving of notice or both, violate or conflict
with, constitute a breach of or default under, result in the loss of any
material benefit under, or permit the acceleration of any obligation under, (i)
any term or provision of the relevant governing corporate documents of LSI or
the LSI Subsidiaries, (ii) any LSI Material Contract (as defined in Section
3.12), (iii) any judgment, decree or order of any court or governmental
authority or agency to which LSI or the LSI Subsidiaries are parties or by which
LSI or an LSI Subsidiary or any of their respective properties is bound, or (iv)
any statute, law, regulation or rule applicable to LSI, including the Companies
Act and the City Code on Takeovers and Mergers (the "Takeover Code"), other than
such violations, conflicts, breaches or defaults which would not have an LSI
Material Adverse Effect. Except for compliance with the applicable requirements
of the Securities Act, the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and applicable securities laws, including the Takeover Code, no
consent, approval, order or authorization of, or registration, declaration or
filing with, any governmental agency or public or regulatory unit, agency, body
or authority with respect to LSI is required in connection with the
7
<PAGE>
execution, delivery or performance of this Agreement by LSI or the consummation
of the transactions contemplated hereby.
3.7. Capitalization of LSI.
---------------------
(a) The authorized capital stock of LSI consists of 7,500,000
preference shares, (Pounds)0.75 par value ("Preferred Shares"), 80,000
"A" ordinary shares, (Pounds)1 par value ("A Shares") and 25,000 "B"
ordinary shares ("B Shares"), (Pounds)1 par value (the outstanding and
issued A Shares and the B Shares are collectively referred to herein as
the "LSI Stock"). As of the date hereof, there were 5,708,548 Preferred
Shares issued and outstanding, 56,497 A Shares issued and outstanding,
12,585 A Shares reserved for issuance upon the exercise of currently
outstanding options granted under the Option Plans and 1 B share issued
and outstanding. In addition, warrants to subscribe for up to 20,115 B
Shares (the "Warrants") have been granted.
(b) All of the issued and outstanding shares of LSI Stock and the
Preferred Shares have been duly authorized and validly issued and are
fully paid, nonassessable and free of preemptive rights.
(c) To LSI's knowledge, there are no voting trusts, shareholder
agreements or other voting arrangements, capacities, charges, liens or
encumbrances on shares issued by LSI that have been granted by the
shareholders of LSI, except as set forth on the LSI Disclosure Schedule.
(d) Except as set forth on the LSI Disclosure Schedule, there is
no outstanding subscription, contract, convertible or exchangeable
security, option, warrant, call or other right obligating LSI or an LSI
Subsidiary to issue, sell, exchange, or otherwise dispose of, or to
purchase, redeem or otherwise acquire, shares of, or securities
convertible into or exchangeable for, shares of LSI or an LSI
Subsidiary, except as set forth on the LSI Disclosure Schedule or with
respect to the Warrants.
3.8. Financial Statements and Records of LSI. LSI has made available
---------------------------------------
to Mizar true, correct and complete copies of the following financial statements
(the "LSI Financial Statements"):
(a) the audited consolidated balance sheet and profit and loss
account of LSI and its subsidiaries as of September 30, 1995 and 1996
and for the years then ended, including the notes thereto, in both cases
examined by and accompanied by the report of Price Waterhouse, LP
(collectively, the "LSI Year-End Statements"); and
(b) the unaudited consolidated management account and balance
sheet of LSI and its subsidiaries as of September 30, 1997, with any
notes thereto, (collectively, the "LSI Balance Sheet").
8
<PAGE>
The LSI Financial Statements present fairly, in all material respects, the
financial position of LSI and/or its subsidiaries, as the case may be, as of the
dates thereof and the results of operations and cash flows thereof for the
periods then ended, in each case in conformity with the legal requirements and
generally accepted accounting principles relevant to such entity's place of
incorporation, consistently applied, except as noted therein. Since September
30, 1996, there has been no change in accounting principles applicable to, or
methods of accounting utilized by, LSI and/or such LSI Subsidiary, as the case
may be, except as noted in the LSI Financial Statements. The books and records
of LSI have been and are being maintained in accordance with good business
practice, reflect only valid transactions and are complete and correct in all
material respects.
3.9. Absence of Certain Changes. Since September 30, 1997, LSI and the
--------------------------
LSI Subsidiaries have not, except as otherwise set forth on the LSI Disclosure
Schedule:
(a) suffered any adverse change in the business, operations,
assets, or financial condition, except as reflected on the LSI Financial
Statements and except for such changes that would not result in an LSI
Material Adverse Effect;
(b) suffered any material damage or destruction to or loss of the
assets of LSI or the LSI Subsidiaries, whether or not covered by
insurance, which property or assets are material to the operations or
business of LSI and the LSI Subsidiaries taken as a whole;
(c) settled, forgiven, compromised, canceled, released, waived or
permitted to lapse any material rights or claims other than in the
ordinary course of business;
(d) entered into or terminated any material agreement, commitment
or transaction, or agreed to or made any changes in material leases or
agreements, other than renewals or extensions thereof and leases,
agreements, transactions and commitments entered into or terminated in
the ordinary course of business;
(e) written up, written down or written off the book value of any
material amount of assets other than in the ordinary course of business;
(f) declared, paid or set aside for payment any dividend or
distribution with respect to the LSI Stock;
(g) redeemed, purchased or otherwise acquired, or sold, granted
or otherwise disposed of, directly or indirectly, any shares of LSI
Stock or securities (other than the redemption of the Preferred Shares
pursuant to this Agreement and the Bank Agreement and the issuance of
shares issued upon exercise of the Old Options or the Warrants) or any
rights to acquire such capital stock or securities, or agreed to changes
in the terms and conditions of any such rights outstanding as of the
date of this Agreement;
9
<PAGE>
(h) increased the compensation of or paid any bonuses to any
employees or contributed to any employee benefit plan or pension scheme,
other than in the ordinary course of business and consistent with
established policies, practices or requirements;
(i) entered into any employment, consulting or compensation
agreement with any person or group, except for agreements which in the
aggregate would not have an LSI Material Adverse Effect;
(j) entered into any collective bargaining agreement or trade
union recognition agreement with any person or group;
(k) entered into, adopted or amended any employee benefit plan or
share option scheme or agreement; or
(l) entered into any agreement to do any of the foregoing.
3.10. No Material Undisclosed Liabilities. There are no liabilities or
-----------------------------------
obligations of LSI or the LSI Subsidiaries of any nature, whether absolute,
accrued, contingent, or otherwise, other than:
(a) the liabilities and obligations that are reflected, accrued
or reserved against on the LSI Balance Sheet, or referred to in the
footnotes to LSI Balance Sheet, or incurred in the ordinary course of
business and consistent with past practices since September 30, 1997; or
(b) liabilities and obligations which in the aggregate would not
result in an LSI Material Adverse Effect.
3.11. Tax Returns; Taxes. Each of LSI and the LSI Subsidiaries (a) have
------------------
duly filed all material local and foreign tax returns and reports required to be
filed by it, including those with respect to advance corporation tax, capital
gains tax, corporation tax, excise duties, income tax (including "Pay as You
Earn"), inheritance tax, insurance premium tax, National Insurance
contributions, stamp duty taxes, value added tax and similar taxes, and all such
returns and reports are correct in all material respects; (b) have either paid
in full all taxes that have become due as reflected on any return or report and
any interest and penalties with respect thereto or have fully accrued on its
books or have established adequate reserves for all taxes payable but not yet
due; and (c) have made cash deposits with appropriate governmental authorities
representing estimated payments of taxes, including income taxes and employee
withholding tax obligations. No extension or waiver of any statute of
limitations or time within which to file any return has been granted to or
requested by LSI or any LSI Subsidiary with respect to any tax. No unsatisfied
deficiency, delinquency or default for any tax, assessment or governmental
charge has been claimed, proposed or assessed against LSI or the LSI
Subsidiaries, nor has LSI or the LSI Subsidiaries received notice of any such
deficiency, delinquency or default. LSI and the LSI
10
<PAGE>
Subsidiaries have no material tax liabilities other than those reflected on LSI
Balance Sheet and those arising in the ordinary course of business since the
date thereof. LSI will make available to Mizar true, complete and correct copies
of LSI's tax returns for the last five years and make available such other tax
returns requested by Mizar. The income tax liabilities of LSI and the LSI
Subsidiaries have been paid for all fiscal years up to and including the year
ended September 30, 1997.
3.12. Material Contracts. LSI has furnished or made available to Mizar
------------------
accurate and complete copies of the LSI Material Contracts applicable to LSI or
the LSI Subsidiaries. Except as set forth on the LSI Disclosure Schedule, there
is not under any of the LSI Material Contracts any existing breach, default or
event of default by LSI or any LSI Subsidiary nor event that with notice or
lapse of time or both would constitute a breach, default or event of default by
LSI or the LSI Subsidiaries, other than breaches, defaults or events of default
which would not have an LSI Material Adverse Effect nor does LSI know of, and
LSI has not received notice of, or made a claim with respect to, any breach or
default by any other party thereto which would, severally or in the aggregate,
have an LSI Material Adverse Effect. As used herein, the term "LSI Material
Contracts" shall mean all (i) employee benefit plans, share option schemes or
agreements and employment, consulting or similar contracts, (ii) contracts that
involve remaining aggregate payments by LSI or an LSI Subsidiary in excess of
$100,000 (or equivalent based on applicable exchange rate) or which have a
remaining term in excess of one year and (iii) insurance policies.
3.13. Litigation and Government Claims. There is no pending suit,
--------------------------------
claim, action or litigation, or administrative, arbitration or other proceeding
or governmental investigation or inquiry against LSI or the LSI Subsidiaries to
which their businesses or assets are subject which would, severally or in the
aggregate, reasonably be expected to result in an LSI Material Adverse Effect.
To the knowledge of LSI, there are no such proceedings threatened or
contemplated which would, severally or in the aggregate, have an LSI Material
Adverse Effect. Neither LSI nor the LSI Subsidiaries is subject to any judgment,
decree, injunction, rule or order of any court, or, to the knowledge of LSI, any
governmental restriction applicable to LSI or the LSI Subsidiaries which is
reasonably likely (i) to have an LSI Material Adverse Effect or (ii) to cause a
material limitation on Mizar's ability to own and operate the business of LSI
(as it is currently operated) after the Closing.
3.14. Compliance With Laws. LSI and the LSI Subsidiaries each have all
--------------------
material authorizations, approvals, licenses and orders to carry on their
respective businesses as they are now being conducted, to own or hold under
lease the properties and assets they own or hold under lease and to perform all
of their obligations under the agreements to which they are a party, except for
instances which would not have an LSI Material Adverse Effect. LSI and the LSI
Subsidiaries have been and are, to the knowledge of LSI, in compliance with all
applicable laws, regulations and administrative orders of any country, state or
municipality or of any subdivision of any thereof to which their respective
businesses, ownership of assets and their employment of labor or their use or
occupancy of properties or any part thereof are subject, the violation of which
would have an LSI Material Adverse Effect.
11
<PAGE>
3.15. Employee Benefits Plans. Each employee benefit plan of LSI
-----------------------
complies with all applicable requirements of the Pension Schemes Act of 1993 and
the Income and Corporation Taxes Act 1988.
3.16. Employment Agreements; Labor Relations.
--------------------------------------
(a) The LSI Disclosure Schedule sets forth a complete and
accurate list of all material employee benefit or compensation plans,
agreements and arrangements to which LSI or an LSI Subsidiary is a
party, including without limitation (i) all severance, employment,
consulting or similar contracts, (ii) all material agreements and
contracts with "change of control" provisions or similar provisions and
(iii) all indemnification agreements or arrangements with directors or
officers.
(b) Each of LSI and the LSI Subsidiaries is in compliance in all
material respects with all laws respecting employment and employment
practices, terms and conditions of employment, wages and hours, and is
not engaged in any unfair labor or unlawful employment practice. There
is no unlawful employment practice discrimination charge pending before
any competent court or tribunal. Except as would not have an LSI
Material Adverse Effect, there is no unfair labor practice charge or
complaint against LSI or the LSI Subsidiaries pending before any
competent court or tribunal. There is no labor strike, dispute, slowdown
or stoppage actually pending or, to the knowledge of LSI, threatened
against or involving or affecting LSI or the LSI Subsidiaries and no
representation question exists with respect to their respective
employees. Except as would not have an LSI Material Adverse Effect, no
grievances or arbitration proceeding is pending and no written claim
therefor exists. There is no collective bargaining agreement or trade
union recognition agreement that is binding on LSI or the LSI
Subsidiaries.
3.17. Intellectual Property. LSI and the LSI Subsidiaries own or have
---------------------
valid, binding and enforceable rights to use all material patents, trademarks,
trade names, service marks, service names, copyrights, applications therefor and
licenses or other rights in respect thereof ("LSI Intellectual Property") used
or held for use in connection with the business of LSI or the LSI Subsidiaries,
without any known conflict with the rights of others, except for such conflicts
as do not have an LSI Material Adverse Effect. Neither LSI nor any of the LSI
Subsidiaries have received any notice from any other person pertaining to or
challenging the right of LSI or the LSI Subsidiaries to use any LSI Intellectual
Property or any trade secrets, proprietary information, inventions, know-how,
processes and procedures owned or used or licensed to LSI or the LSI
Subsidiaries, except with respect to rights the loss of which, individually or
in the aggregate, would not have an LSI Material Adverse Effect. The LSI
Intellectual Property represents all of the proprietary rights necessary to
operate the respective businesses of LSI and the LSI Subsidiaries.
12
<PAGE>
3.18. Title to Properties and Related Matters.
---------------------------------------
(a) LSI and the LSI Subsidiaries have good and marketable title
to or valid leasehold interests in their respective properties reflected
on the LSI Balance Sheet or acquired after the date thereof (other than
personal properties sold or otherwise disposed of in the ordinary course
of business), and all of such properties and all assets purchased by LSI
since the date of the LSI Balance Sheet are free and clear of any lien,
claim or encumbrance, except as reflected in the LSI Balance Sheet or
notes thereto and except for:
(i) liens for taxes, assessments or other governmental
charges not yet due and payable or the validity of which are
being contested in good faith by appropriate proceedings;
(ii) statutory liens incurred in the ordinary course of
business that are not yet due and payable or the validity of
which are being contested in good faith by appropriate
proceedings;
(iii) landlord liens contained in leases entered in the
ordinary course of business; and
(iv) other liens, claims or encumbrances that, in the
aggregate, do not materially subtract from the value of, or
materially interfere with, the present use of, the LSI Real
Estate.
Except for those assets acquired since the date of the LSI Balance
Sheet, all properties and assets material to the present operations of
LSI are owned or leased by LSI and are reflected on the LSI Balance
Sheet and notes thereto in the manner and to the extent required by the
Companies Act and generally accepted accounting principles.
(b) (i) Applicable planning permissions and consents and zoning
ordinances permit the operation of LSI's business as currently conducted
at the real property owned or leased by LSI (the "LSI Real Estate");
(ii) LSI has all easements and rights, including easements for all
utilities, services, roadways and other means of ingress and egress,
material to the operation of its business at the LSI Real Estate; (iii)
the LSI Real Estate is not located within a flood or lakeshore erosion
hazard area; and (iv) neither the whole nor any portion of the LSI Real
Estate has been condemned, requisitioned or otherwise taken by any
public authority, and no written notice of any such condemnation,
requisition or taking has been received by LSI. No such condemnation,
requisition or taking is threatened or contemplated to LSI's actual
knowledge, and there are no pending public improvements which may result
in special assessments against or which may otherwise materially and
adversely affect the LSI Real Estate. To the actual knowledge of LSI,
the LSI Real Estate has not been used for deposit or disposal of
hazardous wastes or substances
13
<PAGE>
in violation of any past or current law in any material respect and
there is no material liability under past or current law with respect to
any hazardous wastes or substances which have been deposited or disposed
of on or in or from the LSI Real Estate.
(c) LSI has received no written notice of, and has no actual
knowledge of, any material violation of any zoning, building, health,
fire, water use or similar statute, ordinance, law, regulation or code
in connection with the LSI Real Estate.
(d) To LSI's actual knowledge, no hazardous or toxic material (as
hereinafter defined) exists in any structure located on, or exists on or
under the surface of, the LSI Real Estate which is, in any case, in
material violation of applicable environmental law. For purposes of this
Agreement, "hazardous or toxic material" shall mean waste, substance,
materials, smoke, gas or particulate matter designated as hazardous,
toxic or dangerous under any environmental law. For purposes of this
Agreement, "environmental law" shall mean any and all relevant statutes,
rules, regulations, treaties, directives, bylaws, codes of practice,
orders, notices, demands, injunctions, common laws or duty of care of
any governmental or regulatory agency or body in the U.S., the European
Community or any other jurisdiction relating to or imposing liability or
standards concerning or in connection with hazardous or toxic material
or dangerous waste, substance, materials, smoke, gas or particulate
matter including the Comprehensive Environmental Response Compensation
and Liability Act, the Clean Air Act, the Clean Water Act and any other
applicable federal, state or local laws.
3.19. Brokers and Finders. None of LSI, any LSI Subsidiary or, to LSI's
-------------------
knowledge, any of their respective officers, directors and employees has
employed any broker, finder or investment bank or incurred any liability for any
investment banking fees, financial advisory fees, brokerage fees or finders'
fees in connection with the transactions contemplated hereby. LSI is not aware
of any claim for payment of any finder's fees, brokerage or agent's commissions
or other like payments in connection with the negotiations leading to this
Agreement or the consummation of the transactions contemplated hereby.
3.20 Potential Conflicts of Interest. No officer, director or security
-------------------------------
holder of LSI or an LSI Subsidiary (a) owns, directly, or indirectly, any
interest in (excepting not more than 5% stockholdings for investment purposes in
securities of publicly held and traded companies) or is an officer, director,
employee or consultant of any person which is a competitor, lessor, lessee or
client of LSI or an LSI Subsidiary; (b) owns, directly or indirectly, in whole
or in part, any material tangible or intangible property which LSI or an LSI
Subsidiary is using or the use of which is necessary for the business of LSI or
an LSI Subsidiary; or (c) has any cause of action or other claim whatsoever
against, or owes any amount to, LSI or an LSI Subsidiary, except for claims in
the ordinary course of business, such as for accrued vacation pay, accrued
benefits under employee benefit plans and similar matters and agreements.
14
<PAGE>
3.21 Insurance. The LSI Disclosure Schedule lists all policies of fire,
---------
liability, workmen's compensation, life, property and casualty and other
insurance owned or held by LSI or the LSI Subsidiaries. Such policies of
insurance (a) are in full force and effect, (b) are sufficient for compliance by
LSI or the LSI Subsidiaries with all requirements of applicable law and all LSI
Material Agreements, (c) provide that they will remain in full force and effect
through the respective dates set forth in the LSI Disclosure Schedule, and (d)
will not in any way be affected by, or terminate or lapse by reason of the
transactions contemplated by this Agreement. LSI and the LSI Subsidiaries are
not in default with respect to their respective obligations under any of such
insurance policies and have not received any notification of cancellation of any
such insurance policies.
3.22 Products Liability. Since January 1, 1993, there have been no
------------------
claims, actions, losses, or liabilities of LSI or the LSI Subsidiaries relating
to death or injury to persons or properties resulting from any actual or alleged
defect in any product sold or manufactured by LSI or the LSI Subsidiaries, and
there is, as of the date hereof, no such claim, action or other proceeding
pending or, to the knowledge of LSI or the LSI Subsidiaries threatened.
ARTICLE 4.
REPRESENTATIONS AND WARRANTIES OF MIZAR
Mizar hereby represents and warrants that, except as otherwise set forth
in the Mizar Disclosure Schedule (herein so called) attached hereto:
4.1. Organization and Good Standing. Mizar is duly organized, validly
------------------------------
existing and in good standing under the laws of the jurisdiction of its
incorporation. Mizar has no subsidiaries and no equity, profit sharing,
participation or other ownership interest (including any general partnership
interest) in any corporation, partnership, limited partnership or other entity.
4.2. Foreign Qualification. Mizar is duly qualified or licensed to do
---------------------
business and is in good standing as a foreign corporation in every jurisdiction
where the failure so to qualify would have a material adverse effect on (a) the
current business, operations, assets or financial condition of Mizar or (b) the
validity or enforceability of, or the ability of Mizar to perform its
obligations under, this Agreement (a "Mizar Material Adverse Effect").
4.3. Corporate Power and Authority. Mizar has the corporate power and
-----------------------------
authority and all material licenses and permits to own, lease and operate its
properties and assets and to carry on its business as currently being conducted.
Mizar has the corporate power and authority to execute and deliver this
Agreement and to perform its obligations under this Agreement and to consummate
the Exchange. The execution, delivery and performance by Mizar of this Agreement
has been duly authorized by all necessary corporate action, except for the
approval of the stockholders of Mizar.
15
<PAGE>
4.4. Binding Effect. This Agreement has been duly executed and delivered
--------------
by Mizar and is the legal, valid and binding obligation of Mizar, enforceable in
accordance with its terms, except that:
(a) enforceability may be limited by bankruptcy, insolvency or
other similar laws affecting creditors' rights;
(b) the availability of equitable remedies may be limited by
equitable principles of general applicability; and
(c) rights to indemnification may be limited by considerations of
public policy.
4.5. Absence of Restrictions and Conflicts. The execution, delivery and
-------------------------------------
performance of this Agreement and the consummation of the Exchange and the
fulfillment of and compliance with the terms and conditions of this Agreement do
not and will not, with the passing of time or the giving of notice or both,
violate or conflict with, constitute a breach of or default under, result in the
loss of any material benefit under, or permit the acceleration of any obligation
under, (i) any term or provision of the Certificate of Incorporation or Bylaws
of Mizar, (ii) any Mizar Material Contract (as defined in Section 4.12 below),
(iii) any judgment, decree or order of any court or governmental authority or
agency to which Mizar is a party or by which Mizar or any of its properties is
bound, or (iv) any statute, law, regulation or rule applicable to Mizar other
than such violations, conflicts, breaches or defaults as would not have a Mizar
Material Adverse Effect. Except for compliance with the applicable requirements
of the Securities Act, the Exchange Act and applicable state securities laws, no
consent, approval, order or authorization of, or registration, declaration or
filing with, any governmental agency or public or regulatory unit, agency, body
or authority with respect to Mizar is required in connection with the execution,
delivery or performance of this Agreement by Mizar or the consummation of the
transactions contemplated hereby.
4.6. Capitalization of Mizar.
-----------------------
(a) The authorized capital stock of Mizar consists of 25,000,000
shares of Mizar Common Stock, and 1,000,000 Stock of preferred stock,
$.01 par value. As of the date hereof, there are (i) 5,135,976 shares of
Mizar Common Stock outstanding, (ii) no shares of the Preferred Stock
outstanding and (iii) 527,196 shares reserved for issuance upon the
exercise of currently outstanding options under the Mizar Stock Option
Plan (the "Mizar Options" and "Mizar Option Plans," respectively). A
warrant for 15,000 shares of Mizar Common Stock, exercisable at $10.20
per share, was issued to John G. Kinnard and Company, Incorporated in
September 1995.
(b) All of the issued and outstanding shares of Mizar Common
Stock have been duly authorized and validly issued and are fully paid,
nonassessable and free of preemptive rights.
16
<PAGE>
(c) To Mizar's knowledge, there are no voting trusts, stockholder
agreements or other voting arrangements that have been granted by the
stockholders of Mizar.
(d) Except as set forth in subsection (a) above, there is no
outstanding subscription, contract, convertible or exchangeable
security, option, warrant, call or other right obligating Mizar to
issue, sell, exchange, or otherwise dispose of, or to purchase, redeem
or otherwise acquire, shares of, or securities convertible into or
exchangeable for, capital stock of Mizar.
4.7. Mizar SEC Reports. Mizar has made available to LSI (i) Mizar's
-----------------
Annual Reports on Form 10-K, including all exhibits filed thereto and items
incorporated therein by reference, and any amendments thereto, (ii) Mizar's
Quarterly Reports on Form 10-Q, including all exhibits thereto and items
incorporated therein by reference, (iii) proxy statements relating to Mizar's
meetings of stockholders and (iv) all other reports or registration statements
(as amended or supplemented prior to the date hereof), filed by Mizar with the
SEC since January 1, 1997, including all exhibits thereto and items incorporated
therein by reference (items (i) through (iv) being referred to as the "Mizar SEC
Reports"). As of their respective dates, the Mizar SEC Reports did not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. Since
January 1, 1997, Mizar has filed all material forms, reports and documents with
the SEC required to be filed by it pursuant to the federal securities laws and
the SEC rules and regulations thereunder, each of which complied as to form, at
the time such form, report or document was filed, in all material respects with
the applicable requirements of the Securities Act and the Exchange Act and the
applicable rules and regulations thereunder.
4.8. Financial Statements and Records of Mizar. Mizar has made
-----------------------------------------
available to LSI true, correct and complete copies of the following financial
statements (the "Mizar Financial Statements"):
(a) the balance sheets of Mizar as of June 30, 1997 and June 30,
1996, and the related statements of income, stockholders' equity and
cash flows for the fiscal years then ended, including the notes thereto,
in each case examined by and accompanied by the report of Arthur
Andersen LLP; and
(b) the unaudited balance sheet of Mizar as of September 30, 1997
(the "Mizar Balance Sheet"), with any notes thereto, and the related
unaudited statement of income for the fiscal quarter then ended
(collectively, the "Mizar Quarterly Statements").
The Mizar Financial Statements present fairly, in all material respects, the
financial position of Mizar as of the dates thereof and the results of
operations and changes in financial position thereof for the periods then ended,
in each case in conformity with generally accepted accounting principles,
consistently applied, except as noted therein. Since September 30, 1997, there
has
17
<PAGE>
been no change in accounting principles applicable to, or methods of accounting
utilized by, Mizar, except as noted in Mizar Financial Statements. The books and
records of Mizar have been and are being maintained in accordance with good
business practice, reflect only valid transactions, are complete and correct in
all material respects, and present fairly in all material respects the basis for
the financial position and results of operations of Mizar set forth in Mizar
Financial Statements.
4.9. Absence of Certain Changes. Since September 30, 1997, Mizar has
--------------------------
not, except as otherwise set forth in the Mizar SEC Reports or on the Mizar
Disclosure Schedule:
(a) suffered any adverse change in the business, operations,
assets, or financial condition except for such changes that would not
have a Mizar Material Adverse Effect;
(b) suffered any material damage or destruction to or loss of
the assets of Mizar, whether or not covered by insurance, which property
or assets are material to the operations or business of Mizar and its
subsidiaries taken as a whole;
(c) settled, forgiven, compromised, canceled, released, waived
or permitted to lapse any material rights or claims other than in the
ordinary course of business;
(d) entered into or terminated any material agreement,
commitment or transaction, or agreed to or made any changes in material
leases or agreements, other than renewals or extensions thereof and
leases, agreements, transactions and commitments entered into or
terminated in the ordinary course of business;
(e) written up, written down or written off the book value of
any material amount of assets other than in the ordinary course of
business;
(f) declared, paid or set aside for payment any dividend or
distribution with respect to Mizar's capital stock;
(g) redeemed, purchased or otherwise acquired, or sold,
granted or otherwise disposed of, directly or indirectly, any of Mizar's
capital stock or securities or any rights to acquire such capital stock
or securities, or agreed to changes in the terms and conditions of any
such rights outstanding as of the date of this Agreement;
(h) increased the compensation of or paid any bonuses to any
employees or contributed to any employee benefit plan, other than in the
ordinary course of business and consistent with established policies,
practices or requirements;
(i) entered into any employment, consulting or compensation
agreement with any person or group, except for the Employment Agreement
(as defined in Section 6.9
18
<PAGE>
below) or agreements which in the aggregate would not have a Mizar Material
Adverse Effect;
(j) entered into any collective bargaining agreement with
any person or group;
(k) entered into, adopted or amended any employee benefit
plan; or
(l) entered into any agreement to do any of the foregoing.
4.10. No Material Undisclosed Liabilities. There are no liabilities or
-----------------------------------
obligations of Mizar of any nature, whether absolute, accrued, contingent, or
otherwise, other than:
(a) liabilities and obligations that are reflected, accrued or
reserved against on Mizar Balance Sheet or referred to in the footnotes
to the Mizar Balance Sheet, or incurred in the ordinary course of
business and consistent with past practices since September 30, 1997; or
(b) liabilities and obligations which in the aggregate would
not result in a Mizar Material Adverse Effect.
4.11. Tax Returns; Taxes. Mizar (a) has duly filed all U.S. federal and
------------------
material state, county, local and foreign tax returns and reports required to be
filed by it, including those with respect to income, payroll, property,
withholding, social security, unemployment, franchise, excise and sales taxes
and all such returns and reports are correct in all material respects; (b) has
either paid in full all taxes that have become due as reflected on any return or
report and any interest and penalties with respect thereto or have fully accrued
on its books or have established adequate reserves for all taxes payable but not
yet due; and (c) has made cash deposits with appropriate governmental
authorities representing estimated payments of taxes, including income taxes and
employee withholding tax obligations. No extension or waiver of any statute of
limitations or time within which to file any return has been granted to or
requested by Mizar with respect to any tax, except that Mizar has been granted
extensions for the filing of its federal tax returns for the year ended June 30,
1997, and its Texas franchise taxes are paid pursuant to a valid extension
agreement. No unsatisfied deficiency, delinquency or default for any tax,
assessment or governmental charge has been claimed, proposed or assessed against
Mizar, nor has Mizar received notice of any such deficiency, delinquency or
default. Mizar has no material tax liabilities other than those reflected on
Mizar Balance Sheet and those arising in the ordinary course of business since
the date thereof. Mizar will make available to LSI true, complete and correct
copies of Mizar's consolidated U.S. federal tax returns for the last five years
and make available such other tax returns requested by LSI. The U.S. federal
income tax liabilities of Mizar have been paid for all fiscal years up to and
including the year ended June 30, 1997.
4.12. Material Contracts. Mizar has furnished or made available to LSI
------------------
accurate and complete copies of the Mizar Material Contracts applicable to
Mizar. There is not under any of
19
<PAGE>
the Mizar Material Contracts any existing breach, default or event of default by
Mizar nor event that with notice or lapse of time or both would constitute a
breach, default or event of default by Mizar other than breaches, defaults or
events of default which would not have a Mizar Material Adverse Effect nor does
Mizar know of, and Mizar has not received notice of, or made a claim with
respect to, any breach or default by any other party thereto which would,
severally or in the aggregate, have a Mizar Material Adverse Effect. As used
herein, the term "Mizar Material Contracts" shall mean all (i) employee benefit
plans, stock option agreements and employment, consulting or similar contracts,
(ii) contracts that involve remaining aggregate payments by Mizar in excess of
$100,000 (or equivalent based on applicable exchange rate) or which have a
remaining term in excess of one year and (iii) insurance policies.
4.13. Litigation and Government Claims. Except as disclosed in Mizar
--------------------------------
SEC Reports, there is no pending suit, claim, action or litigation, or
administrative, arbitration or other proceeding or governmental investigation or
inquiry against Mizar to which its businesses or assets are subject which would,
severally or in the aggregate, reasonably be expected to result in a Mizar
Material Adverse Effect. To the knowledge of Mizar, there are no such
proceedings threatened or contemplated which would, severally or in the
aggregate, have a Mizar Material Adverse Effect. Mizar is not subject to any
judgment, decree, injunction, rule or order of any court, or, to the knowledge
of Mizar, any governmental restriction applicable to Mizar which is reasonably
likely to have a Mizar Material Adverse Effect.
4.14. Compliance with Laws. Mizar has all material authorizations,
--------------------
approvals, licenses and orders to carry on its businesses as it is now being
conducted, to own or hold under lease the properties or assets it owns or holds
under lease and to perform all of its obligations under the agreements to which
it is a party, except for instances which would not have a Mizar Material
Adverse Effect. Mizar has been and is, to the knowledge of Mizar, in compliance
with all applicable laws, regulations and administrative orders of any country,
state or municipality or any subdivision of any thereof to which its businesses,
ownership of assets and its employment of labor or its use or occupancy of
properties or any part thereof are subject, the violation of which would have a
Mizar Material Adverse Effect.
4.15. Employment Agreements; Labor Relations.
--------------------------------------
(a) The Mizar Disclosure Schedule sets forth a complete and
accurate list of all material employee benefit or compensation plans,
agreements and arrangements to which Mizar is a party, including without
limitation (i) all severance, employment, consulting or similar
contracts, (ii) all material agreements and contracts with "change of
control" provisions or similar provisions and (iii) all indemnification
agreements or arrangements with directors or officers.
(b) Mizar is in compliance in all material respects with all
laws respecting employment and employment practices, terms and
conditions of employment, wages and hours, and is not engaged in any
unfair labor or unlawful employment practice. There is
20
<PAGE>
no unlawful employment practice discrimination charge pending before the
EEOC or EEOC recognized state "referral agency." Except as would not
have a Mizar Material Adverse Effect, there is no unfair labor practice
charge or complaint against Mizar pending before the National Labor
Review Board. There is no labor strike, dispute, slowdown or stoppage
actually pending or, to the knowledge of Mizar, threatened against or
involving or affecting Mizar and no National Labor Review Board
representation question exists respecting their respective employees.
Except as would not have a Mizar Material Adverse Effect, no grievances
or arbitration proceeding is pending and no written claim therefor
exists. There is no collective bargaining agreement that is binding on
Mizar.
4.16. Intellectual Property. Mizar owns or has valid, binding and
---------------------
enforceable rights to use all material patents, trademarks, trade names, service
marks, service names, copyrights, applications therefor and licenses or other
rights in respect thereof ("Mizar Intellectual Property") used or held for use
in connection with the business of Mizar, without any known conflict with the
rights of others, except for such conflicts as do not have a Mizar Material
Adverse Effect. Mizar has not received any notice from any other person
pertaining to or challenging the right of Mizar to use any Mizar Intellectual
Property or any trade secrets, proprietary information, inventions, know-how,
processes and procedures owned or used or licensed to Mizar, except with respect
to rights the loss of which, individually or in the aggregate, would not have a
Mizar Material Adverse Effect. The Mizar Intellectual Property represents all of
the proprietary rights necessary to operate Mizar's business.
4.17. Title to Properties and Related Matters.
---------------------------------------
(a) Mizar has good and marketable title to or valid leasehold
interests in its properties reflected on the Mizar Balance Sheet or
acquired after the date thereof (other than personal properties sold or
otherwise disposed of in the ordinary course of business), and all of
such properties and all assets purchased by Mizar since the date of the
Mizar Balance Sheet are free and clear of any lien, claim or
encumbrance, except as reflected in the Mizar Balance Sheet or notes
thereto and except for:
(i) liens for taxes, assessments or other governmental
charges not yet due and payable or the validity of which are
being contested in good faith by appropriate proceedings;
(ii) statutory liens incurred in the ordinary course of
business that are not yet due and payable or the validity of
which are being contested in good faith by appropriate
proceedings;
(iii) landlord liens contained in leases entered in the
ordinary course of business; and
21
<PAGE>
(iv) other liens, claims or encumbrances that, in the
aggregate, do not materially subtract from the value of, or
materially interfere with, the present use of, the Mizar Real
Estate.
Except for those assets acquired since the date of the Mizar Balance
Sheet, all properties and assets material to the present operations of
Mizar are owned or leased by Mizar and are reflected on the Mizar
Balance Sheet and notes thereto in the manner and to the extent required
by generally accepted accounting principles.
(b) (i) Applicable zoning ordinances permit the operation
of Mizar's business as currently conducted at the real property owned or
leased by Mizar ( the "Mizar Real Estate"); (ii) Mizar has all easements
and rights, including easements for all utilities, services, roadways
and other means of ingress or egress, material to the operation of its
business at the Mizar Real Estate; (iii) the Mizar Real Estate is not
located within a flood or lakeshore erosion hazard area; and (iv)
neither the whole nor any portion of the Mizar Real Estate has been
condemned, requisitioned or otherwise taken by any public authority, and
no written notice of any such condemnation, requisition or taking has
been received by Mizar. No such condemnation, requisition or taking is
threatened or contemplated to Mizar's actual knowledge, and there are no
pending public improvements which may result in special assessments
against or which may otherwise materially and adversely affect the Mizar
Real Estate. To the actual knowledge of Mizar, the Mizar Real Estate has
not been used for deposit or disposal of hazardous wastes or substances
in violation of any past or current law in any material respect and
there is no material liability under past or current law with respect to
any hazardous wastes or substances which have been deposited or disposed
of on or in or from the Mizar Real Estate.
(c) Mizar has received no written notice of, and has no actual
knowledge of, any material violation of any zoning, building, health,
fire, water use or similar statute, ordinance, law, regulation or code
in connection with the Mizar Real Estate.
(d) To Mizar's actual knowledge, Mizar is in compliance with
all applicable environmental laws (as defined in Section 3.18) relating
to emissions, discharges and releases of hazardous or toxic materials
into the environment, except as would not cause a Mizar Material Adverse
Effect. To Mizar's actual knowledge, no hazardous or toxic material (as
defined in Section 3.18) exists in any structure located on, or exists
on or under the surface of, any the Mizar Real Estate which is, in any
case, in material violation of applicable environmental law.
4.18. Employee Benefit Plans. Each employee benefit plan, as such term
----------------------
is defined in Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), of Mizar (collectively the "Employee Plans")
complies in all material respects with all applicable requirements of ERISA and
the Code, and other applicable laws. None of the Employee Plans is an employee
pension benefit plan or a multi employer plan, as such terms are defined in
ERISA.
22
<PAGE>
Neither Mizar nor any of its respective directors, officers, employees or agents
has, with respect to any Employee Plan, engaged in any "prohibited transaction,"
as such term is defined in the Code or ERISA, nor has any Employee Plan engaged
in such prohibited transaction which could result in any taxes or penalties or
other prohibited transactions, which in the aggregate could have a Mizar
Material Adverse Effect.
4.19. Brokers and Finders. None of Mizar or, to Mizar's knowledge, any
-------------------
of its officers, directors and employees has employed any broker, finder or
investment bank or incurred any liability for any investment banking fees,
financial advisory fees, brokerage fees or finders' fees in connection with the
transactions contemplated hereby, except that Mizar has engaged Cowen & Company
as its financial advisor. Other than the foregoing arrangements, Mizar is not
aware of any claim for payment of any finder's fees, brokerage or agent's
commissions or other like payments in connection with the negotiations leading
to this Agreement or the consummation of the transactions contemplated hereby.
4.20. Opinion of Financial Advisor. Mizar has received the opinion of
----------------------------
Cowen & Company to the effect that, as of the date hereof, the Exchange is fair
to Mizar from a financial point of view.
4.21 Potential Conflicts of Interest. No officer or director of Mizar
-------------------------------
(a) owns, directly, or indirectly, any interest in (excepting not more than 5%
stockholdings for investment purposes in securities of publicly held and traded
companies) or is an officer, director, employee or consultant of any person
which is a competitor, lessor, lessee or client of Mizar; (b) owns, directly or
indirectly, in whole or in part, any material tangible or intangible property
which Mizar is using or the use of which is necessary for the business of Mizar;
or (c) has any cause of action or other claim whatsoever against, or owes any
amount to, Mizar, except for claims in the ordinary course of business, such as
for accrued vacation pay, accrued benefits under employee benefit plans and
similar matters and agreements.
4.22 Insurance. The Mizar Disclosure Schedule lists all policies of
---------
fire, liability, workmen's compensation, life, property and casualty and other
insurance owned or held by Mizar. Such policies of insurance (a) are in full
force and effect, (b) are sufficient for compliance by Mizar with all
requirements of applicable law and all Mizar Material Agreements, (c) provide
that they will remain in full force and effect through the respective dates set
forth in the Mizar Disclosure Schedule, and (d) will not in any way be affected
by, or terminate or lapse by reason of the transactions contemplated by this
Agreement. Mizar is not in default with respect to its obligations under any of
such insurance policies and has not received any notification of cancellation of
any such insurance policies.
4.23 Products Liability. Since January 1, 1993, there have been no
------------------
claims, actions, losses, or liabilities of Mizar relating to death or injury to
persons or properties resulting from any actual or alleged defect in any product
sold or manufactured by Mizar, and there is, as of the date
23
<PAGE>
hereof, no such claim, action or other proceeding pending or, to the knowledge
of Mizar threatened.
ARTICLE 5.
CERTAIN COVENANTS AND AGREEMENTS
5.1. Conduct of Business by LSI. From the date hereof to the Closing
--------------------------
Date, LSI will, and will cause the LSI Subsidiaries to, except as required in
connection with the Exchange and the other transactions contemplated by this
Agreement and except as otherwise disclosed on the LSI Disclosure Schedule or
consented to in writing by Mizar:
(a) carry on its business in the ordinary and regular course in
substantially the same manner as heretofore conducted and not engage in
any new line of business or enter into any material agreement,
transaction or activity or make any material commitment except those in
the ordinary and regular course of business and not otherwise prohibited
under this Section 5.1;
(b) neither change nor amend its memorandum and articles of
association (in the case of LSI) or the equivalent governing corporate
documents (in the case of the LSI Subsidiaries), except as required to
re-register LSI as a private limited company;
(c) not issue (other than upon any exercise of Old Options or the
Warrants) or sell or register the transfer of shares of securities or
capital stock of LSI or the LSI Subsidiaries or issue, sell or grant
options, warrants or rights to purchase or subscribe to, or enter into
any arrangement or contract with respect to the issuance or sale of any
of the securities of LSI or the LSI Subsidiaries or rights or
obligations convertible into or exchangeable for any securities of LSI
or any LSI Subsidiary and not alter the terms of any presently
outstanding options or the Option Plans or the Warrants or make any
changes (by split-up, combination, reorganization or otherwise) in the
capital structure of LSI or the LSI Subsidiaries;
(d) not declare, pay or set aside for payment any dividend or
other distribution in respect of the capital stock or other equity
securities of LSI or the LSI Subsidiaries and not redeem, purchase or
otherwise acquire any shares of the capital stock or other securities of
LSI or the LSI Subsidiaries or rights or obligations convertible into or
exchangeable for any shares of the capital stock or other securities of
LSI or the LSI Subsidiaries or obligations convertible into such, or any
options, warrants or other rights to purchase or subscribe to any of the
foregoing, except for the redemption of the outstanding Preferred Shares
contemplated in this Agreement;
(e) not acquire or enter into any agreement to acquire, by
merger, consolidation or purchase of securities or assets, any business
or entity or any material part of the same;
24
<PAGE>
(f) use its reasonable efforts to preserve intact the corporate
existence, goodwill and business organization of LSI and the LSI
Subsidiaries, to keep the officers and employees of LSI and the LSI
Subsidiaries available to LSI and to preserve the relationships of LSI
and the LSI Subsidiaries with suppliers, customers and others having
business relations with any of them, except for such instances which
would not have an LSI Material Adverse Effect;
(g) not (i) create, incur or assume any debt or create, incur or
assume any short-term debt for borrowed money, (ii) assume, guarantee,
endorse or otherwise become liable or responsible (whether directly,
contingently or otherwise) for the obligations of any other person other
than the LSI Subsidiaries, (iii) make any loans or advances to any other
person other than the LSI Subsidiaries, or (iv) make any capital
contributions to, or investments in, any person; provided, however, that
LSI shall not be prohibited from taking an action described in (i)
through (iv) above if such action is being taken in the ordinary course
of LSI's business and if the aggregate amount of all of the liabilities,
---
obligations, loans, contributions and investments attributable to
actions described in (i) through (iv) above and taken after the date
hereof do not exceed $100,000 (or equivalent based on applicable
exchange rate) in the aggregate at the time of the Closing;
(h) not (i) enter into, modify or extend in any manner the terms
of any employment, severance or similar agreements with officers and
directors, (ii) grant any increase in the compensation of officers or
directors, whether now or hereafter payable or (iii) grant any increase
in the compensation of any other employees except for compensation
increases in the ordinary course of business and consistent with past
practice (it being understood by the parties hereto that for the
purposes of (ii) and (iii) above increases in compensation shall include
any increase pursuant to any option, bonus, stock purchase, pension,
profit-sharing, deferred compensation, retirement or other plan,
arrangement, contract or commitment);
(i) not make or incur (other than in the ordinary course of
business) any individual capital expenditure in excess of $100,000 or
capital expenditures in the aggregate in excess of $500,000 without the
prior approval of Mizar (as used herein, "capital expenditure" shall
mean all payments in respect of the cost of any fixed asset or
improvement or replacement, substitution or addition thereto which has a
useful life of more than one year, including those costs arising in
connection with the acquisition of such assets by way of increased
product or service charges or offset items or in connection with capital
leases);
(j) except in instances which would not have an LSI Material
Adverse Effect, perform all of its obligations under all LSI Material
Contracts (except those being contested in good faith) and not enter
into, assume or amend any contract or commitment that would be an LSI
Material Contract other than contracts to provide services entered into
in the ordinary course of business; and
25
<PAGE>
(k) except in instances which would not have an LSI Material
Adverse Effect, prepare and file all returns for taxes and other tax
reports, filings and amendments thereto required to be filed by it, and
allow Mizar, at its request, to review all such returns, reports,
filings and amendments at LSI's offices prior to the filing thereof,
which review shall not interfere with the timely filing of such returns.
In connection with the continued operation of the business of LSI and
the LSI Subsidiaries between the date of this Agreement and the Closing Date,
LSI shall confer in good faith and on a regular and frequent basis with one or
more representatives of Mizar designated in writing to report operational
matters of materiality and the general status of ongoing operations. In
addition, LSI will allow Mizar employees and agents to be present at LSI's
business locations to observe the business and operations of LSI and the LSI
Subsidiaries. LSI acknowledges that Mizar does not and will not waive any rights
it may have under this Agreement as a result of such consultations nor shall
Mizar be responsible for any decisions made by LSI's officers and directors with
respect to matters which are the subject of such consultation.
5.2. Conduct of Business by Mizar. From the date hereof to the Closing
----------------------------
Date, Mizar will, except as required in connection with the Exchange and the
other transactions contemplated by this Agreement and except as otherwise
disclosed in the Mizar Disclosure Schedule or as consented to in writing by LSI:
(a) carry on its businesses in the ordinary and regular course in
substantially the same manner as heretofore conducted and not engage in
any new line of business or enter into any agreement, transaction or
activity or make any commitment except in the ordinary and regular
course of business and not otherwise prohibited under this Section 5.2;
(b) neither change nor amend its Certificate of Incorporation or
Bylaws;
(c) not issue (other than upon the exercise of outstanding
options or warrants) or sell any securities of Mizar or issue, sell or
grant options, warrants or rights to purchase or subscribe to, or enter
into any arrangement or contract with respect to the issuance or sale of
any of the securities of Mizar or rights or obligations convertible into
or exchangeable for any securities of Mizar (other than pursuant to the
Exchange Agreements or as consented to by the Managing Director of LSI)
and not alter the terms of any presently outstanding options or option
plans or warrants or make any changes (by split-up, combination,
reorganization or otherwise) in the capital structure of Mizar;
(d) not declare, pay or set aside for payment any dividend or
other distribution in respect of the capital stock or other equity
securities of Mizar and not redeem, purchase or otherwise acquire any
shares of the capital stock or other securities, or rights or
obligations convertible into or exchangeable for any shares of the
capital stock or other
26
<PAGE>
securities of Mizar or obligations convertible into such, or any
options, warrants or other rights to purchase or subscribe to any of the
foregoing;
(e) not acquire or enter into any agreement to acquire, by
merger, consolidation or purchase of securities or assets, any business
or entity or any material part thereof;
(f) use its reasonable efforts to preserve intact the corporate
existence, goodwill and business organization of Mizar, to keep the
officers and employees of Mizar available to Mizar and to preserve the
relationships of Mizar with suppliers, customers and others having
business relations with any of them, except for such instances which
would not have a Mizar Material Adverse Effect;
(g) not (i) create, incur or assume any debt or create, incur or
assume any short-term debt for borrowed money, (ii) assume, guarantee,
endorse or otherwise become liable or responsible (whether directly,
contingently or otherwise) for the obligations of any other person,
(iii) make any loans or advances to any other person, or (iv) make any
capital contributions to, or investments in, any person; provided,
however, that Mizar shall not be prohibited from taking an action
described in (i) through (iv) above if such action is being taken in the
ordinary course of Mizar's business, and if the aggregate amount of all
---
of the liabilities, obligations, loans, contributions, and investments
and other actions described in (i) through (iv) above and taken by Mizar
after the date hereof do not exceed $100,000 (or equivalent based on
applicable exchange rate) in the aggregate at the time of the Closing;
(h) not (i) enter into, modify or extend in any manner the terms
of any employment, severance or similar agreements with officers and
directors, (ii) grant any increase in the compensation of officers or
directors, whether now or hereafter payable or (iii) grant any increase
in the compensation of any other employees except for compensation
increases in the ordinary course of business and consistent with past
practice (it being understood by the parties hereto that for the
purposes of (ii) and (iii) above increases in compensation shall include
any increase pursuant to any option, bonus, stock purchase, pension,
profit-sharing, deferred compensation, retirement or other plan,
arrangement, contract or commitment);
(i) not make or incur (other than in the ordinary course of
business) any individual capital expenditure in excess of $100,000 or
capital expenditures in the aggregate in excess of $500,000 without the
prior approval of LSI (as used herein, "capital expenditure" shall mean
all payments in respect of the cost of any fixed asset or improvement or
replacement, substitution or addition thereto which has a useful life of
more than one year, including those costs arising in connection with the
acquisition of such assets by way of increased product or service
charges or offset items or in connection with capital leases);
27
<PAGE>
(j) except in instances which would not have a Mizar Material
Adverse Effect, perform all of its obligations under all Mizar Material
Contracts (except those being contested in good faith) and not enter
into, assume or amend any contract or commitment that would be a Mizar
Material Contract other than contracts to provide services entered into
in the ordinary course of business; and
(k) except in instances which would not have a Mizar Material
Adverse Effect, prepare and file all federal, state, local and foreign
returns for taxes and other tax reports, filings and amendments thereto
required to be filed by it, and allow LSI, at its request, to review all
such returns, reports, filings and amendments at Mizar's offices prior
to the filing thereof, which review shall not interfere with the timely
filing of such returns.
In connection with the continued operation of the business of Mizar
between the date of this Agreement and the Closing Date, Mizar shall confer in
good faith and on a regular and frequent basis with one or more representatives
of LSI designated in writing to report operational matters of materiality and
the general status of ongoing operations. In addition, Mizar will allow LSI
employees and agents to be present at Mizar's business locations to observe the
business and operations of Mizar. Mizar acknowledges that LSI does not and will
not waive any rights it may have under this Agreement as a result of such
consultations nor shall LSI be responsible for any decisions made by Mizar's
officers and directors with respect to matters which are the subject of such
consultation.
5.3. Notice of any Material Change. Each of LSI and Mizar shall,
-----------------------------
promptly after the first notice or occurrence thereof but not later than the
Closing Date, advise the other in writing of any event or the existence of any
state of facts that (i) would make any of its representations and warranties in
this Agreement untrue in any material respect, (ii) would constitute a breach of
any provisions of this Article 5 or (iii) would otherwise constitute either an
LSI Material Adverse Effect or a Mizar Material Adverse Effect.
5.4. Inspection and Access to Information.
------------------------------------
(a) Between the date of this Agreement and the Closing Date, LSI
will, and will cause the LSI Subsidiaries to, provide to Mizar and its
accountants, counsel and other authorized representatives reasonable
access, during normal business hours to its premises, properties,
contracts, commitments, books, records and other information (including
tax returns filed and those in preparation) and will cause its officers
to furnish to Mizar and its authorized representatives such financial,
technical and operating data and other information pertaining to its
business, as Mizar shall from time to time reasonably request.
(b) Between the date of this Agreement and the Closing Date,
Mizar will provide to LSI and its accountants, counsel and other
authorized representatives reasonable access, during normal business
hours to its premises, properties, contracts, commitments, books,
records and other information (including tax returns filed and those in
preparation)
28
<PAGE>
and will cause its officers to furnish to LSI and its authorized
representatives such financial, technical and operating data and other
information pertaining to its business, as LSI shall from time to time
reasonably request.
(c) Each of the parties hereto and their respective representatives
shall maintain the confidentiality of all information (other than
information which is generally available to the public) concerning the
other parties hereto acquired pursuant to the transactions contemplated
hereby in the event that the Exchange is not consummated. Each of the
parties hereto and their representatives shall not use such information
so obtained for any purpose other than in connection with the Exchange.
All files, records, documents, information, data and similar items
relating to the confidential information of LSI, whether prepared by
Mizar or otherwise coming into Mizar's possession, shall remain the
exclusive property of LSI and shall be promptly delivered to LSI upon
termination of this Agreement. All files, records, documents,
information, data and similar items relating to the confidential
information of Mizar, whether prepared by LSI or otherwise coming into
LSI's possession, shall remain the exclusive property of Mizar and shall
be promptly delivered to Mizar upon termination of this Agreement.
5.5. Registration Statement and Proxy Statement.
------------------------------------------
(a) Mizar and LSI shall promptly prepare after execution of this
Agreement, and Mizar shall file the proxy statement with respect to the
meeting of the stockholders of Mizar in connection with the Exchange
(the "Proxy Statement") and a registration statement on Form S-4 (which
registration statement, in the form it is declared effective by the SEC,
together with any and all amendments and supplements thereto and all
information incorporated by reference therein, is referred to herein as
the "Registration Statement") under and pursuant to the provisions of
the Securities Act for the purpose of registering Mizar Common Stock to
be issued in the Exchange. Mizar will use its best efforts to receive
and respond to the comments of the SEC and to have the Registration
Statement declared effective as promptly as practicable, and Mizar shall
promptly mail to its stockholders the Proxy Statement in its definitive
form contained in the Registration Statement.
(b) Each of Mizar and LSI agrees to provide as promptly as
practicable to the other such information concerning its business and
financial statements and affairs as, in the reasonable judgment of the
other party, may be required or appropriate for inclusion in the
Registration Statement and the Proxy Statement or in any amendments or
supplements thereto, and to cause its counsel and auditors to cooperate
with the other's counsel and auditors in the preparation of the
Registration Statement and the Proxy Statement.
(c) Each of the parties shall use their best efforts to ensure
that at the time the Registration Statement becomes effective, as such
Registration Statement is then amended
29
<PAGE>
or supplemented, at the time the Proxy Statement is mailed to Mizar's
stockholders and at the Closing Date, such Registration Statement and
Proxy Statement (i) will not, with respect to such party, contain any
untrue statement of a material fact, or omit to state any material fact
required to be stated therein as necessary, in order to make the
statements made by such party therein, in light of the circumstances
under which they were made, not misleading or necessary and (ii) will
comply in all material respects with the provisions of the Securities
Act and Exchange Act, as applicable, and the rules and regulations
thereunder; provided, however, no representation is made by Mizar or LSI
with respect to statements made in the Registration Statement and Proxy
Statement based on information supplied by the other party expressly for
inclusion or incorporation by reference in the Proxy Statement or
Registration Statement or information omitted with respect to the other
party.
5.6. Affiliates. At least 30 days prior to the Closing Date, LSI shall
----------
deliver to Mizar a letter identifying all persons who are, as of the date
thereof, "affiliates" of LSI for purposes of Rule 145 under the Securities Act,
and shall provide an updated letter identifying any such persons on the Closing
Date. LSI shall use its reasonable efforts to cause each person who is
identified as an "affiliate" in the letter dated the Closing Date to deliver to
Mizar on or prior to the Closing Date a written statement, in form satisfactory
to Mizar and LSI, that such person will not offer to sell, transfer or otherwise
dispose of any of the shares of Mizar Common Stock issued to such person
pursuant to the Exchange, (i) except in accordance with the applicable
provisions of the Securities Act and the rules and regulations thereunder and
(ii) until such time as financial results covering at least 30 days of combined
operations of Mizar and LSI (the "Combined Financials") have been published.
Mizar hereby covenants to file a Form 8-K or 10-Q (as applicable) satisfying
such publication requirement as soon as practicable after the completion of any
month which contains at least 30 days of combined operations. Furthermore, Mizar
shall use its reasonable best efforts to cause each person who is an "affiliate"
of Mizar to deliver a letter to Mizar agreeing that such person will not offer
to sell, transfer or otherwise dispose of any shares of Mizar Common Stock
commencing 30 days prior to the Exchange until such time as the Combined
Financials have been published. Mizar shall be entitled to place legends on any
certificates of Mizar Common Stock issued to such affiliates to restrict the
transfer of such shares as set forth above.
5.7. Stockholders' Meeting. Mizar will take all action necessary in
---------------------
accordance with applicable law and its governing corporate documents to convene
a meeting of its stockholders as promptly as practicable to consider and vote
upon the approval of this Agreement and the transactions contemplated hereby.
The Board of Directors of Mizar shall recommend such approval and Mizar shall
take all lawful action to solicit such approval, including, without limitation,
timely mailing the Proxy Statement/Prospectus.
5.8. Listing Application. No later than 15 days before the Closing
-------------------
Date, Mizar will file a listing application with the NMS to approve for listing,
subject to official notice of issuance, the shares of Mizar Common Stock to be
issued in the Exchange. Mizar shall use its reasonable
30
<PAGE>
efforts to cause the shares of Mizar Common Stock to be issued in the Exchange
to be approved for listing on the NMS, subject to official notice of issuance,
prior to the Closing Date.
5.9. Reasonable Efforts; Further Assurances; Co-operation. Subject to
----------------------------------------------------
the other provisions of this Agreement, the parties hereto shall each use their
reasonable efforts to perform their obligations herein and to take, or cause to
be taken or do, or cause to be done, all things reasonably necessary, proper or
advisable under applicable law to obtain all regulatory approvals and satisfy
all conditions to the obligations of the parties under this Agreement and to
cause the Exchange and the other transactions contemplated herein to be carried
out promptly in accordance with the terms hereof and shall cooperate fully with
each other and their respective officers, directors, employees, agents, counsel,
accountants and other designees in connection with any steps required to be
taken as a part of their respective obligations under this Agreement, including
without limitation:
(a) LSI and Mizar shall promptly make their respective filings
and submissions and shall take, or cause to be taken, all actions and
do, or cause to be done, all things reasonably necessary, proper or
advisable under applicable laws and regulations to (i) comply with the
provisions of the Securities Act, Exchange Act and the Takeover Code,
and (ii) obtain any other required approval of any other federal, state
or local governmental agency or regulatory body with jurisdiction over
the transactions contemplated by this Agreement.
(b) In the event any claim, action, suit, investigation or other
proceeding by any governmental body or other person is commenced which
questions the validity or legality of the Exchange or any of the other
transactions contemplated hereby or seeks damages in connection
therewith, the parties agree to cooperate and use all reasonable efforts
to defend against such claim, action, suit, investigation or other
proceeding and, if an injunction or other order is issued in any such
action, suit or other proceeding, to use all reasonable efforts to have
such injunction or other order lifted, and to cooperate reasonably
regarding any other impediment to the consummation of the transactions
contemplated by this Agreement.
(c) Each party shall give prompt written notice to the other of
(i) the occurrence, or failure to occur, of any event which occurrence
or failure would be likely to cause any representation or warranty of
LSI or Mizar, as the case may be, contained in this Agreement to be
untrue or inaccurate in any material respect at any time from the date
hereof to the Closing Date or that will or may result in the failure to
satisfy the Conditions specified in Article 6 or 7 and (ii) any failure
of LSI or Mizar, as the case may be, to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it
hereunder.
(d) Mizar and LSI shall take all actions that the parties deem
necessary or advisable for purposes of obtaining duly executed Exchange
Agreements from each of the
31
<PAGE>
LSI Shareholders, LSI Optionholders and Bank, and to cause the
consummation of the transactions contemplated thereby at the Closing.
5.10. Public Announcements. The timing and content of all
--------------------
announcements regarding any aspect of this Agreement or the Exchange to the
financial community, government agencies, employees or the general public shall
be mutually agreed upon in advance (unless Mizar or LSI is advised by counsel
that any such announcement or other disclosure not mutually agreed upon in
advance is required to be made by law or the Takeover Code or applicable NMS
rule and then only after making a reasonable attempt to comply with the
provisions of this Section).
5.11. No Solicitations.
----------------
(a) From the date hereof until the Closing Date or until this
Agreement is terminated or abandoned as provided in this Agreement, neither LSI
nor the LSI Subsidiaries shall directly or indirectly (i) solicit, initiate or
take part in discussions with, (ii) enter into negotiations or agreements with,
or (iii) furnish any information to, any corporation, partnership, person or
other entity or group (other than Mizar, an affiliate of Mizar or their
authorized representatives pursuant to this Agreement) concerning any formal or
informal proposal for a merger, sale of substantial assets, sale of shares of
stock or securities or other takeover or business combination transaction (an
"Acquisition Proposal") involving LSI or the LSI Subsidiaries, and LSI will
instruct its officers, directors, advisors and its financial and legal
representatives and consultants not to take any action contrary to the foregoing
provisions of this sentence; provided, however, that LSI may furnish (on terms
including confidentiality terms, substantially similar to those set forth in
that certain Letter of Intent between LSI and Mizar) information concerning its
business, properties or assets to a corporation, partnership, person or other
entity or group (a "Potential Acquirer") if (i) LSI's Board of Directors
determines that such Potential Acquirer is reasonably likely to submit a bona
fide offer to consummate an Acquisition Proposal on terms that would yield such
a higher value to LSI's stockholders if provided with confidential information
about LSI, and (ii) after consultation with counsel, LSI's Board of Directors
determines that the failure to provide such confidential information would
constitute a breach of its fiduciary duty to stockholders of LSI. Following
receipt of a bona fide offer from a Potential Acquirer proposing an Acquisition
Proposal, which offer the Board of Directors of LSI determines would likely
yield a higher value to the stockholders of LSI than will the Exchange, LSI may
with respect to such Potential Acquirer, negotiate and take any of the actions
otherwise prohibited by this Section 5.11 if, in the opinion of the Board of
Directors of LSI after consultation with counsel, the failure to negotiate with
such Potential Acquirer would constitute a breach by the Board of Directors of
its fiduciary duty to the stockholders of LSI. In the event LSI shall determine
to provide any information as described above, or shall receive any offer
relating to an Acquisition Proposal, (i) it shall promptly notify Mizar (a
"Notice of Proposal") as to the fact that information is to be provided or that
on offer relating to an Acquisition Proposal has been received and shall furnish
to Mizar the identity of the recipient of such information or the proponent of
such offer or proposal, if applicable, and, if an offer or proposal has been
received, a description of the material terms thereof, and (ii) Mizar shall be
permitted to take the same actions taken by LSI pursuant to this provision with
32
<PAGE>
respect to any Potential Acquirer of Mizar, notwithstanding the fact that such
actions may otherwise be prohibited by this Section 5.11. LSI may enter into a
definitive agreement for an Acquisition Proposal with a Potential Acquirer with
which it is permitted to negotiate pursuant to this Section 5.11; provided,
however, that at least one business day prior to LSI's execution thereof LSI
shall have provided Mizar written notice (a "Notice Agreement") indicating LSI's
intent to enter into such agreement and describing all the material terms of
such agreement. Following the execution of such a definitive agreement, LSI or
Mizar may terminate this Agreement in accordance with Article IX hereof, subject
to the fee and expense reimbursement provisions of Section 9.2. LSI will notify
Mizar promptly in writing if LSI becomes aware that any inquiries or proposals
are received by, any information is requested from or any negotiations or
discussions are sought to be initiated with, LSI with respect to an Acquisition
Proposal, and LSI shall promptly deliver to Mizar any written inquiries or
proposals received by LSI relating to an Acquisition Proposal. LSI will notify
Mizar promptly if LSI becomes aware that any inquiries or proposals are received
by, any information is requested from or any negotiations or discussions are
sought to be initiated with, LSI or the LSI Subsidiaries with respect to an
Acquisition Proposal, and LSI shall promptly deliver to Mizar any written
inquiries or proposals received by LSI relating to an Acquisition Proposal. Each
time, if any, that the Board of Directors of LSI determines that it must enter
into negotiations with, or furnish any information that is not publicly
available to, any Potential Acquirer (other than Mizar, an affiliate of Mizar or
their authorized representatives) concerning any Acquisition Proposal, LSI will
give Mizar prompt notice of such determination (which shall include a copy of
the non-public information which LSI has delivered to such Potential Acquirer).
(b) From the date hereof until the Closing Date or until this Agreement
is terminated or abandoned as provided in this Agreement, Mizar shall not
directly or indirectly (i) solicit, initiate or take part in discussions with,
(ii) enter into negotiations or agreements with, or (iii) furnish any
information that is not publicly available to, any corporation, partnership,
person or other entity or group (other than LSI, an affiliate of LSI or their
authorized representatives pursuant to this Agreement) concerning any
Acquisition Proposal involving Mizar, and Mizar will instruct its officers,
directors, advisors and its financial and legal representatives and consultants
not to take any action contrary to the foregoing provisions of this sentence;
provided, however, that Mizar may furnish (on terms including confidentiality
terms, substantially similar to those set forth in that certain Letter of Intent
between LSI and Mizar) information concerning its business, properties or assets
to a Potential Acquirer if (i) Mizar's Board of Directors is advised by its
financial advisor that such Potential Acquirer has the financial wherewithal to
consummate an Acquisition Proposal that would yield a higher value to Mizar's
stockholders than will the Exchange, (ii) Mizar's Board of Directors determines
that such Potential Acquirer is reasonably likely to submit a bona fide offer to
consummate an Acquisition Proposal on terms that would yield such a higher value
to Mizar's stockholders if provided with confidential information about Mizar,
and (iii) after consultation with counsel, Mizar's Board of Directors determines
that the failure to provide such confidential information would constitute a
breach of its fiduciary duty to stockholders of Mizar. Following receipt of a
bona fide offer from a Potential Acquirer proposing an Acquisition Proposal,
which offer the Board of Directors of Mizar determines would likely
33
<PAGE>
yield a higher value to the stockholders of Mizar than will the Exchange, Mizar
may with respect to such Potential Acquirer, negotiate and take any of the
actions otherwise prohibited by this Section 5.11 if, in the opinion of the
Board of Directors of Mizar after consultation with counsel, the failure to
negotiate with such Potential Acquirer would constitute a breach by the Board of
Directors of its fiduciary duty to the stockholders of Mizar. In the event Mizar
shall determine to provide any information as described above, or shall receive
any offer relating to an Acquisition Proposal, (i) it shall promptly notify LSI
(a "Notice of Proposal") as to the fact that information is to be provided or
that on offer relating to an Acquisition Proposal has been received and shall
furnish to LSI the identity of the recipient of such information or the
proponent of such offer or proposal, if applicable, and, if an offer or proposal
has been received, a description of the material terms thereof, and (ii) LSI
shall be permitted to take the same actions taken by Mizar pursuant to this
provision with respect to any Potential Acquirer of LSI, notwithstanding the
fact that such actions may otherwise be prohibited by this Section 5.11. Mizar
may enter into a definitive agreement for an Acquisition Proposal with a
Potential Acquirer with which it is permitted to negotiate pursuant to this
Section 5.11; provided, however, that at least one business day prior to Mizar's
execution thereof Mizar shall have provided LSI a Notice Agreement indicating
Mizar's intent to enter into such agreement and describing all the material
terms of such agreement. Following the execution of such a definitive agreement,
LSI or Mizar may terminate this Agreement in accordance with Article IX hereof,
subject to the fee and expense reimbursement provisions of Section 9.2. Mizar
will notify LSI promptly in writing if Mizar becomes aware that any inquiries or
proposals are received by, any information is requested from or any negotiations
or discussions are sought to be initiated with, Mizar with respect to an
Acquisition Proposal, and Mizar shall promptly deliver to LSI any written
inquiries or proposals received by Mizar relating to an Acquisition Proposal.
Each time, if any, that the Board of Directors of Mizar determines that it must
enter into negotiations with, or furnish any information that is not publicly
available to, any Potential Acquirer (other than LSI, an affiliate of LSI or
their authorized representatives) concerning any Acquisition Proposal, Mizar
will give LSI prompt notice of such determination (which shall include a copy of
the non-public information which Mizar has delivered to such Potential
Acquirer).
5.12. Boards of Directors.
-------------------
LSI and Mizar shall use their reasonable best efforts to agree on a
mutually acceptable Board of Directors for each of LSI and Mizar. Both current
Boards of Directors shall take all action necessary to cause the Board of
Directors of Mizar and LSI, as applicable, on or before the Closing Date, to be
increased or decreased as necessary, and shall take all such other actions as
they deem necessary, to cause the persons so chosen to be appointed to the Mizar
and LSI Boards of Directors. If Mizar and LSI are unable to agree on the persons
to serve as the foregoing directors before the Closing Date, then two persons
shall be chosen by the present Board of Directors of Mizar (the "Mizar
Nominees"), and three persons shall be chosen by the present Board of Directors
of LSI (the "LSI Nominees"), and both LSI and Mizar shall use their reasonable
best efforts to cause the Mizar Nominees and the LSI Nominees to be elected as
directors of Mizar to replace the existing Board of Directors for a term
expiring at the first annual meeting of stockholders of Mizar following the
Closing Date. The current Board of Directors of
34
<PAGE>
LSI shall nominate a person, who shall be chosen by the new Board of Directors
of Mizar, to serve on the LSI Board of Directors until his successor is duly
elected and qualified, and the current Board of Directors of LSI shall resign
effective at the time of such persons appointment.
5.13. Corporate Government of the Companies After the Exchange. The
--------------------------------------------------------
Board of Directors of Mizar and LSI shall take all actions necessary after the
Closing to do the following, including obtaining any necessary approvals of
their stockholders prior to the Closing:
(a) The Certificate of Incorporation of Mizar, as in effect on the
Closing Date, shall continue in full force and effect, except that it shall
be amended to change the corporate name of Mizar to a name mutually agreed
upon by LSI and Mizar.
(b) The Bylaws of Mizar, as in effect as of the Closing Date, shall
continue in full force and effect.
(c) The members of the Board of Directors of each of Mizar and LSI
shall be as determined under Section 5.12. The officers of Mizar and LSI
shall be the persons holding such offices as of the Closing Date.
5.14. Pooling. From and after the date hereof and until the Closing
-------
Date, neither Mizar nor LSI, nor any of their respective subsidiaries or other
affiliates, shall (i) knowingly take any action, or knowingly fail to take any
action, that would jeopardize the treatment of the Exchange as a "pooling of
interest" for accounting purposes or (ii) knowingly take any action, or
knowingly fail to take any action, that would jeopardize qualification of the
Exchange as a tax free transaction under the TCGA. In addition, both Mizar and
LSI shall use their reasonable best efforts to cause Mizar to obtain, prior to
the Closing Date, a letter from Arthur Andersen, dated the Closing Date and
addressed to Mizar, stating substantially to the effect that, based on such
firm's review of this Agreement and the other procedures set forth in such
letter, such firm concurs that the Exchange will qualify as a pooling of
interests transaction under Opinion 16 of the Accounting Principles Board.
ARTICLE 6.
CONDITIONS PRECEDENT TO OBLIGATIONS OF LSI
Except as may be waived by LSI, the obligations of LSI to consummate the
transactions contemplated by this Agreement shall be subject to the satisfaction
on or before the Closing Date of each of the following conditions:
6.1. Compliance. Mizar shall have, or shall have caused to be, satisfied
----------
or complied with and performed in all material respects all terms, covenants and
conditions of this Agreement to be complied with or performed by Mizar on or
before the Closing Date.
35
<PAGE>
6.2. Representations and Warranties. All of the representations and
------------------------------
warranties made by Mizar in this Agreement shall be true and correct in all
material respects at and as of the Closing Date with the same force and effect
as if such representations and warranties had been made at and as of the Closing
Date, except for changes permitted or contemplated by this Agreement and except
that if information which would constitute a breach of the representations and
warranties of Mizar made in this Agreement is disclosed in the Proxy Statement
and if LSI has consented in writing to such disclosure, then LSI shall be deemed
to have waived this condition to the performance of its obligations hereunder;
provided, however, that notwithstanding anything herein to the contrary, this
Section 6.2 shall be deemed to have been satisfied even if such representations
or warranties are not true and correct, unless the failure of any of the
representations or warranties to be so true and correct would have or would be
reasonably likely to have a Mizar Material Adverse Effect. Mizar shall deliver
to LSI on or before the Closing Date, updates of the Mizar Disclosure Schedule
described in Section 4 hereof disclosing any changes to such schedules since the
date of this Agreement; provided that no amendment or supplement to a schedule
that reflects a Mizar Material Adverse Effect shall be taken into account in
determining whether the conditions precedent to LSI's obligations to consummate
the transactions herein have been satisfied.
6.3. Material Adverse Changes. Subsequent to September 30, 1997, there
------------------------
shall have occurred no Mizar Material Adverse Effect other than any such change
that affects both Mizar and LSI in a substantially similar manner; provided,
however, if such Mizar Material Adverse Change is disclosed in the Proxy
Statement (to the extent LSI consented in writing to such disclosure) on the
date such Proxy Statement is mailed to LSI's stockholders, then LSI shall be
deemed to have waived this condition to the performance of its obligations
hereunder.
6.4. NMS Listing. Mizar Common Stock issuable (a) pursuant to the
-----------
Exchange, including those issued upon exercise of the Warrants, and (b) pursuant
to the exercise of the Options after the Closing Date shall have been authorized
for listing on the NMS.
6.5. Certificates. LSI shall have received a certificate or certificates
------------
executed on behalf of Mizar by an executive officer of Mizar, to the effect that
the conditions contained in Sections 6.1, 6.2, 6.3 and 6.6 hereof have been
satisfied.
6.6. Shareholder Approval. This Agreement shall have been approved and
--------------------
adopted by the affirmative vote of the holders of a majority of all of the
outstanding shares (as of the "record date" set forth in the Proxy Statement) of
Mizar Common Stock, and the holders of at least ninety percent (90%) of all of
the outstanding shares of LSI Stock, after giving effect to the exercise of the
Warrants and any exercises of outstanding Old Options, shall have tendered their
shares to Mizar pursuant to validly executed Exchange Agreements.
6.7. Effectiveness of Registration Statement. The Registration
---------------------------------------
Statement shall have become effective and no stop order shall have been issued
by the SEC or any other governmental
36
<PAGE>
authority suspending the effectiveness of the Registration Statement or
preventing or suspending the use thereof or any related prospectus.
6.8. Consents; Litigation. All authorizations, consents, orders or
--------------------
approvals of, or declarations or filings with, or expirations or terminations of
waiting periods imposed by any governmental entity, and all required third-party
consents, the failure to obtain which would have an LSI Material Adverse Effect
or a Mizar Material Adverse Effect, shall have been obtained. In addition, no
preliminary or permanent injunction or other order shall have been issued by any
court or by any governmental or regulatory agency, body or authority which
prohibits the consummation of the Exchange and the transactions contemplated by
this Agreement and which is in effect at the Closing Date.
6.9 Chief Executive Officer. Mr. Yates shall have been elected as the
-----------------------
Chief Executive Officer of Mizar.
6.10 Warrants and Preferred Shares; Options. The outstanding Warrants
--------------------------------------
shall immediately prior to the time of Closing be converted into shares of LSI
Stock. The net proceeds of the conversion of the Warrants shall be used for the
redemption of outstanding Preferred Shares at the Closing, and LSI shall have no
further obligation thereunder, and the remainder of the Preferred Shares shall
be sold to Mizar by the Bank. All of the Optionholders shall have executed and
delivered and performed their obligations under the Option Exchange Agreements.
6.11 Board Composition. The respective Boards of Directors of Mizar and
-----------------
LSI shall have been set in accordance with Section 5.12.
6.12 Applicable Laws. The consummation of the Exchange shall be in
---------------
compliance with all applicable terms and provisions of the Securities Act and
the Exchange Act. LSI shall have been re-registered as a private limited company
and shall have otherwise complied with the Takeover Code or obtained any
necessary waivers or exemptions therefrom.
6.13 Receipt of Pooling Letter. Mizar shall have received (a) a letter
-------------------------
from Arthur Andersen, dated the Closing Date and addressed to Mizar, stating
substantially to the effect that, based on such firm's review of this Agreement
and the other procedures set forth in such letter, such firm concurs that the
Exchange will qualify as a pooling of interests transaction under Opinion 16 of
the Accounting Principles Board and (b) a letter from Price Waterhouse,
independent auditors for LSI, to the effect that LSI qualifies as an entity such
that the Exchange will qualify as a "pooling of interests" transaction under
generally accepted accounting principles; provided, that if this condition is
not satisfied prior to March 31, 1998, then (a) the Termination Date (as defined
in Section 9.1(b) below) shall be automatically extended to May 30, 1998, (b)
the parties hereto shall use their reasonable best efforts to obtain an opinion
from Mizar's financial advisor to the effect that the Exchange is fair to Mizar
from a financial point of view, without regard to whether the Exchange qualifies
as a pooling of interests transaction, and (c) this condition shall be deemed
satisfied upon Mizar's receipt of such an opinion of its financial advisor.
37
<PAGE>
ARTICLE 7.
CONDITIONS PRECEDENT TO OBLIGATIONS OF MIZAR
Except as may be waived by Mizar, the obligations of Mizar to consummate
the transactions contemplated by this Agreement shall be subject to the
satisfaction, on or before the Closing Date, of each of the following
conditions:
7.1. Compliance. LSI shall have, or shall have caused to be, satisfied
----------
or complied with and performed in all material respects all terms, covenants,
and conditions of this Agreement to be complied with or performed by it on or
before the Closing Date.
7.2. Representations and Warranties. All of the representations and
------------------------------
warranties made by LSI in this Agreement shall be true and correct in all
material respects at and as of the Closing Date with the same force and effect
as if such representations and warranties had been made at and as of the Closing
Date, except for changes permitted or contemplated by this Agreement and except
that if information which would constitute a breach of the representations and
warranties of LSI made in this Agreement is disclosed in the Proxy Statement and
if Mizar has consented in writing to such disclosure, then Mizar shall be deemed
to have waived this condition to the performance of its obligations hereunder;
provided, however, that notwithstanding anything herein to the contrary, this
Section 7.2 shall be deemed to have been satisfied even if such representations
or warranties are not true and correct, unless the failure of any of the
representations or warranties to be so true and correct would have or would be
reasonably likely to have an LSI Material Adverse Effect. LSI shall deliver to
Mizar on or before the Closing Date, updates of the LSI Disclosure Schedule
described in Section 3 hereof disclosing any changes to such schedules since the
date of this Agreement; provided that no amendment or supplement to a schedule
that reflects an LSI Material Adverse Effect shall be taken into account in
determining whether the conditions precedent to Mizar's obligations to
consummate the transactions hereby have been satisfied.
7.3. Material Adverse Changes. Since September 30, 1997, except as set
------------------------
forth in this Agreement or on the schedules hereto, there shall have occurred no
LSI Material Adverse Effect other than any such change that affects both Mizar
and LSI in a substantially similar manner; provided, however, if such change is
disclosed in the Proxy Statement (to the extent Mizar consented to such
disclosure) on the date such Proxy Statement is mailed to Mizar's stockholders,
then Mizar shall be deemed to have waived this condition to the performance of
its obligations hereunder.
7.4. Certificates. Mizar shall have received a certificate or
------------
certificates, executed on behalf of LSI by an executive officer of LSI, to the
effect that the conditions in Sections 7.1, 7.2, 7.3 and 7.5 hereof have been
satisfied.
7.5. Shareholder Approval. This Agreement shall have been approved and
--------------------
adopted by the affirmative vote of the holders of a majority of all of the
outstanding shares (as of the "record date" set forth in the Proxy Statement) of
Mizar Common Stock, and the holders of at least ninety
38
<PAGE>
percent (90%) of all of the outstanding shares of LSI Stock, after giving effect
to the exercise of the Warrants and assuming the exercise of any outstanding Old
Options, shall have tendered their shares to Mizar pursuant to validly executed
Exchange Agreements.
7.6. Effectiveness of Registration Statement. The Registration
---------------------------------------
Statement shall have become effective and no stop order shall have been issued
by the SEC or any other governmental authority suspending the effectiveness of
the Registration Statement or preventing or suspending the use thereof or any
related prospectus.
7.7. Consents; Litigation. All authorizations, consents, orders or
--------------------
approvals of, or declarations or filings with, or expirations or terminations of
waiting periods imposed by, any governmental entity, and all required
third-party consents, the failure to obtain which would have an LSI Material
Adverse Effect or a Mizar Material Adverse Effect, shall have been obtained. In
addition, no preliminary or permanent injunction or other order shall have been
issued by any court or by any governmental or regulatory agency, body or
authority which prohibits the consummation of the Exchange and the transactions
contemplated by this Agreement and which is in effect at the Closing Date.
7.8 Chief Executive Officer. Mr. Yates shall have been elected as the
-----------------------
Chief Executive Officer of Mizar.
7.9 Warrants and Preferred Shares; Options. The outstanding Warrants
--------------------------------------
shall immediately prior to the time of Closing be converted into shares of LSI
Stock. The net proceeds of the conversion of the Warrants shall be used for the
redemption of outstanding Preferred Shares at the Closing, and LSI shall have no
further obligation thereunder, and the remainder of the Preferred Shares shall
be sold to Mizar by Bank. All of the Optionholders shall have executed and
delivered and performed their obligations under the Option Exchange Agreements.
7.10 Board Composition. The respective Boards of Directors of Mizar and
-----------------
LSI shall have been set in accordance with Section 5.12.
7.11 Applicable Laws. The consummation of the Exchange shall be in
---------------
compliance with all applicable terms and provisions of the Securities Act and
the Exchange Act. LSI shall have been re-registered as a private limited company
and shall have otherwise complied with the Takeover Code or obtained any
necessary waivers or exemptions therefrom.
7.12 Receipt of Pooling Letter. Mizar shall have received (a) a letter
-------------------------
from Arthur Andersen, dated the Closing Date and addressed to Mizar, stating
substantially to the effect that, based on such firm's review of this Agreement
and the other procedures set forth in such letter, such firm concurs that the
Exchange will qualify as a pooling of interests transaction under Opinion 16 of
the Accounting Principles Board and (b) a letter from Price Waterhouse,
independent auditors for LSI, to the effect that LSI qualifies as an entity such
that the Exchange will qualify as a "pooling of interests" transaction under
generally accepted accounting principles;
39
<PAGE>
provided, that if this condition is not satisfied prior to March 31, 1998, then
(a) the Termination Date shall be automatically extended to May 30, 1998, (b)
the parties hereto shall use their reasonable best efforts to obtain an opinion
from Mizar's financial advisor to the effect that the Exchange is fair to Mizar
from a financial point of view, without regard to whether the Exchange qualifies
as a pooling of interests transaction, and (c) this condition shall be deemed
satisfied upon Mizar's receipt of such an opinion of its financial advisor.
ARTICLE 8.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
8.1 Indemnification. In the event of any threatened or actual claim,
---------------
action, suit, proceeding or investigation, whether civil, criminal or
administrative, including, without limitation, any such claim, action, suit,
proceeding or investigation in which any of the present or former officers or
directors of LSI, the LSI Subsidiaries or Mizar (collectively, the "Managers")
is, or is threatened to be, made a party by reason of the fact that he or she is
or was a stockholder, director, officer, employee or agent of LSI, the LSI
Subsidiaries or Mizar, or is or was serving at the request of LSI, the LSI
Subsidiaries or Mizar as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, whether
before or after the Closing Date, then (i) LSI and Mizar shall indemnify and
hold harmless, as and to the full extent permitted by applicable law (including
by advancing expenses promptly as statements therefor are received), each such
Manager against any losses, claims, damages, liabilities, costs, expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement in
connection with any such claim, action, suit, proceeding or investigation, and
in the event of any such claim, action, suit, proceeding or investigation
(whether arising before or after the Closing Date), (ii) if LSI or Mizar have
not promptly assumed the defense of such matter, the Managers may retain counsel
satisfactory to them, and LSI, and Mizar, shall pay all fees and expenses of
such counsel for the Managers promptly, as statements therefor are received, and
(iii) LSI, and Mizar, will use their respective best efforts to assist in the
vigorous defense of any such matter; provided that neither LSI nor Mizar shall
be liable for any settlement effected without its prior written consent (which
consent shall not be unreasonably withheld). Upon the determination that Mizar
is not liable for any such indemnification claims, the Manager will reimburse
Mizar and LSI, as applicable, for any fees, expenses and costs incurred by Mizar
or LSI in connection with the defense of such claims. Any Manager wishing to
claim indemnification under this Section 8.1, upon learning of any such claim,
action, suit, proceeding or investigation, shall immediately notify LSI and
Mizar thereof (provided that the failure to give such notice shall not affect
any obligations hereunder, except to the extent that the indemnifying party is
actually and materially prejudiced thereby). Mizar and LSI agree that all rights
to indemnification existing in favor of the Managers as in effect as of the date
hereof shall survive the Exchange. Mizar further covenants not to amend or
repeal any provisions of the governing charter documents of Mizar or of LSI in
any manner which would adversely affect the indemnification or exculpatory
provisions contained therein. The provisions of this Section 8.1 are intended to
be for the benefit of, and shall be enforceable by, each indemnified party and
his or her heirs and representatives.
40
<PAGE>
8.2. Directors' and Officers' Insurance. For a period of two years from
----------------------------------
the Closing Date, Mizar shall maintain in effect Mizar's current directors' and
officers' liability insurance policy (a copy of which has been heretofore
delivered to LSI) (the "Indemnified Parties") to cover the Managers; provided,
--------
however, that Mizar may substitute for such Mizar policies, policies with at
- -------
least the same coverage containing terms and conditions which are no less
advantageous to the Managers and provided that said substitution does not result
in any gaps or lapses in coverage with respect to matters occurring prior to the
Closing Date. The provisions of this Section 8.2 are intended to be for the
benefit of, and shall be enforceable by, each Manager and his or her heirs and
representatives.
ARTICLE 9.
MISCELLANEOUS
9.1. Termination. Subject to Section 9.4, this Agreement and the
-----------
transactions contemplated hereby and the provisions herein may be terminated at
any time on or before the Closing Date:
(a) by mutual consent of LSI and Mizar;
(b) by either Mizar or LSI if the transactions contemplated by this
Agreement have not been consummated by March 31, 1998 or as may be extended
hereunder (the "Termination Date"), unless such failure of consummation is
due to the failure of the terminating party to perform or observe the
covenants, agreements, and conditions hereof to be performed or observed by
it at or before the Closing Date; provided, that the non-breaching party's
cause of action resulting from such failure to perform or to observe the
covenants, agreements and conditions hereof shall not be terminated;
(c) by either LSI or Mizar if the transactions contemplated hereby
violate any non-appealable final order, decree, or judgment of any court or
governmental body or agency having competent jurisdiction;
(d) by Mizar if in the exercise of the good faith judgment of its
Board of Directors as to its fiduciary duties to its stockholders such
termination is required by reason of an Acquisition Proposal or if the
Board of Directors of Mizar does not make or withdraws or materially
modifies or changes its recommendation to the stockholders of Mizar to
approve this Agreement and the Exchange if there exists at such time an
Acquisition Proposal for Mizar, in either case pursuant to Section 5.11;
(e) by LSI if in the exercise of the good faith judgment of its
Board of Directors as to its fiduciary duties to its stockholders such
termination is required by reason of an Acquisition Proposal or if the
Board of Directors of LSI does not make or withdraws or materially modifies
or changes its recommendation to the stockholders of LSI to approve this
Agreement and the Exchange if there exists at such time an Acquisition
Proposal for LSI, in either case pursuant to Section 5.11;
41
<PAGE>
(f) by LSI if the Mizar Board of Directors withdraws or materially
modifies or changes its recommendation to the stockholders of Mizar to approve
this Agreement and the Exchange and if there exists at such time an Acquisition
Proposal for Mizar; and
(g) by Mizar if the LSI Board of Directors withdraws or materially
modifies or changes its recommendations to the LSI Stockholders to approve this
Agreement and the Exchange and if there exists at such time an Acquisition
Proposal for LSI.
9.2. Expenses.
--------
(a) Except as provided in (b) and (c) below, if the transactions
contemplated by this Agreement are not consummated, each party hereto shall pay
its own expenses incurred in connection with this Agreement and the transactions
contemplated hereby.
(b) If (i) this Agreement is terminated (A) by Mizar pursuant to Section
9.1(d) hereof or (B) by LSI pursuant to Section 9.1(f) hereof, (ii) following
the mailing of the Proxy Statement by Mizar, Mizar's stockholders have not
approved this Agreement or Mizar has failed to use its best efforts to obtain a
regulatory or governmental approval necessary to consummate the Exchange, or
(iii) on or before the Termination Date, and while this Agreement remains in
effect, Mizar enters into discussions with respect to an Acquisition Proposal
with any corporation, partnership, person or other entity or group (other than
LSI or any affiliate of LSI), and such transaction (including any revised
transaction based upon the Acquisition Proposal) is thereafter consummated on or
before the first anniversary of the Termination Date), then Mizar shall pay to
LSI a fee equal to the sum of (i) up to $300,000 of documented fees, costs and
expenses, including legal and accounting fees and fees payable to LSI's
financial advisors, incurred by LSI in connection with the transactions
contemplated by this Agreement and (ii) $1,000,000, which amounts shall be
payable in same day funds to an account specified by LSI.
(c) If (i) this Agreement is terminated (A) by LSI pursuant to Section
9.1(e) hereof or (B) by Mizar pursuant to Section 9.1(g) hereof, (ii) following
the mailing of the Exchange Agreements by Mizar to the other parties thereto,
the LSI Shareholders have tendered less than ninety percent (90%) of the
outstanding LSI Stock (including shares issuable under the Old Options and the
Warrants) to Mizar in accordance with Exchange Agreements or LSI has failed to
use its best efforts to obtain a regulatory or governmental approval necessary
to consummate the Exchange, or (iii) on or before the Termination Date, and
while this Agreement remains in effect, LSI enters into discussions with respect
to an Acquisition Proposal with any corporation, partnership, person or other
entity or group (other than Mizar or any affiliate of Mizar), and such
transaction (including any revised transaction based upon the Acquisition
Proposal) is thereafter consummated on or before the first anniversary of the
Termination Date), then LSI shall pay Mizar a cash fee equal to the sum of (i)
up to $300,000 of documented fees, costs and expenses, including legal and
accounting fees and fees payable to LSI's financial advisors, incurred by LSI in
42
<PAGE>
connection with the transactions contemplated by this Agreement and (ii)
$1,000,000, which amounts shall be payable in same day funds to an account
specified by Mizar.
(d) If any provision of this Section 9.2 shall be void under
applicable law, or if the performance by any party of its obligations
hereunder is prohibited by applicable law, but such provision or action
would be permissible if some part or all of this Section 9.2 were deleted,
then such modification as may be necessary to make such provision or action
permissible shall be deemed to have taken place.
9.3. Entire Agreement. This Agreement and the exhibits hereto contain
----------------
the complete agreement among the parties with respect to the transactions
contemplated hereby and supersede all prior agreements and understandings among
the parties with respect to such transactions. Section and other headings are
for reference purposes only and shall not affect the interpretation or
construction of this Agreement. The parties hereto have not made any
representation or warranty except as expressly set forth in this Agreement or in
any certificate or schedule delivered pursuant hereto. The obligations of any
party under any agreement executed pursuant to this Agreement shall not be
affected by this section.
9.4. Survival of Provisions. The representations and warranties of each
----------------------
party contained herein or in any exhibit, certificate, document or instrument
delivered pursuant to this Agreement shall not survive the Closing. The
covenants and agreements of Sections 5.6, 5.12, 5.13, 8.1, 8.2 and 9.4 shall
survive the Closing. The covenants and agreements of Sections 5.4, 9.2, 9.4,
9.6, 9.8 and 9.12 shall survive the termination of this Agreement in accordance
with Section 9.1.
9.5. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which when so executed and delivered shall be deemed an
original, and such counterparts together shall constitute only one original.
9.6. Notices. All notices, demands, requests, or other communications
-------
that may be or are required to be given, served, or sent by any party to any
other party pursuant to this Agreement shall be in writing and shall be sent by
facsimile transmission, next-day courier or mailed by first-class, registered or
certified mail, return receipt requested, postage prepaid, or transmitted by
hand delivery, addressed as follows:
(i) If to LSI:
Loughborough Sound Images
Loughborough Park
Ashby Road
Loughborough, Leicestershire
LE113NE, England
Attn: Simon Yates
Telephone: 011-44-1509-634412
Fax: 011-44-1509-634438
43
<PAGE>
with a copy (which shall not constitute notice) to:
Bingham Dana LLP
150 Federal Street
Boston, Massachusetts 02110
Attn: David L. Engel
Telephone: (617) 951-8000
Fax: (617) 951-8736
(ii) If to Mizar:
Mizar, Inc.
2410 Luna Road
Carrollton, Texas 75006
Attn: Samuel Smith
Telephone: (972) 277-4650
Fax: (972) 277-4671
with a copy (which shall not constitute notice) to:
Crouch & Hallett, L.L.P.
717 North Harwood Street
Suite 1400
Dallas, Texas 75201
Attn: Bruce H. Hallett
Telephone: (214) 922-4120
Fax: (214) 953-0576
Each party may designate by notice in writing a new address to which any notice,
demand, request, or communication may thereafter be so given, served, or sent.
Each notice, demand, request, or communication that is mailed, delivered, or
transmitted in the manner described above shall be deemed sufficiently given,
served, sent, and received for all purposes at such time as it is delivered to
the addressee (with the return receipt, the delivery receipt or the affidavit of
messenger being deemed conclusive evidence of such delivery) or at such time as
delivery is refused by the addressee upon presentation.
9.7. Successors; Assignments. This Agreement and the rights, interests,
-----------------------
and obligations hereunder shall be binding upon and shall inure to the benefit
of the parties hereto and their respective successors and assigns. Neither this
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned, by operation of law or otherwise, by any of the parties hereto without
the prior written consent of the other.
44
<PAGE>
9.8. Governing Law; Venue. This Agreement shall be construed and enforced
--------------------
in accordance with the laws of the State of Delaware (except the choice of law
rules thereof). Venue of any action brought to enforce or interpret this
Agreement shall be commenced and maintained in a federal court sitting in New
Castle County, Delaware. The parties irrevocably consent to jurisdiction and
venue in such courts for such purposes.
9.9. Waiver and Other Action. This Agreement may be amended, modified, or
-----------------------
supplemented only by a written instrument executed by the parties against which
enforcement of the amendment, modification or supplement is sought.
9.10. Severability. If any provision of this Agreement is held to be
------------
illegal, invalid, or unenforceable, such provision shall be fully severable, and
this Agreement shall be construed and enforced as if such illegal, invalid, or
unenforceable provision were never a part hereof; the remaining provisions
hereof shall remain in full force and effect and shall not be affected by the
illegal, invalid, or unenforceable provision or by its severance; and in lieu of
such illegal, invalid, or unenforceable provision, there shall be added
automatically as part of this Agreement, a provision as similar in its terms to
such illegal, invalid, or unenforceable provision as may be possible and be
legal, valid, and enforceable.
9.11. No Third Party Beneficiaries. Article 8 is intended for the benefit
----------------------------
of each "Manager" (as defined in Article 8) and may be enforced by such persons,
their heirs and representatives. Other than as expressly set forth in this
Section 9.11, nothing expressed or implied in this Agreement is intended, or
shall be construed, to confer upon or give any person, firm or corporation other
than the parties hereto and their stockholders, any rights, remedies,
obligations or liabilities under or by reason of this Agreement or result in
such person, firm or corporation being deemed a third party beneficiary of this
Agreement.
9.12. Mutual Contribution. The parties to this Agreement and their
-------------------
counsel have mutually contributed to its drafting. Consequently, no provision of
this Agreement shall be construed against any party on the ground that such
party drafted the provision or caused it to be drafted or the provision contains
a covenant of such party.
45
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
MIZAR, INC.
By: /s/ Samuel Smith
-----------------------------------------
Samuel Smith
Chief Executive Officer
LOUGHBOROUGH SOUND IMAGES PLC
By: /s/ Simon Yates
-----------------------------------------
Simon Yates
Managing Director
46
<PAGE>
Exhibit 2.2
March 24, 1998
Mizar, Inc.
2410 Luna Road
Carrollton, Texas 75006
Gentlemen:
Reference is made to that certain Share Purchase Agreement, dated as of
November 17, 1997 (the "Agreement"), between Mizar, Inc., a Delaware corporation
("Mizar"), and Loughborough Sound Images Limited, a company registered in
England and Wales ("LSI"). Capitalized terms used herein shall have the
respective meanings set forth in the Agreement.
In connection with the transactions contemplated by the Agreement, and
in consideration of the mutual covenants and agreements contained herein and for
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto agree as follows:
1. Subject to the terms and conditions contained herein, LSI hereby
waives Mizar's requirement under the Agreement to cause the Registration
Statement to become effective and consents to Mizar's withdrawal of the
Registration Statement.
2. Subject to the terms and conditions contained herein, LSI hereby
waives the requirement that the shares of Mizar Common Stock to be issued in the
Exchange be approved for listing on the NMS as of the Closing Date; provided,
however, that Mizar covenants to cause such shares to be so approved for listing
on or before the effective date of the Registration Statement (as defined on
Schedule 1 hereto).
3. LSI and Mizar hereby mutually consent to the extension of the
termination date in Section 9.1(b) from March 31, 1998 to April 30, 1998.
4. Mizar hereby grants, effective from and after Closing, to the holders
of LSI capital stock (and their transferees and assigns) the registration rights
set forth on Schedule I hereto with respect to the shares of Mizar Common Stock
to be issued in the Exchange.
47
<PAGE>
March 24, 1998
Page 48
5. For the purpose of enforcing the obligations set forth in paragraph 4
hereof, each of the holders of LSI capital stock (and their transferees and
assigns) shall be deemed a third party beneficiary of this Agreement.
6. Mizar hereby represents and warrants that, (i) assuming that each of
the LSI shareholders are not U.S. persons or acquiring Mizar Common Stock on
behalf of any U.S. person, the issuance of shares of Mizar Common Stock to the
LSI stockholders in the Exchange is exempt from registration under the
Securities Act of 1933, as amended and (ii) Mizar is eligible to register the
shares of its Common Stock issued to the LSI stockholders for resale by them on
a continuous or delayed basis pursuant to a Registration Statement on Form S-3.
7. Mizar agrees that it will deliver to LSI the opinion of its legal
counsel in form acceptable to counsel for LSI as to the matters described in
clause (i) of paragraph 6 above, in the form set forth on Schedule II hereto.
Please indicate your acceptance of the foregoing terms by your execution
in the space provided below.
Very truly yours,
Loughborough Sound Images Limited
By: /s/ Simon Yates
-------------------------
Name: Simon Yates
Title: Managing Director
Accepted and agreed as of the date first written above:
Mizar, Inc.
By: /s/ Charles D. Brockenbush
----------------------------------------
Name: Charles D. Brockenbush
Title: Vice President-Finance and Chief Financial Officer
48
<PAGE>
Schedule I
Registration Rights
1. Upon the demand after the Closing of holders of at least 500,000 shares
of Mizar Common Stock to be issued in the Exchange, Mizar shall prepare and file
with the Securities and Exchange Commission ("SEC") a Registration Statement
("Registration Statement") under the Securities Act of 1933, as amended (the
"1933 Act") on Form S-3, or if for any reason Mizar is not then eligible to file
a Form S-3, then on Form S-1 registering all of the shares of Mizar Common Stock
issued in the Exchange (the "Registrable Securities") for resale to the public.
In addition, each time prior to the "Termination Date" (defined below)
that Mizar decides to file a Registration Statement under the 1933 Act (other
than on Forms S-4 or S-8 or any successor form for the registration of
securities issued or to be issued in connection with a merger or acquisition or
employee benefit plan) covering the offer and sale by it or other holders of
Mizar's securities who may demand registration of such securities of any of its
securities for money, Mizar shall give written notice thereof to all holders of
Registrable Securities. Mizar shall include in such Registration Statement such
shares of Registrable Securities for which it has received written requests to
register such shares within 30 days after such written notice has been given. If
the Registration Statement is to cover an underwritten offering, such
Registrable Securities shall be included in the underwriting on the same terms
and conditions as the securities otherwise being sold through the underwriters.
If the managing underwriter(s) in any underwritten offering shall advise Mizar
in writing that the inclusion of all of the shares of Registrable Securities and
any other Mizar Common Stock requested to be registered would have an adverse
effect on the proposed distribution of the securities to be issued by Mizar in
such public offering, then the number of shares of Registrable Securities and
other Mizar Common Stock to be included in the offering (except for shares to be
issued by Mizar in an offering initiated by Mizar) shall be reduced to such
smaller number with the participation in such offering by the holders of
Registrable Securities to have priority over the participation by other holders
of Mizar Common Stock. In connection with any of the foregoing Registration
Statements, Mizar will as expeditiously as possible:
(a) use its best efforts to cause such Registration Statement
to become effective and remain effective so that the Registrable
Securities may be offered and sold on a continuous or delayed basis in
accordance with Rule 415 under the 1933 Act, until the earlier of three
years after the Closing Date or such time as all of the Registrable
Securities have been sold by the holders of the Registrable Securities
(the "Holders") under such Registration Statement or pursuant to Rule 144
under the 1933 Act or until all such Registrable Securities are eligible
for resale under the 1933 Act without volume limitations set forth in Rule
144 (the "Termination Date");
<PAGE>
(b) prepare and file with the SEC such amendments and
post-effective amendments to the Registration Statement, and such
supplements to the Prospectus, as may be requested by the Holders, or as
may be required by the 1933 Act or rules and regulations thereunder to
keep the Registration Statement effective until all Registrable Securities
covered by such Registration Statement are sold in accordance with the
intended plan of distribution set forth in such Registration Statement or
the prospectus forming a part thereof (the "Prospectus");
(c) deliver to the Holders, without charge, as many copies of
each Prospectus as the Holders may reasonably request (Mizar hereby
consenting to the use of each such Prospectus by the Holders in connection
with the offering and sale of the Registrable Securities covered by such
Prospectus) and a reasonable number of copies of the then-effective
Registration Statement and any post-effective amendments thereto and any
supplements to the Prospectus, including financial statements and
schedules, all documents incorporated therein by reference and all
exhibits (including those incorporated by reference);
(d) register or qualify or cooperate with the Holders and
their counsel in connection with the registration or qualification of such
Registrable Securities for offer and sale under the securities or blue sky
laws of such jurisdictions as the Holders may reasonably designate in
writing and do anything else necessary or advisable to enable the
disposition in such jurisdictions of the Registrable Securities covered by
the Registration Statement; provided that Mizar shall not be required to
qualify generally to do business in any jurisdiction where it is not then
so qualified or to take any action which would subject it to general
service of process in any such jurisdiction where it is not then so
subject;
(e) cause all such Registrable Securities to be listed on each
securities exchange or automated quotation system on which similar
securities issued by Mizar are then listed;
(f) advise each Holder, promptly after it shall receive notice
or obtain knowledge thereof, of the issuance of any stop order by the SEC
suspending the effectiveness of such Registration Statement or the
initiation or threatening of any proceeding for such purpose and promptly
use its reasonable best efforts to prevent the issuance of any stop order
or to obtain its withdrawal if such stop order should be issued;
(g) at least three days prior to the filing of any amendment
or supplement to such Registration Statement or prospectus or any document
that is to be incorporated by reference into such Registration Statement
or prospectus, furnish a copy thereof to each seller of such Registrable
Shares;
4
<PAGE>
(h) notify the Holders at any time when a prospectus relating to
such Registration Statement is required to be delivered under the 1933
Act, of the happening of any event as a result of which the prospectus
included in such Registration Statement, as then in effect, includes an
untrue statement of a material fact or an omission to state a material
fact required to be stated in a Registration Statement or Prospectus or
necessary to make the statements in a Registration Statement or Prospectus
not misleading (hereafter, a "Misstatement"). At the request of any such
Holder, Mizar will promptly prepare (and, when completed, give notice to
each Holder of Registrable Securities) a supplement or amendment to such
prospectus so that, as thereafter delivered to the purchasers of such
Registrable Securities, such prospectus will not contain an untrue
statement of a material fact or omit to state any fact necessary to make
the statements contained therein not misleading; provided that upon such
notification by Mizar, each Holder of the Registrable Securities will not
offer or sell Registrable Securities until Mizar has notified such Holder
that it has prepared a supplement or amendment to such prospectus and
delivered copies of such supplement or amendment to such Holder;
(i) provide a transfer agent and registrar for all of the
Registrable Shares not later than the effective date of such S-3
Registration Statement; and
(j) in connection with any underwritten offering enter into such
customary agreements (including underwriting agreements in customary form)
and take all such other actions as a majority of the Holders of the
Registrable Securities being sold in such offering, or the underwriters,
if any, reasonably request in order to expedite or facilitate the
disposition of the Registrable Securities.
2. Based upon the written opinion of Mizar's securities law counsel,
Mizar may, by written notice to the Holders, for a period not to exceed 30 days,
suspend the Registration Statement and require that the Holders cease sales of
the Registrable Securities thereunder, if (i) Mizar is engaged in negotiations
or preparations for any transaction that Mizar desires to keep confidential for
valid business reasons, and (ii) Mizar determines in good faith that the public
disclosure requirements imposed on Mizar as a result of the Registration
Statement would require public disclosure of such negotiations or preparations;
provided, however, that Mizar may not exercise this right on more than one
occasion. Mizar will thereafter promptly prepare (and, when completed, give
notice to each Holder of Registrable Securities) a supplement or amendment to
such prospectus so that, as thereafter delivered to the purchasers of such
Registrable Securities, such prospectus will not contain an untrue statement of
a material fact or omit to state any fact necessary to make the statements
contained therein not misleading. Each Holder, in the event Mizar is issuing
shares of beneficial interest to the public in an underwritten offering, agrees,
if requested by the managing underwriter or underwriters for such
3
<PAGE>
underwritten offering, not to effect any public sale or distribution of
Registrable Securities or any securities convertible into or exchangeable or
exercisable for such Registrable Securities, including a sale pursuant to Rule
144 (or any similar provision then in force) under the 1933 Act or under any
other registration statement other than one pertaining to such underwritten
offering, during the 14 days prior to, and during the 90-day period beginning
on, the effective date of such underwritten offering, provided, however, that no
Holder shall be required to refrain from selling Registrable Securities more
than once in any twelve-month period.
3. Mizar agrees to indemnify, to the extent permitted by law, each Holder
of Registrable Shares, its officers and directors and each person who controls
such Holder (within the meaning of the 1933 Act) against all losses, claims,
damages, liabilities and expenses (including attorneys' fees) caused by any
untrue or alleged untrue statement of material fact contained in any
Registration Statement, prospectus or preliminary prospectus or any amendment
thereof or supplement thereto or any omission or alleged omission of a material
fact required to be stated therein or necessary to make the statements therein
not misleading, except insofar as the same are caused by or contained in any
information furnished in writing to Mizar by such Holder expressly for use
therein or by such Holder's failure to deliver a copy of the Registration
Statement or prospectus or any amendments or supplements thereto after Mizar has
furnished such Holder with a sufficient number of copies of the same. In
connection with the S-3 Registration Statement, each Holder of Registrable
Securities will furnish to Mizar in writing such information and affidavits as
Mizar reasonably requests for use in connection with any such registration
statement or prospectus. In addition, in consideration for the Registration
Rights granted to them hereby, each Holder will agree in writing with Mizar
that, to the extent permitted by law, such Holder will indemnify Mizar, its
directors and officers and each Person who controls Mizar (within the meaning of
the 1933 Act) against any losses, claims, damages and liabilities resulting from
any untrue statement of material fact contained in the S-3 Registration
Statement, prospectus or preliminary prospectus or any amendment thereof or
supplement thereto or any omission or alleged omission of a material fact
required to be stated therein or necessary to make the statements therein not
misleading, but only to the extent such untrue statement or omission is
contained in any information or affidavit so furnished in writing by such
Holder; provided that the obligation to indemnify will be individual to each
Holder and will be limited to the net amount of proceeds received by such Holder
from the sale of Registrable Securities pursuant to the S-3 Registration
Statement. Any person entitled to indemnification herein will (i) be required to
give prompt written notice to the indemnifying party of any claim with respect
to which it seeks indemnification and (ii) unless in such indemnified party's
reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist with respect to such claim, permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party. If such defense is assumed, the
indemnifying party will not be subject to any liability
4
<PAGE>
for any settlement made by the indemnified party without its consent (but such
consent will not be unreasonably withheld). An indemnifying party who is not
entitled to, or elects not to, assume the defense of a claim will not be
obligated to pay the fees and expenses of more than one counsel for all parties
indemnified by such indemnifying party with respect to such claim, unless in the
reasonable judgment of any indemnified party a conflict of interest may exist
between such indemnified party and any other of such indemnified parties with
respect to such claim. The indemnification provided for under this Agreement
will remain in full force and effect regardless of any investigation made by or
on behalf of the indemnified party or any officer, director or controlling
person of such indemnified party and will survive the transfer of securities.
Mizar also agrees to make such provisions as are reasonably requested by any
indemnified party for contribution to such party in the event Mizar's
indemnification is unavailable for any reason.
4. Mizar shall bear all expenses of the Registration Statement and all
other expenses incident to Mizar's compliance with this Agreement, which shall
include, without limitation, all registration and filing fees and expenses of
compliance with securities or blue sky laws, printing expenses, messenger and
delivery expenses, and fees and disbursements of counsel for Mizar and one
counsel for all of the Holders, and all independent certified public accountants
and other Persons retained by Mizar, Mizar's internal expenses (including,
without limitation, all salaries and expenses of its officers and employees
performing legal and accounting duties), the expense of any annual audit or
quarterly review, the expense of any liability insurance for Mizar and its board
of directors and the expenses and fees for listing the securities to be
registered on each securities exchange on which similar securities issued by
Mizar are then listed but which shall not include any selling commissions or
underwriting discounts.
5
<PAGE>
SCHEDULE II
214-953-0053
April ___, 1998
Loughborough Sound Images Limited
Loughborough Park
Ashby Road
Loughborough, Leicestershire
LE11 3NE England
Gentlemen:
We are counsel for Mizar, Inc., a Delaware corporation ("Mizar"), and are
representing it in connection with the transactions contemplated by the terms of
that certain Share Purchase Agreement, dated November 17, 1997 (the "Purchase
Agreement"), by and between Mizar and Loughborough Sound Images Limited, a
company registered in England and Wales ("LSI"), and the letter agreement dated
March 24, 1998 (the "Letter Agreement"), between Mizar and LSI. Capitalized
terms used herein shall have the definition given to such terms in the Purchase
Agreement. We have been requested by Mizar to render this opinion letter
pursuant to paragraph 7 of the Letter Agreement.
For purposes of this opinion letter, we have examined and relied upon the
originals, or copies certified or otherwise identified to our satisfaction, of
such corporate documents and records of Mizar and certificates of public
officials and other documents, and have received such information, including
written certificates, from officers and representatives of Mizar, as we have
deemed necessary or appropriate to enable us to express the opinions expressed
below. In each case where we have relied upon such corporate documents,
information, or certificates, we believe such reliance is reasonable and have no
knowledge that the information provided is false, misleading, or otherwise
should not be relied upon.
Based upon the foregoing, and subject to the assumptions, limitations, and
qualifications set forth below, we are of the opinion that:
1. The issuance to the LSI Shareholders of the shares of Mizar
Common Stock that are to be issued under the terms of the
Purchase Agreement (the "Shares"), when effected in accordance
with the terms thereof and of the Letter Agreement, is exempt
from registration under the Securities Act of 1933, as amended
(the "Securities Act").
<PAGE>
Loughborough Sound Images Limited
April __, 1998
Page 2
2. The Shares, when issued in accordance with the terms of the Letter
Agreement and the Purchase Agreement, will be duly and validly
issued, fully paid and non-assessable.
The opinions expressed herein are subject to the following assumptions,
limitations, and qualifications:
A. For purposes of the opinion rendered in paragraph 1, we have
assumed that (a) no offer or sale of the Shares is made to a person in the
United States, nor will any offer or sale be made for the account or benefit of
a person in the United States, (b) to Mizar's knowledge, each of the LSI
Shareholders are outside of the United States, and (c) Mizar implements the
appropriate "offering restrictions" required under the provisions of Regulation
S of the Securities Act.
B. For purposes of the opinions rendered herein, we have also assumed
(a) the genuineness of all signatures other than the signatures of
representatives of Mizar, (b) the authenticity of all documents submitted to us
as originals, (c) the conformity to authentic original documents of all
documents submitted to us as certified, conformed, or photostatic copies, (d)
the due authorization, execution, and delivery of all documents referred to in
this opinion by the parties to such documents other than Mizar, and (e) the
accuracy of all factual recitations contained in certificates or similar
documents examined by us.
C. The opinions expressed in this letter are based upon the law in
effect on the date hereof, and we assume no obligation to revise or supplement
this opinion should such law be changed by legislative action, judicial
decision, or otherwise.
This opinion letter is being furnished to you solely for your benefit and
only with respect to the transactions recited herein. Accordingly, it may not be
relied upon by, or quoted in any manner or delivered to, any person or entity
without, in each instance, our prior written consent.
Very truly yours,
-2-
