1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 26, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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MERCURY COMPUTER SYSTEMS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MASSACHUSETTS 3670 04-2741391
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
------------------------
199 RIVERNECK ROAD
CHELMSFORD, MA 01824
(978) 256-1300
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
JAMES R. BERTELLI
PRESIDENT AND CHIEF EXECUTIVE OFFICER
MERCURY COMPUTER SYSTEMS, INC.
199 RIVERNECK ROAD
CHELMSFORD, MASSACHUSETTS 01824
(978) 256-1300
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
ANTHONY J. MEDAGLIA, JR., ESQUIRE TIMOTHY C. MAGUIRE, ESQUIRE
HUTCHINS, WHEELER & DITTMAR TESTA, HURWITZ & THIBEAULT, LLP
A PROFESSIONAL CORPORATION 125 HIGH STREET
101 FEDERAL STREET HIGH STREET TOWER
BOSTON, MASSACHUSETTS 02110 BOSTON, MASSACHUSETTS 02110
(617) 951-6600 (617) 248-7000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the earlier
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
==============================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
OFFERING PRICE AGGREGATE
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE PER OFFERING AMOUNT OF
TO BE REGISTERED REGISTERED(1) SHARE(2) PRICE(2) REGISTRATION FEE
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Common Stock, $.01 par value
per share............................... 4,025,000 shares $14.00 $56,350,000 $17,076
==============================================================================================================
(1) Includes an aggregate of 525,000 shares which the Underwriters have the
option to purchase from the Selling Stockholders solely to cover
over-allotments, if any. See "Underwriting."
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 under the Securities Act of 1933, as amended.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
================================================================================
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION -- DATED NOVEMBER 26, 1997
PROSPECTUS
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3,500,000 Shares
[LOGO: MERCURY COMPUTER SYSTEMS, INC.-- The Ultimate Performance Machine]
Common Stock
- --------------------------------------------------------------------------------
Of the 3,500,000 shares of common stock, par value $.01 per share (the "Common
Stock"), offered hereby, 2,000,000 shares are being sold by Mercury Computer
Systems, Inc. ("Mercury" or the "Company") and 1,500,000 shares are being sold
by certain stockholders of the Company (the "Selling Stockholders"). The Company
will not receive any of the proceeds from the sale of shares of Common Stock by
the Selling Stockholders. See "Principal and Selling Stockholders."
Prior to this offering (the "Offering"), there has been no public market for the
Common Stock of the Company. It is currently anticipated that the initial public
offering price of the Common Stock will be between $12.00 and $14.00 per share.
See "Underwriting" for a discussion of the factors to be considered in
determining the initial public offering price. The Company has applied to have
the Common Stock included for quotation in The Nasdaq Stock Market's National
Market (the "Nasdaq National Market") under the symbol "MRCY."
SEE "RISK FACTORS" ON PAGES 6 TO 14 FOR A DISCUSSION OF CERTAIN MATERIAL FACTORS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE COMMON STOCK
OFFERED HEREBY.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
==========================================================================================================
Underwriting Proceeds to
Price to Discounts and Proceeds to Selling
Public Commissions(1) Company(2) Stockholders
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Per Share......................... $ $ $ $
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Total(3).......................... $ $ $ $
==========================================================================================================
(1) The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities
under the Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company, estimated to be $750,000.
(3) Certain Selling Stockholders have granted to the several Underwriters 30-day
over-allotment options to purchase, in the aggregate, up to 525,000
additional shares of the Common Stock on the same terms and conditions as
set forth above. If all such additional shares are purchased by the
Underwriters, the total Price to Public will be $ , the total
Underwriting Discounts and Commissions will be $ , the total
Proceeds to Company will be $ and the total Proceeds to Selling
Stockholders will be $ . See "Underwriting."
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The shares of Common Stock are offered by the several Underwriters, subject to
delivery by the Company and the Selling Stockholders and acceptance by the
Underwriters, to prior sale and to withdrawal, cancellation or modification of
the offer without notice. Delivery of the shares of Common Stock to the
Underwriters is expected to be made at the office of Prudential Securities
Incorporated, One New York Plaza, New York, New York, on or about January ,
1998.
PRUDENTIAL SECURITIES INCORPORATED COWEN & COMPANY
January , 1998
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MERCURY designs, manufactures and markets high performance real-time digital
signal processing computer systems that transform sensor generated data into
information which can be displayed as images for human interpretation or
subjected to additional computer analysis. The applications served by Mercury's
products typically are computation intensive and require I/O capacity and
interprocessor bandwidth which is not available on a general purpose PC or
workstation.
[General description of system architecture]
[LOGO: MERCURY COMPUTER SYSTEMS, INC.-- The Ultimate Performance Machine]
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING PURCHASES OF THE COMMON STOCK TO STABILIZE ITS MARKET PRICE, PURCHASES
OF THE COMMON STOCK TO COVER SOME OR ALL OF A SHORT POSITION IN THE COMMON STOCK
MAINTAINED BY THE UNDERWRITERS AND THE IMPOSITION OF PENALTY BIDS. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
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MEDICAL IMAGING
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-----------------------------
MERCURY'S systems are embedded within several [DRAWING OF
modalities of diagnostic medical imaging devices, MRI MACHINE]
including magnetic resonance imaging, computed
tomography and positron emission tomography. These
machines are used to allow a physician to "see"
within the human body instead of performing
invasive surgery.
MERCURY'S systems provide the
medical imaging industry with a
[PICTURE OF MERCURY customized solution using an
COMPUTER SYSTEM] architecture that accommodates
upgrades as new technology becomes
available. Medical imaging machine
suppliers are able to design
systems that satisfy a broad range
of price/performance requirements
and meet the needs of global
markets, all with the same Mercury
architecture.
MERCURY'S experienced team of
system and application engineers
works closely with its customers to
meet their design requirements. The [MEDICAL DIAGNOSTIC
Company believes that this IMAGES]
collaboration leads to faster
time-to-market and competitive
advantages for Mercury's customers.
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DEFENSE ELECTRONICS
- -----------------------------
- -----------------------------
[PICTURE OF AIRPLANE]
MERCURY'S systems are embedded
into air, sea and land-based
platforms for processing radar,
sonar and signal intelligence
applications. These applications
allow a military commander to
"see" the battle space through
natural barriers such as clouds,
darkness, water or foliage, so
that the position and strength
of the enemy can be determined.
[PICTURE OF MERCURY
Due to the environmental COMPUTER SYSTEM]
constraints of these
applications, MERCURY'S
systems are frequently
confined in limited spaces,
and they are designed to
generate a minimum amount of
heat.
MERCURY provides high performance embedded
computer systems to the defense electronics
market, and works closely with defense
contractors to complete a design which matches
[AERIAL the specified requirements of a military
PHOTOGRAPH] application.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including the financial statements and notes thereto appearing
elsewhere in this Prospectus. Unless otherwise indicated, the information in
this Prospectus assumes that (i) the Underwriters' over-allotment options will
not be exercised, (ii) all outstanding shares of Series A Convertible Preferred
Stock, par value $.01 per share, will be converted into Common Stock upon the
closing of this Offering and (iii) the Company's Restated Articles of
Organization will be amended upon the closing of this Offering to reduce the
number of authorized shares of Preferred Stock, par value $.01 per share, from
2,000,000 to 1,000,000 shares and to eliminate all shares of Series A
Convertible Preferred Stock. The Company's fiscal year begins on July 1 and ends
on June 30 of each year. See "Description of Capital Stock" and "Underwriting."
Mercury designs, manufactures and markets high performance, real-time
digital signal processing computer systems that transform sensor generated data
into information which can be displayed as images for human interpretation or
subjected to additional computer analysis. These multicomputer systems are
heterogeneous and scalable, allowing them to accommodate several microprocessor
types and to scale from a few to hundreds of microprocessors within a single
system. Mercury's system architecture is specifically designed for digital
signal processing applications which are typically computation intensive and
require I/O capacity and interprocessor bandwidth not available on a general
purpose PC or workstation. The two primary markets for Mercury's products are
defense electronics and medical diagnostic imaging. Both of these markets have
computing needs which benefit from the unique system architecture developed by
the Company. Mercury's computer systems are generally used on real world signal
data to enable a military commander to "see" the battle space through natural
barriers such as clouds, darkness, water or foliage, so that the position and
strength of the enemy can be determined, or to enable a physician to "see"
within the body instead of performing invasive surgery.
During the past three fiscal years, the majority of the Company's revenues
has been generated from sales of its products to the defense electronics market,
generally for use in intelligence gathering electronic warfare systems. The
Company's activities in this area have focused on the proof of concept,
development and deployment of advanced military applications in radar, sonar and
airborne surveillance. The Company has established relationships with many of
the major prime contractors to the worldwide defense industry, including
Lockheed Martin Corporation, Hughes Aircraft Company, Raytheon/E-Systems, Inc.,
Raytheon/TI Systems, Inc., Northrop Grumman Corporation, MIT/Lincoln Laboratory,
GEC Marconi Limited, Ericsson Microwave Systems AB, Israeli Ministry of Defense,
MATRA Systemes & Information and Mitsubishi Heavy Industries, Ltd.
Medical diagnostic imaging is the other primary market currently served by
the Company. Mercury's computer systems are embedded in magnetic resonance
imaging ("MRI"), computed tomography ("CT") and positron emission tomography
("PET") machines. Mercury has supplied computer systems for use in several of
General Electric Medical Systems, Inc.'s medical diagnostic imaging systems
since 1987, and has established relationships with Siemens Medical Systems,
Inc., Toshiba Corp. and Elscint, Inc. The major medical imaging manufacturers
are currently developing the next generation of MRI, CT and digital x-ray
machines, which are expected to provide better performance at lower cost.
Mercury has recently secured design wins on programs with certain of the major
medical imaging manufacturers for their next generation MRI, CT and digital
x-ray machines. The Company believes that the available market in 1998 for
digital signal processing systems and upgrades for the MRI, CT and digital x-ray
markets is expected to be an aggregate of approximately $123 million.
Mercury's computer systems are designed to process continuous streams of
data from sensors attached to radar, sonar, medical imaging equipment and other
devices. The resulting image is transmitted to the battlefield commander, pilot,
technician or physician in order to assist in the decision making or diagnostic
process. Due to the nature of the applications in which many of Mercury's
computer systems are embedded,
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they are frequently confined in limited spaces and therefore are designed to
generate a minimum amount of heat. The Company employs the RACEway Interconnect,
an industry standard system area network developed by Mercury which allows for
high interprocessor bandwidth and I/O capacity. The Company uses its proprietary
application specific integrated circuits ("ASICs") to integrate microprocessors,
memory and related components into the RACEway Interconnect to provide optimum
system performance. The Company uses industry standard microprocessors, such as
Intel Corporation's i860, Motorola, Inc.'s PowerPC, Texas Instruments
Incorporated's C80 and Analog Devices, Inc.'s SHARC, in the same system. The
Company believes that the RACEway Interconnect and its proprietary ASICs,
working together with a group of mixed microprocessors in the same system, allow
the most efficient use of space and power with an optimal price/performance
ratio.
Since July 1996, Mercury has targeted the shared storage market for
introduction of a new product which draws on the Company's core competencies in
systems engineering and the development of real-time software. In fiscal 1997,
Mercury introduced SuiteFusion, its first shared storage product designed to
meet the needs of the broadcast and post-production industry. SuiteFusion is an
open, scalable software application that allows work groups to share commodity,
fibre channel attached disk arrays, eliminating the need for an expensive,
intermediate file server. Early customers include Turner Broadcasting Systems
Inc.'s CNN Interactive, Hughes Aircraft, for use at the U.S. Army National
Training Center, and Nickelodeon Theater Co., Inc.'s Blue's Clues. The Company
believes that the shared storage market includes a number of distinct
applications, such as digital video editing, electronic computer aided design,
webcasting, cable advertising insertion and pre-press.
The Company's executive offices are located at 199 Riverneck Road,
Chelmsford, Massachusetts 01824, and its telephone number is (978) 256-1300. The
Company was incorporated in Massachusetts in 1981.
THE OFFERING
Common Stock Offered by the Company..... 2,000,000 shares
Common Stock Offered by the Selling
Stockholders............................ 1,500,000 shares
Common Stock to be Outstanding after the
Offering................................ 9,864,023 shares(1)
Use of Proceeds by the Company.......... For working capital and other
general corporate purposes,
including construction of
additional office space. See "Use
of Proceeds."
Proposed Nasdaq National Market
Symbol.................................. MRCY
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(1) Excludes 1,102,124 shares of Common Stock issuable upon exercise of
outstanding stock options under the Company's stock option plans at October
31, 1997, with a weighted average exercise price of $4.85 per share, of
which 463,517 shares were exercisable as of such date at a weighted average
exercise price of $3.37 per share. See "Management -- Stock Option and Stock
Purchase Plans."
RISK FACTORS
Investors should consider the risk factors involved in connection with an
investment in the Common Stock and the impact to investors from various events
that could adversely affect the Company's business. See "Risk Factors."
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SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS
ENDED
FISCAL YEAR ENDED JUNE 30, SEPTEMBER 30,
----------------------------------------------- -----------------
1993 1994 1995 1996 1997 1996 1997
------- ------- ------- ------- ------- ------- -------
STATEMENT OF OPERATIONS DATA:
Revenues......................... $38,632 $41,727 $54,323 $58,300 $64,574 $13,038 $19,039
Cost of revenues................. 11,972 16,285 21,221 24,688 22,034 4,538 6,661
------- ------- ------- ------- ------- ------- -------
Gross profit................... 26,660 25,442 33,102 33,612 42,540 8,500 12,378
Operating expenses:
Selling, general and
administrative.............. 10,785 12,911 15,798 16,927 22,631 4,726 6,645
Research and development....... 5,619 7,254 8,586 9,776 12,837 2,405 3,381
------- ------- ------- ------- ------- ------- -------
Total operating
expenses............. 16,404 20,165 24,384 26,703 35,468 7,131 10,026
------- ------- ------- ------- ------- ------- -------
Income from operations........... 10,256 5,277 8,718 6,909 7,072 1,369 2,352
Interest income (expense), net... (94) 55 240 548 560 136 231
Other income (expense), net...... (44) (64) 22 (77) (88) (23) 83
------- ------- ------- ------- ------- ------- -------
Income before income taxes....... 10,118 5,268 8,980 7,380 7,544 1,482 2,666
Provision for income taxes....... 2,487 1,153 2,636 2,952 2,933 576 1,060
------- ------- ------- ------- ------- ------- -------
Net income....................... $ 7,631 $ 4,115 $ 6,344 $ 4,428 $ 4,611 $ 906 $ 1,606
======= ======= ======= ======= ======= ======= =======
Net income per common share...... $ 1.02 $ 0.50 $ 0.77 $ 0.54 $ 0.57 $ 0.11 $ 0.20
======= ======= ======= ======= ======= ======= =======
Weighted average number of common
and common equivalent shares
outstanding(1)................. 7,492 8,295 8,256 8,264 8,157 8,191 8,174
======= ======= ======= ======= ======= ======= =======
SEPTEMBER 30, 1997
------------------------
ACTUAL AS ADJUSTED(2)
------- --------------
BALANCE SHEET DATA:
Working capital....................................................... $28,653 $ 52,083
Total assets.......................................................... 47,905 71,335
Convertible preferred stock........................................... 1,200 --
Total stockholders' equity............................................ 35,111 58,541
- ---------------
(1) See Note B of Notes to Consolidated Financial Statements for an explanation
of the determination of the weighted average common and common equivalent
shares used to compute net income per common share.
(2) Reflects (i) the conversion of all outstanding shares of the Company's
Series A Convertible Preferred Stock into 2,556,792 shares of Common Stock
upon completion of this Offering and (ii) the sale by the Company of
2,000,000 shares of Common Stock offered hereby at an assumed initial public
offering price of $13.00 per share, after deducting the underwriting
discounts and commissions and estimated offering expenses.
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RISK FACTORS
An investment in the Common Stock offered hereby involves a high degree of
risk. Prospective investors should carefully consider the following risk
factors, in addition to the other information set forth in this Prospectus, in
connection with an investment in the shares of Common Stock offered hereby.
When used in this Prospectus, the words "may," "will," "expect,"
"anticipate," "continue," "estimate," "project," "intend" and similar
expressions are intended to identify forward-looking statements regarding
events, conditions and financial trends that may affect the Company's future
plans of operations, business strategy, results of operations and financial
position. Prospective investors are cautioned that any forward-looking
statements are not guarantees of future performance and are subject to risks and
uncertainties and that actual results may differ materially from those included
within the forward-looking statements as a result of various factors. Factors
that could cause or contribute to such differences include, but are not limited
to, those described below, under the heading "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and elsewhere in this
Prospectus.
DEPENDENCE ON DEFENSE ELECTRONICS BUSINESS; UNCERTAINTY ASSOCIATED WITH
GOVERNMENT CONTRACTS. Sales of the Company's computer systems to the defense
electronics market accounted for approximately 81% of the Company's revenues in
fiscal 1997, compared to approximately 72% of the Company's revenues in fiscal
1996. Reductions in government spending on programs that incorporate the
Company's products could have a material adverse effect on the Company's
business, financial condition and results of operations. Moreover, the Company's
government contracts and subcontracts are subject to special risks, such as:
delays in funding; ability of the government agency to unilaterally terminate
the prime contract; reduction or modification in the event of changes in
government policies or as the result of budgetary constraints or political
changes; increased or unexpected costs under fixed price contracts; and other
factors that are not under the control of the Company. In addition,
consolidation among defense industry contractors has resulted in fewer
contractors with increased bargaining power relative to the Company. No
assurance can be given that such increased bargaining power will not adversely
affect the Company's business, financial condition or results of operations in
the future.
The Company's contracts with the U.S. and foreign governments and their
prime and subcontractors are subject to termination either upon default by the
Company or at the convenience of the government. Termination for convenience
provisions generally entitle the Company to recover costs incurred, settlement
expenses and profit on work completed prior to termination. In addition to the
right of the government to terminate, government contracts are generally
conditioned upon the continuing availability of legislative appropriations.
Funds are usually appropriated for a given program each fiscal year even though
contract performance may take more than one fiscal year. Consequently, at the
outset of a major program, the contract is usually partially funded, and
additional monies normally are incrementally committed to the contract by the
procuring agency from appropriations made for future fiscal years. No assurance
can be given that the Company will realize the revenue expected from performing
under such contracts. Because the Company contracts to supply goods and services
to U.S. and foreign governments it is also subject to other risks, including
contract suspensions, protests by disappointed bidders of contract awards which
can result in the reopening of the bidding process, changes in governmental
policies or regulations or other political factors.
DEPENDENCE ON KEY CUSTOMERS. The Company is dependent on a small number of
customers for a large portion of its revenues. In fiscal 1997, Lockheed Martin
and Hughes Aircraft accounted for 24% and 12%, respectively, of the Company's
revenues, and sales to 20 customers accounted for more than 80% of the Company's
fiscal 1997 revenues. In fiscal 1996, Lockheed Martin, GE Medical and Hughes
Aircraft accounted for 20%, 16% and 13%, respectively, of the Company's
revenues, and sales to 20 customers accounted for more than 80% of the Company's
fiscal 1996 revenues. The Company's largest customer in the medical imaging
market is GE Medical, which accounted for 71% of the Company's aggregate sales
to the medical imaging market in fiscal 1997, compared to 69% of sales to the
medical imaging market in fiscal 1996. Customers in the defense electronics
market generally purchase the Company's products in connection with government
programs that have a limited duration, leading to fluctuating sales to any
particular customer in the defense electronics market from year to year. By
contrast, many customers in the medical imaging market
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historically have purchased the Company's products over a number of years for
use in successive generations of medical imaging devices, although there can be
no assurance that such past behavior will continue in the future. A significant
diminution in the sales to or loss of any of the Company's major customers would
have a material adverse effect on the Company's business, financial condition
and results of operations. In addition, the Company's revenues are largely
dependent upon the ability of its customers to develop and sell products that
incorporate the Company's products. No assurance can be given that the Company's
customers will not experience financial or other difficulties that could
adversely affect their operations and, in turn, the results of operations of the
Company. See "Business -- Markets and Customers."
FLUCTUATIONS IN OPERATING RESULTS. The Company has experienced
fluctuations in its results of operations in large part due to the sale by the
Company of its computer systems in relatively large dollar amounts to a
relatively small number of customers. Operating results also have fluctuated due
to competitive pricing programs and volume discounts, the loss of customers,
market acceptance of the Company's products, product obsolescence and general
economic conditions. In addition, the Company, from time to time, has entered
into contracts to engineer a specific solution based on modifications to the
Company's standard products (a "development contract"). The Company's gross
margins from development contract revenues are typically lower than the
Company's gross margins from standard product revenues. The Company intends to
continue to enter into development contracts and anticipates that its gross
margins associated with development contract revenues will continue to be lower
than its gross margins on standard product revenues.
The Company's quarterly results may be subject to fluctuations resulting
from the foregoing factors, as well as a number of other factors, including the
timing of significant orders, delays in completion of internal product
development projects, delays in shipping the Company's computer systems and
software programs, delays in acceptance testing by customers, a change in the
mix of products sold to the defense electronics and medical imaging markets,
production delays due to quality problems with outsourced components, shortages
of components, the timing of product line transitions and declines in quarterly
revenues from old generations of products following announcement of replacement
products containing more advanced technology. Another factor contributing to
fluctuations in quarterly results is the fixed nature of the Company's
expenditures on personnel, facilities and marketing programs. The Company's
expense levels for personnel, facilities and marketing programs are based, in
significant part, on the Company's expectations of future revenues on a
quarterly basis. If actual quarterly revenues are below management's
expectations, results of operations likely will be adversely affected. As a
result of the foregoing factors, the Company's operating results, from time to
time, may be below the expectations of public market analysts and investors,
which could have a material adverse effect on the price of the Company's Common
Stock. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
DEPENDENCE ON SUPPLIERS. Several components used in the Company's products
are currently obtained from sole source suppliers. Mercury is dependent on LSI
Logic Corporation for four custom designed ASICs, on Analog Devices for its
SHARC processors, on International Business Machines Corporation for ball grid
array packaging, on Motorola for its PowerPC processors and on Intel for its
i860 processors. If LSI Logic, Analog Devices, IBM, Motorola or Intel were to
limit or reduce the sale of such components to the Company, or if these or other
suppliers to the Company were to experience financial difficulties or other
problems which prevented them from supplying the Company with the necessary
components, such events could have a material adverse effect on the Company's
business, financial condition and results of operations. These sole source
suppliers are subject to quality and performance issues, materials shortages,
excess demand, reduction in capacity and other factors that may disrupt the flow
of goods to the Company or its customers and thereby adversely affect the
Company's business and customer relationships. The Company has no guaranteed
supply arrangements with its suppliers and there can be no assurance that its
suppliers will continue to meet the Company's requirements. If the Company's
supply arrangements are interrupted, there can be no assurance that the Company
would be able to find another supplier on a timely or satisfactory basis. Any
shortage or interruption in the supply of any of the components used in the
Company's products, or the inability of the Company to procure these components
from alternate sources on acceptable terms could have a material adverse effect
on the Company's business, financial condition and results of operations. There
can be no assurance that severe shortages of components will not occur in the
future. Such shortages could increase the
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cost or delay the shipment of the Company's products, which could have a
material adverse effect on the Company's business, financial condition and
results of operations. Significant increases in the prices of these components
would also materially adversely affect the Company's financial performance since
the Company may not be able to adjust product pricing to reflect the increase in
component costs. The Company could incur set-up costs and delays in
manufacturing should it become necessary to replace any key vendors due to work
stoppages, shipping delays, financial difficulties or other factors and, under
certain circumstances, these costs and delays could have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Business -- Manufacturing and Testing."
DEPENDENCE UPON KEY PERSONNEL AND SKILLED EMPLOYEES. The Company is
largely dependent upon the skills and efforts of its senior management,
particularly James R. Bertelli, its President and Chief Executive Officer, as
well as its managerial, sales and technical employees. None of the senior
management or other key employees of the Company is subject to any employment
contract or noncompetition agreement. The Company maintains key-man life
insurance on Mr. Bertelli and certain other senior managers. The loss of
services of any of its executives or other key personnel could have a material
adverse effect on the Company's business, financial condition and results of
operations. The Company's future success will depend to a significant extent on
its ability to attract, train, motivate and retain highly skilled technical
professionals, particularly project managers, engineers and other senior
technical personnel. The Company believes that there is a shortage of, and
significant competition for, technical development professionals with the skills
and experience necessary to perform the services offered by the Company. The
Company's ability to maintain and renew existing engagements and obtain new
business depends, in large part, on its ability to hire and retain technical
personnel with the skills that keep pace with continuing changes in industry
standards, technologies and client preferences. The inability to hire additional
qualified personnel could impair the Company's ability to satisfy its growing
client base, requiring an increase in the level of responsibility for both
existing and new personnel. There can be no assurance that the Company will be
successful in retaining current or future employees.
DEPENDENCE ON MEDICAL IMAGING MARKET; POTENTIAL ADVERSE EFFECT OF HEALTH
CARE REFORM. Sales of the Company's computer systems to the medical imaging
market accounted for approximately 11% of the Company's revenues in fiscal 1997,
compared to approximately 23% of revenues in fiscal 1996. These customers are
original equipment manufacturers ("OEMs") of medical imaging devices and, as a
result, any change in the demand for such devices which renders any of the
Company's products unnecessary or obsolete, or any change in the technology in
such devices, could have a material adverse effect on the Company's business,
financial condition and results of operations. Such OEM customers, the end-users
of their products and the health care industry generally are subject to
extensive federal, state and local regulation in the U.S. as well as in other
countries. Changes in applicable health care laws and regulations or new
interpretations of existing laws and regulations could have a material adverse
effect on such customers or end-users. Current political, economic and
regulatory influences are likely to lead to further changes in the health care
industry in the United States. Numerous proposals to reform portions of the
nation's health care system have been introduced over the past several years in
Congress. Many potential approaches are under consideration or have been
adopted, including controls on health care spending through limitations on the
growth of private health insurance premiums and Medicare and Medicaid spending
and other changes to the health care delivery system. In addition, many states
are considering or have adopted various health care reform proposals and are
considering reductions in their state Medicaid budgets. The Company anticipates
that Congress and state legislatures will continue to review and assess
alternative health care delivery systems and payment methodologies and that
public debate of these issues will likely continue in the future. There can be
no assurance that future health care or budgetary legislation or other changes
in the administration or interpretation of governmental health care programs
both in the U.S. and abroad will not have a material adverse effect on the
Company's business, financial condition or results of operations.
RISK OF ENTRY INTO NEW MARKETS. The Company's expansion strategy includes
developing new products and entering new markets. The Company's ability to
compete in new markets will depend upon a number of factors including, without
limitation, the Company's ability to create demand for its products in such
markets, its ability to manage its growth effectively, the quality of its
products, its ability to respond to changes in its
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customers' businesses by updating existing products and introducing, in a timely
fashion, products which meet the needs of its customers and the ability of the
Company to respond rapidly to technological change. The failure of the Company
to do any of the foregoing could result in a material adverse effect on its
business, financial condition and results of operations. In addition, the
Company may face competition in these new markets from various companies which
may have substantially greater research and development resources, marketing and
financial resources, manufacturing capability and customer support organizations
than those of the Company.
The Company has recently expanded into the shared storage market and has
invested, and continues to invest, significant resources in the development of
products geared towards that market. The Company has initially focused on
providing software products tailored for the post-production and broadcast
segments of the entertainment industry, introducing in fiscal 1997 SuiteFusion,
a middleware application that enables workgroups to share files. The market for
providing digital and other products to the entertainment industry includes
competitors with greater financial and other resources than the Company. No
assurance can be given that the Company will be able to successfully compete in
this market, or that it will be able to meet the technical specifications
imposed by its customers or potential customers. In addition, the success of the
Company's shared storage software product depends, in large part, on the
post-production and broadcast industry shifting from traditional linear,
tape-based technologies toward newer non-linear, disk-based digital
technologies. Linear, tape-based technologies remain pervasive in this industry
and there can be no assurance that its participants will adopt non-linear,
disk-based digital technologies, or that, if adopted, the Company's products
will not be obsolete, uncompetitive or incompatible. The occurrence of any of
the foregoing could adversely affect the Company's business, financial condition
and results of operations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS. The Company markets and
sells its products in certain international markets, and the Company has
established offices in the United Kingdom, the Netherlands, Japan and France.
The Company's international revenues, which are comprised of exports to foreign
markets and sales by foreign subsidiaries, were approximately 12% of the
Company's revenues in fiscal 1997, as compared to approximately 20% in fiscal
1996. If revenues generated by foreign activities are not adequate to offset the
expense of establishing and maintaining these foreign offices and activities,
the Company's business, financial condition and results of operations could be
materially adversely affected. In addition, there are certain risks inherent in
transacting business internationally, such as changes in applicable laws and
regulatory requirements, export and import restrictions, export controls
relating to technology, tariffs and other trade barriers, less favorable
intellectual property laws, difficulties in staffing and managing foreign
operations, longer payment cycles, problems in collecting accounts receivable,
political instability, fluctuations in currency exchange rates, expatriation
controls and potential adverse tax consequences, any of which could adversely
impact the success of the Company's international activities. In the recent
past, the financial markets in Asia have experienced significant turmoil. There
can be no assurance that such turmoil in the Asian financial markets will not
negatively affect the sales by the Company to that region. A portion of the
Company's revenues from sales to foreign entities, including foreign
governments, is in the form of foreign currencies. The Company has no hedging or
similar foreign currency contracts, and fluctuations in the value of foreign
currencies could adversely impact the profitability of the Company's foreign
operations. There can be no assurance that one or more of such factors will not
have a material adverse effect on the Company's future international activities
and, consequently, on the Company's business, financial condition or results of
operations.
TECHNOLOGICAL CHANGES; RISK OF DESIGN-IN PROCESS. The Company's future
success will depend in part on its ability to enhance its current products and
to develop new products on a timely and cost-effective basis in order to respond
to technological developments and changing customer needs. The defense
electronics market, in particular, demands constant technological improvements
as a means of gaining military advantage. Military planners historically have
funded significantly more design projects than actual deployments of new
equipment, and those systems which are deployed tend to contain the components
of the subcontractors selected to participate in the design process. The Company
has participated in a large number of design projects in the past and likely
will seek to participate in these projects in the future. In order to
participate in
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the design of new defense electronics systems, the Company must be able to
demonstrate its ability to deliver superior technological performance on a
timely and cost-effective basis. There can be no assurance that the Company will
be able to secure an adequate number of defense electronics design wins in the
future, that the equipment in which the Company's products are intended to
function eventually will be deployed in the field, or that the Company's
products will be included in such equipment if it eventually is deployed.
Customers in the medical imaging market also seek technological
improvements through product enhancements and new generations of products. The
Company believes that medical imaging machines in which the Company's computers
are installed have a long product life cycle. Medical equipment OEMs
historically have selected certain suppliers whose products have been included
in the OEMs' machines for a significant portion of the products' life cycle.
There can be no assurance that the Company will be selected to participate in
the future design of any medical imaging equipment, or that, if selected, the
Company will generate any revenues for such design work. Failure to participate
in future designs of medical imaging equipment could have a material adverse
effect on the Company's business, financial condition and results of operations.
The design-in process is typically lengthy and expensive, and there can be
no assurance that the Company will be able to continue to meet the product
specifications of its customers in a timely and adequate manner. In addition,
any failure by the Company to anticipate or respond adequately to changes in
technology and customer preferences, or any significant delay in product
developments or introductions, could have a material adverse effect on the
Company's business, financial condition and results of operations. Because of
the complexity of its products, the Company has experienced delays from time to
time in completing products on a timely basis. If the Company is unable to
design, develop or introduce competitive new products on a timely basis, its
future operating results would be adversely affected. There can be no assurance
that the Company will be successful in developing new products or enhancing its
existing products on a timely or cost-effective basis, or that such new products
or product enhancements will achieve market acceptance.
COMPETITION. The markets for the Company's products are highly competitive
and are characterized by rapidly changing technology, frequent product
performance improvements and evolving industry standards. Competition typically
occurs at the design stage, where the customer evaluates alternative design
approaches, including those from internal development organizations. A design
win usually ensures a customer will purchase the product until their next
generation system is developed. Occasionally, the Company's computer systems
compete with computer systems from workstation vendors, all of whom have
substantially greater research and development resources, long term guaranteed
supply capacity, marketing and financial resources, manufacturing capability and
customer support organizations than those of the Company. The Company believes
that its future ability to compete effectively will depend, in part, upon its
ability to continue to improve product and process technologies and develop new
technologies in order to maintain the performance advantages of products and
processes relative to competitors, to adapt products and processes to
technological changes, to identify and adopt emerging industry standards and to
adapt to customer needs.
The principal bases for selection in sales of digital signal processing
systems to the defense electronics industry are performance (measured primarily
in terms of processing speed, I/O capacity and interprocessor bandwidth,
processing density per cubic foot, power consumption and heat dissipation),
systems engineering support, overall quality of products and associated
services, use of industry standards, ease of use and price. Competitors in the
defense electronics industry include a relatively small number of companies that
design, manufacture and market digital signal processor ("DSP") board level
products and in-house design teams employed by prime defense contractors.
In-house design efforts historically have provided a significant amount of
competition to the Company. However, competition from in-house design teams has
diminished in significance in recent years due to the increasing use of
commercial off-the-shelf ("COTS") products and the trend toward greater use of
outsourcing. Despite this recent change, there can be no assurance that in-house
developments will not re-emerge as a major competitive force in the future.
Prime contractors are much larger than Mercury and have substantially more
resources to invest in research and development. Increased use of in-house
design teams by defense contractors in the future may have a material adverse
effect on the Company's business, financial condition and results of operations.
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In the medical imaging industry the principal bases for selection are
performance (measured primarily in terms of processing speed, I/O capacity and
interprocessor bandwidth and power consumption), price, systems engineering
support, overall quality of products and associated services, use of industry
standards and ease of use. Competitors in the medical imaging market include
in-house design teams, a small number of companies that design, manufacture and
market DSP board level products and workstation manufacturers. Workstations have
become a competitive factor primarily in the market for low-end MRI and CT
machines and, to date, have not been a significant factor in the
high-performance market, Mercury's primary focus. There can be no assurance that
workstation manufacturers will not attempt to penetrate the high-performance
market for medical imaging machines. Workstation manufacturers typically have
greater resources than Mercury and their entry into markets historically
targeted by Mercury may have a material adverse effect on the Company's
business, financial condition and results of operations.
Due to the emerging nature of the markets for the Company's shared storage
technology, its competitive factors are not yet clearly defined. The Company
currently is focusing its efforts in this area on the broadcast and
post-production industry, where the Company believes there is currently only one
directly competitive product. As this market develops, the Company anticipates
that other companies will begin offering additional competitive products. New
competitors may have significantly greater marketing and financial resources,
better access to individuals making purchasing decisions, superior products and
superior services than those offered by the Company. The Company believes that
the primary impediment to future sales of shared storage products to the
post-production and broadcast industry is the need to transform entrenched
operating modes, such as those associated with linear tape based technologies,
to accommodate new modes of operation such as those associated with non-linear,
disk-based digital technology. However, there can be no assurance that industry
participants will adopt such new technologies or that, if adopted, the Company's
products will not be obsolete, uncompetitive or incompatible.
Some of the Company's competitors have greater financial and other
resources than the Company, and the Company may be operating at a cost
disadvantage compared to manufacturers who have greater direct buying power from
component suppliers or who have lower cost structures. There can be no assurance
that the Company will be able to compete successfully in the future with any of
these sources of competition. In addition, there can be no assurance that
competitive pressures will not result in price erosion, reduced margins, loss of
market share or other factors, any of which could have a material adverse effect
on the Company's business, financial condition and results of operations. See
"Business -- Competition."
LIMITED PROTECTION OF PROPRIETARY RIGHTS; POTENTIAL INFRINGEMENT OF THIRD
PARTY RIGHTS. The Company relies on a combination of patent, copyright,
trademark and trade secret laws to establish and protect its rights in its
products and proprietary technology. In addition, the Company currently requires
its employees and consultants to enter into nondisclosure and assignment of
invention agreements to limit use of, access to and distribution of its
proprietary information. There can be no assurance that the Company's means of
protecting its proprietary rights in the U.S. or abroad will be adequate. The
laws of some foreign countries may not protect the Company's proprietary rights
as fully or in the same manner as do the laws of the U.S. Also, despite the
steps taken by the Company to protect its proprietary rights, it may be possible
for unauthorized third parties to copy aspects of the Company's products,
reverse engineer, develop similar technology independently or otherwise obtain
and use information that the Company regards as proprietary. There can be no
assurance that others will not develop technologies similar or superior to the
Company's technology or design around the proprietary rights owned by the
Company. Although the Company has no reason to believe that its products
infringe on the proprietary rights of third parties, there can be no assurance
that others will not assert claims of infringement in the future or that, if
made, such claims will not be successful. Litigation to determine the validity
of any claims, whether or not such litigation is determined in favor of the
Company, could result in significant expense to the Company and divert the
efforts of the Company's technical and management personnel from daily
operations. In the event of any adverse ruling in any litigation regarding
intellectual property, the Company may be required to pay substantial damages,
discontinue the sale of infringing products, expend significant resources to
develop non-infringing technology or obtain licenses to infringing or
substituted technology. The failure to develop, or license on acceptable
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terms, a substitute technology could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business -- Intellectual Property."
POTENTIAL ACQUISITIONS. In the normal course of its business, the Company
evaluates potential acquisitions of businesses, products and technologies that
could complement or expand the Company's business. In the event the Company were
to identify an appropriate acquisition candidate, there is no assurance that the
Company would be able to successfully negotiate the terms of any such
acquisition, finance such acquisition and integrate such acquired business,
products or technologies into the Company's existing business and operations.
Furthermore, the integration of an acquired business could cause a diversion of
management time and resources. In addition, there can be no assurance that any
acquisition of new technology will lead to the successful development of new
products, or that any such new products, if developed, will achieve market
acceptance or prove to be profitable. There can be no assurance that a given
acquisition, when consummated, would not materially adversely affect the
Company's business, financial condition or results of operations. If the Company
proceeds with one or more significant acquisitions in which the consideration
consists of cash, a substantial portion of the Company's available cash
(including the net proceeds of the Offering) could be used to consummate the
acquisitions. If the Company consummates one or more significant acquisitions in
which the consideration consists of stock, or is financed with the net proceeds
of the issuance of stock, stockholders of the Company could suffer a significant
dilution of their interests in the Company. See "Use of Proceeds."
YEAR 2000 COMPLIANCE. The Company uses a significant number of computer
software programs and operating systems in its internal operations, including
applications used in manufacturing, product development, financial business
systems and various administrative functions. To the extent that these software
applications contain source code that is unable to appropriately interpret the
upcoming calendar year "2000," some level of modification or even possibly
replacement of such source code or applications will be necessary. The Company
is currently in the process of completing its identification of software
applications that are not "Year 2000" compliant. Given the information known at
this time about the Company's systems, coupled with the Company's ongoing,
normal course-of-business efforts to upgrade or replace business critical
systems as necessary, it is currently not anticipated that these "Year 2000"
costs will have any material adverse impact on the Company's business, financial
condition or results of operations. However, the Company is still in the
preliminary stages of analyzing its software applications and, to the extent
they are not fully "Year 2000" compliant, there can be no assurance that the
costs necessary to update software, or potential systems interruptions, would
not have a material adverse effect on the Company's business, financial
condition or results of operations.
SIGNIFICANT INFLUENCE BY EXISTING STOCKHOLDERS. Upon completion of the
Offering, the current officers, directors and their affiliates and five percent
beneficial owners will beneficially own approximately 32.3% of the outstanding
shares of the Common Stock of the Company (30.9% if the Underwriters'
over-allotment options are exercised in full). Accordingly, such persons, if
they act together, likely will have significant influence over the Company
through their ability to control the election of directors and all other matters
that require action by the Company's stockholders, irrespective of how other
stockholders may vote. Such persons will have the ability to exert significant
influence over the business, policies and affairs of the Company and could
prevent or delay a change in control of the Company, which may be favored by a
majority of the remaining stockholders. The ability to prevent or delay a change
in control of the Company also may have an adverse effect on the market price of
the Common Stock. See "Management -- Executive Officers and Directors,"
"Principal and Selling Stockholders" and "Description of Capital Stock."
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE. Prior to the
Offering, there has been no public market for the Common Stock, and there can be
no assurance that an active trading market for the Common Stock will develop or,
if developed, be sustained upon completion of the Offering. The initial public
offering price will be determined by negotiations between the Company and the
representatives of the Underwriters based on a number of factors, including
prevailing market conditions, market valuations of other companies engaged in
activities similar to those of the Company, estimates of the business potential
and prospects of the Company, the present state of the Company's business
operations, the Company's management and other factors deemed relevant. The
trading price of the Common Stock could also be subject
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to significant fluctuations in response to variations in quarterly results of
operations, announcements of new products by the Company or its competitors,
developments or disputes with respect to proprietary rights, general trends in
the industry, overall market conditions, changes in earnings estimates by
analysts and other factors. In addition, the stock market historically has
experienced extreme price and volume fluctuations, which have particularly
affected the market price of securities of many high technology companies and
which at times have been unrelated or disproportionate to the operating
performance of such companies. These market fluctuations may adversely affect
the market price of the Common Stock. See "Underwriting."
SHARES ELIGIBLE FOR FUTURE SALE. Upon completion of the Offering, the
Company will have a total of 9,864,023 shares of Common Stock outstanding. Of
these shares, the 3,500,000 shares of Common Stock offered hereby (4,025,000
shares if the Underwriters' over-allotment options are exercised in full) will
be freely tradeable without restriction or registration under the Securities Act
by persons other than "affiliates" of the Company, as defined under the
Securities Act of 1933, as amended (the "Securities Act"). The remaining shares
of Common stock outstanding will be "restricted securities" as defined by Rule
144 promulgated under the Securities Act. Upon completion of the Offering, the
Company will have options outstanding to purchase 1,102,124 shares of Common
Stock. In addition, options for the purchase of 244,166 shares will remain
available for issuance under the Company's Stock Option Plans, assuming no
exercise of options after October 31, 1997. See "Management -- Stock Option
Plans" and "Shares Eligible for Future Sale."
Under Rule 144 (and subject to the conditions thereof, including volume
limitations) all 6,364,023 restricted shares (5,839,023 restricted shares if the
Underwriters' over-allotment options are exercised in full) will become eligible
for sale after the Offering. The Company, its executive officers and directors,
the Selling Stockholders and certain other stockholders have agreed that they
will not, without the prior written consent of Prudential Securities
Incorporated, on behalf of the Underwriters, directly or indirectly, offer,
sell, offer to sell, contract to sell, pledge, grant any option to purchase or
otherwise sell or dispose (or announce any offer, sale, offer of sale, contract
of sale, pledge, grant of any option to purchase or other sale or disposition)
of any shares of Common Stock or any other securities convertible into, or
exercisable or exchangeable for, shares of Common Stock or other similar
securities of the Company for a period of 180 days from the date of this
Prospectus. After such 180-day period, this restriction will expire and shares
permitted to be sold under Rule 144 would be eligible for sale. Prudential
Securities Incorporated may, in its sole discretion, at any time and without
prior notice, release all or any portion of the shares of Common Stock subject
to such agreements. No predictions can be made of the effect, if any, that the
sale or availability for sale of additional shares of Common Stock will have on
the market price of the Common Stock. Nevertheless, sales of substantial amounts
of such shares in the public market, or the perception that such sales could
occur, could materially and adversely affect the market price of the Common
Stock and could impair the Company's future ability to raise capital through an
offering of its equity securities. See "Shares Eligible for Future Sale."
ANTI-TAKEOVER PROVISIONS; POSSIBLE ISSUANCE OF PREFERRED STOCK. Certain
provisions of the Company's Restated Articles of Organization (the "Charter")
and Amended and Restated Bylaws (the "Bylaws") and certain provisions of
Massachusetts law could have the effect of making it more difficult for a third
party to acquire, or of discouraging a third party from attempting to acquire,
control of the Company. Such provisions could limit the price that investors
might be willing to pay in the future for the Company's Common Stock. These
provisions permit the issuance of "blank check" preferred stock by the Board of
Directors without stockholder approval, require super-majority approval to amend
certain provisions in the Charter and Bylaws and impose various procedural and
other requirements that could make it more difficult for Stockholders to effect
certain corporate actions. In addition, the Company is subject to Chapters 110D
and 110F of the Massachusetts General Laws, which prohibit the Company from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless the business combination is approved in
a prescribed manner. The application of such provisions also could have the
effect of delaying or preventing a change of control in the Company. The Board
of Directors is divided into three "staggered" classes, with each class serving
for a term of three years. Dividing the Board of Directors in this manner
increases the difficulty of removing incumbent members and could discourage a
proxy contest or the acquisition of a substantial block of the Company's
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Common Stock. See "Description of Capital Stock -- Certain Articles of
Organization, Bylaws and Statutory Provisions Affecting Stockholders" and
"Management."
IMMEDIATE AND SUBSTANTIAL DILUTION. Purchasers of Common Stock in the
Offering will experience an immediate and substantial dilution in the net
tangible book value of the Common Stock of $7.08 per share based upon an assumed
initial public offering price of $13.00, the mid-point of the filing range. To
the extent outstanding options to purchase shares of the Company's Common Stock
are exercised, there will be further dilution. See "Dilution."
NO PRESENT INTENTION TO PAY DIVIDENDS; RESTRICTION ON PAYMENT OF
DIVIDENDS. The Company has never declared or paid cash dividends on its Common
Stock and intends to retain any earnings for future growth. The Company
therefore does not anticipate that any cash dividends will be declared or paid
in the foreseeable future. In addition, the Company's credit facility limits the
payment of cash dividends without the consent of the lender to fifty percent of
the Company's year-to-date net income during any fiscal year. See "Dividend
Policy."
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USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,000,000 shares of
Common Stock offered by the Company hereby are estimated to be $23,430,000,
assuming an initial public offering price of $13.00 per share, the mid-point of
the filing range, and after the deducting underwriting discounts and commissions
and estimated offering expenses. The Company intends to use a portion of the net
proceeds of the Offering to fund construction of an additional 91,000 square
feet of office space on vacant, fully permitted land adjacent to its
headquarters. The Company used internally generated funds to acquire this parcel
in November 1997. The Company anticipates that development of the additional
office space will cost approximately $9.0 million, that it will break ground in
April 1998 and that it will complete construction in approximately 12 months
after construction begins. Once the new office space is completed, the Company
plans to transfer the building and the underlying real estate to an unaffiliated
third party pursuant to a sale and leaseback transaction. No assurance can be
made that the cost of construction will not exceed such estimate, or that the
Company will be able to consummate a sale and leaseback transaction with respect
to such property. Mercury intends to use the balance of the net proceeds for
working capital and general corporate purposes. In addition, the Company may use
a portion of the net proceeds of this Offering for acquisitions of complementary
businesses, technologies or products, although there are currently no
commitments or agreements with respect to any material acquisition. Pending such
uses, the Company intends to invest the net proceeds in short term, investment
grade, interest-bearing securities. The Company will not receive any proceeds
from the sale of shares of Common Stock by the Selling Stockholders. See
"Business -- Facilities" and "Principal and Selling Stockholders."
DIVIDEND POLICY
The Company has never declared or paid cash dividends on shares of its
Common Stock and does not expect to declare or pay cash dividends on its Common
Stock in the foreseeable future. The Company currently intends to retain any
earnings for future growth. In addition, the Company's credit facility limits
the payment of cash dividends without the consent of its lender to fifty percent
of the Company's year-to-date net income in any fiscal year. See "Risk
Factors -- No Present Intention to Pay Dividends; Restriction on Payment of
Dividends," "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources," and Note E of Notes
to Consolidated Financial Statements.
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CAPITALIZATION
The following table sets forth as of September 30, 1997: (i) the actual
capitalization of the Company, (ii) the pro forma capitalization of the Company
reflecting the conversion of all outstanding shares of Series A Convertible
Preferred Stock into 2,556,792 shares of Common Stock and (iii) the pro forma
capitalization of the Company as adjusted to give effect to the sale of the
2,000,000 shares of Common Stock offered by the Company hereby at the assumed
initial public offering price of $13.00 per share, after deducting the
underwriting discounts and commissions and estimated offering expenses.
SEPTEMBER 30, 1997
-------------------------------------
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
(IN THOUSANDS)
Stockholders' equity:
Preferred Stock, $.01 par value; 2,000,000 shares
authorized actual, 1,000,000 shares authorized pro
forma and as adjusted; 1,000,000 shares designated
Series A Convertible Preferred Stock actual, no shares
designated pro forma and as adjusted; 852,264 shares
of Series A Convertible Preferred Stock issued and
outstanding actual, no shares issued or outstanding
pro forma and as adjusted............................. $ 1,200 -- --
Common Stock, $.01 par value; 25,000,000 shares
authorized; 5,269,181 shares issued and outstanding
actual, 7,825,973 shares issued and outstanding pro
forma and 9,825,973 shares issued and outstanding as
adjusted(1)........................................... 53 $ 78 $ 98
Additional paid-in capital............................... 5,846 7,021 30,431
Retained earnings........................................ 28,358 28,358 28,358
Cumulative translation adjustment........................ (21) (21) (21)
Subscriptions and related parties notes receivable....... (325) (325) (325)
------- ------- -------
Total stockholders' equity.......................... 35,111 35,111 58,541
------- ------- -------
Total capitalization............................. $35,111 $35,111 $58,541
======= ======= =======
- ---------------
(1) Excludes 1,102,124 shares of Common Stock issuable upon exercise of
outstanding stock options under the Company's stock option plans at October
31, 1997, with a weighted average exercise price of $4.85 per share, of
which 463,517 shares were exercisable as of such date at a weighted average
exercise price of $3.37 per share. See "Management -- Stock Option and Stock
Purchase Plans."
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DILUTION
Purchasers of the Common Stock offered hereby will experience an immediate
and substantial dilution in the pro forma net tangible book value of the Common
Stock from the assumed initial public offering price. The pro forma net tangible
book value of the Company as of September 30, 1997 was $34.7 million or $4.44
per share. Pro forma net tangible book value per share is determined by dividing
the net tangible book value of the Company (tangible assets less liabilities) by
the pro forma number of shares of the Company's Common Stock outstanding as of
September 30, 1997. Without taking into account any changes in net tangible book
value subsequent to September 30, 1997, other than to give effect to the receipt
of the estimated net proceeds of the sale of the 2,000,000 shares of Common
Stock offered hereby at an assumed initial public offering price of $13.00 per
share, the mid-point of the filing range, after deducting the underwriting
discounts and commissions and estimated offering expenses, and the application
of the estimated net proceeds therefrom, the pro forma net tangible book value
of the Common Stock as of September 30, 1997 would have been $58.2 million, or
$5.92 per share. This represents an immediate and substantial dilution in pro
forma net tangible book value of $7.08 per share to new investors purchasing
shares in the Offering. The following table illustrates the per share dilution
as of September 30, 1997:
Assumed initial public offering price......................... $13.00
Pro forma net tangible book value at September 30, 1997..... $4.44
Increase attributable to new investors...................... 1.48
-----
Pro forma net tangible book value after the Offering.......... 5.92
------
Dilution per share to new investors........................... $ 7.08
======
The following table sets forth, on an as adjusted basis as of September 30,
1997, after giving effect to the conversion of all outstanding shares of Series
A Convertible Preferred Stock into Common Stock, the differences between
existing Stockholders and purchasers of Common Stock in the Offering at an
assumed initial public offering price of $13.00 per share, the mid-point of the
filing range, and before the deduction of underwriting discounts and commissions
and estimated offering expenses with respect to the number of shares of Common
Stock purchased from the Company, the total consideration paid and the average
price per share paid:
SHARES PURCHASED TOTAL CONSIDERATION
------------------- --------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
Existing stockholders(1)............ 7,825,973 79.6% $ 6,099,000 19.0% $ 0.78
New investors(1).................... 2,000,000 20.4 26,000,000 81.0 13.00
--------- ------- ----------- -------
Total.......................... 9,825,973 100.0% $32,099,000 100.0%
======== ===== ========== =====
- ---------------
(1) Does not reflect the sale of 1,500,000 shares of Common Stock by the Selling
Stockholders in the Offering and does not include 1,102,124 shares of Common
Stock issuable upon the exercise of outstanding stock options as of October
31, 1997. See "Management -- Stock Option and Stock Purchase Plans."
The foregoing tables assume no exercise of the Underwriters' over-allotment
options or stock options outstanding at October 31, 1997. At October 31, 1997,
there were 1,102,124 shares of Common Stock issuable upon exercise of
outstanding stock options at a weighted average exercise price of $4.85 per
share. To the extent that outstanding options are exercised in the future, there
will be further dilution to new investors. See "Management-Stock Option and
Stock Purchase Plans" and Note G of Notes to Consolidated Financial Statements.
17
21
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below as of and for the
years ended June 30, 1995, 1996 and 1997 are derived from the consolidated
financial statements of the Company included elsewhere in this Prospectus which
have been audited by Coopers & Lybrand L.L.P., independent accountants. The
selected consolidated financial data as of and for the years ended June 30, 1993
and 1994 are derived from financial statements of the Company, also audited by
Coopers & Lybrand L.L.P., not included in this prospectus. The selected
consolidated financial data as of and for the three months ended September 30,
1996 and September 30, 1997, are derived from unaudited financial statements
that have been prepared on the same basis as the audited financial statements
and which, in the opinion of management, include all adjustments, consisting
only of normal recurring adjustments, necessary for a fair presentation of the
Company's financial position and results of operations. The financial data for
the three months ended September 30, 1997, are not necessarily indicative of the
results for the full year. The historical results are not necessarily indicative
of the results of operations to be expected in the future. The following
financial data is qualified in its entirety by, and should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements and notes
thereto included elsewhere in this Prospectus.
THREE MONTHS
ENDED
FISCAL YEAR ENDED JUNE 30, SEPTEMBER 30,
----------------------------------------------- -----------------
1993 1994 1995 1996 1997 1996 1997
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Revenues........................ $38,632 $41,727 $54,323 $58,300 $64,574 $13,038 $19,039
Cost of revenues................ 11,972 16,285 21,221 24,688 22,034 4,538 6,661
------- ------- ------- ------- ------- ------- -------
Gross profit.................. 26,660 25,442 33,102 33,612 42,540 8,500 12,378
Operating expenses:
Selling, general and
administrative............. 10,785 12,911 15,798 16,927 22,631 4,726 6,645
Research and development...... 5,619 7,254 8,586 9,776 12,837 2,405 3,381
------- ------- ------- ------- ------- ------- -------
Total operating
expenses............ 16,404 20,165 24,384 26,703 35,468 7,131 10,026
------- ------- ------- ------- ------- ------- -------
Income from operations.......... 10,256 5,277 8,718 6,909 7,072 1,369 2,352
Interest income................. 105 69 278 561 582 136 233
Interest expense................ (199) (14) (38) (13) (22) -- (2)
Other income (expense), net..... (44) (64) 22 (77) (88) (23) 83
------- ------- ------- ------- ------- ------- -------
Income before income taxes...... 10,118 5,268 8,980 7,380 7,544 1,482 2,666
Provision for income taxes...... 2,487 1,153 2,636 2,952 2,933 576 1,060
------- ------- ------- ------- ------- ------- -------
Net income...................... $ 7,631 $ 4,115 $ 6,344 $ 4,428 $ 4,611 $ 906 $ 1,606
======= ======= ======= ======= ======= ======= =======
Net income per common share..... $ 1.02 $ 0.50 $ 0.77 $ 0.54 $ 0.57 $ 0.11 $ 0.20
======= ======= ======= ======= ======= ======= =======
Weighted average number of
common and common
equivalent shares
outstanding................ 7,492 8,295 8,256 8,264 8,157 8,191 8,174
======= ======= ======= ======= ======= ======= =======
JUNE 30,
----------------------------------------------- SEPTEMBER 30,
1993 1994 1995 1996 1997 1997
------- ------- ------- ------- ------- -----------------
(IN THOUSANDS)
BALANCE SHEET DATA:
Working capital................. $11,258 $14,454 $20,156 $23,554 $27,547 $28,653
Total assets.................... 17,185 22,926 33,543 33,264 44,848 47,905
Convertible preferred stock..... 1,200 1,200 1,200 1,200 1,200 1,200
Total stockholders' equity...... 12,682 16,690 24,003 28,529 33,322 35,111
- ---------------
(1) See Note B of Notes to Consolidated Financial Statements for an explanation
of the determination of the weighted average common and common equivalent
shares used to compute net income per common share.
(2) Gives effect to the conversion of all outstanding shares of the Company's
Series A Convertible Preferred Stock into 2,556,792 shares of Common Stock
upon completion of this Offering.
18
22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Consolidated Financial Data" and the Company's Consolidated Financial
Statements and Notes thereto included elsewhere in this Prospectus. Except for
the historical information contained herein, the discussions in this Prospectus
contain forward-looking statements that involve risks and uncertainties. The
Company's actual results could differ materially from those discussed herein.
Factors that could cause or contribute to such differences include, but are not
limited to, those discussed below and in the section entitled "Risk Factors" as
well as those discussed elsewhere in this Prospectus.
OVERVIEW
Mercury designs, manufactures and markets high performance, real-time
digital signal processing computer systems that transform sensor generated data
into information which can be displayed as images for human interpretation or
subjected to additional computer analysis. These multicomputer systems are
heterogeneous and scalable, allowing them to accommodate several microprocessor
types and to scale from a few to hundreds of microprocessors within a single
system.
During the past three fiscal years, the majority of the Company's revenues
has been generated from sales of its products to the defense electronics market,
generally for use in intelligence gathering electronic warfare systems. The
Company's activities in this area have focused on the proof of concept,
development and deployment of advanced military applications in radar, sonar and
airborne surveillance. Medical diagnostic imaging is the other primary market
currently served by the Company. Mercury's computer systems are embedded in MRI,
CT and PET machines. The remaining component of revenues is derived from
computer systems used in such commercial applications as baggage scanning,
seismic analysis and automatic testing equipment, and from sales of Mercury's
recently introduced SuiteFusion shared storage product and related products and
services.
Mercury uses a direct sales force to sell its computer systems to the
defense electronics markets in the U.S., Japan, the United Kingdom and France.
Defense electronics sales to other countries are achieved through distributors.
The Company also uses a direct sales force to sell its computer systems to the
U.S. and international medical imaging markets. The Company uses various
distribution channels for sales of shared storage products to the broadcast and
post-production industry. The Company sells these products to OEMs, value added
re-sellers and end-users. Over the past three fiscal years, the Company has
expanded its sales force to support growing revenues and has made significant
expenditures to recruit additional technical and professional staff, to invest
in information technology and to improve the Company's financial, administrative
and management infrastructure.
Revenues include amounts attributable to both products, which include
development contracts, and services such as maintenance, training and
engineering consulting. Revenues from maintenance, training and engineering
consulting services generally have not constituted a material portion of total
revenues. The Company generally records product revenues upon shipment to the
customer, provided that no significant vendor obligation exists, and accrues for
associated warranty costs at the same time. For certain development contracts,
revenues are recognized using the percentage-of-completion accounting method.
Revenues from maintenance, training and engineering consulting services are
recognized ratably over the applicable contract period or as the services are
performed.
Cost of revenues includes the cost of materials, component assembly,
internal labor and related overhead. Cost of revenues also can include
engineering and other technical labor and related overhead incurred in
development and engineering consulting contracts.
Gross profit as a percentage of revenues ("gross margin") varies from
period to period depending upon numerous variables including the mix of revenues
from hardware, software, development and engineering consulting contracts; the
mix of revenues among the markets served by the Company; the cost of raw
materials; the cost of outsourced services and labor costs; operational
efficiencies; actual production volume
19
23
compared to planned volume; and the mix of applications for which the Company's
computer systems are sold. Historically, the Company's gross margins on service
revenues have been lower than on product revenues.
Mercury has made significant investments in research and development in an
effort to maintain its technology leadership in digital signal processing and to
create new software products for the shared storage market. Mercury invested
$8.6 million, $9.8 million and $12.8 million in fiscal years 1995, 1996 and
1997, respectively, in development activities associated with the Company's key
technology competencies as well as in activities that are targeted at developing
new technologies and products.
In 1995, the Internal Revenue Service ("IRS") initiated an audit of the
Company's tax return for the year ended June 30, 1994. While to date the IRS has
not delivered to the Company a notice of proposed adjustments with respect to
the year under audit, the IRS has informally proposed adjustments relating to
certain research and development tax credits taken by the Company during the
year under audit. There can be no assurance that the amount of adjustments, if
any, will not be material in amount, that the IRS will not propose additional
adjustments relating to other items, or that the IRS will not propose
adjustments relating to other taxable years.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
financial data as a percentage of total revenues.
THREE
YEAR ENDED MONTHS ENDED
JUNE 30, SEPTEMBER 30,
------------------------- ---------------
1995 1996 1997 1996 1997
----- ----- ----- ----- -----
Revenues........................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues................................... 39.1 42.3 34.1 34.8 35.0
----- ----- ----- ----- -----
Gross profit....................................... 60.9 57.7 65.9 65.2 65.0
Operating expenses:
Selling, general and administrative.............. 29.1 29.0 35.0 36.3 34.8
Research and development......................... 15.8 16.8 19.9 18.4 17.8
----- ----- ----- ----- -----
Total operating expenses................. 44.9 45.8 54.9 54.7 52.6
----- ----- ----- ----- -----
Income from operations............................. 16.0 11.9 11.0 10.5 12.4
Other income (expense), net........................ 0.5 0.8 0.7 0.9 1.6
----- ----- ----- ----- -----
Income before income taxes......................... 16.5 12.7 11.7 11.4 14.0
Provision for income taxes......................... 4.8 5.1 4.6 4.5 5.6
----- ----- ----- ----- -----
Net income......................................... 11.7% 7.6% 7.1% 6.9% 8.4%
===== ===== ===== ===== =====
Three Months Ended September 30, 1997 Compared to Three Months Ended September
30, 1996
Revenues
Total revenues increased 46% from $13.0 million during the three months
ended September 30, 1996 to $19.0 million during the three months ended
September 30, 1997. Revenues from defense electronics, medical imaging and other
commercial markets increased, as described below.
Defense electronics revenues increased 37% from $11.0 million or 84.9% of
total revenues during the three months ended September 30, 1996 to $15.1 million
or 79.6% of total revenues during the three months ended September 30, 1997. The
increase in revenues was due primarily to increased unit demand for defense
electronics products.
Medical imaging revenues increased 58% from $1.4 million or 10.8% of total
revenues during the three months ended September 30, 1996 to $2.2 million or
11.7% of total revenues during the three months ended
20
24
September 30, 1997. The increase in revenues was due primarily to the doubling
of sales to the largest medical imaging customer.
Other revenues increased 190% from $569,000 or 4.4% of total revenues
during the three months ended September 30, 1996 to $1.7 million or 8.7% of
total revenues during the three months ended September 30, 1997. This increase
in other revenues was due primarily to an increase in unit demand from new and
existing customers.
Cost of Revenues
Cost of revenues increased 47% from $4.5 million during the three months
ended September 30, 1996 to $6.7 million during the three months ended September
30, 1997 but was consistent as a percentage of total revenues at approximately
35.0%. A decline in material costs was offset by increases in manufacturing
quality costs and costs related to development contracts.
Selling, General and Administrative
Selling, general and administrative expenses increased 41% from $4.7
million during the three months ended September 30, 1996 to $6.6 million during
the three months ended September 30, 1997. Selling, general and administrative
expenses as a percentage of total revenues were 36.3% during the three months
ended September 30, 1996 and 34.8% during the three months ended September 30,
1997. The increase reflects the hiring of additional sales and administrative
personnel, increased commissions and the development of the Company's financial,
administrative and management systems to support the Company's growth.
Research and Development
Research and development expenses, excluding capitalized software
expenditures, increased 41% from $2.4 million during the three months ended
September 30, 1996 to $3.4 million during the three months ended September 30,
1997. Research and development expenses as a percentage of total revenues were
18.4% during the three months ended September 30, 1996 and 17.8% during the
three months ended September 30, 1997. The increase in research and development
expenses reflects increased investments in the Company's core technological
competencies, as well as in new medical and shared storage technologies and
products.
Income from Operations
Income from operations increased 72% from $1.4 million during the three
months ended September 30, 1996 to $2.4 million during the three months ended
September 30, 1997. Included in income from operations during the three months
ended September 30, 1997 were $38,000 in revenues and approximately $700,000 in
direct expenses related to the shared storage business. These include direct
expenses from marketing and engineering activities primarily related to
compensation, trade shows and prototype development. There were no revenues or
expenses related to the shared storage business during the three months ended
September 30, 1996.
Interest Income
The Company earned $136,000 in interest income during the three months
ended September 30, 1996 and $233,000 during the three months ended September
30, 1997. The increase was due primarily to the significant increase in average
balances of cash and investments.
Provision for Income Taxes
The Company's provision for income taxes was $576,000 during the three
months ended September 30, 1996 and $1.1 million during the three months ended
September 30, 1997. The Company's effective tax rate increased slightly from 39%
during the three months ended September 30, 1996 and 40% during the three months
ended September 30, 1997.
21
25
Year Ended June 30, 1997 Compared to Year Ended June 30, 1996
Revenues
Total revenues increased 11% from $58.3 million during the year ended June
30, 1996 to $64.6 million during the year ended June 30, 1997. The increase was
due primarily to increased unit demand in the defense electronics business and
the introduction of shared storage hardware and software during the year ended
June 30, 1997.
Defense electronics revenues increased 25% from $41.8 million or 71.7% of
total revenues during the year ended June 30, 1996 to $52.2 million or 80.9% of
total revenues during the year ended June 30, 1997. The increase was due
primarily to increased unit demand for defense electronics products.
Medical imaging revenues decreased 48% from $13.3 million or 22.7% of total
revenues during the year ended June 30, 1996 to $6.9 million or 10.7% of total
revenues during the year ended June 30, 1997. The decrease in revenues was due
primarily to a reduction in product prices, discontinuation of certain products
by one customer and the acceleration of purchasing at the end of the year ended
June 30, 1996 by two of the Company's medical imaging customers.
Other revenues increased 67% from $3.2 million or 5.6% of total revenues
during the year ended June 30, 1996 to $5.4 million or 8.4% of total revenues
during the year ended June 30, 1997. The increase in revenues was due primarily
to the introduction of shared storage hardware and software during the year
ended June 30, 1997.
Cost of Revenues
Cost of revenues declined 11% from $24.7 million during the year ended June
30, 1996 to $22.0 million during the year ended June 30, 1997. Cost of revenues
as a percentage of total revenues decreased from 42.3% during the year ended
June 30, 1996 to 34.1% during the year ended June 30, 1997. This decrease was
due primarily to the inclusion in the year ended June 30, 1996, of a domestic
defense electronics development contract which yielded significantly lower gross
margins than the gross margins historically achieved by the Company.
Selling, General and Administrative
Selling, general and administrative expenses increased 34% from $16.9
million during the year ended June 30, 1996 to $22.6 million during the year
ended June 30, 1997. Selling, general and administrative expenses as a
percentage of total revenues were 29.0% during the year ended June 30, 1996 and
35.0% during the year ended June 30, 1997. The increase reflects the hiring of
additional sales and administrative personnel, increased commissions and the
development of the Company's financial and administrative systems to support the
Company's growth.
Research and Development
Research and development expenses, excluding capitalized software
expenditures, increased 31% from $9.8 million during the year ended June 30,
1996 to $12.8 million during the year ended June 30, 1997. Research and
development expenses as a percentage of total revenues were 16.8% during the
year ended June 30, 1996 and 19.9% during the year ended June 30, 1997. The
increase reflects greater investment in the Company's core competencies, as well
as in new medical and shared storage technologies and products.
Income from Operations
Income from operations increased 2% from $6.9 million during the year ended
June 30, 1996 to $7.1 million during the year ended June 30, 1997. Included in
income from operations during the year ended June 30, 1997 were $2.1 million in
hardware and software revenues and $3.6 million in direct expenses related to
the shared storage business. These include direct expenses from marketing and
engineering activities, primarily related to compensation, trade shows and
prototype development and direct costs related to the sale of the product,
including certain hardware costs. There were no revenues or expenses related to
the shared storage business during the year ended June 30, 1996.
22
26
Interest Income
The Company earned $561,000 in interest income during the year ended June
30, 1996 and $582,000 during the year ended June 30, 1997. This increase in
interest income was due to the increase in average balances of cash and
investments, partially offset by a decrease in average interest rates.
Provision for Income Taxes
The Company's provision for income taxes was $3.0 million during the year
ended June 30, 1996 and $2.9 million during the year ended June 30, 1997. The
Company's effective tax rate was 40% during the year ended June 30, 1996 and 39%
during the year ended June 30, 1997.
Year Ended June 30, 1996 Compared to Year Ended June 30, 1995
Revenues
Total revenues increased 7% from $54.3 million during the year ended June
30, 1995 to $58.3 million during the year ended June 30, 1996. The increase in
revenues was due primarily to the increase in unit demand for both the defense
electronics and medical imaging products.
Defense electronics revenues increased 2% from $40.9 million or 75.3% of
total revenues during the year ended June 30, 1995 to $41.8 million or 71.7% of
total revenues during the year ended June 30, 1996. The relatively modest
increase in defense electronics revenues was due primarily to a large
international contract fulfilled in 1995.
Medical imaging revenues increased 41% from $9.4 million or 17.3% of total
revenues during the year ended June 30, 1995 to $13.3 million or 22.7% of total
revenues during the year ended June 30, 1996. The increase was primarily due to
the acceleration of purchasing at the end of the year ended June 30, 1996 by two
of the Company's medical imaging customers.
Other revenues decreased 20% from $4.0 million or 7.4% of total revenues
during the year ended June 30, 1995 to $3.2 million or 5.6% of total revenues
during the year ended June 30, 1996. The decrease was primarily due to lower
demand associated with the Company's other commercial products and services.
Cost of Revenues
Cost of revenues increased 16% from $21.2 million during the year ended
June 30, 1995 to $24.7 million during the year ended June 30, 1996. Cost of
revenues as a percentage of total revenues, increased from 39.1% during the year
ended June 30, 1995 to 42.3% during the year ended June 30, 1996. The increase
was due primarily to the inclusion in the year ended June 30, 1996 of a domestic
defense electronics development contract which yielded significantly lower gross
margins than the gross margins historically achieved by the Company.
Selling, General and Administrative
Selling, general and administrative expenses increased 7% from $15.8
million during the year ended June 30, 1995 to $16.9 million during the year
ended June 30, 1996. Selling, general and administrative expenses as a
percentage of total revenues were 29.1% during the year ended June 30, 1995 and
29.0% during the year ended June 30, 1996. The increase was due primarily to the
hiring of additional sales and administrative personnel to support the Company's
growth.
Research and Development
Research and development expenses, excluding capitalized software
expenditures, increased 14% from $8.6 million during the year ended June 30,
1995 to $9.8 million during the year ended June 30, 1996. Research and
development expenses as a percentage of total revenues were 15.8% during the
year ended June 30, 1995 and 16.8% during the year ended June 30, 1996. The
increase was due primarily to the hiring of additional software and hardware
engineers to develop and enhance the features and functionality of the Company's
products.
23
27
Income from Operations
Income from operations decreased 21% from $8.7 million during the year
ended June 30, 1995 to $6.9 million during the year ended June 30, 1996.
Interest Income
The Company earned $278,000 in interest income during the year ended June
30, 1995 and $561,000 during the year ended June 30, 1996. The increase was
primarily due to the significant increase in average balances of cash and
investments.
Provision for Income Taxes
The Company's provision for income taxes was $2.6 million during the year
ended June 30, 1995 and $3.0 million during the year ended June 30, 1996. The
Company's effective tax rate was 29% during the year ended June 30, 1995 and 40%
during the year ended June 30, 1996. The significantly lower tax rate during the
year ended June 30, 1995 was due primarily to the utilization of tax credits
during that year.
24
28
QUARTERLY RESULTS OF OPERATIONS
The following table presents selected consolidated financial information
for each of the Company's last nine fiscal quarters. However, in the opinion of
the Company's management, this information reflects all adjustments, consisting
only of normal recurring adjustments, necessary to fairly present this
information when read in conjunction with the Consolidated Financial Statements
and Notes thereto appearing elsewhere in this Prospectus.
QUARTERS ENDED
---------------------------------------------------------------------------------------------------
SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30,
1995 1995 1996 1996 1996 1996 1997 1997 1997
--------- -------- -------- -------- --------- -------- -------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenues.................... $13,501 $14,521 $15,175 $15,103 $13,038 $15,106 $17,154 $19,276 $19,039
Cost of revenues............ 5,723 7,117 5,991 5,857 4,538 5,128 5,356 7,012 6,661
------- ------- ------- ------- ------- ------- ------- ------- -------
Gross profit................ 7,778 7,404 9,184 9,246 8,500 9,978 11,798 12,264 12,378
Operating expenses:
Selling, general and
administrative........... 3,776 4,249 4,191 4,711 4,726 5,577 5,737 6,591 6,645
Research and development... 2,143 2,352 2,473 2,808 2,405 3,420 3,759 3,253 3,381
------- ------- ------- ------- ------- ------- ------- ------- -------
Total operating
expenses............ 5,919 6,601 6,664 7,519 7,131 8,997 9,496 9,844 10,026
------- ------- ------- ------- ------- ------- ------- ------- -------
Income from operations...... 1,859 803 2,520 1,727 1,369 981 2,302 2,420 2,352
Other income (expense),
net........................ 137 145 68 121 113 144 23 192 314
------- ------- ------- ------- ------- ------- ------- ------- -------
Income before income
taxes...................... 1,996 948 2,588 1,848 1,482 1,125 2,325 2,612 2,666
Provision for income
taxes...................... 798 379 1,035 740 576 437 904 1,016 1,060
------- ------- ------- ------- ------- ------- ------- ------- -------
Net income.................. $ 1,198 $ 569 $ 1,553 $ 1,108 $ 906 $ 688 $ 1,421 $ 1,596 $ 1,606
======= ======= ======= ======= ======= ======= ======= ======= =======
Net income per common
share...................... $ 0.15 $ 0.07 $ 0.19 $ 0.13 $ 0.11 $ 0.08 $ 0.17 $ 0.20 $ 0.20
======= ======= ======= ======= ======= ======= ======= ======= =======
Weighted average number of
common and common
equivalent shares
outstanding................ 8,257 8,261 8,263 8,266 8,191 8,140 8,148 8,162 8,174
======= ======= ======= ======= ======= ======= ======= ======= =======
The following table sets forth selected consolidated financial information
as a percentage of total revenues for each of the Company's last nine fiscal
quarters.
QUARTERS ENDED
---------------------------------------------------------------------------------------------------
SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30,
1995 1995 1996 1996 1996 1996 1997 1997 1997
--------- -------- -------- -------- --------- -------- -------- -------- ---------
Revenues.................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues............ 42.4 49.0 39.5 38.8 34.8 33.9 31.2 36.4 35.0
----- ----- ----- ----- ----- ----- ----- ----- -----
Gross profit................ 57.6 51.0 60.5 61.2 65.2 66.1 68.8 63.6 65.0
Operating expenses:
Selling, general and
administrative........... 28.0 29.3 27.6 31.2 36.3 37.0 33.5 34.1 34.8
Research and development... 15.8 16.2 16.3 18.6 18.4 22.6 21.9 16.9 17.8
----- ----- ----- ----- ----- ----- ----- ----- -----
Total operating
expenses............ 43.8 45.5 43.9 49.8 54.7 59.6 55.4 51.0 52.6
----- ----- ----- ----- ----- ----- ----- ----- -----
Income from operations...... 13.8 5.5 16.6 11.4 10.5 6.5 13.4 12.6 12.4
Other income (expense),
net........................ 1.0 1.0 0.4 0.8 0.9 0.9 0.2 1.0 1.6
----- ----- ----- ----- ----- ----- ----- ----- -----
Income before income
taxes...................... 14.8 6.5 17.0 12.2 11.4 7.4 13.6 13.6 14.0
Provision for income
taxes...................... 5.9 2.6 6.8 4.9 4.5 2.8 5.3 5.3 5.6
----- ----- ----- ----- ----- ----- ----- ----- -----
Net income.................. 8.9% 3.9% 10.2% 7.3% 6.9% 4.6% 8.3% 8.3% 8.4%
===== ===== ===== ===== ===== ===== ===== ===== =====
The Company has experienced fluctuations in its results of operations in
large part due to the sale by the Company of its computer systems in relatively
large dollar amounts to a relatively small number of customers. Operating
results also have fluctuated due to competitive pricing programs and volume
discounts, the loss of customers, market acceptance of the Company's products,
product obsolescence and general economic conditions. In addition, the Company,
from time to time, has entered into development contracts. The Company's gross
margins from development contract revenues are typically lower than the
Company's gross margins from standard product revenues. The Company intends to
continue to enter into development
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contracts and anticipates that its gross margins associated with development
contract revenues will continue to be lower than its gross margins on standard
product revenues.
The Company's quarterly results may be subject to fluctuations resulting
from the foregoing factors, as well as a number of other factors, including the
timing of significant orders, delays in completion of internal product
development projects, delays in shipping the Company's computer systems and
software programs, delays in acceptance testing by customers, a change in the
mix of products sold to the defense electronics and medical imaging markets,
production delays due to quality problems with outsourced components, shortages
of components, the timing of product line transitions and declines in quarterly
revenues from old generations of products following announcement of replacement
products containing more advanced technology. Another factor contributing to
fluctuations in quarterly results is the fixed nature of the Company's
expenditures on personnel, facilities and marketing programs. The Company's
expense levels for personnel, facilities and marketing programs are based, in
significant part, on the Company's expectations of future revenues on a
quarterly basis. If actual quarterly revenues are below management's
expectations, results of operations likely will be adversely affected. As a
result of the foregoing factors, the Company's operating results, from time to
time, may be below the expectations of public market analysts and investors,
which could have a material adverse effect on the price of the Company's Common
Stock.
LIQUIDITY AND CAPITAL RESOURCES
During the past five fiscal years, the Company has funded its operations to
date primarily from cash generated from operations. As of September 30, 1997,
the Company had cash and cash equivalents of approximately $16.0 million and
working capital of $28.7 million. During the three months ended September 30,
1996, the Company generated approximately $843,000 in cash from operations
compared to $2.0 million generated during the three months ended September 30,
1997. During the year ended June 30, 1996, the Company generated approximately
$4.3 million in cash from operations compared to $9.2 million generated during
the year ended June 30, 1997. The increases in cash generated from operations
were due to improved operating results, higher percentage of non-cash expenses
within total expenses and better management of the Company's inventory and
receivables. The Company's days sales outstanding was 71 days and 58 days at
June 30, 1997 and September 30, 1997, respectively.
The Company used approximately $1.4 million in investing activities for
computers, furniture and equipment during the three months ended September 30,
1997, compared to $567,000 during the three months ended September 30, 1996.
During the year ended June 30, 1997, the Company invested approximately $4.0
million, which consisted primarily of $3.5 million for the investment in
computers, furniture and equipment and $550,000 for capitalized software,
compared to $3.3 million during the year ended June 30, 1996, which consisted of
$2.9 million for computers, furniture and equipment and $371,000 for capitalized
software. No software development costs were capitalized during the three months
ended September 30, 1997.
The Company intends to use a portion of the net proceeds of the Offering to
fund construction of additional 91,000 square feet of office space on vacant,
fully permitted land adjacent to its headquarters. The Company used internally
generated funds to acquire this parcel in November, 1997. The Company
anticipates that development of the additional office space will cost
approximately $9.0 million, that it will break ground in April 1998 and that it
will complete construction in approximately 12 months after construction begins.
Once the new office space is completed, the Company plans to transfer this
parcel to an unaffiliated third party pursuant to a sale leaseback transaction.
No assurances can be made that the cost of construction will not exceed such
estimate, or that the Company will be able to consummate a sale and leaseback
transaction with respect to such property. The Company does not expect to
realize a profit or loss from sale of the finished building.
The Company has a line of credit agreement with a commercial bank on which
the Company can borrow up to $6.0 million at an interest rate equal to the prime
rate or, at the election of the Company, two and one quarter percentage points
above the London InterBank Offered Rate. As of September 30, 1997, there was no
outstanding borrowing on this line of credit.
Mercury believes that the net proceeds of the Offering, together with
available cash, cash generated from operations and the Company's line of credit,
will be sufficient to meet the Company's working capital and capital expenditure
requirements for the foreseeable future. If the Company acquires one or more
businesses
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or products, the Company's capital requirements could increase substantially. In
the event of such an acquisition or in the event that any unanticipated
circumstances arise which significantly increase the Company's capital
requirements, there can be no assurance that necessary additional capital will
be available on terms acceptable to the Company, if at all.
RECENT ACCOUNTING PRONOUNCEMENTS
See Notes B and G to the Company's Consolidated Financial Statements for a
description of the impact on the Company of recent accounting pronouncements.
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BUSINESS
OVERVIEW
Mercury designs, manufactures and markets high performance, real-time
digital signal processing computer systems that transform sensor generated data
into information which can be displayed as images for human interpretation or
subjected to additional computer analysis. These multicomputer systems are
heterogeneous and scalable, allowing them to accommodate several different
microprocessor types and to scale from a few to hundreds of microprocessors
within a single system. Mercury's system architecture is specifically designed
for digital signal processing applications which are typically computation
intensive and require I/O capacity and interprocessor bandwidth not available on
a general purpose PC or workstation. The two primary markets for Mercury's
products are defense electronics and medical diagnostic imaging. Both of these
markets have computing needs which benefit from the unique system architecture
developed by the Company. Mercury's computer systems are generally used on real
world signal data to enable a military commander to "see" the battle space
through natural barriers such as clouds, darkness, water or foliage, so that the
position and strength of the enemy can be determined, or to enable a physician
to "see" within the body instead of performing invasive surgery.
During the past three fiscal years, the majority of the Company's revenues
have been generated from sales of its products to the defense electronics
market, generally for use in intelligence gathering electronic warfare systems.
The Company's activities in this area have focused on the proof of concept,
development and deployment of advanced military applications in radar, sonar and
airborne surveillance. The Company has established relationships with many of
the major prime contractors to the worldwide defense industry, including
Lockheed Martin, Hughes Aircraft, Raytheon/E-Systems, Raytheon/TI Systems,
Northrop Grumman, MIT/Lincoln Laboratory, GEC Marconi, Ericsson, Israeli
Ministry of Defense, MATRA and Mitsubishi.
Medical diagnostic imaging is the other primary market currently served by
the Company. Mercury's computer systems are embedded in MRI, CT and PET
machines. Mercury has supplied computer systems for use in several of GE
Medical's medical diagnostic imaging systems since 1987, and has established
relationships with Siemens Medical, Toshiba and Elscint. The major medical
imaging manufacturers are currently developing the next generation of MRI, CT
and digital x-ray machines, which are expected to provide better performance at
lower cost. Mercury has recently secured design wins on programs with certain of
the major medical imaging manufacturers for their next generation MRI, CT and
digital x-ray machines.
Mercury's computer systems are designed to process continuous streams of
data from sensors attached to radar, sonar, medical imaging equipment and other
devices. The resulting image is transmitted to the battlefield commander, pilot,
technician or physician in order to assist in the decision making or diagnostic
process. Due to the nature of the applications in which many of Mercury's
computer systems are embedded, they are frequently confined in limited spaces
and therefore are designed to generate a minimum amount of heat. The Company
employs the RACEway Interconnect, an industry standard system area network
developed by Mercury, which allows for high interprocessor bandwidth and I/O
capacity. The Company uses its proprietary ASICs to integrate microprocessors,
memory and related components into the RACEway Interconnect to provide optimum
system performance. The Company uses industry standard processors, such as
Intel's i860, Motorola's PowerPC, Texas Instruments' C80 and Analog Devices'
SHARC, in the same system. The Company believes that the RACEway Interconnect
and its proprietary ASICs, working together with a group of mixed
microprocessors in the same system, allow the most efficient use of space and
power with an optimal price/performance ratio.
Since July 1996, Mercury has targeted the emerging shared storage market
for introduction of a new product which draws on the Company's core competencies
in systems engineering and the development of real-time software. In fiscal
1997, Mercury introduced SuiteFusion, its first shared storage product designed
to meet the needs of the broadcast and post-production industry. SuiteFusion is
an open, scalable software application that allows work groups to share
commodity, fibre channel attached disk arrays, eliminating the need for an
expensive, intermediate file server. Early customers include Turner
Broadcasting's CNN
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Interactive, Hughes Aircraft, for use at the U.S. Army National Training Center,
and Nickelodeon's Blue's Clues. The Company believes that the shared storage
market includes a number of distinct applications, such as digital video
editing, electronic computer aided design, webcasting, cable advertising
insertion and pre-press.
INDUSTRY BACKGROUND
Defense Electronics
Digital signal processing computer systems are embedded into air, sea and
land-based platforms for processing radar, sonar and signal intelligence
applications. These applications allow a military commander to "see" the battle
space through natural barriers such as clouds, darkness, water or foliage, so
that the position and strength of the enemy can be determined. The Electronic
Industry Association (the "EIA") in its October 1997 annual forecast of the
defense electronics market predicted an increase in military electronics
purchases over the next ten years, while predicting a decline in total defense
spending over the same period. The EIA also predicted that, beginning in 1998,
United States military spending on electronics and information systems will
increase by $7.4 billion from $51.5 billion to $58.9 billion over the next ten
years. The Company believes that an important factor underlying this anticipated
growth is a continuing desire by military commanders for increased battle space
information, which can be obtained through radar, sonar, signal intelligence and
image intelligence systems. Military commanders also need more powerful
computers with similar attributes in order to conduct battle simulations and
mission planning tasks utilizing today's complex weapons systems.
Another important trend in the defense electronics marketplace is the
movement away from so-called "stove pipe" systems designed by prime contractors
with special purpose hardware specifically for a single application, largely
without regard to cost. The market is moving toward the use of systems which
incorporate selected COTS hardware and software components in order to save
money and development time. Recent Department of Defense ("DoD") leaders and
federal regulations have mandated widespread use of COTS components in defense
electronics applications. All of Mercury's computer systems are eligible for use
in defense electronics applications as COTS components.
Medical Imaging
The principal modalities of medical diagnostic imaging systems include MRI,
CT, digital x-ray, PET, SPECT (single photon emission computed tomography) and
ultrasound devices. The Company believes that the available market in 1998 for
digital signal processing computer systems in aggregate for the MRI, CT and
digital x-ray markets is expected to be an aggregate of approximately $123
million. Although demand for medical imaging equipment has been sluggish in
recent years due primarily to cost containment pressures and consolidation in
the health care industry, the Company believes that demand for medical
diagnostic imaging equipment will increase modestly over the next three years.
The Company believes that this increase will be primarily due to the
introduction of next generation devices, together with the anticipated future
development by the major medical imaging manufacturers of new markets for their
diagnostic equipment in countries located in Asia, South America and Eastern
Europe. The Company believes medical imaging equipment manufacturers will
continue to replace in-house designed digital signal processing systems with
commercially available systems designed by the Company and others.
This industry's demand is driven in part by the need to provide physicians
with rapid, sharp and clear images of areas of a patient's body suspected to be
diseased or injured, while using the least intrusive means. These images provide
a significant diagnostic tool for the physician, who can more readily understand
the patient's malady and prescribe appropriate corrective action. In order to
provide such images, medical imaging machines must be capable of processing a
continuous stream of data on a real-time basis. A parallel concern in
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the health care industry is the need to reduce costs. Hospitals, in particular,
continue to be under significant pressure to contain costs and, at the same
time, maintain quality of care. Such pressures are forcing hospitals to be as
technologically efficient as possible. Toward this end, hospitals seek to reduce
the required period of time a patient must spend in its medical imaging
machines, which has the added benefit of increasing the total number of patients
who can be diagnosed with this expensive equipment during a given period of
time. One way to reduce patient time in medical imaging machines and improve
image quality is to utilize more powerful signal processing computers, such as
those supplied by Mercury.
STRATEGY
Mercury's objective is to be the leader in each of its markets by
developing and delivering architecturally superior systems, developing and
maintaining close working relationships with its customers, adopting and
deploying total quality management and extending key technology competencies to
new markets where Mercury can provide solutions based on its core competencies.
Develop and Deliver Architecturally Superior Systems. Mercury intends to
continue to develop architecturally superior systems comprised of both hardware
and software commercially available off-the-shelf components, which minimize
recurring and non-recurring costs, as well as proprietary components, which
enable production of standards-based, highly scalable systems. The Company's
growth and leadership in its primary markets has been due in part to investments
in a sustainable architecture that can rapidly evolve to take advantage of the
latest developments in semiconductor technology. Rapid evolution is accomplished
by defining a set of building blocks that can evolve separately. In this way the
architecture can be refreshed by upgrading one hardware and/or software building
block (such as a new microprocessor) with only minimal effect, if any, to the
other building blocks.
Develop and Maintain Close Working Relationships with Customers. By
developing close working relationships with its customers, the Company intends
to continue to identify and pursue new product opportunities. To fulfill these
opportunities, the Company frequently develops variations of its standard
products pursuant to contracts with particular customers in order to satisfy the
customers' needs on a cost effective basis.
Adopt and Deploy Total Quality Management. The Company is deploying Total
Quality Management ("TQM") as an overarching managerial approach to improve and
enhance business processes within the Company. An integral part of TQM is
increasing the Company's ability to discover and understand customers' unique
needs in the context of their environments and to set benchmarked performance
targets for each customer. By implementing TQM, the Company expects to be able
to enhance its development process and deliver better value by responding to
customer specific needs. When fully deployed, the Company believes that TQM will
significantly enhance its business processes and competitiveness.
Extend Key Technology Competencies to New Markets. The Company is
constantly seeking new markets where solutions can be provided based on its core
competencies. The Company's entry into the shared storage market evolved from
Mercury's work in real time operating systems, and its systems engineering skill
set in solving bandwidth limitations for applications requiring extremely high
data throughput. The Company initially targeted its new software product,
SuiteFusion, to meet the shared storage needs of the broadcast and
post-production industry. Mercury is currently evaluating other opportunities in
the shared storage market, such as electronic computer aided design, webcasting,
cable advertising insertion and pre-press.
MARKETS AND CUSTOMERS
Defense Electronics
Mercury provides high performance embedded computer systems as standard
products to the defense electronics market by using commercial and selected
rugged components and by working closely with defense contractors to complete a
design which matches the specified requirements of military applications. The
Company engages in frequent, detailed communication with the end-users of
Mercury's systems, military executives and program managers in government and
defense contractors regarding the technical capabilities
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of Mercury's advanced signal processing computers and the successful
incorporation of its computers in numerous military programs.
The chart set forth below lists certain of Mercury's customers in the
defense electronics industry, including government contractors and government
research laboratories and the type of applications for which Mercury believes
its customers are using its products.
SELECTED DEFENSE CUSTOMERS AND APPLICATIONS
- --------------------------------------------------------------------------------
CUSTOMER LOCATION APPLICATION
------------------------------------ ------------ ----------------------------------------
U.S. BASED PRIME CONTRACTORS AND
GOVERNMENT LABS
HUGHES
- Hughes Danbury Optical.......... CA & MA Electro-Optics, Infrared
- Missile Systems Co.............. AZ Radar, Simulation
- Sensor & Communication
Systems........................ CA Radar, Electro-Optics, Infrared
LOCKHEED MARTIN
- Advanced Development Co......... CA Mission Planning
- Electronic & Missile Co......... FL Infrared, Electro-Optics, Radar
- Federal Systems, Manassas....... VA Sonar
- Government Electronic Systems... NJ Radar
- Missiles & Space................ CA Image Intelligence
- Ocean Radar & Sonar............. NY Radar, Sonar
- Sanders......................... NH Electronic Warfare, Signal Intelligence
- Tactical Defense Systems........ AZ Radar
NORTHROP GRUMMAN
- ESID............................ NY Radar
- ESSD............................ MD Radar
- Melbourne....................... FL Radar
- Norden Systems.................. NY & CT Radar, Sonar
RAYTHEON
- Electronic Systems.............. MA & RI Radar, Sonar, Infrared
- E-Systems....................... TX Signal Intelligence, Ground Stations
- TI Systems...................... TX Radar, Electro-Optics
GOVERNMENT LABS
- Air Force Defense Lab........... NY Radar
- Army Research Lab............... MD Ground Penetrating Radar
- MIT/Lincoln Labs................ MA Radar
- National Severe Storms Labs..... OK Weather Radar
- Naval Research Labs............. DC Radar, Sonar
- Naval Undersea Warfare
Command........................ RI & WA Sonar
- Sandia Labs..................... NM Radar
INTERNATIONAL AGENCIES AND PRIME
CONTRACTORS
Chun San Institute................ Taiwan Radar
Department of National Defense.... Canada Radar, Sonar
Elbit............................. Israel Radar, Sonar
Ericsson.......................... Sweden Radar
FOA............................... Sweden Foliage Penetrating Radar
GEC Marconi....................... U.K. Radar
Israeli Ministry of Defense....... Israel SAR
MATRA............................. France Radar, Sonar
Mitsubishi Heavy Industries....... Japan Radar, Simulation
Nihon Avionics.................... Japan Radar
Thomson Sintra.................... France Sonar
TNO -- Physics and Electronics
Laboratory..................... Netherlands Acoustic Signal Processing
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Mercury's computer systems have been or are being integrated into various
programs in the defense electronics market. For example, Mercury is under
contract to supply, or has supplied, computer systems to the following
contractors:
- Northrop Grumman for use in the tactical endurance synthetic aperture
radar ("SAR") systems aboard the Predator, a medium-altitude unmanned
aerial vehicle ("UAV") which has been deployed in Bosnia.
- Northrop Grumman for the SAR systems on board the Dark Star high
altitude UAV, which is currently under development.
- Hughes Aircraft for the SAR systems on the Global Hawk high altitude
endurance UAV, which is currently under development.
- Raytheon/E-Systems for the delivery of computer systems (including
development systems) for use in an electronic signal intelligence
application on board the RC-135 aircraft as part of an upgrade program.
- Raytheon/TI Systems for the delivery of computer systems (including
development systems) for use in the SAR on board the P3 Orion
anti-submarine surveillance aircraft as part of an upgrade program.
- Lockheed Martin, the U.S. Army Research Laboratory and FOA for proof of
concept in foliage and/or ground penetrating radars.
- Lockheed Martin and Atlantic Aerospace Electronics Corporation for the
combat sonar system used in the Los Angeles Class submarine, which is
currently under development.
- Northrop Grumman/ESSD and MIT/Lincoln Laboratory for use in developing
algorithms for space time adaptive processing, a type of advanced radar
system. The prototype computer system for this application uses
approximately 1,000 microprocessors, and Mercury believes it is the most
powerful commercial real-time embedded computer ever built, with peak
performance in excess of 100 gigaflops.
- Ericsson for the use of Mercury's standard commercial processors in
radar systems on board surveillance aircraft and to build MILSPEC
versions for the radar system on the SAAB Gripen fighter aircraft.
Mercury employs industry specialist managers to monitor the defense
programs of each major branch of the United States armed services and additional
managers based in Europe and Japan to keep abreast of developments in their
respective regions. This approach provides relevant information to Mercury
regarding major military procurements worldwide. Mercury maintains sales and
technical support groups to service defense industry participants in seven
branch offices in the United States, and through Mercury's subsidiary offices or
distributors in 12 other countries. At Mercury's headquarters in Chelmsford,
Massachusetts, a group of systems engineers specializing in radar, sonar and
surveillance problems provides support on an as-needed basis to the remote
offices to assist in securing inclusion in targeted military programs.
Medical Imaging
Mercury strives to provide a superior combination of high performance and
competitively priced embedded computer systems to the medical imaging market.
The Company focuses on establishing strong relationships with its customers, the
medical equipment manufacturers. By maintaining frequent, in-depth
communications with its customers and working closely with their engineering
groups, the Company is able to understand their needs and provide appropriate
solutions. In addition, the Company intends to continue its efforts to install
its computer systems in place of alternative designs created by the in-house
design teams employed by the medical imaging equipment manufacturers.
The Company currently is working closely with major medical equipment
companies to design the next generation of MRI, CT and digital x-ray systems,
which the Company believes will lead to faster time-to-market and competitive
advantages for the medical equipment companies that use Mercury's computer
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systems for inclusion in their imaging machines. Mercury's industrial PC class
hardware system provides the medical imaging industry with increased performance
densities at lower costs and an architecture that accommodates performance
upgrades as new technology becomes available. Integrating the high-bandwidth
RACEway Interconnect system area network within the PCI environment results in
highly scalable systems. This allows medical equipment suppliers to design
systems that can satisfy a broad range of price/performance requirements and
meet the needs of global markets, all with the same Mercury architecture.
Mercury's medical OEM customers consist of the leading manufacturers of
diagnostic imaging equipment. They include GE Medical, headquartered in
Wisconsin, GE Medical Systems Europe in France, GE Yokugawa Medical Systems in
Japan, Toshiba in Japan, Siemens Medical in Germany and Elscint in Israel. These
companies have adopted Mercury's PCI or VME computer systems as part of their
developments in either MRI, CT, PET or digital x-ray systems and, in the case of
some companies, multiple types of systems. The Company has supplied GE Medical
with computer systems for use in three successive generations of MRI machines
from 1987 through the present, as well as for use in other GE Medical equipment,
such as PET. In addition, GE Medical and Siemens Medical, the two leading global
suppliers of medical imaging equipment, have recently awarded contracts to
Mercury to design the signal processing system for the next generations of
certain of their medical diagnostic equipment.
The Company is building a system based on Analog Devices' SHARC DSP
processor to fulfill a design win in CT. The Company also is building a system
based on the Texas Instruments' C80 signal processing chip to fulfill a design
win in digital x-ray. The Company believes that the principal reason for its
medical imaging design wins is Mercury's experienced team of systems and
applications engineers who work closely with the medical equipment designers and
with the Company's product development engineers. This joint design effort
frequently precedes the first production orders by approximately two to three
years. However, once selected, the production contracts typically continue for
the life of the medical imaging system. In addition, the equipment manufacturers
typically offer computer system upgrades to their customers, potentially
resulting in additional sales of Mercury products.
Shared Storage
The Company believes that the shared storage market includes a number of
distinct applications, such as digital video editing, electronic computer aided
design, webcasting, cable advertising insertion and pre-press. In fiscal 1997,
Mercury introduced SuiteFusion, its first shared storage software product
designed to meet the digital video editing needs of the broadcast and
post-production industry. Companies in the broadcast and post-production
industry have begun to use non-linear, disk-based technology, and are becoming
aware of the significant productivity gains that can be achieved by networking
multiple editing stations together in a real-time, high-bandwidth, shared
storage workgroup. However, these applications produce extremely large volumes
of digital data that must be transmitted, stored, and manipulated in order to
produce a high-quality finished product. Mercury's SuiteFusion is designed to
choreograph the interactions between workstations and disks to keep files intact
in such a high-performance, shared-storage environment.
Early customers of SuiteFusion include Turner Broadcasting's CNN
Interactive in Atlanta, Georgia, Hughes Aircraft, for use at the U.S. Army
National Training Center in Fort Irwin, California, and Nickelodeon's Blue's
Clues television show in New York, New York. CNN is using Mercury's software to
improve efficiency in editing and producing features for Internet broadcasts;
the U.S. Army uses SuiteFusion to help capture, edit and play back live
simultaneous training exercises; and Nickelodeon's creative design artists are
able to share animation and graphics files.
In addition, Mercury has signed OEM distribution agreements with several
industry leaders, including Avid Technology, Inc., the worldwide leader in
non-linear editing systems, PathLight in the serial storage architecture
networking environment, and MountainGate Productions, LLC in the fiber channel
storage market. The Company also has approximately 10 non-exclusive distributor
agreements with video-editing resellers in the United States and Canada.
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KEY TECHNOLOGY COMPETENCIES
Many of Mercury's customers share a common requirement: the need to process
high-volume, real-time data streams. Whether from an antenna in a defense
application, a medical scanner or a video camera, the computer must have the
ability to process incoming data as quickly as it is received. Data rates can
range from a few to several hundreds of megabytes per second (or several billion
bits per second). The ability to process this continuous flow of high-bandwidth
data is a fundamental difference between the majority of computing systems in
the world (such as personal computers, workstations and servers) and the
computers built by Mercury.
Mercury has developed a set of core technical strengths specifically
targeted to, and defined by, the application areas of signal, image and media
processing. These technical strengths are pivotal to Mercury's success in the
real-time market segments of the defense electronics and medical imaging
industries and have resulted in the following developments and capabilities:
Heterogeneous Switched-Fabric Interconnects. Mercury connects different
microprocessor types (RISC, DSP and specialized computing devices) and I/O
devices in a bus-less, high-bandwidth manner based on multi-stage switches in
its system area network. Among the engineering developments which distinguish
Mercury's systems are the RACEway Interconnect built using the six-port RACEway
crossbar chip which supports high bandwidth point-to-point data transfers and
fibre channel chassis-to-chassis extensions for RACEway in large system
configurations.
Heterogeneous Processor Integration. Mercury has developed several ASICs
which integrate standard microprocessors and special purpose mathematics and
graphics processors into a single heterogenous environment. Mercury develops
systems consisting of different microprocessor types with a single-system
software model. Mercury's processor independent software offers a consistent set
of software tools and interfaces, which can drive a heterogeneous mix of
microprocessor types, such as Motorola's PowerPC processor, Analog Devices'
SHARC DSP processor and Texas Instruments' C80 processor.
Performance Density. The Company has been using high performance packaging
technology such as multi-chip modules and ball grid arrays in its systems since
the early 1990's. The Company's thermal analysis expertise allows it to design
products that optimize the dissipation of heat from the system in order to meet
the environmental constraints imposed by many of its customers' applications.
The Company's modular hardware and software building blocks allow it to design
systems that best meet the application's specific data profiles. All together,
these attributes combine to deliver the maximum performance in processing,
reliability and bandwidth in the smallest possible space.
Scalable Software. Mercury's software has been designed to scale to more
than one thousand processors in real-time environments while maintaining a
high-bandwidth capability. Regardless of the number of processors, the Company's
software provides the same programming environment for a software developer
working with Mercury's computer systems, allowing faster time-to-market and
lower life cycle maintenance costs for its customers.
Optimized Algorithm Development. Mercury specializes in algorithm
development for single and multi-processor implementations. The Company believes
that using the mathematical algorithms in Mercury's scientific algorithm library
significantly increases the performance of customers' applications, reduces
development time and minimizes life cycle support costs.
System Engineering Expertise. Mercury has established a core competency in
providing total system solutions to its customers. The Company has the knowledge
and technical staff to act as an extension of the customer's engineering
organization in order to fashion solutions to some of the world's most demanding
real-time, signal processing applications. Mercury has partnered with its
customers to understand and resolve the challenging problems encountered in
applications as diverse as radar, sonar and signal intelligence for the
military, and diagnostic imaging for MRI, CT, PET and digital x-ray in the
medical imaging market. The Company also provides an integration and development
service to meet the demands of its customers with advanced applications which
cannot be satisfied with standard products. This service combines the variety of
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standard products with custom hardware and software to meet the specific
configuration demands of an application.
Leverage and Create Standards. Mercury uses existing standards where
applicable and has been successful in developing new standards. For example,
Mercury adheres to VME and PCI standard bus interfaces and form factors. The
RACEway Interconnect system area network that Mercury developed was adopted as
an ANSI/VITA standard in 1995, and since then has been adopted by several
companies offering products and services for embedded real-time applications.
PRODUCTS
HARDWARE PRODUCTS
Mercury offers three classes of systems for the Company's target markets.
Each class of products is scalable to meet the full range of requirements in
signal processing applications.
High Performance Class. For the highest-performance applications, Mercury
offers a family of high performance systems for the most compute intensive and
I/O capacity and interprocessor bandwidth demanding applications in the defense
electronics market. These applications include space time adaptive processing,
ground-penetrating and foliage-penetrating radar and synthetic aperture radar.
These high-performance systems, known as MultiPort, can scale to over a thousand
processors and today include compute modules based on the SHARC and PowerPC
processors.
VME Class. The VME bus has been the traditional standard for many embedded
applications. Mercury's VME systems each have a RACEway Interconnect port.
Systems contain modules based on the SHARC, PowerPC and i860 processors and can
scale to several hundred processors. The VME-based systems and components are
primarily used in the defense market where backward and forward compatibility is
required for the long system life cycles of military equipment. This class of
RACE Series systems meets the computing speed, bandwidth and scaleability
requirements of many of today's medium performance radar, sonar and signal
intelligence applications. Advanced and future radar systems are more likely to
use the high performance class systems.
Industrial PC Class. Based on the PCI bus standard, these systems use the
RACEway Interconnect to provide the extended bandwidth required for real-time
applications. Currently Mercury provides compute modules based on the SHARC and
TI C80 processors. These systems scale to hundreds of processors and are
primarily directed to the medical imaging market, which is moving from VME to
PCI based designs.
SOFTWARE PRODUCTS
Mercury has developed a comprehensive line of signal processing software
products for the defense and medical imaging markets. Certain of Mercury's
software products are included in a heterogeneous development software package
that enables customers to develop application software that will run on Mercury
hardware. The development software package includes the MC/OS operating system,
scientific algorithm libraries, debugging tools and compilers. License fees
range from $10,000 to $50,000 based on the number of seats chosen by the user
for its application, ranging from a single user license to a project license.
Set forth below are certain signal processing software products offered by
the Company.
MC/OS Version 4. The MC/OS runtime operating environment allows maximum
use of the RACE heterogeneous multi-computer architecture in a single-system
model incorporating a consistent set of system and application programming
interfaces, and a common development environment. MC/OS is supported on the high
performance, VME and industrial PC classes of Mercury hardware systems. MC/OS is
included in Mercury's development software package.
Scientific Algorithm Library (SAL). Mercury's scientific algorithm library
consists of more than 400 assembly language routines developed by Mercury's
programmers and optimized for execution on Mercury's RACE architecture,
permitting extensive code reusability. The library encompasses a comprehensive
selection
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of functions including vector processing and data conversion commonly performed
by digital signal processing applications. SAL is included in Mercury's
development software package.
Parallel Application System (PAS). PAS is a set of high performance
libraries which form a complete programming environment for developing parallel
applications in a distributed memory multicomputer system. The libraries speed
the development of advanced applications using many processors in parallel. PAS
is included in Mercury's development software package.
SuperVision. SuperVision is a state-of-the-art debugging tool for
observation and control of embedded, real-time multicomputing systems.
SuperVision speeds application development by selectively monitoring individual
and large groups of processors, while simultaneously performing detailed
process-level debugging. SuperVision is sold separately.
PeakWare for RACE. PeakWare for RACE is a visual component programming
tool, jointly developed with MATRA, that allows the developer to use diagrams to
express the interconnection of software components. Jointly mapping the
application and the RACE system configuration accelerates the overall
development process. From the graphical input, PeakWare for RACE generates the C
code for interprocessor communication and builds executable and ready-to-deploy
application code. PeakWare for RACE is sold separately.
Mercury also has developed software products for specific shared storage
applications in the broadcast and post-production industry. Set forth below is
the first such software product commercially introduced by the Company.
SuiteFusion. SuiteFusion is an open, scalable software application that
allows various desktop computer systems to simultaneously access large shared
files. Written in JAVA, this highly portable code is supported on both Macintosh
and Windows-based PC desktops. While SuiteFusion is directed initially to the
creative and design departments within the broadcast and post-production
industry, the Company believes it has potential applicability in several shared
storage markets.
ENGINEERING, RESEARCH AND DEVELOPMENT
The Company's engineering, research and development efforts are focused on
developing new products as well as enhancing existing products. Mercury's
research and development goal is to fully exploit and maintain the Company's
technological lead in the high performance, real-time, signal processing
industry. In addition to the central engineering organization which focuses on
Mercury's two principal markets, the Company has an engineering team developing
SuiteFusion and its derivatives for the shared storage market and another
engineering team developing systems for the digital television requirements of
the future.
Mercury is involved with researchers from other companies and government
organizations to develop new signaling technologies using fiber optics. This has
the potential for providing more bandwidth per line than conventional techniques
and is directed at the 21(st) century challenges of the next generation of
advanced signal processing systems. Similar cooperative developments are
underway to develop open software solutions for code portability. This research
is focused on developing generic applications which can be targeted to Mercury's
products through the use of industry standard tools with Mercury-specific
libraries. Some of these research areas benefit from cost sharing through DARPA
grants in those areas where the DoD will obtain benefit from the development.
As of September 30, 1997, the Company had 32% of all its employees, or 104
people, primarily engaged in engineering, research and development, including
hardware and software architects, design engineers and engineers with expertise
in developing medical, defense and shared storage software systems. During
fiscal years 1995, 1996 and 1997, the Company's total research and development
costs were approximately $8.6 million, $9.8 million, and $12.8 million,
respectively.
CUSTOMER SUPPORT AND INTEGRATION
As of September 30, 1997, Mercury's Customer Services Group included 37
people engaged in a full range of support functions, including training,
technical program management, integration and design services,
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host porting services and the traditional maintenance and support services. The
Company has invested in the range of tools, analyzers, simulators, instruments
and workstations to provide a rapid response to both development and customer
support requirements. Within the Customer Services Group, the solutions systems
department has developed many custom interfaces, reviewed customers' designs,
developed special hardware and software components and provided program
management on behalf of defense and medical customers. The capabilities of this
group enable the Company to respond to the demanding individuality of many
programs and have resulted in Mercury being selected for both development, high
volume production and deployed programs.
MANUFACTURING AND TESTING
Mercury's strengths include the design, development and testing of products
which meet the exacting technology and quality expectations of the Company's
defense electronics and medical imaging customers. Board assembly is outsourced
to a number of electronic contract manufacturers. The supplier typically inserts
most of the components into a printed circuit board, solders the connections,
conducts preliminary testing and returns the boards to Mercury. The Company
conducts final assembly, burn-in and system level testing.
Mercury utilizes Optimal Supply Chain Management to provide highly flexible
manufacturing solutions which can be tailored to the specific needs of the
Company's customers, while maintaining the highest level of quality and control
of product assembly. This standard is maintained through demanding Quality
Assurance and Reliability Programs, such as Statistical Process Control, which
are integrated throughout the manufacturing process.
The Company's outsourcing strategy provides maximum flexibility to respond
to customer requirements and schedule adjustments, with minimal asset investment
by Mercury. This outsourcing strategy also provides multiple sources of supply,
both to support the breadth and complexity of Mercury's product lines, as well
as to ensure continuity of supply. By outsourcing assembly to electronic
contract manufacturers, Mercury is able to focus its manufacturing efforts on
designing more reliable products, designing more efficient methods of building
its products, systems integration, testing and supply chain management.
Mercury's manufacturing approach is based on a highly integrated process
that takes a product from concept through production. All products are required
to meet specified standards of performance, quality, reliability and safety. The
Company manufactures both commercial and ruggedized versions of its computer
systems. Extensive testing is a fundamental part of the Company's process.
Computer Integrated Manufacturing, Concurrent Engineering, Material Requirements
Planning and Just-In-Time techniques are also integrated into manufacturing
operations as part of an on-time delivery philosophy. Mercury has been ISO 9001
certified since 1995.
Several components used in the Company's products are currently obtained
from sole source suppliers. Mercury is dependent on LSI Logic for four custom
designed ASICs, on Analog Devices for its SHARC processors, on IBM for ball grid
array packaging, on Motorola for its PowerPC processors and on Intel for its
i860 processors. If LSI Logic, Analog Devices, IBM, Motorola or Intel were to
limit or reduce the sale of such components to the Company, or if these or other
suppliers to the Company were to experience financial difficulties or other
problems which prevented them from supplying the Company with the necessary
components, such events could have a material adverse effect on the Company's
business, financial condition and results of operations. These sole source
suppliers are subject to quality and performance issues, materials shortages,
excess demand, reduction in capacity and other factors that may disrupt the flow
of goods to the Company or its customers and thereby adversely affect the
Company's business and customer relationships. The Company has no guaranteed
supply arrangements with its suppliers and there can be no assurance that its
suppliers will continue to meet the Company's requirements. If the Company's
supply arrangements are interrupted, there can be no assurance that the Company
would be able to find another supplier on a timely or satisfactory basis. Any
shortage or interruption in the supply of any of the components used in the
Company's products, or the inability of the Company to procure these components
from alternate sources on acceptable terms could have a material adverse effect
on the Company's business, financial condition and results of operations. There
can be no assurance that severe shortages of components will not occur in the
future. Such
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shortages could increase the cost or delay the shipment of the Company's
products, which could have a material adverse effect on the Company's business,
financial condition and results of operations. Significant increases in the
prices of these components would also materially adversely affect the Company's
financial performance since the Company may not be able to adjust product
pricing to reflect the increase in component costs. The Company could incur
set-up costs and delays in manufacturing should it become necessary to replace
any key vendors due to work stoppages, shipping delays, financial difficulties
or other factors and, under certain circumstances, these costs and delays could
have a material adverse effect on the Company's business, financial condition
and results of operations.
COMPETITION
The markets for the Company's products are highly competitive and are
characterized by rapidly changing technology, frequent product performance
improvements and evolving industry standards. Competition typically occurs at
the design stage, where the customer evaluates alternative design approaches,
including those from internal development organizations. A design win usually
ensures a customer will purchase the product until their next generation system
is developed. Occasionally, the Company's computer systems compete with computer
systems from workstation vendors, all of whom have substantially greater
research and development resources, long term guaranteed supply capacity,
marketing and financial resources, manufacturing capability and customer support
organizations than those of the Company. The Company believes that its future
ability to compete effectively will depend, in part, upon its ability to
continue to improve product and process technologies and develop new
technologies in order to maintain the performance advantages of products and
processes relative to competitors, to adapt products and processes to
technological changes, to identify and adopt emerging industry standards and to
adapt to customer needs.
The principal bases for selection in sales of digital signal processing
systems to the defense electronics industry are performance (measured primarily
in terms of processing speed, I/O capacity and interprocessor bandwidth,
processing density per cubic foot, power consumption and heat dissipation),
systems engineering support, overall quality of products and associated
services, use of industry standards, ease of use and price. Competitors in the
defense electronics industry include a relatively small number of companies that
design, manufacture and market DSP board level products and in-house design
teams employed by prime defense contractors. In-house design efforts
historically have provided a significant amount of competition to the Company.
However, competition from in-house design teams has diminished in significance
in recent years due to the increasing use of COTS products and the trend toward
greater use of outsourcing. Despite this recent change, there can be no
assurance that in-house developments will not re-emerge as a major competitive
force in the future. Prime contractors are much larger than Mercury and have
substantially more resources to invest in research and development. Increased
use of in-house design teams by defense contractors in the future may have a
material adverse effect on the Company's business, financial condition and
results of operations.
In the medical imaging industry the principal bases for selection are
performance (measured primarily in terms of processing speed, I/O capacity and
interprocessor bandwidth and power consumption), price, systems engineering
support, overall quality of products and associated services, use of industry
standards and ease of use. Competitors in the medical imaging market include
in-house design teams, a small number of companies that design, manufacture and
market DSP board level products and workstation manufacturers. Workstations have
become a competitive factor primarily in the market for low-end MRI and CT
machines and, to date, have not been a significant factor in the
high-performance market, Mercury's primary focus. There can be no assurance that
workstation manufacturers will not attempt to penetrate the high-performance
market for medical imaging machines. Workstation manufacturers typically have
greater resources than Mercury and their entry into markets historically
targeted by Mercury may have a material adverse effect on the Company's
business, financial condition and results of operations.
Due to the emerging nature of the markets for the Company's shared storage
technology, its competitive factors are not yet clearly defined. The Company
currently is focusing its efforts in this area on the broadcast and
post-production industry, where the Company believes there is currently only one
directly competitive product. As this market develops, the Company anticipates
that other companies will begin offering additional
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competitive products. New competitors may have significantly greater marketing
and financial resources, better access to individuals making purchasing
decisions, superior products and services than those offered by the Company. The
Company believes that the primary impediment to future sales of shared storage
products to the post-production and broadcast industry is the need to transform
entrenched operating modes, such as those associated with linear tape based
technologies, to accommodate new modes of operation such as those associated
with non-linear, disk-based digital technology. However, there can be no
assurance that industry participants will adopt such new technologies or that,
if adopted, the Company's products will not be obsolete, uncompetitive or
incompatible.
Some of the Company's competitors have greater financial and other
resources than the Company, and the Company may be operating at a cost
disadvantage compared to manufacturers who have greater direct buying power from
component suppliers or who have lower cost structures. There can be no assurance
that the Company will be able to compete successfully in the future with any of
these sources of competition. In addition, there can be no assurance that
competitive pressures will not result in price erosion, reduced margins, loss of
market share or other factors, that could have a material adverse effect on the
Company's business, financial condition and results of operations.
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
The Company relies on a combination of patent, copyright, trademark and
trade secret laws to establish and protect its rights in its products and
proprietary technology. In addition, the Company currently requires its
employees and consultants to enter into nondisclosure and assignment of
invention agreements to limit use of, access to and distribution of, proprietary
information. There can be no assurance that the Company's means of protecting
its proprietary rights in the U.S. or abroad will be adequate. The laws of some
foreign countries may not protect the Company's proprietary rights as fully or
in the same manner as do the laws of the U.S. Also, despite the steps taken by
the Company to protect its proprietary rights, it may be possible for
unauthorized third parties to copy or reverse engineer aspects of the Company's
products, develop similar technology independently or otherwise obtain and use
information that the Company regards as proprietary. There can be no assurance
that others will not develop technologies similar or superior to the Company's
technology or design around the proprietary rights owned by the Company.
Although the Company is not aware that its products infringe on the proprietary
rights of third parties, there can be no assurance that others will not assert
claims of infringement in the future or that, if made, such claims will not be
successful. Litigation to determine the validity of any claims, whether or not
such litigation is determined in favor of the Company, could result in
significant expense to the Company and divert the efforts of the Company's
technical and management personnel from daily operations. In the event of any
adverse ruling in any litigation regarding intellectual property, the Company
may be required to pay substantial damages, discontinue the sale of infringing
products, expend significant resources to develop non-infringing technology or
obtain licenses to use infringing or substituted technology. The failure to
develop, or license on acceptable terms, a substitute technology could have a
material adverse effect on the Company's business, financial condition and
results of operations.
The Company holds two issued United States patents covering aspects of the
RACE architecture and the SuperVision debugging tool. In addition, the Company
has two pending United States patent applications covering additional aspects of
the RACE architecture and the Company's Parallel Application System. The Company
may file additional patent applications seeking protection for other proprietary
aspects of its technology in the future. Patent positions frequently are
uncertain and involve complex and evolving legal and factual questions. The
coverage sought in a patent application either can be denied or significantly
reduced before or after the patent is issued. Consequently, there can be no
assurance that any patents from pending patent applications or from any future
patent application will be issued, that the scope of any patent protection will
exclude competitors or provide competitive advantages to the Company, that any
of the Company's patents will be held valid if subsequently challenged or that
others will not claim rights in or ownership of the patents and other
proprietary rights held by the Company. Since patent applications are secret
until patents are issued in the United States or corresponding applications are
published in international countries, and since publication of discoveries in
the scientific or patent literature often lags behind actual discoveries, the
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Company cannot be certain that it was the first to make the inventions covered
by each of its pending patent applications or that it was the first to file
patent applications for such inventions. In addition, there can be no assurance
that competitors, many of which have substantial resources and have made
substantial investments in competing technologies, will not seek to apply for
and obtain patents that will prevent, limit or interfere with the Company's
ability to make, use or sell its products either in the United States or in
international markets.
BACKLOG
As of September 30, 1997, the Company had a backlog of orders aggregating
approximately $25.7 million. The Company includes in its backlog customer orders
for products and services for which it has accepted signed purchase orders with
assigned delivery dates within twelve months. Orders included in backlog may be
canceled or rescheduled by customers without penalty. A variety of conditions,
both specific to the individual customer and generally affecting the customer's
industry, may cause customers to cancel, reduce or delay orders that were
previously made or anticipated. The Company cannot assure the timely replacement
of canceled, delayed or reduced orders. Significant or numerous cancellations,
reductions or delays in orders by a customer or group of customers could
materially adversely affect the Company's business, financial condition and
results of operations. Backlog should not be relied upon as indicative of the
Company's revenues for any future period.
EMPLOYEES
At September 30, 1997, the Company employed a total of 323 persons,
including 104 in research and development, 120 in sales, marketing and customer
support, 51 in manufacturing and 48 in finance and administration. Eight of the
Company's employees are located in Europe, four in Japan and the remainder in
the U.S. None of the Company's employees are represented by a labor organization
and the Company believes that its relations with employees are good. Competition
for qualified personnel in the engineering fields is intense and the Company is
aware that much of its future success will depend on its continued ability to
attract and retain qualified personnel. The Company seeks to attract new
employees by offering competitive compensation packages, including salary,
bonus, stock options and employee benefits. There can be no assurance, however,
that the Company will be successful in retaining its key employees or that it
will be able to attract skilled personnel for the development of its business.
FACILITIES
The Company's headquarters consist of approximately 96,000 square feet of
office space under lease in Chelmsford, Massachusetts. The Company intends to
use a portion of the net proceeds of the Offering to fund construction of
additional 91,000 square feet of office space on vacant, fully permitted land
adjacent to its headquarters. The Company used internally generated funds to
acquire this parcel in November 1997. The Company anticipates that development
of the additional office space will cost approximately $9.0 million, that it
will break ground in April 1998 and that it will complete construction in
approximately 12 months after construction begins. Once the new office space is
completed, the Company plans to transfer the building and the underlying real
estate to an unaffiliated third party pursuant to a sale and leaseback
transaction. See "Use of Proceeds."
The Company also maintains offices in Los Angeles and San Jose, California,
Dallas, Texas, Chanhassen, Minnesota, Madison, Wisconsin and Vienna, Virginia
and has international offices in the United Kingdom, the Netherlands, France and
Japan.
LEGAL PROCEEDINGS
To the Company's knowledge, there are no pending legal proceedings which
are material to the Company or its business to which it is a party or to which
any of its properties is subject.
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MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The directors and executive officers of the Company are as follows:
NAME AGE POSITION
- ---------------------------- --- -------------------------------------------------------
James R. Bertelli........... 57 President, Chief Executive Officer, Director and
Co-Founder
Donald Barry................ 52 Vice President and Director of Medical Business Group
Vincent A. Mancuso.......... 50 Vice President, Government Electronics Group
G. Mead Wyman............... 57 Vice President, Chief Financial Officer and Treasurer
Gordon B. Baty(1)(2)........ 58 Director
Albert P. Belle Isle(2)..... 53 Director
R. Schorr Berman(1)(2)...... 49 Director
Sherman N. Mullin........... 62 Director
Melvin Sallen(1)............ 69 Director
- ---------------
(1) Member of Compensation Committee
(2) Member of Audit Committee
MR. BERTELLI co-founded the Company in 1981, and has served as the
Company's President, Chief Executive Officer and a Director since that time.
Prior to founding the Company, Mr. Bertelli founded a manufacturer's
representative organization after a brief period at Analogic Corporation in
sales management positions. Prior to that, Mr. Bertelli served as a marketing
manager for Digital Equipment Corporation's telephone industry products group.
After a tour of duty in the Army Signal Corps, he began his high-tech career
with RCA Corporation as a computer systems analyst, and later moved into
computer sales with RCA and Univac.
DR. BARRY has been Vice President and Director of Medical Business Group of
the Company since 1992. Prior to that he served as General Manager at Picker
International, Inc., Chief Operating Officer at ESA, Inc. and Director of
International Marketing at American Motors Corp.
MR. MANCUSO joined the Company in December 1996 as Vice President and
Director of Government Electronics Group. Before joining Mercury, Mr. Mancuso
was Director of Federal Sales at Siemens Pyramid Information Systems, Inc.
(formerly known as Pyramid Technology Corporation) from 1995 to 1996. From 1993
to 1995, he was Vice President of consulting at Federal Sources, Inc. From 1991
to 1992, he was Vice President and General Manager at Government Technology
Services, Inc., Advanced Systems Division. Mr. Mancuso served nineteen years at
Hewlett Packard in various sales and marketing positions.
MR. WYMAN has been Vice President, Treasurer and Chief Financial Officer of
the Company since November 1996. Prior to joining Mercury, Mr. Wyman was Chief
Financial Officer at Dataware Technologies, Inc. from 1992 to 1996. Previously,
he was a general partner at Hambrecht and Quist Venture Partners, and was the
first Chief Financial Officer at Lotus Development Corporation. Mr. Wyman has
also held senior financial management positions at Prime Computer Inc. and
Millipore Corporation.
DR. BATY has been a Director of the Company since 1983. Dr. Baty has been a
partner of First Stage Capital, Limited Partnership since 1986. Dr. Baty was the
founder and Chief Executive Officer of Icon Corporation, Context Corporation and
Wormser Engineering, Inc. Dr. Baty is also a Director of Novitron International,
Inc. and numerous private companies.
DR. BELLE ISLE has been a Director of the Company since 1986. Dr. Belle
Isle, who is an independent investor in technology based companies, was
President of Custom Silicon, Inc., has also served as a Vice President of Wang
Laboratories, Inc. and in various technical and business management positions
during fifteen years with the General Electric Company.
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MR. BERMAN has been a Director of the Company since 1993. Mr. Berman is
President and Chief Executive Officer of MDT Advisers, Inc. Mr. Berman is also a
director of Arch Communications Group, Inc. and numerous private companies.
MR. MULLIN has been a Director of the Company since 1994. Mr. Mullin served
as President of Lockheed Advanced Development Co. from 1990 through 1994. Mr.
Mullin currently serves as an ad-hoc adviser to the U.S. Air Force Scientific
Advisory Board.
MR. SALLEN has been a Director of the Company since 1990 and since 1991 has
served as a consultant to the Company in the area of Japanese Strategies and
Sales. Mr. Sallen served as Senior Vice President of Analog Devices, Inc. from
1966 through 1992. Since 1992, Mr. Sallen has served as president of Komon
International, Inc., an international consulting company. Mr. Sallen is also a
director of Tech On Line, Inc. and Copley Controls Corporation.
Set forth below are certain of the Company's additional key employees:
NAME AGE POSITION
- ---------------------------- ---- -------------------------------------------------------
Robert C. Frisch............ 43 Vice President, Chief Technical Officer and Co-Founder
John K. Nitzsche............ 62 Vice President, Special Products Development and
Co-Founder
Bruce A. Beck............... 47 Vice President and Director of Digital Video Products
David L. Bertelli........... 52 Vice President, Organization Development
Steven M. Chasen............ 42 Vice President, Customer Services
Barry S. Isenstein.......... 41 Vice President, Advanced Technologies Group
Mark R. LaForest............ 38 Vice President and Director of Engineering
Gary Olin................... 48 Director of Strategic Marketing
Steven Patterson............ 43 Director of Systems Engineering
Graham Smith................ 57 Director of International Sales
ELECTION AND COMPENSATION OF DIRECTORS
Each director of the Company holds office until his successor has been duly
elected and qualified. Officers of the Company are elected by the Board of
Directors of the Company at each annual meeting of the Board of Directors and
serve at its discretion. The Company's Board of Directors is divided into three
classes, with three-year staggered terms. Dr. Belle Isle and Mr. Sallen are
Class I directors, Dr. Baty and Mr. Mullin are Class II directors and Messrs.
Bertelli and Berman are Class III directors. The terms of the Class I, Class II
and Class III directors expire in 1998, 1999 and 2000, respectively.
The Company's non-employee directors currently receive $2,500 annually plus
$500 per meeting attended as compensation for service on the Board of Directors,
plus reimbursement for reasonable expenses incurred in connection with
attendance at Board and committee meetings. Committee members receive $300 for
attending a meeting not held on the same day as a meeting of the Board of
Directors.
The Company has in effect its 1993 Stock Option Plan for Non-employee
Directors, pursuant to which the Company's non-employee directors are eligible
to receive options to purchase shares of the Company's Common Stock if and when
granted by the Compensation Committee. See "-- Stock Options and Stock Purchase
Plans."
COMMITTEES OF THE BOARD
The Board of Directors has a standing Audit Committee and Compensation
Committee. The members of the Audit Committee are Dr. Baty, Dr. Belle Isle and
Mr. Berman. The Audit Committee reviews the scope of the Company's engagement of
its independent public accountant and their reports. The Audit Committee also
meets with the financial staff of the Company to review accounting procedures
and reports. The Compensation Committee is composed of Dr. Baty and Messrs.
Berman and Sallen. The Compensation Committee is authorized to review and make
recommendations to the Board of Directors regarding the salaries and bonuses to
be paid executive officers and to administer the Stock Option Plans.
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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
During fiscal 1997, Dr. Baty and Messrs. Berman and Sallen served as the
Compensation Committee of the Company's Board of Directors. During fiscal 1997,
no interlocking relationship existed between any member of the Company's
Compensation Committee and any other member of the Company's Board of Directors.
See "Certain Transactions."
EXECUTIVE COMPENSATION
Summary Compensation Table. The following table sets forth the
compensation earned by the Company's Chief Executive Officer and each of the
Company's three other most highly compensated executive officers (collectively,
the "Named Executive Officers") during the year ended June 30, 1997:
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
------------------------
ANNUAL COMPENSATION SECURITIES
----------------------------------------------- UNDERLYING ALL OTHER
OTHER ANNUAL OPTIONS/ COMPEN-
NAME AND PRINCIPAL POSITION SALARY ($) BONUS ($) COMPENSATION ($) SARS (#) SATION ($)
- ------------------------------------- ---------- --------- ---------------- ---------- ----------
James R. Bertelli, President and
Chief Executive Officer............ $260,000 $112,300 $6,000(1) 12,290 $ 32,869(2)(3)
G. Mead Wyman, Vice President,
Treasurer and Chief Financial
Officer(4)......................... 100,000 56,434 -- 80,000 3,529(2)(3)
Donald Barry, Vice President and
Director of Medical Business
Group.............................. 111,000 64,020 -- 1,500 2,160(2)
Vincent A. Mancuso, Vice President,
Government Electronics Group(5).... 55,000 75,000 -- 25,000 1,400(2)
- ---------------
(1) Represents automobile allowance.
(2) Represents matching contributions by the Company into the participant's
401(k) plan.
(3) Represents premiums paid by the Company for split dollar life insurance
policies.
(4) Reflects salary earned from November 1996, when the Company hired Mr. Wyman,
through June 30, 1997.
(5) Reflects salary earned from February 1997, when the Company hired Mr.
Mancuso, through June 30, 1997.
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OPTION GRANTS, EXERCISES AND HOLDINGS
Option Grants. The following table sets forth certain information regarding
options granted to the Named Executive Officers during the year ended June 30,
1997. The Company issued no SARs during the year ended June 30, 1997.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
POTENTIAL
INDIVIDUAL GRANTS REALIZABLE VALUE AT
--------------------------------------------------------- ASSUMED ANNUAL
NUMBER OF PERCENT OF TOTAL RATES OF STOCK
SECURITIES OPTION/SARS PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM(1)
OPTION/SARS EMPLOYEES IN PRICE EXPIRATION -------------------
NAME GRANTED (#) FISCAL YEAR (%) ($/SHARE) DATE 5% ($) 10% ($)
- ---------------------------- ----------- ---------------- ----------- ---------- -------- --------
James R. Bertelli(2)........ 17,129 4.3% $4.00 07/30/06 $ 43,089 $109,197
5,161 1.3 4.00 12/02/06 12,983 32,908
G. Mead Wyman(3)............ 80,000 19.8 4.00 01/27/07 201,247 569,997
Donald Barry(4)............. 1,500 0.4 4.00 07/30/06 3,774 9,163
500 0.1 4.00 09/19/06 1,258 3,188
Vincent A. Mancuso(5)....... 25,000 6.2 4.00 01/27/07 62,890 159,675
- ---------------
(1) In accordance with the rules of the Securities and Exchange Commission (the
"Commission"), shown are the gains or "option spreads" that would exist for
the respective options granted. These gains are based on the assumed rates
of annual compound stock price appreciation of 5% and 10% from the date the
option was granted over the full option term. These assumed annual compound
rates of stock price appreciation are mandated by the rules of the
Commission and do not represent the Company's estimate or projection of
future Common Stock prices.
(2) Options to purchase 6,144 of these shares were exercisable at June 30, 1997.
The remaining options vest as to 2,581 shares on December 2, 1998 and as to
3,565 shares on July 31, 1998, as long as Mr. Bertelli's employment has not
been terminated.
(3) Options with respect to 40,000 of these shares vest in equal 20% increments
on December 2, 1997, and the four succeeding anniversaries thereof, as long
as Mr. Wyman's employment has not been terminated. Options with respect to
the remaining 40,000 shares vest based on the achievement of certain
performance criteria, and in all events on the seventh anniversary of the
option grant date, as long as Mr. Wyman's employment has not been
terminated.
(4) Options to purchase 1,030 shares were exercisable at June 30, 1997. The
remaining options vest as to 250 shares on September 19, 1998 and as to 720
shares on July 30, 1998, as long as Mr. Barry's employment has not been
terminated.
(5) This option vests in equal 20% increments on the first five anniversaries of
January 27, 1997, as long as Mr. Mancuso's employment has not been
terminated.
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Option Exercises and Holdings. The Named Executive Officers did not
exercise any options during the year ended June 30, 1997. The following table
sets forth certain information regarding exercise of options held at June 30,
1997, by each of the Named Executive Officers.
FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT FISCAL YEAR-END FISCAL YEAR-END($)(1)
------------------------------- -------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------- ----------- ------------- ----------- -------------
James R. Bertelli.................... 10,144 12,146 $91,296 $ 109,314
G. Mead Wyman........................ -- 80,000 -- 720,000
Donald Barry......................... 9,750 2,250 87,750 20,250
Vincent A. Mancuso................... -- 25,000 -- 225,000
- ---------------
(1) Value is based on the difference between the option exercise price and the
assumed initial public offering price of $13.00 per share, the mid-point of
the filing range, multiplied by the number of shares of Common Stock
underlying the option. No market existed for the Common Stock prior to this
offering.
STOCK OPTION AND STOCK PURCHASE PLANS
Stock Option Plans
The Company has in effect its 1997 Stock Option Plan (the "1997 Plan"),
1993 Stock Option Plan for Non-Employee Directors (the "1993 Plan"), 1991 Stock
Option Plan (the "1991 Plan") and 1982 Stock Option Plan (the "1982 Plan," and
with the 1997 Plan, the 1993 Plan and the 1991 Plan, the "Stock Option Plans").
The Company's stock option plans are designed to attract, retain and motivate
key employees and directors. The Compensation Committee of the Board of
Directors (the "Compensation Committee") is responsible for the administration
and interpretation of the Stock Option Plans and is authorized to grant options
thereunder to all eligible employees and directors of the Company, except that
no director who is not also an employee of the Company is eligible to receive
incentive stock options (as defined in Section 422 of the Internal Revenue Code)
("Incentive Options") and only directors who are not employees of the Company
are eligible to receive options under the 1993 Plan. The Compensation Committee
has full power to select, from among the persons eligible for awards under the
1982 Plan, the 1991 Plan and the 1997 Plan, the individuals to whom awards will
be granted, to make any combination of awards to participants, and to determine
the specific terms of each award, subject to the provisions of the Stock Option
Plans. Under the 1993 Plan, each non-employee director of the Company received
on or about September 30 in each of 1994, 1995, 1996 and 1997, and will receive
on or about September 30, 1998, that number of shares of Common Stock equal to
one percent of the net income of the Company for the most recent fiscal year
ending prior to the grant divided by the per share fair market value of the
Company Stock on the first day of such fiscal year divided by the number of
non-employee directors in office at the time of the grant. Options granted under
the Stock Option Plans vest and become exercisable in accordance with option
agreements evidencing such grants. Incentive Options may be granted only to
officers or other employees of the Company, including members of the Board of
Directors who are also employees of the Company or its subsidiaries. Options
which do not qualify as Incentive Options, "Non-Qualified Options" may be
granted or issued to officers or other employees of the Company, directors and
to consultants and other key persons who provide services to the Company
(regardless of whether they are also employees).
The exercise price of each option granted under the Stock Option Plans is
determined by the Compensation Committee but, in the case of Incentive Options,
may not be less than 100% of the fair market value of the underlying shares on
the date of grant. No Incentive Option may be granted under the Stock Option
Plans to any employee of the Company or any subsidiary who owns at the date of
grant shares of stock representing in excess of 10% of the combined voting power
of all classes of stock of the Company or a parent or a subsidiary unless the
exercise price for stock subject to such option is at least 110% of the fair
market value of such stock at the time of grant and the option term does not
exceed five years.
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Options may be made exercisable in installments, and the exercisability of
options may be accelerated by the Compensation Committee. Upon exercise of
options, the option exercise price must be paid in full (i) in cash or by
certified or bank check or other instrument acceptable to the Compensation
Committee, (ii) if the applicable option agreement permits, by delivery of
shares of Common Stock of the Company owned by the optionee having a fair market
value equal in amount to the exercise price of the options being exercised or
(iii) any combination of (i) and (ii), provided, however that payment of the
exercise price by delivery of shares of Common Stock of the Company owned by
such optionee may be made only to the extent such payment, in whole or in part,
would not result in a charge to earnings for financial accounting purposes.
As of October 31, 1997, options to purchase 349,352 shares of Common Stock
were outstanding under the 1997 Plan, of which 19,175 were then exercisable. As
of October 31, 1997, options to purchase 32,482 shares of Common Stock were
outstanding under the 1993 Plan, all of which were then exercisable. As of
October 31, 1997 options to purchase 579,090 shares of Common Stock were
outstanding under the 1991 Plan, of which options to purchase 267,910 shares
were then exercisable. As of October 31, 1997, options to purchase 142,200
shares of Common Stock were outstanding under the 1982 Plan, all of which were
then exercisable.
Options granted under the Company's stock option plans are not transferable
by the optionee except by will, by the laws of descent and distribution or
pursuant to a qualified domestic relations order. Options are exercisable only
while the optionee remains in the employ of the Company or for a short period of
time thereafter. Options which are exercisable following termination of
employment are exercisable only to the extent that the optionee was entitled to
exercise such options on the date of termination of his or her employment.
Under the 1997 Plan, 575,000 shares are reserved for issuance upon exercise
of stock options. Under the Company's 1993 Plan, 50,000 shares of Common Stock
are currently reserved for exercise upon exercise of stock options. Under the
1991 Plan, 700,000 shares of Common Stock are currently reserved for exercise
upon exercise of stock options. Under the Company's 1982 Stock Option Plan,
144,700 shares are reserved for issuance upon exercise of stock options.
Employee Stock Purchase Plan
The Company's 1997 Employee Stock Purchase Plan (the "1997 Purchase Plan")
for employees of the Company was adopted by the Board of Directors on November
6, 1997 and will be submitted by the Stockholders of the Company for approval at
a Special Meeting of Stockholders to be held on December 18, 1997. The 1997
Purchase Plan authorizes the issuance of a maximum of 250,000 shares of Common
Stock pursuant to the exercise of nontransferable options granted to
participating employees.
The 1997 Purchase Plan is administered by the Compensation Committee. All
employees of the Company whose customary employment is 20 hours or more per week
and have been employed by the Company for at least six months are eligible to
participate in the 1997 Purchase Plan. Employees who own 5% or more of the
Company's stock and directors who are not employees of the Company may not
participate in the 1997 Purchase Plan. To participate in the 1997 Purchase Plan
an employee must authorize the Company in writing to deduct an amount (not less
than 1% nor more than 10% of a participant's base compensation not to exceed
$25,000 per year) from his or her pay commencing on January 1 and July 1, of
each year (each a "Purchase Period"). On the first day of each Purchase Period,
the Company grants to each participating employee an option to purchase up to
that number of shares of Common Stock, the fair market value of which on the
date of grant is equal to $25,000. The exercise price for the option for each
Purchase Period is the lesser of 85% of the fair market value of the Common
Stock on the first or last business day of the Purchase Period. The fair market
value will be the closing selling price of the Common Stock as quoted on the
Nasdaq National Market. If an employee is not a participant on the last day of
the Purchase Period, such employee is not entitled to exercise his or her
option, and the amount of his or her accumulated payroll deduction will be
refunded to the employee. Shares acquired by employees pursuant to the Purchase
Plan may not be transferred for three months following the date of acquisition.
An employee's rights under the 1997 Purchase
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50
Plan terminate upon his or her voluntary withdrawal from the Plan at any time or
upon termination of employment.
Common Stock for the 1997 Purchase Plan will be made available either from
authorized but unissued shares of Common Stock or from shares of Common Stock
reacquired by the Company, including shares repurchased in the open market.
LIMITATION OF LIABILITY; INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted by the Massachusetts General Laws, the Company has included in
its Charter a provision to eliminate the personal liability of its directors for
monetary damages for breach or alleged breach of their fiduciary duties as
directors, subject to certain exceptions. In addition, the Bylaws of the Company
provide that the Company is required to indemnify its officers and directors
under certain circumstances, including those circumstances in which
indemnification would otherwise be discretionary, and the Company is required to
advance expenses to its officers and directors as incurred in connection with
proceedings against them for which they may be indemnified. At present, the
Company is not aware of any pending or threatened litigation or proceeding
involving a director, officer, employee or agent of the Company in which
indemnification would be required or permitted. The Company believes that its
Charter provisions and indemnification agreements are necessary to attract and
retain qualified persons as directors and officers. Insofar as indemnification
for liabilities arising under the Securities Act may be permitted to directors,
officers and controlling persons of the Company pursuant to the foregoing, the
Company has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable.
CERTAIN TRANSACTIONS
The Company has loaned James R. Bertelli, President of the Company, an
aggregate of $200,000, of which $150,000 accrues interest at an annual rate of
9.75% and $50,000 accrues interest at an annual rate of 10.5%. In addition, the
Company has loaned Albert Belle Isle, a Director of the Company, an aggregate of
$125,000, of which $100,000 accrues interest at an annual interest rate of 8%
and $25,000 accrues interest at 9.25%. The notes evidencing such obligations of
Mr. Bertelli and Dr. Belle Isle are payable in full on the earlier of December
31, 1999, or 181 days following the consummation of an initial public offering
of the Company's Common Stock.
The Company has granted Memorial Drive Trust, Mr. Bertelli, President and
Chief Executive Officer of the Company, and certain other stockholders certain
rights with respect to the registration of the Company's securities. See
"Description of Capital Stock -- Registration Rights of Certain Holders."
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PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information with respect to the beneficial
ownership of the Company's Common Stock as of October 31, 1997 and as adjusted
to reflect the sale of the Common Stock offered hereby by, for (i) each person
who is known by the Company to own beneficially more than 5% of the outstanding
shares of Common Stock, (ii) each of the Company's directors, (iii) each of the
Selling Stockholders, (iv) each Named Executive Officer and (v) all directors
and executive officers as a group.
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERING(1) OFFERING(1)
------------------- SHARES TO BE SOLD -------------------
NAME AND ADDRESS OF BENEFICIAL OWNER(1) NUMBER PERCENT IN OFFERING NUMBER PERCENT
- ------------------------------------------- --------- ------- ----------------- --------- -------
Memorial Drive Trust(2).................... 2,879,786 36.6% 425,000 2,454,786 24.8%
Massachusetts Mutual Life Insurance
Company(3)............................... 1,000,000 12.7 212,500 787,500 8.0
Data General Corporation(4)................ 655,067 8.3 280,500 277,507 3.8
First Stage Capital Limited
Partnership(5)........................... 375,000 4.8 318,750 -- *
James R. Bertelli(6)....................... 437,119 5.5 -- 437,119 4.4
Donald Barry(7)............................ 11,030 * -- 11,030 *
Vincent A. Mancuso......................... -- * -- -- *
G. Mead Wyman(8)........................... 44,000 * -- 44,000 *
Gordon Baty(9)............................. 490,653 6.2 318,750 171,903 1.7
Albert P. Belle Isle(10)................... 48,228 * -- 48,228 *
R. Schorr Berman(11)....................... 2,889,514 36.7 425,000 2,464,514 25.0
Sherman N. Mullin(12)...................... 6,649 * -- 6,649 *
Melvin Sallen(13).......................... 23,649 * -- 23,649 *
All directors and executive officers as a
group (nine persons)(16)................. 3,950,842 49.8 743,750 3,207,092 32.2
OTHER SELLING STOCKHOLDERS
Robert Frisch(14).......................... 176,000 2.2 21,250 154,750 1.6
John Nitzsche.............................. 291,000 3.7 85,000 206,000 2.1
Kathryn Bertelli(15)....................... 301,500 3.8 10,200 291,500 3.0
Susan L. Ansin............................. 140,000 1.8 29,750 110,250 1.1
Patrick B. Maraghy, Trustee(17)............ 360,000 4.6 91,800 268,200 2.7
Other Selling Stockholders each owning less
than 1% of the Common Stock before the
Offering (24 parties)(18)................ 392,429 5.0 25,250 345,925 3.5
- ---------------
* Less than one percent
(1) Beneficial ownership is determined in accordance with rules of the
Securities and Exchange Commission (the "Commission") and includes general
voting power or investment power with respect to securities. Shares of
Common Stock subject to options and warrants currently exercisable or
exercisable within sixty (60) days of October 31, 1997 are deemed
outstanding for computing the percentage of the person holding such
options, but are not deemed outstanding for computing the percentage of any
other person. Except as otherwise specified below, the persons named in the
table above have sole voting and investment power with respect to all
shares of Common Stock shown as beneficially owned by them. Unless
otherwise indicated, the address of each of the beneficial owners
identified is 199 Riverneck Road, Chelmsford, MA 01824.
(2) The address of this beneficial owner is c/o MDT Advisers, Inc., 125
Cambridge Park Drive, Cambridge, MA. Shares are held of record by MD Co.
Includes 2,036,910 shares issuable upon conversion of Series A Convertible
Preferred Stock of the Company.
(3) Includes 500,000 shares held of record by MassMutual Corporate Investors.
The address of these beneficial owners is 1295 State Street, Springfield,
MA 01111.
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(4) The address of this beneficial owner is 4400 Computer Drive, Westborough,
MA 01580. Includes 306,816 shares issuable upon conversion of Series A
Convertible Preferred Stock of the Company.
(5) The address of this beneficial owner is c/o First Stage Capital Limited
Partnership, 101 Main Street, Cambridge, MA 02142.
(6) Includes options to purchase 17,319 shares exercisable within sixty days of
October 31, 1997.
(7) Consists of options to purchase 11,030 shares exercisable within sixty days
of October 31, 1997.
(8) Includes options to purchase 8,000 shares exercisable within sixty days of
October 31, 1997.
(9) Includes 375,000 shares owned by First Stage Capital Limited Partnership,
as to which Mr. Baty may be deemed beneficial owner and as to which Mr.
Baty disclaims beneficial ownership except to the extent of his direct
pecuniary interest. Includes options to purchase 7,228 shares exercisable
within sixty days of October 31, 1997. Mr. Baty is a general partner of
First Stage Capital Limited Partnership.
(10) Includes options to purchase 7,228 shares exercisable within sixty days of
October 31, 1997.
(11) Includes options to purchase 7,228 shares exercisable within sixty days of
October 31, 1997. Includes 2,879,786 shares owned by MD Co., as to which
Mr. Berman may be deemed beneficial owner and as to which Mr. Berman
disclaims beneficial ownership except to the extent of his direct pecuniary
interest. Mr. Berman is President of MDT Advisors, Inc., which manages the
investments of MD Co.
(12) Includes options to purchase 5,399 shares exercisable within sixty days of
October 31, 1997.
(13) Includes options to purchase 5,399 shares exercisable within sixty days of
October 31, 1997.
(14) Includes options to purchase 20,000 shares exercisable within sixty days of
October 31, 1997.
(15) Includes 270,000 shares held of record by Kathryn Bertelli 1995 Irrevocable
Trust, of which Ms. Bertelli serves as a trustee, 1,500 shares held as
custodian for Heidi Bertelli and 30,000 shares held of record by Kathryn
Bertelli.
(16) Includes options to purchase 68,831 shares exercisable within sixty days of
October 31, 1997.
(17) Includes 210,000 shares held as a Trustee of Lawrence J. Ansin 1990
Revocable Trust -- Trust A-2, 75,000 shares held as a Trustee of Gregory
David Ansin 1992 Irrevocable Trust and 75,000 shares held as a Trustee of
Lisa Ansin 1988 Irrevocable Trust.
(18) Includes options to purchase 22,504 shares exercisable within sixty days of
October 31, 1997.
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DESCRIPTION OF CAPITAL STOCK
Effective upon the closing of the Offering, the Company's authorized
capital stock will consist of 25,000,000 shares of Common Stock and 2,000,000
shares of Preferred Stock, par value $.01 per share and will have 9,864,023
shares of Common Stock outstanding, assuming no exercise of options after
October 31, 1997. As of October 31, 1997, an aggregate of 5,307,231 shares of
Common Stock were held of record by 148 stockholders, and 852,264 shares of
Preferred Stock were outstanding and held of record by three stockholders. All
shares of Preferred Stock will be converted into Common Stock upon the
completion of this offering at the rate of three shares of Common Stock for each
share of Preferred Stock. Copies of the Charter and Bylaws have been filed as
exhibits to the Registration Statement and are incorporated by reference herein.
COMMON STOCK
All outstanding shares of Common Stock are, and the Common Stock offered
hereby will be, fully paid and nonassessable. The holders of Common Stock are
entitled to one vote for each share held of record on all matters voted upon by
Stockholders and may not cumulate votes. Subject to the rights of holders of any
future series of undesignated preferred stock which may be designated, each
share of the outstanding Common Stock is entitled to participate equally in any
distribution of net assets made to the Stockholders in the liquidation,
dissolution or winding up of the Company and is entitled to participate equally
in dividends as and when declared by the Board of Directors. There are no
redemption, sinking fund, conversion or preemptive rights with respect to the
shares of Common Stock. All shares of Common Stock have equal rights and
preferences.
PREFERRED STOCK
Upon the completion of this Offering, all of the outstanding Preferred
Stock will be converted into Common Stock. After the completion of this
Offering, the Board of Directors will have the authority, without further
stockholder approval, to issue 1,000,000 shares of preferred stock where defined
in one or more series and to fix the relative rights, preferences, privileges,
qualifications, limitations and restrictions thereof, including dividend rights,
dividend rates, conversion rights, voting rights, terms of redemption,
redemption prices, liquidation preferences and the number of shares constituting
any series or the designation of such series. The issuance of preferred stock,
while potentially providing desirable flexibility in connection with possible
acquisitions and other corporate purposes, could have the effect of delaying,
deferring or preventing a change in control of the Company, may discourage bids
for the Common Stock at a premium over the market price of the Common Stock and
may adversely affect the market price of, and the voting and other rights of the
holders of the Common Stock. No shares of preferred stock will be outstanding
immediately following the completion of this Offering. The Company has no
present plans to issue any shares of Preferred Stock. See "Risk
Factors -- Anti-takeover Provisions; Possible Issuance of Preferred Stock."
REGISTRATION RIGHTS OF CERTAIN HOLDERS
The holders of 6,496,642 shares of Common Stock (the "Registrable
Securities") or their transferees are entitled to certain rights with respect to
the registration of such shares under the Securities Act. These rights are
provided under the terms of certain agreements, by and among the Company and the
holders of the Registrable Securities. Upon consummation of the Offering and
subject to certain limitations in the applicable agreements, holders of
5,004,892 shares of Registrable Securities may request registration under the
Securities Act of all or part of their Registrable Securities, six months after
the effective date of the Offering. If the Company registers any of its Common
Stock either for its own account or for the account of other security holders,
the holders of 5,004,892 shares of Registerable Securities are entitled to
include their shares of Common Stock in the registration, subject to pro rata
cutback. All registration expenses must be borne by the Company and all selling
expenses relating to Registrable Securities must be borne by the holders of the
securities being registered. In addition, certain holders of Registrable
Securities may request registration under the Securities Act of all or part of
their Registrable Securities on Form S-3 if use of such form becomes available
to the Company.
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54
Pursuant to a Stock Purchase Agreement, dated as of January 20, 1984, among
the Company and certain of its stockholders, (i) Memorial Drive Trust and other
investors (together, the "Investors") purchased an aggregate of 852,264 shares
of the Company's Series A Convertible Preferred Stock for an aggregate
consideration of $1,200,000; and (ii) the Investors received so-called "demand"
registration rights, and the Investors, James R. Bertelli, a director and
President of the Company, Gordon Baty, a director of the Company, and certain
other stockholders of the Company received so-called "piggyback" registration
rights.
Pursuant to a Debenture Agreements, dated December 21, 1987, between the
Company and each of Massachusetts Mutual Life Insurance Company and MassMutual
Corporate Investors (together "Massachusetts Mutual"), Massachusetts Mutual
received so-called "demand" and "piggyback" registration rights.
No predictions can be made as to the effect, if any, that future sales of
shares, or the availability of shares for future sales, will have on the
prevailing market price for the Common Stock. Sales of substantial amounts of
Common Stock, or the perception that such sales could occur, could adversely
affect prevailing market prices for the Common Stock and could impair the
Company's future ability to obtain capital through an offering of equity
securities. See "Risk Factors -- Shares Eligible for Future Sale."
CERTAIN ARTICLES OF ORGANIZATION, BYLAWS AND STATUTORY PROVISIONS AFFECTING
STOCKHOLDERS
Classified Board and Other Matters. The Board of Directors will be divided
into three classes, each of which, after a transitional period, will serve until
the third annual meeting of stockholders after their election, with one class
being elected each year. Under the Massachusetts General Laws, in the case of a
corporation having a classified Board, Stockholders may remove a director only
for cause. The Bylaws require that stockholders provide the Clerk of the Company
60 days advance notice prior to the date set forth in the Bylaws for an annual
meeting of Stockholders or special meeting in lieu thereof for the purpose of
any director nominations or within ten (10) days notice after notice of a
special meeting not in lieu of annual meeting. The Bylaws provide that special
meetings of stockholders of the Company may be called only by the Board of
Directors, the President or 30% in interest of the stockholders. The Bylaws as
well as applicable provisions of the Massachusetts General Laws, provide that no
action required or permitted to be taken at any annual or special meeting of the
stockholders of the Company may be taken without a meeting, unless the unanimous
consent of stockholders entitled to vote thereon is obtained. The affirmative
vote of the holders of at least 80% of the combined voting power of then
outstanding voting stock of the Company will be required to alter, amend or
repeal the foregoing provisions; provided, however, that if any proposal to
alter any of the foregoing provisions receives the affirmative vote of a
majority of the directors, then such proposal shall require only the affirmative
vote of the holders of a majority of the outstanding voting stock of the
Company. Such supermajority voting provisions diminish the likelihood that a
potential acquiror would make an offer for the Common Stock, impede a
transaction favorable to the interest of the stockholders or increase the
difficulty of removing a number of Board of Directors or management. See "Risk
Factors -- Anti-Takeover Provisions; Possible Issuance of Preferred Stock."
Chapters 110D and 110F of Massachusetts General Laws. The Company is
subject to the provisions of Chapter 110F of the Massachusetts General Laws, an
anti-takeover law. In general, this statute prohibits a publicly held
Massachusetts corporation with sufficient ties to Massachusetts from engaging in
a "business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person becomes an
interested stockholder, unless either (i) the interested stockholder obtains the
approval of the board of directors prior to becoming an interested stockholder,
(ii) the interested stockholder acquires 90% of the outstanding voting stock of
the corporation (excluding shares held by certain affiliates of the corporation)
at the time he becomes an interested stockholder or (iii) the business
combination is approved by both the board of directors and two-thirds of the
outstanding voting stock of the corporation (excluding shares held by the
interested stockholder) at an annual or special meeting of stockholders, not by
written consent. An interested stockholder is a person who, together with
affiliates and associates, owns 5% or more of the Corporation's outstanding
voting stock or who is an affiliate at any time within the prior three years did
own 5% or more of the corporation's voting stock. A "business combination"
includes mergers, stock and asset sales and other transactions resulting in a
financial benefit to the stockholder. The Company may at any time amend its
Articles of Organization or Bylaws to elect not to be governed by Chapter 110F,
by vote of
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the holders of a majority of its voting stock, but such an amendment would not
be effective for twelve months and would not apply to a business combination
with any person who became an interested stockholder prior to the date of the
amendment.
The Company is also subject to the provisions of Chapter 110D of the
Massachusetts General Laws, entitled "Regulation of Control Share Acquisitions."
This statute provides, in general, that any stockholder who acquires 20% or more
of the outstanding voting stock of a corporation subject to this statute may not
vote that stock unless the stockholders of the corporation so authorize. In
addition, Chapter 110D permits a corporation to provide in its articles of
organization or bylaws that the corporation may redeem (for fair value) all the
shares thereafter acquired in a control share acquisition if voting rights for
those shares were not authorized by the stockholders or if no control share
acquisition statement was delivered. The Charter includes a provision which
permits the Company to effect such redemptions. See "Risk Factors."
Directors Liability. The Charter provides that no director shall be
personally liable to the Company or its stockholders for monetary damages for
breach of fiduciary duty as a director, except for (i) any breach of the
directors's duty of loyalty to the Company or its Stockholders; (ii) acts or
omissions which has been adjudicated not to be in good faith or to have involved
intentional misconduct; (iii) pursuant to Chapter 156B, Section 61 or Section 62
of the Massachusetts General Laws; or (iv) any transaction from which such
director derives improper personal benefit. The effect of this provision is to
eliminate the rights of the Company and its stockholders (through stockholders'
derivative suits on behalf of the Company) to recover monetary damages against a
director for breach of the fiduciary duty of care as a director (including
breaches resulting from negligent or grossly negligent behavior) except in the
situations described in clauses (i) through (iv) above. The limitations
summarized above, however, do not affect the ability of the Company or its
stockholders to seek non-monetary based remedies, such as an injunction or
rescission, against a director for breach of his fiduciary duty nor would such
limitations limit liability under the federal securities laws. The Bylaws
provide that the Company shall, to the full extent permitted by the
Massachusetts General Laws as currently in effect, indemnify and advance
expenses to each of its currently acting and former directors, officers,
employees and agents arising in connection with their acting in such capacities.
TRANSFER AGENT AND REGISTRAR
Boston EquiServe will serve as the transfer agent and registrar for the
Common Stock.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have outstanding
9,864,023 shares of Common Stock, assuming no exercise of options after October
31, 1997. Of these shares, the 3,500,000 shares offered hereby (4,025,000 shares
if the Underwriters' over-allotment options are exercised in full) will be
freely tradeable without restriction or further registration under the
Securities Act, unless purchased by "affiliates" of the Company as that term is
defined in Rule 144 described below. The remaining 6,364,023 shares of Common
Stock (5,639,023 shares if the Underwriters' over-allotment options are
exercised in full) outstanding upon closing of the Offering are "restricted
securities" as that term is defined in Rule 144. Of the remaining 6,364,023
shares (5,639,023 shares if the Underwriters' over-allotment options are
exercised in full), shares are subject to lock-up agreements
(described below).
Upon completion of the Offering, 1,833,145 shares, including shares subject
to the lock-up restrictions described below, will become eligible for immediate
sale pursuant to Rule 144(k) and, beginning 90 days after commencement of the
Offering, 4,357,528 shares, including shares subject to the lock-up restrictions
described below, will become eligible for sale pursuant to Rule 144 or Rule 701
under the Securities Act ("Rule 701"). Upon expiration of the lock-up
agreements, an aggregate of shares will become immediately eligible
for sale without restriction pursuant to Rule 144(k) or Rule 701 (described
below), and approximately additional shares will be eligible for sale
subject to the timing, volume, and manner of sale restrictions of Rule 144. The
remaining shares held by existing stockholders will become eligible
for sale at various times over a period of less than one year. In addition,
463,517 additional shares of Common Stock subject to outstanding vested stock
options could also be sold, subject in some cases to compliance with certain
volume limitations as described below.
In general, under Rule 144, as recently amended, a person (or persons whose
shares are aggregated) who has beneficially owned shares for at least one year
(including the holding period of any prior owner except an affiliate from whom
such shares were purchased) is entitled to sell in "brokers' transactions" or to
market makers, within any three-month period commencing 90 days after the date
of this Prospectus, a number of shares that does not exceed the greater of (i)
one percent of the number of shares of Common Stock then outstanding
(approximately 98,640 shares immediately after the completion of the Offering)
or (ii) generally, the average weekly trading volume in the Common Stock during
the four calendar weeks preceding the required filing of a Form 144 with respect
to such sale. Sales under Rule 144 are subject to the availability of current
public information about the Company. Under Rule 144(k), a person who is not
deemed to have been an affiliate of the Company at any time during the 90 days
preceding a sale, and who has beneficially owned the shares proposed to be sold
for at least two years (including the holding period of any prior owner other
than an affiliate from whom such shares were purchased), is entitled to sell
such shares without having to comply with the manner of sale, public
information, volume limitation or notice provisions of Rule 144. Under Rule 701,
persons who purchase shares upon exercise of options granted prior to the
effective date of the Offering are entitled to sell such shares 90 days after
the effective date of the Offering in reliance on the resale provisions of Rule
701, which are similar to the resale provisions of Rule 144, except such persons
do not have to comply with the holding period requirements of Rule 144 and, in
the case of non-affiliates, such persons do not have to comply with the public
information, volume limitation or notice provisions of Rule 144.
Pursuant to the lock-up agreements, the Company, its executive officers and
directors, the Selling Stockholders and certain other stockholders have agreed
that they will not, without the prior written consent of Prudential Securities
Incorporated, on behalf of the Underwriters, directly or indirectly, offer,
sell, offer to sell, contract to sell, pledge, grant any option to purchase or
otherwise sell or dispose (or announce any offer, sale, offer of sale, contract
of sale, pledge, grant of any option to purchase or other sale or disposition)
of any shares of Common Stock or any securities convertible into, or exercisable
or exchangeable for, any shares of Common Stock, or other similar securities of
the Company for a period of 180 days from the date of this Prospectus, except
that such agreements do not prevent the Company from granting additional options
under the Stock Option Plans or from issuing shares pursuant to the 1997
Purchase Plan. After such 180 day period, this restriction will expire and
shares permitted to be sold under Rule 144 will be eligible for sale. Prudential
Securities Incorporated may, in its sole discretion, at any time and without
prior notice, release all or any portion of the shares of Common Stock subject
to such lock-up agreements.
53
57
The holders of an aggregate of 6,496,642 shares of Common Stock or their
transferees are entitled to certain rights with respect to the registration of
such shares under the Securities Act. See "Description of Capital
Stock -- Registration Rights of Certain Holders."
Prior to the Offering, there has not been any public market for the Common
Stock. Future sales of substantial amounts of Common Stock in the public market
could adversely affect the prevailing market prices and impair the Company's
ability to raise capital through the sale of equity securities.
54
58
UNDERWRITING
The Underwriters named below (the "Underwriters"), for whom Prudential
Securities Incorporated and Cowen & Company are acting as representatives (the
"Representatives"), have severally agreed, subject to the terms and conditions
contained in the Underwriting Agreement, to purchase from the Company and the
Selling Stockholders the number of shares of Common Stock set forth opposite
their respective names:
NUMBER
UNDERWRITER OF SHARES
---------
Prudential Securities Incorporated........................................
Cowen & Company...........................................................
-------
Total........................................................... 3,500,000
=======
The Company and the Selling Stockholders are obligated to sell, and the
Underwriters are obligated to purchase, all of the shares of Common Stock
offered hereby if any are purchased.
The Underwriters, through their Representatives, have advised the Company
and the Selling Stockholders that they propose to offer the shares of Common
Stock initially at the public offering price set forth on the cover page of this
Prospectus; that the Underwriters may reallow to selected dealers a concession
of $ per share; and that such dealers may reallow a concession of
$ per share to certain other dealers. After the initial public
offering, the offering price and the concessions may be changed by the
Representatives.
Certain Selling Stockholders have granted to the Underwriters
over-allotment options, exercisable for 30 days from the date of this
Prospectus, to purchase, in the aggregate, up to 525,000 additional shares of
Common Stock at the initial public offering price, less underwriting discounts
and commissions, as set forth on the cover page of this Prospectus. The
Underwriters may exercise such options solely for the purpose of covering
over-allotments incurred in the sale of the shares of Common Stock offered
hereby. To the extent such options to purchase are exercised, each Underwriter
will become obligated, subject to certain conditions, to purchase approximately
the same percentage of such additional shares as the number set forth next to
such Underwriter's name in the preceding table bears to 3,500,000.
The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters and contribute to any losses arising out of certain
liabilities, including liabilities under the Securities Act.
The Representatives have informed the Company and the Selling Stockholders
that the Underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.
The Company, its executive officers and directors and certain Stockholders,
including the Selling Stockholders, have agreed that they will not, for a period
of 180 days subsequent to the date of this Prospectus, directly or indirectly,
offer, sell, offer to sell, contract to sell, pledge, grant any option to
purchase or otherwise sell or dispose (or announce any offer, sale, offer of
sale, contract of sale, pledge, grant of any option to purchase or other sale or
disposition) of any shares of Common Stock or securities substantially similar
thereto, or any securities convertible into or exercisable or exchangeable for,
any shares of Common Stock or
55
59
securities substantially similar thereto of the Company without the prior
written consent of Prudential Securities Incorporated, on behalf of the
Underwriters, except that such agreements do not prevent the Company from
granting additional options under the Stock Option Plan. Further, certain
holders of outstanding vested stock options are subject to 180 day lock-up
agreements with the Company and/or Prudential Securities Incorporated.
Prudential Securities Incorporated may in its sole discretion at any time and
without notice, release all or any portion of the securities subject to such
lock-up agreements.
Prior to the Offering, there has been no public market for the Common Stock
of the Company. Consequently, the initial public offering price will be
determined through negotiations between the Company and the Representatives.
Among the factors to be considered in making such determination will be the
prevailing market conditions, the Company's financial and operating history and
condition, its prospects and the prospects for its industry in general, the
management of the Company and the market prices of securities for companies in
businesses similar to that of the Company.
In connection with the Offering, certain Underwriters and selling group
members (if any) and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Common Stock.
Such transactions may include stabilization transactions effected in accordance
with Rule 104 of Regulation M, pursuant to which such persons may bid for or
purchase Common Stock for the purpose of stabilizing its market price. The
Underwriters also may create a short position for the account of the
Underwriters by selling more Common Stock in connection with the Offering than
they are committed to purchase from the Company and the Selling Stockholders,
and in such case may purchase Common Stock in the open market following the
closing of the Offering to cover all or a portion of such short position. The
Underwriters may also cover all or a portion of such short position, up to
525,000 shares of Common Stock, by exercising the Underwriters' over-allotment
option referred to above. In addition, Prudential Securities Incorporated, on
behalf of the Underwriters, may impose "penalty bids" under contractual
arrangements with the Underwriters whereby it may reclaim from an Underwriter
(or dealer participating in the Offering) for the account of the other
Underwriters, the selling concession with respect to Common Stock that is
distributed in the Offering but subsequently purchased for the account of the
Underwriters in the open market. Any of the transactions described in this
paragraph may result in the maintenance of the price of the Common Stock at a
level above that which might otherwise prevail in the open market. None of the
transactions described in this paragraph is required, and, if they are
undertaken, they may be discontinued at any time.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company and the Selling Stockholders by Hutchins, Wheeler &
Dittmar, A Professional Corporation, Boston, Massachusetts. Anthony J. Medaglia,
Jr., a Stockholder of Hutchins, Wheeler & Dittmar and the Clerk of the Company,
owns 17,250 shares directly, 8,000 shares indirectly as Trustee and options to
purchase 5,000 shares of Common Stock, of which options to purchase 2,500 shares
are currently exercisable. Certain legal matters in connection with the Offering
will be passed upon for the Underwriters by Testa, Hurwitz & Thibeault, LLP,
Boston, Massachusetts.
EXPERTS
The consolidated balance sheets of Mercury Computer Systems, Inc. as of
June 30, 1996 and 1997 and the consolidated statements of operations, changes in
stockholders' equity and cash flows for each of the three years in the period
ended June 30, 1997, included in this Prospectus, have been included herein in
reliance on the report of Coopers & Lybrand L.L.P., independent accountants, on
the authority of that firm as experts in accounting and auditing.
56
60
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commissions (the
"Commission"), Washington, D.C. 20549 a Registration Statement on Form S-1 under
the Securities Act with respect to the shares of Common Stock offered hereby.
This Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto. For further
information with respect to the Company and such Common Stock, reference is
hereby made to such Registration Statement and to the exhibits and schedules
filed therewith. Statements contained in this Prospectus as to the contents of
any contract or any other document referred to are not necessarily complete, and
in each instance, reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement, each such statement
being qualified in all respects by such reference. A copy of the Registration
Statement may be inspected by anyone without charge at the Commission's
principal office in Washington, D.C., and copies of all or any part of the
Registration Statement may be obtained from the Public Reference Section of the
Commission, 450 Fifth Street, N.W. Washington, D.C. 20549, upon payment of
certain fees prescribed by the Commission. The Commission maintains a World Wide
Website that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission.
The address of the website is http://www.sec.gov.
Upon completion of the Offering, the Company will be subject to the
information reporting requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and, in accordance therewith, will file reports,
proxy statements and other information with the Commission.
The Company intends to furnish its Stockholders with annual reports
containing financial statements audited by the Company's independent public
accountants and quarterly reports for the first three fiscal quarters of each
fiscal year containing unaudited interim financial information.
RACE(R) is a registered trademark of the Company. Mercury, Mercury Computer
Systems, the Mercury logo, SuiteFusion, MC/OS, PAS, SuperVision and PeakWare are
trademarks of the Company. SHARC is a trademark of Analog Devices, Inc. and
PowerPC(R) is a registered trademark of Motorola, Inc. Trademarks of others are
also referred to in this Prospectus.
57
61
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62
MERCURY COMPUTER SYSTEMS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Accountants................................................... F-2
Consolidated Balance Sheets as of June 30, 1996 and 1997 and September 30, 1997
(Unaudited)....................................................................... F-3
Consolidated Statements of Operations for the years ended June 30, 1995, 1996 and
1997 and
for the three months ended September 30, 1996 and 1997 (Unaudited)................ F-4
Consolidated Statements of Changes in Stockholders' Equity for the years ended June
30, 1995, 1996 and 1997 and for the three months ended September 30, 1997
(Unaudited)....................................................................... F-5
Consolidated Statements of Cash Flows for the years ended June 30, 1995, 1996 and
1997 and for the three months ended September 30, 1996 and 1997 (Unaudited)....... F-6
Notes to Consolidated Financial Statements.......................................... F-7
F-1
63
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Mercury Computer Systems, Inc.:
We have audited the accompanying consolidated balance sheets of Mercury
Computer Systems, Inc. as of June 30, 1996 and 1997, and the related
consolidated statements of operations, changes in stockholders' equity, and cash
flows for each of the three years in the period ended June 30, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Mercury
Computer Systems, Inc. as of June 30, 1996 and 1997, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended June 30, 1997, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
August 28, 1997
F-2
64
MERCURY COMPUTER SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
JUNE 30,
------------------- SEPTEMBER 30,
1996 1997 1997
------- ------- -------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents................................ $ 9,704 $15,193 $16,035
Trade accounts receivable, net of allowance for doubtful
accounts of $80, $119 and $119 at June 30, 1996 and
1997, and September 30, 1997, respectively............ 10,236 12,816 12,370
Trade notes receivable................................... 312 -- --
Contracts in progress.................................... -- 1,096 1,997
Inventory................................................ 7,188 8,314 8,905
Deferred income taxes, net............................... 328 926 1,152
Prepaid expenses and other current assets................ 521 728 988
------- ------- -------
Total current assets............................. 28,289 39,073 41,447
Property and equipment, net................................ 4,394 4,984 5,650
Capitalized software development costs, net................ 371 483 363
Deferred income taxes, net................................. 40 39 145
Other assets............................................... 170 269 300
------- ------- -------
Total assets..................................... $33,264 $44,848 $47,905
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable......................................... $ 1,710 $ 2,801 $ 2,316
Accrued expenses......................................... 760 1,903 2,679
Accrued compensation..................................... 1,639 2,316 2,351
Billings in excess of revenues and customer advances..... 393 2,877 3,366
Income taxes payable..................................... 233 1,629 2,082
------- ------- -------
Total current liabilities........................ 4,735 11,526 12,794
Commitments and contingencies (Note F)
Stockholders' equity:
Preferred Stock, $.01 par value; 2,000,000 shares
authorized:
1,000,000 shares designated as Series A Convertible
Preferred Stock, 852,264 shares issued and outstanding
(liquidation preference of $1,200,000)................ 1,200 1,200 1,200
Common Stock, $.01 par value; 25,000,000 shares
authorized, 5,083,231, 5,202,231 and 5,269,181 shares
issued and outstanding at June 30, 1996 and 1997, and
September 30, 1997, respectively...................... 51 52 53
Additional paid-in capital............................... 5,434 5,703 5,846
Retained earnings........................................ 22,141 26,752 28,358
Cumulative translation adjustment........................ 3 (60) (21)
Subscriptions and related parties notes receivable....... (300) (325) (325)
------- ------- -------
Total stockholders' equity............................ 28,529 33,322 35,111
------- ------- -------
Total liabilities and stockholders' equity....... $33,264 $44,848 $47,905
======= ======= =======
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
65
MERCURY COMPUTER SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
------------------------------- -------------------
1995 1996 1997 1996 1997
------- ------- ------- ------- -------
(UNAUDITED)
Revenues................................. $54,323 $58,300 $64,574 $13,038 $19,039
Cost of revenues......................... 21,221 24,688 22,034 4,538 6,661
------- ------- ------- ------- -------
Gross profit................... 33,102 33,612 42,540 8,500 12,378
------- ------- ------- ------- -------
Operating expenses:
Selling, general and administrative.... 15,798 16,927 22,631 4,726 6,645
Research and development............... 8,586 9,776 12,837 2,405 3,381
------- ------- ------- ------- -------
Total operating expenses....... 24,384 26,703 35,468 7,131 10,026
------- ------- ------- ------- -------
Income from operations................... 8,718 6,909 7,072 1,369 2,352
------- ------- ------- ------- -------
Interest income.......................... 278 561 582 136 233
Interest expense......................... (38) (13) (22) -- (2)
Other income (expense), net.............. 22 (77) (88) (23) 83
------- ------- ------- ------- -------
Income before income tax provision....... 8,980 7,380 7,544 1,482 2,666
Income tax provision..................... 2,636 2,952 2,933 576 1,060
------- ------- ------- ------- -------
Net income............................... $ 6,344 $ 4,428 $ 4,611 $ 906 $ 1,606
======= ======= ======= ======= =======
Net income per common share.............. $0.77 $0.54 $0.57 $0.11 $0.20
===== ===== ===== ===== =====
Weighted average number of common and
common equivalent shares outstanding... 8,256 8,264 8,157 8,191 8,174
===== ===== ===== ===== =====
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
66
MERCURY COMPUTER SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1995, 1996 AND 1997 AND
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 (UNAUDITED)
(IN THOUSANDS)
SERIES A
CONVERTIBLE SUBSCRIPTIONS
PREFERRED STOCK COMMON STOCK ADDITIONAL CUMULATIVE AND RELATED TOTAL
--------------- --------------- PAID-IN RETAINED TRANSLATION PARTIES NOTES STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENT RECEIVABLE EQUITY
------ ------ ------ ------ ---------- -------- ---------- ------------- -------------
Balance, June 30, 1994... 852 $1,200 4,963 $ 50 $4,242 $11,369 $ 17 $(188) $16,690
Issuance of Notes
Receivable to Related
Parties................ (120) (120)
Exercise of Common Stock
options and
subscription
repayment.............. 49 -- 40 8 48
Conversion of Series B
Convertible Redeemable
Preferred Stock........ 1,000 1,000
Net income............... 6,344 6,344
Foreign currency
translation............ 41 41
--- ------ ----- --- ------ ------- ---- ----- -------
Balance, June 30, 1995... 852 1,200 5,012 50 5,282 17,713 58 (300) 24,003
Exercise of Common Stock
options................ 71 1 152 153
Net income............... 4,428 4,428
Foreign currency
translation............ (55) (55)
--- ------ ----- --- ------ ------- ---- ----- -------
Balance, June 30, 1996... 852 1,200 5,083 51 5,434 22,141 3 (300) 28,529
--- ------ ----- --- ------ ------- ---- ----- -------
Issuance of Notes
Receivable to Related
Parties................ (25) (25)
Exercise of Common Stock
options................ 86 1 137 138
Issuance of Common
Stock.................. 33 -- 132 132
Net income............... 4,611 4,611
Foreign currency
translation............ (63) (63)
--- ------ ----- --- ------ ------- ---- ----- -------
Balance, June 30, 1997... 852 1,200 5,202 52 5,703 26,752 (60) (325) 33,322
--- ------ ----- --- ------ ------- ---- ----- -------
Exercise of Common Stock
options and warrants... 67 1 143 144
Net income............... 1,606 1,606
Foreign currency
translation............ 39 39
--- ------ ----- --- ------ ------- ---- ----- -------
Balance, September 30,
1997 (Unaudited)....... 852 $1,200 5,269 $ 53 $5,846 $28,358 $(21) $(325) $35,111
=== ====== ===== === ====== ======= ==== ===== =======
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
67
MERCURY COMPUTER SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
THREE MONTHS ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
----------------------------- ------------------
1995 1996 1997 1996 1997
------- ------- ------- ------- -------
(UNAUDITED)
Cash flows from operating activities:
Net income................................. $ 6,344 $ 4,428 $ 4,611 $ 906 $ 1,606
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization of
property and equipment................ 1,594 2,020 2,855 518 685
Amortization of capitalized software
development costs..................... -- -- 438 136 120
Provision for doubtful accounts......... -- -- 40 -- --
Deferred income taxes................... 79 242 (596) (117) (332)
Other noncash items..................... -- 88 87 14 27
Changes in assets and liabilities:
Trade accounts receivable............. 996 (2,235) (2,710) (53) 446
Trade notes receivable................ -- (312) 296 (1,163) --
Contracts in progress................. -- -- (1,096) -- (901)
Inventory............................. (4,302) 5,231 (1,158) 135 (591)
Prepaid expenses and other current
assets............................. (5) (103) (246) (22) (260)
Income taxes receivable............... 959 -- -- -- --
Other assets.......................... (46) (158) (101) (238) (31)
Accounts payable...................... (148) (16) 1,081 (199) (485)
Accrued expenses and compensation..... (46) 503 1,846 312 812
Billings in excess of revenues and
customer advances.................. 4,137 (5,090) 2,472 (79) 489
Income taxes payable.................. 525 (291) 1,403 693 453
------- ------- ------- ------- -------
Net cash provided by operating activities.... 10,087 4,307 9,222 843 2,038
======= ======= ======= ======= =======
Cash flows from investing activities:
Purchases of property and equipment........ (2,101) (2,924) (3,457) (567) (1,358)
Capitalized software development costs..... -- (371) (550) (324) --
Notes receivable from related parties...... (120) -- (25) -- --
------- ------- ------- ------- -------
Net cash used in investing activities........ (2,221) (3,295) (4,032) (891) (1,358)
------- ------- ------- ------- -------
Cash flows from financing activities:
Principal payments under capital lease
obligations............................. (73) -- -- -- --
Proceeds from issuance of Common Stock..... 40 153 270 2 144
Subscription repayment..................... 8 -- -- -- --
------- ------- ------- ------- -------
Net cash provided by (used in) financing
activities................................. (25) 153 270 2 144
------- ------- ------- ------- -------
Net increase in cash and cash equivalents.... 7,841 1,165 5,460 (46) 824
------- ------- ------- ------- -------
Effect of exchange rate changes on cash and
cash equivalents........................... 38 (52) 29 (8) 18
Cash and cash equivalents at beginning of
period..................................... 712 8,591 9,704 9,704 15,193
======= ======= ======= ======= =======
Cash and cash equivalents at end of period... $ 8,591 $ 9,704 $15,193 $ 9,650 $16,035
------- ------- ------- ------- -------
Cash paid during the period for:
Interest................................... $ 38 $ 13 $ 22 -- $ 2
Income taxes............................... 2,177 2,901 2,133 -- 939
Noncash transactions:
Series B Convertible Redeemable Preferred
Stock converted to additional paid-in
capital................................. $ 1,000 -- -- -- --
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
68
MERCURY COMPUTER SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLES IN THOUSANDS EXCEPT FOR SHARE AND PER SHARE DATA)
INFORMATION AS OF SEPTEMBER 30, 1997, AND FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1996 AND 1997, IS UNAUDITED
A. DESCRIPTION OF BUSINESS:
Mercury Computer Systems, Inc. (the "Company") designs, manufactures and
markets high performance real-time digital signal processing computer systems
which transform sensor generated data into information which can be displayed as
images for human interpretation or subjected to additional computer analysis.
These multicomputer systems are heterogeneous and scalable, allowing them to
accommodate several different microprocessor types and to scale from a few to
hundreds of microprocessors within a single system. The two primary markets for
the Company's products are defense electronics and medical diagnostic imaging.
Both of these markets have computing needs which benefit from the unique system
architecture developed by the Company.
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All material intercompany transactions and
balances have been eliminated.
Interim Financial Information
The consolidated financial statements of the Company as of September 30,
1997 and for the three months ended September 30, 1996 and 1997 are unaudited.
All adjustments (consisting only of normal recurring adjustments) have been made
which, in the opinion of management, are necessary for a fair presentation.
Results of operations for the three months ended September 30, 1997 are not
necessarily indicative of the results that may be expected for any future
period.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
Revenue Recognition
Revenue from product sales is generally recorded upon shipment to the
customer provided that no significant vendor obligations remain outstanding and
collection of the related receivable is deemed probable by management. If
insignificant vendor obligations remain after shipment of the product, the
Company accrues for the estimated costs of such obligations. Additionally, the
Company accrues for warranty costs upon shipment. Service revenue is recognized
ratably over applicable contract periods or as the services are performed.
Revenue from contracts involving significant product modification or
customization is recognized using the percentage-of-completion accounting method
on an efforts-expended basis. Changes to total estimated costs and anticipated
losses, if any, are recognized in the period in which determined. No revenue was
recognized under the percentage of completion method for the fiscal years ended
June 30, 1995 and 1996, and the three months ended September 30, 1996.
Approximately $2,102,000 and $901,000 of revenue was recognized under the
percentage-of-completion method for the fiscal year ended June 30, 1997, and the
three months ended September 30, 1997, respectively. There were no retainages at
June 30, 1996 and 1997 and September 30, 1997.
F-7
69
MERCURY COMPUTER SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(TABLES IN THOUSANDS EXCEPT FOR SHARE AND PER SHARE DATA)
INFORMATION AS OF SEPTEMBER 30, 1997, AND FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1996 AND 1997, IS UNAUDITED
Contracts in Progress
Contracts in progress include costs and estimated profits under uncompleted
contracts accounted for using the percentage-of-completion method, net of
amounts billed. Amounts billed at June 30, 1996 and 1997 and September 30, 1997,
which were netted against costs and estimated profits, were $0, $1,016,000 and
$1,091,000, respectively. Amounts billed at September 30, 1997 are expected to
be collected within the next twelve months.
Billings in Excess of Revenues and Customer Advances
Billings in excess of revenues and customer advances include amounts billed
on uncompleted contracts accounted for using the percentage-of-completion method
net of costs and estimated profits recognized.
Cash and Cash Equivalents
Cash equivalents, consisting of money market funds and U.S. government and
U.S. government agency issues with original maturities of 90 days or less, are
carried at cost which approximates fair value.
Concentration of Credit Risk
Financial instruments which potentially expose the Company to
concentrations of credit risk consist principally of cash and trade accounts
receivable. The Company places its cash and cash equivalents with financial
institutions which management believes are of high credit quality. At September
30, 1997, the Company had approximately $15,489,000 on deposit or invested with
its primary financial and lending institution.
One customer accounted for approximately 19% and 57% of the accounts
receivable balances at June 30, 1996 and 1997, respectively. Two other customers
accounted for approximately 15% and 12% of the accounts receivable balance at
June 30, 1996, respectively. Three customers accounted for approximately 17%,
16% and 10%, respectively, of the accounts receivable balance at September 30,
1997. The Company performs ongoing credit evaluations of its customers and
maintains reserves for potential credit losses. Such losses have historically
been within management's expectations.
Inventory
Inventory is stated at the lower of cost, determined on the first-in,
first-out (FIFO) basis, or market.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is based on the
following estimated useful lives of the assets using the straight-line method:
Computer equipment.................................... 3 years
Machinery and equipment............................... 5 years
Furniture and fixtures................................ 5 years
Leasehold improvements................................ Shorter of the lease
term or economic life
Expenditures for additions, renewals and betterments of property and
equipment are capitalized. Expenditures for repairs and maintenance are charged
to expense as incurred. As assets are retired or sold, the
F-8
70
MERCURY COMPUTER SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(TABLES IN THOUSANDS EXCEPT FOR SHARE AND PER SHARE DATA)
INFORMATION AS OF SEPTEMBER 30, 1997, AND FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1996 AND 1997, IS UNAUDITED
related cost and accumulated depreciation are removed from the accounts and any
resulting gain or loss is included in the results of operations.
Capitalized Software Development Costs
The Company capitalizes software development costs incurred after a
product's technological feasibility has been established and before it is
available for general release to customers. Amortization of capitalized software
costs is computed on an individual product basis and is the greater of a) the
ratio that current gross revenues for a product bear to the total of current and
anticipated future gross revenues for that product or b) the straight-line
method over the estimated economic life of the product. Currently, the Company
uses an estimated economic life of 36 months for all capitalized software costs.
Income Taxes
The Company recognizes deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the Company's
consolidated financial statements. Under this method, deferred tax liabilities
and assets are determined based on the difference between the financial
statement and tax bases of assets and liabilities using currently enacted tax
rates for the year in which the differences are expected to reverse. The Company
records a valuation allowance against net deferred tax assets if, based upon the
available evidence, it is more likely than not that some or all of the deferred
tax assets will not be realized.
Net Income Per Common Share
Net income per common share is based upon the weighted average number of
common and common equivalent shares (using the treasury stock method)
outstanding after certain adjustments described below. Common equivalent shares
are included in the per share calculations where the effect of their inclusion
would be dilutive. Common equivalent shares consist of outstanding stock
options, stock warrants, and the Series A convertible preferred stock. Pursuant
to Securities and Exchange Commission Staff Accounting Bulletin No. 83, all
common and common equivalent shares issued at prices less than the mid-point of
the estimated initial public offering price range during the twelve-month period
prior to the initial filing of the Registration Statement for the initial public
offering have been included in the calculation as if they were outstanding for
all periods using the treasury stock method and an assumed mid-point of the
estimated initial public offering price range of $13.00 per common share. Fully
diluted earnings per share is not presented, as the difference between primary
and fully diluted earnings per share is immaterial.
Foreign Currency
The accounts of foreign subsidiaries are translated using exchange rates in
effect at period-end for assets and liabilities and at average exchange rates
during the period for results of operations. The local currency for all foreign
subsidiaries is the functional currency. The related translation adjustments are
reported as a separate component of stockholders' equity. Gains (losses)
resulting from foreign currency transactions are included in other income
(expense) and are immaterial for all period presented.
Reclassification
Certain reclassifications have been made to the prior years' financial
statements to conform to the current year's presentation.
F-9
71
MERCURY COMPUTER SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(TABLES IN THOUSANDS EXCEPT FOR SHARE AND PER SHARE DATA)
INFORMATION AS OF SEPTEMBER 30, 1997, AND FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1996 AND 1997, IS UNAUDITED
New Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
Per Share," which is effective for both interim and annual periods ending after
December 31, 1997. Earlier adoption is not permitted. The statement requires
restatement of all prior period earnings per share data presented after the
effective date. SFAS No. 128 specifies the computation, presentation and
disclosure requirements for earnings per share and is substantially similar to
the standards recently issued by the International Accounting Standards
Committee entitled "International Accounting Standards, Earnings Per Share." The
Company will adopt SFAS No. 128 in the interim period ending December 31, 1997.
The impact of SFAS No. 128 will be immaterial to reported net income per common
share.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." This statement requires that changes in comprehensive income be shown
in a financial statement that is displayed with the same prominence as other
financial statements. The statement will be effective for annual periods
beginning after December 15, 1997 and the Company will adopt its provisions in
fiscal 1999. Reclassification for earlier periods is required for comparative
purposes. The Company is currently evaluating the impact this statement will
have on its financial statements; however, because the statement requires only
additional disclosure, the Company does not expect the statement to have a
material impact on its financial position or results of operations.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." This statement supersedes SFAS No. 14,
"Financial Reporting for Segments of a Business Enterprise." This statement
includes requirements to report selected segment information quarterly and
entity-wide disclosures about products and services, major customers, and the
material countries in which the entity holds assets and reports revenues. The
statement will be effective for annual periods beginning after December 15, 1997
and the Company will adopt its provisions in fiscal 1999. Reclassification for
earlier periods is required, unless impracticable, for comparative purposes. The
Company is currently evaluating the impact this statement will have on its
financial statements; however, because the statement requires only additional
disclosure, the Company does not expect the statement to have a material impact
on its financial position or results of operations.
In October 1997, the American Institute of Certified Public Accountants
("AICPA") issued the statement of position ("SOP") 97-2 "Software Revenue
Recognition," which will supersede SOP 91-1. SOP 97-2 has not changed the basic
rules of revenue recognition but does provide more guidance particularly with
respect to multiple deliverables and "when and if available" products. SOP 97-2
is effective for transactions entered into for annual periods beginning after
December 15, 1997. The Company will adopt SOP 97-2 in fiscal 1999 and has not
yet determined its impact.
F-10
72
MERCURY COMPUTER SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(TABLES IN THOUSANDS EXCEPT FOR SHARE AND PER SHARE DATA)
INFORMATION AS OF SEPTEMBER 30, 1997, AND FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1996 AND 1997, IS UNAUDITED
C. INVENTORY:
Inventory consists of the following:
JUNE 30,
----------------- SEPTEMBER 30,
1996 1997 1997
------ ------ -------------
Raw materials................................ $2,107 $2,925 $ 2,548
Work in process.............................. 2,355 3,084 4,477
Finished goods............................... 2,726 2,305 1,880
------ ------ ------
$7,188 $8,314 $ 8,905
====== ====== ======
D. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
JUNE 30,
-------------------- SEPTEMBER 30,
1996 1997 1997
-------- ------- -------------
Computer equipment........................ $ 11,651 $11,253 $ 12,437
Machinery and equipment................... 982 337 268
Furniture and fixtures.................... 1,481 1,697 1,880
Leasehold improvements.................... 934 1,050 1,098
------- ------- -------
15,048 14,337 15,683
Less: accumulated depreciation and
amortization............................ (10,654) (9,353) (10,033)
------- ------- -------
$ 4,394 $ 4,984 $ 5,650
======= ======= =======
E. FINANCING ARRANGEMENT:
Under a credit agreement with a commercial bank, the Company may borrow up
to $6,000,000 at an interest rate equal to the prime rate or, at the election of
the Company, two and one-quarter percentage points above the London InterBank
Offered Rate, payable monthly. The credit agreement contains certain covenants,
including restrictions on incurrence of additional indebtedness and liens on its
assets, capital expenditures, disposition of assets, investments and
acquisitions, limitations on distributions, and requires the Company to meet
certain financial tests pertaining to current and debt ratios and income before
tax provision. There were no borrowings outstanding at June 30, 1996 and 1997
and September 30, 1997.
F. COMMITMENTS AND CONTINGENCIES:
Lease Commitments
The Company has an operating lease agreement for its main facility which
expires on September 30, 2002, with an option to extend the lease for an
additional five-year period.
Additionally, the Company leases branch office space. The leases expire at
various dates through 2003 and contain various renewal options. Rental charges
are subject to escalation for increases in certain operating costs of the
lessor.
F-11
73
MERCURY COMPUTER SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(TABLES IN THOUSANDS EXCEPT FOR SHARE AND PER SHARE DATA)
INFORMATION AS OF SEPTEMBER 30, 1997, AND FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1996 AND 1997, IS UNAUDITED
Future minimum lease payments under noncancelable operating leases with
initial or remaining terms of one year or more consisted of the following at
September 30, 1997:
October 1, 1997 through June 30, 1998............................. $ 701
Year ending June 30, 1999......................................... 904
Year ending June 30, 2000......................................... 827
Year ending June 30, 2001......................................... 820
Year ending June 30, 2002......................................... 804
Thereafter........................................................ 197
------
Total future minimum lease payments............................... $4,253
======
Rental expense during the fiscal years ended June 30, 1995, 1996 and 1997
and the three months ended September 30, 1996 and 1997 was approximately
$674,000, $670,000, $642,000, $140,000 and $203,000, respectively.
Internal Revenue Service Audit
In 1995, the Internal Revenue Service ("IRS") initiated an audit of the
Company's tax return for the year ended 1994. While to date, the IRS has not
delivered to the Company a notice of proposed adjustments with respect to the
year under audit, the IRS has informally proposed adjustments relating to
certain research and development tax credits taken by the Company during the
year under audit. There can be no assurance that the amount of adjustments, if
any, will not be material in amount, that the IRS will not propose additional
adjustments relating to other items, or that the IRS will not propose
adjustments relating to other taxable years.
G. STOCKHOLDERS' EQUITY:
Preferred Stock
General
The Company is authorized to issue 2,000,000 shares of preferred stock with
a par value of $.01 per share. Under the terms of the various agreements related
to the sale and/or issuance of the preferred stock, restrictions are placed on
the Company pertaining to dividends, mergers, incurrence of indebtedness and
reorganizations. These agreements also grant certain preferred stockholders'
representation on the Company's Board of Directors ("the Board"), demand
registration rights, piggyback registration rights and certain antidilutive
rights.
Series A Convertible Preferred Stock
The Series A Convertible Preferred Stock has a liquidation preference of
$1.41 per share and has voting rights similar to the common stock. Each of the
preferred stockholders has one vote for each share of Common Stock into which
the Series A Convertible Preferred Stock is convertible. The Series A
Convertible Preferred Stock is convertible, at the option of the holder, into
shares of the Company's Common Stock in accordance with a conversion formula
which would currently result in a three-for-one exchange with mandatory
conversion required in the event of a sale of the Company's Common Stock in a
public offering meeting a specified aggregate valuation.
F-12
74
MERCURY COMPUTER SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(TABLES IN THOUSANDS EXCEPT FOR SHARE AND PER SHARE DATA)
INFORMATION AS OF SEPTEMBER 30, 1997, AND FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1996 AND 1997, IS UNAUDITED
Series B Convertible Redeemable Preferred Stock
On April 26, 1993, the Company redeemed all of the outstanding shares of
Series B Convertible Redeemable Preferred Stock for $3.00 per share resulting in
a $1,500,000 redemption and a $1,000,000 payment contingent on a qualified
public offering on or before April 26, 1995. During the fiscal year ended June
30, 1995, the contingent obligation expired and the remaining obligation was
reclassified to additional paid-in capital.
Stock Options
The Company has four stock option plans. The 1982, 1991 and 1993 Stock
Option Plans (the "Plans") provide for the granting of options to purchase an
aggregate of not more than 1,950,000 shares of the Company's Common Stock to
employees and directors. Under these plans, options are granted at not less than
the fair value of the stock on the date of grant as determined by the Board. The
terms of the options are established by the Board on an individual basis. The
options generally vest over five years and have a maximum term of ten years.
The 1997 Stock Option Plan (the "1997 Plan"), which the Board approved in
June 1997, provides for the granting of options to purchase an aggregate of not
more than 575,000 shares of the Company's Common Stock. Under the 1997 Plan,
options are granted at not less than 50% of the fair value of the stock on the
date of grant as determined by the Board. The options vest over five years and
have a maximum term of ten years. With the implementation of the 1997 Plan, no
further stock options were granted under the 1982, 1991 and 1993 Stock Option
Plans. No options were granted under the 1997 Plan during the fiscal year ended
June 30, 1997. Options granted under the 1997 Plan during the three months ended
September 30, 1997 were granted at the fair value of the common stock on the
date of grant.
In determining the fair value of the Stock at the date of grant under each
plan, the Board considered a broad range of factors including the illiquid
nature of an investment in the Company's Common Stock, transactions in the
Company's Common Stock with third parties, consultations with financial advisors
(as appropriate), the Company's historical financial performance relative to
that of comparable companies and its future prospects.
In fiscal year 1997, the Company adopted SFAS No. 123, "Accounting for
Stock-Based Compensation." SFAS No. 123 requires that companies either recognize
compensation expense for grants of stock, stock options and other equity
instruments based on fair value or provide pro forma disclosure of net income
and earnings per share in the notes to the financial statements. The Company
adopted the disclosure provisions of SFAS No. 123 in fiscal 1997 and has applied
APB Opinion No. 25 and related Interpretations in accounting for all of its
stock option plans. Accordingly, no compensation cost has been recognized for
its stock option plans as compensation cost is measured as the excess, if any,
of the fair market value of the Company's stock at the date of grant over the
amount an individual must pay to acquire the stock.
F-13
75
MERCURY COMPUTER SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(TABLES IN THOUSANDS EXCEPT FOR SHARE AND PER SHARE DATA)
INFORMATION AS OF SEPTEMBER 30, 1997, AND FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1996 AND 1997, IS UNAUDITED
WEIGHTED
AVERAGE
NUMBER OF EXERCISE
SHARES PRICE
--------- --------
Outstanding at June 30, 1994.................................... 849,367 $ 3.23
--------
Granted......................................................... 90,251 7.25
Exercised....................................................... (49,067) 0.82
Canceled........................................................ (96,900) 3.88
--------
Outstanding at June 30, 1995.................................... 793,651 3.76
--------
Granted......................................................... 47,675 6.16
Exercised....................................................... (71,250) 2.17
Canceled........................................................ (60,700) 5.51
--------
Outstanding at June 30, 1996.................................... 709,376 4.02
--------
Granted......................................................... 526,292 4.00
Exercised....................................................... (85,850) 1.61
Canceled........................................................ (305,226) 6.15
--------
Outstanding at June 30, 1997.................................... 844,592 3.41
--------
Granted......................................................... 41,101 4.00
Exercised....................................................... (56,950) 2.19
Canceled........................................................ (600) 5.00
--------
Outstanding at September 30, 1997............................... 828,143 $ 3.52
========
Information related to the stock options outstanding as of September 30,
1997, is as follows:
EXERCISABLE
WEIGHTED -------------------------
RANGE OF NUMBER AVERAGE WEIGHTED NUMBER WEIGHTED
EXERCISE OF REMAINING AVERAGE OF AVERAGE
PRICES OPTIONS CONTRACTUAL LIFE EXERCISE PRICE OPTIONS EXERCISE PRICE
-------------------------- ------- ---------------- -------------- ------- --------------
$1.50 - $3.50............. 309,250 3.42 $ 2.48 303,450 $ 2.46
$4.00 ............... 475,293 9.06 4.00 127,604 4.00
$5.00 - $7.50............. 43,600 6.60 7.10 35,850 7.10
------- ---- ----- ------- -----
Total........... 828,143 6.83 $ 3.60 466,904 $ 3.24
======= ==== ===== ======= =====
There were 527,791 and 473,890 options exercisable at June 30, 1996 and
1997, respectively. The weighted average fair value at date of grant for stock
options granted during the fiscal years ended June 30, 1996 and 1997 and the
three months ended September 30, 1997 was $3.82, $1.64 and $1.64, respectively.
The fair value of each option granted during the fiscal years ended June 30,
1996 and 1997 is estimated on the date of grant using the Black-Scholes option
pricing model with the following assumptions: an expected life of eight years, a
dividend yield of 0%, a risk free interest rate of 6.8% and zero expected
volatility.
Had compensation cost for the Company's stock option grants been determined
based on the fair value at the grant dates, as calculated in accordance with
SFAS No. 123, the Company's net income and net income per common share for the
fiscal years ended June 30, 1996 and 1997 and the three months ended
F-14
76
MERCURY COMPUTER SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(TABLES IN THOUSANDS EXCEPT FOR SHARE AND PER SHARE DATA)
INFORMATION AS OF SEPTEMBER 30, 1997, AND FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1996 AND 1997, IS UNAUDITED
September 30, 1997, would approximate the following pro forma amounts as
compared to the amounts reported:
NET INCOME PER
NET INCOME COMMON SHARE
---------- --------------
As reported:
1996........................................... $4,428 $ 0.54
1997........................................... 4,611 0.57
Three months ended September 30, 1997.......... 1,606 0.20
Pro Forma:
1996........................................... $4,330 $ 0.53
1997........................................... 4,345 0.53
Three months ended September 30, 1997.......... 1,542 0.19
The effects of applying SFAS No. 123 in this disclosure are not indicative
of future amounts. SFAS No. 123 does not apply to awards prior to 1995 and
additional awards in future years are anticipated.
Repricing Stock Options
On July 30, 1996, the Board approved a plan (the "repricing plan") to
reprice employee stock options under the Plans to restore the long-term employee
retention and performance incentives of the stock options outstanding. In
accordance with the repricing plan, all stock options with exercise prices above
$4.00 per share and approved by the individual optionholder were canceled and
replaced by the same number of options exercisable at $4.00 per share, the fair
value of the Company's common stock as determined by the Board on the date of
the repricing. In reaching this determination, the Board considered a broad
range of factors including the illiquid nature of an investment in the Company's
Common Stock, transactions of the Company's Common Stock with third parties, the
Company's historical financial performance relative to that of comparable
companies and its future prospects. Fifty percent of those options which were
vested prior to the repricing vested immediately under the repricing plan. All
remaining previously vested and unvested options will vest in accordance with
the current option plan.
Warrants
At June 30, 1996 and 1997, a warrant to purchase 10,000 shares of the
Company's Common Stock was outstanding with an exercise price of $2.00 per share
and exercisable through June 30, 2000. In September 1997, the warrants were
exercised.
F-15
77
MERCURY COMPUTER SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(TABLES IN THOUSANDS EXCEPT FOR SHARE AND PER SHARE DATA)
INFORMATION AS OF SEPTEMBER 30, 1997, AND FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1996 AND 1997, IS UNAUDITED
H. INCOME TAXES:
Income tax expense consisted of the following:
THREE MONTHS
ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
---------------------------- ----------------
1995 1996 1997 1996 1997
------ ------ ------ ----- ------
Federal:
Current.............................. $2,295 $2,437 $3,088 $ 606 $1,168
Deferred............................. 214 115 (592) (116) (290)
------ ------ ------ ---- ------
2,509 2,552 2,496 490 878
------ ------ ------ ---- ------
State:
Current.............................. 208 101 301 60 162
Deferred............................. (135) 127 (4) (1) (42)
------ ------ ------ ---- ------
73 228 297 59 120
------ ------ ------ ---- ------
Foreign -- current..................... 54 172 140 27 62
------ ------ ------ ---- ------
$2,636 $2,952 $2,933 $ 576 $1,060
------ ------ ------ ---- ------
The following is a reconciliation between the statutory provision for
federal income taxes and the effective income tax expense:
THREE MONTHS
ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
-------------------------- -----------------
1995 1996 1997 1996 1997
---- ---- ---- ---- ----
Income taxes at federal statutory 34.0% 34.0% 34.0% 34.0% 34.0%
rates...............................
State income tax, net of federal tax 0.5 2.0 3.9 3.9 3.9
benefit and credits.................
Research and development credits (5.9) -- (3.5) (3.5) (2.9)
utilized............................
Other................................. 0.8 4.0 4.5 4.5 4.8
---- ---- ---- ---- ----
- - - - -
29.4% 40.0% 38.9% 38.9% 39.8%
---- ---- ---- ---- ----
- - - - -
The components of the net deferred tax asset are as follows:
JUNE 30,
------------------------ SEPTEMBER 30,
1995 1996 1997 1997
---- ----- ----- -------------
Receivables, allowances and inventory
reserves.................................... $162 $ 377 $ 614 $ 851
Deferred revenue.............................. 188 -- -- --
Accrued vacation.............................. -- -- 213 202
Property and equipment........................ (54) 1 232 290
Research and development credits.............. 260 100 -- --
Capitalized software development costs........ -- (148) (193) (145)
Other temporary differences................... 54 38 99 99
---- ----- ----- ------
Total deferred tax asset, net................. $610 $ 368 $ 965 $ 1,297
---- ----- ----- ------
No valuation allowance was deemed necessary for the deferred tax asset.
Although realization is not assured, management believes it is more likely than
not that all of the deferred tax asset will be realized. The
F-16
78
MERCURY COMPUTER SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(TABLES IN THOUSANDS EXCEPT FOR SHARE AND PER SHARE DATA)
INFORMATION AS OF SEPTEMBER 30, 1997, AND FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1996 AND 1997, IS UNAUDITED
amount of the deferred tax asset considered realizable, however, could be
reduced in the near term if estimates of future taxable income during the
carryforward period are reduced.
I. MAJOR CUSTOMERS AND INTERNATIONAL DATA:
Customers comprising 10% or more of the Company's revenues for the periods
shown below are as follows:
THREE MONTHS ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
---------------------------------- ---------------------
1995 1996 1997 1996 1997
-------- -------- -------- -------- --------
Customer A.................. 18% -- -- -- --
Customer B.................. 12% 16% -- -- 11%
Customer C.................. -- 13% 12% 10% --
Customer D.................. -- 20% 24% -- 11%
Customer E.................. -- -- -- 19% 11%
Customer F.................. -- -- -- -- 16%
Export sales to unaffiliated customers were approximately $20,987,000,
$5,521,000, $5,351,000, $1,000,714 and $1,130,280 for the fiscal years ended
June 30, 1995, 1996 and 1997 and September 30, 1996 and 1997, respectively.
The Company has operations in the United Kingdom, the Netherlands, Japan
and France. For each of the fiscal years ended June 30, 1995, 1996 and 1997 and
each of the three months ended September 30, 1996 and 1997, revenues and
operating income from foreign operations represented less than 10% of the
Company's total revenues and operating income. At June 30, 1996 and 1997 and
September 30, 1997, identifiable assets of foreign operations were not material
to total assets.
J. EMPLOYEE BENEFIT PLANS:
The Company maintains a qualified 401(a) Plan and a qualified Profit
Sharing and 401(k) Plan. The plans cover substantially all full-time employees
who have three months of service and have attained the age of 21. Employee
contributions to the Profit Sharing and 401(k) Plan may range from 1% to 15% of
compensation with a discretionary matching Company contribution. The Company
will match up to 2% of compensation. The Company may also make optional
contributions to both plans for any plan year at its discretion.
Expense recognized by the Company under the Profit Sharing and 401(k) Plan
was approximately $245,000, $232,000, $287,000, $40,000 and $101,000 for the
fiscal years ended June 30, 1995, 1996 and 1997 and the three months ended
September 30, 1996 and 1997, respectively.
The Company maintains a bonus plan which provides cash awards to employees,
at the discretion of the Board of Directors, based upon operating results and
employee performance. Bonus expense to employees was approximately $943,000,
$1,150,000, $1,245,000, $245,000 and $454,000 for the years ended June 30, 1995,
1996, and 1997, and for the three months ended September 30, 1996 and 1997,
respectively.
F-17
79
MERCURY COMPUTER SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(TABLES IN THOUSANDS EXCEPT FOR SHARE AND PER SHARE DATA)
INFORMATION AS OF SEPTEMBER 30, 1997, AND FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1996 AND 1997, IS UNAUDITED
K. RELATED PARTY TRANSACTIONS:
Notes receivable from related parties are from members of the Board of
Directors and management and are due 181 days subsequent to an initial public
offering or December 31, 1999, whichever occurs first. The notes receivable are
without recourse and bear interest at two percentage points above the prime rate
per annum.
L. VALUATION AND QUALIFYING ACCOUNTS:
The following table sets forth activity in the Company's accounts
receivable reserve account:
BALANCE AT BALANCE AT
BEGINNING CHARGES TO END OF
OF PERIOD EXPENSES DEDUCTIONS PERIOD
---------- ---------- ---------- ----------
Year ended:
June 30, 1995......................... $124 17 $107
June 30, 1996......................... $107 27 $ 80
June 30, 1997......................... $ 80 40 1 $119
Three months ended September 30, 1997... $119 -- -- $119
F-18
80
SHARED STORAGE
- -----------------------------
- -----------------------------
[DRAWING OF TELEVISION MERCURY's application software and system
VCR, SPEAKER AND VIDEO integration services are used in shared storage,
CAMERA] work group environments within video post-
production, broadcasting and webcasting applications.
The software allows work groups to share commodity,
network-attached disk arrays, eliminating the need
for an expensive, intermediate file server.
MERCURY'S SuiteFusion(TM)
is supported on several [PICTURE OF PACKAGING
desktop environments, and WITH THE WORDS "SUITEFUSION
supports multiple network THE SHARED STORAGE SOLUTION"
technologies including AND THE MERCURY LOGO]
fibrechannel.
MERCURY'S SuiteFusion(TM)
[PICTURE OF PEOPLE choreographs the interactions
SITTING AT DESKS IN between workstations and disks
FRONT OF COMPUTERS] to keep files protected and
allow work to proceed
efficiently.
[MERCURY COMPUTER SYSTEMS, INC. LOGO]
81
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82
[THIS PAGE INTENTIONALLY LEFT BLANK]
83
=============================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, THE SELLING STOCKHOLDERS OR ANY OF THE UNDERWRITERS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF ANY
OFFER TO BUY ANY SECURITY OTHER THAN THE SHARES OF COMMON STOCK OFFERED BY THIS
PROSPECTUS, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF ANY
OFFER TO BUY THE SHARES OF COMMON STOCK BY ANYONE IN ANY JURISDICTION IN WHICH
SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH
OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
UNTIL , 1998, ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
------------------------
TABLE OF CONTENTS
PAGE
----
Prospectus Summary.......................... 3
Risk Factors................................ 6
Use of Proceeds............................. 15
Dividend Policy............................. 15
Capitalization.............................. 16
Dilution.................................... 17
Selected Consolidated Financial Data........ 18
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................ 19
Business.................................... 28
Management.................................. 41
Certain Transactions........................ 47
Principal and Selling Stockholders.......... 48
Description of Capital Stock................ 50
Shares Eligible for Future Sale............. 53
Underwriting................................ 55
Legal Matters............................... 56
Experts..................................... 56
Additional Information...................... 57
Index to Consolidated Financial
Statements................................ F-1
=============================================================
=============================================================
3,500,000 Shares
[LOGO: MERCURY COMPUTER SYSTEMS, INC.-- The Ultimate Performance Machine]
Common Stock
---------------------
PROSPECTUS
---------------------
PRUDENTIAL SECURITIES INCORPORATED
COWEN & COMPANY
January , 1998
=============================================================
84
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses (other than underwriting discount and commissions) payable in
connection with the sale of the Common Stock offered hereby (including the
Common Stock which may be sold pursuant to the Underwriters' over-allotment
option) are as follows, all of which will be paid by the Company:
AMOUNTS(1)
--------
SEC Registration fee...................................................... $ 17,076
NASD filing fee........................................................... 6,135
Nasdaq National Market fee................................................ 42,195
Printing Expenses......................................................... (2)
Legal fees and expenses................................................... (2)
Accounting Fees and expenses.............................................. (2)
Blue sky fees and expenses (including legal fees and expenses)............ (2)
Transfer agent and registrar fees and expenses............................ (2)
Miscellaneous............................................................. (2)
--------
Total............................................................. $750,000
- ---------------
(1) All amounts are estimated, except SEC Registration, NASD and Nasdaq National
Market Fees.
(2) To be completed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 67 of Chapter 156B of the Massachusetts Business Corporation Law,
which is applicable to the Company, provides as follows:
Indemnification of directors, officers, employees and other agents of a
corporation, and persons who serve at its request as directors, officers,
employees or other agents of another organization, or who serve at its request
in any capacity with respect to any employee benefit plan, may be provided by it
to whatever extent shall be specified in or authorized by (i) the articles of
organization or (ii) a by-law adopted by the Stockholders or (iii) a vote
adopted by the holders of a majority of the shares of stock entitled to vote on
the election of directors. Except as the articles of organization or by-laws
otherwise require, indemnification of any persons referred to in the preceding
sentence who are not directors of the corporation may be provided by it to the
extent authorized by the directors. Such indemnification may include payment by
the corporation of expenses incurred in defending a civil or criminal action or
proceeding in advance of the final disposition of such action or proceeding,
upon receipt of an undertaking by the person indemnified to repay such payment
if he shall be adjudicated to be not entitled to indemnification under this
Section which undertaking may be accepted without reference to the financial
ability of such person to make repayment. Any such indemnification may be
provided although the person to be indemnified is no longer an officer,
director, employee or agent of the corporation or of such other organization or
no longer serves with respect to any such employee benefit plan.
No indemnification shall be provided for any person with respect to any
matter as to which he shall have been adjudicated in any proceeding not to have
acted in good faith in the reasonable belief that his action was in the best
interest of the corporation or to the extent that such matter relates to service
with respect to an employee benefit plan, in the best interests of the
participants or beneficiaries of such employee benefit plan.
The absence of any express provision for indemnification shall not limit
any right of indemnification existing independently of this section.
A corporation shall have power to purchase and maintain insurance on behalf
of any person who is or was a director, officer, employee or other agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or other agent of another organization or with
respect to any
II-1
85
employee benefit plan, against any liability incurred by him in any such
capacity, or arising out of his status as such, whether or not the corporation
would have the power to indemnify him against such liability.
In addition, pursuant to its Articles of Organization and Bylaws, the
Company shall indemnify its directors and officers against expenses (including
judgments or amounts paid in settlement) incurred in any action, civil or
criminal, to which any such person is a party by reason of any alleged act or
failure to act in his capacity as such, except as to a matter as to which such
director or officer shall have been finally adjudged not to have acted in good
faith in the reasonable belief that his action was in the best interest of the
corporation.
The Underwriting Agreement provides that the Underwriters are obligated,
under certain circumstances, to indemnify directors, officers and controlling
persons of the Company against certain liabilities, including liabilities under
the Securities Act. Reference is made to the form of Underwriting Agreement
filed as Exhibit 1.1 hereto.
The Company maintains directors and officers liability insurance for the
benefit of its directors and certain of its officers and has entered into
indemnification agreements with its directors and certain of its officers.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
During the past three years, the Company has issued the following
securities, none of which has been registered under the Securities Act:
(1) In transactions exempt from registration pursuant to Rule 701 under the
Securities Act the Company has issued the following securities:
(a) On October 28, 1997, the Company issued 8,000 shares of Common
Stock at a price of $2.00 per share upon the exercise of two stock options.
(b) On October 17, 1997, the Company issued 200 shares of Common Stock
at a price of $4.00 per share upon the exercise of a stock option.
(c) On October 16, 1997, the Company issued 3,000 shares of Common
Stock at a price of $3.50 per share upon the exercise of two stock options.
(d) On October 9, 1997, the Company issued 800 shares of Common Stock
at a price of $5.00 per share upon the exercise of a stock option.
(e) On October 3, 1997, the Company issued 17,000 shares of Common
Stock at a price of $2.00 per share upon the exercise of three stock
options.
(f) On September 26, 1997, the Company issued 10,000 shares of Common
Stock at a price of $2.00 per share upon the exercise of a warrant.
(g) On September 23, 1997, the Company issued 500 shares of Common
Stock at a price of $4.00 per share and 1,000 shares of Common Stock at a
price of $3.50 per share upon the exercise of three stock options.
(h) On September 22, 1997, the Company issued 1,500 shares of Common
Stock at a price of $2.00 per share and 4,000 shares of Common Stock at a
price of $3.50 per share upon the exercise of three stock options.
(i) On September 18, 1997, the Company issued 12,500 shares of Common
Stock at a price of $1.50 upon the exercise of a stock option.
(j) On September 12, 1997, the Company issued 2,400 shares of Common
Stock at a price of $5.00 per share upon the exercise of a stock option.
(k) On September 11, 1997, the Company issued 3,000 shares of Common
Stock at a price of $2.00 per share upon the exercise of two stock options.
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(l) On September 7, 1997, the Company issued 20,000 shares of Common
Stock at a price of $4.00 per share upon the exercise of a stock option.
(m) On September 5, 1997, the Company issued 10,300 shares of Common
Stock at a price of $2.00 per share upon the exercise of two stock options.
(n) On September 4, 1997, the Company issued 5,000 shares of Common
Stock at a price of $1.50 per share upon the exercise of a stock option.
(o) On August 29, 1997, the Company issued 3,000 shares of Common
Stock at a price of $1.00 per share upon the exercise of a stock option.
(p) On August 11, 1997, the Company issued 3,000 shares of Common
Stock at a price of $1.00 per share upon the exercise of a stock option.
(q) On June 3, 1997, the Company issued 5,000 shares of Common Stock
at a price of $2.00 per share and 3,000 shares of Common Stock at a price
of $3.50 per share upon the exercise of two stock options.
(r) On June 2, 1997, the Company issued 7,500 shares of Common Stock
at a price of $1.50 per share upon the exercise of a stock option.
(s) On May 23, 1997, the Company issued 200 shares of Common Stock at
a price of $4.00 per share upon the exercise of a stock option.
(t) On May 5, 1997, the Company issued 2,500 shares of Common Stock at
a price of $1.00 per share upon the exercise of a stock option.
(u) On April 17, 1997, the Company issued 13,000 shares of Common
Stock at a price of $1.00 per share upon the exercise of a stock option.
(v) On April 14, 1997, the Company issued 18,000 shares of Common
Stock at a price of $4.00 per share and 100 shares of Common Stock at a
price of $4.00 per share upon the exercise of three stock options.
(w) On February 19, 1997, the Company issued 5,500 shares of Common
Stock at a price of $2.00 per share and 50 shares of Common Stock at a
price of $3.50 per share upon the exercise of three stock options.
(x) On February 13, 1997, the Company issued 3,000 shares of Common
Stock at a price of $1.50 per share upon the exercise of a stock option.
(y) On February 12, 1997, the Company issued 4,000 shares of Common
Stock at a price of $3.50 per share and 3,000 shares at a price of $2.00
per share upon the exercise of two stock options.
(z) On February 11, 1997, the Company issued 12,500 shares of Common
Stock at a price of $1.50 per share and 5,000 shares of Common Stock of a
price of $2.00 per share upon the exercise of three stock options.
(aa) On February 7, 1997, the Company issued 4,000 shares of Common
Stock at a price of $3.50 per share upon the exercise of a stock option.
(bb) On December 26, 1996, the Company sold 33,000 shares of Common
Stock at a price of $4.00 per share.
(cc) On December 2, 1996, the Company issued 3,000 shares of Common
Stock at a price of $2.00 per share upon the exercise of a stock option.
(dd) On October 15, 1996, the Company issued 6,000 shares of Common
Stock at a price of $1.00 per share upon the exercise of a stock option.
II-3
87
(ee) On October 11, 1996, the Company sold 30,000 shares of Common
Stock at a price of $4.00 per share and issued 500 shares of Common Stock
at a price of $1.00 per share upon the exercise of a stock option.
(ff) On October 10, 1996, the Company issued 5,000 shares of Common
Stock at a price of $1.00 per share upon the exercise of a stock option.
(gg) On September 9, 1996, the Company issued 1,000 shares of Common
Stock at a price of $2.00 per share upon the exercise of a stock option.
(hh) On June 12, 1996, the Company issued 800 shares of Common Stock
at a price of $7.50 per share upon the exercise of a stock option.
(ii) On June 1, 1996, the Company issued 1,000 shares of Common Stock
at a price of $3.00 per share upon the exercise of a stock option.
(jj) On May 15, 1996, the Company issued 1,000 shares of Common Stock
at a price of $3.50 per share upon the exercise of a stock option.
(kk) On April 12, 1996, the Company issued 5,000 shares of Common
Stock at a price of $1.00 per share and 200 shares of Common Stock at a
price of $2.00 per share upon the exercise of two stock options.
(ll) On March 25, 1996, the Company issued 1,000 shares of Common
Stock at a price of $3.50 per share upon the exercise of a stock option.
(mm) On March 1, 1996, the Company issued 2,000 shares of Common Stock
at a price of $2.00 per share and 600 shares of Common Stock at a price of
$3.50 per share upon the exercise of two stock options.
(nn) On February 6, 1996, the Company issued 12,000 shares of Common
Stock at a price of $2.00 per share and 4,400 shares of Common Stock at a
price of $3.50 per share upon the exercise of five stock options.
(oo) On January 6, 1996, the Company issued 5,200 shares of Common
Stock at a price of $2.00 per share and 400 shares of Common Stock at a
price of $3.50 per share upon the exercise of three stock options.
(pp) On December 29, 1995, the Company issued 5,750 shares of Common
Stock at a price of $2.00 per share and 2,500 shares of Common Stock at a
price of $1.50 per share upon the exercise of three stock options.
(qq) On December 19, 1995, the Company issued 4,000 shares of Common
Stock at a price of $1.00 per share and 2,000 shares of Common Stock at a
price of $2.00 per share upon the exercise of three stock options.
(rr) On December 12, 1995, the Company issued 2,000 shares of Common
Stock at a price of $2.00 per share upon the exercise of a stock option.
(ss) On December 5, 1995, the Company issued 1,500 shares of Common
Stock at a price of $1.00 per share upon the exercise of a stock option.
(tt) On October 25, 1995, the Company issued 1,500 shares of Common
Stock at a price of $2.00 per share upon the exercise of a stock option.
(uu) On October 24, 1995, the Company issued 1,600 shares of Common
Stock at a price of $3.50 per share and 5,000 shares of Common Stock at a
price of $2.00 per share upon the exercise of two stock options.
II-4
88
(vv) On September 25, 1995, the Company issued 5,000 shares of Common
Stock at a price of $2.00 per share and 200 shares of Common Stock at a
price of $3.50 per share upon the exercise of four stock options.
(ww) On August 11, 1995, the Company issued 600 shares of Common Stock
at a price of $3.50 per share upon the exercise of a stock option.
(xx) On July 21, 1995, the Company issued 5,000 shares of Common Stock
at a price of $1.50 per share upon the exercise of a stock option.
(yy) On January 11, 1995, the Company issued 17,967 shares of Common
Stock at a price of $.50 per share upon the exercise of a stock option.
(zz) On January 3, 1995, the Company issued 1,200 shares of Common
Stock at a price of $.50 per share upon the exercise of a stock option.
(aaa) On December 27, 1994, the Company issued 3,700 shares of Common
Stock at a price of $.50 per share upon the exercise of a stock option.
(bbb) On December 20, 1994, the Company issued 4,000 shares of Common
Stock at a price of $.50 per share upon the exercise of a stock option.
(ccc) On December 15, 1994, the Company issued 1,500 shares of Common
Stock at a price of $1.00 per share upon the exercise of a stock option.
(ddd) On December 2, 1994, the Company issued 100 shares of Common
Stock at a price of $2.00 per share upon the exercise of a stock option.
(2) In transactions exempt from registration pursuant to Section 4(2) of
the Securities Act, the Company sold an aggregate of 63,000 shares of Common
Stock for an aggregate consideration of $252,000.
ITEM 16. EXHIBITS
EXHIBITS:
ITEM #
1.1 Form of Underwriting Agreement
3.1 Restated Articles of Organization of the Registrant
3.2 Bylaws of the Registrant
4.1* Form of Stock Certificate
5.1* Form of Opinion of Hutchins, Wheeler & Dittmar, A Professional Corporation
10.1 1982 Stock Option Plan, as amended
10.2 1991 Stock Option Plan, as amended
10.3 1993 Stock Option Plan for Non-Employee Directors
10.4 1997 Stock Option Plan
10.5 1997 Employee Stock Purchase Plan
10.6 Lease Agreement, dated July 24, 1992, by and between the Company and Equitable
Variable Life Insurance Company, as amended and extended
10.7 Purchase and Sale Agreement, dated November 8, 1996 between Corcoran Chelmsford &
Associates and Northland Development Corporation
108+ Term Purchase Agreement, dated July 25, 1995 between the Company and Analog Devices,
Inc.
10.9+ Risk Reproduction Agreement, dated March 20, 1996, between the Company and LSI Logic
Corporation
10.10+ Purchase Offer Agreement for OEM Manufacturer, dated February 16, 1995, between the
Company & IBM Microelectronics Division
10.11 $100,000 Promissory Note, dated December 22, 1993 and amended January 27, 1997,
issued by Albert P. Belle Isle to the Company
10.12 $25,000 Promissory Note, dated July 15, 1997 and amended January 27, 1997, issued by
Albert P. Belle Isle to the Company
II-5
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EXHIBITS:
ITEM #
10.13 $150,000 Promissory Note, dated March 26, 1994 and amended August 26, 1997, issued
by James R. Bertelli to the Company
10.14 $50,000 Promissory Note, dated June 24, 1995 and amended August 26, 1997, issued by
James R. Bertelli to the Company
11.1 Statement of Computation at Earnings Per Share
21.1 Subsidiaries of the Registrant
23.1 Consent of Coopers & Lybrand L.L.P.
23.2* Consent of Hutchins, Wheeler & Dittmar, A Professional Corporation (included in
Exhibit 5.1)
24.1 Power of Attorney (included on page II-4)
27.1 Financial Data Schedule
- ---------------
* To be filed by amendment.
+ Confidential treatment requested.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
The undersigned registrant hereby undertakes that: (1) For purposes of
determining any liability under the Securities Act, the information omitted from
the form of prospectus filed as part of his registration statement in reliance
upon Rule 430A and contained in a form of prospectus filed by the registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be
deemed to be part of this registration statement as of the time it was declared
effective; and (2) For the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to provisions described in Item 14 above, or otherwise, the
registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement on Form S-1 to be signed
on its behalf by the undersigned, thereunto duly authorized, in Chelmsford,
Massachusetts, on November 25, 1997.
MERCURY COMPUTER SYSTEMS, INC.
By: /s/ JAMES R. BERTELLI
------------------------------------
NAME: JAMES R. BERTELLI
TITLE: PRESIDENT
We, the undersigned officers and directors of Mercury Computer Systems,
Inc., hereby severally constitute and appoint James R. Bertelli and G. Mead
Wyman, and each of them singly, our true and lawful attorneys, with full power
to them and each of them singly, to sign for us and in our names in the
capacities indicated below, the Registration Statement on Form S-1 filed
herewith and any and all pre-effective and post-effective amendments to said
Registration Statement, and, in connection with any registration of additional
securities pursuant to Rule 462(b) under the Securities Act of 1933, to sign any
abbreviated registration statement and any and all amendments thereto, and to
file the same, with all exhibits thereto and other documents in connection
therewith, in each case, with the Securities and Exchange Commission, and
generally to do all such things in our names and on our behalf in our capacities
with the provisions of the Securities Act of 1933, as amended, and all
requirements of the Securities and Exchange Commission.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE(S) DATE
- ------------------------------------------ ------------------------------ ------------------
/s/ JAMES R. BERTELLI President, Chief Executive November 25, 1997
- ------------------------------------------ Officer and Director
JAMES R. BERTELLI (principal executive officer)
/s/ G. MEAD WYMAN Vice President, Chief November 25, 1997
- ------------------------------------------ Financial Officer and
G. MEAD WYMAN Treasurer (principal financial
and accounting officer)
/s/ GORDON B. BATY Director November 24, 1997
- ------------------------------------------
GORDON B. BATY
/s/ R. SCHORR BERMAN Director November 25, 1997
- ------------------------------------------
R. SCHORR BERMAN
/s/ ALBERT P. BELLE ISLE Director November 25, 1997
- ------------------------------------------
ALBERT P. BELLE ISLE
/s/ SHERMAN N. MULLIN Director November 25, 1997
- ------------------------------------------
SHERMAN N. MULLIN
/s/ MELVIN SALLEN Director November 25, 1997
- ------------------------------------------
MELVIN SALLEN
II-7
1
EXHIBIT 1.1
[FORM OF UNDERWRITING AGREEMENT]
________ ___, 1998
PRUDENTIAL SECURITIES INCORPORATED
COWEN & COMPANY
As Representatives of the several Underwriters
c/o Prudential Securities Incorporated
One New York Plaza
New York, New York 10292
Dear Sirs:
Mercury Computer Systems, Inc., a Massachusetts corporation (the
"Company"), each of the selling stockholders of the Company named in Schedule I
hereto (the "Principal Selling Stockholders") and each of the selling
stockholders of the Company named in Schedule II hereto (the "Additional Selling
Stockholders") (the Principal Selling Stockholders and the Additional Selling
Stockholders being referred to herein collectively as the "Selling
Stockholders") severally confirm their respective agreements with the several
underwriters named in Schedule III hereto (the "Underwriters"), for whom you
have been duly authorized to act as representatives (in such capacities, the
"Representatives"), as set forth below. If you are the only Underwriters, all
references herein to the Representatives shall be deemed to be to the
Underwriters.
1. Securities. Subject to the terms and conditions herein contained,
the Company proposes to issue and sell, and the Selling Stockholders propose to
sell, severally, to the several Underwriters an aggregate of 2,000,000 shares
and 1,500,000 shares, respectively (the "Firm Securities") of the Company's
Common Stock, par value $.01 per share ("Common Stock"). Each of the Selling
Stockholders propose to sell, severally, to the several Underwriters not more
than 525,000 additional shares of Common Stock, in the aggregate, if requested
by the Representatives as provided in Section 3 of
- ------------------
1 Plus an option to purchase from the Selling Stockholders up to 525,000
additional shares to cover over-allotments.
2
this Agreement. Any and all shares of Common Stock to be purchased by the
Underwriters pursuant to such options are referred to herein as the "Option
Securities", and the Firm Securities and any Option Securities are collectively
referred to herein as the "Securities".
2(A). Representations and Warranties of the Company. The Company and
each Principal Selling Stockholder, jointly and severally, represent and warrant
to, and agree with, each of the several Underwriters that:
(a) A registration statement on Form S-1 (File No. 333-_________) with
respect to the Securities, including a prospectus subject to completion, has
been filed by the Company with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Act"), and one
or more amendments to such registration statement may have been so filed. After
the execution of this Agreement, the Company will file with the Commission
either (i) if such registration statement, as it may have been amended, has been
declared by the Commission to be effective under the Act, either (A) if the
Company relies on Rule 434 under the Act, a Term Sheet (as hereinafter defined)
relating to the Securities, that shall identify the Preliminary Prospectus (as
hereinafter defined) that it supplements containing such information as is
required or permitted by Rules 434, 430A and 424(b) under the Act or (B) if the
Company does not rely on Rule 434 under the Act, a prospectus in the form most
recently included in an amendment to such registration statement (or, if no such
amendment shall have been filed, in such registration statement), with such
changes or insertions as are required by Rule 430A under the Act or permitted by
Rule 424(b) under the Act, and in the case of either clause (i)(A) or (i)(B) of
this sentence as have been provided to and approved by the Representatives prior
to the execution of this Agreement, or (ii) if such registration statement, as
it may have been amended, has not been declared by the Commission to be
effective under the Act, an amendment to such registration statement, including
a form of prospectus, a copy of which amendment has been furnished to and
approved by the Representatives prior to the execution of this Agreement. The
Company may also file a related registration statement with the Commission
pursuant to Rule 462(b) under the Act for the purpose of registering certain
additional Securities, which registration shall be effective upon filing with
the Commission. As used in this Agreement, the term "Original Registration
Statement" means the registration statement initially filed relating to the
Securities, as amended at the time when it was or is declared effective,
including all financial schedules and exhibits thereto and including any
information omitted therefrom pursuant to Rule 430A under the Act and included
in the Prospectus (as hereinafter defined); the term "Rule 462(b) Registration
Statement" means any registration statement filed with the Commission pursuant
to Rule 462(b) under the Act (including the Registration Statement and any
Preliminary Prospectus or Prospectus incorporated therein at the time such
Registration Statement becomes effective); the term "Registration Statement"
includes both the Original Registration Statement and any Rule 462(b)
Registration Statement; the term "Preliminary Prospectus" means each prospectus
subject to completion filed with such registration statement or any amendment
thereto (including the prospectus subject to completion, if any, included in the
Registration Statement or any amendment thereto at the time it was or is
declared effective); the term "Prospectus" means:
(A) if the Company relies on Rule 434 under the Act, the Term Sheet
relating to the Securities that is first filed pursuant to Rule
424(b)(7) under the Act, together with the
2
3
Preliminary Prospectus identified therein that such Term Sheet
supplements;
(B) if the Company does not rely on Rule 434 under the Act, the
prospectus first filed with the Commission pursuant to Rule 424(b)
under the Act; or
(C) if the Company does not rely on Rule 434 under the Act and if no
prospectus is required to be filed pursuant to Rule 424(b) under the
Act, the prospectus included in the Registration Statement;
and the term "Term Sheet" means any term sheet that satisfies the requirements
of Rule 434 under the Act. Any reference herein to the "date" of a Prospectus
that includes a Term Sheet shall mean the date of such Term Sheet.
(b) The Commission has not issued any order preventing or suspending
use of any Preliminary Prospectus. When any Preliminary Prospectus was filed
with the Commission it (i) contained all statements required to be stated
therein in accordance with, and complied in all material respects with the
requirements of, the Act and the rules and regulations of the Commission
thereunder and (ii) did not include any untrue statement of a material fact or
omit to state any material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. When the Registration Statement or any amendment thereto was or is
declared effective, it (i) contained or will contain all statements required to
be stated therein in accordance with, and complied or will comply in all
material respects with the requirements of, the Act and the rules and
regulations of the Commission thereunder and (ii) did not or will not include
any untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein not misleading. When the Prospectus or
any Term Sheet that is a part thereof or any amendment or supplement to the
Prospectus is filed with the Commission pursuant to Rule 424(b) (or, if the
Prospectus or part thereof or such amendment or supplement is not required to be
so filed, when the Registration Statement or the amendment thereto containing
such amendment or supplement to the Prospectus was or is declared effective) and
on the Firm Closing Date and any Option Closing Date (both as hereinafter
defined), the Prospectus, as amended or supplemented at any such time, (i)
contained or will contain all statements required to be stated therein in
accordance with, and complied or will comply in all material respects with the
requirements of, the Act and the rules and regulations of the Commission
thereunder and (ii) did not or will not include any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. The foregoing provisions of this paragraph (b) do not
apply to statements or omissions made in any Preliminary Prospectus, the
Registration Statement or any amendment thereto or the Prospectus or any
amendment or supplement thereto in reliance upon and in conformity with written
information furnished to the Company by any Underwriter through the
Representatives specifically for use therein.
(c) If the Company has elected to rely on Rule 462(b) and the Rule
462(b) Registration Statement has not been declared effective (i) the Company
has filed a Rule 462(b) Registration Statement in compliance with, and that is
effective upon filing pursuant to, Rule 462(b) and has received confirmation of
its receipt and (ii) the Company has given irrevocable instructions for
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transmission of the applicable filing fee in connection with the filing of the
Rule 462(b) Registration Statement, in compliance with Rule 111 promulgated
under the Act or the Commission has received payment of such filing fee.
(d) The Company and each of its subsidiaries have been duly organized
and are validly existing as corporations in good standing under the laws of
their respective jurisdictions of incorporation and are duly qualified to
transact business as foreign corporations and are in good standing under the
laws of all other jurisdictions where the ownership or leasing of their
respective properties or the conduct of their respective businesses requires
such qualification, except where the failure to be so qualified does not amount
to a material liability or disability to the Company and its subsidiaries, taken
as a whole.
(e) The Company and each of its subsidiaries have full power (corporate
and other) to own or lease their respective properties and conduct their
respective businesses as described in the Registration Statement and the
Prospectus or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus; and the Company has full power (corporate and other) to
enter into this Agreement and to carry out all the terms and provisions hereof
to be carried out by it.
(f) The issued shares of capital stock of each of the Company's
subsidiaries have been duly authorized and validly issued, are fully paid and
nonassessable and, except as otherwise set forth in the Prospectus or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus, are
owned beneficially by the Company free and clear of any security interests,
liens, encumbrances, equities or claims.
(g) The Company has an authorized, issued and outstanding
capitalization as set forth in the Prospectus or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus. All of the issued shares of
capital stock of the Company have been duly authorized and validly issued and
are fully paid and nonassessable. The Firm Securities and the Option Securities
have been duly authorized and at the Firm Closing Date or the related Option
Closing Date (as the case may be), after payment therefor in accordance
herewith, will be validly issued, fully paid and nonassessable. No holders of
outstanding shares of capital stock of the Company are entitled as such to any
preemptive or other rights to subscribe for any of the Securities, and no holder
of securities of the Company has any right which has not been fully exercised or
waived to require the Company to register the offer or sale of any securities
owned by such holder under the Act in the public offering contemplated by this
Agreement.
(h) The capital stock of the Company conforms to the description
thereof contained in the Prospectus or, if the Prospectus is not in existence,
the most recent Preliminary Prospectus.
(i) Except as disclosed in the Prospectus (or, if the Prospectus is not
in existence, the most recent Preliminary Prospectus), there are no outstanding
(A) securities or obligations of the Company or any of its subsidiaries
convertible into or exchangeable for any capital stock of the Company or any
such subsidiary, (B) warrants, rights or options to subscribe for or purchase
from the Company or any such subsidiary any such capital stock or any such
convertible or exchangeable securities or obligations, or (C) obligations of the
Company or any such subsidiary to issue any
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shares of capital stock, any such convertible or exchangeable securities or
obligations, or any such warrants, rights or options.
(j) The consolidated financial statements and schedules of the Company
and its consolidated subsidiaries included in the Registration Statement and the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus) fairly present the financial position of the Company and
its consolidated subsidiaries and the results of operations and changes in
financial condition as of the dates and periods therein specified. Such
financial statements and schedules have been prepared in accordance with
generally accepted accounting principles consistently applied throughout the
periods involved (except as otherwise noted therein). The selected financial
data set forth under the caption "Selected Consolidated Financial Data" in the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus) fairly present, on the basis stated in the Prospectus
(or such Preliminary Prospectus), the information included therein.
(k) Coopers & Lybrand L.L.P., who have certified certain financial
statements of the Company and its consolidated subsidiaries and delivered their
report with respect to the audited consolidated financial statements and
schedules included in the Registration Statement and the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus), are
independent public accountants as required by the Act and the applicable rules
and regulations thereunder.
(l) The execution and delivery of this Agreement have been duly
authorized by the Company, and this Agreement has been duly executed and
delivered by the Company, and is the valid and binding agreement of the Company,
enforceable against the Company in accordance with its terms.
(m) No legal or governmental proceedings are pending to which the
Company or any of its subsidiaries is a party or to which the property of the
Company or any of its subsidiaries is subject that are required to be described
in the Registration Statement or the Prospectus and are not described therein
(or, if the Prospectus is not in existence, the most recent Preliminary
Prospectus), and no such proceedings have been threatened against the Company or
any of its subsidiaries or with respect to any of their respective properties;
and no contract or other document is required to be described in the
Registration Statement or the Prospectus or to be filed as an exhibit to the
Registration Statement that is not described therein (or, if the Prospectus is
not in existence, the most recent Preliminary Prospectus) or filed as required.
(n) The issuance, offering and sale of the Securities to the
Underwriters by the Company pursuant to this Agreement, the compliance by the
Company with the other provisions of this Agreement and the consummation of the
other transactions herein contemplated do not (i) require the consent, approval,
authorization, registration or qualification of or with any governmental
authority, except such as have been obtained, such as may be required under
state securities or blue sky laws and, if the registration statement filed with
respect to the Securities (as amended) is not effective under the Act as of the
time of execution hereof, such as may be required (and shall be obtained as
provided in this Agreement) under the Act, or (ii) conflict with or result in
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a breach or violation of any of the terms and provisions of, or constitute a
default under, any indenture, mortgage, deed of trust, lease or other agreement
or instrument to which the Company or any of its subsidiaries is a party or by
which the Company or any of its subsidiaries or any of their respective
properties are bound, or the charter documents or by-laws of the Company or any
of its subsidiaries, or any statute or any judgment, decree, order, rule or
regulation of any court or other governmental authority or any arbitrator
applicable to the Company or any of its subsidiaries.
(o) Subsequent to the respective dates as of which information is given
in the Registration Statement and the Prospectus or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus, neither the Company nor any
of its subsidiaries has sustained any material loss or interference with their
respective businesses or properties from fire, flood, hurricane, accident or
other calamity, whether or not covered by insurance, or from any labor dispute
or any legal or governmental proceeding and there has not been any material
adverse change, or any development involving a prospective material adverse
change, in the condition (financial or otherwise), management, business
prospects, net worth, or results of the operations of the Company or any of its
subsidiaries, except in each case as described in or contemplated by the
Prospectus or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus.
(p) The Company has not, directly or indirectly, (i) taken any action
designed to cause or to result in, or that has constituted or which might
reasonably be expected to constitute, the stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale of the
Securities or (ii) since the filing of the Registration Statement (A) sold, bid
for, purchased, or paid anyone any compensation for soliciting purchases of, the
Securities or (B) paid or agreed to pay to any person any compensation for
soliciting another to purchase any other securities of the Company (except for
the sale of Securities by the Selling Stockholders under this Agreement).
(q) The Company has not distributed and, prior to the later of (i) the
Closing Date and (ii) the completion of the distribution of the Securities, will
not distribute any offering material in connection with the offering and sale of
the Securities other than the Registration Statement or any amendment thereto,
any Preliminary Prospectus or the Prospectus or any amendment or supplement
thereto, or other materials, if any permitted by the Act.
(r) Subsequent to the respective dates as of which information is given
in the Registration Statement and the Prospectus (or, if the Prospectus is not
in existence, the most recent Preliminary Prospectus), (1) the Company and its
subsidiaries have not incurred any material liability or obligation, direct or
contingent, nor entered into any material transaction not in the ordinary course
of business; (2) the Company has not purchased any of its outstanding capital
stock, nor declared, paid or otherwise made any dividend or distribution of any
kind on its capital stock; and (3) there has not been any material change in the
capital stock, short-term debt or long-term debt of the Company and its
consolidated subsidiaries, except in each case as described in or contemplated
by the Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus).
(s) The Company and each of its subsidiaries have good and marketable
title in fee
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simple to all items of real property and marketable title to all personal
property owned by each of them, in each case free and clear of any security
interests, liens, encumbrances, equities, claims and other defects, except such
as do not materially and adversely affect the value of such property and do not
interfere with the use made of such property by the Company or such subsidiary,
and any real property and buildings held under lease by the Company or any such
subsidiary are held under valid, subsisting and enforceable leases, with such
exceptions as are not material and do not interfere with the use made of such
property and buildings by the Company or such subsidiary, in each case except as
described in or contemplated by the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus).
(t) No labor dispute with the employees of the Company or any of its
subsidiaries exists or is threatened or imminent that could result in a material
adverse change in the condition (financial or otherwise), business prospects,
net worth or results of operations of the Company and its subsidiaries, except
as described in or contemplated by the Prospectus (or, if the Prospectus is not
in existence, the most recent Preliminary Prospectus).
(u) The Company and its subsidiaries own or possess, or can acquire on
reasonable terms, all material patents, patent applications, trademarks, service
marks, trade names, licenses, copyrights and proprietary or other confidential
information currently employed by them in connection with their respective
businesses, and neither the Company nor any such subsidiary has received any
notice of infringement of or conflict with asserted rights of any third party
with respect to any of the foregoing which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, would result in a
material adverse change in the condition (financial or otherwise), business
prospects, net worth or results of operations of the Company and its
subsidiaries, except as described in or contemplated by the Prospectus (or, if
the Prospectus is not in existence, the most recent Preliminary Prospectus).
(v) The Company and each of its subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and in such
amounts as are prudent and customary in the businesses in which they are
engaged.
(w) No subsidiary of the Company is currently prohibited, directly or
indirectly, from paying any dividends to the Company, from making any other
distribution on such subsidiary's capital stock, from repaying to the Company
any loans or advances to such subsidiary from the Company or from transferring
any of such subsidiary's property or assets to the Company or any other
subsidiary of the Company, except as described in or contemplated by the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus).
(x) The Company and its subsidiaries possess all certificates,
authorizations and permits issued by the appropriate federal, state or foreign
regulatory authorities necessary to conduct their respective businesses (except
those the nonpossession of which would not have a material adverse effect on the
business, operations or condition (financial or otherwise) of the Company and
its subsidiaries, taken as a whole), and neither the Company nor any such
subsidiary has received any notice of proceedings relating to the revocation or
modification of any such certificate, authorization or permit which, singly or
in the aggregate, if the subject of an
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unfavorable decision, ruling or finding, would result in a material adverse
change in the condition (financial or otherwise), business prospects, net worth
or results of operations of the Company and its subsidiaries, except as
described in or contemplated by the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus).
(y) The Company has filed all foreign, federal, state and local tax
returns that are required to be filed or has requested extensions thereof
(except in any case in which the failure so to file would not have a material
adverse effect on the Company and its subsidiaries) and has paid all taxes
required to be paid by it and any other assessment, fine or penalty levied
against it, to the extent that any of the foregoing is due and payable, except
for any such assessment, fine or penalty that is currently being contested in
good faith or as described in or contemplated by the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus).
(z) Neither the Company nor any of its subsidiaries is in violation of
any federal or state law or regulation relating to occupational safety and
health or to the storage, handling or transportation of hazardous or toxic
materials and the Company and its subsidiaries have received all permits,
licenses or other approvals required of them under applicable federal and state
occupational safety and health and environmental laws and regulations to conduct
their respective businesses, and the Company and each such subsidiary is in
compliance with all terms and conditions of any such permit, license or
approval, except any such violation of law or regulation, failure to receive
required permits, licenses or other approvals or failure to comply with the
terms and conditions of such permits, licenses or approvals which would not,
singly or in the aggregate, result in a material adverse change in the condition
(financial or otherwise), business prospects, net worth or results of operations
of the Company and its subsidiaries, except as described in or contemplated by
the Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus).
(aa) Each certificate signed by any officer of the Company and
delivered to the Representatives or counsel for the Underwriters shall be deemed
to be a representation and warranty by the Company to each Underwriter as to the
matters covered thereby.
(bb) Except for the shares of capital stock of each of the subsidiaries
owned by the Company and such subsidiaries, neither the Company nor any such
subsidiary owns any shares of stock or any other equity securities of any
corporation or has any equity interest in any firm, partnership, association or
other entity, except as described in or contemplated by the Prospectus (or, if
the Prospectus is not in existence, the most recent Preliminary Prospectus).
(cc) The Company and each of its subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable assurance that (1)
transactions are executed in accordance with management's general or specific
authorizations; (2) transactions are recorded as necessary to permit preparation
of financial statements in conformity with generally accepted accounting
principles and to maintain asset accountability; (3) access to assets is
permitted only in accordance with management's general or specific
authorization; and (4) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
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(dd) The Company has complied with, and is and will be in compliance
with, the provisions of that certain Florida act relating to disclosure of doing
business with Cuba, codified as Section 517.075 of the Florida statutes, and the
rules and regulations thereunder (collectively, the "Cuba Act") or is exempt
therefrom.
(ee) The Company is not, and upon the issuance and sale of the
Securities as herein contemplated and the application of the net proceeds
therefrom as described in the Prospectus will not be, an "investment company" or
an entity "controlled" by an "investment company" as such terms are defined in
the Investment Company Act of 1940, as amended (the "1940 Act").
(ff) No default exists, and no event has occurred which, with notice or
lapse of time or both, would constitute a default in the due performance and
observance of any term, covenant or condition of any indenture, mortgage, deed
of trust, lease or other agreement or instrument to which the Company or any of
its subsidiaries is a party or by which the Company or any of its subsidiaries
or any of their respective properties is bound or may be affected in any
material adverse respect with regard to property, business or operations of the
Company and its subsidiaries.
2(B). Representations and Warranties of the Selling Stockholders. Each
Selling Stockholder represents and warrants to, and agrees with, each of the
several Underwriters, severally and not jointly, that:
(a) Such Selling Stockholder has full power to enter into this
Agreement and to sell, assign, transfer and deliver to the Underwriters the
Securities to be sold by such Selling Stockholder hereunder in accordance with
the terms of this Agreement; and this Agreement has been duly executed and
delivered by such Selling Stockholder, and is the valid and binding agreement of
such Selling Stockholder, enforceable against each such Selling Stockholder in
accordance with its terms.
(b) Such Selling Stockholder has duly executed and delivered a power of
attorney and custody agreement (with respect to such Selling Stockholder, the
"Power-of-Attorney" and the "Custody Agreement", respectively), each in the form
heretofore delivered to the Representatives, appointing ___________ and
___________ as such Selling Stockholder's attorney-in-fact (the
"Attorney-in-Fact") with authority to execute, deliver and perform this
Agreement on behalf of such Selling Stockholder and appointing ____________, as
custodian thereunder (the "Custodian"). Certificates in negotiable form,
endorsed in blank or accompanied by blank stock powers duly executed, with
signatures appropriately guaranteed, representing the Securities to be sold by
such Selling Stockholder hereunder have been deposited with the Custodian
pursuant to the Custody Agreement for the purpose of delivery pursuant to this
Agreement. Such Selling Stockholder has full power to enter into the Custody
Agreement and the Power-of-Attorney and to perform its obligations under the
Custody Agreement. If such Selling Stockholder is a corporation, the execution
and delivery of the Custody Agreement and the Power-of-Attorney have been duly
authorized by all necessary corporate action of such Selling Stockholder; the
Custody Agreement and the Power-of-Attorney have been duly executed
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and delivered by such Selling Stockholder and, assuming due authorization,
execution and delivery by the Custodian, are the legal, valid, binding and
enforceable instruments of such Selling Stockholder. Such Selling Stockholder
agrees that each of the Securities represented by the certificates on deposit
with the Custodian is subject to the interests of the Underwriters hereunder,
that the arrangements made for such custody, the appointment of the
Attorney-in-Fact and the right, power and authority of the Attorney-in-Fact to
execute and deliver this Agreement, to agree on the price at which the
Securities (including such Selling Stockholder's Securities) are to be sold to
the Underwriters, and to carry out the terms of this Agreement, are to that
extent irrevocable and that the obligations of such Selling Stockholder
hereunder shall not be terminated, except as provided in this Agreement or the
Custody Agreement, by any act of such Selling Stockholder, by operation of law
or otherwise, whether in the case of any individual Selling Stockholder by the
death or incapacity of such Selling Stockholder, in the case of a trust or
estate by the death of the trustee or trustees or the executor or executors or
the termination of such trust or estate, or in the case of a corporate or
partnership Selling Stockholder by its liquidation or dissolution or by the
occurrence of any other event. If any individual Selling Stockholder, trustee or
executor should die or become incapacitated or any such trust should be
terminated, or if any corporate or partnership Selling Stockholder shall
liquidate or dissolve, or if any other event should occur, before the delivery
of such Securities hereunder, the certificates for such Securities deposited
with the Custodian shall be delivered by the Custodian in accordance with the
respective terms and conditions of this Agreement as if such death, incapacity,
termination, liquidation or dissolution or other event had not occurred,
regardless of whether or not the Custodian or the Attorney-in-Fact shall have
received notice thereof.
(c) Such Selling Stockholder is the lawful owner of the Securities to
be sold by such Selling Stockholder hereunder and upon sale and delivery of, and
payment for, such Securities, as provided herein, such Selling Stockholder will
convey good and marketable title to such Securities, free and clear of any
security interests, liens, encumbrances, equities, claims or other defects. Such
Selling Stockholder has obtained all authorizations and approvals required by
law and under its charter or bylaws, partnership agreement, trust agreement or
other organizational documents, as the case may be, to enter this Agreement,
such Selling Stockholder's Power of Attorney and Custody agreement, to sell,
transfer and deliver all of the shares of Common stock which may be sold by such
Selling stockholder pursuant to this Agreement; and to comply with other
obligations hereunder and thereunder.
(d) Such Selling Stockholder has not, directly or indirectly, (i) taken
any action designed to cause or result in, or that has constituted or which
might reasonably be expected to constitute, the stabilization or manipulation of
the price of any security of the Company to facilitate the sale or resale of the
Securities or (ii) since the filing of the Registration Statement (A) sold, bid
for, purchased, or paid anyone any compensation for soliciting purchases of, the
Securities or (B) paid or agreed to pay to any person any compensation for
soliciting another to purchase any other securities of the Company (except for
the sale of Securities by the Selling Stockholders under this Agreement).
(e) To the extent that any statements or omissions are made in the
Registration Statement, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto
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in reliance upon and in conformity with written information furnished to the
Company by such Selling Stockholder specifically for use therein, such
Preliminary Prospectus did, and the Registration Statement and the Prospectus
and any amendments or supplements thereto, when they become effective or are
filed with the Commission, as the case may be, will conform in all material
respects to the requirements of the Act and the respective rules and regulations
of the Commission thereunder and will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
under which they are made, not misleading. Such Selling Stockholder has reviewed
the Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus) and the Registration Statement, and the information
regarding such Selling Stockholder set forth therein under the caption
"Principal and Selling Stockholders" is complete and accurate.
(f) The sale by such Selling Stockholder of Securities pursuant hereto
is not prompted by any adverse information concerning the Company that is not
set forth in the Registration Statement or the Prospectus (or, if the Prospectus
is not in existence, the most recent Preliminary Prospectus).
(g) The sale of the Securities to the Underwriters by such Selling
Stockholder pursuant to this Agreement, the compliance by such Selling
Stockholder with the other provisions of this Agreement, the Power of Attorney,
the Custody Agreement and the consummation of the other transactions herein
contemplated do not (i) require the consent, approval, authorization,
registration or qualification of or with any governmental authority, except such
as have been obtained, such as may be required under state securities or blue
sky laws and, if the registration statement filed with respect to the Securities
(as amended) is not effective under the Act as of the time of execution hereof,
such as may be required (and shall be obtained as provided in this Agreement)
under the Act, or (ii) conflict with or result in a breach or violation of any
of the terms and provisions of, or constitute a default under any indenture,
mortgage, deed of trust, lease or other agreement or instrument to which such
Selling Stockholder or, if applicable, to such Selling Stockholder any of its
subsidiaries is a party or by which such Selling Stockholder or, if applicable,
to such Selling Stockholder any of its subsidiaries or any of such Selling
Stockholder's properties are bound, or the charter documents or by-laws of such
Selling Stockholder or any statute or any judgment, decree, order, rule or
regulation of any court or other governmental authority or any arbitrator
applicable to such Selling Stockholder or, if applicable, to such Selling
Stockholder or any of its subsidiaries.
(h) Each certificate signed by such Selling Stockholder and delivered
to the Representatives or counsel for the Underwriters shall be deemed to be a
representation and warranty by such Selling Stockholder to each Underwriter as
to the matters covered thereby.
3. Purchase, Sale and Delivery of the Securities. (a) On the basis of
the representations, warranties, agreements and covenants herein contained and
subject to the terms and conditions herein set forth, (A) the Company agrees to
issue and sell to each of the Underwriters, severally and not jointly, and each
of the Underwriters, severally and not jointly, agrees to purchase from the
Company, at a purchase price of $________ per share, the number of Firm
Securities set forth opposite the name of such Underwriter in Column (a),
Schedule III hereto and (B) each of the Selling Stockholders agrees to sell to
each of the Underwriters and each of the Underwriters, severally and not
jointly, agrees to purchase from each of the Selling Stockholders the number of
Firm Securities set forth opposite the name of such Underwriter in Column (b) of
Schedule III
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hereto. One or more certificates in definitive form for the Firm Securities that
the several Underwriters have agreed to purchase hereunder, and in such
denomination or denominations and registered in such name or names as the
Representatives request upon notice to the Company at least 48 hours prior to
the Firm Closing Date, shall be delivered by or on behalf of the Company and the
Selling Stockholders to the Representatives for the respective accounts of the
Underwriters, against payment by or on behalf of the Underwriters of the
purchase price therefor by wire transfer in same-day funds (the "Wired Funds")
to the respective accounts of the Company and the Selling Stockholders. Such
delivery of and payment for the Firm Securities shall be made at the offices of
Testa, Hurwitz & Thibeault, LLP, High Street Tower, 125 High Street, Boston,
Massachusetts 02110 at 9:30 A.M., New York time, on January ___, 1998, or at
such other place, time or date as the Representatives, the Company and the
Selling Stockholders may agree upon or as the Representatives may determine
pursuant to Section 9 hereof, such time and date of delivery against payment
being herein referred to as the "Firm Closing Date". The Company and the Selling
Stockholders will make such certificate or certificates for the Firm Securities
available for checking and packaging by the Representatives at the offices in
New York, New York of the Company's transfer agent or registrar or of Prudential
Securities Incorporated at least 24 hours prior to the Firm Closing Date.
(b) For the purpose of covering any over-allotments in connection with
the distribution and sale of the Firm Securities as contemplated by the
Prospectus, each Selling Stockholder hereby grants to the several Underwriters
an option to purchase, severally and not jointly, the number of Option
Securities set forth opposite the name of such Underwriter in Column (c) of
Schedule III hereto. The options granted hereby may be exercised as to all or
any part of the Option Securities from time to time within thirty days after the
date of the Prospectus (or, if such 30th day shall be a Saturday or Sunday or a
holiday, on the next business day thereafter when the New York Stock Exchange is
open for trading). The Underwriters shall not be under any obligation to
purchase any of the Option Securities prior to the exercise of such options. The
Representatives may from time to time exercise the options granted hereby by
giving notice in writing or by telephone (confirmed in writing) to the Selling
Stockholder from whom such option is being exercised setting forth the aggregate
number of Option Securities as to which the several Underwriters are then
exercising such option and the date and time for delivery of and payment for
such Option Securities. Any such date of delivery shall be determined by the
Representatives but shall not be earlier than two business days or later than
five business days after such exercise of such option and, in any event, shall
not be earlier than the Firm Closing Date. The time and date set forth in such
notice, or such other time on such other date as the Representatives and the
Selling Stockholders may agree upon or as the Representatives may determine
pursuant to Section 9 hereof, is herein called the "Option Closing Date" with
respect to such Option Securities. Upon exercise of such option as provided
herein, such Selling Stockholder shall become obligated to sell to each of the
several Underwriters, and, subject to the terms and conditions herein set forth,
each of the Underwriters (severally and not jointly) shall become obligated to
purchase from such Selling Stockholder the number of Option Securities set forth
opposite the name of Underwriter in Column (c) of Schedule III hereto in the
same percentage of the total number of the Option Securities as to which the
several Underwriters are then exercising such option as such Underwriter is
obligated to purchase of the aggregate number of Firm Securities, as adjusted by
the Representatives in such manner as they deem advisable to avoid fractional
shares. If such option is exercised as to all or any portion of the Option
Securities, one or more certificates in definitive form for such Option
Securities, and payment therefor, shall be delivered on the related Option
Closing
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Date in the manner, and upon the terms and conditions, set forth in paragraph
(a) of this Section 3, except that reference therein to the Firm Securities and
the Firm Closing Date shall be deemed, for purposes of this paragraph (b), to
refer to such Option Securities and Option Closing Date, respectively.
(c) The Company and each Selling Stockholder hereby acknowledge that
the wire transfer by or on behalf of the Underwriters of the purchase price for
any Securities does not constitute closing of a purchase and sale of the
Securities. Only execution and delivery of a receipt for Securities by the
Underwriters indicates completion of the closing of a purchase of the Securities
from the Company or any Selling Stockholder. Furthermore, in the event that the
Underwriters wire funds to the Company or any Selling Stockholder prior to the
completion of the closing of a purchase of Securities, the Company and each
Selling Stockholder hereby acknowledge that until the Underwriters execute and
deliver a receipt for the Securities, by facsimile or otherwise, the Company and
each Selling Stockholder will not be entitled to the wired funds and shall
return the wired funds to the Underwriters as soon as practicable (by wire
transfer of same-day funds) upon demand. In the event that the closing of a
purchase of Securities is not completed and the wire funds are not returned by
the Company or any Selling Stockholder to the Underwriters on the same day the
wired funds were received by the Company or any Selling Stockholder, the Company
and each Selling Stockholder agrees to pay to the Underwriters in respect of
each day the wire funds are not returned by it, in same-day funds, interest on
the amount of such wire funds in an amount representing the Underwriters' cost
of financing as reasonably determined by Prudential Securities Incorporated.
(d) It is understood that any of you, individually and not as one of
the Representatives, may (but shall not be obligated to) make payment on behalf
of any Underwriter or Underwriters for any of the Securities to be purchased by
such Underwriter or Underwriters. No such payment shall relieve such Underwriter
or Underwriters from any of its or their obligations hereunder.
4. Offering by the Underwriters. Upon your authorization of the release
of the Firm Securities, the several Underwriters propose to offer the Firm
Securities for sale to the public upon the terms set forth in the Prospectus.
5. Covenants of the Company and the Selling Stockholders.
(A) The Company covenants and agrees with each of the
Underwriters that:
(a) The Company will use its best efforts to cause the Registration
Statement, if not effective at the time of execution of this Agreement, and any
amendments thereto to become effective as promptly as possible. If required, the
Company will file the Prospectus or any Term Sheet that constitutes a part
thereof and any amendment or supplement thereto with the Commission in the
manner and within the time period required by Rules 434 and 424(b) under the
Act. During any time when a prospectus relating to the Securities is required to
be delivered under the Act, the Company (i) will comply with all requirements
imposed upon it by the Act and the rules and regulations of the Commission
thereunder to the extent necessary to permit the continuance of sales of or
dealings in the Securities in accordance with the provisions hereof and of
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the Prospectus, as then amended or supplemented, and (ii) will not file with the
Commission the prospectus, Term Sheet or the amendment referred to in the second
sentence of Section 2(A)(a) hereof, any amendment or supplement to such
Prospectus, Term Sheet or any amendment to the Registration Statement or any
Rule 462(b) Registration Statement of which the Representatives previously have
been advised and furnished with a copy for a reasonable period of time prior to
the proposed filing and as to which filing the Representatives shall not have
given their consent. The Company will prepare and file with the Commission, in
accordance with the rules and regulations of the Commission, promptly upon
request by the Representatives or counsel for the Underwriters, any amendments
to the Registration Statement or amendments or supplements to the Prospectus
that may be necessary or advisable in connection with the distribution of the
Securities by the several Underwriters, and will use its best efforts to cause
any such amendment to the Registration Statement to be declared effective by the
Commission as promptly as possible. The Company will advise the Representatives,
promptly after receiving notice thereof, of the time when the Registration
Statement or any amendment thereto has been filed or declared effective or the
Prospectus or any amendment or supplement thereto has been filed and will
provide evidence satisfactory to the Representatives of each such filing or
effectiveness.
(b) The Company will advise the Representatives, promptly after
receiving notice or obtaining knowledge thereof, of (i) the issuance by the
Commission of any stop order suspending the effectiveness of the Original
Registration Statement or any Rule 462(b) Registration Statement or any
amendment thereto or any order preventing or suspending the use of any
Preliminary Prospectus or the Prospectus or any amendment or supplement thereto,
(ii) the suspension of the qualification of the Securities for offering or sale
in any jurisdiction, (iii) the institution, threatening or contemplation of any
proceeding for any such purpose or (iv) any request made by the Commission for
amending the Original Registration Statement or any Rule 462(b) Registration
Statement, for amending or supplementing the Prospectus or for additional
information. The Company will use its best efforts to prevent the issuance of
any such stop order and, if any such stop order is issued, to obtain the
withdrawal thereof as promptly as possible.
(c) The Company will arrange for the qualification of the Securities
for offering and sale under the securities or blue sky laws of such
jurisdictions as the Representatives may designate and will continue such
qualifications in effect for as long as may be necessary to complete the
distribution of the Securities; provided, however, that in connection therewith,
the Company shall not be required to qualify as a foreign corporation or to
execute a general consent to service of process in any jurisdiction.
(d) If, at any time prior to the later of (i) the final date when a
prospectus relating to the Securities is required to be delivered under the Act
or (ii) the Option Closing Date, any event occurs as a result of which the
Prospectus, as then amended or supplemented, would include any untrue statement
of a material fact or omit to state a material fact necessary in order to make
the statements therein, in the light of the circumstances under which they were
made, not misleading, or if for any other reason it is necessary at any time to
amend or supplement the Prospectus to comply with the Act or the rules or
regulations of the Commission thereunder, the Company will promptly notify the
Representatives thereof and, subject to Section 5(a) hereof, will prepare and
file with the Commission, at the Company's expense, an amendment to the
Registration Statement or an
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amendment or supplement to the Prospectus that corrects such statement or
omission or effects such compliance.
(e) The Company will, without charge, provide (i) to the
Representatives and to counsel for the Underwriters a conformed copy of the
registration statement originally filed with respect to the Securities and each
amendment thereto (in each case including exhibits thereto) or any Rule 462(b)
Registration Statement, certified by the Secretary or an Assistant Secretary of
the Company to be true and complete copies thereof as filed with the Commission
by electronic transmission, (ii) to each other Underwriter, a conformed copy of
such registration statement or any Rule 462(b) Registration Statement and each
amendment thereto (in each case without exhibits thereto) and (iii) so long as a
prospectus relating to the Securities is required to be delivered under the Act,
as many copies of each Preliminary Prospectus or the Prospectus or any amendment
or supplement thereto as the Representatives may reasonably request; without
limiting the application of clause (iii) of this sentence, the Company, not
later than (A) 6:00 PM, New York City time, on the date of determination of the
public offering price, if such determination occurred at or prior to 10:00 A.M.,
New York City time, on such date or (B) 2:00 PM, New York City time, on the
business day following the date of determination of the public offering price,
if such determination occurred after 10:00 A.M., New York City time, on such
date, will deliver to the Underwriters, without charge, as many copies of the
Prospectus and any amendment or supplement thereto as the Representatives may
reasonably request for purposes of confirming orders that are expected to settle
on the Firm Closing Date.
(f) The Company, as soon as practicable, will make generally available
to its Stockholders and to the Representatives a consolidated earnings statement
of the Company and its subsidiaries that satisfies the provisions of Section
11(a) of the Act and Rule 158 thereunder.
(g) The Company will apply the net proceeds from the sale of the
Securities as set forth under "Use of Proceeds" in the Prospectus.
(h) The Company will not, directly or indirectly, without the prior
written consent of Prudential Securities Incorporated, on behalf of the
Underwriters, offer, sell, offer to sell, contract to sell, pledge, grant any
option to purchase or otherwise sell or dispose (or announce any offer, sale,
offer of sale, contract of sale, pledge, grant of any option to purchase or
other sale or disposition) of any shares of Common Stock or any securities
convertible into, or exchangeable or exercisable for, shares of Common Stock for
a period of 180 days after the date hereof, and except for issuances pursuant to
the exercise of employee stock options pursuant to the Company's stock option
plans in effect as of the date hereof. Prudential Securities Incorporated may,
in its sole discretion, at any time and without prior notice, release all or any
portion of the shares of Common Stock subject to such agreement.
(i) The Company will not, directly or indirectly, (i) take any action
designed to cause or to result in, or that has constituted or which might
reasonably be expected to constitute, the stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale of the
Securities or (ii) (A) sell, bid for, purchase, or pay anyone any compensation
for soliciting purchases of, the Securities or (B) pay or agree to pay to any
person any compensation for
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soliciting another to purchase any other securities of the Company (except for
the sale of Securities by the Selling Stockholders under this Agreement).
(j) The Company will obtain the agreements described in Section 7(g)
hereof prior to the Firm Closing Date.
(k) If at any time during the 25-day period after the Registration
Statement becomes effective or the period prior to the Option Closing Date, any
rumor, publication or event relating to or affecting the Company shall occur as
a result of which in your opinion the market price of the Common Stock has been
or is likely to be materially affected (regardless of whether such rumor,
publication or event necessitates a supplement to or amendment of the
Prospectus), the Company will, after notice from you advising the Company to the
effect set forth above, forthwith prepare, consult with you concerning the
substance of, and disseminate a press release or other public statement,
reasonably satisfactory to you, responding to or commenting on such rumor,
publication or event.
(l) If the Company elects to rely on Rule 462(b), the Company shall
both file a Rule 462(b) Registration Statement with the Commission in compliance
with Rule 462(b) and pay the applicable fees in accordance with Rule 111
promulgated under the Act by the earlier of (i) 10:00 P.M. Eastern time on the
date of this Agreement and (ii) the time confirmations are sent or given, as
specified by Rule 462(b)(2).
(m) The Company will cause the Securities to be duly included for
quotation on The Nasdaq Stock Market's National Market (the "Nasdaq National
Market") prior to the Firm Closing Date. The Company will ensure that the
Securities remain included for quotation on the Nasdaq National Market following
the Firm Closing Date.
(n) The Company will conduct its operations in a manner that will not
subject it to registration as an investment company under the Investment Company
Act of 1940, as amended, and this transaction will not cause the Company to
become an investment company subject to registration under such Act.
(B) Each of the Selling Stockholders covenants and agrees with
each of the Underwriters that:
(a) such Selling Stockholder will not, directly or indirectly, without
the prior written consent of Prudential Securities Incorporated, offer, sell,
offer to sell, contract to sell, pledge, grant any option to purchase or
otherwise sell or dispose (or announce any offer, sale, offer of sale, contract
of sale, pledge, grant of any option to purchase or other sale or disposition)
of any Securities legally or beneficially owned by such Selling Stockholder or
any securities convertible into, or exchangeable or exercisable for, Securities
for a period of 180 days after the date hereof. Prudential Securities
Incorporated may, in its sole discretion, at any time and without prior notice,
release all or any portion of the shares of Common Stock subject to such
agreements.
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(b) such Selling Stockholder will not, directly or indirectly, (i) take
any action designed to cause or result in, or that has constituted or which
might reasonably be expected to constitute, the stabilization or manipulation of
the price of any security of the Company to facilitate the sale or resale of the
Securities or (ii) (A) sell, bid for, purchase, or pay anyone any compensation
for soliciting purchases of, the Securities or (B) pay or agree to pay to any
person any compensation for soliciting another to purchase any other securities
of the Company (except for the sale of Securities by the Selling Stockholders
under this Agreement).
(c) in order to document the Underwriters' compliance with the
reporting and withholding provisions of the Internal Revenue Code of 1986, as
amended, with respect to the transactions herein contemplated, such Selling
Stockholder agrees to deliver to you prior to or on the Firm Closing Date, as
hereinafter defined, a properly completed and executed United States Treasury
Department Form W-8 or W-9 (or other applicable form of statement specified by
Treasury Department regulations in lieu thereof).
6. Expenses. The Company will pay all costs and expenses incident to
the performance of the obligations of the Company and the Selling Stockholders
under this Agreement, whether or not the transactions contemplated herein are
consummated or this Agreement is terminated pursuant to Section 11 hereof,
including all costs and expenses incident to (i) the printing or other
production of documents with respect to the transactions, including any costs of
printing the registration statement originally filed with respect to the
Securities and any amendment thereto, any Rule 462(b) Registration Statement,
any Preliminary Prospectus and the Prospectus and any amendment or supplement
thereto, this Agreement and any blue sky memoranda, (ii) all arrangements
relating to the delivery to the Underwriters of copies of the foregoing
documents, (iii) the fees and disbursements of the counsel, the accountants and
any other experts or advisors retained by the Company and, in accordance with
applicable agreements, the Selling Stockholders, (iv) preparation, issuance and
delivery to the Underwriters of any certificates evidencing the Securities,
including transfer agent's and registrar's fees, (v) the qualification of the
Securities under state securities and blue sky laws, including filing fees and
fees and disbursements of counsel for the Underwriters relating thereto, (vi)
the filing fees of the Commission and the National Association of Securities
Dealers, Inc. relating to the Securities, including filing fees and fees and
disbursements of counsel for the Underwriters relating thereto, (vii) any
quotation of the Securities on the Nasdaq National Market, (viii) any meetings
with prospective investors in the Securities (other than as shall have been
specifically approved by the Representatives to be paid for by the Underwriters)
and (ix) advertising relating to the offering of the Securities (other than as
shall have been specifically approved by the Representatives to be paid for by
the Underwriters). If the sale of the Securities provided for herein is not
consummated because any condition to the obligations of the Underwriters set
forth in Section 7 hereof is not satisfied, because this Agreement is terminated
pursuant to Section 11 hereof or because of any failure, refusal or inability on
the part of the Company to perform all obligations and satisfy all conditions on
its part to be performed or satisfied hereunder other than by reason of a
default by any of the Underwriters, the Company will reimburse the Underwriters
severally upon demand for all out-of-pocket expenses (including counsel fees and
disbursements) that shall have been incurred by them in connection with the
proposed purchase and sale of the Securities. The Company shall not in any event
be liable to any of the Underwriters for the loss of anticipated profits from
the transactions covered by this Agreement.
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Each Selling Stockholder will pay any transfer taxes attributable to
the sale by such Selling Stockholder of the Securities it sells hereunder.
7. Conditions of the Underwriters' Obligations. The obligations of the
several Underwriters to purchase and pay for the Firm Securities shall be
subject, in the Representatives' sole discretion, to the accuracy of the
representations and warranties of the Company and the Selling Stockholders
contained herein as of the date hereof and as of the Firm Closing Date, as if
made on and as of the Firm Closing Date, to the accuracy of the statements of
the Company's officers made pursuant to the provisions hereof, to the
performance by the Company and the Selling Stockholders of their respective
covenants and agreements hereunder and to the following additional conditions:
(a) If the Original Registration Statement or any amendment thereto
filed prior to the Firm Closing Date has not been declared effective as of the
time of execution hereof, the Original Registration Statement or such amendment
and, if the Company has elected to rely upon Rule 462(b), the Rule 462(b)
Registration Statement shall have been declared effective not later than the
earlier of (i) 11:00 A.M., New York time, on the date on which the amendment to
the registration statement originally filed with respect to the Securities or to
the Registration Statement, as the case may be, containing information regarding
the initial public offering price of the Securities has been filed with the
Commission and (ii) the time confirmations are sent or given as specified by
Rule 462(b)(2), or with respect to the Original Registration Statement, or such
later time and date as shall have been consented to by the Representatives; if
required, the Prospectus or any Term Sheet that constitutes a part thereof and
any amendment or supplement thereto shall have been filed with the Commission in
the manner and within the time period required by Rules 434 and 424(b) under the
Act; no stop order suspending the effectiveness of the Registration Statement or
any amendment thereto shall have been issued, and no proceedings for that
purpose shall have been instituted or threatened or, to the knowledge of the
Company, the Selling Stockholders or the Representatives, shall be contemplated
by the Commission; and the Company and each Selling Stockholder shall have
complied with any request of the Commission for additional information (to be
included in the Registration Statement or the Prospectus or otherwise).
(b)(1) The Representatives shall have received an opinion, dated the
Firm Closing Date, of Hutchins, Wheeler & Dittmar, counsel for the Company, to
the effect that:
(i) the Company and each of its subsidiaries listed in
Schedule IV hereto (the "Subsidiaries") have been duly organized and
are validly existing as corporations in good standing under the laws of
their respective jurisdictions of incorporation and are duly qualified
to transact business as foreign corporations and are in good standing
under the laws of all other jurisdictions where the ownership or
leasing of their respective properties or the conduct of their
respective businesses requires such qualification, except where the
failure to be so qualified does not amount to a material liability or
disability to the Company and the Subsidiaries, taken as a whole;
(ii) the Company and each of the Subsidiaries have the
corporate power and
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authority to own or lease their respective properties and conduct their
respective businesses as described in the Registration Statement and
the Prospectus, and the Company has the corporate power and authority
to enter into this Agreement and to carry out all the terms and
provisions hereof to be carried out by it;
(iii) the issued shares of capital stock of each of the
Subsidiaries have been duly authorized and validly issued, are fully
paid and nonassessable and, except as otherwise set forth in the
Prospectus, are owned beneficially by the Company free and clear of any
perfected security interests or, to the best knowledge of such counsel,
any other security interests, liens, encumbrances, equities or claims;
(iv) the Company has an authorized, issued and outstanding
capitalization as set forth in the Prospectus; all of the issued shares
of capital stock of the Company have been duly authorized and validly
issued and are fully paid and nonassessable, have been issued in
compliance with all applicable federal and state securities laws and
were not issued in violation of or subject to any preemptive rights or
other rights to subscribe for or purchase securities; the Securities to
be issued by the Company pursuant to this have been duly authorized by
all necessary corporate action of the Company and, when issued and
delivered to and paid for by the Underwriters pursuant to this
Agreement, will be validly issued, fully paid and nonassessable; the
Securities have been duly included for trading on the Nasdaq National
Market; no holders of outstanding shares of capital stock of the
Company are entitled as such to any preemptive or other rights to
subscribe for any of the Securities; and no holders of securities of
the Company are entitled to have such securities registered under the
Registration Statement;
(v) the statements set forth under the heading "Description of Capital
Stock" in the Prospectus, insofar as such statements purport to
summarize certain provisions of the capital stock of the Company,
provide a fair summary of such provisions; and the statements set forth
under the heading "Management -- Stock Option and Stock Purchase Plans"
and in the last paragraph under the heading "Management Discussion and
Analysis of Financial Condition and Results of Operations -- Overview"
in the Prospectus, insofar as such statements constitute a summary of
the legal matters, documents or proceedings referred to therein,
provide a fair summary of such legal matters, documents and
proceedings;
(vi) the execution and delivery of this Agreement have been
duly authorized by all necessary corporate action of the Company and
this Agreement has been duly executed and delivered by the Company;
(vii) (A) no legal or governmental proceedings are pending to
which the Company or any of the Subsidiaries is a party or to which the
property of the Company or any of the Subsidiaries is subject that are
required to be described in the Registration Statement or the
Prospectus and are not described therein, and, to the best knowledge of
such counsel, no such proceedings have been threatened against the
Company or any of the Subsidiaries or with respect to any of their
respective properties and (B) no contract or other document is required
to be described in the Registration Statement or the Prospectus or to
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be filed as an exhibit to the Registration Statement that is not
described therein or filed as required;
(viii) the issuance, offering and sale of the Securities to
the Underwriters by the Company pursuant to this Agreement, the
compliance by the Company with the other provisions of this Agreement
and the consummation of the other transactions herein contemplated do
not (A) require the consent, approval, authorization, registration or
qualification of or with any governmental authority, except such as
have been obtained and such as may be required under state securities
or blue sky laws, or (B) conflict with or result in a breach or
violation of any of the terms and provisions of, or constitute a
default under, any indenture, mortgage, deed of trust, lease or other
agreement or instrument, known to such counsel, to which the Company or
any of the Subsidiaries is a party or by which the Company or any of
the Subsidiaries or any of their respective properties are bound, or
the charter documents or by-laws of the Company or any of the
Subsidiaries, or any statute or any judgment, decree, order, rule or
regulation of any court or other governmental authority or any
arbitrator known to such counsel and applicable to the Company or
Subsidiaries;
(ix) the Registration Statement is effective under the Act;
any required filing of the Prospectus, or any Term Sheet that
constitutes a part thereof, pursuant to Rules 434 and 424(b) has been
made in the manner and within the time period required by Rules 434 and
424(b); and no stop order suspending the effectiveness of the
Registration Statement or any amendment thereto has been issued, and no
proceedings for that purpose have been instituted or threatened or, to
the best knowledge of such counsel, are contemplated by the Commission;
(x) the Registration Statement originally filed with respect
to the Securities and each amendment thereto, any Rule 462(b)
Registration Statement and the Prospectus (in each case, other than the
financial statements and other financial information contained therein,
as to which such counsel need express no opinion) comply as to form in
all material respects with the applicable requirements of the Act and
the rules and regulations of the Commission thereunder; and
(xi) if the Company elects to rely on Rule 434, the Prospectus
is not "materially different", as such term is used in Rule 434, from
the prospectus included in the Registration Statement at the time of
its effectiveness or an effective post-effective amendment thereto
(including such information that is permitted to be omitted pursuant to
Rule 430A).
Such counsel shall also state that they have no reason to believe that
the Registration Statement, as of its effective date, contained any untrue
statement of a material fact or omitted to state any material fact required to
be stated therein or necessary to make the statements therein not misleading or
that the Prospectus, as of its date or the date of such opinion, included or
includes any untrue statement of a material fact or omitted or omits to state a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading.
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(b)(2) The Representatives shall have received an opinion, dated the
Firm Closing Date, of Hutchins, Wheeler & Dittmar, counsel for the Selling
Stockholders, to the effect that:
(i) each Selling Stockholder has full power to enter into this
Agreement, the Custody Agreement and the Power-of-Attorney and to sell,
transfer and deliver the Securities being sold by such Selling
Stockholder hereunder in the manner provided in this Agreement and to
perform its obligations under the Custody Agreement; if such Selling
Stockholder is a corporation, the execution and delivery of this
Agreement, the Custody Agreement and the Power-of-Attorney have been
duly authorized by all necessary corporate action of each Selling
Stockholder; this Agreement, the Custody Agreement and the
Power-of-Attorney has been duly executed and delivered by each Selling
Stockholder; the Custody Agreement and the Power-of-Attorney are the
legal, valid, binding and enforceable instruments of each Selling
Stockholder, subject to applicable bankruptcy, insolvency and similar
laws affecting creditors' rights generally and subject, as to
enforceability, to general principles of equity (regardless of whether
enforcement is sought in a proceeding in equity or at law);
(ii) when the Underwriters obtain control of the Securities to
be sold by the Selling Stockholders, assuming that the Underwriters
purchased such Securities for value and without notice of any adverse
claim to such Securities within the meaning of Section 8-102 of the
Uniform Commercial Code as in effect in the Commonwealth of
Massachusetts, the Underwriters will have acquired all rights of the
Selling Stockholders in such Securities free of any adverse claim, any
lien in favor of the Company and any restrictions on transfer imposed
by the Company;
(iii) the sale of the Securities to the Underwriters by each
Selling Stockholder pursuant to this Agreement, the compliance by such
Selling Stockholder with the other provisions of this Agreement, the
Custody Agreement and the consummation of the other transactions herein
contemplated do not (i) require the consent, approval, authorization,
registration or qualification of or with any governmental authority,
except such as have been obtained and such as may be required under
state securities or blue sky laws, or (ii) conflict with or result in a
breach or violation of any of the terms and provisions of, or
constitute a default under any indenture, mortgage, deed of trust,
lease or other agreement or instrument to which such Selling
Stockholder is a party or by which such Selling Stockholder or any of
such Selling Stockholder's properties are bound, or the charter
documents or by-laws of such Selling Stockholder or any of its
subsidiaries or any statute or any judgment, decree, order, rule or
regulation of any court or other governmental authority or any
arbitrator applicable to such Selling Stockholder.
In rendering any such opinion, such counsel may rely, as to matters of
fact, to the extent such counsel deems proper, on certificates of responsible
officers of the Company and public officials.
References to the Registration Statement and the Prospectus in this
paragraph (b) shall
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include any amendment or supplement thereto at the date of such opinion.
(c) The Representatives shall have received an opinion, dated the Firm
Closing Date, of Testa, Hurwitz & Thibeault, LLP, High Street Tower, 125 High
Street, Boston, Massachusetts 02110, counsel for the Underwriters, with respect
to the issuance and sale of the Firm Securities, the Registration Statement and
the Prospectus, and such other related matters as the Representatives may
reasonably require, and the Company shall have furnished to such counsel such
documents as they may reasonably request for the purpose of enabling them to
pass upon such matters.
(d) The Representatives shall have received from Coopers & Lybrand
L.L.P. a letter or letters dated, respectively, the date hereof and the Firm
Closing Date, in form and substance satisfactory to the Representatives, to the
effect that:
(i) they are independent accountants with respect to the
Company and its consolidated subsidiaries within the meaning of the Act
and the applicable rules and regulations thereunder;
(ii) in their opinion, the audited consolidated financial
statements and schedules examined by them and included in the
Registration Statement and the Prospectus comply in form in all
material respects with the applicable accounting requirements of the
Act and the related published rules and regulations;
(iii) on the basis of a reading of the latest available
interim unaudited consolidated financial statements of the Company, a reading of
the unaudited amounts for revenues, cost of revenues, net income before income
taxes and total and per share amounts of net income as of and for the three
months ended September 30, 1997 and of the unaudited consolidated financial
statements of the Company and its consolidated subsidiaries for the periods from
which such amounts are derived, carrying out certain specified procedures (which
do not constitute an examination made in accordance with generally accepted
auditing standards) that would not necessarily reveal matters of significance
with respect to the comments set forth in this paragraph (iii), a reading of the
minute books of the stockholders, the board of directors and any committees
thereof of the Company and each of its consolidated subsidiaries, and inquiries
of certain officials of the Company and its consolidated subsidiaries who have
responsibility for financial and accounting matters, nothing came to their
attention that caused them to believe that:
(A) the unaudited consolidated financial statements of the Company
included in the Registration Statement and the Prospectus do not comply
in form in all material respects with the applicable accounting
requirements of the Act and the related published rules and regulations
thereunder or are not in conformity with generally accepted accounting
principles applied on a basis substantially consistent with that of the
audited consolidated financial statements included in the Registration
Statement and the Prospectus;
(B) the unaudited amounts for revenues, cost of revenues, net income
before income taxes and total and per share amounts of net income
included in the Registration Statement and the Prospectus do not agree
with the amounts set forth in any unaudited consolidated
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financial statements for those same periods or are not in conformity
with generally accepted accounting principles applied on a basis
substantially consistent with that of the corresponding amounts in the
audited consolidated financial statements included in the Registration
Statement and the Prospectus; and
(C) at a specific date not more than five business days prior to the
date of such letter, there were any changes in the capital stock or
long-term debt of the Company and its consolidated subsidiaries or any
decreases in net current assets or stockholders' equity of the Company
and its consolidated subsidiaries, in each case compared with amounts
shown on the September 30, 1997 unaudited consolidated balance sheet
included in the Registration Statement and the Prospectus, or for the
period from September 30, 1997 to such specified date there were any
decreases, as compared with [INSERT APPROPRIATE COMPARATIVE PERIOD OR,
IF NO APPROPRIATE PERIOD EXISTS, INSERT DOLLAR AMOUNTS FOR EACH ITEM],
in revenues, cost of revenues, net income before income taxes or total
or per share amounts of net income of the Company and its consolidated
subsidiaries, except in all instances for changes, decreases or
increases set forth in such letter; and
(iv) they have carried out certain specified procedures, not
constituting an audit, with respect to certain amounts, percentages and
financial information that are derived from the general accounting
records of the Company and its consolidated subsidiaries and are
included in the Registration Statement and the Prospectus under the
captions Prospectus Summary, Risk Factors, Use of Proceeds,
Capitalization, Selected Financial Data, Management's Discussion and
Analysis of Financial Condition and Results of Operations, Business and
Description of Capital Stock, and in Exhibit 11 to the Registration
Statement, and have compared such amounts, percentages and financial
information with such records of the Company and its consolidated
subsidiaries and with information derived from such records and have
found them to be in agreement, excluding any questions of legal
interpretation.
In the event that the letters referred to above set forth any such
changes, decreases or increases, it shall be a further condition to the
obligations of the Underwriters that (A) such letters shall be accompanied by a
written explanation of the Company as to the significance thereof, unless the
Representatives deem such explanation unnecessary, and (B) such changes,
decreases or increases do not, in the sole judgment of the Representatives, make
it impractical or inadvisable to proceed with the purchase and delivery of the
Securities as contemplated by the Registration Statement, as amended as of the
date hereof.
References to the Registration Statement and the Prospectus in this
paragraph (d) with respect to either letter referred to above shall include any
amendment or supplement thereto at the date of such letter.
(e) The Representatives shall have received a certificate, dated the
Firm Closing Date, of the principal executive officer and the principal
financial or accounting officer of the Company to the effect that:
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(i) the representations and warranties of the Company in this
Agreement are true and correct as if made on and as of the Firm Closing
Date; the Registration Statement, as amended as of the Firm Closing
Date, does not include any untrue statement of a material fact or omit
to state any material fact necessary to make the statements therein not
misleading, and the Prospectus, as amended or supplemented as of the
Firm Closing Date, does not include any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading; and the Company has performed all covenants
and agreements and satisfied all conditions on its part to be performed
or satisfied at or prior to the Firm Closing Date;
(ii) no stop order suspending the effectiveness of the
Registration Statement or any amendment thereto has been issued, and no
proceedings for that purpose have been instituted or threatened or, to
the best of the Company's knowledge, are contemplated by the
Commission; and
(iii) subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus,
neither the Company nor any of its subsidiaries has sustained any
material loss or interference with their respective businesses or
properties from fire, flood, hurricane, accident or other calamity,
whether or not covered by insurance, or from any labor dispute or any
legal or governmental proceeding, and there has not been any material
adverse change, or any development involving a prospective material
adverse change, in the condition (financial or otherwise), management,
business prospects, net worth or results of operations of the Company
or any of its subsidiaries, except in each case as described in or
contemplated by the Prospectus (exclusive of any amendment or
supplement thereto).
(f) The Representatives shall have received a certificate, dated the
Firm Closing Date, from each Selling Stockholder, signed by an authorized
representative of such Selling Stockholder or if such Selling Stockholder is a
corporation by the principal executive officer and the principal financial or
accounting officer of such Selling Stockholder to the effect that:
(i) the representations and warranties of such Selling
Stockholder in this Agreement are true and correct as if made on and as
of the Firm Closing Date;
(ii) to the extent that any statements or omissions are made
in the Registration Statement, any Preliminary Prospectus, the
Prospectus or any amendment or supplement thereto in reliance upon and
in conformity with written information furnished to the Company by such
Selling Stockholder specifically for use therein, the Registration
Statement, as amended as of the Firm Closing Date, does not include any
untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein not misleading, and the
Prospectus, as amended or supplemented as of the Firm Closing Date,
does not include any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made,
not misleading; and
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(iii) such Selling Stockholder has performed all covenants and
agreements on its part to be performed or satisfied at or prior to the
Firm Closing Date.
(g) The Representatives shall have received from each person who is a
director or officer of the Company or who owns 5,000 shares of Common Stock an
agreement to the effect that such person will not, directly or indirectly,
without the prior written consent of Prudential Securities Incorporated, on
behalf of the Underwriters, offer, sell, offer to sell, contract to sell,
pledge, grant any option to purchase or otherwise sell or dispose (or announce
any offer, sale, offer of sale, contract of sale, pledge, grant of an option to
purchase or other sale or disposition) of any shares of Common Stock or any
securities convertible into, or exchangeable or exercisable for, shares of
Common Stock for a period of 180 days after the date of this Agreement.
Prudential Securities Incorporated may, in its sole discretion, at any time and
without prior notice, release all or any portion of the shares of Common Stock
subject to such agreements.
(h) On or before the Firm Closing Date, the Representatives and counsel
for the Underwriters shall have received such further certificates, documents or
other information as they may have reasonably requested from the Company and the
Selling Stockholders.
(i) Prior to the commencement of the offering of the Securities, the
Securities shall have been included for trading on the Nasdaq National Market.
All opinions, certificates, letters and documents delivered pursuant to
this Agreement will comply with the provisions hereof only if they are
reasonably satisfactory in all material respects to the Representatives and
counsel for the Underwriters. The Company and the Selling Stockholders shall
furnish to the Representatives such conformed copies of such opinions,
certificates, letters and documents in such quantities as the Representatives
and counsel for the Underwriters shall reasonably request.
The respective obligations of the several Underwriters to purchase and
pay for any Option Securities shall be subject, in their discretion, to each of
the foregoing conditions to purchase the Firm Securities, except that all
references to the Firm Securities and the Firm Closing Date shall be deemed to
refer to such Option Securities and the related Option Closing Date,
respectively.
8. Indemnification and Contribution. (a) The Company and each Principal
Selling Stockholder jointly and severally agree to indemnify and hold harmless
each Underwriter and each person, if any, who controls any Underwriter within
the meaning of Section 15 of the Act or Section 20 of the Securities Exchange
Act of 1934 (the "Exchange Act"), against any losses, claims, damages or
liabilities, joint or several, to which such Underwriter or such controlling
person may become subject under the Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon:
(i) any untrue statement or alleged untrue statement made by
the Company or such Principal Selling Stockholder in Section 2 of this
Agreement,
(ii) any untrue statement or alleged untrue statement of any
material fact contained in (A) the Registration Statement or any
amendment thereto, any Preliminary
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Prospectus or the Prospectus or any amendment or supplement thereto or
(B) any application or other document, or any amendment or supplement
thereto, executed by the Company or such Principal Selling Stockholder
or based upon written information furnished by or on behalf of the
Company or such Principal Selling Stockholder filed in any jurisdiction
in order to qualify the Securities under the securities or blue sky
laws thereof or filed with the Commission or any securities association
or securities exchange (each an "Application"),
(iii) the omission or alleged omission to state in the
Registration Statement or any amendment thereto, any Preliminary
Prospectus or the Prospectus or any amendment or supplement thereto, or
any Application a material fact required to be stated therein or
necessary to make the statements therein not misleading or
(iv) any untrue statement or alleged untrue statement of any
material fact contained in any audio or visual materials used in
connection with the marketing of the Securities, including without
limitation, slides, videos, films, and tape recordings,
and will reimburse, as incurred, each Underwriter and each such
controlling person for any legal or other expenses reasonably incurred by such
Underwriter or such controlling person in connection with investigating,
defending against or appearing as a third-party witness in connection with any
such loss, claim, damage, liability or action; provided, however, that the
Company and such Principal Selling Stockholder will not be liable in any such
case to the extent that any such loss, claim, damage or liability arises out of
or is based upon any untrue statement or alleged untrue statement or omission or
alleged omission made in such registration statement or any amendment thereto,
any Preliminary Prospectus, the Prospectus or any amendment or supplement
thereto or any Application in reliance upon and in conformity with written
information furnished to the Company by such Underwriter through the
Representatives specifically for use therein; and provided, further, that the
Company and such Principal Selling Stockholder will not be liable to any
Underwriter or any person controlling such Underwriter with respect to any such
untrue statement or omission made in any Preliminary Prospectus that is
corrected in the Prospectus (or any amendment or supplement thereto) if the
person asserting any such loss, claim, damage or liability purchased Securities
from such Underwriter but was not sent or given a copy of the Prospectus (as
amended or supplemented) at or prior to the written confirmation of the sale of
such Securities to such person in any case where such delivery of the Prospectus
(as amended or supplemented) is required by the Act, unless such failure to
deliver the Prospectus (as amended or supplemented) was a result of
noncompliance by the Company with Section 5(d) and (e) of this Agreement. This
indemnity agreement will be in addition to any liability which the Company or
such Principal Selling Stockholder may otherwise have. Neither the Company nor
any Principal Selling Stockholder will, without the prior written consent of the
Underwriters purchasing, in the aggregate, more than fifty percent (50%) of the
Securities, settle or compromise or consent to the entry of any judgment in any
pending or threatened claim, action, suit or proceeding in respect of which
indemnification may be sought hereunder (whether or not any such Underwriter or
any person who controls any such Underwriter within the meaning of Section 15 of
the Act or Section 20 of the Exchange Act is a party to such claim, action, suit
or proceeding), unless such settlement, compromise or consent includes an
unconditional release of all of the Underwriters and such controlling persons
from all
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liability arising out of such claim, action, suit or proceeding. Notwithstanding
anything herein to the contrary, the liability of each Principal Selling
Stockholder under this Section 8(a) shall not exceed an amount equal to the
initial public offering price of the Securities sold by such Principal Selling
Stockholder to the Underwriters.
(b) Each Additional Selling Stockholder severally agrees to indemnify
and hold harmless the Company, each of its directors, each of its officers who
signs the Registration Statement, each Underwriter and each person who controls
the Company or any Underwriter within the meaning of the Act or the Exchange Act
and each other Additional Selling Stockholder against any losses, claims,
damages or liabilities to which the Company, any such director, officer, such
Underwriter or any such controlling person may become subject under the Act, the
Exchange Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon (i)
any untrue statement or alleged untrue statement of any material fact contained
in the Registration Statement or any amendment thereto, any Preliminary
Prospectus or the Prospectus or any amendment or supplement thereto, or any
Application or (ii) the omission or the alleged omission to state therein a
material fact required to be stated in the Registration Statement or any
amendment thereto, any Preliminary Prospectus or the Prospectus or any amendment
or supplement thereto, or any Application or necessary to make the statements
therein not misleading, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with written information
furnished to the Company by such Additional Selling Stockholder for use therein;
provided, however, that such Additional Selling Stockholder will not be liable
to any Underwriter or any person controlling such Underwriter with respect to
any such untrue statement or omission made in any Preliminary Prospectus that is
corrected in the Prospectus (or any amendment or supplement thereto) if the
person asserting any such loss, claim, damage or liability purchased Securities
from such Underwriter but was not sent or given a copy of the Prospectus (as
amended or supplemented) at or prior to the written confirmation of the sale of
such Securities to such person in any case where such delivery of the Prospectus
(as amended or supplemented) is required by the Act, unless such failure to
deliver the Prospectus (as amended or supplemented) was a result of
noncompliance by the Company with Section 5(d) and (e) of this Agreement; and,
subject to the limitation set forth immediately preceding this clause, will
reimburse, as incurred, any legal or other expenses reasonably incurred by the
Company, any such director, officer, such Underwriter or any such controlling
person in connection with investigating or defending any such loss, claim,
damage, liability or any action in respect thereof. This indemnity agreement
will be in addition to any liability which any other Additional Selling
Stockholder may otherwise have. Each Additional Selling Stockholder will not,
without the prior written consent of the Underwriter or Underwriters purchasing,
in the aggregate, more than fifty percent (50%) of the Securities, settle or
comprise or consent to the entry of any judgment in any pending or threatened
claim, action, suit or proceeding in respect of which indemnification may be
sought hereunder (whether or not any such Underwriter or any person who controls
any such Underwriter within the meaning of Section 15 of the Act or Section 20
of the Exchange Act is a party to such claim, action, suit or proceeding),
unless such settlement, compromise or consent includes an unconditional release
of all of the Underwriters and such controlling persons from all liability
arising out of such claim, action, suit or proceeding.
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(c) Each Underwriter will, severally and not jointly, indemnify and
hold harmless the Company, each of its directors, each of its officers who
signed the Registration Statement, each Selling Stockholder and each person, if
any, who controls the Company or such Selling Stockholder within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act against any losses,
claims, damages or liabilities to which the Company, any such director or
officer of the Company, such Selling Stockholder or any such controlling person
of the Company or such Selling Stockholder may become subject under the Act, the
Exchange Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon (i)
any untrue statement or alleged untrue statement of any material fact contained
in the Registration Statement or any amendment thereto, any Preliminary
Prospectus or the Prospectus or any amendment or supplement thereto, or any
Application or (ii) the omission or the alleged omission to state therein a
material fact required to be stated in the Registration Statement or any
amendment thereto, any Preliminary Prospectus or the Prospectus or any amendment
or supplement thereto, or any Application or necessary to make the statements
therein not misleading, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with written information
furnished to the Company by any Underwriter through the Representatives
specifically for use therein; and, subject to the limitation set forth
immediately preceding this clause, will reimburse, as incurred, any legal or
other expenses reasonably incurred by the Company, any such director, officer or
controlling person or such Selling Stockholder in connection with investigating
or defending any such loss, claim, damage, liability or any action in respect
thereof. This indemnity agreement will be in addition to any liability which
such Underwriter may otherwise have.
(d) Promptly after receipt by an indemnified party under this Section 8
of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section 8, notify the indemnifying party of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party otherwise than under this
Section 8. In case any such action is brought against any indemnified party, and
it notifies the indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate therein and, to the extent that it may
wish, jointly with any other indemnifying party similarly notified, to assume
the defense thereof, with counsel satisfactory to such indemnified party;
provided, however, that if the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be one or more legal defenses available
to it and/or other indemnified parties which are different from or additional to
those available to the indemnifying party, the indemnifying party shall not have
the right to direct the defense of such action on behalf of such indemnified
party or parties and such indemnified party or parties shall have the right to
select separate counsel to defend such action on behalf of such indemnified
party or parties. After notice from the indemnifying party to such indemnified
party of its election so to assume the defense thereof and approval by such
indemnified party of counsel appointed to defend such action, the indemnifying
party will not be liable to such indemnified party under this Section 8 for any
legal or other expenses, other than reasonable costs of investigation,
subsequently incurred by such indemnified party in connection with the defense
thereof, unless (i)
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the indemnified party shall have employed separate counsel in accordance with
the proviso to the next preceding sentence (it being understood, however, that
in connection with such action the indemnifying party shall not be liable for
the expenses of more than one separate counsel (in addition to local counsel) in
any one action or separate but substantially similar actions in the same
jurisdiction arising out of the same general allegations or circumstances,
designated by the Representatives in the case of paragraph (a) of this Section
8, representing the indemnified parties under such paragraph (a) who are parties
to such action or actions) or (ii) the indemnifying party does not promptly
retain counsel satisfactory to the indemnified party or (iii) the indemnifying
party has authorized the employment of counsel for the indemnified party at the
expense of the indemnifying party. After such notice from the indemnifying party
to such indemnified party, the indemnifying party will not be liable for the
costs and expenses of any settlement of such action effected by such indemnified
party without the consent of the indemnifying party.
(e) In circumstances in which the indemnity agreement provided for in
the preceding paragraphs of this Section 8 is unavailable or insufficient, for
any reason, to hold harmless an indemnified party in respect of any losses,
claims, damages or liabilities (or actions in respect thereof), each
indemnifying party, in order to provide for just and equitable contribution,
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages or liabilities (or actions in respect
thereof) in such proportion as is appropriate to reflect (i) the relative
benefits received by the indemnifying party or parties on the one hand and the
indemnified party on the other from the offering of the Securities or (ii) if
the allocation provided by the foregoing clause (i) is not permitted by
applicable law, not only such relative benefits but also the relative fault of
the indemnifying party or parties on the one hand and the indemnified party on
the other in connection with the statements or omissions or alleged statements
or omissions that resulted in such losses, claims, damages or liabilities (or
actions in respect thereof), as well as any other relevant equitable
considerations. The relative benefits received by the Company and the Selling
Stockholders on the one hand and the Underwriters on the other shall be deemed
to be in the same proportion as the total proceeds from the offering (before
deducting expenses) received by the Company and the Selling Stockholders bear to
the total underwriting discounts and commissions received by the Underwriters.
The relative fault of the parties shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the Company, the Selling Stockholders or the
Underwriters, the parties' relative intents, knowledge, access to information
and opportunity to correct or prevent such statement or omission, and any other
equitable considerations appropriate in the circumstances. The Company, the
Selling Stockholders and the Underwriters agree that it would not be equitable
if the amount of such contribution were determined by pro rata or per capita
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation that does not take into account
the equitable considerations referred to above in this paragraph (e).
Notwithstanding any other provision of this paragraph (e), no Underwriter shall
be obligated to make contributions hereunder that in the aggregate exceed the
total public offering price of the Securities purchased by such Underwriter
under this Agreement, less the aggregate amount of any damages that such
Underwriter has otherwise been required to pay in respect of the same or any
substantially similar claim, and no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to
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contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute hereunder are
several in proportion to their respective underwriting obligations and not
joint, and contributions among Underwriters shall be governed by the provisions
of the Prudential Securities Incorporated Master Agreement Among Underwriters.
For purposes of this paragraph (e), each person, if any, who controls an
Underwriter within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act shall have the same rights to contribution as such Underwriter, and
each director of the Company, each officer of the Company who signed the
Registration Statement and each person, if any, who controls the Company or any
Selling Stockholder within the meaning of Section 15 of the Act or Section 20 of
the Exchange Act, shall have the same rights to contribution as the Company or
such Selling Stockholder, as the case may be.
9. Default of Underwriters. If one or more Underwriters default in
their obligations to purchase Firm Securities or Option Securities hereunder and
the aggregate number of such Securities that such defaulting Underwriter or
Underwriters agreed but failed to purchase is ten percent or less of the
aggregate number of Firm Securities or Option Securities to be purchased by all
of the Underwriters at such time hereunder, the other Underwriters may make
arrangements satisfactory to the Representatives for the purchase of such
Securities by other persons (who may include one or more of the non-defaulting
Underwriters, including the Representatives), but if no such arrangements are
made by the Firm Closing Date or the related Option Closing Date, as the case
may be, the other Underwriters shall be obligated severally in proportion to
their respective commitments hereunder to purchase the Firm Securities or Option
Securities that such defaulting Underwriter or Underwriters agreed but failed to
purchase. If one or more Underwriters so default with respect to an aggregate
number of Securities that is more than ten percent of the aggregate number of
Firm Securities or Option Securities, as the case may be, to be purchased by all
of the Underwriters at such time hereunder, and if arrangements satisfactory to
the Representatives are not made within 36 hours after such default for the
purchase by other persons (who may include one or more of the non-defaulting
Underwriters, including the Representatives) of the Securities with respect to
which such default occurs, this Agreement will terminate without liability on
the part of any non-defaulting Underwriter or the Company other than as provided
in Section 10 hereof. In the event of any default by one or more Underwriters as
described in this Section 9, the Representatives shall have the right to
postpone the Firm Closing Date or the Option Closing Date, as the case may be,
established as provided in Section 3 hereof for not more than seven business
days in order that any necessary changes may be made in the arrangements or
documents for the purchase and delivery of the Firm Securities or Option
Securities, as the case may be. As used in this Agreement, the term
"Underwriter" includes any person substituted for an Underwriter under this
Section 9. Nothing herein shall relieve any defaulting Underwriter from
liability for its default.
10. Survival. The respective representations, warranties, agreements,
covenants, indemnities and other statements of the Company, its officers, the
Selling Stockholders and the several Underwriters set forth in this Agreement or
made by or on behalf of them, respectively, pursuant to this Agreement shall
remain in full force and effect, regardless of (i) any investigation made by or
on behalf of the Company, any of its officers or directors, the Selling
Stockholders, any Underwriter or any controlling person referred to in Section 8
hereof and (ii) delivery of and payment for the Securities. The respective
agreements, covenants, indemnities and other statements
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set forth in Sections 6 and 8 hereof shall remain in full force and effect,
regardless of any termination or cancellation of this Agreement.
11. Termination. (a) This Agreement may be terminated with respect to
the Firm Securities or any Option Securities in the sole discretion of the
Representatives by notice to the Company and the Selling Stockholders given
prior to the Firm Closing Date or the related Option Closing Date, respectively,
in the event that the Company or any of the Selling Stockholders shall have
failed, refused or been unable to perform all obligations and satisfy all
conditions on their respective parts to be performed or satisfied hereunder at
or prior thereto or, if at or prior to the Firm Closing Date or such Option
Closing Date, respectively,
(i) the Company or any of its subsidiaries shall have, in the
sole judgment of the Representatives, sustained any material loss or
interference with their respective businesses or properties from fire,
flood, hurricane, accident or other calamity, whether or not covered by
insurance, or from any labor dispute or any legal or governmental
proceeding or there shall have been any material adverse change, or any
development involving a prospective material adverse change (including
without limitation a change in management or control of the Company),
in the condition (financial or otherwise), business prospects, net
worth or results of operations of the Company and its subsidiaries,
except in each case as described in or contemplated by the Prospectus
(exclusive of any amendment or supplement thereto);
(ii) trading in the Common Stock shall have been suspended by
the Commission or the New York Stock Exchange or the Nasdaq National
Market or trading in securities generally on the New York Stock
Exchange or Nasdaq National Market shall have been suspended or minimum
or maximum prices shall have been established on either such exchange
or market system;
(iii) a banking moratorium shall have been declared by New
York or United States authorities; or
(iv) there shall have been (A) an outbreak or escalation of
hostilities between the United States and any foreign power, (B) an
outbreak or escalation of any other insurrection or armed conflict
involving the United States or (C) any other calamity or crisis or
material adverse change in general economic, political or financial
conditions having an effect on the U.S. financial markets that, in the
sole judgment of the Representatives, makes it impractical or
inadvisable to proceed with the public offering or the delivery of the
Securities as contemplated by the Registration Statement, as amended as
of the date hereof.
(b) Termination of this Agreement pursuant to this Section 11 shall be
without liability of any party to any other party except as provided in Section
10 hereof.
12. Information Supplied by Underwriters. The statements set forth in
[the last paragraph on the front cover page and under the heading "Underwriting"
in any Preliminary Prospectus or the Prospectus] (to the extent such statements
relate to the Underwriters) constitute the only information furnished by any
Underwriter through the Representatives to the Company or
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any Selling Stockholder for the purposes of Sections 2(A)(b) and 8 hereof. The
Underwriters confirm that such statements (to such extent) are correct.
13. Default by Selling Stockholders. If on the Firm Closing Date or the
Option Closing Date any Selling Stockholder fails to sell the Firm Securities or
Option Securities which such Selling Stockholder has agreed to sell on such date
as set forth in Schedule III hereto or Section 3(b) hereof, the Company agrees
that it will sell or arrange for the sale of that number of shares of Common
Stock to the Underwriters which represents Firm Securities or Option Securities
which such Selling Stockholder has failed to so sell, as set forth in Schedule
III hereto or Section 3(b) hereof, or such lesser number as may be requested by
the Representatives.
14. Notices. All communications hereunder shall be in writing and, if
sent to any of the Underwriters, shall be delivered or sent by mail, telex or
facsimile transmission and confirmed in writing to Prudential Securities
Incorporated, One New York Plaza, New York, New York 10292, Attention: Equity
Transactions Group; if sent to the Company, shall be delivered or sent by mail,
telex or facsimile transmission and confirmed in writing to the Company at 199
Riverneck Road, Chelmsford, MA 01824, Attention: James R. Bertelli, President
(telecopier: (508) 256-3599); and if sent to any Selling Stockholder, shall be
delivered or sent by mail at its address on the register of the Company.
15. Successors. This Agreement shall inure to the benefit of and shall
be binding upon the several Underwriters, the Company and the Selling
Stockholders and their respective successors and legal representatives, and
nothing expressed or mentioned in this Agreement is intended or shall be
construed to give any other person any legal or equitable right, remedy or claim
under or in respect of this Agreement, or any provisions herein contained, this
Agreement and all conditions and provisions hereof being intended to be and
being for the sole and exclusive benefit of such persons and for the benefit of
no other person except that (i) the indemnities of the Company and the Selling
Stockholders contained in Section 8 of this Agreement shall also be for the
benefit of any person or persons who control any Underwriter within the meaning
of Section 15 of the Act or Section 20 of the Exchange Act and (ii) the
indemnities of the Underwriters contained in Section 8 of this Agreement shall
also be for the benefit of the directors of the Company, the officers of the
Company who have signed the Registration Statement and any person or persons who
control the Company within the meaning of Section 15 of the Act or Section 20 of
the Exchange Act and the Selling Stockholders. No purchaser of Securities from
any Underwriter shall be deemed a successor because of such purchase.
16. Applicable Law. The validity and interpretation of this Agreement,
and the terms and conditions set forth herein, shall be governed by and
construed in accordance with the laws of the State of New York, without giving
effect to any provisions relating to conflicts of laws.
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17. Consent to Jurisdiction and Service of Process. All judicial
proceedings arising out of or relating to this Agreement may be brought in any
state or federal court of competent jurisdiction in the State of New York, and
by execution and delivery of this Agreement, the Selling Stockholders accepts
for itself and in connection with its properties, generally and unconditionally,
the nonexclusive jurisdiction of the aforesaid courts and waives any defense of
forum non conveniens and irrevocably agrees to be bound by any judgment rendered
thereby in connection with this Agreement. The Selling Stockholders designate
and appoint __________________, and such other persons as may hereafter be
selected by the Selling Stockholder irrevocably agreeing in writing to so serve,
as its agent to receive on their behalf service of all process in any such
proceedings in any such court, such service being hereby acknowledged by each
Selling Stockholder to be effective and binding service in every respect. A copy
of any such process so served shall be mailed by registered mail to the Selling
Stockholder at its address provided in Section 14 hereof; provided, however,
that, unless otherwise provided by applicable law, any failure to mail such copy
shall not affect the validity of service of such process. If any agent appointed
by the Selling Stockholder refuses to accept service, the Selling Stockholder
hereby agrees that service of process sufficient for personal jurisdiction in
any action against the Selling Stockholder in the State of New York may be made
by registered or certified mail, return receipt requested, to the Selling
Stockholder at its address provided in Section 14 hereof, and the Selling
Stockholder hereby acknowledges that such service shall be effective and binding
in every respect. Nothing herein shall affect the right to serve process in any
other manner permitted by law or shall limit the right of any Underwriter to
bring proceedings against the Selling Stockholder in the courts of any other
jurisdiction.
18. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
33
34
If the foregoing correctly sets forth our understanding, please
indicate your acceptance thereof in the space provided below for that purpose,
whereupon this letter shall constitute an agreement binding the Company, the
Selling Stockholders and each of the several Underwriters.
Very truly yours,
MERCURY COMPUTER SYSTEMS, INC.
By: __________________________
[Title]
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
PRUDENTIAL SECURITIES INCORPORATED
COWEN & COMPANY
By: PRUDENTIAL SECURITIES INCORPORATED
By: ______________________________
Jean-Claude Canfin
Managing Director
For itself and on behalf of the Representatives.
34
35
SCHEDULE I
PRINCIPAL SELLING STOCKHOLDERS
35
36
SCHEDULE II
ADDITIONAL SELLING STOCKHOLDERS
36
37
SCHEDULE III
UNDERWRITERS
(a) (b) (c)
Number of Firm Number of Firm Number of Option
Securities to be Securities to be Securities to be
Purchased Purchased from the Purchased from the
Underwriter from the Company Selling Stockholders Selling Stockholders
- ----------- ---------------- -------------------- --------------------
Prudential Securities Incorporated....
Cowen & Company......
[insert names of other Underwriters
alphabetically by bracket or in other
order determined by Prudential
Securities Incorporated -
Equity Transactions Group]
Total____________________
37
38
SCHEDULE IV
SUBSIDIARIES
Name Jurisdiction of Incorporation
- ---- -----------------------------
38
1
EXHIBIT 3.1
The Commonwealth of Massachusetts
- --------
Examiner MICHAEL JOSEPH CONNOLLY FEDERAL IDENTIFICATION
Secretary of State
ONE ASHBURTON PLACE, BOSTON, MASS: 02108 No. 04-2741391
----------
RESTATED ARTICLES OF ORGANIZATION
GENERAL LAWS, CHAPTER 156B, SECTION 74
This certificate must be submitted to the Secretary of the Commonwealth
within sixty days after the date of the vote of stockholders adopting the
restated articles of organization. The fee for filing this certificate is
prescribed by General Laws, Chapter 156B, Section 114. Make check payable to
the Commonwealth of Massachusetts.
----------------
We, James Bertelli , President and
Anthony J. Medaglia, Jr. , Clerk of
Mercury Computer Systems, Inc.
- ------------------------------------------------------------------------------
(Name of Corporation)
located at 199 Riverneck Road, Chelmsford, Massachusetts 01824
-------------------------------------------------------------------
do hereby certify that the following restatement of the articles of
organization of the corporation was duly adopted at a meeting held on June 23,
1993, by vote of
6,724,695 shares of Common out of 10,000,000 shares outstanding,
- --------- ---------------- ----------
(Class of Stock)
shares of out of shares outstanding, and
- --------- ---------------- ----------
(Class of Stock)
shares of out of shares outstanding
- --------- ---------------- ----------
(Class of Stock)
being at least two-thirds of each class of stock outstanding and entitled to
vote and of each class or series of stock adversely affected thereby:
1. The name by which the corporation shall be known is:
Mercury Computer Systems, Inc.
2. The purposes for which the corporation is formed are as follows:
See Page A-1 attached hereto.
C / /
P / /
M / /
RA / /
P.C.
Note: If the space provided under any article or item on this form is
insufficient, additions shall be set forth on separate 8-1/2 X 11 sheets of
paper leaving a left hand margin of at least 1 inch for binding. Additions to
more than one article may be continued on a single sheet so long as each
article requiring each such addition is clearly indicated.
2
3. The total number of shares and the par value, if any, of each class of
stock which the corporation is authorized to issue is as follows:
WITHOUT PAR VALUE WITH PAR VALUE
----------------- ----------------------------
CLASS OF STOCK NUMBER OF SHARES NUMBER OF SHARES PAR VALUE
- -------------- ----------------- ---------------- ---------
Preferred None 2,000,000 $.01
Common None 25,000,000 $.01
*4. If more than one class is authorized, a description of each of the
different classes of stock with, if any, the preferences, voting powers,
qualifications, special or relative rights or privileges as to each class
thereof and any series now established:
See Pages B-1 thru B-18 attached hereto.
*5. The restrictions, if any, imposed by the articles of organization upon the
transfer of shares of stock of any class are as follows:
None.
*6. Other lawful provisions, if any, for the conduct and regulation of the
business affairs of the corporation, for its voluntary dissolution, or for
limiting, defining, or regulating the powers of the corporation, or of its
directors or stockholders, or of any class of stockholders:
See Pages C-1 thru C-12 attached hereto.
*If there are no such provisions, state "None".
3
Exhibit 3.1
ARTICLE 2.
The purposes for which the Corporation is formed are as follows: To
manufacture, sell, invent, design, develop, distribute, lease and to engage in
all aspects of the production of micro-computer based products; to invent,
design, discover, or acquire formulae, processes, improvements, inventions,
designs, patents, licenses, copyrights, trademarks, trade names and trade
secrets applicable to the foregoing and to hold, use, sell, license and
otherwise deal in or dispose of the same; to acquire by purchase, deed,
mortgage, lease or by any other method and to hold, maintain, operate, improve,
develop, sell, exchange, lease, mortgage, pledge, hypothecate, loan money upon
and otherwise deal in real and personal property of every kind, character and
description and wheresoever situated, including, without limitation, the stock
and securities of the Corporation or of any other corporation; to lend money
upon, credit or security to, to guarantee or assume obligations of, and to aid
in any other manner other concerns wherever and however organized, any
obligations of which or any interest in which shall be held by the Corporation
or in the affairs or prosperity of which the Corporation has a lawful interest
and to do all acts and things designed to protect, improve and enhance the value
of such obligations and interests; and to carry on any business permitted and
enjoy all rights and powers granted by the Commonwealth of Massachusetts to a
corporation organized under Chapter 156B of the General Laws, as amended.
- A-1 -
4
ARTICLE 4.
DESCRIPTION OF CAPITAL STOCK
A. AUTHORIZED SHARES. The aggregate number of shares which this Corporation
shall have authority to issue is: 25,000,000 shares of common stock having a par
value of $.01 per share (the "Common Stock") and 2,000,000 shares of preferred
stock having a par value of $.01 per share (the "Series Preferred Stock").
B. SERIES PREFERRED STOCK. Shares of Series Preferred Stock may be issued
from time to time in one or more series as may from time to time be determined
by the Board of Directors, each of said series to be distinctly designated. All
shares of any one series of the Series Preferred Stock shall be alike in every
particular, except that there may be different dates from which dividends, if
any, thereon shall be cumulative, if made cumulative. The voting powers, if any,
and the designations, preferences and relative, participating, optional or other
special rights or privileges of each such series, and the qualifications,
limitations or restrictions thereof, if any, may differ from those of any and
all other series at any time outstanding; and, subject to the provisions of
subparagraph 1 of Paragraph D hereof, there is hereby expressly vested in the
Board of Directors of the Corporation the authority to issue one or more series
of the Series Preferred Stock and to fix in the resolution or resolutions
providing for the issue of such stock adopted by the Board of Directors of the
Corporation the voting powers, if any, and the designations, preferences and
relative, participating, optional or other special rights or privileges, and the
qualifications, limitations or restrictions of such series, including, but
without limiting the generality of the foregoing, the following:
(1) The distinctive designation of, and the number of shares of the
Series Preferred Stock which shall constitute such series. The designation
of a series of preferred stock need not include the words "preferred" or
"preference" and may be designated "special" or other distinctive term.
Unless otherwise provided in the resolution issuing such series, the number
of shares of any series of the Series Preferred Stock may be increased or
decreased (but not below the number of shares thereof then outstanding) by
the Board of Directors in the manner prescribed by law;
(2) The rate and times at which, and the terms and conditions upon
which, dividends, if any, on the Series Preferred Stock of such series
shall be paid, the extent of the preference or relation, if any, of such
dividends to the dividends payable on any other class or classes, or series
of the same or other classes of stock and whether such dividends shall be
cumulative or non-cumulative and, if cumulative, the date from which such
dividends shall be cumulative;
(3) Whether the series shall be convertible into, or exchangeable for,
at the option of the holders of the Series Preferred Stock of such series
of the Corporation or upon the happening of a specified event, shares of
any other class
- B-1 -
5
or classes or any other series of the same or any other class or classes of
stock of the Corporation, and the terms and conditions of such conversion
or exchange, including provisions for the adjustment of any such conversion
rate in such events as the Board of Directors shall determine;
(4) Whether or not the Series Preferred Stock of such series shall be
subject to redemption at the option of the Corporation or the holders of
such series or upon the happening of a specified event, and the redemption
price or prices and the time or times at which, and the terms and
conditions upon which, the Series Preferred Stock of such series may be
redeemed;
(5) The rights, if any, of the holders of the Series Preferred Stock
of such series upon the voluntary or involuntary liquidation, merger,
consolidation, distribution or sale of assets, dissolution or winding-up,
of the Corporation;
(6) The terms of the sinking fund or redemption or purchase account,
if any, to be provided for the Series Preferred Stock of such series; and
(7) Subject to subparagraph 4 of Paragraph D hereof, whether such
series of the Series Preferred Stock shall have full, limited or no voting
powers, including, without limiting the generality of the foregoing,
whether such series shall have the right, voting as a series by itself or
together with other series of the Series Preferred Stock or all series of
the Series Preferred Stock as a class, to elect one or more Directors of
the Corporation if there shall have been a default in the payment of
dividends on any one or more series of the Series Preferred Stock or under
such other circumstances and on such conditions as the Board of Directors
may determine.
C. COMMON STOCK.
(1) After the Corporation has complied with the requirements, if any,
fixed in accordance with the provisions of Paragraph B hereof with respect
to dividends on series of the Series Preferred Stock (in accordance with
the relative preferences among such series), and subject further to any
other conditions which may be fixed in accordance with the provisions of
Paragraph B hereof, then, and not otherwise, the holders of Common Stock
shall be entitled to receive such dividends (either in cash, stock or
otherwise) as may be declared from time to time by the Board of Directors
out of assets of the Corporation legally available therefor and the holders
of the Series Preferred Stock shall not be entitled to participate in any
such dividends.
(2) After distribution in full of the preferential amount, if any, to
be distributed to the holders of series of the Series Preferred Stock (in
accordance with the relative preferences among such series), in the event
of voluntary or
- B-2 -
6
involuntary liquidation, distribution, dissolution or winding-up of the
Corporation, the holders of the Common Stock shall be entitled to receive
all of the remaining assets of the Corporation, tangible and intangible, of
whatever kind available for distribution to shareholders, ratably in
proportion to the number of shares of Common Stock held by them
respectively.
(3) Except as may otherwise be required by law, each holder of Common
Stock shall have one vote in respect of each share of Common Stock held by
him on all matters voted upon by the shareholders.
D. OTHER PROVISIONS.
(1) The relative powers, preferences and rights of each series of the
Series Preferred Stock in relation to the powers, preferences and rights of
each other series of the Series Preferred Stock shall, in each case, be as
fixed from time to time by the Board of Directors in the resolution or
resolutions adopted pursuant to authority granted in Paragraph B hereof.
The consent, by class or series vote or otherwise, of the holders of such
of the series of the Series Preferred Stock as are from time to time
outstanding shall not be required for the issuance by the Board of
Directors of any other series of the Series Preferred Stock whether or not
the powers, preferences and rights of such other series shall be fixed by
the Board of Directors as senior to, or on a parity with, the powers,
preferences and rights of such outstanding series, or any of them;
provided, however, that no subsequent series shall have powers, preferences
or rights senior to the Series A Preferred Stock; and provided further that
the Board of Directors may provide in the resolution or resolutions as to
any series of the Series Preferred Stock adopted pursuant to Paragraph B
hereof, the conditions, if any, under which the consent of the holders of a
majority (or such greater proportion as shall be fixed therein) of the
outstanding shares of such series shall be required for the issuance of any
or all other series of the Series Preferred Stock.
(2) Subject to the provisions of subparagraph 1 of this Paragraph D,
shares of any series of the Series Preferred Stock may be issued from time
to time as the Board of Directors of the Corporation shall determine and on
such terms and for such consideration as shall be fixed by the Board of
Directors.
(3) Shares of authorized Common Stock may be issued from time to time
as the Board of Directors of the Corporation shall determine and on such
terms and for such consideration as shall be fixed by the Board of
Directors.
(4) The number of authorized shares of Common Stock and of the Series
Preferred Stock, without a class or series vote, may be increased or
decreased from time to time (but not below the number of shares thereof
then
- B-3 -
7
outstanding) by the affirmative vote of the holders of a majority of the
stock of the Corporation entitled to vote thereon.
(Balance of Page Intentionally Blank)
- B-4 -
8
E. DESCRIPTION OF SERIES A CONVERTIBLE PREFERRED STOCK.
1. DESIGNATION. ____________________ shares of the class of Series
Preferred Stock, $.01 par value per share, authorized under the Articles of
Organization of Mercury Computer Systems, Inc. (the "Corporation") shall be
designated the "Series A Preferred Stock."
2. DIVIDENDS. No dividends shall be declared and set aside for any shares
of the Series A Preferred Stock except in the event that the Board of Directors
of the Corporation shall declare a dividend payable upon the then outstanding
shares of the Common Stock, $.01 par value per share (the "Common Stock") of the
Corporation, in which event the holders of the Series A Preferred Stock shall be
entitled to the amount of dividends per share of Series A Preferred Stock as
would be declared payable on the largest number of whole shares of Common Stock
into which each share of Series A Preferred Stock held by each holder thereof
could be converted pursuant to the provisions of Section 5 hereof, such number
determined as of the record date for the determination of holders of Common
Stock entitled to receive such dividend.
3. LIQUIDATION, DISSOLUTION OR WINDING UP.
(a) TREATMENT UPON LIQUIDATION, DISSOLUTION OR WINDING UP. In the
event of any liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary, holders of each share of Series A Preferred Stock
shall be entitled to be paid, prior to any distribution in such event to holders
of shares of Common Stock, out of the assets of the Corporation available for
distribution to holders of the Corporation's capital stock of all classes,
whether such assets are capital, surplus, or capital earnings, an amount equal
to the GREATER of:
(i) $1.4080 per share of Series A Preferred Stock (which amount
shall be subject to equitable adjustment whenever there shall occur a stock
split, combination, reclassification or other similar event involving the
Series A Preferred Stock), plus all accrued and unpaid dividends thereon,
to and including the date full payment shall be tendered to the holders of
the Series A Preferred Stock with respect to such liquidation, dissolution
or winding up; or
(ii) such amount per share of Series A Preferred Stock as would have
been payable had each such share been converted to Common Stock immediately
prior to such event of liquidation, dissolution or winding up pursuant to
the provisions of Section 5.
If the assets of the Corporation shall be insufficient to permit the
payment in full to the holders of the Series A Preferred Stock and to the
holders of any other series of the Series Preferred Stock which by its
terms is entitled to share in any of the amounts thus distributable on
parity with the Series A Preferred Stock, then the entire assets of the
Corporation available for such distribution shall be distributed ratably
among the holders of the Series A Preferred Stock and the holders of any
such other series of the Series Preferred Stock in proportion to the
respective amounts which would otherwise be
- B-5 -
9
payable in respect of the shares held by them upon distribution if all
amounts payable on or with respect to such shares were paid in full. After
such payment shall have been made in full to the holders of the Series A
Preferred Stock or funds necessary for such payment shall have been set
aside by the Corporation in trust for the account of holders of the Series
A Preferred Stock so as to be available for such payment, the holders of
Series A Preferred Stock shall be entitled to no further participation in
the distribution of the assets of the Corporation and shall have no further
rights of conversion, and the remaining assets available for distribution
shall be distributed ratably among the holders of the Common Stock.
(b) TREATMENT OF REORGANIZATIONS, CONSOLIDATIONS, MERGERS AND SALES OF
ASSETS. A reorganization as provided in Section 5(h) or a consolidation or
merger of the Corporation or a sale of all or substantially all of the assets of
the Corporation shall be regarded as a liquidation, dissolution or winding up of
the affairs of the Corporation within the meaning of this Section 3; PROVIDED,
HOWEVER, that each holder of Series A Preferred Stock shall have the right to
elect the benefits of the provisions of Section 5(h) hereof in lieu of receiving
payment in liquidation, dissolution or winding up of the Corporation pursuant to
this Section 3.
(c) DISTRIBUTIONS OTHER THAN CASH. Whenever the distribution provided
for in this Section 3 shall be payable in property other than cash, the value of
such distribution shall be the fair market value of such property as determined
in good faith by the Board of Directors of the Corporation.
4. VOTING POWER. Except as otherwise expressly provided in Section 7
hereof, or as required by law, each holder of Series A Preferred Stock shall be
entitled to vote on all matters and shall be entitled to that number of votes
equal to the largest number of whole shares of Common Stock into which such
holders' shares of Series A Preferred Stock could be converted, pursuant to the
provisions of Section 5 hereof, at the record date for the determination of
shareholders entitled to vote on such matter or, if no such record date is
established, at the date such vote is taken or any written consent of
shareholders is solicited. Except as otherwise expressly provided herein or as
required by law, the holders of shares of Series A Preferred Stock and Common
Stock shall vote together as a single class on all matters.
5. CONVERSION RIGHTS. The holders of the Series A Preferred Stock shall
have the following rights with respect to the conversion of the Series A
Preferred Stock into shares of Common Stock:
(a) GENERAL. Subject to and in compliance with the provisions of this
Section 5, any share of the Series A Preferred Stock may, at the option of the
holder, be converted at any time into fully-paid and nonassessable shares of
Common Stock. The number of shares of Common Stock to which a holder of Series A
Preferred Stock shall be entitled upon conversion shall be the product obtained
by multiplying the Applicable Conversion Rate (determined as provided in Section
5(b)) by the number of shares of Series A Preferred Stock being converted.
- B-6 -
10
(b) APPLICABLE CONVERSION RATE. The conversion rate in effect at any
time (the "Applicable Conversion Rate") shall be the quotient obtained by
dividing $1.4080 by the Applicable Conversion Value, calculated as provided in
Section 5(c).
(c) APPLICABLE CONVERSION VALUE. The Applicable Conversion Value shall
be $1.4080, except that such amount shall be adjusted from time to time in
accordance with this Section 5.
(d) ADJUSTMENTS TO APPLICABLE CONVERSION VALUE.
(i) (A) UPON SALE OF COMMON STOCK. If the Corporation shall, while
there are any shares of Series A Preferred Stock outstanding, issue or sell
shares of its Common Stock without consideration or at a price per share less
than the Applicable Conversion Value in effect immediately prior to such
issuance or sale, then in each such case such Applicable Conversion Value upon
each such issuance or sale, except as hereinafter provided, shall be lowered so
as to be equal to an amount determined by multiplying the Applicable Conversion
Value by a fraction:
(1) the numerator of which shall be (a) the number of shares of Common
Stock outstanding immediately prior to the issuance of such additional shares of
Common Stock, plus (b) the number of shares of Common Stock which the net
aggregate consideration, if any, received by the Corporation for the total
number of such additional shares of Common Stock so issued would purchase at the
Applicable Conversion Value in effect immediately prior to such issuance, and
(2) the denominator of which shall be (a) the number of shares of
Common Stock outstanding immediately prior to the issuance of such additional
shares of Common Stock plus (b) the number of such additional shares of Common
Stock so issued.
(B) UPON ISSUANCE OF WARRANTS, OPTIONS AND RIGHTS TO COMMON STOCK.
(1) For the purposes of this Section 5(d)(i), the issuance of any
warrants, options, subscriptions, or purchase rights with respect to shares of
Common Stock and the issuance of any securities convertible into or exchangeable
for shares of Common Stock (or the issuance of any warrants, options, or any
rights with respect to such convertible or exchangeable securities) shall be
deemed an issuance at such time of such Common Stock if the Net Consideration
Per Share (as hereinafter determined) which may be received by the Corporation
for such Common Stock shall be LESS THAN the Applicable Conversion Value at the
time of such issuance. Any obligation, agreement, or undertaking to issue
warrants, options, subscriptions, or purchase rights at any time in the future
shall be deemed to be an issuance at the time such obligation, agreement or
undertaking is made or arises. No adjustment of the Applicable Conversion Value
shall be made under this Section 5(d)(i) upon the issuance of any shares of
Common Stock which are issued pursuant to the exercise of any warrants, options,
subscriptions, or purchase rights or pursuant to the exercise of any conversion
or exchange rights in any
- B-7 -
11
convertible securities if any adjustment shall previously have been made upon
the issuance of any such warrants, options, or subscriptions or purchase rights
or upon the issuance of any convertible securities (or upon the issuance of any
warrants, options or any rights therefor) as above provided.
Should the Net Consideration Per Share of any such warrants, options,
subscriptions, or purchase rights or convertible securities be decreased from
time to time, then, upon the effectiveness of each such change, the Applicable
Conversion Value shall be adjusted to such Applicable Conversion Value as would
have been obtained (a) had the adjustments made upon the issuance of such
warrants, options, rights, or convertible securities been made upon the basis of
the actual Net Consideration Per Share of such securities, and (b) had
adjustments made to the Applicable Conversion Value since the date of issuance
of such securities been made to the Applicable Conversion Value as adjusted
pursuant to (a) above. Any adjustment of the Applicable Conversion Value with
respect to this paragraph which relates to warrants, options, subscriptions, or
purchase rights with respect to shares of Common Stock shall be disregarded if,
as, and when all of such warrants, options, subscriptions, or purchase rights
expire or are cancelled without being exercised, so that the Applicable
Conversion Value effective immediately upon such cancellation or expiration
shall be equal to the Applicable Conversion Value in effect at the time of the
issuance or the expiration of cancelled warrants, options, subscriptions, or
purchase rights, with such additional adjustments as would have been made to
that Applicable Conversion Value had the expired or cancelled warrants, options,
subscriptions, or purchase rights not been issued.
(2) For purposes of this paragraph, the "Net Consideration Per Share"
which may be received by the Corporation shall be determined as follows:
(a) The "Net Consideration Per Share" shall mean the amount
equal to the total amount of consideration, if any, received by the
Corporation for the issuance of such warrants, options, subscriptions,
or other purchase rights or convertible or exchangeable securities,
plus the minimum amount of consideration, if any, payable to the
Corporation upon exercise or conversion thereof, divided by the
aggregate number of shares of Common Stock that would be issued if all
such warrants, options, subscriptions, or other purchase rights or
convertible or exchangeable securities were exercised, exchanged, or
converted.
(b) The Net Consideration Per Share which may be received by the
Corporation shall be determined in each instance as of the date of
issuance of warrants, options, subscriptions, or other purchase rights
or convertible or exchangeable securities without giving effect to any
possible future upward price adjustments or rate adjustments which may
be applicable with respect to such warrants, options, subscriptions,
or other purchase rights or convertible or exchangeable securities.
(C) STOCK DIVIDENDS. In the event the Corporation shall make or issue,
or shall fix a record date for the determination of holders of any stock of the
Corporation OTHER THAN Common
- B-8 -
12
Stock entitled to receive a dividend or other distribution payable in Common
Stock or securities of the Corporation convertible into or otherwise
exchangeable for the Common Stock of the Corporation, then such Common Stock or
other securities issued in payment of such dividend shall be deemed to have been
issued without consideration, EXCEPT FOR dividends payable in shares of Common
Stock payable PRO RATA to holders of Series A Preferred Stock and to holders of
any other class of stock, whether or not paid to holders of any other class of
stock; PROVIDED, HOWEVER, that holders of any shares of Series A Preferred Stock
shall be entitled to receive such shares of Common Stock for which the shares of
Series A Preferred Stock are then convertible.
(D) CONSIDERATION OTHER THAN CASH. For purposes of this Section 5(d),
if a part or all of the consideration received by the Corporation in connection
with the issuance of shares of the Common Stock or the issuance of any of the
securities described in this Section 5(d), consists of property other than cash,
such consideration shall be deemed to have a fair market value as is reasonably
determined in good faith by the Board of Directors of the Corporation.
(E) EXCEPTIONS. This Section 5(d)(i) shall not apply under any of the
circumstances which would constitute an Extraordinary Common Stock Event (as
hereinafter defined in Section 5(d)(ii)). Further, the provisions of this
Section 5(d) shall not apply to the issuance of up to 15,790 shares of Common
Stock, or options exercisable therefor, outstanding as of January 20, 1984,
(such number to be subject to equitable adjustment in the event of any stock
split, combination, reclassification or other similar event occurring on or
after January 1, 1984), issuable to consultants, officers and employees of the
Corporation, or to the issuance of additional shares of Common Stock, or options
issuable therefor, to consultants, officers or employees of the Corporation,
provided that the purchase price of such Stock or the exercise price of such
options shall be not less than the fair market value of the Common Stock on the
date of issuance or grant, as the case may be, and provided that not less than
two-thirds of the Board of Directors of the Corporation shall have approved such
issuance or grant or the stock option or stock purchase plan pursuant to which
such issuance or grant was made.
(ii) UPON EXTRAORDINARY COMMON STOCK EVENT. Upon the happening of
an Extraordinary Common Stock Event (as hereinafter defined), the Applicable
Conversion Value (and all other conversion values set forth in paragraph (d)(i)
above) shall, simultaneously with the happening of such Extraordinary Common
Stock Event, be adjusted by multiplying the then effective Applicable Conversion
Value by a fraction, the numerator of which shall be the number of shares of
Common Stock outstanding immediately prior to such Extraordinary Common Stock
Event and the denominator of which shall be the number of shares of Common Stock
outstanding immediately after such Extraordinary Common Stock Event, and the
product so obtained shall thereafter be the Applicable Conversion Value.
The Applicable Conversion Value, as so adjusted, shall be readjusted in the same
manner upon the happening of any successive Extraordinary Common Stock Event or
Events.
"Extraordinary Common Stock Event" shall mean (i) the issue of additional
shares of the Common Stock as a dividend or other distribution on outstanding
Common Stock, (ii) a
- B-9 -
13
subdivision of outstanding shares of Common Stock into a greater number of
shares of the Common Stock, or (iii) a combination of outstanding shares of the
Common Stock into a smaller number of shares of the Common Stock.
(e) AUTOMATIC CONVERSION UPON SPECIFIED PUBLIC OFFERING.
(i) Immediately upon the closing date of an underwritten public
offering on a firm commitment basis pursuant to an effective registration
statement under the Securities Act of 1933, as amended, covering the offer and
sale of Common Stock for the account of the Corporation in which the aggregate
net proceeds to the Corporation exceed $5,000,000 and in which the value of the
Corporation, based upon the proposed offering price per share to the public of
such Common Stock, equals or exceeds $15,000,000, all outstanding shares of
Series A Preferred Stock shall be converted automatically into the number of
shares of Common Stock into which such Series A Preferred Stock is convertible
pursuant to Section 5 hereof as of the closing date of such underwritten public
offering without any further action by the holders of such shares and whether or
not the certificates representing such shares are surrendered to the Corporation
or its transfer agent for the Common Stock.
(ii) Upon the occurrence of the conversion specified in paragraph
(e)(i) above, the holders of such Series A Preferred Stock shall, upon notice
from the Corporation, surrender the certificates representing such shares at the
office of the Corporation or of its transfer agent for the Common Stock.
Thereupon, there shall be issued and delivered to such holder a certificate or
certificates for the number of shares of Common Stock into which the shares of
the Series A Preferred Stock surrendered were convertible on the date on which
such conversion occurred. The Corporation shall not be obligated to issue such
certificates unless certificates evidencing such shares of the Series A
Preferred Stock being converted are either delivered to the Corporation or any
such transfer agent, or the holder notifies the Corporation or any such transfer
agent that such certificates have been lost, stolen or destroyed and executes an
agreement satisfactory to the Corporation to indemnify the Corporation from any
loss incurred by it in connection therewith.
(f) DIVIDENDS. In the event the Corporation shall make or issue, or
shall fix a record date for the determination of holders of Common Stock
entitled to receive a dividend or other distribution with respect to the Common
Stock payable in (i) securities of the Corporation OTHER THAN shares of Common
Stock or (ii) assets (excluding cash dividends paid out of earned
surplus), then and in each such event provision shall be made so that the
holders of Series A Preferred Stock shall receive upon conversion thereof in
addition to the number of shares of Common Stock receivable thereupon, the
number of securities or such other assets of the Corporation which they would
have received had their Series A Preferred Stock been converted into Common
Stock on the date of such event and had they thereafter, during the period from
the date of such event to and including the Conversion Date (as that term is
hereafter defined in
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14
Section 5(j)), retained such securities or such other assets receivable by them
as aforesaid during such period, giving application to all adjustments called
for during such period under this Section 5 with respect to the rights of the
holders of the Series A Preferred Stock.
(g) CAPITAL REORGANIZATION OR RECLASSIFICATION. If the Common Stock
issuable upon the conversion of the Series A Preferred Stock shall be changed
into the same or different number of shares of any class or classes of stock,
whether by capital reorganization, reclassification or otherwise (other than a
subdivision or combination of shares or stock dividend provided for elsewhere in
this Section 5, or the sale of all or substantially all of the Corporation's
properties and assets to any other person), then and in each such event the
holder of each share of Series A Preferred Stock shall have the right thereafter
to convert such share into the kind and amount of shares of stock and other
securities and property receivable upon such reorganization, reclassification or
other change by holders of the number of shares of Common Stock into which such
shares of Series A Preferred Stock might have been converted immediately prior
to such reorganization, reclassification or change, all subject to further
adjustment as provided herein.
(h) CAPITAL REORGANIZATION, MERGER OR SALE OF ASSETS. If at any time
or from time to time there shall be a capital reorganization of the Common Stock
(other than a subdivision, combination, reclassification or exchange of shares
provided for elsewhere in this Section 5) or a merger or consolidation of the
Corporation with or into another corporation, or the sale of all or
substantially all of the Corporation's properties and assets to any other
person, then, as a part of such reorganization, merger, or consolidation or
sale, provision shall be made so that the holders of the Series A Preferred
Stock shall thereafter be entitled to receive upon conversion of the Series A
Preferred Stock, the number of shares of stock or other securities or property
of the Corporation, or of the successor corporation resulting from such merger,
consolidation or sale, to which such holder would have been entitled if such
holder had converted its shares of Series A Preferred Stock immediately prior to
such capital reorganization, merger, consolidation, or sale. In any such case,
appropriate adjustment shall be made in the application of the provisions of
this Section 5 with respect to the rights of the holders of the Series A
Preferred Stock after the reorganization, merger, consolidation or sale to the
end that the provisions of this Section 5 (including adjustment of the
Applicable Conversion Value then in effect and the number of shares issuable
upon conversion of the Series A Preferred Stock) shall be applicable after that
event in as nearly equivalent a manner as may be practicable.
Each holder of Series A Preferred Stock upon the occurrence of a capital
reorganization, merger or consolidation of the Corporation, or the sale of all
or substantially all its assets and properties, as such events are more fully
set forth in the first paragraph of this Section 5(h), shall
have the option of electing treatment of his shares of Series A Preferred Stock
under either this Section 5(h) or Section 3 hereof, notice of which election
shall be submitted in writing to the Corporation at its principal offices no
later than five (5) business days before the effective date of such event.
(i) ACCOUNTANT'S CERTIFICATE AS TO ADJUSTMENTS: NOTICE BY
CORPORATION. In each case of an adjustment or readjustment of the Applicable
Conversion Rate, the Corporation
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15
at its expense will furnish each holder of Series A Preferred Stock with a
certificate, executed by the president and chief financial officer (or in the
absence of a person designated as the chief financial officer, by the treasurer)
showing the basis for such adjustment or readjustment. However, if the holder or
holders of at least a majority of the then outstanding shares of Series A
Preferred Stock so requests, such certificate shall be prepared by independent
public accountants of recognized standing.
(j) EXERCISE OF CONVERSION PRIVILEGE. To exercise its conversion
privilege, a holder of Series A Preferred Stock shall surrender the certificate
or certificates representing the shares being converted to the Corporation at
its principal office, and shall give written notice to the Corporation at that
office that such holder elects to convert such shares. Such notice shall also
state the name or names (with address or addresses) in which the certificate or
certificates for shares of Common Stock issuable upon such conversion shall be
issued. The certificate or certificates for shares of Series A Preferred Stock
surrendered for conversion shall be accompanied by proper assignment thereof to
the Corporation or in blank. The date when such written notice is received by
the Corporation, together with the certificate or certificates representing the
shares of Series A Preferred Stock being converted, shall be the "Conversion
Date." As promptly as practicable after the Conversion Date, the Corporation
shall issue and shall deliver to the holder of the shares of Series A Preferred
Stock being converted, or on its written order, such certificate or certificates
as it may request for the number of whole shares of Common Stock issuable upon
the conversion of such shares of Series A Preferred Stock in accordance with the
provisions of this Section 5, cash in the amount of all accrued and unpaid
dividends on such shares of Series A Preferred Stock, whether or not earned or
declared, up to and including the Conversion Date and cash, as provided in
Section 5(k), in respect of any fraction of a share of Common Stock issuable
upon such conversion. Such conversion shall be deemed to have been effected
immediately prior to the close of business on the Conversion Date, and at such
time the rights of the holder as holder of the converted shares of Series A
Preferred Stock shall cease and the person or persons in whose name or names any
certificate or certificates for shares of Common Stock shall be issuable upon
such conversion shall be deemed to have become the holder or holders of record
of the shares of Common Stock represented thereby.
(k) CASH IN LIEU OF FRACTIONAL SHARES. No fractional shares of
Common Stock or scrip representing fractional shares shall be issued upon the
conversion of shares of Series A Preferred Stock. Instead of any fractional
shares of Common Stock which would otherwise be issuable upon conversion of
Series A Preferred Stock, the Corporation shall pay to the holder of
the shares of Series A Preferred Stock which were converted a cash adjustment in
respect of such fractional shares in an amount equal to the same fraction of the
market price per share of the Common Stock (as determined in a reasonable manner
prescribed by the Board of Directors) at the close of business on the Conversion
Date. The determination as to whether or not any fractional shares are issuable
shall be based upon the total number of shares of Series A Preferred Stock being
converted at any one time by any holder thereof, not upon each share of Series A
Preferred Stock being converted.
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16
(l) PARTIAL CONVERSION. In the event some but not all of the shares
of Series A Preferred Stock represented by a certificate or certificates
surrendered by a holder are converted, the Corporation shall execute and deliver
to, or on the order of the holder, at the expense of the Corporation, a new
certificate representing the number of shares of Series A Preferred Stock which
were not converted.
(m) RESERVATION OF COMMON STOCK. The Corporation shall at all times
reserve and keep available out of its authorized but unissued shares of Common
Stock, solely for the purpose of effecting the conversion of the shares of the
Series A Preferred Stock, such number of its shares of Common Stock as shall
from time to time be sufficient to effect the conversion of all outstanding
shares of the Series A Preferred Stock, and if at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of all then outstanding shares of the Series A Preferred Stock,
the Corporation shall take such corporate action as may be necessary to increase
its authorized but unissued shares of Common Stock to such number of shares as
shall be sufficient for such purpose.
6. NO REISSUANCE OF SERIES A PREFERRED STOCK. No share or shares of Series
A Preferred Stock acquired by the Corporation by reason of redemption, purchase,
conversion or otherwise shall be reissued, and all such shares shall be
cancelled, retired and eliminated from the shares which the Corporation shall be
authorized to issue. The Corporation may from time to time take such appropriate
corporate action as may be necessary to reduce the authorized number of shares
of the Series A Preferred Stock accordingly.
7. RESTRICTIONS AND LIMITATIONS.
(a) CORPORATE ACTION. Except as expressly provided herein or as
required by law, so long as any shares of the Series A Preferred Stock remain
outstanding, the Corporation shall not, and shall not permit any subsidiary
(which shall mean any corporation or trust of which the Corporation directly or
indirectly owns at the time all of the outstanding shares of every class other
than directors' qualifying shares) to, without the approval by vote or written
consent by the holders of at least a majority of the then outstanding shares of
the Series A Preferred Stock, each share of Series A Preferred Stock to be
entitled to one vote in each instance:
(i) redeem, purchase or otherwise acquire for value (or pay into or
set aside for a sinking fund for such purpose), any share or shares of
Series A Preferred Stock;
(ii) authorize or issue, or obligate itself to authorize or issue,
additional shares of Series A Preferred Stock;
(iii) authorize or issue, or obligate itself to authorize or issue,
any other equity security senior to or on a parity with the Series A
Preferred Stock as to liquidation preferences, conversion rights, voting
rights, dividend rights or otherwise; or
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17
(iv) merge or consolidate with, or sell, assign, lease or otherwise
dispose of or voluntarily part with the control of (whether in one
transaction or in a series of transactions) all, or substantially all, of
its assets (whether now owned or hereinafter acquired) or sell, assign or
otherwise dispose of (whether in one transaction or in a series of
transactions) any of its accounts receivable (whether now in existence or
hereinafter created) at a discount or with recourse, to any person, or
permit any subsidiary to do any of the foregoing, except for sales or other
dispositions of assets in the ordinary course of business and EXCEPT that
(1) any subsidiary may merge into or consolidate with or transfer assets to
any other subsidiary and (2) any subsidiary may merge into or transfer
assets to the Corporation.
(b) AMENDMENTS TO CHARTER. The Corporation shall not amend its Articles
of Organization without the approval, by vote or written consent, by the holders
of at least a majority of the then outstanding shares of Series A Preferred
Stock, each share of Series A Preferred Stock to be entitled to one vote in each
instance, if such amendment would change any of the rights, preferences,
privileges of or limitations provided for herein for the benefit of any shares
of Series A Preferred Stock. Without limiting the generality of the next
preceding sentence, the Corporation will not amend its Articles of Organization
without the approval by the holders of at least a majority of the then
outstanding shares of Series A Preferred Stock if such amendment would:
(i) change the relative seniority rights of the holders of Series A
Preferred Stock as to the payment of dividends in relation to the holders
of any other capital stock of the Corporation; or
(ii) reduce the amount payable to the holders of Series A Preferred
Stock upon the voluntary or involuntary liquidation, dissolution or winding
up of the Corporation, or change the relative seniority of the liquidation
preferences of the holders of Series A Preferred Stock to the rights upon
liquidation of the holders of any other capital stock of the Corporation or
change the dividend rights of the holders of Series A Preferred Stock; or
(iii) cancel or modify the conversion rights of the holders of Series
A Preferred Stock provided for in Section 5 herein.
8. NO DILUTION OR IMPAIRMENT. The Corporation will not, by amendment of its
Articles of Organization or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms of the Series A Preferred Stock set forth herein, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such action as may be necessary or appropriate in order to protect
the rights of the holders of the Series A Preferred Stock against dilution or
other impairment. Without limiting the generality of the foregoing, the
Corporation (a) will not increase the par value of any shares of stock
receivable on the conversion of the Series A Preferred Stock above the amount
payable
- B-14 -
18
therefor on such conversion, (b) will take all such action as may be necessary
or appropriate in order that the Corporation may validly and legally issue fully
paid and nonassessable shares of stock on the conversion of all Series A
Preferred Stock from time to time outstanding, (c) will not transfer all or
substantially all of its properties and assets to any other person (corporate or
otherwise), or consolidate with or merge into any other person or permit any
such person to consolidate with or merge into the Corporation (if the
Corporation is not the surviving person), unless such other person shall
expressly assume in writing and will be bound by all the terms of the Series A
Preferred Stock set forth herein.
9. NOTICES OF RECORD DATE. In the event of:
(a) any taking by the Corporation of a record of the holders of any
class of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right; or
(b) any capital reorganization of the Corporation, any
reclassification or recapitalization of the capital stock of the Corporation,
any merger or consolidation of the Corporation, or any transfer of all or
substantially all of the assets of the Corporation to any other corporation, or
any other entity or person; or
(c) any voluntary or involuntary dissolution, liquidation or winding
up of the Corporation, then and in each such event the Corporation shall mail or
cause to be mailed to each holder of Series A Preferred Stock a notice
specifying (i) the date on which any such record is to be taken for the purpose
of such dividend, distribution or right and a description of such dividend,
distribution or right, (ii) the date on which any such reorganization,
reclassification, recapitalization, transfer, consolidation, merger,
dissolution, liquidation, or winding up is expected to become effective, and
(iii) the time, if any, that is to be fixed, as to when the holders of record of
Common Stock (or other securities ) for securities or other property deliverable
upon such reorganization, reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding up. Such notice shall
be mailed at least thirty (30) days prior to the date specified in such notice
on which such action is to be taken.
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19
ARTICLE 6.
Other lawful provisions for the conduct and regulation of the business and
affairs of the corporation, for its voluntary dissolution or for limiting,
defining or regulating the powers of the corporation, or of its directors or
stockholders, or of any class of stockholders are as follows:
No Director or officer shall be disqualified by his office from dealing or
contracting as vendor, purchaser or otherwise, whether in his individual
capacity or through any other corporation, trust, association, firm or joint
venture in which his is interested as a stockholder, director, trustee, partner
or otherwise, with the Corporation or any corporation, trust, association, firm
or joint venture in which the Corporation shall be a stockholder or otherwise
interested or which shall hold stock or be otherwise interested in the
Corporation, nor shall any such dealing or contract be avoided, nor shall any
Director or officer so dealing or contracting be liable to account for any
profit or benefit realized through any such dealing or contract with the
Corporation or with any stockholder or creditor thereof solely because of the
fiduciary relationship established by reason of his holding such Directorship or
office. Any such interest of a Director shall not disqualify him from being
counted in determining the existence of a quorum at any meeting nor shall any
such interest disqualify him from voting or consenting as a Director or having
his vote or consent counted in connection with any such dealing or contract.
No stockholder shall be disqualified from dealing or contracting as vendor,
purchaser or otherwise, either in his individual capacity or through any other
corporation, trust, association, firm or joint venture in which he is interested
as a stockholder, director, trustee, partner or otherwise, with the Corporation
or any corporation, trust, association, firm or joint venture in which the
Corporation shall be a stockholder or otherwise interested or which shall hold
stock or be otherwise interested in the Corporation, nor shall any such dealing
or contract be avoided, nor shall any stockholder so dealing or contracting be
liable to account for any profit or benefit realized through any such contract
or dealing to the Corporation or to any stockholder or creditor thereof by
reason of such stockholder holding stock in the Corporation to any amount, nor
shall any fiduciary relationship be deemed to be established by holding such
stock.
Meetings of the stockholders of the Corporation may be held at any place
within the United States.
The Corporation may be a partner in any business enterprise it would have
power to conduct by itself.
The Directors may make, amend or repeal the By-Laws in whole or in part,
except with respect to any provision thereof which by law or the By-Laws
requires action by the stockholders.
No Director of the Corporation shall be liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a Director
notwithstanding any statutory provision or other law imposing such liability,
except for liability of a director (i) for any breach of the Director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions
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20
not in good faith or which involve intentional misconduct or a knowing violation
of law, (iii) under Section 61 or 62 of Chapter 156 of the Massachusetts General
Laws, or (iv) for any transaction from which the Director derived an improper
personal benefit.
(Balance of Page Intentionally Blank)
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21
Classified Board of Directors
(1) The Directors of the Corporation shall be divided into three classes:
Class I, Class II and Class III. Each class shall consist, as nearly as may be
possible, of one-third of the whole number of the Board of Directors. If the
number of Directors is not evenly divisible by three, the Board of Directors
shall determine the number of Directors to be elected initially into each class.
In the election of Directors at the Special Meeting of Stockholders in Lieu of
the 1992 Annual Meeting, the Class I Directors shall be elected to hold office
for a term to expire at the first annual meeting of the stockholders thereafter;
the Class II Directors shall be elected to hold office for a term to expire at
the second annual meeting of the stockholders thereafter; and the Class III
Directors shall be elected to hold office for a term to expire at the third
annual meeting of the stockholders thereafter, and in the case of each class,
until their respective successors are duly elected and qualified. At each annual
election held after the Special Meeting of Stockholders in Lieu of the 1992
Annual Meeting, the Directors elected to succeed those whose terms expire shall
be identified as being of the same class as the Directors they succeed and shall
be elected to hold office for a term to expire at the third annual meeting of
the stockholders after their election, and until their respective successors are
duly elected and qualified. If the number of Directors changes, any increase or
decrease in Directors shall be apportioned among the classes so as to maintain
all classes as equal in number as possible, and any additional Director elected
to any class shall hold office for a term which shall coincide with the terms of
the other Directors in such class and until his successor is duly elected and
qualified.
(2) Notwithstanding any other provisions of these Articles of Organization
or the By-Laws of the Corporation or the fact that a lesser percentage may be
specified by law, these Articles of Organization or the By-Laws of the
corporation, the affirmative vote' of the holders of at least eighty (80%)
percent of the combined voting power of the outstanding stock of the Corporation
entitled to vote generally in the election of directors ("Voting Stock"), voting
together as a single class, shall be required to amend, alter, adopt any
provision inconsistent with or to repeal this provision; PROVIDED, HOWEVER, that
if any such proposal receives the affirmative vote of a majority of the
Continuing Directors (as defined below), then such proposal shall require only
the affirmative vote of the holders of at least a majority of the outstanding
Voting Stock of the Corporation.
Vote Required for Certain Business Combinations
Until January 1, 1999, the following shall be applicable to certain
business combinations:
(A) In addition to any affirmative vote required by law or these Articles
of Organization, and except as otherwise expressly provided in Paragraph (B) of
this Provision:
1. any merger or consolidation of the Corporation or any Subsidiary (as
hereinafter defined) with (a) an Interested Stockholder (as hereinafter defined)
or (b) any other corporation (whether or not itself an Interested Stockholder)
which is, or after such merger or
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22
consolidation would be, an Affiliate (as such term is hereinafter defined) of an
Interested Stockholder; or
2. any sale, lease, exchange, mortgage, pledge, grant of a security
interest, transfer or other disposition (in one transaction or a series of
transactions to or with (a) an Interested Stockholder or (b) or any other person
(whether or not itself an Interested Stockholder) which is, or after such sale,
lease, exchange, mortgage, pledge, grant of security interest, transfer or other
disposition would be, an Affiliate of an Interested Stockholder, directly or
indirectly, of substantially all of the assets of the Corporation (including,
without limitation, any voting securities of a Subsidiary) or any Subsidiary; or
3. the issuance or transfer by the Corporation or any Subsidiary (in one
transaction or a series of transactions) of any securities of the Corporation or
any Subsidiary, or both, to (a) an Interested Stockholder or (b) any other
person (whether or not itself an Interested Stockholder) which is, or after such
issuance or transfer would be, an Affiliate of an Interested Stockholder in
exchange for cash, securities or other property (or a combination thereof); or
4. the adoption of any plan or proposal for the liquidation or dissolution
of the Corporation proposed by or on behalf of an Interested Stockholder or any
Affiliate of an Interested Stockholder; or
5. any reclassification of securities (including any reverse stock split),
or recapitalization of the Corporation, or any merger or consolidation of the
Corporation with any of its Subsidiaries or any other transaction (whether or
not with or into or otherwise involving an Interested Stockholder) which has the
effect, directly or indirectly, of increasing the proportionate share of the
outstanding shares of any class of equity or convertible securities of the
Corporation or any Subsidiary directly or indirectly beneficially owned by (a)
an Interested Stockholder or (b) any other person (whether or not itself an
Interested Stockholder) which is, or after such reclassification,
recapitalization, merger or consolidation or other transaction would be, an
Affiliate of an Interested Stockholder;
shall not be consummated unless such consummation shall have been approved by
the affirmative vote of the holders of at least eighty (80%) percent of the
combined voting power of the then outstanding shares of Voting Stock (as
hereinafter defined), voting together as a single class. Such affirmative vote
shall be required notwithstanding the fact that no vote may be required, or that
a lesser percentage may be specified, by law, in these Articles of Organization
or in any agreement with any national securities exchange or otherwise.
(B) The provisions of Paragraph (A) of this Provision shall not be
applicable to any particular Business Combination (as hereinafter defined) and
such Business Combination shall require only such affirmative vote as is
required by law and any other provision of these Articles of Organization, if
the Business Combination shall have been approved by a majority of the
Continuing Directors (as hereinafter defined) or all of the following conditions
shall have been met:
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23
1. The transaction constituting the Business Combination shall provide for
a consideration to be received by all holders of Common Stock in exchange for
all their shares of Common Stock, and the aggregate amount of the cash and the
Fair Market Value as of the date of the consummation of the Business Combination
of consideration other than cash to be received per share by holders of Common
Stock in such Business Combination shall be at least equal to the higher of the
following:
(a) (if applicable) the highest per-share price (including any
brokerage commissions, transfer taxes and soliciting dealers' fees) paid in
order to acquire any shares of Common Stock beneficially owned by an Interested
Stockholder (i) within the two-year period immediately prior to the Announcement
Date (as hereinafter defined), (ii) within the two-year period immediately prior
to the Determination Date (as hereinafter defined), or (iii) in the transaction
in which it became an Interested Stockholder, whichever is highest; or
(b) the Fair Market Value per share of Common Stock on the
Announcement Date or on the Determination Date, whichever is higher;
2. If the transaction constituting the Business Combination shall provide
for a consideration to be received by holders of any class or series of
outstanding Voting Stock other than Common Stock, the aggregate amount of the
cash and the Fair Market Value as of the date of the consummation of the
Business Combination of consideration other than cash to be received per share
by holders of shares of such class or series of Voting Stock shall be at least
equal to the highest of the following (it being intended that the requirements
of this subparagraph 2 shall be required to be met with respect to every class
or series of outstanding Voting Stock, whether or not an Interested Stockholder
has previously acquired any shares of a particular class of Voting Stock):
(a) (if applicable) the highest per share price (including any
brokerage commissions, transfer taxes and soliciting dealers' fees) paid in
order to acquire any shares of such class or series of Voting Stock beneficially
owned by an Interested Stockholder (i) within the two-year period immediately
prior to the Announcement Date, (ii) within the two-year period immediately
prior to the Determination Date, or (iii) in the transaction in which it became
an Interested Stockholder, whichever is highest; or
(b) the Fair Market Value per share of such class or series of Voting
Stock on the Announcement Date or the Determination Date, whichever is higher;
or
(c) (if applicable) the highest preferential amount per share to which
the holders of shares of such class or series of Voting Stock are entitled in
the event of any voluntary or involuntary liquidation, dissolution or winding up
of the Corporation;
3. The consideration to be received by holders of a particular class or
series of outstanding Voting Stock (including Common Stock) shall be in cash or
in the same form as was previously paid in order to acquire shares of such class
or series of Voting Stock which are
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24
beneficially owned by an Interested Stockholder and, if an Interested
Stockholder beneficially owns shares of any class or series of Voting Stock
which were acquired with varying forms of consideration, the form of
consideration for such class or series of Voting Stock shall be either cash or
the form used to acquire the largest number of shares of such class or series of
Voting Stock beneficially owned by it. The price determination in accordance
with subparagraphs 1 and 2 of this Paragraph (B) shall be subject to appropriate
adjustment in the event of any recapitalization, stock dividend, stock split,
combination of shares or similar event;
4. After such Interested Stockholder has become an Interested Stockholder
and prior to the consummation of such Business Combination:
(a) except as approved by a majority of the Continuing Directors, there
shall have been no failure to declare and pay at the regular date therefor the
full amount of any dividends (whether or not cumulative) payable on any
outstanding preferred stock;
(b) there shall have been (i) no reduction in the annual rate of
dividends paid on the Common Stock (except as necessary to reflect any
subdivision of the Common Stock) other than as approved by a majority of the
Continuing Directors, and (ii) an increase in such annual rate of dividends as
necessary to prevent any such reduction in the event of any reclassification
(including any reverse stock split), recapitalization, reorganization or any
similar transaction which has the effect of reducing the number of outstanding
shares of the Common Stock, unless the failure so to increase such annual rate
is approved by a majority of the Continuing Directors; and
(c) such Interested Stockholder shall not have become the beneficial
owner of any additional shares of Voting Stock at a price lower than that paid
in the transaction in which it became an Interested Stockholder;
5. After such Interested Stockholder has become an Interested Stockholder,
such Interested Stockholder shall not have received the benefit, directly or
indirectly (except proportionately as a stockholder), of any loans, advances,
guarantees, pledges or other financial assistance or any tax credits or other
tax advantages provided the Corporation, whether in anticipation of or in
connection with such Business Combination or otherwise; and
6. A proxy or information statement describing the proposed Business
Combination and complying with the requirements of the Securities Exchange Act
of 1934, as amended, and the rules and regulations thereunder (or any subsequent
provisions replacing such act, rules or regulations) shall be mailed to the
stockholders of the Corporation, no later than the earlier of (a) thirty (30)
days prior to any vote on the proposed Business Combination, or (b) if no vote
on such Business Combination is required, sixty (60) days prior to the
consummation of such Business Combination (whether or not such proxy or
information statement is required to be mailed pursuant to such Act or
subsequent provisions). Such proxy statement shall contain at the front thereof,
in a prominent place, any recommendations as to the advisability (or
inadvisability) of the
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25
Business Combination which the Continuing Directors, or any of them, may have
furnished in writing and, if deemed advisable by a majority of the Continuing
Directors, an opinion of a reputable investment banking firm as to the fairness
(or lack of fairness) of the terms of such Business Combination, from the point
of view of the holder of Voting Stock other than an Interested Stockholder (such
investment banking firm to be selected by a majority of the Continuing
Directors, to be furnished with all information it reasonably requests and to be
paid a reasonable fee for its services upon receipt by the Corporation of such
opinion).
(C) For the purposes of this Provision:
1. "Business Combination" shall mean any transaction which is referred
to in any one or more of subparagraphs 1 through 5 of Paragraph (A) of this
Provision.
2. "Voting Stock" shall mean stock of all classes and series of the
Corporation entitled to vote generally in the election of Directors.
3. "Person" shall mean any individual, firm, trust, partnership,
association, corporation or other entity.
4. "Interested Stockholder" shall mean any person (other than the
Corporation or any Subsidiary or any person or entity holding 9% or more of
Voting Stock on July 2, 1993) who or which:
(a) is the beneficial owner, directly or indirectly, of more than
ten (10%) percent of the combined voting power of the then outstanding Voting
Stock; or
(b) is an Affiliate of the corporation and at any time within the
two-year period immediately prior to the date in question was the beneficial
owner, directly or indirectly, of more than ten (10%) percent of the combined
voting power of the then outstanding Voting Stock; or
(c) is an assignee of or has otherwise succeeded to the beneficial
ownership of any shares of Voting Stock which were at any time within the
two-year period immediately prior to the date in question beneficially owned by
an Interested Stockholder, unless such assignment or succession shall have
occurred pursuant to a Public Transaction (as hereinafter defined) or any series
of transactions involving a Public Transaction.
For the purposes of determining whether a person is an Interested
Stockholder, the number of shares of Voting Stock deemed to be outstanding shall
include shares deemed owned through application of subparagraph 6 below but
shall not include any other shares of Voting Stock which may be issuable
pursuant to any agreement, arrangement or understanding, or upon exercise of
conversion rights, warrants or option, or otherwise.
- C-7 -
26
5. "Public Transaction" shall mean any (a) purchase of shares offered
pursuant to an effective registration statement under the Securities Act of
1933, as amended, or (b) open-market purchase of shares on a national securities
exchange if, in either such case, the price and other terms of sale are not
negotiated by the purchaser and the seller of the beneficial interest in the
shares.
6. A person shall be a "beneficial owner" of any Voting Stock:
(a) which such person or any of its Affiliates beneficially owns,
directly or indirectly; or
(b) which such person or any of its Affiliates has (i) the right to
acquire (whether such right is exercisable immediately or only after the passage
of time) pursuant to any agreement, arrangement or understanding or upon the
exercise of conversion rights, exchange rights, warrants or options, or
otherwise, or (ii) the right to vote or to direct the voting thereof pursuant to
any agreement, arrangement or understanding; or
(c) which is beneficially owned, directly or indirectly, by any
other person with which such person or any of its Affiliates has any agreement,
arrangement or understanding for the purpose of acquiring, holding, voting or
disposing of any shares of Voting Stock.
7. "Affiliate" shall have the meaning ascribed to such term in Rule
12b-2 of the General Rules and Regulations under the Securities Exchange Act of
1934, as in effect on July 22, 1993.
8. "Subsidiary" shall mean any corporation of which a majority of any
class of equity security (as defined in Rule 3all.1 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as in effect on June 27,
1989) is owned, directly or indirectly, by the corporation; PROVIDED, HOWEVER,
that for the purposes of the definition of Interested Stockholder set forth in
subparagraph 4, the term "Subsidiary" shall mean only a corporation of which a
majority of each class of equity security is owned, directly or indirectly, by
the Corporation.
9. "Continuing Director" shall mean any member of the Board of
Directors of the Corporation who is unaffiliated with, and not a nominee of, an
Interested Stockholder and was a member of the Board prior to the time that such
Interested Stockholder became an Interested Stockholder, and any successor of a
Continuing Director who is unaffiliated with, and not a nominee of, an
Interested Stockholder and is recommended to succeed a Continuing Director by a
majority of Continuing Directors then on the Board.
10. "Announcement Date" shall mean the date of the first public
announcement of the proposed Business Combination.
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27
11. "Determination Date" shall mean the date on which an Interested
Stockholder became an Interested Stockholder.
12. "Fair Market Value" shall mean: (a) in the case of stock, the
highest closing sale price during the thirty (30)-day period immediately
preceding the date in question of a share of such stock on the National Market
System of the National Association of Securities Dealers Automated Quotation
System or any system then in use on any national securities exchange or
automated quotation system, or if no such quotations are available, the fair
market value on the date in question of a share of such stock as determined by a
majority of the Continuing Directors in good faith; and (b) in the case of
property other than cash or stock, the fair market value of such property on the
date in question as determined by a majority of the Continuing Directors in good
faith.
(D) A majority of the Continuing Directors shall have the power and duty to
determine for the purposes of this Provision, on the basis of information known
to them after reasonable inquiry, all facts necessary to determine compliance
with this Provision, including, without limitation, (1) whether a person is an
Interested Stockholder, (2) the number of shares of Voting Stock beneficially
owned by any person, (3) whether a person is an Affiliate of another, (4)
whether the requirements of Paragraph (B) of this Provision have been met, and
(5) such other matters with respect to which a determination is required under
this Provision. The good faith determination of a majority of the Continuing
Directors on such matters shall be conclusive and binding for all purposes of
this Provision.
(E) Nothing contained in this Provision shall be construed to relieve an
Interested Stockholder of any fiduciary obligation imposed by law.
(F) Notwithstanding any other provisions of these Articles of Organization
or the By-laws of the Corporation or the fact that a lesser percentage may be
specified by law, these Articles of Organization or the By-laws of the
corporation, the affirmative vote of the holders of at least eighty (80%)
percent of the combined voting power of the then outstanding Voting Stock,
voting together as a single class, shall be required to amend, alter, adopt any
provision inconsistent with or repeal this Provision; PROVIDED, HOWEVER, that if
any such proposal receives the affirmative vote of a majority of the Continuing
Directors, then such proposal shall require only the affirmative vote of the
holders of at least a majority of the outstanding Voting Stock of the
Corporation.
(Balance of Page Intentionally Blank)
- C-9 -
28
Redemption of Shares
The Corporation, until January 1, 1999, in accordance with Section 6 of
Chapter 110D of the General Laws of the Commonwealth of Massachusetts, by action
of its Board of Directors is authorized, at the option of the Corporation by
such Board action but without requiring the agreement of the person who has made
a control share acquisition (as defined in said Chapter 110D), to redeem all but
not less than all shares acquired in such a control share acquisition in
accordance with and subject to the limitations contained in said Chapter 110D
including Section 6 thereof, provided however that any person or entity holding
more than 9% of the issued and outstanding stock entitled to vote generally for
the election of Directors on July 2, 1993 shall be exempt from this provision so
long as any such 10% stockholder continues to hold at least 5% of the voting
stock of the Corporation.
- C-10 -
29
Federal Identification No: 04-2741391
THE COMMONWEALTH OF MASSACHUSETTS
William Francis Galvin
Secretary of the Commonwealth
Corporations Division
One Ashburton Place, Boston, MA 02108-1512
CERTIFICATE OF CORRECTION
(GENERAL LAWS, CHAPTER 156B, SECTION 6A)
CORPORATE NAME: MERCURY COMPUTER SYSTEMS, INC.
DOCUMENT TO BE CORRECTED: RESTATED ARTICLES OF ORGANIZATION
IT IS HEREBY CERTIFIED THAT THE ABOVE MENTIONED DOCUMENT WAS FILED WITH THE
OFFICE OF THE SECRETARY OF STATE ON 10/21/93.
PLEASE STATE THE INACCURACY OR DEFECT TO BE CORRECTED IN SAID DOCUMENT:
ATTACHMENT PAGE B-5
E. DESCRIPTION OF SERIES A CONVERTIBLE PREFERRED STOCK
1. DESIGNATION: __________ SHARES OF THE CLASS OF SERIES . . .
PLEASE STATE CORRECTED VERSION OF THE DOCUMENT:
ATTACHMENT PAGE B-5
E. DESCRIPTION OF SERIES A CONVERTIBLE PREFERRED STOCK
1. DESIGNATION: 1,000,000 SHARES OF THE CLASS OF SERIES . . .
IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, WE SIGN OUR NAMES THIS
23RD DAY OF OCTOBER IN THE YEAR 1997
/s/ James Bertelli PRESIDENT
----------------------------------------------
James Bertelli
/s/ Anthony J. Medaglia, Jr. CLERK
----------------------------------------------
Anthony J. Medaglia, Jr.
- -------------------------------------------------------------------------------
NOTE: IF THE INACCURACY OR DEFECT TO BE CORRECTED IS NOT APPARENT ON THE FACE OF
THE DOCUMENT, MINUTES OF THE MEETING SUBSTANTIATING THE ERROR MUST BE FILED WITH
THE CERTIFICATE. IF REQUIRED, ADDITIONAL INFORMATION MAY BE STATED ON A SEPARATE
8 1/2 x 11 INCH WHITE PAPER.
- --------------------------------------------------------------------------------
30
*We further certify that the foregoing restate articles of organization
effect no amendments to the articles of organization of the corporation as
heretofore amended, except amendments to the following articles
Article 3, Article 4 and Article 6
- ------------------------------------------------------------------------------
(*If there are no such amendments, state "None".)
Briefly describe amendments in space below:
To Article 3
1. Increased the number of authorized shares of Common Stock from 10,000,000
shares to 25,000,000.
To Article 4
1. Increased the number of authorized shares of Common Stock as stated above.
To Article 6
1. Creation of a classified Board of Directors.
2. Adoption of a Fair Price Amendment to be in effect until January 1, 1999.
3. Adopted a provision regarding the redemption by the Corporation of shares
acquired in a control share acquisition to be in effect until January 1,
1999.
IN WITNESS WHEREOF AND UNDER PENALTIES OF PERJURY, we have hereto signed our
names this 12th day of October in the year 1993.
/s/ James R. Bartelli President
- -------------------------------------------
/s/ Anthony J. Madaglia, Jr. Clerk
- -------------------------------------------
31
THE COMMONWEALTH OF MASSACHUSETTS
RESTATED ARTICLES OF ORGANIZATION
(GENERAL LAWS, CHAPTER 156B, SECTION 74)
I hereby approve the within restated articles of organization and, the
filing fee in the amount of $ having been paid, said articles are
deemed to have been filed with me this day of , 19 .
MICHAEL JOSEPH CONNOLLY
Secretary of State
TO BE FILLED IN BY CORPORATION
PHOTO COPY OF RESTATED ARTICLES OF ORGANIZATION TO BE SENT TO:
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Telephone
-------------------------------------------------------------------
Copy Mailed
32
Federal Identification No: 04-2741391
THE COMMONWEALTH OF MASSACHUSETTS
William Francis Galvin
Secretary of the Commonwealth
Corporations Division
One Ashburton Place, Boston, MA 02108-1512
CERTIFICATE OF CORRECTION
(GENERAL LAWS, CHAPTER 156B, SECTION 6A)
CORPORATE NAME: MERCURY COMPUTER SYSTEMS, INC.
DOCUMENT TO BE CORRECTED: RESTATED ARTICLES OF ORGANIZATION
IT IS HEREBY CERTIFIED THAT THE ABOVE MENTIONED DOCUMENT WAS FILED WITH THE
OFFICE OF THE SECRETARY OF STATE ON 10/21/93.
PLEASE STATE THE INACCURACY OR DEFECT TO BE CORRECTED IN SAID DOCUMENT:
ATTACHMENT PAGE B-5
E. DESCRIPTION OF SERIES A CONVERTIBLE PREFERRED STOCK
1. DESIGNATION: ----------- SHARES OF THE CLASS OF SERIES...
PLEASE STATE CORRECTED VERSION OF THE DOCUMENT:
ATTACHMENT PAGE B-5
E. DESCRIPTION OF SERIES A CONVERTIBLE PREFERRED STOCK
1. DESIGNATION: 1,000,000 SHARES OF THE CLASS OF SERIES...
IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, WE SIGN OUR NAMES THIS
23rd DAY OF OCTOBER IN THE YEAR 1997.
/s/ James Bertelli PRESIDENT
-------------------------------
James Bertelli
/s/ Anthony J. Medaglia, Jr. CLERK
-------------------------------
Anthony J. Medaglia, Jr.
- --------------------------------------------------------------------------------
NOTE: IF THE INACCURACY OR DEFECT TO BE CORRECTED IS NOT APPARENT ON THE FACE
OF THE DOCUMENT, MINUTES OF THE MEETING SUBSTANTIATING THE ERROR MUST BE FILED
WITH THE CERTIFICATE. IF REQUIRED, ADDITIONAL INFORMATION MAY BE STATED ON A
SEPARATE 8-1/2 X 11 INCH WHITE PAPER.
- --------------------------------------------------------------------------------
242062-1
1
Exhibit 3.2
BY-LAWS
OF
MERCURY COMPUTER SYSTEMS, INC.
TABLE OF CONTENTS
PAGE
ARTICLE 1 ARTICLES OF ORGANIZATION.................................................1
ARTICLE 2 FISCAL YEAR..............................................................1
ARTICLE 3 MEETINGS OF STOCKHOLDERS.................................................2
Section 3.1 ANNUAL MEETING.....................................................2
Section 3.2 SPECIAL MEETINGS...................................................3
Section 3.3 PLACE OF MEETINGS..................................................4
Section 3.4 NOTICE OF MEETINGS.................................................4
Section 3.5 QUORUM.............................................................5
Section 3.6 ACTION WITHOUT MEETING.............................................6
ARTICLE 4 DIRECTORS................................................................7
Section 4.1 ENUMERATION, ELECTION AND TERM OF OFFICE...........................7
Section 4.2 POWERS.............................................................9
Section 4.3 MEETINGS OF DIRECTORS.............................................10
Section 4.4 QUORUM OF DIRECTORS...............................................11
Section 4.5 CONSENT IN LIEU OF MEETING AND PARTICIPATION IN MEETINGS BY
COMMUNICATIONS EQUIPMENT..........................................11
Section 4.6 COMMITTEES........................................................12
ARTICLE 5 OFFICERS................................................................12
Section 5.1 ENUMERATION, ELECTION AND TERM OF OFFICE..........................12
Section 5.2 PRESIDENT AND CHAIRMAN OF THE BOARD...............................13
Section 5.3 TREASURER AND ASSISTANT TREASURER.................................14
Section 5.4 CLERK AND ASSISTANT CLERK.........................................14
Section 5.5 SECRETARY OF THE BOARD AND ASSISTANT SECRETARY....................15
Section 5.6 TEMPORARY CLERK AND TEMPORARY SECRETARY...........................15
2
Section 5.7 OTHER POWERS AND DUTIES...........................................15
ARTICLE 6 RESIGNATIONS, REMOVALS AND VACANCIES....................................16
Section 6.1 RESIGNATIONS......................................................16
Section 6.2 REMOVALS..........................................................16
Section 6.3 VACANCIES.........................................................17
ARTICLE 7 INDEMNIFICATION OF DIRECTORS AND OTHERS.................................18
Section 7.1 DEFINITIONS.......................................................18
Section 7.2 RIGHT TO INDEMNIFICATION..........................................19
Section 7.3 INDEMNIFICATION NOT AVAILABLE.....................................19
Section 7.4 COMPROMISE OR SETTLEMENT..........................................19
Section 7.5 ADVANCES..........................................................20
Section 7.6 NOT EXCLUSIVE.....................................................20
Section 7.7 INSURANCE.........................................................20
ARTICLE 8 STOCK ..................................................................20
Section 8.1 STOCK AUTHORIZED..................................................20
Section 8.2 ISSUE OF AUTHORIZED UNISSUED CAPITAL STOCK........................21
Section 8.3 CERTIFICATES OF STOCK.............................................21
Section 8.4 REPLACEMENT CERTIFICATE...........................................22
Section 8.5 TRANSFERS.........................................................22
Section 8.6 RECORD DATE.......................................................23
ARTICLE 9 MISCELLANEOUS PROVISIONS................................................24
Section 9.1 EXECUTION OF PAPERS...............................................24
Section 9.2 VOTING OF SECURITIES..............................................24
Section 9.3 CORPORATE SEAL....................................................25
Section 9.4 CORPORATE RECORDS.................................................25
ARTICLE 10 AMENDMENTS..............................................................25
3
BY-LAWS
OF
MERCURY COMPUTER SYSTEMS, INC.
ARTICLE 1
ARTICLES OF ORGANIZATION
The name and purposes of the Corporation shall be as set forth in the
Articles of Organization. These By-Laws, the powers of the Corporation and its
Directors and stockholders, and all matters concerning the conduct and
regulation of the business of the Corporation, shall be subject to such
provisions in regard thereto, if any, as are set forth in the Articles of
Organization. All references in these By-Laws to the Articles of Organization
shall be construed to mean the Articles of Organization of the Corporation as
from time to time amended or restated.
ARTICLE 2
FISCAL YEAR
Except as from time to time otherwise determined by the Directors, the
fiscal year of the Corporation shall be the twelve months ending on June 30.
4
ARTICLE 3
MEETINGS OF STOCKHOLDERS
SECTION 3.1 ANNUAL MEETING
The annual meeting of the stockholders shall be held at 10:00 o'clock A.M.
on the first Wednesday of October in each year. Purposes for which an annual
meeting is to be held, additional to those prescribed by law and by these
By-Laws, may be specified by the President or by the Directors.
If such annual meeting has not been held on the day herein provided
therefor, a special meeting of the stockholders in lieu of the annual meeting
may be held, and any business transacted or elections held at such special
meeting shall have the same effect as if transacted or held at the annual
meeting, and in such case all references in these By-Laws, except in this
Section 3.1, to the annual meeting of the stockholders shall be deemed to refer
to such special meeting. Any such special meeting shall be called, and the
purposes thereof shall be specified in the call, as provided in Section 3.2 of
this Article 3.
To be properly brought before the meeting, business must be of a nature
that is appropriate for consideration at an annual meeting and must be (i)
specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the Board of Directors, (ii) otherwise properly brought before
the meeting by or at the direction of the Board of Directors, or (iii) otherwise
properly brought before the meeting by a stockholder. In addition to any other
applicable requirements, for business to be properly brought before the annual
meeting by a stockholder, the stockholder must have given timely notice thereof
in writing to the Clerk of
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5
the Corporation. To be timely, each such notice must be given either by personal
delivery or by United States mail, postage prepaid, to the Clerk of the
Corporation not later than (1) with respect to a matter to be brought before an
annual meeting of stockholders or special meeting in lieu of an annual meeting,
sixty (60) days prior to the date set forth in the By-Laws for the annual
meeting and (2) with respect to a matter to be brought before a special meeting
of the stockholders not in lieu of an annual meeting, the close of business on
the tenth (10th) day following the date on which notice of such meeting is first
given to stockholders. The notice shall set forth (i) information concerning the
stockholder, including his or her name and address; (ii) a representation that
the stockholder is entitled to vote at such meeting and intends to appear in
person or by proxy at the meeting to present the matter specified in the notice,
and (iii) such other information as would be required to be included in a proxy
statement soliciting proxies for the presentation of such matter to the meeting.
Notwithstanding anything in these By-Laws to the contrary, no business
shall be transacted at the annual meeting except in accordance with the
procedures set forth in this Section; provided, however, that nothing in this
Section shall be deemed to preclude discussion by any stockholder of any
business properly brought before the annual meeting in accordance with these
By-Laws.
SECTION 3.2 SPECIAL MEETINGS
A special meeting of the stockholders may be called at any time by the
President, or by a majority of the Directors acting by vote or by written
instrument or instruments signed by them. A special meeting of the stockholders
shall be called by the Clerk, or in the case of the death,
3
6
absence, incapacity or refusal of the Clerk, by any other officer, upon written
application of one or more stockholders who hold at least thirty (30) percent in
interest of the capital stock entitled to vote thereat. Such call shall state
the time, place and purposes of the meeting. In the event that none of the
officers is able or willing to call a special meeting, the supreme judicial or
superior court, upon application of one or more stockholders who hold at least
thirty (30) percent in interest of the capital stock entitled to vote thereat,
shall have jurisdiction in equity to authorize one or more of such stockholders
to call a meeting by giving notice as is required by law.
SECTION 3.3 PLACE OF MEETINGS
All meetings of the stockholders shall be held at the principal office of
the Corporation in Massachusetts, unless a different place within Massachusetts
or, if permitted by the Articles of Organization, elsewhere within the United
States is designated by the President, or by a majority of the Directors acting
by vote or by written instrument or instruments signed by them. Any adjourned
session of any meeting of the stockholders shall be held at such place within
Massachusetts or, if permitted by the Articles of Organization, elsewhere within
the United States as is designated in the vote of adjournment.
SECTION 3.4 NOTICE OF MEETINGS
A written notice of the place, date and hour of all meetings of
stockholders stating the purposes of the meeting shall be given at least seven
(7) days before the meeting to each stockholder entitled to vote thereat, by
leaving such notice with him or at his residence or usual place of business, or
by mailing it, postage prepaid, and addressed to such stockholder at his
4
7
address as it appears in the records of the Corporation. Such notice shall be
given by the Clerk, or in the case of the death, absence, incapacity or refusal
of the Clerk, by any other officer or by a person designated either by the
Clerk, by the person or persons calling the meeting, by any stockholder or group
of stockholders applying for such meeting pursuant to Section 3.2 of Article 3
of these By-Laws or by the Board of Directors. Whenever notice of a meeting is
required to be given a stockholder under any provision of law, of the Articles
of Organization, or of these By-Laws, a written waiver thereof, executed before
or after the meeting by such stockholder or his attorney thereunto authorized,
and filed with the records of the meeting, shall be deemed equivalent to such
notice.
SECTION 3.5 QUORUM
At any meeting of the stockholders, a quorum for the election of any
Director or for the consideration of any question shall consist of a majority in
interest of all stock issued, outstanding and entitled to vote at such election
or upon such question, respectively, except that if two or more classes of stock
are entitled to vote as separate classes for the election of any Director or
upon any question, then in the case of each such class a quorum for the election
of any Director or for the consideration of such question shall consist of a
majority in interest of all stock of that class issued, outstanding and entitled
to vote thereon. Stock owned by the Corporation, if any, shall be disregarded in
determining any quorum. Whether or not a quorum is present, any meeting may be
adjourned from time to time by a majority of the votes properly cast upon the
question, and the meeting may be held as adjourned without further notice.
When a quorum for an election is present at any meeting, a plurality of the
votes properly
5
8
cast for any office shall elect such office. When a quorum for the consideration
of a question is present at any meeting, a majority of the votes properly cast
upon the question shall decide the question; except that if two or more classes
of stock are entitled to vote as separate classes upon such question, then in
the case of each such class a majority of the votes of such class properly cast
upon the question shall decide the vote of that class upon the question; and
except in any case where a larger vote is required by law or by the Articles of
Organization.
SECTION 3.6 ACTION WITHOUT MEETING
Any action required or permitted to be taken at any meeting of the
stockholders may be taken without a meeting if all stockholders entitled to vote
on the matter consent to the action in writing and the written consents are
filed with the records of the meetings of stockholders. Such consents shall be
treated for all purposes as a vote at a meeting.
SECTION 3.7 PROXIES AND VOTING
Except as may otherwise be provided in the Articles of Organization,
stockholders entitled to vote shall have one vote for each share of stock
entitled to vote owned by them. Stockholders entitled to vote may vote in person
or by proxy. No proxy dated more than six (6) months before the meeting named
therein shall be valid and no proxy shall be valid after the final adjournment
of such meeting; PROVIDED, HOWEVER, that a proxy coupled with an interest
sufficient in law to support an irrevocable power, including, without
limitation, an interest in the shares or in the Corporation generally, may be
irrevocable if it so provides, need not specify the meeting to which it relates,
and shall be valid and enforceable until the interest terminates, or for such
shorter period as may be specified in the proxy. A proxy with respect to stock
held in the name
6
9
of two or more persons shall be valid if executed by any one of them unless at
or prior to the exercise of the proxy the Corporation receives specific written
notice to the contrary from any one of them. A proxy purporting to be executed
by or on behalf of a stockholder shall be deemed valid unless challenged at or
prior to its exercise and the burden of proving invalidity shall rest on the
challenger. Proxies shall be filed with the Clerk, or person performing the
duties of clerk, at the meeting, or any adjournment thereof, before being voted.
The Corporation shall not, directly or indirectly, vote upon any share of
its own stock.
ARTICLE 4
DIRECTORS
SECTION 4.1 ENUMERATION, ELECTION AND TERM OF OFFICE
The business and affairs of this corporation shall be managed under the
direction of a Board of Directors consisting of not fewer than three (3) nor
more than fifteen (15) Directors, the exact number to be determined from time to
time by resolution adopted by the affirmative vote of a majority of the entire
Board of Directors, such Board of Directors to be divided into such classes and
elected by such stockholders as have the right to vote thereon, for such terms
as are provided in the Articles of Organization. Each Director shall hold office
until his successor shall have been elected and qualified, subject to Article 6
of these By-Laws. Whenever used in these By-Laws, the phrase "entire Board of
Directors" shall mean that number of Directors fixed by the most recent
resolution adopted pursuant to the preceding sentence prior to the date as of
which a determination of the number of Directors then constituting the entire
Board of Directors shall be relevant for any purpose under these By-Laws.
Subject to the foregoing limitations and the
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10
requirements of the Articles of Organization, the Board of Directors may be
enlarged by the stockholders at any meeting or by the affirmative vote of a
majority of the entire Board of Directors then in office.
Nominations for the election of Directors may be made by the Board of
Directors or a committee appointed by the Board of Directors or by any
stockholder entitled to vote generally in the election of Directors. However,
any stockholder entitled to vote generally in the election of Directors may
nominate one or more persons for election as Directors at a meeting only if
written notice of such stockholder's intent to make such nomination or
nominations has been given, either by personal delivery or by United States
mail, postage prepaid, to the Clerk of the Corporation not later than (1) with
respect to an election to be held at an annual meeting of stockholders or
special meeting in lieu of an annual meeting, sixty (60) days prior to the date
for the annual meeting set forth in the By-Laws and (2) with respect to an
election to be held at a special meeting of stockholders not in lieu of an
annual meeting, the close of business on the tenth (10th) day following the date
on which notice of such meeting is first given to stockholders. Each such notice
to the Clerk shall set forth (i) the name and address of the stockholder and
each of his or her nominees; (ii) a representation that the stockholder is
entitled to vote at such meeting and intends to appear in person or by proxy at
the meeting to nominate the person or persons specified in the notice; (iii) a
description of all arrangements or understandings between the stockholder and
each such nominee; (iv) such other information as would be required to be
included in a proxy statement soliciting proxies or the election of the nominees
of such stockholder; and (v) the consent of each nominee to serve as a Director
of the Corporation if so
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11
elected. The Corporation may require any proposed nominee to furnish such other
information as may reasonably be required by the Corporation to determine the
eligibility of such proposed nominee to serve as a Director of the Corporation.
The presiding officer of the meeting may, if the facts warrant, determine that a
nomination was not made in accordance with the foregoing procedure, and if such
officer should so determine, he or she shall so declare to the meeting and the
defective nomination shall be disregarded.
No Director need be a stockholder. Any election of Directors by the
stockholders shall be by ballot if so requested by any stockholder entitled to
vote thereon.
SECTION 4.2 POWERS
The business of the Corporation shall be managed by the Board of Directors,
which shall exercise all the powers of the Corporation except as otherwise
required by law, by the Articles of Organization or by these By-Laws. In the
event of one or more vacancies in the Board of Directors, the remaining
Directors, if at least two (2) Directors still remain in office, may exercise
the powers of the full Board until such vacancy or vacancies are filled.
SECTION 4.3 MEETINGS OF DIRECTORS
Regular meetings of the Directors may be held without notice at such places
and at such times as may be fixed from time to time by the Directors. A regular
meeting of the Directors may be held without notice immediately following an
annual meeting of stockholders or any special meeting held in lieu thereof.
Special meetings of Directors may be called by the Chairman of the Board,
the President, the Treasurer or any two (2) or more Directors, or if there shall
be less than three (3) Directors,
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12
by any one (1) Director, and shall be held at such time and place as specified
in the call. Reasonable notice of each special meeting of the Directors shall be
given to each Director. Such notice may be given by the Secretary or Assistant
Secretary of the Board, the Clerk or any Assistant Clerk or by the officer or
one of the Directors calling the meeting. Notice to a Director shall in any case
be sufficient if sent by telegram or telecopier at least forty-eight (48) hours
or by mail at least ninety-six (96) hours before the meeting addressed to the
Director at his or her usual or last known business or residence address, or if
given to him or her at least forty-eight (48) hours before the meeting in person
or by telephone or by handing him or her a written notice. Notice of a meeting
need not be given to any Director if a written waiver of notice, executed by him
or her before or after the meeting, is filed with the records of the meeting, or
to any Director who attends the meeting without protesting prior thereto or at
its commencement the lack of notice to him or her. A notice or waiver of notice
need not specify the purposes of the meeting.
SECTION 4.4 QUORUM OF DIRECTORS
At any meeting of the Directors, a quorum for any election or for the
consideration of any question shall consist of a majority of the Directors then
in office. Whether or not a quorum is present any meeting may be adjourned from
time to time by a majority of the votes properly cast upon the question, and the
meeting may be held as adjourned without further notice. When a quorum is
present at any meeting, the votes of a majority of the Directors present shall
be requisite and sufficient for election to any office and shall decide any
question brought before such meeting, except in any case where a larger vote is
required by law, by the Articles of Organization or by these By-Laws.
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SECTION 4.5 CONSENT IN LIEU OF MEETING AND PARTICIPATION IN MEETINGS BY
COMMUNICATIONS EQUIPMENT
Any action required or permitted to be taken at any meeting of the
Directors may be taken without a meeting if all the Directors consent to the
action in writing and the written consents are filed with the records of the
meetings of the Directors. Such consents shall be treated for all purposes as a
vote of the Directors at a meeting.
Members of the Board of Directors or any Committee designated thereby may
participate in a meeting of such Board or Committee by means of a conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other at the same time and
participation by such means shall constitute presence in person at a meeting.
SECTION 4.6 COMMITTEES
By vote of a majority of the Directors then in office, the Directors may
elect from their own number an Executive Committee or other Committees and may
by like vote delegate to any such Committee some or all of their powers except
those which by law may not be delegated.
ARTICLE 5
OFFICERS
SECTION 5.1 ENUMERATION, ELECTION AND TERM OF OFFICE
The officers of the Corporation shall include a President, a Treasurer and
a Clerk, who shall be chosen by the Directors at their first meeting following
an annual meeting of the stockholders. Each of the officers shall hold office
until the next annual election to the office
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which he or she holds and until his or her successor is chosen and qualified or
until he or she sooner dies, resigns, is removed or becomes disqualified. The
Directors may choose one of their number to be Chairman of the Board and
determine his or her powers, duties and term of office. The Directors may at any
time appoint such other officers, including one or more Vice Presidents,
Assistant Treasurers, Assistant Clerks, a Secretary of the Board and an
Assistant Secretary of the Board as they deem wise, and may determine their
respective powers, duties and terms of office.
The Corporation may also designate individuals as divisional, group, or
segment vice presidents or vice presidents of a particular function, which
individual shall carry such title on a non-executive basis and not as an
executive officer of the Corporation. Said non-executive vice presidents may be
designated by the Board of Directors or by the President pursuant to Board
resolutions so-authorizing the President to appoint non-executive vice
presidents on a particular occasion or from time to time in his or her
discretion, said honorary vice presidents to be titled "Vice President (specific
area of function)."
No officer need be a stockholder or a Director except that the Chairman of
the Board shall be a Director. The same person may hold more than one office,
except that no person shall be both President and Clerk.
SECTION 5.2 PRESIDENT AND CHAIRMAN OF THE BOARD
The President shall be the Chief Executive Officer of the Corporation and,
subject to the control and direction of the Directors, shall have general
supervision and control of the business of the Corporation. The President shall
preside at all meetings of the stockholders at which he or
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she is present, and, if the President is a Director, at all meetings of the
Directors, if there shall be no Chairman of the Board or in the absence of the
Chairman of the Board.
If there shall be a Chairman of the Board, such person shall make his or
her counsel available to the other officers of the Corporation, and shall have
such other duties and powers as may from time to time be conferred on him or her
by the Directors. The Chairman of the Board shall preside at all meetings of the
Directors at which he or she is present, and, in the absence of the President,
at all meetings of stockholders.
SECTION 5.3 TREASURER AND ASSISTANT TREASURER
The Treasurer shall have the custody of the funds and valuable books and
papers of the Corporation, except such as are directed by these By-Laws to be
kept by the Clerk or by the Secretary of the Board. The Treasurer shall perform
all other duties usually incident to such office, and shall be at all times
subject to the control and direction of the Directors. If required by the
Directors, the Treasurer shall give bond in such form and amount and with such
sureties as shall be determined by the Directors.
If the Treasurer is absent or unavailable, any Assistant Treasurer shall
have the duties and powers of Treasurer and shall have such further duties and
powers as the Directors shall from time to time determine.
SECTION 5.4 CLERK AND ASSISTANT CLERK
If the Corporation shall not have a resident agent appointed pursuant to
law, the Clerk shall be a resident of the Commonwealth of Massachusetts. The
Clerk shall record all proceedings of the stockholders in a book to be kept
therefor. In case a Secretary of the Board is
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not elected, the Clerk shall also record all proceedings of the Directors in a
book to be kept therefor.
If the Corporation shall not have a transfer agent, the Clerk shall also
keep or cause to be kept the stock and transfer records of the Corporation,
which shall contain the names of all stockholders and the record address and the
amount of stock held by each.
If the Clerk is absent or unavailable, any Assistant Clerk shall have the
duties and powers of the Clerk and shall have such further duties and powers as
the Directors shall from time to time determine.
SECTION 5.5 SECRETARY OF THE BOARD AND ASSISTANT SECRETARY
If a Secretary of the Board is elected, such person shall record all
proceedings of the Directors in a book to be kept therefor.
If the Secretary of the Board is absent or unavailable, any Assistant
Secretary shall have the duties and powers of the Secretary and shall have such
further duties and powers as the Directors shall from time to time determine.
If no Secretary or Assistant Secretary has been elected, or if, having been
elected, no Secretary or Assistant Secretary is present at a meeting of the
Directors, the Clerk or an Assistant Clerk shall record the proceedings of the
Directors.
SECTION 5.6 TEMPORARY CLERK AND TEMPORARY SECRETARY
If no Clerk or Assistant Clerk shall be present at any meeting of the
stockholders, or if no Secretary, Assistant Secretary, Clerk or Assistant Clerk
shall be present at any meeting of the Directors, the person presiding at the
meeting shall designate a Temporary Clerk or Secretary to
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perform the duties of Clerk or Secretary.
SECTION 5.7 OTHER POWERS AND DUTIES
Each officer shall, subject to these By-Laws and to the control and
direction of the Directors, have in addition to the duties and powers
specifically set forth in these By-Laws, such duties and powers as are
customarily incident to such office and such additional duties and powers as the
Directors may from time to time determine.
ARTICLE 6
RESIGNATIONS, REMOVALS AND VACANCIES
SECTION 6.1 RESIGNATIONS
Any Director or officer may resign at any time by delivering his or her
resignation in writing to the President or the Clerk or to a meeting of the
Directors. Such resignations shall take effect at such time as is specified
therein, or if no such time is so specified, then upon delivery thereof to the
President or the Clerk or to a meeting of the Directors.
SECTION 6.2 REMOVALS
Directors, including Directors elected by the Directors to fill
vacancies in the Board, may be removed from office (a) with cause by vote of the
holders of a majority of the shares issued and outstanding and entitled to vote
generally in the election of Directors; (b) with or without cause by vote of the
holders of at least 80% of the votes entitled to be cast by the holders of all
shares of the Corporation entitled to vote generally in the election of
Directors, voting together as a single class; (c) with cause by vote of
a.majority of the Directors then in office; or (d) without
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cause by vote of at least 80% of the Directors then in office (including the
Director to be removed in calculating said percentage); provided that the
Directors of a class elected by a particular class of stockholders may be
removed only by vote of the holders of a majority of the shares of such class.
The Directors may terminate or modify the authority of any agent or
employee. The Directors may remove any officer from office with or without
assignment of cause by vote of a majority of the Directors then in office.
If cause is assigned for removal of any Director or officer, such Director
or officer may be removed only after reasonable notice and opportunity to be
heard before the body proposing to remove him.
No Director or officer who resigns or is removed shall have any right to
any compensation as such Director or officer for any period following his
resignation or removal, or any right to damages on account of such removal,
whether his compensation be by the month or by the year or otherwise; provided,
however, that the foregoing provision shall not prevent such Director or officer
from obtaining damages for breach of any contract of employment legally binding
upon the Corporation.
SECTION 6.3 VACANCIES
Any vacancy in the Board of Directors, including a vacancy resulting from
an enlargement of the Board, may be filled by the Directors by vote of a
majority of the remaining Directors then in office, though less than a quorum,
or by the stockholders at a meeting called for the purpose, provided that any
vacancy created by the stockholders may be filled by the
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stockholders at the same meeting. Any Director elected in accordance with the
preceding sentence shall hold office for the remainder of the full term of the
class of Directors in which the new Directorship was created or the vacancy
occurred and until such Directors' successor shall have been elected and
qualified or until he or she sooner dies, resigns, is removed or becomes
disqualified.
If the office of any officer becomes vacant, the Directors may choose or
appoint a successor by vote of a majority of the Directors present at the
meeting at which such choice or appointment is made.
Each such successor shall hold office for the unexpired term of the
Director's predecessor and until a successor shall be chosen or appointed and
qualified, or until he or she sooner dies, resigns, is removed or becomes
disqualified.
ARTICLE 7
INDEMNIFICATION OF DIRECTORS AND OTHERS
SECTION 7.1 DEFINITIONS
For purposes of this Article 7:
(a) "Director/officer" means any person who is serving or has served as a
Director, officer or employee of the Corporation appointed or elected by the
Board of Directors or the stockholders of the Corporation, or any Director,
officer or employee of the Corporation who is serving or has served at the
request of the Corporation as a Director, officer, trustee, principal, partner,
employee or other agent of any other organization.
(b) "Proceeding" means any action, suit or proceeding, civil or criminal,
brought or
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threatened in or before any court, tribunal, administrative or legislative body
or agency.
(c) "Expense" means any fine or penalty, and any liability fixed by a
judgment, order, decree or award in a Proceeding, any amount reasonably paid in
settlement of a Proceeding and any professional fees and other disbursements
reasonably incurred in connection with a Proceeding.
SECTION 7.2 RIGHT TO INDEMNIFICATION
Except as limited by law or as provided in Sections 7.3 and 7.4 of this
Article 7, each Director/officer (and his heirs and personal representatives)
shall be indemnified by the Corporation against any Expense incurred by such
Director/officer in connection with each Proceeding in which he or she is
involved as a result of his or her serving or having served as a
Director/officer.
SECTION 7.3 INDEMNIFICATION NOT AVAILABLE
No indemnification shall be provided to a Director/officer with respect to
a Proceeding as to which it shall have been adjudicated that he or she did not
act in good faith in the reasonable belief that his or her action was in the
best interests of the Corporation.
SECTION 7.4 COMPROMISE OR SETTLEMENT
In the event that a Proceeding is compromised or settled so as to impose
any liability or obligation on a Director/officer or upon the Corporation, no
indemnification shall be provided as to said Director/officer with respect to
such Proceeding if such Director/officer shall have been adjudicated not to have
acted in good faith in the reasonable belief that his or her action was in the
best interests of the Corporation.
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SECTION 7.5 ADVANCES
The Corporation shall pay sums on account of indemnification in advance of
a final disposition of a Proceeding upon receipt of an undertaking by the
Director/officer to repay such sums if it is subsequently established that he or
she is not entitled to indemnification pursuant to Sections 7.3 and 7.4 hereof,
which undertaking may be accepted without reference to the financial ability of
such person to make repayment.
SECTION 7.6 NOT EXCLUSIVE
Nothing in this Article 7 shall limit any lawful rights to indemnification
existing independently of this Article 7.
SECTION 7.7 INSURANCE
The provisions of this Article 7 shall not limit the power of the Board of
Directors to authorize the purchase and maintenance of insurance on behalf of
any Director/officer against any Expense, whether or not the Corporation would
have the power to indemnify such Director/officer against such Expense under
this Article 7.
ARTICLE 8
STOCK
SECTION 8.1 STOCK AUTHORIZED
The total number of shares and the par value, if any, of each class of
stock which the Corporation is authorized to issue, and if more than one class
is authorized, the descriptions, preferences, voting powers, qualifications and
special and relative rights and privileges as to each class and any series
thereof, shall be as stated in the Articles of Organization.
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SECTION 8.2 ISSUE OF AUTHORIZED UNISSUED CAPITAL STOCK
Any unissued capital stock from time to time authorized under the Articles
of Organization and amendments thereto may be issued by vote of the Directors.
No stock shall be issued unless the cash, so far as due, or the property,
services or expenses for which it was authorized to be issued, has been actually
received or incurred by, or conveyed or rendered to, the Corporation, or is in
its possession as surplus.
SECTION 8.3 CERTIFICATES OF STOCK
Each stockholder shall be entitled to a certificate in such form as may be
prescribed from time to time by the Directors, stating the number and the class
and the designation of the series, if any, of the shares held by such
stockholder. Such certificates shall be signed by the President or a Vice
President and by the Treasurer or an Assistant Treasurer. Such signatures may be
facsimiles if the certificate is signed by a transfer agent, or by a registrar,
other than a Director, officer or employee of the Corporation. In case any
officer who has signed or whose facsimile signature has been placed on such
certificate shall have ceased to be such officer before such certificate is
issued, it may be issued by the Corporation with the same effect as if he or she
were such officer at the time of its issue. Every certificate issued by the
Corporation for shares of stock at a time when such shares are subject to any
restriction on transfer pursuant to the Articles of Organization, the By-Laws or
any agreement to which the Corporation is a party, shall have the restriction
noted conspicuously on the certificate and shall also set forth on the face or
back of the certificate either the full text of the restriction, or a statement
of the existence of such restriction and a statement that the Corporation will
furnish a copy thereof to the holder of such
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certificate upon written request and without charge. Every stock certificate
issued by the Corporation at a time when it is authorized to issue more than one
class or series of stock shall set forth upon the face or back of the
certificate either the full text of the preferences, voting powers,
qualifications and special and relative rights of the shares of each class and
series, if any, authorized to be issued, as set forth in the Articles of
Organization, or a statement of the existence of such preferences, powers,
qualifications and rights and a statement that the Corporation will furnish a
copy thereof to the holder of such certificate upon written request and without
charge.
SECTION 8.4 REPLACEMENT CERTIFICATE
In case of the alleged loss or destruction or the mutilation of a
certificate of stock, a new certificate may be issued in place thereof, upon
such conditions as the Directors may determine.
SECTION 8.5 TRANSFERS
Subject to the restrictions, if any, imposed by the Articles of
Organization, the By-Laws or any agreement to which the Corporation is a party,
shares of stock shall be transferred on the books of the Corporation only by the
surrender to the Corporation or its transfer agent of the certificate
representing such shares properly endorsed or accompanied by a written
assignment of such shares or by a written power of attorney to sell, assign or
transfer such shares, properly executed, with necessary transfer stamps affixed,
and with such proof that the endorsement, assignment or power of attorney is
genuine and effective as the Corporation or its transfer agent may reasonably
require. Except as may otherwise be required by law, the Corporation shall be
entitled to treat the record holder of stock as shown on its books as the owner
of such stock for
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all purposes, including the payment of dividends and the right to vote with
respect thereto, regardless of any transfer, pledge or other disposition of such
stock, until the shares have been transferred on the books of the Corporation in
accordance with the requirements of these By-Laws. It shall be the duty of each
stockholder to notify the Corporation of his or her post office address.
SECTION 8.6 RECORD DATE
The Directors may fix in advance a time, which shall be not more than sixty
(60) days before the date of any meeting of stockholders or the date for the
payment of any dividend or the making of any distribution to stockholders or the
last day on which the consent or dissent of stockholders may be effectively
expressed for any purpose, as the record date for determining the stockholders
having the right to notice of and to vote at such meeting and any adjournment
thereof or the right to receive such dividend or distribution or the right to
give such consent or dissent, and in such case only stockholders of record on
such date shall have such right, notwithstanding any transfer of stock on the
books of the Corporation after the record date; or without fixing such record
date the Directors may for any such purposes close the transfer books for all or
any part of such period.
If no record date is fixed and the transfer books are not closed:
(1) The record date for determining stockholders having the right to notice
of or to vote at a meeting of stockholders shall be at the close of business on
the day next preceding the day on which notice is given.
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(2) The record date for determining stockholders for any other purpose
shall be at the close of business on the day on which the Board of Directors
acts with respect thereto.
ARTICLE 9
MISCELLANEOUS PROVISIONS
SECTION 9.1 EXECUTION OF PAPERS
All deeds, leases, transfers, contracts, bonds, notes, releases, checks,
drafts and other obligations authorized to be executed on behalf of the
Corporation shall be signed by the President or the Treasurer except as the
Directors may generally or in particular cases otherwise determine.
SECTION 9.2 VOTING OF SECURITIES
Except as the Directors may generally or in particular cases otherwise
determine, the President or the Treasurer may, on behalf of the Corporation (i)
waive notice of any meeting of stockholders or shareholders of any other
corporation, or of any association, trust or firm, of which any securities are
held by this Corporation; (ii) appoint any person or persons to act as proxy or
attorney-in-fact for the Corporation, with or without substitution, at any such
meeting; and (iii) execute instruments of consent to stockholder or shareholder
action taken without a meeting.
SECTION 9.3 CORPORATE SEAL
The seal of the Corporation shall be a circular die with the name of the
Corporation, the word "Massachusetts" and the year of its incorporation cut or
engraved thereon, or shall be in such other form as the Board of Directors or
the stockholders may from time to time determine.
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SECTION 9.4 CORPORATE RECORDS
The original, or attested copies, of the Articles of Organization, By-Laws,
and the records of all meetings of incorporators and stockholders, and the stock
and transfer records, which shall contain the names of all stockholders and the
record address and the amount of stock held by each, shall be kept in
Massachusetts for inspection by the stockholders at the principal office of the
Corporation or at an office of the Clerk, or if the Corporation shall have a
transfer agent or a resident agent, at an office of either of them. Said copies
and records need not all be kept in the same office.
ARTICLE 10
AMENDMENTS
These By-Laws may be altered, amended or repealed or new By-Laws enacted by
the affirmative vote of a majority of the entire Board of Directors (if notice
of the proposed alteration or amendment is contained in the notice of the
meeting at which such vote is taken or if all Directors are present) or at any
regular meeting of the stockholders (or at any special meeting thereof duly
called for that purpose) by the affirmative vote of a majority of the shares
represented and entitled to vote at such meeting (if notice of the proposed
alteration or amendment is contained in the notice of such meeting).
Notwithstanding anything contained in the preceding paragraph of this
Article 10 to the contrary until January 1, 1999, either (i) the affirmative
vote of the holders of at least eighty (80%) percent of the votes entitled to be
cast by the holders of all shares of the Corporation entitled to vote generally
in the election of Directors, voting together as a single class, or (ii) the
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affirmative vote of a majority of the entire Board of Directors with the
concurring vote of a majority of the Continuing Directors, voting separately and
as a subclass of Directors, shall be required to alter, amend or repeal or adopt
any provision inconsistent with, Section 3.1 of Article 3, Section 4.1 of
Article 4, Section 6.2 and Section 6.3 of Article 6 and this paragraph of this
Article 10. For purposes of this Article 10, the term "Continuing Director"
shall have the meaning ascribed to it in Article 6 of the Articles of
Organization of the Corporation. Subsequent to January 1, 1999, the foregoing
sections may be altered, amended or repealed in accordance with the first
paragraph of this Article 10.2. The purposes for which the corporation is formed
are as follows: To manufacture, sell, invent, design, develop, distribute, lease
and to engage in all aspects of the production of micro-computer based products;
to invent, design, discover, or acquire formulae, processes, improvements,
inventions, designs, patents, licenses, copyrights, trademarks, trade names and
trade secrets applicable to the foregoing and to hold, use, sell, license and
otherwise deal in or dispose of the same; to acquire by purchase, deed,
mortgage, lease or by any other method and to hold, maintain, operate,. improve,
develop, sell, exchange, lease, mortgage, pledge, hypothecate, loan money upon
and otherwise deal in real and personal property of every kind, character and
description and wheresoever situated, including without limitation the stock and
securities of the corporation or of any other corporation; to lend money upon
credit or security to, to guarantee or assume obligations of, and to aid in any
other manner other concerns wherever and however organized, any obligations of
which or any interest in which shall be held by the corporation or in the
affairs or prosperity of which the corporation has a lawful interest and to do
all acts and things designed to protect, improve and enhance the
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value of such obligations and interests; and to carry on any business permitted
and enjoy all rights and powers granted by the Commonwealth of Massachusetts to
a corporation organized under Chapter 156B of the General Laws, as amended.
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1
EXHIBIT 10.1
This Plan, as presently in effect as of May 22, 1987 includes Amendment No. 1
dated November 9, 1983, Amendment No. 2 dated February 11, 1985, Amendment No. 3
dated May 22, 1987 and reflects the 3:1 stock split voted March 8, 1985.
MERCURY COMPUTER SYSTEMS, INC.
1982 STOCK OPTION PLAN
1. PURPOSE OF THE PLAN.
This stock option plan (the "Plan") is intended to encourage
ownership of the stock of Mercury Computer Systems, Inc., a Massachusetts
corporation (the "Company") by key employees of the Company, to induce highly
qualified personnel to enter and remain in the employ of the Company, and to
provide additional incentive for participants to promote the success of the
Company's business.
2. STOCK SUBJECT TO THE PLAN.
The total number of shares of the common stock of the Company
($.01 par value) for which options may be granted under the Plan shall not
exceed 1,200,000 shares, subject to adjustment in accordance with Section 10
hereof. Such shares may in whole or in part, as the Board of Directors of the
Company (the "Board") shall from time to time determine, be issued shares which
shall have been reacquired by the Company or authorized but unissued shares,
whether now or hereafter authorized.
If any unexercised options granted under this Plan lapse or terminate
for any reason, the shares covered thereby may again be optioned hereunder, and
such lapsed or unexercised options shall not be considered in computing the
total number of shares optioned.
3. ADMINISTRATION OF THE PLAN.
2
The Plan shall be administered by the Board or, if the Board
so determines, by a committee of the Board, consisting of three or more members
appointed by the Board. Such committee, if established, shall be known as the
"Stock Option Committee". For purposes of this Plan the term "Committee" shall
mean either the Board or the Stock Option Committee.
4. PARTICIPANTS IN THE PLAN.
Each participant in the Plan must be a regular salaried
employee of the Company (or one of its subsidiaries (herein called
"subsidiaries"), if any, as defined in Section 425 of the Internal Revenue Code
of 1954 as now in force or hereafter amended, including any applicable successor
provisions to said Section 425, and the Treasury Regulations promulgated
thereunder (the "Code" and "Regulations")). The Committee may designate as
participants in the Plan persons who are now or may be hereafter employed by the
Company or its subsidiaries in key positions. In determining the eligibility of
an individual to be granted an option, as well as in determining the number of
shares to be optioned to any individual, the Committee shall consider the
position and responsibilities of the employee being considered, the nature and
value to the Company or its subsidiaries of his service and accomplishments, his
present and potential contribution to the success of the Company or its
subsidiaries, and such other factors as the Committee may deem relevant. No
Director who is not otherwise an employee of the Company shall be eligible to
participate in the Plan.
5. GRANT OF OPTION; OPTION AGREEMENT.
The Committee may from time to time grant options to eligible
employees, which options may be nonqualified options or incentive stock options
(within the meaning of Section 422A of the Code). Each option shall be evidenced
by an option agreement (the
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"Agreement") duly executed on behalf of the Company and by the participant to
whom such option is granted, which Agreements may but need not be identical and
shall comply with and be subject to the terms and conditions of the Plan. Any
Agreement may contain such other terms, provisions, and conditions not
inconsistent with the Plan as may be determined by the Committee, including with
respect to any restrictions to be imposed on the shares acquired by a
participant upon the exercise of an option granted to him. No option shall be
granted within the meaning of the Plan and no purported grant of any option
shall be effective, until such an Agreement shall have been duly executed on
behalf of the Company and the participant. More than one option may be granted
to an individual. However, in no event shall an incentive stock option be
granted to an individual who, at the time such option is granted, owns (as
defined in Section 425 of the Code) stock possessing more than ten percent (10%)
of the total combined voting power of all classes of stock of the Company (or of
its parent or any subsidiary corporation) unless at the time the option is
granted the option price is at least 110% of the fair market value of the stock
subject to the option and such option by its terms is not exercisable after the
expiration of five years from the date such option is granted. The aggregate
fair market value (determined at the time the option is granted) of the stock
with respect to which incentive stock options are exercisable for the first time
by an individual during any calendar year (under this Plan or any other plan of
Mercury Computer Systems, Inc., its parent or any of its subsidiaries) shall not
exceed $100,000.
6. OPTION EXERCISE PRICE.
The exercise price or prices of options granted under this
Plan shall be determined by the Committee at the time of the granting of an
option, but, in the case of an
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incentive stock option, shall in no event be lest than the fair market value of
the shares of the common stock of the Company covered by the option at the time
the option is granted, and in no event less than the par value thereof. If the
Company's common stock is at any time actively traded in an established
over-the-counter market, the fair market value of such common stock shall be the
mean between the bid and asked prices quoted in such over-the-counter market at
the close on the date nearest preceding the date of grant. If such common stock
is listed on any national exchange, the mean between the high and low sale
prices quoted on such exchange on the trading day nearest preceding the date of
the granting of the option may be taken as such fair market value.
Notwithstanding the foregoing, if such methods of determining fair market value
shall not be consistent with the Regulations at the time applicable to incentive
stock options, fair market value shall be determined in accordance with the
Regulations.
7. TIME AND MANNER OF EXERCISE OF OPTION.
(a) Except as otherwise determined from time to time by the
Committee and subject to the provisions of section 7(b), options granted under
the Plan shall be exercisable as follows:
(i) During the first twelve (12) months from the
date the option was granted, the option may not be exercised
as to any of the shares covered thereby;
(ii) After twelve (12) months from the date on
which the option was granted, the option may be exercised as
to twenty percent (20%) of the shares covered thereby;
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(iii) After twenty-four (24) months from the date
on which the option was granted, the option may be exercised
as to forty percent (40%) of the shares covered thereby;
(iv) After thirty-six (36) months from the date
on which the option was granted, the option may be exercised
as to sixty percent (60%) of the shares covered thereby;
(v) After forty-eight (48) months from the date
on which the option was granted, the option may be exercised
as to eighty percent (80%) of the shares covered thereby;
(vi) After sixty (60) months from the date on
which the option was granted, the option may be exercised as
to all of the shares covered thereby; and
(vii) No option may be exercised after ten (10)
years from the date on which the option was granted.
(b) To the extent that the right to purchase shares under
an option has accrued and is in effect, options may be exercised in full at one
time or in part from time to time, by giving written notice, signed by the
person or persons exercising the option, to the Company, stating the number of
shares with respect to which the option is being exercised, accompanied by
payment in full for such shares, which payment may be in whole or in part in
shares of the common stock of the Company already owned by the person or persons
exercising the option, valued at fair market value determined in accordance with
the provisions of Section 6; provided, however, that there shall be no such
exercise at any one time as to fewer than ten (10) shares or all of the
remaining shares then purchasable by the person or
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persons exercising the option, if fewer than ten (10) shares. Upon such
exercise, delivery of a certificate for paid-up non-assessable shares shall be
made at the principal office of the Company to the person or persons exercising
the option at such time, during ordinary business hours, after fifteen (15) but
not more than thirty (30) days from the date of receipt of the notice by the
Company, as shall be designated in such notice, or at such time, place and
manner as may be agreed upon by the Company and the person or persons exercising
the option.
8. TERM OF OPTIONS.
(a) Each option shall expire not more than ten (10) years from
the date of granting thereof, but shall be subject to earlier termination as
herein provided.
(b) An option granted to any participant who ceases to be a
regular salaried employee of the Company or one of its subsidiaries may be
exercised, to the extent then exercisable under the provisions of section 7(a),
within ten (10) days after the date on which such participant ceased to be an
employee, or if the Board consents, within three (3) months after the date on
which such participant ceased to be an employee, unless such termination of
employment (i) was by the Company for cause or by the participant in breach of
an employment contract, in either of which cases such option shall terminate on
the date on which such participant ceased to be an employee or (ii) was because
the participant has become disabled within the meaning of Section 105(d)(4) of
the Code. In the case of a disabled participant, such option may be exercised to
the extent then exercisable within twelve (12) months after the date on which
such participant ceased to be an employee.
(c) In the event of the death of any participant, the option
granted to such participant may be exercised to the extent then exercisable by
the estate of such participant, or
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by any person or persons who acquired the right to exercise such option by
bequest or inheritance or by reason of the death of such participant. Such
option must be exercised within twelve (12) months after the date of death of
such participant, but in any event prior to its expiration.
9. OPTIONS NOT TRANSFERABLE.
The right of any participant to exercise any option granted to
him shall not be assignable or transferable by such participant otherwise than
by will or the laws of descent and distribution, and any such option shall be
exercisable during the lifetime of such participant only by him. Any option
granted under the Plan shall be null and void and without effect upon the
bankruptcy of the participant to whom the option is granted, or upon any
attempted assignment or transfer, except as herein provided, including without
limitation, any purported assignment, whether voluntary or by operation of law,
pledge, hypothecation or other disposition, attachment, trustee process or
similar process, whether legal or equitable, upon such option.
10. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.
In the event that the outstanding shares of the common stock
of the Company are changed into or exchanged for a different number or kind of
shares or other securities of the Company or of another corporation by reason of
any reorganization, merger, consolidation, recapitalization, reclassification,
stock split-up, combination of shares or dividends payable in capital stock,
appropriate adjustment shall be made in the number and kind of shares as to
which options may be granted under the Plan and as to which outstanding options
or portions thereof then unexercised shall be exercisable, to the end that the
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proportionate interest of the participant shall be maintained as before the
occurrence of such event; such adjustment in outstanding options shall be made
without change in the total price applicable to the unexercised portion of such
options and with a corresponding adjustment in the option price per share. No
such adjustment shall be made which shall, within the meaning of any applicable
sections of the Code, constitute a modification, extension or renewal of an
option or a grant of additional benefits to a participant.
If by reason of a corporate merger, consolidation, acquisition
of property or stock, separation, reorganization, or liquidation, the Board
shall authorize the issuance of stock options or the assumption of outstanding
stock options in a transaction to which Section 425(a) of the Code applies then,
notwithstanding any other provision of the Plan, the Committee may grant options
upon such terms and conditions as it may deem appropriate for the purpose of
assumption of the outstanding option, or substitution of new options for
outstanding options, in conformity with the provisions of such Section 425(a)
and the Regulations thereunder.
11. RESTRICTIONS ON ISSUANCE OF SHARES.
Notwithstanding the provisions of Section 7, the Company may
delay the issuance of shares covered by the exercise of any option and the
delivery of a certificate for such shares until one of the following conditions
shall be satisfied:
(i) The shares with respect to which the option
has been exercised are at the time of the issue of such shares
effectively registered under applicable Federal and state
securities acts as now in force or hereafter amended; or
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(ii) A no-action letter in respect of the
issuance of such shares shall have been obtained by the
Company from the Securities and Exchange Commission and any
applicable state securities commissioner; or
(iii) Counsel for the Company shall have given an
opinion, which opinion shall not be unreasonably conditioned
or withheld, that such shares are exempt from registration
under applicable Federal and state securities acts as now in
force or hereafter amended.
It is intended that all exercises of options shall be effective, and
the Company shall use its best efforts to bring about compliance with the above
conditions within a reasonable time, except that the Company shall be under no
obligation to cause a registration statement or a post-effective amendment to
any registration statement to be prepared at its expense solely for the purpose
of covering the issue of shares in respect of which any option may be exercised.
12. PURCHASE FOR INVESTMENT; RIGHTS OF HOLDER ON SUBSEQUENT
REGISTRATION.
Unless the shares to be issued upon exercise of an option
granted under the Plan have been effectively registered under the Securities Act
of 1933 as now in force or hereafter amended (the "1933 Act"), the Company shall
be under no obligation to issue any shares covered by any option unless the
person who exercises such option, whether such exercise is in whole or in part,
shall give a written representation and undertaking to the Company which is
satisfactory in form and scope to counsel for the Company and upon which, in the
opinion of such counsel, the Company may reasonably rely, that he is acquiring
the shares issued to him pursuant to such exercise of the option for his own
account as an investment and not with a view to, or for sale in connection with,
the distribution of any such shares, and that he will
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make no transfer of the same except in compliance with any rules and regulations
in force at the time of such transfer under the 1933 Act, or any other
applicable law, and that if shares are issued without such registration a legend
to this effect may be endorsed on the securities so issued. In the event that
the Company shall, nevertheless, deem it necessary or desirable to register
under the 1933 Act or other applicable statutes any shares with respect to which
an option shall have been exercised, or to qualify any such shares for exemption
from the 1933 Act or other applicable statutes, then the Company shall take such
action at its own expense and may require from each participant such information
in writing for use in any registration statement, prospectus, preliminary
prospectus or offering circular as is reasonably necessary for such purpose and
may require reasonable indemnity to the Company and its officers and Directors
from such holder against all losses, claims, damage and liabilities arising from
such use of the information so furnished and caused by any untrue statement of
any material fact therein or caused by the omission to state a material fact
required to be stated therein or necessary to make the statement therein not
misleading in light of the circumstances under which they were made.
13. MODIFICATION OF OUTSTANDING OPTIONS.
The Committee may accelerate the exercisability of an
outstanding option and may authorize the modification of any outstanding option
with the consent of the participant when and subject to such conditions as are
deemed to be in the best interests of the Company and in accordance with the
purposes of the Plan.
14. LOANS PROHIBITED.
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The Company shall not, directly or indirectly, lend money to a
participant or to any person or persons entitled to exercise an option by reason
of the death of a participant for the purpose of assisting him or them in the
acquisition of shares covered by an option granted under the Plan.
15. APPROVAL OF STOCKHOLDERS.
The Plan shall be subject to approval by the affirmative vote
of stockholders holding at least a majority of the voting stock of the Company
voting in person or by proxy at a duly held stockholders' meeting within twelve
(12) months of the adoption of the Plan by the Board and shall take effect as of
the date of adoption immediately upon such approval.
16. TERMINATION AND AMENDMENT OF PLAN.
Unless sooner terminated as herein provided, the Plan shall
terminate ten (10) years from the earlier of the date upon which the Plan is
adopted by the Board or is duly approved by the stockholders of the Company. The
Board may at any time terminate the Plan or make such modification or amendment
thereof as it deems advisable; provided, however, that except as provided in
Section 10 the Board may not, without the approval of the stockholders of the
Company obtained in the manner stated in Section 15, increase the maximum number
of shares for which options may be granted under the Plan or increase the
maximum number of shares for which an option may be granted to any optionee.
Termination or any modification or amendment of the Plan shall not, without the
consent of a participant, affect his rights under an option previously granted
to him.
Adopted by the Board of Directors: December 23, 1982
-----------------------
Approved by the Stockholders: November 9, 1983
-----------------------
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MERCURY COMPUTER SYSTEMS, INC.
FOURTH AMENDMENT TO THE
MERCURY COMPUTER SYSTEMS, INC.
1982 STOCK OPTION PLAN
The Mercury Computer Systems, Inc. 1982 Stock Option Plan (the "Plan")
is hereby amended in accordance with the provisions of Section 16 of the Plan as
follows:
1. Section 7(b) of the Plan is hereby amended by inserting in the
first sentence thereof after the phrase "Section 6" and before the punctuation
mark ";" the following language:
", but only to the extent that such payment, in whole or in
part in shares of the Company's stock, would not cause the
Company to recognize an expense for financial accounting
purposes"
2. Except as hereinabove provided, the Plan is hereby ratified
and confirmed in all respects.
MERCURY COMPUTER SYSTEMS, INC.
By: /s/ Anthony J. Medaglia, Jr.
--------------------------------
Anthony J. Medaglia, Jr.,
Clerk
ADOPTED BY THE BOARD OF DIRECTORS: March 1, 1989
------------------
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MERCURY COMPUTER SYSTEMS, INC.
FIFTH AMENDMENT TO THE
MERCURY COMPUTER SYSTEMS, INC.
1982 STOCK OPTION PLAN
The Mercury Computer Systems, Inc. 1982 Stock Option Plan (the "Plan")
is hereby amended in accordance with the provisions of Section 16 of the Plan as
follows:
1. Section 3 of the Plan is hereby amended by striking the last
sentence thereof and adding at the end thereof the following three new
sentences:
"The Board may delegate its authority to the President of the
Company to grant options under the Plan to employees of the
Company other than officers and directors of the Company who
are subject to Section 16(b) of the Securities and Exchange
Act of 1934 on such terms and conditions as the Board may deem
appropriate, including a limitation on the number of shares
that may be granted by the President in the aggregate. The
grant of the options by the President may be on such terms and
conditions as deemed appropriate by the President to the
extent so authorized by the Board, provided that the terms and
conditions of the options otherwise comply with all of the
provisions of the Plan. For purposes of this Plan, the term
'Committee' shall mean any of the Board, the Stock Option
Committee or the President, as the case may be."
2. Except as hereinabove provided, the Plan is hereby ratified
and confirmed in all respects.
MERCURY COMPUTER SYSTEMS, INC.
By: /s/ Anthony J. Medaglia, Jr.
-------------------------------
Anthony J. Medaglia, Jr.
Clerk
Adopted by the Board of Directors: April 3, 1990
Stockholder Approval Not Necessary
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EXHIBIT 10.2
MERCURY COMPUTER SYSTEMS, INC.
1991 STOCK OPTION PLAN
1. PURPOSE OF THE PLAN.
This 1991 Stock Option Plan (the "Plan") is intended to encourage
ownership of the stock of Mercury Computer Systems, Inc. (the "Company") by
employees of and consultants to the Company and its subsidiaries, to induce
qualified personnel to enter and remain in the employ of the Company or its
subsidiaries and otherwise to provide additional incentive for optionees to
promote the success of its business.
2. STOCK SUBJECT TO THE PLAN.
(a) The total number of shares of the authorized but unissued or
Treasury shares of the common stock, $0.01 par value, of the Company ("Common
Stock") for which options may be granted under the Plan shall not exceed Two
Hundred Thousand (200,000) shares, subject to adjustment as provided in Section
12 hereof. Such shares may in whole or in part, as the Board of Directors of the
Company (the "Board") shall from time to time determine, be issued shares which
shall have been reacquired by the Company or authorized but unissued shares,
whether now or hereafter authorized.
(b) If an option granted or assumed hereunder shall expire or
terminate for any reason without having been exercised in full, the unpurchased
shares subject thereto shall again be available for subsequent option grants
under the Plan.
(c) Stock issuable upon exercise of an option granted under the
Plan may be subject to such restrictions on transfer, repurchase rights or other
restrictions as shall be determined by the Board.
3. ADMINISTRATION OF THE PLAN.
The Plan shall be administered by the Board. No member of the Board
shall act upon any matter exclusively affecting any option granted or to be
granted to himself or herself under the Plan. A majority of the members of the
Board shall constitute a quorum, and any action may be taken by a majority of
those present and voting at any meeting. The decision of the Board as to all
questions of interpretation and application of the Plan shall be final, binding
and conclusive on all persons. The Board may, in its sole discretion, grant
options to purchase shares of the Company's Common Stock and issue shares upon
exercise of such options as provided in the Plan. The Board shall have
authority, subject to the express provisions of the Plan, to construe the
respective option agreements and the Plan, to prescribe, amend and rescind rules
and regulations relating to the Plan, to determine the terms and provisions of
the respective option agreements, which may but need not be identical, and to
make all other determinations in the judgment of the Board necessary or
desirable for the administration of the Plan. The Board may correct any defect
or supply any omission or reconcile any inconsistency in the Plan or in any
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option agreement in the manner and to the extent it shall deem expedient to
carry the Plan into effect and shall be the sole and final judge of such
expediency. No director shall be liable for any action or determination made in
good faith. The Board may, in its discretion, delegate its power, duties and
responsibilities to a committee, consisting of two or more members of the Board,
all of whom are "disinterested persons" (as hereinafter defined). In addition,
the Board may delegate to the President of the Company its authority to grant
options on such terms and conditions as the Board may deem appropriate,
including a limitation on the aggregate number of shares subject to issuance
under all or any portion of such options. If a committee is so appointed or if
the President is so authorized, all references to the Board herein shall mean
and relate to such committee, unless the context otherwise requires. For the
purposes of the Plan, a director or member of such committee shall be deemed to
be "disinterested" only if such person qualifies as a "disinterested person"
within the meaning of Rule 16b-3 promulgated under the Securities and Exchange
Act of 1934, as amended, as such term is interpreted from time to time.
Notwithstanding the foregoing, the Committee need not be made up of
"disinterested persons" until the date of the first registration of an equity
security of the Company under Section 12 of the Securities and Exchange Act of
1934, and the Board may not delegate its authority to grant options hereunder to
the President from and after such date.
4. TYPE OF OPTIONS.
Options granted pursuant to the Plan shall be authorized by action of
the Board and may be designated as either incentive stock options meeting the
requirements of Section 422A of the Internal Revenue Code of 1986 (the "Code")
or non-qualified options which are not intended to meet the requirements of such
Section 422A of the Code, the designation to be in the sole discretion of the
Board. Options designated as incentive stock options that fail to continue to
meet the requirements of Section 422A of the Code shall be redesignated as
non-qualified options automatically without further action by the Board on the
date of such failure to continue to meet the requirements of Section 422A of the
Code.
5. ELIGIBILITY.
Options designated as incentive stock options may be granted only to
officers and key employees of the Company or of any subsidiary corporation
(herein called "subsidiary" or "subsidiaries"), as defined in Section 425 of the
Code and the Treasury Regulations promulgated thereunder (the "Regulations").
Options designated as non-qualified options may be granted to officers, key
employees of and consultants to the Company or of any of its subsidiaries.
Directors who are not otherwise employees of the Company or a
subsidiary shall not be eligible to be granted an option pursuant to the Plan.
In determining the eligibility of an individual or entity to be granted
an option, as well as in determining the number of shares to be optioned to any
individual or entity, the Board shall take into account the position and
responsibilities of the individual or entity being considered, the
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nature and value to the Company or its subsidiaries of his or her or its service
and accomplishments, his or her or its present and potential contribution to the
success of the Company or its subsidiaries, and such other factors as the Board
may deem relevant.
No option designated as an incentive stock option shall be granted to
any employee of the Company or any subsidiary if such employee owns, immediately
prior to the grant of an option, stock representing more than 10% of the voting
power or more than 10% of the value of all classes of stock of the Company or a
parent or a subsidiary, unless the purchase price for the stock under such
option shall be at least 110% of its fair market value at the time such option
is granted and the option, by its terms, shall not be exercisable more than five
years from the date it is granted. In determining the stock ownership under this
paragraph, the provisions of Section 425(d) of the Code shall be controlling. In
determining the fair market value under this paragraph, the provisions of
Section 7 hereof shall apply.
6. OPTION AGREEMENT.
Each option shall be evidenced by an option agreement (the "Agreement")
duly executed on behalf of the Company and by the optionee to whom such option
is granted, which Agreement shall comply with and be subject to the terms and
conditions of the Plan. The Agreement may contain such other terms, provisions
and conditions which are not inconsistent with the Plan as may be determined by
the Board, provided that options designated as incentive stock options shall
meet all of the conditions for incentive stock options as defined in Section
422A of the Code. No option shall be granted within the meaning of the Plan and
no purported grant of any option shall be effective until the Agreement shall
have been duly executed on behalf of the Company and the optionee. More than one
option may be granted to an individual.
7. OPTION PRICE.
The option price or prices of shares of the Company's Common Stock for
options designated as non-qualified stock options shall be the fair market value
of such Common Stock as determined by the Board. The option price or prices of
shares of the Company's Common Stock for incentive stock options shall be the
fair market value of such Common Stock at the time the option is granted as
determined by the Board in accordance with the Regulations promulgated under
Section 422A of the Code. If such shares are then listed on any national
securities exchange, the fair market value shall be the mean between the high
and low sales prices, if any, on the largest such exchange on the date of the
grant of the option or, if none, shall be determined by taking a weighted
average of the means between the highest and lowest sales on the nearest date
before and the nearest date after the date of grant in accordance with Treasury
Regulations Section 25.2512-2. If the shares are not then listed on any such
exchange, the fair market value of such shares shall be the mean between the
high and low sales prices, if any, as reported in the National Association of
Securities Dealers Automated Quotation System ("NASDAQ") National Market System
for the date of the grant of the option, or, if none, shall be determined by
taking a weighted average of the means between the highest and lowest sales on
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4
the nearest date before and the nearest date after the date of grant in
accordance with Treasury Regulations Section 25.2512-2. If the shares are not
then either listed on any such exchange or quoted in NASDAQ, the fair market
value shall be the mean between the average of the "Bid" and the average of the
"Ask" prices, if any, as reported in the National Daily Quotation Service for
the date of the grant of the option, or, if none, shall be determined by taking
a weighted average of the means between the highest and lowest sales on the
nearest date before and the nearest date after the date of grant in accordance
with Treasury Regulations Section 25.2512-2. If the fair market value cannot be
determined under the preceding three sentences, it shall be determined in good
faith by the Board.
8. MANNER OF PAYMENT; MANNER OF EXERCISE.
(a) Options granted under the Plan may provide for the payment of
the exercise price by delivery of (i) cash or a check payable to the order of
the Company in an amount equal to the exercise price of such options, (ii)
shares of Common Stock of the Company owned by the optionee having a fair market
value equal in amount to the exercise price of the options being exercised, or
(iii) any combination of (i) and (ii), provided, however, that payment of the
exercise price by delivery of shares of Common Stock of the Company owned by
such optionee may be made only to the extent such payment, in whole or in part,
would not result in a charge to earnings for financial accounting purposes as
determined by the Board. The fair market value of any shares of the Company's
Common Stock which may be delivered upon exercise of an option shall be
determined by the Board in accordance with Section 7 hereof. Payment of the
option exercise price by delivery of shares of Common Stock of the Company is
subject to the approval of the Board, which approval may be granted or denied in
the sole discretion of the Board.
(b) To the extent that the right to purchase shares under an
option has accrued and is in effect, options may be exercised in full at one
time or in part from time to time, by giving written notice, signed by the
person or persons exercising the option, to the Company, stating the number of
shares with respect to which the option is being exercised, accompanied by
payment in full for such shares as provided in subparagraph (a) above. Upon such
exercise, delivery of a certificate for paid-up non-assessable shares shall be
made at the principal office of the Company to the person or persons exercising
the option at such time, during ordinary business hours, after fifteen (15) but
not more than thirty (30) days from the date of receipt of the notice by the
Company, as shall be designated in such notice, or at such time, place and
manner as may be agreed upon by the Company and the person or persons exercising
the option.
9. EXERCISE OF OPTIONS.
Each option granted under the Plan shall, subject to Section 10(b) and
Section 12 hereof, be exercisable at such time or times and during such period
as shall be set forth in the Agreement; provided, however, that no option
granted under the Plan shall have a term in excess of ten (10) years from the
date of grant.
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To the extent that an option to purchase shares is not exercised by an
optionee when it becomes initially exercisable, it shall not expire but shall be
carried forward and shall be exercisable, on a cumulative basis, until the
expiration of the exercise period. No partial exercise may be made for less than
ten (10) full shares of Common Stock.
10. TERM OF OPTIONS; EXERCISABILITY.
(a) TERM.
(1) Each option shall expire not more than ten (10) years from
the date of the granting thereof, but shall be subject to earlier termination as
herein provided.
(2) Except as otherwise provided in this Section 10, an option
granted to any optionee who ceases to be an employee of, or consultant to, the
Company or one of its subsidiaries shall terminate on the tenth day after the
date such optionee ceased to be an employee of, or consultant to, the Company or
one of its subsidiaries, or on the date on which the option expires by its
terms, whichever occurs first or, if the Board consents, within three (3) months
after the date on which such optionee ceases to be an employee or consultant.
(3) If such termination of employment or consultancy is
because of dismissal for cause or because the optionee is in breach of any
employment or consultancy agreement, such option will terminate on the date the
optionee ceases to be an employee of or consultant to the Company or one of its
subsidiaries.
(4) If such termination of employment or consultancy is
because the optionee has become permanently disabled (within the meaning of
Section 22(e)(3) of the Code), such option shall terminate on the last day of
the twelfth month from the date such optionee ceases to be an employee or
consultant, or on the date on which the option expires by its terms, whichever
occurs first.
(5) In the event of the death of any optionee, any option
granted to such optionee shall terminate on the last day of the twelfth month
from the date of death, or on the date on which the option expires by its terms,
whichever occurs first.
(b) EXERCISABILITY.
(1) An option granted to an optionee who ceases to be an
employee of or consultant to the Company or one of its subsidiaries shall be
exercisable only to the extent that the right to purchase shares under such
option has accrued and is in effect on the date such optionee ceases to be an
employee of or consultant to the Company or one of its subsidiaries.
(2) In the event of the death of any optionee, the option
granted to such optionee may be exercised to the extent the optionee was
entitled to do so at the date of his or her
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death, by the estate of such optionee, or by any person or persons who acquired
the right to exercise such option by bequest or inheritance or by reason of the
death of such optionee.
11. OPTIONS NOT TRANSFERRABLE.
The right of any optionee to exercise any option granted to him or her
shall not be assignable or transferrable by such optionee otherwise than by will
or the laws of descent and distribution, and any such option shall be
exercisable during the lifetime of such optionee only by him. Any option granted
under the Plan shall be null and void and without effect upon the bankruptcy of
the optionee to whom the option is granted, or upon any attempted assignment or
transfer, except as herein provided, including without limitation any purported
assignment, whether voluntary or by operation of law, pledge, hypothecation or
other disposition, attachment, trustee process or similar process, whether legal
or equitable, upon such option.
12. RECAPITALIZATIONS, REORGANIZATIONS AND THE LIKE.
In the event that the outstanding shares of the Common Stock of the
Company are changed into or exchanged for a different number or kind of shares
or other securities of the Company or of another corporation by reason of any
reorganization, merger, consolidation, recapitalization, reclassification, stock
split-up, combination of shares, or dividends payable in capital stock,
appropriate adjustment shall be made in the number and kind of shares as to
which options may be granted under the Plan and as to which outstanding options
or portions thereof then unexercised shall be exercisable, to the end that the
proportionate interest of the optionee shall be maintained as before the
occurrence of such event; such adjustment in outstanding options shall be made
without change in the total price applicable to the unexercised portion of such
options and with a corresponding adjustment in the option price per share.
In addition, unless otherwise determined by the Board in its sole
discretion, in the case of any (i) sale or conveyance to another entity of all
or substantially all of the property and assets of the Company or (ii) Change in
Control (as hereinafter defined) of the Company, the purchaser(s) of the
Company's assets or stock may, in his, her or its discretion, deliver to the
optionee the same kind of consideration that is delivered to the shareholders of
the Company as a result of such sale, conveyance or Change in Control, or the
Board may cancel all outstanding options in exchange for consideration in cash
or in kind which consideration in both cases shall be equal in value to the
value of those shares of stock or other securities the optionee would have
received had the option been exercised (to the extent then exercisable) and no
disposition of the shares acquired upon such exercise been made prior to such
sale, conveyance or Change in Control, less the option price therefor. Upon
receipt of such consideration by the optionee, his or her option shall
immediately terminate and be of no further force and effect. The value of the
stock or other securities the optionee would have received if the option had
been exercised shall be determined in good faith by the Board of Directors of
the Company, and in the case of shares of the Common Stock of the Company, in
accordance with the provisions of Section 7 hereof. The Board shall also have
the power and right, in its sole discretion, to accelerate the exercisability of
any
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options, notwithstanding any limitations in this Plan or in the Agreement upon
such a sale, conveyance or Change in Control. Upon such acceleration, any
options or portion thereof originally designated as incentive stock options that
no longer qualify as incentive stock options under Section 422A of the Code as a
result of such acceleration shall be redesignated as non-qualified stock
options. A "Change in Control" shall be deemed to have occurred if any person,
or any two or more persons acting as a group, and all affiliates of such person
or persons, who prior to such time owned less than ten percent (10%) of the then
outstanding Common Stock of the Company, shall acquire such additional shares of
the Company's Common Stock in one or more transactions, or series of
transactions, such that following such transaction or transactions, such person
or group and affiliates beneficially own twenty-five percent (25%) or more of
the Company's Common Stock outstanding.
Upon dissolution or liquidation of the Company, all options granted
under this Plan shall terminate, but each optionee (if at such time in the
employ of or otherwise associated with the Company or any of its subsidiaries)
shall have the right, immediately prior to such dissolution or liquidation, to
exercise his or her option to the extent then exercisable.
If by reason of a corporate merger, consolidation, acquisition of
property or stock, separation, reorganization, or liquidation, the Board shall
authorize the issuance or assumption of a stock option or stock options in a
transaction to which Section 425(a) of the Code applies, then, notwithstanding
any other provision of the Plan, the Board may grant an option or options upon
such terms and conditions as it may deem appropriate for the purpose of
assumption of the old option, or substitution of a new option for the old
option, in conformity with the provisions of such Section 425(a) of the Code and
the Regulations thereunder, and any such option shall not reduce the number of
shares otherwise available for issuance under the Plan.
No fraction of a share shall be purchasable or deliverable upon the
exercise of any option, but in the event any adjustment hereunder of the number
of shares covered by the option shall cause such number to include a fraction of
a share, such fraction shall be adjusted to the nearest smaller whole number of
shares.
13. NO SPECIAL EMPLOYMENT RIGHTS.
Nothing contained in the Plan or in any option granted under the Plan
shall confer upon any option holder any right with respect to the continuation
of his or her employment or consultancy by the Company (or any subsidiary) or
interfere in any way with the right of the Company (or any subsidiary), subject
to the terms of any separate employment or consultancy agreement to the
contrary, at any time to terminate such employment or consultancy or to increase
or decrease the compensation or other remuneration of the option holder from the
rate in existence at the time of the grant of an option. Whether an authorized
leave of absence, or absence in military or government service, shall constitute
termination of employment or consultancy shall be determined by the Board at the
time.
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14. WITHHOLDING.
The Company's obligation to deliver shares upon the exercise of any
non-qualified option granted under the Plan shall be subject to the option
holder's satisfaction of all applicable Federal, state and local income and
employment tax withholding requirements. The Company and an employee optionee
may agree to withhold shares of Common Stock purchased upon exercise of an
option to satisfy the above-mentioned withholding requirements.
15. RESTRICTIONS ON ISSUE OF SHARES.
(a) Notwithstanding the provisions of Section 8, the Company may
delay the issuance of shares covered by the exercise of an option and the
delivery of a certificate for such shares until one of the following conditions
shall be satisfied:
(i) The shares with respect to which such option
has been exercised are at the time of the issue of such shares effectively
registered or qualified under applicable Federal and state securities acts now
in force or as hereafter amended; or
(ii) Counsel for the Company shall have given an
opinion, which opinion shall not be unreasonably conditioned or withheld, that
such shares are exempt from registration and qualification under applicable
Federal and state securities acts now in force or as hereafter amended.
(b) It is intended that all exercises of options shall be
effective, and the Company shall use its best efforts to bring about compliance
with the above conditions within a reasonable time, except that the Company
shall be under no obligation to qualify shares or to cause a registration
statement or a post-effective amendment to any registration statement to be
prepared for the purpose of covering the issue of shares in respect of which any
option may be exercised, except as otherwise agreed to by the Company in
writing.
16. PURCHASE FOR INVESTMENT; RIGHTS OF HOLDER ON SUBSEQUENT
REGISTRATION.
Unless the shares to be issued upon exercise of an option granted under
the Plan have been effectively registered under the Securities Act of 1933, as
now in force or hereafter amended, the Company shall be under no obligation to
issue any shares covered by any option unless the person who exercises such
option, in whole or in part, shall give a written representation and undertaking
to the Company which is satisfactory in form and scope to counsel for the
Company and upon which, in the opinion of such counsel, the Company may
reasonably rely, that he or she is acquiring the shares issued pursuant to such
exercise of the option for his or her own account as an investment and not with
a view to, or for sale in connection with, the distribution of any such shares,
and that he or she will make no transfer of the same except in compliance with
any rules and regulations in force at the time of such transfer under the
Securities Act of 1933, or any other applicable law, and that if shares are
issued
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without such registration, a legend to this effect may be endorsed upon the
securities so issued. In the event that the Company shall, nevertheless, deem it
necessary or desirable to register under the Securities Act of 1933 or other
applicable statutes any shares with respect to which an option shall have been
exercised, or to qualify any such shares for exemption from the Securities Act
of 1933 or other applicable statutes, then the Company may take such action and
may require from each optionee such information in writing for use in any
registration statement, supplementary registration statement, prospectus,
preliminary prospectus or offering circular as is reasonably necessary for such
purpose and may require reasonable indemnity to the Company and its officers and
directors from such holder against all losses, claims, damages and liabilities
arising from such use of the information so furnished and caused by any untrue
statement of any material fact therein or caused by the omission to state a
material fact required o be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances under which they were
made.
17. LOANS.
The Company shall not make loans to optionees, or to any person or
persons entitled to exercise an option by reason of the death of an optionee, to
permit them to exercise options.
18. MODIFICATION OF OUTSTANDING OPTIONS.
The Board may authorize the amendment of any outstanding option with
the consent of the optionee when and subject to such conditions as are deemed to
be in the best interests of the Company and in accordance with the purposes of
the Plan.
19. APPROVAL OF STOCKHOLDERS.
The Plan shall be subject to approval by the vote of stockholders
holding at least a majority of the voting stock of the Company voting in person
or by proxy at a duly held stockholders' meeting, or by written consent of all
of the stockholders, within twelve (12) months after the adoption of the Plan by
the Board and shall take effect as of the date of adoption by the Board upon
such approval. The Board may grant options under the Plan prior to such
approval, but any such option shall become effective as of the date of grant
only upon such approval and, accordingly, no such option may be exercisable
prior to such approval.
20. TERMINATION AND AMENDMENT OF PLAN.
Unless sooner terminated as herein provided, the Plan shall terminate
ten (10) years from the date upon which the Plan was duly adopted by the Board.
The Board may at any time terminate the Plan or make such modification or
amendment thereof as it deems advisable; provided, however, that any such
amendment or modification requiring stockholder approval under Section 422 of
the Code shall have been approved by the stockholders in the manner stated in
Section 19; and provided further that, from and after the date of the first
registration of an
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equity security of the Company under Section 12 of the Securities and Exchange
Act of 1934, the Board may not, without the approval of the stockholders of the
Company obtained in the manner stated in Section 19, modify or amend the Plan if
such modification or amendment of the Plan would require shareholder approval
under Rule 16b-3.
21. RESERVATION OF STOCK.
The Company shall at all times during the term of the Plan reserve and
keep available such number of shares of stock as will be sufficient to satisfy
the requirements of the Plan and shall pay all fees and expenses necessarily
incurred by the Company in connection therewith.
22. LIMITATION OF RIGHTS IN THE OPTION SHARES.
An optionee shall not be deemed for any purpose to be a stockholder of
the Company with respect to any of the options except to the extent that the
option shall have been exercised with respect thereto and, in addition, a
certificate shall have been issued theretofore and delivered to the optionee.
23. NOTICES.
Any communication or notice required or permitted to be given under the
Plan shall be in writing, and mailed by registered or certified mail or
delivered by hand, if to the Company, to its principal place of business,
attention: President, and, if to an optionee, to the address as appearing on the
records of the Company.
ADOPTED BY THE BOARD OF DIRECTORS: April 2, 1991
----------------
APPROVED BY THE STOCKHOLDERS: June 4, 1991
----------------
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MERCURY COMPUTER SYSTEMS, INC.
FIRST AMENDMENT TO 1991 STOCK OPTION PLAN
In accordance with the provisions of Section 20 of the Mercury Computer
Systems, Inc. 1991 Stock Option Plan (the "Plan"), the Plan is hereby amended as
follows:
1. Section 2(a) of the Plan is hereby amended by increasing the number of
shares of common stock of the Corporation authorized for grant under
the Plan by 200,000 and that accordingly, the phrase "Two Hundred
Thousand (200,000)" shall be deleted and there shall be inserted in
lieu thereof the phrase "Four Hundred Thousand (400,000)".
2. Section 3 of the Plan is amended by deleting the tenth sentence
thereof, which currently reads as follows:
"In addition, the Board may delegate to the President of the
Company its authority to grant options on such terms and
conditions as the Board may deem appropriate, including a
limitation on the aggregate number of shares subject to
issuance under all or any portion of such options.
and by deleting in the eleventh sentence thereof the phrases "or if the
President is so authorized" and "or the President (as applicable)", and
by adding at the end thereof the following sentence:
"With respect to the participation of any Director or officer
(as defined in Rule 16b-3) in the Plan, his or her selection
as an optionee and the number of option shares to be allocated
to such Director or officer shall be determined by, or only in
accordance with, the recommendations of the committee, as
described above."
3. The Plan is hereby amended by adding the following Section 24:
"24. COMPLIANCE WITH RULE 16B-3. From and after the
date of the first registration of an equity security of the
Company under Section 12 of the Securities and Exchange Act of
1934, it is intended that the provisions of the Plan and any
option granted thereunder to a person subject to the reporting
requirements of Section 16(a) of the Act shall comply in all
respects with the terms and conditions of Rule 16b-3, or any
successor provisions. Any agreement granting options shall
contain such provisions as are necessary or appropriate to
assure such compliance. To the extent that any provision
hereof is found not to be in compliance with such Rule, such
provision shall be deemed to be modified so as to be in
compliance with such Rule, or if such modification is not
possible,
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shall be deemed to be null and void, as it relates to a
recipient subject to Section 16(a) of the Act."
4. The Plan is hereby amended by deleting all references to Section 425 of
the Internal Revenue Code of 1986, as amended, and substituting
"Section 424" therefor.
MERCURY COMPUTER SYSTEMS, INC.
By: /s/ Anthony J. Medaglia, Jr.
-------------------------------
Anthony J. Medaglia, Jr.
Clerk
ADOPTED BY DIRECTORS: March 2, 1993
-----------------
ADOPTED BY STOCKHOLDERS: July 22, 1993
-----------------
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MERCURY COMPUTER SYSTEMS, INC.
SECOND AMENDMENT TO 1991 STOCK OPTION PLAN
In accordance with the provisions of Section 20 of the Mercury Computer
Systems, Inc. 1991 Stock Option Plan, as amended (the "Plan"), the Plan is
hereby further amended as follows:
Section 2(a) of the Plan is hereby amended by increasing the number of
shares of common stock of the Corporation authorized for grant under
the Plan by 300,000 and that accordingly, the phrase "Four Hundred
Thousand (400,000)" shall be deleted and there shall be inserted in
lieu thereof the phrase "Seven Hundred Thousand (700,000)".
MERCURY COMPUTER SYSTEMS, INC.
By: /s/ Anthony J. Medaglia, Jr.
-------------------------------
Anthony J. Medaglia, Jr.,
Clerk
ADOPTED BY DIRECTORS: July 22, 1993
---------------
APPROVED BY STOCKHOLDERS: July 22, 1993
---------------
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EXHIBIT 10.3
MERCURY COMPUTER SYSTEMS, INC.
1993 STOCK OPTION PLAN
FOR NON-EMPLOYEE DIRECTORS
1. PURPOSE
The purpose of this Mercury Computer Systems, Inc. 1993 Stock Option
Plan for Non-Employee Directors (the "Plan") is to attract and retain the
services of experienced and knowledgeable independent directors who are not
employees (sometimes referred to herein collectively as "Participants") of
Mercury Computer Systems, Inc. ("Mercury") for the benefit of Mercury and its
stockholders and to provide additional incentive for such Participants to
continue to work in the best interests of Mercury and its stockholders through
continuing ownership of its common stock.
2. SHARES SUBJECT TO THE PLAN
The total number of shares of common stock, par value $.01 per share
("Shares"), of Mercury for which options may be granted under the Plan shall not
exceed 50,000 in the aggregate, subject to adjustment in accordance with Section
9 hereof.
3. ELIGIBILITY; GRANT OF OPTION
On September 30 of each of 1994, 1995, 1996, 1997 and 1998, each person
who is then a member of the Board of Directors of Mercury (the "Board") and who
is then not an employee of Mercury or any subsidiary shall be granted an option
to acquire the Formula Number of Shares under the Plan. Any options granted
prior to stockholder approval of this Plan shall become effective as of their
date of grant only upon stockholder approval of this Plan in accordance with
2
Section 13 hereof. The options shall be non-qualified options not intended to
meet the requirements of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code").
The Formula Number shall be that number equal to one percent (1%) of
the net income of Mercury for the most recent fiscal year ending prior to the
grant date as shown on Mercury's audited financial statements divided by the
fair market value of a share of Mercury common stock, as determined under
Section 5 hereof, on the first day of such most recent fiscal year, divided by
the number of the non-employee Directors of Mercury granted options hereunder on
such grant date. No fractional shares shall be issued.
4. OPTION AGREEMENT
Each option granted under the Plan shall be evidenced by an option
agreement (the "Agreement") duly executed on behalf of Mercury and by the
director to whom such option is granted, which Agreements shall comply with and
be subject to the terms and conditions of the Plan.
5. OPTION EXERCISE PRICE
Subject to the provisions of Section 9 hereof, the option exercise
price for an option granted under the Plan shall be the fair market value of the
Shares of the common stock of Mercury covered by the option on the date of grant
of the option. For the purposes hereof, the fair market value of the Shares of
the common stock of Mercury shall be determined as follows. If such shares are
then listed on any national securities exchange, the fair market value shall be
the mean between the high and low sales prices, if any, on the largest such
exchange on the date of the grant of the option or, if none, shall be determined
by taking a weighted average of the means between the highest and lowest sales
prices on the nearest date before and the nearest date
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3
after the date of grant in accordance with Treasury Regulations Section
25.2512-2. If the shares are not then listed on any such exchange, the fair
market value of such shares shall be the mean between the high and low sales
prices, if any, as reported in the National Association of Securities Dealers
Automated Quotation System National Market System ("NASDAQ/NMS") for the date of
the grant of the option, or, if none, shall be determined by taking a weighted
average of the means between the highest and lowest sales on the nearest date
before and the nearest date after the date of grant in accordance with Treasury
Regulations Section 25.2512-2. If the shares are not then either listed on any
such exchange or quoted in NASDAQ/NMS, the fair market value shall be the mean
between the average of the "Bid" and the average of the "Ask" prices, if any, as
reported in the National Daily Quotation Service for the date of the grant of
the option, or, if none, shall be determined by taking a weighted average of the
means between the highest and lowest sales prices on the nearest date before and
the nearest date after the date of grant in accordance with Treasury Regulations
Section 25.2512-2. If the fair market value cannot be determined under the
preceding three sentences, it shall be determined by the Company's independent
auditors.
6. TIME AND MANNER OF EXERCISE OF OPTION
(a) Options granted under the Plan shall, subject to the
provisions of Section 7, be exercisable as provided in this Section 6(a). The
options shall not be exercisable prior to six months from the date of the date
of grant. Thereafter, the options shall be exercisable in full.
(b) To the extent that the right to exercise an option has accrued
and is in effect, the option may be exercised in full at one time or in part
from time to time by giving written notice, signed by the person or persons
exercising the option, to Mercury, stating the number of Shares
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4
with respect to which the option is being exercised, accompanied by payment in
full for such Shares, which payment must be in cash or certified check payable
to the order of the Company; provided, however, that there shall be no such
exercise at any one time as to fewer than Two Hundred Fifty (250) Shares or all
of the remaining Shares then purchasable by the person or persons exercising the
option, if fewer than Two Hundred Fifty (250) Shares. Upon such exercise,
delivery of a certificate for paid-up non-assessable Shares shall be made at the
principal Massachusetts office of Mercury to the person or persons exercising
the option at such time, during ordinary business hours, not more than thirty
(30) days from the date of receipt of the notice by Mercury, as shall be
designated in such notice, or at such time, place and manner as may be agreed
upon by Mercury and the person or persons exercising the option.
7. TERM OF OPTIONS
(a) Each option shall expire ten (10) years from the date of the
granting thereof, but shall be subject to earlier termination as herein
provided.
(b) In the event of the death of an optionee, the option granted
to such optionee may be exercised, to the extent the optionee was entitled to do
so on the date of such optionee's death, by the estate of such optionee or by
any person or persons who acquired the right to exercise such option by bequest
or inheritance or otherwise by reason of the death of such optionee. Such option
may be exercised at any time within one (1) year after the date of death of such
optionee, at which time the option shall terminate, or prior to the date on
which the option otherwise expires by its terms, whichever is earlier.
(c) In the event that an optionee ceases to be a director of
Mercury, the option granted to such optionee may be exercised by him, but only
to the extent that under Section 6 hereof the
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right to exercise the option has accrued and is in effect. Such option may be
exercised at any time within one (1) month after the date such optionee ceases
to be a director of Mercury, at which time the option shall terminate, but in
any event prior to the date on which the option expires by its terms, whichever
is earlier, unless termination as a director (a) was by Mercury for cause, in
which case the option shall terminate immediately at the time the optionee
ceases to be a director of Mercury, (b) was because the optionee has become
disabled (within the meaning of Section 22(e)(3) of the Code), or (c) was by
reason of the death of the optionee. In the case of death, see Section 7(b) of
the Plan. In the case of disability, the option may be exercised, to the extent
then exercisable under Section 6 hereof, at any time within one (1) year after
the date of termination of the optionee's directorship with Mercury, at which
time the option shall terminate, but in any event prior to the date on which the
option otherwise expires by its terms, whichever is earlier.
8. OPTIONS NOT TRANSFERABLE
The right of any optionee to exercise an option granted to him under
the Plan shall not be assignable or transferable by such optionee otherwise than
by will or the laws of descent and distribution, or pursuant to a qualified
domestic relations order as defined by the Code or Title I of the Employee
Retirement Income Security Act, or the rules thereunder. Any option granted
under the Plan shall be exercisable during the lifetime of such optionee only by
him. Any option granted under the Plan shall be null and void and without effect
upon the bankruptcy of the optionee, or upon any attempted assignment or
transfer, except as herein provided, including without limitation any purported
assignment, whether voluntary or by operation of law, pledge,
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hypothecation or other disposition, attachment, trustee process or similar
process, whether legal or equitable, upon such option.
9. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
In the event that the outstanding Shares of the common stock of Mercury
are changed into or exchanged for a different number or kind of shares or other
securities of Mercury or of another corporation by reason of any reorganization,
merger, consolidation, recapitalization, reclassification, stock split-up,
combination of shares or dividends payable in capital stock, appropriate
adjustment shall be made in the number and kind of shares as to which
outstanding options, or portions thereof then unexercised, shall be exercisable,
to the end that the proportionate interest of the optionee shall be maintained
as before the occurrence of such event, and such adjustment in outstanding
options shall be made without change in the total price applicable to the
unexercised portion of such options and with a corresponding adjustment in the
option price per share.
10. RESTRICTIONS ON ISSUE OF SHARES
Notwithstanding the provisions of Section 6 hereof, Mercury may delay
the issuance of Shares covered by the exercise of any option and the delivery of
a certificate for such Shares until one of the following conditions shall be
satisfied:
(i) the Shares with respect to which an option has been
exercised are at the time of the issue of such Shares effectively registered
under applicable Federal and state securities acts now in force or hereafter
amended; or
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(ii) counsel for Mercury shall have given an opinion,
which opinion shall not be unreasonably conditioned or withheld, that such
Shares are exempt from registration under applicable Federal and state
securities acts now in force or hereafter amended.
It is intended that all exercises of options shall be effective.
Accordingly, Mercury shall use its best efforts to bring about compliance with
the above conditions within a reasonable time, except that Mercury shall be
under no obligation to cause a registration statement or a post-effective
amendment to any registration statement to be prepared at its expense solely for
the purpose of covering the issue of Shares in respect of which any option may
be exercised, except as otherwise agreed to by Mercury in writing.
11. RIGHTS OF HOLDER ON PURCHASE FOR INVESTMENT; SUBSEQUENT
REGISTRATION
Unless the Shares to be issued upon exercise of an option granted under
the Plan have been effectively registered under the Securities Act of 1933, as
now in force or hereafter amended, Mercury shall be under no obligation to issue
any Shares covered by any option unless the person who exercises such option, in
whole or in part, shall give a written representation and undertaking to Mercury
which is satisfactory in form and scope to counsel to Mercury and upon which, in
the opinion of such counsel, Mercury may reasonably rely, that he is acquiring
the Shares issued to him pursuant to such exercise of the option for his own
account as an investment and not with a view to, or for sale in connection with,
the distribution of any such Shares, and that he will make no transfer of the
same except in compliance with any rules and regulations in force at the time of
such transfer under the Securities Act of 1933, or any other applicable law, and
that if Shares are issued without such registration a legend to this effect may
be endorsed
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upon the securities so issued. In the event that Mercury shall, nevertheless,
deem it necessary or desirable to register under the Securities Act of 1933 or
other applicable statutes any Shares with respect to which an option shall have
been exercised, or to qualify any such Shares for exemption from the Securities
Act of 1933 or other applicable statutes, then Mercury shall take such action at
its own expense and may require from each optionee such information in writing
for use in any registration statement, prospectus, preliminary prospectus or
offering circular as is reasonably necessary for such purpose and may require
reasonable indemnity to Mercury and its officers and directors from such holder
against all losses, claims, damages and liabilities arising from such use of the
information so furnished and caused by any untrue statement of any material fact
therein or caused by the omission to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in light of
the circumstances under which they were made.
12. LOANS PROHIBITED
Mercury shall not, directly or indirectly, lend money to an optionee or
to any person or persons entitled to exercise an option by reason of the death
of an optionee for the purpose of assisting him or them in the acquisition of
Shares covered by an option granted under the Plan.
13. APPROVAL OF STOCKHOLDERS
The Plan shall be subject to approval by the vote of stockholders
holding at least a majority of the voting stock of Mercury voting in person or
by proxy at a duly held stockholders' meeting, or by written consent of all of
the stockholders, and shall take effect immediately as of its date of adoption
upon such approval.
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14. EXPENSES OF THE PLAN
All costs and expenses of the adoption and administration of
the Plan shall be borne by Mercury, and none of such expenses shall be charged
to any optionee.
15. TERMINATION AND AMENDMENT OF PLAN
Unless sooner terminated as herein provided, the Plan shall terminate
ten (10) years from the date upon which the Plan was duly approved by the
stockholders. The Board may at any time terminate the Plan or make such
modification or amendment thereof as it deems advisable, provided however that,
except as provided in Section 9 hereof, no modification or amendment to the
provisions of the Plan may be made more than once every six (6) months other
than to comport with changes in the Code, the Employee Retirement Income
Security Act, or the rules thereunder, if the effect of such amendment or
modification would be to change (i) the requirements for eligibility under the
Plan, (ii) the timing of the grants of options to be granted under the Plan or
the exercise price or vesting schedule thereof, or (iii) the number of Shares
subject to options to be granted under the Plan either in the aggregate or to
one director. Any amendment to the provisions of the Plan which (i) materially
increases the number of Shares which may be subject to options granted under the
Plan, (ii) materially increases the benefits accruing to Participants under the
Plan, or (iii) materially modifies the requirement for eligibility to
participate in the Plan, shall be subject to approval by the stockholders of
Mercury obtained in the manner stated in Section 13 hereof. Termination or any
modification or amendment of the Plan shall not, without the consent of an
optionee, affect his rights under an option previously granted to him.
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10
16. LIMITATION OF RIGHTS IN THE OPTION SHARES
An optionee shall not be deemed for any purpose to be a stockholder of
Mercury with respect to any of the options except to the extent that the option
shall have been exercised with respect thereto and, in addition, a certificate
shall have been issued theretofore and delivered to the optionee.
17. NOTICES
Any communication or notice required or permitted to be given under the
Plan shall be in writing, and mailed by registered or certified mail or
delivered by hand, if to Mercury, to its principal place of business, attention:
President, and, if to an optionee, to the address as appearing on the records of
Mercury.
18. COMPLIANCE WITH RULE 16b-3
It is the intention of Mercury that the Plan comply in all respects
with Rule 16b-3 promulgated under Section 16(b) of the Securities Exchange Act
of 1934 (the "Act") and that Participants remain disinterested persons for
purposes of administering other employee benefit plans of Mercury and having
transactions under such other plans be exempt from Section 16(b) of the Act.
Therefore, if any Plan provision is found not to be in compliance with Rule
16b-3 or if any Plan provisions would disqualify Participants from remaining
disinterested persons, that provisions shall be deemed null and void, and in all
events the Plan shall be construed in favor of its meeting the requirements of
Rule 16b-3.
APPROVED BY BOARD OF DIRECTORS: June 22, 1993
------------------
APPROVED BY THE STOCKHOLDERS: July 22, 1993
------------------
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EXHIBIT 10.4
MERCURY COMPUTER SYSTEMS, INC.
1997 STOCK OPTION PLAN
1. PURPOSE OF THE PLAN.
This stock option plan (the "Plan") is intended to encourage ownership
of the stock of Mercury Computer Systems, Inc. (the "Company") by employees and
advisors of the Company and its subsidiaries, to induce qualified personnel to
enter and remain in the employ of the Company or its subsidiaries and otherwise
to provide additional incentive for optionees to promote the success of its
business.
2. STOCK SUBJECT TO THE PLAN.
(a) The total number of shares of the authorized but unissued or
Treasury shares of the common stock, $.01 par value per share, of the Company
(the "Common Stock") for which options may be granted under the Plan shall not
exceed Five Hundred Seventy-Five Thousand (575,000) shares, subject to
adjustment as provided in Section 12 hereof.
(b) If an option granted hereunder shall expire or terminate for
any reason without having vested fully or having been exercised in full, the
unvested and/or unpurchased shares subject thereto shall again be available for
subsequent option grants under the Plan.
(c) Stock issuable upon exercise of an option granted under the
Plan may be subject to such restrictions on transfer, repurchase rights or other
restrictions as shall be determined by the Committee.
3. ADMINISTRATION OF THE PLAN.
The Plan shall be administered by a committee (the "Committee")
consisting of two or more members of the Company's Board of Directors. The
selection of persons for participation in the Plan and all decisions concerning
the timing, pricing and amount of any grant or award
2
under the Plan shall be made solely by the Committee. The Board of Directors may
from time to time appoint a member or members of the Committee in substitution
for or in addition to the member or members then in office and may fill
vacancies on the Committee however caused. The Committee shall choose one of its
members as Chairman and shall hold meetings at such times and places as it shall
deem advisable. A majority of the members of the Committee shall constitute a
quorum and any action may be taken by a majority of those present and voting at
any meeting. Any action may also be taken without the necessity of a meeting by
a written instrument signed by a majority of the Committee. The decision of the
Committee as to all questions of interpretation and application of the Plan
shall be final, binding and conclusive on all persons. The Committee shall have
the authority to adopt, amend and rescind such rules and regulations as, in its
opinion, may be advisable in the administration of the Plan. The Committee may
correct any defect or supply any omission or reconcile any inconsistency in the
Plan or in any option agreement granted hereunder in the manner and to the
extent it shall deem expedient to carry the Plan into effect and shall be the
sole and final judge of such expediency. No Committee member shall be liable for
any action or determination made in good faith.
4. TYPE OF OPTIONS.
Options granted pursuant to the Plan shall be authorized by action of
the Committee and may be designated as either incentive stock options meeting
the requirements of Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code"), or non-qualified options which are not intended to meet the
requirements of such Section 422 of the Code, the designation to
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3
be in the sole discretion of the Committee. The Plan shall be administered by
the Committee in such manner as to permit options to qualify as incentive stock
options under the Code.
5. ELIGIBILITY.
Options designated as incentive stock options shall be granted only to
employees (including officers and directors who are also employees) of the
Company and any of its subsidiaries. Options designated as non-qualified options
may be granted to officers, directors, employees, consultants, and advisors of
the Company or of any of its subsidiaries. "Subsidiary" or "subsidiaries" shall
be as defined in Section 424 of the Code and the Treasury Regulations
promulgated thereunder (the "Regulations") and shall include present and future
subsidiaries.
The Committee shall, from time to time, at its sole discretion, select
from such eligible individuals those to whom options shall be granted and shall
determine the number of shares to be subject to each option. In determining the
eligibility of an individual to be granted an option, as well as in determining
the number of shares to be granted to any individual, the Committee in its sole
discretion shall take into account the position and responsibilities of the
individual being considered, the nature and value to the Company or its
subsidiaries of his or her service and accomplishments, his or her present and
potential contribution to the success of the Company or its subsidiaries, and
such other factors as the Committee may deem relevant.
No option designated as an incentive stock option shall be granted to
any employee of the Company or any subsidiary if such employee owns, immediately
prior to the grant of an option, stock representing more than 10% of the
combined voting power of all classes of stock of the Company or a parent or a
subsidiary, unless the purchase price for the stock under such
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option shall be at least 110% of its fair market value at the time such option
is granted and the option, by its terms, shall not be exercisable more than five
years from the date it is granted. In determining the stock ownership under this
paragraph, the provisions of Section 424(d) of the Code shall be controlling. In
determining the fair market value under this paragraph, the provisions of
Section 7 hereof shall apply.
The maximum number of shares of the Company's Common Stock with respect
to which an option or options may be granted to any employee in any one taxable
year of the Company shall not exceed 100,000 shares, taking into account shares
granted during such taxable year under options that are terminated or repriced.
6. OPTION AGREEMENT.
Each option shall be evidenced by an option agreement (the "Agreement")
duly executed on behalf of the Company and by the optionee to whom such option
is granted, which Agreement shall comply with and be subject to the terms and
conditions of the Plan. The Agreement may contain such other terms, provisions
and conditions which are not inconsistent with the Plan as may be determined by
the Committee, provided that options designated as incentive stock options shall
meet all of the conditions for incentive stock options as defined in Section 422
of the Code. The date of grant of an option shall be as determined by the
Committee. More than one option may be granted to an individual.
7. OPTION PRICE.
The option price or prices of shares of the Company's Common Stock for
options designated as non-qualified stock options shall be determined by the
Committee, but in no event shall the option price of a non-qualified stock
option be less than 50% of the fair market
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value of such Common Stock at the time the option is granted, as determined by
the Committee. The option price or prices of shares of the Company's Common
Stock for incentive stock options shall be not less than the fair market value
of such Common Stock at the time the option is granted as determined by the
Committee in accordance with the Regulations promulgated under Section 422 of
the Code. If such shares are then listed on any national securities exchange,
the fair market value shall be the mean between the high and low sales prices,
if any, on the largest such exchange on the date of grant of the option, or if
the date of grant is not a business day the business day immediately preceding
the date of the grant of the option, or, if none, shall be determined by taking
a weighted average of the means between the highest and lowest sales prices on
the nearest date before and the nearest date after the date of grant in
accordance with Treasury Regulations Section 25.2512-2. If the shares are not
then listed on any such exchange, the fair market value of such shares shall be
the mean between the high and low sales prices, if any, as reported in the
National Association of Securities Dealers Automated Quotation National Market
("NASDAQ/NM") for the date of grant, or if the date of grant is not a business
day the business day immediately preceding the date of the grant of the option,
or, if none, shall be determined by taking a weighted average of the means
between the highest and lowest sales on the nearest date before and the nearest
date after the date of grant in accordance with Treasury Regulations Section
25.2512-2. If the shares are not then either listed on any such exchange or
quoted in NASDAQ/NM, the fair market value shall be the mean between the average
of the "Bid" and the average of the "Ask" prices, if any, as reported in the
National Daily Quotation Service for the date of grant, or if the date of grant
is not a business day the business day immediately preceding the date of the
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grant of the option, or, if none, shall be determined by taking a weighted
average of the means between the highest and lowest sales prices on the nearest
date before and the nearest date after the date of grant in accordance with
Treasury Regulations Section 25.2512-2. If the fair market value cannot be
determined under the preceding three sentences, it shall be determined in good
faith by the Committee.
8. MANNER OF PAYMENT; MANNER OF EXERCISE.
(a) Options granted under the Plan may provide for the payment of
the exercise price, as determined by the Committee and set forth in the Option
Agreement, by delivery of (i) cash or a check payable to the order of the
Company in an amount equal to the exercise price of such options, (ii) shares of
Common Stock of the Company owned by the optionee having a fair market value
equal in amount to the exercise price of the options being exercised, (iii) any
combination of (i) and (ii), provided, however, that payment of the exercise
price by delivery of shares of Common Stock of the Company owned by such
optionee may be made only if such payment does not result in a charge to
earnings for financial accounting purposes as determined by the Committee, or
(iv) payment may also be made by delivery of a properly executed exercise notice
to the Company, together with a copy of irrevocable instruments to a broker to
deliver promptly to the Company the amount of sale or loan proceeds to pay the
exercise price. The fair market value of any shares of the Company's Common
Stock which may be delivered upon exercise of an option shall be determined by
the Committee in accordance with Section 7 hereof. To facilitate clause (iv)
above, the Company may enter into agreements for coordinated procedures with one
or more brokerage firms. The date of exercise shall be the date of delivery of
such exercise notice.
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(b) To the extent that the right to purchase shares under an
option has accrued and is in effect, options may be exercised in full at one
time or in part from time to time, by giving written notice, signed by the
person or persons exercising the option, to the Company, stating the number of
shares with respect to which the option is being exercised, accompanied by
payment in full for such shares as provided in subparagraph (a) above. Upon such
exercise, delivery of a certificate for paid-up non-assessable shares shall be
made at the principal office of the Company to the person or persons exercising
the option at such time, during ordinary business hours, after 9:00 a.m. but not
more than thirty (30) days from the date of receipt of the notice by the
Company, as shall be designated in such notice, or at such time, place and
manner as may be agreed upon by the Company and the person or persons exercising
the option. Upon exercise of the option and payment as provided above, the
optionee shall become a stockholder of the Company as to the Shares acquired
upon such exercise.
9. EXERCISE OF OPTIONS.
Each option granted under the Plan shall, subject to Section 10(b) and
Section 12 hereof, be exercisable with reference to the Vesting Reference Date
(the date selected by the Committee) as follows: prior to the First Anniversary
Date of the Vesting Reference Date --twenty percent (20%); on the Second
Anniversary Date of the Vesting Reference Date -- forty percent (40%); on the
Third Anniversary Date of the Vesting Reference Date -- sixty percent (60%); on
the Fourth Anniversary Date of the Vesting Reference Date -- eighty percent
(80%); and on the Fifth Anniversary date of the Vesting Reference Date -- one
hundred percent (100%) provided, however, that no option granted under the Plan
shall have a term in excess of ten (10) years from the date of grant.
Notwithstanding any other provisions of this section,
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in the event of a Change of Control (as hereinafter defined) of the Company,
fifty percent (50%) of the unvested shares of each Participant with a minimum of
six months' service will automatically be fully Vested; in the event of a Change
of Control of the Company not approved by the Board of Directors prior to such
Change of Control, all of the shares shall be fully Vested immediately upon such
Change of Control. for purposes of the plan, a "Change of Control" shall be
deemed to have occurred if any of the following conditions have occurred: (1)
the merger or consolidation of the Company with another entity where the Company
is not the surviving entity and where after the merger or consolidation (i) its
stockholders prior to the merger or consolidation hold less than 50% of the
voting stock of the surviving entity and (ii) its Directors prior to the merger
or consolidation are less than a majority of the Board of the surviving entity;
(2) the sale of all or substantially all of the Company's assets to a third
party and subsequent to the transaction (i) its stockholders hold less than 50%
of the stock of said third party and (ii) its Directors are less than a majority
of the Board of said third party; or (3) a transaction or series of related
transactions, including a merger of the Company with another entity where the
Company is the surviving entity, whereby 50% or more of the voting stock of the
company is transferred to parties who are not prior thereto stockholders or
affiliates of the Company.
To the extent that an option to purchase shares is not exercised by an
optionee when it becomes initially exercisable, it shall not expire but shall be
carried forward and shall be exercisable, on a cumulative basis, until the
expiration of the exercise period. No partial exercise may be made for less than
fifty (50) full shares of Common Stock.
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Notwithstanding the foregoing, the Committee may in its discretion (i)
specifically provide for another time or times of exercise (but not delay a
vesting period) or (ii) accelerate the exerciseability of any option subject to
such terms and conditions as the Committee deems necessary and appropriate.
10. TERM OF OPTIONS; EXERCISABILITY.
(a) TERM.
(1) Each option shall expire not more than ten (10) years from
the date of the granting thereof, but shall be subject to earlier termination as
herein provided.
(2) Except as otherwise provided in this Section 10, (i) an
option granted to any employee optionee who ceases to be an employee of the
Company or one of its subsidiaries or (ii) an option granted to any employee
optionee of the Company or one of its subsidiaries whose work schedule is
materially reduced from the schedule in effect at the time of the grant,
including a reduction from full time employment to part time employment and a
reduction from full or part-time employment due to a leave of absence, other
than military leave, sick leave, or other bona fide leave of absence, for up to
90 days or so long as the employee optionee's right to re-employment is
guaranteed either by statute or by contract if longer than 90 days, shall
terminate ten (10) days after (a) the date such optionee ceases to be an
employee of the Company or one of its subsidiaries or (b) the date such optionee
has his work schedule reduced, or on the date on which the option expires by its
terms, whichever occurs first, subject always to the discretion of the
Committee.
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(3) If such termination of employment is because of dismissal
for cause or because the employee is in breach of any employment agreement, such
option will terminate on the date the optionee ceases to be an employee of the
Company or one of its subsidiaries.
(4) If such termination of employment is because the optionee
has become permanently disabled (within the meaning of Section 22(e)(3) of the
Code), such option shall terminate on the last day of the twelfth month from the
date such optionee ceases to be an employee, or on the date on which the option
expires by its terms, whichever occurs first.
(5) In the event of the death of any optionee, any option
granted to such optionee shall terminate on the last day of the twelfth month
from the date of death, or on the date on which the option expires by its terms,
whichever occurs first.
(6) Notwithstanding subparagraphs (2), (3), (4) and (5) above,
the Committee shall have the authority to extend the expiration date of any
outstanding option in circumstances in which it deems such action to be
appropriate.
(b) EXERCISABILITY. An option granted to an employee optionee who
ceases to be an employee of the Company or one of its subsidiaries, whether by
having become permanently disabled, as defined in Section 22(e)(3) of the Code,
by death, or otherwise, shall be exercisable only to the extent that the right
to purchase shares under such option has accrued and is in effect on the date
such optionee ceases to be an employee of the Company or one of its
subsidiaries.
11. OPTIONS NOT TRANSFERABLE.
The right of any optionee to exercise any option granted to him or her
shall not be assignable or transferable by such optionee otherwise than by will
or the laws of descent and
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distribution, and any such option shall be exercisable during the lifetime of
such optionee only by him; provided, however, that in the case of a
non-qualified stock option, the Committee may permit transferability of such
options on such terms and conditions as determined by the Committee and set
forth in the Option Agreement. Any option granted under the Plan shall be null
and void and without effect upon the bankruptcy of the optionee to whom the
option is granted, or upon any attempted assignment or transfer, except as
herein provided, including without limitation any purported assignment, whether
voluntary or by operation of law, pledge, hypothecation or other disposition,
attachment, divorce, trustee process or similar process, whether legal or
equitable, upon such option.
12. RECAPITALIZATIONS, REORGANIZATIONS AND THE LIKE.
(a) In the event that the outstanding shares of the Common Stock
of the Company are changed into or exchanged for a different number or kind of
shares or other securities of the Company or of another corporation by reason of
any reorganization, merger, consolidation, recapitalization, reclassification,
stock split-up, combination of shares, or dividends payable in capital stock,
appropriate adjustment shall be made in the number and kind of shares as to
which options may be granted under the Plan and as to which outstanding options
or portions thereof then unexercised shall be exercisable, to the end that the
proportionate interest of the optionee shall be maintained as before the
occurrence of such event; such adjustment in outstanding options shall be made
without change in the total price applicable to the unexercised portion of such
options and with a corresponding adjustment in the option price per share.
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(b) In addition, unless otherwise determined by the Committee in
its sole discretion, in the case of any Change of Control of the Company, the
purchaser(s) of the Company's assets or stock may, in his, her or its
discretion, deliver to the optionee the same kind of consideration that is
delivered to the stockholders of the Company as a result of such sale,
conveyance or Change of Control, or the Committee may cancel all outstanding
options in exchange for consideration in cash or in kind, which consideration in
both cases shall be equal in value to the value of those shares of stock or
other securities the optionee would have received had the option been exercised
(to the extent then exercisable) and no disposition of the shares acquired upon
such exercise been made prior to such Change of Control, less the option price
therefor. Upon receipt of consideration by the optionee, his or her option shall
immediately terminate and be of no further force and effect. The value of the
stock or other securities the optionee would have received if the option had
been exercised shall be determined in good faith by the Committee, and in the
case of shares of the Common Stock of the Company, in accordance with the
provisions of Section 7 hereof. The Committee shall also have the power and
right to accelerate the exercisability of any options, notwithstanding any
limitations in this Plan or in the Agreement upon such Change of Control. Upon
such acceleration, any options or portion thereof originally designated as
incentive stock options that no longer qualify as incentive stock options under
Section 422 of the Code as a result of such acceleration shall be redesignated
as non-qualified stock options.
(c) Upon dissolution or liquidation of the Company, all options
granted under this Plan shall terminate, but each optionee (if at such time in
the employ of or otherwise associated
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with the Company or any of its subsidiaries) shall have the right, immediately
prior to such dissolution or liquidation, to exercise his or her option to the
extent then exercisable.
(d) No fraction of a share shall be purchasable or deliverable
upon the exercise of any option, but in the event any adjustment hereunder of
the number of shares covered by the option shall cause such number to include a
fraction of a share, such fraction shall be adjusted to the nearest smaller
whole number of shares.
13. NO SPECIAL EMPLOYMENT RIGHTS.
Nothing contained in the Plan or in any option granted under the Plan
shall confer upon any option holder any right with respect to the continuation
of his or her employment by the Company (or any subsidiary thereof) or interfere
in any way with the right of the Company (or any subsidiary thereof), subject to
the terms of any separate employment agreement to the contrary, at any time to
terminate such employment or to increase or decrease the compensation of the
option holder from the rate in existence at the time of the grant of an option.
Whether an authorized leave of absence, or absence in military or government
service, shall constitute termination of employment shall be determined by the
Committee at the time.
14. WITHHOLDING.
The Company's obligation to deliver shares upon the exercise of any
option granted under the Plan and any payments or transfers under Section 12
hereof shall be subject to the option holder's satisfaction of all applicable
Federal, state and local income, excise, employment and any other tax
withholding requirements.
15. RESTRICTIONS ON ISSUE OF SHARES.
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(a) Notwithstanding the provisions of Section 8, the Company may
delay the issuance of shares covered by the exercise of an option and the
delivery of a certificate for such shares until one of the following conditions
shall be satisfied:
(1) The shares with respect to which such option has
been exercised are at the time of the issue of such shares effectively
registered or qualified under applicable Federal and state securities acts now
in force or as hereafter amended; or
(2) Counsel for the Company shall have given an
opinion, which opinion shall not be unreasonably conditioned or withheld, that
such shares are exempt from registration and qualification under applicable
Federal and state securities acts now in force or as hereafter amended.
(b) It is intended that all exercises of options shall be
effective, and the Company shall use its best efforts to bring about compliance
with the above conditions within a reasonable time, except that the Company
shall be under no obligation to qualify shares or to cause a registration
statement or a post-effective amendment to any registration statement to be
prepared for the purpose of covering the issue of shares in respect of which any
option may be exercised, except as otherwise agreed to by the Company in
writing.
16. PURCHASE FOR INVESTMENT; RIGHTS OF HOLDER ON SUBSEQUENT
REGISTRATION.
Unless the shares to be issued upon exercise of an option granted under
the Plan have been effectively registered under the Securities Act of 1933, as
now in force or hereafter amended, the Company shall be under no obligation to
issue any shares covered by any option unless the person who exercises such
option, in whole or in part, shall give a written representation and undertaking
to the Company which is satisfactory in form and scope to
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counsel for the Company and upon which, in the opinion of such counsel, the
Company may reasonably rely, that he or she is acquiring the shares issued
pursuant to such exercise of the option for his or her own account as an
investment and not with a view to, or for sale in connection with, the
distribution of any such shares, and that he or she will make no transfer of the
same except in compliance with any rules and regulations in force at the time of
such transfer under the Securities Act of 1933, or any other applicable law, and
that if shares are issued without such registration, a legend to this effect may
be endorsed upon the securities so issued. In the event that the Company shall,
nevertheless, deem it necessary or desirable to register under the Securities
Act of 1933 or other applicable statutes any shares with respect to which an
option shall have been exercised, or to qualify any such shares for exemption
from the Securities Act of 1933 or other applicable statutes, then the Company
may take such action and may require from each optionee such information in
writing for use in any registration statement, supplementary registration
statement, prospectus, preliminary prospectus or offering circular as is
reasonably necessary for such purpose and may require reasonable indemnity to
the Company and its officers and directors and controlling persons from such
holder against all losses, claims, damages and liabilities arising from such use
of the information so furnished and caused by any untrue statement of any
material fact therein or caused by the omission to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances under which they were made.
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18. MODIFICATION OF OUTSTANDING OPTIONS.
The Committee may authorize the amendment of any outstanding option
with the consent of the optionee when and subject to such conditions as are
deemed to be in the best interests of the Company and in accordance with the
purposes of this Plan.
19. APPROVAL OF STOCKHOLDERS.
The Plan shall be subject to approval by the vote of stockholders
holding at least a majority of the voting stock of the Company present, or
represented, and entitled to vote at a duly held stockholders' meeting, or by
written consent of the stockholders as provided for under applicable state law,
within twelve (12) months after the adoption of the Plan by the Board of
Directors and shall take effect as of the date of adoption by the Board of
Directors upon such approval. The Committee may grant options under the Plan
prior to such approval, but any such option shall become effective as of the
date of grant only upon such approval and, accordingly, no such option may be
exercisable prior to such approval.
20. TERMINATION AND AMENDMENT.
Unless sooner terminated as herein provided, the Plan shall terminate
ten (10) years from the date upon which the Plan was duly adopted by the Board
of Directors of the Company. The Board of Directors may at any time terminate
the Plan or make such modification or amendment thereof as it deems advisable;
provided, however, that except as provided in this Section 20, the Board of
Directors may not, without the approval of the stockholders of the Company
obtained in the manner stated in Section 19, increase the maximum number of
shares for which options may be granted or change the designation of the
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class of persons eligible to receive options under the Plan, or make any other
change in the Plan which requires stockholder approval under applicable law or
regulations.
21. RESERVATION OF STOCK.
The Company shall at all times during the term of the Plan reserve and
keep available such number of shares of stock as will be sufficient to satisfy
the requirements of the Plan and shall pay all fees and expenses necessarily
incurred by the Company in connection therewith.
22. LIMITATION OF RIGHTS IN THE OPTION SHARES.
An optionee shall not be deemed for any purpose to be a stockholder of
the Company with respect to any of the options except to the extent that the
option shall have been exercised with respect thereto and, in addition, a
certificate shall have been issued theretofore and delivered to the optionee.
23. NOTICES.
Any communication or notice required or permitted to be given under
the Plan shall be in writing, and mailed by registered or certified mail or
delivered by hand, if to the Company, to its principal place of business,
attention: President, and, if to an optionee, to the address as appearing on the
records of the Company.
APPROVED BY THE BOARD: June 5, 1997
APPROVED BY STOCKHOLDERS: June 6, 1997
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EXHIBIT 10.5
MERCURY COMPUTER SYSTEMS, INC.
1997 EMPLOYEE STOCK PURCHASE PLAN
1. PURPOSE
It is the purpose of this 1997 Employee Stock Purchase Plan to provide a
means whereby eligible employees may purchase Common Stock of Mercury Computer
Systems, Inc., (the "Company") and any subsidiaries as defined below through
after-tax payroll deductions. It is intended to provide a further incentive for
employees to promote the best interests of the Company and to encourage stock
ownership by employees in order that they may participate in the Company's
economic growth.
It is the intention of the Company that the Plan qualify as an "employee
stock purchase plan" within the meaning of Section 423 of the Internal Revenue
Code and the provisions of this Plan shall be construed in a manner consistent
with the Code and Treasury Regulations promulgated thereunder.
2. DEFINITIONS
The following words or terms, when used herein, shall have the following
respective meanings:
(a) "Plan" shall mean the 1997 Employee Stock Purchase Plan.
(b) "Company" shall mean Mercury Computer Systems, Inc., a
Massachusetts corporation.
(c) "Account" shall mean the Employee Stock Purchase Account
established for a Participant under Section 7 hereunder.
2
(d) "Basic Compensation" shall mean the regular rate of salary or
wages in effect immediately prior to a Purchase Period, before
any deductions or withholdings, and including overtime, bonuses
and sales commissions, but excluding amounts paid in
reimbursement for expenses.
(e) "Board of Directors" shall mean the Board of Directors of
Mercury Computer Systems, Inc.
(f) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(g) "Committee" shall mean the Compensation Committee appointed by
the Board of Directors.
(h) "Common Stock" shall mean shares of the Company's common stock,
$.01 par value per share.
(i) "IPO" shall mean the date of the closing of the Company's first
public offering of Common Stock made pursuant to an effective
Registration Statement filed with the Securities and Exchange
Commission.
(j) "Eligible Employees" shall mean all persons employed by the
Company or one of its Subsidiaries, but excluding:
(1) Persons who have been employed by the Company or its
Subsidiaries for less than six months on the first day
of the Purchase Period;
(2) Persons whose customary employment is less than twenty
hours per week or five months or less per year; and
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(3) Persons who are deemed for purposes of Section
423(b)(3) of the Code to own stock possessing 5% or
more of the total combined voting power or value of all
classes of stock of the Company or a subsidiary.
For purposes of the Plan, employment will be treated as continuing
intact while a Participant is on military leave, sick leave, or other bona fide
leave of absence, for up to 90 days or so long as the Participant's right to
re-employment is guaranteed either by statute or by contract, if longer than 90
days.
(k) "Exercise Date" shall mean the last day of a Purchase Period;
provided, however, that if such date is not a business day,
"Exercise Date" shall mean the immediately preceding business
day.
(l) "Participant" shall mean an Eligible Employee who elects to
participate in the Plan under Section 6 hereunder.
(m) Except as provided below, there shall be two "Purchase Periods"
in each full calendar year during which the Plan is in effect,
one commencing on January 1 of each calendar year and continuing
through June 30 of such calendar year, and the second commencing
on July 1 of each calendar year and continuing through December
31 of such calendar year. The first Purchase Period shall
commence on the first, January 1 or June 30, to occur after the
IPO. The last Purchase Period shall commence on July 1, 2007 and
end on December 31, 2007.
(n) "Purchase Price" shall mean the lower of (i) 85% of the fair
market value of a share of Common Stock for the first business
day of the relevant Purchase Period, or (ii) 85% of such value
on the relevant Exercise Date. If the shares of Common
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Stock are listed on any national securities exchange, or traded
on the National Association of Securities Dealers Automated
Quotation System ("Nasdaq") National Market System, the fair
market value per share of Common Stock on a particular day shall
be the closing price, if any, on the largest such exchange, or
if not traded on an exchange, the Nasdaq National Market System,
on such day, and, if there are no sales of the shares of Common
Stock on such particular day, the fair market value of a share
of Common Stock shall be determined by taking a weighted average
of the means between the highest and lowest sales on the nearest
date before and the nearest date after the particular day in
accordance with Treasury Regulations Section 25.2512-2. If the
shares of Common Stock are not then listed on any such exchange
or the Nasdaq National Market System, the fair market value per
share of Common Stock on a particular day shall be the mean
between the closing "Bid" and the closing "Asked" prices, if
any, as reported in the National Daily Quotation Service for
such day. If the fair market value cannot be determined under
the preceding sentences, it shall be determined in good faith by
the Board of Directors.
(o) "Subsidiary" shall mean any present or future corporation which
(i) would be a "subsidiary corporation" of the Company as that
term is defined in Section 424(f) of the Code and (ii) is
designated as a participant in the Plan by the Board.
3. GRANT OF OPTION TO PURCHASE SHARES.
Each Eligible Employee shall be granted an option effective on the first
business day of each Purchase Period to purchase shares of Common Stock. The
term of the option shall be the
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length of the Purchase Period. The number of shares subject to each option shall
be the quotient of the aggregate payroll deductions in the Purchase Period
authorized by each Participant in accordance with Section 6 divided by the
Purchase Price, but in no event greater than 1,333 shares per option, or such
other number as determined from time to time by the Board of Directors or the
Committee (the "Share Limitation"). Notwithstanding the foregoing, no employee
shall be granted an option which permits his right to purchase shares under the
Plan to accrue at a rate which exceeds in any one calendar year $25,000 of the
fair market value of the Common Stock as of the date the option to purchase is
granted.
4. SHARES.
There shall be 250,000 shares of Common Stock reserved for issuance to
and purchase by Participants under the Plan, subject to adjustment as herein
provided. The shares of Common Stock subject to the Plan shall be either shares
of authorized but unissued Common Stock or shares of Common Stock reacquired by
the Company and held as treasury shares. Shares of Common Stock not purchased
under an option terminated pursuant to the provisions of the Plan may again be
subject to options granted under the Plan.
The aggregate number of shares of Common Stock which may be purchased
pursuant to options granted hereunder, the number of shares of Common Stock
covered by each outstanding option, and the purchase price for each such option
shall be appropriately adjusted for any increase or decrease in the number of
outstanding shares of Common Stock resulting from a stock split or other
subdivision or consolidation of shares of Common Stock or for other capital
adjustments or payments of stock dividends or distributions or other increases
or decreases in the outstanding shares of Common Stock effected without receipt
of consideration by the Company.
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5. ADMINISTRATION.
The Plan shall be administered by the Board of Directors or the
Compensation Committee appointed from time to time by the Board of Directors.
The Board of Directors or the Committee, if one has been appointed, is vested
with full authority to make, administer and interpret such equitable rules and
regulations regarding the Plan as it may deem advisable. The Board of
Directors', or the Committee's, if one has been appointed, determinations as to
the interpretation and operation of the Plan shall be final and conclusive. No
member of the Board of Directors or the Committee shall be liable for any action
or determination made in good faith with respect to the Plan or any option
granted under the Plan.
6. ELECTION TO PARTICIPATE.
An Eligible Employee may elect to become a Participant in the Plan for a
Purchase Period by completing a "Stock Purchase Agreement" form prior to the
first day of the Purchase Period for which the election is made. Such Stock
Purchase Agreement shall be in such form as shall be determined by the Board of
Directors or the Committee. The election to participate shall be effective for
the Purchase Period for which it is made. There is no limit on the number of
Purchase Periods for which an Eligible Employee may elect to become a
Participant in the Plan. In the Stock Purchase Agreement, the Eligible Employee
shall authorize regular payroll deductions of any full percentage of his Basic
Compensation, but in no event less than one percent (1%) nor more than ten
percent (10%) of his Basic Compensation, not to exceed $25,000 per year. An
Eligible Employee may not change his authorization except as otherwise provided
in Section 9. Options granted to Eligible Employees who have failed to execute a
Stock Purchase Agreement within the time periods prescribed by the Plan will
automatically lapse.
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7. EMPLOYEE STOCK PURCHASE ACCOUNT.
An Employee Stock Purchase Account will be established for each
Participant in the Plan for bookkeeping purposes, and payroll deductions made
under Section 6 will be credited to such Accounts. However, prior to the
purchase of shares in accordance with Section 8 or withdrawal from or
termination of the Plan in accordance with the provisions hereof, the Company
may use for any valid corporate purpose all amounts deducted from a
Participant's wages under the Plan and credited for bookkeeping purposes to his
Account.
The Company shall be under no obligation to pay interest on funds
credited to a Participant's Account, whether upon purchase of shares in
accordance with Section 8 or upon distribution in the event of withdrawal from
or termination of the Plan as herein provided.
8. PURCHASE OF SHARES.
Each Eligible Employee who is a Participant in the Plan automatically
and without any act on his part will be deemed to have exercised his option on
each Exercise Date to the extent that the balance then in his Account under the
Plan is sufficient to purchase at the Purchase Price whole shares of the Common
Stock subject to his option, subject to the Share Limitations and the Section
423(b)(8) limitation described in Section 3. Any balance remaining in the
Participant's Account shall be refunded to him in cash without interest.
9. WITHDRAWAL.
A Participant who has elected to authorize payroll deductions for the
purchase of shares of Common Stock may cancel his election by written notice of
cancellation ("Cancellation") delivered to the office or person designated by
the Company to receive Stock Purchase
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Agreements, but any such notice of Cancellation must be so delivered not later
than ten (10) days before the relevant Exercise Date.
A Participant will receive in cash, as soon as practicable after
delivery of the notice of Cancellation, the amount credited to his Account. Any
Participant who so withdraws from the Plan may again become a Participant at the
start of the next Purchase Period in accordance with Section 6.
Upon dissolution or liquidation of the Company every option outstanding
hereunder shall terminate, in which event each Participant shall be refunded the
amount of cash then in his Account. If the Company shall at any time merge into
or consolidate with another corporation, the holder of each option then
outstanding will thereafter be entitled to receive at the next Exercise Date,
upon exercise of such option and for each share as to which such option was
exercised, the securities or property which a holder of one share of the Common
Stock was entitled upon and at such time of such merger or consolidation. In
accordance with this paragraph and this Plan, the Board of Directors or
Compensation Committee, if any, shall determine the kind or amount of such
securities or property which such holder of an option shall be entitled to
receive. A sale of all or substantially all of the assets of the Company shall
be deemed a merger or consolidation for the foregoing purposes.
10. ISSUANCE OF STOCK CERTIFICATES.
The shares of Common Stock purchased by a Participant shall, for all
purposes, be deemed to have been issued and sold at the close of business on the
Exercise Date. Prior to that date none of the rights or privileges of a
shareholder of the Company, including the right to vote or receive dividends,
shall exist with respect to such shares.
- 8 -
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Within a reasonable time after the Exercise Date, the Company shall
notify the transfer agent and registrar of the Common Stock of the Participant's
ownership of the number of shares of Common Stock purchased by a Participant for
the Purchase Period, which shall be registered either in the Participant's name
or jointly in the names of the Participant and his spouse with right of
survivorship as the Participant shall designate in his Stock Purchase Agreement.
Such designation may be changed at any time by filing notice thereof with the
party designated by the Company to receive such notices.
11. TERMINATION OF EMPLOYMENT.
(a) Upon a Participant's termination of employment for any reason,
other than death, no payroll deduction may be made from any
compensation due him and the entire balance credited to his
Account shall be automatically refunded, and his rights under
the Plan shall terminate.
(b) Upon the death of a Participant, no payroll deduction shall be
made from any compensation due him at time of death, the entire
balance in the deceased Participant's Account shall be paid in
cash to the Participant's designated beneficiary, if any, under
a group insurance plan of the Company covering such employee, or
otherwise to his estate, and his rights under the Plan shall
terminate.
12. RIGHTS NOT TRANSFERABLE.
The right to purchase shares of Common Stock under this Plan is
exercisable only by the Participant during his lifetime and is not transferable
by him. If a Participant attempts to transfer his right to purchase shares under
the Plan, he shall be deemed to have requested withdrawal from the Plan and the
provisions of Section 9 hereof shall apply with respect to such Participant.
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13. NO GUARANTEE OF CONTINUED EMPLOYMENT.
Granting of an option under this Plan shall imply no right of continued
employment with the Company for any Eligible Employee.
14. NOTICE.
Any notice which an Eligible Employee or Participant files pursuant to
this Plan shall be in writing and shall be delivered personally or by mail
addressed to Mercury Computer Systems, Inc. , 199 Riverneck Road, Chelmsford, MA
01824, Attn: James R. Bertelli. Any notice to a Participant or an Eligible
Employee shall be conspicuously posted in the Company's principal office or
shall be mailed addressed to the Participant or Eligible Employee at the address
designated in the Stock Purchase Agreement or in a subsequent writing.
15. APPLICATION OF FUNDS.
All funds deducted from a Participant's wages in payment for shares
purchased or to be purchased under this Plan may be used for any valid corporate
purpose provided that the Participant's Account shall be credited with the
amount of all payroll deductions as provided in Section 7.
16. GOVERNMENT APPROVALS OR CONSENTS.
This Plan and any offering and sales to Eligible Employees under it are
subject to any governmental approvals or consents that may be or become
applicable in connection therewith. Subject to the provisions of Section 17, the
Board of Directors of the Company may make such changes in the Plan and include
such terms in any offering under this Plan as may be necessary or desirable, in
the opinion of counsel, to comply with the rules or regulations of any
governmental authority, or to be eligible for tax benefits under the Code or the
laws of any state.
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17. AMENDMENT OF THE PLAN.
The Board of Directors may, without the consent of the Participants,
amend the Plan at any time, provided that no such action shall adversely affect
options theretofore granted hereunder, and provided that no such action by the
Board of Directors without approval of the Company's shareholders may (a)
increase the total number of shares of Common Stock which may be purchased by
all Participants, (b) change the class of employees eligible to receive options
under the Plan, or (c) make any changes to the Plan which require shareholder
approval under applicable law or regulations, including Section 423 of the Code
and the regulations promulgated thereunder.
For purposes of this Section 17, termination of the Plan by the Board of
Directors pursuant to Section 18 shall not be deemed to be an action which
adversely affects options theretofore granted hereunder.
18. TERM OF THE PLAN.
The Plan shall become effective on the Effective Date, provided that it
is approved within twelve months after adoption by the Board of Directors by the
affirmative vote of holders of a majority of the stock of the Company present or
represented and entitled to vote at a duly held shareholders' meeting. The Plan
shall continue in effect through June 30, 2007, provided, however, that the
Board of Directors shall have the right to terminate the Plan at any time, but
such termination shall not affect options then outstanding under the Plan. It
will terminate in any case when all or substantially all of the unissued shares
of stock reserved for the purposes of the Plan have been purchased. If at any
time shares of stock reserved for the purposes of the Plan remain available for
purchase but not in sufficient number to satisfy all then unfilled purchase
- 11 -
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requirements, the available shares shall be apportioned among Participants in
proportion to the amount of payroll deductions accumulated on behalf of each
Participant that would otherwise be used to purchase stock and the Plan shall
terminate. Upon such termination or any other termination of the Plan, all
payroll deductions not used to purchase stock will be refunded, without
interest.
19. NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION; LEGEND.
By electing to participate in the Plan, each Participant agrees to
notify the Company in writing immediately after the Participant transfers Common
Stock acquired under the Plan, if such transfer occurs within two years after
the first business day of the Purchase Period in which such Common Stock was
acquired. Each Participant further agrees to provide any information about such
a transfer as may be requested by the Company or any subsidiary corporation in
order to assist it in complying with the tax laws. Such dispositions generally
are treated as "disqualifying dispositions" under Sections 421 and 424 of the
Code, which have certain tax consequences to Participants and to the Company and
its participating Subsidiaries. The Participant further agrees that all stock
certificates for Common Stock purchased under the Plan by the Participant shall
be held in his name or jointly with his spouse, as the case may be, and not in
the name of a broker, nominee or other person or entity for such two-year
period, and agrees that such stock certificates shall bear a legend reflecting
that such Common Stock was obtained upon the purchase of Common Stock under the
Plan. The Participant acknowledges that the Company may send a Form W-2, or
substitute therefor, as appropriate, to the Participant with respect to any
income recognized by the Participant upon a disqualifying disposition of Common
Stock.
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20. WITHHOLDING OF ADDITIONAL INCOME TAXES.
By electing to participate in the Plan, each Participant acknowledges
that the Company and its participating Subsidiaries are required to withhold
taxes with respect to the amounts deducted from the Participant's compensation
and accumulated for the benefit of the Participant under the Plan and each
Participant agrees that the Company and its participating Subsidiaries may
deduct additional amounts from the Participant's compensation, when amounts are
added to the Participant's account, used to purchase Common Stock or refunded,
in order to satisfy such withholding obligations. Each Participant further
acknowledges that when Common Stock is purchased under the Plan, the Company and
its participating Subsidiaries may be required to withhold taxes with respect to
all or a portion of the difference between the fair market value of the Common
Stock purchased and its purchase price, and each Participant agrees that such
taxes may be withheld from compensation otherwise payable to such Participant.
It is intended that tax withholding will be accomplished in such a manner that
the full amount of payroll deductions elected by the Participant under Section 6
will be used to purchase Common Stock. However, if amounts sufficient to satisfy
applicable tax withholding obligations have not been withheld from compensation
otherwise payable to any Participant, then, notwithstanding any other provision
of the Plan, the Company may withhold such taxes from the Participant's
accumulated payroll deductions and apply the net amount to the purchase of
Common Stock, unless the Participant pays to the Company, prior to the exercise
date, an amount sufficient to satisfy such withholding obligations. Each
Participant further acknowledges that the Company and its participating
Subsidiaries may be required to withhold taxes in connection with the
disposition of stock acquired under the Plan and agrees that the Company or any
participating subsidiary may take
- 13 -
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whatever action it considers appropriate to satisfy such withholding
requirements, including deducting from compensation otherwise payable to such
Participant an amount sufficient to satisfy such withholding requirements or
conditioning any disposition of Common Stock by the Participant upon the payment
to the Company or such subsidiary of an amount sufficient to satisfy such
withholding requirements.
21. GENERAL.
Whenever the context of this Plan permits, the masculine gender shall
include the feminine and neuter genders.
Adopted by the Board of Directors November 6, 1997.
Approved by the Stockholders ___________________.
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Exhibit 10.6
EXTENSION OF LEASE
THIS EXTENSION OF LEASE effective as of May __, 1997, between EQUITABLE
VARIABLE LIFE INSURANCE COMPANY ("Landlord") and MERCURY COMPUTER SYSTEMS, INC.
("Tenant").
BACKGROUND
Landlord and Tenant are Landlord and Tenant, respectively, under a Lease
dated July 24, 1992, from Landlord, as Landlord, to Tenant, as Tenant, of
premises at 199 Riverneck Road, Chelmsford, Massachusetts (the "Lease"). The
parties desire to extend the term of the Lease on the terms and conditions
herein set forth.
WITNESSETH
NOW, THEREFORE, Landlord and Tenant hereby agree as follows:
1. Landlord and Tenant agree that Tenant has exercised its option to
extend the term of the Lease under Section 2.3 of the Lease. As so extended, the
term of the Lease shall expire on September 31, 2002.
2. The Annual Fixed Rental Rate for the period October 1, 1997,
through September 31, 2002, shall be $672,728 per annum.
3. Tenant shall have the option to extend the term of the Lease for
the period October 1, 2002, through September 31, 2007, provided (a) no default
in the obligations of Tenant under the Lease shall exist at the time such option
is exercised and (b) Tenant shall give notice to Landlord of its exercise of
such option on or before April 1, 2002. All of the terms and provisions of the
Lease shall be applicable during such period except that (a) the Annual Fixed
Rental Rate shall be the greater of (i) Market Rent (as defined in Section 4.2
of the Lease) as of October 1, 2002, or (ii) $672,728.00 per annum and (b)
Tenant shall have no option to extend the term of the Lease beyond September 31,
2007.
4. Except only as amended hereby, the Lease shall continue in full
force and effect.
2
WITNESS the execution hereof as an instrument under seal as of the date
first above written.
LANDLORD:
EQUITABLE VARIABLE LIFE
INSURANCE COMPANY
By:
---------------------------------------
Its
TENANT:
MERCURY COMPUTER SYSTEMS, INC.
By:
---------------------------------------
Its
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AMENDMENT OF LEASE
THIS AMENDMENT OF LEASE effective as of October __ , 1992, between
EQUITABLE VARIABLE LIFE INSURANCE COMPANY ("Landlord") and MERCURY COMPUTER
SYSTEMS, INC, ("Tenant").
BACKGROUND
Landlord and Tenant are the Landlord and Tenant, respectively, under the
Lease dated July 24, 1992, of premises at 199 Riverneck Road, Chelmsford,
Massachusetts (the "Lease"). The parties desire to fully and finally settle
certain disputes as to the condition of the premises under the Lease and to
amend the Lease in certain other respects, all as hereinafter set forth.
Capitalized terms not defined herein shall have the meaning ascribed to them in
the Lease.
W I T N E S S E T H
NOW, THEREFORE, Landlord and Tenant hereby agree as follows:
1. The following terms appearing in Section 1.1 of the Lease are
hereby amended to read as follows:
Rent Commencement Date: January 1, 1993
Term Expiration Date: January 31, 1998
2. The Annual Fixed Rental Rate for the Original Term and the
definition of "Year" are hereby deleted from Section 1.1 of the Lease and the
following substituted therefor:
During Original Term:
January 1993 through August 1993: $24,490.71 per month
September 1993: $27,181.57 per month
October through December 1993: $36,022.96 per month
January 1994 through August 1995: $35,043.33 per month
September 1995: $35,510.25 per month
October 1995 through August 1996: $37,045.50 per month
September 1996: $37,512.67 per month
October 1996 through January 1998: $39,047.67 per month
[The Annual Fixed Rental Rate in effect for each month shall equal
twelve (12) times the applicable monthly rate set forth above.]
4
3. The Annual Fixed Rental Rate during the Extension Term shall not
be amended hereby and shall be as set forth in Section 1.1 of the Lease.
4. Landlord shall diligently complete the repairs listed on Exhibit A
hereto.
5. Tenant hereby confirms that it and its consultants have fully
inspected the Premises, and, subject to Landlord's obligations set forth in
Section 4 hereof, Tenant hereby confirms that it has accepted the Premises in
its "as is" condition as of the Term Commencement Date. Landlord and Tenant
agree that this Amendment of Lease is intended to settle completely all disputes
between Landlord and Tenant with respect to the condition of the Premises, and
Tenant hereby waives and releases Landlord from all claims relating thereto,
subject only to Section 4 hereof.
WITNESS the execution hereof as an instrument under seal as of the
date first above written.
Tenant:
MERCURY COMPUTER SYSTEMS, INC.
By: /s/
-------------------------------------
Its President
Landlord:
EQUITABLE VARIABLE LIFE
INSURANCE COMPANY
By: /s/
-------------------------------------
Its
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BUILDING DEFICIENCIES
19 lights out in parking lot. Also, 2 lens covers are broken (1 entrance, 1 at
back).
Electrical room next to elevator room where the flood occurred - Ceiling must be
replaced, fluorescent light fixture rehung, door refinished.
Water faucet on Dock 3 - handle is broken off, needs to be replaced.
Handicapped parking spaces are too narrow - need to be repainted.
Light in back of building on the ground is broken off of pipe and hanging on the
ground.
Employee entrance by cafeteria (inside door) will not close and window is
cracked.
Same problem on second floor - same entrance.
Same stairwell - lights are out.
Men's room, Phase 1, Floor 2 - Urinal 1 - water will not shut off; Urinal 2 does
not work at all.
Same men's room - faucet in sink 3 leaks, rust stain in sink.
Same men's room - 8 ceiling tiles have water stains (no leaks found in ceiling).
Door to second floor from main lobby - won't close.
8 exit lights (fire exit signs) are out.
5 emergency lights (power out units mounted on walls) are out.
First floor, phase 1, men's room - wallpaper is torn and ripped - needs
replacing.
At least 5 sprinklers in landscape irrigation system are not working - need
replacing (Note: landlord will complete repairs to zone #5 in the Spring, 1993).
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LEASE
Dated July 24, 1992
from
EQUITABLE VARIABLE LIFE INSURANCE COMPANY
Landlord
to
MERCURY COMPUTER SYSTEMS, INC,
Tenant
of Premises at
199 Riverneck-Road
Chelmsford, Massachusetts
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Table of Contents
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LEASE
SECTION I
REFERENCE INFORMATION
Section 1.1. REFERENCE INFORMATION. Reference in this Lease to any of the
following shall have the meaning set forth below:
Date of this Lease: July 24, 1992
Premises: The building (the "Building") and the lot
(the "Lot") shown on Exhibit A, situated at
199 Riverneck Road, Chelmsford,
Massachusetts.
Landlord: Equitable Variable Life Insurance Company
Address of Landlord: c/o Equitable Real Estate Investment
Management, Inc.
75 State Street
Boston, Massachusetts 02109
Tenant: Mercury Computer Systems, Inc., a
Massachusetts corporation
Address of Tenant: Wannalancit Technology Center
600 Suffolk Street
Lowell, MA 01854-3608
Term Commencement Date: The date of this Lease
Rent Commencement Date: September 24, 1992
Term Expiration Date: September 31, 1997
Extension Term: One (1) period of five (5) years
Building Square Footage: Approximately 96,104 square feet
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Annual Fixed Rental Rate:
During original Term: Year 1: $282,133 per annum
Years 2 and 3: 420,520 per annum
Year 4: 444,546 per annum
Year 5: 468,572 per annum
For the purpose of the above, a "Year" shall mean the one year
period commencing on the Rent Commencement Date or an
anniversary thereof, provided that Year 5 shall include the
period from the end of Year 5 to the Term Expiration Date.
During Extension Term: The greater of (a) 90% of Market Rent
(as defined in Section 4.2) as of the commencement of the
Extension Term or (b) $576,624 per annum.
Tenant's Proportionate Fraction:
Until the First Anniversary of the Rent
Commencement Date: 74.95%
Thereafter: 100%
Permitted Uses: Research and development, offices, and light
manufacturing.
Commercial General Liability Insurance Limit:
Bodily Injury and Property Damage: Combined single limit of
$3,000,000, or greater amount as
reasonably required by Landlord
from time to time.
Brokers: The Leggat Company and Peter
Elliot & Co., Incorporated
Section 1.2. EXHIBITS. The following Exhibits are attached to and
incorporated in this Lease:
Exhibit A: Plan of Premises
Exhibit B: Preliminary Space Plan
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SECTION 2
PREMISES AND TERM
Section 2.1. PREMISES. Landlord hereby leases and demises the Premises
to Tenant and Tenant hereby leases the Premises from Landlord, subject to any
and all existing encumbrances and other matters of record and subject to the
terms and provisions of this Lease.
Section 2.2. TERM. TO HAVE AND TO HOLD for an original term beginning
on the Term Commencement Date and continuing until the Term Expiration Date,
unless sooner terminated as hereinafter provided.
Section 2.3. OPTION TO EXTEND TERM. Tenant shall have the option to
extend the term of this Lease for the Extension Term, provided (i) no default in
the obligations of Tenant under this Lease shall exist at the time such option
is exercised and (ii) Tenant shall give notice to Landlord of its exercise of
such option not less than six (6) months prior to expiration of the original or
then extended term, as the case may be. All of the terms and provisions of this
Lease shall be applicable during the Extension Term except that (i) the Annual
Fixed Rental Rate shall be as specified in Section 1.1 and (ii) Tenant shall
have no option to extend the term of the Lease beyond the Extension Term.
SECTION 3
CONDITION OF PREMISES; ALLOWANCES
SECTION 3.1. CONDITION OF PREMISES. Tenant agrees to accept the
Premises in its present "as is" condition. Landlord shall have no obligation to
perform any work or construction, except that the building heating and air
conditioning, electrical and plumbing systems shall be in good working order as
of the Term Commencement Date. If Tenant shall desire to perform any other work
or construction, the same shall be done only in accordance with this Lease.
Landlord has approved the preliminary space plan attached as Exhibit B subject
to the preparation of detailed plans and specifications for the construction
contemplated thereby. Detailed plans and specifications for any work or
construction to be performed by Tenant shall be subject to Landlord's approval
to the extent provided in Section 10.4. Landlord shall promptly respond to any
request by Tenant for approval of plans and specifications.
SECTION 3.2. ALLOWANCES. Within thirty (30) days after the Rent
Commencement Date, Landlord shall pay Tenant the sum of $50,000. Landlord shall
also reimburse Tenant up to $10,000 for the cost of installing signs on the
Building and on Riverneck Road, upon presentation of vendor invoices therefor.
SECTION 4
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FIXED RENT
SECTION 4.1. THE FIXED RENT. Tenant shall pay rent to Landlord at the
Address of Landlord or at such other place or to such other person or entity as
Landlord may by notice to Tenant from time to time direct, at the Annual Fixed
Rental Rate set forth in Section 1, in equal installments equal to 1/12th of the
Annual Fixed Rental Rate in advance on the first day of each calendar month
included in the term, and for any portion of a calendar month at the beginning
or end of the term, at that rate payable in advance for such portion.
SECTION 4.2. MARKET RENT. "Market Rent" shall be computed as of the
applicable date at the then current rentals being charged to new tenants for
comparable space located in the vicinity of the Building, taking into account
and giving effect to, in determining comparability, without limitation, such
considerations as size, location and lease term.
Landlord shall initially designate Market Rent and shall furnish data
in support of such designation. If Tenant shall disagree with Landlord's
designation of Market Rent, then Tenant shall have the right, by written notice
given within twenty-one (21) days after Tenant has been notified of Landlord's
designation, to submit such Market Rent to arbitration as follows. Market Rent
shall be determined by arbitrators, one to be chosen by Tenant, one to be chosen
by Landlord and a third to be selected, if necessary, as below provided. If
within twenty (20) days after Tenant's notice, the parties agree upon a single
arbitrator, Market Rent shall be determined by such arbitrator. Otherwise, the
unanimous written decision of the two first chosen without the selection and
participation of a third arbitrator, or otherwise the written decision of a
majority of the three arbitrators chosen and selected as provided herein, shall
be conclusive and binding upon Landlord and Tenant. Landlord and Tenant shall
each notify the other of its chosen arbitrator within twenty-one (21) days
following the call for arbitration and, unless such two arbitrators shall have
reached a unanimous decision within thirty (30) days after their designation,
then they shall so notify the then President of the Boston Bar Association and
request him to select an impartial third arbitrator, who shall be another
building owner, a real estate counselor or a broker dealing with like types of
properties, to determine Market Rent as herein defined. Such third arbitrator
and the first two chosen shall hear the parties and their evidence and render
their decision within thirty (30) days following the conclusion of such hearing
and notify Landlord and Tenant thereof. Landlord and Tenant shall bear the
expense of the third arbitrator (if any) equally. If the dispute between the
parties as to Market Rent has not been resolved before the commencement of
Tenant's obligation to pay rent based upon Market Rent, then Tenant shall pay
rent in respect of the Premises based upon the Market Rent designated by
Landlord until either the agreement of the parties as to the Market Rent or the
decision of the arbitrators, as the case may be, at which time Tenant shall pay
any underpayment of rent to Landlord, or Landlord shall refund any overpayment
of rent to Tenant.
SECTION 5
REAL ESTATE AND OTHER TAXES
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SECTION 5.1. REAL ESTATE TAXES. As Additional Rent, Tenant shall pay to
Landlord Tenant's Proportionate Fraction of all taxes, assessments (special,
betterment or otherwise), levies, fees, water and sewer rents and charges, and
all other government levies and charges, general and special, ordinary and
extraordinary, foreseen and unforeseen, which are allocable to the term hereof
and imposed or levied upon or assessed against the Lot or Building or any rent
or other sums payable by any tenants or occupants thereof (collectively "taxes
and assessments" or if singular "tax or assessment").
If Landlord shall elect to pay betterment assessments over any period
permitted by law, only the installments thereof (and interest thereon) becoming
due during the term shall be treated as taxes and assessments hereunder.
With respect to any period for which Tenant shall be obligated to pay
all taxes and assessments, Tenant shall pay the same directly to the proper
authority prior to any late charges, interest or penalties becoming payable
thereon. Simultaneously with the payment of such taxes or assessments, Tenant
shall provide Landlord with evidence of payment thereof.
All payments shall be made by Tenant within 10 days after receipt of
Landlord's invoice therefor.
Nothing herein shall, however, require Tenant to pay any income taxes,
excess profits taxes, excise taxes, franchise taxes, estate, succession,
inheritance or transfer taxes, provided, however, that if at any time during the
term the present system of ad valorem taxation of real property shall be changed
so that in lieu of the whole or any part of the ad valorem tax on real property,
or in lieu of increases therein, there shall be assessed on Landlord a capital
levy or other tax on the gross rents received with respect to the Building or
Lot or a federal, state, county, municipal, or other local income, franchise,
excise or similar tax, assessment, levy or charge (distinct from any now in
effect) measured by or based, in whole or in part, upon gross rents, then
Tenant's Proportionate Fraction of any and all of such taxes, assessments,
levies or charges, to the extent so measured or based ("Substitute Taxes"),
shall be payable by Tenant, provided, however, Tenant's obligation with respect
to the aforesaid Substitute Taxes shall be limited to the amount thereof as
computed at the rates that would be payable if the Building and Lot were the
only property of Landlord.
SECTION 6
INSURANCE
SECTION 6.1. TENANT'S INSURANCE. Tenant shall, as Additional Rent,
maintain throughout the Term the following insurance:
(a) Commercial general liability insurance for any injury
to person or property occurring on the Premises, naming as insureds Tenant,
Landlord and such persons, including, without limitation, Landlord's managing
agent, as Landlord shall designate from time to time, in amounts which shall, at
the beginning of the Term, be at least equal to the
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limits set forth in Section 1, and, from time to time during the term, shall be
for such higher limits as are reasonably required by Landlord;
(b) Worker's compensation insurance with statutory limits
covering all of Tenant's employees working at the Premises;
(c) All risk fire and casualty insurance on a replacement
value, agreed amount basis, together with rental loss coverage and, if Landlord
so elects, flood coverage to the extent the same is available, insuring the
Building and its rental value, with such deductibles, if any, as Landlord shall
specify from time to time; and
(d) Insurance against loss or damage from sprinklers and
from leakage or explosions or cracking of boilers, pipes carrying steam or
water, or both, pressure vessels or similar apparatus, in the so-called "broad
form", in such amounts and with such deductibles as Landlord may consider
appropriate, and insurance against such other hazards and in such amounts as may
from time to time be required by any bank, insurance company or other lending
institution holding a mortgage on the Building.
The insurance provided pursuant to clauses (c) and (d) above shall name
Landlord and Landlord's mortgagees as the insureds in such manner as Landlord
shall specify and such insurance shall be adjusted solely by Landlord and
Landlord's mortgagees and Tenant shall have no right to the proceeds of such
insurance or to participate in the adjustment thereof, and all policies shall so
provide.
SECTION 6.2. REQUIREMENTS APPLICABLE TO INSURANCE POLICIES. All
policies for insurance required under the provisions of Section 6.1 shall be
acceptable to Landlord and obtained from responsible companies qualified to do
business in the Commonwealth of Massachusetts and in good standing therein,
which companies and the amount of insurance allocated thereto shall be subject
to Landlord's approval, Tenant agrees to furnish Landlord with insurance company
certificates of all such insurance and copies of the policies therefor prior to
the earlier of the time it shall first enter the Premises or the beginning of
the Term hereof and of each renewal policy at least thirty (30) days prior to
the expiration of the policy it renews, together with evidence of the payment of
all premiums therefor. Each such policy shall be noncancellable with respect to
the interest of Landlord and such mortgagees without at least thirty (30) days'
prior written notice thereto.
SECTION 6.3. WAIVER OF SUBROGATION. All insurance which is carried by
either party with respect to the Premises or to furniture, furnishings, fixtures
or equipment therein or alterations or improvements thereto, whether or not
required, shall include provisions which either designate the other party as one
of the insured or deny to the insurer acquisition by subrogation of rights of
recovery against the other party to the extent such rights have been waived by
the insured party prior to occurrence of loss or injury, insofar as, and to the
extent that such provisions may be effective without making it impossible to
obtain insurance coverage from responsible companies qualified to do business in
the Commonwealth of
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Massachusetts (even though extra premium may result therefrom) and without
voiding the insurance coverage in force between the insurer and the insured
party. On reasonable request, each party shall be entitled to have duplicates or
certificates of policies containing such provisions. Each party hereby waives
all rights of recovery against the other for loss or injury against which the
waiving party is protected by insurance containing said provisions, reserving,
however, any rights with respect to any excess of loss or injury over the amount
recovered by such insurance.
SECTION 7
UTILITIES; MAINTENANCE EXPENSES
SECTION 7.1. UTILITIES. Tenant shall pay all charges for water, sewer,
gas, electricity and other utilities or services used or consumed in the
Building, whether called charge, tax, assessment, fee or otherwise, including,
without limitation, water and sewer use charges and taxes, if any, such charges
to be paid within ten (10) days of receipt of Landlord's invoice therefor,
Landlord shall not be liable for any interruption or failure in the supply of
any such utilities to the Premises.
SECTION 7.2. MAINTENANCE EXPENSES. Tenant shall pay to Landlord
Tenant's Proportionate Fraction of Landlord's costs and expenses incurred under
Section 9 and in maintaining the heating, ventilating and air conditioning
contract pursuant to Section 10.2, including a reasonable management fee payable
to Landlord. Notwithstanding the preceding sentence, Tenant shall have no
obligation to pay any of Landlord's costs incurred for replacement of any
component of the roof, foundation, structural supports of the Building, the
Building plumbing, electrical, heating and air conditioning or other Building
mechanical systems, lawn sprinklers or parking lot and driveway paving which is
capitalizable under generally accepted accounting principles.
SECTION 8
Intentionally Deleted.
SECTION 9
LANDLORD'S COVENANTS
SECTION 9.1. BUILDING MAINTENANCE. Subject to Sections 10 and 11,
Landlord shall maintain and repair the exterior walls (exclusive of glass and
doors and exclusive of the interior surfaces of the exterior walls, all of which
Tenant shall maintain and repair), roof, foundation, structural supports of the
Building, make all replacements to the roof, foundation, structural supports of
the Building, the Building plumbing, electrical, heating and air conditioning
system and other Building mechanical systems, lawn sprinklers and parking lot
and driveway paving which are capitalizable under generally accepted accounting
principles and, to the extent that Landlord shall elect from time to time by
notice to Tenant, Landlord
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will maintain all other portions of the Building heating and air conditioning
system and the plumbing, electrical and mechanical systems.
SECTION 10
TENANT'S COVENANTS
SECTION 10.1. USE. Tenant shall use the Premises only for the Permitted
Uses and shall from time to time procure all licenses and permits necessary
therefor at Tenant's sole expense.
SECTION 10.2. REPAIR AND MAINTENANCE. Except as otherwise provided in
Sections 9 and 11, Tenant shall keep the Premises, including all plumbing,
electrical, heating, air conditioning and other systems therein, in first class
order, condition and repair and in at least as good order, condition and repair
as they are in on the Commencement Date or may be put in during the term,
reasonable use and wear only excepted, and shall maintain and repair all
landscaped, paved and other areas on the Lot outside of the Building and shall
clean and provide snow plowing for the same, all to the standards of a first
class building. Tenant shall make all repairs and replacements and do all other
work necessary for the foregoing purposes whether the same may be ordinary or
extraordinary, foreseen or unforeseen. Without limiting the foregoing, Tenant,
at its expense, shall maintain in effect at all times a heating, ventilating and
air conditioning service contract in form and with a contractor satisfactory to
Landlord. Tenant shall also provide to Landlord a written program reasonably
acceptable to Landlord for the maintenance and repair of all portions of the
Premises which Tenant is required to maintain and repair, including, without
limitation, the parking lot and landscaping and all portions of the Building
which Tenant is required to maintain and repair, and Tenant shall make such
modifications to such program as Landlord shall reasonably require from time to
time consistent with the provisions of this Lease. Such maintenance and repair
program shall be consistent with maintenance and repair programs for similar
first class suburban research and development properties. Tenant shall comply
with such approved maintenance and repair program in all respects and in a
timely manner.
Tenant shall keep in a safe, secure and sanitary condition all trash
and rubbish temporarily stored at the Premises and shall arrange for and be
responsible for all of the costs of trash and rubbish removal service in
connection with Tenant's use of the Premises.
SECTION 10.3. COMPLIANCE WITH LAW AND INSURANCE REQUIREMENTS. Tenant
shall make all repairs, alterations, additions or replacements to the Premises
required by any law or ordinance or any order or regulation of any public
authority arising from Tenant's use of the Premises and shall keep the Premises
equipped with all safety appliances so required. Tenant shall not dump, flush,
or in any way introduce any hazardous substances or any other toxic substances
into the septic, sewage or other waste disposal system serving the Premises, or
generate, store or dispose of hazardous substances in or on the Premises or
dispose of hazardous substances from the Premises to any other location without
the prior written consent of Landlord and then only in compliance with the
Resource Conservation and Recovery Act of 1976, as amended, 42 U.S.C. ss.6901 et
seq., the Massachusetts Hazardous Waste Management
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Act, M.G.L. c.21C, as amended, the Massachusetts Oil and Hazardous Material
Release Prevention and Response Act, M.G,L, c.21E, as amended, and all other
applicable codes, regulations, ordinances and laws. Tenant shall notify Landlord
of any incident which would require the filing of a notice under Chapter 232 of
the Acts of 1982 and shall comply with the orders and regulations of all
governmental authorities with respect to zoning, building, fire, health and
other codes, regulations, ordinances or laws applicable to the Premises,
"Hazardous substances" as used in this Section shall mean "hazardous substances"
as defined in the Comprehensive Environmental Response Compensation and
Liability Act of 1980, as amended, 42 U.S.C. ss.9601 and regulations adopted
pursuant to said Act. Landlord represents to the best of Landlord's knowledge
that, as of the date hereof, (i) the Premises are not in violation of any of the
environmental laws, rules or regulations listed in this paragraph and (ii)
hazardous substances have not been released, discharged or disposed of on the
Premises.
Landlord may, if it so elects, make any of the repairs, alterations,
additions or replacements referred to in this Section which affect the Building
structure or the Building systems, and Tenant shall reimburse Landlord for the
cost thereof on demand.
Tenant will provide Landlord, from time to time upon Landlord's
request, with all records and information regarding any hazardous substance
maintained on the Premises by Tenant.
Landlord shall have the right, at Tenant's expense, to make such
inspections as Landlord shall reasonably elect from time to time to determine if
Tenant is complying with this Section, provided that, except in the case of
emergency, Landlord shall only perform such inspections (i) upon reasonable
prior notice to Tenant and (ii) during Tenant's normal business hours.
Tenant shall comply promptly with the recommendations of any insurer,
foreseen or unforeseen, ordinary as well as extraordinary, which may be
applicable to the Premises, by reason of Tenant's use thereof. In no event shall
any activity be conducted by Tenant on the Premises which may give rise to any
cancellation of any insurance policy or make any insurance unobtainable.
SECTION 10.4. TENANT'S WORK. Tenant shall not make any installations,
alterations, additions or improvements in or to the Premises, including, without
limitation, any aperture in the walls, partitions, ceilings or floors, without
on each occasion obtaining the prior written consent of Landlord, provided that
(a) Landlord consent to non-structural installations, alterations, additions or
improvements, including, without limitation, construction or relocation of
partitions and installation of computer cabling, which do not affect the
plumbing, electrical, heating, ventilating, air-conditioning or other Building
systems shall not be unreasonably withheld or delayed and (b) Landlord's consent
shall not be required for the construction or relocation of partitions which do
not extend into the dropped ceiling. Any such work so approved by Landlord shall
be performed only in accordance with plans and specifications therefor approved
by Landlord. Tenant shall procure at Tenant's sole expense
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all necessary permits and licenses before undertaking any work on the Premises
and shall perform all such work in a good and workmanlike manner employing
materials of good quality and so as to conform with all applicable zoning,
building, fire, health and other codes, regulations, ordinances and laws and
with all applicable insurance requirements. If requested by Landlord, Tenant
shall furnish to Landlord prior to the commencement of any work costing more
than $50,000 to complete a bond or other security acceptable to Landlord
assuring that any work by Tenant will be completed in accordance with the
approved plans and specifications. Tenant shall keep the Premises at all times
free of liens for labor and materials, and Tenant shall promptly bond off any
liens made against the Premises. Tenant shall employ for such work only
contractors approved by Landlord and shall require all contractors employed by
Tenant to carry worker's compensation insurance in accordance with statutory
requirements and comprehensive public liability insurance covering such
contractors on or about the Premises in amounts that at least equal the limits
set forth in Section 1 and to submit certificates evidencing such coverage to
Landlord prior to the commencement of such work. Tenant shall save Landlord
harmless and indemnified from all injury, loss, claims or damage to any person
or property occasioned by or growing out of such work. Landlord may inspect the
work of Tenant at reasonable times and give notice of observed defects.
SECTION 10.5. INDEMNITY. Tenant shall defend, with counsel approved by
Landlord, all actions against Landlord, any partner, trustee, stockholder,
officer, director, employee or beneficiary of Landlord, holders of mortgages
secured by the Building and any other party having an interest in the Premises
("Indemnified Parties") with respect to, and shall pay, protect, indemnify and
save harmless, to the extent permitted by law, all Indemnified Parties from and
against, any and all liabilities, losses, damages, costs, expenses (including
reasonable attorneys' fees and expenses), causes of action, suits, claims,
demands or judgments of any nature arising from (a) injury to or death of any
person, or damage to or loss of property, occurring in the Premises or connected
with the use, condition or occupancy of any thereof unless caused by the
negligence of Landlord or its servants or agents, (b) violation of this Lease by
Tenant, or (c) any act, fault, omission, or other misconduct of Tenant or its
agents, contractors, licensees, sublessees or invitees.
SECTION 10.6. LANDLORD'S RIGHT TO ENTER. Tenant shall permit Landlord
and its agents to enter into the Premises (i) in the case of emergency, at any
time, without notice to Tenant, and (ii) at all other times during normal
business hours and upon reasonable notice to Tenant, to examine the Premises,
make such repairs and replacements as Landlord may be required to make under
this Lease or may elect, without however, any obligation to do so, and show the
Premises to prospective purchasers and lenders, and, during the last year of the
term, to show the Premises to prospective tenants and to keep affixed in
suitable places notices of availability of the Premises.
SECTION 10.7. PERSONAL PROPERTY AT TENANT'S RISK. All furnishings,
fixtures, equipment, effects and property of every kind of Tenant and of all
persons claiming by, through or under Tenant which may be on the Premises, shall
be at the sole risk and hazard of Tenant and if the whole or any part thereof
shall destroyed or damaged by fire, water or
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otherwise, or by the leakage or bursting of water pipes, steam pipes,
or other pipes, by theft or from any other cause, no part of said loss or damage
shall be charged to or to be borne by Landlord, except that Landlord shall in no
event be indemnified or held harmless or exonerated from any liability to Tenant
for any injury, loss, damage or liability not covered by Tenant's insurance to
the extent prohibited by law. Tenant shall insure Tenant's personal property.
SECTION 10.8. PAYMENT OF LANDLORD'S COST OF ENFORCEMENT. Tenant shall
pay, on demand, Landlord's expenses, including reasonable attorney's fees,
incurred in enforcing any obligation of Tenant under this Lease or in curing any
default by Tenant under this Lease as provided in Section 12.4.
SECTION 10.9. YIELD UP. At the expiration of the term or earlier
termination of this Lease, Tenant shall surrender all keys to the Premises,
remove all of its trade fixtures and personal property in the Premises, repair
all damage caused by such removal and yield up the Premises (including all
installations and improvements made by Tenant except for trade fixtures and such
installations or improvements made by Tenant as Landlord shall request Tenant to
remove) broom-clean and in the same first class order and repair in which Tenant
is obliged to keep and maintain the Premises under this Lease, reasonable wear
and tear excepted. Any property not so removed shall be deemed abandoned and may
be removed and disposed of by Landlord in such manner as Landlord shall
determine and Tenant shall pay Landlord the entire cost and expense incurred by
it in effecting such removal and disposition and in making any incidental
repairs and replacements to the Premises and for use and occupancy during the
period after the expiration of the term and prior to Tenant's performance of its
obligations under this Section 10.9.
SECTION 10.10 ESTOPPEL CERTIFICATE. Upon not less than ten (10)
business days' prior notice by Landlord, Tenant shall execute, acknowledge and
deliver to Landlord a statement in writing certifying that this Lease is
unmodified and in full force and effect and that, except as stated therein,
Tenant has no knowledge of any defenses, offsets or counterclaims against its
obligations to pay the Fixed Rental and Additional Rent and any other charges
and to perform its other covenants under this Lease (or, if there have been any
modifications that the same is in full force and effect as modified and stating
the modifications and, if there are any defenses, offsets or counterclaims,
setting them forth in reasonable detail), the dates to which the Fixed Rental
and Additional Rent and other charges have been paid and a statement that
Landlord is not in default hereunder (or if in default, the nature of such
default, in reasonable detail). Any such statement delivered pursuant to this
Section 10.10 may be relied upon by any prospective purchaser or mortgagee of
the Building.
Upon not less than ten (10) business days' prior notice by Tenant,
Landlord shall execute, acknowledge and deliver to Tenant a statement in writing
certifying that this Lease is unmodified and in full force and effect and that
Landlord has no knowledge of any default by Tenant under this Lease (or, if
there have been any modifications, that the same is in full force and effect as
modified and stating the modifications and, if to Landlord's knowledge there are
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any defaults, setting them forth in reasonable detail). Any such statement
delivered pursuant to this Section 10.10 may be relied upon by any respective
subtenant or assignee of Tenant.
SECTION 10.11. LANDLORD'S EXPENSES RE CONSENTS. Tenant shall reimburse
Landlord promptly on demand for all reasonable legal and other expenses incurred
by Landlord in connection with all requests by Tenant for consent or approval
hereunder.
SECTION 10.12. RULES AND REGULATIONS. Tenant shall comply with such
reasonable Rules and Regulations as may be adopted from time to time by Landlord
to provide for the beneficial operation of the Lot and Building.
SECTION 10.13 HOLDING OVER. Tenant shall vacate the Premises
immediately upon the expiration or sooner termination of this Lease. If Tenant
retains possession of the Premises or any part thereof after the termination of
the term without Landlord's express consent, Tenant shall pay Landlord rent at
double the monthly rate specified in Section 1 for the time Tenant thus remains
in possession and, in addition thereto, shall pay Landlord for all damages,
consequential as well as direct, sustained by reason of Tenant's retention of
possession. The provisions of this Section do not exclude Landlord's rights of
re-entry or any other right hereunder, including without limitation, the right
to refuse double the monthly rent and instead to remove Tenant through summary
proceedings for holding over beyond the expiration of the term of this Lease.
SECTION 10.14 ASSIGNMENT AND SUBLETTING. Tenant shall not assign,
transfer, mortgage or pledge this Lease or grant a security interest in Tenant's
rights hereunder or sublease (which term shall be deemed to include the granting
of concessions and licenses and the like) all or any part of the Premises or
suffer or permit this Lease or the leasehold estate hereby created or any other
rights arising under this Lease to be assigned, transferred or encumbered, in
whole or in part, whether voluntarily, involuntarily or by operation of law, or
permit the occupancy of the Premises by anyone other than Tenant without prior
written approval thereof from Landlord, provided, however, that Landlord shall
not unreasonably withhold its consent to a request by Tenant to sublet all or
portions of the Premises or to an assignment to an entity having a net worth, at
the time of such request for Landlord's approval of such assignment, at least
equal to-that of Tenant's net worth as of the date of this Lease. In connection
with any request by Tenant for such approval to assignment or subletting, Tenant
shall submit to Landlord in writing (i) the name of the proposed assignee or
subtenant, (ii) such information as to its reputation, financial responsibility
and standing as Landlord may reasonably require, including, without limitation,
business references and references from prior landlords, and (iii) all of the
terms and provisions upon which the proposed assignment or subletting is to be
made.
No assignment, transfer, mortgage, grant of security interest, sublease
or other encumbrance, whether or not approved, and no indulgence granted by
Landlord to any assignee or sublessee, shall in any way impair the continuing
primary liability (which after an assignment shall be joint and several with the
assignee) of Tenant hereunder, and no approval
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in a particular instance shall be deemed to be a waiver of the obligation to
obtain Landlord's approval in any other case.
Landlord shall not be deemed to be unreasonable in withholding approval
to an assignment, or sublease of all or any portion of the Premises if, without
limitation, any ascertained debt of Tenant to Landlord is unpaid, any default by
Tenant exists hereunder or under any other agreement between Landlord and
Tenant.
If for any assignment or sublease Tenant shall receive rent or other
consideration, either initially or over the term of the assignment or sublease,
in excess of the rent called for hereunder (or in the case of the sublease of
part, in excess of such rent allocable to the part) after appropriate
adjustments to assure that all other payments called for hereunder are taken
into account, Tenant shall pay to Landlord, as Additional Rent, 90% of such
excess of such payment of rent or other consideration received by Tenant,
promptly after its receipt.
SECTION 10.15 OVERLOADING AND NUISANCE. Tenant shall not injure,
overload, deface or otherwise harm the Premises, commit any nuisance, permit the
emission of any objectionable noise, vibration or odor, make, allow or suffer
any waste or make any use of the Premises which is improper, offensive or
contrary to any law or ordinance or which will invalidate any of Landlord's
insurance.
SECTION 11
CASUALTY OR TAKING
SECTION 11.1 TERMINATION. In the event that greater than twenty-five
(25) percent of the Building or the Lot shall be taken by any public authority
or for any public use or destroyed by the action of any public authority (a
"Taking") then this Lease may be terminated by either Landlord or Tenant
effective on the effective date of the Taking provided that such election, which
may be made notwithstanding the fact that Landlord's entire interest may have
been divested, shall be made by the giving of notice by Landlord or Tenant to
the other within thirty (30) days after Landlord or Tenant, as the case may be,
shall receive notice of the Taking. In the event that the Premises shall be
destroyed or damaged by fire or casualty (a "Casualty") and if Landlord's
architect, engineer or contractor shall determine that it will require in excess
of 150 days from the date of the Casualty to restore the Premises, this Lease
may be terminated by either Landlord or Tenant by notice to the other within
thirty days after the casualty.
SECTION 11.2 RESTORATION. In the event of a Taking or a Casualty, if
neither Landlord nor Tenant exercises the election to terminate provided in
Section 11.1, this Lease shall continue in force and a just proportion of the
Fixed Rent and other charges hereunder, according to the nature and extent of
the damages sustained by the Premises, shall be abated until the Premises, or
what may remain thereof, shall be put by Landlord in proper condition for use
subject to zoning and building laws or ordinances then in existence, which,
unless Landlord or Tenant has exercised its option to terminate pursuant to
Section 11.1, Landlord
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covenants to do with reasonable diligence at Landlord's expense. Landlord's
obligations with respect to restoration shall not require Landlord to expend
more than the net proceeds of insurance recovered or damages awarded for such
Casualty or Taking and made available for restoration by Landlord's mortgagees.
"Net proceeds of insurance recovered or damages awarded" refers to the gross
amount of such insurance or damages less the reasonable expenses of Landlord in
connection with the collection of the same, including without limitation, fees
and expenses for legal and appraisal services.
SECTION 11.3 AWARD. Irrespective of the form in which recovery may be
had by law, all rights to damages or compensation, except for awards
attributable to Tenant's personal property (which Tenant shall have the right to
institute a separate claim for), shall belong to Landlord in all cases. Tenant
hereby grants to Landlord all of Tenant's rights to such damages and
compensation and covenants to deliver such further assignments thereof as
Landlord may from time to time request.
SECTION 12
DEFAULT
SECTION 12.1 EVENTS OF DEFAULT. If:
(a) Tenant shall default in the performance of any of its
obligations to pay the Fixed Rental, Additional Rent or any
other sum payable hereunder and if such default shall continue
for seven (7) days after notice from Landlord designating such
default;
(b) if within thirty (30) days after notice from Landlord
to Tenant specifying any other default or defaults Tenant has
not commenced diligently to correct the default or defaults so
specified or has not thereafter diligently pursued such
correction to completion;
(c) if any assignment for the benefit of creditors shall
be made by Tenant;
(d) if Tenant's leasehold interest shall be taken on
execution or other process of law in any action against
Tenant;
(e) if a lien or other involuntary encumbrance is filed
against Tenant's leasehold interest, and is not discharged
within thirty (30) days thereafter;
(f) if a petition is filed by Tenant for liquidation, or
for reorganization or an arrangement or any other relief under
any provision of the Bankruptcy Code as then in force and
effect; or
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(g) if an involuntary petition under any of the
provisions of said Bankruptcy Code is filed against Tenant and
such involuntary petition is not dismissed within sixty (60)
days thereafter,
then, and in any of such cases, Landlord and the agents and servants of Landlord
lawfully may, in addition to and not in derogation of any remedies for any
preceding breach of covenant, immediately or at any time thereafter and without
demand or notice and with or without process of law (forcibly, if necessary)
enter into and upon the Premises or any part thereof in the name of the whole,
or mail a notice of termination addressed to Tenant, and repossess the same as
of Landlord's former estate and expel Tenant and those claiming through or under
Tenant and remove its and their effects without being deemed guilty of any
manner of trespass and without prejudice to any remedies which might otherwise
be used for arrears of rent or prior breach of covenant, and upon such entry or
mailing as aforesaid this Lease shall terminate, Tenant hereby waiving all
statutory rights (including, without limitation, rights of redemption, if any)
to the extent such rights may be lawfully waived. Landlord, without notice to
Tenant, may store Tenant's effects, and those of any person claiming through or
under Tenant at the expense and risk of Tenant, and, if Landlord so elects, may
sell such effects at public auction or private sale and apply the net proceeds
to the payment of all sums due to Landlord from Tenant, if any, and pay over the
balance, if any, to Tenant.
SECTION 12.2 REMEDIES. In the event that this Lease is terminated under
any of the provisions contained in Section 12.1(i) Landlord shall use reasonable
efforts to relet the Premises, and (ii) Tenant shall pay forthwith to Landlord,
as compensation, the excess of the total rent reserved for the residue of the
Term over the fair market rental value of the Premises for the residue of the
term, such excess to be discounted to present value at 10% per annum. In
calculating the rent reserved there shall be included, in addition to the Fixed
Rental and Additional Rent, the value of all other considerations agreed to be
paid or performed by Tenant during the residue. As additional and cumulative
obligations after any such termination, Tenant shall also pay punctually to
Landlord all the sums and shall perform all the obligations which Tenant
covenants in this Lease to pay and to perform in the same manner and to the same
extent and at the same time as if this Lease had not been terminated. In
calculating the amounts to be paid by Tenant pursuant to the preceding sentence,
Tenant shall be credited with any amount paid to Landlord pursuant to the first
sentence of this Section 12.2 and also with the net proceeds of any rent
obtained by Landlord by reletting the Premises, after deducting all Landlord's
reasonable expenses in connection with such reletting, including, without
limitation, all repossession costs, brokerage commissions, fees for legal
services and expenses of preparing the Premises for such reletting, it being
agreed by Tenant that Landlord may (i) relet the Premises or any part or parts
thereof for a term or terms which may at Landlord's option be equal to or less
than or exceed the period which would otherwise have constituted the balance of
the term hereof and may grant such concessions and free rent as Landlord in its
reasonable judgment considers advisable or necessary to relet the same and (ii)
make such alterations, repairs and decorations in the Premises as Landlord in
its reasonable judgment considers advisable or necessary to relet the same, and
no action of Landlord in accordance
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with the foregoing or failure to relet or to collect rent under reletting shall
operate or be construed to release or reduce Tenant's liability as aforesaid.
SECTION 12.3 REMEDIES CUMULATIVE. Except as otherwise expressly
provided herein, any and all rights and remedies which Landlord may have under
this Lease and at law and equity shall be cumulative and shall not be deemed
inconsistent with each other, and any two or more of all such rights and
remedies may be exercised at the same time to the greatest extent permitted by
law.
SECTION 12.4 LANDLORD'S RIGHT TO CURE DEFAULTS. At any time following
ten (10) days' prior notice to Tenant (except in cases of emergency when no
notice shall be required), Landlord may (but shall not be obligated to) cure any
default by Tenant under this Lease, and whenever Landlord so elects, all costs
and expenses incurred by Landlord, including reasonable attorneys' fees, in
curing a default shall be paid by Tenant to Landlord as Additional Rent on
demand, together with interest thereon at the rate provided in Section 12.7 from
the date of payment by Landlord to the date of payment by Tenant.
SECTION 12.5 EFFECT OF WAIVERS OF DEFAULT. Any consent or permission by
Landlord to any act or omission which otherwise would be a breach of any
covenant or condition herein, or any waiver by Landlord of the breach of any
covenant or condition herein, shall not in any way be held or construed (unless
expressly so declared) to operate so as to impair the continuing obligation of
any covenant or condition herein, or otherwise operate to permit the same or
similar acts or omissions except as to the specific instance. The failure of
Landlord to seek redress for violation of, or to insist upon the strict
performance of, any covenant or condition of this Lease shall not be deemed a
waiver of such violation nor prevent a subsequent act, which would have
originally constituted a violation, from having all the force and effect of an
original violation. The receipt by Landlord of rent with knowledge of the breach
of any covenant of this Lease shall not be deemed to have been a waiver of such
breach by Landlord or of any of Landlord's remedies on account thereof,
including its right of termination for such default.
SECTION 12.6 NO ACCORD AND SATISFACTION. No acceptance by Landlord of a
lesser sum than the Fixed Rental, Additional Rent or any other charge then due
shall be deemed to be other than on account of the earliest installment of such
rent or charge due, unless Landlord elects by notice to Tenant to credit such
sum against the most recent installment due. Any endorsement or statement on any
check or any letter accompanying any check or payment as rent or other charge
shall not be deemed an accord and satisfaction, and Landlord may accept such
check or payment without prejudice to Landlord's right to recover the balance of
such installment or pursue any other remedy under this Lease or otherwise.
SECTION 12.7 INTEREST ON OVERDUE SUMS. If Tenant fails to pay Fixed
Rental, Additional Rent or any other sum payable by Tenant to Landlord by the
due date thereof (i,e,, the due date disregarding any requirement of notice from
Landlord or any period of grace allowed to Tenant), the amount so unpaid shall
bear interest at a variable rate (the
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"Delinquency Rate") equal to three percent (3%) in excess of the base rate
(prime rate) of The First National Bank of Boston from time to time in effect
commencing with the due date and continuing through the day on which payment of
such delinquent payment with interest thereon is paid. If such rate is in excess
of any maximum interest rate permissible under applicable law, the Delinquency
Rate shall be the maximum interest rate permissible under applicable law.
SECTION 13
MORTGAGES
SECTION 13.1 RIGHTS OF MORTGAGE HOLDERS. No Fixed Rental, Additional
Rent or any other charge shall be paid more than ten (10) days prior to the due
date thereof and payments made in violation of this provision shall (except to
the extent that such payments are actually received by a mortgagee in possession
or in the process of foreclosing its mortgage) be a nullity as against such
mortgagee and Tenant shall be liable for the amount of such payments to such
mortgagee.
In the event of any act or omission by Landlord which would give Tenant
the right to terminate this Lease or to claim a partial or total eviction,
Tenant shall not exercise any such right (a) until it shall have given notice,
in the manner provided in Section 14.1, of such act or omission to the holder of
any mortgage encumbering the Premises whose name and address shall have been
furnished to Tenant in writing, at the last address so furnished, and (b) until
a reasonable period of time for remedying such act or omission shall have
elapsed following the giving of such notice, provided that following the giving
of such notice, Landlord or such holder shall, with reasonable diligence, have
commenced and continued to remedy such act or omission or to cause the same to
be rendered.
In the event any proceedings are brought for the foreclosure of, or in
the event of exercise of the power of sale under, any mortgage now or hereafter
encumbering the Premises, Tenant shall attorn to the purchaser upon such
foreclosure or sale or upon any grant of a deed in lieu of foreclosure and
recognize such purchaser as Landlord under this Lease.
SECTION 13.2 SUPERIORITY OF LEASE; OPTION TO SUBORDINATE. Unless
Landlord exercises the option set forth below in this Section 13.2, this Lease
shall be superior to and shall not be subordinate to any mortgage on the
Premises. Landlord shall have the option to subordinate this Lease to any
mortgage of the Premises provided that the holder of record thereof enters into
an agreement with Tenant, in such form as is reasonably satisfactory to Tenant,
by the terms of which such holder will agree to (a) recognize the rights of
Tenant under this Lease, (b) perform Landlord's obligations hereunder arising
after the date of such holder's acquisition of title and (c) accept Tenant as
tenant of the Premises under the terms and conditions of this Lease in the event
of acquisition of title by such holder through foreclosure proceedings or
otherwise and Tenant will agree to recognize the holder of such mortgage as
Landlord in such event, which agreement shall be made expressly to bind and
inure to the benefit of the successors and assigns of Tenant and of the holder
and upon anyone purchasing
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the Premises at any foreclosure sale. Tenant agrees to execute and deliver any
appropriate instruments necessary to carry out the agreements contained in this
Section 13.2.
SECTION 14
MISCELLANEOUS PROVISIONS
SECTION 14.1 NOTICES FROM ONE PARTY TO THE OTHER. All notices required
or permitted hereunder shall be in writing and addressed, if to Tenant, at the
Original Address of Tenant or such other address as Tenant shall have last
designated by notice in writing to Landlord and, if to Landlord, at the original
Address of Landlord or such other address as Landlord shall have last designated
by notice in writing to Tenant. Any notice shall be deemed duly given when
delivered or tendered for delivery (via certified mail, return receipt requested
or via a nationally recognized overnight courier service) at such address.
SECTION 14.6 QUIET ENJOYMENT. Landlord agrees that upon Tenant's paying
the rent and performing and observing the terms, covenants, conditions and
provisions on its part to be performed and observed, Tenant shall and may
peaceably and quietly have, hold and enjoy the Premises during the term without
any manner of hindrance or molestation from Landlord or anyone claiming under
Landlord, subject, however, to the terms of this Lease.
SECTION 14.3 LEASE NOT TO BE RECORDED; NOTICE OF LEASE. Tenant agrees
that it will not record this Lease. If the Term of this Lease, including
options, exceeds seven years, Landlord and Tenant agree that, on the request of
either, they will enter and record a notice of lease in form reasonably
acceptable to Landlord.
SECTION 14.4 BIND AND INURE: LIMITATION OF LANDLORD'S LIABILITY. The
obligations of this Lease shall run with the land, and this Lease shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns. No owner of the Premises shall be liable under this
Lease except for breaches of Landlord's obligations occurring while owner of the
Premises. The obligations of Landlord shall be binding upon the assets of
Landlord which comprise the Premises but not upon other assets of Landlord, No
individual partner, trustee, stockholder, officer, director, employee or
beneficiary of Landlord shall be personally liable under this Lease and Tenant
shall look solely to Landlord's interest in the Premises in pursuit of its
remedies upon an event of default hereunder, and the general assets of Landlord
and its partners, trustees, stockholders, officers, employees or beneficiaries
of Landlord shall not be subject to levy, execution or other enforcement
procedure for the satisfaction of the remedies of Tenant.
SECTION 14.5 ACTS OF GOD. In any case where either party hereto is
required to do any act, delays caused by or resulting from acts of God, war,
civil commotion, fire, flood or other casualty, labor difficulties, shortages of
labor, materials or equipment, government regulations, unusually severe weather,
or other causes beyond such party's reasonable control shall not be counted in
determining the time during which work shall be completed, whether
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26
such time be designated by a fixed date, a fixed time or a "reasonable time",
and such time shall be deemed to be extended by the period of such delay.
SECTION 14.6 LANDLORD'S DEFAULT. Landlord shall not be deemed to be in
default in the performance of any of its obligations hereunder unless it shall
fail to perform such obligations and unless within thirty (30) days after notice
from Tenant to Landlord specifying such default Landlord has not commenced
diligently to correct the default so specified or has not thereafter diligently
pursued such correction to completion. Tenant shall have no right, for any
default by Landlord, to offset or counterclaim against any rent due hereunder.
SECTION 14.7 BROKERAGE. Each party (i) warrants and represents to the
other party that it has had no dealings with any broker or agent in connection
with this Lease other than the Broker(s) set forth in Section 1 and (ii)
covenants to defend with counsel reasonably approved by the non-breaching party,
hold harmless and indemnify the non-breaching party from and against any claim,
loss, damage, cost or liability for any brokerage commission or fee which may be
asserted against the non-breaching party as a result of the breaching party's
breach of the warranty set forth in this sentence.
SECTION 14.8 MISCELLANEOUS. This Lease shall be governed by and
construed in accordance with the laws of the commonwealth of Massachusetts.
There are no prior oral or written agreements between Landlord and Tenant
affecting this Lease.
SECTION 14.9 RIGHT OF OFFER. Landlord shall not offer the Building for
sale without first complying with the provisions of this Section. The following
provisions shall not apply to any sale or transfer of the Building to any
affiliate of Landlord or to any partner of Landlord or any affiliate of such
partner or if Landlord shall desire to offer the Building for sale as part of a
package which includes one or more other properties. For the purpose of the
preceding sentence, an affiliate shall mean an entity which, directly or
indirectly, controls, is controlled by, or is under control with, a party. Prior
to offering the Building for sale, Landlord shall give Tenant notice of
Landlord's desire to sell the Building, stating a price and the other terms and
conditions on which Landlord desires to sell ("Landlord"s Initial Offer"),
Landlord's notice shall include a date and time for the closing of such purchase
and sale. If during the thirty (30) day period following Landlord's notice,
Tenant shall give notice to Landlord that Tenant desires to purchase the
Building, Landlord shall sell and Tenant shall purchase the Building at the
price and upon the other terms and conditions set forth in Landlord's notice. If
Tenant shall not exercise its right to purchase set forth in the preceding
sentence or if Tenant shall exercise such right but shall fail to complete such
purchase pursuant to such terms and conditions after it shall have exercised
such right, Landlord shall be free thereafter to sell the Building to any party
at any price and on any terms and conditions, without again complying with the
provisions of this section, provided, however, that if Landlord is willing to
accept a price (the "Reduced Price") for the Building that is 90% or less than
the price set forth in Landlord's Initial Offer, Landlord shall reoffer (the
"Reduced offer") the Building to Tenant at the Reduced Price and on the other
terms and conditions upon which
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Landlord is willing to sell the Building, whereupon Tenant shall have five (5)
business days to accept the Reduced Offer.
WITNESS the execution hereof under seal as of the day and year first
above written.
TENANT:
MERCURY COMPUTER SYSTEMS, INC.
By: /s/
--------------------------------
Its:
LANDLORD:
EQUITABLE VARIABLE LIFE
INSURANCE COMPANY
By: /s/
--------------------------------
Its:
EXHIBIT B
PRELIMINARY SPACE PLAN
Plans Chelmf-1 and Chelmf-2 dated 7/22/92 prepared by Susan Tosi
Note: Approval of preliminary space plan is subject to review by Landlord's
structural and HVAC engineers.
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EXHIBIT 10.7
PURCHASE AND SALE AGREEMENT
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1. PARTIES This 8th day of November, 1996 Corcoran Chelmsford B
Associates, a Massachusetts limited partnership with a
principal place of business at 100 Grandview Road,
Braintree, MA 02184 (the "the SELLER"), agrees to sell
and Northland Development Corporation, a Delaware
corporation with a principal place of business at 2150
Washington Street, Newton, Massachusetts (the "the BUYER"
or the "PURCHASER") agrees to buy, upon the terms
hereinafter set forth, the following described premises:
- --------------------------------------------------------------------------------
2. DESCRIPTION A certain parcel of land comprising approximately 9.26
acres of land located on Riverneck Road, Chelmsford,
Massachusetts identified on the Town of Chelmsford Tax
Assessor's Map 110 as Lot 32 and all as shown on Exhibit
A attached hereto (the "Premises" or the "Property"). The
Premises are shown on a plan of land entitled "Site Plan,
495/3 Tech Center Building B, Chelmsford Mass." prepared
by H.W. Moore Associates, Inc. and dated December 19,
1984, revised 3/12/86 (the "Plan"). The SELLER's title is
derived under a Deed recorded with the Middlesex County
(Northern District) Registry of Deeds in Book 3818, Page
249 and Certificate of Title No. 27533.
3. APPURTENANCES The Premises to be conveyed shall include all other
assignable rights, easements, privileges, licenses or
appurtenances benefiting, affecting or relating to the
Premises as held by the SELLER and running with the land
and including without limitation all rights in adjoining
private ways and any assignable permit rights held by the
SELLER. The BUYER shall be entitled to such rights as the
SELLER may have and which are assignable by SELLER and
are appurtenant to the Premises, but SELLER makes no
representations that SELLER has any such rights or that
any such rights held by SELLER are assignable to or
exercisable by BUYER. In addition, at the time set for
Closing, the SELLER shall deliver to the BUYER an
easement agreement from the owner and any mortgagee of
adjacent Lot 3 shown on the Plan in recordable form for
the purposes of allowing drainage and/or discharge to
flow from the Premises onto Lot 3 abutting the Premises
substantially in the manner shown on the Plan.
2
4. TITLE DEED The Property shall be conveyed by a good and
sufficient quitclaim deed running to the BUYER or to the
nominee designated by the BUYER by written notice to the
SELLER at least 10 days prior to closing, and said deed
shall convey good and clear record and marketable title
thereto free from encumbrances, except:
a. provisions of existing building and zoning laws;
b. such taxes for the then current year as are not due
and payable as of the date of the delivery of the deed;
and,
c. a presently outstanding betterment lien for sewer
installation and any other liens for municipal
betterments assessed and recorded after the date of this
Agreement.
d. Matters which BUYER is deemed to have accepted
pursuant to the terms of this Agreement.
e. Matters which in BUYER's reasonable judgment do not
impair BUYER's Proposed Project (as hereinafter defined).
Except as to matters which the BUYER is deemed to have
accepted pursuant to the terms hereof the SELLERS title
hereunder shall not be deemed good and marketable unless:
i. such title is insurable at standard rates by a
recognized company of the BUYER's choice which shall
affirmatively insure each of the appurtenances to be
conveyed pursuant to paragraph 3 hereof and without
exceptions except as to matters permitted or waived under
this paragraph 4 and standard printed exceptions on the
policy jacket;
ii. the BUYER'S survey discloses no new encroachments,
including without limitation encroachments of structures,
easements or rights of way from adjacent properties onto
the Property arising after December 15, 1996;
iii. Appurtenant to the Property is the right to use a
driveway shown on the Plan leading to Riverneck Road in
common with the owner of Lot I shown on the Plan.
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BUYER agrees that promptly upon execution of this
Agreement BUYER will cause title to the Property to be
reviewed in the manner deemed appropriate by Buyer as of
December 15, 1996 and a survey to be prepared. On or
before the end of the Inspection Period BUYER will notify
SELLER of any manner in which the title to the Property
as of December 15, 1996 does not comply with the
standards of this Agreement. If BUYER does not terminate
this Agreement pursuant to Paragraph 24 then any such
objections to title as of December 15, 1996 shall be
subject to Paragraph 10 hereof, and the SELLER shall
notify the BUYER within 10 days of BUYER's notice of
title objections as to the actions which SELLER intends
to take to cure title defects in BUYER's notice. BUYER
will be deemed to have waived any objections to the
status of record title as of December 15, 1996 to the
extent such objection is not noted in BUYER's title
notice to SELLER. The standards of subparagraphs (i)
through (iii) of this Paragraph 4 shall apply to any
matters of record title or of survey first recorded or
occurring after December 15, 1996.
5. REGISTERED In addition to the foregoing, said deed shall be in form
TITLE sufficient to entitle the BUYER to a Certificate of
Title, and the SELLER shall deliver with said deed all
instruments, including without limitation the SELLER'S
Owner's Duplicate Certificate, necessary to enable the
BUYER to obtain such Certificate of Title.
6. PURCHASE The Purchase Price for the Property is Six Hundred
Thousand and NO/100 Dollars ($600,000.00) which, less the
Deposit referred to in Paragraph 7, shall be paid to the
Seller at the delivery and recording of the deed in
certified, bank, or treasurer's funds or by wire
transfer.
7. DEPOSIT Upon the execution hereof, the BUYER shall deliver to
Goodwin, Proctor and Hoar, LLP, as escrow agent, an
amount of Sixty Thousand ($60,000.00) Dollars to be held
in accordance with Paragraph 32 as a deposit applicable
to the purchase price and to be accounted for at the
delivery of the deed or delivered (i) to the SELLER if
the sale either closes or does not close because of a
default of the BUYER or (ii) to the BUYER if the sale
does not close for any other reason.
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4
8. TIME AND Such deed is to be delivered (the "Closing") on or
PLACE FOR before the 30th day after the expiration of all appeal
PERFORMANCE periods for the approvals as described in Paragraph 26
hereof provided that this Agreement shall not sooner have
been terminated under any clause of this Agreement
allowing for such termination. The Deed shall be
delivered at the office of BUYER's counsel Schlesinger
and Buchbinder 1200 Walnut Street Newton, MA 02161. BUYER
may, at BUYER's option, advance the closing to any
earlier date and/or change the location of the closing
within Greater Boston upon at least five (5) business
days' notice to SELLER. It is agreed that time is of the
essence of this Agreement.
9. POSSESSION Full possession of said premises free of all tenants and
AND occupants is to be delivered at the time of the delivery
CONDITION of the deed, said premises to be:
OF PREMISES
a. in the same condition as they now are, and
b. in compliance with the requirements referred to in
paragraphs 3 and 4.
10. EXTENSION TO If the SELLER shall be unable to give title or to make
PERFECT TITLE OR conveyance, or to deliver possession of the Premises, all
MAKE PREMISES as herein stipulated, or if at the time of the delivery
CONFORM of the deed the Premises do not conform with the
provisions hereof the SELLER shall use reasonable efforts
to remove any defects in title, or deliver possession as
provided herein, or make the Premises conform to the
provisions hereof as the case may be and the time for
performance hereof shall be extended for such period as
may be reasonably necessary but not more than thirty (30)
days for the SELLER to correct any such cure; provided
that the SELLER shall not be obligated to spend more than
$5,000.00 to remove non-monetary defects, deliver
possession as provided herein or make the Premises
conform to the provisions hereof but provided further
that the SELLER shall be obligated to remove all
voluntary monetary encumbrances and shall be obligated to
bond or offer to pay up to the net sale proceeds into
court with respect to involuntary monetary encumbrances
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5
11. FAILURE TO If at the expiration of any such extended time the
PERFECT TITLE OR SELLER shall have failed to remove any defects in title,
MAKE PREMISES deliver possession, or make the Premises conform, as the
CONFORM, ETC. case may be all as herein agreed then, at the BUYER's
sole option, except as provided in Paragraph 12, the
deposits made under this Agreement shall be forthwith
refunded and all other obligations of the parties hereto
shall cease and this Agreement shall be void without
recourse to the parties, except for BUYER's
indemnification and reimbursement obligations hereunder
which shall survive any such termination.
12. BUYERS ELECTION The BUYER shall have the election, at either the original
TO ACCEPT TITLE or any extended time for performance, to accept such
title as the SELLER can deliver to the Premises in their
then condition and to pay therefor the purchase price
without deduction, in which case the SELLER shall convey
such title.
13. ACCEPTANCE The acceptance of a deed by the BUYER or its nominee, as
OF DEED the case may be, shall be deemed to be a full performance
and discharge of every agreement and obligation herein
contained or expressed, except such as are, by the
express terms hereof, to be performed after the delivery
of the deed.
14. USE OF PURCHASE To enable the SELLER to make conveyance as herein
MONEY TO CLEAR provided, the SELLER may, at the time of the Closing use
TITLE the purchase money or any portion thereof to clear the
title of any or all encumbrances or interests, provided
that all instruments so procured from institutional
lenders are recorded reasonably promptly after the
delivery of the deed in the usual and customary manner
and all other instruments are recorded simultaneously
with the recording of said deed
15. ADJUSTMENTS Any applicable municipal use charges, assessments and
taxes for the then current year shall be apportioned as
of the Closing, and the net amount thereof shall be added
to or deducted from, as the case may be, the purchase
price payable by the BUYER at the Closing.
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6
16. ADJUSTMENT OF If the amount of said taxes is not known at the time of
UNASSESSED AND the delivery of the deed, they shall be apportioned on
ABATED TAXES the basis of the taxes assessed for the preceding year
with a reapportionment as soon as the new tax rate and
valuation can be ascertained; and, if the taxes which are
to be apportioned shall thereafter be reduced by
abatement, the amount of such abatement, less the
reasonable cost of obtaining the same shall be
apportioned between the parties, provided that neither
party shall be obligated to institute or prosecute
proceedings for an abatement unless herein otherwise
agreed.
17. BROKERAGE Each party represents that neither has engaged the
services of a real estate broker in the consummation of
this transaction except that the SELLER has engaged The
Miles Company, Inc. pursuant to a separate agreement, and
that except for the commission to The Niles Company,
Inc., which SELLER agrees to pay, no commission is due to
any person from this sale. Each party indemnifies the
other from and against all costs, loss and damage
incurred by the other resulting from any other claim or
right to a brokerage commission arising out of the
failure of its representation. This provision shall
survive delivery of the deed.
18. TITLE INSURANCE At the Closing the SELLER shall execute usual and
customary title insurance company affidavits in form and
substance reasonably satisfactory to SELLER to the effect
that there are no parties in possession affecting the
Premises and that no work has been performed upon the
Premises by SELLER which would entitle any person to a
mechanic's or materialman's lien upon any portion of the
Premises. The SELLER shall provide certificates or
affidavits reasonably satisfactory to the BUYER's title
insurance company as to the existence of the SELLER and
the identity and authority of the general partners acting
on behalf of SELLER. The SELLER shall further execute a
foreign person certificate pursuant to Internal Revenue
Code Section 1445 and provide BUYER with information
sufficient for IRS form 1099 if required.
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7
19. ACCESS The SELLER hereby agrees that the BUYER and the BUYER'S
representatives, consultants, engineers and/or agents
shall have the right of access to the Premises at all
reasonable times on reasonable prior notice from the date
of this Agreement up to and including the Closing all at
the sole risk and responsibility of the BUYER, to conduct
surveys, engineering, hazardous materials and other
construction or development tests, or to inspect the
Property. Tests anticipated by BUYER to be undertaken
under this paragraph as set forth in Exhibit B attached.
Prior to any such access BUYER or BUYER's contractors or
agents shall provide SELLER with certificates of
insurance evidencing liability insurance coverage of at
least $1,000,000, property damage of at least $1,000,000
and, to the extent applicable worker's compensation
insurance in at least statutory limits and naming SELLER,
its agents, partners and employees and The Equitable Life
Insurance Company of America as additional insurers. The
BUYER agrees to indemnify and hold the SELLER, its
agents, partners and employees harmless from and against
any damage, claims, loss or liability arising out of any
activity of BUYER, its representatives, consultants,
engineers and/or agents on the Premises. The SELLER
acknowledges that the BUYER's hazardous materials testing
or other tests may require the digging of one or more
borings or test pits on the Property, and surveys may
cause usual and customary holes, clearing of sight fines,
or digging. The BUYER agrees promptly to re-grade and
re-store reasonably the Property upon the taking of any
borings; or test pits and to undertake such tests using
appropriate caution. BUYER's obligations under this
paragraph 19 to indemnify Seller shall survive the
delivery of the deed or termination of this Agreement,
and BUYER's obligations under this paragraph 19 to
restore the Property shall survive termination of this
Agreement.
20. BUYERS DEFAULT In the event the BUYER shall default in the performance
of the BUYER'S obligations hereunder all deposits made by
the BUYER and all interest earned thereon shall be
retained by the SELLER as liquidated damages and shall
constitute the SELLER's sole remedy at law or in equity.
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21. PLANS AND SELLER agrees to assign to the BUYER at the Closing all
PERMITS of the SELLER'S right, title and interest in such plans,
surveys, engineering reports, licenses, permits and
governmental or quasi governmental permits as exist as of
the date of the Closing including without limitation
SELLER's rights if any under a previous MEPA approval for
the Property, but only to the extent such rights, plans,
licenses, or permits (i) relate to the Premises, (ii) are
assignable at no cost to SELLER and without the necessity
of obtaining any third party's consent, and (iii) are
otherwise useful or necessary in Buyer's reasonable
judgment for development, construction or operation of
the BUYER'S proposed development similar to that
previously permitted by SELLER and shown on the Plan (the
"Proposed Project")
22. MUTUAL Prior and subsequent to delivery of the deed the SELLER
COOPERATION agrees at BUYER's expense to cooperate with the BUYER'S
filings for all governmental permits usual, customary or
necessary for the Proposed Project. The SELLER'S
cooperation shall include, without limitation, the
signing of such applications as are required to be in the
name of the owner of the land while the SELLER is the
owner and the submission to regulatory authorities of
letters of approval and support by the SELLER. In
exercising its cooperation under this paragraph, the
SELLER shall not be obligated to expend any monies but
each shall lend such reasonable support as is reasonably
requested to applications or requests of the BUYER
without the expenditure of money. SELLER agrees that Lot
C shown on the Plan will not be developed with a project
of more than 59,000 gross square feet, and BUYER agrees
that the Proposed Project will not exceed 97,000 gross
square feet, it being the intention of this paragraph
that each of Lot B and Lot C have the right pursuant to
previously granted MEPA authorizations to construct the
projects shown in such authorizations. In the event
either BUYER or SELLER desires to construct or develop a
project of more than the respective aforesaid gross
square footage and as described and shown in such
authorizations, such party may seek the required
approvals, including without limitation any changes to
the MEPA authorizations previously granted, provided the
other party's rights under such previously granted MEPA
authorizations are not affected The mutual covenants
contained in this Paragraph shall survive delivery of the
deed.
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23. DUE DILIGENCE Notwithstanding any other provision hereof the BUYER
shall for sixty (60) days after the date of this
Agreement (the "Inspection Period") have the right
subject to the provisions of paragraph 19 to conduct a
"due diligence" review of the Property and of the
feasibility of BUYER's proposed development and such
other matters as BUYER may deem appropriate in BUYER's
judgment including but not limited to:
(A) OIL AND HAZARDOUS MATERIALS: The BUYER may engage
an engineering consultant at the BUYER's expense to
conduct a so-called "21E study" environmental report
on the Property with a view towards determining
whether any portion of the Property contains or is
subject to a release or threat of release of oil or
hazardous materials as defined in M.G.L. c 21E. The
BUYER's environmental report may at the BUYER's
election include soils and groundwater testing at the
Property.
(B) BUILDABILITY. The BUYER may review whether the
Property is buildable in view of ledge, site
conditions or access, unavailability or expense of
providing utilities, existence of wetlands or
floodplains, zoning, subdivision, MEPA or other
regulatory constraints or any other reason the BUYER
may deem appropriate. BUYER is specifically authorized
to review the development potential of the Property
with governmental officials in order to estimate and
evaluate the risk or likelihood of success in
obtaining necessary governmental approvals for
development of the Property.
(C) TITLE AND SURVEY: The BUYER may have the record
title to the Property investigated as of the date
hereof and may have such surveys or other plans or
information relative to title prepared in order to
ascertain whether the Property conforms to the
conveyancing standards of this Agreement, whether all
necessary rights appurtenant run with the Property and
is otherwise suitable for the BUYER's development.
BUYER agrees that it will promptly and diligently seek to
satisfy itself with respect to its due diligence review
of the Property within the Inspection Period, exerting
reasonable efforts to that end. BUYER agrees that it will
keep SELLER reasonably informed concerning the progress
of its due diligence review.
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24. RIGHT TO On or before the end of the Inspection Period the BUYER
TERMINATE shall have the right to terminate this Agreement with or
without any reason. The BUYER may exercise its right
under this Paragraph by a notice to the SELLER in the
BUYER's sole discretion no later than 5:00 P.M. on the
last day of the Inspection Period in which event this
Agreement shall be terminated, the deposit described in
Paragraph 7 hereof together with any interest accrued
thereon shall be returned to the BUYER and the parties
shall have no further obligations to each other
hereunder, except that BUYER's obligation to indemnify
and reimburse SELLER and to restore the Property pursuant
to paragraph 19 and SELLER's obligation to return the
deposit with accrued interest shall survive any such
termination. Upon any termination of this Agreement under
this paragraph BUYER shall promptly deliver to SELLER,
but not as a condition of such termination copies of any
plans, reports or other investigatory data obtained by
BUYER in the course of BUYER's due diligence
investigation. BUYER shall not warrant or represent the
accuracy of any factual matters or legal conclusions
contained in any such reports, nor shall BUYER be
required to provide that any such reports shall run to or
for the benefit of SELLER. Further BUYER may withhold
reports prepared by its counsel or other reports, plans
or documents given in confidence or subject to
non-disclosure provisions binding on BUYER. It is
expressly understood and agreed that BUYER's failure to
give timely notice of termination as aforesaid shall be
conclusively deemed to constitute BUYER's waiver of
BUYER's right to terminate this Agreement under this
Paragraph.
- 10 -
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25. HAZARDOUS In the event BUYER does not terminate this Agreement as
MATERIALS provided in Paragraph 25 and in the further event that
BUYER's investigation of the Premises indicates that oil
or hazardous materials are present in, on or under the
Premises that would require removal or remediation under
the Massachusetts Contingency Plan then BUYER may, by a
notice given within the Inspection Period, require that
SELLER remove or remediate such condition or take such
other steps as are required by law and further that
Seller provide documentation and approvals as required by
the Massachusetts Contingency Plan, if any; provided that
in undertaking such remediation and documentation SELLER
shall not be required to expend more than $50,000.00. In
the event that SELLER provides reasonable evidence that
the removal, remediation and documentation required under
this Paragraph will cost in excess of $50,000.00 then
SELLER may at SELLER's option decline to undertake such
removal or remediation and may instead determine that the
Premises as delivered would not conform to the
requirements hereof and SELLER may terminate this
Agreement by a notice to BUYER within fifteen (15) days
of the end of the Inspection Period subject to the
provisions of Paragraph 12.
- 11 -
12
26. PERMITS AND In the event the BUYER does not terminate this Agreement
APPROVALS during the Inspection Period pursuant to Paragraph 24 the
BUYER shall, at the BUYER's sole cost and expense, during
or promptly after the end of the Inspection Period
prepare plans and applications as necessary for such
zoning permits, variances, wetlands orders, Army Corps
permits, sewer and water connection permits, NPDES
permits, MEPA review or other governmental or
quasigovernmental permits, licenses, orders and approvals
as the BUYER may reasonably determine are usual,
customary or necessary to construct the Proposed
Project. The BUYER shall use good faith diligent efforts
to submit to the Chelmsford Planning Board or other
appropriate permit granting authority an application for
a Special Permit or Site Plan Review or such other relief
as the BUYER shall reasonably deem appropriate on or
before February 15, 1997. In the event that after
employing reasonable efforts, the BUYER is unable to
obtain all such permits, licenses, orders and approvals
including without limitation utility services, but in any
event not including a building permit, on or before the
date six months after the end of the Inspection Period
and all appeal periods related thereto have not expired
within such time, then the BUYER shall have the right
either to (i) terminate this Agreement by a notice given
within seven days after the end of the period of six (6)
months after the end of the Inspection Period in which
event all deposits made hereunder together with any
interest accrued thereon shall be refunded to the BUYER
and the parties shall have no further obligations to each
other under this Agreement or (ii) upon one, two or three
further notices to the SELLER each given prior to
expiration of the applicable extension period, and
provided that the BUYER is diligently seeking such
approvals, extend the time for obtaining such approvals
and expiration of any such appeals period(s) for up to
three (3) three extension periods of thirty (30) days
each, or (iii) proceed to close the purchase herein
contemplated.
- 12 -
13
In the event BUYER shall elect to extend the time for
obtaining such approvals and/or running of the appeals
period then Buyer's right to terminate this Agreement for
failure to obtain such permits or approvals final beyond
appeal shall be likewise extended, provided, however, for
each thirty (30) day extension exercised by BUYER under
this paragraph the amount of the deposit which SELLER is
obligated to return to BUYER in the event of BUYER's
termination shall be reduced by $20,000, with all
interest on the deposit that is non-refundable accruing
to SELLER. FOR EXAMPLE: If BUYER shall exercise two
thirty (30) day extensions under this paragraph and then
during the second extension terminate this Agreement on
account of a failure to obtain permits final beyond
appeal then the amount of the deposit to which BUYER
would be entitled to have returned to BUYER would be
($60,000.00 less (2 x $20,000 = $40,000)) $20,000.
- 13 -
14
27. REPRESENTATIONS A. THE BUYER'S REPRESENTATIONS AND WARRANTIES. The BUYER
hereby represents and warrants that the following
representations and warranties are true and accurate as
of the date hereof and shall be deemed renewed by the
BUYER on the date of the Closing as if made at such time
and shall survive the Closing:
(i) the BUYER is a duly organized legally existing
Delaware corporation qualified to do business in
Massachusetts with full legal authority to enter into
this transaction and to fulfill its obligations
hereunder, and,
(ii) the BUYER and the persons signing on its behalf
have been authorized by all necessary corporate action of
the BUYER's directors to enter into and deliver this
Agreement and carry out the transaction contemplated
hereby.
B. THE SELLER'S REPRESENTATIONS AND WARRANTIES: The
SELLER hereby warrants and represents that the following
representations and warranties are true and accurate as
of the date hereof and shall be deemed renewed by the
SELLER on the date of the Closing as if made at such time
and shall survive the Closing:
(i) the SELLER is a duly organized legally existing
Massachusetts limited partnership with full legal
authority to enter into this transaction and to fulfill
its obligations hereunder
(ii) The Seller and those persons signing on its
behalf have been authorized by all necessary partnership
action, if any is so required to enter into and deliver
this Agreement and to carry out the transaction
contemplated hereby.
(iii) Neither the execution of this Agreement nor the
consummation of the transactions contemplated hereby will
constitute a violation of or be in conflict with or
constitute a default under any term or provision of any
order, agreement or lease to which SELLER is a party.
28. CAPTIONS The captions herein are used only as a matter of
convenience and are not to be considered a part of this
Agreement or to be used in determining the intent of the
parties to it.
- 14 -
15
29. NOTICES Notices hereunder shall be deemed properly sent three
days after posting if mailed, certified United States
Mail, return receipt requested, postage prepaid or on the
date of delivery if delivered by courier (including
overnight courier services) or served in hand to the
BUYER at its address first set forth herein with a copy
to Alan J. Schlesinger, Schlesinger and Buchbinder, 1200
Walnut Street, Newton, Massachusetts 02161 and to the
SELLER at its address first set forth herein with a copy
to Kim M. Rubin, Goodwin, Procter & Hoar LLP, Exchange
Place, Boston, MA 02109
30. ASSIGNMENT This Agreement may be assigned by the BUYER to any
affiliate or nominee of the BUYER without the prior
written consent of the SELLER, provided that upon any
assignment of the BUYER's rights hereunder Northland
Development Corporation shall remain liable for
performance of the obligations of the BUYER hereunder
including those surviving delivery of the deed or
termination of this Agreement, otherwise this Agreement
may not be assigned without SELLER's prior written
consent.
31. TITLE STANDARDS In matters respecting title to the Premises, standards of
the Massachusetts Conveyancers Association shall be
determinative.
- 15 -
16
32. DEPOSITS, ESCROW All deposits referred to in Section 7 are to be held in
AGENT an interest bearing escrow account, and any interest is
to be accounted for and allocated to the BUYER at the
Closing; provided, however, that if all or any of the
deposit is retained by the SELLER under the provisions of
this agreement upon the default of the BUYER, then the
entire amount of interest earned shall be paid to the
SELLER.
All deposits made hereunder shall be held by Goodwin,
Procter & Hoar LLP, as Escrow Agent, subject to the terms
of this Agreement and shall be duly accounted for at the
Closing. In the event of any disagreement, however, the
Escrow Agent may elect, at its sole discretion, either
(a) to retain said deposit, and all interest thereon,
pending instructions mutually given by the SELLER and the
BUYER, or by final order, decree or judgment by a court
of competent jurisdiction (and no such decree or judgment
shall be deemed to be "final", unless and until the time
of appeal has expired and no appeal has been perfected)
or (b) to transfer the entire deposit, together with all
accrued interest thereon, either to a party mutually
agreeable to the BUYER and the SELLER to serve as a
substitute escrow agent to hold the deposit and such
interest pending the resolution of dispute between the
BUYER and the SELLER, or into a court of competent
jurisdiction. In the event of either of the foregoing
elections, Goodwin, Procter & Hoar LLP shall thereafter
be entitled to represent the SELLER in such dispute as
fully and completely as though Goodwin, Procter & Hoar
had never been the escrow agent holding the deposit. The
Escrow Agent shall not be liable for any action taken or
omitted in good faith and believed by it to be authorized
or within the rights or powers conferred upon it by this
Agreement and it may rely, and shall be protected in
acting or refraining from acting in reliance, upon an
opinion of counsel and upon any directions, instructions,
notice, certificate, instrument, request, paper or other
document believed by it in good faith to be genuine and
to have been made, sent, signed or presented by the
proper party or parties. Notwithstanding any other
provisions of this Agreement, the BUYER and the SELLER
jointly indemnify and hold harmless the Escrow Agent
against any loss, liability or reasonable expense
incurred without bad faith or gross negligence on its
part arising out of or in connection with its services
under the terms of this agreement, including the
reasonable cost and expense of defending itself against
any claim or liability.
- 16 -
17
33. AMENDMENTS The BUYER and the SELLER have the right to mutually
amend, modify, extend or terminate their obligations
under this Agreement without first having to obtain the
consent of the Escrow Agent, except in the case of
amendments or modifications of Section 34.
34. MISCELLANEOUS (a) Warranties and Representations: The BUYER
acknowledges that the BUYER has not been influenced to
enter into this transaction nor has BUYER relied upon any
warranty or representations not expressly set forth in
this Agreement. The BUYER hereby acknowledges that BUYER
is purchasing the Property "AS IS" without any
representations or warranties express or implied and that
BUYER is being given the opportunity to inspect fully the
Property. BUYER is not relying upon any statement or
representation of SELLER or the Brokers, express or
implied, with respect to the condition of the Property or
the feasibility or developability of the Proposed
Project. The provisions of this paragraph shall survive
delivery of the deed.
(b) Construction of Agreement: This Instrument, executed
in multiple counterparts, be construed as a Massachusetts
contract, is to take effect as a sealed instrument, sets
forth the entire contract between the parties, is binding
upon and inures to the benefit of the parties hereto and
their respective heirs, devisees, executors,
administrators, successors and assigns, and may be
canceled, modified or amended only by a written
instrument executed by both the SELLER and the BUYER. If
two or more persons are named herein as BUYER their
obligations hereunder shall be joint and several. The
captions and marginal notes are used only as a matter of
convenience and are not to be considered a part of this
AGREEMENT or to be used in determining the intent of the
parties to it.
- --------------------------------------------------------------------------------
- 17 -
18
Executed this date first set forth above.
SELLER BUYER
CORCORAN CHELMSFORD B NORTHLAND DEVELOPMENT
ASSOCIATES LIMITED PARTNERSHIP CORPORATION
By: /s/ By: /s/
-------------------------------- -------------------------------
Its
ESCROW AGENT
GOODWIN, PROCTER AND
HOAR LLP
By: /s/
-------------------------------
- 18 -
1
Exhibit 10.8
Seller TPA No.__________
Buyer TPA No.__________
TERM PURCHASE AGREEMENT
AGREEMENT made this 7/25/95 between ANALOG DEVICES, INC. having a principal
place of business at Norwood, MA (hereinafter Seller) and MERCURY COMPUTER
SYSTEMS, INC., Chelmsford, MA (herein-after Buyer).
1. TERM
Unless earlier terminated as provided herein, this Agreement shall commence on
the effective date hereof and continue thereafter for a period of three (3)
years. During the term, Buyer will exert its best efforts to purchase and Seller
agrees to sell the quantity of semiconductor devices set forth on the attached
Schedule. Purchases credited against this Agreement will be only those entered
during the effective term with shipment scheduled according to the acknowledged
Market Leadtime.
2. PRICES
The prices for the applicable quantity of all devices purchased hereunder shall
be set forth on the Schedule attached hereto and made a part hereof Said prices
shall remain firm for the term of three years. Seller reserves the right to
renegotiate pricing should Buyer fail to meet the scheduled shipments as
detailed in Section 4.
If this Agreement is renewed beyond three (3) years, the devices, quantities and
prices on the attached Schedule shall be subject to review, adjustment or
renegotiation for each succeeding period. Any changes shall be negotiated within
thirty (30) days before or after the expiration of each period.
3. CANCELLATION/TERMINATION
Buyer may cancel orders placed in accordance with the provisions of this
Agreement subject to the following restrictions and the SHIPMENT SCHEDULE
detailed in Item 4.
STANDARD PRODUCT
Cancellation of standard product (resalable in its original condition)
without charge back requires written notice to Seller sixty (60) days
or more prior to the scheduled ship date.
If Buyer terminated individual orders in whole or in part because of
Seller's failure to deliver acceptable units in accordance with the
requirements and terms of this Agreement,
2
STANDARD PRODUCT (Continued)
the undelivered quantity shall be applied against the total quantities
of this Agreement in the same manner as if the purchase transaction had
actually been completed.
4. SCHEDULED SHIPMENTS
Buyer agrees to place orders and accept shipments, contingent upon Buyer's
written acceptance of the semiconductor devices to Seller's production design
specifications, for a minimum of the following, as further described in the
attached Schedule of Pricing:
1. * units within one (1) year of Buyer's written acceptance.
2. * additional units (or * cumulative units) within two (2) years of
Buyer's written acceptance.
3. * additional units (or * cumulative units) within three (3) years of
Buyer's written acceptance.
Written notice shall be given sixty (60) days or more prior to rescheduling
orders. Seller will accommodate pull-ins on a best effort basis
5. MINIMUM ORDER
The minimum order or release hereunder shall be * units per purchase order.
Preproduction quantities may be released in smaller increments based on Buyer's
needs.
6. MARKET LEADTIME
Leadtimes for product covered in the Schedule will be eight (8) weeks.
7. FORECAST
Buyer will provide Seller each month with a forecast of unit demand, on a best
effort basis, for a rolling six month window.
8. ADDITIONS
By mutual agreement of Buyer and Seller, additional quantities, devices and
schedules may be added during the term of this Agreement.
*Information omitted for confidential treatment.
- 2 -
3
9. AUTHORIZED PURCHASES
Only bonafide divisions, wholly-owned or majority owned subsidiaries of Buyer,
may enter purchase orders with Seller under the terms of this Agreement. Such
purchases shall be credited against this Agreement.
10. CONDITION OF SALE OR PURCHASE
Conditions governing purchases hereunder shall be this Agreement, together with
Analog's standard terms of sale modified herein as follows:
Item IA: Price adjustment, is nullified by the Purchase
Agreement since prices will remain fixed for 3 years.
Item 2. Delete the requirement for a finance charge on
overdue payments.
Item 3B: Delete the requirement that the Buyer grants to
Analog Devices security interest.
Item 3E: Second sentence is deleted. Buyer shall have the
right to terminate the contract should shipments be
delayed by more than 30 days.
Item 7b: Table I modified as follows:
0-30 days *% charge
31-60 days *% charge
61 and over *%
Item 7d. Restocking fee modified to *%
Other applicable conditions shall be those mutually agreed upon as they relate
to specific orders at the time of entry and acknowledgment. Additional or
superseding conditions to this Agreement shall be incorporated only be amendment
or a separate agreement duly executed.
11. TERMS OF SALE
All deliveries will be made F.O.B. Seller's point of shipment. Each such
delivery will be separately invoiced and payment shall be due and payable
without regard to other deliveries.
12. EXPORT/REEXPORT
Buyer agrees that it will not in any form export, re-export, resell, ship or
divert or cause to be exported, re-exported, resold, shipped or diverted,
directly or indirectly, any product or technical data or software furnished
hereunder or the direct product of such technical data or software to any
country for which the United States Government or any agency thereof at the time
of export or re-export requires an export license or other governmental approval
without first obtaining such license or approval.
*Information omitted for confidential treatment.
- 3 -
4
13. DISTRIBUTOR PARTICIPATION
When the Buyer has critical and urgent need and Seller unable to accept Buyer's
purchase order(s) for standard product incorporated within this Agreement, Buyer
will have the option of placing required order(s) through Seller's authorized
distributor outlet(s) at prices negotiated with such outlet(s) to cover service
rendered. Such quantities so purchased shall be accrued against this Agreement.
This provision shall apply to Buyer's domestic divisions and subsidiaries only.
Non-USA distributor participation shall be subject to negotiation and mutual
agreement of the respective international buying and selling locations.
14. PRODUCT CHANGE NOTIFICATION
If during the term of this Agreement, Seller proposes to change any product
covered by this Agreement which would materially affect form, fit or function or
supersede the current die revision, Seller shall notify Buyer in writing sixty
(60) days prior to implementation of such change. Further, Seller shall not ship
such product until authorized by Buyer in writing. In the event that it is
determined that the change is not acceptable to Buyer, then the item will be
dispositioned in accordance with Item 15, Product Discontinuance.
15. PRODUCT DISCONTINUANCE
If, during the term of this Agreement, Seller deems it necessary to withdraw on
a product offering, any of the products specified in this Agreement, Seller
shall notify Buyer in writing a minimum of one hundred and eighty (I 80) days
prior to such withdrawal. Buyer, within such one hundred and eighty (I 80) day
period, shall then have the option to place additional noncancelable orders for
such products with delivery up to one (1) year from date of order.
16. NOTICES
Written notices hereunder are deemed to be given when telexed, faxed or air
mailed first class, postage prepaid to the addresses of the parties set forth
herein, or such other addresses shall be furnished in writing, by either party.
This Agreement supersedes any previous agreements, either oral or written,
relating to the subject matter herein. No alterations or modifications to this
Agreement shall be binding upon either Buyer or Seller unless made in writing
and signed by an authorized representative of each.
IN WITNESS WHEREOF, the parties hereto have cause this Agreement to be executed
by their duly authorized representatives as of the day and year first written
herein.
SELLER: BUYER:
- 4 -
5
ANALOG DEVICES, INC. MERCURY COMPUTER SYSTEMS, INC.
By /s/ By /s/
------------------------------- ------------------------------------
(authorized signature (authorized signature
TITLE: Senior Sales Engr. TITLE: Vice President & CFO
--------------------------- ---------------------------------
DATE: 7/25/95 DATE: 7/25/95
---------------------------- ----------------------------------
- 5 -
6
SCHEDULE OF PRICING
Quantity Item Unit Price
- -------- ---- ----------
[*] [*] [*]
[*] [*] [*]
[*] [*] [*]
[*] [*]
*Information omitted for confidential treatment
- 6 -
1
Exhibit 10.9
RISK PREPRODUCTION PURCHASE AGREEMENT
TERMS AND CONDITIONS
CUSTOMER understands that LSI Logic Corporation's recommended procedure
is to manufacture product only after the design has been successfully prototyped
and approved in writing by CUSTOMER. For this Risk Preproduction order, LSI
Logic, agrees to manufacture product without such approval at the CUSTOMER'S
request subject to the terms and conditions below as modified by the attached
Addendum. This form will process product through to plant clearance. LSI Logic
cannot ship product until a signed customer purchase order is received by
Customer Order management and reconciled against backlog. However, CUSTOMER'S
obligation under Item B below shall not be affected by an failure to furnish a
signed purchase order.
A. RSK/PRE must be on order 48 hours prior to CDR signoff and
WFR 2 weeks prior to CDR signoff. PRE line item will be booked unreleased unless
customer indicates product is released by initialing the CUSTOMER RELEASE column
of the form. WFR and RSK is always considered released. To release product
previously ordered as unreleased the original form can be changed and initialed
to indicate the change to release status. Upon receipt of the updated form, LSI
Logic Customer Order Management will change the release status as indicated.
B. CUSTOMER agrees to pay for work-in-process, as outlined below
("Qty" refers to quantity ordered by customer, "Unit ASP" refers to Risk
Preproduction Unit ASP):
================================================================================
[*] [*]
------------ --------------
- --------------------------------------------------------------------------------
[*] [*]
- --------------------------------------------------------------------------------
[*] [*]
- --------------------------------------------------------------------------------
[*] [*]
================================================================================
C. CUSTOMER requests LSI Logic to manufacture enough Risk
Preproduction to support the quantity of finished product indicated on the
attached Order Form. Upon successful wafer sort, LSI Logic will hold die (RSK)
or wafers (WFR) in inventory until CUSTOMER authorizes LSI Logic in writing to
release product and ship as finished goods.
D. CUSTOMER agrees to provide written instruction for the
disposition of the "Risk die" ("RSK") or "Risk wafers" ("WFR") within six (6)
months after receipt of the "Risk Service Charge" Invoice. LSI Logic reserves
the right to dispose of the material after this 6 month period.
* Information omitted for confidential treatment.
2
E. CUSTOMER accepts that yields for the Risk Preproduction build
of a design is difficult to predict. If this build does not provide sufficient
product to deliver the quantity shown on this form and the balance is less than
20% of the order quantity, CUSTOMER agrees to, if requested by LSI Logic:
(a) Cancel the balance of this quantity; or
(b) Allow LSI Logic to reschedule this balance to ship
with future production orders.
F. CUSTOMER acknowledges the inherent risk in building products
prior to prototype approval. CUSTOMER acknowledges financial responsibility for
risk product as described in Section B (above) on a design which passes design
test and is free of manufacturing defects, but does not function in the customer
system. LSI Logic Corporation's standard terms (attached) are incorporated by
this agreement in full. Any additional or inconsistent terms of any purchase
order are void.
2
3
MERCURY COMPUTER SYSTEMS, INC. (Customer) has read this agreement and
understands and accepts LSI Logic Corporation's Risk Preproduction Policy. LSI
Logic Corporation will consider this document as Authorization to Proceed and
build the product as specified above.
/s/
- ---------------------------------- ----------------------------------
AUTHORIZED SIGNATURE PURCHASE ORDER/REQUISITION NO.
- ---------------------------------- ----------------------------------
NAME AND TITLE (Please Print) DATED
ACCEPTED BY LSI LOGIC CORPORATION:
/s/
- ----------------------------------
LSI LOGIC AUTHORIZED SIGNATURE
- ---------------------------------- ----------------------------------
NAME AND TITLE (Please Print) DATED
ACCEPTED BY HAMILTON HALLMARK:
/s/
- ----------------------------------
HAMILTON HALLMARK
AUTHORIZED SIGNATURE
- ---------------------------------- ----------------------------------
NAME AND TITLE (Please Print) DATED
3
4
ADDENDUM TO RISK PREPRODUCTION PURCHASE AGREEMENT
SECTION B
Before Metal Start - [*]
Before Assembly Start - [*]
After Assembly - [*]
SECTION C
Quantity of RISK-PRE Units is indicated on RISK-PREPRODUCTION PURCHASE AGREEMENT
Order Form.
SECTION E
a) Cancel the balance of this quantity without any further payment for
units not received.
b) Allow LSI Logic to reschedule this balance to ship with future
production orders at RSK/PRE prices and best available lead time.
* Information omitted for confidential treatment.
4
1
Exhibit 10.10
PURCHASE OFFER AGREEMENT FOR OEM MANUFACTURER
Customer: Agreement #: JV1201
Mercury Computer Systems, Inc. Date: February 16, 1995
199 Riverneck Road
Chelmsford, MA 01824-2820
Thank you for doing business with IBM Microelectronics Division. This is a
master purchase offer agreement between you, the buyer, and us, International
Business Machines Corporation. You sign this Agreement only once after that,
this Agreement will govern your purchases of eligible IBM products (Products)
from us on an ongoing basis. Your IBM sales representative can give you a list
of the eligible IBM Products. You may order Products under this Agreement by
sending us a written request or by fax. If we can fill your order, we will send
you an acknowledgment, referencing this Agreement, for the Products IBM will
ship to you. We will provide Products under IBM's then current prices, charges,
and warranty periods, unless otherwise negotiated between us. Your IBM sales
representative can also give you information about IBM's prices, charges, and
warranty periods.
This Agreement, its front and back, and any acknowledgment IBM issues under it,
together called POA, are the complete agreement on this subject and replace all
prior oral or written communications between us about it. The POA cannot be
changed unless each of us signs a written modification.
Agreed to: for and on behalf of
MERCURY COMPUTER SYSTEM INC.
Signed: /s/ Rebecca M. Dowse
----------------------------
Print Name: Rebecca M. Dowse
Manager of Contracts
Agreed to:
INTERNATIONAL BUSINESS
MACHINES CORPORATION
Microelectronics Division
2
Signed: /s/ Frederick J. Glasgow
----------------------------
Print Name: Frederick J. Glasgow
Director of Marketing
and Sales Operations
1. USE OF PRODUCTS
You represent that Products will be: A) integrated or incorporated in your
systems or Subsystems or as specified by IBM in an acknowledgment: or B)
distributed in incidental additional quantities for integration or incorporation
in systems or subsystems you have sold. You may also use up to 10% of the
Products internally.
2. SHIPMENT, TITLE, AND RISK OF LOSS
IBM Will Schedule each Product under IBM's applicable shipment schedule. We may
not ship Product if you cannot give us satisfactory assurances that you have
complied and can comply with any of the POA terms, including payment and use of
Products. Title to and risk of loss for a Product Pass to you when we deliver
the Product to the carrier. IBM keeps title to any software or other code under
the POA.
3. PRICES, INVOICING, PAYMENT TERMS AND TAXES
The prices Shown in Exhibit A hereto will apply to the Products.[*] We will
invoice you for the Products, including related taxes and any other charges
under this POA. Terms of payment are [*]. You will also pay a late charge
of [*] of the balance due for each month you are
late in paying IBM.
4. CANCELLATION
You may cancel an order before we ship it. If you do so at your convenience, for
standard Product you shall pay the following charges unless otherwise mutually
negotiated.
Days before
Acknowledged Shipment Dates Percent of Purchase Price
90 days or more [*]
60-89 days [*]
30-59 days [*]
0-29 days [*]
* Information omitted for confidential treatment.
- 2 -
3
Charges for the cancellation of customized Product will be mutually negotiated
and set forth in Exhibit A hereto.
5. CHANGES
It is our objective to fill an order acknowledged by us. In situations such as
supply constraints, we may not be able to fill your order; we will inform you of
this, and you may cancel the order without charge. We may withdraw a Product
from the list on 60 days' notice. We may change a Product's specifications at
any time. Customer's prior approval is required for any change which affects the
form, fit, function, or reliability of a Product.
6. MANUALS AND DISKETTES
You can modify manuals and diskettes we provide under this POA as needed to
support your use of Products. Distributed manuals and diskettes must not include
anything that suggests we are the source of the manuals or diskettes or
Products. You can distribute modified manuals and diskettes only for use with
Products. You must make diskettes available subject to a license agreement
acceptable to us. You must include a copyright notice in distributed manuals and
diskettes. The copyright notice must comply with the copyright law and must
identify the owner as you "and others". You must also include a U.S. Government
user Restricted Rights notice.
7. PATENTS AND COPYRIGHTS
If a third party claims that a Product we provide under this POA infringes that
party's patent or copyright, we will defend you against that claim at our
expense and pay all costs, damages, and attorney's fees that a court finally
awards, provided that you: 1) promptly notify us in writing of the claim: and 2)
allow us to control, and cooperate with us in, the defense and any related
settlement negotiations. If such a claim is made or appears likely to be made,
about a Product in your inventory, you agree to permit us to either enable you
to continue to market and use the Product, or to modify and replace it. If IBM
determines that none of these alternatives is reasonably available, you will
return the Product to us on our written request for an appropriate credit or
refund as IBM decides. This is IBM's entire obligation to you regarding any
claim of infringement.
IBM has no obligation regarding any claim based on any of the following: A)
modification of a Product by you or at your direction or its use in other than
its specified operating environment; B) the combination, operation, or use of a
Product with any product, data, or apparatus that IBM did not provide; or C)
infringement by a non-IBM Product alone, as opposed to its combination as part
of a system of Products that IBM provides.
8. LIMITED WARRANTIES
- 3 -
4
IBM warrants a Product to be free from defects in material and workmanship, in
the U.S.A., for one year from the date of shipment.
Products shipped outside of the U.S.A., samples, prototypes, and test vehicles,
and any IBM services provided under this POA are AS IS. IBM manufactures
Products from new or serviceable used parts. Exchanged parts become the property
of IBM.
If you believe that a Product is not as warranted, you will: A) promptly notify
us in writing; B) at our request, return the Product freight prepaid to our
designated location. If IBM decides the Product does not meet its warranty, we
will, at our option, repair or replace the Product, or issue a credit or refund
of the purchase price. This warranty will not include credit, repair, or
replacement of a Product which has a defect due to your, or another's, actions
or omissions.
THE FOREGOING WARRANTIES REPLACE ALL OTHER WARRANTIES, EXPRESS OR IMPLIED,
INCLUDING THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS OR USE FOR A
PARTICULAR PURPOSE.
9. LIABILITIES
Circumstances may arise where, because of a default or other liability, you are
entitled to recover damages from us. In each such instance, regardless of the
basis on which damages can be claimed, the following terms apply. IBM is
responsible for: 1) payments referred to in our patent and copyright terms
described above; and 2) bodily injury (including death), and damage to real
property and tangible personal property caused by the Product; and 3) the amount
of any other actual loss or damage, up to the greater of $100,000 or the charge
for the Product subject to the claim.
Under no circumstances is IBM liable for any of the following: A) third-party
claims against you for losses or damages other than those in items 1) and 2), in
this Section 9; B) loss of, or damage to your or another's records or data; or
C) economic consequential damages (including lost profits or savings) or
incidental damages, even if we are informed of their possibility.
10. SOFTWARE
If IBM provides you software or other code ("software") under this POA, the
software will be subject to this POA and any license agreement provided with the
software. If you object to a license agreement, you must return the software
within 10 days of when you receive it. If IBM does not provide a license
agreement, the software will be subject to this POA and all copyright laws.
- 4 -
5
11. ENGINEERING CHANGES
We may issue mandatory engineering changes, such as those required for safety.
You will install those engineering changes as directed by us, subject to the
provisions of Section 5 of this Agreement.
12. ENDING THE AGREEMENT
Either of us may end this POA by a 30 day written notice. All clauses and
acknowledgments which by their nature extend beyond the end of this POA remain
in effect until they have been fulfilled, and they apply to respective
successors and assigns.
13. GENERAL
All information exchanged under this POA is nonconfidential. Any exchange of
confidential information must be made under a separate signed confidentiality
agreement.
Except for your obligation to pay, neither of us will be responsible for failing
to perform under this POA for acts of God, natural disasters, embargoes and
similar causes beyond its reasonable control.
Neither this POA, nor the sale of Products under it, will be deemed to give
either of us any licenses, immunities or other rights, directly or by
implication, under the trademarks, trade names, patents, copyrights or any other
intellectual property rights of the other.
You will keep suitable records to show you have complied with the terms of this
POA. At IBM's request, you will demonstrate to us that you have fully complied
with the terms of this POA.
Neither of us will bring a legal action against the other more than two years
after the cause of action arose, except for actions for nonpayment and
enforcement of intellectual property rights. Each of us waives the right to a
jury trial in a dispute under this POA.
Failure by either of us to demand performance or to exercise a right, when
entitled, does not prevent us from doing so later for that default or any other
one.
Each of us will comply with all applicable United States, European Economic
Commission, and other country or country group laws and regulations, including
those relating to exports. You represent that you do not intend now, or in the
future, to ship, directly or indirectly, any IBM Product, data, or information,
to a prohibited country or country group or its nationals.
- 5 -
6
The headings in this POA are for reference only. They will not affect the
meaning or interpretation of the POA.
You will not assign your rights or delegate your duties under this POA without
our written consent.
The substantive laws of the Commonwealth of Massachusetts govern this Agreement.
14. Exhibit A hereto sets forth the part numbers of Products under this
Agreement, and applicable prices, volume commitments, cancellation and
reschedule schedule, and requirements for good die.
- 6 -
7
EXHIBIT A
1. SCOPE OF WORK
1.1 IBM will provide assembly services for Mercury's printed circuit cards.
These require Surface Mount Technology (SMT) or wave solder assembly processes.
Mercury will order the assembly services from IBM by issuing its Purchase Order
for up to [*] cards of any one particular part number.
These services also include soldering in accordance with Mercury's Drawings and
BOMs.
IBM will perform these assembly and solder services in accordance with the
schedule in Section 2 below. There will be no electrical costing provided by
IBM. Assembled and soldered cards will be shipped to Mercury. Technical
requirements are set forth in Section 3.3 below. Mercury will provide all
components and printed circuit cards ("Items").
Mercury is responsible for the quality of the cards and components which IBM
will assemble. IBM will not perform services which include incorporating any
items which have obvious or readily ascertainable defects. In the event IBM
identifies any such items, they will be returned freight collect to Mercury
for repair or replacement. The delivery schedule will be offset by the amount
of time between the date the items are returned to Mercury to the date the
items are received by IBM.
1.2 The Deliverables are:
From Mercury to IBM:
A. Hardware:
Selected quantity of printed circuit cards (up to *)
Components required for assembly
B. Data and Setup Drawings:
Bill of Materials (BOMs)
Assembly prints and drawings sufficient for solder stencil
fabrication and placement machine programing
Component placement (centroid) data
Gerber data
From IBM to Mercury:
The selected quantity of completed card assemblies (up to *)
1.3 Changes to Statement of Work
Mercury may, at any time and from time to time, by written notice to IBM,
request changes to the part numbers, specifications, or work scope. IBM shall
submit a written report to Mercury setting forth the probable effect, if any, of
the requested change in regard to the work and the effort on any change in
prices or delivery. IBM shall not proceed with any change until authorized in
writing by Mercury. The parties shall promptly amend this Agreement to
incorporate any agreed changes.
2. DELIVERY
Attach 1 Page 1 0519
*Information omitted for confidential treatment.
8
2.1 To order the assembly services, Mercury will notify IBM at least 2 weeks
prior to its required shipment date by issuing its Purchase Order for a
particular part number or part numbers. This Purchase Order will contain
selected quantity of circuit cards to be assembled and the shipment
date. For new part numbers, Mercury will furnish its Data and Setup Drawing and
Deliverables at least 3 weeks prior to the shipment date. Mercury will furnish
the Hardware Deliverables at least two weeks prior to the shipment date.
2.2 All completed assemblies will be shipped to Mercury FOB Collect, using
Mercury's specified carrier, from Endicott, New York. Any risk of loss shall
pass to Mercury upon delivery to the carrier for shipment.
3. SPECIAL ITEMS
3.1 Damage to Items
IBM shall be liable to Mercury for any loss or damage to Mercury's consigned
parts or components due to the negligence of IBM while in IBM's custody.
Excluded from this responsibility is reasonable wear and tear, or loss,
damage, or destruction caused by circumstances beyond IBM's control while in
IBM's care, custody and control. All replacement parts or components shall
become Mercury's property and shall be subject to all the terms and conditions
of this Agreement. In such event, IBM's maximum liability shall be the lesser
of the actual cost of the part or component damaged (substantiation to be
provided by Mercury) or the price charged IBM for the service performed
(associated with that part) hereunder.
3.2 Acceptance and Rejection
3.2.1 Acceptance
Acceptance or rejection of Product shall be determined by Mercury comparing
the output produced by IBM for conformance to the Specifications attached as
Attachment 2 to the Supplement (dated May 5, 1995) to POA No. JV1201, Section 1
above. Mercury will notify IBM whether the Product is accepted or rejected
within thirty (30) calendar days from the date of shipment. Any Product not
expressly rejected by Mercury within this time period shall be deemed accepted.
3.2.2 Rejection
In the case of rejection Mercury shall: (i) promptly notify IBM in writing of
the basis for such rejection, (ii) follow IBM's instructions for the return of
the Product, and (iii) return such Product freight collect to IBM's designated
facility. If IBM agrees the Product is defective, IBM will repair the rejected
Product or issue a credit for the purchase price applicable to the rejected
Product.
If IBM uses Items and these Items fail to meet specifications, Mercury will
waive its right of rejection.
3.3 Technical Requirements
a. The following are technical requirements for Mercury:
[*]
* Information omitted for confidential treatment.
Attach 1 Page 2 0519
9
b. The following are IBM practices to be followed:
1) IBM will build assemblies to IPC 610 workmanship standards.
10
ATTACHMENT 1 - STATEMENT OF WORK
SCOPE OF WORK
1 IBM will perform manufacturing services as follows:
RFS 3916001
IBM will provide prototype assembly services for Customer's [*][*][*].
Customer will order the assembly services from IBM by issuing its Purchase
Order for up to [*] boards.
These services will include soldering in accordance with Customer's assembly
prints and drawings for [*][*][*], which are now in IBM's possession.
These assembly services will require a first order NRE (Non Recurring Expense)
set-up and tooling charge.
The purchase of one NRE will cover assembly of the first three Part Numbers
stated above. The purchase of another NRE will cover assembly of the next four
Part Numbers stated above. The purchase of another NRE will cover the assembly
of the next two Part Numbers stated above. The purchase of another NRE will
cover the assembly of the last four Part Numbers stated above.
IBM will perform these prototype assembly and soldering services in accordance
with the schedule below. There will be no electrical testing provided by IBM.
Assembled and soldered prototype boards will be shipped to Customer. Customer
will provide all components and printed circuit boards.
A. Hardware:
Set-up hardware of two printed circuit boards and their components which
need only be mechanically good
Selected quantities of printed circuit boards (up to 400 per Part Number)
Components required for assembly
B. Data and Set-up Drawings
RFS 3916001 SCHEDULES
To order the assembly services, Customer will notify IBM at least 1 week prior
the Build Date by issuing its Purchase Order for a requested quantity [*][*][*].
Customer will furnish the Data, Set-up Drawings, and Set-up hardware at least 1
week prior to the Build Date.
Customer will furnish its Build Hardware Deliverables at least 2 working
Attachment 1 Page 1 3916001
* Information omitted for confidential treatment.
11
days prior to the Build Date.
Estimated Board Assembly ship date will be scheduled for 10 Business Days
following the Build Start Date for 5 - 199 boards, and 15 Business days
following the Build Start Date for 200 - 400 boards.
RFS 3916001 TECHNICAL EXCEPTIONS/ASSUMPTIONS
Parts will be supplied on tape and reel, or in tubes or trays.
1.2 The Deliverables are:
a. Items from Customer to IBM:
A. Hardware:
Set-up hardware of two printed circuit boards and their components which
need only be mechanically good
Selected quantities of printed circuit boards (up to [*] per Part Number)
Components required for assembly
B. Data and Set-up Drawings
Bill of Materials
Assembly prints and drawings sufficient for solder stencil fabrication
and placement machine programming
Component placement (centroid) data
Gerber data
b. Products from IBM to Customer:
The selected quantity of completed board assemblies (up to 400 per Part
Number)
1.3 Changes to Statement of Work
Customer may, at any time and from time to time, by written notice to IBM,
request changes to the part numbers, specifications, or work scope. IBM shall
submit a written report to Customer setting forth the probable effect, if
any, of the requested change in regard to the work and the effect on any
change in prices, payments or delivery. IBM shall not proceed with any change
until authorized in writing by Customer. The parties shall promptly amend
this Agreement to incorporate any agreed changes.
2. DELIVERY
2.1 Customer requests IBM to turnaround this work in 10 business days after
IBM's receipt of all Items.
2.2 All Product will be shipped to Customer FOB Collect from Endicott, New
York. Title to and risk of loss for products shall pass to Customer upon
delivery to Customer's carrier except if product is given to Customer's
carrier in Bromont, Canada, this will not be deemed to alter the passage of
title in the United States. In the event of a dispute regarding passage of
title to products, the parties agree title will be deemed to have passed in
the United States as this is a transaction between two United States
companies which title and sale takes place in the United States.
3. SPECIAL ITEMS.
3.1 Damage to Items
In case of damage to or deterioration, destruction or loss of any Items
during the processing such that completion of the processing is rendered
impracticable, IBM will repeat or continue the processing without charge
provided Customer provides a replacement Item without cost to IBM. IBM shall
have no other liability with respect to damaged or lost Items and shall not
be responsible for the value of such Items.
3.2 Acceptance and Rejection
3.2.1 Acceptance
Acceptance or rejection of Product shall be determined by Customer comparing
the output produced by IBM for conformance to Attachment A, Quality and/or
Engineering Specifications or the requirements specified in
Attachment 1 Page 2 3916001
* Information omitted for confidential treatment.
12
the Scope of Work above in Section 1.1 Customer will notify IBM whether the
Product is accepted or rejected within ten (10) calendar days from the date of
shipment. Any Product not expressly rejected by Customer within this time period
shall be deemed accepted.
2.2 Rejection
In the case of rejection Customer shall:
1. promptly notify IBM in writing of the basis for such rejection,
2. follow IBM's instructions for the return of the Product, and
3. return such Product freight collect to IBM's designated facility.
If IBM agrees the Product is defective, IBM will repair the rejected Product or
issue a credit for the purchase price of the service performed by IBM applicable
to the rejected Product.
If IBM uses Items and these Items fail to meet specifications, Customer will
waive its right of rejection.
3.3 Warranties
IBM warrants that all Services performed or Products delivered hereunder to be
free from defects in material and workmanship for a period thirty (30) days
from the date of shipment by IBM to Customer. IBM shall, at its option, repair
any defective Product, or issue a credit equal to the purchase price of the
Service performed by IBM, provided that Customer complies with Section 3.2.2
above.
IBM makes no warranty or representation regarding the infringement of the
intellectual property rights of third parties.
THE FOREGOING WARRANTIES ARE IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR
IMPLIED, INCLUDING IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE.
3.4 Used Parts
Each IBM product is manufactured from new parts, or new and used parts. In some
cases, the product may not be new and may have been previously installed.
Regardless of the product's production status, our warranty terms apply. Where a
type of services involves the exchange of a product or part, the item IBM or
your reseller replaces becomes yours. The replacement may not be new, but will
be in good working order.
4. NOTICES
Note to Customer - please insert the name and address of the individual who
will be your contact for this agreement:
Customer Contact: IBM Contact:
_____________________________ Wade Hooker
IBM Microelectronics
_____________________________ D/U 13G
1701 North Street
_____________________________ Endicott, NY 13760
_____________________________
_____________________________
Please supply the name and addresses for the following:
Ship To Name and Address: Bill To Name and Address:
Mark Badeley ______________________________________
Mercury Customer Systems, Inc.
199 Riverneck Road ______________________________________
Chelmsford, MA 01824
______________________________________
______________________________________
5. Term of Agreement
This Agreement shall begin on the date signed by IBM, and shall expire on
04/30/98.
Attachment 1 Page 4 3916001
13
Attachments to Attachment 1:
If Terms and Conditions of this IBM Quotation 3916001 are in conflict with
those of the existing Supplement to the Purchase Offer Agreement V1201, as
amended, then Terms and Conditions of the Supplement to the Purchase Offer
Agreement take precedence.
page 5 3916001
14
Attachment 2
*
* Information omitted for confidential treatment.
1
EXHIBIT 10.11
PROMISSORY NOTE
$100,000 Boston, Massachusetts
December 22, 1993
FOR VALUE RECEIVED, Albert P. Belle Isle, an individual residing at 3
Whispering Pines, Andover, Massachusetts (the "maker"), hereby promises to pay
to Mercury Computer Systems, Inc, a Massachusetts corporation (the
"Corporation"), or order, the principal amount of One Hundred Thousand Dollars
($100,000) in one (1) installment equal to the then outstanding principal
balance of this Note, plus all accrued but unpaid interest thereon and all
charges in connection therewith, on December 22, 1996; PROVIDED, HOWEVER, that
the full outstanding balance of this Note, plus all accrued but unpaid interest
thereon and all charges in connection therewith, shall become immediately due
and payable upon written notice from the Corporation, issued pursuant to a vote
of the Board of Directors of the Corporation, that the managing or co-managing
underwriter engaged by the Corporation in connection with an initial public
offering of the Corporation's common stock has recommended that the outstanding
balance of this Note be repaid prior to such initial public offering. Interest
on the unpaid principal amount hereof (computed on the basis of the actual
number of days elapsed over a 360-day year) shall accrue at a rate equal to two
percent (2%) per annum above the rate printed in the WALL STREET JOURNAL as the
Prime Rate offered, based on corporate loans posted by at least 75% of the
thirty largest banks in the United States, as of the date hereof, equal to eight
percent (8%) per annum as of the date hereof (the "Prime Rate"); PROVIDED,
HOWEVER, that in no event shall the amount contracted for and agreed to be paid
by the maker as interest on this Note exceed the highest lawful rate permissible
under any law applicable hereto. Interest on this Note shall be payable at
maturity (whether by acceleration or otherwise).
Any payments received by the holder on account of this Note prior to
demand or acceleration shall be applied first to any costs, expenses, or charges
then owed the holder by the maker, second, to accrued and unpaid interest, and
third, to the unpaid principal balance hereof. Any payments so received after
demand or acceleration shall be applied in such manner as the holder may
determine.
The occurrence of any one or more of the following events shall
constitute an Event of default (each an "Event of Default") hereunder:
(a) The maker shall fail to make any payment of principal or interest
in respect of this Note or to pay any other fee due hereunder after the same
becomes due and payable whether at maturity or at a date fixed for the payment
of any installment or prepayment hereof or by acceleration or otherwise; or
(b) The maker shall fail to perform or observe any covenant,
agreement, term or provision contained in a certain Pledge Agreement of even
date herewith from the maker to the Corporation (the "Pledge Agreement") with
respect to the pledge of certain shares of the Corporation's stock owned by
maker as security for this Note; or
2
(c) Any representation or warranty made by the maker shall prove to
have been false, incorrect, incomplete or misleading in any material respect
when made; or
(d) The maker shall discontinue his business or shall make an
assignment for the benefit of creditors, or shall fail generally to pay debts as
such debts become due, or shall have a meeting of creditors called, or shall
enter into or propose a composition or extension agreement with creditors, or
shall apply for or consent to the appointment of or taking possession by a
committee of creditors, a trustee, receiver or liquidator (or other similar
official) of maker or any substantial part of the property of maker or shall
commence a case or have an order for relief entered against him under the
federal bankruptcy laws, as now or hereafter constituted, or any other
applicable federal or state bankruptcy, insolvency or other similar law; or
(e) If, within sixty (60) days after the commencement against the
maker of a case under the federal bankruptcy laws, as now or hereafter
constituted, or any other applicable federal or state bankruptcy, insolvency or
other similar law, such case shall have been consented to or shall not have been
dismissed, or if within sixty (60) days after the entry of a decree appointing a
trustee, receiver or liquidator (or other similar official) of the maker or any
substantial part of the property of the maker, such appointment shall not have
been vacated.
In addition, at the holder's option and without demand, notice or
protest, the occurrence of any such Event of Default shall also constitute a
default under all other agreements between the Corporation and the maker and
under all other instruments and papers given the holder by the maker.
The entire indebtedness evidenced hereby may be prepaid in full or in
part at any time without premium or penalty; PROVIDED that any partial
prepayment shall be applied first to all collection costs and fees owing by the
maker to the holder, next to accrued but unpaid interest hereunder and the
balance, if any, to principal.
The maker hereof hereby waives presentment for payment, protest and
demand, suretyship defenses and all other defenses in the nature thereof, notice
of protest, demand and of dishonor and non-payment of this Note and the maker's
liability hereunder shall remain unimpaired, notwithstanding any extension of
the time of payment, changes in terms and conditions and all other indulgences
granted by the holder hereof, or the release, surrender, substitution or
exchange of all or any part of such security or the release from liability of
any party which may assume the obligation to make payment of the indebtedness
evidenced hereby or the performance of the obligations of the maker hereof.
The maker, for himself, his heirs, legal representatives, successors and
assigns respectively, agrees to pay all costs and expenses of the holder,
including, without limitation, reasonable attorneys' fees and expenses (which
shall include all costs for administrative,
-2-
3
paralegal and other support staff) incurred in connection with collection and
enforcement of the obligations of maker evidenced hereby and the rights of the
holder under this or under any other instrument now or hereafter executed in
connection herewith, whether or not suit is commenced.
The holder shall not, by any act, delay, omission or otherwise be deemed
to waive any of its rights or remedies hereunder unless such waiver be in
writing and signed by the holder, and then only to the extent expressly set
forth therein. A waiver on any such occasion shall not be construed as a bar to
or waiver of any such right or remedy on any future occasion.
If any provision(s) hereof or the application thereof to any person or
circumstance shall, to any extent, be held invalid or unenforceable, at the
Corporation's options the remainder hereof, or the application of such
provision(s) to persons or circumstances other than those as to which such
provision(s) is (was) held invalid or unenforceable, shall not be affected
thereby, and each provision hereof shall be valid and in force to the fullest
extent permitted by law.
This Note, and the obligations evidenced hereby, may be assigned by the
Corporation at any time, and the provisions of this Note shall be binding upon
the maker and his heirs, executors, administrators, legal representatives,
successors and assigns, and shall inure to the benefit of the holder and its
successors and assigns.
This Note is being executed and delivered in Boston, Massachusetts, and
shall be governed by and construed in accordance with the laws of the
Commonwealth of Massachusetts, to the maximum extent the parties may so lawfully
agree. Notwithstanding any provision herein or any instrument now or hereafter
securing this Note, the total liability for payments in the nature of interest
shall not exceed the limits imposed by the usury laws of said Commonwealth.
Witness:
/s/ /s/ Albert P. Belle Isle
- ------------------------------ ------------------------------
Albert P. Belle Isle
-3-
4
FIRST AMENDMENT TO
PROMISSORY NOTE
AGREEMENT made effective as of January 27, 1997, by and between Albert P.
Belle Isle, an individual residing at 3 Whispering Pines, Andover, Massachusetts
(the "Maker") and Mercury Computer Systems, Inc., a Massachusetts corporation
(the "Corporation").
WHEREAS, the Maker executed a promissory note in the principal amount of
One Hundred Thousand Dollars ($100,000.00) dated December 22, 1993 (the "Note");
WHEREAS, the Board of Directors the Corporation has approved an extension
of the due date of such Note;
NOW, THEREFORE, in consideration of the foregoing premises, the mutual
promises contained herein, and for good and valuable consideration, the receipt
and adequacy of which are hereby acknowledged, the undersigned hereby agree as
follows:
1. The date on which such Note shall become due is hereby extended
from December 22, 1996 to the earlier of (i) December 31, 1999 or (ii) 181 days
following the Corporation's initial public offering of Common Stock.
2. All other terms of such Note, other than the term referenced
above, shall remain in full force and effect.
IN WITNESS WHEREOF, the parties below have executed this Agreement under
seal on the day and year first above written.
/s/ /s/ Albert P. Belle Isle
- ------------------------------ -----------------------------------------
Witness Name: Albert P. Belle Isle, individually
MERCURY COMPUTER SYSTEMS, INC.
/s/ By: /s/ J. R. Bertelli
- ------------------------------ --------------------------------------
Witness Name: J. R. Bertelli
Title: Chief Executive Officer
1
EXHIBIT 10.12
PROMISSORY NOTE
$25,000 Boston, Massachusetts
July 15, 1994
FOR VALUE RECEIVED, Albert P. Belle Isle, an individual residing at 3
Whispering Pines, Andover, Massachusetts (the "maker"), hereby promises to pay
to Mercury Computer Systems, Inc., a Massachusetts corporation (the
"Corporation"), or order, the principal amount of Twenty-Five Thousand Dollars
($25,000) in one (1) installment equal to the then outstanding principal balance
of this Note, plus all accrued but unpaid interest thereon and all charges in
connection therewith, on July 15, 1997; PROVIDED, HOWEVER, that the full
outstanding balance of this Note, plus all accrued but unpaid interest thereon
and all charges in connection therewith, shall become immediately due and
payable upon written notice from the Corporation, issued pursuant to a vote of
the Board of Directors of the Corporation, that the managing or co-managing
underwriter engaged by the Corporation in connection with an initial public
offering of the Corporation's common stock has recommended that the outstanding
balance of this Note be repaid prior to such initial public offering. Interest
on the unpaid principal amount hereof (computed on the basis of the actual
number of days elapsed over a 360-day year) shall accrue at a rate equal to two
percent (2%) per annum above the rate printed in the WALL STREET JOURNAL as the
Prime Rate offered, based on corporate loans posted by at least 75% of the
thirty largest banks in the United States, as of the date hereof, equal to eight
percent (8%) per annum as of the date hereof (the "Prime Rate"); PROVIDED,
HOWEVER, that in no event shall the amount contracted for and agreed to be paid
by the maker as interest on this Note exceed the highest lawful rate permissible
under any law applicable hereto, Interest on this Note shall be payable at
maturity (whether by acceleration or otherwise).
Any payments received by the holder on account of this Note prior to
demand or acceleration shall be applied first to any costs, expenses, or charges
then owed the holder by the maker, second, to accrued and unpaid interest, and
third, to the unpaid principal balance hereof. Any payments so received after
demand or acceleration shall be applied in such manner as the holder may
determine,
The occurrence of any one or more of the following events shall
constitute an Event of default (each an "Event of Default") hereunder:
(a) The maker shall fail to make any payment of principal or interest
in respect of this Note or to pay any other fee due hereunder after the same
becomes due and payable whether at maturity or at a date fixed for the payment
of any installment or prepayment hereof or by acceleration or otherwise; or
(b) The maker shall fail to perform or observe any covenant,
agreement, term or provision contained in a certain Pledge Agreement of even
date herewith from the maker to the Corporation (the "Pledge Agreement") with
respect to the pledge of certain shares of the Corporation's stock owned by
maker as security for this Note; or
2
(c) Any representation or warranty made by the maker shall prove to
have been false, incorrect, incomplete or misleading in any material respect
when made; or
(d) The maker shall discontinue his business or shall make an
assignment for the benefit of creditors, or shall fail generally to pay debts as
such debts become due, or shall have a meeting of creditors called, or shall
enter into or propose a composition or extension agreement with creditors, or
shall apply for or consent to the appointment of or taking possession by a
committee of creditors, a trustee, receiver or liquidator (or other similar
official) of maker or any substantial part of the property of maker or shall
commence a case or have an order for relief entered against him under the
federal bankruptcy laws, as now or hereafter constituted, or any other
applicable federal or state bankruptcy, insolvency or other similar law; or
(e) If, within sixty (60) days after the commencement against the
maker of a case under the federal bankruptcy laws, as now or hereafter
constituted, or any other applicable federal or state bankruptcy, insolvency or
other similar law, such case shall have been consented to or shall not have been
dismissed, or if within sixty (60) days after the entry of a decree appointing a
trustee, receiver or liquidator (or other similar official) of the maker or any
substantial part of the property of the maker, such appointment shall not have
been vacated.
In addition, at the holder's option and without demand, notice or
protest, the occurrence of any such Event of Default shall also constitute a
default under all other agreements between the Corporation and the maker and
under all other instruments and papers given the holder by the maker.
The entire indebtedness evidenced hereby may be prepaid in full or in
part at any time without premium or penalty; PROVIDED that any partial
prepayment shall be applied first to all collection costs and fees owing by the
maker to the holder, next to accrued but unpaid interest hereunder and the
balance, if any, to principal.
The maker hereof hereby waives presentment for payment, protest and
demand, suretyship defenses and all other defenses in the nature thereof, notice
of protest, demand and of dishonor and non-payment of this Note and the maker's
liability hereunder shall remain unimpaired, notwithstanding any extension of
the time of payment, changes in terms and conditions and all other indulgences
granted by the holder hereof, or the release, surrender, substitution or
exchange of all or any part of such security or the release from liability of
any party which may assume the obligation to make payment of the indebtedness
evidenced hereby or the performance of the obligations of the maker hereof.
The maker, for himself, his heirs, legal representatives, successors and
assigns respectively, agrees to pay all costs and expenses of the holder,
including, without limitation, reasonable attorneys' fees and expenses (which
shall include all costs for administrative, paralegal and other support staff)
incurred in connection with collection and enforcement of the
-2-
3
obligations of maker evidenced hereby and the rights of the holder under this or
under any other instrument now or hereafter executed in connection herewith,
whether or not suit is commenced.
The holder shall not, by any act, delay, omission or otherwise be deemed
to waive any of its rights or remedies hereunder unless such waiver be in
writing and signed by the holder, and then only to the extent expressly set
forth therein. A waiver on any such occasion shall not be construed as a bar to
or waiver of any such right or remedy on any future occasion.
If any provision(s) hereof or the application thereof to any person or
circumstance shall, to any extent, be held invalid or unenforceable, at the
Corporation's option, the remainder hereof, or the application of such
provision(s) to persons or circumstances other than those as to which such
provision(s) is (was) held invalid or unenforceable, shall not be affected
thereby, and each provision hereof shall be valid and in force to the fullest
extent permitted by law.
This Note, and the obligations evidenced hereby, may be assigned by the
Corporation at any time, and the provisions of this Note shall be binding upon
the maker and his heirs, executors, administrators, legal representatives,
successors and assigns, and shall inure to the benefit of the holder and its
successors and assigns.
This Note is being executed and delivered in Boston, Massachusetts, and
shall be governed by and construed in accordance with the laws of the
Commonwealth of Massachusetts, to the maximum extent the parties may so lawfully
agree. Notwithstanding any provision herein or any instrument now or hereafter
securing this Note, the total liability for payments in the nature of interest
shall not exceed the limits imposed by the usury laws of said Commonwealth.
Witness:
/s/ Albert P. Belle Isle
- ------------------------------ -------------------------------------
Albert P. Belle Isle
-3-
4
FIRST AMENDMENT TO
PROMISSORY NOTE
AGREEMENT made effective as of January 27, 1997, by and between Albert P.
Belle Isle, an individual residing at 3 Whispering Pines, Andover, Massachusetts
(the "Maker") and Mercury Computer Systems, Inc., a Massachusetts corporation
(the "Corporation").
WHEREAS, the Maker executed a promissory note in the principal amount of
Twenty- Five Thousand Dollars ($25,000.00) dated July 15, 1994 (the "Note");
WHEREAS, the Board of Directors the Corporation approved an extension of
the due date of such Note;
NOW, THEREFORE, in consideration of the foregoing premises, the mutual
promises contained herein, and for good and valuable consideration, the receipt
and adequacy of which are hereby acknowledged, the undersigned hereby agree as
follows:
1. The date on which such Note shall become due is hereby extended
from July 15, 1997 to the earlier of (i) December 31, 1999 or (ii) 181 days
following the Corporation's initial public offering of Common Stock.
2. All other terms of such Note, other than the term referenced
above, shall remain in full force and effect.
IN WITNESS WHEREOF, the parties below have executed this Agreement under
seal on the day and year first above written.
/s/ /s/ Albert P. Belle Isle
- ------------------------------ ----------------------------------------
Witness Name: Albert P. Belle Isle, individually
MERCURY COMPUTER SYSTEMS, INC.
/s/ By: /s/ J. R. Bertelli
- ------------------------------ -------------------------------------
Witness Name: J. R. Bertelli
Title: Chief Executive Officer
1
EXHIBIT 10.13
PROMISSORY NOTE
$150,000 Boston, Massachusetts
August 26, 1997
FOR VALUE RECEIVED, James R. Bertelli, an individual residing at 51 Green
Heron Lane, Nashua, New Hampshire (the "maker"), hereby promises to pay to
Mercury Computer Systems, Inc., a Massachusetts corporation (the
"Corporation"),, or order, the principal amount of One Hundred Fifty Thousand
Dollars ($150,000) in one (1) installment equal to the then outstanding
principal balance of this Note, plus all accrued but unpaid interest thereon and
all charges in connection therewith, on March 26, 1997; PROVIDED, HOWEVER, that
the full outstanding balance of this Note, plus all accrued but unpaid interest
thereon and all charges in connection therewith, shall become immediately due
and payable upon written notice from the Corporation, issued pursuant to a vote
of the Board of Directors of the Corporation, that the managing or co-managing
underwriter, engaged by the Corporation in connection with an initial public
offering of the Corporation's common stock has recommended that the outstanding
balance of this Note be repaid prior to such initial public offering. Interest
on the unpaid principal amount hereof (computed on the basis of the actual
number of days elapsed over a 360-day year) shall accrue at a rate equal to two
percent (2%) per annum above the rate printed in the Wall Street Journal as the
Prime Rate offered, based on corporate loans posted by at least 75% of the
thirty largest banks in the United States, as of the date hereof, equal to eight
percent (8%) per annum as of the date hereof (the "Prime Rate"); PROVIDED,
HOWEVER, that in no event shall the amount contracted for and agreed to be paid
by the maker as interest on this Note exceed the highest lawful rate permissible
under any law applicable hereto, Interest on this Note shall be payable at
maturity (whether by acceleration or otherwise).
Any payments received by the holder on account of this Note prior to
demand or acceleration shall be applied first to any costs,, expenses, or
charges then owed the holder by the maker, second, to accrued and unpaid
interest, and third, to the unpaid principal balance hereof, Any payments so
received after demand or acceleration shall be applied in such manner as the
holder may determine.
The occurrence of any one or more of the following events shall
constitute an Event of default (each an "Event of Default") hereunder:
(a) The maker shall fail to make any payment of principal or interest
in respect of this Note or to pay any other fee due hereunder after the same
becomes due and payable whether at maturity or at a date fixed for the payment
of any installment or prepayment hereof or by acceleration or otherwise; or
(b) The maker shall fail to perform or observe any covenant,
agreement, term or provision contained in a certain Pledge Agreement of even
date herewith from the maker to the Corporation (the "Pledge Agreement") with
respect to the pledge of certain shares of the Corporation's stock owned by
maker as security for this Note; or
2
(c) Any representation or warranty made by the maker shall prove to
have been false, incorrect, incomplete or misleading in any material respect
when made; or
(d) The maker shall discontinue his business or shall make an
assignment for the benefit of creditors, or shall fail generally to pay debts as
such debts become due, or shall have a meeting of creditors called, or shall
enter into or propose a composition or extension agreement with creditors, or
shall apply for or consent to the appointment of or taking possession by a
committee of creditors, a trustee, receiver or liquidator (or other similar
official) of maker or any substantial part of the property of maker or shall
commence a case or have an order for relief entered against him under the
federal bankruptcy laws, as now or hereafter constituted, or any other
applicable federal or state bankruptcy, insolvency or other similar law; or
(e) If, within sixty (60) days after the commencement against the
maker of a case under the federal bankruptcy laws, as now or hereafter
constituted, or any other applicable federal or state bankruptcy, insolvency or
other similar law, such case shall have been consented to or shall not have been
dismissed, or if within sixty (60) days after the entry of a decree appointing a
trustee, receiver or liquidator (or other similar official) of the maker or any
substantial part of the property of the maker, such appointment shall not have
been vacated.
In addition, at the holder's option and without demand, notice or
protest, the occurrence of any such Event of Default shall also constitute a
default under all other agreements between the Corporation and the maker and
under all other instruments and papers given the holder by the maker,
The entire indebtedness evidenced hereby may be prepaid in full or in
part at any time without premium or penalty; provided that any partial
prepayment shall be applied first to all collection costs and fees owing by the
maker to the holder, next to accrued but unpaid interest hereunder and the
balance, if any, to principal.
The maker hereof hereby waives presentment for payment, protest and
demand, suretyship defenses and all other defenses in the nature thereof, notice
of protest, demand and of dishonor and non-payment of this Note and the maker's
liability hereunder shall remain unimpaired, notwithstanding any extension of
the time of payment, changes in terms and conditions and all other indulgences
granted by the holder hereof, or the release, surrender, substitution or
exchange of all or any part of such security or the release from liability of
any party which may assume the obligation to make payment of the indebtedness
evidenced hereby or the performance of the obligations of the maker hereof.
The maker, for himself, his heirs, legal representatives, successors and
assigns respectively, agrees to pay all costs and expenses of the holder,
including, without limitation, reasonable attorneys' fees and expenses (which
shall include all costs for administrative, paralegal and other support staff)
incurred in connection with collection and enforcement of the
-2-
3
obligations of maker evidenced hereby and the rights of the holder under this or
under any other instrument now or hereafter executed in connection herewith,
whether or not suit is commenced.
The holder shall not, by any act, delay, omission or otherwise be deemed
to waive any of its rights or remedies hereunder unless such waiver be in
writing and signed by the holder, and then only to the extent expressly set
forth therein. A waiver on any such occasion shall not be construed as a bar to
or waiver of any such right or remedy on any future occasion.
If any provision(s) hereof or the application thereof to any person or
circumstance shall, to any extent, be held invalid or unenforceable, at the
Corporation's option, the remainder hereof, or the application of such
provision(s) to persons or circumstances other than those as to which such
provision(s) is (was) held invalid or unenforceable, shall not be affected
thereby, and each provision hereof shall be valid and in force to the fullest
extent permitted by law.
This Note, and the obligations evidenced hereby, may be assigned by the
Corporation at any time, and the provisions of this Note shall be binding upon
the maker and his heirs, executors, administrators, legal representatives,
successors and assigns, and shall inure to the benefit of the holder and its
successors and assigns.
This Note is being executed and delivered in Boston, Massachusetts, and
shall be governed by and construed in accordance with the laws of the
Commonwealth of Massachusetts, to the maximum extent the parties may so lawfully
agree. Notwithstanding any provision herein or any instrument now or hereafter
securing this Note, the total liability for payments in the nature of interest
shall not exceed the limits imposed by the usury laws of said Commonwealth.
Witness:
/s/ /s/ James R. Bertelli
- ----------------------------- ------------------------------------
James R. Bertelli
-3-
4
FIRST AMENDMENT TO
PROMISSORY NOTE
AGREEMENT made effective as of August 26, 1997, by and between James R.
Bertelli, an individual residing at 51 Green Heron Lane, Nashua, New Hampshire
(the "Maker") and Mercury Computer Systems, Inc., a Massachusetts corporation
(the "Corporation").
WHEREAS, the Maker executed a promissory note in the principal amount of
One Hundred Fifty Thousand Dollars ($150,000) dated August 26, 1994 (the
"Note");
WHEREAS, the Board of Directors the Corporation approved an extension of
the due date of such Note;
NOW, THEREFORE, in consideration of the foregoing premises, the mutual
promises contained herein, and for good and valuable consideration, the receipt
and adequacy of which are hereby acknowledged, the undersigned hereby agree as
follows:
1. The date on which such Note shall become due is hereby extended
from August 26, 1997 to the earlier of (i) December 31, 1999 or (ii) 181 days
following the Corporation's initial public offering of Common Stock.
2. All other terms of such Note, other than the term referenced
above, shall remain in full force and effect.
IN WITNESS WHEREOF, the parties below have executed this Agreement under
seal on the day and year first above written.
/s/ /s/ James R Bertelli
- ------------------------------ ----------------------------------------
Witness Name: James R Bertelli, individually
MERCURY COMPUTER SYSTEMS, INC.
/s/ By: /s/
- ------------------------------ -------------------------------------
Witness Name:
Title:
1
EXHIBIT 10.14
PROMISSORY NOTE
$50,000 Boston, Massachusetts
June 24, 1997
FOR VALUE RECEIVED, James R. Bertelli, an individual residing at 51 Green
Heron Lane, Nashua, New Hampshire (the "maker"), hereby promises to pay to
Mercury Computer Systems, Inc., a Massachusetts corporation (the "Corporation"),
or order, the principal amount of Fifty Thousand Dollars ($50,000) in one (1)
installment equal to the then outstanding principal balance of this Note, plus
all accrued but unpaid interest thereon and all charges in connection therewith,
on August 26, 1997; PROVIDED, HOWEVER, that the full outstanding balance of this
Note, plus all accrued but unpaid interest thereon and all charges in connection
therewith, shall become immediately due and payable upon written notice from the
Corporation, issued pursuant to a vote of the Board of Directors of the
Corporation, that the managing or co-managing underwriter engaged by the
Corporation in connection with an initial public offering of the Corporation's
common stock has recommended that the outstanding balance of this Note be repaid
prior to such initial public offering. Interest on the unpaid principal amount
hereof (computed on the basis of the actual number of days elapsed over a
360-day year) shall accrue at a rate equal to two percent (2%) per annum above
the rate printed in the Wall Street Journal as the Prime Rate offered, based on
corporate loans posted by at least 75% of the thirty largest banks in the United
States, as of the date hereof, equal to nine percent (9%) per annum as of the
date hereof (the "Prime Rate"); PROVIDED, HOWEVER, that in no event shall the
amount contracted for and agreed to be paid by the maker as interest on this
Note exceed the highest lawful rate permissible under any law applicable hereto.
Interest on this Note shall be payable at maturity (whether by acceleration or
otherwise).
Any payments received by the holder on account of this Note prior to
demand or acceleration shall be applied first to any costs, expenses, or charges
then owed the holder by the maker, second, to accrued and unpaid interest, and
third, to the unpaid principal balance hereof. Any payments so received after
demand or acceleration shall be applied in such manner as the holder may
determine.
The occurrence of any one or more of the following events shall
constitute an Event of default (each an "Event of Default") hereunder:
(a) The maker shall fail to make any payment of principal or interest
in respect of this Note or to pay any other fee due hereunder after the same
becomes due and payable whether at maturity or at a date fixed for the payment
of any installment or prepayment hereof or by acceleration or otherwise; or
(b) The maker shall fail to perform or observe any covenant,
agreement, term or provision contained in a certain Pledge Agreement of even
date herewith from the maker to the Corporation (the "Pledge Agreement") with
respect to the pledge of certain shares of the Corporation's stock owned by
maker as security for this Note; or
2
(c) Any representation or warranty made by the maker shall prove to
have been false, incorrect, incomplete or misleading in any material respect
when made; or
(d) The maker shall discontinue his business or shall make an
assignment for the benefit of creditors, or shall fail generally to pay debts as
such debts become due, or shall have a meeting of creditors called, or shall
enter into or propose a composition or extension agreement with creditors, or
shall apply for or consent to the appointment of or taking possession by a
committee of creditors, a trustee, receiver or liquidator (or other similar
official) of maker or any substantial part of the property of maker or shall
commence a case or have an order for relief entered against him under the
federal bankruptcy laws, as now or hereafter constituted, or any other
applicable federal or state bankruptcy, insolvency or other similar law; or
(e) If, within sixty (60) days after the commencement against the
maker of a case under the federal bankruptcy laws, as now or hereafter
constituted, or any other applicable federal or state bankruptcy, insolvency or
other similar law, such case shall have been consented to or shall not have been
dismissed, or if within sixty (60) days after the entry of a decree appointing a
trustee, receiver or liquidator (or other similar official) of the maker or any
substantial part of the property of the maker, such appointment shall not have
been vacated.
In addition, at the holder's option and without demand, notice or
protest, the occurrence of any such Event of Default shall also constitute a
default under all other agreements between the Corporation and the maker and
under all other instruments and papers given the holder by the maker,
The entire indebtedness evidenced hereby may be prepaid in full or in
part at any time without premium or penalty; provided that any partial
prepayment shall be applied first to all collection costs and fees owing by the
maker to the holder, next to accrued but unpaid interest hereunder and the
balance, if any, to principal.
The maker hereof hereby waives presentment for payment, protest and
demand, suretyship defenses and all other defenses in the nature thereof, notice
of protest, demand and of dishonor and non-payment of this Note and the maker's
liability hereunder shall remain unimpaired, notwithstanding any extension of
the time of payment, changes in terms and conditions and all other indulgences
granted by the holder hereof, or the release, surrender, substitution or
exchange of all or any part of such security or the release from liability of
any party which may assume the obligation to make payment of the indebtedness
evidenced hereby or the performance of the obligations of the maker hereof.
The maker, for himself, his heirs, legal representatives, successors and
assigns respectively, agrees to pay all costs and expenses of the holder,
including, without limitation, reasonable attorneys' fees and expenses (which
shall include all costs for administrative,
-2-
3
paralegal and other support staff) incurred in connection with collection and
enforcement of the obligations of maker evidenced hereby and the rights of the
holder under this or under any other instrument now or hereafter executed in
connection herewith, whether or not suit is commenced.
The holder shall not, by any act, delay, omission or otherwise be deemed
to waive any of its rights or remedies hereunder unless such waiver be in
writing and signed by the holder, and then only to the extent expressly set
forth therein. A waiver on any such occasion shall not be construed as a bar to
or waiver of any such right or remedy on any future occasion.
If any provisions) hereof or the application thereof to any person or
circumstance shall, to any extent, be held invalid or unenforceable, at the
Corporation's option, the remainder hereof, or the application of such
provisions) to persons or circumstances other than those as to which such
provisions) is (was) held invalid or unenforceable, shall not be affected
thereby, and each provision hereof shall be valid and in force to the fullest
extent permitted by law.
This Note, and the obligations evidenced hereby, may be assigned by the
Corporation at any time, and the provisions of this Note shall be binding upon
the maker and his heirs, executors, administrators legal representatives,
successors and assigns, and shall inure to the benefit of the holder and its
successors and assigns.
This Note is being executed and delivered in Boston, Massachusetts, and
shall be governed by and construed in accordance with the laws of the
Commonwealth of Massachusetts, to the maximum extent the parties may so lawfully
agree. Notwithstanding any provision herein or any instrument now or hereafter
securing this Note, the total liability for payments in the nature of interest
shall not exceed the limits imposed by the usury laws of said Commonwealth.
Witness:
/s/ /s/ James R. Bertelli
- ------------------------------------ ------------------------------------
James R. Bertelli
-3-
4
FIRST AMENDMENT TO
PROMISSORY NOTE
AGREEMENT made effective as of August 26, 1997, by and between James R.
Bertelli, an individual residing at 51 Green Heron Lane, Nashua, New Hampshire
(the "Maker") and Mercury Computer Systems, Inc., a Massachusetts corporation
(the "Corporation").
WHEREAS, the Maker executed a promissory note in the principal amount of
Fifty Thousand Dollars ($50,000) dated June 24, 1997 (the "Note");
WHEREAS, the Board of Directors the Corporation approved an extension of
the due date of such Note;
NOW, THEREFORE, in consideration of the foregoing premises, the mutual
promises contained herein, and for good and valuable consideration, the receipt
and adequacy of which are hereby acknowledged, the undersigned hereby agree as
follows:
1. The date on which such Note shall become due is hereby extended
from August 26, 1997 to the earlier of (i) December 31, 1999 or (ii) 181 days
following the Corporation's initial public offering of Common Stock.
2. All other terms of such Note, other than the term referenced
above, shall remain in full force and effect.
IN WITNESS WHEREOF, the parties below have executed this Agreement under
seal on the day and year first above written.
/s/ /s/ James R. Bertelli
- ------------------------------ ----------------------------------------
Witness Name: James R. Bertelli, individually
MERCURY COMPUTER SYSTEMS, INC.
/s/ By: /s/
- ------------------------------ -------------------------------------
Witness Name:
Title:
1
EXHIBIT 11.1
MERCURY COMPUTER SYSTEMS, INC.
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
FISCAL YEAR ENDED
-------------------------------
FULLY
PRIMARY DILUTED
------------- -------------
JUNE 30, 1997 JUNE 30, 1997
------------- -------------
Weighted average common stock outstanding during the period........ 5,141,250 5,141,250
Preferred Stock.................................................... 2,556,792 2,556,792
Warrants........................................................... 5,000 5,000
Shares issuable from the assumed exercise of stock options computed
in accordance with the treasury stock method..................... 193,738 200,029
Dilutive effect of cheap stock computed in accordance with the
treasury stock method(1)......................................... 253,758 253,758
Weighted average common and common equivalent shares outstanding... 8,150,538 8,156,829
Net income......................................................... $ 4,611,000 $ 4,611,000
Net income per share............................................... $0.57 $0.57
THREE MONTHS ENDED
-------------------------------
FULLY
PRIMARY DILUTED
------------- -------------
SEP. 30, 1997 SEP. 30, 1997
------------- -------------
Weighted average common stock outstanding during the period........ 5,217,147 5,217,147
Preferred Stock.................................................... 2,556,792 2,556,792
Warrants........................................................... 5,000 5,000
Shares issuable from the assumed exercise of stock options computed
in accordance with the treasury stock method..................... 140,810 140,810
Dilutive effect of cheap stock computed in accordance with the
treasury stock method(1)......................................... 253,758 253,758
Weighted average common and common equivalent shares outstanding... 8,173,507 8,173,507
Net income......................................................... $ 1,606,000 $ 1,606,000
Net income per share............................................... $0.20 $0.20
- ---------------
(1) Pursuant to SEC Staff Accounting Bulletin No. 83, all common and common
equivalent shares issued at prices below the mid-point of the estimated
initial public offering price range during the twelve-month period prior to
the initial filing of the Registration Statement have been included in the
calculation as outstanding for all periods presented using the treasury
stock method.
1
Exhibit 21.1
Subsidiaries of The Company
Mercury Computer Systems B.V. (The Netherlands)
Mercury Computer Systems S.A.R.L. (France)
Mercury Computer Systems Ltd. (United Kingdom)
Mercury Computer Securities Corporation (Massachusetts)
Mercury Computer International Sales Corp. (Delaware)
Mercury Computer Systems Export, Inc. (Barbados)
Nihon Mercury Computer Systems K.K. (Japan)
Riverneck Road LLC (Delaware)
1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1
(File No. ) of our report dated August 28, 1997, on our audits of the
consolidated financial statements of Mercury Computer Systems, Inc. We also
consent to the reference to our firm under the captions "Experts" and "Selected
Consolidated Financial Data."
COOPERS & LYBRAND L.L.P.
BOSTON, MASSACHUSETTS
NOVEMBER 24, 1997
5
1,000
US DOLLARS
3-MOS
JUN-30-1998
JUL-01-1997
SEP-30-1997
1
16,035
0
12,370
119
8,905
41,447
15,683
10,033
47,905
12,794
0
0
1,200
53
33,858
47,905
19,039
19,039
6,661
6,661
9,710
0
2
2,666
1,060
1,606
0
0
0
1,606
0.20
0.20
5
1,000
US DOLLARS
YEAR
JUN-30-1997
JUL-01-1996
JUN-30-1997
1
15,193
0
12,816
119
8,314
39,073
14,337
9,353
44,848
11,526
0
0
1,200
52
32,070
44,848
64,574
64,574
22,034
22,034
34,974
40
22
7,544
2,933
4,611
0
0
0
4,611
0.57
0.57
5
1,000
US DOLLARS
YEAR
JUN-30-1996
JUL-01-1995
JUN-30-1996
1
9,704
0
10,548
80
7,188
28,289
15,048
10,654
33,264
4,735
0
0
1,200
51
27,278
33,264
58,300
58,300
24,688
24,688
26,219
0
13
7,380
2,952
4,428
0
0
0
4,428
0.54
0.54
