Harris Stratex Networks, Inc.
As filed with the Securities and Exchange Commission on
November 24, 2006
Registration
No. 333-137980
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
HARRIS STRATEX NETWORKS, INC.
(Exact name of registrant as specified in its charter)
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Delaware |
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3663 |
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(State or other jurisdiction of
incorporation or organization) |
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(Primary Standard Industrial
Classification Code Number) |
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(I.R.S. Employer
Identification Number) |
c/o Harris Corporation
1025 West NASA Blvd.
Melbourne, Florida 32919
(321) 727-9100
(Address, including
zip code, and telephone number,
including area code, of registrants principal executive
offices)
Scott T. Mikuen
Secretary
Harris Stratex Networks, Inc.
c/o Harris Corporation
1025 West NASA Blvd.
Melbourne, Florida 32919
(321) 727-9100
(Name, address,
including zip code, and telephone number,
including area code, of agent for service)
Copies To:
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Duncan C. McCurrach
Sullivan & Cromwell LLP
125 Broad Street
New York, New York 10004
(212) 558-4000 |
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Scott T. Mikuen
Vice President-Associate
General Counsel and
Corporate Secretary
Harris Corporation
1025 West NASA Blvd.
Melbourne, Florida 32919
(321) 727-9100 |
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Juan Otero
General Counsel and
Assistant Secretary
Stratex Networks, Inc.
120 Rose Orchard Way
San Jose, California 95134
(408) 943-0777 |
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Bartley C. Deamer
Bingham McCutchen LLP
1900 University Avenue
East Palo Alto, California 94303
(650) 849-4400 |
Approximate date of commencement of proposed sale of the
securities to the public: As soon as practicable after this
registration statement becomes effective and all other
conditions to the merger and the contribution transaction
described herein have been satisfied or waived.
If the securities being registered on this Form are being
offered in connection with the formation of a holding company
and there is compliance with General Instruction G, check the
following
box. o
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act,
check the following box and list the Securities Act registration
statement number of the earlier effective registration statement
for the same
offering. o
If this Form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
The registrant hereby amends this registration statement on
such date or dates as may be necessary to delay its effective
date until the registrant shall file a further amendment which
specifically states that this registration statement shall
thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933, or until this registration
statement shall become effective on such date as the Commission,
acting pursuant to said Section 8(a), may determine.
The information in this proxy
statement/prospectus is not complete and may be changed. Harris
Stratex Networks, Inc. may not issue the securities offered by
use of this proxy statement/prospectus until the registration
statement filed with the Securities and Exchange Commission, of
which this proxy statement/prospectus forms a part, is
effective. This proxy statement/prospectus does not constitute
an offer to sell or solicitation of an offer to buy any
securities in any jurisdiction where such offer, solicitation or
sale is not permitted.
Subject to completion dated
November 24, 2006
l,
2006
To Our Stockholders:
You are cordially invited to attend a special meeting of the
stockholders of Stratex Networks, Inc., or Stratex, which will
be held at our principal executive offices, located at 120 Rose
Orchard Way, San Jose, California, at 10:00 a.m.,
local time,
on l ,
2007. Only stockholders who hold shares of Stratex common stock
at the close of business
on l ,
2006 will be entitled to vote at the special meeting.
At the special meeting, holders of Stratex common stock who are
entitled to vote will be asked to adopt the Formation,
Contribution and Merger Agreement, which we refer to in this
proxy statement/prospectus as the combination agreement, that we
entered into with Harris Corporation, or Harris, on
September 5, 2006 and to approve the transactions
contemplated by that agreement.
As contemplated by the combination agreement, Harris has
organized Harris Stratex Networks, Inc., or Harris Stratex,
solely for the purpose of combining the businesses currently
conducted by Stratex and the Microwave Communications Division
of Harris. To that end, Stratex Merger Corp., a wholly owned
subsidiary of Harris Stratex, which we sometimes refer to in
this proxy statement/prospectus as Merger Sub, will merge with
and into Stratex with Stratex as the surviving corporation and
each share of outstanding Stratex common stock will be converted
into one-fourth of a share of Harris Stratex Class A common
stock. Following this merger, it is expected that the former
Stratex stockholders will hold approximately 24.5 million
shares of Harris Stratex Class A common stock, based on the
number of shares of Stratex Common Stock outstanding on
November 21, 2006. Concurrently with the merger of Stratex
and Merger Sub, Harris will contribute its Microwave
Communications Division, including $25 million in cash, to
Harris Stratex in exchange for shares of Harris Stratex
Class B common stock. Following this contribution, it is
expected that Harris will hold approximately 32.7 million
shares of Harris Stratex Class B common stock, assuming
approximately 98.1 million shares of Stratex common stock
are outstanding and another approximately 4.7 million
shares of Stratex common stock are deemed outstanding
immediately prior to the contribution by applying the treasury
stock method using a price per share of Stratex common stock of
5.20 (or $20.80 per share of Harris Stratex Class A common
stock taking into account the conversion ratio in the merger).
The actual number of shares to be issued in the merger and
combination will not be known until the effective time of the
merger.
The shares that Harris and the former Stratex stockholders will
receive in the transaction will represent 56% and 44%,
respectively, of the shares of Harris Stratex common stock
following the consummation of the transactions. Harris and
Stratex have agreed that the 56% interest to be held by Harris
will be determined using the treasury stock method assuming,
solely for this purpose, a market price per share of Harris
Stratex Class A common stock of $20.80, which is equivalent
to $5.20 per share of Stratex common stock prior to the
one-for-four exchange
effected by the merger. The $20.80 price per share of Harris
Stratex Class A common stock does not, and is not intended
to, represent an expected trading range following the merger.
Harris Stratex cannot provide you any assurance that the market
value
of a share of Harris Stratex Class A common stock will be
equal to or greater than $20.80 after the merger. Based strictly
on shares of Harris Stratex common stock outstanding, Harris and
the former Stratex stockholders will own approximately 57% and
43% of the Harris Stratex common stock, respectively. After
closing, shares of Harris Stratex Class A common stock are
expected to trade on the NASDAQ Global Market under the symbol
HSTX.
The board of directors of Stratex has determined that the
merger, the contribution by Harris and the other transactions
contemplated by the combination agreement are fair to, and in
the best interests of the Stratex stockholders and has adopted,
approved and declared advisable the combination agreement, the
merger, the contribution by Harris and the other transactions
contemplated by the combination agreement. The board of
directors of Stratex unanimously recommends that you vote
FOR adoption of the combination agreement and
approval of the merger and the other transactions contemplated
thereby.
The affirmative vote of a majority of the outstanding shares of
Stratex common stock is required for the adoption of the
combination agreement.
You are requested to vote your shares promptly by completing,
signing and dating the enclosed proxy card and returning it in
the envelope provided, or by voting by telephone or over the
Internet as described in this proxy statement/prospectus or on
the enclosed proxy card, whether or not you plan to attend the
special meeting.
Your vote is important. The combination cannot be
completed unless the stockholders of Stratex adopt the
combination agreement and approve the merger. Whether or not you
plan to attend the special meeting, please vote as soon as
possible to make sure that your shares are represented. If you
do not vote, it will have the same effect as a vote
AGAINST the adoption of the combination
agreement and approval of the merger. We urge all of our
stockholders to read this proxy statement/prospectus in its
entirety, including its Appendices, including the section
describing risk factors beginning on page 25 of this proxy
statement/prospectus.
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Very truly yours, |
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Charles D. Kissner |
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Chairman |
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Stratex Networks, Inc. |
Neither the Securities and Exchange Commission nor any state
securities commission has approved or
disapproved of these securities or determined if this proxy
statement/ prospectus is accurate or complete. Any
representation to the contrary is a criminal offense.
This proxy statement/prospectus is
dated l ,
2006, and is expected to first be mailed
to the Stratex stockholders on or
about l ,
2006.
ADDITIONAL INFORMATION
This proxy statement/prospectus incorporates important business
and financial information about Stratex from other documents
that are not included in this proxy statement/prospectus.
However, these documents have been furnished to you with this
proxy statement/prospectus. For a listing of the documents
incorporated by reference into and accompanying this proxy
statement/prospectus, see Where You Can Find More
Information beginning on page 191 of this proxy
statement/prospectus. Additional copies of these documents are
available to you without charge upon your written or oral
request. Please note that copies of the documents furnished with
this proxy statement/prospectus or requested by you will not
include exhibits, unless the exhibits are specifically
incorporated by reference into the documents or this proxy
statement/prospectus. You can obtain these documents through the
Securities and Exchange Commission website at www.sec.gov
or by requesting them in writing or by telephone at the
address below:
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By mail: |
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Stratex Networks, Inc.
120 Rose Orchard Way
San Jose, California 95134
Attention: Office of the Secretary |
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By telephone: |
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(408) 943-0777 |
You should rely only on the information contained in this proxy
statement/prospectus or any supplement. None of Harris Stratex,
Harris or Stratex have authorized any other person to provide
you with different information. If anyone provides you with
different or inconsistent information, you should not rely on
it. You should disregard anything included in an earlier
document that is inconsistent with what is in, or incorporated
by reference into, this proxy statement/prospectus or any
supplement.
You should assume that the information in this proxy
statement/prospectus or any supplement is accurate only as of
the date on the front page of this proxy statement/ prospectus.
The business, financial condition, results or operations and
prospects described in this proxy statement/ prospectus may have
changed since that date and may change again.
ABOUT THIS DOCUMENT
This document is a proxy statement/prospectus which forms part
of a registration statement on
Form S-4 (File
No. 333-137980) filed by Harris Stratex with the Securities
and Exchange Commission. It constitutes a prospectus of Harris
Stratex under Section 5 of the Securities Act of 1933, as
amended, which is referred to in this proxy statement/prospectus
as the Securities Act, and the rules promulgated thereunder,
with respect to the shares of Harris Stratex Class A common
stock to be issued to Stratex stockholders in the merger. It
also constitutes a proxy statement under Section 14(a) of
the Securities Exchange Act of 1934, as amended, which is
referred to in this proxy statement/prospectus as the Exchange
Act, and the rules promulgated thereunder. In addition, this
proxy statement/prospectus serves as a notice of meeting with
respect to the Stratex special meeting of stockholders at which
the Stratex stockholders will consider and vote on the adoption
of the combination agreement and the approval of the merger and
the other transactions contemplated by the combination agreement.
STRATEX NETWORKS, INC.
120 Rose Orchard Way
San Jose, California 95134
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE
HELD l ,
2007
To Stratex Networks, Inc. Stockholders:
A special meeting of stockholders of Stratex Networks, Inc., a
Delaware corporation, will be held at our principal executive
offices located at 120 Rose Orchard Way, San Jose,
California 95134
on l , l ,
2007 at 10:00 a.m., local time, for the following purposes,
as more fully described in the proxy statement/prospectus
accompanying this notice:
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1. To consider and vote upon a proposal to adopt the
Formation, Contribution and Merger Agreement, dated as of
September 5, 2006, which is sometimes referred to as the
combination agreement, between Stratex Networks, Inc., a
Delaware corporation, or Stratex, and Harris Corporation, a
Delaware corporation, and to approve the merger of Stratex
Merger Corp., a Delaware corporation, with and into Stratex,
with Stratex continuing as the surviving corporation, which is
sometimes referred as the merger, and the other transactions
provided for in the combination agreement; |
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2. To vote upon a proposal to adjourn the special meeting
of the Stratex stockholders in the discretion of the proxies or
either of them; and |
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3. To transact such other business as may properly come
before the special meeting or any adjournment or postponement
thereof. |
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The above matters are more fully described in the proxy
statement/prospectus accompanying this notice which also
includes, as Appendix A, the complete text of the
combination agreement. We urge you to carefully read these
materials for a description of the combination agreement and the
other transactions contemplated by the combination agreement.
Only stockholders of record at the close of business
on l ,
2006 are entitled to notice of, and to vote at, the special
meeting and at any adjournment or postponement thereof. Our
stock transfer books will remain open between the record date
and the date of the special meeting. A list of stockholders
entitled to vote at the special meeting will be available for
inspection at our principal executive offices during normal
business hours for the ten business days before the special
meeting.
Your vote is very important. Your proxy is being
solicited by the board of directors of Stratex. The combination
agreement must be adopted by Stratex stockholders in order for
the proposed transactions to be consummated. Your failure to
vote will have the same effect as a vote
AGAINST the adoption of the combination
agreement and the approval of the merger and the other
transactions provided for in the combination agreement.
Whether or not you attend the special meeting in person, to
ensure your representation at the special meeting, please submit
your proxy as described in the proxy statement/prospectus
accompanying this notice. You may submit your proxy
(1) over the Internet, (2) by telephone or (3) by
signing, dating and returning the enclosed proxy card promptly
in the accompanying envelope. Should you receive more than one
proxy because your shares are registered in different names and
addresses, each proxy should be submitted to ensure that all
your shares will be voted. If you submit
your proxy and then decide to attend the special meeting to vote
your shares in person, you may still do so. Your proxy is
revocable in accordance with the procedures set forth in the
attached proxy statement/prospectus. If you hold your shares in
the name of a bank, broker or other nominee, you should follow
the instructions provided by your bank, broker or other nominee
when instructing them on how to vote your shares or when
changing those instructions. The prompt return of your proxy
card, or your prompt voting by telephone or over the Internet,
will assist us in preparing for the special meeting.
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By Order of the Board of Directors, |
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Charles D. Kissner |
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Chairman |
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Stratex Networks, Inc. |
l ,
2006
TABLE OF CONTENTS
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F-1 |
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Appendices
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Appendix A Formation, Contribution and Merger
Agreement
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A-1 |
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Appendix B Form of Voting Agreement
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B-1 |
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Appendix C Certificate of Incorporation of Harris
Stratex Networks, Inc.
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C-1 |
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Appendix D Bylaws of Harris Stratex Networks,
Inc.
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D-1 |
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Appendix E Form of Investor Agreement
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E-1 |
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Appendix F Form of Non-Competition Agreement
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F-1 |
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Appendix G Opinion of Bear, Stearns & Co.,
Inc.
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G-1 |
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Documents Furnished with this Proxy Statement/ Prospectus
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Annual Report on Form 10-K of Stratex Networks, Inc. for
the Fiscal Year Ended March 31, 2006, as amended on
June 20, 2006
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Quarterly Report on Form 10-Q of Stratex Networks, Inc. for
the Fiscal Quarter Ended September 30, 2006
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Quarterly Report on Form 10-Q of Stratex Networks, Inc. for
the Fiscal Quarter Ended June 30, 2006
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iv
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Item |
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Current Reports on Form 8-K of Stratex Networks, Inc. filed
with the Securities and Exchange Commission on the following
dates:
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May 18, 2006 (but only Item 5.02 and Exhibit 99.2)
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May 19, 2006
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August 18, 2006
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September 6, 2006
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September 7, 2006
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September 11, 2006
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Proxy Statement on Schedule 14A for the 2006 Annual Meeting
of Stockholders of Stratex Networks, Inc. filed with the
Securities and Exchange Commission on July 10, 2006
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Description of Stratex common stock set forth in the
Registration Statement on Form 8-A of Stratex Networks,
Inc. filed with the Securities and Exchange Commission on
November 1, 1991, as amended on December 27, 1996
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Form of Registration Rights Agreement between Harris Stratex
Networks, Inc. and Harris Corporation
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Form of Intellectual Property Agreement between Harris Stratex
Networks, Inc. and Harris Corporation
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Form of Trademark and Trade Name License Agreement between
Harris Stratex Networks, Inc. and Harris Corporation
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Form of Lease Agreement between Harris Stratex Networks, Inc.
and Harris Corporation
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Form of Transition Services Agreement between Harris Stratex
Networks, Inc. and Harris Corporation
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Form of Warrant Assumption Agreement between Harris Stratex
Networks, Inc. and Stratex Networks, Inc.
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Form of NetBoss Service Agreement between Harris Stratex
Networks, Inc. and Harris Corporation
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EX-8.1 Opinion of Bingham McCutchen LLP |
EX-21.1 List of Subsidiaries |
EX-23.1 Consent of Ernst & Young LLP |
EX-23.2 Consent of Deloitte & Touche LLP |
EX-99.2 Consent of Bear, Stearns & Co., Inc. |
EX-99.6 Form of Proxy Card |
v
QUESTIONS AND ANSWERS ABOUT THE PROPOSED TRANSACTIONS
The following are some of the questions you may have as a
Stratex stockholder and answers to those questions. These
questions and answers only highlight some of the information
contained in this proxy statement/ prospectus. You should read
carefully this entire document, including the Appendices, to
fully understand the proposed transactions and the voting
procedures for the special meeting of the Stratex
stockholders.
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Q1: |
What are the proposals on which I am being asked to vote? |
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A1: |
You are being asked to vote to adopt the Formation, Contribution
and Merger Agreement, which we sometimes refer to in this proxy
statement/ prospectus as the combination agreement, that Stratex
entered into on September 5, 2006 with Harris and to
approve the transactions provided for in the combination
agreement. You are also being asked to vote to adopt a proposal
that would permit the proxies appointed by you, individually or
together, to adjourn the special meeting of the Stratex
stockholders. |
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Q2: |
What are the transactions contemplated by the combination
agreement? |
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A2: |
Pursuant to the combination agreement, Harris has organized
Harris Stratex solely for the purpose of combining the
businesses currently conducted by Stratex and the Harris
Microwave Communications Division. More specifically, Stratex
will be merged with a subsidiary of Harris Stratex and become a
wholly owned subsidiary of Harris Stratex. This transaction is
sometimes referred to in this proxy statement/ prospectus as the
merger. Concurrently with the merger, Harris will contribute the
Harris Microwave Communications Division, including
$25 million in cash, to Harris Stratex. This transaction is
sometimes referred to in this proxy statement/ prospectus as the
contribution transaction. |
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Q3: |
What will the Stratex stockholders receive as consideration
in the merger? |
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A3: |
If the proposed transactions go forward, each share of Stratex
common stock outstanding immediately prior to the merger will be
automatically converted into one-fourth of a share of Harris
Stratex Class A common stock. The one-fourth conversion
ratio is fixed, and, as a result, the number of shares of Harris
Stratex common stock received by the Stratex stockholders in the
merger will not fluctuate up or down based on the market price
of a share of Stratex common stock prior to the merger. In
addition, because each Stratex stockholder will receive
one-fourth of a share of Harris Stratex Class A common
stock, the merger will have the same effect as if Stratex had
completed a one-for-four reverse split immediately prior to the
merger. It is expected that the shares of Harris Stratex
Class A common stock that you will receive in the merger
will be publicly traded on the NASDAQ Global Market, which is
sometimes referred to in the proxy statement/ prospectus as
NASDAQ. Following the merger, Stratex common stock will be
delisted from NASDAQ. |
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Q4: |
What percentage of the common stock of Harris Stratex will
the Stratex stockholders own following the proposed
transactions? |
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A4: |
The shares of Harris Stratex Class A common stock received
by the former Stratex stockholders in the merger will represent
approximately 44% of the shares of Harris Stratex common stock,
determined using the treasury stock method assuming, solely for
this purpose, a market price per share of Harris Stratex
Class A common stock of $20.80, which is equivalent to
$5.20 per share of Stratex common stock prior to the
one-for-four exchange effected by the merger. |
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Q5: |
What is the treasury stock method? |
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A5: |
The treasury stock method is a way of determining the dilutive
effect of outstanding warrants or options to purchase shares of
a company by assuming that the proceeds that a company receives
from an in-the-money
option or warrant exercise are used to repurchase common shares
in the market. In other words, the number of shares of a company
deemed to be outstanding is increased by the number of
in-the-money options or
warrants, then reduced by the number of shares that the |
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company could purchase from the market with the proceeds, if
such options or warrants were to be exercised at that time. |
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Q6: |
What percentage of Harris Stratex will the former Stratex
stockholders own following the proposed transactions based
strictly on the number of shares of Stratex common stock
outstanding as of the date of this proxy statement/
prospectus? |
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A6: |
Based strictly on the number of shares of Harris Stratex common
stock outstanding, the former Stratex stockholders will own
approximately 43% of the outstanding Harris Stratex common stock
immediately following the proposed transactions. |
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Q7: How are Stratex stock options, warrants
and other equity awards treated in the merger?
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A7: |
At the time the merger takes effect, each outstanding Stratex
stock option, warrant or other equity award will be
automatically converted on the same terms and conditions
(including as to exercisability and vesting, taking into
account, in limited circumstances, any acceleration resulting
from the merger) into a stock option or warrant to acquire or
other equity interest with respect to, the number of shares of
Harris Stratex Class A common stock equal to one-fourth of
the number of shares of Stratex common stock subject to the
stock option, warrant or other equity award immediately prior to
the merger at an exercise price (if applicable) equal to four
times the exercise price per such stock option, warrant or other
equity award immediately prior to the merger. Stock options and
other equity awards will be subject to rounding to comply with
certain legal requirements. |
Q8: What is the contribution transaction?
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A8: |
Simultaneously with the merger of Stratex with Merger Sub,
Harris will contribute the assets comprising its Microwave
Communications Division, including $25 million in cash, to
Harris Stratex. In addition, Harris will allocate, as
appropriate and reasonably practicable, its liabilities between
its Microwave Communications Division and any other businesses
or divisions of Harris and, following such allocation, Harris
Stratex will assume those liabilities of Harris that primarily
result from or primarily arise out of the Microwave
Communications Division. |
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Q9: |
What will Harris receive as consideration in the contribution
transaction? |
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A9: |
In consideration of the contribution of the Microwave
Communications Division, including $25 million in cash, by
Harris, Harris will receive shares of Harris Stratex
Class B common stock equal to approximately 56% of the
shares of Harris Stratex common stock, determined using the
treasury stock method, assuming, solely for this purpose, a
market price per share of Harris Stratex Class A common
stock of $20.80, which is equivalent to $5.20 per share of
Stratex common stock prior to the one-for-four exchange effected
by the merger. Based strictly on the number of shares of Harris
Stratex common stock outstanding, Harris will own approximately
57% of the outstanding Harris Stratex common stock immediately
following the proposed transactions. |
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Q10: |
What percentage of the voting stock of Harris Stratex will
Harris own following the proposed transactions? |
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A10: |
Immediately following the proposed transactions, Harris will
hold that number of shares of Harris Stratex Class B common
stock equal to 57% of the voting stock of Harris Stratex then
outstanding. |
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Q11: Are there differences between Harris Stratex
Class A common stock and Class B common stock?
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A11: |
The Harris Stratex Class B common stock will be
substantially similar to the Harris Stratex Class A common
stock, except that the holders of shares of Class B common
stock will have the right, among others, to elect separately as
a class a number of Harris Stratex directors equal to
Harris proportionate ownership of the total voting power
of the outstanding Harris Stratex common stock so long as
Harris total voting power is equal to or greater than 10%.
In particular, Harris and Stratex have agreed that, at all times
that Harris owns a majority of the total voting power of the
outstanding Harris Stratex common stock, there will be nine
members of the Harris Stratex board of directors of which Harris
will elect five separately as a class. |
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It is expected that, following the merger and the contribution
transaction, shares of Stratex common stock will be delisted
from NASDAQ, and shares of Harris Stratex Class A common
stock will be listed for trading on NASDAQ under the symbol
HSTX. Shares of Harris Stratex Class B common
stock are not expected to be listed for trading on any exchange
or quotation system at any time in the foreseeable future.
However, each share of Harris Stratex Class B common stock
is convertible at any time at the option of the holder into one
share of Harris Stratex Class A common stock. Following the
proposed transactions, Harris will be subject to certain
restrictions on the resale of shares of Harris Stratex common
stock held by it during certain periods. For more information
relating to these restrictions, see Harris Governance
Rights and Contractual Relationships beginning on
page 48 of this proxy statement/ prospectus and The
Investor Agreement beginning on page 103 of this
proxy statement/ prospectus. |
Q12: What will be the relationship of Harris
Stratex to Harris after the proposed transactions?
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A12: |
After the proposed transactions, Harris Stratex will be a
majority-owned subsidiary of Harris and its financial statements
will be included in Harris consolidated financial
statements. However, we expect that the Harris Stratex
Class A common stock will be listed and traded on NASDAQ
and Harris Stratex will report separate financial results and
file required public company reports with the Securities and
Exchange Commission. In addition, at the closing of the proposed
transactions, Harris Stratex and Harris will enter into
agreements regarding Harris and Harris Stratexs
ongoing relationship, including but not limited to, the exercise
of Harris rights with respect to its Class B common
stock and its ability to compete with Harris Stratex with
respect to the existing products of Stratex and the Microwave
Communications Division and other products similar in form, fit,
function and use. For more information relating to the
agreements to be entered into by Harris and/or Harris Stratex at
the closing of the proposed transactions, see The Investor
Agreement, The Non-Competition Agreement and
Other Agreements beginning on page 103 of this
proxy statement/ prospectus. |
Q13: Who is entitled to vote?
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A13: |
Stratex stockholders of record as
of l p.m.
Pacific Standard Time
on l , l ,
2006, are entitled to receive notice of and to vote at the
Stratex special meeting. |
Q14: How do I vote?
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A14: |
If you are a Stratex stockholder of record, you may vote your
shares at the Stratex special meeting in one of the following
ways: |
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by mailing your completed and signed proxy card in the enclosed
return envelope; |
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by voting by telephone or over the Internet as instructed on the
enclosed proxy card; or |
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by attending the Stratex special meeting and voting in person. |
If you hold your shares through a bank, broker or other
nominee, you should follow the instructions provided by your
bank, broker or other nominee when instructing them on how to
vote your shares.
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Q15: |
What vote is required for approval of the proposed
transactions? |
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A15: |
The adoption of the combination agreement and approval of the
merger requires the affirmative vote of a majority of the
outstanding shares of Stratex common stock. Consequently, a
failure to vote, an abstention from voting or a broker non-vote
will have the same effect as a vote against the proposal to
adopt the combination agreement and approve the merger and the
other transactions described in the combination agreement. |
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Q16: When are the proposed transactions expected
to be completed?
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A16: |
It is currently anticipated that the transactions will be
completed before March 31, 2007; however, we cannot assure
you when or if the transactions will occur. |
viii
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Q17: |
If my shares are held in street name by my bank,
broker or other nominee, will my bank, broker or other nominee,
vote my shares for me? |
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A17: |
Only if you provide your bank, broker or other nominee with
instructions on how to vote your shares. Therefore, you should
instruct your bank, broker or other nominee to vote your shares,
following the directions your bank, broker or other nominee
provides. If you do not instruct your bank, broker or other
nominee, your bank, broker or other nominee will generally not
have the discretion to vote your shares without your
instructions. Broker non-votes are considered present at the
special meeting but not entitled to vote on the proposals and
will have the same effect as a vote AGAINST
the proposals because the proposal to adopt the combination
agreement and approve the merger and the other transactions
provided for in the combination agreement must be adopted by the
holders of a majority of the outstanding shares of Stratex
common stock and the proposal to adjourn the special meeting of
the Stratex stockholders must be adopted by a majority of the
stockholders present in person or by proxy at the special
meeting of Stratex stockholders. |
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Q18: Should I send in my stock certificates
now?
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A18: |
No. Stratex stockholders should keep their existing stock
certificates at this time. After the combination is completed,
you will receive written instructions for exchanging your
Stratex stock certificates for Harris Stratex stock certificates. |
Q19: What do I need to do now?
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A19: |
After carefully reading and considering the information
contained in this proxy statement/ prospectus, including its
Appendices, please fill out and sign the proxy card, and then
mail your completed and signed proxy card in the enclosed
prepaid envelope as soon as possible so that your shares of
Stratex common stock may be voted at the special meeting, or you
may follow the instructions on the proxy card and vote your
shares of Stratex common stock by telephone or over the
Internet. Your proxy card or your telephone or Internet
directions will instruct the persons identified as your proxy to
vote your shares at the Stratex stockholders meeting as directed
by you. |
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If you sign and send in your proxy card and do not indicate how
you want to vote, your proxy will be voted
FOR the proposals. |
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If you hold your shares of Stratex common stock through a bank,
broker or other nominee, you should follow the instructions
provided by your bank, broker or other nominee when instructing
them on how to vote your shares of Stratex common stock. If you
do not instruct your bank, broker or other nominee how to vote
your shares of Stratex common stock, your bank, broker or other
nominee will not vote your Stratex shares, such failure to vote
being referred to as a broker non-vote, which will
have the same effect as voting your shares
AGAINST the proposal to adopt the combination
agreement and approve the merger and the other transactions
provided for in the combination agreement. |
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Q20: |
May I change my vote after I have mailed my signed proxy card
or voted by telephone or over the Internet? |
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A20: |
You may change your vote at any time before your proxy is voted
at the special meeting. You can do this in one of four ways: |
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First, timely deliver a valid later-dated proxy by mail. |
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If you elect to deliver a later-dated proxy, please submit your
new proxy to Stratexs transfer agent at the following
address: |
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Mellon Investor Services
525 Market Street, Suite 3500
San Francisco, California 94105 |
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Second, provide written notice to Stratexs inspector of
elections before the meeting that you have revoked your proxy. |
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If you elect to revoke your proxy, please send your written
notice to the inspector of elections at the following address: |
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Mellon Investor Services |
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Proxy Processing |
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P.O. Box 1680 |
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Manchester, CT
06045-1680 |
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Third, you can submit revised voting instructions by telephone
or over the Internet by following the instructions set forth on
the proxy card. |
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Fourth, you can attend the special meeting and vote in person.
Simply attending the meeting, however, will not revoke your
proxy or change your voting instructions; you must vote at the
meeting. |
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If you have instructed a bank, broker or other nominee to vote
your shares, you must follow directions received from your bank,
broker or other nominee to change your vote or revoke your proxy. |
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Q21: |
Will appraisal rights be available for dissenting
stockholders? |
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A21: |
No. Stratex stockholders do not have appraisal or
dissenters rights with respect to the merger or the other
transactions described in this proxy statement/ prospectus. |
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Q22: Who can help answer my questions?
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A22: |
If you have any questions about the proposed transactions or how
to submit your proxy, or if you need additional copies of this
proxy statement/ prospectus or the enclosed proxy card, you
should contact: |
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Morrow and Co. |
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470 West Avenue |
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Stamford, Connecticut 06902 |
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1-800-607-0088 |
x
SUMMARY
This summary highlights selected information contained in
this proxy statement/ prospectus and may not contain all of the
information that is important to you. You should read carefully
this entire document, including the Appendices, for a more
complete understanding of the proposed transactions and voting
procedures for the special meeting of the Stratex stockholders.
Unless otherwise indicated in this proxy statement/ prospectus
or the context otherwise requires, all references to
Stratex mean Stratex Networks, Inc.; all references
to Harris mean Harris Corporation; all references to
the Microwave Communications Division mean the
Microwave Communications Division of Harris Corporation; and all
references to Harris Stratex or the combined
company mean Harris Stratex Networks, Inc.
The Special Meeting (Page 44)
The special meeting of the stockholders of Stratex will be held
at 10:00 a.m., local time,
on l , l ,
2007, at the principal executive offices of Stratex located at
120 Rose Orchard Way, San Jose, California 95134.
You may vote at the Stratex special meeting if you were the
record holder of Stratex common stock as
of l p.m.,
Pacific Standard Time,
on l ,
2006, the record date for the Stratex special meeting. As of the
record date, an aggregate
of l shares
of Stratex common stock were outstanding and will be entitled to
vote at the Stratex special meeting. You may cast one vote for
each share of Stratex common stock that you owned on the record
date of the Stratex special meeting.
At the special meeting you will be asked:
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to consider and vote upon a proposal to adopt the combination
agreement, dated as of September 5, 2006, between Stratex
and Harris and to approve the merger of Merger Sub with and into
Stratex, with Stratex as the surviving corporation, and the
other transactions provided for in the combination agreement; |
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to agree to adjourn the special meeting in the discretion of the
proxies or either of them; and |
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to transact such other business as may properly come before the
special meeting or any adjournment or postponement thereof. |
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Proposal to Adopt the Combination Agreement and Approve the
Merger |
The adoption of the combination agreement and approval of the
merger and the other transactions provided for in the
combination agreement require the approval of a majority of the
shares of Stratex common stock outstanding as of the record date
of the Stratex special meeting (either in person or by proxy).
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Proposal to Adjourn the Special Meeting |
The adoption of the proposal to permit the proxies to adjourn
the special meeting requires the affirmative vote of the
majority of shares of Stratex common stock in person or
represented by proxy at the meeting and entitled to vote on the
record date, regardless of whether a quorum is present.
1
As of the close of business on the record date for the Stratex
special meeting, Stratex directors, senior officers and their
affiliates were entitled to vote
approximately l % of
the then-outstanding shares of Stratex common stock. You should
be aware that the directors and senior officers of Stratex have
each entered into a voting agreement with Harris. Pursuant to
these voting agreements, the directors and those officers who
are party to a voting agreement have agreed, among other things,
to vote in favor of the adoption of the combination agreement
and the approval of the merger and the other transactions
provided for in the combination agreement, unless the voting
agreement is terminated in accordance with its terms. In
addition, they have agreed to vote against any other proposal by
a third party to acquire Stratex, or any other matter which
could reasonably be expected to impede, interfere with, delay or
adversely affect the consummation of the transactions
contemplated by the combination agreement, unless the voting
agreement is terminated in accordance with its terms. As of the
close of business on the record date for the Stratex special
meeting, l % of the
then-outstanding shares of Stratex common stock were subject to
these voting agreements.
The Companies (Page 42)
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Harris Stratex Networks, Inc. |
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Harris Stratex Networks, Inc. |
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c/o Harris Corporation |
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1025 West NASA Blvd. |
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Melbourne, Florida 32919 |
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Telephone: (321) 727-9100 |
Harris Stratex, which is currently a wholly owned subsidiary of
Harris, is a Delaware corporation and was formed on
October 5, 2006 solely for the purpose of effecting the
merger and the contribution transaction. To date Harris Stratex
has not conducted any activities other than those incident to
its formation, the execution of the combination agreement and
the preparation of the applicable filings under the
U.S. securities laws and regulatory filings made in
connection with the proposed transactions. Immediately upon
completion of the merger and the contribution transaction,
Harris will hold 56% of the capital stock of Harris Stratex
determined using the treasury stock method assuming a market
price per share of Harris Stratex Class A common stock of
$20.80 (which represents $5.20 per share of Stratex common
stock prior to the effective one-for-four reverse split pursuant
to the merger), or approximately 57% of the outstanding shares
of Harris Stratex immediately after the consummation of the
transactions. As a result, Harris Stratex will be a
majority-owned subsidiary of Harris, and its financial
statements will be included in Harris consolidated
financial statements. Harris Stratex expects to conduct the
businesses of Stratex and the Microwave Communications Division
following the merger and the contribution transaction
substantially as currently conducted by Stratex and Harris,
respectively; however, following the closing of the proposed
transactions, Harris Stratex anticipates that it will integrate
the businesses as its management team determines to be
appropriate. Following the completion of the transactions
described in this proxy statement/prospectus, it is expected
that shares of Harris Stratex Class A common stock will
trade on NASDAQ under the symbol HSTX.
The principal executive offices of Harris Stratex are currently
located at 1025 West NASA Blvd., Melbourne, Florida 32919,
and its telephone number is (321) 727-9100. Following the
closing of the proposed transactions, it is expected that the
headquarters of Harris Stratex will be located at Research
Triangle Park, 637 Davis Drive, Morrisville, North Carolina
27560, which is the current headquarters of the Microwave
Communications Division, and its telephone number is expected to
be (919) 767-3250.
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Stratex Networks, Inc. |
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120 Rose Orchard Way |
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San Jose, California 95134 |
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Telephone: (408) 943-0777 |
2
Stratex provides wireless transmission solutions to mobile
wireless carriers and data access providers globally. Stratex
Networks also provides high-speed wireless transmission
solutions. In fiscal year 2006, Stratexs operations
resulted in revenues of approximately $230,892,000, total assets
of approximately $180,830,000 and a net loss of approximately
$2,297,000.
Stratex was incorporated in California in 1984 and reorganized
in 1987 as a Delaware corporation. Stratexs principal
executive offices are located at 120 Rose Orchard Way,
San Jose, California 95134, and its telephone number is
(408) 943-0777. Stratexs website is
www.stratexnet.com. All of Stratexs periodic
reports filed with the Securities and Exchange Commission are
available free of charge on its website. Information included on
Stratexs website is not incorporated by reference into
this proxy statement/prospectus.
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Stratex Merger Corp. |
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c/o Harris Corporation |
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1025 West NASA Blvd. |
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Melbourne, Florida 32919 |
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Telephone: (321) 727-9100 |
Stratex Merger Corp., a wholly owned subsidiary of Harris
Stratex, is a Delaware corporation formed solely for the purpose
of effecting the merger with Stratex. Stratex Merger Corp. is
often referred to in this proxy statement/ prospectus as Merger
Sub.
Upon the terms and conditions set forth in the combination
agreement, Merger Sub will be merged with and into Stratex and
the separate existence of Merger Sub will cease. Stratex will be
the surviving corporation.
Merger Sub has not conducted any activities other than those
incidental to its formation and the matters contemplated by the
combination agreement.
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Microwave Communications Division of Harris
Corporation |
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Microwave Communications Division of Harris Corporation |
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Research Triangle Park |
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637 Davis Drive |
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Morrisville, North Carolina 27560 |
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Telephone: (919) 767-3250 |
The Microwave Communications Division is one of four divisions
within Harris and is a global provider of products and services
in point-to-point
microwave radio communications. The Microwave Communications
Division designs, manufactures and sells a broad range of
microwave radios for use in worldwide wireless communications
networks. Applications include wireless/mobile infrastructure
connectivity; secure data networks; public safety transport for
state, local and federal government users; and
right-of-way
connectivity for utilities, pipelines, railroads and industrial
companies. The Microwave Communications Division also offers a
comprehensive network management systems known as
NetBoss®.
NetBoss®
is an end-to-end turnkey solution for managing multi-vendor,
multi-service, multi-protocol communications networks.
NetBoss®
provides turnkey element and network management solutions for
fault management, performance management, configuration
management, as well as operational support systems. In fiscal
year 2006, the operations of the Microwave Communications
Division resulted in revenues of approximately $357,500,000,
total assets of approximately $352,649,000 and a net loss of
approximately $35,848,000. The fiscal year 2006 results include
an approximately $39,600,000 after-tax charge related to
inventory write-downs and other charges associated with product
discontinuances, as well as the planned shutdown of
manufacturing activities at the MCD plant in Montreal, Canada.
3
The principal executive offices of the Microwave Communications
Division are located at Research Triangle Park, 637 Davis Drive,
Morrisville, North Carolina 27560, and its telephone number is
(919) 767-3250.
The Contribution Transaction and the Merger (Page 47)
Under the terms of the combination agreement, Harris and Stratex
agreed to create Harris Stratex, a newly formed Delaware
corporation, for the purpose of combining the Microwave
Communications Division with Stratex. To that end, Stratex will
merge with Merger Sub, a wholly owned subsidiary of Harris
Stratex and newly formed Delaware corporation, and, as the
surviving entity in that merger, will become a wholly owned
subsidiary of Harris Stratex. Each share of Stratex common stock
outstanding immediately prior to the time the merger takes
effect will be converted into one-fourth of a share of
Class A common stock of Harris Stratex. This conversion
ratio will have the same effect on the number of shares of
Harris Stratex Class A common stock received by the former
Stratex stockholders as if Stratex had effected a one-for-four
reverse split of its outstanding common stock immediately prior
to the merger.
Simultaneously with the merger of Stratex and Merger Sub, Harris
will contribute the assets comprising its Microwave
Communications Division, including $25 million in cash, to
Harris Stratex. In addition, Harris will allocate, as
appropriate and reasonably practicable, its liabilities between
its Microwave Communications Division and any other businesses
or divisions of Harris and, following such allocation, Harris
Stratex will assume those liabilities of Harris that primarily
result from or primarily arise out of the Microwave
Communications Division. The liabilities of the Microwave
Communications Division that will be assumed by Harris Stratex
in the contribution transaction include the approximately
$90,705,000 of liabilities at September 29, 2006 identified
on the Combined Balance Sheets of the Microwave Communications
Division beginning on page F-27 of this proxy
statement/prospectus. The approximately $3,074,000 of
liabilities at September 29, 2006 due to Harris identified
on the Combined Balance Sheets of the Microwave Communications
Division beginning on page F-27 of this proxy statement/
prospectus will be canceled in connection with the contribution
transaction. In addition, Harris Stratex will also assume any
contingent liabilities of the Microwave Communications Division,
which by their nature are not quantifiable and may not be
identifiable, in accordance with the second sentence of this
paragraph.
In exchange for Harris contribution to Harris Stratex,
Harris Stratex will issue to Harris a number of shares of
Class B common stock of Harris Stratex equal to 56% of the
capital stock of Harris Stratex immediately following the merger
and contribution transaction using the treasury stock method
assuming a market price per share of Class A common stock
of $20.80 (which represents $5.20 per share of Stratex
common stock prior to the effective one-for-four reverse split
pursuant to the merger). Upon closing, the shares Harris and the
former shareholders of Stratex will receive in the transaction
will represent approximately 57% and 43%, respectively, of the
outstanding shares of Harris Stratex immediately after the
consummation of the transactions (or approximately
56.4% and 43.6% of the outstanding shares determined
on a fully diluted basis using the treasury stock method and the
closing price for the shares on November 21, 2006).
Structure of the Combination Transactions (Page 84)
Upon the consummation of the proposed transactions, the
Microwave Communications Division and Stratex will be combined
into Harris Stratex. The effect of the proposed transactions is
illustrated below.
4
Before the Combination
Transactions
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Harris Corporation currently holds one share of Class B
common stock of Harris Stratex Networks, Inc. which will be the
only outstanding share of capital stock of Harris Stratex
Networks, Inc. at such time. |
The Combination
Transactions
5
After the Combination
Transactions
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** |
Equity split determined on a fully diluted basis using the
treasury stock method assuming a fair market value of $20.80 per
share of Class A common stock of Harris Stratex Networks,
Inc. (which represents $5.20 per share of Stratex common stock
prior to the effective one-for-four reverse split pursuant to
the merger). |
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Following the closing of the proposed transactions, Harris
Stratex expects to integrate the businesses as the management of
Harris Stratex determines to be appropriate. |
Recommendation of the Stratex Board of Directors
(Page 60)
The board of directors of Stratex has determined that the
combination agreement and the transactions provided for by the
combination agreement are fair to and in the best interests of
the Stratex stockholders and has approved, adopted and declared
advisable the combination agreement and the transactions
provided for by the combination agreement. The board of
directors of Stratex unanimously recommends that the Stratex
stockholders vote FOR the proposal to adopt
the combination agreement and approve the merger and the other
transactions provided for by the combination agreement and
FOR the proposal to adjourn the special
meeting of the Stratex stockholders in the discretion of the
proxies or either of them.
Reasons for the Recommendation of the Board of Directors of
Stratex (Page 57)
In making their determination, the board of directors of Stratex
considered a number of factors in reviewing the proposed
transactions. Among other factors, the board of directors of
Stratex focused on its belief that the merger and the
contribution transaction are likely to:
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increase the scale of Stratexs business; |
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deliver complementary global distribution channels with minimal
customer overlap and significantly expand the customer footprint
of the combined company through the combination of
Stratexs focus on the international market for wireless
transmission networks with the strong, historical presence in
the U.S. market of the Microwave Communications Division.; |
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serve a large market with expected growth over the next five
years; |
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offer customers a better
end-to-end product
portfolio; |
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offer expected annual savings through product cost and operating
expense synergies; and |
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create a larger and more competitive company with stronger
financial performance, greater financial capacity, product
leadership and the ability to serve adjacent markets. |
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Among the risks considered were:
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the combination of the businesses currently conducted by the
Microwave Communications Division and Stratex will create
numerous risk and uncertainties which could adversely affect
Harris Stratexs operating results; |
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some of Stratexs directors and officers have interests in
the merger in addition to those of the Stratex stockholders; |
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Harris Stratex will be controlled by Harris, whose interests may
conflict with those of the Stratex stockholders; and |
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the termination fee to and expenses of Harris that Stratex would
be required to pay under specified circumstances. |
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Opinion of Stratexs Financial Advisor (Page 60)
On September 5, 2006, the board of directors of Stratex
received the written opinion of Bear, Stearns & Co.
Inc., or Bear Stearns, to the effect that, as of the date of the
opinion, based upon and subject to the assumptions made,
procedures followed, matters considered and limitations on the
review undertaken in connection with the opinion, the conversion
of each share of Stratex common stock into one-fourth of a share
of Harris Stratex Class A common stock pursuant to the
combination agreement is fair from a financial point of view to
the holders of shares of Stratex common stock. Bear Stearns will
be entitled to receive approximately $4,200,000, assuming a
$ 4.29 average closing price of Stratex common stock prior
to consummation of the combination. Of this amount, $300,000 was
earned upon delivery of its opinion and the balance will be
payable and contingent upon completion of the proposed
transactions.
Interests of Stratexs Directors and Executive Officers
in the Transactions (Page 67)
In considering the recommendation of the board of directors of
Stratex, you should be aware that certain directors and officers
of Stratex may have interests in the merger and the other
transactions provided for in the combination agreement that are
different from, or in addition to, your interests as a
stockholder of Stratex generally and may create potential
conflicts of interest. The board of directors of Stratex was
aware of these interests and considered them when they approved
and adopted the combination agreement, the merger and the other
transactions provided for in the combination agreement.
Harris and Stratex have agreed that, immediately prior to the
effective time of the merger, Thomas H. Waechter, who currently
serves as the Chief Executive Officer of Stratex, will be
appointed Chief Operating Officer of Harris Stratex and Charles
D. Kissner, Chairman of Stratex, will become non-executive
Chairman of Harris Stratex. Other current Stratex officers may
be employed by Harris Stratex. Their positions at Harris Stratex
will entitle these individuals to compensation and equity awards
from Harris Stratex. Following the completion of the merger and
the contribution transaction, options to purchase Stratex common
stock currently owned by Stratexs executive officers will
be assumed by Harris Stratex and converted into options to
purchase shares of Harris Stratex common stock. Furthermore,
Stratex has estimated the total value of change of control
benefits potentially realizable by Stratexs executive
officers in connection with the merger to be approximately
$7.2 million from the receipt of severance pay and other
benefits and approximately $660,000 from acceleration of option
vesting in connection with the combination transactions. The
actual value received by them could be greater or less than
these estimated amounts, however.
7
As many as four of the current directors of Stratex (including
Mr. Kissner) could become directors of Harris Stratex. If
appointed a director of Harris Stratex, these individuals would
be will entitled to compensation and equity awards from Harris
Stratex.
Board of Directors and Management of Harris Stratex Following
the Transactions (Page 118)
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Board of Directors of Harris Stratex |
Immediately following the combination transaction the board of
directors of Harris Stratex will have nine members. Five of
these directors will be appointed by Harris as the sole holder
of Harris Stratex Class B common stock and will include
Howard L. Lance, Chairman, President and Chief Executive Officer
of Harris, and Guy M. Campbell, President of the Microwave
Communications Division. Of the remaining three directors to be
appointed by Harris, Harris has agreed that one must meet the
independence requirements for directors serving on an audit
committee as prescribed by the NASDAQ rules and one must not be
an employee of Harris or any of its subsidiaries (without regard
to Harris Stratex or any of its subsidiaries).
The four remaining directors of Harris Stratex will be appointed
by Stratex and will include Charles D. Kissner, Chairman of
Stratex, and three other persons, two meeting the independence
requirements for directors serving on an audit committee as
prescribed by the NASDAQ rules.
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Management of Harris Stratex |
Immediately following the proposed transactions, the management
team of Harris Stratex will include Guy M. Campbell as Chief
Executive Officer of Harris Stratex, currently the President of
the Microwave Communications Division, Thomas H. Waechter as
Chief Operating Officer of Harris Stratex, currently Chief
Executive Officer of Stratex, and Sarah A. Dudash as Chief
Financial Officer of Harris Stratex, currently Vice President
and Controller of the Microwave Communications Division.
Other officers of Harris Stratex will be appointed in accordance
with its certificate of incorporation and bylaws by its board of
directors and management team on or prior to the completion of
the proposed transactions.
Regulatory Matters (Page 78)
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended, which is sometimes referred to in this proxy
statement/prospectus as the HSR Act, and the rules and
regulations promulgated thereunder by the U.S. Federal
Trade Commission, or FTC, certain transactions, including the
proposed transactions, cannot be consummated until notifications
have been given and certain information has been furnished to
the FTC and the Antitrust Division of the U.S. Department
of Justice, or the Antitrust Division, and specified waiting
period requirements have been satisfied. On September 29,
2006, each of Harris and Stratex filed a Pre-Merger Notification
and Report Form pursuant to the HSR Act with the Antitrust
Division and the FTC. The waiting period under the HSR Act
expired on October 30, 2006. Although the waiting period
has expired, at any time before the effective time of the
proposed transactions, the FTC, the Antitrust Division or others
could take action under the antitrust laws with respect to the
proposed transactions, including seeking to enjoin the proposed
transactions or to require the divestiture of certain assets of
Stratex or the Microwave Communications Division. There can be
no assurance that a challenge to the proposed transactions on
antitrust grounds will not be made or, if such a challenge is
made, that it would not be successful.
Certain Material U.S. Federal Income Tax Consequences
(Page 79)
The obligation of Harris and Stratex to complete the
transactions are subject to the receipt by Stratex of the
opinion of its counsel, Bingham McCutchen LLP, that the merger
will constitute a reorganization under Section 368(a) of
the Internal Revenue Code of 1986, as amended, which is referred
to in this proxy statement/ prospectus as the code, and the
receipt by Harris of the opinion of its counsel,
Sullivan &
8
Cromwell LLP, that the contribution of the Microwave
Communication Division, together with the merger, will qualify
as a transaction governed by Section 351 of the code. As
further discussed in the section entitled Certain Material
U.S. Federal Income Tax Consequences beginning on
page 79 of this proxy statement/ prospectus, Bingham
McCutchen LLP has opined, in an opinion filed as an exhibit to
the registration statement of which this proxy statement/
prospectus forms a part, that the U.S. holders of Stratex
common stock will not recognize gain or loss for federal income
tax purposes on the exchange of their Stratex common stock for
Harris Stratex Class A common stock, except that such
holders may recognize gain on any cash that they receive in lieu
of fractional shares of Harris Stratex Class A common stock.
Tax matters are very complicated and the tax consequences of the
merger to each Stratex stockholder will depend on that
stockholders particular facts and circumstances.
Stratex stockholders are urged to consult their tax advisors
to understand fully the tax consequences of the merger to
them.
Risk Factors (Page 25)
In evaluating the proposed transactions, the issuance of Harris
Stratex common stock or your rights under or in connection with
the proposed transactions, you should carefully read this proxy
statement/prospectus, including its Appendices, in its entirety
and give special consideration to the factors discussed in the
section entitled Risk Factors beginning on
page 25 of this proxy statement/prospectus.
No Appraisal Rights (Page 82)
Stratex stockholders are not entitled to appraisal or
dissenters rights in connection with the proposed
transactions.
The Agreements (Page 83)
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Formation, Contribution and Merger Agreement |
Harris and Stratex entered into the combination agreement on
September 5, 2006. Harris, Stratex, Harris Stratex and
Merger Sub will amend and restate the combination agreement
prior to the effective time to make Harris Stratex and Stratex
Merger Corp. parties to the combination agreement. The
combination agreement is sometimes referred to in this proxy
statement/prospectus as the combination agreement.
In accordance with the terms of the combination agreement,
Harris has created a new Delaware corporation named Harris
Stratex Networks, Inc. for the purpose of combining the
Microwave Communications Division with Stratex. Upon the
satisfaction or waiver of all conditions to the completion of
the merger and the contribution transaction, Merger Sub, a
wholly owned subsidiary of Harris Stratex, will merge with and
into Stratex, with Stratex continuing as the surviving
corporation.
Simultaneously with the merger of Stratex and Merger Sub, Harris
will contribute the assets comprising its Microwave
Communications Division, including $25 million in cash, to
Harris Stratex. In addition, Harris will allocate, as
appropriate and reasonably practicable, its liabilities between
its Microwave Communications Division and any other businesses
or divisions of Harris and, following such allocation, Harris
Stratex will assume those liabilities of Harris that primarily
result from or primarily arise out of the Microwave
Communications Division.
A conformed copy of the combination agreement is attached as
Appendix A to this proxy statement/prospectus.
Please read the combination agreement carefully and fully as it
is the legal document that governs the merger and the
contribution transaction.
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Transaction Consideration; Treatment of Stratex Stock
Options, Warrants and Other Equity Awards |
If the merger and the contribution transaction occur:
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at the effective time of the merger, each issued and outstanding
share of Stratex common stock will be automatically converted
into one-fourth of a share of Class A common stock of
Harris Stratex, |
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together with cash in lieu of fractional shares of Harris
Stratex Class A common stock. This conversion ratio will
have the same effect on the number of shares of Harris Stratex
Class A common stock received by the former Stratex
stockholders as if Stratex had effected a one-for-four reverse
split of its outstanding common stock immediately prior to the
merger; |
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at the effective time of the merger, each outstanding stock
option, warrant or other equity award will be automatically
converted on the same terms and conditions (including as to
exercisability and vesting, taking into account, in limited
circumstances, any acceleration resulting from the merger) into
a stock option or warrant to acquire or other equity interest
with respect to, the number of shares of Harris Stratex
Class A common stock equal to one-fourth of the number of
shares of Stratex common stock subject to the stock option,
warrant or other equity award immediately prior to the merger at
an exercise price (if applicable) equal to four times the
exercise price per such stock option, warrant or other equity
award immediately prior to the merger; and |
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at the time of the contribution and concurrently with the
effective time of the merger, Harris Stratex will issue to
Harris a number of shares of Class B common stock equal to
56% of the capital stock of Harris Stratex immediately following
the merger and the contribution transaction using the treasury
stock method assuming a market price per share of Class A
common stock of $20.80 (which represents $5.20 per share of
Stratex common stock prior to the effective one-for-four reverse
split pursuant to the merger). |
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Ownership of Harris Stratex Following the Proposed
Transactions |
It is expected that, immediately following the completion of the
proposed transactions:
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the combined company would have approximately 58.4 million
shares of Harris Stratex Class A common stock on a fully
diluted basis (including outstanding shares of Harris Stratex
Class B common stock which are convertible at any time into
shares of Harris Stratex Class A common stock) using the
treasury stock method assuming a market price per share of
Harris Stratex Class A common stock of $20.80 (which
includes approximately 1.2 million shares issuable upon
exercise of stock options, warrants and other equity awards with
an exercise price (if applicable) equal to or less than
$20.80 per share of Harris Stratex Class A common
stock). Based on the foregoing assumptions, there would be
32.7 million shares of Class B common stock
outstanding; |
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Harris will own 56% of the Harris Stratex common stock on a
fully diluted basis using the treasury stock method assuming a
market price per share of Harris Stratex Class A common
stock of $20.80 (which represents $5.20 per share of
Stratex common stock prior to the effective one-for-four reverse
split pursuant to the merger); and |
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the former holders of Stratex common stock will own 44% of the
Harris Stratex common stock on a fully diluted basis using the
treasury stock method assuming a market price per share of
Harris Stratex Class A common stock of $20.80 (which
represents $5.20 per share of Stratex common stock prior to
the effective one-for-four reverse split pursuant to the
merger), or approximately 43% of the outstanding shares of
Harris Stratex immediately after the consummation of the
transactions (or approximately 43.6% of the outstanding
shares determined on a fully diluted basis using the treasury
stock method and the closing price for the shares on
November 21, 2006). |
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No Solicitation of Acquisition Proposals by Stratex |
Stratex has agreed that neither it nor any of its subsidiaries,
nor any of their officers, directors, employees, agents and
representatives (including any investment banker, attorney or
accountant), or a representative, will, directly or indirectly,
initiate, solicit, encourage or facilitate any acquisition
proposal (as defined in the combination agreement).
Stratex has further agreed that neither it nor any of its
representatives will, directly or indirectly:
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provide any confidential or non-public information or data to,
or engage or participate in any discussions or negotiations
with, any person relating to an acquisition proposal, or
otherwise |
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encourage or facilitate any effort or attempt by any person to
make or implement an acquisition proposal; |
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waive any provision of any confidentiality or standstill
agreement that Stratex is a party to without the prior written
consent of Harris; or |
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make any change in the recommendation of the board of directors
of Stratex to the Stratex stockholders to adopt the proposal
relating to the adoption of the combination agreement and the
approval of the merger and the other transactions contemplated
by the combination agreement. |
Notwithstanding the foregoing, at any time prior to, but not
after, the adoption of the combination agreement by the Stratex
stockholders, Stratex is permitted to:
(A) provide confidential or non-public information in
response to a request by a person who has made an unsolicited
bona fide written qualifying acquisition
proposal (as defined in the combination agreement);
(B) engage or participate in discussions or negotiations
with any person who has made a qualifying acquisition
proposal; or
(C) approve or recommend to the Stratex stockholders a
qualifying acquisition proposal (or agree to take such action),
but Stratex may take the above actions, if and only if:
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with respect to the actions described in clauses (A), (B)
or (C) above, after consulting with outside legal counsel, the
board of directors of Stratex determines in good faith that
failing to take such action would constitute a breach by the
Stratex directors of their fiduciary duties; |
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with respect to the actions described in clauses (A) or (B)
above, Stratex enters into a confidentiality agreement with such
person on terms substantially similar to those contained in the
confidentiality agreement between Stratex and Harris; |
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with respect to the actions described in clauses (B) or (C)
above, (x) the board of directors of Stratex determines in
good faith and after consulting with its financial advisors and
outside counsel that the qualifying acquisition proposal is a
superior proposal (as defined in the combination
agreement) or, in the case of clause (B) only, is
reasonably likely to lead to a superior proposal and
(y) Stratex has provided five business days written
notice in the case of the first qualifying acquisition proposal
made by a person (or one business days written notice in
the case of a subsequent qualifying acquisition proposal made by
the same person) to Harris of Stratexs or its board of
directors intention to take the actions described in
(B) or (C) and has complied with other notice provisions. |
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Conditions to the Completion of the Merger and the
Contribution Transaction |
The completion of the merger and the contribution transaction
depend upon the satisfaction or waiver of a number of
conditions, including the following:
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the adoption of the combination agreement by the Stratex
stockholders; |
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the authorization for listing on NASDAQ of Harris Stratex
Class A common stock to be issued in the merger and
reserved for issuance upon the exercise of stock options and
awards and the conversion of the shares of Class B common
stock, subject to official notice of issuance; |
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the expiration or termination of the waiting period applicable
to the merger and the contribution transaction under the HSR Act
and the filing or receipt of all other governmental
authorizations required to be made or obtained by Harris or
Stratex other than those the failure of which to make or obtain
would not, individually or in the aggregate, be reasonably
likely to have a material adverse effect on the results of
operations, financial condition, cash flows, assets, liabilities
or business of |
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Harris Stratex and its subsidiaries, taken as a whole, following
the closing or result in criminal liability or other material
sanctions for any director or officer of Harris, Stratex or
Harris Stratex; |
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the effectiveness of the registration statement of which this
proxy statement/ prospectus is a part, the absence of a stop
order issued by the Securities and Exchange Commission
suspending the effectiveness of that registration statement and
the absence of any proceedings initiated for that purpose by the
Securities and Exchange Commission; |
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the absence of any law, order or injunction enacted, issued or
promulgated by any court or government entity that is in effect
and restrains or enjoins or otherwise prohibits consummation of
the merger or the contribution transaction; |
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the material accuracy of the representations and warranties made
by Harris and Stratex and material compliance by Harris and
Stratex with their respective obligations under the combination
agreement; |
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the execution and delivery by Harris and/or Harris Stratex of
the additional agreements agreed as part of the combination
agreement; |
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that neither the Microwave Communications Division nor Stratex
shall have suffered any change that would reasonably be expected
to have a material adverse effect on that party, as described
further in this proxy statement/ prospectus; and |
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the receipt of an opinion by Harris from Sullivan &
Cromwell LLP and by Stratex from Bingham McCutchen LLP on the
completion date with respect to the tax treatment of the merger
and the contribution transaction, as further described in this
proxy statement/ prospectus. |
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Termination of the Combination Agreement |
The combination agreement may be terminated at any time prior to
the completion of the transaction in any of the following ways:
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by mutual written consent of Harris and Stratex; |
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by either Harris or Stratex if: |
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the contribution transaction and the merger have not been
consummated by March 31, 2007; |
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the vote of the Stratex stockholders on the adoption of the
combination agreement has been held but the required vote was
not obtained; or |
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any law, order or injunction that prohibits the merger or the
contribution transaction shall have become final or
nonappealable; |
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but the rights to terminate the combination agreement described
above are not available to any party that has breached its
obligations under the combination agreement in a manner that has
proximately contributed to the occurrence giving rise to the
termination right; |
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the board of directors of Stratex withdraws, modifies or
qualifies its recommendation to the Stratex stockholders to
adopt the combination agreement in any manner adverse to Harris
or recommends or approves another acquisition proposal or fails
to reconfirm its recommendation within five business days after
a written request by Harris (but only prior to the Stratex
stockholder vote); |
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Stratex breaches its representations and warranties, covenants
or agreements such that the closing condition relating thereto
would not be satisfied and the breach cannot be cured or, if
curable, is not cured within 30 days after written notice
is given by Harris to Stratex; |
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a vote on the adoption of the combination agreement by the
Stratex stockholders has not been taken and completed by
February 28, 2007; or |
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Stratex materially breaches the provisions relating to its
non-solicitation obligations under the combination agreement
(but only prior to the Stratex stockholder vote); |
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Harris breaches its representations and warranties, covenants or
agreements such that the closing condition relating thereto
would not be satisfied and the breach cannot be cured or, if
curable, is not cured within 30 days after written notice
is given by Stratex to Harris; or |
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at any time prior to the adoption of the combination agreement
by the Stratex stockholders, in order for Stratex to enter into
a definitive agreement with respect to a superior proposal but
only if Stratex has not materially breached any of the terms of
the combination agreement, the board of directors of Stratex has
authorized Stratex to enter into the definitive agreement,
Stratex has complied with the non-solicitation obligations under
the combination agreement and, prior to the termination, Stratex
has paid to Harris any termination fee payable under the
combination agreement. |
Stratex has agreed to pay Harris a termination fee of
$14.5 million under certain specified circumstances.
Stratex may also be required to pay up to $2 million of
Harris expenses under specified circumstances, but such
amount would be credited against any termination fee
subsequently paid by Stratex.
The directors and the senior officers of Stratex each have
entered into a voting agreement with Harris. Pursuant to these
voting agreements, the directors and those officers who are
party to a voting agreement have agreed, among other things, to
vote all of the shares of Stratex common stock beneficially
owned by them in favor of the adoption of the combination
agreement and the approval of the merger and the other
transactions provided for in the combination agreement, unless
the combination agreement is terminated in accordance with its
terms. In addition, they have agreed to vote against any other
proposal by a third party to acquire Stratex, or any other
matter which could reasonably be expected to impede, interfere
with, delay or adversely affect the consummation of the
transactions contemplated by the combination agreement, unless
the combination agreement is terminated in accordance with its
terms. A form of the voting agreement entered into by each
director and the senior officers of Stratex is attached as
Appendix B to this proxy statement/prospectus.
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Non-Competition Agreement |
Pursuant to the terms of the non-competition agreement to be
entered into upon completion of the combination, Harris has
agreed in general terms that, for five years following the
completion of the proposed transactions, it will not, and will
not permit any of its subsidiaries (other than Harris Stratex
and its subsidiaries) to, engage in the development,
manufacture, distribution and sale of microwave radio systems
that are competitive with the current products of Stratex and
the Microwave Communications Division or substantially similar
to those products in form, fit and function when used in
terrestrial microwave
point-to-point
communications networks that provide access and trunking of
voice and data for telecommunications networks. Notwithstanding
this restriction, Harris is permitted to purchase and resell
products produced by and branded by persons unaffiliated with
Harris and to develop, manufacture, distribute and sell
microwave radios and related components for use by government
entities. A form of the non-competition agreement is attached as
Appendix F to this proxy statement/ prospectus.
13
The investor agreement provides, among other things, that so
long as Harris has the right to vote a majority of the votes
then entitled to be cast generally in the election of the
directors of Harris Stratex (other than the directors elected by
the holders of Harris Stratex Class B common stock
separately as a class), the number of directors of Harris
Stratex will be nine, five of which will be elected separately
as a class by Harris as the sole holder of Harris Stratex
Class B common stock. The directors so elected separately
by Harris are sometimes referred to in this proxy statement/
prospectus as Class B directors. As an initial matter,
Harris has agreed to appoint immediately prior to the effective
time of the merger Howard L. Lance, Chairman, President and
Chief Executive Officer of Harris, and Guy M. Campbell,
President of the Microwave Communications Division, as two of
its Class B directors. Of the remaining three Class B
directors, Harris has agreed that for two years following the
completion of the transactions, one must meet the independence
requirements for directors serving on an audit committee as
prescribed by the NASDAQ rules and one must not be an employee
of Harris or any of its subsidiaries (without regard to Harris
Stratex or any of its subsidiaries). The remaining four
directors of Harris Stratex will be appointed by Stratex
immediately prior to the effective time of the merger and will
include Charles D. Kissner, Chairman of Stratex, and two persons
meeting the independence requirements for directors serving on
an audit committee as prescribed by the NASDAQ rules.
In addition, the investor agreement includes agreements between
Harris and Harris Stratex addressing Harris ability to
purchase or dispose of shares of Harris Stratex common stock,
related party transactions, duties relating to corporate
opportunities and preemptive rights provided to Harris.
In addition to the agreements listed above, Harris and/or Harris
Stratex have also agreed to enter into the following agreements
concurrently with the closing of the merger and the contribution
transaction:
|
|
|
|
|
a registration rights agreement providing Harris with rights to
cause Harris Stratex to register shares of Harris Stratex held
by it for resale under the Securities Act; |
|
|
|
an intellectual property cross-license agreement providing
Harris rights to continued nonexclusive use of intellectual
property contributed by Harris in the contribution transaction
and providing Harris Stratex rights to the nonexclusive use of
intellectual property used in the Microwave Communication
Division immediately prior to the closing of the transactions; |
|
|
|
a trademark and trade name license agreement providing Harris
Stratex with certain rights to use Harris as a
trademark and in its trade name; |
|
|
|
a lease relating to certain real property to be leased by Harris
Stratex following the closing of the transactions; |
|
|
|
a transition services agreement relating to certain services to
be provided by Harris to Harris Stratex following the closing of
the transactions; |
|
|
|
a warrant assumption agreement relating to the assumption by
Harris Stratex of certain obligations under the outstanding
warrants to purchase shares of Stratex common stock; and |
|
|
|
a
NetBoss®
service agreement relating to the assumption by Harris Stratex
of certain obligations under existing
NetBoss®
service arrangements with other divisions of Harris. |
Accounting Treatment (Page 79)
For accounting and financial reporting purposes, the merger and
the contribution transaction will be accounted for as a
purchase business combination of Stratex by the
Microwave Communications Division, as that term is used under
accounting principles generally accepted in the U.S. In
identifying the Microwave Communications Division as the
acquiring entity, Harris and Stratex took into account the
relative outstanding share ownership, the composition of the
governing body of the combined entity and
14
the designation of certain senior management positions. As a
result, the historical financial statements of the Microwave
Communications Division will become the historical financial
statements of Harris Stratex.
NASDAQ Listing Requirements (Page 50)
Following the completion of the proposed transactions, Harris
will hold more than 50% of the outstanding voting power of
Harris Stratex. As a result, Harris Stratex will be eligible for
the controlled company exemption under the NASDAQ
rules which provides that if more than 50% of the voting power
of a company listed on NASDAQ is held by another company, the
NASDAQ listed company is not required to comply with certain
director independence requirements to which it would otherwise
be subject. This means that Harris Stratex will be exempt from
certain director independence requirements, including the
requirement that a majority of its board of directors be
comprised of independent directors as defined by the NASDAQ
rules, so long as Harris Stratex elects to avail itself of this
exemption by appropriately disclosing in its filings with the
Securities and Exchange Commission that it is a controlled
company and its basis for that determination.
Under the terms of the investor agreement to be entered into by
Harris Stratex and Harris in connection with the completion of
the transactions, Harris and Harris Stratex have agreed that, at
all times when Harris holds a majority of the outstanding voting
power of Harris Stratex, Harris Stratex will rely on the
controlled company exemption contained in the NASDAQ rules.
Harris Stratex Amended and Restated Certificate of
Incorporation and Amended and Restated Bylaws (Page 82)
Stratex stockholders who receive Harris Stratex Class A
common stock in the merger will become Harris Stratex
stockholders and their rights as stockholders will be governed
by the amended and restated certificate of incorporation and
amended and restated bylaws of Harris Stratex and the laws of
the State of Delaware. The certificate of incorporation and
bylaws of Harris Stratex will be amended and restated prior to
the completion of the merger and the contribution transaction as
set forth in Appendix C and Appendix D
to this proxy statement/ prospectus, respectively. For a
description of the capital stock of Harris Stratex and
information on certain differences between the amended and
restated certificate of incorporation and amended and restated
bylaws of Harris Stratex and the certificate of incorporation
and bylaws of Stratex, see Description of Harris Stratex
Capital Stock beginning on page 175 of this proxy
statement/ prospectus and Comparison of Stockholder
Rights beginning on page 180 of this proxy statement/
prospectus, respectively.
15
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
The financial information below is presented to assist in
your analysis of the financial aspects of the proposed
transactions. The following tables present (1) selected
historical financial data of Stratex, (2) selected
historical financial data of the Microwave Communications
Division and (3) selected unaudited pro forma condensed
consolidated financial data of Harris Stratex. The historical
financial data shows the financial results actually achieved by
Stratex and the Microwave Communications Division, while the
unaudited pro forma condensed consolidated financial data shows
the combined financial results of Stratex and the Microwave
Communications Division as if the proposed transactions had
occurred on (a) July 1, 2005 in the case of the
results for the twelve months ended June 30, 2006 and
(b) on July 1, 2006 in the case of the results for the
three months ended September 30, 2006, except that the
financial position data assumes the proposed transactions had
occurred on September 30, 2006.
Selected Historical Financial Data of Stratex
The selected historical financial data presented below at
September 30, 2006 and 2005 and for each of the six-month
periods then ended was derived from Stratexs unaudited
financial statements included in Stratexs Quarterly
Reports on
Form 10-Q for the
periods ended September 30, 2006 and 2005 which include, in
Stratex managements opinion, all adjustments, consisting
only of normal recurring adjustments, necessary to present
fairly the results of operations and financial position of
Stratex for the periods and dates presented. Interim unaudited
data for the six-month period ended September 30, 2006 do
not necessarily indicate results that may be obtained for any
other interim period or for the year as a whole. The selected
financial data presented below at March 31, 2006 and 2005
and for each of the three years in the period ended
March 31, 2006 was derived from Stratexs audited
consolidated financial statements included in Stratexs
Annual Report on
Form 10-K for the
year ended March 31, 2006, as amended. The selected
financial data presented below for the years ended
March 31, 2003 and 2002 and at March 31, 2004, 2003
and 2002 was derived from Stratexs audited consolidated
financial statements for those periods. The information in the
following table should be read together with Stratexs
audited consolidated financial statements for the years ended
March 31, 2006, 2005 and 2004 and the related notes
included in Stratexs Annual Report for the year ended
March 31, 2006 and Managements Discussion and
Analysis of Financial Condition and Results of Operations of
Stratex included in Stratexs Annual Report on
Form 10-K for the
year ended March 31, 2006, as amended, and also beginning
on page 126 of this proxy statement/prospectus. For a
listing of the documents filed by Stratex with the Securities
and Exchange Commission and incorporated into this proxy
statement/prospectus by reference, see Where You Can Find
More Information beginning on page 191 of this proxy
statement/prospectus.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended | |
|
|
|
|
September 30, | |
|
Year Ended March 31, | |
|
|
| |
|
| |
|
|
2006 | |
|
2005 | |
|
2006 | |
|
2005(3) | |
|
2004 | |
|
2003(2) | |
|
2002(1) | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in thousands, except per share amounts) | |
Consolidated Statements of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$ |
133,516 |
|
|
$ |
111,426 |
|
|
$ |
230,892 |
|
|
$ |
180,302 |
|
|
$ |
157,348 |
|
|
$ |
197,704 |
|
|
$ |
228,844 |
|
|
Net income (loss)
|
|
|
3,375 |
|
|
|
(6,427 |
) |
|
|
(2,297 |
) |
|
|
(45,946 |
) |
|
|
(37,068 |
) |
|
|
(51,555 |
) |
|
|
(168,873 |
) |
|
Basic and diluted net income (loss) per share
|
|
|
0.03 |
|
|
|
(0.07 |
) |
|
|
(0.02 |
) |
|
|
(0.51 |
) |
|
|
(0.44 |
) |
|
|
(0.62 |
) |
|
|
(2.13 |
) |
|
Basic weighted average shares outstanding
|
|
|
97,405 |
|
|
|
95,059 |
|
|
|
95,600 |
|
|
|
89,634 |
|
|
|
83,364 |
|
|
|
82,548 |
|
|
|
79,166 |
|
|
Diluted weighted average shares outstanding
|
|
|
100,537 |
|
|
|
95,059 |
|
|
|
95,600 |
|
|
|
89,634 |
|
|
|
83,364 |
|
|
|
82,548 |
|
|
|
79,166 |
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, | |
|
At March 31, | |
|
|
| |
|
| |
|
|
2006 | |
|
2005 | |
|
2006 | |
|
2005(3) | |
|
2004 | |
|
2003(2) | |
|
2002(1) | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in thousands, except employee head count) | |
Balance Sheet and other Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
184,154 |
|
|
$ |
153,965 |
|
|
$ |
180,830 |
|
|
$ |
160,631 |
|
|
$ |
163,244 |
|
|
$ |
184,785 |
|
|
$ |
214,117 |
|
|
Long-term liabilities
|
|
|
29,892 |
|
|
|
27,333 |
|
|
|
37,376 |
|
|
|
32,185 |
|
|
|
20,311 |
|
|
|
19,145 |
|
|
|
6,675 |
|
|
Stockholders equity
|
|
|
72,990 |
|
|
|
55,092 |
|
|
|
62,343 |
|
|
|
60,023 |
|
|
|
81,182 |
|
|
|
112,800 |
|
|
|
167,457 |
|
|
Total employees
|
|
|
471 |
|
|
|
446 |
|
|
|
453 |
|
|
|
456 |
|
|
|
617 |
|
|
|
587 |
|
|
|
760 |
|
|
|
(1) |
Fiscal 2002 results for Stratex include inventory valuation
charges of $102.7 million and restructuring and receivable
valuation charges of $24.6 million related to the shutdown
of its Seattle operations and outsourcing of manufacturing
operations to an Asian supplier. |
|
(2) |
Fiscal 2003 results for Stratex include restructuring charges of
$28.2 million related to outsourcing of manufacturing
operations to an Asian supplier, as well as a recovery of
$2.1 million of the inventory valuation recorded the prior
year through sales of component inventory to suppliers. |
|
(3) |
Fiscal 2005 results for Stratex include inventory valuation
charges of $2.6 million and $7.4 million of
restructuring charges related to shut down of operations in Cape
Town, South Africa, outsourcing of manufacturing operations at
the New Zealand and Cape Town, South Africa locations to an
Asian supplier and exiting the sales and service offices in
Argentina, Colombia and Brazil to independent distributors. |
17
Selected Historical Financial Data of the Microwave
Communications Division
The selected historical financial data presented below is on a
carve-out basis and represents the financial data of the
Microwave Communications Division of Harris Corporation and its
subsidiaries, which is sometimes referred to in this proxy
statement/ prospectus as MCD, as it was operated within Harris
and, in MCD managements opinion, includes all adjustments,
consisting only of normal recurring adjustments, necessary to
present fairly the results of operations and financial position
of MCD for the periods and dates presented. The selected
financial data for the interim unaudited data as of the three
months ended September 29, 2006 and September 30,
2005, and for each of the three month periods then ended do not
necessarily indicate results that may be obtained for any other
interim periods or for the fiscal year as a whole. The selected
historical financial data as of the fiscal years ended
June 30, 2006 and July 1, 2005 and for the fiscal
years ended June 30, 2006, July 1, 2005 and
July 2, 2004, has been derived from MCDs audited
financial statements and related notes. This information is only
a summary and should be read in conjunction with
Managements Discussion and Analysis of Financial
Condition and Results of Operations of MCD beginning on
page 152 of this proxy statement/ prospectus, and the
historical combined financial statements and related notes of
MCD beginning on page F-3 of this proxy statement/ prospectus.
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
Fiscal Years Ended | |
|
|
| |
|
| |
|
|
September 29, | |
|
September 30, | |
|
|
|
June 27, | |
|
June 28, | |
|
|
2006 | |
|
2005 | |
|
June 30, | |
|
July 1, | |
|
July 2, | |
|
2003(3) | |
|
2002(4) | |
|
|
(unaudited) | |
|
(unaudited) | |
|
2006(1) | |
|
2005 | |
|
2004(2) | |
|
(unaudited) | |
|
(unaudited) | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in thousands) | |
Results of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from product sales and services
|
|
$ |
93,555 |
|
|
$ |
75,324 |
|
|
$ |
357,500 |
|
|
$ |
310,427 |
|
|
$ |
329,816 |
|
|
$ |
297,470 |
|
|
$ |
302,915 |
|
|
Cost of product sales and services
|
|
|
(62,011 |
) |
|
|
(52,596 |
) |
|
|
(271,340 |
) |
|
|
(219,946 |
) |
|
|
(245,933 |
) |
|
|
(221,701 |
) |
|
|
(217,237 |
) |
|
Net income (loss)
|
|
|
5,131 |
|
|
|
1,397 |
|
|
|
(35,848 |
) |
|
|
(3,778 |
) |
|
|
(20,233 |
) |
|
|
(35,248 |
) |
|
|
(29,752 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of | |
|
As of | |
|
|
| |
|
| |
|
|
September 29, | |
|
September 30, | |
|
|
|
July 2, | |
|
June 27, | |
|
June 28, | |
|
|
2006 | |
|
2005 | |
|
June 30, | |
|
July 1, | |
|
2004(2) | |
|
2003(3) | |
|
2002(4) | |
|
|
(unaudited) | |
|
(unaudited) | |
|
2006(1) | |
|
2005 | |
|
(unaudited) | |
|
(unaudited) | |
|
(unaudited) | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in thousands) | |
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
353,913 |
|
|
$ |
367,318 |
|
|
$ |
352,649 |
|
|
$ |
362,969 |
|
|
$ |
344,183 |
|
|
$ |
398,271 |
|
|
$ |
422,985 |
|
|
Long-term liabilities
|
|
|
3,074 |
|
|
|
6,749 |
|
|
|
12,642 |
|
|
|
14,180 |
|
|
|
14,978 |
|
|
|
11,900 |
|
|
|
12,466 |
|
|
Total net assets
|
|
|
260,134 |
|
|
|
290,378 |
|
|
|
252,020 |
|
|
|
280,313 |
|
|
|
246,517 |
|
|
|
272,350 |
|
|
|
296,770 |
|
|
|
(1) |
Fiscal 2006 results for MCD include a $39.6 million
after-tax charge related to inventory write-downs and other
charges associated with product discontinuances, as well as the
planned shutdown of manufacturing activities at the MCD plant in
Montreal, Canada. |
|
(2) |
Fiscal 2004 results for MCD include a $7.3 million charge
related to cost-reduction measures and fixed asset write downs. |
|
(3) |
Fiscal 2003 results for MCD include an $8.6 million
write-down of inventory related to the exit from unprofitable
products and the shut-down of the MCD manufacturing plant in
Brazil, as well as an $8.3 million charge related to
cost-reduction measures. |
|
(4) |
Fiscal 2002 results for MCD include a $15.8 million charge
related to cost-reduction actions taken in the MCD international
operations and collection losses related to the bankruptcy of a
customer. |
18
Selected Unaudited Pro Forma Condensed Consolidated Financial
Data of Harris Stratex
The following table shows certain unaudited information about
the pro forma financial condition and results of operations,
including per share data, of Harris Stratex after giving effect
to the merger and the contribution transaction. The table sets
forth selected unaudited pro forma condensed consolidated
balance sheet data as of September 30, 2006 and assumes
that the merger and the contribution transaction took place on
that date with MCD as the accounting acquirer of Stratex in
accordance with the provisions of Statement of Financial
Accounting Standard No. 141 Business
Combinations (SFAS 141). The table also
sets forth selected unaudited pro forma condensed consolidated
statements of operations for the three months ended
September 30, 2006 and the fiscal year ended June 30,
2006 and assumes that the merger and the contribution
transaction took place on July 1, 2006 and July 1,
2005, respectively. The Harris Stratex fiscal year ends on the
closest Friday to June 30th. The accompanying unaudited pro
forma condensed consolidated statement of operations for the
three months ended September 30, 2006 and the year ended
June 30, 2006 combines the three months ended
September 30, 2006 and twelve months ended June 30,
2006, respectively, for both MCD and Stratex. However, the
following pro forma presentation does not include any impact of
synergies anticipated from the proposed transactions. The
information presented below should be read together with the
historical consolidated financial statements of Stratex and MCD,
including the related notes, filed with the Securities and
Exchange Commission, in the case of Stratex, and beginning on
page F-3 of this proxy statement/prospectus, in the case of MCD,
and together with the historical consolidated financial data for
Stratex and MCD and the other unaudited pro forma financial
information, including the related notes, appearing elsewhere in
this proxy statement/prospectus as well as with
Managements Discussion and Analysis of Financial
Condition and Results of Operations of MCD beginning on
page 152 of this proxy statement/prospectus and
Managements Discussion and Analysis of Financial
Condition and Results of Operations included in
Stratexs Annual Report on
Form 10-K for the
year ended March 31, 2006, as amended, and also beginning
on page 126 of this proxy statement/prospectus. In
addition, you should also read them together with the financial
statements and Managements Discussion and Analysis
of Financial Condition and Results of Operations included
in Stratexs Quarterly Report on
Form 10-Q for the
quarterly period ended June 30, 2006 because the selected
unaudited pro forma condensed consolidated financial data
adjusts Stratexs fiscal year end from March 31, 2006
to June 30, 2006, as well as the financial statements and
Managements Discussion and Analysis of Financial
Condition and Results of Operations included in
Stratexs Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 2006, in each case
incorporated by reference into this proxy statement/prospectus.
For a listing of the documents filed by Stratex with the
Securities and Exchange Commission that are incorporated into
this proxy statement/prospectus by reference, see Where
You Can Find More Information beginning on page 191
of this proxy statement/prospectus. For unaudited pro forma
condensed consolidated financial information of Harris Stratex,
see Harris Stratex Networks, Inc. Unaudited Pro Forma
Condensed Consolidated Financial Data beginning on
page 169 of this proxy statement/prospectus. The unaudited
pro forma financial data are not necessarily indicative of
results that actually would have occurred had the merger and the
contribution transaction been completed on the dates indicated
or that may be obtained in the future. See also Risk
Factors beginning on page 25 and Information
Regarding Forward-Looking statements beginning on
page 40 of this proxy statement/prospectus.
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months | |
|
|
|
|
Ended | |
|
Year Ended | |
|
|
September 30, 2006 | |
|
June 30, 2006 | |
|
|
(unaudited) | |
|
(unaudited) | |
|
|
| |
|
| |
|
|
(in thousands) | |
|
(in thousands) | |
Microwave Communications Division of Harris
Corporation
|
|
|
|
|
|
|
|
|
|
Results of Operations
|
|
|
|
|
|
|
|
|
|
|
Revenue from product sales and services
|
|
$ |
93,555 |
|
|
$ |
357,500 |
|
|
|
Cost of product sales and services(1)
|
|
|
(62,011 |
) |
|
|
(271,340 |
) |
|
|
Net income (loss)
|
|
|
5,131 |
|
|
|
(35,848 |
) |
|
Financial Position at End of Period
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
353,913 |
|
|
$ |
|
|
|
|
Long-term liabilities
|
|
|
3,074 |
|
|
|
|
|
|
|
Total net assets
|
|
|
260,134 |
|
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months | |
|
|
|
|
Ended | |
|
Year Ended | |
|
|
September 30, 2006 | |
|
June 30, 2006 | |
|
|
(unaudited) | |
|
(unaudited) | |
|
|
| |
|
| |
|
|
(in thousands) | |
|
(in thousands) | |
Stratex Networks, Inc.
|
|
|
|
|
|
|
|
|
|
Results of Operations
|
|
|
|
|
|
|
|
|
|
|
Revenue from product sales and services
|
|
$ |
67,279 |
|
|
$ |
242,257 |
|
|
|
Cost of product sales and services
|
|
|
(46,512 |
) |
|
|
(171,397 |
) |
|
|
Net income
|
|
|
1,552 |
|
|
|
3,691 |
|
|
Financial Position at End of Period
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
184,154 |
|
|
$ |
|
|
|
|
Long-term liabilities
|
|
|
29,892 |
|
|
|
|
|
|
|
Total net assets
|
|
|
72,990 |
|
|
|
|
|
Pro Forma Adjustments
|
|
|
|
|
|
|
|
|
|
Results of Operations
|
|
|
|
|
|
|
|
|
|
|
Revenue from product sales and services
|
|
$ |
|
|
|
$ |
|
|
|
|
Cost of product sales and services(2)
|
|
|
(2,175 |
) |
|
|
(8,700 |
) |
|
|
Net loss(3)
|
|
|
(1,148 |
) |
|
|
(3,390 |
) |
|
Financial Position at End of Period
|
|
|
|
|
|
|
|
|
|
|
Total assets(4)
|
|
$ |
378,011 |
|
|
$ |
|
|
|
|
Long-term liabilities(5)
|
|
|
35,986 |
|
|
|
|
|
|
|
Total net assets(6)
|
|
|
340,230 |
|
|
|
|
|
Pro Forma Combined Financial Data of Harris Stratex
Networks, Inc.
|
|
|
|
|
|
|
|
|
|
Results of Operations
|
|
|
|
|
|
|
|
|
|
|
Revenue from product sales and services
|
|
$ |
160,834 |
|
|
$ |
599,757 |
|
|
|
Cost of product sales and services
|
|
|
(110,698 |
) |
|
|
(451,437 |
) |
|
|
Net income (loss)
|
|
|
5,535 |
|
|
|
(35,547 |
) |
|
Financial Position at End of Period
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
916,078 |
|
|
$ |
|
|
|
|
Long-term liabilities
|
|
|
68,952 |
|
|
|
|
|
|
|
Total net assets
|
|
|
673,354 |
|
|
|
|
|
|
|
(1) |
Fiscal 2006 results for MCD include a $39.6 million
after-tax charge related to inventory write-downs and other
charges associated with product discontinuances, as well as the
planned shutdown of manufacturing activities at the MCD plant in
Montreal, Canada. |
|
|
(2) |
Fiscal 2006 adjustment made to reflect $8.7 million
amortization of developed technology identifiable assets. Three
months ended September 30, 2006 adjustment made to reflect
$2.2 million amortization of developed technology
identifiable assets. |
|
|
|
(3) |
Fiscal 2006 adjustments made to reflect $12.0 million
amortization of identifiable intangible assets,
$12.4 million elimination of the corporate allocations
expense that will not continue going forward, and
$3.8 million of stock-based compensation expense, which
represents the expense that would have been recognized by
Stratex had it implemented the provisions of Statement of
Financial Accounting Standard No. 123R Share-Based
Payment (FAS 123R) as of July 1,
2005, which is when MCD was required to implement FAS 123R.
Three months ended September 30, 2006 adjustment made to
reflect $2.8 million amortization of identifiable
intangible assets and $1.6 million elimination of the
corporate allocations expense that will not continue going
forward. |
|
|
|
(4) |
Three months ended September 30, 2006 adjustment made to
reflect (a) $10.6 million made to increase balance of
cash in MCD to $25 million as of the closing date of the
transaction; (b) $11.1 million to step up
Stratexs finished goods inventory to fair market value at
the closing date |
|
20
|
|
|
of the proposed transactions; (c) $235.7 million and
$130.2 million allocation of the purchase price to goodwill
and identifiable intangible assets, respectively, which was
determined as follows: |
Allocation of the purchase price of Stratex determined as
follows (amounts in thousands):
|
|
|
|
|
|
|
|
|
Market price of Stratex stock(A)
|
|
$ |
400,158 |
|
|
|
|
|
Estimated acquisition costs
|
|
|
9,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Total purchase price to be allocated
|
|
$ |
409,148 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated | |
Allocation of purchase price based on fair market value |
|
|
|
Useful Life | |
|
|
|
|
| |
Identifiable intangible assets:
|
|
|
|
|
|
|
|
|
|
Developed technology non-legacy products
|
|
$ |
77,500 |
|
|
|
10 years |
|
|
Developed technology legacy products
|
|
|
1,900 |
|
|
|
2 years |
|
|
Customer relationships
|
|
|
5,400 |
|
|
|
8 years |
|
|
Backlog
|
|
|
900 |
|
|
|
1 year |
|
|
Tradename Eclipse
|
|
|
16,000 |
|
|
|
10 years |
|
|
Tradename Legacy Products
|
|
|
200 |
|
|
|
2 years |
|
|
Tradename Stratex
|
|
|
28,300 |
|
|
|
Indefinite |
|
|
|
|
|
|
|
|
Total identifiable intangible assets
|
|
|
130,200 |
|
|
|
|
|
Net tangible assets(B)
|
|
|
43,272 |
|
|
|
|
|
Goodwill
|
|
|
235,676 |
|
|
|
|
|
|
|
|
|
|
|
|
Total purchase price allocation
|
|
$ |
409,148 |
|
|
|
|
|
|
|
|
|
|
|
|
This purchase price allocation is preliminary for all assets and
liabilities being acquired by Harris Stratex.
|
|
|
and (d) $(9.6) million to eliminate deferred tax assets on
MCDs historical Combined Balance Sheet as of
September 30, 2006. |
|
|
|
(5) |
Three months ended September 30, 2006 adjustments made to
reflect (a) $39.1 million for the establishment of a
deferred tax liability related to the future amortization of
identifiable intangible assets in accordance with FAS 109
and (b) $(3.1) million for the elimination of
MCDs payable to Harris against stockholders and
division equity. |
|
|
|
(6) |
Three months ended September 30, 2006 adjustments made to
reflect footnotes (2), (3) and (4) above, as well as
adjustments to current liabilities of $(2.0) million to
reduce deferred revenue of Stratex, as previously described, and
increase current liabilities by $3.8 million for payment of
the single trigger employment agreements. |
|
|
|
|
|
A. |
Total market price of Stratex common stock equal to the price of
a share of Stratex common stock as of September 19, 2006
($4.00) X diluted shares of Stratex common stock outstanding per
the Stratex September 30, 2006 Balance Sheet
(100.0 million shares). |
|
|
|
|
B. |
Stratex net tangible assets as of September 30, 2006 are
calculated as follows: |
|
|
|
|
|
|
|
|
|
Historical net assets reported |
|
$ |
72,990 |
|
|
|
Inventory step-up |
|
|
11,137 |
|
|
|
Deferred revenue reduction |
|
|
2,039 |
|
|
|
Single trigger employment agreement payouts |
|
|
(3,834 |
) |
|
|
Less deferred tax liability related to identifiable intangible
assets |
|
|
(39,060 |
) |
|
|
|
|
|
|
|
|
Adjusted net assets |
|
$ |
43,272 |
|
|
|
|
|
|
|
21
COMPARATIVE PER SHARE DATA
The following table sets forth: (1) certain historical per
share data for Stratex, (2) pro forma Stratex per share
amounts (providing for the conversion ratio in the merger which
has the same effect as a one-for-four reverse stock split) and
(3) unaudited pro forma condensed combined per share
amounts of Harris Stratex after giving effect to the merger and
the contribution transaction. The Harris Stratex pro forma data
give effect to the proposed transactions as if they had occurred
on July 1, 2005. These amounts do not necessarily reflect
future per share amounts of income (losses) from continuing
operations and book value per share of the combined company. You
should read the information below together with the historical
consolidated financial statements and related notes of Stratex,
which are incorporated by reference into this proxy statement/
prospectus as further described under Where You Can Find
More Information beginning on page 191 of this proxy
statement/ prospectus, and the Microwave Communications
Division, which are included in this proxy statement/ prospectus
beginning on page F-3, and the unaudited pro forma condensed
consolidated financial data included under Harris Stratex
Networks, Inc. Unaudited Pro Forma Condensed Consolidated
Financial Data beginning on page 169 of this proxy
statement/ prospectus.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the | |
|
|
|
|
| |
|
As of and for the | |
|
|
Six Months | |
|
Three Months | |
|
Twelve Months Ended | |
|
|
Ended | |
|
Ended | |
|
| |
|
|
September 30, | |
|
September 30, | |
|
June 30, | |
|
March 31, | |
|
|
2006 | |
|
2006 | |
|
2006 | |
|
2006 | |
|
|
| |
|
| |
|
| |
|
| |
Stratex Historical(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Book value per share of common stock
|
|
$ |
0.74 |
|
|
$ |
0.74 |
|
|
$ |
0.70 |
|
|
$ |
0.64 |
|
|
Cash dividends per share of common stock
|
|
$ |
0.00 |
|
|
$ |
0.00 |
|
|
$ |
0.00 |
|
|
$ |
0.00 |
|
|
Basic income (loss) per share of common stock
|
|
$ |
0.03 |
|
|
$ |
0.02 |
|
|
$ |
0.04 |
|
|
$ |
(0.02 |
) |
|
Diluted income (loss) per share of common stock
|
|
$ |
0.03 |
|
|
$ |
0.02 |
|
|
$ |
0.04 |
|
|
$ |
(0.02 |
) |
Harris Stratex Pro Forma:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Book value per share of common stock
|
|
|
|
|
|
$ |
11.80 |
|
|
$ |
12.00 |
|
|
|
|
|
|
Cash dividends per share of common stock
|
|
|
|
|
|
$ |
0.00 |
|
|
$ |
0.00 |
|
|
|
|
|
|
Basic income (loss) per share of common stock
|
|
|
|
|
|
$ |
0.10 |
|
|
$ |
(0.63 |
) |
|
|
|
|
|
Diluted income (loss) per share of common stock
|
|
|
|
|
|
$ |
0.10 |
|
|
$ |
(0.63 |
) |
|
|
|
|
Stratex Pro Forma Share Equivalent(2):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Book value per four shares of common stock
|
|
$ |
|
|
|
$ |
2.95 |
|
|
$ |
3.00 |
|
|
|
|
|
|
Cash dividends per four shares of common stock
|
|
$ |
|
|
|
$ |
0.00 |
|
|
$ |
0.00 |
|
|
|
|
|
|
Basic earnings (loss) per four shares of common stock
|
|
$ |
|
|
|
$ |
0.02 |
|
|
$ |
(0.16 |
) |
|
|
|
|
|
Diluted earnings (loss) per four shares of common stock
|
|
$ |
|
|
|
$ |
0.02 |
|
|
$ |
(0.16 |
) |
|
|
|
|
|
|
(1) |
Stratex historical per share information as of and for the
twelve months ended June 30, 2006 was calculated using the
unaudited pro forma financial information for Stratex as of and
for the twelve months ended June 30, 2006. |
|
|
(2) |
Stratex equivalent pro forma share amounts are calculated by
multiplying the Harris Stratex pro forma amounts by the
conversion ratio in the merger (four shares of Stratex for one
share of Harris Stratex). |
|
22
PER SHARE MARKET PRICE INFORMATION
Market Price
There is no established trading market for the shares of Harris
Stratex Class A or Class B common stock. However,
Harris Stratex intends to apply for quotation of the Harris
Stratex Class A common stock on NASDAQ under the symbol
HSTX. Shares of Harris Stratex Class B common
stock are not expected to be listed for trading on any exchange
or quotation system at any time in the foreseeable future.
Shares of Stratex common stock are listed on NASDAQ under the
symbol STXN.
The following table sets forth for the periods indicated the
high and low reported sale prices for a share of Stratex common
stock on NASDAQ for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock | |
|
|
| |
|
|
High | |
|
Low | |
|
|
| |
|
| |
Fiscal Year Ended March 31, 2007
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$ |
6.58 |
|
|
$ |
3.26 |
|
|
Second Quarter
|
|
$ |
4.50 |
|
|
$ |
2.95 |
|
|
Third Quarter through November 21, 2006
|
|
$ |
4.74 |
|
|
$ |
$4.03 |
|
Fiscal Year Ended March 31, 2006
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$ |
2.10 |
|
|
$ |
1.24 |
|
|
Second Quarter
|
|
$ |
2.74 |
|
|
$ |
1.72 |
|
|
Third Quarter
|
|
$ |
3.84 |
|
|
$ |
2.18 |
|
|
Fourth Quarter
|
|
$ |
6.27 |
|
|
$ |
3.25 |
|
Fiscal Year Ended March 31, 2005
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$ |
5.19 |
|
|
$ |
2.40 |
|
|
Second Quarter
|
|
$ |
3.38 |
|
|
$ |
1.98 |
|
|
Third Quarter
|
|
$ |
2.40 |
|
|
$ |
1.65 |
|
|
Fourth Quarter
|
|
$ |
2.45 |
|
|
$ |
1.71 |
|
Recent Closing Prices
The following table sets forth the closing prices per share of
Stratex common stock on NASDAQ on September 5, 2006, the
last trading day before public announcement of the combination
agreement, and on November 21, 2006, the latest practicable
trading day prior to the date of this proxy statement/
prospectus.
|
|
|
|
|
|
|
Stratex | |
|
|
Common Stock | |
|
|
| |
September 5, 2006
|
|
$ |
4.04 |
|
November 21, 2006
|
|
$ |
4.27 |
|
On these dates, using the closing prices above, each share of
Stratex common stock represented transaction consideration of
approximately $4.04 and $4.27, respectively, and each share of
Harris Stratex Class A common stock to be received in
respect of four shares of Stratex common stock represented
transaction consideration of approximately $16.16 and
$17.08, respectively. Because Stratex stockholders will receive
only stock of the combined company in the proposed transactions,
Stratex and Harris Stratex believe that the appropriate
reference price for determining the trading price of a share of
Harris Stratex Class A common stock following the proposed
transactions will be the price of a share of Stratex common
stock, adjusted for the effective one-for-four reverse stock
split by multiplying such price by four.
Stratex stockholders are urged to obtain current market
quotations for Stratex common stock.
23
Dividend Policy
Stratex has not paid cash dividends on its common stock and does
not intend to pay cash dividends in the foreseeable future and,
instead, intends to retain any earnings for use in its business.
Harris Stratex does not expect to pay any dividends in the
immediate future. In addition, if Harris Stratex retains the
outstanding $50 million credit facility of Stratex
following the completion of the merger and the contribution
transaction, the covenants of that credit facility will restrict
Harris Stratex from paying dividends or making other
distributions to the Harris Stratex stockholders under certain
circumstances. Harris Stratex also may enter into other credit
facilities or debt financing arrangements that further limit
Harris Stratexs ability to pay dividends or make other
distributions.
24
RISK FACTORS
In addition to the other information contained in or
incorporated by reference into this proxy statement/ prospectus,
including the matters addressed under Information Relating
to Forward-Looking Statements on page 40 of this
proxy statement/ prospectus and those matters addressed under
Part I Item 1A. Risk Factors in Stratexs Annual
Report on
Form 10-K for the
fiscal year ended March 31, 2006 as amended, which is
incorporated into this proxy statement/ prospectus by reference,
you should carefully consider the following risk factors in
deciding whether to vote for the approval and adoption of the
combination agreement, the merger and the other transactions
provided for in the combination agreement.
Harris Stratex will be subject to a number of risks that could
affect its future financial results. Some of these risks are
discussed below. The risks and uncertainties described below are
not the only ones facing Harris Stratex. Additional risks and
uncertainties that the management teams of Stratex and the
Microwave Communication Division are not aware of or focused on
may also impair Harris Stratexs business operations. If
any of these risks actually occur, Harris Stratexs
financial condition and results of operations could be
materially and adversely affected.
Risks Related to the Combination of Stratex with the
Microwave Communications Division
|
|
|
The combination of the businesses currently conducted by
the Microwave Communications Division and Stratex will create
numerous risks and uncertainties which could adversely affect
Harris Stratexs operating results. |
Strategic transactions like the combination of the Microwave
Communications Division with Stratex create numerous
uncertainties and risks. The Microwave Communications Division
will transition from being a part of Harris to being a part of
Harris Stratex, and Stratex will migrate from being a standalone
company to being part of a combined company. This combination
will entail many changes, including the integration of the
Microwave Communications Division and its personnel with those
of Stratex, and changes in systems and employee benefit plans.
These transition activities are complex, and Harris Stratex may
encounter unexpected difficulties, or incur unexpected costs,
including:
|
|
|
|
|
the diversion of managements attention to integration
matters; |
|
|
|
difficulties in achieving expected cost savings associated with
the transactions; |
|
|
|
difficulties in the integration of operations and systems; |
|
|
|
difficulties in the assimilation of employees; |
|
|
|
difficulties in replacing the support functions currently
provided by Harris to the Microwave Communications Division
including support and assistance for financial and operational
functions; |
|
|
|
challenges in keeping existing customers and obtaining new
customers; and |
|
|
|
challenges in attracting and retaining key personnel. |
As a result, the combined company may not be able to realize the
expected revenue growth and other benefits that it seeks to
achieve from the proposed transactions. In addition, the
combined company may be required to spend additional time or
money on integration that otherwise would be spent on the
development and expansion of its business, production and
services.
|
|
|
Uncertainties associated with the transactions or the
combined company may cause the combined company to lose
significant customers. |
In response to the announcement of the proposed transactions, or
due to the diversion of managements attention, current and
potential customers of Stratex and the Microwave Communication
Division may delay or defer decisions concerning their use of
the products and services of Stratex and the combined company.
In particular, Stratexs license agreement with Alcatel S.A
for the sale of the Eclipse product by Alcatel, can be
terminated by Alcatel upon a change of control of Stratex. If
customers elect
25
to terminate their contracts upon the completion of the proposed
transactions, the financial condition of the combined company
may be materially adversely affected.
|
|
|
Loss of key personnel could lead to loss of customers and
a decline in revenues, or otherwise adversely affect the
operations of the combined company. |
The success of the combined company after the completion of the
transactions will depend in part upon its ability to retain key
employees. Competition for qualified personnel in the microwave
communications industry may be very intense. In addition, key
employees may depart because of issues relating to the
difficulty of, or uncertainty regarding, the integration of the
businesses, as a result of provisions in their employment
agreements which trigger severance payments upon events or
circumstances resulting in a change of control such as the
proposed merger or because of uncertainties relating to their
future compensation and benefits. See The Contribution
Transaction and the Merger Interests of Certain
Stratex Directors and Officers in the Transactions
beginning on page 67 of this proxy statement/ prospectus.
If Harris Stratex is unable to attract and retain qualified
individuals or the combined companys costs to do so
increase significantly, the combined companys business
could be adversely affected.
|
|
|
The transactions are subject to the receipt of consents
and approvals from government entities that could delay
completion of the transactions or impose conditions that could
have a material adverse effect on the combined company or cause
abandonment of the transactions. |
Completion of the merger and the contribution transaction is
conditioned upon the expiration or termination of the applicable
waiting period under the HSR Act and the receipt of any other
governmental authorization the failure of which to obtain would
have a material adverse effect on the results of operations,
financial condition, cash flows, assets, liabilities or business
of Harris Stratex. A substantial delay in obtaining satisfactory
approvals or the imposition of unfavorable terms or conditions
in the approvals could have an adverse effect on the business,
financial condition or results of operations of Stratex or
Harris Stratex or may cause the abandonment of the transactions.
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The failure to complete the transactions could cause
Stratex to incur significant fees and expenses and could lead to
negative perceptions among investors, potential investors and
customers. |
In the event the combination of the Microwave Communications
Division and Stratex is not completed, Stratex will bear fees
and expenses associated with the proposed transactions, which
may be significant. Stratex has incurred, and expects to
continue to incur, costs associated with consummating the
transactions, including investment banking fees of
$0.4 million and $1.0 million of integration costs
incurred through September 30, 2006. In addition, under
certain circumstances Stratex may be required to pay up to
$2 million of Harris expenses or a termination fee to
Harris of $14.5 million. Investors, potential investors and
customers may consider the failure to complete the proposed
transactions to be a significantly negative development
regarding Stratex. The current market price of Stratexs
common stock may reflect positive market assumptions that the
proposed transactions will be completed and the related benefits
will be realized. As a consequence of any or all of the
foregoing, Stratexs stock price may be negatively impacted
by the failure to complete the proposed transactions. See
The Combination Agreement Termination
Fee beginning on page 100 of this proxy statement/
prospectus.
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Stratexs directors and executive officers have
interests in the merger, the contribution transaction and the
other transactions provided for in the combination agreement in
addition to those of stockholders. |
In considering the recommendations of the Stratex board of
directors with respect to the combination agreement, you should
be aware that some Stratex directors and executive officers have
financial and other interests in the proposed transactions in
addition to interests they might have as stockholders. The
receipt of compensation or other benefits in connection with the
proposed transactions may have influenced these directors and
executive officers in making their recommendation to adopt the
combination agreement and
26
approve the merger and the other transactions contemplated by
the combination agreement. You should consider these interests
in connection with your vote on the related proposal.
Management
Harris and Stratex have agreed that, immediately prior to the
effective time of the merger, Thomas H. Waechter, who currently
serves as the Chief Executive Officer of Stratex, will be
appointed Chief Operating Officer of Harris Stratex and Charles
D. Kissner, Chairman of Stratex, will become non-executive
Chairman of Harris Stratex. Other current Stratex officers may
be employed by Harris Stratex. Their positions at Harris Stratex
will entitle these individuals to compensation and equity awards
from Harris Stratex. Following the completion of the merger and
the contribution transaction, options to purchase Stratex common
stock currently owned by Stratexs executive officers will
be assumed by Harris Stratex and converted into options to
purchase shares of Harris Stratex common stock. Furthermore,
Stratex has estimated the total value of change of control
benefits potentially realizable by Stratexs executive
officers in connection with the merger to be approximately
$7.2 million from the receipt of severance pay and other
benefits and approximately $660,000 from acceleration of option
vesting in connection with the combination transactions. The
actual value received by them could be greater or less than
these estimated amounts, however.
Directors
As many as four of the current directors of Stratex (including
Mr. Kissner) could become directors of Harris Stratex. If
appointed a director of Harris Stratex, these individuals would
be will entitled to compensation and equity awards from Harris
Stratex.
See The Contribution Transaction and the
Merger Interests of Stratex Directors and Officers
in the Transactions beginning on page 67 of this
proxy statement/ prospectus.
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Harris Stratex does not expect to pay dividends for the
foreseeable future, and you must rely on increases in the
trading prices of the Harris Stratex Class A common stock
for returns on your investment. |
Stratex has not paid cash dividends on its common stock. Harris
Stratex does not expect to pay dividends in the immediate
future. Holders of Harris Stratex Class A common stock must
rely on increases in the trading price of their shares for
returns on their investment.
Risks Related to the Relationship between Harris and Harris
Stratex
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Harris Stratex will be controlled by Harris, whose
interests may conflict with yours. |
Upon completion of the proposed transactions, Harris will own no
shares of Harris Stratex Class A common stock but all of
the outstanding shares of Harris Stratex Class B common
stock through which it will have an approximate 57% interest in
the combined company (without regard to any dilution relating to
outstanding stock options, warrants or other equity interests).
In addition, it will have the right to appoint separately as a
class five of the nine directors of Harris Stratex so long as
the shares of Harris Stratex common stock held by Harris entitle
Harris to cast a majority of the votes at an election of the
directors of Harris Stratex (other than those directors
appointed by Harris separately as a class). For two years from
the closing date of the transactions, Harris has agreed that it
will not acquire or dispose of beneficial ownership in shares of
Harris Stratex common stock, except under limited circumstances,
and has no obligation to dispose of its interest in Harris
Stratex following such two year period. Accordingly, Harris is
likely to continue to exercise significant influence over the
business policies and affairs of Harris Stratex, including the
composition of the Harris Stratex board of directors and any
action requiring the approval of the Harris Stratex
stockholders. The concentration of ownership also may make some
transactions, including mergers or other changes in control,
more difficult or impossible without the support of Harris.
Harris interests may conflict with your interests as a
stockholder. See the risk factor
27
discussed in Harris will have rights
reflecting its controlling interest in Harris Stratex. As a
result, your ability to influence the outcome of matters
requiring stockholder approval will be limited below.
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Harris Stratex will be a controlled company
within the meaning of the NASDAQ rules and, as a result, will
qualify for, and intends to rely on, exemptions from certain
corporate governance requirements that are designed to provide
protection to stockholders of companies that trade on
NASDAQ. |
After the completion of this transaction, Harris will own more
than 50% of the total voting power of the outstanding capital
stock of Harris Stratex. Therefore, Harris Stratex will be a
controlled company under the NASDAQ rules. As a
controlled company, Harris Stratex intends to utilize exemptions
under the NASDAQ standards that free it from the obligation to
comply with some governance requirements under the NASDAQ rules,
including the following:
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a majority of its board of directors consists of independent
directors; |
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its director nominees must either be selected, or recommended
for selection by the board of directors, either by: |
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a majority of the independent directors; or |
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a nominations committee comprised solely of independent
directors; and |
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the compensation of its officers be determined, or recommended
to the board of directors for determination, either by: |
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a majority of the independent directors; or |
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a compensation committee comprised solely of independent
directors. |
Harris Stratex intends to use these exemptions and, as a result,
you will not have the same protection afforded to stockholders
of companies that are subject to all of the NASDAQ corporate
governance requirements.
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Harris will have rights reflecting its controlling
interest in Harris Stratex. As a result, your ability to
influence the outcome of matters requiring stockholder approval
will be limited. |
Following the consummation of the transactions, Harris will hold
a majority of the securities outstanding and entitled to vote
generally in the election of Harris Stratex directors (other
than those directors elected separately as a class by Harris).
In addition, as the only holder of the outstanding Harris
Stratex Class B common stock, Harris will have the
unilateral right to elect, remove and replace, at any time, a
majority of the board of directors of Harris Stratex so long as
the members elected, removed or replaced by Harris satisfy the
requirements agreed to by Stratex and Harris and set forth in
the investor agreement to be entered into at the closing of the
proposed transaction. More specifically, Harris has agreed that,
so long as it holds a majority of the voting common stock of
Harris Stratex, it will have the right to appoint five of Harris
Stratexs nine directors and, until the second anniversary
of the closing, at least one of the Harris directors will meet
the NASDAQ independence standards for audit committee members
and at least one other Harris director will not be an employee
of Harris or any of its subsidiaries (other than Harris Stratex
or its subsidiaries). After the second anniversary, Harris will
be able to elect or replace all the Harris directors without
regard to their relationship with Harris.
Harris right to vote a majority of the outstanding voting
stock of the combined company also will enable it to control
decisions without the consent of other Harris Stratex
stockholders, including among others, with respect to:
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the business direction and policies of the combined company; |
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mergers or other business combinations involving the combined
company, except during the first two years after the closing; |
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the acquisition or disposition of assets by the combined company; |
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the payment or nonpayment of dividends; |
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determinations with respect to tax returns; |
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the combined companys capital structure; and |
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amendments to the combined companys certificate of
incorporation and bylaws. |
In addition to the effects described above, Harris control
position could make it more difficult for Harris Stratex to
raise capital or make acquisitions by issuing its own capital
stock. This concentrated ownership also might delay or prevent a
change in control and may impede or prevent transactions in
which Harris Stratex stockholders might otherwise receive a
premium for their shares.
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Harris Stratex may have potential conflicts of interest
with Harris relating to their ongoing relationship, and because
of Harris controlling ownership in Harris Stratex, the
resolution of these conflicts may not be favorable to Harris
Stratex. |
Conflicts of interest may arise between Harris Stratex and
Harris in a number of areas relating to their ongoing
relationship, including:
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indemnification and other matters arising under the combination
agreement or other agreements; |
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intellectual property matters; |
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employee recruiting and retention; |
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competition for customers in the areas where Harris is permitted
to do business under the non-competition agreement; |
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sales or distributions by Harris of all or any portion of its
ownership interest in Harris Stratex, which could be to a
competitor of Harris Stratex; |
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business combinations involving Harris Stratex; and |
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business opportunities that may be attractive to both Harris and
Harris Stratex. |
Harris Stratex may not be able to resolve any potential
conflicts with Harris, and, even if it does, the resolution may
be less favorable to Harris Stratex than if it were dealing with
an unaffiliated party.
In connection with the consummation of the proposed
transactions, Harris and Harris Stratex will enter into the
investor agreement and the non-competition agreement. The
investor agreement provides that, following the closing of the
proposed transactions, Harris and its affiliates are only
permitted to enter into a transaction with Harris Stratex if the
transaction is approved by a majority of the non-Harris
directors or is on terms no less favorable in any material
respect to Harris Stratex than those that could have been
obtained by Harris Stratex, taking into consideration the then
prevailing facts and circumstances, if it had negotiated with an
informed, unrelated third party. However, if a transaction has a
fair market value of more than $5 million, it must also be
approved in advance by a majority of the non-Harris directors.
There are limited exceptions to these arrangements.
Pursuant to the terms of the non-competition agreement to be
entered into upon completion of the combination, Harris has
agreed in general terms that, for five years following the
completion of the proposed transactions, it will not, and will
not permit any of its subsidiaries (other than Harris Stratex
and its subsidiaries) to, engage in the development,
manufacture, distribution and sale of microwave radio systems
that are competitive with the current products of Strates and
the Microwave Communications Division or substantially similar
to those products in form, fit and function when used in
terrestrial microwave
point-to-point
communications networks that provide access and trunking of
voice and data for telecommunications networks. Notwithstanding
this restriction, Harris is permitted to purchase and resell
products produced by and branded by persons unaffiliated with
Harris and to develop, manufacture, distribute and sell
microwave radios and related components for use by government
entities.
29
See The Contribution Transaction and the
Merger Harris Governance Rights and Contractual
Relationships Related Party Transactions and Freedom
of Action beginning on page 49 of this proxy
statement/prospectus and the risk factor discussed in
Neither Harris nor any of its affiliates will
have any fiduciary obligation or other obligations to offer
corporate opportunities to Harris Stratex, and the certificate
of incorporation of Harris Stratex and investor agreement to be
entered into by Harris Stratex and Harris at the closing of the
transactions expressly permit certain directors or employees of
Harris Stratex to offer certain corporate opportunities to
Harris before Harris Stratex below.
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So long as Harris holds a majority of the securities
outstanding and entitled to vote generally in the election of
Harris Stratex directors (other than those directors elected
separately as a class by Harris), it will have the right to
preserve its control position by participating in equity
offerings by the combined company. |
At any time Harris holds a majority of the securities
outstanding and entitled to vote generally in the election of
Harris Stratex directors (other than those directors elected
separately as a class by Harris), subject to limited exceptions,
Harris has the right to participate in any offering of capital
stock by Harris Stratex including grants of equity to employees
on the same terms and conditions as the offering and purchase up
to that number of shares of Harris Stratex capital stock
necessary to preserve its then voting percentage in the combined
company. As a result, Harris will be able to maintain its
control position in Harris Stratex as long as it is able, and
elects, to participate in any offering of capital stock by
Harris Stratex.
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Neither Harris nor any of its affiliates will have any
fiduciary obligation or other obligation to offer corporate
opportunities to Harris Stratex, and the certificate of
incorporation of Harris Stratex and investor agreement to be
entered into by Harris Stratex and Harris at the closing of the
transactions expressly permit certain directors or employees of
Harris Stratex to offer certain corporate opportunities to
Harris before Harris Stratex. |
The certificate of incorporation of Harris Stratex as amended
and restated prior to the completion of the proposed
transactions and the investor agreement to be entered into by
Harris Stratex and Harris at the closing of the transactions
provide that:
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except as otherwise provided in the non-competition agreement to
be entered into by Harris Stratex and Harris at the closing of
the transactions or as offered to an individual who is a
director or officer of both Harris Stratex and Harris in writing
solely in that persons capacity as an officer or director
of Harris Stratex, Harris is free to compete with Harris Stratex
in any activity or line of business; invest or develop a
business relationship with any person engaged in the same or
similar activities or businesses as Harris Stratex; or do
business with any customer of Harris Stratex; or employ any
former employee of Harris Stratex; |
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neither Harris nor its affiliates will have any duty to
communicate its or their knowledge of or offer any potential
business opportunity, transaction or other matter to Harris
Stratex unless the opportunity was offered to the individual who
is a director or officer of both Harris Stratex and Harris in
writing solely in that persons capacity as an officer or
director of Harris Stratex; and |
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if any director or officer of Harris who is also an officer or
director or Harris Stratex becomes aware of a potential business
opportunity, transaction or other matter (other than one
expressly offered to that director or officer in writing solely
in his or her capacity as a director or officer of Harris
Stratex), that director or officer will have no duty to
communicate or offer that opportunity to Harris Stratex, and
will be permitted to communicate or offer that opportunity to
Harris (or its affiliates) and that director or officer will not
be deemed to have acted in bad faith or in a manner inconsistent
with the best interests of Harris Stratex or in a manner
inconsistent with his or her fiduciary or other duties to Harris
Stratex. |
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At the closing of the proposed transactions, it is expected that
the board of directors of Harris Stratex will include at least
one person who is also a director and/or an officer of Harris.
As a result, Harris may gain the benefit of corporate
opportunities that are presented to this director.
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In certain circumstances, Harris is permitted to engage in
the same types of businesses that Harris Stratex will conduct.
If Harris elects to pursue opportunities in these areas, the
combined companys ability to successfully operate and
expand its business may be limited. |
Harris has agreed to enter into a non-competition agreement at
the closing of the transaction restricting its and its
subsidiaries ability to compete with Harris Stratex for
five years following the completion of the transactions in
specified lines of business related to the current business
operations of Stratex and the Microwave Communications Division.
However, the non-competition agreement will not restrict Harris
from competing in a limited number of specific areas in which
Harris Stratex will operate, such as the development,
manufacture and sale of wireless systems for use by government
entities and the purchase and resale of non-Harris-branded
wireless systems. Following the five-year term, there will be no
restriction on Harris ability to compete with Harris
Stratex. If Harris elects to pursue opportunities in these areas
or re-enters the business from which it is prohibited following
the five-year term of the non-competition agreement, the
combined companys ability to successfully operate and
expand its business may be limited. For more information
regarding the non-competition agreement, see the The
Non-Competition Agreement beginning on page 109 of
this proxy statement/ prospectus.
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Sales by Harris of its interest in Harris Stratex could
result in offers for your shares of Class A common stock
the terms of which have been negotiated solely by Harris and
could adversely affect the price and liquidity of Harris Stratex
Class A common stock. |
Harris has agreed not to buy or sell Harris Stratex common stock
until the second anniversary of the closing, except with the
consent of the non-Harris directors of Harris Stratex or to
enable Harris to preserve its percentage interest in Harris
Stratexs outstanding common stock. From the second to the
fourth anniversary of the closing, Harris will be free to
transfer majority control of Harris Stratex to a buyer, at a
price and on terms acceptable to Harris in its sole discretion
so long as the buyer offers to acquire all outstanding voting
shares of Harris Stratex capital stock not owned by Harris on
the same terms offered to Harris or the non-Harris directors
approve the transfer by Harris in advance. However, non-Harris
stockholders of Harris Stratex will have no role in determining
the identity of the buyer and the amount and type of
consideration to be received or any other terms of the
transaction. If equity securities of the buyer are offered or if
you elect not to accept the buyers offer, your continuing
investment would be in a company that may be majority-controlled
by a company or an investor selected only by Harris.
In addition, pursuant to the combination agreement, Harris
Stratex has agreed to register for resale to the public shares
of common stock which are held by Harris as a result of the
combination agreement. Sales of registered shares of Harris
Stratex by Harris, or the perception that such sales might
occur, could depress the trading price of Harris Stratex
Class A common stock.
Risks Relating to the Combined Company
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Harris Stratex may not be profitable after the completion
of the transaction. |
Stratex and the Microwave Communications Division have in recent
years regularly incurred losses. Stratex has incurred losses for
the last five fiscal years, and the Microwave Communications
Division has incurred losses for the last five fiscal years. In
fiscal 2006, Stratex incurred a loss of $2.3 million, and,
as of September 30, 2006 Stratex had an accumulated deficit
of $412.6 million. In fiscal 2006, the Microwave
Communications Division incurred a loss of $35.8 million.
Although the Microwave Communication Division had net income of
$5.1 million for the three months ended September 29,
2006 there can be no assurances that Harris Stratex will be
consistently profitable, if at all.
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Harris Stratex will face strong competition for
maintaining and improving its position in the market which could
adversely affect Harris Stratexs revenue growth and
operating results. |
The wireless interconnection and access business is a
specialized segment of the wireless telecommunications industry
and is extremely competitive. Harris Stratex expects competition
in this segment to increase. Some of the combined companys
competitors have more extensive engineering, manufacturing and
marketing capabilities and significantly greater financial,
technical and personnel resources than Harris Stratex will have.
In addition, some of Harris Stratexs competitors have
greater name recognition, broader product lines, a larger
installed base of products and longer-standing customer
relationships. Harris Stratexs competitors include
established companies, such as Alcatel, L.M. Ericsson, NEC,
Nokia, Ceragon Networks and Siemens AG, as well as a number of
smaller public companies and private companies in selected
markets. Some of Harris Stratexs competitors are also base
station suppliers through whom it will market and sell its
products, which means that Harris Stratexs business
success may depend on these competitors to some extent. One or
more of Harris Stratexs largest customers could internally
develop the capability to manufacture products similar to those
manufactured or outsourced by Harris Stratex and, as a result,
the demand for Harris Stratexs products and services may
decrease.
In addition, Harris Stratex will compete for acquisition and
expansion opportunities with many entities that have
substantially greater resources than the combined company will
have. Furthermore, competitors of Harris Stratex may enter into
business combinations in order to accelerate product development
or to engage in aggressive price reductions or other competitive
practices, resulting in even more powerful or aggressive
competitors.
Harris Stratexs ability to compete successfully will
depend on a number of factors, including price, quality,
availability, customer service and support, breadth of product
line, product performance and features, rapid
time-to-market delivery
capabilities, reliability, timing of new product introductions
by Harris Stratex, its customers and competitors, the ability of
its customers to obtain financing and the stability of regional
sociopolitical and geopolitical circumstances. Harris Stratex
can give no assurances that it will have the financial
resources, technical expertise, or marketing, sales,
distribution, customer service and support capabilities to
compete successfully, or that regional sociopolitical and
geographic circumstances will be favorable for the successful
operation of the combined company.
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Harris Stratexs average sales prices may decline in
the future. |
Currently, manufacturers of digital microwave telecommunications
equipment are experiencing, and are likely to continue to
experience, declining sales prices. This price pressure is
likely to result in downward pricing pressure on the products
and services of the combined company. As a result, Harris
Stratex is likely to experience declining average sales prices
for its products. Harris Stratexs future profitability
will depend upon its ability to improve manufacturing
efficiencies, reduce costs of materials used in its products,
and to continue to introduce new lower cost products and product
enhancements. If Harris Stratex is unable to respond to
increased price competition this will harm its business,
financial condition and results of operations. Because customers
frequently negotiate supply arrangements far in advance of
delivery dates, Harris Stratex may be required to commit to
price reductions for its products before it is aware of how, or
if, cost reductions can be obtained. As a result, current or
future price reduction commitments, and any inability on its
part to respond to increased price competition, could harm
Harris Stratexs business, financial condition and results
of operations.
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Because a significant amount of the revenues of Harris
Stratex may come from a limited number of customers, the
termination of any of these customer relationships may adversely
affect Harris Stratexs business. |
Sales of the products and services of Stratex and the Microwave
Communications Division historically have been concentrated to a
small number of customers. The following table summarizes the
number of customers of Stratex and the Microwave Communications
Division that have represented over 10% of sales for the periods
identified, along with the percentage of revenues represented by
such customers.
Stratex
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Years Ended March 31, | |
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2006 | |
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Number of significant customers
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1 |
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Percentage of net sales
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10% |
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21% |
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September 30, | |
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2006 |
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Number of significant customers
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Percentage of net sales
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16% |
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Division
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Fiscal Years Ended | |
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Number of significant customers
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1 |
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Percentage of net sales
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15% |
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Quarters Ended | |
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Percentage of net sales
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Harris Stratex expects that a significant portion of Harris
Stratexs future product sales also may be concentrated to
a limited number of customers. In addition, product sales to
major customers have varied widely from period to period. The
loss of any existing customer, a significant reduction in the
level of sales to any existing customer, or Harris
Stratexs inability to gain additional customers could
result in declines in revenues compared to the combined
historical revenues of Stratex and the Microwave Communication
Division or an inability to grow revenues. If these revenue
declines occur or if the combined company is unable to create
revenue growth, Harris Stratexs business, financial
condition, and results of operations may be adversely affected.
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Harris Stratex may be subject to litigation regarding
intellectual property associated with Harris Stratexs
wireless business; this litigation could be costly to defend and
resolve, and could prevent the combined company from using or
selling the challenged technology. |
The wireless telecommunications industry is characterized by
vigorous protection and pursuit of intellectual property rights,
which has resulted in often protracted and expensive litigation.
Any litigation regarding patents or other intellectual property
could be costly and time-consuming and could divert Harris
Stratexs management and key personnel from the combined
companys business operations. The complexity of the
technology involved and the uncertainty of intellectual property
litigation increase these risks. Such litigation or claims could
result in substantial costs and diversion of resources. In the
event of an adverse result in any such litigation, Harris
Stratex could be required to pay substantial damages, cease
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the use and transfer of allegedly infringing technology or the
sale of allegedly infringing products and expend significant
resources to develop non-infringing technology or obtain
licenses for the infringing technology. Harris Stratex can give
no assurances that Harris Stratex would be successful in
developing such non-infringing technology or that any license
for the infringing technology would be available to Harris
Stratex on commercially reasonable terms, if at all. This could
have a materially adverse effect on Harris Stratexs
business, results of operation, financial condition, competitive
position and prospects.
As a subsidiary of Harris, Harris Stratex may have the benefit
of one or more existing cross-license agreements between Harris
and certain third parties, which may help protect Harris Stratex
from infringement claims. At such time as Harris Stratex ceases
to be a subsidiary of Harris, those benefits would be lost.
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Due to the significant volume of international sales
expected by Harris Stratex, Harris Stratex may be susceptible to
a number of political, economic and geographic risks that could
harm its business. |
Harris Stratex will be highly dependent on sales to customers
outside the United States. In fiscal 2006, sales by Stratex and
the Microwave Communications Division to international customers
accounted for 95% and 60%, respectively, of total net sales.
During fiscal 2005 and 2004, sales to international customers
accounted for 94% and 96% of Stratexs net sales,
respectively, and 50% and 57% of the Microwave Communication
Divisions net sales, respectively. In fiscal 2006, 2005
and 2004, sales to the Middle East/ Africa region accounted for
approximately 28%, 25% and 33% of Stratexs net sales,
respectively. In fiscal 2006, 2005 and 2004, sales to the Middle
East/ Africa region accounted for approximately 30%, 23% and 30%
of the Microwave Communication Divisions net sales,
respectively. Also, significant portions of Stratexs and
the Microwave Communications Divisions international sales
are in less developed countries. Following the completion of the
proposed transactions, international sales will continue to
account for a large percentage of the combined companys
net product sales for the foreseeable future. As a result, the
occurrence of any international, political, economic or
geographic event that adversely affects Harris Stratexs
business could result in a significant decline in revenues.
Some of the risks and challenges of doing business
internationally include:
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unexpected changes in regulatory requirements; |
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fluctuations in foreign currency exchange rates; |
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imposition of tariffs and other barriers and restrictions; |
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management and operation of an enterprise spread over various
countries; |
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burden of complying with a variety of foreign laws and
regulations; |
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general economic and geopolitical conditions, including
inflation and trade relationships; |
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war and acts of terrorism; |
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natural disasters; |
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currency exchange controls; and |
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changes in export regulations. |
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If Harris Stratex fails to develop and maintain
distribution and licensing relationships, its revenues may
decrease. |
Although a majority of sales is anticipated to be made through
Harris Stratexs direct sales force, Harris Stratex also
will market its products through indirect sales channels such as
independent agents, distributors, and telecommunication
integrators. These relationships will enhance Harris
Stratexs ability to pursue major contract awards and, in
some cases, are intended to provide Harris Stratexs
customers with easier access to financing and a greater variety
of equipment and service capabilities which an integrated system
provider should be able to offer. Harris Stratex may not be able
to maintain and develop additional
34
relationships or, if additional relationships are developed,
they may not be successful. Harris Stratexs inability to
establish or maintain these distribution and licensing
relationships could restrict its ability to market its products
and thereby result in significant reductions in revenue. If
these revenue reductions occur, Harris Stratexs business,
financial condition and results of operations would be harmed.
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The inability of Harris Stratexs subcontractors to
perform, or its key suppliers to manufacture and deliver
materials, could cause its products to be produced in an
untimely or unsatisfactory manner, or not at all. |
Harris Stratexs manufacturing operations, which will be
substantially subcontracted, are highly dependent upon the
delivery of materials by outside suppliers in a timely manner.
Also, Harris Stratex will depend in part upon subcontractors to
assemble major components and subsystems used in Harris
Stratexs products in a timely and satisfactory manner.
Harris Stratex generally will not enter into long-term or volume
purchase agreements with any of its suppliers, and Harris
Stratex cannot provide assurances that such materials,
components and subsystems will be available for use by Harris
Stratex at such time and in such quantities as Harris Stratex
requires, if at all. In addition, Stratex and the Microwave
Communications Division have historically obtained some of their
supplies from a single source. If these suppliers are unable to
provide supplies and products to Harris Stratex because they are
no longer in business or because they discontinue a certain
supply or product needed by Harris Stratex, Harris Stratex may
not be able to fill orders placed by its customers on a timely
basis or at all. Harris Stratexs inability to develop
alternative sources of supply quickly and on a cost-effective
basis could materially impair its ability to manufacture and
timely deliver its products to its customers. Harris Stratex
cannot give assurances that it will not experience material
supply problems or component or subsystem delays in the future.
Also, Harris Stratexs subcontractors may not be able to
maintain the quality of its products, which might result in a
large number of product returns by customers and could harm
Harris Stratexs business, financial condition and results
of operations.
Additional risks associated with the outsourcing of Harris
Stratexs manufacturing operations to corporations located
in Taiwan and their subsidiary in the Peoples Republic of
China could include, among other things: political risks due to
political issues between Taiwan and The Peoples Republic
of China, risk of natural disasters in Taiwan, such as
earthquakes and typhoons, economic and regulatory developments,
and other events leading to the disruption of manufacturing
operations.
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Consolidation within the telecommunications industry could
result in a decrease in Harris Stratexs revenues. |
The telecommunications industry has experienced significant
consolidation among its participants, and Harris Stratex expects
this trend to continue. Some operators in this industry have
experienced financial difficulty and have filed, or may file,
for bankruptcy protection. Other operators may merge and one or
more of Harris Stratexs competitors may supply products to
the customers of the combined company following those mergers.
This consolidation could result in purchasing decision delays
and decreased opportunities for Harris Stratex to supply
products to companies following any consolidation. This
consolidation may also result in lost opportunities for cost
reduction and economies of scale. In addition, see the risk
factor discussed in Because a significant
amount of the revenues of Harris Stratex will come from a
limited number of customers, the termination of any of these
customer relationships may adversely affect Harris
Stratexs business above.
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Harris Stratexs success will depend on new product
introductions and acceptance. |
The market for Harris Stratexs products is characterized
by rapid technological change, evolving industry standards and
frequent new product introductions. Harris Stratexs future
success will depend, in part, on continuous, timely development
and introduction of new products and enhancements that address
evolving market requirements and are attractive to customers.
Harris Stratex believes that successful new product
introductions provide a significant competitive advantage
because of the significant resources committed by customers in
adopting new products and their reluctance to change products
after these
35
resources have been expended. Stratex and the Microwave
Communications Division have spent, and Harris Stratex expects
to continue to spend, significant resources on internal research
and development to support its effort to develop and introduce
new products and enhancements. To the extent that Harris Stratex
fails to introduce new and innovative products that are adopted
by customers, it could fail to obtain an adequate return on
these investments and could lose market share to Harris
Stratexs competitors, which could be difficult or
impossible to regain.
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Harris Stratexs customers may not pay for products
and services in a timely manner, or at all, which would decrease
Harris Stratexs income and adversely affect Harris
Stratexs working capital. |
Harris Stratexs business will require extensive credit
risk management that may not be adequate to protect against
customer nonpayment. Risks of nonpayment by customers will be a
significant focus of Harris Stratexs business. The
combined company expects a significant amount of future revenue
to come from international customers, many of whom will be
start-up telecom
operators in developing countries. Harris Stratex does not
generally expect to obtain collateral for sales, although it
intends to require letters of credit or credit insurance as
appropriate for international customers. In addition, a
significant amount of the revenues of Stratex and the Microwave
Communications Division have been generated from a small number
of significant customers. For information regarding the
percentage of revenues attributable to certain key customers,
see Because a significant amount of the
revenues of Harris Stratex will come from a limited number of
customers, the termination of any of these customer
relationships may adversely affect Harris Stratexs
business above. The historical accounts receivable
balances of Stratex and the Microwave Communications Division
have been concentrated in a small number of significant
customers. Unexpected adverse events impacting the financial
condition of customers, bank failures or other unfavorable
regulatory, economic or political events in the countries in
which Harris Stratex does business may impact collections and
adversely impact Harris Stratexs business, require
increased bad debt expense or receivable write-offs and
adversely impact Harris Stratexs cash flows, financial
condition and operating results.
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Rapid changes in technology and the frequent introduction
of lower cost components for Harris Stratexs product
offerings may result in excess inventory that Harris Stratex
cannot sell or may be required to sell at distressed prices, and
may result in longer credit terms to Harris Stratexs
customers. |
The rapid technological change and evolving industry standards
that characterize the market for Harris Stratexs products
require the frequent introduction of new products for an
industry participant to be successful. These rapid changes could
result in the accumulation of component inventory parts that
become obsolete as new products are introduced and adopted by
customers. Stratex and the Microwave Communications Division
have experienced significant inventory write-offs in recent
years, and because of the rapid changes that characterize the
market, Harris Stratex also may be forced to write down excess
inventory from time to time. Moreover, these same factors may
force Harris Stratex to significantly reduce prices for older
technology or extend more and longer credit terms to customers,
which could negatively impact its cash and possibly result in
higher bad debt expense. More generally, Harris Stratex cannot
give assurances that it will be successful in matching its
inventory purchases with anticipated shipment volumes. As a
result, Harris Stratex may fail to control the amount of
inventory on hand and may be forced to write-off additional
amounts. Such additional inventory write-offs, if required,
would adversely impact Harris Stratexs cash flows,
financial condition and operating results.
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The unpredictability of Harris Stratexs
quarter-to-quarter
results may harm the trading price of Harris Stratexs
Class A common stock. |
Harris Stratexs quarterly operating results may vary
significantly in the future for a variety of reasons, many of
which are outside of Harris Stratexs control. These
factors could harm Harris Stratexs business and include,
among others:
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volume and timing of Harris Stratexs product orders
received and delivered during the quarter; |
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Harris Stratexs ability and the ability of its key
suppliers to respond to changes on demand as needed; |
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suppliers inability to perform and timely deliver as a result of
their financial condition, component shortages or other supply
chain constraints; |
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continued market expansion through strategic alliances; |
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continued timely rollout of new product functionality and
features; |
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increased competition resulting in downward pressures on the
price of Harris Stratexs products and services; |
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unexpected delays in the schedule for shipments of existing
products and new generations of the existing platforms; |
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failure to realize expected cost improvement throughout Harris
Stratexs supply chain; |
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order cancellations or postponements in product deliveries
resulting in delayed revenue recognition; |
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seasonality in the purchasing habits of customers; |
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war and acts of terrorism; |
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natural disasters; |
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ability of Harris Stratexs customers to obtain financing
to enable their purchase of Harris Stratexs products; |
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fluctuations in foreign currency exchange rates; |
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regulatory developments including denial of export and import
licenses; and |
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general economic conditions worldwide. |
Harris Stratexs quarterly results are expected to be
difficult to predict and delays in product delivery or closing
of a sale can cause revenues and net income to fluctuate
significantly from anticipated levels. In addition, Harris
Stratex may increase spending in response to competition or in
pursuit of new market opportunities. Accordingly, Harris Stratex
cannot provide assurances that it will be able to achieve
profitability in the future or that if profitability is
attained, that Harris Stratex will be able to sustain
profitability, particularly on a
quarter-to-quarter
basis.
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If Harris Stratex is unable to protect its intellectual
property rights adequately, it may be deprived of legal recourse
against those who misappropriate Harris Stratexs
intellectual property. |
Harris Stratexs ability to compete will depend, in part,
on its ability to obtain and enforce intellectual property
protection for its technology in the United States and
internationally. Harris Stratex will rely upon a combination of
trade secrets, trademarks, copyrights, patents and contractual
rights to protect its intellectual property. In addition, Harris
Stratex will enter into confidentiality and invention assignment
agreements with its employees, and enters into non-disclosure
agreements with its suppliers and appropriate customers so as to
limit access to and disclosure of its proprietary information.
Harris Stratex cannot give assurances that any steps taken by
Harris Stratex will be adequate to deter misappropriation or
impede independent third party development of similar
technologies. In the event that such intellectual property
arrangements are insufficient, Harris Stratexs business,
financial condition and results of operations could be harmed.
Harris Stratex will have significant operations in the United
States, United Kingdom and New Zealand, and outsourcing
arrangements in Asia. Harris Stratex cannot provide assurances
that the protection provided to its intellectual property by the
laws and courts of foreign nations will be substantially similar
to the protection and remedies available under United States
law. Furthermore, Harris Stratex cannot provide assurances that
third parties will not assert infringement claims against it
based on foreign intellectual property rights and laws that are
different from those established in the United States.
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If sufficient radio frequency spectrum is not allocated
for use by Harris Stratexs products, and Harris Stratex
fails to obtain regulatory approval for its products, its
ability to market its products may be restricted. |
Radio communications are subject to regulation by United States
and foreign laws and international treaties. Generally, Harris
Stratexs products will need to conform to a variety of
United States and international requirements established to
avoid interference among users of transmission frequencies and
to permit interconnection of telecommunications equipment. Any
delays in compliance with respect to Harris Stratexs
future products could delay the introduction of such products.
In addition, Harris Stratex will be affected by the allocation
and auction of the radio frequency spectrum by governmental
authorities both in the United States and internationally. Such
governmental authorities may not allocate sufficient radio
frequency spectrum for use by Harris Stratexs products or
Harris Stratex may not be successful in obtaining regulatory
approval for its products from these authorities. Historically,
in many developed countries, the unavailability of frequency
spectrum has inhibited the growth of wireless telecommunications
networks. In addition, to operate in a jurisdiction, Harris
Stratexs must obtain regulatory approval for its products.
Each jurisdiction in which Harris Stratex will market its
products has its own regulations governing radio communications.
Products that support emerging wireless telecommunications
services can be marketed in a jurisdiction only if permitted by
suitable frequency allocations, auctions and regulations. The
process of establishing new regulations is complex and lengthy.
If Harris Stratex is unable to obtain sufficient allocation of
radio frequency spectrum by the appropriate governmental
authority or obtain the proper regulatory approval for its
products, its business, financial condition and results of
operations may be harmed.
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If Harris Stratex is unable to favorably assess the
effectiveness of its internal controls over financial reporting,
Harris Stratex may not be able to accurately report its
financial results. As a result, current and potential
stockholders could lose confidence in Harris Stratexs
financial reporting, which could adversely affect its stock
price. |
Effective internal controls over financial reporting are
necessary for Harris Stratex to provide reliable financial
reports. Pursuant to Sections 302 and 404 of the
Sarbanes-Oxley Act of 2002, or the SOX Act, and beginning with
Harris Stratexs annual report on
Form 10-K for the
fiscal year ending June 27, 2008, Harris Stratex management
will be required to certify to and report on, and its
independent registered public accounting firm will be required
to attest to, the effectiveness of Harris Stratexs
internal controls over financial reporting as of June 27,
2008. If Harris Stratex fails to maintain effective internal
controls over financial reporting, its operating results could
be misstated, its reputation may be harmed and the trading price
of its stock could be negatively impacted. As described in
Managements Discussion and Analysis of Financial
Condition and Results of Operations included in Stratexs
Annual Report on
Form 10-K for the
year ended March 31, 2006, as amended, which is
incorporated into this proxy statement/ prospectus by reference,
Stratex determined there were two material weaknesses in its
internal control over financial reporting as defined in
standards established by the Public Company Accounting Oversight
Board (PCAOB). In general, a material
weakness (as defined in PCAOB Auditing Standard
No. 2) is a significant deficiency, or combination of
significant deficiencies, that results in more than a remote
likelihood that a material misstatement in the annual or interim
financial statements will not be prevented or detected. In
fiscal 2006, Stratex devoted significant resources to remediate
and improve its internal controls related to these material
weaknesses. Stratex believes that these efforts have remediated
the concerns that gave rise to the material weakness
related to revenue recognition. However, due to the assessment
of Stratexs internal controls over financial reporting as
of March 31, 2006, Stratex had identified the continuation
of a material weakness in the review of the financial statements
of foreign operations and the period-end financial close and
reporting process for Stratexs consolidated operations.
Historically, Harris has only been required to certify or report
on or receive an attestation from its independent registered
public accounting firm with respect to Harris, taken as a whole,
and not the Microwave Communications Division in particular.
Stratex and the Microwave Communications Division currently are
in the process of reviewing, documenting and testing their
internal controls
38
over financial reporting. Following the completion of the
proposed transactions, Harris Stratex will continue reviewing
its internal controls over the financial close and reporting
process, and will implement additional controls as needed.
However, Harris Stratex cannot be certain that its controls over
its financial processes and reporting will be adequate in the
future, and, to the extent that Harris Stratex incurs
significant additional expenses in complying with these
provisions of the SOX Act, those expenses have not been
anticipated and are not otherwise reflected in the unaudited pro
forma condensed consolidated financial data of Harris Stratex
contained in this proxy statement/ prospectus. Any failure to
maintain effective internal controls over financial reporting
could cause Harris Stratex to prepare inaccurate financial
statements, subject Harris Stratex to a misappropriation of
assets or cause Harris Stratex to fail to meet its SEC reporting
obligations on a timely basis, which could materially adversely
affect the trading price of the Class A common stock.
39
INFORMATION RELATING TO FORWARD-LOOKING STATEMENTS
This proxy statement/prospectus, and the documents incorporated
into it by reference, contain forward-looking statements within
the meaning of Section 21E of the Exchange Act. In
addition, the proxy statement contained in this document, and
the documents incorporated into it by reference, contain
forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995 and Section 27A of
the Securities Act. All statements, trend analyses and other
information contained herein about the markets for the services
and products of Harris Stratex, Stratex and the Microwave
Communications Division and trends in revenue, as well as other
statements identified by the use of forward-looking terminology,
including anticipate, believe,
plan, estimate, expect,
goal and intend, or the negative of
these terms or other similar expressions, constitute
forward-looking statements. These forward-looking statements are
based on estimates reflecting the best judgment of the senior
management of Stratex and the Microwave Communications Division.
These forward-looking statements involve a number of risks and
uncertainties that could cause actual results to differ
materially from those suggested by the forward-looking
statements. Forward-looking statements should therefore be
considered in light of various important factors, including
those set forth in this proxy statement/prospectus. Important
factors that could cause actual results to differ materially
from estimates or projections contained in the forward-looking
statements include the following:
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the failure to obtain and retain expected synergies from the
proposed transactions; |
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rates of success in executing, managing and integrating key
acquisitions and transactions, including the proposed
transactions; |
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the ability to achieve business plans for the combined company; |
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the ability to manage and maintain key customer relationships; |
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the conditions to the completion of the proposed transactions
may not be satisfied; |
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delays in obtaining, or adverse conditions contained in, any
regulatory or third-party approvals in connection with the
proposed transactions; |
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the ability to fund debt service obligations through operating
cash flow; |
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the ability to obtain additional financing in the future and
react to competitive and technological changes; |
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the ability to comply with restrictive covenants in the combined
companys indebtedness; |
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the ability to compete with a range of other providers of
microwave communications products and services; |
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the effect of technological changes on the combined
companys businesses; |
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the functionality or market acceptance of new products that the
combined company may introduce; |
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the extent to which the combined companys future earnings
will be sufficient to cover its fixed charges; |
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the parties ability to meet expectations regarding the
timing, completion and accounting and tax treatments of the
transaction; |
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Harris Stratex will be subject to intense competition; |
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the failure of Harris Stratex to protect its intellectual
property rights; |
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currency and interest rate risks; |
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revenues of the combined company following the proposed
transactions may be lower than expected; and |
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the risk factors explained in Stratexs most recent
Form 10-K, as
amended. |
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You are cautioned not to place undue reliance on forward-looking
statements, which speak only as of the date of this proxy
statement/ prospectus or the date of any document incorporated
by reference. None of Harris, Stratex or Harris Stratex
undertakes any obligation to publicly update or revise any
forward-looking statements, whether as a result of new
information, future events or otherwise. In light of these
risks, uncertainties and assumptions, the forward-looking events
discussed in this proxy statement/ prospectus or any document
incorporated by reference might not occur. For more information
regarding the risks and uncertainties of the microwave
communications business as well as risks relating to the
combination of the Microwave Communications Division and
Stratex, see Risk Factors beginning on page 25
of this proxy statement/ prospectus.
41
THE COMPANIES
Harris Stratex Networks, Inc.
Harris Stratex, currently a wholly owned subsidiary of Harris,
is a Delaware corporation which was formed on October 5,
2006. Harris and Stratex agreed to form Harris Stratex
solely for the purpose of effecting the merger and the
contribution transaction, and to date Harris Stratex has not
conducted any activities other than those incident to its
formation, the execution of the combination agreement and the
preparation of the applicable filings under the
U.S. securities laws and regulatory filings made in
connection with the proposed transactions. Immediately upon
completion of the merger and the contribution transaction,
Harris will hold 56% of the capital stock of Harris Stratex
determined using the treasury stock method assuming a market
price per share of Harris Stratex Class A common stock of
$20.80 (which represents $5.20 per share of Stratex common
stock prior to the effective one-for-four reverse split pursuant
to the merger), or approximately 57% of the outstanding shares
of Harris Stratex immediately after the consummation of the
transactions. As a result, Harris Stratex will be a
majority-owned subsidiary of Harris and its financial statements
will be included in Harris consolidated financial
statements. Harris Stratex expects to conduct the businesses of
Stratex and the Microwave Communications Division following the
merger and the contribution transaction substantially as
currently conducted by Stratex and Harris, respectively;
however, following the closing of the proposed transactions,
Harris Stratex anticipates that it will integrate the businesses
and will pursue supply chain efficiencies through increased
production volume, rationalize the product portfolio, eliminate
duplicate administrative and overhead costs, outsource some
products to low-cost manufacturers, and adopt a common
engineering design process.
Prior to the proposed transactions, Harris Stratex will amend
and restate its certificate of incorporation and bylaws. As a
result, Stratex stockholders who receive Harris Stratex common
stock in the merger will become Harris Stratex stockholders and
their rights as stockholders will be governed by the amended and
restated certificate of incorporation and amended and restated
bylaws of Harris Stratex and Delaware law. The amended and
restated certificate of incorporation and amended and restated
bylaws of Harris Stratex upon the completion of the mergers will
be in substantially the form set forth in Appendix C
and Appendix D to this proxy statement/ prospectus,
respectively. For a comparison of the rights of a holder of
Class A common stock under the amended and restated
certificate of incorporation and amended and restated bylaws of
Harris Stratex and Delaware law with the rights of a holder of
Stratex common stock under the certificate of incorporation and
bylaws of Stratex and Delaware law, see Comparison of
Stockholder Rights beginning on page 180 of this
proxy statement/ prospectus.
The principal executive offices of Harris Stratex are currently
located at 1025 West NASA Blvd., Melbourne, Florida 32919,
and its telephone number is (321) 727-9100. Following the
closing of the proposed transactions, it is expected that the
headquarters of Harris Stratex will be located at Research
Triangle Park, 637 Davis Drive, Morrisville, North Carolina
27560, the current headquarters of the Microwave Communications
Division, and its telephone number is expected to be
(919) 767-3250.
Stratex Networks, Inc.
Stratex (formerly known as Digital Microwave Corporation
(re-named as DMC Stratex Networks, Inc.)), was incorporated in
California in 1984 and reorganized as a Delaware corporation in
1987. In August 2002, Stratex changed its name from DMC Stratex
Networks, Inc. to Stratex Networks, Inc. Stratex is a leading
provider of innovative wireless transmission solutions to mobile
wireless carriers and data access providers around the world.
Stratexs solutions also address the requirement of fixed
wireless carriers, enterprises and government institutions that
operate broadband wireless networks. Stratex designs,
manufactures and markets a broad range of products that offer a
wide range of transmission frequencies, ranging from 0.3
Gigahertz (GHz) to 38 GHz, and a wide range of transmission
capacities, typically ranging from 64 Kilobits to 2OC-3 or 311
Megabits per second (Mbps). In addition to its product
offerings, Stratex provides network planning, design and
installation services and works closely with its customers to
optimize transmission networks. In fiscal year 2006,
Stratexs operations resulted in revenues
42
of approximately $230,892,000, total assets of approximately
$180,830,000 and a net loss of approximately $2,297,000.
The principal executive offices of Stratex are located at 120
Rose Orchard Way, San Jose, California 95134 and its
telephone number is (408) 943-0777. Stratex and its wholly
owned subsidiaries had approximately 471 full-time,
part-time and temporary employees and $184.2 million in
assets as at September 30, 2006. For additional information
about Stratex and its business, see Where You Can Find
More Information on page 191 of this proxy statement/
prospectus.
Stratex Merger Corp.
Stratex Merger Corp., a wholly owned subsidiary of Harris
Stratex, is a Delaware corporation formed solely for the purpose
of effecting the merger with Stratex. Stratex Merger Corp. is
often referred to in this proxy statement/ prospectus as Merger
Sub. Its principal executive offices are located at
1025 West NASA Blvd., Melbourne, Florida 32919, and its
telephone number is (321) 727-9100.
Upon the terms and conditions set forth in the combination
agreement, Merger Sub will be merged with and into Stratex and
the separate existence of Merger Sub will cease. Stratex will be
the surviving corporation in the merger.
Merger Sub has not conducted any activities other than those
incidental to its formation and the matters contemplated by the
combination agreement, including the preparation of applicable
filings under the U.S. securities laws and regulatory
filings made in connection with the proposed transactions.
Microwave Communications Division of Harris Corporation
The Microwave Communications Division is one of four divisions
within Harris, an international communications and information
technology company focused on providing assured communications
products, systems and services for government and commercial
customers. The Microwave Communications Division was formed in
February, 1980, when Farinon Corporation, a producer of
telecommunications products and recognized leader in the
telephone equipment market, was acquired by Harris. The
principal executive offices of the Microwave Communications
Division are located at Research Triangle Park 637, Davis Drive,
Morrisville, North Carolina 27560 and its telephone number is
(919) 767-3250.
The Microwave Communications Division is a global provider of
products and services in
point-to-point
microwave radio communications. The Microwave Communications
Division designs, manufactures and sells a broad range of
microwave radios for use in worldwide wireless communications
networks. Applications include wireless/mobile infrastructure
connectivity; secure data networks; public safety transport for
state, local and federal government users; and
right-of-way
connectivity for utilities, pipelines, railroads and industrial
companies. The Microwave Communications Division also offers a
comprehensive network management system known as
NetBoss®.
NetBoss®
is an end-to-end
turnkey solution for managing multi-vendor, multi-service,
multi-protocol communications networks.
NetBoss®
provides turnkey element and network management solutions for
fault management, performance management, configuration
management, as well as operational support systems. In fiscal
year 2006, the operations of the Microwave Communications
Division resulted in revenues of approximately $357,500,000,
total assets of approximately $352,649,000 and a net loss of
approximately $35,848,000. The fiscal year 2006 results include
an approximately $39,600,000 after-tax charge related to
inventory write-downs and other charges associated with product
discontinuances, as well as the planned shutdown of
manufacturing activities at the MCD plant in Montreal, Canada.
The Microwave Communications Division had approximately 1,040
employees and comprised $353.9 million in assets at
September 29, 2006. For more information regarding the
Microwave Communications Division, see Description of the
Business of the Microwave Communications Division of Harris
Corporation beginning on page 144 of this proxy
statement/ prospectus.
43
THE SPECIAL MEETING
Date, Time & Place of the Stratex Special Meeting
This proxy statement/ prospectus is being furnished in
connection with the solicitation of proxies by the board of
directors of Stratex for the special meeting of stockholders to
be held at 10:00 a.m., local time,
on l , l ,
2007, and any adjournment or postponement thereof. The special
meeting will be held at the principal executive offices of
Stratex located at 120 Rose Orchard Way, San Jose,
California 95134. The telephone number at that location is
(408) 943-0777.
Purpose of the Stratex Special Meeting
The special meeting is being held to request that the holders of
Stratex common stock consider and vote upon a proposal to adopt
the combination agreement and approve the merger of Merger Sub
with and into Stratex, with Stratex as the surviving
corporation, and the other transactions provided for in the
combination agreement. In addition, you are also being asked to
approve any adjournment of the special meeting in the discretion
of the proxies (or either of them) for the purpose of soliciting
additional proxies.
Record Date for the Stratex Special Meeting; Quorum
You are entitled to notice of, and may vote at, the Stratex
special meeting if you were the record holder of Stratex common
stock as
of l p.m.,
Pacific Standard Time,
on l ,
2006, the record date for the Stratex special meeting. As of the
close of business on the record date, there
were l shares
of Stratexs common stock outstanding and entitled to vote
at the special meeting, held
by l stockholders
of record. Under Stratexs bylaws, the holders of a
majority of these shares who are present in person or
represented by proxy at the special meeting, constitute a quorum
for the transaction of business at the special meeting.
Vote Required
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Proposal to Adopt the Combination Agreement and Approve
the Merger |
The adoption of the combination agreement and the approval of
the merger and the other transactions provided for in the
combination agreement requires the affirmative vote of a
majority of all of Stratexs common stock outstanding and
entitled to vote on the record date.
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Proposal to Adjourn the Special Meeting |
The adoption of the proposal to permit the proxies to adjourn
the special meeting requires the affirmative vote of the
majority of shares of Stratex common stock in person or
represented by proxy at the meeting and entitled to vote on the
record date, regardless of whether a quorum is present.
Each outstanding share of Stratex common stock on the record
date is entitled to one vote on all matters to come before the
special meeting. An automated system administered by
Stratexs transfer agent, Mellon Investor Services LLC,
will tabulate votes cast by proxy. A representative of
Stratexs transfer agent will act as the inspector of
elections for the special meeting and will tabulate the votes
cast in person at the special meeting. As of the close of
business on the record date for the Stratex special meeting, the
directors and executive officers of Stratex and their affiliates
beneficially owned
approximately l % of
the shares of Stratex then-outstanding and entitled to vote at
the special meeting. Each of the directors and senior officers
of Stratex has entered into an agreement with Harris in which he
or she has agreed to vote all shares over which he or she has
voting power in favor of the proposal submitted to the
stockholders at the special meeting to adopt the combination
agreement and approve the merger and the other transactions
provided for in the combination agreement. As of the close of
business on the record date for the Stratex special
meeting, l %
of the then-outstanding shares of Stratex Common Stock are
subject to these voting agreements.
44
Adjournment or Postponement
If a quorum is not present at the special meeting, the
stockholders entitled to vote at the meeting, present in person
or represented by proxy, have the power to cause the meeting to
be adjourned from time to time, without notice other than
announcement at the meeting, until a quorum is present or
represented by proxy. At an adjourned meeting at which a quorum
is present or represented by proxy any business may be
transacted which might have been transacted at the meeting as
originally notified. If the adjournment is for more than
30 days, or if after the adjournment a new record date is
fixed for the adjournment meeting, a notice of the adjourned
meeting will be given to each stockholder of record entitled to
vote at the adjourned meeting.
If you choose to vote by proxy, then the proxy you submit
(whether by mail, telephone or over the Internet) will continue
to be valid at any adjournment or postponement of the special
meeting.
Proxies
If you are unable to attend the special meeting, you may vote by
proxy. You may submit your proxy over the Internet, by telephone
or by signing, dating and returning the enclosed proxy card in
the accompanying pre-paid envelope. If your proxy is properly
completed and submitted as instructed, it will be voted pursuant
to your instructions set forth on the proxy card or provided by
telephone or over the Internet. If you choose to vote by mail,
you are urged to specify your choices on the enclosed proxy
card. If a proxy card is signed and returned without choices
specified, in the absence of contrary instructions, the shares
of common stock represented by the proxy will be voted
FOR the proposal to adopt the combination
agreement and approve the merger and the other transactions
provided for in the combination agreement and FOR
the proposal to adjourn the special meeting of the Stratex
stockholders in the discretion of the proxies or either of them,
and will be voted in the proxy holders discretion as to
such other matters that may properly come before the special
meeting.
If the shares of Stratex common stock are held in your name, you
may revoke or change your proxy given pursuant to this
solicitation at any time before your proxy is voted in of four
ways:
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First, timely deliver a valid later-dated proxy by mail. |
If you elect to deliver a later-dated proxy, please submit your
new proxy to Stratexs transfer agent at the following
address:
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Mellon Investor Services |
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525 Market Street, Suite 3500 |
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San Francisco, California 94105 |
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Second, provide written notice to Stratexs inspector of
elections before the meeting that you have revoked your proxy. |
If you elect to revoke your proxy, please send your written
notice to the inspector of elections at the following address:
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Mellon Investor Services |
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Proxy Processing |
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P.O. Box 1680 |
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Manchester, CT 06045-1680 |
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Third, you can submit revised voting instructions by telephone
or over the Internet by following the instructions set forth on
the proxy card. |
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Fourth, you can attend the special meeting and vote in person.
Simply attending the meeting, however, will not revoke your
proxy or change your voting instructions. You must vote at the
meeting or provide written notice of revocation to the inspector
of elections. |
45
If your shares are held in street name, you should
follow the directions provided by your bank, broker or other
nominee regarding how to revoke or change your proxy.
Voting Your Proxy
You may submit your proxy (1) over the Internet at
www.proxyvoting.com/stxp, (2) by telephone or
(3) by signing, dating and returning the enclosed proxy
card promptly in the accompanying envelope. Should you receive
more than one proxy because your shares are registered in
different names and addresses, each proxy should be returned to
ensure that all your shares will be voted. If you submit your
proxy (whether by mail, telephone or over the Internet) and then
decide to attend the special meeting to vote your shares in
person, you may still do so. Your proxy is revocable in
accordance with the procedures described above under
Proxies.
Solicitation of Proxies
Stratex will bear the cost of solicitation, and Harris and
Stratex will share equally the cost of publishing, printing and
mailing this proxy statement/prospectus, the proxy card and any
additional solicitation materials furnished to the Stratex
stockholders. Stratex will reimburse brokerage firms and other
custodians, nominees and fiduciaries for their reasonable
expenses incurred in sending these proxy materials to beneficial
owners of Stratex common stock. Stratex may supplement the
original solicitation of proxies by mail, by solicitation by
telephone, e-mail or in-person meetings held by our directors,
officers and employees. No additional compensation will be paid
to these individuals for any such services. In addition, Stratex
has engaged Morrow and Co. to solicit proxies on Stratexs
behalf. Morrow and Co. will receive $6,000 from Stratex as
compensation for such services, plus other fees and expenses
related to the extent of the services to be provided in
connection with the solicitation effort.
Broker Non-Votes
Under the Delaware General Corporation Law, an abstaining vote
and a broker non-vote are counted as present and
are, therefore, included for purposes of determining whether a
quorum of shares is present at the special meeting. A broker
non-vote occurs when a broker or other nominee
holding shares for a beneficial owner signs and returns a proxy
with respect to shares of common stock held in a fiduciary
capacity (typically referred to as being held in street
name) but does not vote on a particular matter because the
nominee does not have the discretionary voting power with
respect to that matter and has not received instructions from
the beneficial owner. Under the rules that govern brokers who
are voting with respect to shares held in street name, brokers
have the discretion to vote such shares on routine matters but
not on non-routine matters. The proposals that Stratex
stockholders are being asked to vote on at the special meeting
are not considered routine matters and accordingly brokers or
other nominees may not vote without instructions. Broker
non-votes are considered present at the special meeting but not
entitled to vote on the proposals and will have the same effect
as a vote AGAINST the proposals because the
proposal to adopt the combination agreement and approve the
merger and the other transactions provided for in the
combination agreement must be adopted by the holders of a
majority of the outstanding shares of Stratex common stock and
the propsoal to permit the proxies to, in their discretion,
adjourn the special meeting of the Stratex stockholders must be
adopted by a majority of the stockholders present in person or
by proxy at the special meeting of Stratex stockholders.
Proxy Materials
If you have any questions about the proposed transactions, or if
you need additional copies of this proxy statement/prospectus or
the enclosed proxy card, you should contact:
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Morrow and Co. |
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470 West Avenue |
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Stamford, Connecticut 06902 |
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1-800-607-0088 |
46
THE CONTRIBUTION TRANSACTION AND THE MERGER
Description of the Combination
The discussion in this proxy statement/prospectus of the merger
and the contribution transaction and combination agreement is
subject to and is qualified in its entirety by reference to the
combination agreement, a copy of which is attached as
Appendix A to this proxy statement/prospectus and is
incorporated into this proxy statement/prospectus by reference.
In addition, for more information regarding the terms of the
combination agreement and the other agreements to be entered
into at the completion of the proposed transactions that provide
Harris with governance rights, among other things, which Harris
and Harris Stratex will enter into at the time of the
combination, see The Combination Agreement,
The Investor Agreement, The Non-Competition
Agreement and Other Agreements beginning on
page 83 of this proxy statement/prospectus.
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Description of the Merger |
Under the terms of the combination agreement, Stratex will merge
with a wholly owned subsidiary of Harris Stratex and, as the
surviving entity in that merger, will become a wholly owned
subsidiary of Harris Stratex.
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Consideration to be Received by the Stratex Stockholders |
If the proposed transactions go forward, each share of Stratex
common stock outstanding immediately prior to the merger will be
automatically converted into one-fourth of a share of Harris
Stratex Class A common stock. The one-fourth conversion
ratio is fixed, and, as a result, the number of shares of Harris
Stratex common stock received by the Stratex stockholders in the
merger will not fluctuate up or down based on the market price
of a share of Stratex common stock prior to the merger. In
addition, because each Stratex stockholder will receive
one-fourth of a share of Harris Stratex Class A common
stock, the merger will have the same effect as if Stratex had
completed a one-for-four reverse split immediately prior to the
merger. It is expected that the shares of Harris Stratex
Class A common stock that Stratex stockholders will receive
in the merger will be publicly traded on NASDAQ. Following the
merger, Stratex common stock will be delisted from NASDAQ.
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Description of the Contribution Transaction |
Simultaneously with the merger, Harris has agreed to contribute
the assets comprising its Microwave Communications Division,
including $25 million in cash, to Harris Stratex. In
addition, Harris will allocate, as appropriate and reasonably
practicable, its liabilities between its Microwave
Communications Division and any other businesses or divisions of
Harris and, following such allocation, Harris Stratex will
assume those liabilities of Harris that primarily result from or
primarily arise out of the Microwave Communications Division.
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Consideration to be Received by Harris |
In exchange for its contribution to Harris Stratex, Harris
Stratex will issue to Harris a number of shares of Class B
common stock of Harris Stratex equal to 56% of the capital stock
of Harris Stratex immediately following the combination
transaction, determined using the treasury stock method,
assuming, solely for this purpose, a market price per share of
Harris Stratex Class A common stock of $20.80, which is
equivalent to $5.20 per share of Stratex common stock prior
to the one-for-four exchange effected by the merger. Upon
closing, the shares Harris and the former shareholders of
Stratex will receive in the transaction will represent
approximately 57% and 43%, respectively, of the outstanding
shares of Harris Stratex immediately after the consummation of
the transactions (or approximately 56.4% and 43.6%,
respectively, of the outstanding shares determined on a fully
diluted basis using the treasury stock method and the closing
price for the shares on November 21, 2006).
47
The Class B common stock issued to Harris in exchange for
its contribution will be substantially similar to the
Class A common stock that will be issued in the merger to
the holders of outstanding shares of Stratex common stock,
except that the holders of the shares of Class B common
stock will have the right, among others, to elect separately as
a class a number of the directors of Harris Stratex equal to
Harris proportionate ownership of the total voting power
of the outstanding Harris Stratex common stock so long as
Harris total voting power is equal to or greater than 10%.
Each share of Class B common stock is also convertible at
any time for a share of Class A common stock. Following the
combination transaction, Harris will be the only holder of
Class B common stock of Harris Stratex, and Harris Stratex
will not be permitted to issue additional shares of Class B
common stock without the prior approval of Harris. For more
information relating to the rights of the holders of
Class B common stock, see Description of Harris
Stratex Capital Stock beginning on page 175 of this
proxy statement/prospectus and Comparison of Stockholder
Rights beginning on page 180 of this proxy
statement/prospectus.
Harris Governance Rights and Contractual Relationships
In connection with the completion of the proposed transactions,
Harris and Harris Stratex will enter into several agreements
which will provide Harris with ongoing governance rights. In
addition, prior to the closing of the merger and the
contribution transaction, Harris Stratex will amend and restate
its certificate of incorporation and bylaws. The amended and
restated certificate of incorporation and amended and restated
bylaws of Harris Stratex also will reflect these governance
arrangements, as appropriate.
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Election of Class B Directors |
The agreed governance arrangements provide that, so long as
Harris holds a majority of the total number of votes entitled to
be cast generally in an election of the directors of Harris
Stratex (other than directors elected separately as a class by
the holders of Class B common stock), there will be nine
directors of Harris Stratex of which five will be elected
separately by Harris as the only holder of shares of
Class B common stock. The directors elected separately by
Harris as the sole holder of shares of Class B common stock
are sometimes referred to in this proxy statement/prospectus as
the Class B directors. During this period, the quorum for
action by the board of directors of Harris Stratex will be a
majority which majority must include at least four of the
Class B directors. Harris has further agreed that, until
the second anniversary of the completion of the proposed
transactions, two of the five Class B directors it is
entitled to elect must satisfy the following requirements: one
must meet the independence requirements for directors serving on
an audit committee as prescribed by the rules applicable to
companies listed on NASDAQ, which rules we refer to in this
proxy statement/prospectus as the NASDAQ rules, and one must not
be an employee of Harris or any of its subsidiaries (without
regard to Harris Stratex or any of its subsidiaries).
The remaining four Harris Stratex directors, which we sometimes
refer to in this proxy statement/prospectus as the Class A
directors or the non-Harris directors, will be nominated by a
nominating committee of the board of directors of Harris Stratex
consisting solely of non-Harris directors and elected by the
holders of Harris Stratex Class A and Class B common
stock voting together as a class. In addition, under the terms
of the investor agreement, Harris has agreed to vote all of its
shares in the election of Harris Stratex non-Harris directors
for the nominees proposed by nominating committee so long as
Harris holds a majority of the total number of votes entitled to
be cast generally in an election of the Class A directors.
At any time when Harris holds less than a majority but 10% or
more of the total number of votes entitled to be cast generally
in an election of the directors of Harris Stratex (other than
directors elected separately by the holders of Class B
common stock), Harris will be entitled to elect a number of
Class B directors equal to Harris voting percentage
in such election times the number of directors then comprising
the Harris Stratex board of directors (rounding down to the next
whole number of directors).
Harris has the right to remove any Class B director with or
without cause at any time for any reason and will have the right
to elect any successor director to the fill the vacancies
created by such removal.
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Any vacancy created by the resignation, death or incapacity of a
Class B director will be filled by the other Class B
directors then in office and, if none, by Harris. Only the
holders of Harris Stratex Class A common stock, voting
separately as a class, will be permitted to remove the
Class A directors without cause or fill vacancies created
by such removal, if not filled by the Class A directors
then in office. To the extent Harris owns any shares of Harris
Stratex Class A common stock, it has agreed that it will
not vote those shares for the removal of any Class A
director without cause and will vote all of its shares of Harris
Stratex Class A common stock for any individual nominated
by the nominating committee to replace any Class A director
who has been removed with or without cause.
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Related Party Transactions and Freedom of Action |
These governance arrangements also provide that, following the
closing of the proposed transactions, Harris and its affiliates
are only permitted to enter into a transaction with Harris
Stratex if the transaction is approved by a majority of the
non-Harris directors or is on terms no less favorable in any
material respect to Harris Stratex than those that could have
been obtained by Harris Stratex, taking into consideration the
then prevailing facts and circumstances, if it had negotiated
the transaction with an informed, unrelated third party.
However, if a transaction has a fair market value of more than
$5 million, it must be approved in advance by a majority of
the non-Harris directors. Certain specified transactions
relating to the payment of directors fees, employee benefits and
other similar arrangements, indemnification arrangements and
tax-sharing arrangements between Harris Stratex and any other
entity with which Harris Stratex files a consolidated tax return
or with which Harris Stratex is part of a consolidated group for
tax purposes will not be subject to these restrictions.
Subject to the terms of the non-competition agreement to be
entered into by Harris Stratex, Stratex and Harris at the
closing of the transactions or other than opportunities offered
to an individual who is a director or officer of both Harris
Stratex and Harris in writing solely in that persons
capacity as an officer or director of Harris Stratex, Harris
will be free to compete with Harris Stratex in any activity or
line of business, invest or develop a business relationship with
any person engaged in the same or similar activities or
businesses as Harris Stratex or do business with any customer of
Harris Stratex or employ any former employee of Harris Stratex.
Neither Harris nor its affiliates will have any duty to
communicate its or their knowledge of or offer any potential
business opportunity, transaction or other matter to Harris
Stratex unless the opportunity was offered to the individual who
is a director or officer of both Harris Stratex and Harris in
writing solely in that persons capacity as an officer or
director of Harris Stratex. If any director or officer of Harris
who is also an officer or director or Harris Stratex becomes
aware of a potential business opportunity, transaction or other
matter (other than one expressly offered to that director or
officer in writing solely in his or her capacity as a director
or officer of Harris Stratex), that director or officer will
have no duty to communicate or offer that opportunity to Harris
Stratex, and will be permitted to communicate or offer that
opportunity to Harris (or its affiliates) and that director or
officer will not be deemed to have acted in bad faith or in a
manner inconsistent with the best interests of Harris Stratex or
in a manner inconsistent with his or her fiduciary or other
duties to Harris Stratex.
Harris has agreed that, for two years following the completion
of the proposed transactions, it will not acquire or dispose of
any of its interest in Harris Stratex, other than pursuant to
the preemptive rights provided to Harris Stratex pursuant to the
investor agreement or unless approved in advance by a majority
of the directors of Harris Stratex not elected by Harris. In
addition, Harris has agreed that from the second to the fourth
anniversary of the completion of the proposed transactions, it
will not (1) beneficially own more than 80% of the voting
power of Harris Stratex without the prior approval of a majority
of the non-Harris directors or (2) transfer all or a
portion of its interest in Harris Stratex to a person if,
following such transfer, that person would be entitled to cast a
majority of the outstanding votes in an election of the
directors of Harris Stratex (other than an election of the
Class B directors) unless a majority of the non-Harris
directors approve such transfer in advance or the person
purchasing Harris interest in Harris
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Stratex offers to acquire all the outstanding voting securities
of Harris Stratex at the same price and on the same terms as
apply to the transfer from Harris.
Subject to limited exceptions, Harris also has the right to
preserve its proportionate interest in Harris Stratex by
participating in any issuance of Harris Stratex capital stock,
but only when Harris holds a majority of the total number of
votes entitled to be cast generally in an election of the
directors of Harris Stratex (other than an election of the
Class B directors). If it elects to participate in the
issuance, Harris has the right to purchase up to that number of
shares necessary to preserve its voting percentage at the same
price and on the same terms and conditions otherwise being
offered by Harris Stratex.
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NASDAQ Listing Requirements |
Following the completion of the proposed transactions, Harris
will hold more than 50% of the outstanding voting power of
Harris Stratex. As a result, Harris Stratex will be eligible for
the controlled company exemption under the NASDAQ
rules which provides that if more than 50% of the voting power
of a company listed on NASDAQ is held by another company, the
NASDAQ listed company is not required to comply with certain
director independence requirements that it would otherwise be
subject to. This means that Harris Stratex will be exempt from
certain director independence requirements, so long as Harris
Stratex elects to avail itself of this exemption by
appropriately disclosing in its filings with the Securities and
Exchange Commission that it is a controlled company and its
basis for that determination. The requirements that Harris
Stratex would be exempted from include that:
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a majority of its board of directors consists of independent
directors; |
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its director nominees be selected, or recommended for selection,
by the board of directors, either by: |
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a majority of the independent directors; or |
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a nominations committee comprised solely of independent
directors; and |
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the compensation of its officers be determined, or recommended
to the board of directors for determination, either by: |
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a majority of the independent directors; or |
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a compensation committee comprised solely of independent
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It is expected that at all times when Harris holds a majority of
the outstanding voting power of Harris Stratex, Harris Stratex
will rely on the controlled company exemption contained in the
NASDAQ rules.
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Non-Competition Agreement |
Harris has agreed that, for five years following the completion
of the proposed transaction, it will not, and will not permit
any of its subsidiaries (other than Harris Stratex and its
subsidiaries) to, engage in the development, manufacture,
distribution and sale of microwave radio systems that are
competitive with the current products of Stratex and the
Microwave Communications Division or substantially similar to
those products in form, fit and function when used in
terrestrial microwave
point-to-point
communications networks that provide access and trunking of
voice and data for telecommunications networks. Notwithstanding
this restriction agreed to by Harris, Harris is permitted to
purchase and resell products produced by and branded by persons
unaffiliated with Harris and to develop, manufacture, distribute
and sell microwave radios and related components for use by
government entities.
For more information relating to the governance rights of Harris
and the other contractual arrangements to be entered into at the
completion of the proposed transactions, see The Investor
Agreement, The Non-Competition Agreement,
Other Agreements beginning on page 103 of this
proxy statement/prospectus and Comparison of Stockholder
Rights beginning on page 180 of this proxy
statement/prospectus.
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Background of the Transactions
In recent years, Stratex, as an integral part of its overall
strategy to enhance stockholder value, has been expanding its
presence in global markets by introducing innovative
technologies to serve existing and new market applications and
strategic collaborations. Stratexs exploration of
collaboration opportunities included at least preliminary
discussions with all major international microwave communication
suppliers, including Harris, to determine their level of
interest, if any, in strategic transactions such as business
combinations, licensing the Stratex Eclipse product or other
forms of collaboration. To enhance its collaboration strategy,
pursuant to an engagement letter dated April 11, 2006,
Stratex retained Bear, Stearns & Co. Inc., who is
referred to in this proxy statement/prospectus as Bear Stearns
as its exclusive financial advisor in connection with a
transaction with the Microwave Communications Division, to
assist it in identifying business combination opportunities
because Bear Stearns had provided similar assistance in 2002.
Over the last several years and continuing into the discussions
with Harris described below, Stratex has held discussions with a
variety of other companies to explore ways to create a more
significant entity in its served markets. These discussions and
their associated opportunities have been reviewed and discussed
regularly by the board of directors of Stratex.
Harris continually reviews each of its businesses and Harris as
a whole to determine the most appropriate manner in which to
realize its inherent value. As part of this review process,
throughout 2005 it began exploring a number of ways to enhance
its Microwave Communications Division by pursuing strategic
opportunities that would lead to long term growth of the
business and better position the division as a global leader in
the microwave radio segment. In connection with this process,
Harris retained Morgan Stanley & Co. Incorporated, whom
we refer to in this proxy statement/prospectus as Morgan
Stanley, to assist it in seeking out potential opportunities.
Over the course of the next several months, Harris considered a
variety of possible transactions that it believed had potential
to improve stockholder value including strategic transactions
such as business combinations or dispositions but ultimately
determined that none of the available alternatives accomplished
the desired objective.
In December of 2005, as part of Stratexs ongoing
exploration of collaboration opportunities, Charles Kissner,
then Stratexs Chairman and Chief Executive Officer,
contacted Howard Lance, Chairman, President and Chief Executive
Officer of Harris, to initiate discussions regarding a possible
transaction involving Stratex and the Microwave Communications
Division. Mr. Lance accepted the proposed meeting.
On January 10, 2006, Mr. Lance, Gary McArthur, then
the Vice President and Treasurer of Harris, and Mr. Kissner
met in New York City. During the meeting,
Messrs. Lance and Kissner agreed that they believed that a
combination of Stratex and the Microwave Communications Division
could create significant value for Harris and the Stratex
stockholders and they should continue to explore the potential
combination further.
To that end, the parties entered into a customary
confidentiality agreement on January 26, 2006.
Messrs. Lance and Kissner instructed their respective
management teams and advisors to continue discussions, including
sharing preliminary valuations, and commence their initial due
diligence investigations.
Throughout the month of February, Harris and Stratex management
had a series of conference calls in order to further pursue a
potential combination.
On March 8, 2006, representatives of Harris and Stratex met
in Dallas, Texas, to discuss various structuring alternatives
for a potential transaction, including whether the transaction
would be a combination or sale and whether it would be for cash,
equity of Stratex or a combination of both.
In mid-March 2006, Stratex provided Harris with a proposal
which contemplated two alternative structures for a proposed
transaction: (1) a combination of Stratex and the Microwave
Communications Division with Harris stockholders receiving
equity in the combined company and (2) a combination of
Stratex and the Microwave Communications Division with Harris
receiving a combination of cash and shares of Stratex common
stock constituting less than 20% of the combined company. (The
company
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which would combine these businesses is often referred to in
this proxy statement/prospectus as the combined company.)
In light of these developments, on March 6, 2006 the board
of directors of Stratex formed a Strategic Business Development
Committee, consisting of Mr. Kissner and three of its
independent members, in order to give board members more
involvement in the process and information regarding its
progress more frequently. All directors received notices of its
meetings and were invited to participate in them.
The Stratex Strategic Business Development Committee met on
April 19, 2006 to discuss a possible combination
transaction with the Microwave Communications Division.
Management presented its summary of the discussions to date and
Bear Stearns presented preliminary material relevant to the
possible combination of Stratexs and the Microwave
Communications Divisions respective businesses. Because
the valuation of the Microwave Communications Division was
greater relative to the valuation of Stratex, it was understood
that Harris would require that it control the combined company
as a condition to any transaction. Accordingly, issues relating
to Harris likely control of the combined company were also
discussed, including possible conflicts of interests between
Harris and the combined company, Harris as a competitor of the
combined company and business opportunities that may be
attractive to both Harris and the combined company.
Harris continued to discuss and consider the alternatives
proposed by Stratex internally throughout the end of March and
the beginning of April. On April 21, 2006, Mr. Lance
and Mr. Kissner met in Las Vegas, Nevada to discuss the
proposals made by Stratex. Mr. Lance indicated that Harris
believed it best to pursue an alternative where Harris held a
significant equity interest in the combined company. He further
stated that Harris would only be willing to move forward in
exploring the transaction if Harris held a majority of the
outstanding capital stock of the combined company and had
management rights reflecting its majority ownership.
Mr. Lance stated that Harris believed, preliminarily, that
Harris should hold 60% of the equity and Stratex stockholders
should hold 40% of the combined company, noting that this equity
split took into consideration a control premium.
Mr. Kissner countered stating that Stratex believed Harris
should have a lower equity interest in the combined company.
However, it was agreed that both parties would continue to
pursue that discussion. The parties also understood that
pursuing Mr. Lances proposal would necessitate the
creation of a new company to which Harris would contribute its
Microwave Communications Division and of which Stratex would
become a wholly owned subsidiary in order to effect the
transaction in a tax efficient manner.
On April 27 and 28, 2006, the board of directors of Harris
held a regularly scheduled meeting at which Mr. Lance and
other members of the Harris management team provided an update
regarding his discussions with Mr. Kissner. The board of
directors reached a consensus that the Harris management team
should continue to pursue a transaction with Stratex on the
general terms outlined by Mr. Lance.
In early May, Mr. Kissner provided Mr. Lance with a
preliminary term sheet outlining Stratexs view on the
rights and obligations of Harris as a majority stockholder of
the combined company, including provisions requiring Harris to
dispose of, or alternatively permitting the combined company to
repurchase or offer, Harris interest in the combined
company. The term sheet also stated that Harris equity
interest in the combined company in percentage terms should be
in the low 50s.
On May 4, 2006, the Stratex Strategic Business Development
Committee met and discussed the then-current state of the
negotiations and proposals to be presented to Harris.
On May 5, 2006, after reviewing and considering the terms
outlined by Stratex both internally and with Harris legal
and financial advisors, Mr. Lance contacted
Mr. Kissner to further discuss Harris positions. He
stated, based on the relative valuations of Stratex and the
Microwave Communications Division, that Harris continued to
believed that the proposed contribution of its Microwave
Communications Division entitled it to more than half of the
equity of a company combining the division and the business of
Stratex, and as a result Harris should be able to elect a
majority of the board of directors of a combined company. In
addition, he noted that it was essential that Harris have the
flexibility to retain or dispose of its investment in a combined
company in a manner that it believed maximized value for the
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Harris stockholders and, accordingly, was not prepared to
restrict Harris in the manner outlined in the preliminary term
sheet provided several days earlier by Mr. Kissner.
Following this conversation, Mr. Kissner and Mr. Lance
agreed that, notwithstanding these differences, because of the
potential growth and synergy possibilities it continued to be
worthwhile to engage in discussions and try to develop mutually
acceptable terms on which to combine Stratex with the Harris
Microwave Communications Division.
On May 8 and 9, 2006, the management teams of Harris
and Stratex, along with their respective financial and legal
advisors, met again in Dallas, Texas to further pursue a
possible transaction. At these meetings, each of the parties
made presentations to the management of the other party
regarding its business and operations and its views on
transaction terms, including the parties respective
percentage interests in a combined company.
On May 15, 2006, Gary McArthur, Vice President and Chief
Financial Officer of Harris, delivered to Mr. Kissner a
description of the parameters on which Harris was prepared to
move forward with a potential transaction. These parameters
outlined Harris position with respect to the structure of
the transaction (including the tax treatment and that
Harris contribution to the combined company would include
the transfer of assets and liabilities of the Microwave
Communications Division), the equity split of the combined
company, the treatment of stock options, the composition of the
board of directors and management of the combined company, its
willingness to be subject to provisions containing some form of
non-compete and standstill, antidilution protections and other
general transaction terms (including a cash contribution to
provide the combined company with adequate working capital). The
parties continued to discuss and negotiate these terms over the
next week and a half.
At its regular meeting on May 16, 2006, the board of
directors of Stratex discussed the pending proposals by Stratex
and Harris. On May 24, 2006, Stratex management discussed
the status of the negotiations with the Stratex Strategic
Business Development Committee. Because the Microwave
Communications Division operated as a discrete division of
Harris, Stratex management indicated that it believed it had a
good understanding of the liabilities of the Microwave
Communications Division to be assumed by the combined company.
On May 26, 2006, Mr. Kissner provided Mr. Lance
with a response to the transaction parameters provided by
Mr. Lance. Mr. Kissner and Mr. Lance continued to
negotiate and refine these parameters. On June 3, 2006,
Mr. Kissner and Mr. Lance mutually agreed to pursue a
possible transaction on specified parameters, including that 56%
of the outstanding equity of the combined company would be held
by Harris, taking into account the assets as well as the
liabilities to be contributed by Harris to the combined company,
and the name of the combined company would be Harris Stratex
Networks, Inc. These terms also provided that Harris
contribution would include $25 million in cash to address
the combined companys working capital needs (which was
approximately equal to the then-current amount of Stratexs
working capital net of its debt). Messrs. Kissner and Lance
then agreed to take the specified parameters back to their
respective boards of directors, and if acceptable, to proceed
with due diligence and the negotiation of definitive documents.
On June 23, 2006, the board of directors of Harris held a
regularly scheduled meeting during which Mr. Lance and
other members of the Harris management team updated the members
on the status of Harris review of strategic opportunities
for its Microwave Communications Division. At that meeting he
presented the deal parameters that had been discussed and
preliminarily agreed with Stratex, subject to due diligence,
negotiation of definitive documentation and formal board
approval. After additional discussion among the members, the
Harris board of directors reached a consensus that the Harris
management team should continue to pursue the proposed
transaction with Stratex and to advise Stratex that Harris was
prepared to proceed with more detailed due diligence and
negotiation of definitive agreements.
Throughout the balance of June and July, Harris and Stratex
conducted their respective due diligence investigations.
Representatives of the two companies also discussed on several
occasions the future composition of the management of a combined
company. On June 26 and 27, 2006, executives from Stratex
and the Microwave Communications Division met in Atlanta,
Georgia to initiate the development
53
of an operating and organizational plan for a combined company.
On July 7, 2006, the initial draft of the combination
agreement was distributed by Sullivan & Cromwell LLP,
legal counsel to Harris, to Bingham McCutchen LLP, legal counsel
to Stratex, which we refer to in the proxy statement/prospectus
as Sullivan & Cromwell and Bingham McCutchen,
respectively.
Also on July 7, 2006, Stratexs Strategic Business
Development Committee met to review and discuss the status of
negotiations to date, the initial results of Stratexs due
diligence on the Microwave Communications Division and an
initial presentation on the combined companys
organizational and operating plans.
On July 18 and 19, 2006, the management teams of Harris and
Stratex met in Scottsdale, Arizona to present additional due
diligence materials to each other and further discuss the
proposed transactions. Between July 15th and 19th,
Sullivan & Cromwell delivered to Bingham McCutchen
initial drafts of certain additional agreements that the parties
determined should be agreed as part of the combination
agreement, including an investor agreement, a non-competition
agreement, a voting agreement and a registration rights
agreement.
On July 26, Stratexs Strategic Business Development
Committee met and reviewed more detailed financial projections
for a combined company, the updated results of due diligence on
the Microwave Communications Division and the management
organization of a combined company.
On July 29, 2006, Bingham McCutchen provided revised
versions of the key documents. The proposed revisions by Stratex
highlighted several issues between the parties requiring further
consideration and negotiation, including the method of
allocating the assets and liabilities of Harris Microwave
Communications Division to be contributed and assumed by the
combined company, identification of the liabilities of the
Microwave Communications Division to be retained by Harris, the
termination provisions, the amount and circumstances under which
termination fees should be payable, when and if Harris should be
able to match any competing acquisition proposal for Stratex,
the amount and circumstances under which indemnification should
be available to the parties and transaction conditionality.
Regarding transaction conditionality, the parties discussed,
among other things, whether Stratex should be required to take
the combination agreement to a stockholder vote before being
able to terminate that agreement (commonly known as a
force the vote provision) and whether Stratexs
satisfaction with certain environmental reports should be a
condition to the closing of the transaction. In addition, the
parties acknowledged that the following terms of the other
agreements to be agreed would require further discussion: the
definition of restricted business defining the scope
of the non-compete imposed on Harris, including the exceptions
to the non-compete; the composition of the quorum for the board
of directors of the combined company; the treatment of corporate
opportunities; and Harris ability to assign its rights
under the investor agreement.
The parties continued to exchange drafts through August 9,
2006 and determined that they would meet in New York City at the
offices of Sullivan & Cromwell on August 10 and
11, 2006 to try to resolve any major outstanding issues. In
addition to the ongoing discussions regarding documentation,
throughout the first part of August the parties continued to
conduct their due diligence review, including a review of any
regulatory filings that could be required by the proposed
transactions. In continuing to exchange drafts, the parties also
identified several other outstanding issues, including what, if
any, type of independence requirements should be imposed on the
directors of the combined company to be appointed by Harris.
On August 9, 2006, the board of directors of Harris
convened by telephone to receive another update as to the
possible transaction with Stratex. Mr. Lance and other
members of the Harris management team outlined the primary
outstanding issues and noted that the parties were convening in
New York City to try to reach agreement on many of the
points.
Because it was agreed that the combined company would assume the
outstanding Stratex options, warrants and other equity awards
but no options or equity awards of the Harris employees that
would be become employees of the combined company, during the
meetings in New York City the parties discussed how
Stratexs outstanding options and warrants should affect
the equity split. As a general matter, the
54
parties determined that a version of the treasury stock method
should be applied because it recognizes that the combined
company would receive cash in an amount equal to the exercise
price of the options and warrants upon their exercise. The
treasury stock method is a way of determining the dilutive
effect of outstanding warrants or options to purchase shares of
a company by assuming that the proceeds that a company receives
from an in-the-money option or warrant exercise are used to
repurchase common shares in the market. In other words, the
number of shares of a company deemed to be outstanding is
increased by the number of in-the-money options or warrants,
then reduced by the number of shares that the company could
purchase from the market with the proceeds, if such options or
warrants were to be exercised at that time. Both parties
acknowledged that this approach might be satisfactory if they
were able to agree on a mutually acceptable assumed market price
to be used in calculating the number of shares to be deemed
outstanding. No agreement was reached, but each party agreed to
further discuss the issue internally.
On August 10, 2006, during the meetings in New York
City, the Stratex Strategic Business Development Committee met
with Stratex management and Bingham McCutchen to review and
discuss the principal issues that were then unresolved, the
proposed organization and staffing of a combined company, the
updated operating plans for the combined company and an update
on due diligence relating to the Microwave Communications
Division.
In a breakout session during these meetings, the Harris
management team and its advisors met separately from Stratex to
discuss the issue regarding the equity split and the other
outstanding items. Following its discussion, the Harris
management team agreed that it would continue to move forward on
the proposed combination and that Harris would revisit the
outstanding issues with Stratex at a later date to see if a
resolution could be reached.
While the parties were able to significantly narrow the
outstanding issues, the following remained: the effect of the
Stratex options, warrants and other equity awards on the equity
split, whether the treasury stock method should be applied and,
if so, at what assumed market price, the definition of
restricted business, the circumstances under which
the formation, contribution and merger agreement could be
terminated by the parties and the related fees and when and if
Harris should be able to match a competing acquisition proposal
for Stratex. There was also discussion as to whether the Stratex
stockholders should be given a partial share of the combined
company in exchange for each outstanding share of Stratex common
stock which would have the same effect as completing a reverse
split of the Stratex common stock immediately prior to the
effective time of the merger. The parties acknowledge that
effecting the merger in a manner having the same effect as a
reverse stock split would likely increase the per share trading
range of the combined company. They agreed that this would be
positive for the combined company and noted that they could
determine the appropriate expected range at a later date once
the outstanding issues were resolved.
Notwithstanding these unresolved issues, the parties agreed to
continue to pursue the proposed transaction and prepare and
negotiate the definitive documentation. Over the next week and a
half the parties continued to make progress on the additional
agreements that would also be agreed as part of the execution of
the combination agreement.
On August 14, 2006, the board of directors of Stratex met
to review and discuss management presentations on the current
state of negotiations, the results of due diligence on the
Microwave Communications Division and the development of the
combined companys operating plan. In addition, Bear
Stearns made a preliminary presentation on the transaction and
its financial analysis of the two constituent businesses and the
prospective combined company and Bingham McCutchen gave a more
detailed presentation on the combination agreement, related
agreements, the then-remaining open issues and a draft opinion
to be rendered by Bingham McCutchen on the federal income tax
status of the transaction for Stratex stockholders. The board of
directors of Stratex then discussed, as it had at a number of
other Board and Strategic Business Development Committee
meetings, both recent and historical business combination
transaction opportunities that might arise from
managements prior and ongoing discussions with other
entities. Consideration was given, as it had been on prior
occasions, to both
55
the long-term value and the likelihood of a positive outcome
associated with these alternatives. At the meetings
continuation on August 15, 2006, the board of directors of
Stratex authorized management to continue negotiations.
On August 22, 2006, the senior management teams of Harris
and Stratex convened by teleconference to further discuss the
outstanding issues with each other. On the call, the Harris and
Stratex teams agreed in principle that the term restricted
business would be defined by reference to the
companies existing product list and other products similar
in form, fit and function when used in terrestrial microwave
point-to-point
communications networks that provide access and trunking of
voice and data for telecommunications networks. Harris and
Stratex then reached agreement on the outstanding issues
regarding the parties rights to terminate the combination
agreement, and also resolved the outstanding deal protection
points relating to Harris right to match any competing
acquisition proposal. After further negotiations, the parties
ultimately agreed that, in calculating the previously-discussed
56%/44% split, the treasury stock method would be applied to
Stratexs options and warrants using an assumed value of
$5.20 per share of Stratex common stock (equivalent to
$20.80 per share of Harris Stratex Class A common
stock as a result of the effective one-for-four effective
reverse stock split provided for in the merger).
Following this conversation, Mr. Lance informed
Mr. Kissner that he was prepared to seek formal approval
from the Harris board of directors for the proposed transaction
on the terms discussed.
The Stratex Strategic Business Development Committee met with
Stratex management and Bingham McCutchen again on
August 24, 2006 to review and discuss the status of
negotiations and the planned presentation of the transaction to
investors, employees, customers and suppliers.
On August 26, 2006, at a regular meeting of the board of
directors of Harris, Mr. Lance and other members of the
Harris management team provided an update as to the status of
the transaction with Stratex. He stated that the Harris
management team had completed its due diligence and that the
parties were nearing agreement on the terms of the proposed
combination. In particular, he noted that Harris would have a
56% equity interest in the combined company on a fully-diluted
basis using the treasury stock method assuming a market price of
$5.20 per share of Stratex common stock and that, so long
as Harris held a majority interest in the combined company,
there would be nine directors five of whom Harris would be
entitled to elect. Morgan Stanley and Sullivan &
Cromwell also participated in the board meeting of Harris
addressing questions from the Harris board members regarding the
proposed transaction with Stratex. Following these
presentations, the board of directors of Harris unanimously
resolved to adopt the combination agreement in substantially the
form presented to them at the meeting and instructed and
authorized the Harris management team to continue negotiating
with Stratex to finalize the documentation with such changes as
approved by management.
Following the meeting, Harris and Stratex continued to negotiate
the terms of the combination agreement, including the additional
agreements to be agreed as part of the combination agreement.
The parties further agreed that the merger should be completed
in a manner that would have the same effect as a one-for-four
reverse split of the outstanding Stratex common stock.
Accordingly, the terms of the combination agreement were
adjusted to reflect this agreement, including a modification to
the treasury stock method calculation requiring the assumed per
share market price to be $20.80 per share of Harris Stratex
Class A common stock, or four times the agreed $5.20 price
per share of Stratex common stock.
The board of directors of Stratex met on September 1, 2006
with its management, Bear Stearns and Bingham McCutchen to
review and discuss the final results of due diligence on the
Harris Microwave Communications Division, remaining open issues
in the negotiations, the initial portion of Bear Stearns
preliminary presentation analyzing the fairness of the
consideration to be received by Stratex stockholders from a
financial point of view and updated plans for communicating with
investors, employees, customers and suppliers about the planned
transaction.
Following the Stratex board meeting, Harris and Stratex
continued to negotiate the remaining open issues. The board of
directors of Stratex met again on September 5, 2006, with
Stratex management and
56
representatives of Bear Stearns and Bingham McCutchen. Bear
Stearns completed its presentation of its financial analysis and
rendered its opinion that, subject to the assumptions and
qualifications stated, the consideration to be received by
Stratex stockholders in the transaction was fair from a
financial point of view. Bingham McCutchen described the
parties resolutions of the previously open issues. At the
conclusion of the meeting, the board of directors of Stratex
unanimously determined that the combination agreement and the
merger were fair and in the best interests of Stratex and its
stockholders, recommended their approval and adoption by Stratex
stockholders and authorized management to enter into the
combination agreement in substantially the form presented at the
meeting.
In the late afternoon on September 5, 2006, the parties
finalized the combination agreement and the related agreements.
At that time Harris and Stratex executed the combination
agreement providing for the combination of Harris
Microwave Communications Division with Stratex. Later that
evening, Harris and Stratex issued a joint press release
announcing the transaction and held a joint conference with
industry analysts.
Reasons for the Recommendation of the Board of Directors
The board of directors of Stratex has determined that the terms
of the combination agreement are fair to, and in the best
interests of, Stratex and its stockholders. The board of
directors of Stratex consulted with its management as well as
its legal counsel and financial advisors in reaching its
decision to approve, adopt and declare advisable the combination
agreement, the merger and the other transactions provided for by
the combination agreement and recommend to the Stratex
stockholders that they vote FOR adoption of
the combination agreement and approval of the merger and the
other transactions provided for in the combination agreement and
FOR the proposal to adjourn the special
meeting of the Stratex stockholders in the discretion of the
proxies or either of them. The board of directors of Stratex
considered a number of factors in its deliberations, including
the following:
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the historical financial performance of the Microwave
Communications Division; |
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the balance sheet of the Microwave Communications Division at
June 30, 2006, as well as the liabilities to be assumed by
the combined company in connection with the proposed
transactions; |
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the current products and customers of the Microwave
Communications Division; |
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the opportunity for Stratex stockholders to participate in the
future results of the combined company through continued
ownership of publicly-traded stock; |
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the expected liquidity of Harris Stratex Class A common
stock; |
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the structure of the transaction, including that Stratex
stockholders will receive Harris Stratex Class A common
stock in a tax deferred exchange (other than cash in lieu of
fractional shares); |
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the terms of the combination agreement and other documents to be
executed in connection with the consummation of the proposed
transactions, including: |
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the limited number and nature of the conditions to
Stratexs obligation to close the transactions; |
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the fact that any shares of Harris Stratex common stock issued
to Stratex stockholders in the transactions will be registered
on Form S-4 and
will be unrestricted for Stratex stockholders; |
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the fact that, subject to specified conditions, Stratex can
terminate the merger agreement to enter into a definitive
agreement with respect to a superior proposal in the manner
provided in the combination agreement, including the payment of
$14.5 million termination fee; |
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the fact that the transaction is subject to the adoption of the
combination agreement by Stratex stockholders; |
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the increased equity capitalization of Harris Stratex compared
to Stratex; |
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the additional liquid working capital to be provided by
Harris contribution of $25 million in cash; and |
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the likelihood that the transactions will be completed on a
timely basis; |
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the business, financial and execution risks associated with
Stratex remaining independent, with a customer base smaller than
Harris Stratexs expected customer base; |
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the presentation of Bear Stearns and its opinion that the
exchange ratio of one-fourth of a share of Harris Stratex
Class A common stock for each outstanding share of Stratex
common stock is fair, from a financial point view, to the
Stratex stockholders for which opinion Bear Stearns will be
entitled to receive approximately $4,200,000, assuming a $4.29
average closing price of Stratex common stock prior to
consummation of the combination. Of this amount, $300,000 was
earned upon delivery of its opinion and the balance will be
payable and contingent upon completion of the proposed
transactions; |
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Harris agreement to limit its competitive activities for
five years; |
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the favorable implied per share value of Harris Stratex compared
to the implied per share value of Stratex on a stand-alone basis
as determined by Bear Stearns in its fairness opinion delivered
to the board of directors of Stratex; |
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the favorable relative contribution that Stratex and the
Microwave Communications Division would each be making to the
combined company; |
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the expectation that the merger would be slightly accretive to
earnings per share for Stratex for the estimated six months
ending June 30, 2007 and approximately $0.08 per share
for the estimated twelve months ending June 30, 2008 for
Stratex on a stand-alone basis; |
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its consideration with its legal and financial advisors of
alternatives to the combination agreement, the ability, and
extent to which it might be able, to increase the value of
Stratex for its stockholders through these alternatives and the
timing and likelihood of effecting any alternative; |
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the current and prospective economic environment and increasing
competitive burdens and constraints facing Stratex; and |
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its belief that the merger and the contribution transaction is
likely to: |
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increase the scale of Stratexs business; |
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deliver complementary global distribution channels with minimal
customer overlap and significantly expand the customer footprint
of the combined company by joining Stratexs sales, 95% of
which historically have been to international customers, with
those of the Microwave Communications Division, which has
approximately half of its sales in the U.S. and has been
supplying domestic customers for almost 50 years; |
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serve a large market with expected growth over the next five
years; |
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offer customers a better
end-to-end product
portfolio; |
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offer annual savings, estimated to be $35 million in fiscal
2008, by pursuing supply chain efficiencies resulting from
increased volume, rationalization of the product portfolio,
elimination of duplicate administrative and overhead costs,
outsourcing of some products to low-cost manufacturers, and
adoption of a common engineering design process; and |
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create a larger and more competitive company with stronger
financial performance, greater financial capacity, product
leadership and the ability to serve adjacent markets. |
58
In addition to the advantages discussed in the previous
paragraph, the board of directors and management of Stratex also
discussed the various risks of the combination agreement, some
of which are described under Risk Factors in this
proxy statement/ prospectus and listed below:
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the combination of the businesses currently conducted by the
Microwave Communications Division and Stratex will create
numerous risks and uncertainties which could adversely affect
Harris Stratexs operating results; |
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uncertainties associated with the transactions or the combined
company may cause the combined company to lose significant
customers; |
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loss of key personnel could lead to loss of customers and a
decline in revenues, or otherwise adversely affect the
operations of the combined company; |
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failure to complete the transactions could cause Stratex to
incur significant fees and expenses and could lead to negative
perceptions among investors, potential investors and customers; |
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some of Stratexs directors and executive officers have
interests in the merger in addition to those of stockholders; |
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Harris Stratex does not expect to pay dividends in the immediate
future, and the Stratex stockholders must rely on increases in
the trading prices of the Harris Stratex Class A common
stock for returns on their investment; |
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Harris Stratex will be controlled by Harris, whose interests may
conflict with those of the Stratex stockholders; |
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Harris will have rights reflecting its controlling interest in
Harris Stratex. As a result, the ability of the Stratex
stockholders to influence the outcome of matters requiring
stockholder approval would be limited; |
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Harris Stratex may have potential conflicts of interest with
Harris relating to their ongoing relationship, and because of
Harris controlling ownership in Harris Stratex, the
resolution of these conflicts may not be favorable to Harris
Stratex; |
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Harris ability to compete with Harris Stratex without
restriction five years after the consummation of the proposed
transactions; |
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the fact that Stratex will no longer exist as an independent
company; |
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the fact that under the terms of the combination agreement,
Stratex is restricted in its ability to solicit other
acquisition proposals; |
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the termination fee to and expenses of Harris that Stratex would
be required to pay under specified circumstances; |
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the fact that the combination agreement prohibits Stratex from
taking a number of actions relating to the conduct of its
business prior to the closing without the prior consent of
Harris; |
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the risk that the transactions might not be consummated in a
timely manner or at all; and |
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the fact that Stratex officers and employees will have expended
extensive efforts attempting to complete the transactions and
will experience significant distractions from their work during
the pendency of the transactions, and that Stratex will have
incurred substantial transaction costs in connection with the
transactions even if not consummated. |
However, after weighing the advantages and disadvantages of the
combination agreement, the board of directors of Stratex
determined that the advantages outweighed the disadvantages.
The foregoing discussion of the factors that the board of
directors of Stratex considered is not intended to be
exhaustive, but includes all material factors that the board of
directors of Stratex considered. In view of the complexity and
wide variety of factors that the board of directors of Stratex
59
considered, it did not find it practical to and did not
quantify, rank or otherwise weight the factors considered. In
addition, individual members of the board of directors of
Stratex may have given different weights to different factors.
Recommendation of the Stratex Board of Directors
Based on its consideration of the foregoing factors, the board
of directors of Stratex has determined that the combination
agreement, the merger and the other transactions provided for by
the combination agreement are fair to and in the best interests
of the Stratex stockholders and has approved, adopted and
declared advisable the combination agreement, the merger and the
other transactions provided for by the combination agreement.
The board of directors of Stratex unanimously recommends that
the Stratex stockholders vote FOR adoption of
the combination agreement and approval of the merger of Merger
Sub with and into Stratex, with Stratex continuing as the
surviving corporation, and the other transactions contemplated
thereby and FOR the proposal to adjourn the
special meeting of the Stratex stockholders in the discretion of
the proxies or either of them.
Opinion of Stratexs Financial Advisor
Pursuant to an engagement letter dated April 11, 2006,
Stratex retained Bear Stearns to act as its financial advisor
with respect to a possible transaction with Harris. In selecting
Bear Stearns, the board of directors of Stratex considered,
among other things, the fact that Bear Stearns is an
internationally recognized investment banking firm with
substantial experience advising companies in the wireless
communications industry as well as substantial experience
providing strategic advisory services. Bear Stearns, as part of
its investment banking business, is continuously engaged in the
evaluation of businesses and their debt and equity securities in
connection with mergers and acquisitions; underwritings, private
placements and other securities offerings; senior credit
financings; valuations; and general corporate advisory services.
Prior to the engagement of Bear Stearns as Stratexs
exclusive financial advisor in connection with a possible
transaction with the Microwave Communications Division, there
had been no material relationship during the previous two years
between Stratex and Bear Stearns or any of their respective
affiliates, nor had Bear Stearns or any of its affiliates
received any compensation from Stratex or its affiliates.
At the September 5, 2006 meeting of the board of directors
of Stratex, Bear Stearns delivered its written opinion that, as
of September 5, 2006 and based upon and subject to the
assumptions, qualifications and limitations set forth in the
written opinion, the exchange ratio of one-fourth of a share of
Harris Stratex Class A common stock for each outstanding
share of Stratex common stock was fair, from a financial point
of view, to the stockholders of Stratex. Bear Stearns did not
provide any recommendation regarding the amount of consideration
to be paid in the proposed transaction.
The full text of Bear Stearns written opinion is attached
as Appendix G to this proxy statement/ prospectus,
and you should read the opinion carefully and in its entirety.
The opinion sets forth the assumptions made, some of the matters
considered and qualifications to and limitations of the review
undertaken by Bear Stearns. The Bear Stearns opinion is subject
to the assumptions and conditions contained therein and is
necessarily based on economic, market and other conditions and
the information made available to Bear Stearns as of the date of
the Bear Stearns opinion.
In reading the discussion of the fairness opinion set forth
below, you should be aware that Bear Stearns opinion:
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was provided to the board of directors of Stratex for its
benefit and use; |
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did not constitute a recommendation to the board of directors of
Stratex or any Stratex stockholder as to how to vote in
connection with the merger or otherwise; and |
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did not address Stratexs underlying business decision to
pursue the proposed transactions, the relative merits of the
proposed transactions as compared to any alternative business
strategies that might exist for Stratex, or the effects of any
other transaction in which Stratex might engage. |
60
Stratex did not provide specific instructions to, or place any
limitations on, Bear Stearns with respect to the procedures to
be followed or factors to be considered by it in performing its
analyses or providing its opinion.
In connection with rendering its opinion, Bear Stearns:
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reviewed the combination agreement and the additional agreements
agreed as part of the combination agreement and to be entered
into by Harris and Stratex and/or Harris Stratex in connection
with the completion of the merger and the contribution
transaction; |
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reviewed Stratexs Annual Reports to Stockholders and
Annual Reports on
Form 10-K for the
fiscal years ended March 31, 2004, 2005 and 2006, its
Quarterly Report on
Form 10-Q for the
period ended June 30, 2006 and its Current Reports on
Form 8-K filed
since March 31, 2006; |
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reviewed Harris Annual Reports to Stockholders and Annual
Reports on
Form 10-K for the
fiscal years ended July 2, 2004 and July 1, 2005, its
press release of its results for the fiscal year ended
June 30, 2006, its Quarterly Reports on
Form 10-Q for the
periods ended September 30, 2005, December 30, 2005
and March 31, 2006 and its Current Reports on
Form 8-K filed
since June 30, 2005; |
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reviewed the final audited financial statements of the Microwave
Communications Division for the fiscal years ended July 2,
2004, July 1, 2005 and June 30, 2006; |
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reviewed certain operating and financial information relating to
Stratexs business and prospects, including projections for
the three years ending June 30, 2009, all as prepared and
provided to Bear Stearns by Stratexs management; |
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reviewed certain operating and financial information relating to
the Microwave Communications Division and prospects, including
projections for the three years ending June 30, 2009, all
as prepared and provided to Bear Stearns by Harris and the
management of the Microwave Communications Division; |
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reviewed certain operating and financial information relating to
Harris Stratexs business and prospects, including
projections and synergy estimates for the three years ending
June 30, 2009, all as prepared and provided to Bear Stearns
by management of Harris, the Microwave Communications Division
and Stratex, and projections and synergy estimates for the two
years ending June 30, 2011, as prepared and provided to
Bear Stearns by Stratexs management; |
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reviewed certain estimates of cost savings and other combination
benefits expected to result from the proposed transactions, all
as prepared and provided to Bear Stearns by the management of
Stratex, Harris and the Microwave Communications Division; |
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met with members of management of Stratex to discuss
Stratexs and the Microwave Communications Divisions
respective businesses, operations, historical and projected
financial results and future prospects; |
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met with members of management of Harris and the Microwave
Communications Division to discuss Microwave Communications
Division businesses, operations, historical and projected
financial results and future prospects; |
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reviewed the historical prices, trading multiples and trading
volumes of the shares of Stratex common stock; |
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reviewed publicly available financial data, stock market
performance data and trading multiples of companies which Bear
Stearns deemed generally comparable to Stratex, the Microwave
Communications Division and Harris Stratex; |
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reviewed the financial terms of recent mergers and acquisitions
involving companies which Bear Stearns deemed generally
comparable to Stratex; |
61
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performed discounted cash flow and sensitivity analyses based on
the projections for Stratex, Harris Stratex and the synergy
estimates furnished to Bear Stearns; |
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reviewed the pro forma financial results, financial condition
and capitalization of Harris Stratex giving effect to the
transaction; and |
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conducted such other studies, analyses, inquiries and
investigations as Bear Stearns deemed appropriate. |
Bear Stearns relied upon and assumed, without independent
verification, the accuracy and completeness of the financial and
other information provided to or discussed with it by Stratex
and Harris or obtained by Bear Stearns from public sources,
including, without limitation, the projections and synergy
estimates referred to above. With respect to the projections and
synergy estimates, Bear Stearns relied on representations that
they believed were reasonably prepared on bases reflecting the
best currently available estimates and judgments of the senior
management of each of Stratex and Harris as to the expected
future performance of Stratex, the Microwave Communications
Division, and Harris Stratex. Bear Stearns did not assume any
responsibility for the independent verification of any such
information, including, without limitation, the projections and
synergy estimates, and Bear Stearns further relied upon the
assurances of the senior management of each of Stratex and
Harris that they are unaware of any facts that would make the
information, projections and synergy estimates incomplete or
misleading.
In arriving at its opinion, Bear Stearns did not perform or
obtain any independent appraisal of the assets to be contributed
in the contribution transaction or any of the other assets or
liabilities (contingent or otherwise) of Stratex, Harris, the
Microwave Communications Division or Harris Stratex, nor was
Bear Stearns furnished with any such appraisals. In rendering
Bear Stearns opinion, it did not solicit, nor was it asked
to solicit, third party acquisition interest in Stratex. Bear
Stearns has assumed that the merger will qualify as a tax-free
reorganization within the meaning of
Section 368(a) of the Internal Revenue Code. Bear Stearns
assumed that the merger and the contribution transaction will be
consummated in a timely manner and in accordance with the terms
of the combination agreement and the additional agreements
agreed as part of the combination agreement and to be entered
into by Harris and/or Harris Stratex in connection with the
completion of the merger and the contribution transaction,
without any limitations, restrictions, conditions, amendments or
modifications, regulatory or otherwise, that collectively would
have a material adverse effect on Stratex, the Microwave
Communications Division or Harris Stratex. Bear Stearns also
assumed for purposes of its opinion that the merger and the
contribution transaction would be consummated as of the date of
its opinion.
Bear Stearns did not express any opinion as to the price or
range of prices at which the shares of Stratex common stock or
the shares of common stock of Harris may trade subsequent to the
announcement or consummation of the proposed transactions or as
to the price or range of prices at which the shares of
Class A common stock of Harris Stratex may trade subsequent
to the consummation of the transactions.
The following is a brief summary of the material financial
analyses performed by Bear Stearns and presented to the board of
directors of Stratex in connection with rendering its fairness
opinion. The following summary, however, does not purport to be
a complete description of the financial analyses performed by
Bear Stearns, and the order of analyses described does not
represent the relative importance or weight given to the
analyses performed by Bear Stearns.
Some of the financial analyses summarized below include summary
data and information presented in tabular format. In order to
understand fully the financial analyses, the summary data and
tables must be read together with the full text of the analyses.
Considering the summary data and tables alone could create a
misleading or incomplete view of Bear Stearns financial
analyses.
62
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Comparable Companies Analysis |
Bear Stearns reviewed and compared certain financial information
for Stratex to corresponding financial information, ratios and
public market multiples for selected publicly traded companies
that Bear Stearns deemed relevant. The financial information
used by Bear Stearns for all companies in the course of this
analysis was based on publicly available information as of
September 1, 2006 and mean analyst estimates calculated by
First Call. The multiples and ratios for each of the selected
companies were based on the most recent publicly available
information.
No company or transactions used in the analyses described below
is directly comparable to Stratex, Harris or the Microwave
Communications Division or the transactions. While Motorola,
Siemens, Alcatel and other large-cap vendors are leaders in the
wireless microwave transmission industry, wireless microwave
transmission represents only a small component of their overall
sales. Additionally, these vendors are growing at substantially
slower growth rates than Stratex. However, because these vendors
represent Stratexs primary competitors, Bear Stearns
included their valuation metrics in its analysis. Bear Stearns
also looked at other small-cap wireless vendors (Andrew,
Alvarion, Airspan, Ceragon, Nera and Powerwave), which are
companies that do not compete with Stratex (except Ceragon) or
focus on transmission, but whose growth is driven by comparable
metrics as Stratexs growth: growth in cellular networks,
subscribers, minutes of use, and similar metrics. Bear Stearns
noted, however, that certain of these vendors, such as Alvarion,
Airspan and Ceragon, are less relevant, as these companies are
not expected to be profitable in either calendar year 2006 or
(except Ceragon) in calendar year 2007. The analyses performed
by Bear Stearns are not necessarily indicative of actual values
or future results, which may be significantly more or less
favorable than suggested in these analyses. In conducting its
analysis, Bear Stearns analyzed the multiples of the following
twelve publicly traded companies that Bear Stearns deemed
generally comparable to Stratex:
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Name |
|
Trading Symbol | |
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| |
Large-Cap Vendors
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Alcatel
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NYSE: ALA |
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Harris Corporation
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NYSE: HRS |
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LM Ericsson Telephone Company
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NASDAQ: ERIC |
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Motorola, Inc.
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NYSE: MOT |
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NEC Corporation
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NASDAQ: NIPNY |
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Nokia Corporation
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NYSE: NOK |
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Small-Cap Vendors
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Airspan Networks, Inc.
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NASDAQ: AIRN |
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Alvarion Ltd.
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NASDAQ: ALVR |
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Andrew Corporation
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NASDAQ: ANDW |
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Ceragon Networks Ltd.
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NASDAQ: CRNT |
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Nera ASA
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OSL: NER |
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Powerwave Technology, Inc.
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NASDAQ: PWAV |
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Bear Stearns calculated for these companies the multiples of the
September 1, 2006 closing stock price to calendar year 2006
and 2007 earnings estimates and multiples of enterprise value
(calculated as equity value plus debt and minority interest,
less cash and cash equivalents) to calendar year 2006 and 2007
estimated revenues and earnings before interest, taxes,
depreciation and amortization, or EBITDA, and compared these
measures to the corresponding multiples for Stratex.
Based on the multiples derived in the above analysis, Bear
Stearns analyzed the implied per share value of Stratex on a
stand-alone basis prior to the transaction compared to the
implied per share value of Harris Stratex. Bear Stearns applied
multiple ranges based on Stratexs calculated multiples and
the comparable companies calculated multiples to the
corresponding Stratex management estimates and Microwave
Communications Division management estimates, which were pro
forma for the proposed
63
transactions and assumed pre-tax net synergies of approximately
$35 million per year. The following table illustrates the
resulting range of per share equity values for Stratex and the
range of Harris Stratexs value in equivalent Stratex
shares (after giving effect to the conversion of Stratex common
stock to Harris Stratex Class A common stock in accordance
with the merger):
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|
Stratex | |
|
Harris Stratex | |
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| |
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| |
Estimate |
|
Multiples Range | |
|
Price Range | |
|
Multiples Range | |
|
Price Range | |
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| |
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| |
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| |
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| |
CY 2006 Revenue
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|
1.00x - 1.40x |
|
|
$ |
2.90 - 3.95 |
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|
1.00x - 1.40x |
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|
$ |
3.00 - 4.10 |
|
CY 2007 Revenue
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0.90x - 1.30x |
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|
$ |
2.90 - 4.05 |
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|
0.90x - 1.30x |
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$ |
2.90 - 4.10 |
|
CY 2006 EBITDA
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|
15.0x - 17.0x |
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|
$ |
3.50 - 3.90 |
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11.3x - 13.3x |
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$ |
4.80 - 5.60 |
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CY 2007 EBITDA
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8.0x - 10.0x |
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$ |
3.00 - 3.70 |
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8.0x - 10.0x |
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$ |
4.40 - 5.40 |
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CY 2007 EPS
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14.0x - 18.0x |
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$ |
3.00 - 3.85 |
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14.0x - 18.0x |
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$ |
5.00 - 6.40 |
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Bear Stearns also performed a sensitivity analysis by varying
the estimated synergies from 0% to 150% synergies achieved and
noted that Harris Stratex price ranges at 0% synergies achieved
were generally higher than the corresponding Stratex price
ranges, except when utilizing a multiple of calendar year 2006
EBITDA, which resulted in a price range of $3.05
3.55 for Harris Stratex. Bear Stearns noted that none of the
companies reviewed is identical to Stratex and that,
accordingly, the analysis of such companies necessarily involves
complex considerations and judgments concerning differences in
the business, operating and financial characteristics of each
company and other factors that affect the public market values
of such companies.
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Discounted Cash Flow Analysis |
Bear Stearns performed a discounted cash flow analysis of each
of Stratex and Harris Stratex to determine a range for the
implied per share value of Stratex common stock on a stand-alone
basis prior to the transactions and the implied per share value
of Harris Stratex Class A common stock pro forma for the
transactions, respectively. For each of Stratex and Harris
Stratex, Bear Stearns calculated the present value of unlevered
free cash flow for the twelve months ending June 30, 2007
to 2011 and added to this amount the present value of each
entitys respective terminal value at the end of the twelve
months ending June 30, 2006. For Stratex and Harris
Stratex, present values were calculated using discount rates
ranging from 16.5% to 18.5% and 15.0% to 17.0%. For Stratex,
Bear Stearns calculated a weighted average cost of capital, or
WACC, range of 16.5% to 18.5% based on a midpoint unlevered Beta
of 1.76, or the Stratex Average Beta, which represents the
average of the unlevered Bloomberg historical adjusted Beta
(1.67), and the unlevered predicted Barra Beta (1.85), a
midpoint cost of debt of 7.0% and a midpoint industry average
(based on comparable companies above) debt to market value of
equity ratio of 15.4%. While this Beta is higher than that of
the industry comparables, Bear Stearns believed it was the best
estimate of Stratexs Beta and not out of line with the
market risk inherent in Stratexs projections and future
performance. For Harris Stratex, Bear Stearns calculated a WACC
range of 15.0% to 17.0%, based on a midpoint unlevered Beta of
1.57 (equal to the weighted average of (a) the Stratex
Average Beta of 1.76 and (b) 1.42, the average of the
average unlevered Bloomberg historical adjusted Beta of the
comparable small-cap company universe (1.23) and the average
unlevered predicted Barra Beta of the small-cap comparable
company universe (1.60). As with Stratex, Bear Stearns also
utilized a midpoint cost of debt of 7.0% and a midpoint industry
average (based on comparable companies above) debt to market
value of equity ratio of 15.4%. Harris Stratexs WACC range
was 150 basis points lower than Stratexs WACC range
primarily due to the lower average unlevered Beta of the
small-cap comparable company universe and the fact that Bear
Stearns believed it appropriate to calculate a weighted average
of Stratexs Beta with the small-cap industry Beta for
estimating Harris Stratexs Beta. Bear Stearns believed
this was an appropriate calculation as the Microwave
Communications Division should have had a Beta more in line with
the small-cap comparable companies, and Harris Stratex will have
a more diversified customer base and geographic reach and also
be larger and better-capitalized than Stratex. These factors
should decrease the market-correlated risk profile of Harris
Stratex versus Stratex on a standalone basis.
64
For the Stratex analysis, Bear Stearns calculated terminal
values using a range of terminal year next twelve months, or
NTM, EBITDA exit multiples of 7.0x to 9.0x, and the Stratex
estimated financial data upon which the analysis was based
assumed a compound annual growth rate of revenue of 12.8%. The
range of NTM EBITDA exit multiples (to apply to fiscal year
ending June 30, 2012 EBITDA) of 7.0x to 9.0x were based on
the comparable companies NTM EBITDA multiple range and a
discount to Stratexs NTM EBITDA multiple of 11.6x. Bear
Stearns believed a discount was appropriate as EBITDA multiples
are likely to decline for Stratex as the company matures as it
approaches the terminal year (2012). Bear Stearns also believed
that this range of NTM EBITDA exit multiples was appropriate for
Harris Stratex. The compound annual growth rate of revenue of
12.8% was based on Stratex management estimates. Based on this
analysis, Bear Stearns determined a range for the implied per
share value of Stratex common stock of approximately $4.20 to
$5.40.
For the Harris Stratex analysis, Bear Stearns calculated
terminal values using a range of terminal year next twelve
months EBITDA exit multiples of 7.0x to 9.0x, and the Harris
Stratex estimated financial data upon which the analysis was
based assumed a compound annual growth rate of revenue of 11.5%.
Based on this analysis, Bear Stearns determined a range for the
implied value of Harris Stratex Class A common stock per
Stratex share (after giving effect to the conversion of Stratex
common stock to Harris Stratex Class A common stock in
accordance with the merger) of approximately $4.70 to $6.05.
Bear Stearns also performed a sensitivity analysis by varying
the estimated synergies from 0% to 150% synergies achieved and
varying the discount rate from 15.0% to 17.0%, and assuming a
terminal year next twelve months EBITDA exit multiple of 8.0x.
The sensitivity analysis indicated a range for the implied value
of Harris Stratex Class A common stock per Stratex share
(after giving effect to the conversion of Stratex common stock
to Harris Stratex Class A common stock in accordance with
the merger) of approximately $3.90 to $6.45.
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Relative Contribution Analysis |
Bear Stearns analyzed the relative contribution that Stratex and
the Microwave Communications Division would each be making to
the combined company with respect to certain historical
financial and operating data and estimates made by management
including revenue, EBITDA, and EBIT for the twelve months ending
June 30, 2006, 2007 and 2008. In the following table, Bear
Stearns did not consider any adjustments associated with the
merger in its contribution analysis:
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Revenues | |
|
EBITDA | |
|
EBIT | |
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2008 w/ | |
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2008 w/ | |
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2006 | |
|
2007 | |
|
2008 | |
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2006 | |
|
2007 | |
|
2008 | |
|
Synergies | |
|
2006 | |
|
2007 | |
|
2008 | |
|
Synergies | |
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Stratex
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|
|
40.4 |
% |
|
|
40.6 |
% |
|
|
41.1 |
% |
|
|
27.2 |
% |
|
|
38.7 |
% |
|
|
40.8 |
% |
|
|
29.4 |
% |
|
|
16.5 |
% |
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|
38.7 |
% |
|
|
41.2 |
% |
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|
27.7 |
% |
MCD
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59.6 |
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59.4 |
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58.9 |
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72.8 |
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61.3 |
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59.2 |
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|
42.6 |
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|
83.5 |
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61.3 |
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58.8 |
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39.5 |
|
Synergies
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28.0 |
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32.8 |
|
Total
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
The implied Stratex contribution percentages reflected in the
table above compare to an approximate 42-43% enterprise value
ownership percentage (based on the terms set forth in the
combination agreement), Stratexs net cash balance as of
June 30, 2006 and the contribution of $25 million in
cash by Harris in connection with the contribution transaction.
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|
Selected Precedent Transactions Analysis |
Bear Stearns analyzed certain information relating to 15
selected transactions in the telecommunications equipment
industry since January 1, 2003. However, the data with
which to derive multiples are not available for many of the
transactions and due to the low or negative earnings for many of
the targets in the selected transactions, the multiples are not
meaningful for many of the transactions. Further, those with
available data are often not particularly relevant, due to the
highly cyclical nature of this sector and the resulting
distortionary effect of higher projected next twelve months than
last twelve months multiples. Consequently, Bear Stearns
determined the use of precedent transactions as not particularly
meaningful in the context of its opinion.
65
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|
Pro Forma Transaction Analysis |
Bear Stearns analyzed the pro forma effects of the transaction
and computed the resulting accretion/(dilution) to
Stratexs standalone estimated earnings per share for the
six months ending June 30, 2007 and the twelve months
ending June 30, 2008, by comparing these data to the pro
forma Harris Stratexs estimated earnings per share for the
six months ending June 30, 2007 and the twelve months
ending June 30, 2008 in equivalent Stratex shares (after
giving effect to the conversion of Stratex common stock to
Harris Stratex Class A common stock in accordance with the
merger), excluding FAS 123R charges for both Stratex and
Harris Stratex, and excluding one-time acquisition and
integration expenses and amortization of intangibles arising
from this transaction for Harris Stratex. The analysis indicated
that the merger would be accretive to Stratexs standalone
estimated earnings per share for the six months ending
June 30, 2007 and the twelve months ending June 30,
2008.
The preparation of a fairness opinion is a complex process and
involves various judgments and determinations as to the most
appropriate and relevant assumptions and financial analyses and
the application of those methods to the particular circumstances
involved. Such an opinion is therefore not readily susceptible
to partial analysis or summary description, and taking portions
of the analyses set out above, without considering the analysis
as a whole, would in the view of Bear Stearns, create an
incomplete and misleading picture of the processes underlying
the analyses considered in rendering the Bear Stearns opinion.
Bear Stearns based its analysis on assumptions that it deemed
reasonable, including assumptions concerning general business
and economic conditions and industry-specific factors. Bear
Stearns did not form an opinion as to whether any individual
analysis or factor, whether positive or negative, considered in
isolation, supported or failed to support the Bear Stearns
opinion. In arriving at its opinion, Bear Stearns considered the
results of all its analyses and did not attribute any particular
weight to any one analysis or factor. Bear Stearns arrived at
its ultimate opinion based on the results of all analyses
undertaken by it and assessed as a whole and believes that the
totality of the factors considered and analyses performed by
Bear Stearns in connection with its opinion operated
collectively to support its determination as to the fairness of
the exchange of each outstanding share of Stratex common stock
for one-fourth of a share of Harris Stratex Class A common
stock, from a financial point of view, to the stockholders of
Stratex. The analyses performed by Bear Stearns, particularly
those based on estimates and projections, are not necessarily
indicative of actual values or actual future results, which may
be significantly more or less favorable than suggested by such
analyses. None of the public companies used in the comparable
company analysis described above are identical to Stratex,
Harris or the Microwave Communications Division, and none of the
precedent transactions used in the precedent transactions
analysis described above are identical to the transaction.
Accordingly, an analysis of publicly traded comparable companies
and comparable precedent transactions is not mathematical;
rather it involves complex considerations and judgments
concerning the differences in financial and operating
characteristics of the companies and precedent transactions and
other factors that could affect the value of Stratex and the
public trading values of the companies and precedent
transactions to which they were compared. The analyses do not
purport to be appraisals or to reflect the prices at which any
securities may trade at the present time or at any time in the
future.
The Bear Stearns opinion was just one of the many factors taken
into consideration by the board of directors of Stratex.
Consequently, Bear Stearns analysis should not be viewed
as determinative of the decision of the board of directors of
Stratex with respect to the fairness of the exchange of each
outstanding share of Stratex common stock for one-fourth of a
share of Harris Stratex Class A common stock, from a
financial point of view, by the stockholders of Stratex.
Pursuant to the terms of Bear Stearns engagement
letter, Stratex has agreed to pay Bear Stearns a transaction fee
equal to the greater of $1 million or 0.75% of the total
fair market value of the securities issued by Harris Stratex to
Harris in connection with the contribution transaction. For this
purpose, each share of Class B common stock issued to
Harris will be assumed to have a value equal to four times the
average trading price of Stratex common stock during the
five trading days ending on the trading day prior to the
closing of the transactions. Assuming an average closing price
of $4.29 per share of Stratex common stock prior to the
effective one-for-four reverse split pursuant to the merger,
Bear Stearns will be entitled to receive approximately
$4,200,000, of which $300,000 was earned by Bear Stearns upon
the
66
delivery of its opinion and the balance of which is
contingent and payable upon the completion of the transactions.
In addition, Stratex has agreed to reimburse Bear Stearns for
reasonable
out-of-pocket expenses
incurred by Bear Stearns in connection with its engagement
relating to the merger and the contribution transaction,
including reasonable fees and disbursements of its legal
counsel. Stratex has agreed to indemnify Bear Stearns against
certain liabilities arising out of Bear Stearns
engagement.
In the ordinary course of business, Bear Stearns and its
affiliates may actively trade the equity and debt securities
and/or bank debt of Stratex and/or Harris and their respective
affiliates for its own account and for the accounts of its
customers and, accordingly, may at any time hold a long or short
position in such securities or bank debt.
Interests of Stratex Directors and Officers in the
Transactions
In considering the recommendation of the board of directors of
Stratex to vote for the proposal to adopt the combination
agreement and to approve the merger and the other transactions
provided for in the combination agreement, Stratex stockholders
should be aware that members of the board of directors, all
executive officers and other managers of Stratex have
relationships, agreements or arrangements that provide them with
interests in the merger and the contribution transaction that
may be in addition to or differ from those of the Stratex
stockholders, including employment agreements that provide for
additional compensation in the event of a change of control,
which are summarized below. The board of directors of Stratex
was aware of these relationships, agreements and arrangements
during its deliberations on the merits of the merger and in
making its decision to recommend to the Stratex stockholders
that they vote to adopt the combination agreement and approve
the merger and the other transactions provided for in the
combination agreement.
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Board of Directors of Stratex |
The combination agreement provides that following the completion
of the proposed transactions, Harris Stratex will have a nine
member board of directors, which will include five directors
initially appointed by Harris and four directors initially
appointed by Stratex, in each case immediately prior to the
effective time of the merger. Charles D. Kissner, Chairman of
Stratex, will be one of the individuals appointed by Stratex. Of
the three remaining directors to be appointed by Stratex two are
required to be individuals who meet the independence standards
for audit committee members under the NASDAQ rules; there are no
restrictions on the fourth director to be appointed by Stratex.
The Harris Stratex directors to be appointed by Stratex may
include current directors or officers of Stratex so long as they
satisfy the requirements agreed by Stratex above.
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Employment with the Combined Company |
Pursuant to the combination agreement, the parties have agreed
that Thomas H. Waechter, who currently serves as the Chief
Executive Officer of Stratex, will be appointed Chief Operating
Officer of Harris Stratex immediately prior to the effective
time of the merger. It is expected that, following the
completion of the merger and the contribution transaction,
certain of the officers of Stratex will retain their current
positions and may be offered similar positions at Harris Stratex
as the businesses of Stratex and the Microwave Communications
Division are integrated.
For further discussion regarding the management of Harris
Stratex following the completion of the merger and the
contribution transaction, see Board of Directors and
Management of Harris Stratex Following the Transactions
beginning on page 118 of this proxy statement/prospectus.
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Treatment of Stratex Stock Options and Other Stock Based
Awards |
At the effective time of the merger, each outstanding stock
option or other equity award of Stratex will be automatically
converted on the same terms and conditions (including as to
exercisability and vesting, taking into account, in limited
circumstances, any acceleration resulting from the merger) into
a stock option to acquire or other equity award with respect to,
the number of shares of Harris Stratex
67
Class A common stock equal to one-fourth of the number of
shares of Stratex common stock subject to the stock option or
other equity award immediately prior to the merger at an
exercise price (if applicable) equal to four times the exercise
price per such stock option or other equity award immediately
prior to the merger.
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Certain Stratex Executive Officers |
You should be aware that, pursuant to employment arrangements
with Stratex, the outstanding options to purchase Stratex common
stock and other equity awards previously issued to certain
members of the Stratex management team will vest and become
immediately exercisable, if applicable, for shares of Harris
Stratex Class A common stock in connection with the
completion of the proposed transactions. For more information
regarding the senior executives of Harris Stratex who have
employment arrangements with Stratex that include acceleration
provisions, see Severance Arrangements
below.
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Certain Awards to Non-Executive Directors |
Pursuant to the provisions of the Stratex 2002 non-employee
director stock fee program, non-employee directors of Stratex
may elect to apply all or any portion of their annual retainer
fee otherwise payable in cash to the purchase of shares of
Stratex common stock. Shares of Stratex common stock received by
these directors in lieu of annual retainer fees vest quarterly
during the year after receipt so long as the individual
continues to serve as one of Stratexs non-employee
directors during the year. Upon a corporate transaction (as
defined in the Stratex 2002 stock incentive plan), however,
these shares of Stratex common stock vest immediately. Stratex
expects that all shares of Stratex common stock issued pursuant
to this program will have vested in the ordinary course prior to
the completion of the proposed transaction.
Following the completion of the proposed transactions, it is
expected that Harris Stratex will grant equity awards to its
directors, members of management (including members of
management that were formerly members of management of the
Microwave Communications Division or Stratex) and certain other
employees of Harris Stratex. Each grant would specify those
terms and conditions as the board of directors of Harris
Stratex, or a committee of the board, at that time deems
appropriate, including, to the extent relevant but not limited
to, the applicable option exercise period, option exercise price
and vesting requirements.
Messrs. Kissner and Waechter, Carl A. Thomsen, Senior Vice
President, Chief Financial Officer and Secretary of Stratex,
Paul A. Kennard, Vice President, Products and Chief Technology
Officer of Stratex, John C. Brandt, Vice President, Business
Development of Stratex, and Larry M. Brittain, Vice President,
Worldwide Sales and Service of Stratex, are each party to a
written employment agreement with Stratex. Pursuant to these
employment agreements they also participate in executive
incentive bonus plans of Stratex. These employment agreements
and incentive bonus plans contain provisions that provide
severance payments and other benefits, including the
acceleration of options to purchase Stratex common stock and
restricted shares of Stratex common stock upon specified
conditions. More specifically, these employment agreements
provide that either an executives employment will
terminate upon the completion of the proposed transactions, and,
as a result, the benefits provided in his employment agreement
will vest upon his termination (this is known as a single
trigger employment agreement) or, in the event the
executive is terminated within a specified number of months
following the completion of the proposed transactions without
cause or resigns for good reason, the benefits provided in his
employment agreement will vest upon his termination or
resignation (this is known as a double trigger
employment agreement). Those employment agreements that are not
single trigger, and thus do not terminate by their
terms upon the completion of the proposed transactions, will be
continuing obligations of Stratex after the merger and may
68
be transferred to Harris Stratex as the businesses of Stratex
and the Microwave Communications Division are integrated.
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Single Trigger Employment Agreements |
Messrs. Kissner, Thomsen and Brandt.
Mr. Kissner, executive Chairman of the Board of Directors
of Stratex, Mr. Thomsen, Senior Vice President, Chief
Financial Officer and Secretary of Stratex, and Mr. Brandt,
Vice President of Business Development of Stratex, each have
single trigger employment agreements with Stratex.
In the case of Mr. Kissner and Mr. Thomsen their
respective agreements took effect as of May 14, 2002. With
respect to Mr. Brandt, his agreement took effect as of
April 1, 2006. Each agreement provides that upon the
completion of the proposed transactions, the executives
employment with Stratex will terminate automatically, and upon
that termination, they will be entitled to the severance
benefits outlined below:
Mr. Kissner will receive:
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|
severance payments at his final base salary for a period of
48 months following his termination; |
|
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|
payment of premiums necessary to continue his group health
insurance under COBRA or to purchase other comparable health
insurance coverage on an individual or group basis until the
earlier of (1) 48 months from the employment
termination date and (2) the date on which he first becomes
eligible to participate in another employers group health
insurance; |
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|
the prorated portion of any incentive bonus that he would have
earned during the incentive bonus period in which his employment
was terminated; |
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|
a payment equal to the greater of (1) his target incentive
bonus for the year in which his employment was terminated and
(2) the average of the annual incentive bonus payment for
the previous three years; |
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|
acceleration of the vesting of all unvested stock options |
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the right to purchase all shares of Stratex common stock subject
to the outstanding options granted to him until the earlier of
(1) 48 months and (2) the date on which the
applicable option(s) expire; |
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|
payment of his then-provided car allowance for a period of
36 months; and |
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|
outplacement assistance selected and paid for by Stratex. |
Mr. Thomsen will receive:
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|
severance payments at his final base salary for a period of
30 months following his termination; |
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|
payment of premiums necessary to continue his group health
insurance under COBRA or to purchase other comparable health
insurance coverage on an individual or group basis when he is no
longer eligible for COBRA coverage until the earlier of
(1) the date on which he turns 65 years of age and
(2) the date on which he first becomes eligible to
participate in another employers group health insurance; |
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|
the prorated portion of any incentive bonus that he would have
earned during the incentive bonus period in which his employment
was terminated; |
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|
a payment equal to the greater of (1) his target incentive
bonus for the year was terminated and (2) the average of
the annual incentive bonus payment for the previous three years; |
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acceleration of the vesting of all unvested stock options; |
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|
the right to purchase all shares of Stratex common stock subject
to outstanding options granted to him until the earlier of
(1) 30 months and (2) the date on which the
applicable option(s) expire; |
69
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|
payment of his then-provided car allowance for a period of
30 months; and |
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|
outplacement assistance selected and paid for by Stratex. |
Mr. Brandt will receive:
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|
severance payments at his final base salary for a period of
24 months following his termination; |
|
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|
payment of premiums necessary to continue his group health
insurance under COBRA until the earlier of (1) the date on
which he first becomes eligible to participate in another
employers group health insurance and (2) the date on
which he is no longer eligible for COBRA coverage up to a
maximum of 18 months; |
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|
the prorated portion of any incentive bonus that he would have
earned during the incentive bonus period in which his employment
was terminated; |
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|
a payment equal to the greater of (1) his target incentive
bonus for the year in his employment was terminated and
(2) the average of the annual incentive bonus payment for
the previous three years; |
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|
acceleration of the vesting of all unvested stock options; |
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|
the right to purchase all shares of Stratex common stock subject
to outstanding options granted to him until the earlier of
(1) 24 months and (2) the date on which the
applicable option(s) expire; |
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|
payment of his then-provided car allowance for a period of
24 months; and |
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outplacement assistance selected and paid for by Stratex. |
Notwithstanding the automatic termination of the employment
agreements of Messrs. Thomsen and Brandt, Harris Stratex
intends to extend employment to them following the proposed
transaction on terms to be mutually agreed.
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Double Trigger Employment Agreements |
Messrs. Waechter, Kennard and Brittain.
Mr. Waechter, President and Chief Executive Officer of
Stratex, Mr. Kinnard, Senior Vice President and Chief
Technology Officer of Stratex, and Mr. Brittain, Vice
President of Worldwide Sales and Services of Stratex, have
double trigger employment agreements with Stratex.
In the case of Mr. Waechter, his employment agreement took
effect as of May 18, 2006 and was amended effective as of
September 1, 2006. In the case of Messrs. Kennard and
Brandt, their employment agreements took effect as of
May 14, 2002 and April 1, 2006, respectively. Under
the terms of their employment agreements, if
Messrs. Waechter, Kinnard and Brandt are terminated without
cause or resign for good reason within a specified number of
months following the completion of the proposed transaction,
they will be entitled to the severance benefits outlined below
but only upon termination or resignation:
If Mr. Waechter is terminated by Stratex without cause or
if he resigns for good reason within 24 months after the
completion of the proposed transactions, he will be entitled to
receive the following severance benefits from Stratex:
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|
severance payments at his final base salary for a period of
36 months following his termination; |
|
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|
payment of premiums necessary to continue his group health
insurance under COBRA or to purchase other comparable health
insurance coverage on an individual or group basis when he is no
longer eligible for COBRA coverage until the earlier of
(1) 36 months or (2) the date on which he first
becomes eligible to participate in another employers group
health insurance; |
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|
if his employment termination or resignation occurs after
March 31, 2007, the prorated portion of any incentive bonus
that he would have earned during the incentive bonus year in
which his employment was terminated; |
70
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|
if his employment termination or resignation occurs after
March 31, 2007, a payment equal to the greater of
(1) his target incentive bonus for the year in which his
employment terminates and (2) the average of the annual
incentive bonus payment for the previous three years; |
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|
acceleration of the vesting of all his unvested stock options; |
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|
the right to purchase all shares of Stratex common stock subject
to outstanding options granted to him until the earlier of
(1) 36 months and (2) the date on which the
applicable option(s) expire; |
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|
payment of his then-provided car allowance for a period of
36 months; and |
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outplacement assistance selected and paid for by Stratex. |
If Mr. Kennard or Mr. Brittain is terminated by
Stratex without cause or if they resign for good reason within
18 months after the completion of the proposed
transactions, they will be entitled to receive the following
severance benefits from Stratex, respectively:
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|
severance payments at his final base salary for a period of
24 months following his termination; |
|
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|
payment of premiums necessary to continue his group health
insurance under COBRA until the earlier of (1) the date on
which he first becomes eligible to participate in another
employers group health insurance or (2) the date on
which he is no longer eligible for COBRA coverage up to a
maximum of 18 months; |
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the prorated portion of any incentive bonus that he would have
earned during the incentive bonus period in which his employment
was terminated; |
|
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a payment equal to the greater of (1) his target incentive
bonus for the year in which his employment was terminated and
(2) the average of the annual incentive bonus payment for the
previous three years; |
|
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|
acceleration of the vesting of all his unvested stock options; |
|
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|
the right to purchase all shares of Stratex common stock subject
to outstanding options granted to him until the earlier of
(1) 24 months and (2) the date on which the
applicable option(s) expire; |
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|
payment of his then-provided car allowance for a period of
24 months; and |
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outplacement assistance selected and paid for by Stratex. |
For purposes of these employment agreements, the following terms
are defined as follows:
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theft, dishonesty, misconduct or falsification of any employment
or Stratex records; |
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improper disclosure of Stratexs confidential or
proprietary information; |
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action which has a material detrimental effect on Stratexs
reputation or business; |
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refusal or inability to perform any assigned duties (other than
as a result of a disability) after written notice; or |
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conviction (including any plea of guilty or no contest) for any
criminal act that impairs the persons ability to perform
his or her duties. |
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Good reason following a change in control means any
of the following conditions: |
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a material and adverse change in position, duties or
responsibilities for Stratex; or |
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a reduction in base salary; or |
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a material reduction in employee benefits, other than a
reduction that is similarly applicable to a majority of the
members of Stratexs executive staff; or |
71
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the relocation of Stratexs workplace to a location that is
more than 75 miles from Stratexs current workplace in
San Jose, California. |
Each employment agreement described above with the executive
officers other than Mr. Waechter further obligates Stratex to
pay a one-time gross up payment equal to 125% of the amount of
excise tax imposed under section 4999 of the Internal
Revenue Code of 1986, as amended, which is referred to in this
proxy statement/ prospectus as the code, with respect to
payments that constitute golden parachute payments
as defined by section 280G of the code. This payment is due
within 90 days after the executive officer becomes subject
to the excise tax. Stratex is not obligated to pay any of the
federal, state and local income or employment taxes imposed on
any of the severance payments or the
gross-up payment
described above. Mr. Waechters employment agreement
provides that Stratex will adjust all payments to Mr. Waechter
to minimize the impact of any excise taxes.
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Value of Severance Payments |
The following table sets forth Stratexs estimate of the
total value of the payments and fringe benefits that could be
received by the executive officers of Stratex under the
employment agreement provisions summarized above. In the case of
Messrs. Kissner, Thomsen and Brandt, the amounts below will
be paid by Stratex in connection with the completion of the
proposed transactions because of the single trigger
feature of their respective employment agreements providing for
their automatic termination. In the case of
Messrs. Waechter, Kennard and Brittain, these amounts will
be paid by Stratex only in the event they are terminated without
cause or if they resign for good reason within the specified
post-merger period provided in their respective employment
agreements. The amounts in the table have been determined with
regard to the following assumptions:
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each executive is presumed to receive the maximum amount of
severance payments, insurance premiums and car allowance payable
under his employment agreement; |
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the amount of each executives target incentive bonus
amount is deemed paid in full; |
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no value has been assigned to bonus amounts payable only upon
the achievement of targets and objectives that are presently
undetermined and may not be met prior to the time when they
otherwise would be payable; |
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the time value of money has not been taken into account; and |
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no amount has been included for
gross-up payments that
may become due in the event the executive is required to pay
golden parachute excise tax pursuant to
section 4999 of the code. |
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Severance | |
|
Annual Target | |
|
Value of Car | |
|
Company Paid | |
|
Outplacement | |
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Name |
|
Payments | |
|
Incentive Bonus | |
|
Allowance | |
|
Medical Insurance | |
|
Services | |
|
Total Value | |
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| |
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| |
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| |
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| |
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| |
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| |
Waechter, Thomas
(double trigger)
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$ |
1,350,000 |
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$ |
360,000 |
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$ |
43,200 |
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|
$ |
31,644 |
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|
$ |
15,000 |
|
|
$ |
1,799,844 |
|
Kennard, Paul
(double trigger)
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|
627,900 |
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|
172,673 |
|
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|
21,600 |
|
|
|
27,072 |
|
|
|
15,000 |
|
|
|
864,245 |
|
Brittain, Larry
(double trigger)
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|
|
525,000 |
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|
157,500 |
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|
21,600 |
|
|
|
25,584 |
|
|
|
15,000 |
|
|
|
744,684 |
|
Kissner, Charles
(single trigger)
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|
1,640,016 |
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|
328,000 |
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|
57,600 |
|
|
|
52,944 |
|
|
|
|
|
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|
2,078,560 |
|
Thomsen, Carl
(single trigger)
|
|
|
802,740 |
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|
|
176,600 |
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|
|
27,000 |
|
|
|
26,280 |
|
|
|
15,000 |
|
|
|
1,047,620 |
|
Brandt, John
(single trigger)
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|
|
520,008 |
|
|
|
130,000 |
|
|
|
18,000 |
|
|
|
23,664 |
|
|
|
15,000 |
|
|
|
706,672 |
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|
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|
|
|
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|
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$ |
7,241,625 |
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72
In lieu of annual incentive bonus payments for each of the
identified executive officers, as contemplated by their
respective employment agreements, Stratex has awarded annual
incentive grants of restricted stock under its 1999 Stock
Incentive Plan. These shares of restricted Stratex common stock
vest in part based on continued service and in part based upon
the attainment of performance objectives. Under the terms of the
1999 Stock Incentive Plan, all such unvested shares of
restricted Stratex common stock will vest in full upon the
completion of the proposed transactions. In addition, as
discussed above, in the case of Messrs. Kissner, Thomsen
and Brandt, the stock options to purchase shares of Stratex
common stock identified below will vest upon the completion of
the proposed transactions because of the single
trigger feature of their respective employment agreements
which provide for their automatic termination. However, in the
case of Messrs. Waechter, Kennard and Brittain, the stock
options to purchase shares of Stratex common stock identified
below will vest only in the event they are terminated without
cause or resign for good reason within the specified post-merger
period provided in their respective employment agreements. The
following table shows for each of the identified executive
officers the number of shares underlying unvested options and
unvested restricted stock awards as of November 21, 2006
and their approximate value as of that date. The amounts in this
table have been determined with regard to the following
assumptions:
|
|
|
|
|
|
the aggregate value of the unvested shares of restricted stock
to be accelerated equals the market value of the shares based on
the closing price for a share of Stratex common stock on NASDAQ
on November 21, 2006; |
|
|
|
|
|
the value of unvested shares of common stock subject to options
to be accelerated equals the aggregate value of the shares on
November 21, 2006 minus the aggregate exercise price for
the options; and |
|
|
|
|
out-of-the-money option
shares have been excluded, some of which might be
in-the-money at the
effective time of the merger. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of | |
|
|
|
Number of | |
|
|
|
|
Name |
|
Restricted Shares* | |
|
Value | |
|
Option Shares** | |
|
Value | |
|
Total Value | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Waechter, Thomas
(double trigger)
|
|
|
21,274 |
|
|
$ |
90,839 |
|
|
|
475,000 |
|
|
$ |
25,250 |
|
|
$ |
116,089 |
|
Kennard, Paul
(double trigger)
|
|
|
8,873 |
|
|
|
37,887 |
|
|
|
181,562 |
|
|
|
61,858 |
|
|
|
99,745 |
|
Brittain, Larry
(double trigger)
|
|
|
8,864 |
|
|
|
37,850 |
|
|
|
128,437 |
|
|
|
129,951 |
|
|
|
167,801 |
|
Kissner, Charles
(single trigger)
|
|
|
22,617 |
|
|
|
96,573 |
|
|
|
190,937 |
|
|
|
3,900 |
|
|
|
100,473 |
|
Thomsen, Carl
(single trigger)
|
|
|
9,939 |
|
|
|
42,440 |
|
|
|
197,500 |
|
|
|
63,451 |
|
|
|
105,891 |
|
Brandt, John
(single trigger)
|
|
|
7,682 |
|
|
|
32,802 |
|
|
|
126,875 |
|
|
|
37,456 |
|
|
|
70,258 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
660,258 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
All restricted shares vest for all identified employees upon the
completion of the proposed transactions. |
|
|
** |
Vesting of options to purchase shares of Stratex common stock
will accelerate upon the completion of the proposed transaction
with respect to employees with a single trigger
employment agreement. With respect to a double
trigger employment agreement, vesting of the options to
purchase shares of Stratex common stock will accelerate only in
the event the employee is terminated without cause or if he
resigns for good reason within the specified post-merger period
provided in their respective employment agreements. |
73
Harris Stratex has agreed that, from and after the effective
time of the merger, it will cause Stratex, as the surviving
corporation in the merger, for a period of six years from the
effective time of the merger to indemnify and hold harmless each
past and present director and officer of Stratex or any of its
subsidiaries (in each case, for acts or failures to act in such
capacity), against any costs or expenses (including reasonable
attorneys fees), judgments, fines, losses, claims, damages
or liabilities incurred in connection with any claim, action,
suit, proceeding or investigation, whether civil, criminal,
administrative or investigative, arising out of matters existing
or occurring at or prior to the effective time of the merger,
whether asserted or claimed prior to, at or after the effective
time of the merger, to the fullest extent that Stratex would
have been permitted to indemnify such person under the laws of
the State of Delaware and its certificate of incorporation or
bylaws as in effect on the date of the combination agreement.
Harris Stratex has also agreed to advance expenses as incurred
to the fullest extent permitted under applicable law so long as
the person to whom expenses are advanced provides an undertaking
to repay such advances if it is ultimately determined that such
person is not entitled to indemnification.
Unless Stratex purchases a six-year tail policy
prior to the effective time of the merger, for a period of six
years after the effective time of the merger, Harris Stratex
will cause Stratex, as the surviving corporation, to maintain
its existing officers and directors liability
insurance covering those persons who are covered by such
insurance in effect as of the date of the combination agreement
so long as the annual premium for such insurance is not in
excess of 200% of the last annual premium paid, and, in the
event the annual premium exceeds 200%, as much officers
and directors liability insurance as can be obtained for
the relevant period for a premium not in excess (on an
annualized basis) of 200% of the last annual premium paid.
Security Ownership of Certain Beneficial Owners and
Management
The following table sets forth information known to Stratex
regarding the beneficial ownership of its common stock as of
November 16, 2006, by (1) all persons who own
beneficially more than 5% or more of its outstanding common
stock, (2) each Stratex director, (3) the executive
officers identified above under Interests of
Stratex Directors and Officers in the Transactions
Severance Arrangements, and (4) all directors and
executive officers as a group. Unless otherwise indicated, the
principal address of each of the stockholders listed below is
c/o Stratex Networks, Inc., 120 Rose Orchard Way,
San Jose, California 95134:
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares | |
|
Percent | |
|
|
Beneficially | |
|
Beneficially | |
Name |
|
Owned(1) | |
|
Owned(2) | |
|
|
| |
|
| |
5% Stockholders
|
|
|
|
|
|
|
|
|
|
Kopp Investment Advisors, Inc.
|
|
|
12,919,139 |
(3) |
|
|
13.2 |
% |
|
|
7701 France Avenue South, Suite 500 |
|
|
|
|
|
|
|
|
|
|
Edina, Minnesota 55435 |
|
|
|
|
|
|
|
|
|
State of Wisconsin Investment Board
|
|
|
8,546,130 |
(4) |
|
|
8.7 |
% |
|
|
P.O. Box 7842 |
|
|
|
|
|
|
|
|
|
|
Madison, WI 53707 |
|
|
|
|
|
|
|
|
|
Perkins, Wolf, McDonnell and Company, LLC
|
|
|
6,205,100 |
(5) |
|
|
6.3 |
% |
|
|
310 South Michigan Avenue, Suite 2600 |
|
|
|
|
|
|
|
|
|
|
Chicago, IL 60604 |
|
|
|
|
|
|
|
|
|
Sheila Baird
|
|
|
5,554,536 |
(6) |
|
|
5.7 |
% |
|
Michael Kimelman
|
|
|
|
|
|
|
|
|
|
|
100 Park Avenue |
|
|
|
|
|
|
|
|
|
|
New York, NY 10017 |
|
|
|
|
|
|
|
|
74
|
|
|
|
|
|
|
|
|
|
|
|
Shares | |
|
Percent | |
|
|
Beneficially | |
|
Beneficially | |
Name |
|
Owned(1) | |
|
Owned(2) | |
|
|
| |
|
| |
Named Executive Officers and Directors
|
|
|
|
|
|
|
|
|
|
Charles D. Kissner
|
|
|
2,446,014 |
(7) |
|
|
2.4 |
% |
|
Richard C. Alberding
|
|
|
84,000 |
(8) |
|
|
* |
|
|
Thomas H. Waechter
|
|
|
87,535 |
(9) |
|
|
* |
|
|
William A. Hasler
|
|
|
64,755 |
(10) |
|
|
* |
|
|
James D. Meindl, PhD
|
|
|
88,775 |
(11) |
|
|
* |
|
|
Clifford H. Higgerson
|
|
|
554,180 |
(12) |
|
|
* |
|
|
V. Frank Mendicino
|
|
|
193,520 |
(13) |
|
|
* |
|
|
Edward F. Thompson
|
|
|
60,000 |
(14) |
|
|
* |
|
|
Carl A. Thomsen
|
|
|
688,940 |
(15) |
|
|
* |
|
|
Paul A. Kennard
|
|
|
622,191 |
(16) |
|
|
* |
|
|
Larry M. Brittain
|
|
|
134,868 |
(17) |
|
|
* |
|
|
John C. Brandt
|
|
|
358,654 |
(18) |
|
|
* |
|
|
All directors and executive officers as a group (19 persons)
|
|
|
6,497,377 |
(19) |
|
|
6.3 |
% |
|
|
|
|
(1) |
To the knowledge of Stratex, except as set forth in the
footnotes to this table, and subject to applicable community
property laws, each person named in this table has sole voting
and investment power with respect to the shares set forth
opposite such persons name. |
|
|
(2) |
Beneficial ownership of shares of common stock is determined in
accordance with the rules of the Securities and Exchange
Commission and generally includes voting or investment power
with respect to such shares. Shares of common stock subject to
stock options which are currently exercisable or will become
exercisable within 60 days of September 30, 2006 are
deemed outstanding for computing the beneficial ownership of the
person or group holding such option grants but are not deemed
outstanding for computing the percentage of beneficial ownership
of any other person or group. There were 97,779,757 shares
of our common stock outstanding on September 30, 2006. |
|
|
(3) |
Kopp Investment Advisors, Inc. had shared dispositive power over
7,329,803 shares, sole dispositive power over
4,000,000 shares, sole voting power over
10,471,139 shares and aggregate beneficial ownership of
12,919,139 shares. The address and number of shares of
Stratex common stock beneficially owned by Kopp Investment
Advisors, Inc. is based on the Schedule 13G as filed with
the Securities and Exchange Commission on January 27, 2006.
According to this Schedule 13G, Kopp Investment Advisors,
Inc. is a wholly-owned subsidiary of Kopp Holding Company, which
also reported aggregate beneficial ownership of
11,559,139 shares. The filing also stated that Kopp Holding
Company is wholly owned by Leroy C. Kopp, who on such filing
reported sole voting and dispositive power of
1,590,000 shares in addition to the shares that may be
deemed beneficially owned by Kopp Investment Advisors, Inc. |
|
|
(4) |
The address and number of shares of Stratex common stock
beneficially owned by the State of Wisconsin Investment Board is
based on the Schedule 13G/ A as filed with the Securities and
Exchange Commission on March 9, 2006. |
|
|
(5) |
The address and number of shares of Stratex common stock
beneficially owned by Perkins Wolf is based on the
Schedule 13G/ A as filed with the Securities and Exchange
Commission on February 15, 2006 by Mac-Per-Wolf Company.
Perkins, Wolf, McDonnell and Company, LLC (Perkins
Wolf) furnishes investment advice to various investment
companies registered under Section 8 of the Investment
Company Act of 1940 and to individual and institutional clients.
The shared voting and dispositive holdings are held by Perkins
Wolf and such holdings may also be aggregated within 13G filings
submitted by Janus Capital Management, LLC, a minority owner of
Perkins Wolf. According to the Schedule 13G/ A, Perkins
Wolf reported sole voting and dispositive |
75
|
|
|
|
|
power of 389,300 shares of Stratex common stock and shared
dispositive power of 5,815,800 and aggregate beneficial
ownership of 6,205,100 shares. |
|
|
|
|
(6) |
The address and number of shares of Stratex common stock
beneficially owned by Sheila Baird and Michael Kimelman is based
on Schedule 13G as filed with the Securities and Exchange
Commission on February 1, 2006. |
|
|
|
(7) |
Includes 2,202,025 shares of common stock subject to
options that are currently exercisable or will become
exercisable within 60 days of November 16, 2006. |
|
|
|
|
(8) |
Includes 78,000 shares of common stock subject to options
that are currently exercisable or will become exercisable within
60 days of November 16, 2006. |
|
|
|
|
(9) |
Includes 25,000 shares of common stock subject to options
that are currently exercisable or will become exercisable within
60 days of November 16, 2006. |
|
|
|
|
(10) |
Includes 30,000 shares of common stock subject to options
that are currently exercisable or will become exercisable within
60 days of November 16, 2006. |
|
|
|
(11) |
Includes 72,000 shares of common stock subject to options
that are currently exercisable or will become exercisable within
60 days of November 16, 2006. |
|
|
|
(12) |
Includes 25,000 shares of common stock subject to options
that are currently exercisable or will become exercisable within
60 days of November 16, 2006. |
|
|
|
(13) |
Includes 60,500 shares of common stock subject to options
that are currently exercisable or will become exercisable within
60 days of November 16, 2006. |
|
|
|
(14) |
Includes 50,000 shares of common stock subject to options
that are currently exercisable or will become exercisable within
60 days of November 16, 2006. |
|
|
|
(15) |
Includes 620,625 shares of common stock subject to options
that are currently exercisable or will become exercisable within
60 days of November 16, 2006. |
|
|
|
(16) |
Includes 523,252 shares of common stock subject to options
that are currently exercisable or will become exercisable within
60 days of November 16, 2006. |
|
|
|
(17) |
Includes 82,813 shares of common stock subject to options
that are currently exercisable or will become exercisable within
60 days of November 16, 2006. |
|
|
|
(18) |
Includes 334,725 shares of common stock subject to options
that are currently exercisable or will become exercisable within
60 days of November 16, 2006. |
|
|
|
(19) |
Includes an aggregate of 5,012,290 shares of common stock
subject to options that are currently exercisable or will become
exercisable within 60 days of November 16, 2006. |
|
Principal Stockholders Following the Transactions
The following table sets forth information, as of the date of
this proxy statement/ prospectus, regarding the beneficial
ownership of Harris Stratex common stock, after giving effect to
the proposed transactions, of:
|
|
|
|
|
each person that will be a beneficial owner of more than 5% of
Harris Stratex common stock; |
|
|
|
each of the named executive officers of Harris Stratex; |
|
|
|
each director of Harris Stratex; and |
|
|
|
all directors and named executive officers of Harris Stratex,
taken together. |
Beneficial ownership is determined under the rules of the
Securities and Exchange Commission and generally includes voting
or investment power over securities. Except in cases where
community property laws apply or as indicated in the footnotes
to this table, it is believed that each stockholder identified
in the table possesses sole voting and investment power over all
shares of Harris Stratex common stock shown as beneficially
owned by that stockholder. Percentage of beneficial ownership is
based on the approximately 57,082,359 shares of Harris Stratex
Class A and Class B common stock that will be
76
outstanding immediately following the merger and the
contribution transaction and, in the case of directors and
executive officers, on the ownership of Stratex common stock as
of November 21, 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of | |
|
|
|
|
Number of Shares | |
|
Number of Shares | |
|
Voting Power of | |
|
Percentage of | |
|
|
of Class A | |
|
of Class B | |
|
Class of | |
|
Voting Power of | |
Name and Address of Beneficial Owner |
|
Common Stock | |
|
Common Stock | |
|
Common Stock | |
|
Common Stock | |
|
|
| |
|
| |
|
| |
|
| |
Stockholders Owning Approximately 5% or more:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Harris Corporation
|
|
|
|
|
|
|
32,716,995 |
|
|
|
100% |
|
|
|
57.16% |
|
|
|
1025 West NASA Blvd.
Melbourne, Florida 32919 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kopp Investment Advisors, Inc.
|
|
|
3,229,785 |
(1) |
|
|
|
|
|
|
13.17% |
|
|
|
5.64% |
|
|
|
7701 France Avenue South, Suite 500
Edina, Minnesota 55435 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State of Wisconsin Investment Board
|
|
|
2,136,533 |
(2) |
|
|
|
|
|
|
8.71% |
|
|
|
3.73% |
|
|
|
P.O. Box 7842
Madison, WI 53707 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Perkins, Wolf, McDonnell and Company, LLC
|
|
|
1,551,275 |
(3) |
|
|
|
|
|
|
6.33% |
|
|
|
2.71% |
|
|
|
310 South Michigan Avenue, Suite 2600
Chicago, IL 60604 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sheila Baird
|
|
|
1,388,634 |
(4) |
|
|
|
|
|
|
5.66% |
|
|
|
2.43% |
|
|
Michael Kimelman
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100 Park Avenue
New York, NY 10017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Directors:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guy M. Campbell
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charles D. Kissner
|
|
|
611,503 |
|
|
|
|
|
|
|
2.44% |
|
|
|
1.06% |
|
|
Howard L. Lance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Director Officers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas H. Waechter
|
|
|
* |
|
|
|
|
|
|
|
* |
|
|
|
* |
|
|
Sarah A. Dudash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All directors and executive officers as a group
(19 individuals in total)
|
|
|
1,624,344 |
|
|
|
|
|
|
|
4.86% |
|
|
|
2.14% |
|
|
|
(1) |
The number of shares of Harris Stratex Class A common stock
beneficially owned was calculated based on the number of shares
of Stratex common stock beneficially owned as reported in the
Schedule 13G filed with the Securities and Exchange Commission
on January 27, 2006. |
|
(2) |
The number of shares of Harris Stratex Class A common stock
beneficially owned was calculated based on the number of shares
of Stratex common stock beneficially owned as reported in the
Schedule 13G/A filed with the Securities and Exchange
Commission on March 9, 2006. |
|
(3) |
The number of shares of Harris Stratex Class A common stock
beneficially owned was calculated based on the number of shares
of Stratex common stock beneficially owned as reported in the
Schedule 13G/A filed with the Securities and Exchange
Commission on February 15, 2006. |
|
(4) |
The number of shares of Harris Stratex Class A common stock
beneficially owned was calculated based on the number of shares
of Stratex common stock beneficially owned as reported in the
Schedule 13G filed with the Securities and Exchange
Commission on February 1, 2006. |
77
Voting Agreements
The directors and the senior officers of Stratex have each
entered into a voting agreement with Harris. Under the terms of
these voting agreements, the directors and officers who are
party to a voting agreement, in their capacities as Stratex
stockholders, have agreed, among other things, to vote all of
the shares of Stratex common stock beneficially owned by them at
the Stratex special meeting in favor of the adoption of the
combination agreement and the approval of the merger and the
other transactions provided for in the combination agreement, to
vote against any other proposal by a third party to acquire
Stratex, or any other matter which could reasonably be expected
to impede, interfere with, delay or adversely affect the
consummation of the transactions contemplated by the combination
agreement, to comply with all restrictions and obligations
contained in the combination agreement and not to sell,
transfer, assign, pledge, encumber or dispose of, or grant a
proxy or enter into any other voting agreement or trust or
similar arrangement with respect to any shares of Stratex common
stock they own. These voting agreements terminate upon any
termination of the combination agreement in accordance with its
terms.
As of the close of business of the record date for the Stratex
special meeting, % of the then-outstanding shares of
Stratex common stock were subject to these voting agreements.
The foregoing description is qualified in its entirety by
reference to the full text of the form of voting agreement which
is attached as Appendix B to this proxy statement/
prospectus and incorporated herein by reference.
Restrictions on Sales of Harris Stratex Class A Common
Stock by Affiliates of Stratex
The shares of Harris Stratex Class A common stock to be
issued in connection with the merger will be registered under
the Securities Act and will be freely transferable under the
Securities Act, except for shares of Harris Stratex Class A
common stock issued to any person who is deemed to be an
affiliate of Stratex at the time of the applicable
special meeting. Persons who may be deemed to be affiliates
include individuals or entities that control, are controlled by,
or are under the common control of Stratex and may include its
executive officers and directors, as well as its significant
stockholders. The combination agreement requires Stratex to use
all reasonable efforts to cause each of its affiliates to
deliver to Harris Stratex a written agreement to the effect that
the affiliate will not sell its shares of Harris Stratex
Class A common stock acquired in connection with the merger
except pursuant to:
|
|
|
|
|
an effective registration statement under the Securities Act; |
|
|
|
a sale made in conformity with the volume and other limitations
of Rule 145 under the Securities Act (as such rule may be
hereafter from time to time amended) (and otherwise in
accordance with Rule 144 under the Securities Act, if such
seller is an affiliate of Harris Stratex and if so required at
the time); or |
|
|
|
a transaction that, in the opinion of independent counsel
reasonably satisfactory to Harris Stratex or under a
no-action letter obtained by the affiliate from the
Securities and Exchange Commission, is not required to be
registered under the Securities Act. |
This proxy statement/ prospectus does not cover resales of
Harris Stratex Class A common stock received by any person
upon completion of the merger, and no person is authorized to
make any use of this proxy statement/ prospectus in connection
with any resale.
Regulatory Approvals
Under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, which is often referred to in this proxy
statement/ prospectus as the HSR Act, and the rules and
regulations promulgated thereunder by the U.S. Federal
Trade Commission, or the FTC, certain transactions, including
the merger and the contribution transaction, cannot be
consummated until notifications have been given and certain
information has been furnished to the FTC and the Antitrust
Division of the U.S. Department of Justice, or the
Antitrust Division, and specified waiting period requirements
have been satisfied. On September 29,
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2006, each of Harris and Stratex filed a Pre-Merger Notification
and Report Form pursuant to the HSR Act with the Antitrust
Division and the FTC. The waiting period under the HSR Act
expired on October 30, 2006. Although the waiting period
has expired, at any time before the effective time of the
proposed transactions, the FTC, the Antitrust Division or others
could take action under the antitrust laws with respect to the
proposed transactions, including seeking to enjoin the proposed
transactions or to require the divestiture of certain assets of
Stratex or the Microwave Communications Division. There can be
no assurance that a challenge to the proposed transactions on
antitrust grounds will not be made or, if such a challenge is
made, that it would not be successful.
Accounting Treatment
For accounting and financial reporting purposes, the merger and
the contribution transaction will be accounted for as a
purchase business combination of Stratex by the
Microwave Communications Division, as that term is used under
accounting principles generally accepted in the U.S. In
identifying the Microwave Communications Division as the
acquiring entity, Harris and Stratex took into account the
relative outstanding share ownership, the composition of the
governing body of the combined entity and the designation of
certain senior management positions. As a result, the historical
financial statements of the Microwave Communications Division
will become the historical financial statements of Harris
Stratex. The assets (including identifiable intangible assets
and goodwill) and liabilities of Stratex as of the closing date
of the merger will be recorded at their respective fair values
and added to the historical cost basis of the assets and
liabilities of the Microwave Communications Division. Any excess
of purchase price over the net fair values of Stratexs
assets and liabilities will be recorded as goodwill
(i.e., excess purchase price). The results of operations
of Stratex will be included in the results of operations of
Harris Stratex beginning on the closing date of the merger and
the contribution transaction. For more information, see
Harris Stratex Networks, Inc. Unaudited Pro Forma
Condensed Consolidated Financial Data beginning on
page 169 of this proxy statement/ prospectus.
Certain Material U.S. Federal Income Tax Consequences
The following is a summary of certain material United States
federal income tax consequences to U.S. holders (as defined
below) of Stratex common stock upon their exchange of Stratex
common stock for Harris Stratex Class A common stock
pursuant to the merger. This summary is based on the code,
Treasury regulations, administrative rulings and court decisions
in effect as of the date of this proxy statement/ prospectus,
all of which are subject to change at any time, possibly with
retroactive effect.
For purposes of this discussion, the term
U.S. holder means:
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a citizen or resident of the United States; |
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a corporation, or other entity taxable as a corporation for
United States federal income tax purposes, created or organized
under the laws of the United States or any of its political
subdivisions; |
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a trust if it |
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is subject to the primary supervision of a court within the
United States and one or more United States persons have the
authority to control all substantial decisions of the
trust, or |
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has a valid election in effect under applicable United States
Treasury regulations to be treated as a United States
person; or |
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an estate that is subject to United States federal income
taxation on its income regardless of its source. |
If a partnership holds Stratex common stock, the tax treatment
of a partner in the partnership generally will depend on the
status of the partner and the activities of the partnership. If
a U.S. holder is a partner in a partnership holding Stratex
common stock, such holder should consult its tax advisor.
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This discussion only addresses U.S. federal income tax
consequences of the merger to U.S. holders of Stratex
common stock that hold their Stratex common stock as a capital
asset within the meaning of Section 1221 of the code.
Further, this summary does not address all aspects of
U.S. federal income taxation that may be relevant to a
U.S. holder of Stratex common stock in light of such
holders particular circumstances or that may be applicable
to holders subject to special treatment under U.S. federal
income tax law (including, for example,
non-U.S. persons,
financial institutions, dealers in securities, insurance
companies, tax-exempt entities, traders who mark to market,
holders who acquired Stratex common stock pursuant to the
exercise of employee stock options or otherwise as compensation,
holders subject to the alternative minimum tax provisions of the
code, and holders who hold Stratex common stock as part of a
hedge, straddle, constructive sale or conversion transaction).
In addition, no information is provided herein with respect to
the tax consequences of the merger under applicable state, local
or foreign laws.
BECAUSE THE FOLLOWING DISCUSSION DOES NOT PURPORT TO BE A
COMPLETE ANALYSIS OF ALL POTENTIAL TAX CONSEQUENCES RELEVANT TO
ANY PARTICULAR HOLDER OR TO PARTICULAR CATEGORIES OF HOLDERS
SUBJECT TO SPECIAL TREATMENT UNDER CERTAIN U.S. FEDERAL
INCOME TAX LAWS, HOLDERS OF STRATEX COMMON STOCK ARE URGED TO
CONSULT WITH THEIR TAX ADVISORS REGARDING THE TAX CONSEQUENCES
OF THE MERGER TO THEM, INCLUDING THE EFFECTS OF
U.S. FEDERAL, STATE AND LOCAL, FOREIGN AND OTHER TAX
LAWS.
In connection with the filing of the registration statement
containing this proxy statement/ prospectus, Bingham McCutchen
has delivered to Stratex its opinion, dated as of the effective
date of the registration statement, and filed as an exhibit
thereto, that, for U.S. federal income tax purposes:
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the merger will constitute a reorganization within the meaning
of Section 368(a) of the code; |
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each of Harris Stratex and Stratex will constitute a party to
the reorganization within the meaning of Section 368(b) of
the code; |
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no gain or loss will be recognized by Stratex upon the merger of
Stratex into Merger Sub and the conversion of Stratex common
stock into Harris Stratex Class A common stock; |
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a U.S. holder of Stratex common stock will not recognize
gain or loss upon the exchange of Stratex common stock solely
for Harris Stratex Class A common stock in the merger,
except that such a holder may recognize gain with respect to any
cash received in lieu of fractional shares of Harris Stratex
Class A common stock ( see Cash in Lieu
of Fractional Shares beginning on page 81 of this
proxy statement/ prospectus); |
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the basis of Harris Stratex Class A common stock to be
received by a U.S. holder of Stratex common stock will be,
in the aggregate, the same as the basis, in the aggregate, of
Stratex common stock surrendered in exchange therefor; and |
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the holding period of Harris Stratex Class A common stock
to be received by a U.S. holder of Stratex common stock
will include the holding period of the Stratex common stock
surrendered in exchange therefor. |
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The opinion of Bingham McCutchen has been rendered on the basis
of:
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certain assumptions, including assumptions regarding the absence
of certain changes in existing facts and that the merger will be
completed in accordance with this proxy statement/prospectus and
the combination agreement; and |
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representations, including those contained in officers
certificates of Stratex, Harris and Harris Stratex, all of which
must be true and accurate in all respects as of the effective
date of the registration statement and must continue to be true
and accurate in all respects as of the effective time of the
merger. |
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If any of those assumptions or representations is inaccurate,
incomplete or untrue, the conclusions contained in the opinion
could be affected. The obligation of Stratex to complete the
transactions is conditioned on its receipt of an opinion of
Bingham McCutchen, dated as of the date of the completion of the
transactions, substantially to the same effect.
In addition, the obligation of Harris to complete the
transactions is conditioned on its receipt of an opinion of
Sullivan & Cromwell, dated as of the date of the
completion of the transactions, substantially to the effect
that, on the basis of the facts, representations and assumptions
set forth or referred to in such opinion, the contribution of
the assets in the contribution transaction by Harris to Harris
Stratex in exchange for the Harris Stratex Class B common
stock pursuant to the contribution transaction and the exchange
of shares of Stratex common stock for Harris Stratex
Class A common stock pursuant to the merger, taken
together, will, with respect to Harris, be treated for
U.S. federal income tax purposes as a transaction described
in Section 351 of the code.
None of the opinions referred to in this discussion or the
opinions stated below will be binding on the Internal Revenue
Service or the courts, and no rulings will be sought from the
Internal Revenue Service regarding the tax treatment of the
transactions. Accordingly, there can be no certainty that the
Internal Revenue Service will not challenge the conclusions set
forth in any of the opinions stated or referred to herein or
that a court would not sustain such a challenge.
Cash in Lieu of Fractional Shares. A U.S. holder of
Stratex common stock who receives cash in lieu of a fractional
share of Harris Stratex Class A common stock in the merger
generally will be treated as having received such fractional
share in the merger and then as having received cash in
redemption of such fractional share. Gain or loss generally will
be recognized based on the difference between the amount of cash
received in lieu of the fractional share of Harris Stratex
Class A common stock and the portion of the
U.S. holders aggregate tax basis in the Stratex
common stock surrendered which is allocable to the fractional
share. This gain or loss generally will be long-term capital
gain or loss if the holding period for the Stratex common stock
surrendered in the merger is more than one year at the effective
time of the merger. Long-term capital gain of non-corporate
U.S. holders generally will be taxed at a maximum
U.S. federal income tax rate of 15%. The deductibility of
capital losses is subject to limitations.
Backup Withholding and Information Reporting. Payments of
cash made to a U.S. holder in connection with the merger
may be subject to information reporting and backup
withholding at a rate of 28%, unless the U.S. holder
of Stratex common stock:
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provides a correct taxpayer identification number and any other
required information to the exchange agent (and does not
subsequently become subject to backup withholding); or |
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is a corporation or comes within certain exempt categories and
otherwise complies with applicable requirements of the backup
withholding rules. |
All non-corporate U.S. holders of Stratex common stock
should complete and sign the Substitute
Form W-9 that will
be included as part of the letter of transmittal to be delivered
following the completion of the merger. Backup withholding does
not constitute an additional tax, but merely an advance payment
of tax, which may be refunded to the extent it results in an
overpayment of tax if a claim for refund is timely filed with
the Internal Revenue Service.
THE FOREGOING DISCUSSION DOES NOT PURPORT TO BE A COMPLETE
ANALYSIS OR LISTING OF ALL POTENTIAL U.S. FEDERAL INCOME
TAX CONSEQUENCES OF THE MERGER. STRATEX STOCKHOLDERS ARE URGED
TO CONSULT THEIR TAX ADVISORS CONCERNING THE U.S. FEDERAL,
STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO THEM OF
PARTICIPATION IN THE MERGER IN LIGHT OF THEIR INDIVIDUAL FACTS
AND CIRCUMSTANCES.
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Harris Stratex Certificate of Incorporation and Bylaws
Stratex stockholders who receive Harris Stratex common stock in
the merger will become Harris Stratex stockholders and their
rights as stockholders will be governed by the amended and
restated certificate of incorporation and amended and restated
bylaws of Harris Stratex and the laws of the State of Delaware.
The certificate of incorporation and bylaws of Harris Stratex
will be amended and restated prior to the completion of the
merger and the contribution transaction as set forth in
Appendix C and Appendix D to this proxy
statement/ prospectus, respectively. For a description of the
capital stock of Harris Stratex and information on certain
differences between the certificate of incorporation and bylaws
of Harris Stratex and the certificate of incorporation and
bylaws of Stratex, see Description of Harris Stratex
Capital Stock beginning on page 175 of this proxy
statement/ prospectus and Comparison of Stockholder
Rights beginning on page 180 of this proxy statement/
prospectus, respectively.
No Appraisal Rights
Stratex stockholders are not entitled to appraisal or
dissenters rights in connection with the merger or the
other transactions provided for in the combination agreement.
Listing of Harris Stratex Class A Common Stock on
NASDAQ
Harris Stratex common stock is currently not traded or quoted on
a stock exchange or quotation system. Harris Stratex expects
that, following the merger and the contribution transaction,
shares of Harris Stratex Class A common stock will be
listed for trading on NASDAQ under the symbol HSTX.
Delisting and Deregistration of Shares of Stratex Common
Stock
Following the merger, Stratex common stock will be delisted from
NASDAQ.
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THE COMBINATION AGREEMENT
The following is a description of the material terms of the
combination agreement and is qualified in its entirety by
reference to the complete text of the combination agreement,
which is incorporated by reference and attached as
Appendix A to this proxy statement/ prospectus. You
should read the full text of the combination agreement in order
to fully understand its terms and conditions.
The combination agreement has been included to provide you
with information regarding its terms, and we recommend that you
read the combination agreement carefully and in its entirety.
The combination agreement contains representations and
warranties of the parties as of specific dates and may have been
used for purposes of allocating risk between the parties rather
than establishing matters as facts. Those representations and
warranties are qualified in several important respects, which
you should consider as you read them in the combination
agreement, including contractual standards of materiality that
may differ from what stockholders consider to be material.
Information concerning the subject matter of the representations
and warranties may have changed since the date of the
combination agreement and new information qualifying a
representation or warranty may have been included in this proxy
statement/ prospectus.
Organization of Harris Stratex and Merger Sub
Pursuant to the terms of the combination agreement, on
October 5, 2006 Harris formed Harris Stratex, a Delaware
corporation and wholly owned subsidiary of Harris, solely for
the purpose of effecting the merger, the contribution
transaction and the other transactions contemplated by the
combination transaction. The amended and restated certificate of
incorporation and amended and restated bylaws of Harris Stratex,
which will be effective following the completion of the
transactions, are set forth in Appendix C and
Appendix D to this proxy statement/ prospectus,
respectively.
Pursuant to the Harris Stratex certificate of incorporation and
bylaws, the authorized capital stock of Harris Stratex consists
solely of shares of Class A common stock, par value
$0.01 per share, shares of Class B common stock, par
value $0.01 per share, and shares of preferred stock, par
value $0.01 per share. As a general matter, the rights and
privileges of the Class A and Class B common stock of
Harris Stratex are identical in all respects, except that the
holders of shares of Class B common stock have additional
voting rights, have the right to receive Class B common
stock instead of Class A common stock in certain
circumstances, do not have certain duties and obligations with
respect to corporate opportunities and have preemptive rights
providing them with the right to participate in additional
offerings of common stock of Harris Stratex.
Currently one share of Harris Stratex Class B common stock
is issued and outstanding and is owned of record by Harris. No
shares of Harris Stratex Class A common stock or preferred
stock are outstanding.
Immediately prior to the closing of the merger and the
contribution transaction, the directors and officers of Harris
Stratex will include the following: Howard L. Lance, Guy M.
Campbell and Charles D. Kissner. In addition, Stratex will
appoint three additional members of the board of directors and
Harris will appoint three additional members of the board of
directors. Of the three additional directors to be appointed by
Harris, one must meet the independence requirements for
directors serving on an audit committee as prescribed by the
NASDAQ rules, and one must not be an employee of Harris or any
of its subsidiaries (without regard to Harris Stratex or any of
its subsidiaries).
Pursuant to the terms of the combination agreement, Harris
Stratex formed Merger Sub, a Delaware corporation and wholly
owned subsidiary of Harris Stratex, solely for the purpose of
effecting the merger.
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Closing of the Contribution Transaction and Effective Time of
Merger
The closing of the contribution transaction and the effective
time of the merger, which will occur simultaneously and are
conditioned on each other, will occur at the time the parties
duly file a certificate of merger with the Secretary of State of
the State of Delaware (or at such later time as may be agreed by
the parties and specified in the certificate of merger) and
Harris transfers the assets and liabilities comprising its
Microwave Communications Division to Harris Stratex and Harris
Stratex issues to Harris shares of Harris Stratex Class B
common stock. The closing date will occur on the fifth business
day after all of the conditions set forth in the combination
agreement have been satisfied or waived (other than conditions
that relate to actions to be taken, or documents to be
delivered, at the closing), or on such other date as may be
mutually agreed between Stratex and Harris.
Each of Stratex and Harris has agreed to deliver written notice
to each other certifying to the satisfaction or waiver of
certain conditions to their respective obligations under the
combination agreement and to the material accuracy of their
respective representations and warranties as provided by the
combination agreement as of the closing date.
Structure of the Transactions
At the effective time of the merger, Merger Sub will be merged
with and into Stratex. Stratex will survive the merger as a
wholly owned subsidiary of Harris Stratex. All of the
properties, assets, rights, privileges, immunities, powers,
purposes, liabilities and obligations of Stratex and Merger Sub
will become those of Stratex.
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The Contribution Transaction |
Simultaneously with the effective time of the merger, Harris or
certain of Harris affiliates entities will transfer to
Harris Stratex the following: (1) the equity interests in
certain identified subsidiaries of Harris contributed in the
transaction, (2) $25 million in cash and (3) with
certain identified exceptions, all of the right, title and
interest of Harris and those subsidiaries retained by Harris in
those assets of Harris and its retained subsidiaries as of the
closing date that are primarily related to the business of the
Microwave Communications Division, including the assets
primarily related to the NetBoss network operations software
business, which we sometimes collectively refer to in this proxy
statement/ prospectus as the MCD business. Cash and cash
equivalents primarily relating to or primarily used in the MCD
business, other than the $25 million in cash referenced
above, will not be transferred to Harris Stratex. In addition,
Harris Stratex will assume and agree to fully discharge or
perform when due all liabilities of Harris and its subsidiaries,
subject to certain exceptions, that (a) are owed to third
parties, (b) result from or arise out of goods, services or
facilities used or supplied by the MCD business and any other
businesses or divisions of Harris and/or any of its subsidiaries
and (c) reasonably can be allocated among the MCD business
and the other businesses and divisions of Harris and are so
allocated to the maximum extent reasonably practicable and,
following that allocation, primarily result from or primarily
arise out of the MCD business as well as all other liabilities
of Harris or any of its subsidiaries that primarily result from
or primarily arise out of the MCD business.
If Harris is unable to obtain any third party approval or
authorization, other than those that are conditions to the
closing of the merger and the contribution transaction, and the
closing proceeds without the transfer of the related asset that
was to be contributed pursuant to the terms of the combination
agreement, then the parties will cooperate with each other and
use commercially reasonable efforts to obtain such approval or
authorization, but no party will be required to pay any
consideration for such approval or authorization, other than
filing, recordation or similar fees which will be paid by Harris
Stratex. Until the parties are able to obtain the necessary
approval or authorization, Harris Stratex and Harris have agreed
to enter into arrangements to provide to the parties the
economic and operational equivalent, to the extent permitted, of
effecting the transfer as provided by the combination agreement.
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Certificate of Incorporation and Bylaws of Stratex
The certificate of incorporation of Stratex in effect
immediately prior to the effective time of the merger will be
the certificate of incorporation of Stratex following the
merger; provided, however, that at the effective time of the
merger the Stratex certificate of incorporation will be amended
so that it is identical to the certificate of incorporation of
Merger Sub immediately prior to the effective time of the
merger, except that the name on the certificate of incorporation
will be Stratex Networks, Inc. Harris and Stratex
agreed to take all actions necessary so the bylaws of Merger Sub
in effect immediately prior to the effective time of the merger
will be the bylaws of Stratex after the merger.
Transaction Consideration
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Merger Consideration; Treatment of Stratex Stock Options,
Warrants and other Equity Awards |
If the contribution transaction occurs, at the effective time of
the merger:
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Each share of Stratex common stock issued and outstanding as of
the effective time of the merger (other than the Stratex common
stock owned by Stratex or any direct or indirect wholly owned
subsidiary of Stratex and not held on behalf of third parties)
will be converted into and exchanged for one-fourth of a share
of Harris Stratex Class A common stock. This exchange ratio
will have the same effect on the number of shares of Harris
Stratex Class A common stock received by the former Stratex
stockholders as if Stratex had completed a one-for-four reverse
stock split immediately prior to the effective time of the
merger. |
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Each outstanding option to purchase shares of Stratex common
stock under the Stratex stock plans, whether vested or unvested,
will be converted into an option to acquire that number of
shares of Harris Stratex Class A common stock equal to
one-fourth of the number of shares of Stratex common stock
issuable upon exercise of the Stratex option immediately prior
to such conversion at an exercise price per share equal to four
times the exercise price per share of Stratex common stock
immediately prior to such conversion. Stock options will be
subject to rounding to comply with certain legal requirements.
Except as specifically provided above, following the effective
time of the merger, each option to purchase shares of
Class A common stock converted as described above will be
governed by the same terms and conditions as were applicable to
the option immediately prior to the effective time of the merger. |
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Each right of any kind, contingent or accrued, to acquire or
receive shares of Stratex common stock or benefits measured by
the value of shares of Stratex common stock, and each award of
any kind consisting of shares of Stratex common stock under the
Stratex stock plans or any other Stratex benefits plan (other
than options to purchase Stratex common stock), will be
converted into the right to acquire, or the right to receive
benefits measured by the value of, that number of shares of
Harris Stratex Class A common stock equal to one-fourth of
the number of shares of Stratex common stock underlying such
Stratex award (rounded down to the nearest whole number)
immediately prior to such conversion, and if such Stratex award
determines such rights by reference to the extent the value of
the shares of Stratex common stock exceed a specified reference
price, at a reference price per share of Harris Stratex
Class A common stock (rounded up to the nearest whole cent)
equal to four times the reference price per share of Stratex
common stock. Except as specifically provided above, following
the effective time of the merger, each Stratex award converted
as described above will be governed the same terms and
conditions as were applicable to the award immediately prior to
the effective time of the merger. |
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Each outstanding warrant to purchase Stratex common stock will
automatically become exercisable for that number of shares of
Harris Stratex Class A common stock equal to one-fourth of
the number of shares of Stratex common stock issuable upon
exercise of such warrant immediately prior to the effective time
of the merger at an exercise price per share of Harris Stratex
Class A common stock equal to four times the exercise price
of such warrant per share of Stratex common stock immediately
prior to the effective time of the merger. In addition,
concurrently with the |
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effective time of the merger, Harris Stratex will assume the
obligation to deliver shares of Harris Stratex Class A
common stock to those persons who are the record holders of the
warrants by entering into the Warrant Assumption Agreement, to
be dated the date of closing, subject to certain adjustments.
For more information regarding the provisions of the Warrant
Assumption Agreement, see Other Agreements
Warrant Assumption Agreement on page 116 of this
proxy statement/ prospectus. |
Contribution Consideration
In exchange for its contribution of the MCD business, Harris
Stratex will issue to Harris, or one of Harris domestic
retained subsidiaries, the number of shares of Harris Stratex
Class B common stock that equals 56% of the total number of
shares of Harris Stratex common stock outstanding immediately
after the closing of the contribution transaction and the
effective time of the merger, after giving effect to the
issuance of Class B common stock to Harris, the issuance of
Harris Stratex Class A common stock in the merger and the
conversions and other changes contemplated by the combination
agreement on a fully diluted basis using the treasury stock
method assuming a market price per share of Class A common
stock equal to $20.80 (which represents $5.20 per share of
Stratex common stock prior to the effective one-for-four reverse
split pursuant to the merger).
Exchange of Stock Certificates Following the Merger
Harris will select an exchange agent with Stratexs prior
approval (which shall not be unreasonably withheld or delayed).
At the effective time of the merger, Harris Stratex will deposit
with the exchange agent, for the benefit of the holders of
shares of Stratex common stock, certificates representing the
aggregate number of shares of Class A common stock issuable
to the Stratex stockholders in the merger and any cash payable
in lieu of fractional shares, as described below. Following the
effective time, Harris Stratex will continue to deposit with the
exchange agent certain dividends or other distributions, if any,
with respect to shares of Class A common stock issuable to
the Stratex stockholders in the merger.
As soon as practicable after the effective time of the merger,
the exchange agent will mail to each holder of record of a
certificate representing shares of Stratex common stock
(1) a letter of transmittal acceptable to Harris and
(2) instructions for effecting the surrender of those
certificates in exchange for certificates representing the
appropriate number of shares of Harris Stratex Class A
common stock and cash in lieu of fractional shares and any
dividends or distributions payable in respect of Stratex common
stock represented by the surrendered certificates as provided by
the combination agreement.
Stratex stockholders should not return their certificates
with the enclosed proxy card.
Upon surrender of a certificate representing shares of Stratex
common stock and a duly executed letter of transmittal, the
holder of such certificate will be entitled to receive
(1) one or more certificates representing the number of
shares of Harris Stratex Class A common stock equal to
one-fourth of the number of shares of Stratex common stock
represented by such certificate (rounded down to the next full
number of shares), (2) a check in the amount (after giving
effect to any required tax withholdings) of any cash payable in
lieu of fractional shares and any cash dividends and
distributions such holder is entitled to receive under the
combination agreement and (3) any non-cash dividends or
distributions such holder is entitled to receive under the
combination agreement. No interest will be paid or accrued on
any amount payable upon surrender of certificates representing
shares of Stratex common stock.
Dividends and Distributions with Respect to Unexchanged
Shares of Stratex Common Stock
All Harris Stratex Class A common stock will be deemed
issued and outstanding as of the effective time of the merger
and any dividends and distributions declared by Harris Stratex
in respect of shares of Harris Stratex Class A common stock
with a record date at or after the effective time of the merger
will include dividends or other distributions in respect of
shares of Harris Stratex Class A common stock issuable to
the Stratex stockholders in the merger. However, no dividends or
other distributions in respect of shares of Harris Stratex
Class A common stock issuable to the Stratex stockholders
in the merger will
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be paid to any Stratex stockholder until the certificate
representing shares of Stratex common stock is surrendered to
the exchange agent.
Voting
At any meeting of Harris Stratex stockholders after the
effective time of the merger, holders of unsurrendered
certificates of shares of Stratex common stock will be entitled
to vote that number of shares of Harris Stratex Class A
common stock into which the shares of Stratex common stock
represented by their certificates were converted in the merger,
regardless of whether holders have exchanged those certificates.
Fractional Shares
No fractional shares of Harris Stratex Class A common stock
will be issued in the merger. All fractional shares of Harris
Stratex Class A common stock that a Stratex stockholder (or
holder of Stratex restricted stock) would otherwise be entitled
to receive as a result of the merger will be aggregated and if a
fractional share results from such aggregation, such stockholder
shall be entitled to receive in exchange for such
stockholders entitlement to such fractional share of
Harris Stratex Class A common stock, an amount in cash
without interest equal to such stockholders proportionate
interest in a share of Harris Stratex Class A common stock
assuming the price of such a share was equal to four times the
average of the closing prices per share of Stratex common stock
on NASDAQ for the five trading days ending on the last trading
day prior to the closing date of the merger and the contribution
transaction.
Quotation of Shares of Harris Stratex Class A Common
Stock
Harris Stratex and Harris will use all reasonable efforts to
cause the shares of Harris Stratexs Class A common
stock to be issued in the merger and to be reserved for issuance
upon the exercise of the Stratex options, Stratex awards and
future grants of options or stock-based awards by Harris Stratex
as well as the shares of Harris Stratexs Class A
common stock reserved for issuance upon conversion of Harris
Stratexs Class B common stock to be approved for
listing on NASDAQ, subject to official notice of issuance.
Representations and Warranties
Stratex and Harris made customary representations and warranties
in the combination agreement on behalf of themselves and their
respective subsidiaries that are subject, in some cases, to
specified exceptions and qualifications contained in the
combination agreement or in information provided pursuant to
certain disclosure obligations set forth in the combination
agreement. Unless specified otherwise, representations and
warranties have been made separately and individually by Stratex
and Harris in relation to, among other things:
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the respective corporate organization, existence and good
standing of Harris and each of its applicable subsidiaries to
carry on the MCD business and of Stratex and each of its
subsidiaries; |
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the respective authority of Stratex and Harris to enter into the
combination agreement; |
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the respective capital structures of Stratex and its
subsidiaries and certain subsidiaries of Harris; |
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the title of Harris and certain of its subsidiaries to the
outstanding capital stock of the subsidiaries to be contributed
to Harris Stratex by Harris; |
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the approval of the combination agreement and the transactions
contemplated by the combination agreement by Stratexs and
Harris respective boards of directors; |
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the receipt of a fairness opinion from Stratexs financial
advisor; |
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other than certain identified filings, including filings
required under the HSR Act, the absence of any need for consents
of government authority by Stratex, Harris or any of their
respective subsidiaries; |
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the absence of a violation of charter documents of Stratex or
any of its subsidiaries or of Harris; |
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the absence of a material violation or a change in rights
relating to any contract, government authorization, permit or
license of Stratex, Harris or any of their respective
subsidiaries or, in the case of Harris, a material encumbrance
on any of the contributed assets or the assets of a contributed
subsidiary; |
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the absence of consents required under material contracts of
Stratex and Harris or any of their respective subsidiaries; |
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the absence of material bankruptcy court orders related to
Stratex or any of its subsidiaries or to the MCD business; |
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the SEC filings and the accuracy and completeness of the
information contained in the SEC filings, including the
financial statements, made by Harris or any of its subsidiaries
since July 1, 2005 that contain information relating to the
MCD business and made by Stratex or any of its subsidiaries
since March 31, 2006; |
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the audited financial statements of Stratex and the MCD
business, including their preparation in accordance with GAAP
and that they fairly present, in all material respects, certain
financial information; |
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in the case of Stratex, its material compliance in all material
respects with the SOX Act and the listing and corporate
governance rules and regulations of NASDAQ, and, in the case of
Harris, its material compliance in all materials respects with
the SOX Act to the extent that its compliance will affect Harris
Stratexs ability to comply with the SOX Act following the
closing; |
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in the case of Stratex, the adequacy of its disclosure controls
and procedures and any significant deficiencies and material
weaknesses in the design or operation of its internal controls
over financial reporting and, in the case of Harris, the
adequacy of its disclosure controls and procedures and any
significant deficiencies and material weaknesses in the design
or operation of its internal controls over financial reporting
as such matters relate to the MCD business; |
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the absence of any material issue regarding accounting or
auditing practices or the reporting of a material violation of
securities laws or fiduciary duties since March 31, 2003
for Stratex and since June 30, 2006 for Harris as such
matters relate to the MCD business; |
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the accuracy of information contained in registration statements
that Harris has filed with the SEC since July 1, 2005
relating to the MCD business and that Stratex has filed with the
SEC since March 31, 2004; |
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the accuracy of the information provided by Stratex and Harris,
respectively, to be included or incorporated by reference in the
registration statement of which this proxy statement/ prospectus
forms a part; |
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the absence of a material adverse change to the business of
Stratex and its subsidiaries since March 31, 2006 or to the
MCD business since June 30, 2006; |
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the absence of undisclosed litigation or injunctions concerning
the MCD business or Stratex or any of its subsidiaries or
affiliates; |
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the absence of undisclosed material liabilities concerning the
MCD business or Stratex or any of its subsidiaries; |
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the employee benefits and ERISA compliance of the MCD business
and of Stratex and its subsidiaries; |
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the compliance by Stratex and its subsidiaries and Harris and
its subsidiaries with respect to the MCD business with laws and
government regulations, including environmental laws; |
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the actions taken by Stratex to ensure the inapplicability of
restrictions under takeover statutes; |
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the absence of undisclosed affiliate transactions by Stratex; |
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the proper filing of all tax returns, compliance with tax laws
and absence of any deficiencies in those filings by those
subsidiaries of Harris Stratex to be contributed to Harris
Stratex and by Stratex and its subsidiaries; |
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intellectual property and information technology of Harris and
its subsidiaries relating to the MCD business and of Stratex and
its subsidiaries; |
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labor relations matters of Harris and its subsidiaries relating
to the MCD business and of Stratex and its subsidiaries; |
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the validity and enforceability of all material contracts of
Harris and its subsidiaries relating to the MCD business and of
Stratex and its subsidiaries; |
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the sufficiency of the assets Harris and its subsidiaries will
contribute to Harris Stratex under the combination agreement, in
combination with other services, intellectual property, real
property and government authorizations, to conduct the MCD
business; |
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the holding of good and marketable title, in fee simple, to the
real property of Harris and its subsidiaries relating to the MCD
business and of Stratex and its subsidiaries and the absence of
a material default on any material leases by Harris and its
subsidiaries relating to the MCD business or by Stratex and its
subsidiaries; |
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insurance of Harris and its subsidiaries relating to the MCD
business and of Stratex and its subsidiaries; |
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the absence of any unlawful payments by Harris and its
subsidiaries relating to the MCD business and of Stratex and its
subsidiaries; and |
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the absence of undisclosed brokers fees or finders
fees relating to the transaction. |
Many of the representations and warranties made by each of
Harris and Stratex are qualified by a material adverse effect
standard. For the purposes of the combination agreement, a
material adverse effect with respect to Stratex
means the following:
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a material adverse effect on the results of operations,
financial condition, cash flow, assets liabilities or business
of Stratex and its subsidiaries, taken as a whole; and |
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any effect that prevents, materially delays or materially
impairs Stratexs ability to complete, or Harris Stratex to
receive the benefits of, the merger and the other transactions
under the combination agreement. |
A material adverse effect with respect to Stratex
will not have occurred, however, as a result of the following:
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events or conditions (including changes in economic, financial
market, regulatory or political conditions) that generally
affect participants in the industries in which Stratex and its
subsidiaries participate except to the extent that they
adversely affect Stratex and its subsidiaries (taken as a whole)
disproportionately compared to such other participants; or |
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any disruption of employee, customer, supplier or other similar
relationships primarily as a result of the execution or
announcement of the combination agreement and the identity of
Harris. |
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For the purposes of the combination agreement, a material
adverse effect with respect to Harris means the following:
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a material adverse effect on the results of operations,
financial condition, cash flow, assets, liabilities or business
of the MCD business, taken as a whole; and |
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any effect that prevents, materially delays or materially
impairs Harris ability to complete, or Harris Stratex to
receive the benefits of, the contribution transaction and the
other transactions under the combination agreement. |
A material adverse effect with respect to Harris
will not have occurred, however, as a result from the following:
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events or conditions (including changes in economic, financial
market, regulatory or political conditions) that generally
affect participants in the industries in which the MCD business
participates except to the extent that they adversely affect the
MCD business disproportionately compared to such other
participants; or |
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any disruption of employee, customer, supplier or other similar
relationships primarily as a result of the execution or
announcement of the combination agreement and the identity of
Stratex. |
Covenants
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Stratex Interim Operating Covenants |
Under the combination agreement, unless (1) Harris provides
written approval (not to be unreasonably withheld or delayed),
(2) expressly required or permitted by the combination
agreement or (3) required by applicable law, Stratex has
agreed as to itself and its subsidiaries that from the date of
the combination agreement until the effective time of the
merger, Stratex and its subsidiaries will:
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conduct their businesses in the ordinary and usual course of
business consistent with past practice; and |
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use commercially reasonable efforts to preserve their business
organizations and maintain their existing relations and goodwill
with government entities, customers, manufacturers, suppliers,
distributors, creditors, lessors, employees and business
associates and keep available the services of the present
employees and agents of Stratex and its subsidiaries. |
More specifically, Stratex will not and will not permit its
subsidiaries to:
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adopt or propose a change to their organizational documents; |
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merge or consolidate, except for transactions among indirect and
direct wholly owned subsidiaries of Stratex that are not
obligors or guarantors of indebtedness of a person other than
Stratex or another wholly owned subsidiary of Stratex; |
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acquire assets with a value or price greater than $500,000
outside the ordinary course of business; |
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enter into any material new line of business or distribute a new
type of product; |
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issue, sell, pledge, dispose of, grant, transfer, lease,
license, guarantee, encumber, or authorize the issuance, sale,
pledge, disposition, grant, transfer, lease, license, guarantee
or encumbrance of, any shares of capital stock of, or other
equity interest in, Stratex or any of its subsidiaries, or
securities convertible into, or exchangeable or exercisable for,
any such shares of capital stock or other equity interest,
except for (1) the issuance of shares by a direct or
indirect wholly owned subsidiary of Stratex to Stratex or
another direct or indirect wholly owned subsidiary of Stratex,
(2) mergers or consolidations among wholly owned
subsidiaries of Stratex that are not obligors or guarantors of
indebtedness of a person other than Stratex or another wholly
owned subsidiary of Stratex, (3) the issuance and sale of
Stratex common stock pursuant to Stratex options or Stratex
awards |
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outstanding prior to the date of the combination agreement and
(4) grants of Stratex options or Stratex awards permitted
by another section in the combination agreement; |
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create or incur any encumbrance material to Stratex or its
subsidiaries, other than in the ordinary course of business, on
any assets valued in excess of $500,000 that are used in Stratex
or any of its subsidiaries business; |
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make any loans, advances or capital contributions to, or
investments in, any person in excess of $500,000 in the
aggregate, except to, or in, any direct or indirect wholly owned
subsidiary of Stratex that is not an obligor or guarantor of
indebtedness of a person other than Stratex or another wholly
owned subsidiary of Stratex; |
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declare, set aside or pay any dividend or distribution regarding
Stratex or any of its subsidiaries capital stock, except
for dividends or distributions by any direct or indirect wholly
owned subsidiaries of Stratex and pro rata dividends or
distributions payable to holders of interests in non wholly
owned subsidiaries; |
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reclassify, split, recapitalize, subdivide or repurchase, redeem
or otherwise acquire, directly or indirectly, any of its capital
stock except for the purpose of effecting mergers or
consolidations among direct or indirect subsidiaries of Stratex
that are not obligors or guarantors of indebtedness of a person
other than Stratex or another wholly owned subsidiary of Stratex; |
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incur any indebtedness or guarantee indebtedness of another
person, or issue or sell any debt securities or warrants or
other rights to acquire any debt security of Stratex or any of
its subsidiaries or enter into any capital lease, except for (1)
liabilities for the deferred purchase price of property or for
the reimbursement of any obligor on any letter of credit,
bankers acceptance or similar credit transaction securing
obligations similar to liabilities of borrowed money that is
incurred in the ordinary course of business,
(2) indebtedness incurred in the ordinary course of
business under Stratexs existing revolving credit facility
(or any replacement facility) not to exceed $50,000,000 in the
aggregate (including amounts outstanding as of the date of the
combination agreement), (3) refinancings of indebtedness
outstanding on the date of the combination agreement on
commercially reasonable terms and (4) loans or advances by
Stratex or any of its subsidiaries to direct or indirect wholly
owned subsidiaries of Stratex that are not obligors or
guarantors of indebtedness of a person other than Stratex or
another wholly owned subsidiary of Stratex; |
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make or authorize any capital expenditure in excess of $250,000
individually or regarding a related group of expenditures or
$1,000,000 in the aggregate; |
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enter into any material contract other than in the ordinary
course of business; |
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change accounting policies or procedures, except as required by
changes in GAAP or
Regulation S-X,
based upon the advice of its independent auditors after
consultation with Harris; |
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settle any pending or threatened civil, criminal or
administrative actions, proceedings, suits, claims, litigations,
arbitrations, investigations or other proceedings for an amount
to be paid by Stratex or any of its subsidiaries in excess of
$500,000 or that would be reasonably likely to have any material
adverse impact on the operations of Stratex or any of its
subsidiaries, or indemnify any person other than pursuant to a
contractual obligation; |
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other than in the ordinary course of business, (1) amend or
modify in any material respect, or terminate or waive any
material right or benefit under, any material contract of
Stratex (other than as permitted under the combination
agreement) or regarding any pending or threatened civil,
criminal or administrative actions, suits, claims, litigations,
arbitrations, investigations or other proceedings, or
(2) cancel, modify or waive any debts, claims or rights
held by it, in each case having a value in excess of $500,000; |
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except as required by law, make any material tax election or
take any material position on any material tax return filed as
of the date of the combination agreement or adopt any method
that is |
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inconsistent with elections made, positions taken or methods
used in preparing or filing similar tax returns in prior periods
or settle or compromise any material tax liability; |
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sell, transfer, lease, license or otherwise dispose of any
material property of Stratex or its subsidiaries except in the
ordinary course of business; |
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sell, lease, abandon, transfer, dispose of, license or grant
material rights under any material intellectual property rights
of Stratex or any of its subsidiaries or materially modify any
of these existing rights, except in the ordinary course of
business consistent with past practice, or enter into any
settlement regarding (1) the infringement of any material
intellectual property rights of Stratex or any of its
subsidiaries or (2) the breach of any license agreements
governing use of material intellectual property; |
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terminate, establish, adopt, enter into, make any new grants or
awards under, amend or otherwise modify, or accelerate vesting
or payment under any benefit plans of Stratex or any of its
subsidiaries or enter into any new employment or compensatory
agreements or arrangements with, or increase the salary, wage,
bonus or other compensation payable or to become payable to, any
directors, officers, employees or consultants of Stratex or any
of its subsidiaries, except that (1) Stratex may increase
the base salary or wage of any employee other than the five most
highly compensated employees in the ordinary course of business
and enter into new employment or compensatory arrangements with
newly hired persons if such person would not be one of
Stratexs five most highly compensated employees and is
hired in the ordinary course of business as a replacement and
not as part of a plan for business development, (2) salary
or wage increases and compensatory arrangements so permitted may
not, in the aggregate, exceed $1,000,000 and (3) Stratex
may grant to its newly hired employees options or awards issued
in the ordinary course of business consistent with past
practice, with a per share price no less than the then-current
market price of Stratex common stock and not subject to any
accelerated vesting or other provision that would be triggered
as a result of the consummation of the transactions contemplated
by the combination agreement and/or termination of employment; |
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adopt a plan of liquidation, dissolution, restructuring,
recapitalization or other reorganization of Stratex or any of
its subsidiaries other than any plan of dissolution of an
indirect or direct wholly owned subsidiary of Stratex that is
not an obligor or guarantor of indebtedness of a person other
than Stratex or another wholly owned subsidiary of Stratex; |
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take any action that would impair the ability of Harris or
Merger Sub to vote or to otherwise exercise the rights and
benefits of a stockholder with respect to, securities of Stratex
acquired or controlled or to be acquired or controlled by Harris
or Merger Sub as contemplated by the combination agreement or
the ancillary agreements; |
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take any action that is reasonably likely to result in any of
the conditions to the contribution transaction or the merger not
being satisfied; or |
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agree or commit to do any of the foregoing. |
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Harris Interim Operating Covenants |
Under the combination agreement, unless (1) Stratex
provides written approval (not to be unreasonably withheld or
delayed), (2) expressly required or permitted by the
combination agreement or (3) required by applicable law,
Harris has agreed as to itself and its subsidiaries that from
the date of the combination agreement until the effective time
of the merger, Harris and its subsidiaries will:
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conduct the MCD business in the ordinary and usual course; and |
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use their respective commercially reasonable efforts to preserve
the MCD business and maintain MCD business existing
relations and goodwill with government entities, customers,
manufacturers, suppliers, distributors, creditors, lessors,
employees and business associates and keep available the |
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services of the present employees and agents of Harris and its
subsidiaries that are engaged primarily in the MCD business. |
More specifically, unless disclosed to Stratex by Harris or
contemplated by Harris internal restructuring plan to be
effected prior to the effective time related to the contribution
transaction, Harris will not and will not permit its
subsidiaries, with respect to the MCD business, to:
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adopt or propose a change to the organizational documents of the
subsidiaries to be contributed by Harris to Harris Stratex; |
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merge or consolidate any of the subsidiaries to be contributed
by Harris to Harris Stratex; |
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acquire assets outside the ordinary course of business primarily
related to or used primarily in connection with the MCD business
with a value or price greater than $500,000, other than as
provided for in Harris capital expenditures budget for the
MCD business disclosed to Stratex, or the Harris budget; |
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cause or permit the MCD business to enter into any new material
line of business or distribute products other than the type of
product that the MCD business is currently distributing; |
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issue, sell, pledge, dispose of, grant, transfer, lease,
license, guarantee, encumber, or authorize the issuance, sale,
pledge, disposition, grant, transfer, lease, license, guarantee
or encumbrance of, any shares of capital stock of, or other
equity interest in, the subsidiaries to be contributed by Harris
to Harris Stratex, or securities convertible into, or
exchangeable or exercisable for, any such shares of capital
stock or other equity interest; |
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create or incur any encumbrance material to the MCD business,
other than in the ordinary course of business, on any of the
contributed assets or assets or shares of the contributed
subsidiaries valued in excess of $500,000; |
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make any loans, advances or capital contributions to, or
investments in, any person in excess of $500,000 in the
aggregate related to the MCD business, except to, or in, Harris
or any wholly owned subsidiary of Harris; |
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make or authorize any capital expenditure (other than those
specifically provided for in the Harris budget) in excess of
$250,000 individually or regarding a related group of
expenditures or $1,000,000 in the aggregate; |
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enter into any material contract other than in the ordinary
course of business; |
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enter into any capital lease the obligations of which would be
assumed liabilities on the closing date of the merger; |
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change accounting policies or procedures that affect the MCD
business, except as required by changes in GAAP or
Regulation S-X,
based upon the advice of its independent auditors; |
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settle any pending or threatened civil, criminal or
administrative actions, proceedings, suits, claims, litigations,
arbitrations, investigations or other proceedings related to the
MCD business for an amount to be paid by Harris or any of its
subsidiaries in excess of $500,000 or which would be reasonably
likely to have any material adverse impact on the MCD business
or provide an indemnity related to the MCD business other than
pursuant to a contractual obligation; |
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other than in the ordinary course of the MCD business, (1) amend
or modify in any material respect, or terminate or waive any
material right or benefit under, any material contract of Harris
(other than as permitted under the combination agreement) or in
respect of any pending or threatened civil, criminal or
administrative actions, suits, claims, litigations,
arbitrations, investigations or other proceedings related to the
MCD business, or (2) cancel, modify or waive any debts,
claims or rights held by it that are related to the MCD
business, in each case having a value in excess of $500,000; |
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sell, transfer, lease, license or otherwise dispose of any
material property of Harris or its subsidiaries that would
otherwise be contributed assets or contributed subsidiaries,
except in the ordinary course of business; |
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sell, lease, abandon, transfer, dispose of, license or grant
material rights under any material intellectual property rights
of Harris or any of its subsidiaries related to the MCD business
or materially modify any of these existing rights, except in the
ordinary course of business consistent with past practice, or
enter into any settlement regarding (1) the infringement of
any material intellectual property rights of Harris or any of
its subsidiaries or (2) the breach of any license
agreements governing use of material intellectual property; |
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terminate, establish, adopt, enter into, make any new grants or
awards under, amend or otherwise modify, or accelerate vesting
or payment under any benefit plans of Harris or any of its
subsidiaries to any employee of the MCD business or enter into
any new employment or compensatory agreements or arrangements
with, or increase the salary, wage, bonus or other compensation
payable or to become payable to, any employee of the MCD
business or consultants to the MCD business, except that
(1) Harris may increase the base salary or wage of any
employee of the MCD businesses other than the five most highly
compensated employees of the MCD business in the ordinary course
of business and enter into new employment or compensatory
arrangements with newly hired persons if such person would not
be one of the five most highly compensated employees of the MCD
business and is hired in the ordinary course of business as a
replacement and not as part of a plan for business development,
(2) salary or wage increases and compensatory arrangements so
permitted may not, in the aggregate, exceed $1,000,000,
(3) Harris may grant to its newly hired employees of the
MCD business options to purchase Harris stock or other Harris
equity awards issued in the ordinary course of business
consistent with past practice, with a per share price no less
than the then-current market price of Harris common stock and
not subject to any accelerated vesting or other provision that
would be triggered as a result of the consummation of the
transactions and/or termination of employment, (4) may
terminate, establish, adopt, enter into, amend or otherwise
modify any benefit plan of Harris or its subsidiaries, so long
as such action is applied consistently to all employees of
Harris who participate such plan and (5) make new grants or
awards under any benefit plan of Harris or any of its
subsidiaries to employees of the MCD business, so long as such
grants or awards are part of a Harris-wide compensation review,
and the review of the employees of the MCD business and any
resulting grants or awards are made in the ordinary course of
business and are consistent with awards made to employees who
are allocated to other divisions of Harris; |
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take any action that is reasonably likely to result in any of
the conditions to the contribution transaction or the merger not
being satisfied; or |
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agree or commit to do any of the foregoing. |
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Board Recommendation; Stratex Stockholder Meeting |
Stratex has adopted a resolution recommending that the holders
of Stratex common stock vote to adopt the combination agreement,
and recommending the adjournment of the special meeting, in the
discretion of the proxies or either of them, to solicit
additional proxies or for other purposes. In furtherance
thereof, Stratex has agreed to take, in accordance with
applicable law and its organizational documents, all action
necessary to call, give notice of, convene and hold a meeting of
its stockholders as promptly as practicable after the
registration statement on
Form S-4 of which
this proxy statement/ prospectus is a part, is declared
effective, and in any event will use its reasonable best efforts
to convene such meeting not later than 120 days after the
date of the combination agreement (or, if later, not more than
60 days after the effectiveness of the S-4 registration
statement), to consider and vote upon the adoption of the
combination agreement. Stratex will submit the combination
agreement to its common stockholders for adoption by them at the
stockholders meeting (and shall use its reasonable best efforts
to do so within the time periods provided in the immediately
preceding sentence) regardless of whether the Stratex board
changes its recommendation or approval after the date of the
combination agreement.
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No Solicitation of Acquisition Proposals by Stratex |
Stratex has agreed that neither it nor any of its subsidiaries,
nor any of their officers, directors, employees, agents and
representatives (including any investment banker, attorney or
accountant), or a representative, will, directly or indirectly,
initiate, solicit, encourage or facilitate any acquisition
proposal. Stratex has further agreed that neither it nor any of
its representatives will, directly or indirectly:
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provide any confidential or non-public information or data to,
or engage or participate in any discussions or negotiations
with, any person relating to an acquisition proposal, or
otherwise encourage or facilitate any effort or attempt by any
person to make or implement an acquisition proposal; |
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waive any provision of any confidentiality or standstill
agreement that Stratex is a party to without the prior written
consent of Harris; or |
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make any change in the recommendation of the board of directors
of Stratex to the Stratex stockholders to adopt the proposal
relating to the adoption of the combination agreement and the
approval of the merger and the other transactions contemplated
by the combination agreement. |
Notwithstanding the restrictions described above, Stratex or the
board of directors of Stratex is permitted to:
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comply with its disclosure obligations under
Sections 14d-9 and
14e-2 of the Exchange
Act and the rules created thereunder or make disclosures to
Stratex common stockholders that the Stratex directors determine
in good faith (after consultation with outside counsel) they are
required to make to comply with their fiduciary duties to the
Stratex common stockholders under the Delaware General
Corporation Law or |
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at any time prior to, but not after, the required vote by
Stratex common stockholders is obtained: |
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(A) |
provide confidential or non-public information in response to a
request by a person who has made an unsolicited bona fide
written qualifying acquisition proposal; |
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(B) |
engage or participate in discussions or negotiations with any
person who has made a qualifying acquisition proposal; or |
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(C) |
approve or recommend to the Stratex stockholders a qualifying
acquisition proposal (or agree to take such action), |
but Stratex may take the above actions, if and only if:
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with respect to clauses (A), (B) or (C) above,
after consulting with outside legal counsel, the board of
directors of Stratex determines in good faith that failing to
take such action would constitute a breach by the Stratex
directors of their fiduciary duties; |
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with respect to clauses (A) or (B) above, Stratex
enters into a confidentiality agreement with such person on
terms substantially similar to those contained in the
confidentiality agreement between Stratex and Harris; |
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with respect to clauses (B) or (C) above,
(x) the board of directors of Stratex determines in good
faith and after consulting with its financial advisors and
outside counsel that the qualifying acquisition proposal is a
superior proposal or, in the case of clause (B) only,
is reasonably likely to lead to a superior proposal and
(y) Stratex has provided five business days written
notice in the case of the first qualifying acquisition proposal
made by a person (or one business days written notice in
the case of a subsequent qualifying acquisition proposal made by
the same person) to Harris of Stratexs or its board of
directors intention to take the actions described in
(B) or (C) and has complied with other notice
provisions prescribed by the combination agreement. |
For purposes of the combination agreement, acquisition
proposal means any proposal or offer regarding (1) a
merger, consolidation, share exchange, reorganization or other
business combination
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transaction involving Stratex, (2) any acquisition of any
equity or other ownership interest in Stratex or any of its
subsidiaries representing, in the aggregate, 15% or more of the
total voting power or economic interest of all of the
outstanding equity or other ownership interest in Stratex or an
economic interest of equivalent value in any subsidiary of
Stratex or (3) any acquisition of assets of Stratex or any
of its subsidiaries representing 15% or more of the total assets
of Stratex and its subsidiaries, taken as a whole;
qualifying acquisition proposal means an unsolicited
bona fide written acquisition proposal that did not
result from a breach in the nonsolicitation restrictions in the
combination agreement; and superior proposal means a
qualifying acquisition proposal that is more favorable from a
financial point of view to Stratex stockholders than the
transactions under the combination agreement after taking into
account any revised terms offered by Harris before such action
is taken and all other relevant factors (including but not
limited to the probability that such qualifying acquisition
proposal will be consummated and the time required to effect
such consummation) and that is reasonably likely to be
consummated taking into account all legal, financial, regulatory
(including, without limitation, any antitrust or competition
approvals or non objections) and other relevant factors.
Stratex has agreed to notify Harris as promptly as practicable
(and, in any event, within 24 hours) if any inquiries,
proposals or offers with respect to any acquisition proposal or
potential acquisition proposal are received by, any information
relating thereto is requested from, or any discussions or
negotiations relating thereto are sought to be initiated or
continued with, it or any of its representatives, indicating, in
connection with such notice, the name of such person and the
material terms and conditions of any proposal or offer and
thereafter shall keep Harris informed, on a current basis, as to
the status and terms of any such proposal or offer and the
status of any such discussions or negotiations. Stratex also has
agreed to provide any information to Harris that it is providing
to another person pursuant to the no solicitation section in the
combination agreement at the same time it provides it to such
other person. Stratex has also agreed to negotiate in good faith
with Harris regarding any revisions to the terms of the
transactions contemplated by the combination agreement proposed
by Harris during the five- and one-business day periods, as
applicable. Any revisions offered by Harris in writing, if
accepted by Stratex, would be legally binding on the parties to
the combination agreement. Any material amendment to any
qualifying acquisition proposal will be deemed to be a new
qualifying acquisition proposal for purposes of provisions
related to this issue in the combination agreement.
The combination agreement contains certain other covenants,
including covenants relating to cooperation between Harris and
Stratex in the preparation of this proxy statement/ prospectus
and other governmental filings, obtaining consents, access,
notification, providing information and performing their
respective obligations regarding public announcements. Harris,
Stratex and Harris Stratex have further agreed, as applicable,
to the following additional covenants and agreements in the
combination agreement, among others:
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Stratex will use its best efforts to have its affiliates execute
the affiliate agreement contemplated by the combination
agreement. |
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The board of directors of Stratex has agreed not to withdraw,
modify, qualify in any adverse manner to Harris, its
recommendation to the Stratex stockholders to approve the
combination agreement or its approval of the combination
agreement and the transactions provided by the combination
agreement before the required vote by the Stratex stockholders
is obtained unless: |
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Stratex has provided written notice to Harris that the Stratex
board intends to take such action, at least five business days
have elapsed since the date on which Harris received such notice
and Stratex has complied with the covenants regarding the
notification of acquisition proposals, the provision of
information to persons making alternative acquisition proposals
and its agreement to negotiate in good faith with Harris after
notifying Harris of the intention to consider an alternative
acquisition proposal; |
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the Stratex board has determined in good faith, after consulting
with its outside legal counsel and financial advisors and taking
into account any revised terms offered by Harris in writing
after receiving notice from Stratexs board that it intends
to consider another proposal, that failing to take such action
would be a breach by Stratexs directors of their fiduciary
duties under applicable law; and |
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if such change in recommendation or approval is being made
primarily as a result of an acquisition proposal, such
acquisition proposal is a superior proposal. |
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Harris has agreed to cause the consummation of the restructuring
events disclosed to Stratex. In addition, all Harris
intercompany liabilities (other than those solely among the
subsidiaries to be contributed by Harris to Harris Stratex) will
be extinguished and will terminate at the effective time of the
merger without the payment of any consideration or any other
action by any person. |
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To the extent any subsidiary to be contributed by Harris to
Harris Stratex transfers to Harris any of its assets which are
not primarily related to or primarily used in connection with
the MCD business prior to the closing of the contribution
transaction, Harris will notify Stratex in advance of, and make
available to Stratex in a timely manner for review all
agreements, instruments and other documentation relating to such
transfer. |
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To the extent assignable without the insurers consent or
any required consent is obtained, Harris will, or will cause its
subsidiaries to, assign to Harris Stratex all rights of Harris
or any of its subsidiaries regarding the liabilities to be
assumed by Harris Stratex in the contribution transaction under
third party insurance policies. In addition, if such rights are
not assignable, Harris agreed to pay any insurance proceeds
received by it or any of its subsidiaries regarding such
liabilities to Harris Stratex promptly upon the receipt of the
proceeds. |
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Harris has agreed to, and will cause each of its subsidiaries
that is a party to an ancillary agreement to, execute each
ancillary agreement to the combination agreement to which it is
a party, and Harris Stratex will execute and deliver each
ancillary agreement at the closing. |
Conditions to the Completion of the Merger and the
Contribution Transaction
The completion of the merger and the contribution transaction
depend upon the satisfaction or waiver of a number of
conditions, including the following:
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the adoption of the combination agreement by the Stratex
stockholders; |
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the authorization for listing on NASDAQ of Harris Stratex
Class A common stock to be issued in the merger and
reserved for issuance upon the exercise of stock options and
awards and the conversion of the shares of Class B common
stock, subject to official notice of issuance; |
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the expiration or termination of the waiting period applicable
to the merger and the contribution transaction under the HSR Act
and the filing or receipt of all other governmental
authorizations required to be made or obtained by Harris or
Stratex other than those the failure of which to make or obtain
would not, individually or in the aggregate, be reasonably
likely to have a material adverse effect on the results of
operations, financial condition, cash flows, assets, liabilities
or business of Harris Stratex and its subsidiaries, taken as a
whole, following the closing or result in criminal liability or
other material sanctions for any director or officer of Harris,
Stratex or Harris Stratex; |
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the effectiveness of the registration statement of which this
proxy statement/ prospectus is a part, the absence of a stop
order issued by the Securities and Exchange Commission
suspending the effectiveness of that registration statement and
the absence of any proceedings initiated for that purpose by the
Securities and Exchange Commission; |
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the absence of any law, order or injunction enacted, issued or
promulgated by any court or government entity that is in effect
and restrains or enjoins or otherwise prohibits consummation of
the merger or the contribution transaction; |
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the material accuracy of the representations and warranties made
by Harris and Stratex and material compliance by Harris and
Stratex with their respective obligations under the combination
agreement; |
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the execution and delivery by Harris and/or Harris Stratex of
the additional agreements agreed as part of the combination
agreement; |
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that neither the Microwave Communications Division nor Stratex
shall have been affected by any change that has had or would
reasonably be expected to have a material adverse effect on that
party, as described further in this proxy statement/
prospectus; and |
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the receipt of an opinion by Harris from Sullivan &
Cromwell and by Stratex by Bingham McCutchen on the completion
date with respect to the tax treatment of the merger and the
contribution transaction, as further described in this proxy
statement/ prospectus. |
Survival of Representations and Warranties;
Indemnification
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No Survival of Representations and Warranties |
The representations and warranties of Harris and Stratex
contained in the combination agreement or any certificate
delivered in accordance with the terms of the combination
agreement will not survive the closing.
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Indemnification of Harris |
From and after the closing date, Harris Stratex has agreed to
indemnify, defend and hold Harris and its subsidiaries,
directors, officers, partners, employees, representatives and
agents harmless from and against any and all losses incurred by
any such Harris indemnified person arising out of or relating to:
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any breach by Harris Stratex or any of its subsidiaries of any
covenants of Harris Stratex contained in the combination
agreement to be performed following the closing; however, any
action or inaction approved by the board of directors of Harris
Stratex will not be subject to indemnity under this paragraph if
a majority of the directors of Harris Stratex at the time of
such action or inaction were the initial Harris directors or
otherwise elected or appointed by Harris or the directors of
Harris Stratex appointed or elected by Harris, |
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any liability assumed by Harris Stratex under the combination
agreement; |
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any liability arising out of or relating to the operation of the
businesses or properties or liabilities of (1) Stratex
prior to the closing or (2) Harris Stratex and/or any of
its subsidiaries on or after the closing. |
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Indemnification of Harris Stratex |
From and after the date of closing, Harris will indemnify and
defend and hold Harris Stratex and its subsidiaries, directors,
officers, partners, employees, representatives and agents
harmless from and against any and all losses incurred by any
such Harris Stratex indemnified person arising out of or
relating to:
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any breach of the covenants contained in the combination
agreement to be performed by Harris or any of its subsidiaries
following the closing; or |
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any asset or liability of Harris or its subsidiaries that is not
transferred to or assumed by Harris Stratex as provided by the
combination agreement. |
D&O Indemnification and Insurance
Harris Stratex has agreed that, from and after the effective
time of the merger, it will cause Stratex, as the surviving
corporation in the merger, for a period of six years from the
effective time of the merger
98
to indemnify and hold harmless each past and present director
and officer of Stratex or any of its subsidiaries (in each case,
for acts or failures to act in such capacity), against any costs
or expenses (including reasonable attorneys fees),
judgments, fines, losses, claims, damages or liabilities
incurred in connection with any claim, action, suit, proceeding
or investigation, whether civil, criminal, administrative or
investigative, arising out of matters existing or occurring at
or prior to the effective time of the merger, whether asserted
or claimed prior to, at or after the effective time of the
merger, to the fullest extent that Stratex would have been
permitted to indemnify such person under the laws of the State
of Delaware and its certificate of incorporation or bylaws as in
effect on the date of the combination agreement. Harris Stratex
has also agreed to advance expenses as incurred to the fullest
extent permitted under applicable law so long as the person to
whom expenses are advanced provides an undertaking to repay such
advances if it is ultimately determined that such person is not
entitled to indemnification.
Unless Stratex purchases a six-year tail policy
prior to the effective time of the merger, for a period of six
years after the effective time of the merger, Harris Stratex
will cause Stratex, as the surviving corporation, to maintain
its existing officers and directors liability
insurance covering those persons who are covered by such
insurance in effect as of the date of the combination agreement
so long as the annual premium for such insurance is not in
excess of 200% of the last annual premium paid, and, in the
event the annual premium exceeds 200%, as much officers
and directors liability insurance as can be obtained for
the relevant period for a premium not in excess (on an
annualized basis) of 200% of the last annual premium paid.
Termination of the Combination Agreement
The combination agreement may be terminated at any time prior to
the completion of the transaction, whether before or after the
vote by the Stratex stockholders, in any of the following ways:
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by mutual written consent of Harris and Stratex; |
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by either Harris or Stratex if: |
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the contribution transaction and the merger have not been
consummated by March 31, 2007; |
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the vote of the Stratex stockholders on the adoption of the
contribution agreement has been held but the required vote was
not obtained; or |
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any law, order or injunction that prohibits the merger or the
contribution transaction shall have become final and
nonappealable; |
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but the rights to terminate the combination agreement described
above are not available to any party that has breached its
obligations under the combination agreement in a manner that has
proximately contributed to the occurrence giving rise to the
termination right; |
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the board of directors of Stratex withdraws, modifies or
qualifies its recommendation to the Stratex stockholders to
adopt the combination agreement in any manner adverse to Harris
or recommends or approves another acquisition proposal or fails
to reconfirm its recommendation within five business days after
a written request by Harris (but only prior to the Stratex
stockholder vote); |
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Stratex breaches its representations and warranties, covenants
or agreements such that the closing condition relating thereto
would not be satisfied and the breach cannot be cured or, if
curable, is not cured within 30 days after written notice
is given by Harris to Stratex; |
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a vote on the adoption of the combination agreement by the
Stratex stockholders has not been taken and completed by
February 28, 2007; or |
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Stratex materially breaches the provisions relating to its
non-solicitation obligations under the combination agreement
(but only prior to the Stratex stockholder vote); |
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Harris breaches its representations and warranties, covenants or
agreements such that the closing condition relating thereto
would not be satisfied and the breach cannot be cured or, if
curable, is not cured within 30 days after written notice
is given by Stratex to Harris; or |
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at any time prior to the adoption of the combination agreement
by the Stratex stockholders, in order for Stratex to enter into
a definitive agreement with respect to a superior proposal but
only if Stratex has not materially breached any of the terms of
the combination agreement, the board of directors of Stratex has
authorized Stratex to enter into the definitive agreement,
Stratex has complied with the non-solicitation obligations under
the combination agreement and, prior to the termination, Stratex
has paid to Harris the termination fee payable under the
combination agreement. |
Termination Fee
Stratex has agreed to pay Harris the amounts specified below
under the following circumstances:
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a termination fee of $14.5 million immediately prior to,
and as a condition of , any termination of the combination
agreement by Stratex prior to the receipt of the required vote
of the Stratex stockholders in order for Stratex to enter into a
definitive agreement with respect to a superior proposal in
accordance with the combination agreement; |
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a termination fee of $14.5 million within two days after
the date of termination if Harris terminates the combination
agreement before the requisite vote of the Stratex common
stockholders has been obtained because (1) the Stratex
board of directors has made, or agreed to make, a change in
recommendation regarding the merger or failed to reconfirm its
recommendation of the combination agreement within five business
days after a written request by Harris to do so or
(2) Stratex has materially breached any of its obligations
regarding acquisition proposals or board recommendation; |
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up to $2 million of Harris documented
out-of-pocket expenses
incurred by Harris in connection with the combination agreement,
the merger, the contribution transaction and the other
transactions contemplated by the combination agreement no later
than two days after being notified by Harris following the
termination of the combination agreement: |
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by either Harris or Stratex if the contribution transaction and
the merger have not been consummated by March 31, 2007
unless (1) any of Stratexs obligations to effect the
merger (other than the condition that all the conditions to
complete the contribution transaction have been satisfied or
waived in writing) have not been satisfied (or, in the case of
any such condition to be satisfied at the closing, capable of
such satisfaction) or (2) there is a statute, law,
ordinance, rule, regulation, judgment, order, writ, injunction,
decree or award enacted, issued, promulgated, enforced or
entered by any government entity in effect and restraining,
enjoining or otherwise prohibiting consummation of the merger,
the contribution transaction or any of the other transactions
contemplated by the combination agreement or (3) the only
condition to Harris obligation to effect the contribution
transaction that is not satisfied at the time of such
termination (other than, in the case of any such conditions to
be satisfied at the closing, those that are capable of such
satisfaction) is that, since the date of the combination
agreement, there has not been any event, occurrence, discovery
or development that, individually or in the aggregate, has had,
or would reasonably be expected to have, a Stratex material
adverse effect, and the events, conditions or circumstances that
caused such condition not to be satisfied were not, directly or
indirectly, within the control of Stratex or any of its
subsidiaries; |
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by either Harris or Stratex if the vote on the adoption of the
combination agreement by the Stratex stockholders was completed
at the Stratex stockholders meeting and the requisite vote of
Stratex common stockholders was not obtained; |
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by Harris pursuant to a breach of any representation, warranty,
covenant or agreement of the combination agreement by Stratex,
or any such representation or warranty has become untrue or
incorrect on any date subsequent to the date of the agreement,
in each case in a manner that would cause the condition
regarding its representations and warranties or its performance
of its obligations not to be satisfied (assuming, except for
cure purposes, any such subsequent date was the date of closing)
and such breach or failure to be true or correct is not curable
or, if curable, is not cured within 30 days after written
notice is given by Harris to Stratex; or |
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by Harris if a vote on the adoption of the combination agreement
by Stratex stockholders has not been taken and completed by
February 28, 2007 |
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but only if a bona fide acquisition proposal is made to
Stratex or any of its subsidiaries or its stockholders or any
person has publicly announced an intention (whether or not
conditional) to make an acquisition proposal regarding Stratex
or any of its subsidiaries and the combination agreement is
subsequently terminated as described above. |
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a termination fee of $14.5 million on or prior to
Stratexs consummation of any acquisition proposal by
Stratex, but only if a bona fide acquisition proposal was
made to Stratex or any of its subsidiaries or its stockholders
or any person publicly announced an intention (whether or not
conditional) to make an acquisition proposal regarding Stratex
or any of its subsidiaries and the combination agreement was
subsequently terminated under the circumstances obligating
Stratex to pay Harris up to $2 million of its
out-of-pocket expenses
and Stratex: |
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consummates any acquisition proposal with any person during the
twelve-month period immediately following the termination of the
combination agreement; or |
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enters into a definitive agreement for any acquisition proposal
with any person during such twelve-month period and (1)
consummates such acquisition proposal with such person within
the twenty-four-month period immediately following the
termination of the combination agreement or (2) consummates
any acquisition proposal with any other person within the
twenty-seven-month period immediately following the termination
of the combination agreement. |
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Any amounts of the
out-of-pocket expenses
incurred by Harris previously reimbursed by Stratex under the
combination agreement will offset the $14.5 million
termination fee owed by Stratex. |
For purposes of this Termination Fee
section, it should be assumed that all references to
15% in the definition of acquisition proposal have
been changed to a majority.
Obligations in Event of Termination
In the event of a termination as provided for above, the
combination agreement will become void and of no effect with no
liability of any party to the other parties to the combination
agreement except with respect to certain designated sections in
the combination agreement, although such termination shall not
relieve any party to the combination agreement of any liability
or damages resulting from a breach of the combination agreement
prior to the termination.
Expenses
Harris Stratex has agreed to pay all charges and expenses,
including those of the exchange agent, in connection with the
conversion or exchange of the securities of Stratex in
connection with the merger, including, among other things, the
exchange and cancellation of shares of Stratex common stock and
exchange of certificates for Stratex common stock (including any
related dividends or other distributions provided for by the
combination agreement). Except as otherwise provided under
Termination above or in the combination
agreement, regardless of whether the merger and the contribution
transaction are consummated, all costs and expenses incurred in
connection with the combination agreement and the transactions
thereunder shall be paid by the party incurring such expense,
except the following expenses will be shared equally by Harris
and Stratex: (1) expenses incurred by Harris Stratex or
Merger Sub,
101
(2) filing fees required under the HSR Act and the S-4
registration statement and (3) expenses incurred in
connection with the publishing, printing or mailing of the proxy
statement/ prospectus (but not the related attorneys fees,
which shall be paid by the party incurring such expense).
Amendment and Waiver
The combination agreement may be amended, and any provision of
the combination agreement waived, at any time before the
effective time of the merger only by mutual written agreement of
the parties and subject to applicable law.
Governing Law
The combination agreement is governed by, and will be construed
in accordance with, the laws of the State of Delaware, without
regard to its conflict of law rules.
102
THE INVESTOR AGREEMENT
The following is a description of the material terms of the
investor agreement and is qualified in its entirety by reference
to the complete text of the investor agreement, which is
incorporated by reference and attached as Appendix E
to this proxy statement/prospectus. You should read the full
text of the investor agreement in order to fully understand its
terms and conditions.
Scope of Agreement
Immediately following the completion of the proposed
transactions, Harris will be the sole holder of shares of Harris
Stratex Class B common stock. The investor agreement sets
forth certain terms and conditions upon which the parties have
agreed Harris will hold its equity interests in Harris Stratex,
including its rights as a holder of Harris Stratex Class B
common stock. The investor agreement further provides that if
there is any inconsistency between the terms of the investor
agreement and the amended and restated certificate of
incorporation or amended and restated bylaws of Harris Stratex,
Harris Stratex and Harris will take all necessary action to
amend the amended and restated certificate of incorporation and
amended and restated bylaws to eliminate the inconsistency to
the fullest extent permitted by law.
Governing Instruments and Class B Common Stock
The investor agreement provides that, on or prior to the time of
its execution and delivery, the amended and restated certificate
of incorporation and amended and restated bylaws of Harris
Stratex attached to this proxy statement/prospectus as
Appendix C and Appendix D, respectively,
will be the certificate of incorporation and bylaws of Harris
Stratex. As provided in the investor agreement and the amended
and restated certificate of incorporation and amended and
restated bylaws of Harris Stratex, the Harris Stratex
Class A and Class B common stock are identical in all
respects except that holders of shares of Harris Stratex
Class B common stock have the additional right to vote
separately as a class to elect, remove and replace the
Class B directors, the right to receive Class B common
stock instead of Class A common stock in certain
circumstances, the absence of certain duties and obligations
with respect to corporate opportunities and preemptive rights
providing holders of Harris Stratex Class B common stock
with the right to participate in additional offerings of Harris
Stratex common stock.
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Voluntary Exchange Rights |
In addition to the rights identified above, the holders of
Harris Stratex Class B common stock also have the right at
any time to exchange:
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any outstanding shares of Harris Stratex Class A common
stock held by the holder for an equal number of shares of
Class B common stock or |
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any outstanding shares of Harris Stratex Class B common
stock held by the holder for an equal number of shares of
Class A common stock. |
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Mandatory Exchange Rights |
Each share of Harris Stratex Class B common stock will
automatically convert into one outstanding share of Harris
Stratex Class A common stock under the following
circumstances:
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the holders of all of the outstanding shares of Harris Stratex
Class B common stock (assuming that all of the outstanding
shares of Harris Stratex Class A common stock which are
then exchangeable for shares of Harris Stratex Class B
common stock have been exchanged as described under
Voluntary Exchange Rights above) are
collectively entitled to cast less than 10% of the total voting
power; or |
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such Harris Stratex Class B common stock is transferred by
a holder to any person who is not an affiliate of the holder or
nominee of the holder or one of its affiliates unless such the
transfer is |
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part of transfer by the holder and its affiliates of all of the
shares of Harris Stratex Class B common stock then owned by
them. |
For purposes of the investor agreement, total voting
power means, at any time, the total number of votes then
entitled to be cast generally in the election of Class A
directors by all holders of all classes of capital stock or
securities of Harris Stratex then outstanding and entitled to
vote generally in the election of Class A directors
(including the holders of Harris Stratex Class B common
stock).
Board of Directors of Harris Stratex
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Initial Board of Directors |
As of the closing date of the proposed transactions, the board
of directors of Harris Stratex will have nine members, five of
which will be Class B directors appointed by Harris and
four of which will be appointed by Stratex. It is expected that
Howard L. Lance, Chairman, President and Chief Executive
Officer of Harris, and Guy M. Campbell, President of the
Microwave Communications Division will be two of the Harris
appointees. Of the remaining three directors to be appointed by
Harris, until the second anniversary of the closing of the
proposed transactions, one must meet the independence
requirements for directors serving on an audit committee as
prescribed by the NASDAQ rules and one must not be an employee
of Harris or any of its subsidiaries (without regard to Harris
Stratex or any of its subsidiaries).
It is expected that Charles D. Kissner, Chairman of Stratex,
will be one of the Stratex appointees. Of the remaining three
directors to be appointed by Stratex, two must meet the
independence requirements for directors serving on an audit
committee as prescribed by the NASDAQ rules.
The initial directors will serve until their successors are
elected at the first annual meeting of Harris Stratex. The
Harris Stratex directors will be elected at each annual meeting.
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If the Harris Stratex Class B Common Stock
Constitutes a Majority |
At all times when the holders of all outstanding Class B
common stock (assuming that all of the outstanding shares of
Harris Stratex Class A common stock which are then
exchangeable for shares of Harris Stratex Class B common
stock have been exchanged as described under
Voluntary Exchange Rights above) are
collectively entitled to cast a majority of the total voting
power:
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Harris Stratex will rely on the controlled company
exemption under the NASDAQ rules which provides that if more
than 50% of the voting power of a company listed on NASDAQ is
held by another company, the NASDAQ listed company is not
required to comply with certain director independence
requirements that it would otherwise be subject to; |
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there will be nine directors of Harris Stratex; |
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the holders of Harris Stratex Class B common stock will be
permitted to elect five of the Harris Stratex directors
separately as a class; and |
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the quorum for action by the board of directors of Harris
Stratex will be a majority of the board of directors of Harris
Stratex, which majority must include at least four Class B
directors. |
The remaining four directors of Harris Stratex will be
Class A directors nominated by a nominating committee
consisting solely of Class A directors then in office and
elected by the holders of Harris Stratex Class A and
Class B common stock voting together as a single class.
Harris will vote, or caused to be voted, all classes of capital
stock or securities of Harris Stratex owned by it or its
affiliates entitled to vote generally in the election of
Class A directors, in favor of the election of the
Class A directors nominated by the nominating committee.
In addition, at all times when Harris Stratex is required to
have directors who satisfy the independence requirements for
directors serving on an audit committee as prescribed by the
NASDAQ rules, a sufficient number of the Class A directors
must satisfy those requirements so that there are enough
Class A directors, together with any Class B directors
who are required to or otherwise satisfy
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those independence requirements, to constitute an audit
committee of the board of directors of Harris Stratex which
complies with the applicable NASDAQ rule.
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If the Harris Stratex Class B Common Stock
Constitutes Less than a Majority |
At all times when the holders of all outstanding Class B
common stock (assuming that all of the outstanding shares of
Harris Stratex Class A common stock which are then
exchangeable for shares of Harris Stratex Class B common
stock have been exchanged as described under
Voluntary Exchange Rights above) are
collectively entitled to cast less than a majority but equal to
or greater than 10% of the total voting power, the holders of
Harris Stratex Class B common stock will be permitted to
elect a number of Class B directors equal to its percentage
of total voting power times the total number of directors
comprising the board of directors of Harris Stratex (rounding
down to the next whole number of directors).
The remaining directors of Harris Stratex will be Class A
directors nominated by a nominating committee meeting the
requirements of the applicable NASDAQ rules and elected by the
holders of Harris Stratex Class A and Class B common
stock voting together as a single class.
In addition, at all times when Harris Stratex is required to
have directors who satisfy the applicable independence
requirements as prescribed by the NASDAQ rules, a sufficient
number of the Class A directors must satisfy those
requirements so that there are enough Class A directors,
together with any Class B directors who are required to or
otherwise satisfy those independence requirements, to cause
Harris Stratex to comply with the applicable NASDAQ rules.
Holders of Harris Stratex Class B common stock will have
the right to remove any Class B director with or without
cause at any time for any reason and will have the right to
elect any successor director to the fill the vacancies created
by such removal. Any vacancy created by the resignation, death
or incapacity of a Class B director will be filled by the
other Class B directors then in office and, if none, by
Harris.
Only holders of Harris Stratex Class A common stock, voting
separately as a class, will be permitted to remove the
Class A directors without cause or fill vacancies created
by such removal, if not filled by the Class A directors
then in office. Holders of Harris Stratex Class A and
Class B common stock, voting together as a single class,
will have the sole right to remove the Class A directors
for cause and the sole right to elect successor directors to
fill any vacancy caused by such removal. To the extent Harris
owns any shares of Harris Stratex Class A common stock, it
has agreed that it will not vote those shares for the removal of
any Class A director without cause and will vote all of its
shares of Harris Stratex Class A common stock for any
individual nominated by the nominating committee to replace any
Class A director who has been removed with or without cause.
At all times the audit, nominating and compensation committees
of the board of directors of Harris Stratex must comply with the
applicable requirements under the NASDAQ rules (after taking
advantage of all available exemptions for controlled companies).
All actions of the board of directors of Harris Stratex must be
approved by a majority of a quorum.
Related Party Transactions
Following the closing of the proposed transactions, Harris and
its affiliates are only permitted to enter into transactions
with Harris Stratex if the transaction is approved by a majority
of the directors not elected by Harris or is on terms no less
favorable in any material respect to Harris Stratex than those
that could have been obtained by Harris Stratex, taking into
consideration the then prevailing facts and
105
circumstances, if it had negotiated the transaction with an
informed, unrelated third party. However, if a transaction has a
fair market value of more than $5 million, it must be
approved in advance by a majority of the Class A directors.
Harris and Harris Stratex have agreed that certain specified
transactions relating to the payment of directors fees, employee
benefits and other similar arrangements, indemnification
arrangements and tax-sharing arrangements between Harris Stratex
and any other entity with which Harris Stratex files a
consolidated tax return or with which Harris Stratex is part of
a consolidated group for tax purposes will not be subject to
these restrictions.
Freedom of Action and Corporate Opportunities
Subject to the terms of the non-competition agreement to be
entered into by Harris Stratex and Harris at the completion of
the proposed transactions or other than opportunities offered to
an individual who is a director or officer of both Harris
Stratex and Harris in writing solely in that persons
capacity as an officer or director of Harris Stratex, Harris and
its affiliates will have the right to, and will have no
fiduciary duty or other obligation to Harris Stratex or any
Harris Stratex stockholders not to, take any of the following
actions:
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engage in the same or similar activities or lines of business as
Harris Stratex or any of its subsidiaries or develop or market
any products or services that compete, directly or indirectly,
with those of Harris Stratex or any of its subsidiaries; |
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invest or own any interest in, or develop a business
relationship with, any entity or person engaged in the same or
similar activities or lines of business as, or otherwise in
competition with, Harris Stratex or any of its subsidiaries; |
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do business with any client or customer of Harris Stratex or any
of its subsidiaries; or |
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employ or otherwise engage any former officer or employee of
Harris Stratex or any of its subsidiaries. |
Neither Harris nor any of its affiliates nor any officer,
director, employee or former employee of Harris or any of its
affiliates that is not currently an employee of the Harris
Stratex or any of its subsidiaries (including any Class B
directors) will have any obligation, or be liable, to Harris
Stratex, any of its subsidiaries or any of their stockholders
for, or arising out of, the conduct described in the preceding
paragraph or the exercise of Harris rights under the
combination agreement or any related agreement, and none of
these persons will be deemed to have acted (1) in bad
faith, (2) in a manner inconsistent with the best interests
of Harris Stratex, any of its subsidiaries or any of their
stockholders or (3) in a manner inconsistent with, or
opposed to, any fiduciary duty owed by them to Harris Stratex,
any of its subsidiaries or any of their stockholders because of
such conduct or the exercise of their rights as contemplated by
the combination agreement and any related agreement.
If Harris or any of its subsidiaries or any of their directors,
officers or employees, including any such individuals who are
also directors, officers or employees of Harris Stratex or any
of its subsidiaries, acquires knowledge of a potential
opportunity, transaction or matter which may be a corporate
opportunity for both Harris or any of its subsidiaries and
Harris Stratex, then each Harris person or entity will have the
right to, and none of them shall have any fiduciary duty or
other obligation not to, pursue such corporate opportunity for
itself or to direct the corporate opportunity to any of its
affiliates or to any third party. Under the circumstances
described in the immediately preceding sentence, no Harris
person or entity:
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will have any duty to communicate, offer or present the
corporate opportunity to Harris Stratex or any of its
subsidiaries, directors, officers or employees; |
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will have any liability to Harris Stratex, any of its
subsidiaries or any of their stockholders for breach of any
fiduciary duty or other duty, as a stockholder, director,
officer or employee of Harris Stratex or any of its subsidiaries
or in any other capacity; or |
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will be deemed to have acted (x) in bad faith, (y) in
a manner inconsistent with the best interests of Harris Stratex,
any of its subsidiaries or any of their stockholders or
(z) in a manner inconsistent with, or opposed to, any
fiduciary duty owed by them to Harris Stratex, any of its
subsidiaries or any of their stockholders because any Harris
person or entity pursues or acquires the corporate opportunity
for itself, directs the corporate opportunity to any of its
affiliates or any third party, or does not communicate
information regarding the corporate opportunity to Harris
Stratex or any of its subsidiaries, directors, officers or
employees. |
However, a corporate opportunity offered to a person who is a
director or officer of both Harris Stratex and Harris will
belong to Harris Stratex if the corporate opportunity is
expressly offered to the person in writing solely in his or her
capacity as a director or officer of Harris Stratex.
Standstill Provision
Harris has agreed that, for two years following the completion
of the proposed transactions, it will not acquire or dispose of
any of its voting securities in Harris Stratex with the
following exceptions:
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pursuant to preemptive rights provided to Harris Stratex further
described below; |
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unless approved in advance by a majority of the non-Harris
directors; and |
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as a result of actions taken by Harris Stratex that do not
increase or decrease Harris percentage of total voting
power which Harris and its affiliates are entitled to cast in
respect of all classes of capital stock or securities of Harris
Stratex then outstanding and entitled to vote generally in the
election of Class A directors (including the holders of
Harris Stratex Class B common stock) beneficially owned by
Harris. |
In addition, Harris has agreed that from the second to the
fourth anniversary of the completion of the proposed
transactions, it will not (1) beneficially own more than
80% of the voting power of Harris Stratex without the prior
approval of a majority of the non-Harris directors or
(2) transfer all or a portion of its interest in Harris
Stratex to a person if, following such transfer, that person
would be entitled to cast a majority of the outstanding votes in
an election of the directors of Harris Stratex (other than an
election of the Class B directors) unless a majority of its
directors not elected by Harris approve such transfer in advance
or the person purchasing Harris interest in Harris Stratex
offers to acquire all the outstanding voting securities of
Harris Stratex at the same price and on the same terms as apply
to the transfer from Harris.
There are no prohibitions or restrictions on any pro rata
dividends or other pro rata distributions of Harris
Stratex voting securities to the stockholders of Harris or any
bona fide sale to the public of Harris Stratex securities
pursuant to Rule 144 under the Securities Act or a bona
fide registered public offering.
Preemptive Rights
Harris has the right to preserve its proportionate interest in
Harris Stratex by participating in any issuance of capital
stock, but only when Harris holds a majority of the total number
of votes entitled to be cast generally in an election of the
directors of Harris Stratex (other than an election of the
Class B directors). If it elects to participate in the
issuance, Harris has the right to purchase up to that number of
shares necessary to preserve its voting percentage at the same
price on the same terms and conditions otherwise being offered
by Harris Stratex.
The foregoing preemptive right does not apply to any issuances
pursuant to any stock option, restricted stock or employee
benefit plan of Harris Stratex. However, at the end of each
month, Harris Stratex will give the holders of Class B
common stock written notice of all of the proposed issuances
pursuant to any stock option, restricted stock or employee
benefit plan, and each holder of Class B common stock will
have the right within 15 days of receiving such notice to
purchase for cash up to a sufficient number of shares of
Class B common stock to prevent its total voting power from
decreasing. The per share price for a purchase of Class B
common stock pursuant to the monthly exercise notice will
107
be the closing price of the Class A common stock on the
trading day immediately preceding the date on which Harris
Stratex received the notice of exercise.
Other Provisions
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Access to Information; Financial, Accounting and
Disclosure Matters |
The investor agreement also includes provisions relating to
Harris right to access the books and records of Harris
Stratex and its subsidiaries and perform examinations and
audits. In addition, it sets out various covenants relating to
Harris Stratexs obligations to comply with accounting
principles generally accepted in the U.S. and disclosure
controls and procedures as required by the Exchange Act. The
investor agreement also prescribes certain guidelines for the
exchange of annual and quarterly accounting information between
Harris and Harris Stratex to permit the companies to prepare
their respective financial statements and other information.
The investor agreement provides that Ernst & Young LLP,
the current independent certified public accountant of Harris,
will initially serve as the independent registered public
accounting firm of Harris Stratex and its subsidiaries. Harris
Stratex will thereafter maintain as its auditor the same firm as
Harris, unless and until the audit committee of Harris Stratex
determines in good faith that it is required by law or that it
is in the best interest of the stockholders of Harris Stratex to
appoint a different independent registered public accounting
firm than that appointed by Harris as Harris independent
registered public accounting firm.
If Harris Stratex determines to use the proceeds from the
exercise of any options to acquire Harris Stratex common stock
to repurchase shares of Class A common stock in the market
at the then prevailing market price, whether or not at the
request of Harris, that determination or repurchase will not be
deemed to be subject to the related party transaction provisions
of the investor agreement or a breach by Harris or any
Class B director of any duty or obligation they may have to
Harris Stratex or its stockholders.
The investor agreement terminates the first time at which the
total voting power of all classes of capital stock or securities
of Harris Stratex then outstanding and entitled to vote
generally in the election of Class A directors (including
the holders of Harris Stratex Class B common stock) owned
by Harris or its affiliates represent less than 10% of the total
voting power.
Harris is permitted to assign all of its rights and obligations
under the investor agreement to any person to whom it transfers
all of the ownership interests in Harris Stratex then owned by
Harris and its affiliates if the transferee delivers a written
undertaking to Harris Stratex in which such person expressly
assumes all of Harris obligations under the investor
agreement. Except as provided in the immediately preceding
sentence, no party may assign the investor agreement or any
rights, benefits, obligations or remedies hereunder without the
prior written consent of the other party, except that no such
consent shall be required for a transfer by operation of law in
connection with a merger or consolidation of a party.
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Subsidiaries and Affiliates |
For purposes of the investor agreement, neither Harris Stratex
nor any of its subsidiaries are deemed to be a subsidiary or
affiliate of Harris or any of its other subsidiaries.
108
THE NON-COMPETITION AGREEMENT
The following is a description of the material terms of the
non-competition agreement and is qualified in its entirety by
reference to the complete text of the non-competition agreement,
which is incorporated by reference and attached as
Appendix F to this proxy statement/ prospectus. You
should read the full text of the non-competition agreement in
order to fully understand its terms and conditions.
In consideration for the issuance to Harris of Harris
Stratex shares pursuant to the combination agreement and
the performance by Stratex of its obligations under the
combination agreement and the ancillary agreements agreed to as
part of the combination agreement, Harris agrees that, during
the period commencing on the date of the non-competition
agreement and ending on the fifth anniversary of such date,
Harris will not, and will not permit any of its subsidiaries to:
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engage, directly or indirectly, in the restricted business (as
defined below); |
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form any person other than Harris Stratex and its subsidiaries,
any such person a covered person, or change or
extend the current business activities of any existing covered
person for the purpose of engaging, directly or indirectly, in
the restricted business; or |
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invest, directly or indirectly, in any covered person engaged,
directly or indirectly, in the restricted business in any
material respect; |
provided, however, that notwithstanding the foregoing
Harris and/or its subsidiaries may:
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collectively own less than 20% of the total equity interests in
any covered person engaged in the restricted business as long as
none of the employees of Harris or any of its subsidiaries is
involved in the management of such covered person; |
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participate as a passive investor with no management rights in
any investment fund that holds an ownership interest in covered
persons engaged in the restricted business that is managed by
persons that are not affiliates of Harris (1) with any
employee benefit or retirement plan funds and (2) with any
other funds subject, in the case of this clause (2) only,
to a maximum interest in such investment fund of 15%; and |
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acquire a covered person or business unit of a covered person
engaged in the restricted business if (1) the restricted
business contributed less than 20% of such covered persons
or business units, as applicable, total revenues (based on
its latest annual audited financial statements, if available)
and (2) such covered person or Harris, as applicable,
divests or ceases to conduct the restricted business within
18 months after the acquisition date. |
The term restricted business means the development,
manufacture, distribution and sale of any microwave radio
systems and related components, systems and services which are
(1) competitive with the current products of Stratex and
the Microwave Communications Division, or (2) which are
substantially similar to such products in form, fit and function
when used in terrestrial microwave
point-to-point
communications networks that provide access and trunking of
voice and data for telecommunications networks.
Notwithstanding anything in the non-competition agreement to the
contrary, the term restricted business does not
include, and the prohibition contained in the non-competition
agreement does in no way prohibit Harris and/or its subsidiaries
from:
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purchasing and reselling products produced by, and marked with
the brands of, an unaffiliated person in connection with the
sale, service, design or maintenance of a system that contains
or uses microwave radios or related components, systems or
services; or |
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developing, manufacturing, distributing or selling microwave
radios or related components, systems or services for use by
government entities. |
For purposes of the non-competition agreement, neither Harris
Stratex nor any of its subsidiaries are deemed to be a
subsidiary or affiliate of Harris or any of its other
subsidiaries or affiliates.
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OTHER AGREEMENTS
The following is a description of the material terms of the
other agreements which will be entered into by Harris Stratex
and/or Harris concurrently with the completion of the proposed
transactions and is qualified in its entirety by reference to
the complete text of these agreements, which are filed as
Exhibit 10.5, Exhibit 10.6, Exhibit 10.8,
Exhibit 10.9, Exhibit 10.7, Exhibit 10.10 and
Exhibit 10.4, respectively, to the registration statement
of which this proxy statement/ prospectus is a part and
incorporated by reference into this proxy statement/ prospectus.
You should read the full text of these agreements in order to
fully understand their terms and conditions.
Intellectual Property Agreement
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Contributed Trade Secrets and Copyrights |
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Assignment of Contributed Trade Secrets to Harris Stratex |
Under the terms of the intellectual property agreement, Harris
and its subsidiaries will irrevocably transfer and assign to
Harris Stratex all of their rights and interest in the trade
secrets and copyrights that are primarily related to or
primarily used in connection with the business conducted by the
Microwave Communications Division, subject to limited
restrictions. The rights to trade secrets and copyrights
transferred and assigned by Harris and its subsidiaries to
Harris Stratex pursuant to the provisions described in this
paragraph are referred to in this Intellectual
Property Agreement section as the contributed trade
secrets.
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License Back to Harris and its Subsidiaries and Sublicense of
Contributed Trade Secrets |
In exchange for the contributed trade secrets, Harris Stratex
will grant to Harris and its subsidiaries a personal,
nonexclusive, non-transferable, irrevocable, worldwide, fully
paid-up license to use,
copy, execute and perform, and to display and distribute
(subject to agreed confidentiality restrictions), the
contributed trade secrets, and to create, use, copy, execute and
perform, and to display and distribute (subject to agreed
confidentiality restrictions), derivative works from the
contributed trade secrets, subject to limited exceptions. The
license back to Harris and its subsidiaries of the contributed
trade secrets will include a personal, non-transferable and
nonexclusive right to communicate portions of and grant
nonexclusive sublicenses (subject to agreed confidentiality
restrictions) to such contributed trade secrets to customers,
suppliers, sublicensees or other third parties as necessary
regarding any products or services sold by Harris or its
subsidiaries now or in the future, subject to limited exceptions.
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Trade Secrets Licensed to Harris Stratex |
Under the terms of the intellectual property agreement, Harris
and its subsidiaries will grant to Harris Stratex a fully
paid-up, worldwide, irrevocable, non-transferable and
nonexclusive license to use any trade secrets or copyrights
owned by Harris that are not contributed trade secrets but are
otherwise used in connection with the business conducted by the
Microwave Communications Division immediately prior to the
closing. The trade secrets and copyrights licensed by Harris and
its subsidiaries to Harris Stratex pursuant to the provisions
described in this paragraph are referred to in this
Intellectual Property Agreement section
as the licensed trade secrets.
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Right to Sublicense Licensed Trade Secrets |
In addition, subject to any and all pre-existing licenses
granted by Harris or its subsidiaries, Harris and its
subsidiaries will grant to Harris Stratex a personal,
non-transferable and nonexclusive right to communicate portions
of and grant nonexclusive sublicenses to (subject to agreed
confidentiality restrictions) the licensed trade secrets in
connection with any products or services then-sold by Harris
Stratex or sold in the future to (1) suppliers to the
extent necessary to produce products or components for such
products for Harris Stratex and (2) customers to the extent
necessary to permit such customers
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to use any product or service produced or provided by Harris
Stratex for its intended purpose. Harris Stratex may not grant
sublicenses of such rights in connection with a general
licensing program, for settlement purposes or other purposes not
directly related to its own operations.
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Patent Assignment and Licenses |
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Assignment of Contributed Patents to Harris Stratex |
Under the terms of the intellectual property agreement, Harris
and its subsidiaries will assign and transfer to Harris Stratex
those patents specifically identified as being transferred by
Harris and its subsidiaries to Harris Stratex in connection with
the proposed transactions, which are generally those patents
primarily related to the operations of the Microwave
Communication Division, subject to limited exceptions. The
patent rights transferred and assigned by Harris and its
subsidiaries to Harris Stratex pursuant to the provisions
described in this paragraph are referred to in this
Intellectual Property Agreement section
as the contributed patents.
Harris and its subsidiaries have also agreed to grant to Harris
Stratex a personal, fully paid-up, worldwide, non-transferable,
irrevocable and nonexclusive license under certain patents to
make, have made, use, sell, offer to sell, lease, transfer,
import, export or otherwise distribute products or services of
Harris Stratex now or in the future and to use and perform all
processes and methods claimed by the licensed patents, subject
to limited exceptions. The patents to be licensed pursuant to
the provisions described in this paragraph include patents owned
or controlled by Harris or its Subsidiaries as of the closing
date of the proposed transactions (other than the contributed
patents) that are used in the business conducted by the
Microwave Communications Division immediately prior to the
closing and for which Harris or its subsidiaries have the right
to grant licenses under the agreement without material
restrictions. The licenses granted by the provisions described
in this paragraph include the right to convey to any customer of
Harris Stratex, regarding any product that is sold or leased by
Harris Stratex to such customer, rights to use and resell such
products as sold or leased by Harris Stratex.
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License Back to Harris and its Subsidiaries |
Harris Stratex will grant to Harris and its subsidiaries a
personal, fully paid-up, worldwide, non-transferable,
irrevocable and nonexclusive license under the contributed
patents to make, sell or distribute the products or services
then-sold by Harris or its subsidiaries or sold in the future.
The licenses granted by the provisions described in this
paragraph include the right to convey to any customer of Harris
or its subsidiaries, regarding any product that is sold or
leased by Harris and its subsidiaries to such customer, rights
to use and resell such products as then-sold or leased by Harris
and its subsidiaries or sold or leased in the future.
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Right to Sublicense Licensed Patents |
In addition, subject to limited exceptions, Harris and its
subsidiaries will grant to Harris Stratex a personal,
non-transferable, irrevocable and nonexclusive right to grant
nonexclusive sublicenses under the licensed patents in
connection with any products or services then-sold by Harris
Stratex or sold in the future to (1) suppliers to the
extent necessary to produce products or components for such
products for Harris Stratex and (2) customers to the extent
necessary to permit such customers to use any product or service
produced or provided by Harris Stratex for its intended purpose.
Harris Stratex may not under any circumstances grant sublicenses
of such rights in connection with a general licensing program,
for settlement purposes or other purposes not directly related
to its own operations.
The intellectual property agreement also includes provisions
addressing various other matters, including those identified
below, among others.
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The intellectual property agreement continues in perpetuity
(subject to the terms of the patent licenses granted under the
intellectual property agreement), unless terminated by mutual
agreement or by a party as a result of a breach of the
intellectual property agreement by the other party that is not
curable within 45 days. A limited number of provisions will
survive the termination of the intellectual property agreement
under certain circumstances.
A party may assign any licenses and rights granted to it under
the intellectual property agreement to any direct or indirect
successor or transferee to all or substantially all of the
business of the transferring party.
Trademark and Trade Name Agreement
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Grant of Trademark License |
In connection with the proposed transactions, Harris has agreed
to grant to Harris Stratex and its subsidiaries for use solely
by Harris Stratex and its subsidiaries, a worldwide,
royalty-free, fully paid-up, non-transferable, non-exclusive
license to use the HARRIS mark, or the licensed
trademark, and the HARRIS mark with a stylized
A, or the stylized mark, as described below:
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With respect to the packaging, marketing, sale, licensing,
distribution and support of the products of the MCD business
(including products that have been partially manufactured)
existing as of the closing date, with certain limitations, for
one year from the closing date of the proposed transactions,
Harris Stratex will be permitted to use the licensed trademark
and the stylized mark in the same manner as they were used in
the MCD business by Harris and its subsidiaries immediately
prior to the closing date of the proposed transactions; and |
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With respect to any Harris Stratex business products and
marketing and promotional material and packaging produced after
the closing of the proposed transactions, Harris Stratex may
only use the licensed trademark if the licensed trademark is
used as part of the HARRIS portion of a combined
HARRIS STRATEX trademark as provided in the
trademark and trade name agreement. |
Within three months after the closing date of the proposed
transactions, Harris Stratex and its subsidiaries have agreed to
remove the stylized mark from all buildings, signs and vehicles
used in connection with its business.
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Grant of Trade Name License |
Harris has also agreed to grant to Harris Stratex for use solely
by Harris Stratex and its subsidiaries a personal, royalty-free,
fully paid-up, worldwide, non-transferable, non-exclusive
license to use the trade name HARRIS without a
stylized A, which we refer to as the licensed trade
name, subject to those limitations as provided in the trademark
and trade name agreement.
The trademark and trade name license agreement also includes
provisions addressing various other matters, including those
identified below, among others.
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No Transfers; No Sublicensing |
Neither Harris Stratex nor its subsidiaries will have the right
to transfer its rights under the agreement or grant sublicenses
to the licensed trademark, the stylized mark or licensed trade
name, although Harris Stratex and its subsidiaries may authorize
persons contracted by Harris Stratex to manufacture its products
to affix the licensed trademark or the licensed trade name to
new Harris Stratex
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business products, marketing and promotional material and
packaging in accordance with the trademark and trade name
license agreement.
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Other Trademarks and Trade Names |
Harris Stratex and its subsidiaries will be required to refrain
from the adoption or use of any other trademark or trade name or
logo that is, or contains any element that is, confusingly
similar to the licensed trademark, the stylized mark or the
licensed trade name. Harris Stratex and its subsidiaries will
not be permitted to use any logo, trademark or trade name
including the name Harris except as expressly
permitted by the terms of the agreement.
Harris Stratex also will be required to comply with certain
quality control standards and related procedures.
The licensed trademark, the stylized mark and the licensed trade
name are the exclusive and sole property of Harris, and all use
of the licensed trademark, the stylized mark and the licensed
trade name by Harris Stratex and its subsidiaries pursuant to
the agreement will inure solely to Harriss benefit.
Neither Harris Stratex or its subsidiaries nor any of their
agents or affiliates will be permitted to challenge, contest,
call into question or raise any questions concerning
Harris ownership or the validity of the licensed trade
name, the licensed trademark, the stylized mark or any
registration or application for registration for the licensed
trademark or the stylized mark or the fact that Harris
Stratexs and its subsidiaries rights under the
agreement are solely those of a licensee, which rights terminate
(except as otherwise set forth in the agreement) upon
termination of the trademark and trade name license agreement.
In addition, Harris Stratex and its subsidiaries will be
required to comply with reasonable trademark and trade name
usage guidelines provided by Harris, as established from time to
time.
Harris will have the right to terminate the trademark and trade
name license agreement and the licenses granted under it if:
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Harris Stratex and its subsidiaries materially default in
performing any of the terms and conditions of the trademark and
trade name license agreement and fail to remedy the material
default within 30 days of written notice, subject to
additional provisions relating to Harris Stratexs efforts
and ability to remedy any material breach; |
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Upon written notice to Harris Stratex in the event that Harris
Stratex or any of its subsidiaries are adjudged bankrupt, become
insolvent, make an assignment for the benefit of creditors, have
a receiver or trustee appointed, file a petition for bankruptcy,
or initiate reorganization proceedings or take steps toward
liquidation of a substantial part of its property or assets; or |
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Upon six months written notice to Harris Stratex at any time
Harris no longer is entitled to cast majority of the total
number of votes then entitled to be cast generally in the
election of Class A directors of Harris Stratex. |
Harris Stratex will have the right to terminate the trademark
and trade name license agreement at any time for any reason upon
written notice.
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Transition Services Agreement
Harris has agreed that it will provide Harris Stratex and Harris
Stratexs affiliates certain services for use in connection
with the MCD business as that business is conducted by Harris
Stratex following the closing of the merger and the combination
transaction. Harris will provide the services in a manner,
amount and quality substantially consistent with the identified
services provided by Harris to the MCD business six months
before the effective date of the contribution transaction and
the merger.
These services primarily include the services currently provided
by Harris to the Microwave Communications Division which are
charged to the Microwave Communications Division, including
information services, human resources, financial services,
facilities, legal support and supply chain management services.
Upon the request of Harris Stratex, Harris may elect to provide
additional services to Harris Stratex on terms and fees to be
determined by Harris and Harris Stratex. The parties currently
anticipate that, following the closing of the proposed
transactions, Harris may provide information technology services
to Harris Stratex that are different in type and amount than
that currently provided by Harris to the Microwave
Communications Division. These additional services will be
negotiated pursuant to and subject to the terms of the
transition services agreement.
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Exceptions to Harris Obligation to Perform |
Notwithstanding anything to the contrary, Harris will not be
required to provide any service to Harris Stratex (1) to
the extent performing the service would require Harris to
violate any law or would result in the breach of any contract or
agreement due to a failure to obtain certain necessary consents,
licenses, sublicenses or approvals, (2) if Harris
reasonably determines that providing such service would result
in a significant disruption of its or any of its
affiliates businesses or operations, would materially
increase the scope of Harris responsibilities under the
transition services agreement or would be impracticable or
(3) if any such service unreasonably inhibits any employee
of Harris or any of its affiliates from discharging his or her
obligations to Harris or any of its affiliates or places any
employee of Harris or any of its affiliates in a conflict of
interest with respect to his or her employment with Harris or
any of its affiliates. Until an alternative approach is found or
the problem is otherwise resolved to the satisfaction of the
parties, Harris has agreed to use its commercially reasonable
efforts to provide a comparable service, or in the case of data
systems, support the function to which the data system relates
or permit Harris Stratex to have reasonable access to the data
system so that Harris Stratex can support the function itself.
However, if Harris Stratex elects to decommission, replace,
modify or change its information technology or communications
systems, networks, equipment, configurations, processes,
procedures, practices or any other aspect of its business
relationship relating to a service in a manner that adversely
affects Harris ability to provide such service as required
under the transition services agreement, then Harris will have
no liability regarding the effectiveness or quality of such
service and will be excused from performance of such service
until Harris Stratex mitigates the adverse effect of the change,
and Harris Stratex will be responsible for all direct expenses
incurred by Harris in connection with the cessation and, if
applicable, the resumption of such service. Additionally, Harris
may suspend its performance of any service and Harris
Stratexs access to information technology or
communications systems used by Harris if, in Harris
reasonable judgment, the integrity, security or performance of
these systems, or any data stored on the system, is being or is
likely to be jeopardized by the activities of Harris Stratex,
its employees, agents, representatives or contractors.
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In consideration of Harris provision of services under the
transition services agreement, Harris Stratex will pay to
Harris, without set-off, a service fee for each such service in
the amount equal to:
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all internal costs allocated to the maximum extent reasonably
practicable to providing the service on a fully allocated basis
consistent with current charges to the MCD business, and |
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any additional
out-of-pocket costs or
expenses incurred by Harris in connection with providing the
service, including without limitation, payments or costs for an
ongoing license, grant or provision of rights or services. |
The term of the transition services agreement commences upon the
closing of the merger and the contribution transaction and will
terminate regarding each service as provided by the transition
services agreement regarding such service, although transition
services agreement will terminate, including all services
provided pursuant to its terms, no later than the one-year
anniversary of the closing of the merger and the contribution
transaction, unless the agreement is terminated sooner by
default or by Harris Stratex or extended by mutual written
agreement of the parties. Any termination or expiration of the
agreement regarding any particular service will not terminate
the agreement regarding any other service provided under the
agreement. Notwithstanding any other provision of the transition
services agreement, upon written notice received by Harris at
least 30 days prior to the termination of the information
technology services, Harris will continue to provide the
information technology service provided by Harris to Harris
Stratex immediately prior to such termination for an additional
six-month period, although the
cost-of-services
provision in the agreement will not apply during such six-month
period and the parties will negotiate in good faith to determine
a commercially reasonable fee for those services during that
six-month period.
Harris will have the right, in its sole discretion, to terminate
the applicable services and/or the transition services agreement
in the event that Harris Stratex fails to pay for any or all
services in accordance with the terms of the transition services
agreement (and the payment is not disputed by Harris Stratex in
good faith in accordance with the terms of the transition
services agreement).
Either party will have the right, in its sole discretion, to
terminate the applicable services and/or the transition services
agreement in the event that: (1) the other party defaults
under the transition services agreement in any material respect
or (2) the other party becomes insolvent as provided in the
transition services agreement, subject to applicable cure
periods.
The agreement may be terminated with respect to all services by
Harris Stratex prior to the one-year anniversary of the closing
of the merger and the contribution transaction upon the
expiration of the longer of (1) 30 days prior
written notice to Harris or (b) the longest notice period
applicable to any service that has not been terminated or
expired in accordance with the transition services agreement at
the time of such termination. Any particular service may be
separately terminated by Harris Stratex upon the expiration of
the longer of (a) 30 days prior written notice
to Harris or (b) the required prior written notice to
Harris as specified for such service by the transition services
agreement.
No party may assign the transition services agreement without
the prior written consent of the other party, although no
consent is required for a transfer by operation of law in
connection with a merger or
115
consolidation. Harris may subcontract any function or service to
be performed by Harris under the transition services agreement
to a third party service provider, to the extent that Harris is
also using such third party service provider to perform such
subcontracted function or service for Harris or for any of
Harris affiliates, although such subcontracting will not
relieve Harris from any of its obligations to Harris Stratex
under the transition services agreement.
The transition services agreement includes customary
indemnification customary.
Warrant Assumption Agreement
Pursuant to the terms of the outstanding Stratex warrants, each
warrant will automatically become exercisable for that number of
shares of Harris Stratex Class A common stock equal to
one-fourth of the number of shares of Stratex common stock
issuable upon exercise of such warrant immediately prior to the
effective time of the merger at an exercise price per share of
Harris Stratex Class A common stock equal to four times the
exercise price of such warrant per share of Stratex common stock
immediately prior to the effective time of the merger, or
$11.80 per share of Harris Stratex Class A common
stock. The terms of the Stratex warrants further require that
Harris Stratex, as the new parent company of Stratex, assume the
obligations of Stratex under terms of the warrants. Accordingly,
this agreement provides that, upon the effective time of the
merger (1) Stratex will be released from its obligations
under the warrants to purchase Stratex common stock, issued in
connection with the Purchase Agreement, dated September 21,
2004, by and between Stratex and certain investors identified in
that agreement and (2) Harris Stratex will assume
Stratexs obligations under the warrants and agreed to
perform such obligations and to be bound by the terms of the
warrants to the same extent as if it had been an original
signatory to the warrants.
Lease Agreement
Harris has agreed to lease to Harris Stratex approximately
23,000 square feet of office space currently utilized by
the Microwave Communications Divisions located in Melbourne,
Florida, for approximately two years for approximately
$45,000/month. Harris Stratex will have two one-year options to
renew the lease, provided the parties can agree on the rent for
each additional year, which will at least be 103% of the prior
years rent. Harris Stratex may terminate the lease at any
time upon ninety-days written notice to Harris provided
that it pays the following early termination fee:
(1) one-years rent if such termination occurs in the
first year of the two-year term or (2) the lesser of
six-months rent and the rent for the remaining term of the
lease, if such termination occurs after the first year of the
term. Harris Stratex may not transfer the lease without the
consent of Harris.
NetBoss Service Agreement
Upon completion of the merger and the contribution transaction,
pursuant to the terms and conditions of the NetBoss service
agreement, Harris has agreed to sell, assign, transfer, convey
and deliver to Harris Stratex all of Harris and any of its
subsidiaries right, title and interest in and to certain
contracts to the extent such rights, title and interests in and
to such contracts arise out of the provision of goods and
services relating to any
NetBoss®
integrated communications network management platform to any
affiliate of Harris or any of its subsidiaries. In addition,
Harris Stratex has agreed to accept the assignment and assume
and pay, honor, perform and discharge when due all of the
obligations that otherwise would be provided by Harris or one of
its subsidiaries under the contracts to be so assigned arising
out of or resulting from the provision of goods and services
relating to any
NetBoss®
integrated communications network management platform to any
affiliate of Harris or any of its subsidiaries. Harris will (or
will cause one of its subsidiaries to) pay to Harris Stratex
promptly when due any amounts owed to Harris Stratex in
connection with the provision of goods and services relating to
any
NetBoss®
integrated communications network management platform to any
affiliate of Harris or any of its subsidiaries pursuant to and,
in accordance with, the assigned contracts. For purposes of the
NetBoss service agreement, neither Harris
116
Stratex nor any of its subsidiaries are deemed to be a
subsidiary or affiliate of Harris or any of its other
subsidiaries or affiliates.
Registration Rights Agreement
Harris and Harris Stratex have agreed to enter into a
registration rights upon the consummation of the merger and the
contribution transaction containing the following terms:
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Securities that may be registered under the agreement include
(1) Harris Stratex Class A and Class B
common stock or other securities acquired by Harris from Harris
Stratex, (2) any securities issued or distributed
regarding, or in exchange for, any such Class A or
Class B common stock or securities (whether directly or
indirectly or in one or a series of transactions) pursuant to
any reclassification, merger, consolidation, reorganization or
other transaction or procedure and (3) any securities
issued or distributed regarding, or in exchange for, any
securities described in clause (2) or this clause (3)
(whether directly or indirectly or in one or a series of
transactions) pursuant to any reclassification, merger,
consolidation, reorganization or other transaction or procedure,
other than, in the case of each of clauses (1),
(2) and (3), any such securities that: |
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have been offered and sold pursuant to a registration statement
that has become effective under the Securities Act; |
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have been transferred in compliance with Rule 144 under the
Securities Act (or any successor provision thereto) under
circumstances after which such registrable securities became
freely transferable without registration under the Securities
Act and any legend relating to transfer restrictions under the
Securities Act has been removed; or |
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are transferable pursuant to paragraph (k) of
Rule 144 (or any successor provision thereto). |
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Harris is permitted two shelf registrations upon request but
solely for use in connection with delayed underwritten offerings; |
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Harris is permitted four non-shelf demand registration
statements relating to underwritten offerings that have become
effective and that covered all the registrable securities
requested to be included; |
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Any demand for registration must be in respect of securities
with a market value of at least $50 million based on the
then prevailing market price, represent at least 5% of the
outstanding Harris Stratex common stock or represent all of the
securities that can be registered under the agreement by a
holder and its affiliates; |
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Harris is entitled to customary piggyback registration
rights; and |
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Harris Stratex has the right to postpone (or, if necessary or
advisable, withdraw) the filing, or delay the effectiveness of a
registration statement or offers and sales of applicable
securities registered under a shelf demand registration
statement if its board of directors determines in good faith
that such registration would interfere with any pending
financing, acquisition, corporate reorganization or other
corporate transaction involving Harris Stratex or any of its
subsidiaries, or would otherwise be seriously detrimental to
Harris Stratex and its subsidiaries, taken as a whole, and
furnishes to the electing holders of registrable shares a copy
of a resolution of its board of directors setting forth such
determination; provided, however, that Harris Stratex may
not postpone a demand registration or offers and sales of
applicable securities under a shelf demand registration
statement more than once in any twelve-month period and that no
single postponement shall exceed 90 days in the aggregate. |
117
BOARD OF DIRECTORS AND MANAGEMENT OF HARRIS STRATEX
FOLLOWING THE TRANSACTIONS
Board of Directors of Harris Stratex
Because it is expected that Harris Stratex will rely on the
controlled company exemption contained in the NASDAQ
rules following the proposed transaction so long as Harris holds
more than 50% of the outstanding voting power of Harris Stratex,
it will not be required to have a majority of independent
directors, as defined by the NASDAQ rules, serving on its board
of directors or a nominating committee or compensation committee
composed entirely of independent directors. However, at all
times Harris Stratex will be required to have at least three
directors satisfying the independence requirements for directors
serving on an audit committee as prescribed by the NASDAQ rules.
Following the proposed transactions, the board of directors of
Harris Stratex will have nine members. Five of these directors
will be Class B directors appointed by Harris. The four
remaining directors will be Class A directors appointed by
Stratex. The initial directors will serve until their successors
are elected at the first annual meeting of Harris Stratex. The
Harris Stratex directors will be elected at each annual meeting.
The parties have agreed that the following individuals will be
appointed as directors of Harris Stratex immediately prior to
the effective time of the merger:
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Guy M. Campbell
Class of Director: Class B Director
Appointed By: Harris Corporation |
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Mr. Campbell, 60, became President of the Microwave
Communications Division effective August, 2003. He has over
25 years of experience in the wireless communications
industry. |
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Mr. Campbell held a number of senior management roles at
Ericsson, a multi-billion dollar global telecommunications
company. In 1999, he joined Andrew Corporation, a provider of
communications equipment for the global telecommunications
infrastructure market, as Group President Wireless Products and
was named President and Chief Executive Officer of Andrew in
2000. Mr. Campbell has a bachelors degree in
electrical engineering from Marquette University and a
masters degree in management science from West Coast
University in Los Angeles. |
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Charles D. Kissner
Class of Director: Class A Director
Appointed By: Stratex Networks, Inc. |
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Mr. Kissner, 59, currently serves as Chairman of the board
of directors of Stratex. Mr. Kissner joined Stratex as its
President and Chief Executive Officer and was elected a director
in July 1995, and its Chairman in August 1996. He served as
Chief Executive Officer of Stratex from July 1995 to May 2000
and again from October 2001 until May 18, 2006. Prior to
joining Stratex, he served from July 1993 to July 1995 as Vice
President and General Manager of M/ A-COM, Inc., a manufacturer
of radio and microwave communications products. Prior to that,
he was executive vice president of Fujitsu Network Switching,
Inc., President and CEO of Aristacom International, and held
several key positions at AT&T (now Lucent Technologies) in
general management, finance, sales, marketing, and engineering.
Mr. Kissner currently serves on the board of SonicWALL,
Inc., a provider of Internet security appliances.
Mr. Kissner also serves on the Advisory Board of
Santa Clara Universitys Leavey School of Business. |
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Howard L. Lance
Class of Director: Class B Director
Appointed By: Harris Corporation |
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Mr. Lance, 50, is the Chairman of the Board, President and
Chief Executive Officer of Harris. Mr. Lance joined Harris
in January 2003 as President and Chief Executive Officer and was
appointed Chairman in June 2003. Prior to joining Harris,
Mr. Lance was President of NCR Corporation, an information
technology services provider, and Chief Operating Officer of its
Retail and Financial Group from July 2001 until October 2002.
Prior to joining NCR, he spent 17 years with Emerson
Electric Company, an electronic products and systems company,
where he held increasingly senior management positions with
different divisions of the company. In 1999, Mr. Lance was
named Executive Vice President with operating responsibility for
its Electronics and Telecommunications businesses. Earlier,
Mr. Lance held sales and marketing positions with the
Scott-Fetzer Company and Caterpillar, Inc. Mr. Lance has
been a member of the board of directors of Harris since January
2003. Mr. Lance is also a director of Eastman Chemical
Company and serves on the Board of Trustees of the Aerospace
Industries Association, the Manufacturers Alliance/ MAPI, Inc.,
the Florida Council of 100, the United Way of Brevard County and
the Florida Institute of Technology. |
Of the remaining three directors to be appointed by Harris,
Harris has agreed that until the second anniversary of the
consummation of the proposed transactions one must meet the
independence requirements for directors serving on an audit
committee as prescribed by the NASDAQ rules and one must not be
an employee of Harris or any of its subsidiaries (without regard
to Harris Stratex or any of its subsidiaries). Of the remaining
three directors to be appointed by Stratex, Stratex has agreed
that two must meet the independence requirements for directors
serving on an audit committee as prescribed by the NASDAQ rules.
Officers of Harris Stratex
Immediately prior to the effective time of the merger, the
following individuals will hold the positions at Harris Stratex
as identified below:
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Guy M. Campbell
Position at Harris Stratex: Chief Executive Officer
Current Position: President, Microwave Communications Division,
Harris Corporation |
See the biographical information for Guy M. Campbell under
Board of Directors and Management of Harris Stratex
Following the Transactions on page 118 of this proxy
statement/ prospectus. Mr. Campbell holds, and will
continue to hold, equity interests in Harris, including grants
of stock options or other equity awards received as an employee
of Harris.
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Sarah A. Dudash
Position at Harris Stratex: Chief Financial Officer
Current Position: Vice President and Controller, Microwave
Communications Division,
Harris Corporation |
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Ms. Dudash, 52, joined the Microwave Division of Harris
Corporation as Division Controller in October, 2003 and was
promoted to Vice-President, Controller in September, 2006. She
has over 20 years of experience in financial management in
both the public and private sectors. |
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Previously, Ms. Dudash was Business Unit Controller for
the Integrated Information Communication Systems Business Unit
of the Government Communications Systems Division of Harris.
Ms. Dudash began her career with Deloitte Haskins + Sells.
She has a bachelors degree in general studies and a MBA
degree from the University of Pittsburgh and is a licensed
certified public accountant in the State of Florida. |
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Ms. Dulash holds, and will continue to hold, equity
interest in Harris, including grants of stock options or other
equity awards received as an employee of Harris. |
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Thomas H. Waechter
Position at Harris Stratex: Chief Operating Officer
Current Position: Chief Executive Officer, Stratex Networks,
Inc. |
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Mr. Waechter, 54, became President and Chief Executive
Officer of Stratex effective May 18, 2006.
Mr. Waechter joined the board of directors of Stratex as an
independent director on December 1, 2005. He is a
technology veteran with more than twenty years experience.
Mr. Waechter held a number of senior management roles over
14 years at Schlumberger Ltd., an international services
company. Recently, he served as President and Chief Executive
Officer of REMEC, a wireless communications manufacturer. Prior
to that, Mr. Waechter was President and Chief Executive
Officer of Spectrian Corporation, which was acquired by REMEC.
Mr. Waechter currently serves on the Endowment Board of the
College of William and Mary. He has a bachelors degree in
business administration from the College of William and Mary in
Virginia. |
Other officers of Harris Stratex will be appointed in accordance
with its certificate of incorporation and bylaws by its board of
directors and management team on or prior to the completion of
the proposed transactions.
Compensation of Directors and Executive Officers
Harris Stratex has not yet paid any compensation to its
directors, executive officers or other managers. The form and
amount of the compensation to be paid to each of Harris
Stratexs directors, executive officers and other managers
will be determined by the board of directors of Harris Stratex
as soon as practicable prior to or following the completion of
the merger and the contribution transaction.
The directors of Harris Stratex after the merger and the
contribution transaction will receive compensation and benefits
as determined to be appropriate by the combined company for
persons performing the types of services to be performed by the
directors of Harris Stratex. Following the merger and the
contribution transaction, the board of directors of Harris
Stratex is expected to review the level of benefits in light of
compensation to directors of comparable public companies and
workload.
Certain Related Party Transactions
For information relating to transactions between Harris and
Harris Stratex, see Note 1. Significant Accounting
Policies Related Party Transactions in the Notes
to the Combined Financial Statements beginning on page F-10
of this proxy statement/ prospectus.
In addition, following the completion of the transactions,
Harris, which at that time will have the right to elect five of
Harris Stratexs nine directors, and Harris Stratex will be
parties to those agreements identified under The Other
Agreements beginning on page 110 of this proxy
statement/ prospectus, including the transition services
agreement and the lease agreement. Amounts to be paid to Harris
under the transition services agreement are not known at this
time but are expected to exceed $60,000 per year, and
amounts to be paid to Harris under the lease agreement will be
approximately $45,000 per month.
120
HARRIS STRATEX INDUSTRY BACKGROUND
Wireless transmission networks are constructed using microwave
radios and other equipment to connect cell sites, switching
systems, wire-line transmission systems and other fixed access
facilities. Wireless networks range in size from a single
transmission link connecting two buildings to complex networks
comprised of thousands of wireless connections. The architecture
of a network is influenced by several factors, including the
available radio frequency spectrum, coordination of frequencies
with existing infrastructure, application requirements,
environmental factors and local geography.
There has been an increase in the capital spending in the
wireless telecommunications industry in recent years. The demand
for high speed wireless transmission products has been growing
at a slightly higher rate than the wireless industry as a whole.
Harris Stratex believes that this growth is directly related to
the growth in both the use of mobile wireless communications
networks and the increased demand for fixed wireless
transmission solutions. Major driving factors for such growth
include the following:
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Increase in Global Wireless Subscribers and Minutes of
Use. The number of global wireless subscribers and minutes
of use per subscriber are expected to continue to increase. The
primary drivers include increased subscription, increased voice
minutes of use per subscriber and the growing use by subscribers
of data applications. Third generation data applications have
been introduced in the developed countries and this has fueled
an increase in minutes of data use. Harris Stratex believes that
growth as a result of new data services will continue for the
next several years. |
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Increased establishment of mobile and fixed wireless
telecommunications infrastructures in developing countries.
In parts of the world, telecommunications services are
inadequate or unreliable because of the lack of existing
infrastructures. To service providers in developing countries
seeking to increase the availability and quality of
telecommunications and internet access services, wireless
solutions are an attractive alternative to the construction or
leasing of wireline networks, given their relatively low cost
and ease of deployment. As a result, there has been an increased
establishment of mobile and fixed wireless telecommunications
infrastructures in developing countries. Emerging
telecommunications markets in Africa, Asia, the Middle East,
Latin America and Eastern Europe are characterized by a need to
build out basic telecommunications systems. |
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Technological advances, particularly in the wireless
telecommunications market. The demand for cellular telephone
and other wireless services and devices continues to increase
due to technological advances and increasing consumer demand for
connectivity to data and voice services. New mobile-based
services based upon what is commonly referred to as
third-generation technology is also creating
additional demand and growth in mobile networks and their
associated infrastructure. The demand for fixed broadband access
networks has also increased due to data transmission
requirements resulting from Internet access demand. Similar to
cellular telephone networks, wireless broadband access is
typically less expensive to install and can be installed more
rapidly than a wireline or fiber alternative. New and emerging
services such as WiMAX are expected to expand over the next
several years. Both WiMAX and new high-speed mobile-based
technology can be used for a number of applications, including
last mile broadband connections, hotspots and
cellular backhaul, and high-speed enterprise connectivity for
business. |
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Global deregulation of telecommunications market and
allocation of radio frequencies for broadband wireless
access. Regulatory authorities in different jurisdictions
allocate different portions of the radio frequency spectrum for
various telecommunications services. Many countries have
privatized the state-owned telecommunications monopoly and
opened their markets to competitive network service providers.
Often these providers choose a wireless transmission service,
which causes an increase in the demand for transmission
solutions. Such global deregulation of the telecommunications
market and the related allocation of radio frequencies for
broadband wireless access transmission have led to increased
competition to supply wireless-based transmission systems. |
121
Other Global trends and developments in the microwave
communications markets include:
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Continuing fixed-line to mobile-line substitution; |
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Private networks and public telecommunications operators
building high-reliability, high-bandwidth networks that are more
secure and better protected against natural and man-made
disasters; |
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Continuing global mobile operator consolidation; and |
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The Federal Communications Commission, or FCC, mandated a
2 GHz relocation project designed to resolve a public
safety interference problem. The project includes the relocation
of 12 federal agencies and a significant amount of microwave
radio content. The FCC has mandated that most television
broadcasters, fixed link service users and others who operate
within the 1990 2110 MHz spectrum band replace
and/or upgrade their 2 GHz transmission facilities by
September 7, 2007 to operate within the 2025
2110 MHz spectrum band. In exchange, the FCC will
relinquish spectrum at 700 and 800 MHz and pay them cash. |
Harris Stratex believes that as broadband access and
telecommunications requirements grow, wireless systems will
continue to be used as transmission systems to support a variety
of existing and expanding communications networks and
applications. In this regard, Harris Stratex believes that
wireless systems will be used to address the connection
requirements of several markets and applications, including the
broadband access market, cellular applications, and private
networks.
122
DESCRIPTION OF THE BUSINESS OF STRATEX NETWORKS, INC.
Business
Stratex is a leading provider of innovative wireless
transmission solutions to mobile wireless carriers and data
access providers around the world. Stratexs solutions also
address the requirements of fixed wireless carriers, enterprises
and government institutions that operate broadband wireless
networks. Stratex designs, manufactures and markets a broad
range of products that offer a wide range of transmission
frequencies, ranging from 0.3 Gigahertz (GHz) to
38 GHz, and a wide range of transmission capacities,
typically ranging from 64 Kilobits to
2OC-3 or
311 Megabits per second (Mbps). In addition to its product
offerings, Stratex provides network planning, design and
installation services and works closely with its customers to
optimize transmission networks.
Stratex has a long history of introducing innovative products
into the telecommunications industry. Stratexs newest
product platform, Eclipse, which began shipping in January 2004,
is one of the first wireless transmission platforms that combine
a broad range of wireless transmission functions into one
network processing node. This node contains many functions that
previously had to be purchased separately from one or more
equipment suppliers. Eclipse has the flexibility to increase
transmission speeds and adjust capacity with software upgrades
and is designed to simplify complex networks and lower the total
cost of ownership over the product life.
The sales of all of Stratexs product lines are generated
primarily through Stratexs worldwide direct sales force.
Stratex also generates sales through base station suppliers,
distributors and agents.
Stratex has sold over 300,000 microwave radios, which have been
installed in over 150 countries. Stratex markets its
products to service providers directly, as well as indirectly
through its relationships with original equipment manufacturer
(OEM) base station suppliers.
Properties
Stratexs corporate offices and principal research and
development facilities are located in San Jose, California
in one leased building of approximately 60,000 square feet.
Stratex has vacated two other buildings in San Jose of
approximately 73,000 square feet; however, Stratex has
ongoing lease commitments for these buildings. Stratex also
leases two buildings in Milpitas, California totaling
60,000 square feet. One of these buildings is used for
warehousing. Stratex has vacated the other building of
approximately 28,000 square feet. Stratex has an ongoing
lease commitment for the vacated building. In the vacated
building, Stratex has sub-tenants occupying the majority of the
building. Although Stratex has discontinued its Seattle,
Washington operations, Stratex has ongoing lease commitments at
the facility, which consists of two leased buildings aggregating
approximately 101,000 square feet of office and
manufacturing space.
Stratex also owns a 44,000 square foot service and repair
facility in Hamilton, Scotland. Stratex owns an additional
58,000 square feet of office and manufacturing space in
Wellington, New Zealand. Additionally, Stratex leases an
aggregate of approximately 32,000 square feet worldwide for
sales, customer service and support offices. Stratex believes
these facilities are adequate to meet its anticipated needs for
the foreseeable future.
Legal Proceedings
There are no material existing or pending legal proceedings
against Stratex. Stratex is subject to legal proceedings and
claims that arise in the normal course of its business.
Certain Projections Relating to Stratex
In connection with its discussions with Harris concerning the
proposed transactions, Stratex prepared certain non-public
financial projections for Stratex for the six months ending
June 30, 2007 and the twelve months ending on June 30,
2008 and June 30, 2009. These projections relate solely to
Stratex and do not
123
take into account any of the proposed transactions or their
potential impact. Stratex prepared these projections solely for
the proposed transactions and not with a view to their public
disclosure. As a matter of policy and practice, Stratex does not
publicly disclose detailed projections or forecasts of the
future financial condition, results of operations or other
financial or operating results of Stratex or any of its business
segments. The projections presented below are included in this
proxy statement/prospectus only because they were provided to
Harris and its financial advisors in connection with their
evaluations of the proposed transactions.
While Stratexs management prepared the projections in good
faith and on bases they believed to be reasonable, the
projections (and the assumptions and information upon which they
are based) are forward looking statements that are inherently
subjective, imprecise and subject to considerable uncertainties
and risks. In particular, most of the assumptions and
information upon which the projections are based relate to
future events, conditions and circumstances which cannot be
reliably predicted and over which Stratex may have little or no
control. These future events, conditions and circumstances are
susceptible to many different possible views, estimates and
interpretations. While presented with numeric specificity, the
projections incorporate and reflect many important assumptions
made by Stratexs management with respect to future events,
conditions and circumstances, including industry performance and
competition, general business, economic, market and financial
conditions and other commercial and financial matters, all of
which are beyond Stratexs control. Stratex cannot predict
whether the assumptions and other future variables upon which
the projections are based will ultimately prove to be accurate.
The actual results that Stratex would have achieved as a stand
alone entity might have been materially higher or lower than the
results reflected in the projections. See Information
Relating to Forward-Looking Statements beginning on
page 40 of this proxy statement/prospectus.
Stratex prepared the projections and made the underlying
assumptions on the basis of the information existing and
available to it at the time of such preparation. Neither Stratex
nor Harris Stratex has updated or intends to update the
projections or underlying assumptions to reflect any subsequent
or future developments or otherwise, and each specifically
disclaims any duty to update the projections or the underlying
assumptions unless required to do so by applicable law.
The projections were not prepared in compliance with any
regulations or guidelines promulgated by the SEC or the American
Institute of Certified Public Accountants relating to the
presentation of prospective financial information, nor were they
prepared in accordance with U.S. GAAP. Neither Stratexs
auditors nor any other independent accountants have compiled,
examined or performed any procedures with respect to the
information contained in the projections set forth below. In
addition, neither Stratexs auditors nor any other
independent accountants have expressed any opinion or any other
form of assurance with respect to such information, the
projections or their achievability. Stratexs auditors
assume no responsibility for, and disclaim any association with,
this information.
The inclusion of the projections should not be regarded as an
indication that Stratex, Harris, either of their financial
advisors or any other person who received the projections
considered, or now considers, such information to be a reliable
prediction of future events, and such information should not be
relied on as such. Neither Stratex nor any of its financial
advisors or representatives has made any representations or
warranties, or provided any other assurances, with respect to
the projections or the underlying assumptions.
For all of the reasons described above, we strongly caution you
not to rely upon the accuracy or completeness of the projections
described below in deciding how to vote on the proposed
transactions.
124
Stratex Networks, Inc.
Projections dated August 20, 2006
(in thousands, except earnings per share)
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Six Months Ended | |
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Twelve Months Ended | |
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Twelve Months Ended | |
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June 30, 2007 | |
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June 30, 2008 | |
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June 30, 2009 | |
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Revenue
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$ |
141,000 |
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$ |
307,000 |
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$ |
350,947 |
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Gross margin
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48,525 |
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105,574 |
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123,870 |
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Operating income
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13,030 |
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28,581 |
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43,685 |
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The following is a brief description of the material assumptions
on which the projections were based:
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Year over year, the revenue growth rates included in these
projections are 13% from FY2006 to FY2007, 13% from FY2007 to
FY2008 and 14% from FY 2008 to FY2009. |
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The market growth rate for Stratexs addressable global
market is 12% to 15% which assumes strong growth in the
provisioning of basic services in developing countries. |
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Year over year, gross margin as a percent of sales improves as
cost reductions are achieved through design improvements and
reduced manufacturing costs that will exceed declines in average
selling prices. It is also assumed that manufacturing costs and
average selling prices will decline at rates that are consistent
with Stratexs recent operating history. |
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Other income and expense and tax expense were estimated based on
the two companies combined results and not the individual
forecasts. These estimates considered historical levels of other
income and expense at each company and expected tax rates given
the projected level of income for the combined company. |
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Other key assumptions in the projections: |
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Stratexs suppliers will be able to expand their capacity
to enable Stratex to fulfill growing product demand while
reducing their manufacturing costs and providing higher volume
discounts; |
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Political and economic conditions in key international markets
will remain similar to current conditions; and |
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Stratexs operating expenses, including research and
development, will grow at a slower rate than revenue. |
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125
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND
RESULTS OF OPERATIONS OF STRATEX
Business Overview
Stratex designs, manufactures, markets and sells advanced
wireless solutions for worldwide mobile and fixed telephone
network interconnection and access. Since its founding in 1984,
Stratex has introduced a number of innovative products in the
telecommunications market and has delivered wireless
transmission systems for the transport of data, voice and video
communication, including comprehensive service and support.
Stratex markets its products primarily to mobile wireless
carriers around the world. For more information about
Stratexs business and its product line, see
Description of the Business of Stratex Networks,
Inc. on page 123 of this proxy statement/prospectus.
A significant percentage of Stratexs revenue is derived
from sales outside the United States. As a result, its revenues
from sales of equipment and services outside the United States
were 97% in the first quarter of fiscal 2007, 95% in fiscal
2006, 94% in fiscal 2005 and 96% in fiscal 2004.
In fiscal 2006, Stratex continued to focus its efforts and made
significant progress in transitioning from its legacy products
to the Eclipse business model. Stratex introduced some initial
products as part of its plan to roll out the next generation of
Eclipse products. Its results of operations improved
significantly in fiscal 2006 as compared to fiscal 2005. Stratex
achieved key milestones that it had been focusing on as part of
its strategic plan.
As indicated in the table below, Stratexs gross margins
have shown gradual improvement since the beginning of 2006.
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Q2 FY 2007 | |
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Q1 FY 2007 | |
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Q4 FY 2006 | |
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Q3 FY 2006 | |
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Q2 FY 2006 | |
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Q1 FY 2006 | |
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Gross margin
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30.9% |
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30.0% |
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30.7% |
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29.2% |
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26.8% |
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23.0% |
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Stratex believes that it has accomplished these financial
improvements mainly because of the success of the expanding
Eclipse product line and due to the streamlining of operations
by taking certain cost reduction measures over the past few
years. Revenue from Eclipse products in fiscal 2006 was
$134.5 million as compared to $39.6 million in fiscal
2005.
Critical Accounting Policies and Estimates
The preparation of Stratexs consolidated financial
statements in accordance with generally accepted accounting
principles requires Stratex to make estimates and judgments that
affect the reported amounts of assets and liabilities, including
the disclosure of contingent assets and liabilities at the date
of Stratexs consolidated financial statements, and the
reported amounts of revenue and expenses. By their nature, these
estimates and judgments are subject to an inherent degree of
uncertainty. Stratex management bases its estimates and
judgments on historical experience, market trends, and other
factors that are believed to be reasonable under the
circumstances. Actual results may differ from these estimates
under different assumptions or conditions. Stratex management
believes the following critical accounting policies, among
others, affect its more significant judgments and estimates used
in the preparation of Stratexs consolidated financial
statements.
Stratex recognizes revenue pursuant to Staff Accounting
Bulletin No. 104 (SAB 104)
Revenue Recognition. Accordingly, revenue is
recognized when all four of the following criteria are met:
(i) persuasive evidence that the arrangement exists;
(ii) delivery of the products and/or services has occurred;
(iii) the selling price is fixed or determinable; and
(iv) collectibility is reasonably assured.
In accordance with SAB 104, revenues from product sales are
generally recognized when title and risk of loss passes to the
customer and the above criteria are met, except when product
sales are combined with significant post-shipment installation
services. Under this exception, revenue is deferred until such
126
services have been performed. Installation service revenue is
recognized when the related services are performed. When sales
are made under payment terms beyond Stratexs normal credit
terms, revenue is recognized only when cash is collected from
the customer unless the sale is covered by letters of credit or
other bank guarantees. Revenue from service obligations under
maintenance contracts is deferred by Stratex and recognized on a
straight-line basis over the contractual period, which is
typically one year.
In the fourth quarter of fiscal 2006, Stratex entered into a
license agreement with Alcatel for Eclipse software and
products, which agreement obligates Alcatel to pay Stratex a
license fee based on the dollar value of Alcatels
quarterly purchases from our contract manufacturers. A minimum
quarterly license fee is recognized as revenue in the fiscal
quarter it is invoiced. License fees in excess of the quarterly
minimum are recognized as revenue in the quarter in which they
are invoiced, due and payable. The agreement includes additional
support services that may be provided by Stratex to Alcatel. In
accordance with Emerging Issues Task Force (EITF)
00-21 Revenue
Arrangements with Multiple Deliverables Stratex has
determined that revenue related to these services should be
recognized separately from the license fee and as and when the
services are performed.
At the time Stratex recognizes revenue, Stratex establishes an
accrual for estimated warranty expenses associated with its
sales and records it as a component of cost of sales.
Stratexs standard warranty period generally is
27 months from the date of sale if the customer uses us or
Stratexs approved installers to install the products;
otherwise it is 15 months from the date of sale. The
warranty accrual is made based on forecasted returns and average
cost of repair. Forecasted returns are based on trended
historical returns. While Stratex believes that its warranty
accrual is adequate and that the judgment applied is
appropriate, the estimated amounts could differ materially from
actual results. If actual warranty costs exceed the accrued
expense, Stratexs cost of sales will increase. For more
information regarding Stratexs warranty accrual for fiscal
years 2006, 2005 and 2004, see Note 9 to the Consolidated
Financial Statements included in Stratexs Annual Report on
Form 10-K for the
fiscal year ended March 31, 2006, as amended, incorporated
into this proxy statement/prospectus by reference. See
Where You Can Find More Information beginning on
page 191 of this proxy statement/prospectus.
Inventories are stated at the lower of cost
(first-in, first-out)
or market, where cost includes material, labor, and
manufacturing overhead. Stratex regularly monitors inventory
quantities on hand and records a provision for excess and
obsolete inventories based primarily on its forecast of future
product demand and production requirements. Cost of sales
included an excess and obsolete inventory provision of
$3.6 million for fiscal 2006 and $2.9 million for
fiscal 2005. Although Stratex makes every effort to ensure the
accuracy of its forecasts of future product demand, any
significant unanticipated changes in demand or technological
developments could significantly impact the value of
Stratexs inventory and reported operating results. If
actual market conditions are less favorable than Stratexs
assumptions, additional provisions for excess and obsolete
inventory may be required, which would increase reported cost of
sales. Stratexs estimates of future product demand may
prove to be inaccurate, in which case Stratex may have
understated or overstated the provision required for excess and
obsolete inventory. In the future, if Stratexs inventory
is determined to be overvalued, Stratex would be required to
recognize such costs in its cost of sales at the time of such
determination. If Stratexs inventory is determined to be
undervalued, Stratex may have overstated its cost of sales in
previous periods and would be required to report lower cost of
sales in a future period.
Stratex currently subcontracts substantially all of its
manufacturing. Each month Stratex provides its suppliers with a
six-month forecast so they can secure parts with a substantial
manufacturing and delivery lead time in order to meet forecasted
delivery schedules. Stratex is generally obligated to pay for
the items purchased by its suppliers based on such forecasts. If
actual demand for Stratexs products is less than
forecasted, Stratex may have excess inventory, which would be
recorded as an additional provision component of cost of sales.
127
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Valuation of Long-Lived Assets |
Stratex accounts for impairment or disposal of long-lived assets
in accordance with Statement of Financial Accounting Standard
No. 144 Accounting for the Impairment or Disposal of
Long-Lived Assets (SFAS 144).
SFAS 144 supersedes SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of
(SFAS 121), by requiring that one accounting
model be used for long-lived assets to be disposed of by sale,
whether previously held and used or newly acquired, and by
broadening the presentation of discontinued operations to
include more disposal transactions. Stratex values assets based
on the fair value of the asset. In fiscal 2005, Stratex recorded
an impairment loss on property and equipment of
$0.9 million. In fiscal 2006 and the first quarter of
fiscal 2007, there was no impairment loss recorded on long-lived
assets by Stratex.
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Valuation of Intangible Assets |
Stratex accounts for intangible assets in accordance with
Statement of Financial Accounting Standards No. 142,
Goodwill and Other Intangible Assets, or
SFAS No. 142. SFAS No. 142 requires that
goodwill and identifiable intangible assets with indefinite
useful lives no longer be amortized, but instead be tested for
impairment at least annually. SFAS No. 142 also
requires that intangible assets with estimable useful lives be
amortized over their respective estimated useful lives to their
estimated residual values, and reviewed for impairment in
accordance with SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. Stratex
reviews its intangible assets for impairment at least annually
or whenever events or changes in circumstances indicate that the
carrying amount of these assets may not be recoverable.
In fiscal 2004, Stratex acquired intangible assets of
$2.4 million. Stratex was amortizing these intangible
assets over their estimated useful life of 18 months.
During fiscal 2005, Stratex reviewed its intangible assets for
impairment and accelerated the amortization of the intangible
assets as Stratex concluded they were impaired. Stratex
amortized the entire balance of intangible assets in the third
quarter of fiscal 2005. During fiscal 2006 and the first quarter
of fiscal 2007, Stratex did not record any intangible assets.
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Restructuring and Impairment Charges |
Liability for costs associated with an exit or disposal activity
is recognized by Stratex when the liability is incurred in
accordance with SFAS No. 146, Accounting for
Costs Associated with Exit or Disposal Activities
(SFAS 146). Prior to December 31, 2002
Stratex accounted for restructurings in accordance with Emerging
Issues Task Force
No. 94-3,
Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring), or EITF
No. 94-3 and
SAB No. 100, Restructuring and Impairment
Charges. Under
EITF 94-3, a
liability for an exit cost was recognized by Stratex at the date
of its commitment to an exit plan. The restructuring accrual
related to vacated properties was calculated net of estimated
sublease income Stratex expected to receive once it subleased
the properties that have been vacated. To determine the lease
loss, certain assumptions were made related to (1) the time
period over which the buildings will remain vacant,
(2) sublease terms, (3) sublease rates and (4) an
estimate of brokerage fees. The lease loss represents Stratex
managements estimate of time to sublease and actual
sublease rates. Sublease income is estimated based on current
market quotes for similar properties. If Stratex is unable to
sublease these properties on a timely basis or if Stratex is
forced to sublease them at lower rates due to changes in market
conditions, Stratex would adjust the accrual accordingly.
Accordingly, SFAS No. 146 may affect the timing of
recognizing future restructuring costs as well as the amounts
recognized. In fiscal 2005 and fiscal 2004 Stratex recorded
restructuring charges of $2.3 million and
$4.0 million, respectively, for lease obligations related
to buildings that were vacated in fiscal 2003 and fiscal 2002
primarily due to a change in the estimate of sublease income
which was initially estimated at the time the buildings were
vacated.
128
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Provision for Uncollectible Receivables |
In establishing the appropriate provisions for trade and
long-term receivables due from customers, Stratex makes
assumptions with respect to their future collectibility. Such
assumptions are based on an individual assessment of a
customers credit quality as well as subjective factors and
payment trends, including the aging of receivable balances and
taking into consideration the country in which the customer is
located as over 90% of Stratexs customers are located
outside of the United States. Generally, these individual credit
assessments occur prior to the inception of the credit exposure
and at regular reviews during the life of the exposure and
consider:
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a customers ability to meet and sustain its financial
commitments; |
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a customers current and projected financial
condition; and |
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the positive or negative effects of the customers current
and projected industry outlook. |
Stratex must make estimates and judgments in determining income
tax expense for financial statement purposes. These estimates
and judgments occur in the calculation of tax assets and
liabilities that arise from differences in the timing of
recognition of revenue and expense for tax and financial
statement purposes. Stratex must assess the likelihood that it
will be able to recover its deferred tax assets. If recovery is
not likely, Stratex must increase its provision for taxes by
recording a valuation allowance against the deferred tax assets
that Stratex estimates will not ultimately be recoverable. To
the extent that Stratexs estimates regarding valuation
allowance are understated, additional charges to income tax
expense would be recorded in the period in which it determines
the understatement. If Stratexs estimates are overstated,
income tax benefits will be recognized when realized. As of
June 30, 2006, Stratex believes that all the deferred tax
assets recorded on the balance sheet are not realizable in the
foreseeable future and Stratex had recorded a full valuation
allowance. For details regarding Stratexs deferred tax
assets please see Note 10 to Stratexs Consolidated
Financial Statements included in its Annual Report on
Form 10-K for the
fiscal year ended March 31, 2006, as amended, and
incorporated into this proxy statement/prospectus by reference.
Results of Operations
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Three and Six Months Ended September 30, 2006 Versus
Three and Six Months Ended September 30, 2005 |
Net sales for the second quarter of fiscal 2007 increased to
$67.3 million, compared to $56.6 million reported in
the second quarter of fiscal 2006, and increased to
$133.5 million for the first half of fiscal 2007, compared
to $111.4 million in the first half of fiscal 2006. Stratex
believes that this increase was primarily attributable to an
increase in the demand for its newest product line, Eclipse, as
well as wireless subscriber growth and growth in fixed wireless
transmission infrastructures in developing geographic regions
like Africa. Revenue from Eclipse product accounted for 73% of
Stratexs total revenue for the quarter as compared to 54%
of the total revenue in the second quarter of last fiscal year.
129
Revenue by geographic regions. The following table sets
forth information on Stratexs sales by geographic regions
for the periods indicated (in thousands except percentages):
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Three Months Ended September 30, | |
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Six Months Ended September 30, | |
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% of | |
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% of | |
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% of | |
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% of | |
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2006 | |
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Total | |
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2005 | |
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Total | |
|
2006 | |
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Total | |
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2005 | |
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Total | |
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United States
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$ |
2,000 |
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3 |
% |
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$ |
3,820 |
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7 |
% |
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$ |
4,159 |
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3 |
% |
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$ |
6,194 |
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6 |
% |
Other Americas
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4,602 |
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7 |
% |
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6,831 |
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12 |
% |
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9,228 |
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7 |
% |
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13,564 |
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12 |
% |
Poland
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4,607 |
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7 |
% |
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6,743 |
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12 |
% |
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|
5,677 |
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4 |
% |
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11,800 |
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10 |
% |
Other Europe
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14,745 |
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22 |
% |
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8,052 |
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|
|
14 |
% |
|
|
33,613 |
|
|
|
25 |
% |
|
|
25,089 |
|
|
|
22 |
% |
Middle East
|
|
|
1,167 |
|
|
|
2 |
% |
|
|
5,168 |
|
|
|
9 |
% |
|
|
10,018 |
|
|
|
8 |
% |
|
|
8,589 |
|
|
|
8 |
% |
Thailand
|
|
|
3,324 |
|
|
|
5 |
% |
|
|
4,053 |
|
|
|
7 |
% |
|
|
4,770 |
|
|
|
4 |
% |
|
|
11,724 |
|
|
|
11 |
% |
Bangladesh
|
|
|
1,823 |
|
|
|
3 |
% |
|
|
9,123 |
|
|
|
16 |
% |
|
|
2,896 |
|
|
|
2 |
% |
|
|
13,258 |
|
|
|
12 |
% |
Other Asia/ Pacific
|
|
|
7,145 |
|
|
|
10 |
% |
|
|
4,263 |
|
|
|
8 |
% |
|
|
19,238 |
|
|
|
14 |
% |
|
|
9,178 |
|
|
|
8 |
% |
Ghana
|
|
|
10,880 |
|
|
|
16 |
% |
|
|
1,166 |
|
|
|
2 |
% |
|
|
17,335 |
|
|
|
13 |
% |
|
|
2,994 |
|
|
|
3 |
% |
Tanzania
|
|
|
6,760 |
|
|
|
10 |
% |
|
|
54 |
|
|
|
0 |
% |
|
|
9,976 |
|
|
|
8 |
% |
|
|
65 |
|
|
|
0 |
% |
Other Africa
|
|
|
10,226 |
|
|
|
15 |
% |
|
|
7,281 |
|
|
|
13 |
% |
|
|
16,606 |
|
|
|
12 |
% |
|
|
8,971 |
|
|
|
8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues
|
|
$ |
67,279 |
|
|
|
100 |
% |
|
$ |
56,554 |
|
|
|
100 |
% |
|
$ |
133,516 |
|
|
|
100 |
% |
|
$ |
111,426 |
|
|
|
100 |
% |
Revenue from Ghana, Tanzania, Other Africa, Other Asia/ Pacific
and Other Europe regions increased significantly in the second
quarter of fiscal 2007 and the first half of fiscal 2007
compared to the second quarter of fiscal 2006 and the first half
of fiscal 2006, respectively. In the current periods, Stratex
received significant revenue from an existing customer in Ghana
that is expanding its network infrastructure, and significant
revenue from one new major customer in Tanzania that is
expanding its networking capacity to allow for implementation of
third generation technology. Revenue in the Other Africa region
increased in the second quarter of fiscal 2007 compared to the
second quarter of fiscal 2006 and also in the first half of
fiscal 2007 compared to the first half of fiscal 2006 primarily
due to increased sales to existing customers that are also
expanding their existing networks. The increase in sales in the
Other Europe region resulted primarily from increased sales to
an existing customer in Russia. The increase in sales in the
Other Asia/ Pacific region was primarily due to increased sales
to an existing customer in Sri Lanka. Stratex experienced a
significant decrease in revenue in Poland, Bangladesh and the
Middle East primarily because of decreased sales to a major
customer in each location.
Product operating segment. The revenue and operating
income for the product operating segment of Stratex for the
periods indicated were as follows (in thousands except
percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, | |
|
Six Months Ended September 30, | |
|
|
| |
|
| |
|
|
|
|
% of | |
|
|
|
% of | |
|
|
|
% of | |
|
|
|
% of | |
|
|
2006 | |
|
Total | |
|
2005 | |
|
Total | |
|
2006 | |
|
Total | |
|
2005 | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Eclipse
|
|
$ |
49,161 |
|
|
|
85 |
% |
|
$ |
30,798 |
|
|
|
65 |
% |
|
$ |
100,121 |
|
|
|
86 |
% |
|
$ |
55,547 |
|
|
|
58 |
% |
Velox
|
|
|
1,874 |
|
|
|
3 |
% |
|
|
2,184 |
|
|
|
4 |
% |
|
|
3,404 |
|
|
|
3 |
% |
|
|
3,145 |
|
|
|
3 |
% |
DXR
|
|
|
1,500 |
|
|
|
3 |
% |
|
|
4,663 |
|
|
|
10 |
% |
|
|
3,207 |
|
|
|
3 |
% |
|
|
11,253 |
|
|
|
12 |
% |
XP4
|
|
|
3,092 |
|
|
|
5 |
% |
|
|
3,192 |
|
|
|
7 |
% |
|
|
4,992 |
|
|
|
4 |
% |
|
|
12,705 |
|
|
|
13 |
% |
Other products
|
|
|
2,103 |
|
|
|
4 |
% |
|
|
6,430 |
|
|
|
14 |
% |
|
|
5,194 |
|
|
|
4 |
% |
|
|
12,979 |
|
|
|
14 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$ |
57,730 |
|
|
|
100 |
% |
|
$ |
47,267 |
|
|
|
100 |
% |
|
$ |
116,918 |
|
|
|
100 |
% |
|
$ |
95,629 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$ |
138 |
|
|
|
(0 |
)% |
|
$ |
(2,153 |
) |
|
|
(5 |
)% |
|
$ |
1,292 |
|
|
|
1 |
% |
|
$ |
(6,153 |
) |
|
|
(6 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net product revenues increased from $47.3 million in the
second quarter of fiscal 2006 to $57.7 million in the
second quarter of fiscal 2007 and from $95.6 million in the
first half of fiscal 2006 to $116.9 million in the first
half of fiscal 2007 primarily due to a significant increase in
sales of the Eclipse product line. Sales of Stratexs
Altium, XP4 and DXR product lines decreased as demand for these
products was replaced with the new Eclipse product line.
130
Stratex generated operating income in the product operating
segment in the second quarter of fiscal 2007 of
$0.1 million compared to an operating loss of
$2.2 million in the second quarter of fiscal 2006 primarily
because of higher margins on the Eclipse product line. The
increased operating income included stock-based compensation
expense of $1.0 million due to the adoption of
SFAS No. 123(R) effective in the first quarter of
fiscal 2007, and $1.5 million of expenses incurred in the
second quarter of fiscal 2007 related to the proposed
combination with the Microwave Communications Division.
Operating income in the product operating segment of
$1.3 million in the first half of fiscal 2007 compared to
an operating loss of $6.2 million in the first half of
fiscal 2006 was attributable to the same factors and items. The
stock based compensation recorded in the first half of fiscal
2007 due to the adoption of FAS123R was $2.1 million.
Service operating segment. The revenue and operating
income for Stratexs service operating segment for the
periods indicated in the table below were as follows (in
thousands except percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, | |
|
Six Months Ended September 30, | |
|
|
| |
|
| |
|
|
|
|
% of | |
|
|
|
% of | |
|
|
|
% of | |
|
|
|
% of | |
|
|
2006 | |
|
Revenue | |
|
2005 | |
|
Revenue | |
|
2006 | |
|
Revenue | |
|
2005 | |
|
Revenue | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Field service revenue
|
|
$ |
6,746 |
|
|
|
|
|
|
$ |
6,301 |
|
|
|
|
|
|
$ |
10,916 |
|
|
|
|
|
|
$ |
9,623 |
|
|
|
|
|
Operating income
|
|
|
814 |
|
|
|
12 |
% |
|
|
423 |
|
|
|
7 |
% |
|
|
1,098 |
|
|
|
10 |
% |
|
|
193 |
|
|
|
2 |
% |
Repair revenue
|
|
|
2,803 |
|
|
|
|
|
|
|
2,986 |
|
|
|
|
|
|
|
5,682 |
|
|
|
|
|
|
|
6,174 |
|
|
|
|
|
Operating income
|
|
|
891 |
|
|
|
32 |
% |
|
|
1,013 |
|
|
|
34 |
% |
|
|
1,766 |
|
|
|
31 |
% |
|
|
2,149 |
|
|
|
35 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total service revenue
|
|
$ |
9,549 |
|
|
|
|
|
|
$ |
9,287 |
|
|
|
|
|
|
$ |
16,598 |
|
|
|
|
|
|
$ |
15,797 |
|
|
|
|
|
Total operating income
|
|
$ |
1,705 |
|
|
|
18 |
% |
|
$ |
1,436 |
|
|
|
15 |
% |
|
$ |
2,864 |
|
|
|
17 |
% |
|
$ |
2,342 |
|
|
|
15 |
% |
Service revenue consists of installation, network design, path
surveys, integration, and other revenues derived from the
services that Stratex provides to its customers. There was no
significant change in field service revenue in the second
quarter of fiscal 2007 compared to the second quarter of fiscal
2006, but operating income improved from 7% to 12% mainly due to
the spreading of fixed field service costs over higher revenue
levels. Field service revenue increased by 13% in the first half
of fiscal 2007 compared to the first half of fiscal 2006.
Operating income also improved significantly due to the
spreading of fixed costs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, | |
|
Six Months Ended September 30, | |
|
|
| |
|
| |
|
|
|
|
% of Net | |
|
|
|
% of Net | |
|
|
|
% of Net | |
|
|
|
% of Net | |
|
|
2006 | |
|
Sales | |
|
2005 | |
|
Sales | |
|
2006 | |
|
Sales | |
|
2005 | |
|
Sales | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
|
|
|
(in thousands) | |
|
|
|
|
|
|
Net sales
|
|
$ |
67,279 |
|
|
|
100 |
% |
|
$ |
56,554 |
|
|
|
100 |
% |
|
$ |
133,516 |
|
|
|
100 |
% |
|
$ |
111,426 |
|
|
|
100 |
% |
Cost of sales
|
|
|
46,512 |
|
|
|
69 |
% |
|
|
41,386 |
|
|
|
73 |
% |
|
|
92,877 |
|
|
|
70 |
% |
|
|
83,657 |
|
|
|
75 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
$ |
20,767 |
|
|
|
31 |
% |
|
$ |
15,168 |
|
|
|
27 |
% |
|
$ |
40,639 |
|
|
|
30 |
% |
|
$ |
27,769 |
|
|
|
25 |
% |
Gross profit as a percentage of net sales increased to 31% in
the second quarter of fiscal 2007, compared to 27% in the second
quarter of fiscal 2006 primarily due to a favorable product mix
impact of approximately 2%, including increased sales of the
higher margin Eclipse products.
The increase in gross margin in the first half of fiscal 2007
compared to the first half of fiscal 2006 resulted primarily
from a favorable product mix impact of approximately 3%
attributable to Eclipse product sales. In addition,
manufacturing period costs had a favorable impact of
approximately 1% on the gross profit for the first half of
fiscal 2007 compared to the first half of fiscal 2006.
131
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
Six Months Ended | |
|
|
September 30, | |
|
September 30, | |
|
|
| |
|
| |
|
|
2006 | |
|
2005 | |
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
|
(in thousands) | |
|
|
Research and development
|
|
$ |
4,299 |
|
|
$ |
3,703 |
|
|
$ |
8,883 |
|
|
$ |
7,404 |
|
% of net sales
|
|
|
6.4 |
% |
|
|
6.5 |
% |
|
|
6.7 |
% |
|
|
6.6 |
% |
Research and development expenses increased in the current
periods primarily because of increased stock-based compensation
expense recorded for the vesting of restricted stock on
achievement of certain financial objectives and the adoption of
SFAS No. 123(R). Stratex recorded $0.7 million
and $1.4 million of stock based compensation in the second
quarter of fiscal 2007 and first half of fiscal 2007,
respectively. The stock based compensation recorded in the
second quarter of fiscal 2006 and first half of fiscal 2006 was
$0.1 million each.
Stratex expects that research and development expenses will
remain fairly constant in the remainder of fiscal 2007 as it
continues to focus on efforts to expand its Eclipse product line
features and capabilities.
|
|
|
Selling, General and Administrative |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
Six Months Ended | |
|
|
September 30, | |
|
September 30, | |
|
|
| |
|
| |
|
|
2006 | |
|
2005 | |
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
|
(in thousands) | |
|
|
Selling, general and administrative
|
|
$ |
14,625 |
|
|
$ |
12,182 |
|
|
$ |
27,600 |
|
|
$ |
24,176 |
|
% of net sales
|
|
|
22.0 |
% |
|
|
21.5 |
% |
|
|
21.0 |
% |
|
|
21.7 |
% |
In the second quarter of fiscal 2007, selling, general and
administrative expenses increased primarily due to stock-based
compensation expense of $1.8 million recorded in the second
quarter for the vesting of restricted stock on achievement of
certain financial objectives and adoption of
SFAS No. 123(R) compared to stock-based compensation
of $0.7 million in the second quarter of fiscal 2006. The
increase also reflects $1.5 million of transaction related
expenses recorded in the second quarter of fiscal 2007 relating
to the proposed combination with the Microwave Communications
Division. This increase was partially offset by lower agent
commissions due to lower sales in the Asia/ Pacific region where
Stratex uses sales agents.
Selling, general and administrative expenses increased in the
first half of fiscal 2007 from the first half of fiscal 2006
primarily because of stock compensation expense of
$3.7 million recorded in the first half of fiscal 2007
compared to $0.9 million in the first half of fiscal 2006
and the Combination-related expenses. However, Stratex incurred
lower agent commissions in the first half of fiscal 2007
compared to first half of fiscal 2006.
|
|
|
Interest Income, Interest Expense and Other
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
Six Months Ended | |
|
|
September 30, | |
|
September 30, | |
|
|
| |
|
| |
|
|
2006 | |
|
2005 | |
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
|
(in thousands) | |
|
|
Interest income
|
|
$ |
693 |
|
|
$ |
261 |
|
|
$ |
1,350 |
|
|
$ |
481 |
|
Interest expense
|
|
|
(601 |
) |
|
|
(757 |
) |
|
|
(1,179 |
) |
|
|
(1,257 |
) |
Other expenses, net
|
|
|
(360 |
) |
|
|
(552 |
) |
|
|
(695 |
) |
|
|
(1,067 |
) |
Interest income increased in the second quarter and first half
of fiscal 2007 compared to the same periods in fiscal 2006
because of higher average balances and also higher interest
rates.
132
Other expense decreased in the second quarter and first half of
fiscal 2007 compared to the same periods of fiscal 2006
primarily because of lower exchange losses and lower costs of
hedging Stratexs foreign currency exposure risk.
|
|
|
Provision for Income Taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
Six Months Ended | |
|
|
September 30, | |
|
September 30, | |
|
|
| |
|
| |
|
|
2006 | |
|
2005 | |
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
|
(in thousands) | |
|
|
Provision for income taxes
|
|
$ |
23 |
|
|
$ |
496 |
|
|
$ |
257 |
|
|
$ |
773 |
|
Stratex records provision for income taxes on taxable income
generated by some of our foreign subsidiaries. The provision for
income taxes was significantly lower in the second quarter and
first half of fiscal 2007 than in the same periods in fiscal
2006 primarily because of taxable income at the Poland, Mexico
and India subsidiaries in the second quarter of fiscal 2006.
These subsidiaries incurred losses during the second quarter and
first half of fiscal 2007.
Net cash provided by Stratexs operating activities in the
first half of fiscal 2007 was $2.0 million, compared to net
cash provided by operating activities of $3.1 million in
the first half of fiscal 2006. The amount provided by operating
activities in the first half of fiscal 2007 came from net
profit, as adjusted to exclude non-cash charges. The components
of the increase (net) were as follows:
|
|
|
|
|
|
Accounts receivable increased by $9.3 million in the first
half of fiscal 2007 compared to a decrease of $2.3 million
in the first half of fiscal 2006 mainly due to day sales
outstanding, or DSO, increasing from 59 days as of
March 31, 2006 to 69 days as of September 30,
2006. The increase in DSO resulted primarily from the timing of
shipments and payment terms. |
|
|
|
|
|
Accounts payable increased by $1.6 million in the first
half of fiscal 2007 compared to a decrease of $0.9 million
in the first half of fiscal 2006 primarily because of higher
inventory purchases to support higher levels of backlog. |
|
|
|
|
|
Inventories decreased in the first half of fiscal 2007 by
$5.1 million compared to a decrease of $2.4 million in
the first half of fiscal 2006. |
|
|
|
|
|
Other accrued liabilities and long term liabilities decreased in
the first half of fiscal 2007 primarily because of revenue
deferred at March 31, 2006 was recognized during the period
and restructuring payments. |
|
Net cash used for Stratexs investing activities in the
first half of fiscal 2007 was $10.3 million, compared to
net cash provided by investing activities of $3.5 million
in the first half of fiscal 2006. In the first half of fiscal
2007, proceeds from sales of investments, net of purchases, were
$7.6 million compared to net proceeds of $5.2 million
in the first half of fiscal 2006.
Purchases of property and equipment by Stratex were
$2.7 million in the first half of fiscal 2007 compared to
$1.7 million in the first half of fiscal 2006.
Net cash used for financing activities by Stratex in the first
half of fiscal 2007 was $4.1 million compared to net cash
used by financing activities of $2.8 million in the first
half of fiscal 2006. Stratex repaid $5.6 million and
$3.1 million of its bank loans in the first halves of
fiscal 2007 and 2006, respectively. Proceeds from the sale of
common stock of $1.5 million and $0.3 million in the
first quarters of 2007 and 2006, respectively, were derived from
the exercise of employee stock options and employee purchases of
stock under Stratexs employee stock purchase plan.
133
|
|
|
Fiscal Years Ended March 31, 2006, March 31,
2005 and March 31, 2004 |
Net sales for fiscal 2006 increased to $230.9 million,
compared to $180.3 million reported in fiscal 2005. Stratex
believes that this increase was primarily attributable to an
increase in the demand for its newest Eclipse product line, and
that demand increased because of wireless subscriber growth and
growth in fixed wireless transmission infrastructures in
developing countries. Stratex also experienced increased sales
for data applications as a result of the Eclipse product
features that specifically address this market. Stratex believes
that global economic growth rates, though modest, also
contributed to the increase in revenue.
Net sales for fiscal 2005 increased to $180.3 million,
compared to $157.3 million reported in fiscal 2004. This
increase was due in part to increased sales of the Eclipse
product line, which began shipping in the second half of fiscal
2004. Eclipse sales accounted for $39.6 million, or almost
26%, of Stratexs total revenue for fiscal 2005. Stratex
believes that improved market conditions were another factor
contributing to the increase in net sales in fiscal 2005
compared to fiscal 2004. Capital spending in the
telecommunications market showed a gradual improvement during
fiscal 2005.
Revenue by geographic regions. The following table sets
forth information about Stratexs revenue by geographic
region for the periods indicated (in thousands, except
percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended March 31, | |
|
|
| |
|
|
|
|
% of | |
|
|
|
% of | |
|
|
|
% of | |
|
|
2006 | |
|
Total | |
|
2005 | |
|
Total | |
|
2004 | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
United States
|
|
$ |
11,235 |
|
|
|
5% |
|
|
$ |
11,446 |
|
|
|
6% |
|
|
$ |
6,314 |
|
|
|
4% |
|
Other Americas
|
|
|
23,676 |
|
|
|
10% |
|
|
|
23,839 |
|
|
|
13% |
|
|
|
18,870 |
|
|
|
12% |
|
Russia
|
|
|
15,684 |
|
|
|
7% |
|
|
|
35,456 |
|
|
|
20% |
|
|
|
14,689 |
|
|
|
9% |
|
Poland
|
|
|
25,905 |
|
|
|
11% |
|
|
|
10,811 |
|
|
|
6% |
|
|
|
5,896 |
|
|
|
4% |
|
Other Europe
|
|
|
32,766 |
|
|
|
14% |
|
|
|
22,144 |
|
|
|
12% |
|
|
|
30,269 |
|
|
|
19% |
|
Middle East
|
|
|
26,498 |
|
|
|
12% |
|
|
|
17,520 |
|
|
|
10% |
|
|
|
16,416 |
|
|
|
11% |
|
Nigeria
|
|
|
19,090 |
|
|
|
8% |
|
|
|
10,081 |
|
|
|
6% |
|
|
|
25,705 |
|
|
|
16% |
|
Other Africa
|
|
|
18,034 |
|
|
|
8% |
|
|
|
16,963 |
|
|
|
9% |
|
|
|
9,824 |
|
|
|
6% |
|
Bangladesh
|
|
|
22,301 |
|
|
|
10% |
|
|
|
1,637 |
|
|
|
1% |
|
|
|
|
|
|
|
|
|
Other Asia/ Pacific
|
|
|
35,703 |
|
|
|
15% |
|
|
|
30,405 |
|
|
|
17% |
|
|
|
29,365 |
|
|
|
19% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues
|
|
$ |
230,892 |
|
|
|
100% |
|
|
$ |
180,302 |
|
|
|
100% |
|
|
$ |
157,348 |
|
|
|
100% |
|
Net sales in fiscal 2006 compared to net sales in fiscal 2005
increased significantly in Poland, Nigeria, Bangladesh, Middle
East and Other Europe regions, while revenue decreased
significantly in Russia. Sales in Poland increased due to
increased sales to an existing long-term customer and in part
due to sales to a new customer. Net sales in the Middle East
increased significantly mainly due to increased sales to one
major customer in that region. Net sales to Nigeria in fiscal
2006 increased to $19.1 million from $10.1 million in
fiscal 2005 primarily due to network expansion by one major
customer. Revenue in Bangladesh increased significantly to
$22.3 million in fiscal 2006 from $1.6 million in
fiscal 2005 due to the rapid expansion of several regional
networks. Revenue in the Other Asia/ Pacific region increased to
$13.9 million in fiscal 2006 from $4.3 million in
fiscal 2005 due to increased shipments to a major customer and
the recognition of revenue in the first quarter of fiscal 2006
of $4.4 million on one major sale of legacy equipment that
had previously been deferred due to credit status. Net sales in
Russia decreased in fiscal 2006 to $15.7 million from
$35.5 million fiscal 2005 primarily because of reduced
sales to one customer.
Net sales in fiscal 2005 compared to fiscal 2004 increased
significantly in Russia, the Americas, Poland and Other Africa
regions while decreasing significantly in Nigeria and Other
Europe regions. The increase in net revenue in Russia was
primarily due to increased sales to one customer. The increase
in net
134
sales in the Americas from $25.2 million in fiscal 2004 to
$35.3 million in fiscal 2005 resulted primarily from the
increase in sales of a license exempt product line that Stratex
acquired in fiscal 2004, securing a new customer in Latin
America and sales to an existing customer to whom Stratex had no
shipments in the Americas in fiscal 2004. The decrease in net
sales in Nigeria from $25.7 million in fiscal 2004 to
$10.1 million in fiscal 2005 was due to a decline in
shipments to one customer whose network expansion project neared
completion. Net sales in the Other Europe region decreased to
$22.1 million in fiscal 2005 from $30.3 million in
fiscal 2004 due to a declining customer base and lower sales in
Eastern Europe. Net sales to Poland increased significantly to
$10.8 million in fiscal 2005 from $5.9 million in
fiscal 2004 due to an increase in sales to an existing customer.
Orders and backlog. In fiscal 2006, Stratex received
$255.9 million in new orders compared to
$208.9 million in fiscal 2005 and $196.3 million in
fiscal 2004. The backlog at June 30, 2006 was
$87.4 million compared to $56.2 million at
June 30, 2005 and $58.0 million at June 30, 2004.
The following table summarizes the number of Stratexs
customers that accounted for more than 10% of its backlog at
fiscal year end and with the percentage of backlog represented
by each one.
|
|
|
|
|
|
|
Years Ended March 31, |
|
|
|
|
|
2006 |
|
2005 |
|
|
|
|
|
Number of customers
|
|
3 |
|
2 |
Percentage of Backlog
|
|
12%, 11%, 10% |
|
13%, 12% |
Orders in Stratexs backlog are subject to changes in
delivery schedules or to cancellation at the option of the
purchaser without significant penalty. Stratex includes in its
backlog purchase orders for which a delivery schedule has been
specified for product shipment within one year. Stratex reviews
its backlog on an ongoing basis and makes adjustments to it as
required. Accordingly, although useful for scheduling
production, backlog as of any particular date may not be a
reliable measure of future sales.
Product operating segment. The revenue and operating
income (loss) by product for Stratexs product operating
segment the three years ended March 31 were as follows (in
thousands, except percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended March 31, | |
|
|
| |
|
|
|
|
% of | |
|
|
|
% of | |
|
|
|
% of | |
|
|
2006 | |
|
Total | |
|
2005 | |
|
Total | |
|
2004 | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Eclipse
|
|
$ |
134,479 |
|
|
|
68 |
% |
|
$ |
39,599 |
|
|
|
26 |
% |
|
$ |
3,348 |
|
|
|
3 |
% |
XP4
|
|
|
19,417 |
|
|
|
10 |
% |
|
|
64,125 |
|
|
|
42 |
% |
|
|
57,497 |
|
|
|
44 |
% |
DXR
|
|
|
14,777 |
|
|
|
7 |
% |
|
|
16,120 |
|
|
|
11 |
% |
|
|
23,917 |
|
|
|
18 |
% |
Altium
|
|
|
19,730 |
|
|
|
10 |
% |
|
|
23,985 |
|
|
|
16 |
% |
|
|
39,613 |
|
|
|
31 |
% |
Other products
|
|
|
9,785 |
|
|
|
5 |
% |
|
|
7,787 |
|
|
|
5 |
% |
|
|
4,718 |
|
|
|
4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$ |
198,188 |
|
|
|
|
|
|
$ |
151,616 |
|
|
|
|
|
|
$ |
129,093 |
|
|
|
|
|
Operating loss
|
|
$ |
(3,692 |
) |
|
|
(1.9 |
)% |
|
$ |
(47,064 |
) |
|
|
(31 |
)% |
|
$ |
(39,987 |
) |
|
|
(31 |
)% |
Net product revenues increased to $198.2 million in fiscal
2006 from $151.6 million in fiscal 2005 primarily because
of a significant increase in Eclipse product line sales which
accounted for 68% of the total revenue, increasing by 240% from
$39.6 million in fiscal 2005 to $134.5 million in
fiscal 2006. Sales of Stratexs older Altium, XP4 and DXR
product lines decreased as the Eclipse product line replaced
demand for those products.
Operating loss from the product segment declined significantly
to $3.7 million in fiscal 2006 from $47.1 million in
fiscal 2005, primarily due to higher gross margins for the
Eclipse product line.
Net product revenues increased from $129.1 million in
fiscal 2004 to $151.6 million in fiscal 2005 due to the
introduction of Stratexs new Eclipse product line, which
began shipping in the fourth quarter of fiscal 2004. Eclipse
product sales increased from $3.3 million in fiscal 2004 to
$39.6 million in fiscal 2005, and replaced revenue from the
older Altium product line which decreased from
$39.6 million in fiscal
135
2004 to $24.0 million in fiscal 2005. In fiscal 2005, net
revenue for the XP4 product line increased to $64.1 million
from $57.5 million in fiscal 2004 primarily due to sales to
an existing customer in Russia that was continuing to expand its
network. At the same time, net revenue from the DXR product line
decreased from $23.9 million in fiscal 2004 to
$16.1 million in fiscal 2005 because of lower demand for
this product which is used in limited applications.
The operating loss from the product segment in fiscal 2005 as a
percentage of net product segment revenue remained approximately
the same as in fiscal 2004, as an increase in product revenue
was offset in percentage terms by restructuring charges of
$7.4 million and inventory valuation charges of
$2.6 million recorded in fiscal 2005.
Cash used for the product operating segment resulted primarily
from operating losses incurred by that segment. The cash needs
of this segment included research and development activities and
restructuring payments. We also increased the inventory levels
of our new product Eclipse in order to support its rollout in
the market.
Service operating segment. The revenue and operating
income for Stratexs service operating segment for the
three years ended March 31 were as follows: (in thousands,
except percentages)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended March 31, | |
|
|
| |
|
|
|
|
% of | |
|
|
|
% of | |
|
|
|
% of | |
|
|
2006 | |
|
Revenue | |
|
2005 | |
|
Revenue | |
|
2004 | |
|
Revenue | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Field Service revenue
|
|
$ |
20,545 |
|
|
|
|
|
|
$ |
16,605 |
|
|
|
|
|
|
$ |
15,404 |
|
|
|
|
|
Operating income/(loss)
|
|
|
1,116 |
|
|
|
5 |
% |
|
|
(516 |
) |
|
|
(3 |
)% |
|
|
665 |
|
|
|
4 |
% |
Repair revenue
|
|
|
12,159 |
|
|
|
|
|
|
|
12,081 |
|
|
|
|
|
|
|
12,851 |
|
|
|
|
|
Operating income
|
|
|
4,898 |
|
|
|
40 |
% |
|
|
3,859 |
|
|
|
32 |
% |
|
|
4,777 |
|
|
|
37 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total service revenue
|
|
$ |
32,704 |
|
|
|
|
|
|
$ |
28,686 |
|
|
|
|
|
|
$ |
28,255 |
|
|
|
|
|
Total operating income
|
|
$ |
6,014 |
|
|
|
18 |
% |
|
$ |
3,343 |
|
|
|
12 |
% |
|
$ |
5,442 |
|
|
|
19 |
% |
Services revenue includes, but is not limited to, installation,
network design, path surveys, integration and other revenues
derived from the services Stratex provide to its customers.
In fiscal 2006, field service revenue increased to
$20.5 million from $16.6 million in fiscal 2005 due to
the increase in product revenues associated with field services.
Operating income from field service revenue was
$1.1 million in fiscal 2006 compared to a loss of
$0.5 million in fiscal 2005 because fixed field service
costs were spread over higher revenue levels. Repair revenue did
not change significantly in fiscal 2006 compared to fiscal 2005.
Operating income improved as Stratex reduced its expenses in
this segment.
In fiscal 2005, field service revenue increased to
$16.6 million from $15.4 million in fiscal 2004.
Despite the increase, Stratex incurred an operating loss in
fiscal 2005 compared to an operating income in fiscal 2004,
primarily due to project delays which raised costs as well as
costs incurred to modify an installation for a major customer.
Repair revenue decreased slightly in fiscal 2005 to
$12.1 million from $12.9 million in fiscal 2004.
Operating income for the repair segment, as a percentage of
repair revenue, for fiscal 2005 decreased to 32% from 37% in
fiscal 2004 because of lower absorption of fixed costs due to
lower revenues.
Cash used in the service operating segment resulted primarily
from purchases of spare parts to provide repair services to our
customers and to pay labor expenses. We also paid cash to
several third party vendors to help us install our products. In
fiscal 2005 and fiscal 2004, we purchased approximately
$2.9 million and $4.4 million of spare parts,
respectively.
136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended March 31, | |
|
|
| |
|
|
|
|
% of | |
|
|
|
% of | |
|
|
|
% of | |
|
|
2006 | |
|
Net Sales | |
|
2005 | |
|
Net Sales | |
|
2004 | |
|
Net Sales | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in thousands, except percentages) | |
Net sales
|
|
$ |
230,892 |
|
|
|
100 |
% |
|
$ |
180,302 |
|
|
|
100 |
% |
|
$ |
157,348 |
|
|
|
100 |
% |
Cost of sales
|
|
|
167,303 |
|
|
|
72.5 |
% |
|
|
151,398 |
|
|
|
84.0 |
% |
|
|
129,689 |
|
|
|
82.4 |
% |
Inventory valuation charges (benefits)
|
|
|
|
|
|
|
|
|
|
|
2,581 |
|
|
|
1.4 |
% |
|
|
(498 |
) |
|
|
(0.3 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
$ |
63,589 |
|
|
|
27.5 |
% |
|
$ |
26,323 |
|
|
|
14.6 |
% |
|
$ |
28,157 |
|
|
|
17.9 |
% |
Gross profit as a percentage of net sales increased to 27.5% in
fiscal 2006 compared to a gross profit of 14.6% in fiscal 2005.
This increase in gross profit percentage resulted primarily from
a favorable product mix impact of approximately 5%, especially
from higher sales of Stratexs Eclipse product line. Lower
costs had a favorable impact of approximately 12%, while pricing
had an unfavorable impact of 5%. The gross profit of fiscal 2005
was negatively impacted by 1% due to inventory valuation charges
of $2.6 million.
Gross profit as a percentage of net sales decreased to 14.6% in
fiscal 2005 compared to a gross profit percentage of 17.9% in
fiscal 2004. The gross profit percentage for fiscal 2005 was
negatively impacted by 1% due to inventory valuation charges of
$2.6 million recorded in fiscal 2005, compared to an
inventory valuation benefit of $0.5 million recorded in
fiscal 2004. The inventory valuation charges were for excess
inventories not expected to be sold and the inventory valuation
benefit was from sale of excess inventories reserved in prior
periods. Pricing had a negative impact of approximately 2% on
the gross margin percentage in fiscal 2005 as compared to fiscal
2004.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended March 31, | |
|
|
| |
|
|
2006 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
|
(in thousands, except percentages) | |
Research and development
|
|
$ |
14,475 |
|
|
$ |
16,661 |
|
|
$ |
17,151 |
|
|
% of net sales
|
|
|
6.3 |
% |
|
|
9.2 |
% |
|
|
10.9 |
% |
In fiscal 2006, research and development expenses decreased to
$14.5 million from $16.7 million in fiscal 2005. This
decrease was primarily due to the shut down of the Cape Town,
South Africa operations in the third quarter of fiscal 2005 as
part of a restructuring plan and reduced engineering expenses
related to Stratexs legacy products.
In fiscal 2005, research and development expenses decreased to
$16.7 million from $17.2 million in fiscal 2004,
primarily because of the shut down of the Cape Town, South
Africa operations.
|
|
|
Selling, General and Administrative |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended March 31, | |
|
|
| |
|
|
2006 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
|
(in thousands, except percentages) | |
Selling, general and administrative
|
|
$ |
46,792 |
|
|
$ |
44,379 |
|
|
$ |
39,273 |
|
|
% of net sales
|
|
|
20.3 |
% |
|
|
24.6 |
% |
|
|
25.0 |
% |
In fiscal 2006, selling, general and administrative expenses
increased to $46.8 million from $44.4 million in
fiscal 2005, primarily due to higher third party agent
commissions on sales of our products resulting from an increase
in net sales, especially in the Asia/ Pacific region. Net sales
in the Asia/ Pacific region in fiscal 2006 were
$58.0 million compared to $32.0 million in fiscal
2005. As a percentage of net sales, selling, general and
administrative expenses declined to 20.3% in fiscal 2006 from
24.6% in fiscal 2005 primarily because of the increase in net
sales.
137
In fiscal 2005, selling, general and administrative expenses
increased to $44.4 million from $39.3 million in
fiscal 2004, due to higher third party agent commissions on
sales of products resulting from an increase in net sales,
especially in the Asia/ Pacific region, and higher receivable
valuation charges. In fiscal 2005, Stratex recorded a
$1.1 million accrual for uncollectible receivables. In
addition, Stratex incurred increased costs and audit fees for
documentation and testing related to implementation of
requirements of the Sarbanes-Oxley Act 2002. As a percentage of
net sales, selling, general and administrative expenses declined
to 24.6% in fiscal 2005 from 25.0% in fiscal 2004 primarily
because the rate of increase in net sales exceeded the rate of
increase in selling, general and administrative expenses.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended March 31, | |
|
|
| |
|
|
2006 |
|
2005 | |
|
2004 | |
|
|
|
|
| |
|
| |
|
|
(in thousands, except percentages) | |
Restructuring charges
|
|
$ |
|
|
|
$ |
7,423 |
|
|
$ |
5,488 |
|
|
% of net sales
|
|
|
|
|
|
|
4.1 |
% |
|
|
3.5 |
% |
Stratex did not record any restructuring charges in fiscal 2006.
In fiscal 2005, Stratex recorded $7.4 million of
restructuring charges. In order to reduce expenses and increase
operational efficiency, Stratex implemented a restructuring plan
in the third quarter of fiscal 2005 that included the decision
to shut down operations in Cape Town, South Africa, outsource
manufacturing at the New Zealand and Cape Town, South Africa
locations and exit the sales and service offices in Argentina,
Colombia and Brazil in favor of independent distributors. As
part of the restructuring plan, Stratex reduced the workforce by
155 employees and recorded restructuring charges for employee
severance and benefits of $3.8 million. Stratex also
recorded restructuring charges of $2.3 million for building
lease obligations, $0.8 million for fixed asset write-offs
and $0.5 million for legal and other costs.
In fiscal 2004, Stratex recorded $5.5 million of
restructuring charges. Stratex reduced the workforce by 34
employees and recorded restructuring charges for employee
severance and benefits of $0.9 million. The remaining
$4.6 million of restructuring charges related to lease
obligations for buildings that Stratex vacated in fiscal 2002
and fiscal 2003.
The following table summarizes the activity relating to
restructuring charges for the three years ended March 31,
2006 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance | |
|
Facilities | |
|
|
|
|
and Benefits | |
|
and Other | |
|
Total | |
|
|
| |
|
| |
|
| |
Balance as of March 31, 2003
|
|
$ |
1.5 |
|
|
$ |
22.7 |
|
|
$ |
24.2 |
|
|
Provision in fiscal 2004
|
|
|
0.9 |
|
|
|
4.6 |
|
|
|
5.5 |
|
|
Cash payments
|
|
|
(1.3 |
) |
|
|
(5.6 |
) |
|
|
(6.9 |
) |
|
|
|
|
|
|
|
|
|
|
Balance as of March 31, 2004
|
|
|
1.1 |
|
|
|
21.7 |
|
|
|
22.8 |
|
|
Provision in fiscal 2005
|
|
|
3.8 |
|
|
|
3.6 |
|
|
|
7.4 |
|
|
Cash payments
|
|
|
(3.8 |
) |
|
|
(4.0 |
) |
|
|
(7.8 |
) |
|
Non-cash expense
|
|
|
|
|
|
|
(0.6 |
) |
|
|
(0.6 |
) |
|
Reclassification of related rent accruals
|
|
|
|
|
|
|
1.2 |
|
|
|
1.2 |
|
|
|
|
|
|
|
|
|
|
|
Balance as of March 31, 2005
|
|
|
1.1 |
|
|
|
21.9 |
|
|
|
23.0 |
|
|
Provision in fiscal 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash payments
|
|
|
(1.2 |
) |
|
|
(3.6 |
) |
|
|
(4.8 |
) |
|
Reclassification
|
|
|
0.3 |
|
|
|
(0.6 |
) |
|
|
(0.3 |
) |
|
|
|
|
|
|
|
|
|
|
Balance as of March 31, 2006
|
|
$ |
0.2 |
|
|
$ |
17.7 |
|
|
$ |
17.9 |
|
|
|
|
|
|
|
|
|
|
|
Current portion
|
|
$ |
0.2 |
|
|
$ |
3.2 |
|
|
$ |
3.4 |
|
Long-term portion
|
|
|
|
|
|
|
14.5 |
|
|
|
14.5 |
|
138
The remaining accrual balance of $17.9 as of March 31, 2006
is expected to be paid in cash. Stratex expects
$3.4 million of the remaining accrual balance
($0.2 million of severance and benefits, $0.3 million
of legal and other costs and $2.9 million of vacated
building lease obligations) to be paid in fiscal 2007 and
vacated building lease obligations of $14.5 million to be
paid during fiscal 2008 through fiscal 2012.
|
|
|
Interest Income, Interest Expense, Other Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended March 31, | |
|
|
| |
|
|
2006 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
|
(in thousands) | |
Interest income
|
|
$ |
1,111 |
|
|
$ |
737 |
|
|
$ |
886 |
|
Interest expense
|
|
|
2,227 |
|
|
|
1,662 |
|
|
|
160 |
|
Other expenses, net
|
|
|
1,927 |
|
|
|
845 |
|
|
|
1,116 |
|
Interest income was $1.1 million in fiscal 2006 compared to
$0.7 million in fiscal 2005. The increase resulted
primarily from higher interest rates in fiscal 2006 as compared
to those in fiscal 2005. Interest income in fiscal 2005
decreased to $0.7 million from $0.9 million in fiscal
2004. The decrease resulted primarily from lower average cash
balances during fiscal 2005 as compared to fiscal 2004.
Stratexs interest expense increased to $2.2 million
in fiscal 2006 from $1.7 million in fiscal 2005 primarily
due to bank borrowings under its credit facility. Interest
expense increased to $1.7 million in fiscal 2005 from
$0.2 million in fiscal 2004 because of the additional debt.
Other expenses net were $1.9 million in fiscal 2006
compared to $0.8 million in fiscal 2005 primarily due to
higher foreign currency exchange losses and an increase in the
cost of hedging foreign currency exposure risk. Other expenses
declined to $0.8 million in fiscal 2005 from
$1.1 million in fiscal 2004 as Stratex lowered its cost of
hedging for foreign currency exposure in fiscal 2005 by reducing
exposure through capitalizing intercompany balances with foreign
subsidiaries.
|
|
|
Provision for Income Taxes |
|
|
|
|
|
|
|
|
|
Years Ended March 31, |
|
|
|
|
|
2006 |
|
2005 |
|
2004 |
|
|
|
|
|
|
|
|
|
(in thousands) |
Provision for income taxes
|
|
$1,576 |
|
$455 |
|
$2,133 |
In fiscal 2006, Stratex recorded an income tax provision of
$1.6 million compared to a provision of $0.5 million
in fiscal 2005. This increase was mainly due to an increase in
taxable income of some of its foreign subsidiaries.
In fiscal 2005, Stratex recorded an income tax provision of
$0.5 million related to profits generated by some of its
foreign subsidiaries. In fiscal 2004, Stratex wrote off
$1.9 million of deferred tax assets relating to two of its
foreign subsidiaries as it was more likely than not that Stratex
would not realize any benefit from these assets. Stratex also
recorded an income tax provision of $0.2 million for
foreign subsidiary net income.
Liquidity and Capital Resources
Stratexs cash requirements for the next 12 months are
primarily to fund:
|
|
|
|
|
operations |
|
|
|
research and development |
|
|
|
restructuring payments |
|
|
|
capital expenditures |
139
|
|
|
|
|
repayment of long-term debt |
|
|
|
acquisitions |
As of September 30, 2006, Stratex had $8.0 million in
standby letters of credit outstanding with several financial
institutions to support bid and performance bonds issued to
various customers. These letters of credit generally expire
within one year. Also, as of September 30, 2006, Stratex
had outstanding forward foreign exchange contracts totaling
$34.4 million which expire within six months.
The following table provides information related to
Stratexs contractual obligations (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due | |
|
|
Periods ending March 31, | |
|
|
| |
|
|
|
|
2011 & | |
|
Total | |
|
|
2007 | |
|
2008 | |
|
2009 | |
|
2010 | |
|
Beyond | |
|
Obligations | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in thousands) | |
Operating leases(a)
|
|
$ |
3,273 |
(d) |
|
$ |
6,673 |
|
|
$ |
6,805 |
|
|
$ |
6,929 |
|
|
$ |
6,614 |
|
|
$ |
30,924 |
|
Unconditional purchase obligations(b)
|
|
$ |
28,958 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
28,958 |
|
Long-term debt(c)
|
|
$ |
6,494 |
(d) |
|
$ |
12,427 |
|
|
$ |
6,579 |
|
|
$ |
5,167 |
|
|
|
|
|
|
$ |
30,667 |
|
|
|
|
(a) |
Contractual cash obligations include $15.9 million of lease
obligations that have been accrued as restructuring charges as
of September 30, 2006. |
|
|
|
(b) |
Stratex has firm purchase commitments with various suppliers as
of the end of September 2006. Actual expenditures will vary
based upon the volume of the transactions and length of
contractual service provided. In addition, the amounts paid
under these arrangements may be less in the event that the
arrangements are renegotiated or cancelled. Certain agreements
provide for potential cancellation penalties. Stratexs
policy with respect to all purchase commitments is to record
losses, if any, when they are probable and reasonably estimable.
Stratex believes it has made adequate provision for potential
exposure related to inventory for orders which may go unused. |
|
|
(c) |
See discussion of Repayment of Long-Term Debt below. |
|
|
(d) |
Payments due are for six months ending March 31, 2007. |
|
Stratex expects to pay the remaining accrual balance for
restructuring payments of $16.4 million as of
September 30, 2006, in cash. The remaining accrual balance
consists of $0.2 million for severance and benefits,
$0.3 million for legal fees and $15.9 million for
vacated building lease obligations. Of the vacated building
lease obligations, Stratex expects to pay $3.2 million
prior to September 30, 2007 and $12.7 million from
fiscal 2008 through fiscal 2012.
Beginning in fiscal 2004, Stratex has granted extended terms of
credit to some customers in order to position itself in the
applicable markets and to promote opportunities for the Eclipse
product line. As of September 30, 2006, Stratex had
recorded $0.4 million as long-term accounts receivable due
to these extended terms of credit granted to our customers.
Although Stratex may commit to provide financing to customers in
order to position itself in certain markets, Stratex remains
focused on minimizing overall customer financing exposures by
discounting receivables when possible, raising third party
financing and arranging letters of credit.
140
|
|
|
Repayment of Long-Term Debt |
In the first quarter of fiscal 2005, Stratex borrowed
$25 million on a long-term basis under its $35 million
secured revolving credit facility with a commercial bank. This
loan is payable in equal monthly installments of principal plus
interest over a period of four years. It bears a fixed interest
rate of 6.38%. As of September 30, 2006, Stratex had repaid
$14.6 million of the loan principal.
In the fourth quarter of fiscal 2006, Stratex increased the
amount of its credit facility with the bank from
$35 million to $50 million and extended the facility
for one year to April 30, 2008. Stratex also borrowed an
additional $20 million on a long-term basis under this
facility. The long-term loan is payable in equal monthly
installments of principal and interest over four years and bears
interest at a fixed rate of 7.25%. As of September 30,
2006, Stratex repaid $2.5 million principal of this loan.
This credit facility is secured by all of Stratexs assets,
other than leasehold improvements under various facility leases,
assets previously pledged by Stratexs New Zealand
subsidiary, restricted cash held in bank and deposit accounts
and intellectual property, although all proceeds of intellectual
property are secured.
Under the credit facility agreement, Stratex has to maintain, as
measured on the last day of each fiscal quarter, tangible net
worth of at least $54 million plus (1) 25% of net
income, as determined in accordance with GAAP (exclusive of
losses) and (2) 50% of any increase in net worth due to
subordinated debt or net equity proceeds from either public or
private offerings (exclusive of issuances of stock under our
employee benefit plans) for such quarter and all preceding
quarters since December 31, 2005. Stratex also has to
maintain, as measured at the last day of each fiscal month, a
ratio of not less than 1:1 for each month end through
May 31, 2006 and 1.25:1 thereafter, determined as follows:
(a) the sum of total unrestricted cash and cash
equivalents, short-term and long-term marketable securities, and
25% of all accounts receivable due to Stratex, minus certain
outstanding bank services and reserve for foreign currency
contract transactions, divided by (b) the aggregate amount
of outstanding borrowings and other obligations to the bank. As
of June 30, 2006 Stratex was in compliance with these
financial covenants.
At September 30, 2006, Stratexs principal sources of
liquidity consisted of $55.7 million in cash, cash
equivalents and short-term investments, and $15.9 million
in available credit under the $50 million credit facility.
At September 30, 2006, the balance of the long-term debt
portion of the $50 million credit facility was
$27.9 million, and $6.1 million of standby letter of
credit obligations were outstanding. There was no amount
outstanding under the short-term debt portion of the facility as
of September 30, 2006. As the long-term debt portion is
repaid, additional credit will be available under the revolving
credit portion of the facility. Short-term borrowings under the
revolving credit facility bear interest at the banks prime
rate, which was 8.25% per annum at September 30, 2006,
or LIBOR plus 2%, at Stratexs option.
Stratex believes that its available cash and cash equivalents at
September 30, 2006 and the $15.9 million available
credit under its revolving credit facility should be sufficient
to meet Stratexs anticipated needs for working capital and
capital expenditures for the next twelve months.
Quantitative and Qualitative Disclosures about Market Risk
Stratexs exposure to market risk for changes in interest
rates relates primarily to its investment portfolio. Stratex
does not use derivative financial instruments in its investment
portfolio. Stratex invests in high-credit quality issuers and,
by policy, limits the amount of credit exposure to any one
issuer and country. The portfolio includes only marketable
securities with active secondary or resale markets to ensure
portfolio liquidity. The portfolio is also diversified by
maturity to ensure that funds are readily available as needed to
meet liquidity needs. This policy minimizes the requirement to
sell securities in order to meet liquidity needs and therefore
the potential effect of changing market rates on the value of
securities sold.
141
The table below presents principal amounts and related weighted
average interest rates by year of maturity for our investment
portfolio.
|
|
|
|
|
|
|
|
|
|
|
Years Ending | |
|
|
March 31 | |
|
|
| |
|
|
2007 | |
|
2008 | |
|
|
| |
|
| |
|
|
(in thousands, except | |
|
|
percentages) | |
Cash equivalents and short-term investments(a)
|
|
$ |
52,291 |
|
|
$ |
2,404 |
|
Weighted average interest rate
|
|
|
4.9 |
% |
|
|
5.3 |
% |
|
|
(a) |
Does not include cash of $6.5 million held in bank checking
and deposit accounts including those held by our foreign
subsidiaries. |
The primary objective of Stratexs short-term investment
activities is to preserve principal while at the same time
maximizing yields without significantly increasing risk.
Stratexs short-term investments are for fixed interest
rates; therefore, changes in interest rates will not generate a
gain or loss on these investments unless they are sold prior to
maturity. Actual gains and losses due to the sale of investments
prior to maturity have been immaterial. The average days to
maturity for investments held at the end of second quarter of
fiscal 2007 was 48 days, and the investments had an average
yield of 5.3% per annum.
As of September 30, 2006, unrealized losses on investments
were insignificant. The investments have been recorded at fair
value on our balance sheet.
Any short-term borrowings under Stratexs credit facility
will be at an interest rate of the banks prime rate or
LIBOR plus 2%, at Stratexs option. As of
September 30, 2006, Stratex had $15.9 million of
available credit under the $50 million credit facility with
a commercial bank. A hypothetical 10% change in interest rates
would not have a material impact on Stratexs financial
position, results of operations and cash flows.
Stratex routinely uses forward foreign exchange contracts to
hedge net exposures, by currency, related to the monetary assets
and liabilities of its operations denominated in non-functional
currencies. In addition, Stratex enters into forward foreign
exchange contracts to establish with certainty the
U.S. dollar amount value of firmly committed backlog and
open purchase orders denominated in a foreign currency. The
primary business objective of these hedging programs is to
minimize the gains and losses in both margin and other income
resulting from exchange rate changes. At September 30,
2006, Stratex held forward contracts in the aggregate amount of
$34.4 million primarily in the Thai Baht, Euro and Polish
Zloty. The amount of unrealized losses on these contracts at
September 30, 2006 was insignificant. Forward contracts are
not available in certain currencies and are not purchased for
some other currencies because of their high cost. The exchange
rate fluctuations in these currencies, such as the Nigerian
Naira, could result in significant gains and losses in future
periods.
Given Stratexs exposure to various transactions in foreign
currencies, a change in foreign exchange rates would result in
exchange gains and losses. As these exposures are generally
covered by forward contracts where such contracts are available,
these exchange gains and losses would be offset by exchange
gains and losses on the contracts designated as hedges against
such exposures.
Stratex uses sensitivity analysis to measure foreign currency
risk by computing the potential loss that may result from
adverse changes in foreign exchange rates. The exposure that
relates to the hedged firm commitments is not included in the
analysis. A hypothetical unfavorable variance in foreign
exchange rates of 10% is applied to each net source currency
position using year-end rates, to determine the potential loss.
Further, the model assumes no correlation in the movement of
foreign exchange rates. A 10% adverse
142
change in exchange rates would result in an insignificant amount
of loss. This potential loss would result primarily from
Stratexs exposure to the Nigerian Naira and Argentine Peso.
Stratex does not enter into foreign currency transactions for
trading or speculative purposes. Stratex attempts to limit its
exposure to credit risk by executing foreign contracts with
high-quality financial institutions. For more information
regarding Stratexs accounting policies for derivative
financial instruments, see note 2 to the notes to the
Consolidated Financial Statements included in Stratexs
Annual Report on
Form 10-K for the
fiscal year ended March 31, 2006 incorporated into this
proxy statement/ prospectus by reference. See Where You
Can Find More Information beginning on page 191 of
this proxy statement/ prospectus.
Disclosure Controls and Procedures and Internal Control over
Financial Reporting
As of March 31, 2006, Stratexs management identified
a material weakness in its internal control over financial
reporting which resulted from a failure to maintain effective
controls over the financial close and reporting process, as
disclosed in Stratexs Annual Report on
Form 10-K for the
year ended March 31, 2006, as amended. Specifically,
Stratex reported that it did not have effective internal
controls over the review of the financial statements of its
foreign operations and the period-end financial closing and
reporting process of its consolidated operations. This control
deficiency results in more than a remote likelihood that a
material misstatement of annual or interim financial statements
would not be prevented or detected. Accordingly, Stratexs
management has determined that this control deficiency
constitutes a material weakness.
Stratexs management and the audit committee of
Stratexs board of directors intend and have taken steps to
remediate this material weakness and implemented the following
actions during the first and second quarters of fiscal 2007:
|
|
|
|
|
|
expanded the review of the consolidated financial statements of
Stratex and related financial close and reporting processes,
including additional site visits and testing of internal
controls; and |
|
|
|
|
|
addressed staffing needs in the accounting and finance areas by
increasing staff in corporate finance at Stratexs
headquarters in San Jose, California and at foreign
subsidiary offices located in France, Poland and South Africa. |
|
Stratexs management believes it is taking the steps
necessary to remediate this material weakness relating to
financial close and reporting processes, procedures and controls
with a goal of remediating this material weakness before the end
of fiscal 2007; however, no assurances can be given that the
material weakness will be remediated by such date.
For the three- and six-month periods ended September 30,
2006, Stratex carried out an evaluation, under the supervision
and with the participation of its management, including its
Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of its disclosure
controls and procedures pursuant to
Rule 13a-15(b) of
the Exchange Act. Based upon that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that as
a result of the material weakness in internal control over
financial reporting in the financial close and reporting area
described above, Stratexs disclosure controls and
procedures as of the end of the period were not effective. They
determined that the deficiencies identified did not have a
material impact on Stratexs financial statements.
There were no changes in Stratexs internal controls over
financial reporting during the second quarter of fiscal 2007
fiscal year that have materially affected, or are reasonably
likely to materially affect, its internal control over financial
reporting (as such term is defined under
Rule 13a-15(f) of
the Exchange Act).
143
DESCRIPTION OF THE BUSINESS OF THE MICROWAVE
COMMUNICATIONS
DIVISION OF HARRIS CORPORATION
Introduction
The Microwave Communications Division, sometimes referred to in
this proxy statement/prospectus as MCD, is one of four divisions
within Harris, an international communications and information
technology company focused on providing assured communication
products, systems and services for government and commercial
customers. MCD was formed in February 1980, when Farinon
Corporation, a producer of telecommunications products and
recognized leader in the telephone equipment market, was
acquired by Harris.
MCD is a global provider of products and services in point to
point microwave radio communications. MCD designs, manufactures
and sells a broad range of microwave radios and network
management solutions for use in worldwide wireless
communications networks. Applications include wireless/mobile
infrastructure connectivity; secure data networks; public safety
transport for state, local and Federal government users; and
right-of-way
connectivity for utilities, pipelines, railroads and industrial
companies. MCD has been a separate reportable segment for Harris
Corporation since fiscal year 2000, and in fiscal year 2004,
NetBoss became a product line of this segment. MCD had
approximately 1,040 employees and comprised $353.9 million
in assets as of September 29, 2006.
MCD is organized into three operating segments around the
markets served: North America microwave, International microwave
and the NetBoss product line. The North America microwave
segment designs, manufactures, sells and services microwave
radio products, primarily for cellular network providers and
private network users within North America. The International
microwave segment designs, manufactures, sells and services
microwave radio products, primarily for cellular network
providers and private network users outside of North America.
NetBoss®
is a turnkey,
end-to-end service
assurance solution for broadband, wireline, wireless and
converged networks. The NetBoss product line develops, designs,
produces, sells and services network management systems,
primarily for cellular network providers and private network
users. Unless otherwise noted, disclosures in this proxy
statement/prospectus relate only to MCDs continuing
operations.
MCDs total revenue in fiscal 2006 was $358 million
compared to $310 million in fiscal 2005 and
$330 million in fiscal 2004. The North America microwave
revenue increased approximately 5% from fiscal 2005 while
international revenue, which represented approximately 48% of
MCDs total revenue in fiscal 2006, increased approximately
35% from fiscal 2005. NetBoss revenue, which represented
approximately 5% of MCDs total revenue in fiscal 2006,
decreased approximately 27% from fiscal 2005. This decrease in
NetBoss revenue was due to obtaining the majority of the revenue
through customer add-ons and software maintenance as opposed to
adding major new customers. MCDs net loss for fiscal 2006
was $35.8 million, including $39.6 million in
inventory write-downs and other charges associated with the
international segment product discontinuances and the shutdown
of manufacturing operations at the Montreal, Canada plant,
compared to a loss of $3.8 million in fiscal 2005 and a
loss of $20.2 million in fiscal 2004. The loss in fiscal
2004 included $4.5 million and $2.8 million in our
International microwave and North America microwave segments,
respectively, of expenses related to cost-reduction measures and
fixed asset write downs taken during the fiscal year.
Additionally, MCD was allocated certain general corporate
expenses of Harris Corporation, which were in support of MCD,
including costs for finance, legal, treasury, purchasing,
quality, environmental, safety, human resources, tax, audit and
public relations departments and other corporate and
infrastructure costs. MCD was allocated $12.4 million and
$6.2 million in fiscal year 2006 and 2005, respectively.
These cost allocations were primarily based on a ratio of MCD
sales to total Harris Corporation sales multiplied by the total
Headquarters Expense of Harris Corporation. The
$12.4 million allocation for fiscal year 2006 included a
$5.4 million charge related to Harris arbitration
with Bourdex Telecommunications Limited.
144
|
|
|
Financial Information About the Microwave Communications
Division |
Financial information with respect to MCDs business
segments, including revenue, operating income or loss and long
lived assets by location, is contained in Note 16:
Business Segments in the Notes to Combined Financial
Statements beginning on page F-23 of this proxy
statement/prospectus. Financial information with respect to
MCDs operations outside the United States is also
contained in Note 16: Business Segments.
MCDs principal product families include
TRuepointtm,
Constellation®,
and
MegaStar®
families of
point-to-point digital
radios, and
NetBoss®,
a comprehensive network management system.
|
|
|
Point-to-Point
Microwave Radios |
In general, wireless networks are constructed using microwave
radios and other equipment to connect cell sites, fixed-access
facilities, switching systems, land mobile radio systems and
other similar systems. For many applications, microwave systems
offer a lower-cost, highly reliable alternative to competing
transmission technologies such as fiber or wired
systems. MCDs product lines span frequencies from
2 to 38 GHz and include the:
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TRuepointtm
family of microwave radios. This is MCDs next-generation
microwave
point-to-point radio
platform which provides Synchronous Digital Hierarchy
(SDH) and Plesiochronous Digital Hierarchy
(PDH) in a single platform and is designed to meet
the current and future needs of network operators, including
mobile, private network, government and access service
providers. The unique architecture of the core platform reduces
both capital expenditures and life cycle costs, while meeting
international and North American standards. The software-based
architecture enables transition between traditional microwave
access applications and higher-capacity transport
interconnections. The wide range of capacities, interfaces,
modulation schemes, frequency and channel plans, and power
levels are made available to meet the requirements of networks
around the world. The TRuepoint product family delivers service
from 4 to 180 megabits-per-second capacity at frequencies
ranging from 6 to 38 GHz; |
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Constellation®
medium-to-high-capacity
family of
point-to-point digital
radios operating in the 6, 7/8 and 10/11 GHz frequencies,
which are designed for network applications and support both PDH
and Synchronous Optical Network (SONET), the
standard for digital transport over optical fiber in North
American applications. Constellation radios are suited for
wireless mobile carriers and private operators, including
critical public safety networks; and |
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MegaStar®
high-capacity, carrier-class digital
point-to-point radios,
which operate in the 5, 6, 7/8 and 11 GHz frequencies, and
are designed to eliminate test equipment requirements, reduce
network installation and operation costs, and conform to PDH,
SONET and SDH standards. |
MCD provides turnkey microwave systems and service capabilities,
offering complete network and systems engineering support and
services, including planning, design and systems integration,
site surveys, deployment, management, training and customer
service a key competitive discriminator for MCD in
the microwave radio industry.
The
NetBoss®
integrated communications network management platform supports
wireless, wireline and Internet service providers. NetBoss
offers fault management, performance management, service
activation, billing mediation and Operational Support System
(OSS) integration in a modular,
off-the-shelf solution
designed for rapid deployment. The modularity of NetBoss enables
customers to implement a comprehensive set of capabilities
immediately or gradually, as their needs dictate. The newest
product offering is NetBoss EM, an element manager.
145
Principal customers for the products and services of MCD include
domestic and international wireless/mobile service providers,
original equipment manufacturers, as well as private network
users such as public safety agencies, utilities, pipelines,
railroads and other industrial enterprises. MCD had revenue from
a single external customer that exceeded 10% of MCDs total
revenues during fiscal 2006 and fiscal 2004. During fiscal 2006,
VMobile Nigeria accounted for 15.1% of total revenues. During
fiscal 2004, MTN Nigeria accounted for 15.2% of total revenues.
There was no single customer in fiscal 2005 that accounted for
more than 10.0% of MCDs total revenues.
In general, North American products and services of MCD are sold
directly to customers through direct sales organizations and
through established distribution channels. Internationally, MCD
markets and sells products and services through regional sales
offices and established distribution channels.
The backlog of unfilled orders for MCD was $165 million at
August 25, 2006, compared with $96 million at
August 26, 2005 and $81 million at August 27,
2004. Substantially all of this backlog is expected to be filled
during fiscal 2007, but we can give no assurance of such
fulfillment. As of October 27, 2006, backlog of unfilled
orders for MCD was $170 million. For a discussion of
certain risks affecting this segment, see Risk
Factors and Legal Proceedings beginning
on page 25 and page 149 of this proxy
statement/prospectus, respectively.
MCD revenue in fiscal 2006 from products exported from the
United States or manufactured abroad was $196.8 million
(55% of MCDs total revenue), compared with
$157.4 million (51% of MCDs total revenue) in fiscal
2005 and $175.2 million (53% of MCDs total revenue)
in fiscal 2004. International sales include both direct exports
from the United States and sales from foreign subsidiaries. Most
of the international sales are derived from the International
microwave segment. Direct export sales are primarily denominated
in U.S. dollars, whereas sales from foreign subsidiaries
are generally denominated in the local currency of the
subsidiary. Exports from the United States, principally to
Africa, Canada, Europe, Asia and South and Central America,
totaled $85.1 million (43% of MCD international revenue) in
fiscal 2006, $49.8 million (32% of MCD international
revenue) in fiscal 2005 and $68.4 million (39% of MCD
international revenue) in fiscal 2004. Foreign operations
represented 20% of MCDs revenue in fiscal 2006, 34% of
MCDs revenue in fiscal 2005 and 29% of MCDs revenue
in fiscal 2004. Foreign operations represented 57% of MCDs
long-lived assets as of June 30, 2006 and 56% of long-lived
assets as of July 1, 2005. Financial information regarding
MCDs domestic and international operations is contained in
Note 16: Business Segments in the Notes and is
incorporated herein by reference.
MCDs principal international manufacturing facility is
located in China. International marketing activities are
conducted through subsidiaries which operate in Canada, Europe,
Central and South America and Asia. MCD also has established
international marketing organizations and several regional sales
offices.
MCD utilizes indirect sales channels, including dealers,
distributors and sales representatives, in the marketing and
sale of some lines of products and equipment, both domestically
and internationally. These independent representatives may buy
for resale or, in some cases, solicit orders from commercial or
governmental customers for direct sales by MCD. Prices to the
ultimate customer in many instances may be recommended or
established by the independent representative and may be above
or below MCDs list prices. These independent
representatives generally receive a discount from MCDs
list prices and may mark up those prices in setting the final
sales prices paid by the customer. During fiscal 2006, revenue
from indirect sales channels represented 5% of MCDs total
revenue and 6% of MCDs international revenue, compared to
revenue from indirect sales channels in fiscal 2005 representing
21% of MCDs total revenue and 37% of MCDs
international revenue.
Fiscal 2006 revenue came from customers in a large number of
foreign countries. Other than Nigeria, 23%, and Canada, 8%, no
single country accounted for 5% or more of MCDs total
revenue. Some of MCDs exports are paid for by letters of
credit, with the balance carried either on an open account or
146
installment note basis. Advance payments, progress payments or
other similar payments received prior to, or upon shipment often
cover most of the related costs incurred. In addition,
significant foreign government contracts generally require MCD
to provide performance guarantees. In order to stay competitive
in international markets, MCD also enters into recourse and
vendor financing to facilitate sales to certain customers.
The particular economic, social and political conditions for
business conducted outside the U.S. differ from those
encountered by domestic businesses. MCDs management
believes that the overall business risk for the international
business as a whole is somewhat greater than that faced by its
domestic operations as a whole. For a discussion of the risks
MCD is subject to as a result of its international operations,
see Risk Factors beginning on page 25 of this
proxy statement/prospectus.
MCD operates in highly competitive markets that are sensitive to
technological advances. Although successful product and systems
development is not necessarily dependent on substantial
financial resources, some of MCDs competitors in each of
the businesses are larger than MCD and can maintain higher
levels of expenditures for research and development. MCD
concentrates on the market opportunities that MCD management
believes are compatible with resources, overall technological
capabilities and objectives. Principal competitive factors are
cost-effectiveness, product quality and reliability,
technological capabilities, service, ability to meet delivery
schedules and the effectiveness of dealers in international
areas. MCD believes that its network and systems engineering
support and service are key competitive strengths for MCD.
MCDs principal competitors are Alcatel, Ericsson, Fujitsu,
NEC, Nokia, Siemens and Stratex, as well as other smaller
companies. Several of MCDs competitors are original
equipment manufacturers or systems integrators through which MCD
sometimes distributes and sells products and services to
end-users.
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Research, Development and Engineering |
Research, development and engineering expenditures totaled
approximately $19 million in fiscal 2006, $19 million
in fiscal 2005, and $21 million in fiscal 2004.
Research, development and engineering are primarily directed to
the development of new products and to building technological
capability. MCD maintains an engineering and new product
development department, with scientific assistance provided by
advanced-technology departments.
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Patents and Other Intellectual Property |
MCD considers its patents and other intellectual property
rights, in the aggregate, to constitute an important asset. MCD
owns a portfolio of patents, trade secrets, know-how,
confidential information, trademarks, copyrights and other
intellectual property. MCD also licenses intellectual property
to and from third parties. As of September 29, 2006, MCD
held approximately 65 U.S. patents and 53 foreign patents,
and had approximately 15 U.S. patent applications pending
and 68 foreign patent applications pending. However, MCD does
not consider its business to be materially dependent upon any
single patent, license or other intellectual property right, or
any group of related patents, licenses or other intellectual
property rights. MCD is engaged in a proactive patent licensing
program and has entered into a number of licenses and
cross-license agreements, some of which generate royalty income.
Although existing license agreements have generated income in
past years and may do so in the future, there can be no
assurances that MCD will enter into additional income-producing
license agreements. From time to time MCD engages in litigation
to enforce its patents and other intellectual property. Any of
MCDs patents, trade secrets, trademarks, copyrights and
other proprietary rights could be challenged, invalidated or
circumvented, or may not provide competitive advantages.
Numerous trademarks used on or in connection with MCD products
are also considered to be a valuable asset.
147
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Environmental and Other Regulations |
MCD facilities and operations, in common with those of industry
in general, are subject to numerous domestic and international
laws and regulations designed to protect the environment,
particularly with regard to wastes and emissions. MCD believes
that it has complied with these requirements and that such
compliance has not had a material adverse effect on MCDs
results of operations, financial condition or cash flows. Based
upon currently available information, MCD does not expect
expenditures to protect the environment and to comply with
current environmental laws and regulations over the next several
years to have a material impact on its competitive or financial
position, but MCD can give no assurance that such expenditures
will not exceed current expectations.
From time to time, MCD receives notices from the
U.S. Environmental Protection Agency or equivalent state or
foreign environmental agencies that it is a potentially
responsible party under the Comprehensive Environmental
Response, Compensation and Liability Act, which is commonly
known as the Superfund Act, and/or equivalent laws. Such notices
assert potential liability for cleanup costs at various sites,
which include sites owned by MCD, sites MCD previously owned and
treatment or disposal sites not owned by MCD, allegedly
containing hazardous substances attributable to MCD from past
operations. MCD owns, previously owned or has been named as a
potentially responsible party at two such sites, excluding sites
as to which MCDs records disclose no involvement or as to
which MCDs liability has been finally determined. While it
is not feasible to predict the outcome of many of these
proceedings, in the opinion of MCD management, any payments MCD
may be required to make as a result of such claims in existence
at September 29, 2006 will not have a material adverse
effect on its financial condition or its business taken as a
whole.
Electronic products are subject to governmental environmental
regulation in a number of jurisdictions. Equipment produced by
MCD is subject to domestic and international requirements
requiring end-of-life
management and/or restricting materials in products delivered to
customers. MCD believes that it has complied with such rules and
regulations, where applicable, with respect to its existing
products sold into such jurisdictions.
Radio communications are also subject to governmental
regulation. Equipment produced by MCD is subject to domestic and
international requirements to avoid interference among users of
radio frequencies and to permit interconnection of
telecommunications equipment. MCD believes that it has complied
with such rules and regulations with respect to its existing
products, and MCD intends to comply with such rules and
regulations with respect to its future products. Reallocation of
the frequency spectrum also could impact MCDs business,
financial condition and results of operations.
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Raw Materials and Supplies |
Because of the diversity of its products and services, as well
as the wide geographic dispersion of its facilities, MCD uses
numerous sources for the wide array of raw materials (such as
electronic components, printed circuit boards, metals and
plastics) needed for its operations and for its products. MCD is
dependent upon suppliers and subcontractors for a large number
of components and subsystems and the ability of its suppliers
and subcontractors to adhere to customer or regulatory materials
restrictions and to meet performance and quality specifications
and delivery schedules. In some instances, MCD is dependent upon
one or a few sources, either because of the specialized nature
of a particular item or because of local content preference
requirements pursuant to which MCD operates on a given project.
While MCD has been affected by financial and performance issues
of some of its suppliers and subcontractors, MCD has not been
materially adversely affected by the inability to obtain raw
materials or products.
148
No material portion of MCDs business is considered to be
seasonal. Various factors can affect the distribution of revenue
between accounting periods, including product deliveries and
customer acceptance.
As of June 30, 2006, MCD employed approximately 1,050
people, compared with approximately 1,070 employees at the end
of fiscal 2005. As of September 29, MCD employed
approximately 1,040 people. Approximately 600 of MCDs
employees are located in the United States. MCD also utilizes a
number of independent contractors. None of MCDs employees
in the United States are represented by a labor union. In
certain international subsidiaries, MCD employees are
represented by workers councils or statutory labor unions.
In general, MCD believes that its relations with its employees
are good.
Properties
MCDs principal executive offices are located at leased
facilities in Morrisville, North Carolina. As of
September 29, 2006, MCD operated approximately 24
facilities in the United States, Canada, Europe, Central and
South America and Asia, consisting of about 425,000 square feet
of manufacturing, administrative, research and development,
warehousing, engineering and office space, of which
approximately 130,000 square feet are owned and approximately
295,000 square feet are leased. There are no material
encumbrances on any of MCDs facilities. MCDs leased
facilities are for the most part occupied under leases for terms
ranging from one month to nine years, a majority of which can be
terminated or renewed at no longer than five year intervals at
MCDs option. As of September 29, 2006, the locations
and approximate floor space of MCDs principal offices and
facilities in productive use were as follows:
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Approximate Sq. Ft. | |
|
Approximate Sq. Ft. | |
Location |
|
Major Activities | |
|
Total Owned | |
|
Total Leased | |
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| |
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| |
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| |
San Antonio, Texas
|
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Office/Manufacturing |
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|
130,000 |
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|
|
Montreal, Canada
|
|
|
Office/Manufacturing |
|
|
|
|
|
|
|
113,846 |
|
Morrisville, North Carolina
|
|
|
Office |
|
|
|
|
|
|
|
60,033 |
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Melbourne, Florida
|
|
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Office |
|
|
|
|
|
|
|
29,270 |
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Shenzhen, China
|
|
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Office/Manufacturing |
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|
|
|
|
|
|
27,706 |
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Redwood Shores, California
|
|
|
Office/Manufacturing |
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|
|
|
|
|
25,000 |
|
Chatenay-Malabry, France
|
|
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Office |
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|
|
|
|
12,379 |
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17 other locations
|
|
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Office |
|
|
|
|
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|
|
26,546 |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
130,000 |
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|
|
294,780 |
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In the opinion of the management of MCD, its facilities, whether
owned or leased, are suitable and adequate for their intended
purposes and have capacities adequate for current and projected
needs. While MCD has some unused or under-utilized facilities,
they are not considered significant. MCD continuously reviews
its anticipated requirements for facilities and will, from time
to time, acquire additional facilities, expand existing
facilities, and dispose of existing facilities or parts thereof,
as management deems necessary. For more information about
MCDs lease obligations, see Note 13: Lease
Commitments in the Notes to Combined Financial Statements
beginning on page F-21 of this proxy statement/prospectus.
MCDs facilities and other properties are generally
maintained in good operating condition.
Legal Proceedings
From time to time, as a normal incident of the nature and kind
of businesses in which MCD is engaged, various claims or charges
are asserted and litigation commenced against MCD arising from
or related to: product liability; personal injury; patents,
trademarks, trade secrets or other intellectual property; labor
and employee disputes; commercial or contractual disputes;
breach of warranty; or environmental matters. Claimed amounts
may be substantial but may not bear any reasonable relationship
to the merits
149
of the claim or the extent of any real risk of court or arbitral
awards. MCD has recorded accruals for losses related to those
matters that it considers to be probable and that can be
reasonably estimated. Gain contingencies, if any, are recognized
when they are realized and legal costs are generally expensed
when incurred. While it is not feasible to predict the outcome
of these matters with certainty, and some lawsuits, claims or
proceedings may be disposed of or decided unfavorably to MCD,
based upon available information, in the opinion of management,
settlements and final judgments, if any, which are considered
probable of being rendered against MCD in litigation or
arbitration in existence at September 29, 2006 are reserved
against, covered by insurance or would not have a material
adverse effect on MCDs financial position, results of
operations or cash flows.
Certain Projections Relating to the Microwave Communications
Division
In connection with its discussions with Stratex concerning the
proposed transactions, Harris prepared certain non-public
financial projections for the Microwave Communications Division
for the six months ending June 30, 2007 and the fiscal
years ending June 27, 2008 and July 3, 2009. These
projections relate solely to the Microwave Communications
Division and do not take into account any of the proposed
transactions or their potential impact. Harris prepared these
projections solely for the proposed transactions and not with a
view to their public disclosure. As a matter of policy and
practice, Harris does not publicly disclose detailed projections
or forecasts of the future financial condition, results of
operations or other financial or operating results of Harris or
any of its business segments. The projections presented below
are included in this proxy statement/prospectus only because
they were provided to Stratex and its financial advisors in
connection with their evaluations of the proposed transactions.
While Harris management prepared the projections in good
faith and on bases they believed to be reasonable, the
projections (and the assumptions and information upon which they
are based) are forward looking statements that are inherently
subjective, imprecise and subject to considerable uncertainties
and risks. In particular, most of the assumptions and
information upon which the projections are based relate to
future events, conditions and circumstances which cannot be
reliably predicted and over which Harris may have little or no
control. These future events, conditions and circumstances are
susceptible to many different possible views, estimates and
interpretations. While presented with numeric specificity, the
projections incorporate and reflect many important assumptions
made by Harris management with respect to future events,
conditions and circumstances, including industry performance and
competition, general business, economic, market and financial
conditions and other commercial and financial matters, all of
which are beyond Harris control. Harris cannot predict
whether the assumptions and other future variables upon which
the projections are based will ultimately prove to be accurate.
The actual results that the Microwave Communications Division
would have achieved as a stand alone entity might have been
materially higher or lower than the results reflected in the
projections. See Information Relating to Forward-Looking
Statements beginning on page 40 of this proxy
statement/prospectus.
Harris prepared the projections and made the underlying
assumptions on the basis of the information existing and
available to it at the time of such preparation. Neither Harris
nor Harris Stratex has updated or intends to update the
projections or underlying assumptions to reflect any subsequent
or future developments or otherwise, and each specifically
disclaims any duty to update the projections or the underlying
assumptions unless required to do so by applicable law.
The projections were not prepared in compliance with any
regulations or guidelines promulgated by the SEC or the American
Institute of Certified Public Accountants relating to the
presentation of prospective financial information nor were they
prepared in accordance with U.S. GAAP. Neither Harris
auditors nor any other independent accountants have compiled,
examined or performed any procedures with respect to the
information contained in the projections set forth below. In
addition, neither Harris auditors nor any other
independent accountants have expressed any opinion or any other
form of assurance with respect to such information, the
projections or their achievability. Harris auditors assume
no responsibility for, and disclaim any association with, this
information.
150
The inclusion of the projections should not be regarded as an
indication that Harris, Stratex, either of their financial
advisors or any other person who received the projections
considered, or now considers, such information to be a reliable
prediction of future events, and such information should not be
relied on as such. Neither Harris nor any of its financial
advisors or representatives has made any representations or
warranties, or provided any other assurances, with respect to
the projections or the underlying assumptions.
For all of the reasons described above, we strongly caution you
not to rely upon the accuracy or completeness of the projections
described below in deciding how to vote on the proposed
transactions.
Microwave Communications Division
Projections dated August 20, 2006
(in thousands)
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Six Months Ended | |
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Twelve Months Ended | |
|
Twelve Months Ended | |
|
|
June 29, 2007 | |
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June 27, 2008 | |
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July 3, 2009 | |
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| |
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| |
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| |
Revenue
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|
$ |
203,465 |
|
|
$ |
439,255 |
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|
$ |
489,667 |
|
Gross margin
|
|
|
73,815 |
|
|
|
158,817 |
|
|
|
180,479 |
|
Operating income
|
|
|
20,430 |
|
|
|
46,401 |
|
|
|
53,566 |
|
The following is a brief description of the material assumptions
on which the projections were based:
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Year over year, the revenue growth rates included in these
projections are 13% from FY2006 to FY2007, 10% from FY2007 to
FY2008 and 11% from FY2008 to FY2009. |
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The market growth rate for the Microwave Communications Division
addressable global market is 8%. Growth is assumed to come from
two sources: evolution based growth from overall wireless
subscriber growth in emerging markets, mobile operators
migration to 3G and high bandwidth services and leased line
replacement in North America; and event based growth from 3G
licenses in China, markets in the Middle East and Africa and
Asia, 2 GHz relocation in North America and Homeland Security. |
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The Microwave Communications Divisions growth will outpace
the market through solutions based growth, including network
solutions, the introduction of next generation trunking
products, introduction of node, ADM and IP technology and
feature enhancements on existing products. |
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Other income and expense and tax expense were estimated based on
the two companies combined results and not the individual
forecasts. These estimates considered historical levels of other
income and expense at each company and expected tax rates given
the projected level of income for the combined company. |
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Year over year, gross margin improves as product cost
reductions, operational efficiencies and the continued selling
of value based solutions exceeds the amount of any price erosion. |
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Other key assumptions in the projections: |
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Political and economic conditions in key international markets
will remain similar to current conditions. |
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Operating expenses, including research and development, will
grow at a slower rate than gross margin. |
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151
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS OF MCD
Overview
The following Managements Discussion and Analysis of
Financial Condition and Results of Operations of MCD, which is
sometimes referred to in this proxy statement/ prospectus as the
MD&A, is intended to help the reader understand MCD.
MD&A is provided as a supplement to, should be read in
conjunction with, and is qualified in its entirety by reference
to, the Combined Financial Statements for MCD and related Notes
beginning on page F-7 of this proxy statement/ prospectus.
Except for the historical information contained herein, the
discussions in MD&A contain forward-looking statements that
involve risks and uncertainties. MCDs 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 under Information Relating
to Forward-Looking Statements beginning on page 40 of
this proxy statement/ prospectus.
The following is a list of the sections of MD&A, together
with the perspective of MCDs management on the contents of
these sections of MD&A, which is intended to make reading
these pages more productive:
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Business Considerations a general description
of the MCD businesses; the value drivers of these businesses and
MCDs strategy for achieving value; fiscal 2006 key
indicators; and industry-wide opportunities, challenges and
risks that are relevant to MCD in the microwave communications
industry. |
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Operations Review an analysis of MCDs
consolidated results of operations and of the results in each of
its three operating segments, to the extent the operating
segment results are helpful to an understanding of the MCD
business as a whole, for the three years presented in MCDs
financial statements. |
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Liquidity, Capital Resources and Financial
Strategies an analysis of cash flows,
contractual obligations, off-balance sheet arrangements,
commercial commitments, financial risk management, impact of
foreign exchange and impact of inflation. |
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Critical Accounting Policies and Estimates a
discussion of accounting policies and estimates that require the
most judgment and a discussion of accounting pronouncements that
have been issued but not yet implemented by MCD and their
potential impact. |
Business Considerations
MCD is a leading global wireless transmission networks solutions
provider focused on providing microwave communications products,
systems and services for private network operators and mobile
telecommunications providers. MCDs three segments serve
markets for microwave products and services in MCDs North
American region (North America microwave), microwave products
and services in MCDs international region (International
microwave) and network management software solutions worldwide
(NetBoss). MCD generates revenue, income and cash flows by
developing, manufacturing and selling microwave communications
products and network management software as well as providing
related services. MCD generally sells products and services
directly to its customers. MCD utilizes agents and distributors
to sell some products and services, especially in international
markets. For more information relating to the customers of MCD,
see Description of the Business of the Microwave
Communications Division of Harris Corporation
Introduction Customers beginning on
page 146 of this proxy statement/ prospectus.
Financial information with respect to corporate expenses that
were not allocated to MCDs three business segments is
reported as part of Corporate Allocations Expense.
152
The mission statement of MCD is: to be the
trusted supplier for customers worldwide in the design,
delivery and implementation of wireless access solutions,
driving sustained growth from repeat business and new
customers.
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Value Drivers of MCDs Businesses and Strategy for
Achieving Value |
MCD is committed to its mission statement, and MCD believes that
executing the mission statement creates value. Consistent with
this commitment, MCD currently focuses on these key value
drivers:
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Continue profitable revenue growth in all segments; |
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Ongoing attention to operating efficiencies and cost reductions; |
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Maintain an efficient capital structure. |
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Continuing Profitable Revenue Growth in All Segments |
MCD plans to capitalize on its strength in the North American
market by continuing to win opportunities with public
telecommunications providers as well as Federal, state and other
private network operators to meet increasing demand for capacity
requirements and the demand for high-reliability, high-bandwidth
networks that are more secure and better protected against
natural and man-made disasters; increase its international
revenue by offering new products and expanding regional sales
channels to penetrate major regional mobile telecom operators;
and continue to offer engineering and other professional
services for network planning, systems architecture design and
project management as a global competitive advantage.
|
|
|
Focusing on Operating Efficiencies and Cost Reductions |
MCDs principal focus areas for operating efficiencies and
cost management are: reducing procurement costs through an
emphasis on coordinated supply chain management; reducing
product costs through dedicated engineering resources focused on
product design; improving manufacturing efficiencies across all
segments; and optimizing facility utilization.
|
|
|
Maintaining an Efficient Capital Structure |
MCDs capital structure is intended to optimize its cost of
capital. MCD had $14.4 million in cash, cash equivalents
and short-term investments as of June 30, 2006 and had
$1 million of cash flows used in operating activities
during fiscal 2006.
MCD believes its value drivers, when implemented, will improve
its key indicators such as: net income, revenue, gross profit
margin, operating cash flows, total assets as a percentage of
revenue and total equity as a percentage of revenue.
See Operations Review below for more
information.
|
|
|
Industry-Wide Opportunities, Challenges and Risks |
Global trends and developments in the microwave communications
markets include:
|
|
|
|
|
Continuing build-out of new networks in emerging markets to meet
rapid subscriber growth; |
|
|
|
Increasing demand for microwave communications due to build-outs
for third-generation (3G) services rapidly
increasing the number of cell sites; |
|
|
|
Increasing demand to support capacity needs for new triple-play
services; |
|
|
|
Continuing fixed-line to mobile-line substitution; |
153
|
|
|
|
|
Private networks and public telecommunications operators
building high-reliability, high-bandwidth networks that are more
secure and better protected against natural and man-made
disasters; |
|
|
|
Continuing global mobile operator consolidation; and |
|
|
|
The Federal Communications Commission (FCC) mandate
for a 2 GHz relocation project in calendar 2007. |
MCD management believes that its experience and capabilities are
well aligned with, and that it is positioned to capitalize on,
the market trends noted above. While MCD believes that these
developments generally will have a positive impact on its
business, MCD remains subject to general economic conditions
that could adversely affect its customers. MCD also remains
subject to other risks associated with these markets, including
technological uncertainties, slow market adoption of digital
radio or any of MCDs new products and other risks which
are discussed under Information Relating to
Forward-Looking Statements and Risk Factors
beginning on page 40 and page 25 of this proxy
statement/ prospectus, respectively.
Three Months Ended September 29, 2006 Compared to the
Three Months Ended September, 30, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent | |
|
|
|
|
|
|
Increase/ | |
|
|
Q1 FY07 | |
|
Q1 FY06 | |
|
(Decrease) | |
|
|
| |
|
| |
|
| |
|
|
(in millions) | |
Revenue
|
|
$ |
93.6 |
|
|
$ |
75.3 |
|
|
|
24.3 |
% |
Net income
|
|
$ |
5.1 |
|
|
$ |
1.4 |
|
|
|
267.3 |
% |
|
% of revenue
|
|
|
5.5 |
% |
|
|
1.9 |
% |
|
|
|
|
MCDs revenue for the first quarter of fiscal 2007 was
$93.6 million, an increase of 24.3 percent compared to
the first quarter of fiscal 2006. Net income for the first
quarter of fiscal 2007 was $5.1 million compared to
$1.4 million in the first quarter of fiscal 2006. Revenue
increased in the North America microwave, International
microwave and NetBoss segments by 9.3 percent,
52.5 percent and 11.5 percent, respectively.
TRuepointtm
is now MCDs premier product line and sales of the product
continue to increase, which lead to the increase in revenue. Due
to the
TRuepointstm
product line having higher margins than other MCD legacy product
lines, overall margins and net income increased over the
prior-year quarter.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent | |
|
|
|
|
|
|
Increase/ | |
|
|
Q1 FY07 | |
|
Q1 FY06 | |
|
(Decrease) | |
|
|
| |
|
| |
|
| |
|
|
(in millions) | |
Revenue
|
|
$ |
93.6 |
|
|
$ |
75.3 |
|
|
|
24.3 |
% |
Cost of product sales and services
|
|
|
(62.0 |
) |
|
|
(52.6 |
) |
|
|
17.9 |
% |
Gross margin
|
|
$ |
31.6 |
|
|
$ |
22.7 |
|
|
|
38.8 |
% |
|
% of revenue
|
|
|
33.7 |
% |
|
|
30.2 |
% |
|
|
|
|
MCDs gross margin (revenue less cost of product sales and
services) as a percentage of revenue was 33.7 percent in
the first quarter of fiscal 2007 compared to 30.2 percent
in the first quarter of fiscal 2006. Gross margins increased due
to increased shipments of
TRuepointtm.
See the Discussion of Business Segments discussion
below of this MD&A for further information.
154
|
|
|
Engineering, Selling and Administrative Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent | |
|
|
|
|
|
|
Increase/ | |
|
|
Q1 FY07 | |
|
Q1 FY06 | |
|
(Decrease) | |
|
|
| |
|
| |
|
| |
|
|
(in millions) | |
Engineering, selling and administrative expenses
|
|
$ |
24.4 |
|
|
$ |
19.5 |
|
|
|
24.8 |
% |
|
% of revenue
|
|
|
26.1 |
% |
|
|
25.9 |
% |
|
|
|
|
MCDs engineering, selling and administrative expenses
increased from $19.5 million in the first quarter of fiscal
2006 to $24.4 million in the first quarter of fiscal 2007.
As a percentage of revenue, these expenses were relatively flat,
increasing slightly from 25.9 percent in the first quarter
of fiscal 2006 to 26.1 percent in the first quarter of
fiscal 2007. The increase in engineering, selling, and
administrative expenses is primarily related to a
$1.8 million gain on the sale of a building in San Antonio,
Texas in the first quarter of fiscal 2006 and increased selling
costs related to the 24.3 percent increase in sales. See
the Discussion of Business Segments discussion below
of this MD&A for further information.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent | |
|
|
|
|
|
|
Increase/ | |
|
|
Q1 FY07 | |
|
Q1 FY06 | |
|
(Decrease) | |
|
|
| |
|
| |
|
| |
|
|
(in millions) | |
Income before income taxes
|
|
$ |
5.5 |
|
|
$ |
1.7 |
|
|
|
232.8 |
% |
Income tax expense
|
|
|
0.4 |
|
|
|
0.3 |
|
|
|
52.5 |
% |
|
% of income before income taxes
|
|
|
7.4 |
% |
|
|
16.1 |
% |
|
|
|
|
MCDs income tax expense relates to income taxes paid or
to-be-paid in international jurisdictions that do not have net
operating loss carryforwards. The amount of domestic,
international and state and local tax loss carryforwards as of
September 29, 2006 was $85.8 million.
|
|
|
Discussion of Business Segments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent | |
|
|
|
|
|
|
Increase/ | |
|
|
Q1 FY07 | |
|
Q1 FY06 | |
|
(Decrease) | |
|
|
| |
|
| |
|
| |
|
|
(in millions) | |
Revenue
|
|
$ |
49.8 |
|
|
$ |
45.6 |
|
|
|
9.3 |
% |
Segment operating income
|
|
|
1.9 |
|
|
|
6.4 |
|
|
|
(70.3 |
)% |
|
% of revenue
|
|
|
3.8 |
% |
|
|
14.1 |
% |
|
|
|
|
North America microwave segment revenue increased
9.3 percent from the first quarter of fiscal 2006 to the
first quarter of fiscal 2007. This segment had operating income
of $1.9 million in the first quarter of fiscal 2007
compared to $6.4 million in the first quarter of fiscal
2006. The strengthening market for microwave radios primarily
drove the increase in revenue. Demand in the North America
microwave segment was driven primarily by mobile operators that
are upgrading and expanding networks for high bandwidth voice,
data and video services and by private networks upgrading for
increased reliability, survivability and interoperability.
The decrease in operating income was primarily due to a change
in product mix due to two key customers buying a large volume of
radios at lower margins compared to the first quarter of fiscal
2006 combined with increased engineering, selling and
administrative expenses in the first quarter of fiscal 2007 when
compared to the first quarter of fiscal 2006 due to higher
selling expenses.
Orders in the North America microwave segment decreased
10 percent from $48.6 million in the first quarter of
fiscal 2006 to $43.9 million in the first quarter of fiscal
2007. The decrease in orders in the first quarter of fiscal 2007
when compared to fiscal 2006 is due to timing of large awards
from customers which
155
took longer to pass through the buyers procurement cycle
than normal, which is expected to recover in the second quarter
of fiscal 2007. Significant orders received in this segment
during the first quarter of fiscal 2007 included
$6.1 million from U.S. Cellular and $4.9 million from
the City of Oakland.
|
|
|
International Microwave Segment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent | |
|
|
|
|
|
|
Increase/ | |
|
|
Q1 FY07 | |
|
Q1 FY06 | |
|
(Decrease) | |
|
|
| |
|
| |
|
| |
|
|
(in millions) | |
Revenue
|
|
$ |
39.3 |
|
|
$ |
25.7 |
|
|
|
52.5 |
% |
Segment operating income (loss)
|
|
|
5.0 |
|
|
|
(3.3 |
) |
|
|
|
|
|
% of revenue
|
|
|
12.6 |
% |
|
|
(12.9 |
)% |
|
|
|
|
International microwave segment revenue increased
52.5 percent from the first quarter of fiscal 2006 to the
first quarter of fiscal 2007. This segment had operating income
of $5.0 million in the first quarter of fiscal 2007
compared to an operating loss of $3.3 million in the first
quarter of fiscal 2006. The success of this segments
TRuepointtm
radio products and a strengthening market for microwave radios
primarily drove the increase in revenue. International order
rates increased, particularly in Africa.
The increase in operating income was primarily due to improved
gross margins in the first quarter of fiscal 2007 as a result of
increased shipments of the
TRuepointtm
product line. This increase was partially offset by increased
engineering, selling and administrative expenses in the first
quarter of fiscal 2007 when compared to the first quarter of
fiscal 2006 due to an increase of selling expenses.
Orders in the International microwave segment increased
42 percent from $31.9 million in the first quarter of
fiscal 2006 to $45.4 million in the first quarter of fiscal
2007. Demand in the International microwave segment increased
significantly during the first quarter of fiscal 2007, driven by
network expansions for a diverse and growing customer base
throughout West Africa, East Africa, and the Middle East. Major
orders in the first quarter of fiscal 2007 came from regional
operators in Nigeria, Tanzania, Kenya, Iraq and Mexico. MCD also
received the first order from a major European
telecommunications systems integrator for high-capacity
TRuepoint®radios
for a large 3G operator in Indonesia, with follow-on
requirements expected in the second quarter of fiscal 2007.
During the first quarter of fiscal 2007, MCD also secured a
five-year supplier agreement with Africas largest mobile
phone operator, MTN Group. MCD will supply digital microwave
radios for backhaul and access applications across MTNs
extensive networks in Africa.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent | |
|
|
|
|
|
|
Increase/ | |
|
|
Q1 FY07 | |
|
Q1 FY06 | |
|
(Decrease) | |
|
|
| |
|
| |
|
| |
|
|
(in millions) | |
Revenue
|
|
$ |
4.5 |
|
|
$ |
4.0 |
|
|
|
11.5 |
% |
Segment operating income
|
|
|
0.3 |
|
|
|
0.1 |
|
|
|
384.2 |
% |
|
% of revenue
|
|
|
6.2 |
% |
|
|
1.4 |
% |
|
|
|
|
NetBoss segment revenue increased 11.5 percent from the
first quarter of fiscal 2006 to the first quarter of fiscal
2007. This segment had operating income of $0.3 million in
the first quarter of fiscal 2007 compared to $0.1 million
in the first quarter of fiscal 2006. The increase in revenue was
due to increased orders. The increase in operating income was
driven by increased revenue combined with a decrease in
engineering, selling and administrative expenses as a percentage
of sales.
Orders in the NetBoss segment increased 72 percent from
$3.7 million in the first quarter of fiscal 2006 to
$6.4 million in the first quarter of fiscal 2007. The
significant increase in orders was primarily due to two major
orders from CFE Mexico and MTC Kuwait, both for system expansion.
156
|
|
|
Liquidity, Capital Resources and Financial
Strategies |
|
|
|
|
|
|
|
|
|
|
|
First Quarter | |
|
|
| |
|
|
2007 | |
|
2006 | |
|
|
| |
|
| |
|
|
(in millions) | |
Net cash used in operating activities
|
|
$ |
(1.0 |
) |
|
$ |
(7.4 |
) |
Net cash provided by (used in) investing activities
|
|
|
(1.3 |
) |
|
|
3.2 |
|
Net cash provided by financing activities
|
|
|
2.6 |
|
|
|
1.9 |
|
Effect of foreign exchange rate changes on cash
|
|
|
0.3 |
|
|
|
1.0 |
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
$ |
0.6 |
|
|
$ |
(1.3 |
) |
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents |
MCDs cash and cash equivalents increased by
$0.6 million to $14.4 million at the end of the first
quarter of fiscal 2007, primarily due to $2.6 million of
cash and other transfers from Harris Corporation. This increase
was partially offset by $1.0 million of cash used in
operating activities and $1.3 million of software and plant
and equipment additions.
Management currently believes that existing cash, funds
generated from operations, and access to the public and private
debt and equity markets will be sufficient to provide for
MCDs anticipated requirements for working capital, and
capital expenditures for the next 12 months and the
foreseeable future. MCD expects tax payments over the next three
years to approximate its tax expense during the same period. No
other significant cash payments are anticipated in fiscal 2007
and thereafter, other than those noted in the Contractual
Obligations discussion below of this MD&A.
There can be no assurance, however, that MCDs business
will continue to generate cash flow at current levels, or that
anticipated operational improvements will be achieved. If MCD is
unable to maintain cash balances or generate sufficient cash
flow from operations to service its obligations, MCD may be
required to sell assets, reduce capital expenditures, or obtain
financing. MCDs ability to make scheduled principal
payments or pay interest on or refinance any future indebtedness
depends on its future performance and financial results, which,
to a certain extent, are subject to general conditions in or
affecting the microwave communications market and to general
economic, political, financial, competitive, legislative and
regulatory factors beyond MCDs control.
|
|
|
Net Cash Used in Operating Activities |
MCDs net cash used in operating activities was
$1.0 million in the first quarter of fiscal 2007 compared
to $7.4 million in the first quarter of fiscal 2006. The
improvement in cash flow was primarily due to higher
profitability on increased sales and a decrease in inventories
and unbilled costs, which was partially offset by a decrease in
advanced payments and unearned income, and a decrease in
accounts payable and accrued expenses in the first quarter of
fiscal 2007 compared to the first quarter of fiscal 2006. MCD
has enhanced its focus on reducing inventory and increasing cash
collections.
|
|
|
Net Cash Provided by (Used in) Investing Activities |
MCDs net cash used in investing activities was
$1.3 million in the first quarter of fiscal 2007 compared
to net cash provided by investing activities of
$3.2 million in the first quarter of fiscal 2006. Net cash
used in investing activities in the first quarter of fiscal 2007
was due to $1.1 million additions of capitalized software
and $0.2 million additions of plant and equipment. Net cash
provided by investing activities in the first quarter of fiscal
2006 was primarily due to $4.6 million proceeds from the
sale of land and building in San Antonio, Texas. This was
partially offset by $0.9 million additions of capitalized
software and $0.5 million additions of plant and equipment.
157
|
|
|
Net Cash Provided by Financing Activities |
MCDs net cash provided by financing activities in the
first quarter of fiscal 2007 was $2.6 million compared to
$1.9 million in the first quarter of fiscal 2006. The net
cash provided by financing activities for MCD is primarily from
net cash transfers from Harris Corporation.
Fiscal 2006 compared with Fiscal 2005 and Fiscal 2005
compared with Fiscal 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006/2005 | |
|
|
|
2005/2004 | |
|
|
|
|
|
|
Percent | |
|
|
|
Percent | |
|
|
|
|
|
|
Increase/ | |
|
|
|
Increase/ | |
|
|
2006 | |
|
2005 | |
|
(Decrease) | |
|
2004 | |
|
(Decrease) | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in millions, except percentages) | |
Revenue
|
|
$ |
357.5 |
|
|
$ |
310.4 |
|
|
|
15.2 |
% |
|
$ |
329.8 |
|
|
|
(5.9 |
)% |
Net loss
|
|
$ |
(35.8 |
) |
|
$ |
(3.8 |
) |
|
|
(848.9 |
)% |
|
$ |
(20.2 |
) |
|
|
(81.3 |
)% |
|
% of revenue
|
|
|
(10.0 |
)% |
|
|
(1.2 |
)% |
|
|
|
|
|
|
(6.1 |
)% |
|
|
|
|
|
|
|
Fiscal 2006 Compared with Fiscal 2005 |
MCDs revenue for fiscal 2006 was $357.5 million, an
increase of 15.2% compared to fiscal 2005. Net loss for fiscal
2006 was $35.8 million compared to fiscal 2005 net
loss of $3.8 million. Fiscal 2006 revenue increased in both
the North America microwave and International microwave segments
by 5.2% and 35.4% from June 2005, respectively. The increase was
partially offset by a decrease in revenue in the NetBoss segment
of 26.9% from June 2005.
MCDs net loss of $35.8 million in fiscal 2006
included the impact of $39.6 million in charges, related to
the International microwave segment, associated with product
discontinuances and a shutdown of manufacturing activities in
Montreal, Canada. Corporate allocations expense increased from
$6.2 million in fiscal 2005 to $12.4 million in fiscal
2006. Corporate allocations expense in fiscal 2006 included the
impact of a $5.4 million charge associated with a legal
settlement related to arbitration with a Nigerian customer of
the Wireless Local Loop business unit that was previously
discontinued.
|
|
|
Fiscal 2005 Compared with Fiscal 2004 |
MCDs revenue for fiscal 2005 was $310.4 million, a
decrease of 5.9% compared to fiscal 2004. Revenue decreased in
the International microwave segment, which was partially offset
by increased revenue in the North America microwave and NetBoss
segments. Net loss for fiscal 2005 was $3.8 million
compared to $20.2 million in fiscal 2004.
Operating income from all three of MCDs segments improved
in fiscal 2005 when compared to fiscal 2004 and corporate
allocations expense decreased from $6.8 million in fiscal
2004 to $6.2 million in fiscal 2005. See the
Discussion of Business Segments portion below of
this MD&A for further information.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006/2005 | |
|
|
|
2005/2004 | |
|
|
|
|
|
|
Percent | |
|
|
|
Percent | |
|
|
|
|
|
|
Increase/ | |
|
|
|
Increase/ | |
|
|
2006 | |
|
2005 | |
|
(Decrease) | |
|
2004 | |
|
(Decrease) | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in millions, except percentages) | |
Revenue
|
|
$ |
357.5 |
|
|
$ |
310.4 |
|
|
|
15.2 |
% |
|
$ |
329.8 |
|
|
|
(5.9 |
)% |
Cost of product sales and services
|
|
|
(271.3 |
) |
|
|
(219.9 |
) |
|
|
23.4 |
% |
|
|
(245.9 |
) |
|
|
(10.6 |
)% |
Gross margin
|
|
|
86.2 |
|
|
|
90.5 |
|
|
|
(4.8 |
)% |
|
|
83.9 |
|
|
|
7.9 |
% |
|
% of revenue
|
|
|
24.1 |
% |
|
|
29.1 |
% |
|
|
|
|
|
|
25.4 |
% |
|
|
|
|
158
|
|
|
Fiscal 2006 Compared with Fiscal 2005 |
MCDs gross margin (revenue less cost of product sales and
services) as a percentage of revenue was 24.1% in fiscal 2006
compared to 29.1% in fiscal 2005. Gross margins decreased due to
$35.0 million, or 9.8% of revenue, of inventory write-downs
and other charges associated with product discontinuances and
the shutdown of manufacturing activities at the Montreal, Canada
plant. Gross margins benefited from increased shipments of
TRuepointtm,
a new family of lower-cost microwave radios. See the
Discussion of Business Segments discussion below of
this MD&A for further information.
|
|
|
Fiscal 2005 Compared with Fiscal 2004 |
MCDs gross margin as a percentage of revenue was 29.1% in
fiscal 2005 compared to 25.4% in fiscal 2004. Gross margins
increased due to increased shipments of
TRuepointtm,
a new family of lower-cost microwave radios, and a shift away
from lower-margin international projects. Gross margin as a
percent of revenue increased in the International microwave
segment, which was partially offset by decreased gross margins
in the North America microwave and NetBoss segments. See the
Discussion of Business Segments discussion below of
this MD&A for further information.
|
|
|
Engineering, Selling and Administrative Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006/2005 | |
|
|
|
2005/2004 | |
|
|
|
|
|
|
Percent | |
|
|
|
Percent | |
|
|
|
|
|
|
Increase/ | |
|
|
|
Increase/ | |
|
|
2006 | |
|
2005 | |
|
(Decrease) | |
|
2004 | |
|
(Decrease) | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in millions, except percentages) | |
Engineering, selling and administrative expenses
|
|
$ |
102.3 |
|
|
$ |
87.8 |
|
|
|
16.5 |
% |
|
$ |
97.1 |
|
|
|
(9.6 |
)% |
|
% of revenue
|
|
|
28.6 |
% |
|
|
28.3 |
% |
|
|
|
|
|
|
29.4 |
% |
|
|
|
|
|
|
|
Fiscal 2006 Compared with Fiscal 2005 |
Engineering, selling and administrative expenses increased from
$87.8 million in fiscal 2005 to $102.3 million in
fiscal 2006. As a percentage of revenue, these expenses
increased from 28.3% in fiscal 2005 to 28.6% in fiscal 2006. The
increase in engineering, selling, and administrative expenses in
whole dollars, as well as a percentage of revenue, is primarily
related to $4.8 million of severance and other costs
recorded in fiscal 2006 related to the shutdown of manufacturing
activities at the Montreal, Canada plant and product
discontinuances, stock-based compensation expense and increased
selling costs related to the 15.2% increase in sales. See the
Discussion of Business Segments discussion below of
this MD&A for further information.
Research and product development costs, which are included in
engineering, selling and administrative expenses, were
$18.9 million in fiscal 2006, compared to
$19.2 million in fiscal 2005. The decrease was primarily
due to higher spending in the prior year related to MCDs
new
TRuepointtm
family of microwave radios.
|
|
|
Fiscal 2005 Compared with Fiscal 2004 |
MCDs engineering, selling and administrative expenses
decreased from $97.1 million in fiscal 2004 to
$87.8 million in fiscal 2005. As a percentage of revenue,
these expenses decreased from 29.4% to 28.3%. The decrease was
primarily due to cost-reduction actions taken in fiscal 2004
related to the successful transfer of
TRuepointtm
production from Montreal, Canada to San Antonio, Texas as
well as the consolidation of administrative and support
functions at our Morrisville, North Carolina location. See the
Discussion of Business Segments discussion below of
this MD&A for further information.
Research and product development costs, which are included in
engineering, selling and administrative expenses, were
$19.2 million in fiscal 2005, compared to
$20.8 million in fiscal 2004. The decrease was
159
primarily due to a relatively high level of spending on the
development of MCDs
TRuepointtm
family of microwave radios in fiscal 2004.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006/2005 | |
|
|
|
2005/2004 | |
|
|
|
|
|
|
Percent | |
|
|
|
Percent | |
|
|
|
|
|
|
Increase/ | |
|
|
|
Increase/ | |
|
|
2006 | |
|
2005 | |
|
(Decrease) | |
|
2004 | |
|
(Decrease) | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in millions, except percentages) | |
Loss before income taxes
|
|
$ |
(29.1 |
) |
|
$ |
(3.5 |
) |
|
|
723.4 |
% |
|
$ |
(20.1 |
) |
|
|
82.5 |
% |
Income tax expense
|
|
|
6.8 |
|
|
|
0.2 |
|
|
|
2,658.8 |
% |
|
|
0.1 |
|
|
|
184.9 |
% |
|
% of loss before income taxes
|
|
|
(23.2 |
)% |
|
|
(6.9 |
)% |
|
|
|
|
|
|
0.4 |
% |
|
|
|
|
MCDs income tax expense relates to income taxes paid or
to-be-paid in international jurisdictions that do not have net
operating loss carryforwards. The amount of domestic,
international and state and local tax loss carryforwards as of
June 30, 2006 was $103.3 million.
Discussion of Business Segments
|
|
|
North America Microwave Segment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006/2005 | |
|
|
|
2005/2004 | |
|
|
|
|
|
|
Percent | |
|
|
|
Percent | |
|
|
|
|
|
|
Increase/ | |
|
|
|
Increase/ | |
|
|
2006 | |
|
2005 | |
|
(Decrease) | |
|
2004 | |
|
(Decrease) | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in millions, except percentages) | |
Revenue
|
|
$ |
168.1 |
|
|
$ |
159.8 |
|
|
|
5.2 |
% |
|
$ |
154.1 |
|
|
|
3.7 |
% |
Segment operating income
|
|
|
16.9 |
|
|
|
10.3 |
|
|
|
64.9 |
% |
|
|
3.6 |
|
|
|
182.7 |
% |
|
% of revenue
|
|
|
10.1 |
% |
|
|
6.4 |
% |
|
|
|
|
|
|
2.4 |
% |
|
|
|
|
|
|
|
Fiscal 2006 Compared with Fiscal 2005 |
North America microwave segment revenue increased 5.2% from
fiscal 2005 to fiscal 2006. This segment had operating income of
$16.9 million in fiscal 2006 compared to operating income
of $10.3 million in fiscal 2005. The strengthening market
for microwave radios primarily drove the increase in revenue.
Demand for both private networks and mobile service providers
continued to be driven by capacity expansion and by network
upgrades to provide high-reliability, high-bandwidth
applications.
The increase in operating income was primarily due to increased
shipments in fiscal 2006 of
TRuepointtm,
a family of lower-cost microwave radios. This was partially
offset by increased engineering, selling and administrative
expenses in fiscal 2006 when compared to fiscal 2005 as a result
of increased selling expenses and stock and cash based
compensation plan expenses.
Orders in the North America microwave segment increased 25% from
$159 million in fiscal 2005 to $199 million in fiscal
2006. Significant orders received in this segment during fiscal
2006 included a $14 million order from the Commonwealth of
Kentucky as part of a state-wide, three-year, program to
transition the Kentucky Early Warning System from analog to
digital technology using
TRuepointtm
radios and various other large orders from private network and
major mobile telecommunications providers in North America.
|
|
|
Fiscal 2005 Compared with Fiscal 2004 |
North America microwave segment revenue increased 3.7% from
fiscal 2004 to fiscal 2005. The segment operating income
increased from $3.6 million in fiscal 2004 to
$10.3 million in fiscal 2005. Significant orders during the
year included an on-going network project for the Federal Bureau
of Investigation, a major order with a large defense contractor
in support of an international communications project, and
various private network and mobile telecommunications providers
in North America.
160
The fiscal 2004 operating income of $3.6 million included a
charge of $2.8 million associated with cost-reduction
actions related to the consolidation of administrative and
support functions at our Morrisville, North Carolina location.
|
|
|
International Microwave Segment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006/2005 | |
|
|
|
2005/2004 | |
|
|
|
|
|
|
Percent | |
|
|
|
Percent | |
|
|
|
|
|
|
Increase/ | |
|
|
|
Increase/ | |
|
|
2006 | |
|
2005 | |
|
(Decrease) | |
|
2004 | |
|
(Decrease) | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in millions, except percentages) | |
Revenue
|
|
$ |
172.3 |
|
|
$ |
127.2 |
|
|
|
35.4 |
% |
|
$ |
156.3 |
|
|
|
(18.6 |
)% |
Segment operating loss
|
|
|
(34.1 |
) |
|
|
(11.9 |
) |
|
|
185.6 |
% |
|
|
(17.5 |
) |
|
|
(31.9 |
)% |
|
% of revenue
|
|
|
(19.8 |
)% |
|
|
(9.4 |
)% |
|
|
|
|
|
|
(11.2 |
)% |
|
|
|
|
|
|
|
Fiscal 2006 Compared with Fiscal 2005 |
International microwave segment revenue increased 35.4% from
fiscal 2005 to fiscal 2006. This segment had an operating loss
of $34.1 million in fiscal 2006 compared to an operating
loss of $11.9 million in fiscal 2005. The success of this
segments
TRuepointtm
radio products and a strengthening market for microwave radios
primarily drove the increase in revenue. International order
rates increased, particularly in Africa.
The increase in operating loss was primarily due to
$39.6 million of inventory write-downs and severance costs
associated with product discontinuances and the shut-down of
manufacturing activities in Montreal, Canada. During the second
quarter of fiscal 2005, MCD successfully completed the release
of the
TRuepointtm
product family, which is its product offering for the low- and
mid-capacity microwave radio market segments. In light of the
market acceptance of this product family, as demonstrated by
TRuepointtm
product sales, management announced during the second quarter of
fiscal 2006 a manufacturers discontinuance
(MD) of the MicroStar M/
Htm,
MicroStar
Ltm
and
Galaxytm
product families (the product families the
TRuepointtm
product line was developed to replace) and of the
ClearBursttm
product family, a product line that shared manufacturing
facilities with the
MicroStartm
and the
Galaxytm
product lines in Montreal, Canada. In November 2005, letters
were sent to
MicroStartm,
Galaxytm
and
ClearBursttm
customers, informing them of the MD announcement.
MCD estimated expected demand for these products based on:
responses to the letters noted above and a percentage of the
installed base, using previous product MD history as a basis for
this estimate. In addition, the customer service inventory of
these discontinued products was reviewed and quantities required
to support existing warranty obligations and contractual
obligations were quantified. These analyses identified inventory
held in multiple locations including Montreal, Canada; Redwood
Shores, California; San Antonio, Texas; Paris, France;
Mexico City, Mexico; Sao Paulo, Brazil; and Shenzhen, China. As
a result of these analyses, $34.0 million of inventory was
written down in the second quarter of fiscal 2006. Also,
$5.6 million of severance and other costs were recorded in
fiscal 2006 related to the shutdown of manufacturing activities
at the Montreal, Canada plant and product discontinuances. The
inventory reserved in the second quarter of fiscal 2006 has been
subsequently disposed of or scrapped. No additional material
costs or charges are expected to be incurred in connection with
these product discontinuances.
The decrease in gross margins and operating losses associated
with the product discontinuances noted above was partially
offset by improved gross margins in fiscal 2006 as a result of
increased shipments of
TRuepointtm.
Engineering, selling and administrative expenses increased in
fiscal 2006 when compared to fiscal 2005 as a result of
increased selling expenses and stock and cash based compensation
plan expenses.
Orders in the International microwave segment increased 22% from
$153 million in fiscal 2005 to $186 million in fiscal
2006. Significant orders received in this segment during fiscal
2006 included $58 million in orders from Vmobile Nigeria as
part of a contract to provide radios for its transmission and
161
transport network spanning more than 5,000 kilometers.
Significant international orders were also received from
customers in Nigeria, Canada, Mexico, Kenya, Ivory Coast,
Romania, Brazil and Zambia.
|
|
|
Fiscal 2005 Compared with Fiscal 2004 |
International microwave segment revenue decreased 18.6% from
fiscal 2004 to fiscal 2005. The segment improved from an
operating loss of $17.5 million in fiscal 2004 to an
operating loss of $11.9 million in fiscal 2005. Strength in
international markets came from the Middle East, Africa, Europe
and improved Latin American markets. The decline in revenue was
primarily attributable to the revenue generated in fiscal 2004
from the build out of a large mobile telecom network for MTN
Nigeria.
Gross margins and operating losses in the International
microwave segment improved in fiscal 2005 as a result of
increased shipments of
TRuepointtm,
a new family of lower-cost microwave radios, and a shift away
from lower-margin international projects. Engineering, selling
and administrative expenses were lower in fiscal 2005 when
compared to fiscal 2004 due to cost-reduction actions taken
during fiscal 2004. The fiscal 2004 operating loss of
$17.5 million included a charge of $4.5 million
associated with cost-reduction actions related to the successful
transfer of
TRuepointtm
production from Montreal, Canada to San Antonio, Texas.
TRuepointtm
orders and sales accelerated during fiscal 2005.
Fiscal 2005 significant international orders were received from
customers in Nigeria, Brazil, Mexico, Ivory Coast, Jordan, and
Indonesia. MCD also received orders in fiscal 2005 from several
new channel partners in Italy and China.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006/2005 | |
|
|
|
2005/2004 | |
|
|
|
|
|
|
Percent | |
|
|
|
Percent | |
|
|
|
|
|
|
Increase/ | |
|
|
|
Increase/ | |
|
|
2006 | |
|
2005 | |
|
(Decrease) | |
|
2004 | |
|
(Decrease) | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in millions, except percentages) | |
Revenue
|
|
$ |
17.1 |
|
|
$ |
23.4 |
|
|
|
(26.9 |
)% |
|
$ |
19.4 |
|
|
|
20.3 |
% |
Segment operating income
|
|
|
1.1 |
|
|
|
4.4 |
|
|
|
(75.9 |
)% |
|
|
0.7 |
|
|
|
570.4 |
% |
|
% of revenue
|
|
|
6.2 |
% |
|
|
18.8 |
% |
|
|
|
|
|
|
3.4 |
% |
|
|
|
|
|
|
|
Fiscal 2006 Compared with Fiscal 2005 |
NetBoss segment revenue decreased 26.9% from fiscal 2005 to
fiscal 2006. This segment had operating income of
$1.1 million in fiscal 2006 compared to operating income of
$4.4 million in fiscal 2005. The decrease in revenue and
operating income was due to obtaining the majority of the
revenue through customer add-ons and software maintenance as
opposed to adding major new customers.
Orders in the NetBoss segment decreased 14% from
$23.4 million in fiscal 2005 to $17 million in fiscal
2006. Significant orders received in this segment during fiscal
2006 included MTC Kuwait, Norkring Norway, New Hampshire State
Police, Cimmeron Telephone and Syniverse.
|
|
|
Fiscal 2005 Compared with Fiscal 2004 |
NetBoss segment revenue increased 20.3% from fiscal 2004 to
fiscal 2005. This segment had operating income of
$4.4 million in fiscal 2005 compared to operating income of
$0.7 million in fiscal 2004. The increase in revenue and
operating income was due to large new customer projects, an
increase in software maintenance revenue, completing work on
major NetBoss integration projects, and releasing bad debt
reserves associated with America Movil Brazil upon customer
payment.
Significant orders received in this segment during fiscal 2005
included Tekelec Reseller (Verizon Wireless, Telmex, Telemar),
Radiocommunicatii in Romainia, Comisión Federal de
Energía in Mexico, MTN Nigeria and DPOC (a
U.S. government entity).
162
Liquidity, Capital Resources and Financial Strategies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended | |
|
|
| |
|
|
2006 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
|
(in millions) | |
Net cash provided by operating activities
|
|
$ |
19.5 |
|
|
$ |
(4.3 |
) |
|
$ |
38.6 |
|
Net cash used in investing activities
|
|
|
(8.2 |
) |
|
|
(19.4 |
) |
|
|
(14.7 |
) |
Net cash provided by (used in) financing activities
|
|
|
(5.9 |
) |
|
|
24.9 |
|
|
|
(28.6 |
) |
Effect of foreign exchange rate changes on cash
|
|
|
0.6 |
|
|
|
1.3 |
|
|
|
(1.1 |
) |
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
$ |
6.0 |
|
|
$ |
2.5 |
|
|
$ |
(5.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents |
MCDs cash and cash equivalents increased by
$6.0 million to $13.8 million at the end of fiscal
2006, primarily due to $19.5 million of cash provided by
operating activities and $4.6 million of proceeds from the
sale of land and building in San Antonio, Texas. These
increases were partially offset by $12.8 million of
software and plant and equipment additions and $5.0 million
of cash and other transfers to Harris Corporation.
MCD management currently believes that existing cash, funds
generated from operations will be sufficient to provide for
MCDs anticipated requirements for working capital, and
capital expenditures for the next 12 months and the
foreseeable future. If required, Harris Stratex would access the
public and/or private debt and equity markets to fund its
operations. MCD expects tax payments over the next three years
to approximate its tax expense during the same period. No other
significant cash payments by MCD are anticipated in fiscal 2007
and thereafter, other than those noted in the Contractual
Obligations discussion below in this MD&A.
There can be no assurance, however, that MCDs business
will continue to generate cash flow at current levels, or that
anticipated operational improvements will be achieved. If MCD is
unable to maintain cash balances or generate sufficient cash
flow from operations to service its obligations, MCD may be
required to sell assets, reduce capital expenditures, or obtain
financing. MCDs ability to make scheduled principal
payments or pay interest on or refinance any future indebtedness
depends on its future performance and financial results, which,
to a certain extent, are subject to general conditions in or
affecting the microwave communications market and to general
economic, political, financial, competitive, legislative and
regulatory factors beyond MCDs control.
|
|
|
Net Cash Provided by Operating Activities |
MCDs net cash provided by operating activities was
$19.5 million in fiscal 2006 compared to net cash used in
operating activities of $4.3 million in fiscal 2005. The
improvement in cash flow was primarily due to an increase in
accounts payable, accrued compensation and benefits and accrued
expenses associated with higher production volumes and increased
incentive compensation and commission accruals.
|
|
|
Net Cash Used in Investing Activities |
MCDs net cash used in investing activities was
$8.2 million in fiscal 2006 compared to $19.4 million
in fiscal 2005. Net cash used in investing activities in fiscal
2006 was due to $9.6 million additions of plant and
equipment and $3.2 million additions of capitalized
software, which was partially offset by $4.6 million
proceeds from the sale of land and building in San Antonio,
Texas. Net cash used in investing activities in fiscal 2005 was
primarily due to $9.3 million of additions of plant and
equipment and $10.1 million of additions of capitalized
software.
The decrease in additions of capitalized software from
$10.1 million in fiscal 2005 to $3.2 million in fiscal
2006 mainly relates to next generation software that was
developed in the NetBoss segment. MCDs
163
total additions of capitalized software and property, plant and
equipment in fiscal 2007 are expected to be in the
$8 million to $10 million range.
|
|
|
Net Cash Provided by (used in) Financing Activities |
MCDs net cash used in financing activities in fiscal 2006
was $5.9 million compared to net cash provided by financing
activities in fiscal 2005 of $24.9 million. The net cash
provided by (used in) financing activities for MCD is primarily
from net cash transfers to and from Harris Corporation.
At June 30, 2006, MCD had contractual cash obligations to
repay debt to purchase goods and services and to make payments
under operating leases. Payments due under these long-term
obligations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations Due by Fiscal Year |
|
|
|
|
|
|
|
|
|
|
|
2008 | |
|
2010 |
|
|
|
|
|
|
|
|
and | |
|
and |
|
After |
|
|
Total | |
|
2007 | |
|
2009 | |
|
2011 |
|
2011 |
|
|
| |
|
| |
|
| |
|
|
|
|
|
|
(in millions) |
Purchase obligations(1)
|
|
$ |
3.3 |
|
|
$ |
3.3 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Operating lease commitments
|
|
|
6.6 |
|
|
|
3.7 |
|
|
|
2.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual cash obligations
|
|
$ |
9.9 |
|
|
$ |
7.0 |
|
|
$ |
2.9 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Amounts do not include pension contributions and payments for
various welfare and benefit plans as such amounts have not been
determined beyond fiscal 2006. In addition, amounts due to or
from Harris are not included as there is no obligation of Harris
Stratex to pay those amounts after the closing of the merger and
the contribution transaction. |
|
|
|
Off-Balance Sheet Arrangements |
In accordance with the definition under Securities and Exchange
Commission rules, any of the following qualify as off-balance
sheet arrangements:
|
|
|
|
|
Any obligation under certain guarantee contracts; |
|
|
|
A retained or contingent interest in assets transferred to an
unconsolidated entity or similar entity or similar arrangement
that serves as credit, liquidity or market risk support to that
entity for such assets; |
|
|
|
Any obligation, including a contingent obligation, under certain
derivative instruments; and |
|
|
|
Any obligation, including a contingent obligation, under a
material variable interest held by the registrant in an
unconsolidated entity that provides financing, liquidity, market
risk or credit risk support to the registrant, or engages in
leasing, hedging or research and development services with the
registrant. |
Currently, MCD is not participating in transactions that
generate relationships with unconsolidated entities or financial
partnerships, including variable interest entities, and MCD does
not have any material retained or contingent interest in assets
as defined above. As of June 30, 2006, MCD did not have
material financial guarantees or other contractual commitments
that are reasonably likely to adversely affect liquidity. In
addition, MCD is not currently a party to any related party
transactions that materially affect its results of operations,
cash flows or financial condition.
Certain properties leased by MCD have been sublet to third
parties due to MCDs downsizing of certain operations
pursuant to restructuring plans or otherwise. In the event any
of these third parties vacate any of these premises, MCD would
be legally obligated under the master lease agreements. MCD
164
believes that the financial risk of default by such sublessors
is individually and in the aggregate not material to its
financial position, results of operations or cash flows.
MCD has entered into commercial commitments in the normal course
of business including surety bonds, standby letter of credit
agreements and other arrangements with financial institutions
and customers primarily relating to the guarantee of future
performance on certain contracts to provide products and
services to customers or to obtain insurance policies with its
insurance carriers. At June 30, 2006, MCD had commercial
commitments on outstanding letters of credit, guarantees and
other arrangements, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expiration of Commitments by Fiscal Year |
|
|
|
|
|
|
|
After |
|
|
Total | |
|
2007 | |
|
2008 | |
|
2009 | |
|
2009 |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
|
(in millions) |
Standby letters of credit used for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bids
|
|
$ |
0.7 |
|
|
$ |
0.6 |
|
|
$ |
0.1 |
|
|
$ |
|
|
|
$ |
|
|
|
Down payments
|
|
|
5.7 |
|
|
|
4.6 |
|
|
|
1.1 |
|
|
|
|
|
|
|
|
|
|
Performance
|
|
|
5.0 |
|
|
|
3.0 |
|
|
|
1.7 |
|
|
|
0.3 |
|
|
|
|
|
|
Warranty
|
|
|
0.2 |
|
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11.6 |
|
|
|
8.4 |
|
|
|
2.9 |
|
|
|
0.3 |
|
|
|
|
|
Surety bonds used for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bids
|
|
|
3.5 |
|
|
|
3.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance
|
|
|
15.9 |
|
|
|
2.2 |
|
|
|
13.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19.4 |
|
|
|
5.7 |
|
|
|
13.7 |
|
|
|
|
|
|
|
|
|
Guarantees
|
|
|
0.4 |
|
|
|
0.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commitments
|
|
$ |
31.4 |
|
|
$ |
14.5 |
|
|
$ |
16.6 |
|
|
$ |
0.3 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Risk Management |
MCD uses foreign exchange contracts and options to hedge both
balance sheet and off-balance sheet future foreign currency
commitments. Generally, these foreign exchange contracts offset
foreign currency denominated inventory and purchase commitments
from suppliers; accounts receivable from, and future committed
sales to, customers; and intercompany loans. MCD believes the
use of foreign currency financial instruments should reduce the
risks that arise from doing business in international markets.
At June 30, 2006, MCD had open foreign exchange contracts
with a notional amount of $19.4 million, of which
$7.1 million were classified as cash flow hedges and
$12.3 million were classified as fair value hedges. This
compares to total foreign exchange contracts with a notional
amount of $34.5 million as of July 1, 2005, of which
$26.9 million were classified as cash flow hedges and $7.6
million were classified as fair value hedges. At June 30,
2006, contract expiration dates ranged from less than one month
to 11 months with a weighted average contract life of less
than a month.
More specifically, the foreign exchange contracts classified as
cash flow hedges are primarily being used to hedge currency
exposures from anticipated cash flow expenses related to
MCDs Mexican office. As of June 30, 2006, MCD
estimated that a pre-tax loss of $0.1 million would be
reclassified into earnings from comprehensive income within the
next 11 months related to these cash flow hedges.
The net gain included in MCDs earnings in fiscal 2006,
2005 and 2004 representing the amount of fair value and cash
flow hedges ineffectiveness was not material. No amounts
were recognized in MCDs earnings in fiscal 2006, 2005, and
2004 related to the component of the derivative
instruments gain or loss excluded from the assessment of
hedge effectiveness. In addition, no amounts were recognized in
MCDs earnings in fiscal 2006, 2005 and 2004 related to
hedged firm commitments that no longer qualify as fair
165
value hedges. All of these derivatives were recorded at their
fair value on the balance sheet in accordance with Statement of
Financial Accounting Standards No. 133, Accounting
for Derivative Instruments and Hedging Activities
(Statement 133).
Factors that could impact the effectiveness of MCDs
hedging programs for foreign currency include accuracy of sales
estimates, volatility of currency markets and the cost and
availability of hedging instruments. A 10% adverse change in
currency exchange rates for MCDs foreign currency
derivatives held at June 30, 2006 would have an impact of
approximately $1.1 million on the fair value of such
instruments. This quantification of exposure to the market risk
associated with foreign exchange financial instruments does not
take into account the offsetting impact of changes in the fair
value of MCDs foreign denominated assets, liabilities and
firm commitments.
|
|
|
Impact of Foreign Exchange |
The impact of translating the assets and liabilities of these
operations to U.S. dollars is included as a component of
division equity. At June 30, 2006, the cumulative
translation adjustment decreased division equity by
$1.4 million compared to a reduction of $14.2 million
at July 1, 2005. MCD utilizes foreign currency hedging
instruments to minimize the currency risk of international
transactions. Gains and losses resulting from currency rate
fluctuations did not have a material effect on MCDs
results in fiscal 2006, 2005 or 2004.
To the extent feasible, MCD has consistently followed the
practice of adjusting its prices to reflect the impact of
inflation on salaries and fringe benefits for employees and the
cost of purchased materials and services.
Critical Accounting Policies and Estimates
The following is not intended to be a comprehensive list of all
of MCDs accounting policies or estimates. MCDs
significant accounting policies are more fully described in
Note 1: Significant Accounting Policies in the Notes
to the Combined Financial Statements beginning on page F-7
of this proxy statement/ prospectus. In preparing the financial
statements and accounting for the underlying transactions and
balances, MCD applies its accounting policies and estimates as
disclosed in such Notes. MCD considers the estimates discussed
below as critical to an understanding of its financial
statements because their application places the most significant
demands on MCDs judgment, with financial reporting results
relying on estimates about the effect of matters that are
inherently uncertain. Specific risks for these critical
accounting estimates are described in the following paragraphs.
The impact and any associated risks related to these estimates
on MCDs business operations are discussed throughout this
MD&A where such estimates affect MCDs reported and
expected financial results. Senior management of MCDs
parent company, Harris Corporation, has discussed the
development and selection of the critical accounting policies
and estimates and the related disclosure included herein with
the Audit Committee of its Board of Directors. Preparation of
this proxy statement/ prospectus requires MCD to make estimates
and assumptions that affect the reported amount of assets and
liabilities, disclosure of contingent assets and liabilities at
the date of MCDs financial statements and the reported
amounts of revenue and expenses during the reporting period.
Actual results may differ from those estimates.
Besides estimates that meet the critical accounting
estimate criteria, MCD makes many other accounting estimates in
preparing its financial statements and related disclosures. All
estimates, whether or not deemed critical, affect reported
amounts of assets, liabilities, revenue and expenses as well as
disclosures of contingent assets and liabilities. Estimates are
based on experience and other information available prior to the
issuance of the financial statements. Materially different
results can occur as circumstances change and additional
information becomes known, including for estimates that MCD does
not deem critical.
166
|
|
|
Provisions for Excess and Obsolete Inventory |
MCD values its inventory at the lower of cost or market. MCD
balances the need to maintain prudent inventory levels to ensure
competitive delivery performance with the risk of excess or
obsolete inventory due to changing technology and customer
requirements. MCD regularly reviews inventory quantities on hand
and records a provision for excess and obsolete inventory based
primarily on its estimated forecast of product demand,
anticipated end of product life and production requirements. The
review of excess and obsolete inventory primarily relates to all
of MCDs business segments. Several factors may influence
the sale and use of MCDs inventories, including decisions
to exit a product line, technological change and new product
development. These factors could result in a change in the
amount of obsolete inventory quantities on hand. Additionally,
MCDs estimates of future product demand may prove to be
inaccurate, in which case MCD may have understated or overstated
the provision required for excess and obsolete inventory. In the
future, if MCD determines that its inventory is overvalued, MCD
would be required to recognize such costs in Cost of
product sales in its statement of operations income at the
time of such determination. Likewise, if MCD determines its
inventory is undervalued, MCD may have overstated Cost of
product sales in previous periods and would be required to
recognize such additional income. MCD has not made any material
changes in the reserve methodology used to establish its
inventory loss reserves during the past three fiscal years.
As of June 30, 2006, MCDs reserve for excess and
obsolete inventory was $18.3 million, or 17.5% of the gross
inventory balance, which compares to a reserve of
$32.9 million, or 23.4% of the gross inventory balance as
of July 1, 2005. MCD recorded $53.8 million,
$0.5 million and $0.1 million in inventory write-downs
that either reduced the reserve for excess and obsolete
inventory or the pre-tax income during fiscal 2006, 2005 and
2004, respectively. In fiscal 2006, MCD had significant
write-downs in inventory due to the discontinuance of legacy
products in the International microwave segment. Although MCD
makes every reasonable effort to ensure the accuracy of its
forecasts of future product demand, including the impact of
planned future product launches, any significant unanticipated
changes in demand or technological developments could have a
significant impact on the value of MCDs inventory and
MCDs reported operating results.
|
|
|
Stock Options and Share-Based Compensation |
Employees of MCD participate in the equity compensation program
of its parent company, Harris Corporation. Effective
July 2, 2005, Harris adopted Statement 123R, which
requires the measurement and recognition of compensation expense
for all stock-based payments made to employees, including
employee stock option, performance share, performance unit,
restricted stock and restricted unit awards based on estimated
fair value. Harris previously applied the provisions of
Accounting Principles Board Opinion, or APB, No. 25,
Accounting for Stock Issued to Employees
(APB 25) and related interpretations and
provided the required pro forma disclosures under Statement of
Financial Accounting Standard No. 123, Accounting for
Stock-Based Compensation (Statement 123).
Harris adopted Statement 123R using the modified
prospective transition method beginning in fiscal 2006.
Accordingly, during fiscal 2006 MCD recorded stock-based
compensation expense for awards granted prior to but not yet
vested as of the beginning of fiscal 2006 as if the fair value
method required for pro forma disclosure under
Statement 123 were in effect for expense recognition
purposes adjusted for estimated forfeitures. For stock-based
awards granted after the beginning of fiscal 2006, MCD
recognized compensation expense based on the estimated grant
date fair value method required under Statement 123R. The
compensation expense for these awards was recognized using a
straight-line amortization method. MCDs net income for
fiscal 2006 includes a stock-based compensation expense of
$1.7 million. As of June 30, 2006, the total
unrecorded stock-based compensation balance for unvested shares,
net of expected forfeitures, was $1.7 million, which is
expected to be amortized over a weighted-average period of
1.6 years.
While fair value may be readily determinable for awards of
stock, market quotes are not available for long-term,
nontransferable stock options because these instruments are not
traded. Harris currently uses
167
the Black-Scholes-Merton option-pricing model to estimate the
fair value of stock options. Option valuation models require the
input of highly subjective assumptions, including, but not
limited to, stock price volatility and stock option exercise
behavior. Harris expects to continue to use the
Black-Scholes-Merton model for valuing stock-based compensation
expense. However, the estimate of future stock-based
compensation expense will be affected by a number of items
including stock price, the number of stock options granted in
the future, as well as a number of complex and subjective
valuation assumptions and the related tax effect. These
valuation assumptions include, but are not limited to, the
volatility of the Harris stock price, expected life and stock
option exercise behaviors. Harris has not made any material
changes in the methodologies used to determine the assumptions
used to estimate the fair value of stock options during the past
three fiscal years.
A change in any of these assumptions could affect the estimated
fair value of any given grant and cause MCDs results to be
materially different. For example, a one-year increase in the
estimated term of the stock options granted during fiscal 2006
would have increased MCDs compensation expense by
$0.1 million in fiscal 2006 and a 400 basis-point increase
in the assumed volatility rate of the stock options granted
during fiscal 2006 would have increased MCDs compensation
expense by $0.1 million in fiscal 2006. See
Note 10: Stock Options and Share-Based Compensation
in the Notes to Combined Financial Statements beginning on
page F-17 of this proxy statement/ prospectus for further
information related to stock options and share-based
compensation.
|
|
|
Impact of Recently Issued Accounting Pronouncements |
As described in Note 2: Accounting Changes or Recent
Pronouncements in the Notes to Combined Financial Statements
beginning on page F-13 of this proxy statement/ prospectus,
there are accounting pronouncements that have recently been
issued but have not yet been implemented by MCD. Note 3
describes the potential impact that these pronouncements are
expected to have on MCDs financial position, results of
operations and cash flows.
168
HARRIS STRATEX NETWORKS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
The following unaudited pro forma condensed consolidated
statements of operations for the three months ended
September 30, 2006 and for the twelve months ended
June 30, 2006 assume the purchase business combination
between the Microwave Communications Division and Stratex
occurred on July 1, 2006 and July 1, 2005,
respectively. The following unaudited pro forma condensed
consolidated balance sheet assumes the purchase business
combination had been completed on September 30, 2006.
In accordance with the terms of the combination agreement,
Harris and Stratex created a new Delaware corporation named
Harris Stratex for the purpose of combining the Microwave
Communications Division with Stratex. Upon the satisfaction or
waiver of all conditions to the completion of the merger and the
contribution transaction, Merger Sub, a wholly owned subsidiary
of Harris Stratex will merge with and into Stratex, with Stratex
continuing as the surviving corporation. Simultaneously with the
merger of Stratex and Merger Sub, Harris will contribute
substantially all the assets comprising its Microwave
Communications Division, including $25 million in cash, to
Harris Stratex. In addition, Harris will allocate, as
appropriate and reasonably practicable, its liabilities between
its Microwave Communications Division and any other businesses
or divisions of Harris and, following such allocation, Harris
Stratex will assume those liabilities of Harris that primarily
result from or primarily arise out of the Microwave
Communications Division. The liabilities of the Microwave
Communications Division that will be assumed by Harris Stratex
in the contribution transaction include the $90.7 million
of liabilities at September 29, 2006 identified on the
Combined Balance Sheets of the Microwave Communications Division
beginning on page F-27 of this proxy statement/ prospectus. The
$3.1 million of liabilities at September 29, 2006 due
to Harris identified on the Combined Balance Sheets of the
Microwave Communications Division beginning on Page F-27 of this
proxy statement/ prospectus will be canceled in connection with
the contribution transaction. In addition, Harris Stratex will
also assume any contingent liabilities of the Microwave
Communication Division, which by their nature are not
quantifiable and may not be identifiable, in accordance with the
third sentence of this paragraph.
In the merger, each share of Stratex common stock will be
automatically converted into one-fourth of a share of Harris
Stratex Class A common stock. This exchange ratio will have
the same effect as if Stratex had effected a one-for-four
reverse split of its outstanding common stock immediately prior
to the merger. In exchange for its contribution of the Microwave
Communications Division to Harris Stratex, Harris Stratex will
issue to Harris a number of shares of Harris Stratex
Class B common stock equal to 56% of the Harris Stratex
capital stock immediately following the proposed transactions on
a fully diluted basis using the treasury stock method assuming a
fair market price of $20.80 per share of Harris Stratex
Class A Common Stock.
The merger and the contribution transaction will be treated as a
purchase business combination for accounting purposes with the
Microwave Communications Division being the acquirer, and,
therefore, Stratexs assets acquired and liabilities
assumed will be recorded at their estimated fair value. For
purposes of the pro forma financial statements, it has been
assumed that Stratexs common stock price is $4.00 per
share and that approximately 100 million shares of
Stratexs common stock (based on the treasury stock method
using a price per share of $20.80) are outstanding at the date
of completion of the merger and the contribution transaction.
Using these assumptions, approximately 32.7 million shares
of Harris Stratex Class B common stock will be issued in
exchange for the assets of the Microwave Communications Division
and cash. We have assumed that an aggregate 56.6 million
shares of Harris Stratex Class A common stock will be
issued (including the 32.7 million shares of Harris Stratex
Class B common stock issued to Harris which are convertible
at any time into shares of Harris Stratex Class A common
stock) and $10.6 million in cash will be paid to Harris
Stratex by Harris so that the net assets of the Microwave
Communications Division will include $25.0 million in cash
after intercompany balances between the Microwave Communications
Division and Harris are paid prior to the completion of the
transactions.
The allocations of the purchase price to Stratexs assets,
including intangible assets, and liabilities are only
preliminary allocations based on estimates of fair values and
will change when actual fair values are
169
determined. Among the provisions of Statement of Financial
Accounting Standards No. 141, Business
Combinations (SFAS 141) criteria have
been established for determining whether intangible assets
should be recognized separately from goodwill. Statement of
Financial Accounting Standards No. 142, Goodwill and
Other Intangible Assets (SFAS 142)
provides, among other guidelines, that goodwill and intangible
assets with indefinite lives will not be amortized, but rather
are tested for impairment on at least an annual basis.
Management of both MCD and Stratex believe that certain trade
names owned by Stratex, including Stratex, have indefinite lives
based upon an analysis utilizing the criteria in SFAS 142.
The accompanying unaudited pro forma condensed consolidated
statements of operations do not include any revenue or cost
saving synergies which may be achievable subsequent to the
closing of the purchase business combination.
The unaudited pro forma condensed consolidated balance sheet as
of September 30, 2006 assumes that the purchase business
combination took place on that date with the Microwave
Communications Division as the accounting acquirer of Stratex at
the estimated fair value in accordance with SFAS 141. The
unaudited pro forma condensed consolidated statements of
operations for the three months ended September 30, 2006
and for the fiscal year ended June 30, 2006 assume that the
purchase business combination took place on July 1, 2006
and July 1, 2005, respectively. The Harris Stratex fiscal
year will end on the closest Friday to June 30th. The
accompanying unaudited pro forma condensed consolidated
statement of operations for the three months ended
September 30, 2006 and for the year ended June 30,
2006 combines the pro forma three months ended
September 30, 2006 and the pro forma twelve months ended
June 30, 2006, respectively, for both the Microwave
Communications Division and Stratex. Reclassifications have been
made to the historical financial statements of the Microwave
Communications Division and Stratex to conform to the
presentation expected to be used by Harris Stratex.
The pro forma condensed consolidated financial data shown under
this heading is unaudited, is presented for informational
purposes only, is not necessarily indicative of the financial
position or results of operations that would actually have
occurred had the merger, the combination transaction or the
related transactions been consummated as of the dates or at the
beginning of the periods presented, nor is it necessarily
indicative of future operating results or financial position.
The information presented below should be read together with the
historical consolidated financial statements of Stratex and MCD,
including the related notes, filed with the Securities and
Exchange Commission, in the case of Stratex, and beginning on
page F-3 of this proxy statement/ prospectus, in the case of
MCD, as well as with Managements Discussion and
Analysis of Financial Condition and Results of Operations of
MCD beginning on page 152 of this proxy statement/
prospectus and Managements Discussion and Analysis
of Financial Condition and Results of Operations of
Stratex included in Stratexs Annual Report on
Form 10-K for the
year ended March 31, 2006, as amended, and also beginning
on page 126 of this proxy statement/ prospectus. In
addition, you should also read them together with the financial
statements and Managements Discussion and Analysis
of Financial Condition and Results of Operations included
in Stratexs Quarterly Report on
Form 10-Q for the
quarterly period ended June 30, 2006 because the selected
unaudited pro forma condensed consolidated financial data
adjusts Stratexs fiscal year end from March 31, 2006
to June 30, 2006, as well as the financial statements and
Managements Discussion and Analysis of Financial
Condition and Results of Operations included in
Stratexs Quarterly Report on
Form 10-Q for the
quarterly period ended September 30, 2006, in each case
incorporated by reference into this proxy statement/ prospectus.
For a listing of the documents filed by Stratex with the
Securities and Exchange Commission and incorporated into this
proxy statement/ prospectus by reference, see Where You
Can Find More Information beginning on page 191 of
this proxy statement/ prospectus. See also Risk
Factors beginning on page 25 and Information
Regarding Forward-Looking Statements beginning on
page 40 of this proxy statement/ prospectus.
The current services the Microwave Communications Division
receives from Harris that will continue after the consummation
of the proposed transactions will be covered through transition
service arrangements. Currently, the Microwave Communications
Division reflects these items in the Combined Financial
Statements of the Microwave Communications Division beginning on
page F-1 of this
proxy statement/prospectus as related party transactions with
Harris; therefore, no pro forma adjustment is made to reflect
these arrangements.
170
HARRIS STRATEX NETWORKS, INC.
UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED BALANCE SHEET
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical | |
|
Historical MCD as | |
|
|
|
Harris Stratex | |
|
|
Stratex at | |
|
of September 29, | |
|
Pro Forma | |
|
Networks, Inc. | |
|
|
September 30, 2006 | |
|
2006 | |
|
Adjustments | |
|
Pro Forma | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(in thousands) | |
ASSETS |
Current Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents and short-term investments
|
|
$ |
55,715 |
|
|
$ |
14,386 |
|
|
$ |
10,614 |
(A) |
|
$ |
80,715 |
|
|
Receivables
|
|
|
51,369 |
|
|
|
123,815 |
|
|
|
|
|
|
|
175,184 |
|
|
Inventories and unbilled costs
|
|
|
38,980 |
|
|
|
98,270 |
|
|
|
11,137 |
(B) |
|
|
148,387 |
|
|
Other current assets
|
|
|
13,821 |
|
|
|
|
|
|
|
|
|
|
|
13,821 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
159,885 |
|
|
|
236,471 |
|
|
|
21,751 |
|
|
|
418,107 |
|
Other Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plant and equipment
|
|
|
23,479 |
|
|
|
49,493 |
|
|
|
|
|
|
|
72,972 |
|
|
Goodwill
|
|
|
|
|
|
|
28,285 |
|
|
|
235,676 |
(C) |
|
|
263,961 |
|
|
Identifiable intangible assets
|
|
|
|
|
|
|
6,078 |
|
|
|
130,200 |
(C) |
|
|
136,278 |
|
|
Non-current deferred taxes
|
|
|
|
|
|
|
9,616 |
|
|
|
(9,616 |
)(D) |
|
|
|
|
|
Other assets
|
|
|
790 |
|
|
|
23,970 |
|
|
|
|
|
|
|
24,760 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,269 |
|
|
|
117,442 |
|
|
|
356,260 |
|
|
|
497,971 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
184,154 |
|
|
$ |
353,913 |
|
|
$ |
378,011 |
|
|
$ |
916,078 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS AND DIVISION EQUITY |
Current Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term debt
|
|
$ |
11,250 |
|
|
$ |
100 |
|
|
$ |
|
|
|
$ |
11,350 |
|
|
Accounts payable
|
|
|
40,330 |
|
|
|
47,196 |
|
|
|
|
|
|
|
87,526 |
|
|
Other accrued liabilities
|
|
|
29,692 |
|
|
|
43,409 |
|
|
|
1,795 |
(E) |
|
|
74,896 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
81,272 |
|
|
|
90,705 |
|
|
|
1,795 |
|
|
|
173,772 |
|
Other Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current deferred income taxes
|
|
|
|
|
|
|
|
|
|
|
39,060 |
(F) |
|
|
39,060 |
|
|
Long-term debt
|
|
|
16,667 |
|
|
|
|
|
|
|
|
|
|
|
16,667 |
|
Due to Harris Corporation
|
|
|
|
|
|
|
3,074 |
|
|
|
(3,074 |
)(G) |
|
|
|
|
|
Restructuring and other long-term liabilities
|
|
|
13,225 |
|
|
|
|
|
|
|
|
|
|
|
13,225 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
111,164 |
|
|
|
93,779 |
|
|
|
37,781 |
|
|
|
242,724 |
|
Stockholders and division equity
|
|
|
72,990 |
|
|
|
260,134 |
|
|
|
340,230 |
(H) |
|
|
673,354 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
184,154 |
|
|
$ |
353,913 |
|
|
$ |
378,011 |
|
|
$ |
916,078 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A) |
Adjustment of $10.6 million made to bring balance of cash
in the Microwave Communications Division to $25 million as
of the transaction date per the terms of the combination
agreement. |
|
|
(B) |
Step up Stratex finished goods inventory to fair market value
assuming a gross margin rate of 30% of revenue and selling costs
and related profit equal to 10% of revenue. |
|
|
(C) |
Allocation of the purchase price of Stratex determined as
follows (amounts in thousands): |
|
|
|
|
|
|
|
|
|
Market price of Stratex stock(1)
|
|
$ |
400,158 |
|
|
|
|
|
Estimated acquisition costs
|
|
|
9,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Total purchase price to be allocated
|
|
$ |
409,148 |
|
|
|
|
|
171
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated | |
Allocation of purchase price based on fair market value |
|
|
|
Useful Life | |
|
|
|
|
| |
Identifiable intangible assets:
|
|
|
|
|
|
|
|
|
|
Developed technology non-legacy products
|
|
$ |
77,500 |
|
|
|
10 years |
|
|
Developed technology legacy products
|
|
|
1,900 |
|
|
|
2 years |
|
|
Customer relationships
|
|
|
5,400 |
|
|
|
8 years |
|
|
Backlog
|
|
|
900 |
|
|
|
1 year |
|
|
Tradename Eclipse
|
|
|
16,000 |
|
|
|
10 years |
|
|
Tradename Legacy Products
|
|
|
200 |
|
|
|
2 years |
|
|
Tradename Stratex
|
|
|
28,300 |
|
|
|
Indefinite |
|
|
|
|
|
|
|
|
Total identifiable intangible assets
|
|
|
130,200 |
|
|
|
|
|
Net tangible assets(2)
|
|
|
43,272 |
|
|
|
|
|
Goodwill
|
|
|
235,676 |
|
|
|
|
|
|
|
|
|
|
|
|
Total purchase price allocation
|
|
$ |
409,148 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
This purchase price allocation is preliminary for all assets and
liabilities being acquired by Harris Stratex. |
|
|
(D) |
Adjustment is to eliminate deferred tax assets on the Microwave
Communications Divisions historical Combined Balance Sheet
because Harris will retain 100% of these assets at the time of
the transaction and they will not become part of Harris Stratex. |
|
|
(E) |
Adjustment to reduce deferred revenue of Stratex, which is
classified as other accrued liabilities on the Consolidated
Balance Sheet, by $2.0 million because Harris Stratex is
not expected to have future obligations to deliver product or
perform services on the contracts or agreements related to this
deferred revenue after the closing date of the transaction and
increased by $3.8 million for payout of the single trigger
employment agreements. No amount of excise tax reimbursement is
included because the calculated amount was not available. |
|
|
(F) |
Adjustment is for the establishment of a deferred tax liability
related to the future amortization of identifiable intangible
assets in accordance with Statement of Financial Accounting
Standard No. 109 Accounting for Income Taxes. |
|
(G) |
Elimination of due to Harris Corporation balance against
stockholders and division equity. |
|
|
(H) |
Adjustment made to reflect the $10.6 million cash
contribution made by Harris as discussed in footnote A.
above; elimination of deferred taxes noted in D. above;
elimination of due to Harris Corporation balance of
$3.1 million noted in G. above; and $336.2 million to
record the net assets of Stratex at fair value in accordance
with FAS 141(3). |
|
|
|
|
|
|
(1) |
Total market price of Stratex common stock equal to the price of
a share of Stratex common stock as of September 19, 2006
($4.00) X diluted shares of Stratex common stock outstanding per
the Stratex September 30, 2006 Balance Sheet
(100.0 million shares). |
|
|
|
(2) |
Stratex net tangible assets are calculated as follows: |
|
|
|
|
|
Historical net assets reported
|
|
$ |
72,990 |
|
Inventory step-up
|
|
|
11,137 |
|
Deferred revenue reduction
|
|
|
2,039 |
|
Single trigger employment agreement payouts
|
|
|
(3,834 |
) |
Less deferred tax liability related to identifiable intangible
assets
|
|
|
(39,060 |
) |
|
|
|
|
Adjusted net assets
|
|
$ |
43,272 |
|
|
|
|
|
|
|
|
|
(3) |
Adjustment to stockholders equity to record the net assets
of Stratex at fair value in accordance with FAS 141 is
calculated as follows: |
|
|
|
|
|
Market price of Stratex common stock (see footnote 1 above)
|
|
$ |
400,148 |
|
Acquisition costs
|
|
|
9,000 |
|
Less historical Stratex net assets reported
|
|
|
(72,990 |
) |
|
|
|
|
|
|
$ |
336,158 |
|
|
|
|
|
172
HARRIS STRATEX NETWORKS, INC.
UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical Stratex | |
|
Historical | |
|
|
|
|
|
|
for the | |
|
MCD for the | |
|
|
|
|
|
|
Twelve Months | |
|
Twelve Months | |
|
|
|
|
|
|
Ended | |
|
Ended | |
|
|
|
Harris Stratex | |
|
|
June 30, | |
|
June 30, | |
|
Pro Forma | |
|
Networks, Inc. | |
|
|
2006 | |
|
2006 | |
|
Adjustments | |
|
Pro Forma | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(in thousands) | |
Revenue from product sales and services
|
|
$ |
242,257 |
|
|
$ |
357,500 |
|
|
$ |
|
|
|
$ |
599,757 |
|
Cost of product sales and services
|
|
|
(171,397 |
) |
|
|
(271,340 |
) |
|
|
(8,700 |
)(I) |
|
|
(451,437 |
) |
Engineering, selling and administrative expenses
|
|
|
(63,131 |
) |
|
|
(102,280 |
) |
|
|
(7,115 |
)(J) |
|
|
(172,526 |
) |
Corporate allocations expense
|
|
|
|
|
|
|
(12,425 |
) |
|
|
12,425 |
(K) |
|
|
|
|
Interest income
|
|
|
1,548 |
|
|
|
431 |
|
|
|
|
|
|
|
1,979 |
|
Interest expense
|
|
|
(2,304 |
) |
|
|
(975 |
) |
|
|
|
|
|
|
(3,279 |
) |
Other expenses, net
|
|
|
(1,748 |
) |
|
|
|
|
|
|
|
|
|
|
(1,748 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision for income taxes
|
|
|
5,225 |
|
|
|
(29,089 |
) |
|
|
(3,390 |
) |
|
|
(27,254 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Provisions for income taxes
|
|
|
(1,534 |
) |
|
|
(6,759 |
) |
|
|
|
|
|
|
(8,293 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
3,691 |
|
|
$ |
(35,848 |
) |
|
$ |
(3,390 |
) |
|
$ |
(35,547 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
0.04 |
|
|
|
|
|
|
|
|
|
|
$ |
(0.63 |
) |
|
Diluted
|
|
$ |
0.04 |
|
|
|
|
|
|
|
|
|
|
$ |
(0.63 |
) |
Basic weighted average shares outstanding
|
|
|
95,725 |
|
|
|
|
|
|
|
|
(L) |
|
|
56,569 |
|
Diluted weighted average shares outstanding
|
|
|
99,510 |
|
|
|
|
|
|
|
|
(L) |
|
|
56,569 |
|
|
|
|
(I) |
|
Adjustment made to reflect $8.7 million amortization of
developed technology identifiable intangible assets. |
|
|
(J) |
|
Adjustment made to reflect $3.3 million amortization of
identifiable intangible assets, other than developed technology,
and $3.8 million of stock-based compensation expense, which
represents the expense that would have been recognized by
Stratex had they implemented the provisions of Statement of
Financial Accounting Standard No. FAS 123R
Share-Based Payment (FAS 123R) as
of July 1, 2005, which is when the Microwave Communications
Division was required to implement FAS 123R. |
|
|
|
(K) |
|
Adjustment made to reflect $12.4 million elimination of the
corporate allocation expense that will not continue going
forward. |
|
|
|
(L) |
|
Adjustment to shares reflect
one-to-four conversion
of Stratex shares to Harris Stratex Networks, Inc. and the
issuance of 32.7 million shares of Harris Stratex Networks
shares (calculated as 56% of all the outstanding stock of Harris
Stratex Networks, Inc.) to Harris Corporation in return for net
assets of the Microwave Communications Division. |
|
173
HARRIS STRATEX NETWORKS, INC.
UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical Stratex | |
|
Historical MCD | |
|
|
|
|
|
|
for the Three | |
|
for the Three | |
|
|
|
|
|
|
Months Ended | |
|
Months Ended | |
|
|
|
Harris Stratex | |
|
|
September 30, | |
|
September 29, | |
|
Pro Forma | |
|
Networks, Inc. | |
|
|
2006 | |
|
2006 | |
|
Adjustments | |
|
Pro Forma | |
|
|
| |
|
| |
|
| |
|
| |
Revenue from product sales and services
|
|
$ |
67,279 |
|
|
$ |
93,555 |
|
|
|
|
|
|
$ |
160,834 |
|
Cost of product sales and services
|
|
|
(46,512 |
) |
|
|
(62,011 |
) |
|
$ |
(2,175 |
)(M) |
|
|
(110,698 |
) |
Engineering, selling and administrative expenses
|
|
|
(18,924 |
) |
|
|
(24,392 |
) |
|
|
(594 |
)(N) |
|
|
(43,910 |
) |
Corporate allocations expense
|
|
|
|
|
|
|
(1,621 |
) |
|
|
1,621 |
(O) |
|
|
|
|
Interest income
|
|
|
693 |
|
|
|
138 |
|
|
|
|
|
|
|
831 |
|
Interest expense
|
|
|
(601 |
) |
|
|
(130 |
) |
|
|
|
|
|
|
(731 |
) |
Other expenses, net
|
|
|
(360 |
) |
|
|
|
|
|
|
|
|
|
|
(360 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision for income taxes
|
|
|
1,575 |
|
|
|
5,539 |
|
|
|
(1,148 |
) |
|
|
5,966 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
|
(23 |
) |
|
|
(408 |
) |
|
|
|
|
|
|
(431 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
1,552 |
|
|
$ |
5,131 |
|
|
$ |
(1,148 |
) |
|
$ |
5,535 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per share
|
|
$ |
0.02 |
|
|
|
|
|
|
|
|
|
|
$ |
0.10 |
|
Diluted net income per share
|
|
$ |
0.02 |
|
|
|
|
|
|
|
|
|
|
$ |
0.10 |
|
Basic weighted average shares outstanding
|
|
|
97,634 |
|
|
|
|
|
|
|
|
(P) |
|
|
57,046 |
|
Diluted weighted average shares outstanding
|
|
|
100,037 |
|
|
|
|
|
|
|
|
(P) |
|
|
57,046 |
|
|
|
(M) |
Adjustment made to reflect $2.2 million amortization of
developed technology identifiable intangible assets. |
|
|
|
(N) |
Adjustment made to reflect $0.6 million amortization of
identifiable intangible assets, other than developed technology. |
|
|
|
(O) |
Adjustment made to reflect $1.6 million elimination of the
corporate allocation expense that will not continue going
forward. |
|
|
|
(P) |
Adjustment to shares reflect one-to-four conversion of Stratex
shares to Harris Stratex Networks, Inc. and the issuance of
32.7 million shares to Harris Stratex Networks shares
(calculated as 56% of all outstanding stock of Harris Stratex
Networks, Inc.) to Harris Corporation in return for net assets
of the Microwave Communications Division. |
|
174
DESCRIPTION OF HARRIS STRATEX CAPITAL STOCK
The following is a description of the material terms of
Harris Stratexs capital stock as of the effective time of
the proposed transactions and is not complete. You should refer
to (1) Harris Stratexs amended and restated
certificate of incorporation, a copy of which is attached as
Appendix C to this proxy statement/ prospectus,
(2) Harris Stratexs amended and restated bylaws, a
copy of which is attached as Appendix D to this
proxy statement/ prospectus, and (3) the applicable
provisions of the Delaware General Corporation Law.
Common Stock
As of the closing of the proposed transactions, Harris Stratex
will be authorized under its certificate of incorporation to
issue up to 450,000,000 shares, of which
300,000,000 shares shall be designated as Class A
common stock, par value $0.01 per share, and
100,000,000 shares shall be designated as Class B
common stock, par value $0.01 per share. Except as
otherwise provided in Harris Stratexs amended and restated
certificate of incorporation, the Class A common stock and
Class B common stock have the same rights and privileges
and rank equally, share ratably and are identical in all
respects. As of November 21, 2006 no shares of Class A
common stock have been issued and one share of Class B
common stock has been issued. As of that time, no shares were
subject to outstanding options and other rights to purchase or
acquire.
Subject to the rights of the holders of any series of Harris
Stratex preferred stock that may be issued from time to time,
the holders of Harris Stratex common stock are entitled to
receive such dividends and distributions as may be declared on
the common stock by the board of directors of Harris Stratex out
of funds legally available for payment.
Except where otherwise required by Harris Stratexs
certificate of incorporation or bylaws, the holders of Harris
Stratex common stock will vote together as a single class. Each
share of Harris Stratex common stock entitles the holder to one
vote on each matter upon which stockholders of the relevant
class have the right to vote. However, Harris Stratexs
amended and restated certificate of incorporation provides the
holders of Class B common stock with certain sole and
exclusive rights, as further described below. In particular, the
holders of Class B common stock have the sole and exclusive
right to elect or remove the Class B directors. Further,
Harris Stratexs amended and restated certificate of
incorporation cannot be amended or replaced to adversely affect
the rights of holders of Class B common stock or to approve
a new issuance of Class B common stock without the approval
of the holders of a majority of Class B common stock.
Subject to the rights of the holders of any series of preferred
stock of Harris Stratex that may be issued from time to time, in
the event of any liquidation, dissolution or
winding-up of Harris
Stratex (whether voluntary or involuntary), the assets of Harris
Stratex available for distribution to stockholders will be
distributed in equal amounts per share to the holders of
Class A common stock and the holders of Class B common
stock, as if such classes constituted a single class. However,
the holders of common stock will be entitled to participate in
such a distribution only after Harris Stratex has paid in full
all of its debts and after the holders of preferred stock of
Harris Stratex have received their liquidation preferences in
full. It is not expected that Harris Stratex will issue any
preferred stock in the foreseeable future, although management
of Harris Stratex continually reviews the optional capital
structure for Harris Stratex.
175
|
|
|
Subdivision, Combinations and Mergers |
If Harris Stratex splits, subdivides or combines the outstanding
shares of either the Class A or the Class B common
stock, the outstanding shares of the other class of Harris
Stratex common stock also will be split, subdivided or combined
in the same manner proportionately and on the same basis per
share. In the event of any merger, statutory share exchange,
consolidation or similar form of corporate transaction involving
Harris Stratex (regardless of whether Harris Stratex is the
surviving entity), the holders of Class A and Class B
common stock will be entitled to receive the same per share
consideration, if any.
Special Rights of Holders of Shares of Class B Common
Stock
The holders of Class B common stock have the right at any
time to exchange:
|
|
|
|
|
any outstanding shares of Class A common stock held by the
holder for an equal number of shares of Class B common
stock or |
|
|
|
any outstanding shares of Class B common stock held by the
holder for an equal number of shares of Class A common
stock. |
|
|
|
Mandatory Exchange Rights |
Each share of Class B common stock will automatically
convert into one outstanding share of Class A common stock
under the following circumstances:
|
|
|
|
|
the holders of all of the outstanding shares of Class B
common stock (assuming that all of the outstanding shares of
Class A common stock which are then exchangeable for shares
of Class B common stock have been exchanged as described
under Exchange Rights
Voluntary above) are collectively entitled to cast less
than 10% of the total voting power; or |
|
|
|
such Class B common stock is transferred by a holder to any
person who is not an affiliate of the holder or nominee of the
holder or one of its affiliates unless such transfer is part of
a transfer by the holder and its affiliates of all of the shares
of Class B common stock then owned by them. |
For purposes of the amended and restated certificate of
incorporation of Harris Stratex, total voting power
means, at any time, the total number of votes then entitled to
be cast generally in the election of Class A directors by
all holders of all classes of capital stock or securities of
Harris Stratex then outstanding and entitled to vote generally
in the election of Class A directors (including the holders
of Harris Stratex Class B common stock).
|
|
|
Board of Directors of Harris Stratex |
|
|
|
If the Harris Stratex Class B Common Stock Constitutes a
Majority |
At all times when the holders of all outstanding Class B
common stock (assuming that all of the outstanding shares of
Harris Stratex Class A common stock which are then
exchangeable for shares of Harris Stratex Class B common
stock have been exchanged as described under
Exchange Rights Voluntary
above) are collectively entitled to cast a majority of the total
voting power:
|
|
|
|
|
there will be nine directors of Harris Stratex; |
|
|
|
the holders of Class B common stock will be permitted to
elect five of the Harris Stratex directors separately as a
class; and |
|
|
|
the quorum for action by the board of directors of Harris
Stratex will be a majority of the board of directors of Harris
Stratex, which majority must include at least four Class B
directors. |
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The remaining four directors of Harris Stratex will be
Class A directors nominated by a nominating committee
consisting solely of Class A directors then in office and
elected by the holders of Class A and Class B common
stock voting together as a single class (as described above).
In addition, at all times when Harris Stratex is required to
have directors who satisfy the independence requirements for
directors serving on an audit committee as prescribed by the
NASDAQ rules, a sufficient number of the Class A directors
must satisfy those requirements so that there are enough
Class A directors, together with any Class B directors
who are required to or otherwise satisfy those independence
requirements, to constitute an audit committee of the board of
directors of Harris Stratex which complies with the applicable
NASDAQ rule.
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If the Harris Stratex Class B Common Stock Constitutes
Less than a Majority |
At all times when the holders of all outstanding Class B
common stock (assuming that all of the outstanding shares of
Harris Stratex Class A common stock which are then
exchangeable for shares of Harris Stratex Class B common
stock have been exchanged as described under
Exchange Rights Voluntary above) are
collectively entitled to cast less than a majority but equal to
or greater than 10% of the total voting power, the holders of
Class B common stock will be permitted to elect a number of
Class B directors equal to its percentage of total voting
power times the total number of directors comprising the board
of directors of Harris Stratex (rounding down to the next whole
number of directors).
The remaining directors of Harris Stratex will be Class A
directors nominated by a nominating committee meeting the
requirements of the applicable NASDAQ rules and elected by the
holders of Class A and Class B common stock voting
together as a single class.
In addition, at all times when Harris Stratex is required to
have directors who satisfy the applicable independence
requirements prescribed by the NASDAQ rules, a sufficient number
of the Class A directors must satisfy those requirements so
that there are enough Class A directors, together with any
Class B directors who are required to or otherwise satisfy
those independence requirements, to cause Harris Stratex to
comply with the applicable NASDAQ rules.
Holders of Class B common stock will have the right to
remove any Class B director with or without cause at any
time for any reason and will have the right to elect any
successor director to the fill the vacancies created by such
removal. Any vacancy created by the resignation, death or
incapacity of a Class B director will be filled by the
other Class B directors then in office and, if none, by the
holders of Class B common stock, voting separately as a
class.
Only holders of Harris Stratex Class A common stock, voting
separately as a class, will be permitted to remove the
Class A directors without cause or fill vacancies created
by such removal, if not filled by the Class A directors
then in office. Holders of Class A and Class B common
stock, voting together as a single class, will have the sole
right to remove the Class A directors for cause and the
sole right to elect successor directors to fill any vacancy
caused by such removal. Any vacancy created by the resignation,
death or incapacity of a Class A director will be filled by
the remaining Class A directors then in office and, if
none, by the holders of Class A and Class B common
stock, voting separately as a class.
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Freedom of Action and Corporate Opportunities |
Other than opportunities offered to an individual who is a
director or officer of both Harris Stratex and the holder of the
Class B common stock in writing solely in that
persons capacity as an officer or director of Harris
Stratex, each holder of Class B common stock and its
affiliates will have the right to,
177
and will have no fiduciary duty or other obligation to Harris
Stratex or any Harris Stratex stockholders not to, take any of
the following actions:
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engage in the same or similar activities or lines of business as
Harris Stratex or any of its subsidiaries or develop or market
any products or services that compete, directly or indirectly,
with those of Harris Stratex or any of its subsidiaries; |
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invest or own any interest in, or develop a business
relationship with, any entity or person engaged in the same or
similar activities or lines of business as, or otherwise in
competition with, Harris Stratex or any of its subsidiaries; |
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do business with any client or customer of Harris Stratex or any
of its subsidiaries; or |
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employ or otherwise engage any former officer or employee of
Harris Stratex or any of its subsidiaries. |
Neither the holder of Class B common stock nor any of its
affiliates nor any officer, director, employee or former
employee of the holder or any of its affiliates that is not
currently an employee of Harris Stratex or any of its
subsidiaries (including any Class B directors) will have
any obligation, or be liable, to Harris Stratex, any of its
subsidiaries or any of their stockholders for, or arising out
of, the conduct described in the preceding paragraph or the
exercise of Harris rights under the combination agreement
or any related agreement, and none of these persons will be
deemed to have acted (1) in bad faith, (2) in a manner
inconsistent with the best interests of Harris Stratex, any of
its subsidiaries or any of their stockholders or (3) in a
manner inconsistent with, or opposed to, any fiduciary duty owed
by them to Harris Stratex, any of its subsidiaries or any of
their stockholders because of such conduct or the exercise of
their rights as contemplated by the combination agreement and
any related agreement.
If any holder of Class B common stock or any of its
subsidiaries or any of their directors, officers or employees,
including any such individuals who are also directors, officers
or employees of Harris Stratex or any of its subsidiaries,
acquires knowledge of a potential opportunity, transaction or
matter which may be a corporate opportunity for both the holder
or any of its subsidiaries and Harris Stratex, then each person
or entity who has a relationship with the Class B holder
and Harris Stratex as described above will have the right to,
and none of them shall have any fiduciary duty or other
obligation not to, pursue such corporate opportunity for itself
or to direct the corporate opportunity to any of its affiliates
or to any third party. Under the circumstances described in the
immediately preceding sentence, no person or entity who has a
relationship with the Class B holder and Harris Stratex as
described above:
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will have any duty to communicate, offer or present the
corporate opportunity to Harris Stratex or any of its
subsidiaries, directors, officers or employees; |
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will have any liability to Harris Stratex, any of its
subsidiaries or any of their stockholders for breach of any
fiduciary duty or other duty, as a stockholder, director,
officer or employee of Harris Stratex or any of its subsidiaries
or in any other capacity; or |
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will be deemed to have acted (1) in bad faith, (2) in
a manner inconsistent with the best interests of Harris Stratex,
any of its subsidiaries or any of their stockholders or
(3) in a manner inconsistent with, or opposed to, any
fiduciary duty owed by them to Harris Stratex, any of its
subsidiaries or any of their stockholders because any person or
entity who has a relationship with the Class B holder and
Harris Stratex as described above pursues or acquires the
corporate opportunity for itself, directs the corporate
opportunity to any of its affiliates or any third party, or does
not communicate information regarding the corporate opportunity
to Harris Stratex or any of its subsidiaries, directors,
officers or employees. |
However, a corporate opportunity offered to a person who is a
director or officer of both Harris Stratex and the holder will
belong to Harris Stratex if the corporate opportunity is
expressly offered to the person in writing solely in his or her
capacity as a director or officer of Harris Stratex.
178
Holders of Class B common stock have the right to preserve
their proportionate interest in Harris Stratex by participating
in any issuance of capital stock by Harris Stratex, but only
when the holders of Class B common stock hold a majority of
the total number of votes entitled to be cast generally in an
election of the directors of Harris Stratex (other than an
election of the Class B directors). If it elects to
participate in the issuance, each holder of Class B common
stock has the right to purchase up to that number of shares
necessary to preserve its voting percentage at the same price
and on the same terms and conditions otherwise being offered by
Harris Stratex.
The foregoing preemptive right does not apply to any issuances
pursuant to any stock option, restricted stock or employee
benefit plan of Harris Stratex. However, at the end of each
month, Harris Stratex will give the holders of Class B
common stock written notice of all of the proposed issuances
pursuant to any stock option, restricted stock or employee
benefit plan, and each holder of Class B common stock will
have the right within 15 days of receiving such notice to
purchase for cash up to a sufficient number of shares of
Class B common stock to prevent its total voting power from
decreasing. The per share price for a purchase of Class B
common stock pursuant to the monthly exercise notice will be the
closing price of the Class A common stock on the trading
day immediately preceding the date on which Harris Stratex
received the notice of exercise.
Preferred Stock
As of the effective time of the merger, Harris Stratex will be
authorized under its certificate of incorporation to issue up to
50,000,000 shares of preferred stock, par value
$0.01 per share. As of November 21, 2006 no shares of
Harris Stratex preferred stock have been issued and no such
shares were subject to outstanding options and other rights to
purchase or acquire. However, shares of preferred stock may be
issued in one or more series from time to time by the board of
directors, and the board is expressly authorized to fix by
resolution or resolutions the designations and the powers,
preferences and rights, and the qualifications, limitations and
restrictions thereof, of the shares of each series of preferred
stock. Subject to the determination of the board of directors of
Harris Stratex, the Harris Stratex preferred stock would
generally have preference over Harris Stratex common stock with
respect to the payment of dividends and the distribution of
assets in the event of a liquidation or dissolution of Harris
Stratex.
179
COMPARISON OF STOCKHOLDER RIGHTS
Upon completion of the merger and the combination transaction,
Stratex stockholders will become stockholders of Harris Stratex,
rather than stockholders of Stratex. Because Harris Stratex is a
Delaware corporation, the rights of the stockholders of Harris
Stratex will be governed by the applicable laws of Delaware,
including the Delaware General Corporation Law, and by Harris
Stratexs certificate of incorporation and bylaws. Because
Stratex is also a Delaware corporation, the rights of the
stockholders of Stratex are governed by the applicable laws of
Delaware, including the Delaware General Corporation Law, and by
Stratexs certificate of incorporation and bylaws.
The following is a summary comparison of the current rights of
Stratex stockholders under the Delaware General Corporation Law
and the Stratex certificate of incorporation and bylaws and the
rights Stratex stockholders will have as Harris Stratex
stockholders under the Delaware General Corporation Law and
Harris Stratexs certificate of incorporation and bylaws
effective upon the completion of the offer and the merger.
Harris Stratex will amend and restate both its certificate of
incorporation and bylaws prior to the completion of the
transactions. The statements in this section are qualified in
their entirety by reference to, and are subject to, the detailed
provisions of the Delaware General Corporation Law, Harris
Stratexs amended and restated certificate of incorporation
and amended and restated bylaws and Stratexs certificate
of incorporation and bylaws. Copies of Harris Stratexs
amended and restated certificate of incorporation and amended
and restated bylaws are annexed as Appendix C and
Appendix D to this proxy statement/ prospectus,
respectively, and are referred to in the following chart as the
certificate of incorporation and bylaws of Harris Stratex. The
Stratex certificate of incorporation and bylaws are incorporated
by reference herein and will be sent to Stratex stockholders,
upon request. See Where You Can Find More
Information beginning on page 191 of this proxy
statement/ prospectus.
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Stratex |
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Harris Stratex |
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Authorized and Outstanding Capital Stock |
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Stratexs authorized capital stock consists of 155,000,000
shares, of which 5,000,000 shares are designated as preferred
stock, par value $0.01 per share, of which 200,000 shares
designated Series A Junior Participating Preferred Stock,
and 150,000,000 shares are designated as common stock, par
value $0.01 per share. Currently only shares of common stock are
issued and outstanding. |
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Harris Stratexs authorized capital stock consists of
450,000,000 shares, of which 50,000,000 shares are designated as
preferred stock, par value $0.01 per share, 300,000,000 shares
are designated as Class A common stock, par value $0.01 per
share, and 100,000,000 shares are designated as Class B
common stock, par value $0.01 per share. Currently only one
share of Class B common stock is issued and outstanding. |
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Preemptive Rights |
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Not applicable. |
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Harris Stratexs certificate of incorporation provides that
Harris Stratex cannot issue any shares of Class B common
stock or securities convertible into or exchangeable for
Class B common stock without the prior approval of the
holders of a majority of the outstanding Class B common
stock. Further, if Harris Stratex proposes to issue any capital
stock |
180
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Stratex |
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Harris Stratex |
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or securities convertible into capital stock at any time when
the holders of all the outstanding shares of Class B common
stock collectively comprise a voting majority, the holders of
Class B common stock are entitled to prior notice of all
the material terms and conditions of such proposed issuance and
to participate pro ratably in that proposed issuance so as not
to be diluted. Certain exceptions extend to stock option or
employee benefit plans adopted by Harris Stratex. For more
information, see Description of Harris Stratex Capital
Stock Special Rights of Holders of Class B
Common Stock Preemptive Rights beginning on
page 179 of this proxy statement/ prospectus. |
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Rights to Exchange |
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Not applicable. |
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Harris Stratexs certificate of incorporation provides that
at any time a holder of Class B common stock may exchange
any outstanding shares of Class A common stock held by such
holder for an equal number of shares of Class B common
stock and vice versa. |
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Automatic Conversion |
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Not applicable. |
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Harris Stratexs certificate of incorporation providers
that each outstanding share of Class B common stock shall
convert into one outstanding share of Class A common stock
automatically upon (1) the holders of the outstanding
Class B common stock collectively comprising less than 10%
of the voting stock and (2) if such Class B common
stock is transferred by a holder to any person who is not an
affiliate or nominee of such holder; provided,
however, that no such conversion shall occur if such
transfer is part of a transfer by such holder and its affiliates
of all |
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Stratex |
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Harris Stratex |
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of the Class B common stock then owned by them to any other
person. |
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Organization of the Board of Directors |
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Stratexs bylaws provide that the number of directors of
Stratex will be no less than six.
Other than with respect to filling vacancies and newly created
directorships, the Stratex directors are elected at the annual
meeting of the stockholders, and each director elected will hold
office until his or her successor is elected and qualified.
Directors of Stratex need not be stockholders, but may not be
older than 75 years of age on the date of their election or
appointment to be eligible to serve as a director, unless the
board of directors of Stratex, based on meritorious service of
the director or because of specific corporate needs, appoints
the director for additional one year term(s) not to exceed two
years in the aggregate.
As of the date of this proxy statement/ prospectus, the Stratex
board consisted of eight directors. Stratexs certificate
of incorporation and bylaws do not permit cumulative voting for
directors. |
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Harris Stratexs certificate of incorporation provides that
Harris Stratexs board of directors is to comprise such
number as is fixed from time to time pursuant to Harris
Stratexs bylaws. The bylaws further provide that the
number of directors shall be fixed by resolution of directors
but shall in no event be less than six. However, under Harris
Stratexs certificate of incorporation, while the holders
of Class B common stock collectively comprise a voting
majority, the board of Harris Stratex is to be comprised of nine
directors, of which the Class B common stock shall be
entitled to elect five Class B directors; the quorum for
action by the board shall be a majority, which must include at
least four Class B directors. The remaining four directors
will be Class A directors nominated by a nominating
committee consisting solely of the Class A directors then
in office and elected by the holders of the common stock, voting
together as a single class. At any time the holders of the
Class B common stock collectively comprise less than a
voting majority but hold equal to or greater than 10% of the
voting stock, the Class B common stock shall be entitled to
elect the number of Class B directors which represents its
voting percentage of the total number of directors (rounded
down) and the remaining directors of Harris Stratex will be
Class A directors nominated and elected in the same manner
as previously described. |
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Stratex |
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Harris Stratex |
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Other than as otherwise provided in the Harris Stratex
certificate of incorporation, vacancies or newly created
directorships, the Harris Stratex directors are elected at the
annual meeting of the stockholders, and each director elected
will hold office until his or her successor is elected and
qualified. Directors of Harris Stratex need not be stockholders,
but may not be older than 75 years of age on the date of
their election or appointment to be eligible to serve as a
director, unless otherwise specifically approved by resolution
passed by the directors then in office or by the sole remaining
director.
Immediately following the closing of the transactions, the board
of directors of Harris Stratex will consist of nine directors.
Harris Stratexs certificate of incorporation and bylaws do
not permit cumulative voting for directors. |
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Removal of Directors; Vacancies |
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Stratexs bylaws provide that any director or the entire
board of directors may be removed with or without cause by the
affirmative vote of the holders of a majority of the shares
entitled to vote at an election of directors. Stratexs
bylaws provide that vacancies and newly created directorships
resulting from any increase in the authorized number of
directors elected by all of the Stratex stockholders having a
right to vote as a single class may be filled by a majority of
the directors then in office, though less than a quorum, or by a
sole remaining director, and the directors so chosen will hold
office until the next annual election and until their successors
are duly elected and qualified, |
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Harris Stratexs certificate of incorporation provides that
the holders of the Class B common stock have the sole right
to remove the Class B directors with or without cause at
any time and for any reason and the sole right to appoint
successor Class B directors to fill any vacancies caused by
any such removals. The holders of the Class A common stock,
voting separately as a class, shall have the sole right to
remove the Class A directors without cause and the sole
right to appoint successor Class A directors to fill any
vacancies caused by any such removals. The holders of the common
stock, voting together as a single class, have the sole right to
remove the Class A directors |
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Stratex |
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Harris Stratex |
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unless sooner removed. Stratexs bylaws further provide
that if there are no directors in office, then an election of
directors may be held in the manner provided by statute. If, at
the time of filling any vacancy or any newly created
directorship, the directors then in office shall constitute less
than a majority of the whole board of directors of Stratex (as
constituted immediately prior to any such increase), the Court
of Chancery may, upon application of any stockholder or
stockholders holding at least 10% of the total number of the
shares at the time outstanding having the right to vote for such
directors, summarily order an election to be held to fill any
such vacancies or newly created directorships, or to replace the
directors chosen by the directors then in office. |
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for cause and the sole right to appoint successor Class A
directors to fill any vacancies caused by any such removals. Any
vacancy created by any resignation, death or incapacity of any
Class B director shall be filled by the remaining
Class B directors then in office or, if there are none, by
the holders of the Class B common stock, voting separately
as a class. Any vacancy created by the resignation, death or
incapacity of any Class A director shall be filled by the
remaining Class A directors then in office or, if there are
none, by the holders of the Class A common stock, voting
separately as a class.
Harris Stratexs bylaws provide that, unless otherwise
provided in Harris Stratexs certificate of incorporation,
any director or the entire Board of Directors may be removed,
with or without cause, by the holders of a majority of shares
entitled to vote at an election of directors.
Harris Stratexs bylaws provide that, except as otherwise
provided in Harris Stratexs certificate of incorporation,
vacancies and newly created directorships resulting from any
increase in the authorized number of directors elected by all of
the Harris Stratex stockholders having a right to vote as a
single class may be filled by a majority of the directors then
in office, though less than a quorum, or by a sole remaining
director, and the directors so chosen will hold office until the
next annual election and until their successors are duly elected
and qualified, unless sooner removed. Harris Stratexs
bylaws further provide |
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Stratex |
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Harris Stratex |
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that if there are no directors in office, then an election of
directors may be held in the manner provided by statute. If, at
the time of filling any vacancy or any newly created
directorship, the directors then in office shall constitute less
than a majority of the whole board of directors of Harris
Stratex (as constituted immediately prior to any such increase),
the Court of Chancery may, upon application of any stockholder
or stockholders holding at least 10% of the total voting power
of all the outstanding capital stock entitled to vote generally
in the election of such directors, summarily order an election
to be held to fill any such vacancies or newly created
directorships, or to replace the directors chosen by the
directors then in office. |
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Corporate Opportunity;
Freedom of Action |
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Not applicable. |
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The certificate of incorporation of Harris Stratex expressly
provides, among other things, that certain directors or
employees of Harris Stratex will not have any fiduciary
obligation or other obligation to offer corporate opportunities
to Harris Stratex, and expressly permits these directors or
employees to take certain corporate opportunities for themselves
or offer them to third parties. For more information, see
Description of Harris Stratex Capital Stock
Special Rights of Holders of Shares of Class B Common
Stock Freedom of Action and Corporate
Opportunities beginning on page 177 of this proxy
statement/ prospectus. |
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Quorum of the Board |
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Stratexs bylaws provide that a quorum at a meeting of the
board of directors is one-third of the authorized number of
directors, or |
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Subject to the above provisions of Harris Stratexs
certificate of incorporation (see the discussion above under
Organization of the |
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Stratex |
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Harris Stratex |
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two, whichever is greater. |
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Board of Directors), Harris Stratexs bylaws provide
that a quorum of the board of directors is one-third of the
authorized number of directors, or two, whichever is greater. |
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Voting by the Board |
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Stratexs bylaws provide that the act of a majority of the
directors present at any meeting at which there is a quorum
shall be the act of the board of directors, subject to any
contrary provision of law or the certificate of incorporation or
bylaws. |
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Harris Stratexs bylaws provide that the act of a majority
of the directors present at any meeting at which there is a
quorum shall be the act of the board of directors, subject to
any contrary provision of law or the certificate of
incorporation or bylaws. |
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Annual Meetings of Stockholders |
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Stratexs bylaws provide that the annual meeting of the
Stratex stockholders will be held on the third Thursday in July,
if not a legal holiday, and, if a legal holiday, then on the
next succeeding business day, or at such other date as the board
of directors of Stratex determines and states in the notice of
the meeting. |
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Harris Stratexs bylaws provide that the annual meeting of
Harris the Stratex stockholders will be held on the third Monday
in October, if not a legal holiday, and, if a legal holiday,
then on the next succeeding business day, or at such other date
as the board of directors of Harris Stratex determines and
states in the notice of the meeting. |
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Notice Provisions |
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Stratexs bylaws provide that written notice of the annual
meeting stating the place, date and hour of the meeting must be
given to each Stratex stockholder entitled to vote at such
meeting not less than ten nor more than 60 days before the
date of the meeting. |
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Harris Stratexs bylaws provide that written notice of the
annual meeting stating the place, date and hour of the meeting
shall be given to each stockholder entitled to vote at such
meeting not less than ten nor more than 60 days before the
date of the meeting. |
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Calling Special Meetings of Shareholders |
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Stratexs bylaws provide that special meetings of the
stockholders may be called at any time by the president or
secretary at the request in writing of a majority of the board
of directors or upon written application of one or more
stockholders who hold at least 40% of the capital stock entitled
to vote at such meeting. |
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Harris Stratexs bylaws provide that special meetings of
the stockholders may be called at any time by the president or
secretary at the request in writing of a majority of the board
of directors or upon written application of one or more
stockholders who hold at least 20% of the capital stock entitled
to vote at such meeting. |
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Quorum at Special Meetings |
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Stratexs bylaws provide that a quorum at a special meeting
is |
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Harris Stratexs bylaws provide that a quorum at a special |
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Stratex |
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Harris Stratex |
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the holders of a majority of the votes of shares entitled to
vote at the special meeting present in person or represented by
proxy at that meeting. |
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meeting is the holders of a majority of the votes of shares
entitled to vote at the special meeting present in person or
represented by proxy at that meeting. |
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Business Conducted at Stockholder Meetings |
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Stratexs bylaws provide that only such business may be
conducted at a special meeting as is stated in the written
notice of meeting as the purpose or purposes of the meeting. |
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Harris Stratexs bylaws provide that only such business may
be conducted at a special meeting as is stated in the written
notice of meeting as the purpose or purposes of the meeting. |
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Voting |
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Stratexs bylaws provide that, except where law or the
certificate of incorporation requires otherwise, in all matters
other than the election of directors, the affirmative vote of a
majority of shares present in person or represented by proxy at
a meeting and entitled to vote on the subject matter shall be
the act of the stockholders.
Each share of Stratex common stock entitles the holder to one
vote on each matter upon which Stratex stockholders have the
right to vote. |
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Harris Stratexs certificate of incorporation provides
that, except where law or the certificate of incorporation
provides otherwise (see the discussion above under
Organization of the Board of Directors), the holders
of Harris Stratex common stock will vote together as a single
class. Harris Stratexs bylaws provide that, in all matters
other than the election of directors, the affirmative vote of a
majority of shares present in person or represented by proxy at
a meeting and entitled to vote on the subject matter shall be
the act of the stockholders.
Each share of Harris Stratex common stock entitles the holder to
one vote on each matter upon which stockholders of the relevant
class have the right to vote.
However, the holders of Harris Stratex Class B common stock
have the sole and exclusive right to elect or remove the
Class B directors and Harris Stratexs certificate of
incorporation cannot be amended or replaced to adversely affect
the rights of Class B common stockholders or to approve a
new issuance of Class B common stock or to take any other
action upon which a |
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Stratex |
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Harris Stratex |
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separate class vote of the Class B common stock is required
by law without the approval of the holders of a majority of
Class B common stock voting separately as a class. |
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Stockholder Proposals |
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Stratexs bylaws provide that no business may be conducted
at the annual meeting unless properly brought before the
meeting. Stratexs bylaws provide that, to be properly
brought before a meeting, business must be (1) specified in
the related notice of meeting (or any supplement) given by or at
the direction of the board of directors of Stratex,
(2) properly brought before the meeting by or at the
direction of the board of directors of Stratex, or
(3) properly brought before the meeting by a Stratex
stockholder. For business to be properly brought before an
annual meeting by a Stratex stockholder, the stockholder must
have given timely notice of the business in writing to the
secretary. To be timely, a stockholders notice must be
delivered to or mailed and received at the principal place of
business of Stratex not less than 60 days nor more than
90 days prior to the meeting. However, in the event that
less than 70 days notice or prior public disclosure
of the date of the meeting is given to the Stratex stockholders,
notice by the stockholder to be timely must be received not
later than the close of business on the tenth day following the
day on which such notice of the date of the meeting was mailed
or such public disclosure was made. Written notice by a Stratex
stockholder to the secretary must set forth as to each matter
the stockholder proposes to bring before the |
|
Harris Stratexs bylaws provide that no business may be
conducted at the annual meeting unless properly brought before
the meeting. Harris Stratexs bylaws provide that, to be
properly brought before a meeting, business must be
(1) specified in the related notice of meeting (or any
supplement) given by or at the direction of the board of
directors of Harris Stratex, (2) properly brought before
the meeting by or at the direction of the board of directors of
Harris Stratex, or (3) properly brought before the meeting
by a Harris Stratex stockholder. For business to be properly
brought before an annual meeting by a Harris Stratex
stockholder, the stockholder must have given timely notice of
the business in writing to the secretary. To be timely, a
stockholders notice must be delivered to or mailed and
received at the principal place of business of Harris Stratex
not less than 60 days nor more than 90 days prior to
the meeting. However, in the event that less than
70 days notice or prior public disclosure of the date
of the meeting is given to the Harris Stratex stockholders,
notice by the stockholder to be timely must be received not
later than the close of business on the tenth day following the
day on which such notice of the date of the meeting was mailed
or such public disclosure was made. Written notice by a Harris
Stratex stockholder to the |
188
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Stratex |
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Harris Stratex |
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annual meeting (a) a description of the business desired to
be brought before the annual meeting and the reasons for
conducting such business at the annual meeting, (b) the
name and address as they appear on Stratexs books of the
stockholder proposing such business, (c) the class and
number of shares of Stratex beneficially owned by the
stockholder and (d) any material interest of such
stockholder in the proposed business. |
|
secretary must set forth as to each matter the stockholder
proposes to bring before the annual meeting (a) a
description of the business desired to be brought before the
annual meeting and the reasons for conducting such business at
the annual meeting, (b) the name and address as they appear
on Harris Stratexs books of the stockholder proposing such
business, (c) the class and number of shares of Harris
Stratex beneficially owned by the stockholder and (d) any
material interest of such stockholder in the proposed business. |
|
Nomination of Directors |
|
Stratexs bylaws provide that only persons who are
nominated in accordance with the following procedures are
eligible for election as directors of Stratex. Nominations for
election to the board of directors of Stratex may be made at a
meeting of Stratex stockholders by or at the direction of the
board of directors of Stratex or by any Stratex stockholder
entitled to vote for the election of directors at the meeting
who complies with the applicable notice requirements, including
timeliness. In order for a nomination to be timely, notice by a
Stratex stockholder must be received at the principal place of
business of Stratex not less than 60 nor more than 90 days
prior to the meeting. However, in the event that less than
70 days notice or prior public disclosure of the date
of the meeting is given or made to stockholders, notice by the
stockholder to be timely must be so received not less than the
close of business on the tenth day following the day on which
such notice of the date of the meeting was mailed or |
|
Harris Stratexs bylaws provide that only persons who are
nominated in accordance with the following procedures are
eligible for election by the Harris Stratex stockholders as
Class A directors. Nominations for election as Class A
directors may be made at a meeting of Harris Stratex
stockholders by or at the direction of the Class A
directors or by Harris Stratex stockholder entitled to vote for
the election of directors at the meeting who complies with the
applicable notice requirements, including timeliness. In order
for a nomination to be timely, notice by a Harris Stratex
stockholder must be received at the principal place of business
of Harris Stratex not less than 60 nor more than 90 days
prior to the meeting. However, in the event that less than
70 days notice or prior public disclosure of the date
of the meeting is given or made to stockholders, notice by the
stockholder to be timely must be so received not less than the
close of business on the tenth day following the day on which
such |
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Stratex |
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Harris Stratex |
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such public disclosure was made. Notice by a Stratex stockholder
must include specified information relating to the nominees as
well as to the Stratex stockholder giving notice. |
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notice of the date of the meeting was mailed or such public
disclosure was made. Notice by a Harris Stratex stockholder must
include specified information relating to the nominees as well
as to the Harris Stratex stockholder giving notice. |
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Amendments of Certificate of Incorporation |
|
Under the Delaware General Corporation Law, the adoption of a
resolution of advisability by the board of directors, followed
by affirmative vote of the holders of a majority of the
outstanding shares entitled to vote is required to amend
Stratexs certificate of incorporation. In addition,
amendments that make changes relating to a class of stock by
increasing or decreasing the par value or the aggregate number
of authorized shares of a class or otherwise adversely affecting
the rights of that class, must be approved by the majority vote
of each class of stock, or series thereof, affected, unless, in
the case of an increase in the number of shares, the certificate
of incorporation takes away that right. |
|
Under the Delaware General Corporation Law, the adoption of a
resolution of advisability by the board of directors, followed
by affirmative vote of the holders of a majority of the
outstanding shares entitled to vote is required to amend Harris
Stratexs certificate of incorporation. In addition,
amendments that make changes relating to a class of stock by
increasing or decreasing the par value or the aggregate number
of authorized shares of a class or otherwise adversely affecting
the rights of that class, must be approved by the majority vote
of each class of stock, or series thereof, affected, unless, in
the case of an increase in the number of shares, the certificate
of incorporation takes away that right. See the discussion above
under Voting. |
|
Amendments of Bylaws |
|
Stratexs certificate of incorporation provides that the
board of directors may alter, amend or repeal the bylaws.
Stratexs bylaws provide that the bylaws may be altered,
amended or repealed or new bylaws adopted by the stockholders or
the board of directors, but certain of the provisions of the
bylaws relating to voting rights and the election of directors
may only be varied by the affirmative vote of either two-thirds
of the continuing directors or the holders of a majority of the
capital stock entitled to vote. |
|
Harris Stratexs certificate of incorporation provides that
the board of directors may later, amend or repeal the bylaws.
Harris Stratexs bylaws provide that the bylaws may be
altered, amended or repealed or new bylaws adopted by the
stockholders or the board of directors, but certain of the
provisions of the bylaws relating to voting rights and the
election of directors may only be varied by the affirmative vote
of either two- thirds of the continuing directors or the holders
of a majority of the capital stock entitled to vote. |
190
LEGAL MATTERS
Sullivan & Cromwell LLP, counsel for Harris, will
provide an opinion regarding the validity of the shares of
Harris Stratex Class A common stock to be issued in the
merger.
EXPERTS
The combined financial statements of the Microwave
Communications Division at June 30, 2006 and July 1,
2005, and for each of the three years in the period ended
June 30, 2006, appearing in this proxy statement/
prospectus have been audited by Ernst & Young LLP,
independent registered public accounting firm, as set forth in
their report thereon appearing elsewhere herein, and are
included in reliance upon such report given on the authority of
such firm as experts in accounting and auditing.
The consolidated financial statements and the related financial
statement schedule as of March 31, 2006 and 2005, and for
each of the three years in the period ended March 31, 2006
and managements report on the effectiveness of internal
control over financial reporting as of March 31, 2006,
incorporated by reference in this proxy statement/ prospectus
have been audited by Deloitte & Touche LLP, an
independent registered public accounting firm, as stated in
their reports, that are incorporated by reference herein (which
reports (1) express an unqualified opinion on the financial
statements and financial statement schedule, (2) express an
unqualified opinion on managements assessment regarding
the effectiveness of internal control over financial reporting,
and (3) express an adverse opinion on the effectiveness of
internal control over financial reporting because of a material
weakness) and have been so incorporated in reliance upon the
reports of such firm given upon their authority as experts in
accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
Harris Stratex has filed a registration statement on
Form S-4 under the
Securities Act with the Securities and Exchange Commission with
respect to the Harris Stratex Class A common stock to be
issued in the merger. This proxy statement/ prospectus, which
forms a part of the registration statement, does not contain all
of the information set forth in the registration statement,
including its exhibits and schedules. You should refer to the
registration statement, including its exhibits and schedules,
for further information about Harris Stratex and the securities
being offered hereby.
Stratex files annual, quarterly and current reports, proxy
statements and other information with the Securities and
Exchange Commission. You may read and copy any document that
Stratex files at the Securities and Exchange Commissions
public reference room at 100 F Street, N.E.,
Washington, D.C. 20549, at prescribed rates. Please call
the Securities and Exchange Commission at
1-800-SEC-0330 for
further information on the operation of the Public Reference
Room. Securities and Exchange Commission filings are also
available to the public at the Securities and Exchange
Commissions website at http://www.sec.gov. Information
contained on any website referenced in this proxy statement/
prospectus is not incorporated by reference in this proxy
statement/ prospectus.
This proxy statement/ prospectus is accompanied by a copy of
each of the documents identified in this section as being
incorporated by reference into this proxy statement/ prospectus.
The Securities and Exchange Commission allows Stratex to
incorporate by reference into this proxy statement/
prospectus documents filed with the Securities and Exchange
Commission by Stratex. This means that Harris Stratex can
disclose important information to you by referring you to those
documents. The information incorporated by reference is deemed
to be a part of this proxy statement/ prospectus except for any
information superseded by this proxy statement/ prospectus or
any other document incorporated by reference into this proxy
statement/ prospectus. Any statement, including financial
statements, contained in Stratexs Annual Report on
Form 10-K for the
fiscal year ended March 31, 2006 shall be deemed to be
modified or superseded to the extent that a statement, including
financial statements, contained in this proxy statement/
prospectus or in any other later incorporated document modifies
or supersedes that statement. Harris Stratex incorporates by
reference the documents listed below
191
and any documents filed by Stratex under Section 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this
proxy statement/ prospectus and up to, and including, the date
of the Stratex special meeting of stockholders:
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Annual Report on Form 10-K
|
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Fiscal Year Ended March 31, 2006, as amended on
June 20, 2006 |
Quarterly Reports on Form 10-Q
|
|
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|
Fiscal Quarter Ended June 30, 2006 and Fiscal Quarter Ended
September 30, 2006 |
Current Reports on Form 8-K
|
|
|
|
Filed with the Securities and Exchange Commission on
May 18, 2006 (but only Item 5.02 and
Exhibit 99.2), May 19, 2006, August 18, 2006,
September 6, 2006, September 7, 2006 and
September 11, 2006 |
Proxy Statement on Schedule 14A for Stratexs 2006
Annual Meeting of Stockholders
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Filed with the Securities and Exchange Commission on
July 10, 2006 |
Description of Stratex common stock set forth in Stratexs
Registration Statement on Form 8-A
|
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|
Filed with the Securities and Exchange Commission on
November 1, 1991, as amended on December 27, 1996 |
REQUIREMENTS FOR STOCKHOLDER PROPOSALS INCLUDING
NOMINATIONS
OF CANDIDATES FOR THE BOARD OF DIRECTORS TO BE BROUGHT
BEFORE
AN ANNUAL MEETING
For stockholder proposals, including the nomination of director
candidates, to be considered property brought before an annual
meeting, the stockholder must have given timely notice thereof
in writing to Stratexs Assistant Secretary, Carol A.
Goudey, at the address of our principal executive offices. To be
timely for the 2007 annual meeting of stockholders, a
stockholders notice must be delivered to or mailed and
received by our Assistant Secretary not less than 60 days
or more than 90 days prior to the annual meeting. However,
in the event that we give less than 50 days prior
notice or public disclosure of the annual meeting date, to be
considered timely for the 2007 annual meeting, the
stockholders notice of business must be delivered to or
mailed and received by our Assistant Secretary no later than
(i) the close of business on the tenth day following the
day on which the notice of the date of such annual meeting was
mailed, or (ii) the date public disclosure of such annual
meeting was made.
A stockholders notice must accompany any stockholder
proposal and must set forth as to each matter the stockholder
proposes to bring before the annual meeting:
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|
a brief description of the business desired to be brought before
the annual meeting and the reasons for conducting such business
at the annual meeting; |
|
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|
the name and record address of the stockholder proposing such
business; |
|
|
|
the class and number of shares of Stratex common stock which are
beneficially owned by the stockholder; and |
|
|
|
any material interest of the stockholder in such business. |
For director nominations, the stockholders notice shall
set forth:
|
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|
|
the name, age, business address and residence address of the
nominee, |
|
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|
the nominees principal occupation, |
|
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|
the class and number of shares of the corporation which are
beneficially owned by the nominee; and |
192
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any other information relating to the nominee that is required
pursuant to the SECs Regulation 14A, including the
nominees written consent to being named in the proxy
statement as a nominee and to serving as a director if elected. |
As to the stockholder giving the notice, the notice must include
|
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the stockholders name and address, as they appear on the
corporations books, |
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the class and number of shares of the corporation which arc
beneficially owned by such stockholder, and |
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any material relationship of the stockholder to the nominee. |
The above summary is qualified in its entirety by reference to
the actual text of Article 11, Sections 13 and 14 of
the corporations bylaws, which the Corporation will
provide, without charge, to any interested stockholder who
writes to Stratex Assistant Secretary, Carol A. Goudey, at the
address of Stratex Networks, Inc. principal executive offices
located at 120 Rose Orchard Way, San Jose, California
95134.
193
INDEX TO COMBINED FINANCIAL STATEMENTS
The Microwave Communications Division of Harris Corporation
and Subsidiaries
At June 30, 2006 and July 1, 2005 and
For Each of the Three Years in the Period Ended June 30,
2006
Contents
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F-2 |
Combined Financial Statements
|
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F-3 |
|
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F-4 |
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F-5 |
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F-6 |
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F-7 |
|
Schedule II Valuation and Qualifying Accounts
|
|
II-6 |
The Microwave Communications Division of Harris Corporation
and Subsidiaries
At September 29, 2006 and September 30, 2005 and
For the Three Months Ended September 29, 2006 and
September 30, 2005
Contents
|
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|
Condensed Combined Financial Statements (unaudited)
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F-26 |
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F-27 |
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F-28 |
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F-29 |
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|
|
F-30 |
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors of Harris Corporation:
We have audited the accompanying combined balance sheets of The
Microwave Communications Division of Harris Corporation and
subsidiaries as of June 30, 2006 and July 1, 2005, and
the related combined statements of operations, cash flows, and
comprehensive income (loss) and division equity, for each of the
three years in the period ended June 30, 2006. Our audits
also included the financial statement schedule listed in the
Index at Item 21(b). These financial statements and
schedule are the responsibility of the Companys
management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. We were not engaged to perform an
audit of the Companys internal control over financial
reporting. Our audits included consideration of internal control
over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of
the Companys internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the combined financial
position of The Microwave Communications Division of Harris
Corporation and subsidiaries at June 30, 2006 and
July 1, 2005, and the combined results of their operations
and their cash flows for each of the three years in the period
ended June 30, 2006, in conformity with U.S. generally
accepted accounting principles. Also, in our opinion, the
related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set
forth therein.
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/s/ Ernst & Young LLP |
|
|
Certified Public Accountants |
Jacksonville, Florida
November 21, 2006
F-2
The Microwave Communications Division of Harris
Corporation
and Subsidiaries
COMBINED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended | |
|
|
| |
|
|
2006 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
|
(in thousands) | |
Revenue from product sales and services
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from external product sales
|
|
$ |
299,052 |
|
|
$ |
260,205 |
|
|
$ |
282,383 |
|
Revenue from product sales with parent
|
|
|
6,546 |
|
|
|
3,138 |
|
|
|
238 |
|
|
|
|
|
|
|
|
|
|
|
Total revenue from product sales
|
|
|
305,598 |
|
|
|
263,343 |
|
|
|
282,621 |
|
Revenue from services
|
|
|
51,902 |
|
|
|
47,084 |
|
|
|
47,195 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
357,500 |
|
|
|
310,427 |
|
|
|
329,816 |
|
Cost of product sales and services
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of external product sales
|
|
|
(221,549 |
) |
|
|
(180,639 |
) |
|
|
(214,119 |
) |
Cost of product sales with parent
|
|
|
(7,407 |
) |
|
|
(3,700 |
) |
|
|
(1,565 |
) |
|
|
|
|
|
|
|
|
|
|
Total cost of product sales
|
|
|
(228,956 |
) |
|
|
(184,339 |
) |
|
|
(215,684 |
) |
Cost of services
|
|
|
(37,132 |
) |
|
|
(31,314 |
) |
|
|
(26,352 |
) |
Cost of sales billed from parent
|
|
|
(5,252 |
) |
|
|
(4,293 |
) |
|
|
(3,897 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(271,340 |
) |
|
|
(219,946 |
) |
|
|
(245,933 |
) |
Engineering, selling and administrative expenses
|
|
|
(96,658 |
) |
|
|
(81,747 |
) |
|
|
(90,537 |
) |
Engineering, selling and administrative expenses with parent
|
|
|
(5,622 |
) |
|
|
(6,017 |
) |
|
|
(6,583 |
) |
|
|
|
|
|
|
|
|
|
|
Total engineering, selling and administrative expenses
|
|
|
(102,280 |
) |
|
|
(87,764 |
) |
|
|
(97,120 |
) |
Corporate allocations expense
|
|
|
(12,425 |
) |
|
|
(6,189 |
) |
|
|
(6,770 |
) |
Interest income
|
|
|
431 |
|
|
|
905 |
|
|
|
|
|
Interest expense
|
|
|
(975 |
) |
|
|
(966 |
) |
|
|
(140 |
) |
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(29,089 |
) |
|
|
(3,533 |
) |
|
|
(20,147 |
) |
Income tax expense
|
|
|
(6,759 |
) |
|
|
(245 |
) |
|
|
(86 |
) |
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(35,848 |
) |
|
$ |
(3,778 |
) |
|
$ |
(20,233 |
) |
|
|
|
|
|
|
|
|
|
|
See Notes to Combined Financial Statements
F-3
The Microwave Communications Division of Harris
Corporation
and Subsidiaries
COMBINED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
June 30, | |
|
July 1, | |
|
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
|
(in thousands) | |
Assets |
Current Assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
13,834 |
|
|
$ |
7,803 |
|
|
Receivables
|
|
|
123,939 |
|
|
|
114,544 |
|
|
Unbilled costs
|
|
|
25,504 |
|
|
|
17,565 |
|
|
Inventories
|
|
|
71,858 |
|
|
|
91,051 |
|
|
|
|
|
|
|
|
Total current assets
|
|
|
235,135 |
|
|
|
230,963 |
|
Other Assets:
|
|
|
|
|
|
|
|
|
|
Plant and equipment
|
|
|
51,770 |
|
|
|
57,010 |
|
|
Goodwill
|
|
|
28,260 |
|
|
|
26,100 |
|
|
Identifiable intangible assets
|
|
|
6,388 |
|
|
|
6,225 |
|
|
Capitalized software
|
|
|
9,171 |
|
|
|
7,855 |
|
|
Non-current notes receivable
|
|
|
3,800 |
|
|
|
8,097 |
|
|
Non-current deferred income taxes
|
|
|
9,616 |
|
|
|
15,296 |
|
|
Other assets
|
|
|
8,509 |
|
|
|
11,423 |
|
|
|
|
|
|
|
|
|
|
|
117,514 |
|
|
|
132,006 |
|
|
|
|
|
|
|
|
|
|
$ |
352,649 |
|
|
$ |
362,969 |
|
|
|
|
|
|
|
|
|
Liabilities and Division Equity |
Current Liabilities:
|
|
|
|
|
|
|
|
|
|
Short-term debt
|
|
$ |
160 |
|
|
$ |
1,021 |
|
|
Accounts payable
|
|
|
42,135 |
|
|
|
33,057 |
|
|
Compensation and benefits
|
|
|
17,428 |
|
|
|
13,920 |
|
|
Other accrued items
|
|
|
19,057 |
|
|
|
13,687 |
|
|
Advance payments and unearned income
|
|
|
9,207 |
|
|
|
6,791 |
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
87,987 |
|
|
|
68,476 |
|
Other Liabilities:
|
|
|
|
|
|
|
|
|
|
Due to Harris Corporation
|
|
|
12,642 |
|
|
|
14,180 |
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
100,629 |
|
|
|
82,656 |
|
Division Equity:
|
|
|
|
|
|
|
|
|
|
Division equity
|
|
|
253,400 |
|
|
|
294,229 |
|
|
Accumulated other comprehensive income (loss)
|
|
|
(1,380 |
) |
|
|
(13,916 |
) |
|
|
|
|
|
|
|
Total division equity
|
|
|
252,020 |
|
|
|
280,313 |
|
|
|
|
|
|
|
|
|
|
$ |
352,649 |
|
|
$ |
362,969 |
|
|
|
|
|
|
|
|
See Notes to Combined Financial Statements
F-4
The Microwave Communications Division of Harris
Corporation
and Subsidiaries
COMBINED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended | |
|
|
| |
|
|
2006 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
|
(in thousands) | |
Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(35,848 |
) |
|
$ |
(3,778 |
) |
|
$ |
(20,233 |
) |
Adjustments to reconcile net loss to net cash provided by (used
in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
15,689 |
|
|
|
14,607 |
|
|
|
13,782 |
|
|
|
Gain on sale of land and building
|
|
|
(1,844 |
) |
|
|
|
|
|
|
|
|
|
|
Non-current deferred income taxes
|
|
|
5,680 |
|
|
|
|
|
|
|
|
|
(Increase) decrease in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
(5,097 |
) |
|
|
162 |
|
|
|
10,691 |
|
|
Unbilled costs and inventories
|
|
|
11,253 |
|
|
|
(16,003 |
) |
|
|
14,798 |
|
Increase (decrease) in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
|
17,956 |
|
|
|
(4,473 |
) |
|
|
5,212 |
|
|
Advance payments and unearned income
|
|
|
2,416 |
|
|
|
(4,973 |
) |
|
|
(11,963 |
) |
|
Due to Harris Corporation
|
|
|
(1,538 |
) |
|
|
(797 |
) |
|
|
3,078 |
|
|
Other
|
|
|
10,816 |
|
|
|
11,014 |
|
|
|
23,227 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
19,483 |
|
|
|
(4,241 |
) |
|
|
38,592 |
|
|
|
|
|
|
|
|
|
|
|
Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of land and building
|
|
|
4,598 |
|
|
|
|
|
|
|
|
|
Additions of plant and equipment
|
|
|
(9,563 |
) |
|
|
(9,310 |
) |
|
|
(11,830 |
) |
Additions of capitalized software
|
|
|
(3,240 |
) |
|
|
(10,107 |
) |
|
|
(2,849 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(8,205 |
) |
|
|
(19,417 |
) |
|
|
(14,679 |
) |
|
|
|
|
|
|
|
|
|
|
Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from short-term borrowings
|
|
|
9,352 |
|
|
|
4,381 |
|
|
|
2,895 |
|
Repayments of short-term borrowings
|
|
|
(10,213 |
) |
|
|
(9,147 |
) |
|
|
(27,478 |
) |
Net cash and other transfers (to) from Harris Corporation
|
|
|
(4,981 |
) |
|
|
29,655 |
|
|
|
(3,993 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(5,842 |
) |
|
|
24,889 |
|
|
|
(28,576 |
) |
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
595 |
|
|
|
1,275 |
|
|
|
(1,138 |
) |
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
6,031 |
|
|
|
2,506 |
|
|
|
(5,801 |
) |
Cash and cash equivalents, beginning of year
|
|
|
7,803 |
|
|
|
5,297 |
|
|
|
11,098 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$ |
13,834 |
|
|
$ |
7,803 |
|
|
$ |
5,297 |
|
|
|
|
|
|
|
|
|
|
|
See Notes to Combined Financial Statements
F-5
The Microwave Communications Division of Harris Corporation
and Subsidiaries
COMBINED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
AND DIVISION EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other | |
|
|
|
|
|
|
Comprehensive Income | |
|
|
|
|
|
|
(Loss) Net Unrealized | |
|
|
|
|
|
|
Gain (Loss) From | |
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Foreign | |
|
|
|
|
Division | |
|
Hedging | |
|
Currency | |
|
|
|
|
Equity | |
|
Derivatives | |
|
Translation | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(in thousands) | |
Balance at June 27, 2003
|
|
$ |
292,578 |
|
|
$ |
|
|
|
$ |
(20,228 |
) |
|
$ |
272,350 |
|
Net loss
|
|
|
(20,233 |
) |
|
|
|
|
|
|
|
|
|
|
(20,233 |
) |
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
(1,687 |
) |
|
|
(1,687 |
) |
Net unrealized gain on hedging activities, net of $0 tax
|
|
|
|
|
|
|
80 |
|
|
|
|
|
|
|
80 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21,840 |
) |
Net decrease in investment from Harris Corporation
|
|
|
(3,993 |
) |
|
|
|
|
|
|
|
|
|
|
(3,993 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at July 2, 2004
|
|
|
268,352 |
|
|
|
80 |
|
|
|
(21,915 |
) |
|
|
246,517 |
|
Net income
|
|
|
(3,778 |
) |
|
|
|
|
|
|
|
|
|
|
(3,778 |
) |
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
7,728 |
|
|
|
7,728 |
|
Net unrealized gain on hedging activities, net of $0 tax
|
|
|
|
|
|
|
191 |
|
|
|
|
|
|
|
191 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,141 |
|
Net increase in investment from Harris Corporation
|
|
|
29,655 |
|
|
|
|
|
|
|
|
|
|
|
29,655 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at July 1, 2005
|
|
|
294,229 |
|
|
|
271 |
|
|
|
(14,187 |
) |
|
|
280,313 |
|
Net loss
|
|
|
(35,848 |
) |
|
|
|
|
|
|
|
|
|
|
(35,848 |
) |
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
12,740 |
|
|
|
12,740 |
|
Net unrealized loss on hedging activities, net of $0 tax
|
|
|
|
|
|
|
(204 |
) |
|
|
|
|
|
|
(204 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(23,312 |
) |
Net decrease in investment from Harris Corporation
|
|
|
(4,981 |
) |
|
|
|
|
|
|
|
|
|
|
(4,981 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2006
|
|
$ |
253,400 |
|
|
$ |
67 |
|
|
$ |
(1,447 |
) |
|
$ |
252,020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Combined Financial Statements
F-6
The Microwave Communications Division of Harris Corporation
and Subsidiaries
NOTES TO COMBINED FINANCIAL STATEMENTS
At June 30, 2006 and July 1, 2005 and
For Each of the Three years in the Period Ended June 30,
2006
|
|
1. |
Significant Accounting Policies |
Nature of Operations The Microwave
Communications Division of Harris Corporation and Subsidiaries
(MCD or the Company) designs, manufactures and sells a broad
range of microwave radios for use in worldwide wireless
communications networks. Applications include cellular/mobile
infrastructure connectivity; secure data networks; public safety
transport for state, local and Federal government users; and
right-of-way
connectivity for utilities, pipelines, railroads and industrial
companies. In general, wireless networks are constructed using
microwave radios and other equipment to connect cell sites,
fixed-access facilities, switching systems, land mobile radio
systems and other similar systems.
Basis of Presentation The accompanying
combined financial statements include the accounts of the
Aftermarket Business, which consists of the accounts of the
Microwave Communications Division of Harris Corporation and its
subsidiaries. As used in these notes, the terms MCD,
we, our and us refer to the
combined operations of the Microwave Communications Division of
Harris Corporation and its consolidated subsidiaries.
Significant intercompany transactions and accounts have been
eliminated. The combined financial statements are prepared in
conformity with U.S. generally accepted accounting
principles.
The accompanying historical financial statements are presented
on a carve-out basis and reflect the assets, liabilities,
revenues and expenses that were directly attributable to MCD as
it was operated within Harris Corporation. MCDs combined
statements of operations include all of the related costs of
doing business, including an allocation of certain general
corporate expenses of Harris Corporation, which were in support
of MCD, including costs for finance, legal, treasury,
purchasing, quality, environmental, safety, human resources,
tax, audit and public relations departments and other corporate
and infrastructure costs. MCD was allocated $12,425 thousand,
$6,189 thousand and $6,770 thousand of these overhead costs
related to Harris Corporations shared functions for the
years ended June 30, 2006, July 1, 2005, and
July 2, 2004, respectively. These costs represent
approximately 16.7%, 10.7% and 13.1%, respectively, of the total
cost of these shared services in each of the years ended
June 30, 2006, July 1, 2005, and July 2, 2004.
These cost allocations were primarily based on a ratio of MCD
sales to total Harris Corporation sales multiplied by the total
Headquarters Expense of Harris Corporation. Included in
corporate allocations expense for the year ended
June 30, 2006, is a specifically identified amount of
$5,400 thousand related to the settlement of a lawsuit related
to MCD. Management believes that these allocations were made on
a reasonable basis.
Use of Estimates These combined financial
statements have been prepared in conformity with
U.S. generally accepted accounting principles and require
management to make estimates and assumptions. These assumptions
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and
expenses during the reporting period. These estimates are based
on experience and other information available prior to issuance
of the financial statements. Materially different results can
occur as circumstances change and additional information becomes
known.
Fiscal Year Our fiscal year ends on the
Friday nearest June 30. Fiscal 2006 and fiscal 2005 include
52 weeks, and fiscal 2004 includes 53 weeks.
Cash Equivalents Cash equivalents are
temporary cash investments with a maturity of three or fewer
months when purchased. These investments, including accrued
interest, are carried at the lower of cost or market.
Accounts Receivable We record receivables at
net realizable value, which includes an allowance for estimated
uncollectible accounts to reflect any loss anticipated on the
accounts receivable balances. We
F-7
The Microwave Communications Division of Harris Corporation
and Subsidiaries
NOTES TO COMBINED FINANCIAL
STATEMENTS (continued)
calculate the allowance based on our history of write-offs,
level of past due accounts and economic status of the customers.
See Note 3, Receivables for additional information.
Inventories Inventories are valued at the
lower of cost (determined by average cost and
first-in, first-out
methods) or market. We regularly review inventory quantities on
hand and record a provision for excess and obsolete inventory
based primarily on our estimated forecast of product demand and
production requirements. See Note 4, Inventories for
additional information regarding inventories.
Plant and Equipment Plant and equipment are
carried on the basis of cost. Depreciation of buildings,
machinery and equipment is computed substantially by the
straight-line method. The estimated useful lives of buildings
range between 5 and 50 years. The estimated useful lives of
machinery and equipment range between 3 and 10 years. See
Note 5, Plant and Equipment for additional information
regarding plant and equipment.
Capitalized Software Software to be sold,
leased, or otherwise marketed is accounted for in accordance
with Statement of Financial Accounting Standards Board Statement
No. 86, Accounting for the Costs of Computer Software to
Be Sold, Leased, or Otherwise Marketed (FAS 86). Costs
incurred to acquire or create a computer software product must
be expensed when incurred as research and development until
technological feasibility has been established for the product.
Technological feasibility is normally established upon
completion of a detailed program design or, in its absence,
completion of a working model.
Capitalized software, accounted for under FAS 86, was
$9,171 thousand at June 30, 2006 and
$7,855 thousand at July 1, 2005. Total amortization
expense related to these capitalized software amounts was
$1,629 thousand in fiscal 2006, $1,483 thousand in
fiscal 2005 and $480 thousand in fiscal 2004.
Income Taxes Historically, our operations
have been included in the consolidated federal income tax
returns filed by Harris Corporation. The provision for income
taxes in the Combined Statement of Operations is calculated on a
separate tax return basis as if we had operated as a stand-alone
entity in fiscal 2006, 2005 and 2004. We follow the liability
method of accounting for income taxes. We record the estimated
future tax effects of temporary differences between the tax
basis of assets and liabilities and amounts reported in our
Combined Balance Sheets, as well as operating loss and tax
credit carryforwards. We follow very specific and detailed
guidelines in each tax jurisdiction regarding the recoverability
of any tax assets recorded on the balance sheet and provide
necessary valuation allowances as required. We regularly review
our deferred tax assets for recoverability based on historical
taxable income, projected future taxable income, the expected
timing of the reversals of existing temporary differences and
tax planning strategies. See Note 15, Income Taxes, for
additional information regarding income taxes.
Goodwill Goodwill represents the excess cost
of a business acquisition over the fair value of the net assets
acquired. In accordance with Statement of Financial Accounting
Standards No. 142, Goodwill and Other Intangible Assets
(Statement 142), indefinite-life identifiable
intangible assets and goodwill are not amortized. Under the
provisions of Statement 142, we are required to perform an
annual (or under certain circumstances more frequent) impairment
test of our goodwill. Goodwill impairment is determined using a
two-step process. The first step of the goodwill impairment test
is used to identify potential impairment by comparing the fair
value of a reporting unit, which we define as our business
segments, with its net book value or carrying amount including
goodwill. If the fair value of a reporting unit exceeds its
carrying amount, goodwill of the reporting unit is considered
not impaired and the second step of the impairment test is
unnecessary. If the carrying amount of a reporting unit exceeds
its fair value, the second step of the goodwill impairment test
compares the implied fair value of the reporting units
goodwill with the carrying amount of that goodwill. If the
carrying amount of the reporting units goodwill exceeds
the implied fair value of that goodwill, an impairment loss is
recognized in an amount equal to that excess. The implied fair
value of goodwill is determined in the same manner as the amount
of goodwill recognized in a
F-8
The Microwave Communications Division of Harris Corporation
and Subsidiaries
NOTES TO COMBINED FINANCIAL
STATEMENTS (continued)
business combination. The fair value of the reporting unit is
allocated to all of the assets and liabilities of that unit
including any unrecognized intangible assets as if the reporting
unit had been acquired in a business combination and the fair
value of the reporting unit was the purchase price paid to
acquire the reporting unit. See Note 6, Goodwill and Other
Intangible Assets, for additional information regarding goodwill.
Impairment of Long-Lived Assets and Identifiable Intangible
Assets We assess the recoverability of the
carrying value of our long-lived assets and identifiable
intangible assets with finite useful lives whenever events or
changes in circumstances indicate the carrying amount of the
assets may not be recoverable. We evaluate the recoverability of
such assets based upon the expectations of undiscounted cash
flows from such assets. If the sum of the expected future
undiscounted cash flows were less than the carrying amount of
the asset, a loss would be recognized for the difference between
the fair value and the carrying amount. See Note 5, Plant
and Equipment, and Note 6, Goodwill and Other Intangible
Assets, for additional information regarding long-lived assets
and identifiable intangible assets.
Operating Leases We lease office and
manufacturing facilities under various operating leases. These
lease agreements generally include rent escalation clauses, and
many include renewal periods at the Companys option. The
Company recognizes scheduled rent increases on a straight-line
basis over the lease term beginning with the date the Company
takes possession of the leased space.
Other Accrued Items and Other Assets No
accrued liabilities or expenses within the caption Other
accrued items on our Combined Balance Sheets exceed 5% of
our total current liabilities as of June 30, 2006 or as of
July 1, 2005. No current assets other than those already
disclosed on the Combined Balance Sheets exceed 5% of our total
current assets as of June 30, 2006 or as of July 1,
2005. No assets within the caption Other assets on
the Combined Balance Sheets exceed 5% of total assets as of
June 30, 2006 or as of July 1, 2005.
Warranties On product sales we provide for
future warranty costs upon product delivery. The specific terms
and conditions of those warranties vary depending upon the
product sold and country in which we do business. In the case of
products sold by us, our warranties generally start from the
delivery date and continue for two to three years, depending on
the terms.
Because our products are manufactured, in many cases, to
customer specifications and their acceptance is based on meeting
those specifications, we historically have experienced minimal
warranty costs. Factors that affect our warranty liability
include the number of installed units, historical experience and
managements judgment regarding anticipated rates of
warranty claims and cost per claim. We assess the adequacy of
our recorded warranty liabilities every quarter and make
adjustments to the liability as necessary.
Network management software products generally carry a 30- to
90-day warranty from
the date of acceptance. Our liability under these warranties is
either to provide a corrected copy of any portion of the
software found not to be in substantial compliance with the
agreed-upon specifications, or to provide a full refund.
Our software license agreements generally include certain
provisions for indemnifying customers against liabilities should
our software products infringe a third partys intellectual
property rights. To date, we have not incurred any material
costs as a result of such indemnification and have not accrued
any liabilities related to such obligations in our combined
financial statements. See Note 7, Accrued Warranties, for
additional information regarding warranties.
Foreign Currency Translation The functional
currency for most international subsidiaries is the local
currency. Assets and liabilities are translated at current rates
of exchange and income and expense
F-9
The Microwave Communications Division of Harris Corporation
and Subsidiaries
NOTES TO COMBINED FINANCIAL
STATEMENTS (continued)
items are translated at the weighted average exchange rate for
the year. The resulting translation adjustments are recorded as
a separate component of equity.
Stock Options and Share-Based Compensation
Prior to the July 2, 2005 start of our fiscal year 2006, we
accounted for the share-based compensation granted under our
stock incentive plans under the recognition and measurement
provisions of APB 25, Accounting for Stock Issued to
Employees, and related interpretations (APB 25). In
accordance with APB 25 we used the intrinsic-value method
of accounting for stock option awards to employees and
accordingly did not recognize compensation expense for our stock
option awards to employees in our Combined Statements of
Operations prior to the start of our fiscal year 2006, as all
option exercise prices were 100% of fair market value on the
date the options were granted. Effective July 2, 2005, we
implemented Statement of Financial Accounting Standards
No. 123(R), Share-Based Payment
(Statement 123R) for all share-based compensation,
including share-based compensation that was not vested as of the
end of our fiscal year 2005. In accordance with
Statement 123R we measure compensation cost for all
share-based payments (including employee stock options) at fair
value and recognize cost over the vesting period. See
Note 2, Accounting Changes or Recent Pronouncements and
Note 10, Stock Options and Share-Based Compensation, for
additional information regarding stock options, performance
shares and restricted shares including the impact of
implementing Statement 123R on our results of operations
and cash flows.
Related Party Transactions Harris Corporation
provides information services, human resources, financial shared
services, facilities, legal support, and supply chain management
services to us. The charges for these services are billed to us
primarily based on actual usage. These amounts are charged
directly to MCD and are not part of the corporate
allocations expense that is included on the Combined
Statements of Operations. The amount charged to us for these
services was $10,874 thousand in fiscal 2006,
$10,310 thousand in fiscal 2005, and $10,480 thousand
in fiscal 2004, and is included in the Cost of product
sales and Engineering, selling and administrative
expenses captions on the Combined Statements of Operations.
There are other services Harris Corporation provides to us that
are not directly charged to us. These functions and amounts are
explained above under the subtitle Basis of
Presentation. These amounts are included within Due
to Harris Corporation on the Combined Balance Sheets.
Additionally, we have other receivables and payables in the
normal course of business with Harris Corporation. These amounts
are netted within Due to Harris Corporation on the
Combined Balance Sheets. Total receivables from Harris
Corporation were $7,484 thousand and $6,327 thousand
at June 30, 2006 and July 1, 2005, respectively. Total
payables to Harris Corporation were $20,126 thousand and
$20,507 thousand at June 30, 2006 and July 1,
2005, respectively.
Harris Corporation is the primary source of our financing and
equity activities. During fiscal 2006, Harris Corporation
provided $2,824 thousand to recapitalize one of our
subsidiaries and Harris Corporations net investment in us
was reduced by $7,805 thousand. During fiscal 2005, Harris
Corporation provided $42,960 thousand to recapitalize some
of our subsidiaries and Harris Corporations net investment
in us was reduced by $13,305 thousand. During fiscal 2004,
Harris Corporation provided $2 thousand to capitalize a new
subsidiary and Harris Corporations net investment in us
was reduced by $3,995 thousand.
Additionally, we have loans from Harris Corporation to fund our
international entities and we also provide excess cash at
various locations to Harris Corporation. We recognize interest
income and expense on these loans. We recognized interest income
of $291 thousand, $198 thousand and none in fiscal
year 2006, 2005 and 2004, respectively. We recognized interest
expense of $488 thousand, $679 thousand and
$140 thousand in fiscal year 2006, 2005 and 2004,
respectively.
F-10
The Microwave Communications Division of Harris Corporation
and Subsidiaries
NOTES TO COMBINED FINANCIAL
STATEMENTS (continued)
We have sales to and purchases from other entities of Harris
Corporation from time to time. These transactions have been
recorded at cost to the buying entity and the selling entity
recognizes a normal profit. Total sales to other entities of
Harris Corporation were $7,162 thousand, $3,538 thousand
and $239 thousand in fiscal 2006, 2005 and 2004,
respectively. We recognized profit associated with these related
party sales of $616 thousand, $400 thousand and
$1 thousand in fiscal year 2006, 2005 and 2004,
respectively. We also recognized costs associated with these
related party purchases of $245 thousand,
$162 thousand and $1,326 thousand in fiscal 2006, 2005
and 2004, respectively.
Revenue Recognition Revenue primarily relates
to product sales (other than for long-term contracts) and
service arrangements, which are recognized when persuasive
evidence of an arrangement exists, the fee is fixed or
determinable, collectibility is probable, delivery of a product
has occurred and title has transferred or services have been
rendered. Further, if an arrangement other than a long-term
contract requires the delivery or performance of multiple
deliverables or elements under a bundled sale, we determine
whether the individual elements represent separate units
of accounting under the requirements of Emerging Issues
Task Force
Issue 00-21,
Revenue Arrangements with Multiple Deliverables
(EITF 00-21).
If the separate elements meet the requirements listed in
EITF 00-21, we
recognize the revenue associated with each element separately.
If the elements within a bundled sale are not considered
separate units of accounting, the delivery of an individual
element is considered not to have occurred if there are
undelivered elements that are essential to the functionality.
Unearned income on service contracts is amortized by the
straight-line method over the term of the contracts. Also, if
contractual obligations related to customer acceptance exist,
revenue is not recognized for a product or service unless these
obligations are satisfied.
Revenue recognition from long-term contracts is recorded on a
percentage-of-completion
basis, generally using the
cost-to-cost method of
accounting where sales and profits are recorded based on the
ratio of costs incurred to estimated total costs at completion.
Recognition of profit on long-term fixed-price contracts
requires estimates of: the total contract value; the total cost
at completion; and the measurement of progress towards
completion. Revenue and profits on cost-reimbursable contracts
are recognized as allowable costs are incurred on the contract
and become billable to the customer, in an amount equal to the
allowable costs plus the profit on those costs. Contracts are
combined when specific aggregation criteria stated in the
American Institute of Certified Public Accountants
Statement of Position No. 81-1, Accounting for
Performance of Construction-Type and Certain Production-Type
Contracts (SOP 81-1), are met. Aggregation criteria
generally include closely interrelated activities performed for
a single customer within the same economic environment.
Contracts generally are not segmented. If contracts are
segmented, they meet the segmenting criteria stated in
SOP 81-1. Amounts representing contract change orders,
claims or other items are included in sales only when they can
be reliably estimated and realization is probable. Incentives or
penalties and awards applicable to performance on contracts are
considered in estimating sales and profit rates and are recorded
when there is sufficient information to assess anticipated
contract performance. Incentive provisions, which increase
earnings based solely on a single significant event, are
generally not recognized until the event occurs. When
adjustments in contract value or estimated costs are determined,
any changes from prior estimates are reflected in earnings in
the current period. Anticipated losses on contracts or programs
in progress are charged to earnings when identified.
Revenue recognition for internally developed capitalized
software is in accordance with Statement of
Position 97-2,
Software Revenue Recognition
(SOP 97-2).
Typically, our capitalized software sales do not have acceptance
criteria in the contracts and proper documentation of Vendor
Specific Objective Evidence (VSOE) is obtained before revenue is
allocated to the various elements of the arrangement in
accordance with
SOP 97-2.
Royalty income is recognized on the basis of terms specified in
the contractual agreements.
F-11
The Microwave Communications Division of Harris Corporation
and Subsidiaries
NOTES TO COMBINED FINANCIAL
STATEMENTS (continued)
Retirement Benefits As of June 30, 2006,
we provide retirement benefits to substantially all employees
primarily through Harris Corporations defined contribution
retirement plan, which has profit sharing, matching and savings
elements. Contributions by us to the retirement plan are based
on profits and employees savings with no other funding
requirements. We may make additional contributions to the plan
at our discretion. Retirement benefits also include an unfunded
limited healthcare plan for
U.S.-based retirees and
employees on long-term disability. We accrue the estimated cost
of these medical benefits, which are not material, during an
employees active service life.
Retirement plan expense amounted to $8,434 thousand in fiscal
2006, $7,057 thousand in fiscal 2005 and $6,819 thousand in
fiscal 2004.
Financial Guarantees and Commercial
Commitments Guarantees are contingent
commitments issued to guarantee the performance of a customer to
a third party in borrowing arrangements, such as commercial
paper issuances, bond financings and similar transactions. The
terms of the guarantees are equal to the remaining term of the
related debt, which are limited to one year or less. The maximum
potential amount of future payments we could be required to make
under our guarantees at June 30, 2006 is $392 thousand. At
June 30, 2006, there are no guarantees accrued for in our
Combined Balance Sheets. We also hold insurance policies with
third parties to mitigate the risk of loss on a portion of these
guarantees. We have entered into commercial commitments in the
normal course of business including surety bonds, standby letter
of credit agreements and other arrangements with financial
institutions and customers primarily relating to the guarantee
of future performance on certain contracts to provide products
and services to customers and to obtain insurance policies with
our insurance carriers. At June 30, 2006, we had commercial
commitments of $31,361 thousand.
Financial Instruments and Risk Management
Statement of Financial Accounting Standards No. 133,
Accounting for Derivative Instruments and Hedging Activities
(Statement 133), requires us to recognize all
derivatives on the Combined Balance Sheets at fair value.
Derivatives that are not hedges must be adjusted to fair value
through income. If the derivative is a hedge, depending on the
nature of the hedge, changes in the fair value of the derivative
are either offset against the change in fair value of assets,
liabilities or firm commitments through earnings or recognized
in other comprehensive income until the hedged item is
recognized in earnings. The ineffective portion of a
derivatives change in fair value is immediately recognized
in earnings.
As part of our risk management program we use a combination of
foreign currency options and foreign currency forward contracts
to hedge against risks associated with anticipated cash flows
that are probable of occurring in the future and cash flows that
are fixed or firmly committed. These derivatives have only
nominal intrinsic value at the time of purchase and have a high
degree of correlation to the anticipated cash flows they are
designated to hedge. Hedge effectiveness is determined by the
correlation of the anticipated cash flows and the maturity dates
of the derivatives used to hedge these cash flows. We do not
hold or issue derivative financial instruments for trading
purposes.
We account for our instruments used to hedge against the
currency risk and market fluctuation risk associated with
anticipated or forecasted cash flows that are probable of
occurring in the future as cash flow hedges. In accordance with
Statement 133, such financial instruments are
marked-to-market using
forward prices and fair value quotes with the offset to other
comprehensive income, net of hedge ineffectiveness. The foreign
currency call options and forward contracts are subsequently
recognized as a component of Cost of product sales
on the Combined Statement of Operations when the underlying net
cash flows are realized. Unrealized losses are recorded in
Other accrued items on the Combined Balance Sheets
with the offset to other comprehensive income, net of hedge
ineffectiveness. Unrealized gains are recorded as Other
assets on the Combined Balance Sheets with the offset to
other comprehensive income, net of hedge ineffectiveness.
F-12
The Microwave Communications Division of Harris Corporation
and Subsidiaries
NOTES TO COMBINED FINANCIAL
STATEMENTS (continued)
We are exposed to credit losses in the event of non-performance
by counterparties to these financial instruments, but we do not
expect any of the counterparties to fail to meet their
obligations. To manage credit risks, we select counterparties
based on credit ratings, limit our exposure to a single
counterparty under defined guidelines and monitor the market
position with each counterparty. In the event of the termination
of a derivative designated as a hedge, the settlement would be
charged to the Combined Statements of Operations as a component
of Non-operating income (loss).
|
|
2. |
Accounting Changes or Recent Pronouncements |
In November 2004, the FASB issued Statement of Financial
Accounting Standards No. 151, Inventory
Costs an amendment of Accounting Research
Bulletin 43, Chapter 4 (Statement 151).
Statement 151 clarifies the accounting for abnormal amounts
of idle facility expense, freight, handling costs and wasted
material. Paragraph 5 of Accounting Research Bulletin
(ARB) 43, Chapter 4 Inventory Pricing,
previously stated that ...under certain circumstances,
items such as idle facility expense, excessive spoilage, double
freight, and rehandling costs may be so abnormal as to require
treatment as current-period charges... Statement 151
requires that those items be recognized as current-period
charges regardless of whether they meet the criterion of
so abnormal. In addition, Statement 151
requires that the allocation of fixed production overheads to
the costs of conversion be based on the normal capacity of the
production facilities. Statement 151 is effective for
fiscal years beginning after June 15, 2005. We implemented
the provisions of Statement 151 during the first quarter of
fiscal 2006, and it did not have a material impact on our
financial position, results of operations or cash flows.
In December 2004, the FASB issued Statement of Financial
Accounting Standards No. 123 (Revised 2004), Share-Based
Payment (Statement 123R), which requires all companies
to measure compensation cost for all share-based payments
(including employee stock options) at fair value and to
recognize cost over the vesting period. In March 2005, the SEC
released SEC Staff Accounting Bulletin No. 107,
Share-Based Payment (SAB 107). SAB 107 provides
the SEC staff position regarding the application of
Statement 123R, including interpretive guidance related to
the interaction between Statement 123R and certain SEC
rules and regulations, and provides the staffs views
regarding the valuation of share-based payment arrangements for
public companies. In April 2005, the SEC announced that
companies may implement Statement 123R at the beginning of
their next fiscal year after June 15, 2005, or
December 15, 2005 for small business issuers. We
implemented the provisions of Statement 123R and
SAB 107 in the first quarter of fiscal 2006 using the
modified-prospective method, and it did not have a material
impact on our financial position. See Note 10, Stock
Options and Share-Based Compensation for further information and
the required disclosures under Statement 123R and
SAB 107, including the impact of the implementation on our
results of operations and cash flows.
In May 2005, the FASB issued Statement of Financial Accounting
Standards No. 154, Accounting Changes and Error
Corrections (Statement 154), which replaces APB Opinion
No. 20, Accounting Changes and FASB Statement of
Financial Accounting Standards No. 3, Reporting
Accounting Changes in Interim Financial Statements.
Statement 154 changes the requirements for the accounting
for and reporting of a change in accounting principle.
Statement 154 applies to all voluntary changes in
accounting principles and applies to changes required by an
accounting pronouncement in the unusual instance that the
pronouncement does not include specific transition provisions.
Statement 154 requires retroactive application to prior
period financial statements for a change in accounting
principle. Previously, a change in accounting principle was
recognized by including the change in the net income in the
period of the change. Statement 154 is effective for fiscal
years ending after December 15, 2005. We implemented the
provisions of Statement 154 in the first quarter of fiscal
2006, and it did not have a material impact on our financial
position, results of operations or cash flows.
F-13
The Microwave Communications Division of Harris Corporation
and Subsidiaries
NOTES TO COMBINED FINANCIAL
STATEMENTS (continued)
In November 2005, the FASB issued FSP FAS 123(R)-3,
Transition Election Related to Accounting for the Tax Effects
of Share-Based Payment Awards (FSP 123R-3). FSP 123R-3
provides a simplified alternative method to calculate the
beginning pool of excess tax benefits against which excess
future deferred tax assets (that result when the compensation
cost recognized for an award exceeds the ultimate tax deduction)
could be written off under Statement 123R. The guidance in
FSP 123R-3 was effective on November 10, 2005. We may make
a one-time election to adopt the transition method described in
FSP 123R-3 before November 10, 2006. We are currently
evaluating the available transition alternatives of FSP 123R-3.
We currently have implemented the provisions of
Statement 123R following the guidance for calculating the
pool of excess tax benefits described in paragraph 81 of
Statement 123R and the guidance related to reporting cash
flows described in paragraph 68 of Statement 123R. If
we elect the alternative method described in FSP 123R-3, the
effect of applying the transition method described in FSP 123R-3
must be reported as a change in accounting principle in
accordance with Statement 154 and the financial results for
periods subsequent to the adoption of Statement 123R must
be retroactively restated. We will not be required, however, to
justify the preferability of our election, if we elect the
transition method described in FSP 123R-3, and we are free to
choose either approach to the calculation of the pool of excess
tax benefits. We do not believe the adoption of this FSP 123R-3
will have a material impact on our financial position, results
of operations or cash flows.
In February 2006, the FASB issued FSP FAS 123(R)-4,
Classification of Options and Similar Instruments Issued as
Employee Compensation that Allow for Cash Settlement upon the
Occurrence of a Contingent Event (FSP 123R-4). FSP 123R-4
addresses the classification of options and similar instruments
issued as employee compensation that allow for cash settlement
upon the occurrence of a contingent event. A cash settlement
feature that can be exercised only upon the occurrence of a
contingent event that is outside the employees control
does not meet the conditions in paragraphs 32 and A229 of
Statement 123R until it becomes probable that the event
will occur. The guidance in FSP 123R-4 was effective on
February 3, 2006. We implemented the provisions of FSP
123R-4 during the third quarter of fiscal 2006 and it did not
have a material impact on our financial position, results of
operations or cash flows.
In June 2006, the FASB issued FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes (FIN 48).
FIN 48 clarifies the accounting for uncertainty in income
taxes recognized in an enterprises financial statements in
accordance with FASB Statement No. 109, Accounting for
Income Taxes. This interpretation prescribes a recognition
threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected
to be taken in a tax return. FIN 48 also provides guidance
on de-recognition, classification, interest and penalties,
accounting in interim periods, disclosure, and transition. We
are currently evaluating the impact this interpretation will
have on our financial statements. This interpretation will be
effective for us beginning July 1, 2007.
Receivables are summarized below:
|
|
|
|
|
|
|
|
|
|
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
|
(In thousands) | |
Accounts receivable
|
|
$ |
122,208 |
|
|
$ |
115,080 |
|
Notes receivable due within one year net
|
|
|
9,784 |
|
|
|
6,770 |
|
|
|
|
|
|
|
|
|
|
|
131,992 |
|
|
|
121,850 |
|
Less allowances for collection losses
|
|
|
(8,053 |
) |
|
|
(7,306 |
) |
|
|
|
|
|
|
|
|
|
$ |
123,939 |
|
|
$ |
114,544 |
|
|
|
|
|
|
|
|
F-14
The Microwave Communications Division of Harris Corporation
and Subsidiaries
NOTES TO COMBINED FINANCIAL
STATEMENTS (continued)
The provision for allowance for collection losses amounted to
$4,161 thousand in fiscal 2006, $1,024 thousand in fiscal 2005
and $2,729 thousand in fiscal 2004. These expenses are included
in the Engineering, selling and administrative
expenses caption on the Combined Statements of Operations.
Inventories are summarized below:
|
|
|
|
|
|
|
|
|
|
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
|
(in thousands) | |
Finished products
|
|
$ |
17,111 |
|
|
$ |
15,311 |
|
Work in process
|
|
|
34,385 |
|
|
|
21,243 |
|
Raw materials and supplies
|
|
|
38,646 |
|
|
|
87,353 |
|
|
|
|
|
|
|
|
|
|
|
90,142 |
|
|
|
123,907 |
|
Inventory reserves
|
|
|
(18,284 |
) |
|
|
(32,856 |
) |
|
|
|
|
|
|
|
|
|
$ |
71,858 |
|
|
$ |
91,051 |
|
|
|
|
|
|
|
|
During the second quarter of 2006, we had a $34,907 thousand
write-down of inventory related to product discontinuance.
Plant and equipment are summarized below:
|
|
|
|
|
|
|
|
|
|
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
|
(in thousands) | |
Land
|
|
$ |
585 |
|
|
$ |
1,578 |
|
Buildings
|
|
|
21,947 |
|
|
|
26,003 |
|
Machinery and equipment
|
|
|
91,660 |
|
|
|
109,735 |
|
|
|
|
|
|
|
|
|
|
|
114,192 |
|
|
|
137,316 |
|
Less allowances for depreciation
|
|
|
(62,422 |
) |
|
|
(80,306 |
) |
|
|
|
|
|
|
|
|
|
$ |
51,770 |
|
|
$ |
57,010 |
|
|
|
|
|
|
|
|
Depreciation expense related to plant and equipment was $12,575
thousand, $11,789 thousand and $11,723 thousand in fiscal 2006,
fiscal 2005, and fiscal 2004, respectively.
During 2006, we recognized a gain of $1,844 thousand from the
sale of land and building that is included in the
Engineering, Selling and Administrative Expenses
caption on the Combined Statements of Operations.
|
|
6. |
Goodwill and Other Intangible Assets |
Goodwill for our North America microwave segment was $1,890
thousand at fiscal 2006 and fiscal 2005. Goodwill for our
International microwave segment was $26,370 thousand and $24,210
thousand at
F-15
The Microwave Communications Division of Harris Corporation
and Subsidiaries
NOTES TO COMBINED FINANCIAL
STATEMENTS (continued)
fiscal 2006 and fiscal 2005, respectively. There was no goodwill
in our NetBoss segment. Changes in the carrying amount of
goodwill for the fiscal years ended June 30, 2006 and
July 1, 2005, are as follows:
|
|
|
|
|
|
|
|
|
|
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
|
(in thousands) | |
Balance at beginning of year
|
|
$ |
26,100 |
|
|
$ |
24,472 |
|
Translation adjustments
|
|
|
2,160 |
|
|
|
1,628 |
|
|
|
|
|
|
|
|
|
|
$ |
28,260 |
|
|
$ |
26,100 |
|
|
|
|
|
|
|
|
We have other identifiable intangible assets related primarily
to technology acquired through acquisitions. The unamortized
other identifiable intangible assets, included in
Identifiable intangible assets on our Combined
Balance Sheets, were $6,388 thousand at June 30, 2006 and
$6,225 thousand at July 1, 2005. Accumulated amortization
related to other identifiable intangibles was $6,390 thousand at
June 30, 2006 and $5,151 thousand at July 1, 2005. Our
other identifiable intangible assets are being amortized over
their useful economic lives, which range from 2 to
17 years. The weighted average useful life of our other
identifiable intangible assets is 15.3 years. Amortization
expense related to other identifiable intangible assets was
$1,239 thousand in fiscal 2006, $868 thousand in fiscal 2005 and
$824 thousand in fiscal 2004. The estimated amortization expense
for the five fiscal years following fiscal 2006 is: $1,249
thousand in fiscal 2007, $860 thousand in fiscal 2008, $770
thousand in fiscal 2009, $694 thousand in fiscal 2010, $694
thousand in fiscal 2011, and $2,121 thousand thereafter.
Changes in our warranty liability, which is included as a
component of Other accrued items on the Combined
Balance Sheets, during fiscal 2006 and 2005, are as follows:
|
|
|
|
|
|
|
|
|
|
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
|
(in thousands) | |
Balance as of the beginning of the year
|
|
$ |
3,796 |
|
|
$ |
4,165 |
|
Warranty provision for sales made during the year
|
|
|
3,560 |
|
|
|
3,757 |
|
Settlements made during the year
|
|
|
(3,631 |
) |
|
|
(4,325 |
) |
Other adjustments to the liability including foreign currency
translation during the year
|
|
|
196 |
|
|
|
199 |
|
|
|
|
|
|
|
|
Balance as of the end of the year
|
|
$ |
3,921 |
|
|
$ |
3,796 |
|
|
|
|
|
|
|
|
Short-term debt of $160 thousand at June 30, 2006 and
$1,021 thousand at July 1, 2005 consists solely of notes
payable to banks in both years. The weighted average interest
rate for bank notes was 6.8% at June 30, 2006 and 9.0% at
July 1, 2005.
We have uncommitted short-term lines of credit aggregating
$20,196 thousand from various international banks, $20,036
thousand of which was available on June 30, 2006. These
lines provide for borrowings at various interest rates,
typically may be terminated upon notice, may be used on such
terms as mutually agreed to by the banks and us and are reviewed
annually for renewal or modification.
During fiscal 2006, we recorded $3,691 thousand of restructuring
charges. In order to reduce expenses and increase operational
efficiency, we implemented a restructuring plan in the second
quarter of fiscal 2006 which included moving manufacturing at
our Montreal, Canada location to our San Antonio, Texas
F-16
The Microwave Communications Division of Harris Corporation
and Subsidiaries
NOTES TO COMBINED FINANCIAL
STATEMENTS (continued)
manufacturing plant. As part of the restructuring plan, we
reduced the workforce by 110 employees and recorded
restructuring charges for employee severance benefits of $2,262
thousand and building lease obligations and transition costs of
$1,429 thousand in fiscal 2006. In connection with this
restructuring, we also recorded $1,095 thousand for fixed asset
write-offs.
We did not record any restructuring charges in fiscal 2005.
In fiscal 2004, we recorded $6,742 thousand of restructuring
charges. We reduced the workforce by 95 employees and recorded
restructuring charges for employee severance and benefits of
$5,439 thousand. Additionally, we recorded $685 thousand for the
impairment of two lease obligations and $618 thousand for legal
fees and other costs. In connection with this restructuring, we
also recorded $506 thousand for fixed asset write-offs.
The following table summarizes the activity relating to
restructuring charges for the three years ended June 30,
2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance | |
|
Facilities | |
|
|
|
|
and | |
|
and | |
|
|
|
|
Benefits | |
|
Other | |
|
Total | |
|
|
| |
|
| |
|
| |
|
|
(in thousands) | |
Balance at June 27, 2003
|
|
$ |
1,317 |
|
|
$ |
478 |
|
|
$ |
1,795 |
|
Provision in fiscal 2004
|
|
|
5,439 |
|
|
|
1,303 |
|
|
|
6,742 |
|
Cash payments in fiscal 2004
|
|
|
(1,459 |
) |
|
|
(478 |
) |
|
|
(1,937 |
) |
|
|
|
|
|
|
|
|
|
|
Balance at July 2, 2004
|
|
|
5,297 |
|
|
|
1,303 |
|
|
|
6,600 |
|
Provision in fiscal 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash payments in fiscal 2005
|
|
|
(4,979 |
) |
|
|
(1,303 |
) |
|
|
(6,282 |
) |
|
|
|
|
|
|
|
|
|
|
Balance at July 1, 2005
|
|
|
318 |
|
|
|
|
|
|
|
318 |
|
Provision in fiscal 2006
|
|
|
2,262 |
|
|
|
1,429 |
|
|
|
3,691 |
|
Cash payments in fiscal 2006
|
|
|
(724 |
) |
|
|
(1,123 |
) |
|
|
(1,847 |
) |
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2006
|
|
$ |
1,856 |
|
|
$ |
306 |
|
|
$ |
2,162 |
|
|
|
|
|
|
|
|
|
|
|
|
|
10. |
Stock Options and Share-Based Compensation |
As of June 30, 2006, Harris Corporation had three
shareholder-approved stock incentive plans for employees. Harris
Corporation currently has the following types of share-based
awards outstanding under these plans that MCD employees
participate in: stock options, performance share awards,
performance share unit awards and restricted stock awards. We
believe that such awards more closely align the interests of our
employees with those of our shareholders. Certain share-based
awards provide for accelerated vesting if there is a change in
control (as defined under our stock incentive plans). Shares of
common stock reserved for future awards under our stock
incentive plans were 26,664,427 as of June 30, 2006.
The compensation cost related to our share-based awards that was
charged against income was $1,678 thousand for the year ended
June 30, 2006. There was no income tax benefit included in
net income for share-based compensation arrangements for the
year ended June 30, 2006. The $1,678 thousand of
compensation cost related to share-based compensation
arrangements was included in the Engineering, selling and
administrative expenses captions in the Combined
Statements of Operations. None of the compensation cost related
to share-based compensation arrangements was capitalized as part
of inventory or fixed assets as of June 30, 2006.
The following table illustrates the pro forma effect on net
income (loss) for fiscal 2005 and fiscal 2004 assuming we had
applied the fair value recognition provisions of
Statement 123R to all previously
F-17
The Microwave Communications Division of Harris Corporation
and Subsidiaries
NOTES TO COMBINED FINANCIAL
STATEMENTS (continued)
granted share-based awards after giving consideration to
potential forfeitures during such periods. The fair value of
each option grant is estimated at the grant date using the
Black-Scholes-Merton option-pricing model based on the
assumptions listed below under Stock Options. The
estimated fair value of options granted is amortized to expense
over their vesting period, which is generally three years.
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(in thousands) | |
Net loss, as reported
|
|
$ |
(3,778 |
) |
|
$ |
(20,233 |
) |
The share-based employee compensation cost included in net
income (loss) as reported, net of $0 tax benefit
|
|
|
780 |
|
|
|
161 |
|
Deduct: Total share-based employee compensation expense
determined under the fair value based method for all awards, net
of $0 related tax benefit
|
|
|
(1,154 |
) |
|
|
(739 |
) |
|
|
|
|
|
|
|
Pro forma net loss
|
|
$ |
(4,152 |
) |
|
$ |
(20,811 |
) |
|
|
|
|
|
|
|
The impact of applying the provisions of Statement 123R and
SAB 107 during fiscal 2006 was as follows:
|
|
|
|
|
|
|
2006 | |
|
|
| |
|
|
(in thousands) | |
Net loss, as reported
|
|
$ |
(35,848 |
) |
The share-based employee compensation cost included in net loss
as reported, net of $0 related tax benefit
|
|
|
1,678 |
|
Deduct: Total share-based employee compensation cost determined
under the provisions of APB 25, net of $0 related tax
benefit
|
|
|
(1,604 |
) |
|
|
|
|
Pro forma net loss
|
|
$ |
(35,774 |
) |
|
|
|
|
The following information relates to stock options that have
been granted under our shareholder-approved stock incentive
plans. Option exercise prices are 100% of fair market value on
the date the options are granted. Options may be exercised for a
period set at the time of grant, which generally ranges from
seven to ten years after the date of grant, and they generally
become exercisable in installments, which are typically 50% one
year from the grant date, 25% two years from the grant date and
25% three years from the grant date. A significant number of
options granted by us in both fiscal 2005 and 2006 are subject
to a vesting schedule in which they are 50% exercisable prior to
the end of such fiscal year, a period of approximately ten
months from the grant date.
Management prepared the valuation of stock options based on the
method and assumptions provided herewith. The fair value of each
option award is estimated on the date of grant using the
Black-Scholes-Merton option-pricing model which uses assumptions
noted in the following table. Expected volatility is based on
implied volatility from traded options on our stock, historical
volatility of our stock price over the last ten years and other
factors. The expected term of the options is based on historical
observations of our stock over the past ten years, considering
average years to exercise for all options exercised, average
years to cancellation for all options cancelled and average
years remaining for outstanding options, which is calculated
based on the weighted-average vesting period plus the
weighted-average of the difference
F-18
The Microwave Communications Division of Harris Corporation
and Subsidiaries
NOTES TO COMBINED FINANCIAL
STATEMENTS (continued)
between the vesting period and average years to exercise and
cancellation. The risk-free rate for periods within the
contractual life of the option is based on the
U.S. Treasury curve in effect at the time of grant.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
Expected dividends
|
|
|
0.9 |
% |
|
|
0.7 |
% |
|
|
1.0 |
% |
Expected volatility
|
|
|
36.1 |
% |
|
|
35.2 |
% |
|
|
37.1 |
% |
Risk-free interest rates
|
|
|
4.1 |
% |
|
|
3.0 |
% |
|
|
1.9 |
% |
Expected term (years)
|
|
|
3.35 |
|
|
|
4.00 |
|
|
|
4.00 |
|
A summary of stock option activity under our stock incentive
plans is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
|
|
|
Weighted | |
|
|
|
Weighted | |
|
|
|
Weighted | |
|
|
|
|
Average | |
|
|
|
Average | |
|
|
|
Average | |
|
|
|
|
Exercise | |
|
|
|
Exercise | |
|
|
|
Exercise | |
|
|
Shares | |
|
Price | |
|
Shares | |
|
Price | |
|
Shares | |
|
Price | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Stock options outstanding at the beginning of the year
|
|
|
399,006 |
|
|
$ |
17.88 |
|
|
|
491,084 |
|
|
$ |
15.29 |
|
|
|
713,506 |
|
|
$ |
12.66 |
|
Stock options forfeited or expired
|
|
|
(13,024 |
) |
|
$ |
29.54 |
|
|
|
(48,532 |
) |
|
$ |
15.93 |
|
|
|
(29,396 |
) |
|
$ |
15.87 |
|
Stock options granted
|
|
|
87,500 |
|
|
$ |
37.16 |
|
|
|
96,258 |
|
|
$ |
24.53 |
|
|
|
169,700 |
|
|
$ |
17.70 |
|
Stock options exercised
|
|
|
(79,598 |
) |
|
$ |
16.19 |
|
|
|
(139,804 |
) |
|
$ |
14.03 |
|
|
|
(362,726 |
) |
|
$ |
12.48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options outstanding at the end of the year
|
|
|
393,884 |
|
|
$ |
22.12 |
|
|
|
399,006 |
|
|
$ |
17.88 |
|
|
|
491,084 |
|
|
$ |
15.29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options exercisable at the end of the year
|
|
|
278,440 |
|
|
$ |
20.08 |
|
|
|
265,546 |
|
|
$ |
16.75 |
|
|
|
254,098 |
|
|
$ |
13.67 |
|
The weighted average remaining contractual term for stock
options that were outstanding and exercisable as of
June 30, 2006 was 6.0 years and 5.9 years,
respectively. The aggregate intrinsic value for stock options
that were outstanding or exercisable as of June 30, 2006
was $7,637 thousand and $5,967 thousand, respectively.
The weighted-average grant-date fair value was $10.27 per
share for options granted during fiscal 2006. The total
intrinsic value of options exercised during fiscal 2006 was
$1,438 thousand at the time of exercise.
A summary of the status of our nonvested stock options at
June 30, 2006, and changes during fiscal 2006 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average | |
|
|
|
|
Grant-Date | |
|
|
Shares | |
|
Fair Value | |
|
|
| |
|
| |
Nonvested stock options at July 2, 2005
|
|
|
133,460 |
|
|
$ |
6.11 |
|
Stock options granted
|
|
|
87,500 |
|
|
$ |
10.27 |
|
Stock options vested
|
|
|
(105,516 |
) |
|
$ |
7.84 |
|
|
|
|
|
|
|
|
Nonvested stock options at June 30, 2006
|
|
|
115,444 |
|
|
$ |
7.68 |
|
|
|
|
|
|
|
|
As of June 30, 2006, there was $887 thousand of total
unrecognized compensation cost related to nonvested stock
options granted under our stock incentive plans. This cost is
expected to be recognized over a weighted-average period of
1.5 years. The total fair value of stock options that
vested during fiscal 2006 was approximately $827 thousand.
F-19
The Microwave Communications Division of Harris Corporation
and Subsidiaries
NOTES TO COMBINED FINANCIAL
STATEMENTS (continued)
The following information relates to awards of restricted stock
awards that have been granted to employees under our stock
incentive plans. The restricted stock shares are not
transferable until vested and the restrictions lapse upon the
achievement of continued employment over a specified time period.
The fair value of each restricted stock award grant is based on
the closing price of our stock on the date of grant and is
amortized to expense over its vesting period. At June 30,
2006, there were 40,000 shares of restricted stock awards
outstanding.
A summary of the status of our restricted stock at June 30,
2006, and changes during fiscal 2006 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average | |
|
|
Shares | |
|
Grant Price | |
|
|
| |
|
| |
Restricted stock outstanding at July 2, 2005
|
|
|
34,000 |
|
|
$ |
18.30 |
|
Restricted stock granted
|
|
|
6,000 |
|
|
$ |
37.19 |
|
Restricted stock vested
|
|
|
|
|
|
$ |
|
|
Restricted stock forfeited
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
Restricted stock outstanding at June 30, 2006
|
|
|
40,000 |
|
|
$ |
21.13 |
|
|
|
|
|
|
|
|
As of June 30, 2006, there was $231 thousand of total
unrecognized compensation cost related to restricted stock
awards under our stock incentive plans. This cost is expected to
be recognized over a weighted-average period of 1.7 years.
There were no shares of restricted stock that vested during
fiscal 2006. The weighted-average grant date price of the
6,000 shares of restricted stock granted during fiscal 2006
was $37.19.
The following information relates to awards of performance share
awards and performance share units that have been granted to
employees under our stock incentive plans. Generally,
performance share and performance share unit awards are subject
to performance criteria such as meeting predetermined earnings
and revenue targets for a three-year plan period. These awards
also generally vest at the expiration of the same three-year
period. The final determination of the number of shares to be
issued in respect of an award is determined by our Board of
Directors, or a committee of our Board.
The fair value of each performance share award is based on the
closing price of our stock on the date of grant and is amortized
to expense over its vesting period, if achievement of the
performance measures is considered probable. At June 30,
2006 there were 52,300 performance shares awards outstanding.
The fair value of performance share units, which is distributed
in cash, is equal to the most probable estimate of intrinsic
value at the time of distributions and is amortized to
compensation expense over the vesting period. At June 30,
2006, we had 2,100 shares of performance share units.
F-20
The Microwave Communications Division of Harris Corporation
and Subsidiaries
NOTES TO COMBINED FINANCIAL
STATEMENTS (continued)
A summary of the status of our performance shares at
June 30, 2006, and changes during fiscal 2006, are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average | |
|
|
Shares | |
|
Grant Price | |
|
|
| |
|
| |
Performance shares outstanding at July 2, 2005
|
|
|
37,000 |
|
|
$ |
22.71 |
|
Performance shares granted
|
|
|
20,900 |
|
|
$ |
31.71 |
|
Performance shares vested
|
|
|
|
|
|
$ |
|
|
Performance shares forfeited
|
|
|
(5,600 |
) |
|
$ |
25.01 |
|
|
|
|
|
|
|
|
Performance shares outstanding at June 30, 2006
|
|
|
52,300 |
|
|
$ |
26.06 |
|
|
|
|
|
|
|
|
As of June 30, 2006, there was $593 thousand of total
unrecognized compensation cost related to performance share
awards under our stock incentive plans. This cost is expected to
be recognized over a weighted-average period of 1.8 years.
There were no performance shares that vested during fiscal 2006.
The weighted-average grant date price of the 20,900 performance
shares granted during fiscal 2006 was $31.71.
In fiscal 2006 we issued an aggregate of 79,598 shares
under the terms of our stock incentive plans, which is net of
shares withheld for tax purposes.
Under our domestic retirement plans, most employees may select
an option to invest in Harris common stock at 70% of
current market value limited to the lesser of (a) 1% of
their compensation and (b) 20% of a participants
total contribution to the plan, which is matched by us. The
discount from fair market value on common stock purchased by
employees under the domestic retirement plans is charged to
compensation expense in the period of the related purchase.
|
|
11. |
Research and Development |
Company-sponsored research and product development costs are
expensed as incurred. These costs were $18,865 thousand in
fiscal 2006, $19,183 thousand in fiscal 2005 and $20,760
thousand in fiscal 2004.
Customer-sponsored research and development costs are incurred
pursuant to contractual arrangements and are accounted for
principally by the
percentage-of-completion
method. There was no customer-sponsored research and development
in fiscal 2006, fiscal 2005 or fiscal 2004.
Total interest expense was $975 thousand in fiscal 2006, $966
thousand in fiscal 2005 and $140 thousand in fiscal 2004.
Interest attributable to funds used to finance major long-term
projects can be capitalized as an additional cost of the related
asset. No interest was capitalized in fiscal 2006, fiscal 2005
or fiscal 2004. Interest paid was $971 thousand in fiscal 2006,
$901 thousand in fiscal 2005, and $67 thousand in fiscal
2004.
Total rental expense amounted to $3,977 thousand in fiscal 2006,
$3,931 thousand in fiscal 2005, and $3,866 thousand in fiscal
2004. Future minimum rental commitments under leases with an
initial lease term in excess of one year, primarily for land and
buildings, amounted to approximately $6,554 thousand at
June 30, 2006. These commitments for the years following
fiscal 2006 are: fiscal 2007 $3,649 thousand;
fiscal 2008 $1,896 thousand; fiscal 2009
$987 thousand; and fiscal 2010 $22 thousand.
F-21
The Microwave Communications Division of Harris Corporation
and Subsidiaries
NOTES TO COMBINED FINANCIAL
STATEMENTS (continued)
|
|
14. |
Derivative Instruments and Hedging Activity |
We use foreign exchange contracts and options to hedge both
balance sheet and off-balance sheet future foreign currency
commitments. Generally, these foreign exchange contracts offset
foreign currency denominated inventory and purchase commitments
from suppliers; accounts receivable from, and future committed
sales to, customers; and intercompany loans. We believe the use
of foreign currency financial instruments should reduce the
risks that arise from doing business in international markets.
At June 30, 2006, we had open foreign exchange contracts
with a notional amount of $19,370 thousand, of which $7,130
thousand were classified as cash flow hedges and $12,240
thousand were classified as fair value hedges. This compares to
total foreign exchange contracts with a notional amount of
$34,530 thousand as of July 1, 2005, of which $26,897
thousand were classified as cash flow hedges and $7,633 thousand
were classified as fair value hedges. At June 30, 2006,
contract expiration dates range from less than one month to
11 months with a weighted average contract life of less
than a month.
More specifically, the foreign exchange contracts classified as
cash flow hedges are primarily being used to hedge currency
exposures from anticipated cash flow expenses related to our
Mexican office. As of June 30, 2006, we estimated that a
pre-tax loss of $67 thousand would be reclassified into earnings
from comprehensive income within the next 11 months related
to these cash flow hedges.
The net gain included in our earnings in fiscal 2006, 2005 and
2004 representing the amount of fair value and cash flow
hedges ineffectiveness was not material. No amounts were
recognized in our earnings in fiscal 2006, 2005, and 2004
related to the component of the derivative instruments
gain or loss excluded from the assessment of hedge
effectiveness. In addition, no amounts were recognized in our
earnings in fiscal 2006, 2005 and 2004 related to hedged firm
commitments that no longer qualify as fair value hedges. All of
these derivatives were recorded at their fair value on the
balance sheet in accordance with Statement 133.
The provisions for income taxes are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
|
(in thousands) | |
Current expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States (Federal, State, and Local)
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
International
|
|
|
1,079 |
|
|
|
245 |
|
|
|
86 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,079 |
|
|
|
245 |
|
|
|
86 |
|
|
|
|
|
|
|
|
|
|
|
Deferred expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States (Federal, State, and Local)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International
|
|
|
5,680 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,680 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
6,759 |
|
|
$ |
245 |
|
|
$ |
86 |
|
|
|
|
|
|
|
|
|
|
|
F-22
The Microwave Communications Division of Harris Corporation
and Subsidiaries
NOTES TO COMBINED FINANCIAL
STATEMENTS (continued)
The components of deferred income tax assets
(liabilities) are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
|
Current | |
|
Non-Current | |
|
Current | |
|
Non-Current | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(in thousands) | |
Inventory valuations
|
|
$ |
6,029 |
|
|
$ |
|
|
|
$ |
5,088 |
|
|
$ |
|
|
Accruals
|
|
|
2,650 |
|
|
|
|
|
|
|
2,920 |
|
|
|
|
|
Depreciation
|
|
|
|
|
|
|
726 |
|
|
|
|
|
|
|
(419 |
) |
International research and development expense deferrals
|
|
|
|
|
|
|
17,700 |
|
|
|
|
|
|
|
17,700 |
|
Tax credit carryforwards
|
|
|
|
|
|
|
17,306 |
|
|
|
|
|
|
|
14,754 |
|
Tax loss carryforwards
|
|
|
|
|
|
|
36,159 |
|
|
|
|
|
|
|
28,205 |
|
All other net
|
|
|
(1,771 |
) |
|
|
|
|
|
|
(2,544 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,908 |
|
|
|
71,891 |
|
|
|
5,464 |
|
|
|
60,240 |
|
Valuation allowance
|
|
|
(6,908 |
) |
|
|
(62,275 |
) |
|
|
(5,464 |
) |
|
|
(44,944 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
9,616 |
|
|
$ |
|
|
|
$ |
15,296 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A reconciliation of the statutory United States income tax rate
to the effective income tax rate follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
Statutory U.S. income tax rate
|
|
|
35.0 |
% |
|
|
35.0 |
% |
|
|
35.0 |
% |
U.S. valuation allowances
|
|
|
(35.0 |
) |
|
|
(35.0 |
) |
|
|
(35.0 |
) |
State taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
International income (loss)
|
|
|
(23.2 |
) |
|
|
(6.9 |
) |
|
|
(0.4 |
) |
|
|
|
|
|
|
|
|
|
|
Effective income tax rate
|
|
|
(23.2 |
)% |
|
|
(6.9 |
)% |
|
|
(0.4 |
)% |
|
|
|
|
|
|
|
|
|
|
United States income taxes have not been provided on $1,478
thousand of undistributed earnings of international subsidiaries
because of our intention to indefinitely reinvest these
earnings. The determination of unrecognized deferred
U.S. tax liability for the undistributed earnings of
international subsidiaries is not practicable. Tax loss
carryforwards as of June 30, 2006 have expiration dates
ranging between one year and no expiration in certain instances.
The amount of domestic, international and state and local tax
loss carryforwards as of June 30, 2006 was $103,274
thousand. Pre-tax income (loss) of international subsidiaries
was $(21,463) thousand in fiscal 2006, $11,435 thousand in
fiscal 2005, and $(29,598) thousand in fiscal 2004. Income
taxes paid were $1,079 thousand in fiscal 2006, $245 thousand in
fiscal 2005, and $86 thousand in fiscal 2004. The valuation
allowance increased $18,775 thousand from $50,408 thousand
in fiscal 2005 to $69,183 thousand in fiscal 2006. The valuation
allowance has been established for financial reporting purposes,
to offset certain domestic and foreign deferred tax assets due
to uncertainty regarding our ability to realize them in the
future.
SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information (FAS 131),
established annual and interim reporting standards for an
enterprises operating segments and related disclosures
about geographic information and major customers. Operating
segment information for fiscal 2006, 2005 and 2004 is presented
in accordance with FAS 131. We are organized into three
operating segments, around the markets we serve: North America
microwave region, International microwave region and the NetBoss
product line. Our North America microwave region designs,
manufactures, sells and
F-23
The Microwave Communications Division of Harris Corporation
and Subsidiaries
NOTES TO COMBINED FINANCIAL
STATEMENTS (continued)
services microwave radio products, primarily for cellular
network providers and private network users within North
America. Our International microwave region designs,
manufactures, sells and services microwave radio products,
primarily for cellular network providers and private network
users outside of North America. Our NetBoss product line
develops, designs, produces, sells and services network
management systems, primarily for cellular network providers and
private network users. The President of MCD has been identified
as the Chief Operating Decision-Maker (CODM) as defined by
FAS 131. Resources are allocated to each of these segments
using information based on their operating income (loss).
Information related to assets, capital expenditures and
depreciation and amortization for the operating segments is not
part of the discrete financial information provided to and
reviewed by the CODM.
The accounting policies of our operating segments are the same
as those described in Note 1, Significant Accounting
Policies. We evaluate each segments performance based on
its revenue and operating income (loss),
which we define as cost of goods sold less period costs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
|
(in thousands) | |
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$ |
168,094 |
|
|
$ |
159,829 |
|
|
$ |
154,133 |
|
International
|
|
|
172,313 |
|
|
|
127,221 |
|
|
|
156,251 |
|
NetBoss
|
|
|
17,093 |
|
|
|
23,377 |
|
|
|
19,432 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
357,500 |
|
|
$ |
310,427 |
|
|
$ |
329,816 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006(1) | |
|
2005 | |
|
2004(2) | |
|
|
| |
|
| |
|
| |
|
|
(in thousands) | |
Loss Before Income Taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Operating Income (Loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America microwave
|
|
$ |
16,912 |
|
|
$ |
10,257 |
|
|
$ |
3,628 |
|
|
International microwave
|
|
|
(34,090 |
) |
|
|
(11,938 |
) |
|
|
(17,521 |
) |
|
NetBoss
|
|
|
1,058 |
|
|
|
4,398 |
|
|
|
656 |
|
Corporate allocations expense
|
|
|
(12,425 |
) |
|
|
(6,189 |
) |
|
|
(6,770 |
) |
Net interest expense
|
|
|
(544 |
) |
|
|
(61 |
) |
|
|
(140 |
) |
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
$ |
(29,089 |
) |
|
$ |
(3,533 |
) |
|
$ |
(20,147 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
The operating loss in the International microwave segment in
fiscal 2006 included $39,641 thousand in inventory write-downs
and other charges associated with decisions made in fiscal 2006
regarding product discontinuances and the planned shutdown of
manufacturing activities at our Montreal, Canada plant. |
|
(2) |
North America microwaves operating income and
International microwaves operating loss includes $2,758
thousand and $4,490 thousand, respectively, of expenses related
to cost-reduction measures and fixed asset write downs. |
F-24
The Microwave Communications Division of Harris Corporation
and Subsidiaries
NOTES TO COMBINED FINANCIAL
STATEMENTS (continued)
Revenues for geographic regions comprising more than 5% of our
sales from unaffiliated customers for fiscal 2006, 2005, and
2004 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of | |
|
|
|
% of | |
|
|
|
% of | |
|
|
2006 | |
|
Total | |
|
2005 | |
|
Total | |
|
2004 | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
|
(in thousands) | |
|
|
|
|
United States
|
|
$ |
143,882 |
|
|
|
40.2 |
% |
|
$ |
154,484 |
|
|
|
49.8 |
% |
|
$ |
141,638 |
|
|
|
42.9 |
% |
Canada
|
|
|
29,891 |
|
|
|
8.4 |
% |
|
|
15,475 |
|
|
|
5.0 |
% |
|
|
17,365 |
|
|
|
5.3 |
% |
Nigeria
|
|
|
81,326 |
|
|
|
22.8 |
% |
|
|
36,136 |
|
|
|
11.6 |
% |
|
|
77,457 |
|
|
|
23.5 |
% |
Other
|
|
|
102,401 |
|
|
|
28.6 |
% |
|
|
104,332 |
|
|
|
33.6 |
% |
|
|
93,356 |
|
|
|
28.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
357,500 |
|
|
|
100.0 |
% |
|
$ |
310,427 |
|
|
|
100.0 |
% |
|
$ |
329,816 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We had revenue from a single external customer that exceeded
10.0% of total revenues during fiscal 2006 and fiscal 2004.
During fiscal 2006, the customer was in Nigeria and accounted
for 15.1% of total revenues. During fiscal 2004, the customer
was in Nigeria and accounted for 15.2% of total revenues. There
was no single customer in fiscal 2005 that accounted for more
than 10.0% of total revenues.
Long-lived assets by location at June 30, 2006 and
July 1, 2005 were as follows:
|
|
|
|
|
|
|
|
|
|
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
|
(in thousands) | |
United States
|
|
$ |
48,320 |
|
|
$ |
51,675 |
|
Canada
|
|
|
48,750 |
|
|
|
51,884 |
|
Brazil
|
|
|
4,985 |
|
|
|
5,586 |
|
France
|
|
|
3,798 |
|
|
|
4,257 |
|
Other
|
|
|
2,032 |
|
|
|
3,249 |
|
|
|
|
|
|
|
|
Total
|
|
$ |
107,885 |
|
|
$ |
116,651 |
|
|
|
|
|
|
|
|
From time to time, as a normal incident of the nature and kind
of businesses in which we are engaged, various claims or charges
are asserted and litigation commenced against us arising from or
related to: product liability; personal injury; patents,
trademarks or trade secrets; labor and employee disputes;
commercial or contractual disputes; the sale or use of products
containing asbestos; breach of warranty; or environmental
matters. Claimed amounts may be substantial but may not bear any
reasonable relationship to the merits of the claim or the extent
of any real risk of court or arbitral awards. We have recorded
accruals for losses related to those matters that we consider to
be probable and that can be reasonably estimated. Gain
contingencies, if any, are recognized when they are realized and
legal costs are generally expensed when incurred. While it is
not feasible to predict the outcome of these matters with
certainty, and some lawsuits, claims or proceedings may be
disposed or decided unfavorably to us, based upon available
information, in the opinion of management, settlements and final
judgments, if any, would not have a material adverse effect on
our financial position, results of operations or cash flows.
F-25
The Microwave Communications Division of Harris
Corporation
and Subsidiaries
CONDENSED COMBINED STATEMENTS OF OPERATIONS (unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
|
| |
|
|
September 29, | |
|
September 30, | |
|
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
|
(in thousands) | |
Revenue from product sales and services
|
|
|
|
|
|
|
|
|
Revenue from external product sales and services
|
|
$ |
93,067 |
|
|
$ |
74,895 |
|
Revenue from product sales and services with parent
|
|
|
488 |
|
|
|
429 |
|
|
|
|
|
|
|
|
Total revenue from product sales and services
|
|
|
93,555 |
|
|
|
75,324 |
|
Cost of product sales and services
|
|
|
|
|
|
|
|
|
Cost of external product sales and services
|
|
|
(59,122 |
) |
|
|
(50,854 |
) |
Cost of product sales and services with parent
|
|
|
(2,889 |
) |
|
|
(1,742 |
) |
|
|
|
|
|
|
|
Total cost of product sales and services
|
|
|
(62,011 |
) |
|
|
(52,596 |
) |
Engineering, selling and administrative external expenses
|
|
|
(22,811 |
) |
|
|
(18,134 |
) |
Engineering, selling and administrative expenses with parent
|
|
|
(1,581 |
) |
|
|
(1,406 |
) |
|
|
|
|
|
|
|
Total engineering, selling and administrative expenses
|
|
|
(24,392 |
) |
|
|
(19,540 |
) |
Corporate allocations expense
|
|
|
(1,621 |
) |
|
|
(1,536 |
) |
Interest income
|
|
|
138 |
|
|
|
174 |
|
Interest expense
|
|
|
(130 |
) |
|
|
(161 |
) |
|
|
|
|
|
|
|
Income before income taxes
|
|
|
5,539 |
|
|
|
1,665 |
|
Income tax expense
|
|
|
(408 |
) |
|
|
(268 |
) |
|
|
|
|
|
|
|
Net income
|
|
$ |
5,131 |
|
|
$ |
1,397 |
|
|
|
|
|
|
|
|
See Notes to Condensed Combined Financial Statements (unaudited)
F-26
The Microwave Communications Division of Harris
Corporation
and Subsidiaries
CONDENSED COMBINED BALANCE SHEETS (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
September 29, | |
|
September 30, | |
|
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
|
(in thousands) | |
Assets |
Current Assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
14,386 |
|
|
$ |
6,542 |
|
|
Receivables
|
|
|
123,815 |
|
|
|
117,077 |
|
|
Unbilled costs
|
|
|
22,049 |
|
|
|
23,002 |
|
|
Inventories
|
|
|
76,221 |
|
|
|
92,928 |
|
|
|
|
|
|
|
|
Total Current Assets
|
|
|
236,471 |
|
|
|
239,549 |
|
Other Assets
|
|
|
|
|
|
|
|
|
|
Plant and equipment
|
|
|
49,493 |
|
|
|
52,807 |
|
|
Goodwill
|
|
|
28,285 |
|
|
|
27,030 |
|
|
Identifiable intangible assets
|
|
|
6,078 |
|
|
|
7,047 |
|
|
Non-current notes receivable
|
|
|
5,542 |
|
|
|
5,852 |
|
|
Non-current deferred income taxes
|
|
|
9,616 |
|
|
|
15,296 |
|
|
Other assets
|
|
|
18,428 |
|
|
|
19,737 |
|
|
|
|
|
|
|
|
|
|
|
117,442 |
|
|
|
127,769 |
|
|
|
$ |
353,913 |
|
|
$ |
367,318 |
|
|
|
|
|
|
|
|
|
Liabilities and Division Equity |
Current Liabilities:
|
|
|
|
|
|
|
|
|
|
Short-term debt
|
|
$ |
100 |
|
|
$ |
75 |
|
|
Accounts payable
|
|
|
47,196 |
|
|
|
36,296 |
|
|
Compensation and benefits
|
|
|
11,410 |
|
|
|
9,137 |
|
|
Other accrued items
|
|
|
18,764 |
|
|
|
17,444 |
|
|
Advance payments and unearned income
|
|
|
13,235 |
|
|
|
7,239 |
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
90,705 |
|
|
|
70,191 |
|
Other Liabilities
|
|
|
|
|
|
|
|
|
|
Due to Harris Corporation
|
|
|
3,074 |
|
|
|
6,749 |
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
93,779 |
|
|
|
76,940 |
|
Division Equity:
|
|
|
|
|
|
|
|
|
|
Division equity
|
|
|
261,285 |
|
|
|
298,473 |
|
|
Accumulated other comprehensive loss
|
|
|
(1,151 |
) |
|
|
(8,095 |
) |
|
|
|
|
|
|
|
Total division equity
|
|
|
260,134 |
|
|
|
290,378 |
|
|
|
$ |
353,913 |
|
|
$ |
367,318 |
|
|
|
|
|
|
|
|
See Notes to Condensed Combined Financial Statements (unaudited)
F-27
The Microwave Communications Division of Harris
Corporation
CONDENSED COMBINED STATEMENTS OF CASH FLOWS (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
|
| |
|
|
September 29, | |
|
September 30, | |
|
|
2006 | |
|
2005 | |
|
|
| |
|
| |
Operating Activities
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
5,131 |
|
|
$ |
1,397 |
|
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
3,299 |
|
|
|
1,385 |
|
|
|
Gain on sale of land and building
|
|
|
|
|
|
|
(1,844 |
) |
(Increase) decrease in:
|
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
(1,619 |
) |
|
|
(287 |
) |
|
Unbilled costs and inventories
|
|
|
(907 |
) |
|
|
(7,314 |
) |
Increase (decrease) in:
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
|
(1,250 |
) |
|
|
2,213 |
|
|
Advance payments and unearned income
|
|
|
4,028 |
|
|
|
448 |
|
|
Due to Harris Corporation
|
|
|
(9,568 |
) |
|
|
(7,431 |
) |
|
Other
|
|
|
(96 |
) |
|
|
4,022 |
|
|
|
|
|
|
|
|
Net cash (used in) operating activities
|
|
|
(982 |
) |
|
|
(7,411 |
) |
|
|
|
|
|
|
|
Investing Activities
|
|
|
|
|
|
|
|
|
Proceeds from sale of land and building
|
|
|
|
|
|
|
4,598 |
|
Additions of plant and equipment
|
|
|
(237 |
) |
|
|
(441 |
) |
Additions of capitalized software
|
|
|
(1,117 |
) |
|
|
(910 |
) |
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities
|
|
|
(1,354 |
) |
|
|
3,247 |
|
|
|
|
|
|
|
|
Financing Activities
|
|
|
|
|
|
|
|
|
Decrease in short term debt
|
|
|
(60 |
) |
|
|
(946 |
) |
Net cash and other transfers from Harris Corporation
|
|
|
2,677 |
|
|
|
2,847 |
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
2,617 |
|
|
|
1,901 |
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
271 |
|
|
|
1,002 |
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
552 |
|
|
|
(1,261 |
) |
Cash and cash equivalents, beginning of period
|
|
|
13,834 |
|
|
|
7,803 |
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$ |
14,386 |
|
|
$ |
6,542 |
|
|
|
|
|
|
|
|
See Notes to Condensed Combined Financial Statements (unaudited)
F-28
The Microwave Communications Division of Harris
Corporation
CONDENSED COMBINED STATEMENTS OF COMPREHENSIVE INCOME
(LOSS)
AND DIVISION EQUITY (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other | |
|
|
|
|
|
|
Comprehensive Income | |
|
|
|
|
|
|
(Loss) Net Unrealized | |
|
|
|
|
|
|
Gain (Loss) From | |
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Foreign | |
|
|
|
|
Division | |
|
Hedging | |
|
Currency | |
|
|
|
|
Equity | |
|
Derivatives | |
|
Translation | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(in thousands) | |
Balance at July 1, 2005
|
|
$ |
294,229 |
|
|
$ |
271 |
|
|
$ |
(14,187 |
) |
|
$ |
280,313 |
|
Net income
|
|
|
1,397 |
|
|
|
|
|
|
|
|
|
|
|
1,397 |
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
6,116 |
|
|
|
6,116 |
|
Net unrealized loss on hedging activities, net of $0 tax
|
|
|
|
|
|
|
(295 |
) |
|
|
|
|
|
|
(295 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,218 |
|
Net increase in investment from Harris Corporation
|
|
|
2,847 |
|
|
|
|
|
|
|
|
|
|
|
2,847 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2005
|
|
$ |
298,473 |
|
|
$ |
(24 |
) |
|
$ |
(8,071 |
) |
|
$ |
290,378 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2006
|
|
$ |
253,400 |
|
|
$ |
67 |
|
|
$ |
(1,447 |
) |
|
$ |
252,020 |
|
Net income
|
|
|
5,131 |
|
|
|
|
|
|
|
|
|
|
|
5,131 |
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
267 |
|
|
|
267 |
|
Net unrealized loss on hedging activities, net of $0 tax
|
|
|
|
|
|
|
(38 |
) |
|
|
|
|
|
|
(38 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,360 |
|
Net increase in investment from Harris Corporation
|
|
|
2,754 |
|
|
|
|
|
|
|
|
|
|
|
2,754 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 29, 2006
|
|
$ |
261,285 |
|
|
$ |
29 |
|
|
$ |
(1,180 |
) |
|
$ |
260,134 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Condensed Combined Financial Statements (unaudited)
F-29
The Microwave Communications Division of Harris Corporation
and Subsidiaries
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS
(unaudited)
At September 29, 2006 and September 30, 2005 and
For the Three Months Ended September 29, 2006 and
September 30, 2005
|
|
1. |
Significant Accounting Policies |
Nature of Operations The Microwave
Communications Division of Harris Corporation and Subsidiaries
(MCD or the Company) designs, manufactures and sells a broad
range of microwave radios for use in worldwide wireless
communications networks. Applications include cellular/mobile
infrastructure connectivity; secure data networks; public safety
transport for state, local and Federal government users; and
right-of-way
connectivity for utilities, pipelines, railroads and industrial
companies. In general, wireless networks are constructed using
microwave radios and other equipment to connect cell sites,
fixed-access facilities, switching systems, land mobile radio
systems and other similar systems.
Basis of Presentation The accompanying
combined financial statements include the accounts of the
Aftermarket Business, which consists of the accounts of the
Microwave Communications Division of Harris Corporation and its
subsidiaries. As used in these notes, the terms MCD,
we, our and us refer to the
combined operations of the Microwave Communications Division of
Harris Corporation and its consolidated subsidiaries.
Significant intercompany transactions and accounts have been
eliminated. The combined financial statements are prepared in
conformity with U.S. generally accepted accounting
principles for interim financial information and with the rules
and regulations of the Securities and Exchange Commission.
Accordingly, they do not include all information and footnotes
necessary for a complete presentation of financial position,
results of operations and changes in cash flows in conformity
with U.S. generally accepted accounting principles. In the
opinion of management, such financial statements reflect all
adjustments (consisting only of normal, recurring adjustments)
considered necessary for a fair presentation of financial
position, results of operations and cash flows for such periods.
The results for the quarter ended September 29, 2006 are
not necessarily indicative of the results that may be expected
for the full fiscal year or any subsequent period. The
preparation of financial statements in accordance with
accounting principles generally accepted in the United States
requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those
estimates.
The accompanying historical financial statements are presented
on a carve-out basis and reflect the assets, liabilities,
revenues and expenses that were directly attributable to MCD as
it was operated within Harris Corporation. MCDs combined
statements of operations include all of the related costs of
doing business, including an allocation of certain general
corporate expenses of Harris Corporation, which were in support
of MCD, including costs for finance, legal, treasury,
purchasing, quality, environmental, safety, human resources,
tax, audit and public relations departments and other corporate
and infrastructure costs. MCD was allocated $1,621 thousand and
$1,536 thousand of these overhead costs related to Harris
Corporations shared functions for the first three months
of fiscal 2007 and 2006, respectively. These costs represent
approximately 9.9% and 9.9%, respectively, of the total cost of
these shared services in each of the first three months of
fiscal 2007 and 2006, respectively. These cost allocations were
primarily based on a ratio of MCD sales to total Harris
Corporation sales multiplied by the total Headquarters Expense
of Harris Corporation. Management believes that these
allocations were made on a reasonable basis.
Related Party Transactions Harris Corporation
provides information services, human resources, financial shared
services, facilities, legal support, and supply chain management
services to us. The charges for these services are billed to us
primarily based on actual usage.
These amounts are charged directly to MCD and are not part of
the corporate allocations expense that is included
on the Combined Statements of Operations. The amount charged to
us for these services was $4,470 thousand in the first three
months of fiscal 2007 and $3,148 thousand in the first three
months of fiscal 2006, and is included in the Cost of
product sales and Engineering, selling and
administrative expenses captions on the Combined
Statements of Operations.
F-30
The Microwave Communications Division of Harris Corporation
and Subsidiaries
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS
(unaudited) (continued)
There are other services Harris Corporation provides to us that
are not directly charged to us. These functions and amounts are
explained above under the subtitle Basis of
Presentation. These amounts are included within Due
to Harris Corporation on the Combined Balance Sheets.
Additionally, we have other receivables and payables in the
normal course of business with Harris Corporation. These amounts
are netted within Due to Harris Corporation on the
Combined Balance Sheets. Total receivables from Harris
Corporation were $6,847 thousand and $5,189 thousand at
September 29, 2006 and September 30, 2005,
respectively. Total payables to Harris Corporation were $9,921
thousand and $11,939 thousand at September 29, 2006 and
September 30, 2005, respectively.
Harris Corporation is the primary source of our financing and
equity activities. During the first three months of fiscal 2007,
Harris Corporations net investment in us was increased by
$2,754 thousand. During the first three months of fiscal 2006,
Harris Corporations net investment in us was increased by
$2,847 thousand.
Additionally, we have loans from Harris Corporation to fund our
international entities and we also provide excess cash at
various locations to Harris Corporation. We recognize interest
income and expense on these loans. We recognized interest income
of $100 thousand and $72 thousand in the first three months of
fiscal 2007 and 2006, respectively. We recognized interest
expense of $116 thousand and $99 thousand in the first three
months of fiscal 2007 and 2006, respectively.
We have sales to and purchases from other entities of Harris
Corporation from time to time. These transactions have been
recorded at cost to the buying entity and the selling entity
recognizes a normal profit. Total sales to other entities of
Harris Corporation were $554 thousand and $429 thousand in the
first three months of fiscal 2007 and 2006, respectively. We
recognized profit associated with these related party sales of
$66 thousand and none in the first three months of fiscal 2007
and 2006, respectively. We also recognized costs associated with
these related party purchases of $1,039 thousand and none in the
first three months of fiscal 2007 and 2006, respectively.
|
|
2. |
Accounting Changes or Recent Pronouncements |
In September 2006, the FASB issued Statement of Financial
Accounting Standards No. 157, Fair Value
Measurements (Statement 157).
Statement 157 defines fair value, establishes a framework
for measuring fair value in generally accepted accounting
principles, and expands disclosures about fair value
measurements. Statement 157 applies under other accounting
pronouncements that require fair value measurement in which the
FASB concluded that fair value was the relevant measurement, but
does not require any new fair value measurements.
Statement 157 will be effective for us beginning in fiscal
2009. We are currently evaluating the impact Statement 157
will have on our financial position, results of operations and
cash flows.
In September 2006, the FASB issued Statement of Financial
Accounting Standards No. 158, Employers
Accounting for Defined Benefit Pension and Other Postretirement
Plans (Statement 158), which amends FASB
Statements No. 87, Employers Accounting for
Pensions; No. 88, Employers Accounting
for Settlements and Curtailments of Defined Benefit Pension
Plans and for Termination Benefits; No. 106,
Employers Accounting for Postretirement Benefits
Other Than Pensions; and
No. 132®,
Employers Disclosures about Pension and Other
Postretirement Benefits. Statement 158 requires an
employer to recognize the overfunded or underfunded status of a
defined benefit postretirement plan as an asset or liability in
its statement of financial position and to recognize changes in
that funded status in the year in which the changes occur
through the comprehensive income of a business entity.
Statement 158 also requires an employer to measure the
funded status of a plan as of the date of the employers
year-end balance sheet, with limited exceptions. The portion of
Statement 158 that requires the recognition of overfunded
or underfunded status of a defined benefit postretirement plan
as an asset or liability will be effective for us as of
June 29, 2007. The portion of Statement 158 that
requires an
F-31
The Microwave Communications Division of Harris Corporation
and Subsidiaries
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS
(unaudited) (continued)
employer to measure the funded status of a plan as of the date
of the employers year-end balance sheet will be effective
for us in fiscal 2009. We are currently evaluating the impact
Statement 158 will have on our financial position, results
of operations and cash flows.
In September 2006, the SEC issued Staff Accounting
Bulletin No. 108 Considering the Effects of
Prior Year Misstatements when Quantifying Misstatements in
Current Year Financial Statements
(SAB 108). SAB 108 expresses the
SECs views regarding the process of quantifying
misstatements in financial statements. The view of the SEC is
that the effects of prior year errors in the balance sheet must
be taken into account for the current year income statement
financial reporting. We implemented the provisions of
SAB 108 during the first quarter of fiscal 2007 and it did
not have a material impact on our financial position, results of
operations or cash flows.
Receivables are summarized below:
|
|
|
|
|
|
|
|
|
|
|
September 29, | |
|
September 30, | |
|
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
|
(in thousands) | |
Accounts receivable
|
|
$ |
125,148 |
|
|
$ |
114,918 |
|
Notes receivable due within one year net
|
|
|
6,428 |
|
|
|
8,873 |
|
|
|
|
|
|
|
|
|
|
|
131,576 |
|
|
|
123,791 |
|
Less allowances for collection losses
|
|
|
(7,761 |
) |
|
|
(6,714 |
) |
|
|
|
|
|
|
|
|
|
$ |
123,815 |
|
|
$ |
117,077 |
|
|
|
|
|
|
|
|
Inventories are summarized below:
|
|
|
|
|
|
|
|
|
|
|
September 29, | |
|
September 30, | |
|
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
|
(in thousands) | |
Finished products
|
|
$ |
13,350 |
|
|
$ |
11,061 |
|
Work in process
|
|
|
34,792 |
|
|
|
21,231 |
|
Raw materials and supplies
|
|
|
43,954 |
|
|
|
93,786 |
|
|
|
|
|
|
|
|
|
|
|
92,096 |
|
|
|
126,078 |
|
Inventory reserves
|
|
|
(15,875 |
) |
|
|
(33,150 |
) |
|
|
|
|
|
|
|
|
|
$ |
76,221 |
|
|
$ |
92,928 |
|
|
|
|
|
|
|
|
F-32
The Microwave Communications Division of Harris Corporation
and Subsidiaries
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS
(unaudited) (continued)
Plant and equipment are summarized below:
|
|
|
|
|
|
|
|
|
|
|
September 29, | |
|
September 30, | |
|
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
|
(in thousands) | |
Land
|
|
$ |
585 |
|
|
$ |
585 |
|
Buildings
|
|
|
21,948 |
|
|
|
22,373 |
|
Machinery and equipment
|
|
|
91,390 |
|
|
|
110,986 |
|
|
|
|
|
|
|
|
|
|
|
113,923 |
|
|
|
133,944 |
|
Less allowances for depreciation
|
|
|
(64,430 |
) |
|
|
(81,137 |
) |
|
|
|
|
|
|
|
|
|
$ |
49,493 |
|
|
$ |
52,807 |
|
|
|
|
|
|
|
|
Depreciation expense related to plant and equipment was $2,514
thousand and $633 thousand in the first three months of fiscal
2007 and fiscal 2006, respectively.
During the first three months ended September 30, 2005, we
recognized a gain of $1,844 thousand from the sale of land and
building that is included in the Engineering, Selling and
Administrative Expenses caption on the Condensed Combined
Statements of Operations (unaudited).
Changes in our warranty liability, which is included as a
component of Other accrued items on the Condensed
Combined Balance Sheets (unaudited), during the first three
months of fiscal 2007 and 2006, are as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
|
| |
|
|
September 29, | |
|
September 30, | |
|
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
|
(in thousands) | |
Balance as of the beginning of the period
|
|
$ |
3,921 |
|
|
$ |
3,796 |
|
Warranty provision for sales made during the period
|
|
|
455 |
|
|
|
822 |
|
Settlements made during the period
|
|
|
(498 |
) |
|
|
(816 |
) |
Other adjustments to the liability including foreign currency
translation during the period
|
|
|
|
|
|
|
72 |
|
|
|
|
|
|
|
|
Balance as of the end of the period
|
|
$ |
3,878 |
|
|
$ |
3,874 |
|
|
|
|
|
|
|
|
|
|
7. |
Stock Options and Share-Based Compensation |
As of September 29, 2006, we had three shareholder-approved
stock incentive plans for employees under which options or other
share-based compensation was outstanding, and we had the
following types of share-based awards outstanding under these
plans: stock options, performance share awards, performance
share unit awards, restricted stock awards and restricted stock
unit awards. We believe that such awards more closely align the
interests of our employees with those of our shareholders. The
compensation cost related to our share-based awards that was
charged against pre-tax income was $581 thousand for the quarter
ended September 29, 2006 compared to $453 thousand for the
quarter ended September 30, 2005.
F-33
The Microwave Communications Division of Harris Corporation
and Subsidiaries
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS
(unaudited) (continued)
SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information (FAS 131),
established annual and interim reporting standards for an
enterprises operating segments and related disclosures
about geographic information and major customers. Operating
segment information for the first three months of fiscal 2007
and 2006 is presented in accordance with FAS 131. We are
organized into three operating segments, around the markets we
serve: North America microwave region, International microwave
region and the NetBoss product line. Our North America microwave
region designs, manufactures, sells and services microwave radio
products, primarily for cellular network providers and private
network users within North America. Our International microwave
region designs, manufactures, sells and services microwave radio
products, primarily for cellular network providers and private
network users outside of North America. Our NetBoss product line
develops, designs, produces, sells and services network
management systems, primarily for cellular network providers and
private network users. The President of MCD has been identified
as the Chief Operating Decision-Maker (CODM) as defined by
FAS 131. Resources are allocated to each of these segments
using information based on their operating income (loss).
Information related to assets, capital expenditures and
depreciation and amortization for the operating segments is not
part of the discrete financial information provided to and
reviewed by the CODM.
The accounting policies of our operating segments are the same
as those described in Note 1, Significant Accounting
Policies of our Combined Financial Statements,
beginning on page F-1.
We evaluate each segments performance based on its
revenue and operating income (loss),
which we define as cost of goods sold less period costs.
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
|
| |
|
|
September 29, 2006 | |
|
September 30, 2005 | |
|
|
| |
|
| |
|
|
(in thousands) | |
Revenue
|
|
|
|
|
|
|
|
|
North America
|
|
$ |
49,829 |
|
|
$ |
45,580 |
|
International
|
|
|
39,271 |
|
|
|
25,749 |
|
NetBoss
|
|
|
4,455 |
|
|
|
3,995 |
|
|
|
|
|
|
|
|
|
|
$ |
93,555 |
|
|
$ |
75,324 |
|
|
|
|
|
|
|
|
Income Before Income Taxes
|
|
|
|
|
|
|
|
|
Segment Operating Income (Loss):
|
|
|
|
|
|
|
|
|
|
North America microwave
|
|
$ |
1,912 |
|
|
$ |
6,442 |
|
|
International microwave
|
|
|
4,964 |
|
|
|
(3,311 |
) |
|
NetBoss
|
|
|
276 |
|
|
|
57 |
|
Corporate allocations expense
|
|
|
(1,621 |
) |
|
|
(1,536 |
) |
Net interest income
|
|
|
8 |
|
|
|
13 |
|
|
|
|
|
|
|
|
Income before income taxes
|
|
$ |
5,539 |
|
|
$ |
1,665 |
|
|
|
|
|
|
|
|
F-34
APPENDICES
|
|
|
|
|
Document |
|
Appendix | |
|
|
| |
Form, Contribution and Merger Agreement
|
|
|
A |
|
Form of Voting Agreement
|
|
|
B |
|
Certificate of Incorporation of Harris Stratex Networks,
Inc.
|
|
|
C |
|
Bylaws of Harris Stratex Networks, Inc.
|
|
|
D |
|
Investor Agreement
|
|
|
E |
|
The Non-Competition Agreement
|
|
|
F |
|
Opinion of Bear, Stearns & Co., Inc.
|
|
|
G |
|
APPENDIX A
FORMATION,
CONTRIBUTION AND MERGER AGREEMENT
Between
HARRIS CORPORATION
and
STRATEX NETWORKS, INC.
Dated: September 5, 2006
A-1
TABLE OF CONTENTS
|
|
|
|
|
|
|
|
|
ARTICLE I
Definitions and Terms |
|
|
|
|
1.1.
|
|
Certain Definitions |
|
|
A-5 |
|
1.2. |
|
Additional Definitions |
|
|
A-12 |
|
1.3. |
|
Defined Terms Generally |
|
|
A-14 |
|
|
|
ARTICLE II
Organization of Newco and Merger Sub and Related Corporate
Actions |
|
|
|
|
2.1. |
|
Organization of Newco |
|
|
A-15 |
|
2.2. |
|
Directors and Officers of Newco |
|
|
A-15 |
|
2.3. |
|
Organization of Merger Sub |
|
|
A-15 |
|
2.4. |
|
Actions of Harris and Stratex |
|
|
A-15 |
|
|
|
ARTICLE III
The Contribution Transaction and Merger |
|
|
|
|
3.1.
|
|
The Contribution Transaction |
|
|
A-15 |
|
3.2. |
|
The Merger |
|
|
A-17 |
|
3.3. |
|
Closing |
|
|
A-17 |
|
3.4. |
|
Effective Time |
|
|
A-17 |
|
3.5. |
|
Deliveries by Newco Relating to the Contribution Transaction |
|
|
A-17 |
|
3.6. |
|
Deliveries by Harris Relating to the Contribution Transaction |
|
|
A-18 |
|
3.7. |
|
Nonassignability of Assets |
|
|
A-19 |
|
|
|
ARTICLE IV
Certificate of Incorporation and Bylaws of the Surviving
Corporation |
|
|
|
|
4.1.
|
|
The Certificate of Incorporation |
|
|
A-19 |
|
4.2. |
|
The Bylaws |
|
|
A-19 |
|
|
|
ARTICLE V
Officers and Directors of the Surviving Corporation |
|
|
|
|
5.1.
|
|
Directors |
|
|
A-19 |
|
5.2. |
|
Officers |
|
|
A-19 |
|
|
|
ARTICLE VI
Effect of the Merger on Capital Stock and Equity Awards;
Exchange of Certificates |
|
|
|
|
6.1.
|
|
Effect on Capital Stock of Stratex |
|
|
A-20 |
|
6.2. |
|
Exchange of Certificates |
|
|
A-20 |
|
6.3. |
|
No Dissenters Rights |
|
|
A-22 |
|
6.4. |
|
Treatment of Stratex Stock Plans |
|
|
A-22 |
|
6.5. |
|
Treatment of Warrants |
|
|
A-23 |
|
|
|
ARTICLE VII
Representations and Warranties |
|
|
|
|
7.1.
|
|
Representations and Warranties of Stratex |
|
|
A-24 |
|
7.2. |
|
Representations and Warranties of Harris |
|
|
A-35 |
|
|
|
ARTICLE VIII
Covenants Relating to Interim Operations |
|
|
|
|
8.1.
|
|
Covenants of Stratex |
|
|
A-47 |
|
8.2. |
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Covenants of Harris |
|
|
A-49 |
|
|
|
ARTICLE IX
Additional Agreements |
|
|
|
|
9.1.
|
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Acquisition Proposals |
|
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A-51 |
|
9.2. |
|
Board Recommendation |
|
|
A-53 |
|
9.3. |
|
SEC Filings; Information Supplied; Stratex Stockholders Meeting |
|
|
A-53 |
|
A-2
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|
|
|
|
|
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9.4. |
|
Filings; Other Actions; Notification |
|
|
A-54 |
|
9.5. |
|
Tax Matters |
|
|
A-56 |
|
9.6. |
|
Ancillary Agreements |
|
|
A-57 |
|
9.7. |
|
Restructuring; Harris Intercompany Liabilities |
|
|
A-57 |
|
9.8. |
|
Transfer and Assignment of Excluded Assets by Contributed
Subsidiary |
|
|
A-58 |
|
9.9. |
|
Insurance Proceeds |
|
|
A-58 |
|
9.10. |
|
Listing and De-listing |
|
|
A-58 |
|
9.11. |
|
Governance |
|
|
A-58 |
|
9.12. |
|
Section 16 Matters |
|
|
A-58 |
|
9.13. |
|
Affiliates |
|
|
A-58 |
|
9.14. |
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Access; Financial Reporting |
|
|
A-58 |
|
9.15. |
|
Further Assurances |
|
|
A-59 |
|
9.16. |
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Publicity |
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A-59 |
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9.17. |
|
Expenses |
|
|
A-59 |
|
9.18. |
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Indemnification; Directors and Officers Insurance |
|
|
A-59 |
|
9.19. |
|
Takeover Statute |
|
|
A-61 |
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|
|
ARTICLE X
Conditions |
|
|
|
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10.1.
|
|
Conditions to Harris and Stratexs Obligations to
Effect the Transactions |
|
|
A-61 |
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10.2. |
|
Conditions to Harris Obligation to Effect the Contribution
Transaction |
|
|
A-61 |
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10.3. |
|
Conditions to Stratexs Obligation to Effect the Merger |
|
|
A-62 |
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|
|
ARTICLE XI
Termination |
|
|
|
|
11.1.
|
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Termination |
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|
A-63 |
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11.2. |
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Effect of Termination and Abandonment |
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|
A-64 |
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ARTICLE XII
Survival and Indemnification |
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|
|
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12.1.
|
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No Survival of Representations and Warranties |
|
|
A-65 |
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12.2. |
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Indemnification by Newco |
|
|
A-65 |
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12.3. |
|
Indemnification by Harris |
|
|
A-65 |
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12.4. |
|
Third Party Claims |
|
|
A-66 |
|
12.5. |
|
Tax and Insurance Adjustments |
|
|
A-66 |
|
|
|
ARTICLE XIII
Miscellaneous and General |
|
|
|
|
13.1.
|
|
Survival |
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|
A-66 |
|
13.2. |
|
Modification or Amendment |
|
|
A-67 |
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13.3. |
|
Waiver of Conditions |
|
|
A-67 |
|
13.4. |
|
Counterparts |
|
|
A-67 |
|
13.5. |
|
GOVERNING LAW AND VENUE; WAIVER OF JURY TRIAL |
|
|
A-67 |
|
13.6. |
|
Notices |
|
|
A-68 |
|
13.7. |
|
Entire Agreement |
|
|
A-68 |
|
13.8. |
|
No Third Party Beneficiaries |
|
|
A-68 |
|
13.9. |
|
Obligations of Harris and of Stratex |
|
|
A-69 |
|
13.10. |
|
Severability |
|
|
A-69 |
|
13.11. |
|
Interpretation; Construction |
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|
A-69 |
|
13.12. |
|
Assignment |
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|
A-69 |
|
EXHIBITS
|
|
|
Exhibit 1
|
|
Form of Voting Agreement |
Exhibit 2 |
|
Certificate of Incorporation of Newco |
Exhibit 3 |
|
Bylaws of Newco |
Exhibit 4 |
|
Certificate of Incorporation and Bylaws of Merger Sub |
Exhibit 5 |
|
Investor Agreement |
Exhibit 6 |
|
Non-Competition Agreement |
A-3
|
|
|
Exhibit 7 |
|
Registration Rights Agreement |
Exhibit 8 |
|
Intellectual Property Agreement |
Exhibit 9 |
|
Trademark and Trade Name License Agreement |
Exhibit 10 |
|
Harris Leased Property Agreement |
Exhibit 11 |
|
Transition Services Agreement |
Exhibit 12 |
|
Warrant Assumption Agreement |
Exhibit 13 |
|
Affiliates Letter |
Exhibit 14 |
|
NetBoss Service Agreement |
SCHEDULES
|
|
|
Schedule A
|
|
Consent Certificates relating to Contributed Leases |
Schedule B |
|
Contributed Leases |
Schedule C |
|
Contributed Owned Real Property |
Schedule D |
|
Contributed Subsidiary Real Property |
Schedule E |
|
Excluded Liabilities |
Schedule F |
|
Excluded MCD Business Contracts |
Schedule G |
|
Stratex Persons with Knowledge |
Schedule H |
|
Harris Persons with Knowledge |
Schedule I |
|
MCD Employees |
Schedule J |
|
Initial Directors and Officers of Newco |
Schedule K |
|
Excluded Intellectual Property |
Schedule L |
|
Excluded Leases |
Schedule M |
|
Contributed Insurance Policies and Rights |
Schedule N |
|
Excluded Properties |
Schedule O |
|
Harris Internal Restructuring |
Schedule P |
|
Stratex Required Third Party Consents |
Schedule Q |
|
Harris Required Third Party Consents |
DISCLOSURE LETTERS
Harris Disclosure Letter
|
|
|
Section 7.2(b)
|
|
Subsidiaries |
Section 7.2(d) |
|
Governmental Filings; No Violations; Consents; and Approvals |
Section 7.2(e) |
|
Harris Reports; Financial Statements |
Section 7.2(g) |
|
Absence of Certain Changes |
Section 7.2(h) |
|
Litigation and Liabilities |
Section 7.2(i) |
|
Employee Benefits |
Section 7.2(j) |
|
Compliance with Laws and Regulations; Governmental Authorizations |
Section 7.2(k) |
|
Environmental Matters |
Section 7.2(l) |
|
Taxes |
Section 7.2(m) |
|
Intellectual Property |
Section 7.2(n) |
|
Labor Matters |
Section 7.2(o) |
|
Contracts and Commitments |
Section 7.2(q) |
|
Title to Properties; Encumbrances |
Section 7.2(t) |
|
Brokers and Finders |
Section 8.2(b) |
|
Interim Covenants of Harris |
Stratex Disclosure Letter
|
|
|
Section 7.1(b)
|
|
Capital Structure |
Section 7.1(d) |
|
Governmental Filings; No Violations; Consents; and Approvals |
Section 7.1(e) |
|
Stratex Reports; Financial Statements |
Section 7.1(g) |
|
Absence of Certain Changes |
Section 7.1(h) |
|
Litigation and Liabilities |
Section 7.1(i) |
|
Employee Benefits |
Section 7.1(j) |
|
Compliance with Laws and Regulations; Governmental Authorizations |
Section 7.1(o) |
|
Intellectual Property |
Section 7.1(q) |
|
Contracts and Commitments |
A-4
FORMATION, CONTRIBUTION AND MERGER AGREEMENT
FORMATION, CONTRIBUTION AND MERGER AGREEMENT, dated as of
September 5, 2006 (this Agreement),
between HARRIS CORPORATION, a corporation incorporated in the
State of Delaware (Harris), and STRATEX
NETWORKS, INC., a corporation incorporated in the State of
Delaware (Stratex).
RECITALS
WHEREAS, Harris and Stratex desire to combine Harris
Microwave Communications Division (as defined below) with
Stratex through (i) the formation of Harris Stratex
Networks, Inc., a new holding company that will be incorporated
in the State of Delaware (Newco), and Stratex
Merger Corp., a wholly owned subsidiary of Newco that will also
be incorporated in the State of Delaware (Merger
Sub), (ii) the merger of Merger Sub with and into
Stratex pursuant to which the stockholders of Stratex will
receive Newco shares in exchange for their Stratex shares and
(iii) the contribution to Newco by Harris of the assets and
equity interests collectively comprising Harris Microwave
Communications Division in exchange for Newco shares, in each
case upon the terms and subject to the conditions set forth in
this Agreement;
WHEREAS, for federal income tax purposes, the transactions
outlined above are intended collectively to qualify as a
tax-free transaction under Section 351 of the Internal
Revenue Code of 1986, as amended (the Code);
WHEREAS, for federal income tax purposes, it is intended that
the Merger (as hereinafter defined) shall qualify as a
reorganization described in Section 368(a)(2)(E) of the
Code;
WHEREAS, in order to induce Harris to enter into this Agreement,
concurrently with the execution and delivery of this Agreement,
each of the directors and executive officers of Stratex are
entering into voting agreements with Harris in the form attached
hereto as Exhibit 1 (collectively, the
Voting Agreements);
WHEREAS, it is intended that Harris will be treated as the
acquiring entity for accounting purposes;
WHEREAS, the Boards of Directors of each of Harris and Stratex
have adopted resolutions approving and declaring advisable this
Agreement and the transactions contemplated hereby; and
WHEREAS, Harris and Stratex desire to make certain
representations, warranties, covenants and agreements in
connection with this Agreement and also to prescribe certain
conditions to the transactions contemplated hereby.
NOW, THEREFORE, in consideration of the premises, and of the
representations, warranties, covenants and agreements contained
in this Agreement, the Voting Agreements and the Ancillary
Agreements, the parties hereto agree as follows:
ARTICLE I
Definitions and Terms
1.1. Certain Definitions. As
used in this Agreement, the following terms have the meanings
set forth below:
Affiliate has the meaning assigned to such
term by Rule 405 under the Securities Act.
Ancillary Agreements means, collectively the
agreements set forth in Exhibit 5 through
Exhibit 14 to be entered into at the Closing.
A-5
Assumed Liabilities means all Liabilities of
Harris or any of its Subsidiaries primarily resulting from or
primarily arising out of the conduct of the MCD Business, other
than the Excluded Liabilities; provided, however, that
before applying the foregoing definition all Liabilities of
Harris and/or any of its Subsidiaries which (i) are owed to
third parties, (ii) result from or arise out of goods,
services or facilities used or supplied by the MCD Business and
any other businesses or divisions of Harris and/or any of its
Subsidiaries and (iii) reasonably can be allocated among
the MCD Business and such other businesses and divisions shall
be so allocated to the maximum extent reasonably practicable.
Business Day means any day other than a
Saturday, a Sunday or a day on which banks in The City of New
York are authorized or obligated by Law or executive order to
close.
Confidentiality Agreement means the
Confidentiality Agreement, dated January 26, 2006, between
Harris and Stratex.
Consent Certificates means certificates
evidencing consents of third parties that are required in order
to effectuate a legal transfer or sublease of those Contributed
Leases identified on Schedule A.
Contract means, as to any Person, any
contract, agreement, lease, sublease license, sublicense,
mortgage, note, indenture or other arrangement or obligation
(whether written or oral) which legally binds such Person.
Contributed Accounts Receivable means all
accounts, notes and other receivables of Harris and its
Subsidiaries that arose out of the sale or other disposition of
goods or services of the MCD Business, excluding all Harris
Intercompany Liabilities.
Contributed Books and Records means all
books, ledgers, files, reports, plans, records, manuals and
other materials (in any form or medium) of Harris and its
Subsidiaries which are Related to the MCD Business, and the
information contained therein, excluding any such items whose
transfer to Newco would be prohibited by Law or would subject
Harris or any of its Retained Subsidiaries to any material
Liability (collectively, the Excluded Books and
Records).
Contributed Contracts means all Contracts to
which Harris or any of its Subsidiaries is a party which are
Related to the MCD Business other than this Agreement, the
Ancillary Agreements and the Excluded MCD Business Contracts.
Contributed Fixtures and Equipment means all
furniture, furnishings, vehicles, equipment, supplies,
computers, tools and other tangible personal property (other
than the Contributed Inventory) owned by Harris or any of its
Subsidiaries which are Related to the MCD Business, wherever
located, including any of the foregoing purchased subject to any
conditional sales or title retention agreement in favor of any
other Person.
Contributed Intellectual Property means all
the Intellectual Property owned by Harris and its Subsidiaries
which is Related to the MCD Business including the Intellectual
Property set forth in Section 7.2(m) of the Harris
Disclosure Letter.
Contributed Inventory means all inventory of
Harris and its Subsidiaries, including raw materials, supplies,
work-in-progress and
finished goods, which is Related to the MCD Business, wherever
located.
Contributed Leased Property means all real
property leased or subleased pursuant to a Contributed Lease.
Contributed Leases means any leases or
subleases of real property, fixtures or equipment from third
parties by Harris or any of its Subsidiaries but only to the
extent such leased real property, fixtures or equipment are
Related to the MCD Business, including those set forth on
Schedule B.
Contributed Owned Real Property means the
real property owned by Harris and its Retained Subsidiaries set
forth on Schedule C.
Contributed Subsidiaries means those
Subsidiaries of Harris listed in Section 7.2(b) of the
Harris Disclosure Letter.
A-6
Contributed Subsidiary Real Property means
all real property owned or leased from third parties by the
Contributed Subsidiaries as set forth on Schedule D.
Contribution Transaction means the transfer
of the Contributed Assets by Harris to Newco in exchange for the
Newco Contribution Shares and the assumption by Newco of the
Assumed Liabilities, in each case on the terms and conditions
set forth in this Agreement.
Copyrights has the meaning set forth in the
Intellectual Property definition.
DGCL means the Delaware General Corporation
Law.
Domestic Retained Subsidiary means any
Retained Subsidiary that is a United States person
within the meaning of Section 7701 of the Code.
Encumbrance means any lien, pledge, charge,
claim, encumbrance, security interest, option, mortgage,
easement, or other restriction of any kind, other than any
Permitted Encumbrance.
Environmental Laws means all Laws (including
any common law) relating to: (i) the protection,
investigation or remediation of the environment, (ii) the
handling, use, presence, treatment, storage, disposal,
transport, discharge, emission, release or threatened release of
or exposure to any Hazardous Substance or (iii) employee
exposure, wetlands, natural resources, pollution, contamination
or any injury or threat of injury to persons or property
relating to any Hazardous Substance.
Environmental Liability means any obligations
or liabilities (including any notices, claims, complaints, suits
or other assertions of obligations or liabilities) arising from
or relating to Environmental Laws, Hazardous Substances or the
environment and includes, without limitation: (i) fines,
penalties, judgments, awards, settlements, losses, damages
(including consequential damages), costs, fees (including
attorneys and consultants fees), expenses and
disbursements relating to environmental matters;
(ii) defense and other responses to any administrative or
judicial action (including notices, claims, complaints, suits
and other assertions of liability) relating to environmental
matters; and (iii) responsibility for any investigation,
remediation, monitoring or cleanup costs, injunctive relief,
natural resource damages, and any other environmental compliance
or remedial measures.
ERISA means the Employee Retirement Income
Security Act of 1974.
EU means the European Union.
Exchange Act means the Securities Exchange
Act of 1934.
Excluded Books and Records has the meanings
set forth in the Contributed Books and Records
definition.
Excluded Liabilities means all Liabilities of
Harris and/or its Subsidiaries that (i) would not be
Assumed Liabilities if the definition of such term did not
exclude Excluded Liabilities or (ii) would be Assumed
Liabilities if the definition of such term did not exclude
Excluded Liabilities but which are (A) indebtedness for
borrowed money or any guarantee thereof, (B) debt
securities issued to raise cash or any guarantee thereof,
(C) obligations in respect of pensions or other
post-retirement benefits for MCD Employees accrued with respect
to periods ending on or prior to the Closing Date,
(D) claims for workers compensation by MCD Employees
in respect of injuries incurred on or prior to the Closing Date,
(E) obligations for or related to any options or equity
awards or other similar rights in respect of Harris Common Stock
issued to and held by MCD Employees on the Closing Date,
(F) those Income Taxes for which Harris is liable pursuant
to Section 9.5(a) and (G) listed on
Schedule E.
Excluded MCD Business Contracts means those
Contracts identified on Schedule F.
Foreign Retained Subsidiary means any
Retained Subsidiary that is not a Domestic Retained Subsidiary.
GAAP means U.S. generally accepted
accounting principles.
A-7
Government Antitrust Entity means any
Government Entity with jurisdiction over the enforcement of any
U.S. antitrust Law, EU competition Law or other similar
antitrust or competition Law.
Government Entity means any domestic or
foreign governmental, regulatory or administrative authority,
agency, instrumentality, commission, body, court or other
entity, whether legislative, executive or judicial or otherwise,
and any arbitration panel, arbitrator or other entity with
authority to resolve any dispute.
Governmental Authorizations means,
collectively, (i) all notices, reports, registrations,
applications or other filings to or with a Government Entity,
(ii) all consents, authorizations, approvals, permits,
licenses, clearances, waivers, exemptions, variances,
amendments, expirations and terminations of any waiting period
requirements from or by any Government Entity and (iii) all
other types of actions by any Government Entity.
Hazardous Substance means any hazardous or
toxic substance, material, waste, chemical, pollutant or
contaminant that poses a risk of harm to health and safety or
the environment and is otherwise regulated pursuant to any
Environmental Law including, without limitation, any petroleum
product or by-product, solvent, flammable or explosive material,
radioactive material, medical waste, asbestos, lead paint,
polychlorinated biphenyls (or PCBs), urea formaldehyde,
perchlorate, microbial matter and radon gas.
Harris Common Stock means the common stock,
par value $1.00 per share, of Harris.
Harris Intercompany Liabilities means all
Liabilities of Harris or any of its Subsidiaries (including the
Contributed Subsidiaries) to Harris or any of its Subsidiaries
(including the Contributed Subsidiaries) immediately prior to
the Effective Time other than any Assumed Liabilities owed by
one or more Contributed Subsidiaries to one or more other
Contributed Subsidiaries.
Harris Licensed Intellectual Property means
the Intellectual Property to be licensed to Newco and its
Subsidiaries by Harris or any of its Retained Subsidiaries
pursuant to this Agreement or any Ancillary Agreement.
Harris Material Adverse Effect means
(i) a materially adverse effect on the results of
operations, financial condition, cash flow, assets, liabilities
or business of the MCD Business, taken as a whole, and
(ii) any effect that would prevent, materially delay or
materially impair the ability of Harris to consummate, or Newco
to receive the benefits of, the Contribution Transaction and the
other transactions contemplated by this Agreement; provided,
however, that notwithstanding the foregoing no such effect
resulting from (i) events or conditions (including changes
in economic, financial market, regulatory or political
conditions) that generally affect participants in the industries
in which the MCD Business participates except to the extent that
they adversely affect the MCD Business disproportionately
compared such other participants or (ii) any disruption of
employee, customer, supplier or other similar relationships
primarily as a result of the execution or announcement of this
Agreement and the identity of Stratex shall be considered a
Harris Material Adverse Effect for purposes of this Agreement.
Harris Services means those services to be
provided by Harris or any of its Retained Subsidiaries to Newco
or any of its Subsidiaries pursuant to this Agreement or any
Ancillary Agreement.
HSR Act means the Hart-Scott-Rodino
Antitrust Improvements Act of 1976.
Income Tax means any corporate Tax imposed on
or measured in whole or in part by net income, together with all
interest, penalties and additions imposed with respect to such
Income Tax and any interest in respect of such penalties and
additions.
Income Tax Return means a Tax Return with
respect to an Income Tax.
Indebtedness means (i) all liabilities
for borrowed money, whether current or funded, secured or
unsecured, all obligations evidenced by bonds, debentures, notes
or similar instruments, and all liabilities in respect of
mandatorily redeemable or purchasable capital stock or
securities convertible into capital stock; (ii) all
liabilities for the deferred purchase price of property;
(iii) all liabilities in respect of any lease of (or other
arrangement conveying the right to use) real or personal
property, or a combination thereof,
A-8
which liabilities are required to be classified and accounted
for under GAAP as capital leases; (iv) all liabilities for
the reimbursement of any obligor on any letter of credit,
bankers acceptance or similar credit transaction securing
obligations of a type described in clauses (i),
(ii) or (iii) above to the extent of the obligation
secured; and (v) all liabilities as a guarantor or other
surety of an obligation of a type described in clauses (i),
(ii), (iii) or (iv), to the extent of the obligation
guaranteed or indemnified.
Intellectual Property means, with respect to
any jurisdiction, domestic or foreign: (i) trademarks,
service marks, brand names, certification marks, collective
marks, d/b/as, domain names, logos, symbols, trade dress,
assumed names, fictitious names, trade names, and other indicia
of origin, all applications and registrations and common law
rights for the foregoing, and all goodwill associated therewith
and symbolized thereby, including all renewals of same
(collectively, Trademarks);
(ii) inventions and discoveries, whether patentable or not,
and all patents, registrations, invention disclosures and
applications therefor, including divisions, continuations,
continuations-in-part
and renewal applications, and including renewals, extensions and
reissues (collectively, Patents);
(iii) trade secrets, confidential information and know-how,
including processes, schematics, business methods, formulae,
drawings, prototypes, models, designs, customer lists and
supplier lists (collectively, Trade Secrets);
(iv) published and unpublished works and rights of
authorship, whether copyrightable or not (including without
limitation databases and other compilations of information),
including mask rights and computer software, copyrights therein
and thereto, registrations and applications therefor, and all
renewals, extensions, restorations and reversions thereof
(collectively, Copyrights); and (v) any
other intellectual property or proprietary rights, in each case,
to the extent entitled to legal protection as such.
Investor Agreement means the Ancillary
Agreement to be entered into by Harris and Newco at the Closing
in the form of Exhibit 5 attached hereto.
Knowledge means, when used with respect to
Stratex as to any matter, to the knowledge of any of the
individuals set forth on Schedule G or, when used
with respect to Harris as to any matter, to the knowledge of any
of the individuals set forth on Schedule H;
provided, however, that each such individual shall be
deemed to have knowledge of any matter if such individual or any
employee that directly reports to such individual has actual
knowledge of such matter or of facts or circumstances that would
lead a reasonable person to conclude that it is reasonably
likely that such matter exists.
Law means any federal, state, regional,
provincial, local or foreign law, statute, ordinance, rule,
regulation, judgment, order, injunction, decree, arbitration
award, agency requirement, license or permit of any Government
Entity.
Liabilities means any and all debts,
liabilities, commitments and obligations of any kind, whether
fixed, contingent or absolute, matured or unmatured, liquidated
or unliquidated, accrued or not accrued, asserted or not
asserted, known or unknown, determined, determinable or
otherwise, whenever or however arising and whether or not the
same would be required by GAAP to be reflected in financial
statements or disclosed in the notes thereto.
Losses means any damages, losses, charges,
Liabilities, claims, demands, actions, suits, proceedings,
payments, judgments, settlements, assessments, deficiencies,
taxes, interest, penalties, and costs and expenses (including
removal costs, remediation costs, closure costs, fines,
penalties and expenses of investigation and ongoing monitoring,
reasonable attorneys fees, and reasonable
out-of-pocket
disbursements).
MCD Business means the business as currently
or previously conducted by the Microwave Communications
Division, which includes but is not limited to:
(i) developing, distributing, manufacturing and selling
microwave radios and related services and systems for use in
point-to-point wireless
communications networks and (ii) the NetBoss Business.
MCD Employees means, as of any date, the
individuals employed by Harris or any of its Subsidiaries as of
such date that are (i) primarily engaged in the MCD
Business or (ii) listed on Schedule I as the
same may be amended after the date of this Agreement as agreed
by Harris and Stratex.
A-9
Microwave Communications Division means the
division of Harris which currently conducts the MCD Business and
its predecessors.
Most Recent Balance Sheet means, in the case
of Harris, the audited June 30, 2006 balance sheet of the
MCD Business furnished to Stratex prior to the date of this
Agreement (and identified as such) and, in the case of Stratex,
the balance sheet included in the most recent Stratex Report
filed prior to the date of this Agreement.
NASDAQ means the NASDAQ Global Market.
NetBoss Business means the network operations
software business as currently conducted by the MCD Business and
previously conducted by Harris Network Support division,
which currently offers network management systems that provide
fault management, performance management, service activation,
billing mediation and operational support system integration.
Patents has the meaning set forth in the
Intellectual Property definition.
Permitted Encumbrances means
(i) Encumbrances reflected or reserved against or otherwise
disclosed in the Most Recent Balance Sheet;
(ii) mechanics, materialmens,
warehousemens, carriers, workers, or
repairmens liens or other similar common law or statutory
Encumbrances, in the case of Harris, arising or incurred in the
ordinary course of the MCD Business or, in the case of Stratex,
arising or incurred in the ordinary course of Stratexs
business and that are not material in amount or effect
(individually or in the aggregate) on the MCD Business or
Stratexs businesses, as the case may be; (iii) liens
for Taxes, assessments and other governmental charges not yet
due and payable or due but not delinquent or being contested in
good faith by appropriate proceedings; (iv) with respect to
real property, (A) easements, quasi-easements, licenses,
covenants,
rights-of-way, rights
of reentry or other similar restrictions, including any other
agreements, conditions or restrictions that would be shown by a
current title report or other similar report or listing,
(B) any conditions that may be shown by a current survey or
physical inspection and (C) zoning, building, subdivision
or other similar requirements or restrictions;
(v) Encumbrances, in the case of Harris, incurred in the
ordinary course of the MCD Business and, in the case of Stratex,
incurred in the ordinary course of Stratexs businesses, in
each case since the date of the Most Recent Balance Sheet and
that are not material in amount or effect on the MCD Business or
Stratexs businesses, as the case may be; and
(vi) Encumbrances that do not materially adversely effect
the value or use of the encumbered Property.
Person means any individual, corporation
(including not-for-profit), general or limited partnership,
limited liability company, joint venture, estate, trust,
association, organization, Government Entity or other entity of
any kind or nature.
Property means any interest in any property
or asset, whether real, personal or mixed, whether tangible or
intangible, and any right, however arising, whether or not such
interest or right would be reflected on a balance sheet prepared
in accordance with GAAP.
Registered means issued by, registered with,
renewed by or the subject of a pending application before any
Government Entity or Internet domain name registrar.
Related to the MCD Business means, with
respect to any matter or thing, that such matter or thing is
primarily related to, or used primarily in connection with, the
MCD Business as currently conducted.
Retained Subsidiaries means all Subsidiaries
of Harris other than the Contributed Subsidiaries.
SEC means the United States Securities and
Exchange Commission.
Securities Act means the Securities Act of
1933.
Stratex Board means, at any time, the Board
of Directors of Stratex.
Stratex Common Stock means the common stock,
par value $0.01 per share, of Stratex.
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Stratex Excluded Shares means any shares of
Stratex Common Stock owned by Stratex or any direct or indirect
wholly owned Subsidiary of Stratex not held on behalf of third
parties.
Stratex Material Adverse Effect means
(i) a material adverse effect on the results of operations,
financial condition, cash flow, assets, liabilities or business
of Stratex and its Subsidiaries, taken as a whole, and
(ii) any effect that would prevent, materially delay or
materially impair the ability of Stratex to consummate, or Newco
to receive the benefits of, the Merger and the other
transactions contemplated by this Agreement; provided,
however, that notwithstanding the foregoing no such effect
resulting from (i) events or conditions (including changes
in economic, financial market, regulatory or political
conditions) that generally affect participants in the industries
in which Stratex and its Subsidiaries participate except to the
extent that they adversely affect Stratex and its Subsidiaries
(taken as a whole) disproportionately compared such other
participants or (ii) any disruption of employee, customer,
supplier or other similar relationships primarily as a result of
the execution or announcement of this Agreement and the identity
of Harris shall be considered a Stratex Material Adverse Effect
for purposes of this Agreement.
SOX Act means the Sarbanes-Oxley Act of 2002.
Subsidiary means, with respect to any Person,
(i) any corporation more than 50% of the outstanding Voting
Power of which is owned, directly or indirectly, by such Person,
any of its other Subsidiaries or any combination thereof or
(ii) any Person other than a corporation in which such
Person, any of its other Subsidiaries or any combination thereof
has, directly or indirectly, majority economic ownership or the
power to direct or cause the direction of the policies,
management and affairs thereof; provided, however, that
notwithstanding the foregoing neither Stratex, Newco nor any of
their Subsidiaries shall be deemed to be a Subsidiary of Harris
or any of its other Subsidiaries for purposes of this Agreement.
Tax (including, with correlative meaning, the
terms Taxes, and Taxable)
includes all federal, state, local and foreign income, profits,
franchise, gross receipts, environmental, customs duty, capital
stock, severances, stamp, payroll, sales, employment,
unemployment, disability, use, property, withholding, excise,
production, value added, occupancy and any other taxes, duties,
escheat payments or assessments of any nature whatsoever,
together with all interest, penalties and additions imposed with
respect to such amounts and any interest in respect of such
penalties and additions.
Tax Return means, collectively, all returns,
declarations, reports estimates, information returns and
statements required to be filed with any Government Entity under
federal, state, local or any foreign Tax laws and any returns,
forms or other documents required to be retained by either party
in compliance with applicable Tax reporting and withholding.
Trade Secrets has the meaning set forth in
the Intellectual Property definition.
Trademarks has the meaning set forth in the
Intellectual Property definition.
Transfer Taxes means all federal, state,
local or foreign or other excise, sales, use, value added,
transfer (including real property transfer or gains), stamp,
documentary, filing, recordation and other similar Taxes and
fees that may be imposed or assessed as a result of the
Contribution Transaction and the Merger, together with any
interest, additions or penalties with respect thereto and any
interest in respect of such additions or penalties.
Voting Power means, with respect to any
Person, the total number of votes entitled to be cast generally
in the election of the directors of such Person (or, if such
Person is not a corporation, the individuals who perform a
similar role for such Person) by all Voting Securities of such
Person outstanding at such time.
Voting Securities means, with respect to any
Person, all securities of, or equity interests in, such Person
which are entitled to vote generally in the election of the
directors of such Person (or, if such Person is not a
corporation, the individuals who perform a similar role for such
Person).
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WARN means the Worker Adjustment and
Retraining Notification Act and the California Worker Adjustment
and Retraining Notification Act.
Warrants means the outstanding warrants of
Stratex to purchase an aggregate of shares of 2,581,780 Stratex
Common Stock at an exercise price of $2.95 per share.
1.2. Additional Definitions.
The following terms are defined in the Sections indicated:
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Defined Term: |
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Section: |
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Acquisition Proposal
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9.1 |
Agreement
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PREAMBLE |
Audited Financial Statements
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7.2(e)(ii) |
Bankruptcy and Equity Exception
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7.1(c) |
Bankruptcy Code
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7.1(d)(iv) |
Bear Stearns
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7.1(c)(iii) |
Board Approval
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7.1(c)(ii) |
Board Recommendation
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7.1(c)(ii) |
Bylaws
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4.2 |
Cash Contribution
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3.1 |
Certificate
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6.1(a) |
Certificate of Incorporation
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4.1 |
Certificate of Merger
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3.4 |
Change In Recommendation
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9.1 |
Class A Common Stock
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2.1 |
Class A Merger Shares
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6.2(a) |
Class B Common Stock
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2.1 |
Closing
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3.3 |
Closing Date
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3.3 |
Code
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RECITALS |
Common Stock
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2.1 |
Contributed Assets
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3.1 |
Contributed Insurance Proceeds
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3.1(a)(ix) |
Costs
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9.18 |
Covered Proposal
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11.2(b) |
Current Premium
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9.18(c) |
D&O Indemnified Parties
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9.18 |
D&O Insurance
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9.18(c) |
Effective Time
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3.4 |
Exchange Agent
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6.2(a) |
Exchange Fund
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6.2(a) |
Excluded Assets
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3.1(b) |
Harris
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PREAMBLE |
Harris Audit Date
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7.2(e) |
Harris Certificate
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7.2(a) |
Harris Disclosure Letter
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7.2 |
Harris ERISA Affiliate
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7.2(i)(iii) |
Harris Governing Documents
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7.2(b) |
Harris Governing Instruments
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7.2(a) |
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Defined Term: |
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Section: |
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Harris Indemnified Persons
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12.2 |
Harris IP Contracts
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7.2(m)(ii)(A) |
Harris IP Rights
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7.2(m)(ii)(B) |
Harris Material Contracts
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7.2(o)(ii) |
Harris MCD Budget
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8.2(c) |
Harris Reports
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7.2(e) |
Harris Required Third Party Consents
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10.3(e) |
Harris Restructuring
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9.7 |
Harris Stratex Networks, Inc.
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9.11(c) |
Harris Transactions
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7.2(c) |
Indemnified Party
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12.4 |
Indemnifying Party
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12.4 |
Insiders
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9.12 |
IRS
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7.1(i)(ii) |
Maximum Annual Premium
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9.18(c) |
MCD Employee Benefit Plans
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7.2(i)(i) |
MCD Employee ERISA Plans
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7.2(i)(ii) |
MCD Employee Pension Plan
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7.2(i)(ii) |
MCD Real Property
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7.2(k)(iv) |
Merger
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3.2 |
Merger Consideration
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6.1(a) |
Merger Sub
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RECITALS |
Merger Sub Stock
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2.3 |
Morgan Stanley
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7.2(t) |
Multi-Employer Plan
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7.1(i)(ii) |
Newco
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RECITALS |
Newco Contribution Shares
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3.1(d) |
Newco Governing Instruments
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2.1 |
Newco Governmental Authorizations
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3.1(b)(xiv) |
Newco Indemnified Persons
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12.3 |
Order
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10.1(e) |
PBGC
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7.1(i)(iii) |
Preferred Stock
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2.1 |
Proxy Statement/ Prospectus
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7.1(f) |
Qualifying Acquisition Proposal
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9.1 |
Registration Statement
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7.1(f) |
Representative
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9.1 |
Required Governmental Authorizations
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10.1(c) |
Revised Terms
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9.1(c) |
Rights Agreement
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7.1(b) |
Section 16 Information
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9.12 |
Stratex
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PREAMBLE |
Stratex Audit Date
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7.1(e) |
Stratex Award
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6.4(b) |
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Defined Term: |
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Section: |
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Stratex Benefit Plans
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7.1(i)(i) |
Stratex Budget
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8.1(c) |
Stratex Bylaws
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7.1(a) |
Stratex Certificate
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7.1(a) |
Stratex Disclosure Letter
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7.1 |
Stratex ERISA Affiliate
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7.1(i)(iii) |
Stratex ERISA Plans
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7.1(i)(ii) |
Stratex Governing Instruments
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7.1(a) |
Stratex IP Contracts
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7.1(o)(ii)(A) |
Stratex IP Rights
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7.1(o)(ii)(B) |
Stratex Material Contracts
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7.1(q)(ii) |
Stratex Networks, Inc.
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4.1 |
Stratex Option
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6.4(a) |
Stratex Pension Plan
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7.1(i)(ii) |
Stratex Preferred Stock
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7.1(b) |
Stratex Reports
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7.1(e) |
Stratex Required Third Party Consents
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10.2(e) |
Stratex Requisite Vote
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7.1(c) |
Stratex Stock Plans
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7.1(b) |
Stratex Stockholders Meeting
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9.3(f) |
Stratex Transactions
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7.1(c) |
Superior Proposal
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9.1 |
Surviving Corporation
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3.2 |
Tail Period
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11.2(b) |
Takeover Statute
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7.1(k) |
Termination Date
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11.1(b) |
Termination Fee
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11.2(b) |
Third-Party IP Rights
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7.1(o)(ii)(B) |
Transactions
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2.1 |
Transfer
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3.1 |
Voting Agreements
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RECITALS |
Voting Debt
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7.1(b) |
Warrant Agreement
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6.5 |
1.3. Defined Terms
Generally. The definitions set forth or referred to above
shall apply equally to both the singular and plural forms of the
terms defined. Whenever the context may require, any pronoun
shall include the corresponding masculine, feminine and neuter
forms. The words include, includes and
including shall be deemed to be followed by the
phrase without limitation. All references herein to
Articles, Sections, Exhibits and Schedules shall be deemed to be
references to Articles and Sections of, and Exhibits and
Schedules to, this Agreement unless the context shall otherwise
require. Unless the context shall otherwise require, any
reference to any contract, instrument, statute, rule or
regulation is a reference to it as amended and supplemented from
time to time (and, in the case of a statute, rule or regulation,
to any successor provision). Any reference in this Agreement to
a day or a number of days (without the
explicit qualification of Business) shall be
interpreted as a reference to a calendar day or number of
calendar days.
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ARTICLE II
Organization of Newco and Merger Sub and Related Corporate
Actions
2.1. Organization of Newco.
Prior to the Closing, Harris shall incorporate Newco as a new
corporation under the laws of the State of Delaware for the sole
purpose of effecting the Contribution Transaction, the Merger
and the other transactions contemplated hereby (collectively,
the Transactions). The certificate of
incorporation of Newco shall be in the form of
Exhibit 2 and the bylaws of Newco shall be in the
form of Exhibit 3 (collectively, the Newco
Governing Instruments). Pursuant to the Newco
Governing Instruments, the authorized capital stock of Newco
shall consist solely of shares of Class A Common Stock, par
value $0.01 per share (the Class A Common
Stock), shares of Class B Common Stock, par value
$0.01 per share (the Class B Common
Stock and, collectively with the Class A Common
Stock, the Common Stock), and shares of
preferred stock, par value $0.01 per share (the
Preferred Stock), the number of such shares
to be reasonably determined by Harris and Stratex prior to the
incorporation of Newco. Immediately prior to the Effective Time,
only one share of Newco Class B Common Stock shall be
issued and outstanding (which shall be owned of record by
Harris) and no shares of Class A Common Stock or Preferred
Stock shall be issued or outstanding. The terms of the
Class A Common Stock and the Class B Common Stock
shall be substantially the same in all respects except that the
holders of the Class B Common Stock shall have the
additional right to vote separately as a class to elect the
Harris Directors (as defined in Exhibit 2). If
Harris transfers less than all of the Class B Common Stock
to anyone other than an Affiliate of Harris, then the shares so
transferred shall automatically and without any further action
on the part of any Person convert into an equal number of shares
of Class A Common Stock.
2.2. Directors and Officers of
Newco. Immediately prior to the Effective Time, the
directors and officers of Newco shall be appointed in accordance
with Schedule J.
2.3. Organization of Merger
Sub. Prior to the Closing, Harris shall cause Newco to
incorporate Merger Sub as a new corporation under the laws of
the State of Delaware for the sole purpose of effecting the
Merger. The certificate of incorporation and bylaws of Merger
Sub shall be in the forms attached hereto as
Exhibit 4. Immediately prior to the Effective Time,
the authorized capital stock of Merger Sub shall consist solely
of 100 shares of common stock, par value $0.01 per
share (the Merger Sub Stock) and all of such
shares shall have been issued to Newco for $1.00.
2.4. Actions of Harris and
Stratex. Prior to the Closing, Harris shall take all
necessary action to cause the board of directors of
(i) Newco to approve this Agreement and to authorize its
execution and delivery by Newco and (ii) Merger Sub to
approve, adopt and declare advisable this Agreement and to
authorize its execution and delivery by Merger Sub. Thereafter
and prior to the Closing, Harris and Stratex will take all
necessary action to enter into an amendment of this Agreement to
add Newco and Merger Sub as additional parties to this
Agreement, which shall become effective upon their execution and
delivery of such amendment by all four (4) parties.
ARTICLE III
The Contribution Transaction and Merger
3.1. The Contribution
Transaction.
(a) Contributions. On the
terms and subject to the conditions set forth in this Agreement,
at the Closing Harris shall, or shall cause one or more of its
Retained Subsidiaries to, contribute, convey, transfer, assign
and deliver (collectively, Transfer) to
Newco, and Newco shall accept from Harris or such Retained
Subsidiaries the following Properties (collectively, the
Contributed Assets) free and clear of all
Encumbrances: (i) all the outstanding shares of capital
stock of, or other equity interests in, the Contributed
Subsidiaries, (ii) $25 million in cash (the
Cash Contribution) and (iii) all of the
right, title and interest of Harris and its Retained
Subsidiaries in and to all Properties of Harris and its Retained
Subsidiaries as of the Closing Date which are Related to
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the MCD Business other than the Excluded Assets, including the
following to the extent they exist as of the Closing Date and do
not constitute Excluded Assets:
(i) the Contributed Accounts Receivable;
(ii) the Contributed Books and Records;
(iii) the Contributed Contracts;
(iv) the Contributed Fixtures and Equipment;
(v) the Contributed Intellectual Property;
(vi) the Contributed Inventory;
(vii) the Contributed Leases;
(viii) the Contributed Owned Real Property; and
(ix) any insurance proceeds received by Harris or any of
its Subsidiaries from claims made with respect of events or
circumstances occurring between the date of this Agreement and
the Closing except to the extent that such proceeds were used on
or prior to the Closing to replace or acquire Property Related
to the MCD Business or to satisfy Liabilities that would have
otherwise been Assumed Liabilities (collectively, the
Contributed Insurance Proceeds).
(b) Excluded Assets.
Notwithstanding anything to the contrary in this Agreement,
Harris and its Retained Subsidiaries shall be entitled to retain
or to receive from the Contributed Subsidiaries, whether prior
to or after the Closing, all of the right, title and interest of
Harris and its Subsidiaries in and to the following Properties
as of the Closing Date and none of such Properties shall be
deemed to be a Contributed Asset (collectively, the
Excluded Assets):
(i) all Properties of Harris and its Subsidiaries which are
not Related to the MCD Business;
(ii) all Harris Intercompany Liabilities;
(iii) all Excluded Books and Records;
(iv) all Excluded MCD Business Contracts;
(v) all Intellectual Property of Harris and its
Subsidiaries listed on Schedule K;
(vi) (A) all leases and subleases of real property,
fixtures or equipment from third parties by Harris and its
Subsidiaries other than the Contributed Leases and
(B) those leases and subleases listed on
Schedule L;
(vii) all Tax assets (including duty and tax refunds and
prepayments) of Harris or any of its Retained Subsidiaries;
(viii) all Tax Returns of Harris or any of its Retained
Subsidiaries and all Tax Return workpapers related thereto,
excepting Tax Returns and related workpapers relating primarily
to the MCD Business or the Contributed Assets;
(ix) all rights in connection with, and assets of, the MCD
Employee Benefit Plans;
(x) all insurance policies and rights thereunder other than
those listed on Schedule M;
(xi) all invoices, shipping documents, purchase orders and
other preprinted business forms that have any Trademark thereon
other than those included in the Contributed Intellectual
Property;
(xii) all cash and cash equivalents;
(xiii) all insurance proceeds which Harris or any of its
Subsidiaries have a right to receive unless such proceeds are
Contributed Insurance Proceeds or are reflected in the Audited
Financial Statements;
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(xiv) all Governmental Authorizations of Harris and its
Subsidiaries which (A) are not transferable by their terms
or may not be transferred without the consent, approval,
authorization or waiver of the relevant Government Entity and
(B) are not required by Newco and its Subsidiaries in order
to be able to continue to conduct the MCD Business after the
Closing in all material respects as currently conducted by
Harris and its Subsidiaries (the Newco Governmental
Authorizations); and
(xv) the Properties set forth on Schedule N.
(c) Assumption of
Liabilities. On the terms and subject to the conditions set
forth herein, at the Closing Newco shall assume and agree to
fully discharge or perform when due all the Assumed Liabilities.
Other than the Assumed Liabilities, Newco shall not assume, pay,
perform, be obligated to pay or perform, or otherwise be
responsible for, any Liability of Harris or any of its Retained
Subsidiaries.
(d) Issuance of Common Stock of
Newco. On the terms and subject to the conditions set forth
in this Agreement, at the Closing, Newco shall issue in the name
of Harris or one of its Domestic Retained Subsidiaries the
number of shares of Class B Common Stock which will equal
56% of the total number of shares of Common Stock which will be
outstanding immediately after the Effective Time after giving
effect to such issuance, the issuance of Class A Common
Stock in the Merger and the conversions and changes contemplated
by Section 6.4(a), Section 6.4(b) and
Section 6.5 (and no other options, warrants or other
rights to acquire Common Stock) determined on a fully diluted
basis using the treasury stock method assuming a market price
per share of Class A Common Stock equal to $20.80
(collectively, the Newco Contribution Shares).
3.2. The Merger. On the
terms and subject to the conditions set forth in this Agreement,
at the Effective Time Merger Sub shall be merged with and into
Stratex (the Merger) and the separate
corporate existence of Merger Sub shall thereupon cease. Stratex
shall be the surviving corporation in the Merger (sometimes
hereinafter referred to as the Surviving
Corporation) and the separate corporate existence of
Stratex, with all its rights, privileges, powers and franchises,
shall continue unaffected by the Merger. The Merger shall have
the effects specified in the DGCL.
3.3. Closing. Unless
otherwise agreed in writing by Harris and Stratex, the closing
of the Contribution Transaction and the Merger (the
Closing) shall take place at the offices of
Sullivan & Cromwell LLP, 125 Broad Street, New York,
New York, on the fifth (5th) Business Day following the first
day on which all of the conditions set forth in
ARTICLE X are satisfied or waived in accordance with
this Agreement (other than any such conditions that by their
nature are to be satisfied at the Closing, but subject to the
satisfaction or waiver of those conditions), or at such other
time, date or place as the parties hereto may mutually agree
(the actual date of such Closing, the Closing
Date). The Contribution Transaction and the Merger
shall be consummated simultaneously and none of the steps taken
to consummate either transaction shall be deemed to have been
taken or completed until all such steps have been taken and
completed.
3.4. Effective Time.
Simultaneously with the consummation of the Contribution
Transaction, Newco and Stratex will cause a Certificate of
Merger (the Certificate of Merger) to be
executed, acknowledged and filed with the Secretary of State of
the State of Delaware as provided in Section 251 of the
DGCL. The Merger and the Contribution Transaction shall become
effective at the time when the Certificate of Merger has been
duly filed with the Secretary of State of the State of Delaware
or at such later time as may be agreed by the parties and
specified in the Certificate of Merger (the Effective
Time).
3.5. Deliveries by Newco
Relating to the Contribution Transaction. At the Closing,
Newco shall deliver to Harris the following:
(a) a share certificate or certificates representing the
Newco Contribution Shares registered in the name of Harris
and/or one of its Retained Subsidiaries, as requested by Harris
in writing at least two Business Days prior to the Closing;
A-17
(b) such instruments of assumption and other documents as
may be necessary or reasonably required to effect Newcos
assumption of the Assumed Liabilities and acceptance and
acknowledgement of the Transfer to it of the Contributed Assets,
in each case in form and substance reasonably acceptable to
Harris and Stratex;
(c) a counterpart of each Ancillary Agreement duly executed
by Newco; and
(d) such other customary instruments of Transfer,
assumptions, filings or documents, as may be necessary or
reasonably required to give effect to transactions contemplated
by this Agreement.
3.6. Deliveries by Harris
Relating to the Contribution Transaction. At the Closing,
Harris shall deliver, or cause to be delivered, to Newco the
following:
(a) the Cash Contribution by wire transfer of immediately
available funds to an account or accounts which have been
designated by Newco at least two Business Days prior to the
Closing Date;
(b) such bills of sale or other appropriate documents of
Transfer, as are necessary or reasonably required to Transfer to
Newco the tangible personal property included in the Contributed
Assets, in each case in form and substance reasonably acceptable
to Stratex;
(c) such assignments or other appropriate documents of
Transfer as are necessary or reasonably required to Transfer the
Contributed Intellectual Property to Newco, in each case in form
and substance reasonably acceptable to Stratex;
(d) such assignments or other appropriate documents of
Transfer as are necessary or reasonably required to Transfer the
Contributed Leases to Newco, in each case in form and substance
reasonably acceptable to Stratex;
(e) deeds for the Contributed Owned Real Property, in
customary form for commercial transactions involving similar
real properties and reasonably sufficient to enable Newcos
title insurance company to issue title insurance in respect of
the Contributed Owned Real Property;
(f) certificates for, or other evidences of ownership of,
all of the outstanding shares of capital stock of, or other
equity interests in, the Contributed Subsidiaries which shall be
registered or otherwise issued in the name of Newco or any of
its Subsidiaries, as requested by Newco at least two Business
Days prior to the Closing Date;
(g) the Contributed Books and Records;
(h) such assignments and other documents of Transfer as may
be necessary or reasonably required to Transfer to Newco all of
the Contributed Assets not Transferred pursuant to the foregoing
clauses;
(i) in the case of Contributed Assets transferred by
Harris, by a Domestic Retained Subsidiary, or by a Foreign
Retained Subsidiary that has made a valid election under
Section 897(i) of the Code, a duly executed certification
complying with Treasury Regulations Section 1.144502(b)(2)
that such transferor is not a foreign person; provided
that, in determining the transferor of a Contributed Asset
for purposes of this Section 3.6(i), the Person that
has historically been treated as the owner of such Contributed
Asset for federal income tax purposes shall be deemed to be the
transferor;
(j) a counterpart of each Ancillary Agreement duly executed
by Harris;
(k) reasonable evidence that all Required Governmental
Authorizations required to be obtained or made by Harris or any
of its Subsidiaries and all Harris Required Third Party Consents
shall have been made or obtained;
(l) the Consent Certificates; and
(m) such other customary instruments of Transfer,
assumptions, filings or documents, in form and substance
reasonably satisfactory to Stratex, as may be necessary or
reasonably required to give effect to the transactions
contemplated by this Agreement.
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3.7. Nonassignability of
Assets. If the Closing proceeds without the Transfer of any
Contributed Asset because Harris was not able to make or obtain
any Governmental Authorization other than a Required
Governmental Authorization or any consent, approval,
authorization, license or waiver from a non-Government Entity
other than a Harris Required Third Party Consent, then the
parties shall cooperate with each other and use their
commercially reasonable efforts to obtain such Governmental
Authorization or consent, approval, authorization, license or
waiver and effect such Transfer; provided, however, that
the foregoing shall not be construed to require any party to pay
any consideration therefor other than filing, recordation or
similar fees which shall be paid by Newco. Until such
Governmental Authorization or consent, approval, authorization,
license or waiver is obtained, Newco and Harris shall enter into
such arrangements (including subleasing, sublicensing or
subcontracting) to provide to the parties hereto the economic
(taking into account Tax costs and benefits) and operational
equivalent, to the extent permitted, of effecting such Transfer.
Harris shall hold in trust for and pay to Newco promptly upon
receipt thereof, all income received by Harris or any of its
Subsidiaries in connection with its use of the Contributed
Assets not so Transferred (net of any Taxes), and Newco shall
pay to Harris, promptly upon receipt of any invoice from Harris,
all Losses incurred by Harris or any of its Subsidiaries in
connection with such use.
ARTICLE IV
Certificate of Incorporation and Bylaws
of the Surviving Corporation
4.1. The Certificate of
Incorporation. The certificate of incorporation of Stratex
as in effect immediately prior to the Effective Time shall be
the certificate of incorporation of the Surviving Corporation
(the Certificate of Incorporation), until
duly amended as provided therein or by applicable Law;
provided, however, that at the Effective Time the
Certificate of Incorporation shall be amended so that it is
identical to the certificate of incorporation of Merger Sub
immediately prior to the Effective Time except that the name of
the Surviving Corporation shall be Stratex Networks,
Inc.
4.2. The Bylaws. The parties
hereto shall take all actions necessary so that the bylaws of
Merger Sub in effect immediately prior to the Effective Time
shall be the bylaws of the Surviving Corporation (the
Bylaws), until thereafter amended as provided
therein or by applicable Law.
ARTICLE V
Officers and Directors
of the Surviving Corporation
5.1. Directors. The
directors of Merger Sub at the Effective Time shall be the
directors of the Surviving Corporation from and after the
Effective Time until their successors have been duly elected and
qualified or until their earlier death, resignation or removal
in accordance with the Certificate of Incorporation and the
Bylaws.
5.2. Officers. The officers
of Merger Sub at the Effective Time shall be the officers of the
Surviving Corporation from and after the Effective Time until
their successors have been duly elected and qualified or until
their earlier death, resignation or removal in accordance with
the Certificate of Incorporation and the Bylaws.
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ARTICLE VI
Effect of the Merger on Capital Stock and Equity Awards;
Exchange of Certificates
6.1. Effect on Capital Stock of
Stratex. At the Effective Time, as a result of the Merger
and without any action on the part of Merger Sub, Stratex or any
holder of any capital stock of Stratex:
(a) Merger Consideration. Subject to
Section 6.2(i), each share of Stratex Common Stock
issued and outstanding at the Effective Time, other than Stratex
Excluded Shares, shall be converted into one-fourth of a share
of Class A Common Stock (the Merger
Consideration). At the Effective Time, all shares of
Stratex Common Stock (other than Stratex Excluded Shares) shall
cease to be outstanding, shall be cancelled and retired and
shall cease to exist, and each certificate which prior to the
Effective Time represented any such shares of Stratex Common
Stock (each, a Certificate) shall thereafter
represent the shares of Class A Common Stock into which the
shares of Stratex Common Stock which it formerly represented
were converted by virtue of the Merger and the right, if any, to
receive cash in lieu of fractional shares pursuant to
Section 6.2(i) and dividends or other distributions
with respect to the Class A Common Stock pursuant to the
last sentence of Section 6.2(c) upon surrender of
such Certificate in accordance with Section 6.2.
(b) Cancellation of Stratex Excluded Shares. Each
Stratex Excluded Share issued or outstanding as of the Effective
Time shall be cancelled and retired and shall cease to exist
without payment of any consideration therefor (except to the
extent that such cancellation of any Stratex Excluded Shares
held by Newco, Stratex or any of their respective direct or
indirect wholly owned Subsidiaries would result in
U.S. federal income tax to Newco, Stratex or any of such
Subsidiaries, in which case such Stratex Excluded Shares shall
not be considered Stratex Excluded Shares for any
purpose under this Agreement).
(c) Treatment of Merger Sub Common Stock. Each share
of Merger Sub Stock issued and outstanding at the Effective Time
shall be converted into and become one fully paid and
nonassessable share of common stock, par value $0.01 per
share, of the Surviving Corporation and each certificate which
previously represented any shares of Merger Sub Stock shall
thereafter be deemed to represent the same number of shares of
common stock of the Surviving Corporation.
6.2. Exchange of
Certificates.
(a) Exchange Agent. At the Effective Time, Newco
shall deposit, or shall cause to be deposited, with an exchange
agent selected by Harris with Stratexs prior approval
(such approval not to be unreasonably withheld or delayed) (the
Exchange Agent), for the benefit of the
holders of shares of Stratex Common Stock, one or more
certificates representing the aggregate number of shares of
Class A Common Stock issuable as Merger Consideration
pursuant to the Merger (collectively, the Class A
Merger Shares) and any cash payable in lieu of
fractional shares pursuant to
Section 6.2(i). In addition, from time to time
after the Effective Time, Newco will deposit with the Exchange
Agent any dividends or other distributions with respect to the
Class A Merger Shares to be paid or issued pursuant to the
last sentence of Section 6.2(c) upon due surrender
of the Certificates (or affidavits of loss in lieu thereof as
provided in Section 6.2(h)) pursuant to the
provisions of this ARTICLE VI. The
certificate(s) representing Class A Merger Shares, together
with the amount of cash payable pursuant to
Section 6.2(i) in lieu of fractional shares and
dividends or other distributions deposited with the Exchange
Agent pursuant to this Section 6.2(a), are referred
to as the Exchange Fund.
(b) Exchange Procedures. As soon as reasonably
practicable after the Effective Time, the Surviving Corporation
shall cause the Exchange Agent to mail to each holder of record
of a Certificate (i) a letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and
title to the Certificates shall pass, only upon delivery of the
Certificates to the Exchange Agent and shall be in such form and
have such other provisions acceptable to Harris) and
(ii) instructions for effecting the surrender of the
Certificates in exchange for certificates representing the same
number of Class A Merger Shares and any cash payable in
lieu of fractional shares pursuant to Section 6.2(i)
and any dividends or other
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distributions to be paid or issued pursuant to the last sentence
of Section 6.2(c). Upon surrender of a
Certificate to the Exchange Agent with a duly executed copy of
such letter of transmittal and compliance with all such
instructions, the holder of such Certificate shall be entitled
to receive in exchange therefor (A) one or more
certificates representing the number of Class A Merger
Shares equal to one-fourth of the number of shares of Stratex
Common Stock represented by such Certificate (rounded down to
the next full number of such shares), (B) a check in the
amount (after giving effect to any required tax withholdings as
provided in Section 6.2(g)) of any cash payable in
lieu of fractional shares pursuant to Section 6.2(i)
plus any cash dividends and distributions such holder is
entitled to receive upon such surrender pursuant to
Section 6.2(c), and (C) any non-cash dividends
or distributions such holder is entitled to receive upon such
surrender, and the Certificate so surrendered shall forthwith be
cancelled. No interest will be paid or accrued on any amount
payable upon due surrender of the Certificates. If the issuance
of a certificate representing Class A Merger Shares or any
dividends or distributions is to be made to a Person other than
the Person in whose name the surrendered Certificate is
registered, it shall be a condition precedent to such payment
that (x) the Certificate so surrendered be properly
endorsed or shall be otherwise in proper form for transfer and
(y) the Person requesting such payment shall have
established to the satisfaction of the Surviving Corporation
that all transfer and other Taxes required by reason of the
payment of the Merger Consideration and any dividends or
distributions to a Person other than the registered holder of
the surrendered Certificate have been paid or are not required
to be paid.
(c) Distributions with Respect to Unexchanged Shares;
Voting. (i) All Class A Merger Shares shall be
deemed issued and outstanding as of the Effective Time and
whenever a dividend or other distribution is declared by Newco
in respect of the Class A Common Stock with a record date
at or after the Effective Time, that declaration shall include
dividends or other distributions in respect of all Class A
Merger Shares. No such dividends or other distributions in
respect of the Class A Merger Shares shall be paid to any
holder of any unsurrendered Certificate until such Certificate
is surrendered for exchange in accordance with this
ARTICLE VI. Subject to the effect of applicable
Laws, following surrender of any such Certificate, there shall
be paid and/or issued to the holder of the Class A Merger
Shares issued in exchange therefor, in each case without
interest, (A) at the time of such surrender, the dividends
or other distributions with a record date after the Effective
Time and a payment date prior to the date of such surrender with
respect to such Class A Merger Shares and (B) at the
appropriate payment date, the dividends or other distributions
payable with respect to such Class A Merger Shares with a
record date after the Effective Time but with a payment or
delivery date subsequent to surrender.
(ii) At any meeting of Newcos stockholders after the
Effective Time, holders of unsurrendered Certificates shall be
entitled to vote the number of shares of Class A Merger
Shares represented by such Certificates, regardless of whether
such holders have exchanged their Certificates.
(d) Transfers. From and after the Effective Time,
there shall be no transfers on the stock transfer books of
Stratex of the shares of Stratex Common Stock that were
outstanding immediately prior to the Effective Time.
(e) Termination of Exchange Fund. Any portion of the
Exchange Fund (including the proceeds of any investments thereof
and certificates for any Class A Merger Shares) that
remains unclaimed by the stockholders of Stratex for
180 days after the Effective Time shall be delivered to
Newco. Any holder of Certificates who has not theretofore
complied with this ARTICLE VI shall thereafter
look only to Newco for delivery of the Merger Consideration and
payments of dividends and distributions pursuant to this
ARTICLE VI upon due surrender of their
Certificates in each case without any interest thereon.
Notwithstanding the foregoing, none of Newco, Harris, the
Surviving Corporation, the Exchange Agent or any other Person
shall be liable to any former holder of shares of Stratex Common
Stock for any amount properly delivered to a public official
pursuant to applicable abandoned property, escheat or similar
laws.
(f) Investment of Exchange Fund. The Exchange Agent
shall invest any cash included in the Exchange Fund, as directed
by Newco, on a daily basis. Any interest and other income
resulting from such investments shall be paid to Newco.
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(g) Withholding Rights. Each of the Surviving
Corporation and Newco shall be entitled to deduct and withhold
from any amounts otherwise payable or deliverable pursuant to
this ARTICLE VI to any holder of Certificates such
amounts as it is required to deduct and withhold with respect to
the making of such payment under the Code, or any provision of
Tax Law. To the extent that amounts are so deducted and withheld
by the Surviving Corporation or Newco, as the case may be, such
deducted and withheld amounts shall be treated for all purposes
of this Agreement as having been paid to the holders of shares
of Stratex Common Stock in respect of which such deduction and
withholding was made.
(h) Lost, Stolen or Destroyed Certificates. In the
event any Certificate shall have been lost, stolen or destroyed,
upon the making of an affidavit of that fact by the Person (who
is the record holder of such Certificate) claiming such
Certificate to be lost, stolen or destroyed and, if required by
Newco, the posting by such Person of a bond in customary amount
and upon such terms as may be required by Newco as indemnity
against any claim that may be made against it or the Surviving
Corporation with respect to such Certificate, the Exchange Agent
will issue in exchange for such lost, stolen or destroyed
Certificate, a certificate representing the Class A Merger
Shares and any dividends or other distributions that would be
payable or deliverable in respect thereof pursuant to this
Agreement had such lost, stolen or destroyed Certificate been
surrendered.
(i) Fractional Shares. Notwithstanding any other
provision of this Agreement, no fractional share of Class A
Common Stock will be issued and any holder of Stratex Common
Stock that would be entitled to receive a fractional share of
Class A Common Stock in the absence of this
Section 6.2(i) shall be entitled to receive a
cash payment in lieu thereof, which payment shall be calculated
by the Exchange Agent and shall represent such holders
proportionate interest in a share of Class A Common Stock
assuming the price of such a share was equal to four (4)
times the average of the closing prices per share of
Stratex Common Stock on NASDAQ for the five (5) trading
days ending on the last trading day prior to the Closing Date.
6.3. No Dissenters
Rights. In accordance with Section 262 of the DGCL, no
appraisal rights shall be available to holders of Stratex Common
Stock in connection with the Merger or the other Transactions.
6.4. Treatment of Stratex Stock
Plans.
(a) Treatment of Options. At the Effective Time,
each outstanding option to purchase shares of Stratex Common
Stock (a Stratex Option) under the Stratex
Stock Plans, whether vested or unvested, shall be converted into
an option to acquire that number of shares of Class A
Common Stock equal to one-fourth of the number of shares of
Stratex Common Stock issuable upon exercise of such Stratex
Option immediately prior to such conversion at an exercise price
per share equal to four (4) times the exercise price per
share of Stratex Common Stock immediately prior to such
conversion; provided, however, that the exercise price
and the number of shares of Class A Common Stock
purchasable pursuant to the Stratex Options shall be determined
in a manner consistent with the requirements of
Section 409A of the Code; provided, further, that in
the case of any Stratex Option to which Section 422 of the
Code applies, the exercise price and the number of shares of
Class A Common Stock purchasable pursuant to such option
shall be determined in accordance with the foregoing, subject to
such adjustments as are necessary in order to satisfy the
requirements of Section 424(a) of the Code. Except as
specifically provided above, following the Effective Time, each
Stratex Option shall continue to be governed by the same terms
and conditions as were applicable under such Stratex Option
immediately prior to the Effective Time.
(b) Stratex Awards. At the Effective Time, each
right of any kind, contingent or accrued, to acquire or receive
shares of Stratex Common Stock or benefits measured by the value
of shares of Stratex Common Stock and each award of any kind
consisting of shares of Stratex Common Stock that may be held,
awarded, outstanding, payable or reserved for issuance under the
Stratex Stock Plans and any other Stratex Benefits Plan, in each
case other than Stratex Options (each, a Stratex
Award), shall be converted into the right to acquire,
or the right to receive benefits measured by the value of, the
number of shares of Class A Common Stock equal to
one-fourth of the number of shares of Stratex Common Stock
underlying such Stratex Award (rounded down to the nearest whole
number) immediately prior to
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such conversion, and if such Stratex Award determines such
rights by reference to the extent the value of the shares of
Stratex Common Stock exceed a specified reference price, at a
reference price per share of Class A Common Stock (rounded
up to the nearest whole cent) equal to four (4) times the
reference price per share of Stratex Common Stock. Except as
specifically provided above, following the Effective Time, each
Stratex Award shall otherwise be subject to the same terms and
conditions as were applicable to the rights under the relevant
Stratex Stock Plan or other Stratex Benefit Plan immediately
prior to the Effective Time.
(c) Registration. If, in connection with the
satisfaction of the obligations set forth in
Section 6.4(a) and Section 6.4(b),
registration of any interests in the Stratex Stock Plans or
other Stratex Benefit Plans or the shares of Class A Common
Stock issuable pursuant to Section 6.4(a) or
Section 6.4(b) is required under the Securities Act,
Newco shall file with the SEC as promptly as practicable after
the Effective Time a registration statement on
Form S-8 with
respect to such interests or Class A Common Stock, and
shall use its reasonable best efforts to maintain the
effectiveness of such registration statement for so long as the
Stratex Stock Plans or other Stratex Benefit Plans, as
applicable, remain in effect and such registration of interests
therein or the shares of Class A Common Stock issuable
thereunder continues to be required. As soon as practicable
after the registration of such interests or shares, as
applicable, Newco shall deliver to the holders of Stratex
Options and Stratex Awards appropriate notices setting forth
such holders rights pursuant to the respective Stratex
Stock Plans and agreements evidencing the grants of such Stratex
Options and Stratex Awards, and stating that such Stratex
Options and Stratex Awards and agreements have been assumed by
Newco and shall continue in effect on the same terms and
conditions (subject to the adjustments required by this
Section 6.4(c) after giving effect to the Merger and
the terms of the Stratex Stock Plans).
(d) Corporate Actions. At or prior to the Effective
Time, (i) Stratex, the Stratex Board and the compensation
committee of the Stratex Board, as applicable, shall adopt all
resolutions and take all actions which are necessary to
implement the provisions of Section 6.4(a) and
Section 6.4(b) and (ii) Newco shall take all
actions which are necessary to assume and perform the Stratex
Options and Stratex Awards converted pursuant to
Section 6.4(a) and Section 6.4(b)
including the reservation, issuance (subject to
Section 6.4(c)) and listing of Class A Common
Stock as necessary to effect the transactions contemplated by
this Section 6.4. Stratex shall take all actions
necessary to ensure that from and after the Effective Time
neither Newco nor the Surviving Corporation will be required to
deliver shares of Stratex Common Stock or other capital stock of
Stratex to any Person pursuant to or in settlement of Stratex
Options or Stratex Awards.
6.5. Treatment of Warrants.
At the Effective Time, pursuant to the terms and subject to the
conditions contained in the Purchase Agreement, dated as of
September 21, 2004 (the Warrant
Agreement), between Stratex and those Persons
identified on Schedule I to the Warrant Agreement,
each Warrant shall automatically become exercisable for that
number of shares of Class A Common Stock equal to
one-fourth of the number of shares of Stratex Common Stock
issuable upon exercise of such Warrant immediately prior to the
Effective Time at an exercise price per share of Class A
Common Stock equal to four (4) times the exercise price
of such Warrant per share of Stratex Common Stock immediately
prior to the Effective Time. Concurrently with the Effective
Time, Newco shall assume the obligation to deliver shares of
Class A Common Stock to those Persons who are the record
holders of the Warrants by entering into the Warrant Assumption
Agreement, to be dated as of the Closing Date, in the form
attached hereto as Exhibit 12 providing for certain
adjustments to the Warrants as specified in, and as required by,
the Warrant Agreement.
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ARTICLE VII
Representations and Warranties
7.1. Representations and
Warranties of Stratex. Except as set forth in the disclosure
letter (subject to Section 13.11(c)) delivered to
Harris by Stratex prior to entering into this Agreement and
identified as such (the Stratex Disclosure
Letter), Stratex hereby represents and warrants to
Harris that:
(a) Organization, Good Standing and Qualification.
Each of Stratex and each of its Subsidiaries is a corporation or
other legal entity duly organized, validly existing and in good
standing under the Laws of its respective jurisdiction of
organization (to the extent the good standing
concept is applicable in the case of any jurisdiction outside
the United States) and has all requisite corporate or other
legal entity power and authority to own and operate its
properties and assets and to carry on its business as presently
conducted and is qualified to do business and is in good
standing as a foreign corporation or other legal entity in each
jurisdiction where such ownership, operation or conduct requires
such qualification (to the extent the good standing
concept is applicable in the case of any jurisdiction outside
the United States), except for any such failures to be so
organized, qualified or in good standing or to have such power
or authority that, individually or in the aggregate, would not
reasonably be expected to result in a Stratex Material Adverse
Effect. Stratex has made available to Harris a complete and
correct copy of the certificate of incorporation and bylaws (or
other comparable governing instruments) of Stratex and each of
its Subsidiaries, each as amended to the date of this Agreement,
and each certificate of incorporation or bylaws (or other
comparable governing instruments) so delivered is in full force
and effect. Stratex is in compliance with the terms of its
certificate of incorporation as amended through the date of this
Agreement (the Stratex Certificate) and its
bylaws as amended through the date of this Agreement (the
Stratex Bylaws and, collectively with the
Stratex Certificate, the Stratex Governing
Instruments).
(b) Capital Structure. The authorized capital stock
of Stratex consists solely of 150,000,000 shares of Stratex
Common Stock, of which 97,690,241 shares were issued and
outstanding as of the close of business on September 1,
2006, and 5,000,000 shares of preferred stock of Stratex,
par value $0.01 per share (Stratex Preferred
Stock), of which no shares were issued or outstanding
as of the date of this Agreement. Since September 1, 2006,
Stratex has not issued any shares of Stratex Common Stock. All
of the outstanding shares of Stratex Common Stock have been duly
authorized and validly issued and are fully paid and
nonassessable. Stratex has no shares of Stratex Common Stock or
Stratex Preferred Stock reserved for issuance other than
(i) 15,530,000 shares of Stratex Common Stock reserved
for issuance pursuant to those plans of Stratex identified in
Section 7.1(b) of the Stratex Disclosure Letter (the
Stratex Stock Plans),
(ii) 200,000 shares of Stratex Preferred Stock
reserved for issuance pursuant to the Amended and Restated
Rights Agreement, dated as of November 3, 1998 (the
Rights Agreement) between Stratex and Mellon
Shareholder Services, LLC (formerly ChaseMellon Shareholder
Services, LLC), and (iii) 2,581,780 shares of Stratex
Common Stock reserved for issuance upon the exercise of warrants
for shares of Stratex Common Stock with an exercise price of
$2.95 per share. The Rights Agreement has expired and no
longer has any legal force or effect, and Stratex has not
entered into or adopted or implemented any other shareholder
rights or similar plan. Section 7.1(b) of the Stratex
Disclosure Letter contains a correct and complete list of
each outstanding option, restricted stock grant or other right
under the Stratex Stock Plans, including the holder, date of
grant, term, number of shares of Stratex Common Stock and, where
applicable, exercise price and vesting schedule, as well as
whether the vesting will be accelerated by the execution of this
Agreement or consummation of the Transactions or by termination
of employment or change of position following consummation of
the Merger. Each of the outstanding shares of capital stock of,
or other equity interest in, each of Stratexs Subsidiaries
is duly authorized, validly issued, fully paid and nonassessable
and is owned by Stratex or by a direct or indirect wholly owned
Subsidiary of Stratex, free and clear of any Encumbrance. Except
as described above in this Section 7.1(b), there are
no preemptive or other options, warrants, rights, conversion
rights, convertible or exchangeable securities,
phantom stock rights, stock appreciation rights,
redemption rights, repurchase rights, calls, stock-based
performance units, commitments, Contracts, agreements,
arrangements or undertakings of any kind to which Stratex or any
of its Subsidiaries is a party or by which any of them is
A-24
bound (i) obligating Stratex or any such Subsidiary to
issue, deliver or sell, or cause to be issued, delivered or
sold, shares of capital stock or other equity interests in, or
any security convertible into, or exercisable or exchangeable
for, any capital stock of or other equity interest in, Stratex
or any of its Subsidiaries or any Voting Debt,
(ii) obligating Stratex or any such Subsidiary to issue,
grant, extend or enter into any such option, warrant, call,
right, security, commitment, Contract, arrangement or
undertaking or (iii) that give any Person the right to
receive any economic benefit or right similar to or derived from
the economic benefits and rights occurring to holders of shares
of capital stock of, or other equity interests in, or any
security convertible into, or exercisable or exchangeable for,
any capital stock of, or other equity interest in, Stratex or
any of its Subsidiaries or any Voting Debt, and no such
obligations, instruments or securities are authorized, issued or
outstanding. There are no voting trusts or other arrangements or
understandings to which Stratex or any of its Subsidiaries is a
party with respect to the voting, the dividend rights or
disposition of any capital stock of, or other equity interest
in, Stratex or any of its Subsidiaries. Stratex does not have
outstanding any bonds, debentures, notes or other obligations
the holders of which have the right to vote (or are convertible
into or exercisable for securities having the right to vote)
with the stockholders of Stratex on any matter (Voting
Debt). Each Stratex Option (i) was granted in
compliance with all applicable Laws and all of the terms and
conditions of the Stratex Stock Plan pursuant to which it was
issued, (ii) has an exercise price per share of Stratex
Common Stock equal to or greater than the fair market value of a
share of Stratex Common Stock on the date of such grant,
(iii) has a grant date identical to the date on which the
Stratex Board or its compensation committee actually awarded
such Stratex Option and (iv) qualifies for the tax and
accounting treatment afforded to such Stratex Option in
Stratexs tax returns and the financial statements included
in the Stratex Reports, respectively. Stratex does not own,
directly or indirectly, any voting interest that may require a
filing by Newco, Harris or any of their Subsidiaries under the
HSR Act. Exhibit 21.1 to Stratexs Annual Report on
Form 10-K for the
fiscal year ended March 31, 2006, sets forth all of the
Subsidiaries of Stratex as of the date of this Agreement.
(c) Corporate Authority; Approval and Fairness.
(i) Stratex has all requisite corporate power and authority
and has taken all corporate action necessary in order to
execute, deliver and perform its obligations under this
Agreement and to consummate the Merger and the other
Transactions to which it is a party (collectively, the
Stratex Transactions), in each case subject
only to adoption of this Agreement by the affirmative vote of
the holders of a majority of the outstanding shares of Stratex
Common Stock (the Stratex Requisite Vote).
This Agreement is a valid and legally binding obligation of
Stratex enforceable against Stratex in accordance with its
terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors rights
and to general equity principles (the Bankruptcy and
Equity Exception).
(ii) At a meeting duly called and held prior to execution
of this Agreement, the Stratex Board unanimously adopted
resolutions (A) approving, adopting and declaring advisable
this Agreement and the Transactions and determining that the
terms of the Transactions are fair to, and in the best interests
of, Stratex and the holders of Stratex Common Stock
(collectively, the Board Approval) and
(B) recommending that the holders of Stratex Common Stock
vote to adopt this Agreement (the Board
Recommendation). Such resolutions are sufficient to
cause Section 203 of the DGCL not to apply to any of
Harris, Newco or Merger Sub with respect to any of the
Transactions or any other transaction following the Closing.
(iii) The Stratex Board has received the written opinion of
its financial advisor, Bear, Stearns & Co. Inc.
(Bear Stearns), dated as of the date of this
Agreement, to the effect that, on the basis of and subject to
the matters set forth therein and assuming the simultaneous
consummation of the Contribution Transaction, as of such date
the exchange of one share of Class A Common Stock for four
(4) outstanding shares of Stratex Common Stock in the
Merger is fair, from a financial point of view, to the holders
of Stratex Common Stock. A signed copy of such opinion has been
delivered to Harris.
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(d) Governmental Filings; No Violations; Consents; and
Approvals.
(i) Other than the filings or notices (A) pursuant to
Section 2.1, Section 2.3 and
Section 3.4, (B) required under the HSR Act or
(C) required to be made under the Exchange Act or with
NASDAQ, no Governmental Authorizations are required to be
obtained or made by Stratex or any of its Subsidiaries in
connection with the execution, delivery and performance of this
Agreement by Stratex or the consummation by Stratex of the
Stratex Transactions.
(ii) The execution, delivery and performance by Stratex of
this Agreement do not, and the consummation by Stratex of the
Stratex Transactions do not and will not, constitute or result
in (A) a breach or violation of, or a default under, the
Stratex Governing Documents or the comparable governing
instruments of any of its Subsidiaries, (B) a breach or
violation of, a termination (or right of termination) or a
default under or the acceleration of any obligations or the
creation of any Encumbrance on the assets of Stratex or any of
its Subsidiaries (with or without notice, lapse of time or both)
pursuant to, any Contract binding upon Stratex or any of its
Subsidiaries or, assuming that the necessary consents, approvals
and filings referred to in clauses (A) through
(C) of Section 7.1(d)(i) are duly obtained
and/or made, any Laws, Governmental Authorizations or non
governmental permit or license to which Stratex or any of its
Subsidiaries is subject or (C) any change in the rights or
obligations of any party under any such Contracts, Governmental
Authorizations, permits or licenses, except, in the case of the
foregoing clauses (B) or (C) only, for any
breach, violation, termination, default, acceleration, change or
creation that, individually or in the aggregate, would not
reasonably be expected to result in a Stratex Material Adverse
Effect. Section 7.1(d) of the Stratex Disclosure
Letter sets forth a correct and complete list of Stratex
Material Contracts pursuant to which consents or waivers are or
may be required prior to consummation of the Transactions
(whether or not subject to the exception set forth with respect
to clauses (B) and (C) above).
(iii) Without limiting the generality of clause (ii)
above, neither the execution, delivery or performance of this
Agreement by Stratex nor the consummation by Stratex of the
Stratex Transactions will require the receipt of any consent
pursuant to, or give rise to any right of termination under, any
of the Stratex Material Contracts except for any such consents
and any such termination rights which, individually or in the
aggregate, would not reasonably be expected to have a Stratex
Material Adverse Effect if not obtained (in the case of such
consents) or if exercised (in the case of such termination
rights).
(iv) Section 7.1(d) of the Stratex Disclosure
Letter sets forth a correct and complete list of all
material claims held by Stratex or any of its Subsidiaries, as
creditors or claimants, with respect to debtors or
debtors-in-possession
subject to proceedings under Chapter 11 of Title 11 of
the United States Code (the Bankruptcy Code),
together with a correct and complete list of all orders entered
by the applicable United States Bankruptcy Court with respect to
each such proceeding. None of such orders, individually or in
the aggregate, would reasonably be expected to result in a
Stratex Material Adverse Effect.
(e) Stratex Reports; Financial Statements.
(i) Stratex has made available to Harris each registration
statement, report, form, proxy or information statement or other
document filed or furnished by Stratex or any of its
Subsidiaries with or to the SEC since March 31, 2006 (the
Stratex Audit Date), including Stratexs
Annual Report on
Form 10-K for the
year ended March 31, 2006, each in the form (including
exhibits, annexes and any amendments thereto) filed with the SEC
(collectively with each other, any such registration statements,
reports, forms, proxy or information statements or other
documents so filed or furnished subsequent to the date of this
Agreement and any amendments to any of the foregoing, the
Stratex Reports). Stratex and its
Subsidiaries have filed or furnished, as applicable, with or to
the SEC all registration statements, reports, forms, proxy or
information statements and other documents required to be so
filed or furnished by them pursuant to applicable securities
statutes, regulations, policies and rules since the Stratex
Audit Date. Each of the Stratex Reports, at the time first filed
with or furnished to the SEC, complied or will comply (as
applicable) in all material respects with the applicable
requirements of the Securities Act and Exchange Act and the
rules and regulations thereunder and complied in all material
respects with the then applicable accounting standards. As of
their
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respective dates, the Stratex Reports did not, and any Stratex
Reports filed with the SEC subsequent to the date of this
Agreement will not, contain any untrue statement of a material
fact or omit to state a material fact required to be stated
therein or necessary to make the statements made therein, in
light of the circumstances in which they were made, not
misleading. The Stratex Reports included or will include all
certificates required to be included therein pursuant to
Sections 302 and 906 of the SOX Act, and the internal
control report and attestation of Stratexs outside
auditors required by Section 404 of the SOX Act.
(ii) Each of the consolidated balance sheets included in or
incorporated by reference into the Stratex Reports (including
the related notes and schedules) fairly presents or, in the case
of Stratex Reports filed or furnished after the date of this
Agreement, will fairly present, in all material respects, the
consolidated financial position of Stratex and its consolidated
Subsidiaries as of its date and each of the consolidated
statements of income, stockholders equity and cash flows
included in or incorporated by reference into the Stratex
Reports (including any related notes and schedules) fairly
presents or, in the case of Stratex Reports filed or furnished
after the date hereof, will fairly present, in all material
respects, the consolidated results of operations,
stockholders equity and cash flows, respectively, of
Stratex and its consolidated subsidiaries for the periods set
forth therein (subject, in the case of unaudited statements, to
notes and normal year-end audit adjustments that will not be
material in amount or effect), in each case in accordance with
GAAP consistently applied during the periods involved, except as
may be noted therein.
(iii) Stratex is in compliance in all material respects
with the applicable provisions of the SOX Act and the applicable
listing and corporate governance rules and regulations of NASDAQ.
(iv) The management of Stratex has (A) designed and
implemented disclosure controls and procedures (as defined in
Rule 13a-15(e) of
the Exchange Act) which management reasonably believes will
ensure that material information relating to Stratex, including
its consolidated subsidiaries, is made known to the management
of Stratex by others within those entities and (B) has
disclosed, based on its most recent evaluation, to
Stratexs outside auditors and the audit committee of the
Stratex Board (1) all significant deficiencies and material
weaknesses in the design or operation of internal controls over
financial reporting (as defined in
Rule 13a-15(f) of
the Exchange Act) which are reasonably likely to adversely
affect Stratexs ability to record, process, summarize and
report financial data and (2) any fraud, whether or not
material, that involves management or other employees who have a
significant role in Stratexs internal controls over
financial reporting. Stratex has made available to Harris a
summary of any such disclosure made by management since
March 31, 2004. Since the Stratex Audit Date, any material
change in internal controls over financial reporting required to
be disclosed in any Stratex Report has been so disclosed.
(v) Since the date of their last certification filed with
the SEC, neither the chief executive officer nor the chief
financial officer of Stratex has become aware of any fact,
circumstance or change that is or is reasonably likely to result
in a significant deficiency or a material
weakness in Stratexs internal controls over
financial reporting, other than as disclosed in the Stratex
Reports filed prior to the date of this Agreement.
(vi) Since March 31, 2003, (A) neither Stratex
nor any of its Subsidiaries nor, to the Knowledge of Stratex,
any director, officer, employee, auditor, accountant or
representative of Stratex or any of its Subsidiaries, has
received or otherwise had or obtained Knowledge of any material
complaint, allegation, assertion or claim, whether written or
oral, regarding the accounting or auditing practices,
procedures, methodologies or methods of Stratex or any of its
Subsidiaries or their respective internal accounting controls,
including any material complaint, allegation, assertion or claim
that Stratex or any of its Subsidiaries has engaged in
questionable accounting or auditing practices and (B) no
attorney representing Stratex or any of its Subsidiaries,
whether or not employed by Stratex or any of its Subsidiaries,
has reported evidence of a material violation of the securities
Laws, breach of fiduciary duty or similar violation by Stratex
or any of its officers, directors, employees or agents to the
Stratex Board or any committee thereof or, to the Knowledge of
any officer of Stratex, to any director or officer of Stratex.
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(vii) Since March 31, 2004, each registration
statement of Stratex (including exhibits, annexes and any
amendments or supplements thereto) filed with the SEC pursuant
to the Securities Act, as of the date such registration
statement or amendment became effective, did not contain any
untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in
order to make the statements made therein not misleading.
(f) Information Supplied. None of the information
supplied or to be supplied by Stratex for inclusion or
incorporation by reference in the registration statement on
Form S-4 of Newco
(together with any amendments or supplements thereto, the
Registration Statement), pursuant to which
the shares of Class A Common Stock issuable in connection
with the Merger will be registered with the SEC pursuant to the
Securities Act, or the proxy statement/ prospectus (together
with any amendments or supplements thereto, the Proxy
Statement/ Prospectus) included in the Registration
Statement which is to be sent to the stockholders of Stratex in
connection with the Stratex Stockholder Meeting shall
(i) in the case of the Registration Statement, at the time
it is filed with the SEC or at the time it is declared effective
by the SEC, or becomes effective, or (ii) in the case of
the Proxy Statement, at the time it is mailed to the
stockholders of Stratex or at the time of the Stratex
Stockholder Meeting contain any untrue statement of a material
fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein not
misleading (in the case of the Proxy Statement/ Prospectus only,
in light of the circumstances under which they are made).
(g) Absence of Certain Changes. Since the Stratex
Audit Date, Stratex and its Subsidiaries have conducted their
respective businesses only in, and have not engaged in any
material transaction other than in accordance with, the ordinary
course of such businesses. Since the Stratex Audit Date and on
or prior to the date of this Agreement, there has not been any
event, occurrence, discovery or development that, individually
or in the aggregate, has had or would reasonably be expected to
have a Stratex Material Adverse Effect. On or after the Stratex
Audit Date and on or prior to the date of this Agreement, none
of the actions or events described in clauses (a) through
(w) of Section 8.1 has been taken or has
occurred.
(h) Litigation and
Liabilities. (i) There are no civil, criminal or
administrative actions, suits, demands, claims, hearings,
litigations, arbitrations, investigations or other proceedings
pending or, to the Knowledge of Stratex, threatened against
Stratex or any of its Subsidiaries or Affiliates by, before or
with any Government Entity or any other Person. None of Stratex
or any of its Subsidiaries or Affiliates is a party to, or
subject to the provisions of, any judgment, order, writ,
injunction, decree or award of any Government Entity.
(ii) There are no liabilities or obligations of Stratex or
any Subsidiary of Stratex, whether or not accrued, contingent or
otherwise and whether or not required to be disclosed, or any
other facts or circumstances that would reasonably be expected
to result in any obligations or liabilities of, Stratex or any
of its Subsidiaries, other than those:
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(A) reflected on the consolidated balance sheet of Stratex
or readily apparent in the notes thereto, in each case included
in Stratexs annual report on
Form 10-K for the
period ended March 31, 2006 (but only to the extent so
reflected or readily apparent); |
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(B) incurred in the ordinary course of business since
March 31, 2006; |
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(C) required to be performed after the date of this
Agreement pursuant to the terms of the Contracts listed in
Section 7.1(d) of the Stratex Disclosure Letter or
applicable Law; or |
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(D) that, individually or in the aggregate, have not had
since the Stratex Audit Date, and would not reasonably be
expected to result in, a Stratex Material Adverse Effect. |
(i) Employee Benefits.
(i) All benefit and compensation plans, contracts, policies
or arrangements covering current or former employees of Stratex
or any of its Subsidiaries and current or former directors of
Stratex or any of its Subsidiaries, including any employee
benefit plans within the meaning of Section 3(3) of
ERISA, and any deferred compensation, stock option, stock
purchase, stock appreciation rights, stock based, incentive,
A-28
bonus, workers compensation, short term disability,
vacation and severance plans and all employment, severance and
change in control agreements, and all amendments thereto (the
Stratex Benefit Plans) are listed in
Section 7.1(i)(i) of the Stratex Disclosure Letter,
and each Stratex Benefit Plan which is intended to be qualified
under Section 401(a) of the Code, including any master or
prototype plan, has been separately identified. True and
complete copies of all Stratex Benefit Plans listed in
Section 7.1(i)(i) of the Stratex Disclosure Letter,
including any trust instruments, insurance contracts and, with
respect to any employee stock ownership plan, loan agreements
forming a part of any Stratex Benefit Plans, and all amendments
thereto have been provided or made available to Harris.
(ii) No Stratex Benefit Plan is a multi-employer
plan within the meaning of Section 3(37) of ERISA (a
Multi-Employer Plan). All Stratex Benefit
Plans are in substantial compliance with ERISA, the Code and
other applicable Laws. Each Stratex Benefit Plan which is
subject to ERISA (the Stratex ERISA Plans)
that is an employee pension benefit plan within the
meaning of Section 3(2) of ERISA (a Stratex
Pension Plan) and that is intended to be qualified
under Section 401(a) of the Code, has received a favorable
determination letter from the Internal Revenue Service
(IRS) for all Tax Law changes prior to the
Economic Growth and Tax Relief Reconciliation Act of 2001 or has
applied to the IRS for such favorable determination letter
within the applicable remedial amendment period under
Section 401(b) of the Code, and Stratex is not aware of any
circumstances likely to result in the loss of the qualification
of such Stratex Pension Plan under Section 401(a) of the
Code. Any voluntary employees beneficiary association
within the meaning of Section 501(c)(9) of the Code which
provides benefits under a Stratex Benefit Plan has
(A) received an opinion letter from the IRS recognizing its
exempt status under Section 501(c)(9) of the Code and
(B) filed a timely notice with the IRS pursuant to
Section 505(c) of the Code, and Stratex is not aware of
circumstances likely to result in the loss of such exempt status
under Section 501(c)(9) of the Code. Neither Stratex nor
any of its Subsidiaries has engaged in a transaction with
respect to any Stratex ERISA Plan that, assuming the Taxable
period of such transaction expired as of the date of this
Agreement, would subject Stratex or any Subsidiary to a Tax or
penalty imposed by either Section 4975 of the Code or
Section 502(i) of ERISA in an amount that would be
material. Neither Stratex nor any of its Subsidiaries has
incurred or reasonably expects to incur a Tax or penalty imposed
by Section 4980F of the Code or Section 502 of ERISA
or any Liability under Section 4071 of ERISA.
(iii) No Liability under Subtitle C or D of
Title IV of ERISA has been or is expected to be incurred by
Stratex or any of its Subsidiaries with respect to any ongoing,
frozen or terminated single-employer plan, within
the meaning of Section 4001(a)(15) of ERISA, currently or
formerly maintained by any of them, or the single-employer plan
of any entity which is considered one employer with Stratex
under Section 4001 of ERISA or Section 414 of the Code
(a Stratex ERISA Affiliate). No notice of a
reportable event, within the meaning of
Section 4043 of ERISA for which the 30 day reporting
requirement has not been waived or extended, other than pursuant
to Pension Benefit Guaranty Corporation
(PBGC) Reg. Section 4043.66, has been
required to be filed for any Stratex Pension Plan or by any
Stratex ERISA Affiliate within the 12 month period ending
on the date hereof or will be required to be filed in connection
with the transactions contemplated by this Agreement. No notices
have been required to be sent to participants and beneficiaries
or the PBGC under Section 302 or 4011 of ERISA or
Section 412 of the Code.
(iv) All contributions required to be made under each
Stratex Benefit Plan, as of the date hereof, have been timely
made and all obligations in respect of each Stratex Benefit Plan
have been properly accrued and reflected in the most recent
consolidated balance sheet filed or incorporated by reference in
the Stratex Reports prior to the date hereof. Neither any
Stratex Pension Plan nor any single-employer plan of a Stratex
ERISA Affiliate has an accumulated funding
deficiency (whether or not waived) within the meaning of
Section 412 of the Code or Section 302 of ERISA and
neither Stratex nor any Stratex ERISA Affiliate has an
outstanding funding waiver. It is not reasonably anticipated
that required minimum contributions to any Stratex Pension Plan
under Section 412 of the Code will be materially increased
by application of Section 412(l) of the Code. Neither
Stratex nor any of its Subsidiaries has
A-29
provided, or is required to provide, security to any Stratex
Pension Plan or to any single-employer plan of a Stratex ERISA
Affiliate pursuant to Section 401(a)(29) of the Code.
(v) Under each Stratex Pension Plan which is a
single-employer plan, as of the last day of the most recent plan
year ended prior to the date hereof, the actuarially determined
present value of all benefit liabilities, within the
meaning of Section 4001(a)(16) of ERISA (as determined on
the basis of the actuarial assumptions contained in such Stratex
Pension Plans most recent actuarial valuation), did not
exceed the then current value of the assets of such Stratex
Pension Plan, and there has been no material change in the
financial condition of such Stratex Pension Plan since the last
day of the most recent plan year.
(vi) Neither Stratex nor any of its Subsidiaries has any
obligations for retiree health and life benefits under any
Stratex Benefit Plan or collective bargaining agreement. Stratex
or its Subsidiaries may amend or terminate any Stratex Benefit
Plan providing retiree health or life benefits at any time
without incurring any Liability thereunder other than in respect
of claims incurred prior to such amendment or termination.
(vii) There has been no amendment to, or announcement by
Stratex or any of its Subsidiaries relating to, or change in
employee participation or coverage under, any Stratex Benefit
Plan which would increase materially the expense of maintaining
such Stratex Benefit Plan above the level of the expense
incurred therefor for the most recent fiscal year. Neither the
execution of this Agreement, stockholder adoption of this
Agreement nor the consummation of the Transactions will
(A) entitle any employees of Stratex or any of its
Subsidiaries to severance pay or benefits or any increase in
severance pay or benefits upon any termination of employment
after the date hereof, (B) accelerate the time of payment
or vesting or result in any payment or funding (through a
grantor trust or otherwise) of compensation or benefits under,
increase the amount payable or result in any other obligation
pursuant to, any of the Stratex Benefit Plans, (C) limit or
restrict the right of Stratex or, after the consummation of the
Transactions, Newco to merge, amend or terminate any of the
Stratex Benefit Plans or (D) result in payments under any
of the Stratex Benefit Plans which would not be deductible under
Section 162(m) or Section 280G of the Code. None of
Stratex or any of its Subsidiaries has entered into any
contract, agreement or arrangement with any officer or director
of Stratex or any of its Subsidiaries in connection with or in
contemplation of any of the Transactions.
(viii) There are no outstanding loans to any employee of
Stratex from Stratex or any of its Subsidiaries other than
claims any such employee may have under a Stratex Benefit Plan
covering such employee of Stratex. As of the date hereof, there
is no pending, or the Knowledge of Stratex, threatened
investigations or other proceedings by or with any Government
Entity or litigation relating to the Stratex Benefit Plans.
(j) Compliance with Laws and
Regulations; Governmental Authorizations. The businesses of
each of Stratex and each of its Subsidiaries have not been, and
are not being, conducted in material violation of any applicable
Law. To the Knowledge of Stratex, no material change is required
in Stratexs or any of its Subsidiaries processes,
properties or procedures for them to continue to comply with
such Laws, and Stratex has not received any notice or
communication of any material noncompliance with any such Laws
that has not been cured as of the date of this Agreement.
Stratex and each of its Subsidiaries have obtained and are in
substantial compliance with all material Governmental
Authorizations required or necessary for the conduct of their
businesses and the use of their properties and assets as
presently conducted and used, and neither Stratex nor any of its
Subsidiaries has received written notice from any Government
Entity of any material noncompliance with any such Governmental
Authorizations that has not been cured as of the date of this
Agreement.
(k) Takeover Statutes. The Stratex Board has taken
(and not revoked) all action necessary to ensure that
Section 203 of the DGCL will not impose any additional
procedural, voting, approval, fairness or other restrictions on
the timely consummation of the Transactions or restrict, impair
or delay the ability of (i) Newco or Merger Sub to engage
in any of the Transactions with Stratex, (ii) Newco to
engage in any of the Transactions with Harris, (iii) Newco
or Merger Sub to vote or otherwise exercise all rights as a
stockholder of Stratex or (iv) Harris to vote or otherwise
exercise all rights as a stockholder of Newco
A-30
or (v) Harris to exercise or enforce any rights under any
of the Ancillary Agreements. No fair price,
moratorium, control share acquisition or
other similar anti-takeover statute or regulation (each, a
Takeover Statute) or any anti-takeover
provision in Stratexs certificate of incorporation or
bylaws is applicable to the shares of Stratex Common Stock or
the Transactions.
(l) Affiliate Transactions. There are no loans,
leases or other continuing transactions between Stratex or any
of its Subsidiaries and any present or former stockholder,
director or officer thereof or any member of such
officers, directors or stockholders family, or
any Person controlled (within the meaning of such term in
Rule 12b-2 under
the Exchange Act) by such executive officer, director or
stockholder or his or her family that are not disclosed pursuant
to Item 404 of SEC
Regulation S-K in
the Stratex Reports.
(m) Environmental Matters. Except as would not
reasonably be expected to result in a Stratex Material Adverse
Effect:
(i) to the Knowledge of Stratex, Stratex and its
Subsidiaries have materially complied at all times with all
applicable Environmental Laws;
(ii) to the Knowledge of Stratex, no property currently
owned, leased or operated by Stratex or any of its Subsidiaries
(including soils, groundwater, surface water, buildings or other
structures) is contaminated with any Hazardous Substance in a
manner that has given or could reasonably be expected to give
rise to any Environmental Liability;
(iii) to the Knowledge of Stratex, no property formerly
owned, leased or operated by Stratex or any of its Subsidiaries
was contaminated with any Hazardous Substance during or prior to
such period of ownership, leasehold or operation in a manner
that has given or could reasonably be expected to give rise to
any Environmental Liability;
(iv) to the Knowledge of Stratex, neither Stratex nor any
of its Subsidiaries has incurred any Environmental Liabilities
concerning any third party property;
(v) neither Stratex nor any of its Subsidiaries has
received any notice, demand, letter, claim or request for
information alleging that Stratex or any of its Subsidiaries may
be in violation of or subject to liability under any
Environmental Law;
(vi) neither Stratex nor any of its Subsidiaries is subject
to any order, decree, injunction or agreement with any
Government Entity, or any indemnity or other agreement with any
third party, concerning liability or obligations relating to any
Environmental Law or otherwise relating to any Hazardous
Substance;
(vii) to the Knowledge of Stratex, there are no other
circumstances or conditions involving Stratex or any of its
Subsidiaries that could reasonably be expected to result in any
Environmental Liability; and
(viii) Stratex has delivered to Harris or made available
copies of all environmental reports, studies, assessments and
sampling data in its possession relating to Stratex, its
Subsidiaries or their current or former properties or operations.
(n) Taxes. Stratex and each of its Subsidiaries
(i) have prepared in good faith and duly and timely filed
(taking into account any extension of time within which to file)
all Tax Returns required to be filed by any of them and all such
filed Tax Returns are complete and accurate in all material
respects; (ii) have paid all Taxes that are shown as due on
such filed Tax Returns or that Stratex or any of its
Subsidiaries are obligated to collect or withhold from amounts
owing to or payable from any employee, creditor or third party,
except with respect to matters contested in good faith; and
(iii) have not waived any statute of limitations with
respect to Taxes or agreed to any extension of time with respect
to a Tax assessment or deficiency. As of the date hereof, there
are not pending or, to the Knowledge of Stratex, threatened in
writing, any audits, examinations, investigations or other
proceedings against Stratex or any of its Subsidiaries in
respect of Taxes or Tax matters. There are not, to the Knowledge
of Stratex, any unresolved questions or claims concerning
Stratexs or any of its Subsidiaries Tax liability
that are
A-31
reasonably likely to have a Stratex Material Adverse Effect and
are not disclosed or provided for in the Stratex Reports.
Stratex has made available to Harris true and correct copies of
the United States federal income Tax Returns (including all
schedules and attachments thereto) filed by Stratex and its
Subsidiaries for each of its fiscal years ended March 31,
2005, March 31, 2004 and March 31, 2003. Neither
Stratex nor any of its Subsidiaries has any liability with
respect to income, franchise or other Taxes that accrued on or
before March 31, 2005 in excess of the amounts accrued with
respect thereto that are reflected in the financial statements
included in the Stratex Reports filed on or prior to the date
hereof. Neither Stratex nor any of its Subsidiaries has been a
party to the distribution of stock of a controlled corporation
as defined in Section 355(a) of the Code in a transaction
intended to qualify under Section 355 of the Code within
the past two years. For any transaction in which Stratex or any
of its Subsidiaries entered into an agreement to treat a stock
purchase as an asset purchase for United States federal income
tax purposes, a valid election under Section 338 of the
Code was timely filed with the U.S. Internal Revenue
Service. None of Stratex or any of its Subsidiaries has engaged
in any transactions that are the same as, or substantially
similar to, any transaction which is a reportable
transaction for purposes of Treasury Regulation
§ 1.6011-4(b) (including without limitation any
transaction which the Internal Revenue Service has determined to
be a listed transaction for purposes of Treasury
Regulation § 1.6011-4(b)(2)).
(o) Intellectual Property.
(i) Section 7.1(o) of the Stratex Disclosure
Letter sets forth as of the date of this Agreement, a true,
correct and complete list of, with respect to the Stratex
Intellectual Property, (A) all Registered Trademarks and
material unregistered Trademarks; (B) all Registered
Patents, (C) all Registered Copyrights and (D) all
domain name or uniform resource locators registrations, in each
case listing, as applicable, (x) the name of the
applicant/registrant and current owner, (y) the
jurisdiction where the application/registration is located and
(z) the application or registration number. In each case in
which Stratex or any of its Subsidiaries has acquired ownership
of any Registered Trademarks, Registered Patents and Registered
Copyrights, Stratex or one of its Subsidiaries has or had
recorded each such acquisition with the U.S. Patent and
Trademark Office, the U.S. Copyright Office, or their
respective equivalents in the applicable jurisdiction, in each
case in accordance with applicable Law, except for any failure
to do so, individually or in the aggregate, would not reasonably
be expected to result in a Stratex Material Adverse Effect.
Stratex and/or each of its Subsidiaries owns, is licensed or
otherwise possesses legally enforceable rights to use all
Intellectual Property that is used in the business of Stratex
and its Subsidiaries as currently conducted and proposed to be
conducted, except for any failures to own, be licensed or
possess such rights that, individually and in the aggregate,
would not reasonably be expected to result in a Stratex Material
Adverse Effect.
(ii) Except as for any such matters that, individually and
in the aggregate, would not reasonably be expected to result in
a Stratex Material Adverse Effect:
(A) Neither Stratex nor any of its Subsidiaries will be nor
will Stratex or any of its Subsidiaries be as a result of the
execution and delivery of this Agreement or the performance of
its obligations hereunder, including the consummation of the
Merger, in violation of any Contracts concerning Intellectual
Property to which Stratex and/or any of its Subsidiaries are a
party, including without limitation Contracts granting Stratex
and/or any of its Subsidiaries rights to use such Intellectual
Property, non-assertion agreements, settlement agreements,
agreements granting rights to use Stratex IP Rights (as defined
below), trademark coexistence agreements and trademark consent
agreements (collectively, Stratex IP
Contracts) nor will the consummation of the
Transactions trigger any modification, termination or
acceleration thereunder, or create any license under or
Encumbrance on Intellectual Property owned or held by Stratex;
(B) no suit, claim, action, investigation, proceeding or
written demand with respect to or challenging the validity or
enforceability of, or alleging any infringement or violation in
any material respect, (I) the Intellectual Property owned
by Stratex or any of its Subsidiaries (collectively, the
Stratex IP Rights), or (II) to the
Knowledge of Stratex, any Intellectual Property of any Person
other than Stratex, Harris or any of their Subsidiaries or
Affiliates (Third-Party IP Rights) licensed
or otherwise made available to
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Stratex or any of its Subsidiaries, is currently pending or
threatened in writing against Stratex or any of its Subsidiaries
by any Person;
(C) there are no valid grounds for any valid claims
(I) to the effect that the operation of the businesses of
Stratex and its Subsidiaries as currently or as proposed to be
conducted, or the current or proposed manufacture, sale,
licensing or use of any product by Stratex or any of its
Subsidiaries, infringes or otherwise violates any Third- Party
IP Rights; (II) against the use by Stratex or any of its
Subsidiaries of any Intellectual Property used in the businesses
of Stratex or any of its Subsidiaries as currently or as
proposed to be conducted; (III) challenging the ownership,
validity or enforceability of any of the Stratex IP Rights; or
(IV) challenging the license or legally enforceable right
to use of any Third-Party IP Rights held by Stratex or any of
its Subsidiaries;
(D) to the Knowledge of Stratex, there is no unauthorized
use, infringement or other violation of any of the Stratex IP
Rights, or any Third-Party IP Rights licensed or otherwise made
available exclusively to Stratex or any of its Subsidiaries, by
any Person, including any employee or former employee of Stratex
or any of its Subsidiaries;
(E) to the Knowledge of Stratex, all Stratex IP Rights and
Third-Party IP Rights licensed or otherwise made available
exclusively to Stratex or any of its Subsidiaries are valid and
enforceable;
(F) all of Stratexs or its Subsidiaries current
and former employees have executed valid intellectual property
assignment and confidentiality agreements for the benefit of
Stratex in a form which Stratex has prior to the date of this
Agreement provided to Harris for its review, and all
Intellectual Property developed under contract to Stratex or any
of its Subsidiaries has been assigned to Stratex;
(G) Stratex and its Subsidiaries have taken reasonable
measures to protect the confidentiality of all Trade Secrets
that are owned, used or held by Stratex or any of its
Subsidiaries, and to the Knowledge of Stratex, such trade
secrets have not been used, disclosed to or discovered by any
Person except pursuant to valid and appropriate non disclosure
and/or license agreements which have not been breached; and
(H) Stratexs and its Subsidiaries collection
and dissemination of personal customer information in connection
with their business has been conducted in accordance with
applicable privacy policies published or otherwise adopted by
Stratex and its Subsidiaries and any requirement under
applicable Law, except where the failure to abide by any
requirements under applicable Law will not cause a Stratex
Material Adverse Effect.
(p) Labor Matters. Neither Stratex nor any of its
Subsidiaries is a party to or otherwise bound by any collective
bargaining agreement, Contract or other agreement or
understanding with a labor union or other labor organization,
nor is Stratex or any of its Subsidiaries the subject of any
material proceeding asserting that Stratex or any of its
Subsidiaries has committed an unfair labor practice or seeking
to compel any of them to bargain with any labor union or other
labor organization nor has there been since January 1, 2001
or is there pending or, to the Knowledge of Stratex, threatened
any labor strike, dispute, walk-out, work stoppage, slow-down or
lockout involving Stratex or any of its Subsidiaries.
(q) Contracts and Commitments.
(i) Section 7.1(q)(i) of the Stratex Disclosure
Letter sets forth as of the date of this Agreement a true,
correct and complete list (excluding, in the case of any
Contract with a customer, the name of such customer) of the
following Contracts (including every written amendment,
modification or supplement thereto that is binding on Stratex or
any of its Subsidiaries) to which Stratex or any of its
Subsidiaries is a party or by which any of their assets are
bound:
(A) any Contract that is a material contract
(as such term is defined in Item 601(b)(10) of
Regulation S-K of
the SEC);
(B) any Contract (other than a Contract described in one of
the other provisions of this Section 7.1(q)(i)
without regard to any percentage or numerical limitation
contained therein) that involved annual expenditures during
Stratexs fiscal year ended March 31, 2006 by Stratex
or any of its
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Subsidiaries in excess of $2,000,000 and that is not otherwise
cancelable by Stratex or such Subsidiary without any financial
or other penalty on 90 days or less notice, excluding
any purchase orders for goods and services from Stratex or any
of its Subsidiaries with respect to which no obligations of any
party remain outstanding;
(C) any Contract (other than a Contract described in one of
the other provisions of this Section 7.1(q)(i)
without regard to any percentage or numerical limitation
contained therein) that involved annual revenue during
Stratexs fiscal year ended March 31, 2006 to Stratex
and its Subsidiaries in excess of $2,000,000, excluding any
purchase orders for goods and services from Stratex or any of
its Subsidiaries with respect to which no obligations of any
party remain outstanding;
(D) any Contract that contains any (I) most
favored nation or similar provision, (II) exclusivity
provision or (III) other material restriction on the
ability of Stratex or any of its Subsidiaries to compete or to
provide any products or services generally or in any market
segment or any geographic area;
(E) any Contract or arrangement under which Stratex or any
of its Subsidiaries has (I) incurred any Indebtedness that
is currently outstanding or (II) given any guarantee in
respect of Indebtedness, in each case having an aggregate
principal amount in excess of $2,000,000;
(F) any partnership joint venture or other similar
agreement or arrangement relating to the formation, creation,
operation, management or control of any partnership or joint
venture material to Stratex or any of its Subsidiaries or in
which Stratex or any such Subsidiaries owns more than a 15%
voting or economic interest, or any interest valued at more than
$2,000,000 without regard to percentage voting or economic
interest;
(G) any Contract to which Stratex or any of its
Subsidiaries is a party containing a standstill or similar
agreement pursuant to which the party has agreed not to acquire
assets or securities of the other party or any of its Affiliates;
(H) any Contract providing for indemnification by Stratex
or any of its Subsidiaries of any Person, except for any such
Contract that is (I) not material to Stratex or any of its
Subsidiaries and (II) entered into in the ordinary course
of business;
(I) any Contract that contains a put, call or similar right
pursuant to which Stratex or any of its Subsidiaries could be
required to purchase or sell, as applicable, any equity
interests of any Person or assets that have a fair market value
or purchase price of more than $2,000,000;
(J) any other Contract or group of related Contracts that,
if terminated or subject to a default by any party thereto,
would, individually or in the aggregate, reasonably be expected
to result in a Stratex Material Adverse Effect; and
(K) any Stratex IP Contracts.
(ii) For purposes of this Agreement, each Contract
described in the foregoing clauses (A) through
(K) of Section 7.1(q)(i) is, individually, a
Stratex Material Contract and such Contracts
are collectively the Stratex Material
Contracts.
(iii) Stratex has delivered or made available true, correct
and complete copies of all such Stratex Material Contracts to
Harris or its representative.
(iv) The Stratex Material Contracts are, in all material
respects, valid, binding and enforceable in accordance with
their respective terms with respect to Stratex and its
Subsidiaries and, to the Knowledge of Stratex, with respect to
each other party to any of such Stratex Material Contracts,
except as such validity, binding nature and enforceability may
be limited by the Bankruptcy and Equity Exception, and there are
no existing material defaults or breaches by Stratex or any of
its Subsidiaries under any Stratex Material Contract (or events
or conditions which, with notice or lapse of time or both, would
constitute such a material default or breach) and, to the
Knowledge of Stratex, there are no material defaults or breaches
(or events or conditions which, with notice or lapse of time or
both, would constitute a material default or breach) by any
other party to any Stratex Material Contract. Stratex has no
Knowledge of any
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pending or threatened bankruptcy or similar proceeding with
respect to any party to any Stratex Material Contract which,
individually or in the aggregate, would reasonably be expected
to result in a Stratex Material Adverse Effect.
(r) Title to Properties; Encumbrances. Stratex and
each of its Subsidiaries has good and, in the case of real
property, valid and marketable title to, or, in the case of
leased properties and assets, valid leasehold interests in, all
of its real property, tangible property and other assets except
where the failure to have such title has not had and would not
reasonably be expected to have, individually or in the
aggregate, a Stratex Material Adverse Effect, in each case
subject to no Encumbrances. Neither Stratex nor any of its
Subsidiaries has received a notice of default under any material
leases of tangible properties to which they are a party, except
for (i) defaults that are not material, (ii) defaults
for which the grace or cure period has not expired and which are
reasonably capable of cure during the cure period or
(iii) defaults which have been cured. All such material
leases are in full force and effect, and Stratex and each of its
Subsidiaries enjoy peaceful and undisturbed possession under all
such material leases.
(s) Insurance. All material property, fire and
casualty, general liability, managed care liability, employment
practices liability, fiduciary liability, product liability,
directors and officers liability and sprinkler and water damage
insurance policies maintained by Stratex or any of its
Subsidiaries are with reputable insurance carriers, and are in
character and amount at least equivalent to that carried by
Persons engaged in similar businesses and subject to the same or
similar perils or hazards, except for any failures to maintain
insurance policies that, individually or in the aggregate, would
not reasonably be expected to result in a Stratex Material
Adverse Effect. The consummation of the Transactions will not,
in and of itself, cause the revocation, cancellation or
termination of any such material insurance policy.
(t) Ethical Business Practices. To the Knowledge of
Stratex, neither Stratex nor any of its Subsidiaries nor, with
respect to any action taken on behalf of Stratex or any such
Subsidiary, any directors, officers, employees or agents of
Stratex or any of its Subsidiaries has (i) used any funds
for unlawful contributions, unlawful gifts, unlawful
entertainment or other unlawful expenses related to political
activity, (ii) made any unlawful payment to foreign or
domestic government officials or employees or to foreign or
domestic political parties or campaigns or violated any
provision of the Foreign Corrupt Practices Act of 1977 or
(iii) made any payment in the nature of criminal bribery.
(u) Brokers and Finders. Neither Stratex nor any of
its officers, directors, employees or Subsidiaries has employed
any broker or finder or incurred any liability for any brokerage
fees, commissions or finders, fees in connection with the
Transactions, except that Stratex has employed Bear Stearns as
its financial advisor, the fees and expenses of which shall be
paid by Stratex. A copy of the engagement letter between Bear
Stearns and Stratex (including all amendments or supplements
thereto) has been provided to Harris.
(v) No Other Representations or Warranties. Except
for the representations and warranties contained in this
Section 7.1, neither Stratex nor any other Person
makes any other express or implied representation or warranty on
behalf of Stratex.
7.2. Representations and
Warranties of Harris. Except as set forth in the disclosure
letter (subject to Section 13.11(c)) delivered to
Stratex by Harris prior to entering into this Agreement and
identified as such (the Harris Disclosure
Letter), Harris hereby represents and warrants to
Stratex that:
(a) Organization, Good Standing and Qualification.
Harris is a corporation duly incorporated, validly existing and
in good standing under the Laws of Delaware and has all
requisite corporate power and authority to own, lease and
operate its Properties, and to carry on the MCD Business as
presently conducted and is qualified to do business and is in
good standing as a foreign corporation in each jurisdiction
where the ownership, operation of the Contributed Assets (other
than the Contributed Subsidiaries) or the conduct of the MCD
Business requires such qualification (to the extent the
good standing concept is applicable in the case of
any jurisdiction outside the United States), except for any such
failures to be so organized, qualified or in good standing or to
have such power or authority that, individually or in the
aggregate, would not reasonably be expected to result in a
Harris Material Adverse Effect. Harris has made available to
Stratex a complete and correct copy of the certificate of
incorporation
A-35
and bylaws (or other comparable governing instruments) of
Harris, each as amended to the date of this Agreement, and each
certificate of incorporation or bylaws so delivered is in full
force and effect. Harris is in compliance with the terms of its
certificate of incorporation as amended through the date of this
Agreement (the Harris Certificate) and its
bylaws as amended through the date of this Agreement
(collectively with the Harris Certificate, the Harris
Governing Instruments).
(b) Subsidiaries. (i) Section 7.2(b) of
the Harris Disclosure Letter sets forth a complete and
accurate list of each Contributed Subsidiary both as of the date
of this Agreement and immediately following the Harris
Restructuring, together with its jurisdiction of organization
and its authorized and outstanding capital stock of, or other
equity interests in, each such Subsidiary as of the date hereof.
Each Subsidiary of Harris which has title to any Property
reasonably expected to be a Contributed Asset and each
Contributed Subsidiary is duly organized, validly existing and
in good standing under the laws of its jurisdiction of
organization (to the extent the good standing
concept is applicable in the case of any jurisdiction outside
the United States) and has all requisite corporate or similar
power and authority to own, lease and operate its Properties and
to carry on its portion of the MCD Business as currently
conducted and is duly qualified to do business and is in good
standing as a foreign corporation or other entity in each
jurisdiction where the ownership or operation of its assets or
the conduct of its business requires such qualification (to the
extent the good standing concept is applicable in
the case of any jurisdiction outside the United States), except
for any such failures to be so duly organized, validly existing,
qualified or in good standing or to have such power or authority
that, individually or in the aggregate, would not reasonably be
likely to have a Harris Material Adverse Effect. Harris has made
available to Stratex complete and correct copies of the
certificate of incorporation and the bylaws (or similar
organizational documents) of each of the currently existing
Contributed Subsidiaries, as amended through the date of this
Agreement (the Harris Governing Documents)
and each Harris Governing Document is in full force and effect.
Each Contributed Subsidiary is in compliance with the terms of
its certificate of incorporation and bylaws (or comparable
governing instruments) as amended through the date of this
Agreement. Harris owns, directly and indirectly, all right,
title and interest in and to, all outstanding capital stock of,
or other equity interests in, the Contributed Subsidiaries. All
of the outstanding stock of, or other equity interests in, the
Contributed Subsidiaries has been duly authorized, and is
validly issued, fully paid and non-assessable.
(ii) There are no preemptive or other outstanding rights,
options, warrants, conversion rights, convertible or
exchangeable securities, phantom stock rights, stock
appreciation rights, redemption rights, repurchase rights,
calls, stock based performance units, commitments, Contracts,
agreements, arrangements or undertakings of any kind to which
any Contributed Subsidiary is a party or by which any of them is
bound (i) obligating any such Contributed Subsidiary to
issue, deliver or sell, or cause to be issued, delivered or
sold, shares of capital stock or other equity interests in, or
any security convertible into, or exercisable or exchangeable
for, any capital stock of or other equity interest in, any
Contributed Subsidiary or any Voting Debt, (ii) obligating
any Contributed Subsidiary to issue, grant, extend or enter into
any such option, warrant, call, right, security, commitment,
Contract, arrangement or undertaking or (iii) that give any
Person the right to receive any economic benefit or right
similar to or derived from the economic benefits and rights
occurring to holders of shares of capital stock of, or other
equity interests in, or any security convertible into, or
exercisable or exchangeable for, any capital stock of, or other
equity interest in, any Contributed Subsidiary, and no such
obligations, instruments or securities are authorized, issued or
outstanding. There are no voting trusts or other arrangements or
understandings to which any Contributed Subsidiary is a party
with respect to the voting, the dividend rights or disposition
of any capital stock of, or other equity interest in, any
Contributed Subsidiary.
(iii) Harris and each of its Subsidiaries that owns, or
following the Harris Restructuring, that will own, the
outstanding capital stock of, or other equity interest in, the
Contributed Subsidiaries, have, or will have following the
Harris Restructuring, good and valid title to the outstanding
capital stock of, or other equity interests in, the Contributed
Subsidiaries, free and clear of all Encumbrances, and upon
delivery by Harris and/or any of its Subsidiaries of the
outstanding capital stock of, or other equity interests in, the
Contributed Subsidiaries at the Closing, good and valid title to
the outstanding capital stock of, or other
A-36
equity interests in, the Contributed Subsidiaries, free and
clear of all Encumbrances, other than those resulting from
Newcos ownership, will pass to Newco.
(iv) Following the Harris Restructuring, no Contributed
Subsidiary will own, directly or indirectly, any capital stock
of, or other equity interests in, any Person (other than another
Contributed Subsidiary) or will have any direct or indirect
equity or ownership interest in any business, or will be a
member of or participant in any partnership, joint venture or
similar Person. Following the Harris Restructuring, there will
be no outstanding contractual obligations of the Contributed
Subsidiaries to provide funds to, or to make any investment (in
the form of a loan, capital contribution or otherwise) in, any
other Person.
(c) Corporate Authority; Approval. (i) Harris
has all requisite corporate power and authority and has taken
all corporate action necessary in order to execute, deliver and
perform its obligations under this Agreement and each Ancillary
Agreement and to consummate each of the Transactions to which it
is a party (collectively, the Harris
Transactions). This Agreement is, and each Ancillary
Agreement, when executed and delivered by Harris and Newco and
any other parties thereto, will be valid and legally binding
obligations of Harris, enforceable against Harris in accordance
with their terms, subject to the Bankruptcy and Equity Exception.
(ii) At a meeting duly called and held prior to execution
of this Agreement, the Board of Directors of Harris unanimously
adopted resolutions approving and adopting this Agreement and
the Harris Transactions. Other than the approvals or consents of
the equity holders and boards of directors of direct or indirect
wholly owned Subsidiaries of Harris required to effect the
Harris Restructuring, no additional corporate or stockholder
authorization or consent is required (with respect to Harris or
any of its Subsidiaries) in connection with the execution,
delivery and performance by Harris of this Agreement or any
Ancillary Agreement.
(d) Governmental Filings; No Violations; Consents; and
Approvals.
(i) Other than the filings or notices (A) pursuant to
Section 2.1, Section 2.3 and
Section 3.4, (B) required under the HSR Act or
(C) required to be made under the Exchange Act or with The
New York Stock Exchange, no Governmental Authorizations are
required to be obtained or made by Harris or any of its
Subsidiaries in connection with the execution, delivery and
performance of this Agreement or the Ancillary Agreements or the
consummation by Harris of the Harris Transactions.
(ii) The execution, delivery and performance by Harris of
this Agreement and each Ancillary Agreement, and the
consummation by Harris of the Harris Transactions, do not and
will not, constitute or result in (A) a breach or violation
of, or a default under, any provision of the Harris Governing
Instruments or Harris Governing Documents, (B) a breach or
violation of, a termination (or right of termination) or a
default under or the acceleration of any obligations (with or
without notice, lapse of time or both) pursuant to, any Contract
binding on Harris or its Subsidiaries or assuming that the
necessary consents, approvals and filings referred to in
clauses (A) through (C) of
Section 7.2(d)(i) are duly obtained and/or made, any
Laws, Governmental Authorizations or non-governmental permit or
license to which Harris or any of its Subsidiaries is subject,
(C) any change in the rights or obligations of any party
under any such Contracts, Governmental Authorizations, permits
or licenses or (D) the creation of any Encumbrance on any
of the Contributed Assets or any assets of any Contributed
Subsidiary, except, in the case of the foregoing
clauses (B), (C) or (D) only, for any breach,
violation, termination, default, acceleration, change or
creation that, individually or in the aggregate, would not
reasonably be expected to result in a Harris Material Adverse
Effect. Section 7.2(d) of the Harris Disclosure
Letter sets forth a correct and complete list of Harris
Material Contracts pursuant to which consents or waivers are or
may be required prior to consummation of the Transactions
(whether or not subject to the exception set forth with respect
to clauses (B), (C) and (D) above).
(iii) Without limiting the generality of clause (ii)
above, neither the execution, delivery or performance of this
Agreement by Harris nor the consummation by Harris of the Harris
Transactions will require the receipt of any consent pursuant
to, or give rise to any right of termination under, any of the
Harris Material Contracts except for any such consents and any
such termination rights which, individually
A-37
or in the aggregate, would not reasonably be expected to have a
Harris Material Adverse Effect if not obtained (in the case of
such consents) or if exercised (in the case of such termination
rights).
(iv) Section 7.2(d) of the Harris Disclosure
Letter sets forth a correct and complete list of all
material claims Related to the MCD Business held by Harris or
any of its Subsidiaries, as creditors or claimants, with respect
to debtors or
debtors-in-possession
subject to proceedings under the Bankruptcy Code, together with
a correct and complete list of all orders entered by the
applicable United States Bankruptcy Court with respect to each
such proceeding.
None of such orders, individually or in the aggregate, would
reasonably be expected to result in a Harris Material Adverse
Effect.
(e) Harris Reports, Financial Statements.
(i) Harris has made available to Stratex each registration
statement, report, form, proxy or information statement or other
document filed or furnished by Harris or any of its Subsidiaries
with or to the SEC since July 1, 2005 (the Harris
Audit Date) which contains or should contain
disclosure or financial information with respect to the MCD
Business, including Harris Annual Report on
Form 10-K for the
year ended July 1, 2005, each in the form (including
exhibits, annexes and any amendments thereto) filed with the SEC
(collectively with each other, any such registration statements,
reports, forms, proxy or information statements or other
documents so filed or furnished subsequent to the date of this
Agreement and any amendments to any of the foregoing, the
Harris Reports). Harris and its Subsidiaries
have filed or furnished, as applicable, with or to the SEC all
registration statements, reports, forms, proxy or information
statements and other documents which contain or should contain
disclosure with respect to the MCD Business required to be so
filed or furnished by them pursuant to applicable securities
statutes, regulations, policies and rules since the Harris Audit
Date. Solely with respect to any disclosure with respect to the
MCD Business contained or required to be contained therein, each
of the Harris Reports, at the time first filed with or furnished
to the SEC, complied or will comply (as applicable) in all
material respects with the applicable requirements of the
Securities Act and Exchange Act and the rules and regulations
thereunder and complied in all material respects with the then
applicable accounting standards. As of their respective dates,
solely with respect to any disclosure with respect to the MCD
Business contained or required to be contained therein, the
Harris Reports did not, and any Harris Reports filed with the
SEC subsequent to the date of this Agreement will not, contain
any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make
the statements made therein, in light of the circumstances in
which they were made, not misleading. The Harris Reports filed
after the date of this Agreement will include all certificates
required to be included therein pursuant to Sections 302
and 906 of the SOX Act, and the internal control report and
attestation of Harris outside auditors required by
Section 404 of the SOX Act.
(ii) Set forth in Section 7.2(e) of the Harris
Disclosure Letter is a copy of the audited combined balance
sheets and audited combined statements of operations, cash flows
and comprehensive income (loss) and division equity for the
Microwave Communications Division as of June 30, 2006 and
July 1, 2005 and for the fiscal years ended June 30,
2006, July 1, 2005 and July 2, 2004 (collectively, the
Audited Financial Statements). The Audited
Financial Statements have been prepared in accordance with GAAP
consistently applied during the periods covered (except as
described in the notes thereto), and fairly present, in all
material respects, the combined financial condition and combined
results of operations, division equity and cash flows of the
Microwave Communications Division as of the dates thereof or the
periods then ended.
(iii) Harris is in compliance in all material respects with
the applicable provisions of the SOX Act to the extent that such
compliance will affect Newcos ability to comply with the
provisions of the SOX Act following the Closing.
(iv) The management of Harris has (a) designed and
implemented disclosure controls and procedures (as defined in
Rule 13a-15(e) of
the Exchange Act) which management reasonably believes will
ensure that material information relating to the MCD Business is
made known to the management of Harris by others within Harris
and (b) has disclosed, based on its most recent evaluation,
to Harris outside auditors and the audit committee of the
Board of Directors of Harris (A) all significant
A-38
deficiencies and material weaknesses in the design or operation
of internal controls over financial reporting (as defined in
Rule 13a-15(f) of
the Exchange Act) which are reasonably likely to adversely
affect Harris ability to record, process, summarize and
report financial data with respect to the MCD Business and
(B) any fraud, whether or not material, that involves
management of the MCD Business or other employees who have a
significant role in Harris internal controls over
financial reporting to the extent such controls relate to the
MCD Business. Harris has made available to Stratex a summary of
any such disclosure made by management since July 2, 2004.
Since the Harris Audit Date, any material change in internal
controls over financial reporting to the extent they relate to
the MCD Business required to be disclosed in any Harris Report
has been so disclosed.
(v) Since the date of their last certification filed with
the SEC, neither the chief executive officer nor the chief
financial officer of Harris has become aware of any fact,
circumstance or change that is or is reasonably likely to result
in a significant deficiency or a material
weakness in Harris internal controls over financial
reporting to the extent they relate to the MCD Business.
(vi) Since June 30, 2006, (A) neither Harris nor
any of its Subsidiaries nor, to the Knowledge of Harris, any
director, officer, employee, auditor, accountant or
representative of Harris or any of its Subsidiaries has received
or otherwise had or obtained Knowledge of any material
complaint, allegation, assertion or claim, whether written or
oral, regarding the accounting or auditing practices,
procedures, methodologies or methods relating to the MCD
Business or the internal accounting controls as such controls
relevant to the MCD Business, including any material complaint,
allegation, assertion or claim that Harris or any of its
Subsidiaries has engaged in questionable accounting or auditing
practices relating to the MCD Business and (B) no attorney
representing Harris or any of its Subsidiaries, whether or not
employed by Harris or any of its Subsidiaries, has reported
evidence of a material violation of the securities Laws, breach
of fiduciary duty or similar violation by Harris or any of its
officers, directors, employees or agents relating to the MCD
Business to the Board of Directors of Harris or any committee
thereof or, to the Knowledge of Harris, to any director or
officer of Harris.
(f) Information Supplied. None of the information
supplied or to be supplied by Harris for inclusion or
incorporation by reference in the Registration Statement,
pursuant to which the shares of Class A Common Stock
issuable in connection with the Merger will be registered with
the SEC pursuant to the Securities Act, or the Proxy Statement/
Prospectus included in the Registration Statement which is to be
sent to the stockholders of Stratex in connection with the
Stratex Stockholder Meeting shall (i) in the case of the
Registration Statement, at the time it is filed with the SEC or
at the time it is declared effective by the SEC, or becomes
effective, or (ii) in the case of the Proxy Statement, at
the time it is mailed to the stockholders of Stratex or at the
time of the Stratex Stockholder Meeting contain any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the
statements therein not misleading (in the case of the Proxy
Statement/ Prospectus only, in light of the circumstances under
which they are made).
(g) Absence of Certain Changes. Since June 30,
2006, Harris and its Subsidiaries have conducted the MCD
Business only in, and have not engaged in any material
transaction other than in accordance with, the ordinary course
of business. Since June 30, 2006 and on or prior to the
date of this Agreement, there has not been any event,
occurrence, discovery or development that, individually or in
the aggregate, has had or would reasonably be expected to have,
a Harris Material Adverse Effect. On or after June 30, 2006
and on or prior to the date of this Agreement, none of the
actions or events described in clauses (a) through
(q) of Section 8.2 has been taken or has
occurred; provided, however, that Harris has approved and
intends to complete the Harris Restructuring prior to the
Closing.
(h) Litigation and Liabilities. (i) There are
no civil, criminal or administrative actions, suits, demands,
claims, hearings, litigations, arbitrations, investigations or
other proceedings pending, or to the Knowledge of Harris,
threatened against Harris or any of its Subsidiaries or
Affiliates relating to the MCD Business, the Contribution
Transaction or the other Transactions by, before or with any
Government Entity or any other Person. None of Harris or any of
its Subsidiaries or Affiliates is a party to, or subject
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to the provisions of, any judgment, order, writ, injunction,
decree or award of any Government Entity relating to the
Contributed Assets, the MCD Business or the Transactions.
(ii) There are no liabilities or obligations of Harris or
any Subsidiary of Harris relating to the Contributed Assets, the
MCD Business or the Transactions, whether or not accrued,
contingent or otherwise and whether or not required to be
disclosed, or any other facts or circumstances that would
reasonably be expected to result in any obligations or
liabilities of, Harris or any of its Subsidiaries relating to
the Contributed Assets, the MCD Business or the Transactions,
other than those:
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(A) reflected on the consolidated balance sheet of Harris
or readily apparent in the notes thereto, in each case included
in the Audited Financial Statements (but only to the extent so
reflected or readily apparent); |
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(B) incurred in the ordinary course of business since
June 30, 2006; |
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(C) required to be performed after the date of this
Agreement pursuant to the terms of the Contracts listed in
Section 7.2(d) of the Harris Disclosure Letter or
applicable Law; or |
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(D) that, individually or in the aggregate, have not had
since June 30, 2006, and would not reasonably be expected
to result in, a Harris Material Adverse Effect. |
(i) Employee Benefits.
(i) All benefit and compensation plans, contracts, policies
or arrangements covering the MCD Employees, including any
employee benefit plans within the meaning of
Section 3(3) of ERISA, any deferred compensation, stock
option, stock purchase, stock appreciation rights, stock based,
incentive, bonus, workers compensation, short term
disability, vacation and severance plans and all employment,
severance and change in control agreements, and all amendments
thereto (the MCD Employee Benefit Plans), are
listed in Section 7.2(i)(i) of the Harris Disclosure
Letter, and each MCD Employee Benefit Plan which is intended
to be qualified under Section 401(a) of the Code, including
any master or prototype plan, has been separately identified.
True and complete copies of all MCD Employee Benefit Plans
listed in Section 7.2(i)(i) of the Harris Disclosure
Letter, including any trust instruments and insurance
contracts and all amendments thereto, have been provided or made
available to Stratex.
(ii) No MCD Employee Benefit Plan is a Multi-Employer Plan.
All MCD Employee Benefit Plans covering MCD Employees are in
substantial compliance with ERISA, the Code and other applicable
Laws, except to the extent failure to comply would not cause any
Liability to Newco. Each MCD Employee Benefit Plan which is
subject to ERISA (the MCD Employee ERISA
Plans) that is an employee pension benefit
plan within the meaning of Section 3(2) of ERISA (a
MCD Employee Pension Plan) and that is
intended to be qualified under Section 401(a) of the Code,
has received a favorable determination letter from the IRS for
all Tax Law changes prior to the Economic Growth and Tax Relief
Reconciliation Act of 2001 or has applied to the IRS for such
favorable determination letter within the applicable remedial
amendment period under Section 401(b) of the Code, and
Harris is not aware of any circumstances likely to result in the
loss of the qualification of such Plan under Section 401(a)
of the Code. Any voluntary employees beneficiary
association within the meaning of Section 501(c)(9) of the
Code which provides benefits under a MCD Employee Benefit Plan
has (A) received an opinion letter from the IRS recognizing
its exempt status under Section 501(c)(9) of the Code and
(B) filed a timely notice with the IRS pursuant to
Section 505(c) of the Code, and Harris is not aware of
circumstances likely to result in the loss of its exempt status
under Section 501(c)(9) of the Code. Neither Harris nor any
of its Subsidiaries has engaged in a transaction with respect to
any MCD Employee ERISA Plan that, assuming the Taxable period of
such transaction expired as of the date of this Agreement, would
subject Newco to a Tax or penalty imposed by either
Section 4975 of the Code or Section 502(i) of ERISA in
an amount that would be material.
(iii) No Liability under Subtitle C or D of Title IV
of ERISA has been or is expected to be incurred by Harris or any
of its Subsidiaries with respect to any terminated
single-employer plan, within the meaning of
Section 4001(a)(15) of ERISA, formerly maintained by any of
them, or the terminated
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single-employer plan of any entity which is considered one
employer with Harris under Section 4001 of ERISA or
Section 414 of the Code (a Harris ERISA
Affiliate).
(iv) All contributions required to be made with respect to
any MCD Employees under each MCD Employee Benefit Plan, as of
the date hereof, have been timely made and all obligations in
respect of each MCD Employee Benefit Plan have been properly
accrued and reflected in the Audited Financial Statements.
Neither Harris nor any of its Subsidiaries nor any Harris ERISA
Affiliate maintains as of the date of this Agreement a
single-employer plan within the meaning of 4001(a)(15) of ERISA
or any plan subject to the requirements of Section 412 of
the Code.
(v) Neither Harris nor any of its Subsidiaries has any
obligations for retiree health and life benefits under any MCD
Employee Benefit Plan.
(vi) There has been no amendment to, or announcement by
Harris or any of its Subsidiaries in respect of the MCD
Employees relating to, or change in employee participation or
coverage under, any MCD Employee Benefit Plan which would
increase materially the expense of maintaining such MCD Employee
Benefit Plan above the level of the expense incurred therefor
for the most recent fiscal year. Neither the execution of this
Agreement nor the consummation of the Transactions will
(A) entitle any MCD Employees to severance pay or benefits
or any increase in severance pay or benefits upon any
termination of employment after the date hereof or
(B) accelerate the time of payment or vesting or result in
any payment or funding (through a grantor trust or otherwise) of
compensation or benefits under, increase the amount payable or
result in any other material obligation pursuant to, any of the
MCD Employee Benefit Plans to any MCD Employees. None of Harris
or any of its Subsidiaries has entered into any contract,
agreement or arrangement with any MCD Employee in connection
with or in contemplation of any of the Transactions.
(vii) Section 7.2(i)(vii) of the Harris Disclosure
Letter sets forth a true, correct and complete list of all
MCD Employees on September 1, 2006, identifying as to each
a job title, years of service and location of employment.
(viii) There are no outstanding loans to any MCD Employee
from any Contributed Subsidiary other than claims any MCD
Employee may have under an MCD Employee Benefit Plan covering
such MCD Employee. As of the date hereof, there is no pending,
or to the Knowledge of Harris, threatened investigations or
other proceedings by or with any Government Entity or litigation
relating to the MCD Employee Benefit Plans.
(j) Compliance with Laws and Regulations; Governmental
Authorizations. The MCD Business has not been, and is not
being, conducted in material violation of any applicable Laws.
To the Knowledge of Harris, no material change is required in
the processes, properties or procedures Related to the MCD
Business for them to continue to comply with such Laws, and
Harris has not received any notice or communication of any
material noncompliance with any such Laws that has not been
cured as of the date of this Agreement. The MCD Business and the
Contributed Assets have obtained, and are in substantial
compliance with, all material Governmental Authorizations
required or necessary for the conduct of the MCD Business as
presently conducted, and neither Harris nor any of its
Subsidiaries has received written notice from any Government
Entity of any material noncompliance with any such Governmental
Authorizations that has not been cured as of the date of this
Agreement.
(k) Environmental Matters. Except for matters that
relate to an Excluded Liability and other than as would not
reasonably be expected to result in a Harris Material Adverse
Effect:
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(i) to the Knowledge of Harris, Harris and its Subsidiaries
have materially complied at all times with all applicable
Environmental Laws in conducting the MCD Business; |
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(ii) to the Knowledge of Harris, no property currently
owned, leased or operated by Harris or its Subsidiaries which is
Related to the MCD Business (including soils, groundwater,
surface water buildings or other structures) is contaminated
with any Hazardous Substance in a manner that has given or could
reasonably be expected to give rise to any Environmental
Liability; |
A-41
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(iii) to the Knowledge of Harris, no property formerly
owned, leased or operated by Harris or any of its Subsidiaries
which is Related to the MCD Business was contaminated with any
Hazardous Substance during or prior to such period of ownership,
leasehold or operation in a manner that has given or could
reasonably be expected to give rise to any Environmental
Liability; |
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(iv) to the Knowledge of Harris, neither Harris nor any of
its Subsidiaries has incurred any Environmental Liabilities
concerning any third party property as a result of the conduct
of the MCD Business or any condition in, on, under or about the
real property set forth in either Section 7.2(q)(i)
or Section 7.2(q)(ii) of the Harris Disclosure
Letter (the MCD Real Property); |
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(v) neither Harris nor any of its Subsidiaries has received
any notice, demand, letter, claim or request for information
alleging that Harris or any of its Subsidiaries may be in
violation of or subject to liability under any Environmental Law
as a result of the conduct of the MCD Business or any condition
in, on, under or about the MCD Real Property; |
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(vi) neither Harris nor any of its Subsidiaries is subject
to any order, decree, injunction or agreement with any
Government Entity, or any indemnity or other agreement with any
third party, concerning liability or obligations relating to any
Environmental Law or otherwise relating to any Hazardous
Substance, in each case relating to the conduct of the MCD
Business or any condition in, on, under or about the MCD Real
Property; |
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(vii) to the Knowledge of Harris, there are no other
circumstances or conditions involving the MCD Business that
could reasonably be expected to result in any Environmental
Liability for Newco or any of its Subsidiaries; and |
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(viii) Harris has delivered to Stratex or made available
copies of all environmental reports, studies, assessments and
sampling data in its possession relating to the MCD Business or
its current or former properties or operations. |
(l) Taxes. The Contributed Subsidiaries
(i) have prepared in good faith and duly and timely filed
(taking into account any extension of time within which to file)
all Tax Returns required to be filed by any of them and all such
filed Tax Returns are complete and accurate in all material
respects; (ii) have paid all Taxes that are shown as due on
such filed Tax Returns or that the Contributed Subsidiaries are
obligated to collect or withhold from amounts owing to or
payable from any employee, creditor or third party, except with
respect to matters contested in good faith; and (iii) have
not waived any statute of limitations with respect to Taxes or
agreed to any extension of time with respect to a Tax assessment
or deficiency. As of the date hereof, there are not pending or,
to the Knowledge of Harris, threatened in writing, any audits,
examinations, investigations or other proceedings in respect of
Taxes or Tax matters. There are not, to the Knowledge of Harris,
any unresolved questions or claims concerning the Contributed
Subsidiaries Tax liability that are reasonably likely to
have a Harris Material Adverse Effect and are not disclosed or
provided for in the Harris Disclosure Letter. Harris has made
available to Stratex true and correct copies of the United
States federal income Tax Returns (including all schedules and
attachments thereto) filed by or on behalf of the Contributed
Subsidiaries for each of its fiscal years ended July 1,
2005, July 2, 2004 and June 27, 2003. None of the
Contributed Subsidiaries has any liability with respect to
income, franchise or other Taxes that accrued on or before
July 1, 2005 in excess of the amounts accrued with respect
thereto that are reflected in the financial statements included
in the Harris Reports filed on or prior to the date hereof. None
of the Contributed Subsidiaries has been a party to the
distribution of stock of a controlled corporation as defined in
Section 355(a) of the Code in a transaction intended to
qualify under Section 355 of the Code within the past two
years. For any transaction in which any of the Contributed
Subsidiaries entered into an agreement to treat a stock purchase
as an asset purchase for United States federal income tax
purposes, a valid election under Section 338 of the Code
was timely filed with the U.S. Internal Revenue Service.
None of the Contributed Subsidiaries have engaged in any
transactions that are the same as, or substantially similar to,
any transaction which is a reportable transaction
for purposes of Treasury Regulation § 1.6011-4(b)
(including without limitation any transaction which the Internal
Revenue Service has determined to be a listed
transaction for purposes of Treasury Regulation
§ 1.6011-4(b)(2)).
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(m) Intellectual Property.
(i) Section 7.2(m) of the Harris Disclosure
Letter sets forth as of the date of this Agreement a true,
correct and complete list of, with respect to the Contributed
Intellectual Property, (A) all Registered Trademarks and
material unregistered Trademarks; (B) all Registered
Patents, (C) all Registered Copyrights and (D) all
domain name or uniform resource locators registrations, in each
case listing, as applicable, (x) the name of the
applicant/registrant and current owner, (y) the
jurisdiction where the application/registration is located and
(z) the application or registration number. In each case in
which Harris or any of its Subsidiaries has acquired ownership
of any Registered Trademarks, Registered Patents and Registered
Copyrights of the Contributed Intellectual Property, Harris or
one of its Subsidiaries has or had recorded each such
acquisition with the U.S. Patent and Trademark Office, the
U.S. Copyright Office, or their respective equivalents in
the applicable jurisdiction, in each case in accordance with
applicable Law, except for any failure to do so, individually or
in the aggregate, would not reasonably be expected to result in
a Harris Material Adverse Effect. Harris and/or each of its
Subsidiaries owns, is licensed or otherwise possesses legally
enforceable rights to use the Contributed Intellectual Property
and the Harris Licensed Intellectual Property as such
Intellectual Property is used in the MCD Business as currently
conducted and proposed to be conducted, except for any failures
to own, be licensed or possess such rights that, individually or
in the aggregate, would not reasonably be expected to result in
a Harris Material Adverse Effect.
(ii) Except as for any such matters that, individually and
in the aggregate, would not reasonably be expected to result in
a Harris Material Adverse Effect:
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(A) neither Harris nor any of its Subsidiaries will be, nor
will Harris or any of its Subsidiaries be as a result of the
execution and delivery of this Agreement or the performance of
its obligations hereunder, including the consummation of the
Contribution Transaction, in violation of any Contracts
concerning the Contributed Intellectual Property or the Harris
Licensed Intellectual Property to which Harris and/or any of its
Subsidiaries are a party, including without limitation Contracts
granting Harris and/or any of its Subsidiaries rights to use
such Intellectual Property, non-assertion agreements, settlement
agreements, agreements granting rights to use Harris
IP Rights (as defined below), trademark coexistence
agreements and trademark consent agreements (collectively,
Harris IP Contracts) nor will the
consummation of the Transactions trigger any modification,
termination or acceleration thereunder, or create any license
under or Encumbrance on the Contributed Intellectual Property
held by Harris; |
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(B) no suit, claim, action, investigation, proceeding or
written demand with respect to or challenging the validity or
enforceability of or alleging any infringement or violation in
any material respect (I) the Contributed Intellectual
Property or the Harris Licensed Intellectual Property owned by
Harris or any of its Subsidiaries (collectively, the
Harris IP Rights), or (II) to the
Knowledge of Harris, any Third-Party IP Rights Related to
the Contributed Intellectual Property or the Harris Licensed
Intellectual Property, is currently pending or threatened in
writing against Harris or any of its Subsidiaries by any Person; |
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(C) there are no valid grounds for any valid claims
(I) to the effect that the operation of the MCD Business as
currently or as proposed to be conducted, or the current or
proposed manufacture, sale, licensing or use of any product by
the MCD Business, infringes or otherwise violates any
Third-Party IP Rights; (II) against the use by Harris
or any of its Subsidiaries of any Contributed Intellectual
Property or Harris Licensed Intellectual Property in the MCD
Business as currently or as proposed to be conducted;
(III) challenging the ownership, validity or enforceability
of any of the Harris IP Rights; or (IV) challenging
the license or legally enforceable right to use of any
Third-Party IP Rights Related to the Contributed
Intellectual Property or the Harris Licensed Intellectual
Property; |
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(D) to the Knowledge of Harris, there is no unauthorized
use, infringement or other violation of any of the Harris
IP Rights, or any Third-Party IP Rights licensed or
otherwise made available exclusively for use in connection with
the Contributed Intellectual Property or the Harris Licensed |
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Intellectual Property, by any Person, including any employee or
former employee of Harris or any of its Subsidiaries; |
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(E) to the Knowledge of Harris, all Harris IP Rights
and Third-Party IP Rights Related to the Contributed
Intellectual Property or the Harris Licensed Intellectual
Property licensed or otherwise made available exclusively to
Harris or any of its Subsidiaries are valid and enforceable; |
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(F) all of the current and former MCD Employees have
executed valid intellectual property assignment and
confidentiality agreements for the benefit of Harris in a form
which Harris has prior to the date of this Agreement provided to
Stratex for its review, and all Intellectual Property developed
under contract to Harris or any of its Subsidiaries has been
assigned to Harris or such Subsidiaries; |
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(G) Harris has taken reasonable measures to protect the
confidentiality of all Trade Secrets Related to the
MCD Business that are owned, used or held by Harris or any
of its Subsidiaries, and to the Knowledge of Harris, such trade
secrets have not been used, disclosed to or discovered by any
Person except pursuant to valid and appropriate non disclosure
and/or license agreements which have not been breached; and |
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(H) Harris and its Subsidiaries collection and
dissemination of personal customer information in connection
with their business has been conducted in accordance with
applicable privacy policies published or otherwise adopted by
Harris and its Subsidiaries and any requirement under applicable
Law, except where the failure to abide by any requirements under
applicable Law will not cause a Harris Material Adverse Effect. |
(n) Labor Matters. Neither Harris nor any of its
Subsidiaries is a party to or otherwise bound by any collective
bargaining agreement, Contract or other agreement or
understanding with a labor union or other labor organization
respecting the MCD Employees, nor is Harris or any of its
Subsidiaries the subject of any material proceeding applicable
to the MCD Business, the MCD Employees or former employees of
the MCD Business asserting that Harris or any of its
Subsidiaries has committed an unfair labor practice or seeking
to compel any of them to bargain with any labor union or other
labor organization nor has there been since January 1, 2001
or is there pending or, to the Knowledge of Harris, threatened
any labor strike, dispute, walk-out, work stoppage, slow-down or
lockout involving the MCD Employees or former employees of the
MCD Business.
(o) Contracts and Commitments.
(i) Section 7.2(o) of the Harris Disclosure
Letter sets forth as of the date of this Agreement a true,
correct and complete list (excluding, in the case of any
Contract with a customer, the name of such customer) of the
following Contracts (including every written amendment,
modification or supplement thereto that is binding on Harris or
any of its Subsidiaries) to which Harris or any of its
Subsidiaries is a party Related to the MCD Business or by which
any of the Contributed Assets are bound:
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(A) any Contract that would be a material
contract (as such term is defined in Item 601(b)(10)
of Regulation S-K
of the SEC) if an entity that held only the MCD Business was
subject to the periodic reporting requirements under the
Exchange Act; |
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(B) any Contract (other than a Contract described in one of
the other provisions of this Section 7.2(o) without
regard to any percentage or numerical limitation contained
therein) that involved annual expenditures during the fiscal
year of the MCD Business ended June 30, 2006 by Harris or
any of its Subsidiaries in excess of $2,000,000 and that is not
otherwise cancelable by Harris or such Subsidiary without any
financial or other penalty on 90 days or less notice,
excluding purchase orders for goods and services from Harris or
any of its Subsidiaries with respect to which no obligations of
any party remain outstanding; |
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(C) any Contract (other than a Contract described in one of
the other provisions of this Section 7.2(o) without
regard to any percentage or numerical limitation contained
therein) that involved annual revenue during the fiscal year of
the MCD Business ended June 30, 2006 to Harris |
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and its Subsidiaries in excess of $2,000,000, excluding purchase
orders for goods and services from Harris or any of its
Subsidiaries with respect to which no obligations of any party
remain outstanding; |
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(D) any Contract that contains any (I) most
favored nation or similar provision, (II) exclusivity
provision or (III) other material restriction on the
ability of Harris or any of its Subsidiaries to compete or to
provide any products or services generally or in any market
segment or any geographic area; |
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(E) any Contract or arrangement under which Harris or any
of its Subsidiaries has (I) incurred any Indebtedness that
is currently outstanding or (II) given any guarantee in
respect of Indebtedness, in each case having an aggregate
principal amount in excess of $2,000,000; |
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(F) any partnership, joint venture or other similar
agreement or arrangement relating to the formation, creation,
operation, management or control of any partnership or joint
venture material to the MCD Business or in which Harris or any
such Subsidiaries owns more than a 15% voting or economic
interest, or any interest valued at more than $2,000,000 without
regard to percentage voting or economic interest; |
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(G) any Contract to which Harris or any of its Subsidiaries
is a party containing a standstill or similar agreement pursuant
to which the party has agreed not to acquire assets or
securities of the other party or any of its Affiliates; |
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(H) any Contract providing for indemnification by Harris or
any of its Subsidiaries of any Person, except for any such
Contract that is (I) not material to the MCD Business and
(II) entered into in the ordinary course of the MCD
Business; |
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(I) any Contract that contains a put, call or similar right
pursuant to which Harris or any of its Subsidiaries could be
required to purchase or sell, as applicable, any equity
interests of any Person or assets that have a fair market value
or purchase price of more than $2,000,000; |
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(J) any other Contract or group of related Contracts that,
if terminated or subject to a default by any party thereto,
would, individually or in the aggregate, reasonably be expected
to result in a Harris Material Adverse Effect; and |
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(K) any Harris IP Contracts. |
(ii) For purposes of this Agreement, each Contract
described in the foregoing clauses (A) through
(K) of Section 7.2(o) is, individually, a
Harris Material Contract and such Contracts
are collectively the Harris Material
Contracts.
(iii) Harris has delivered or made available true, correct
and complete copies of all such Harris Material Contracts, to
Stratex or its representative.
(iv) The Harris Material Contracts are, in all material
respects, valid, binding and enforceable in accordance with
their respective terms with respect to Harris and its
Subsidiaries and, to the Knowledge of Harris, with respect to
each other party to any of such Harris Material Contracts,
except as such validity, binding nature and enforceability may
be limited by the Bankruptcy and Equity Exception, and there are
no existing material defaults or breaches by Harris or any of
its Subsidiaries under any Harris Material Contract (or events
or conditions which, with notice or lapse of time or both, would
constitute such a material default or breach) and, to the
Knowledge of Harris, there are no material defaults or breaches
(or events or conditions which, with notice or lapse of time or
both, would constitute a material default or breach) by any
other party to any Harris Material Contract. Harris has no
Knowledge of any pending or threatened bankruptcy or similar
proceeding with respect to any party to any Harris Material
Contract which, individually or in the aggregate, would
reasonably be expected to result in a Harris Material Adverse
Effect.
(p) Sufficiency of Assets. The Contributed Assets
when taken together with the Harris Services, the Harris
Licensed Intellectual Property, Contributed Leased Real Property
and the Newco Governmental Authorizations identified in
Section 7.2(p) of the Harris Disclosure Letter
constitute all the Properties of
A-45
Harris and its Subsidiaries necessary for Newco to operate and
conduct the MCD Business in all material respects as currently
conducted by Harris and its Subsidiaries.
(q) Title to Properties; Encumbrances.
Section 7.2(q)(i) of the Harris Disclosure Letter
sets forth an accurate and complete list of all of the real
property owned by Harris or any of its Subsidiaries that are
Related to the MCD Business and Section 7.2(q)(ii) of
the Harris Disclosure Letter sets forth an accurate and
complete list of all of the real property leased by Harris or
any of its Subsidiaries that are Related to the MCD Business.
Except as set forth in Section 7.2(q)(i) and
Section 7.2(q)(ii) of the Harris Disclosure Letter,
there are no leases, subleases, licenses, concessions or other
agreements granting to any Persons other than Harris and its
Subsidiaries any right to the possession, use, occupancy, or
enjoyment of any real property owned, leased or otherwise
utilized by Harris or any of its Subsidiaries Related to the MCD
Business. Harris and each of its Subsidiaries has good and, in
the case of real property, valid and marketable title to, or, in
the case of leased properties and assets, valid leasehold
interests in, all of its real property, tangible property and
other assets included in the Contributed Assets except where the
failure to have such title has not had and would not reasonably
be expected to have, individually or in the aggregate, a Harris
Material Adverse Effect, in each case subject to no
Encumbrances. Neither Harris nor any of its Subsidiaries has
received a notice of default under any material leases of
tangible properties Relating to the MCD Business, except for
(i) defaults that are not material, (ii) defaults for
which the grace or cure period has not expired and which are
reasonably capable of cure during the cure period or
(iii) defaults which have been cured. All such material
leases are in full force and effect, and Harris and each of its
Subsidiaries enjoy peaceful and undisturbed possession under all
such material leases.
(r) Insurance. All material property, fire and
casualty, general liability, managed care liability, employment
practices liability, fiduciary liability, product liability,
directors and officers liability and sprinkler and water damage
insurance policies covering the properties, assets, employees
and operations of the MCD Business maintained by Harris or any
of its Subsidiaries are with reputable insurance carriers and
are in character and amount at least equivalent to that carried
by Persons engaged in businesses similar in nature and size to
the MCD Business and subject to the same or similar perils or
hazards, except for any failures to maintain insurance policies
that, individually or in the aggregate, would not reasonably be
expected to result in a Harris Material Adverse Effect. All of
such policies or renewals thereof are, and at all times up to
the Closing will be, in full force and effect.
(s) Ethical Business Practices. To the Knowledge of
Harris, neither Harris nor any of its Subsidiaries nor, with
respect to any action taken on behalf of Harris or any such
Subsidiary, any directors, officers, employees or agents of
Harris or any of its Subsidiaries in connection with the MCD
Business has (i) used any funds for unlawful contributions,
unlawful gifts, unlawful entertainment or other unlawful
expenses related to political activity, (ii) made any
unlawful payment to foreign or domestic government officials or
employees or to foreign or domestic political parties or
campaigns or violated any provision of the Foreign Corrupt
Practices Act of 1977 or (iii) made any payment in the
nature of criminal bribery.
(t) Brokers and Finders. Neither Harris nor any of
its officers, directors, employees or Subsidiaries has employed
any broker or finder or incurred any liability for any brokerage
fees, commissions or finders, fees in connection with the
Transactions, except that Harris has employed Morgan
Stanley & Co. Incorporated (Morgan
Stanley) as its financial advisor, the fees and
expenses of which shall be paid by Harris. There are no fees or
expenses payable to Morgan Stanley or any other professional
fees or expenses incurred by Harris in connection with the
Transactions (including the fees of Harris legal counsel)
for which Newco or Stratex could have any liability.
(u) No Other Representations or Warranties. Except
for the representations and warranties contained in this
Section 7.2, neither Harris nor any other Person
makes any other express or implied representation or warranty on
behalf of Harris.
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ARTICLE VIII
Covenants Relating to Interim Operations
8.1. Covenants of Stratex.
Stratex covenants and agrees as to itself and its Subsidiaries
that, from the date of this Agreement until the Effective Time,
unless Harris shall otherwise approve in writing (such approval
not to be unreasonably withheld or delayed), and except as
otherwise expressly required or permitted by this Agreement or
as required by applicable Laws, the business of Stratex and its
Subsidiaries shall be conducted only in the ordinary and usual
course and, to the extent consistent therewith, Stratex and its
Subsidiaries shall use their respective commercially reasonable
efforts to preserve their business organizations intact and
maintain their existing relations and goodwill with Government
Entities, customers, manufacturers, suppliers, distributors,
creditors, lessors, employees and business associates and keep
available the services of the present employees and agents of
Stratex and its Subsidiaries. Without limiting the generality of
the foregoing and in furtherance thereof, from the date of this
Agreement until the Effective Time, except (i) as otherwise
expressly required or permitted by this Agreement, (ii) as
Harris may approve in writing, (iii) as set forth in
Section 8.1 of the Stratex Disclosure Letter or
(iv) as required by applicable Law, Stratex shall not and
shall not permit its Subsidiaries to:
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(a) subject to Section 8.1(b), adopt or propose
any change in any provision of the Stratex Governing Instruments; |
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(b) merge or consolidate Stratex or any of its Subsidiaries
with any other Person, except for such transactions among
indirect and direct wholly owned Subsidiaries of Stratex that
are not obligors or guarantors of Indebtedness of a Person other
than Stratex or another wholly owned Subsidiary of Stratex; |
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(c) acquire assets outside of the ordinary course of
business from any other Person with an aggregate value or
purchase price in excess of $500,000, other than capital
expenditures specifically provided for in Stratexs capital
expenditure budget as set forth in Section 8.1(c) of the
Stratex Disclosure Letter (the Stratex
Budget); |
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(d) enter into any material line of business other than the
lines of business in which Stratex and its Subsidiaries is
currently engaged as of the date of this Agreement or distribute
products other than the type of products that Stratex and its
Subsidiaries are currently distributing as of the date of this
Agreement; |
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(e) issue, sell, pledge, dispose of, grant, transfer,
lease, license, guarantee, encumber, or authorize the issuance,
sale, pledge, disposition, grant, transfer, lease, license,
guarantee or encumbrance of, any shares of capital stock of, or
other equity interest in, Stratex or any of its Subsidiaries, or
securities convertible into, or exchangeable or exercisable for,
any such shares of capital stock or other equity interest,
except for (i) the issuance of shares by a direct or
indirect wholly owned Subsidiary of Stratex to Stratex or
another direct or indirect wholly owned Subsidiary of Stratex,
(ii) mergers or consolidations among wholly owned
Subsidiaries of Stratex that are not obligors or guarantors of
Indebtedness of a Person other than Stratex or another wholly
owned Subsidiary of Stratex and (iii) the issuance and sale
of Stratex Common Stock pursuant to Stratex Options or Stratex
Awards outstanding prior to the date hereof and (iv) grants
of Stratex Options or Stratex Awards permitted by
Section 8.1(s); |
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(f) other than in the ordinary course of business, create
or incur any Encumbrance material to Stratex or any of its
Subsidiaries on any assets used in the businesses of Stratex or
any of its Subsidiaries having a value in excess of $500,000; |
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(g) make any loans, advances or capital contributions to,
or investments in, any Person in excess of $500,000 in the
aggregate, except that Stratex may make such loans, advances or
capital contributions to, or investments in, any direct or
indirect wholly owned Subsidiary of Stratex that is |
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not an obligor or guarantor of Indebtedness of a Person other
than Stratex or another wholly owned Subsidiary of Stratex; |
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(h) declare, set aside or pay any dividend or distribution
(whether in cash, stock or property or any combination thereof)
with respect to any shares of capital stock of Stratex or any of
its Subsidiaries, except for dividends or distributions by any
direct or indirect wholly owned Subsidiaries of Stratex and pro
rata dividends or distributions payable to holders of interests
in non wholly owned Subsidiaries; |
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(i) reclassify, split (including a reverse split),
recapitalize, subdivide or repurchase, redeem or otherwise
acquire, directly or indirectly, any of its capital stock except
for the purpose of effecting mergers or consolidations among
direct or indirect Subsidiaries of Stratex that are not obligors
or guarantors of Indebtedness of a Person other than Stratex or
another wholly owned Subsidiary of Stratex; |
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(j) incur any Indebtedness or guarantee Indebtedness of
another Person, or issue or sell any debt securities or warrants
or other rights to acquire any debt security of Stratex or any
of its Subsidiaries or enter into any capital lease, except for
(i) Indebtedness described in clause (ii) or
clause (iv) of the definition of Indebtedness
which is incurred in the ordinary course of business,
(ii) Indebtedness incurred in the ordinary course of
business under Stratexs existing revolving credit facility
(or any replacement facility therefor) not to exceed $50,000,000
in the aggregate (including amounts outstanding as of the date
of this Agreement), (iii) refinancings of Indebtedness
outstanding on the date of this Agreement on commercially
reasonable terms and (iv) loans or advances by Stratex or
any of its Subsidiaries to direct or indirect wholly owned
Subsidiaries of Stratex that are not obligors or guarantors of
Indebtedness of a Person other than Stratex or another wholly
owned Subsidiary of Stratex; |
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(k) make or authorize any capital expenditure other than
those specifically provided for in the Stratex Budget in excess
of $1,000,000 in the aggregate or $250,000 for any single
capital expenditure or any related group of expenditures; |
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(l) other than in the ordinary course of business, enter
into any Contract that would have been a Stratex Material
Contract had it been entered into prior to the date of this
Agreement (other than as permitted by
Section 8.1(j)); |
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(m) make any changes with respect to accounting policies or
procedures, except as required by changes in GAAP or
Regulation S-X
promulgated under the Exchange Act, based upon the advice of its
independent auditors after consultation with Harris; |
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(n) settle any pending or threatened civil, criminal or
administrative actions, proceedings, suits, claims, litigations,
arbitrations, investigations or other proceedings for an amount
to be paid by Stratex or any of its Subsidiaries in excess of
$500,000 or which would be reasonably likely to have any
material adverse impact on the operations of Stratex or any of
its Subsidiaries, or indemnify any Person other than pursuant to
a contractual obligation to do so; |
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(o) other than in the ordinary course of business,
(i) amend or modify in any material respect, or terminate
or waive any material right or benefit under, any Stratex
Material Contract (other than as permitted by
Section 8.1(j)) or in respect of any pending or
threatened civil, criminal or administrative actions, suits,
claims, litigations, arbitrations, investigations or other
proceedings, or (ii) cancel, modify or waive any debts,
claims or rights held by it in each case having a value in
excess of $500,000; |
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(p) except as required by Law, make any material Tax
election or take any material position on any material Tax
Return filed on or after the date of this Agreement or adopt any
method therefor that is inconsistent with elections made,
positions taken or methods used in preparing or filing similar
Tax Returns in prior periods or settle or compromise any
material Tax Liability; |
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(q) sell, transfer, lease, license or otherwise dispose of
any material Property of Stratex or its Subsidiaries except in
the ordinary course of business or for obsolete assets; |
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(r) sell, lease, abandon, transfer, dispose of, license or
grant material rights under any material Stratex IP Rights or
materially modify any existing rights with respect thereto,
except in the ordinary course of business consistent with past
practice, or enter into any settlement regarding (i) the
infringement of any material Stratex IP Rights or (ii) the
breach of any license agreements governing use of material
Intellectual Property; |
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(s) terminate, establish, adopt, enter into, make any new
grants or awards under, amend or otherwise modify, or accelerate
vesting or payment under any Stratex Benefit Plans or enter into
any new employment or compensatory agreements or arrangements
with, or increase the salary, wage, bonus or other compensation
payable or to become payable to, any directors, officers,
employees or consultants of Stratex or any of the Subsidiaries;
provided, however, that Stratex may increase the base
salary or wage of any employee other than the 5 most highly
compensated employees in the ordinary course of business and
enter into new employment or compensatory arrangements with
newly hired Persons if such Person would not, following his or
her employment with Stratex, be one of Stratexs 5 most
highly compensated employees and is hired in the ordinary course
of business as a replacement and not as part of a plan for
business development; provided, further, that salary or
wage increases and compensatory arrangements permitted by this
Section 8.1(s) shall not, in the aggregate, exceed
$1,000,000; provided, further, that Stratex may grant to
its newly hired employees Stratex Options or Stratex Awards
issued in the ordinary course of business consistent with past
practice, with a per share price no less than the then-current
market price of Stratex Common Stock and not subject to any
accelerated vesting or other provision that would be triggered
as a result of the consummation of the Transactions and/or
termination of employment; |
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(t) adopt a plan of complete or partial liquidation,
dissolution, restructuring, recapitalization or other
reorganization of Stratex or any of its Subsidiaries other than
any plan of dissolution of an indirect or direct wholly owned
Subsidiary of Stratex that is not an obligor or guarantor of
Indebtedness of a Person other than Stratex or another wholly
owned Subsidiary of Stratex; |
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(u) take any action, including the adoption of any
shareholder rights plan, which would, directly or indirectly,
restrict or impair the ability of Harris or Merger Sub to vote,
or otherwise to exercise the rights and benefits of a
stockholder with respect to, securities of Stratex acquired or
controlled or to be acquired or controlled by Harris or Merger
Sub as contemplated by this Agreement or the Ancillary
Agreements; |
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(v) take any action that is reasonably likely to result in
any of the conditions to the Contribution Transaction and the
Merger set forth in Section 3.1 or
Section 3.2 not being satisfied; or |
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(w) agree or commit to do any of the foregoing. |
8.2. Covenants of Harris.
Harris covenants and agrees as to itself and its Subsidiaries
that, from the date of this Agreement until the Effective Time,
unless Stratex shall otherwise approve in writing (such approval
not to be unreasonably withheld or delayed), and except as
otherwise expressly required or permitted by this Agreement or
as required by applicable Laws, the MCD Business shall be
conducted only in the ordinary and usual course and, to the
extent consistent therewith, Harris and its Subsidiaries shall
use their respective commercially reasonable efforts to preserve
the MCD Business intact and to maintain the existing relations
and goodwill of the MCD Business with Government Entities,
customers, manufacturers, suppliers, distributors, creditors,
lessors, employees and business associates and keep available
the services of the present employees and agents of Harris and
its Subsidiaries that are engaged primarily in the MCD Business.
Without limiting the generality of the foregoing and in
furtherance thereof, from the date of this Agreement until the
Effective Time, except (i) as otherwise expressly required
or permitted by this Agreement, (ii) as Stratex may approve
in writing, (iii) as set forth in Section 8.2 of
the Harris Disclosure Letter, (iv) as required by
applicable Law or (v) in connection with
A-49
the Harris Restructuring, Harris shall not and shall not permit
its Subsidiaries to, with respect to the MCD Business:
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(a) subject to Section 8.2(b), adopt or propose
any change in any provision of the Harris Governing Documents,
other than as may be necessary to effect the Harris
Restructuring; |
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(b) merge or consolidate any of the Contributed
Subsidiaries with any other Person; |
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(c) acquire assets Related to the MCD Business outside of
the ordinary course of business from any other Person with an
aggregate value or purchase price in excess of $500,000, other
than capital expenditures specifically provided for in
Harris capital expenditure budget for the MCD Business as
set forth in Section 8.2(c) of the Harris Disclosure
Letter (the Harris MCD Budget); |
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(d) cause or permit the MCD Business to enter into any
material line of business other than the lines of business in
which the MCD Business is currently engaged as of the date of
this Agreement or to distribute products other than the type of
products that the MCD Business is currently distributing as of
the date of this Agreement; |
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(e) issue, sell, pledge, dispose of, grant, transfer,
lease, license, guarantee, encumber, or authorize the issuance,
sale, pledge, disposition, grant, transfer, lease, license,
guarantee or encumbrance of, any shares of capital stock of, or
other equity interest in, the Contributed Subsidiaries, or
securities convertible into, or exchangeable or exercisable for,
any such shares of capital stock or other equity interest; |
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(f) other than in the ordinary course of business, create
or incur any Encumbrance material to the MCD Business on any of
the Contributed Assets or assets or shares of the Contributed
Subsidiaries having a value in excess of $500,000; |
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(g) make any loans, advances or capital contributions to,
or investments in, any Person (other than Harris or any direct
or indirect wholly owned Subsidiary of Harris) which are Related
to the MCD Business in excess of $500,000 in the aggregate; |
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(h) make or authorize any capital expenditure Related to
the MCD Business other than those specifically provided for in
the Harris MCD Budget in excess of $1,000,000 in the aggregate
or $250,000 for any single capital expenditure or any related
group of expenditures; |
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(i) other than in the ordinary course of business, enter
into any Contract that would have been a Harris Material
Contract had it been entered into prior to the date of this
Agreement; |
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(j) enter into any capital lease the obligations of which
would be Assumed Liabilities as of the Closing Date; |
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(k) make any changes with respect to accounting policies or
procedures which affect the MCD Business, except as required by
changes in GAAP or
Regulation S-X
promulgated under the Exchange Act, based upon the advice of its
independent auditors; |
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(l) settle any pending or threatened civil, criminal or
administrative actions, proceedings, suits, claims, litigations,
arbitrations, investigations or other proceedings Related to the
MCD Business for an amount to be paid by Harris or any of its
Subsidiaries in excess of $500,000 or which would be reasonably
likely to have any material adverse impact on the MCD Business
or provide an indemnity Related to the MCD Business to any
Person other than pursuant to a contractual obligation to do so; |
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(m) other than in the ordinary course of the MCD Business,
(i) amend or modify in any material respect, or terminate
or waive any material right or benefit under, any Harris
Material Contract or in respect of any pending or threatened
civil, criminal or administrative actions, suits, claims,
litigations, arbitrations, investigations or other proceedings
Related to the MCD Business, or (ii) cancel, modify or
waive any debts, claims or rights held by it which are Related
to the MCD Business, in each case having a value in excess of
$500,000; |
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(n) sell, transfer, lease, license or otherwise dispose of
any material Property of Harris or its Subsidiaries that would
otherwise be Contributed Assets or Contributed Subsidiaries
except in the ordinary course of business or for obsolete assets; |
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(o) sell, lease, abandon, transfer, dispose of, license or
grant material rights under any material Harris IP Rights or
Harris Licensed Intellectual Property or materially modify any
existing rights with respect thereto, in each case to the extent
Related to the MCD Business, except in the ordinary course of
business consistent with past practice, or enter into any
settlement regarding (i) the infringement of any material
Harris IP Rights or Harris Licensed Intellectual Property or
(ii) the breach of any license agreements governing use of
Harris IP Rights or Harris Licensed Intellectual Property; |
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(p) terminate, establish, adopt, enter into, make any new
grants or awards under, amend or otherwise modify, or accelerate
vesting or payment under any Harris Benefit Plans to any MCD
Employee or enter into any new employment or compensatory
agreements or arrangements with, or increase the salary, wage,
bonus or other compensation payable or to become payable to, any
MCD Employee or consultants to the MCD Business; provided,
however, that Harris may increase the base salary or wage of
any MCD Employee other than the 5 most highly compensated MCD
Employees in the ordinary course of business and enter into new
employment or compensatory arrangements with newly hired Persons
who, following their employment by Harris, would be an MCD
Employee, if such Person would not, following such employment,
be one of the 5 most highly compensated MCD Employees and is
hired in the ordinary course of business as a replacement and
not as part of a plan for business development; provided,
further, that salary or wage increases and compensatory
arrangements permitted by this Section 8.2(p) shall
not, in the aggregate, exceed $1,000,000; provided,
however, that Harris may grant to newly hired Persons who,
following their employment by Harris, would be MCD Employees
options to purchase Harris Common Stock or other Harris equity
awards issued in the ordinary course of business consistent with
past practice, with a per share price no less than the
then-current market price of Harris Common Stock and not subject
to any accelerated vesting or other provision that would be
triggered as a result of the consummation of the Transactions
and/or termination of employment; notwithstanding the foregoing
provisions of this Section 8.2(p), nothing in this
Section 8.2(p) shall prevent Harris from
(i) terminating, establishing, adopting, entering into,
amending or otherwise modifying any Harris Benefit Plan so long
as such action is applied consistently to all employees of
Harris who participate in such Harris Benefit Plan (including
MCD Employees) or (ii) making new grants or awards under
any Harris Benefit Plan to MCD Employees so long as such grants
or awards are a part of a Harris-wide Compensation review, and
the review of MCD Employees and any resulting grants or awards
are made in the ordinary course of business and are consistent
with awards made to employees who are allocated to other
divisions of Harris; |
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(q) take any action that is reasonably likely to result in
any of the conditions to the Contribution Transaction and the
Merger set forth in Section 3.1 or
Section 3.2 not being satisfied; or |
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(r) agree or commit to do any of the foregoing. |
ARTICLE IX
Additional Agreements
9.1. Acquisition Proposals.
(a) Stratex agrees that neither it nor any of its
Subsidiaries nor any of their respective officers, directors,
employees, agents and representatives (any such Persons,
including any investment banker, attorney or accountant, a
Representative) shall, directly or
indirectly, initiate, solicit, encourage or facilitate any
inquiries or the making or implementation of any proposal or
offer with respect to (i) a merger, consolidation, share
exchange, reorganization or other business combination
transaction involving Stratex, (ii) any acquisition of any
equity or other ownership interests in Stratex or any of its
Subsidiaries representing, in the aggregate, 15% or more of the
total voting power or economic interest of
A-51
all of the outstanding equity or other ownership interest in
Stratex or an economic interest of equivalent value in any
Subsidiary of Stratex or (iii) any acquisition of assets of
Stratex or any of its Subsidiaries representing 15% or more of
the total assets of Stratex and its Subsidiaries, taken as a
whole (any such inquiry, proposal or offer being hereinafter
referred to as an Acquisition Proposal).
Stratex further agrees that neither it nor any of its
Subsidiaries nor any of their respective Representatives shall,
directly or indirectly, provide any confidential or non public
information or data to, or engage or participate in any
discussions or negotiations with, any Person relating to an
Acquisition Proposal, or otherwise encourage or facilitate any
effort or attempt by any Person, in each case, other than
Harris, Newco or Merger Sub, to make or implement an Acquisition
Proposal; provided, however, that nothing contained in
this Agreement shall prevent Stratex or the Stratex Board from
(i) complying with its disclosure obligations under
Sections 14d-9 and
14e-2 of the Exchange
Act and the rules thereunder with regard to an Acquisition
Proposal or making any disclosures to holders of Stratex Common
Stock that the Stratex Board determines in good faith (after
consultation with outside counsel) that the Stratex Board is
required to make in order to comply with its fiduciary duties to
the holders of Stratex Common Stock under the DGCL (but if any
disclosure made to effect such compliance has the substantive
effect of withdrawing, or modifying or qualifying in any manner
adverse to Harris, the Board Recommendation or Board Approval or
recommending or approving another Acquisition Proposal (each, a
Change In Recommendation), Harris shall have
the right to terminate this Agreement pursuant to
Section 11.1(c)) or (ii) at any time prior to,
but not after, the Stratex Requisite Vote is obtained:
(A) providing confidential or non public information in
response to a request therefor by a Person who has made an
unsolicited bona fide written Acquisition Proposal (assuming,
for this purpose only, that all references to 15% or
more in the definition of such term were changed to
a majority) which did not result from a breach of
this Section 9.1 (a Qualifying Acquisition
Proposal); (B) engaging or participating in any
discussions or negotiations with any Person who has made a
Qualifying Acquisition Proposal; or (C) approving or
recommending to the holders of shares of Stratex Common Stock a
Qualifying Acquisition Proposal (or agreeing to take any such
action), if and only to the extent that, (1) in the case of
any action described in clause (A), (B) or
(C) above, after consulting with outside legal counsel the
Stratex Board determines in good faith that failing to take such
action would constitute a breach by the directors of Stratex of
their fiduciary duties under applicable Law; (2) prior to
taking any action described in clause (A) or (B) above,
Stratex and the other Person referred to in such clauses execute
and deliver a written confidentiality agreement on terms
substantially similar to those contained in the Confidentiality
Agreement; (3) in the case of any action described in
clause (B) or (C) above, the Stratex Board determines in
good faith and after consulting with its financial advisors and
outside counsel that the Qualifying Acquisition Proposal
referred to in such clauses is (x) more favorable from a
financial point of view to Stratexs stockholders than the
Transactions after taking into account any Revised Terms offered
by Harris before such action is taken and all other relevant
factors (including but not limited to the probability that such
Qualifying Acquisition Proposal will be consummated and the time
required to effect such consummation) and (y) reasonably
likely to be consummated taking into account all legal,
financial, regulatory (including, without limitation, any
antitrust or competition approvals or non objections) and other
relevant factors (any such Qualifying Acquisition Proposal, a
Superior Proposal) or, in the case of
clause (A) or clause (B) only, is reasonably likely to
lead to a Superior Proposal; (4) before taking any of the
actions described in clause (B) or (C) above, Stratex shall
have provided written notice to Harris of Stratexs or the
Stratex Boards intention to take such action, at least
five (5) Business Days (in the case of the first Qualifying
Acquisition Proposal made by such Person) or one
(1) Business Day (in the case of any subsequent Qualifying
Acquisition Proposal made by such Person) shall have elapsed
since the date on which Harris received such notice and Stratex
shall have complied with the provisions of
Section 9.1(c). Any determination required or
permitted to be made by the Stratex Board after the date of this
Agreement under this Agreement shall be sufficient if approved
by a majority of the total number of members thereof at a
meeting duly called and held and at which a quorum was present
and acting throughout.
(b) Stratex agrees that it will immediately cease and cause
to be terminated any existing activities, discussions or
negotiations with any Person conducted heretofore with respect
to any Acquisition Proposal.
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Stratex will promptly request each Person that has heretofore
executed a confidentiality agreement in connection with its
consideration of a transaction with Stratex to return or destroy
all confidential information furnished prior to the execution of
this Agreement to or for the benefit of such Person by or on
behalf of Stratex or any of its Subsidiaries and to destroy all
summaries, analyses or extracts of or based upon such
information in the possession of such Person or any of its
Representatives. Stratex agrees that it will take the necessary
steps to promptly inform its Representatives of the obligations
undertaken in this Section 9.1. None of Stratex or
any of its Subsidiaries will waive any provision of any
confidentiality or standstill agreement to which it is a party
without the prior written consent of Harris.
(c) Stratex agrees that it will notify Harris as promptly
as practicable (and, in any event, within 24 hours) if any
inquiries, proposals or offers with respect to any Acquisition
Proposal or potential Acquisition Proposal are received by, any
information relating thereto is requested from, or any
discussions or negotiations relating thereto are sought to be
initiated or continued with, it or any of its Representatives,
indicating, in connection with such notice, the name of such
Person and the material terms and conditions of any proposal or
offer and thereafter shall keep Harris informed, on a current
basis, as to the status and terms of any such proposal or offer
and the status of any such discussions or negotiations. Stratex
also agrees to provide any information to Harris that it is
providing to another Person pursuant to this
Section 9.1 at the same time it provides it to such
other Person. Stratex agrees that during the five- and
one-Business Day periods described in subclause (4) of
clause (ii) of the proviso in Section 9.1 and
in Section 9.2, Stratex shall negotiate in good
faith with Harris with respect to any revisions to the terms of
the transactions contemplated by this Agreement proposed by
Harris. Any such revisions which Harris offers in writing to
make which, if accepted by Stratex, would be legally binding on
the parties to this Agreement are referred to herein as
Revised Terms. Stratex agrees that any
material amendment to any Qualifying Acquisition Proposal will
be deemed to be a new Qualifying Acquisition Proposal for
purposes of this Section 9.1 and
Section 9.2.
9.2. Board Recommendation.
The Stratex Board shall not make a Change In Recommendation at
any time prior to such time that the Stratex Requisite Vote is
obtained unless: (i) Stratex shall have provided written
notice to Harris that the Stratex Board intends to take such
action, at least five (5) Business Days shall have elapsed
since the date on which Harris received such notice and Stratex
shall have complied with the applicable provisions of
Section 9.1(c), (ii) the Stratex Board shall
have determined in good faith, after consulting with its outside
legal counsel and financial advisors and taking into account any
Revised Terms, that failing to take such action would be a
breach by the directors of Stratex of their fiduciary duties
under applicable Law and (iii) if the Change In
Recommendation is being made primarily as a result of an
Acquisition Proposal, such Acquisition Proposal is a Superior
Proposal (it being agreed and understood by the parties that any
Change in Recommendation shall not alter the Stratex
Boards approval of the Transactions (including for
purposes of Section 203 of the DGCL)). Unless and until the
Board Recommendation has been withdrawn as permitted by this
Agreement, the Board Approval and Board Recommendation shall be
included in the Proxy Statement/ Prospectus and the Stratex
Board shall take all reasonable and lawful action to solicit the
adoption of this Agreement by the holders of shares of Stratex
Common Stock by the Stratex Requisite Vote at the Stratex
Stockholders Meeting.
9.3. SEC Filings; Information
Supplied; Stratex Stockholders Meeting. (a) As promptly
as practicable after the date of this Agreement, Harris and
Stratex shall prepare, and Newco shall file with the SEC, the
Registration Statement. Harris and Stratex shall use their
reasonable best efforts to have (i) the Registration
Statement declared effective under the Securities Act as
promptly as practicable after such filing and (ii) the
Prospectus/ Proxy Statement to be mailed to the holders of
Stratex Common Stock as promptly as practicable after such
effectiveness.
(b) Each of Harris and Stratex agrees, as to itself and its
Subsidiaries, that none of the information supplied or to be
supplied by it or any of its Subsidiaries for inclusion or
incorporation by reference in (i) the Registration
Statement or any amendment or supplement thereto will, at the
time the Registration Statement or any such amendment becomes
effective under the Securities Act, contain any untrue statement
of a material fact or omit to state any material fact required
to be stated therein or necessary to
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make the statements therein not misleading or (ii) the
Prospectus/ Proxy Statement and any amendment or supplement
thereto will, at the date of mailing to the stockholders of
Stratex and at the time of the Stratex Stockholders Meeting,
contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the
circumstances under which they were made, not misleading. Harris
and Stratex will cause the Registration Statement to comply as
to form in all material respects with the applicable provisions
of the Securities Act and the rules and regulations thereunder.
(c) Each party shall provide to the other party and its
counsel (i) any comments or other communications, whether
written or oral, that such party or its counsel may receive from
time to time from the SEC or its staff with respect to the
Registration Statement or Prospectus/ Proxy Statement, promptly
after receipt of those comments or other communications and
(ii) a reasonable opportunity to participate in the
response to those comments and to provide comments on that
response (to which reasonable and good faith consideration shall
be given), including by participating in any discussions or
meetings with the SEC.
(d) No amendment or supplement to any of the Registration
Statement or the Proxy Statement/ Prospectus will be made by
either party without the approval of the other party, which will
not be unreasonably withheld or delayed, except as may be
required by applicable Law.
(e) Each party shall advise the other party and its
counsel, promptly after it receives notice thereof, of the time
when the Registration Statement has become effective or any
supplement or amendment has been filed, the issuance of any stop
order, the suspension of the qualification of the shares of
Common Stock in connection with the Merger for offering or sale
in any jurisdiction, or any request by the SEC for any amendment
to the Registration Statement or Prospectus/ Proxy Statement of
or comments thereon and responses thereto or requests by the SEC
for additional information. If, at any time before the Stratex
Requisite Vote has been obtained, Harris or Stratex discovers
any information relating to either party or Newco, or any of
their respective Subsidiaries, officers or directors, that
should be set forth in an amendment or supplement to the
Registration Statement or Prospectus/ Proxy Statement, so that
such document would not include any misstatement of a material
fact or omit to state any material fact necessary in order to
make the statements made therein, in light of the circumstances
under which they were made, not misleading, the party that
discovers such information shall promptly notify the other
parties and the parties will cooperate with each other in order
to promptly file with the SEC and, to the extent required by
applicable Law, disseminate to the stockholders of Stratex, an
appropriate amendment or supplement describing such information.
Harris and Stratex shall use their reasonable best efforts to
take any action required to be taken under any applicable state
securities laws in connection with the Contribution Transaction
and the Merger and each party shall furnish all information
concerning it and the holders of its capital stock as may be
reasonably requested in connection with any such action.
(f) Stratex will take, in accordance with applicable Law
and the Stratex Governing Instruments, all action necessary to
call, give notice of, convene and hold a meeting of its
stockholders (the Stratex Stockholders
Meeting) as promptly as practicable after the S-4
Registration Statement is declared effective, and in any event
will use its reasonable best efforts to convene the Stockholders
Meeting not later than 120 days after the date of this
Agreement (or, if later, not more than 60 days after
effectiveness of the Registration Statement), to consider and
vote upon the adoption of this Agreement. Stratex shall submit
this Agreement to the holders of Stratex Common Stock for
adoption by them at the Stockholders Meeting (and shall use its
reasonable best efforts to do so within the time periods
prescribed herein) whether or not the Board of Directors makes a
Change In Recommendation after the date hereof.
9.4. Filings; Other Actions;
Notification. (a) Subject to the terms and conditions
of this Agreement, each party shall cooperate with the other
party and use (and shall cause their respective Subsidiaries to
use) their respective reasonable best efforts to take or cause
to be taken all actions, and do or cause to be done all things,
reasonably necessary, proper or advisable on its part under this
Agreement and applicable Laws to consummate the Transactions as
soon as practicable, including (i) preparing and filing as
promptly as practicable all documentation to effect all
necessary notices, reports and other filings
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(including the notification and required form under the HSR Act
and any other notifications or filings required by any other
applicable foreign antitrust or competition laws required to be
filed to consummate the Transactions), (ii) to obtain as
promptly as practicable all consents, waivers, registrations,
approvals, permits and authorizations necessary or advisable to
be obtained from any third party or any Government Entity in
order to consummate the Transactions and (iii) to cause the
other conditions set forth in ARTICLE X over which
it has influence or control to be satisfied; and provided,
however, that nothing in this Section 9.4 shall
require, or be construed to require, Newco, Harris, Stratex or
any of their Subsidiaries to take or to refrain from taking any
action, or to agree to any restriction, limitation, hold
separate, divestiture or other sanction, remedy or compromise,
with respect to any asset or operation of any of them.
(b) Subject to applicable Laws relating to the exchange of
information, (i) each party shall keep the other apprised
of the status of matters relating to completion of the
Transactions, including promptly furnishing the other with
copies of notices or other communications received by such party
or any of its Subsidiaries from any third party or any
Government Entity with respect to any of the Transactions,
(ii) each party shall have the right to review in advance,
and to the extent practicable will consult the other parties on,
all of the information relating to such party or any of its
Subsidiaries that appears in any filing made with, or written
materials submitted to, any third party or any Government Entity
in connection with any of the Transactions, (iii) each
party shall provide the other parties with copies of all
correspondence between it (or its advisors) and any Government
Entity relating to the transactions contemplated by this
Agreement, (iv) to the extent reasonably practicable, all
telephone calls and meetings with a Government Entity regarding
any of the Transactions shall include representatives of Harris
and Stratex and (v) Stratex and Harris shall
(A) promptly give the other written notice of any
litigation commenced after the date of this Agreement against
Harris, Stratex or any of their respective directors or
Subsidiaries relating to any of the Transactions, (B) keep
the other reasonably informed regarding any such litigation and
(C) give the other the opportunity to participate fully in
the conduct of the defense or the settlement of any such
litigation and neither Harris nor Stratex shall settle any such
litigation without the others prior written consent. In
exercising the foregoing rights, each of Stratex and Harris
shall act reasonably and as promptly as practicable;
provided, however, that neither Stratex nor Harris shall
be required to comply with clause (ii) or (iii) if it
has been advised by outside counsel that by doing so it is
reasonably likely that it would be sharing sensitive information
regarding the competitive position of Harris or Stratex, as the
case may be, prior to the receipt of the appropriate
Governmental Authorizations; provided, further, that
documents produced in response to Item 4C on the pre-merger
report form under the HSR Act and the rules and regulations
promulgated thereunder shall be deemed to be competitively
sensitive and neither party shall be required to share such
documents pursuant to this Section 9.4(b) prior to
the receipt of the appropriate Governmental Authorizations.
(c) To the extent permitted by applicable Law, Stratex and
Harris each shall, upon request by the other, furnish the other
with all information concerning itself, its affiliates,
directors, officers and stockholders and such other matters as
may be reasonably necessary or advisable in connection with any
other statement, filing, notice or application made by or on
behalf of Newco, Harris, Stratex or any of their respective
Subsidiaries to any third party and/or any Government Entity in
connection with any of the Transactions.
(d) Each party shall promptly notify the other parties in
writing of: (i) the discovery by such party of any event,
condition, fact or circumstance that occurred or existed on or
prior to the date of this Agreement which caused or represents a
material breach of, or a material inaccuracy in, any
representation or warranty made by such party in this Agreement;
(ii) any event, condition, fact or circumstance that
occurs, arises or exists after the date of this Agreement which
would have caused or represented a material breach of, or a
material inaccuracy in, any representation or warranty made by
such party in this Agreement if (y) such representation or
warranty had been made as of the time of the occurrence,
existence or discovery of such event, condition, fact or
circumstance, or (z) such event, condition, fact or
circumstance had occurred, arisen or existed on or prior to the
date of this Agreement; (iii) any material breach of any
covenant or obligation of such party in this Agreement; and
(iv) any event, condition, fact
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or circumstance that would make the timely satisfaction of any
condition set forth in ARTICLE X impossible or
reasonably unlikely to occur or that has had or could reasonably
be expected to have, in the case of Harris, a Harris Material
Adverse Effect or, in the case of Stratex, a Stratex Material
Adverse Effect. No notification given pursuant to this
Section 9.4(d) shall limit or otherwise affect any
of the representations, warranties, covenants or obligations of
the parties contained in this Agreement.
9.5. Tax Matters.
(a) Harris Liability for Income Taxes. Harris shall
be liable for any Income Taxes imposed with respect to the
Contributed Assets for the Tax periods, or portions thereof,
ended on or before the Closing Date.
(b) Newco Liability for Income Taxes. Newco (or one
of its Subsidiaries) shall be liable for Income Taxes imposed
with respect to the Contributed Assets for any Tax period, or
portion thereof, beginning after the Closing Date.
(c) Proration of Income Taxes. To the extent
necessary to determine the liability for Income Taxes for a
portion of a Tax year or period that begins before and ends
after the Closing Date, the determination of the Income Taxes
for the portion of the year or period ending on, and the portion
of the Tax year or period beginning after, the Closing Date
shall be determined by assuming that the Tax year or period
ended as of the close of business on the Closing Date.
(d) Tax Returns.
(i) Harris shall file or cause to be filed when due all
Income Tax Returns that are required to be filed by or with
respect to the Contributed Assets for Tax years or periods
ending on or before the Closing Date and shall pay any Income
Taxes due in respect of such Income Tax Returns and Newco (or
one of its Subsidiaries) shall file or cause to be filed when
due all Income Tax Returns that are required to be filed by or
with respect to the Contributed Assets for Tax years or periods
ending after the Closing Date and shall pay any Income Taxes due
in respect of such Income Tax Returns. Harris shall pay Newco
(or one of its Subsidiaries) any Income Taxes for which Harris
is liable pursuant to Section 9.5 (but which are
payable with Income Tax Returns to be filed by Newco (or one or
its Subsidiaries) pursuant to the previous sentence) within five
(5) days prior to the due date for the filing of such
Income Tax Returns.
(ii) If Harris shall be liable hereunder for any portion of
the Income Tax shown due on any Income Tax Return required to be
filed by Newco (or one of its Subsidiaries) to the extent Harris
is liable for such Income Tax pursuant to
Section 9.5, the party preparing such Income Tax
Return shall deliver a copy of the relevant portions of such
Income Tax Return to Harris for its review and approval not less
than 30 days prior to the date on which such Income Tax
Returns are due to be filed (taking into account any applicable
extensions). If the parties disagree as to any item reflected on
any such return, Harris shall determine how the disputed items
are reflected, if at all, after reasonable consultation with
Newco.
(e) Contest Provisions. Newco or one of its
Subsidiaries shall promptly notify Harris in writing upon
receipt of notice of any pending or threatened audits or
assessments with respect to Income Taxes for which Harris (or
one of its Affiliates) may be liable hereunder. Harris shall be
entitled to participate at its expense in the defense of any
Income Tax audit or administrative or court proceeding relating
to Income Taxes for which it may be liable, and to employ
counsel of its choice at its expense. Harris shall promptly
notify Newco in writing upon receipt of notice of any pending or
threatened audits or assessments with respect to Income Taxes
for which Newco (or one of its Subsidiaries) may be liable
hereunder. Newco shall be entitled to participate at its expense
in the defense of any Income Tax audit or administrative or
court proceeding relating to Income Taxes for which it may be
liable, and to employ counsel of its choice at its expense.
Neither Harris nor Newco (or one of its Subsidiaries) may agree
to settle any claim for Income Taxes for which the other may be
liable without the prior written consent of such other party,
which consent shall not be unreasonably withheld.
(f) Use of Refunds and Overpayments. If, after the
Closing, Newco (or one of its Subsidiaries ) (i) receive
any refund, or (ii) utilize the benefit of any overpayment
or prepayment of Income Taxes imposed with respect to the
Contributed Assets for a period for which Harris is liable under
Section 9.5, Newco (or one of its Subsidiaries)
shall promptly transfer, or cause to be transferred, to Harris
the entire
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amount of the refund or overpayment (including interest)
received or utilized by Newco (or one of its Subsidiaries). If,
after the Closing, Harris (or one of its Affiliates)
(i) receives any refund, or (ii) utilizes the benefit
of any overpayment or prepayment of Income Taxes imposed with
respect to the Contributed Assets for a period for which Newco
is liable under Section 9.5(b), Harris (or its
Affiliate) shall promptly transfer, or cause to be transferred,
to Newco the entire amount of the refund or overpayment
(including interest) received or utilized by Harris (or one of
its Affiliates). Newco and Harris each agree to notify the other
promptly of both the discovery of a right to claim any such
refund or overpayment and the receipt of any such refund or
utilization of any such overpayment. Newco and Harris each agree
to claim (or to cause the relevant Subsidiary or Affiliate to
claim) any of its Subsidiaries to claim) any such refund or to
utilize any such overpayment as soon as possible and to furnish
to the other all information, records and assistance necessary
to verify the amount of the refund or overpayment.
(g) Other Taxes. All Taxes that are not Income Taxes
that are imposed with respect to the Contributed Assets
(including any Transfer Taxes) shall be paid by Newco. Any Tax
Returns that must be filed in connection with such Taxes shall
be prepared by the party primarily or customarily responsible
under applicable local Law for filing such Tax Returns, and such
party shall deliver a copy of the relevant portions of such Tax
Return to Newco for its review and approval not less than thirty
(30) days prior to the date on which such Tax Return is due
to be filed (taking into account any applicable extensions);
provided, however, that the final determination of the
items to be reflected on such Tax Return shall be made by the
party filing such Tax Return, after reasonable consultation with
Newco. Harris or one of its Affiliates shall promptly notify
Newco in writing upon receipt of notice of any pending or
threatened audits or assessments with respect to Taxes for which
Newco may be liable hereunder, and Newco shall have full control
over such proceeding with respect to such Taxes.
(h) Employee Withholding and Reporting Matters. With
respect to those MCD Employees who are employed by Newco within
the same calendar year as the Closing, Newco shall, in
accordance with and to the extent permitted pursuant to Revenue
Procedure 96-60,
1996-60 C.B. 399,
assume all responsibility for preparing and filing
Form W-2, Wage and
Tax Statement,
Form W-3,
Transmittal of Income and Tax Statements, Form 941,
Employers Quarterly Federal Tax Return,
Form W-4,
Employees Withholding Allowance Certificate and
Form W-5, Earned
Income Credit Advance Payment Certificate. Harris and Newco
agree to comply with the procedures described in Section 5
of the Revenue Procedure
84-77.
(i) Post-Closing Assistance. In connection with the
preparation of Tax Returns required to be filed by Newco, the
Surviving Corporation or the Contributed Subsidiaries following
the Closing, Harris shall provide such documentation and other
assistance as may be reasonably requested by Newco in order to
permit the timely preparation and filing of such Tax Returns
including, without limitation, reasonable access to information,
books and records and Tax Returns and workpapers relating to the
MCD Business for Taxable periods or portions thereof preceding
the Closing.
(j) No Other Indemnification. Any amount to be
indemnified or paid over pursuant to this
Section 9.5 may not be the subject of an indemnity
claim pursuant to ARTICLE XII.
9.6. Ancillary Agreements.
At the Closing, Harris shall, and shall cause each of its
Subsidiaries that is a party to an Ancillary Agreement to,
execute each Ancillary Agreement to which it is a party, and
Newco shall execute and deliver each Ancillary Agreement.
9.7. Restructuring; Harris
Intercompany Liabilities. Harris shall cause the
consummation of the restructuring events set forth on
Schedule O (the Harris
Restructuring) and shall further be permitted to take
all necessary actions to fulfill its obligations under this
Section 9.7 notwithstanding any restriction imposed
on Harris pursuant to Section 8.2. The parties
agree, on behalf of themselves, each of their Subsidiaries and
Newco, all Harris Intercompany Liabilities (other than those
solely among Contributed Subsidiaries) shall be extinguished and
shall terminate at the Effective Time without the payment of any
consideration or any other action by any Person and the parties
shall take all actions necessary or desirable to evidence such
extinguishment and termination.
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9.8. Transfer and Assignment of
Excluded Assets by Contributed Subsidiary. Harris shall
notify Stratex in advance of, and make available to Stratex in a
timely manner for review all agreements, instruments and other
documentation relating to, any Transfer of Excluded Assets prior
to the Closing by any Contributed Subsidiary to Harris or any of
its Retained Subsidiaries.
9.9. Insurance Proceeds. To
the extent they are assignable without the insurers
consent or any such required consent is obtained, Harris shall,
or shall cause its Subsidiaries to, assign to Newco all rights
Harris or any of its Subsidiaries have with respect to Assumed
Liabilities under third party insurance policies. Harris agrees
to use its commercially reasonable efforts to obtain any
consents of any insurance companies or other third parties
required to effect such assignments. If such rights are not
assignable, Harris agrees to pay any insurance proceeds received
by it or any of its Subsidiaries in respect of such rights to
Newco promptly upon the receipt thereof.
9.10. Listing and
De-listing. (a) Newco and Harris shall use all
reasonable efforts to cause (i) the shares of Class A
Common Stock to be issued in the Merger, (ii) the shares of
Class A Common Stock to be reserved for issuance upon the
exercise of the Stratex Options, Stratex Awards and future
grants of options or stock-based awards by Newco and
(iii) the shares of Class A Common Stock reserved for
issuance upon conversion of the Class B Common Stock, to be
approved for listing on NASDAQ, in each case subject to official
notice of issuance, on or prior to the Closing Date.
(b) The Surviving Corporation shall use its best efforts to
cause the shares of Stratex Common Stock to be no longer quoted
on NASDAQ and de registered under the Exchange Act as soon as
practicable following the Effective Time.
9.11. Governance.
(a) On or prior to the Effective Time, the parties shall
take all necessary action to cause the nine individuals
specified in Section 3.01 of the Investor Agreement to be
appointed as the only members of the Board of Directors of Newco
as of the Effective Time.
(b) On or prior to the Effective Time, the parties shall
take all necessary action to cause the persons indicated in
Schedule J to be elected or appointed as officers of
Newco in the capacities specified in such Schedule.
(c) The name of Newco shall be Harris Stratex
Networks, Inc., subject to modification after the
Closing in accordance with the DGCL.
9.12. Section 16
Matters. Assuming that Harris and Stratex deliver to Newco
the Section 16 Information reasonably in advance of the
Effective Time, the Board of Directors of Newco, or a committee
of Non-Employee Directors thereof (as such term is defined for
purposes of
Rule 16b-3(d)
under the Exchange Act), shall prior to the Effective Time adopt
a resolution sufficient to exempt the acquisition by the
Insiders of Common Stock (including restricted shares of such
stock or options to purchase shares of such stock) pursuant to
the Transactions from liability under Section 16(b) of the
Exchange Act pursuant to
Rule 16b-3
thereunder. Section 16 Information shall
mean information accurate in all material respects regarding the
Insiders, the number of shares of the capital stock held by each
such Insider, and the number and description of options, stock
appreciation rights, restricted shares and other stock-based
awards held by each Insider. Insiders, shall
mean those Persons who will be subject to the reporting
requirements of Section 16(a) of the Exchange Act as an
officer or director of Newco (including Harris as a deputized
director).
9.13. Affiliates. Stratex
shall use all reasonable efforts to cause each person who is an
Affiliate of Stratex to deliver to Newco, as soon as reasonably
practicable and in any event prior to the Stratex Stockholders
Meeting, a written agreement substantially in the form attached
as Exhibit 13.
9.14. Access; Financial
Reporting. (a) Subject to applicable Law, upon
reasonable notice, each of Stratex and Harris shall (and shall
cause its Subsidiaries to) afford the others
Representatives (including, for this purpose, environmental
consultants) reasonable access, during normal business hours
throughout the period prior to the Effective Time, to its
properties, books, contracts and records and, during such
period, each shall (and shall cause its Subsidiaries to) furnish
promptly to the other all information
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concerning its business, properties and personnel as may
reasonably be requested; provided, however, that
notwithstanding the foregoing (i) Harris shall only be
required to provide (A) such access to the properties,
books, contracts and records which are Related to the MCD
Business and (B) such information with respect to the MCD
Business, properties which are included in the Contributed
Assets and MCD Employees, (ii) no investigation pursuant to
this Section 9.14 shall affect or be deemed to
modify any representation or warranty made by Stratex or Harris,
(iii) neither Stratex or Harris shall be required to
(A) permit any inspection, or to disclose any information,
that its reasonable judgment would result in the disclosure of
any trade secrets of third parties or violate any obligations it
or any of its Subsidiaries have with respect to confidentiality
if it shall have used reasonable efforts to obtain the consent
of such third party to such inspection or disclosure or
(B) disclose any information of it or any of its
Subsidiaries which is subject to the attorney-client privilege.
All requests for information made pursuant to this
Section 9.14 shall be directed to an executive
officer of Stratex or Harris, as the case may be, or such Person
as may be designated by either of their executive officers, as
the case may be. All such information shall be subject to the
Confidentiality Agreement.
(b) Harris and Stratex shall furnish to the other copies of
its customary monthly management financial statements (in the
case of Harris, such statements to be limited to these relating
to the MCD Business) promptly after they are circulated to such
partys senior management. All such information shall be
subject to the Confidentiality Agreement.
9.15. Further Assurances.
From time to time after the Closing Date, each party hereto
shall, and shall cause its Subsidiaries, promptly to execute,
acknowledge and deliver any other assurances, documents or
instruments reasonably requested by any other party hereto which
are necessary (or reasonably required) in order for the
requesting party to satisfy its obligations hereunder, complete
and perfect the Contribution of the Contributed Assets and the
assumption of the Assumed Liabilities, consummate the Merger or
receive the benefits of the transactions contemplated hereby.
9.16. Publicity. Neither
Harris nor Stratex will, and neither Harris nor Stratex will
permit any of its Subsidiaries to, issue or cause the
publication of any press release or other public announcement
with respect to, or otherwise make any public statement
concerning the Contribution Transaction, the Merger or the other
Transactions without the prior consent (which consent shall not
be unreasonably withheld) of Harris, in the case of a proposed
announcement or statement by Stratex or any of its Subsidiaries,
or Stratex, in the case of a proposed announcement or statement
by Harris or any of its Subsidiaries, including announcements
scheduling press conferences regarding the Contribution
Transaction, the Merger or the other Transactions with
investors, analysts or members of the press; provided,
however, that either party may, without the prior consent of
the other party, (i) issue or cause the publication of any
press release or other public announcement to the extent it is
advised by outside counsel that such publication is or is likely
to be required by Law or any listing agreement with any national
stock exchange and the parties hereto are unable to agree on the
content and terms of publication of such publication after
engaging in good faith discussions relating thereto and
(ii) make public statements (but may not publish any press
release) that are consistent with the parties prior public
disclosures after the date of this Agreement regarding the
Contribution Transaction, the Merger or the other Transactions.
9.17. Expenses. Newco shall
pay all charges and expenses, including those of the Exchange
Agent, in connection with the transactions contemplated in
ARTICLE VI. Except as otherwise provided in
Section 11.2, whether or not the Merger is
consummated, all costs and expenses incurred in connection with
this Agreement and the Transactions shall be paid by the party
incurring such expense, except that expenses incurred by Newco
or Merger Sub, the filing fees for the HSR notification and the
Registration Statement and expenses incurred in connection with
the publishing, printing or mailing of the Proxy Statement/
Prospectus (but not the attorneys fees related thereto,
which shall be paid by the party incurring such expense) shall
be shared equally by Harris and Stratex.
9.18. Indemnification;
Directors and Officers Insurance. (a) Newco
agrees that, from and after the Effective Time, it will cause
the Surviving Corporation for a period of six years from the
Effective Time to indemnify and hold harmless each past and
present director and officer of Stratex or any of its
A-59
Subsidiaries (in each case, for acts or failures to act in such
capacity) (collectively, the D&O Indemnified
Parties), against any costs or expenses (including
reasonable attorneys fees), judgments, fines, losses,
claims, damages or liabilities (collectively,
Costs) incurred in connection with any claim,
action, suit, proceeding or investigation, whether civil,
criminal, administrative or investigative, arising out of
matters existing or occurring at or prior to the Effective Time,
whether asserted or claimed prior to, at or after the Effective
Time, to the fullest extent that Stratex would have been
permitted under Delaware law and its certificate of
incorporation or bylaws as in effect on the date of this
Agreement to indemnify such Person (and Newco shall also advance
expenses as incurred to the fullest extent permitted under
applicable Law; provided, however, that the Person to
whom expenses are advanced provides an undertaking to repay such
advances if it is ultimately determined that such Person is not
entitled to indemnification).
(b) Any D&O Indemnified Party wishing to claim
indemnification under paragraph 9.18 of this
Section 9.18, shall notify Newco promptly after
learning of any such claim, action, suit, proceeding or
investigation. In the event of any such claim, action, suit,
proceeding or investigation (whether arising before or after the
Effective Time), (i) Newco shall have the right to assume
the defense thereof and, if Newco agrees to assume such defense,
Newco shall not be liable to such D&O Indemnified Parties
for any legal expenses of such D&O Indemnified Parties
counsel or any other expenses incurred by such D&O
Indemnified Parties after Newco assumes such defense,
(ii) the D&O Indemnified Parties will cooperate, at
Newcos expense, in the defense of any such matter, and
(iii) Newco shall not be liable for any settlement effected
without its prior written consent; provided, however,
that Newco shall not have any obligation hereunder to any
D&O Indemnified Party if and when a court of competent
jurisdiction shall ultimately determine, and such determination
shall have become final, that the indemnification of such
D&O Indemnified Party in the manner contemplated hereby is
prohibited by applicable Law.
(c) For a period of six years after the Effective Time,
Newco shall cause the Surviving Corporation to maintain
Stratexs existing officers and directors
liability insurance (D&O Insurance)
covering those Persons who are covered by Stratexs D&O
Insurance in effect as of the date of this Agreement so long as
the annual premium therefor is not in excess of 200% of the last
annual premium paid prior to the date of this Agreement, which
is set forth in Section 9.18 of the Stratex Disclosure
Letter (the Current Premium);
provided, however, that if the existing D&O Insurance
exceeds 200%, expires, is terminated or cancelled during such
six-year period, the Surviving Corporation shall obtain as much
D&O Insurance as can be obtained for the remainder of such
period for a premium not in excess (on an annualized basis) of
200% of the Current Premium (such 200% amount, the
Maximum Annual Premium). In lieu of
purchasing D&O Insurance pursuant to the immediately
preceding sentence, Stratex may purchase a six-year
tail prepaid policy prior to the Effective Time on
terms and conditions no less advantageous to the D&O
Indemnified Parties than the existing D&O Insurance
maintained by Stratex; provided, that the amount paid by
Stratex shall not exceed two (2) times the Maximum Annual
Premium. Stratex shall cooperate with Harris in good faith to
explore the possibility of satisfying the obligations of Newco
under this Section 9.18(c) by purchasing a
tail period policy satisfying the requirements of
this Section 9.18(c). If such tail
prepaid policy has been obtained by Stratex prior to the
Closing, the Surviving Corporation shall, and Newco shall cause
the Surviving Corporation to, maintain such policy in full force
and effect, for its full term, and continue to honor their
respective obligations thereunder, and all other obligations
under this Section 9.18(c) shall terminate.
(d) If Newco or any of its successors or assigns
(i) shall consolidate with or merge into any other
corporation or entity and shall not be the continuing or
surviving corporation or entity of such consolidation or merger
or (ii) shall transfer all or substantially all of its
properties and assets to any individual, corporation or other
entity, then, and in each such case, proper provisions shall be
made so that the successors and assigns of Newco shall assume
all of the obligations set forth in this
Section 9.18.
(e) The obligations under this Section 9.18
shall not be terminated, amended or otherwise modified in such a
manner as to adversely affect any D&O Indemnified Party
without the prior written consent of such affected D&O
Indemnified Party. Each of the D&O Indemnified Parties are
intended to be third party beneficiaries of this
Section 9.18, with full rights of enforcement as if
a party thereto. The rights of
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the D&O Indemnified Parties under this
Section 9.18 shall be in addition to, and not in
substitution for, any other rights that such persons may have
under the certificate or articles of incorporation, bylaws or
other equivalent organizational documents, any and all
indemnification agreements of or entered into by Newco or any of
its Subsidiaries, or applicable Law (whether at law or in
equity).
9.19. Takeover
Statute. If any Takeover Statute is or may become
applicable to the shares of Stratex Common Stock, the
Contribution Transaction, the Merger or the other Transactions,
Stratex and its Board of Directors shall grant such approvals
and take such actions as are necessary so that such transactions
may be consummated as promptly as practicable on the terms
contemplated by this Agreement and otherwise act to eliminate or
minimize the effects of such Takeover Statute on shares of
Stratex Common Stock, the Contribution Transaction, the Merger
or the other Transactions.
ARTICLE X
Conditions
10.1. Conditions to Harris
and Stratexs Obligations to Effect the Transactions.
The obligations of Harris and Stratex to effect the Contribution
Transactions and the Merger, respectively, are subject to the
satisfaction or waiver at or prior to the Closing of each of the
following conditions:
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(a) Stockholder Approval.
Stratex shall have obtained the Stratex Requisite Vote; |
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(b) Listing. The shares of
(i) Class A Common Stock to be issued in the Merger,
(ii) the shares of Class A Common Stock to be reserved
for issuance upon the exercise of the Stratex Options and
Stratex Awards and (iii) the shares of Class A Common
Stock reserved for issuance upon conversion of the Class B
Common Stock, shall have been authorized for listing on NASDAQ,
in each case subject to official notice of issuance. |
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(c) Required Regulatory
Approvals. The waiting period applicable to the consummation
of the Contribution Transaction, the Merger and the other
Transactions under the HSR Act shall have expired or been
terminated, and all other Governmental Authorizations required
to be made or obtained by Harris, Stratex or any of their
Subsidiaries in connection with the consummation of the
Transactions shall have been obtained or made other than those
the failure of which to make or obtain would not, individually
or in the aggregate, be reasonably likely to (i) have a
material adverse effect on the results of operations, financial
condition, cash flows, assets, liabilities or business of Newco
and its Subsidiaries, taken as a whole, after the Closing or
(ii) result in criminal liability or other material
sanctions for any director or officer of Harris, Stratex or
Newco (collectively, the Required Governmental
Authorizations). |
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(d) Registration Statement.
The Registration shall have become effective under the
Securities Act and shall not be the subject of any stop order or
any proceeding seeking a stop order. |
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(e) No Restraints. No
statute, law, ordinance, rule, regulation, judgment, order,
writ, injunction, decree or award (whether temporary,
preliminary or permanent) enacted, issued, promulgated, enforced
or entered by any Government Entity is in effect and restrains,
enjoins or otherwise prohibits consummation of any of the
Transactions (collectively, an Order). |
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(f) Newco and Merger Sub.
Newco and Merger Sub shall have performed in all material
respects all of their respective obligations under this
Agreement that are required to be performed at or prior to the
Closing. |
10.2. Conditions to Harris
Obligation to Effect the Contribution Transaction. The
obligation of Harris to effect the Contribution Transaction is
also subject to the satisfaction or waiver at or prior to the
Closing of each of the following conditions:
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(a) Representations and
Warranties. (i) Each of the representations and
warranties of Stratex set forth in Section 7.1(b),
Section 7.1(c), Section 7.1(d)(ii),
Section 7.1(k) and Section 7.1(u) of
this Agreement shall be true and correct in all material
respects as of the date of this Agreement and |
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as of and as if made on the Closing Date (except that any such
representation and warranty which is expressly given as of a
specified date on or prior to the date of this Agreement need
only be true and correct as of such specified date);
(ii) each of the other representations and warranties of
Stratex set forth in this Agreement shall be true and correct as
of the date of this Agreement and as of and as if made on the
Closing Date (except that any such representation and warranty
which is expressly given as of a specified date prior to the
date of this Agreement need only be true and correct as of such
specified date), in each case without giving effect to any
Stratex Material Adverse Effect, in all
material respects or any other materiality qualifications
or exceptions contained therein, except for any such failures to
be so true and correct which, individually or in the aggregate,
have not had and would not reasonably be expected to have a
Stratex Material Adverse Effect; and (iii) Harris shall
have received a certificate signed on behalf of Stratex by the
Chief Executive Officer or Chief Financial Officer of Stratex as
to the matters set forth in clauses (i) and (ii) of
this Section 10.2(a). |
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(b) Performance of Obligations by Stratex. Stratex
shall have performed in all material respects all obligations
under this Agreement that are required to be performed by it at
or prior to the Closing, and Harris shall have received a
certificate signed on behalf of Stratex by the Chief Executive
Officer of Chief Financial Officer of Stratex to such effect. |
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(c) Ancillary Agreements. Newco shall have executed
and delivered a counterpart of each Ancillary Agreement. |
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(d) Tax Opinion. Harris shall have received the
opinion of Sullivan & Cromwell LLP, counsel to Harris,
dated the Closing Date, to the effect that the contribution of
the Contributed Assets by Harris to Newco in exchange for the
Newco Contribution Shares pursuant to the Contribution
Transaction and the exchange of shares of Stratex Common Stock
for Class A Common Stock pursuant to the Merger, taken
together, will be treated for federal income tax purposes as a
transaction described in Section 351 of the Code. In
rendering such opinion, counsel to Harris shall be entitled to
rely upon customary assumptions and representations provided by
Newco, Harris and Stratex and others that counsel to Harris
reasonably deemed relevant. |
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(e) Stratex Required Third Party Consents. All of
the consents, approvals, authorizations, licenses and waivers
from non-Government Entities set forth on Schedule P
(collectively, the Stratex Required Third Party
Consents) shall have been obtained without the payment
or provision of any material consideration by Stratex and/or its
Subsidiaries and Stratex shall have provided reasonable evidence
of such receipt of the Stratex Required Third Party Consent. |
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(f) No Stratex Material Adverse Effect. Since the
date of this Agreement, there shall not have been any event,
occurrence, discovery or development that, individually or in
the aggregate, has had, or would reasonably be expected to have,
a Stratex Material Adverse Effect. |
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(g) The Merger. All of the conditions to
Stratexs obligations to consummate the Merger (other than
Section 10.3(g)) shall have been satisfied or waived
in writing by Stratex. |
10.3. Conditions to
Stratexs Obligation to Effect the Merger. The
obligation of Stratex to effect the Merger is also subject to
the satisfaction or waiver by Stratex at or prior to the Closing
of the following conditions:
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(a) Representations and Warranties. (i) Each of
the representations and warranties of Harris set forth in the
last sentence of Section 7.2(b),
Section 7.2(c), Section 7.2(d)(ii) and
Section 7.2(t) of this Agreement shall be true and
correct in all material respects as of the date of this
Agreement and as of and as if made on the Closing Date (except
that any such representation and warranty which is expressly
given as of a specified date on or prior to the date of this
Agreement need only be true and correct as of such specified
date); (ii) each of the other representations and
warranties of Harris set forth in this Agreement shall be true
and correct as of the date of this Agreement and as of and as if
made on the Closing Date (except that any such representation
and warranty which is expressly given as of a specified date
prior to the date of this Agreement need only be true and
correct as of such specified date), in each case without giving
effect to any Harris Material Adverse |
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Effect, in all material respects or any other
materiality qualifications or exceptions contained therein,
except for any such failures to be so true and correct which,
individually or in the aggregate, have not had and would not
reasonably be expected to have a Harris Material Adverse Effect;
and (iii) Stratex shall have received a certificate signed
on behalf of Harris by the Chief Executive Officer or Chief
Financial Officer of Harris as to the matters set forth in
clauses (i) and (ii) of this
Section 10.3(a). |
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(b) Performance of Obligations by Harris. Harris
shall have performed in all material respects all obligations
under this Agreement required to be performed by it at or prior
to the Closing, and Stratex shall have received a certificate
signed on behalf of Harris by the Chief Executive Officer or
Chief Financial Officer of Harris to such effect. |
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(c) Ancillary Agreements. Each of Newco and Harris
shall have executed and delivered a counterpart of each
Ancillary Agreement. |
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(d) Tax Opinion. Stratex shall have received the
opinion of Bingham McCutchen LLP, counsel to Stratex, dated the
Closing Date, to the effect that the merger will, for federal
income tax purposes, constitute a reorganization within the
meaning of Section 368(a) of the Code, and that each of
Newco and Stratex will constitute a party to a reorganization
within the meaning of Section 368 (b) of the Code. In
rendering such opinion, counsel to Stratex shall be entitled to
rely upon customary assumptions and representations provided by
Newco, Harris and Stratex and others that counsel to Stratex
reasonably deemed relevant. |
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(e) Harris Required Third Party Consents. All of the
consents, approvals, authorizations, licenses and waivers from
non-Government Entities set forth on Schedule Q
(collectively, the Harris Required Third Party
Consents) shall have been obtained without the payment
or provision of any material consideration by Harris and/or its
Subsidiaries. |
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(f) No Harris Material Adverse Effect. Since the
date of this Agreement, there shall not have been any event,
occurrence, discovery or development that, individually or in
the aggregate, has had, or would reasonably be expected to have,
a Harris Material Adverse Effect. |
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(g) The Contribution Transaction. All of the
conditions to Harris obligations to consummate the
Contribution Transaction (other than
Section 10.2(g)) shall have been satisfied or waived
in writing by Harris. |
ARTICLE XI
Termination
11.1. Termination. This
Agreement may be terminated and the Transactions may be
abandoned at any time prior to the Closing, whether before or
after obtaining the Stratex Requisite Vote,
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(a) by mutual written consent of Harris and Stratex; |
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(b) by either Harris or Stratex: if (i) the
Contribution Transaction and the Merger shall not have been
consummated by March 31, 2007 (the Termination
Date), (ii) the vote on the adoption of this
Agreement by the stockholders of Stratex shall have been
completed at the Stratex Stockholders Meeting (after any
postponement or adjournment thereof) and the Stratex Requisite
Vote shall not have been obtained, (iii) any Order
permanently enjoining, restraining or otherwise prohibiting the
Contribution Transaction or the Merger exists and such Order
shall have become final and nonappealable; provided,
however, that the right to terminate this Agreement pursuant
to this Section 11.1(b) shall not be available to
any party that has breached its obligations under this Agreement
in any manner that shall have proximately contributed to the
occurrence of the event which gave rise to the termination right
under this Section 11.1(b); |
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(c) by Harris, if (i) the Stratex Board shall have
made, or agreed to make, a Change In Recommendation or failed to
reconfirm its recommendation of this Agreement within five |
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(5) Business Days after a written request by Harris to do
so, (ii) there has been a breach of any representation,
warranty, covenant or agreement made by Stratex in this
Agreement, or any such representation or warranty shall have
become untrue or incorrect on any date subsequent to the date of
this Agreement, in each case in a manner that would cause the
condition in Section 10.2(a) or 10.2(b), as
the case may be, not to be satisfied (assuming, except for cure
purposes, any such subsequent date was the Closing Date) and
such breach or failure to be true or correct is not curable or,
if curable, is not cured within 30 days after written
notice thereof is given by Harris to Stratex, (iii) a vote
on the adoption of this Agreement by the stockholders of Stratex
shall not have been taken and completed by February 28,
2007 or (iv) Stratex shall have materially breached any of
its obligations under Section 9.1 or
Section 9.2; provided, however, that
notwithstanding the foregoing Harris may not terminate this
Agreement pursuant to Section 11.1(c) or
Section 11.1(c)after the Stratex Requisite Vote has
been obtained; |
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(d) by Stratex, if there has been a breach of any
representation, warranty, covenant or agreement made by Harris
in this Agreement, or any such representation or warranty shall
have become untrue or incorrect on any date subsequent to the
date of this Agreement, in each case in a manner that would
cause the conditions in Section 10.3(a) or
Section 10.3(b), as the case may be, not to be
satisfied (assuming, except for cure purposes, any such
subsequent date was the Closing Date) and such breach or failure
to be true and correct is not curable or, if curable, is not
cured within 30 days after written notice thereof is given
by Stratex to Harris; or |
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(e) by Stratex, at any time prior to the time the Stratex
Requisite Vote has been obtained, in order for Stratex to enter
into a definitive agreement with respect to a Superior Proposal
if (i) Stratex has not materially breached any of the terms
of this Agreement, (ii) the Stratex Board has authorized
Stratex to enter into a definitive agreement for such Superior
Proposal, (iii) Stratex has complied with
Section 9.1 and (iv) prior to the termination
of this Agreement pursuant to this Section 11.1(e),
Stratex shall have irrevocably paid to Harris the Termination
Fee payable pursuant to Section 11.2(d) by wire
transfer of immediately available funds. |
11.2. Effect of Termination and
Abandonment.
(a) In the event of termination of this Agreement and the
abandonment of the Transactions pursuant to this
ARTICLE XI, this Agreement (other than as set forth
in Section 13.1) shall become void and of no effect
with no liability on the part of any party hereto (or of any of
its directors, officers or other Representatives); provided,
however, that no such termination shall relieve any party
hereto of any liability or damages resulting from any breach of
this Agreement prior to such termination.
(b) In the event that at any time after the date of this
Agreement and prior to its termination a bona fide Acquisition
Proposal (assuming, for this purpose only, that all references
to 15% in the definition of such term were changed
to a majority (a Covered
Proposal)) shall have been made to Stratex or any of
its Subsidiaries or its stockholders or any Person shall have
publicly announced an intention (whether or not conditional) to
make a Covered Proposal with respect to Stratex or any of its
Subsidiaries and thereafter this Agreement is terminated by
either Harris or Stratex pursuant to Section 11.1(b)
(unless (i) any of the conditions set forth in
Section 10.1(e) or Section 10.3(other
than Section 10.3(g)) shall not have been satisfied
(or, in the case of any such condition to be satisfied at the
Closing, capable of such satisfaction) at the time of such
termination, or (ii) the only condition to Harris
obligation to effect the Contribution Transaction which is not
satisfied at the time of such termination (other than, in the
case of any such conditions to be satisfied at the Closing,
those that are capable of such satisfaction) is
Section 10.2(f) and the events, conditions or circumstances
which caused such condition not to be satisfied were not,
directly or indirectly, within the control of Stratex or any of
its Subsidiaries) or Section 11.1(b) or by Harris
pursuant to Section 11.1(c) or
Section 11.1(c), then (A) Stratex shall
promptly, but in no event later than two days after being
notified of such by Harris, reimburse Harris for all of the
documented
out-of-pocket expenses
incurred by Harris in connection with this Agreement and the
Transactions up to a maximum amount of $2 million by wire
transfer of immediately available funds and (B) if Stratex
(I) consummates any Covered Proposal with any Person within
the twelve-month
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period immediately following the date on which this Agreement
has been so terminated (the Tail Period) or
(II) enters into a definitive agreement for any Covered
Proposal with any Person during the Tail Period and
(x) consummates any Covered Proposal with such Person
within the twelve-month period immediately following the end of
the Tail Period or (y) consummates any Covered Proposal
with any other Person within the fifteen-month period
immediately following the end of the Tail Period, then in each
such case Stratex shall pay to Harris on or prior to such
consummation of such Covered Proposal by wire transfer of
immediately available funds a termination fee equal to
$14.5 million (the Termination Fee)
minus the aggregate amount of expenses previously
reimbursed pursuant to clause (A) of this
Section 11.2(b).
(c) In the event that this Agreement is terminated by
Harris pursuant to Section 11.1(c) or
Section 11.1(c), then Stratex shall promptly, but in
no event later than two days after the date of such termination,
pay to Harris the Termination Fee by wire transfer of
immediately available funds.
(d) In the event that Stratex terminates this Agreement
pursuant to Section 11.1(e), Stratex shall pay to
Harris the Termination Fee by wire transfer of immediately
available funds immediately prior to, and as a condition of,
such termination.
(e) Stratex acknowledges that the agreements contained in
Section 11.2(b), Section 11.2(c) and
Section 11.2(d) are an integral part of the
transactions contemplated by this Agreement, and that, without
these agreements, Harris would not enter into this Agreement;
accordingly, if Stratex fails to promptly pay any amounts due
pursuant to Section 11.2(b),
Section 11.2(c) or Section 11.2(d), and,
in order to obtain such payment, Harris commences a suit that
results in a judgment against Stratex for such amounts, Stratex
shall pay to Harris its costs and expenses (including
attorneys fees) in connection with such suit and any
amounts payable by Stratex pursuant to this
Section 11.2 which are not paid when due shall bear
interest from the due date to the payment date at a rate per
annum equal to 2% above the prime rate of Citibank, N.A. in
effect on the date such amounts were due.
ARTICLE XII
Survival and Indemnification
12.1. No Survival of
Representations and Warranties. The representations and
warranties of Harris and Stratex contained in this Agreement or
any certificate delivered in accordance with the terms of this
Agreement shall not survive the Closing.
12.2. Indemnification by
Newco. From and after the Closing Date, Newco shall
indemnify and defend and hold Harris and its Subsidiaries,
directors, officers, partners, employees, representatives and
agents (collectively with Harris, the Harris
Indemnified Persons) harmless from and against any and
all Losses incurred by any Harris Indemnified Person (whether or
not involving a third-party claim) arising out of or relating to
(a) any breach by Newco or any of its Subsidiaries of any
covenants of Newco contained in this Agreement to be performed
by Newco or any of its Subsidiaries following the Closing (it
being agreed that any action or inaction approved by the Board
of Directors of Newco shall not be subject to indemnity under
this Section 12.2 if a majority of the directors of
Newco at the time of such action or inaction were Class B
Directors (as such term is defined in the Investor Agreement),
(b) any Assumed Liability, (c) any Liability arising
out of or relating to the operation of the businesses or
Properties or Liabilities of (i) Stratex prior to the
Closing or (ii) Newco and/or any of its Subsidiaries on or
after the Closing.
12.3. Indemnification by
Harris. From and after the Closing Date, Harris shall
indemnify and defend and hold Newco and its Subsidiaries,
directors, officers, partners, employees, representatives and
agents (collectively with Newco, the Newco Indemnified
Persons) harmless from and against any and all Losses
incurred by any Newco Indemnified Person (whether or not
involving a third-party claim) arising out of or relating to
(a) any breach by Harris or any of its Subsidiaries of any
covenants of Harris contained in this Agreement to be performed
by Harris or any of its Subsidiaries following the Closing or
(b) any Excluded Asset or Excluded Liability.
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12.4. Third Party Claims. If
any claim or action by a third party is made in writing against
a Harris Indemnified Person or a Newco Indemnified Person (each,
an Indemnified Party) for which
indemnification is provided under this Agreement and such
Indemnified Party intends to seek such indemnity, then such
Indemnified Party shall promptly notify the party from whom
indemnification may be sought hereunder (the
Indemnifying Party) in writing of such claim
or action; provided, however, that any failure by such
Indemnified Party to such give such notice promptly will not
relieve the Indemnifying Party of any of its indemnification
obligation hereunder except to the extent that the Indemnifying
Party is actually prejudiced by such failure. In case any such
action shall be brought against any Indemnified Party, the
Indemnifying Party shall be entitled to participate therein or,
at its election, to assume the defense thereof with counsel
reasonably satisfactory to the Indemnified Party. After notice
from the Indemnifying Party to the Indemnified Party of its
election so to assume the defense thereof, the Indemnifying
Party shall not be liable to the Indemnified Party under this
ARTICLE XII for any legal expenses of other counsel
or any other expenses subsequently incurred by the Indemnified
Party in connection with the defense thereof (other than
reasonable costs of investigation) unless the Indemnified Party
shall have been advised by counsel that representation of the
Indemnified Party by counsel provided by the Indemnifying Party
would be inappropriate due to actual or potential conflicting
interests between the Indemnified Party and the Indemnifying
Party, including situations in which there are one or more legal
defenses available to the Indemnified Party that are different
from or additional to those available to Indemnifying Party;
provided, however, that notwithstanding the foregoing the
Indemnifying Party shall not, in connection with any one such
action or separate but substantially similar actions arising out
of the same general allegations, be liable for the fees and
expenses of more than one separate set of counsel at any time
for all Indemnified Parties, except to the extent that local
counsel, in addition to their regular counsel, is required in
order to effectively defend against such action. No Indemnifying
Party shall, without the written consent of the Indemnified
Party, effect the settlement or compromise of, or consent to the
entry of any judgment with respect to, any pending or threatened
action or claim in respect of which indemnification or
contribution may be sought hereunder (whether or not the
Indemnified Party is an actual or potential party to such action
or claim) unless such settlement, compromise or judgment
(i) includes an unconditional release of the Indemnified
Party from all liability arising out of such action or claim and
(ii) does not include a statement as to, or an admission
of, fault, culpability or a failure to act, by or on behalf of
the Indemnified Party. No indemnification shall be available in
respect of any settlement of any action or claim effected by an
Indemnified Party without the prior written consent of the
Indemnifying Party.
12.5. Tax and Insurance
Adjustments. Any and all Losses for which indemnification is
provided hereunder shall be (a) increased to take into
account any net Taxes actually payable by the applicable
Indemnified Parties attributable to the receipt of such payment
(grossed up for such increase) and (b) reduced to take into
account any net tax benefit actually realized by the applicable
Indemnified Party as a result of incurring such Losses or any
insurance proceeds actually recovered in respect of such Losses
(net of any cost of recovery or increased premiums resulting
therefrom) and each party agrees to use commercially reasonable
efforts to recover all available insurance proceeds.
ARTICLE XIII
Miscellaneous and General
13.1. Survival.
(a) This ARTICLE XIII, the agreements of
Stratex, Harris and Newco, as applicable, contained in
Section 3.1(b)(Excluded Assets),
Section 3.7 (Nonassignability of Assets),
Section 6.2 (Exchange of Certificates),
Section 6.3 (Dissenters Rights),
Section 6.4 (Treatment of Stratex Stock Plans),
Section 9.5 (Tax Matters), Section 9.9
(Insurance Proceeds), Section 9.15 (Further
Assurances), Section 9.17 (Expenses),
Section 9.18(Indemnification; Directors and
Officers Insurance) and ARTICLE XII(Survival
and Indemnification) shall survive the consummation of the
Contribution Transaction, the Merger and the other Transactions
and all representations and warranties and other covenants and
agreements in this Agreement shall not survive the consummation
of the Contribution Transaction, the Merger. Harris agrees that
a majority of the Class A Directors (as defined in the
Investor
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Agreement) shall have the sole and exclusive right to exercise
and enforce any rights under this Agreement which Newco or any
of its Subsidiaries are entitled to enforce against Harris after
Closing.
(b) This ARTICLE XIII, the agreements of
Stratex and Harris contained in Section 9.17
(Expenses), Section 11.2 (Effect of Termination and
Abandonment) and the Confidentiality Agreement shall survive the
termination of this Agreement, and all other representations,
warranties, covenants and agreements in this Agreement shall not
survive the termination of this Agreement.
13.2. Modification or
Amendment. Subject to applicable Law, at any time prior to
the Effective Time, this Agreement may be amended, modified or
supplemented, and any provision hereof waived, only in a writing
signed by the parties hereto.
13.3. Waiver of Conditions.
The conditions to each of the parties obligations to
consummate the Contribution Transaction or the Merger are for
the sole benefit of such party and may be waived by such party
in whole or in part to the extent permitted by applicable Law.
No failure or delay by any party to take any action with respect
to a breach by another party of this Agreement or a default by
another party hereunder shall constitute a waiver of the former
partys right to enforce any provision of this Agreement or
to take action with respect to such breach or default or any
subsequent breach or default. Waiver by any party of any breach
or failure to comply with any provision of this Agreement by
another party shall not be construed as, or constitute, a
continuing wavier of such provisions, or a waiver of any other
breach of or failure to comply with any other provisions of this
Agreement.
13.4. Counterparts. This
Agreement may be executed in any number of counterparts, each
such counterpart being deemed to be an original instrument, and
all such counterparts shall together constitute the same
agreement.
13.5. GOVERNING LAW AND
VENUE; WAIVER OF JURY TRIAL. (a) THIS AGREEMENT SHALL
BE DEEMED TO BE MADE IN AND IN ALL RESPECTS SHALL BE
INTERPRETED, CONSTRUED AND GOVERNED BY AND IN ACCORDANCE WITH
THE LAW OF THE STATE OF DELAWARE WITHOUT REGARD TO THE CONFLICT
OF LAW PRINCIPLES THEREOF. The parties hereby irrevocably
submit to the jurisdiction of the courts of the State of
Delaware and the Federal courts of the United States of America
located in the State of Delaware solely in respect of the
interpretation and enforcement of the provisions of this
Agreement and of the documents referred to in this Agreement,
and in respect of the Transactions, and hereby waive, and agree
not to assert, as a defense in any action, suit or proceeding
for the interpretation or enforcement hereof or of any such
document, that it is not subject thereto or that such action,
suit or proceeding may not be brought or is not maintainable in
said courts or that the venue thereof may not be appropriate or
that this Agreement or any such document may not be enforced in
or by such courts, and the parties hereto irrevocably agree that
all claims with respect to such action or proceeding shall be
heard and determined in such a Delaware State or Federal court.
The parties hereby consent to and grant any such court
jurisdiction over the person of such parties and, to the extent
permitted by law, over the subject matter of such dispute and
agree that mailing of process or other papers in connection with
any such action or proceeding in the manner provided in
Section 13.6 or in such other manner as may be
permitted by law shall be valid and sufficient service thereof.
(b) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY
WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE
COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH SUCH PARTY
HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH
PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION
DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS
AGREEMENT, OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.
EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (I) NO
REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD
NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING
WAIVER, (II) EACH PARTY UNDERSTANDS AND HAS CONSIDERED THE
IMPLICATIONS OF THIS WAIVER,
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(III) EACH PARTY MAKES THIS WAIVER VOLUNTARILY, AND
(IV) EACH PARTY HAS BEEN INDUCED TO ENTER INTO THIS
AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION 13.5.
13.6. Notices. Any notice, request, instruction or other
document to be given hereunder by any party to the others shall
be in writing and delivered personally or sent by registered or
certified mail or by overnight courier, postage prepaid, or by
facsimile:
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if to Harris: |
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Harris Corporation |
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1025 West NASA Blvd. |
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Melbourne, FL 32919 |
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Attn: Scott T. Mikuen |
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fax: (321) 727-9222 |
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with a copy to (which shall not constitute notice): |
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Sullivan & Cromwell LLP |
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125 Broad Street |
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New York, NY 10004 |
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fax: (212) 558-3588 |
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Attention: Duncan C. McCurrach |
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if to Stratex: |
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Stratex Networks, Inc. |
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120 Rose Orchard Way |
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San Jose, CA 95134 |
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Attn: Juan Otero |
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fax: (408) 944-1770 |
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with a copy to (which shall not constitute notice): |
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Bingham McCutchen LLP |
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1900 University Avenue |
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East Palo Alto, CA 94303 |
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fax: (650) 849-4800 |
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Attention: Bart Deamer |
or to such other Persons or addresses as may be designated in
writing by the party to receive such notice as provided above.
Any notice, request, instruction or other document given as
provided above shall be deemed given to the receiving party upon
actual receipt, if delivered personally; three (3) Business
Days after deposit in the mail, if sent by registered or
certified mail; upon confirmation of successful transmission if
sent by facsimile (provided that if given by facsimile such
notice, request, instruction or other document shall be followed
up within one (1) Business Day by dispatch pursuant to one
of the other methods described herein); or on the next Business
Day after deposit with a nationally recognized overnight
courier, if sent by a nationally recognized overnight courier.
13.7. Entire Agreement. This
Agreement (including any Exhibits and Schedules hereto), the
Stratex Disclosure Letter, the Harris Disclosure Letter and the
Confidentiality Agreement constitute the entire agreement, and
supersede all other prior agreements, understandings,
representations and warranties both written and oral, among the
parties, with respect to the subject matter hereof.
13.8. No Third Party
Beneficiaries. Except as provided in
Section 9.18 (Indemnification; Directors and
Officers Insurance), this Agreement is not intended to,
and does not, confer upon any Person other than the parties who
are signatories hereto any rights or remedies hereunder.
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13.9. Obligations of Harris and
of Stratex. Whenever this Agreement requires a Subsidiary of
Harris to take any action, such requirement shall be deemed to
include an undertaking on the part of Harris to cause such
Subsidiary to take such action. Whenever this Agreement requires
a Subsidiary of Stratex to take any action, such requirement
shall be deemed to include an undertaking on the part of Stratex
to cause such Subsidiary to take such action. Whenever this
Agreement requires Newco to take any action prior to the
Effective Time, unless otherwise specified in this Agreement,
such requirement shall be deemed to include an undertaking on
the part of Harris and Stratex to take the necessary actions to
cause Newco to take such action.
13.10. Severability. The
provisions of this Agreement shall be deemed severable and the
invalidity or unenforceability of any provision shall not affect
the validity or enforceability or the other provisions hereof.
If any provision of this Agreement, or the application thereof
to any Person or any circumstance, is invalid or unenforceable,
(a) a suitable and equitable provision shall be substituted
therefor in order to carry out, so far as may be valid and
enforceable, the intent and purpose of such invalid or
unenforceable provision and (b) the remainder of this
Agreement and the application of such provision to other Persons
or circumstances shall not be affected by such invalidity or
unenforceability, nor shall such invalidity or unenforceability
affect the validity or enforceability of such provision, or the
application thereof, in any other jurisdiction.
13.11. Interpretation;
Construction. (a) The table of contents and headings
herein are for convenience of reference only, do not constitute
part of this Agreement and shall not be deemed to limit or
otherwise affect any of the provisions hereof.
(b) The parties have participated jointly in negotiating
and drafting this Agreement. In the event that an ambiguity or a
question of intent or interpretation arises, this Agreement
shall be construed as if drafted jointly by the parties, and no
presumption or burden of proof shall arise favoring or
disfavoring any party by virtue of the authorship of any
provision of this Agreement.
(c) Each of Stratex and Harris has or may have set forth
information in its respective disclosure letter in a section
thereof that corresponds to the section of this Agreement to
which it relates. A matter set forth in one section of a
disclosure letter need not be set forth in any other section of
the disclosure letter so long as its relevance to the latter
section of the disclosure letter or section of this Agreement is
readily apparent on the face of the information disclosed in the
disclosure letter to the Person to which such disclosure is
being made. The fact that any item of information is disclosed
in a disclosure letter to this Agreement shall not be construed
to mean that such information is required to be disclosed by
this Agreement. Such information and the dollar thresholds set
forth herein shall not be used as a basis for interpreting the
terms material, Stratex Material Adverse
Effect, Harris Material Adverse Effect or
other similar terms in this Agreement.
13.12. Assignment. This
Agreement shall not be assignable by operation of law or
otherwise. Any purported assignment in violation of this
Agreement is void.
A-69
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by the duly authorized officers of the parties hereto
as of the date first written above.
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Name: |
Howard L. Lance |
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Title: |
Chairman, President & Chief Executive Officer |
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By |
/s/ Charles D. Kissner
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Name: |
Charles D. Kissner |
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Title: |
Chairman |
[Signature Page to the Formation, Contribution and Merger
Agreement]
A-70
APPENDIX B
FORM OF VOTING AGREEMENT
September 5, 2006
[Name]
[Address]
Dear
Mr. :
This letter is to confirm our agreement regarding all of the
shares of common stock, par value $0.01 per share
(Common Stock), of STRATEX NETWORKS, INC., a
Delaware corporation (Stratex), beneficially
owned (as defined below) by you and your Affiliates as of the
date of this letter agreement (the Current
Shares) and all other shares of Common Stock as to
which you or your Affiliates may hereafter acquire beneficial
ownership after the date of this letter agreement (New
Shares and, collectively with the Current Shares, the
Subject Shares), which agreement was required
to induce HARRIS CORPORATION, a Delaware corporation
(Harris), to enter into the Formation,
Contribution and Merger Agreement, dated the date hereof (the
Formation Agreement), among Stratex and
Harris. As used in this letter agreement, beneficial
ownership shall have the meaning set forth in
Rule 13d-3 and
Rule 13d-5 under
the Exchange Act; provided, however, that notwithstanding
the foregoing no shares of Common Stock issuable upon exercise
of outstanding options issued by Stratex shall be deemed to be
beneficially owned for any purpose of this letter agreement
unless, until and only to the extent that such shares are
acquired upon any such exercise and nothing in this letter
agreement shall be deemed to require any such exercise.
Capitalized terms used but not defined herein which are defined
in the Formation Agreement shall have the meanings ascribed to
them in the Formation Agreement; provided, however, that
notwithstanding the foregoing neither Stratex nor any of its
other officers, directors or Subsidiaries shall be deemed to be
your Affiliate.
Subject to the terms and conditions hereof, you hereby agree
(i) to vote or cause to be voted all of the Subject Shares
in favor of the adoption of the Formation Agreement and approval
of the Merger at the Stratex Stockholder Meeting (including any
adjournment or postponement thereof), (ii) to vote or cause
to be voted all of Subject Shares against any Acquisition
Proposal other than the Merger, or any other matters which could
reasonably be expected to impede, interfere with, delay or
adversely affect the consummation of the Merger or the other
transactions contemplated by the Formation Agreement,
(iii) to comply with all restrictions and obligations
imposed on Stratexs Representatives by Section 9.1 of
the Formation Agreement and (iv) not to sell, transfer,
assign, pledge, encumber or dispose of, or grant a proxy or
enter into a voting agreement or trust or similar arrangement
with respect to, any of the Subject Shares (other than pursuant
to this letter agreement or to Harris or any of its
Subsidiaries). In furtherance of your voting agreement in
clauses (i) and (ii) of the preceding sentence, you hereby
revoke any and all previous proxies with respect to any of the
Subject Shares and grant to Harris and such individuals or
corporations as Harris may designate an irrevocable proxy to
vote all of the Subject Shares beneficially owned by you or any
of your Affiliates in accordance with such clause. You hereby
acknowledge that the proxy granted by the foregoing is coupled
with an interest and is irrevocable. In addition, you hereby
agree to execute such additional documents as Harris may
reasonably request to effectuate its proxy and voting rights
under this paragraph. You hereby agree to notify Stratexs
transfer agent for the Common Stock of the limitations on
transfer imposed by this letter agreement.
You hereby represent and warrant that (i) you and/or your
Affiliates are the sole record and beneficial owner of the
Current Shares and will be the sole and record beneficial owner
of all New Shares from and after the date you and/or your
Affiliates acquire beneficial ownership thereof (with respect to
each New Share, its Acquisition Date) ,
(ii) you and your Affiliates have the sole and full right,
power and authority to vote all of the Current Shares and will
have the sole and full right, power and authority to
B-1
vote all of the New Shares from and after their respective
Acquisition Dates, (iii) you have full power and authority
to, and will, cause each of your Affiliates who beneficially
owns any Subject Shares to comply with this letter agreement,
(iv) you have full power and authority to execute, deliver
and perform your obligations under this letter agreement and to
consummate the transactions contemplated hereby, (iv) this
letter agreement has been duly executed and delivered by you and
constitutes a valid and legally binding obligation of you,
enforceable against you in accordance with its terms subject
only to the Bankruptcy and Equity Exception, and
(v) neither the execution, delivery or performance by you
of this letter agreement nor the consummation by you or your
Affiliates of the transactions contemplated hereby will
constitute a violation of, or conflict with, or default under,
any applicable Law or any contract, commitment, agreement,
understanding, arrangement or restriction of any kind to which
you or any of your Affiliates are a party or by which you or any
such Affiliate or the Subject Shares are bound.
We each hereby agree that you are not making any agreement or
understanding herein in any capacity other than in your capacity
as a stockholder of Stratex. Nothing contained in this letter
agreement shall restrict you from taking any actions as an
officer or director of Stratex if the failure to take such
action would result in a breach of your fiduciary duties to the
stockholders of Stratex.
This letter agreement will terminate, and all rights and
obligations of the parties hereunder shall terminate,
concurrently with consummation of the Merger or the termination
of the Formation Agreement in accordance with its terms. No such
termination shall relieve any party from liability for any
willful breach of this letter agreement.
Each party shall be entitled, without prejudice to the rights
and remedies otherwise available to such party, to specific
performance of all of the other partys obligations
hereunder. This letter agreement shall be governed by and
construed in accordance with the internal laws of the State of
Delaware without giving effect to the conflict of laws
principles thereof. No party shall be required to pay or
reimburse any expenses incurred by any other party in connection
with the execution, delivery or performance of this letter
agreement.
This letter agreement (i) is not intended to, and does not,
confer upon any person or entity other than the parties who are
signatories hereto any rights or remedies hereunder,
(ii) constitutes the entire agreement among the parties
hereto with respect to the subject matter hereof and supersedes
all other prior agreements and understandings, both written and
oral, between the parties with respect to the subject matter
hereof and (iii) may be executed in any number of
counterparts, each of which shall be deemed to be an original.
No provision of this letter agreement may be amended or waived
unless such amendment or waiver is in writing and signed, in the
case of an amendment, by all parties hereto or, in the case of a
waiver, by the waiving party. No failure or delay by any party
in exercising any right, power or privilege hereunder shall
operate as a waiver thereof nor shall any single or partial
exercise thereof preclude any other or further exercise thereof
or the exercise of any other right, power or privilege. The
rights and remedies herein provided shall be cumulative and not
exclusive of any rights or remedies provided by law.
If any term, provision, covenant or restriction of this letter
agreement is held by a court of competent jurisdiction to be
invalid, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions of this letter agreement
shall remain in full force and effect and shall in no way be
affected, impaired or invalidated.
GOVERNING LAW AND VENUE; WAIVER OF JURY TRIAL. THIS
LETTER AGREEMENT SHALL BE DEEMED TO BE MADE IN AND IN ALL
RESPECTS SHALL BE INTERPRETED, CONSTRUED AND GOVERNED BY AND IN
ACCORDANCE WITH THE LAW OF THE STATE OF DELAWARE WITHOUT REGARD
TO THE CONFLICT OF LAW PRINCIPLES THEREOF. The parties
hereby irrevocably submit to the jurisdiction of the courts of
the State of Delaware and the Federal courts of the United
States of America located in the State of Delaware solely in
respect of the interpretation and enforcement of the provisions
of this letter agreement and of the documents referred to in
this letter agreement, and in respect of the transactions
contemplated hereby, and hereby waive, and agree not to assert,
as a defense in any action, suit or proceeding for the
interpretation or enforcement hereof or of any such document,
that it is not subject thereto or that such
B-2
action, suit or proceeding may not be brought or is not
maintainable in said courts or that the venue thereof may not be
appropriate or that this letter agreement or any such document
may not be enforced in or by such courts, and the parties hereto
irrevocably agree that all claims with respect to such action or
proceeding shall be heard and determined in such a Delaware
State or Federal court. The parties hereby consent to and grant
any such court jurisdiction over the person of such parties and,
to the extent permitted by law, over the subject matter of such
dispute and agree that mailing of process or other papers in
connection with any such action or proceeding in the manner
provided in notice provisions of this letter agreement or in
such other manner as may be permitted by law shall be valid and
sufficient service thereof.
EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH
MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED
AND DIFFICULT ISSUES, AND THEREFORE EACH SUCH PARTY HEREBY
IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY
HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR
INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY
CERTIFIES AND ACKNOWLEDGES THAT (I) NO REPRESENTATIVE,
AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY
OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (II) EACH
PARTY UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS
WAIVER, (III) EACH PARTY MAKES THIS WAIVER VOLUNTARILY, AND
(IV) EACH PARTY HAS BEEN INDUCED TO ENTER INTO THIS
AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS PARAGRAPH AND THE IMMEDIATELY PRECEDING
PARAGRAPH.
Any notice, request, instruction or other document to be given
hereunder by any party to the others shall be in writing and
delivered personally or sent by registered or certified mail or
by overnight courier, postage prepaid, or by facsimile:
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if to Harris: |
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Harris Corporation
1025 West NASA Blvd.
Melbourne, FL 32919
Attn: Scott T. Mikuen fax: (321) 727-9222 |
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with a copy to (which shall not constitute notice): |
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Sullivan & Cromwell LLP
125 Broad Street
New York, NY 10004
fax: (212) 558-3588
Attention: Duncan C. McCurrach |
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if to Stratex: |
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Stratex Networks, Inc.
120 Rose Orchard Way
San Jose, CA 95134
Attn: General Counsel
fax: (408) 944-1770 |
B-3
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with a copy to (which shall not constitute notice): |
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Bingham McCutchen LLP
1900 University Avenue
East Palo Alto, CA 94303
fax: (650) 849-4800
Attention: Bart Deamer |
or to such other Persons or addresses as may be designated in
writing by the party to receive such notice as provided above.
Any notice, request, instruction or other document given as
provided above shall be deemed given to the receiving party upon
actual receipt, if delivered personally; three business days
after deposit in the mail, if sent by registered or certified
mail; upon confirmation of successful transmission if sent by
facsimile (provided that if given by facsimile such notice,
request, instruction or other document shall be followed up
within one business day by dispatch pursuant to one of the other
methods described herein); or on the next business day after
deposit with an overnight courier, if sent by an overnight
courier.
Each party hereby acknowledges and agrees that because the
obligations undertaken by them hereunder are unique and the
breach of any such obligations would cause irreparable harm and
significant injury that would be difficult to ascertain and
would not be adequately compensable by damages alone, each party
will have the right to enforce such provisions by injunction,
specific performance or other equitable relief without prejudice
to any other rights and remedies the enforcing party may have.
No party may assign this letter agreement or any rights,
benefits, obligations or remedies hereunder without the prior
written consent of the other party hereto.
This letter agreement has been negotiated by the parties and
their respective counsel in good faith and will be fairly
interpreted in accordance with its terms and without any strict
construction in favor of or against any party. Time shall be of
the essence of this letter agreement.
If the foregoing correctly sets forth our agreement, please sign
both copies of this letter agreement in the space provided below
and return one copy to us, whereupon this letter agreement will
constitute a binding agreement among us.
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Sincerely, |
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HARRIS CORPORATION |
Acknowledged and agreed as of the date first written above:
Name:
B-4
APPENDIX C
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
HARRIS STRATEX NETWORKS, INC.
Harris Stratex Networks, Inc. (the Corporation), a
corporation organized and existing under, and by virtue of, the
General Corporation Law of the State of Delaware
(DGCL) hereby certifies as follows:
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(1) The name of the Corporation is Harris Stratex Networks,
Inc. |
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(2) The original certificate of incorporation of the
Corporation was filed with the Secretary of State of Delaware on
October 5, 2006. |
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(3) This amended and restated certificate of incorporation
which restates, integrates and amends the Corporations
certificate of incorporation, as heretofore amended or
supplemented, has been duly adopted by the board of directors of
the Corporation (the Board) and by the stockholders
of the Corporation in accordance with Sections 242 and 245
of the DGCL, and has been duly executed by an officer of the
Corporation and filed in accordance with Section 103 of the
DGCL. |
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(4) The text of the certificate of incorporation of the
Corporation as restated, integrated and amended (the
Amended and Restated Certificate of
Incorporation) shall read, in its entirety, as follows: |
ARTICLE I
Name
The name of the Corporation is Harris Stratex Networks, Inc.
ARTICLE II
Registered Agent
The address of the registered office of the Corporation in the
State of Delaware is 1209 Orange Street, the City of
Wilmington, County of New Castle, and the name of its registered
agent at that address is The Corporation Trust Corporation.
ARTICLE III
Purpose
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the DGCL.
ARTICLE IV
Capitalization
The total number of shares of all classes that this Corporation
is authorized to issue is 450,000,000 shares, of which
(i) 50,000,000 shares shall be designated as preferred
stock, par value $0.01 per share (the Preferred
Stock), (ii) 300,000,000 shares shall be
designated as Class A common stock, par value
$0.01 per share (Class A Common
Stock), and (iii) 100,000,000 shares shall
be designated as Class B common stock, par value
$0.01 per share (Class B Common
Stock and, collectively with the Class A Common
Stock, the Common Stock).
C-1
Except for issuances expressly provided for in this Amended and
Restated Certificate of Incorporation, the Corporation shall not
issue any shares of Class B Common Stock or any securities
or other rights convertible into, or exercisable or exchangeable
for, Class B Common Stock without the prior approval of the
holders of a majority of the shares of Class B Common Stock
outstanding prior to such issuance (each such issuance requiring
such prior approval is hereinafter referred to as an
Additional Class B Issuance).
Except as otherwise provided in this Amended and Restated
Certificate of Incorporation, the Class A Common Stock and
Class B Common Stock shall have the same rights and
privileges and shall rank equally, share ratably and be
identical in all respects as to all matters.
(a) Voting. Except as
otherwise provided in this Amended and Restated Certificate of
Incorporation or required by law, the Common Stock shall vote
together as a single class on all matters presented to the
stockholders, with each holder of Common Stock being entitled to
one vote for each share of Common Stock held of record by such
holder on such matters; provided, however, that
notwithstanding the foregoing as long as any shares of
Class B Common Stock are outstanding (i) the holders
of the Class B Common Stock shall have the sole and
exclusive right to elect or remove the Class B Directors
(as defined below) and no holder of any other class of capital
stock of the Corporation shall have any voting rights with
respect to such matters and (ii) the Corporation shall not,
without the prior approval of the holders of a majority of the
outstanding Class B Common Stock voting separately as a
class: (A) amend, alter or repeal (including by merger or
otherwise) any provision of this Amended and Restated
Certificate of Incorporation so as to adversely affect the
rights, preferences, privileges or protections of the
Class B Common Stock, (B) effect or agree to effect
any Additional Class B Issuance or (C) take any other
action upon which a separate class vote of the Class B
Common Stock shall be required by law.
(b) Dividends. Subject to
the rights of the holders of any series of Preferred Stock,
holders of the Common Stock shall be entitled to receive such
dividends and distributions (whether payable in cash or
otherwise) as may be declared on the Common Stock by the Board
from time to time out of assets or funds of the Corporation
legally available therefor; provided, however, that the
Board shall declare no dividend or distribution, and no dividend
or distribution shall be paid, with respect to any outstanding
share of Class A Common Stock or Class B Common Stock,
whether in cash or otherwise (including any dividend in shares
of Class A Common Stock on or with respect to shares of
Class A Common Stock or any dividend in shares of
Class B Common Stock on or with respect to shares of
Class B Common Stock (collectively, Stock
Dividends)), unless the same dividend or distribution
is simultaneously declared or paid, as applicable, with respect
to each outstanding share of Class A Common Stock and
Class B Common Stock. If a Stock Dividend is declared or
paid with respect to one class of Common Stock, then a Stock
Dividend shall likewise be declared or paid with respect to the
other class of Common Stock and shall consist of the number of
shares of such other class which bears the same relationship to
the total number of shares of such other class outstanding
immediately prior to the payment of such Stock Dividends as the
number of shares to be issued in the Stock Dividend with respect
to the first referenced class of Common Stock bears to the total
number of shares of such first referenced class outstanding
immediately prior to the payment of such Stock Dividends. Stock
Dividends with respect to Class A Common Stock may be paid
only with shares of Class A Common Stock. Stock Dividends
with respect to Class B Common Stock may be paid only with
shares of Class B Common Stock.
(c) Subdivisions, Combinations
and Mergers. If the Corporation shall in any manner split,
subdivide or combine the outstanding shares of either class of
Common Stock, the outstanding shares of the other class of
Common Stock shall likewise be split, subdivided or combined in
the same manner proportionately and on the same basis per share.
In the event of any merger, statutory share exchange,
consolidation or similar form of corporate transaction involving
the Corporation (whether or not the Corporation is the surviving
entity), the holders of Class A Common Stock and the
holders of Class B Common Stock shall be entitled to
receive the same per share consideration, if any.
(d) Rights on Liquidation.
Subject to the rights of the holders of any series of Preferred
Stock, in the event of any liquidation, dissolution or
winding-up of the
Corporation (whether voluntary or
C-2
involuntary), the assets of the Corporation available for
distribution to stockholders shall be distributed in equal
amounts per share to the holders of Class A Common Stock
and the holders of Class B Common Stock, as if such classes
constituted a single class. For purposes of this paragraph, a
merger, statutory share exchange, consolidation or similar
corporate transaction involving the Corporation (whether or not
the Corporation is the surviving entity), or the sale, transfer
or lease by the Corporation of all or substantially all its
assets, shall not constitute or be deemed a liquidation,
dissolution or
winding-up of the
Corporation.
(e) Exchange. At any time or
from time to time, any holder of Class B Common Stock may
exchange (i) any outstanding shares of Class A Common
Stock held by such holder for an equal number of shares of
Class B Common Stock or (ii) any outstanding shares of
Class B Common Stock for an equal number of shares of
Class A Common Stock, in each case by surrendering the
certificates, if any, for such shares together with written
notice duly signed by such holder requesting such exchange and
accompanied by all payments required for documentary, stamp or
similar issue or transfer taxes payable in connection with such
exchange or evidence reasonably satisfactory to the Corporation
that all such taxes have been paid. To the extent permitted by
law, such exchange shall be deemed to have been effected at the
close of business on the date of such surrender.
(f) Automatic Conversion.
Each outstanding share of Class B Common Stock shall
convert into one outstanding share of Class A Common Stock
automatically and without any further action by the Corporation
or any other Person: (i) at the first time the holders of
all of the outstanding shares of Class B Common Stock
(assuming that all the outstanding shares of Class A Common
Stock which are then exchangeable for Class B Common Stock
have been so exchanged) are collectively entitled to cast less
than 10% of the Total Voting Power (as defined below) and
(ii) if such Class B Common Stock is transferred by a
holder to any Person who is not an Affiliate (as defined below)
of such holder or a Nominee (as defined below) of such holder or
one of its Affiliates; provided, however, that
notwithstanding the foregoing no such conversion shall occur
pursuant to this clause (ii) if such transfer is part of a
transfer by such holder and its Affiliates of all of the shares
of Class B Common Stock then owned by them (either directly
or through a Nominee) to any other Person or to any other Person
and its Affiliates. From and after any such conversion, each
certificate, if any, formerly representing shares of
Class B Common Stock shall represent the same number of
shares of Class A Common Stock and upon surrender of such
certificate to the Corporation the holder of such certificate
shall be entitled to receive a new certificate or book-entry
interest representing such number of shares of Class A
Common Stock. Immediately upon any such conversion of any shares
of Class B Common Stock into shares of Class A Common
Stock, the rights of the holders of such shares of Class B
Common Stock as such shall cease and such holders shall be
treated for all purposes as having become the record owners of
the shares of Class A Common Stock into which such shares
of Class B Common Stock were converted; provided,
however, that notwithstanding the foregoing such holders
shall be entitled to receive when paid any dividends or other
distributions declared on such shares of Class B Common
Stock with a record date preceding the time of such conversion
and which have not yet been paid as of the time of such
conversion subject to the following sentence. Upon any such
conversion of any shares of Class B Common Stock into
shares of Class A Common Stock, any dividend or other
distribution declared on such shares of Class B Common
Stock with a record date or payment date after the time of such
conversion shall be deemed to have been declared, and shall be
payable, with respect to the shares of Class A Common Stock
into which such shares of Class B Common Stock shall have
been so converted and any such dividend payable in shares of
Class B Common Stock shall be deemed to have been declared,
and shall be payable, in shares of Class A Common Stock.
(g) Reservation of Shares. The Corporation shall at
all times reserve and keep available, out of its authorized but
unissued shares of Common Stock, such number of shares of
Class A Common Stock as would become issuable upon
conversion of all shares of Class B Common Stock then
outstanding.
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(h) Certain Definitions. In this Amended and
Restated Certificate of Incorporation, any reference herein to
any law, rule or regulation shall be deemed to be a reference to
any successor or replacement law, rule or regulation and the
following terms shall have the meanings assigned to them below:
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(i) Affiliate shall have the meaning
assigned to such term by Rule 405 under the Securities Act
of 1933, as amended. |
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(ii) Director means any member of the
Board. |
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(iii) Class A Director means any
Director other than a Class B Director. |
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(iv) Class B Director means any
Director who is elected by a separate class vote of the
Class B Common Stock or who was appointed to fill a vacancy
in respect of any Director so elected. |
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(v) Nominee means, with respect to any
Person, any nominee, custodian or other Person who holds shares
of Common Stock for such Person without investment discretion. |
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(vi) Person means any individual,
corporation (including not-for-profit), general or limited
partnership, limited liability company, joint venture, estate,
trust, association, organization, government entity or other
entity of any kind or nature. |
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(vii) Subsidiary means, with respect to
any Person, (A) any corporation of which such Person, any
of its Subsidiaries or any combination of the foregoing own,
directly or indirectly, outstanding capital stock or other
securities of such corporation which are collectively entitled
to cast a majority of all the votes entitled to be cast by all
the holders of all classes of capital stock or other securities
of such corporation which are entitled to vote generally in the
election of directors of such corporation or (B) any Person
other than a corporation in which such Person, any of its other
Subsidiaries or any combination thereof has, directly or
indirectly, majority economic ownership or the power to direct
or cause the direction of the policies, management and affairs
thereof; provided, however, that notwithstanding the
foregoing neither the Corporation nor any of its Subsidiaries
shall be deemed to be a Subsidiary of any holder of Class B
Common Stock or any other Subsidiary of such holder. |
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(viii) Total Voting Power means, at any
time, the total number of votes then entitled to be cast
generally in the election of the Class A Directors by all
the holders of Voting Securities. |
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(ix) Voting Securities means, at any
time, all classes of capital stock or other securities of the
Corporation then outstanding and entitled to vote generally in
the election of the Class A Directors (which includes the
Class B Common Stock). |
(i) Preferred Stock. Shares of Preferred Stock may
be issued in one or more series from time to time by the Board,
and the Board is expressly authorized to fix by resolution or
resolutions the designations and the powers, preferences and
rights, and the qualifications, limitations and restrictions
thereof, of the shares of each series of Preferred Stock,
including without limitation the following:
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(i) the distinctive serial designation of such series which
shall distinguish it from other series; |
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(ii) the number of shares included in such series; |
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(iii) the dividend rate (or method of determining such
rate) payable to the holders of the shares of such series, any
conditions upon which such dividends shall be paid and the date
or dates upon which such dividends shall be payable; |
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(iv) whether dividends on the shares of such series shall
be cumulative and, in the case of shares of any series having
cumulative dividend rights, the date or dates or method of
determining the date or dates from which dividends on the shares
of such series shall be cumulative; |
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(v) the amount or amounts which shall be payable out of the
assets of the corporation to the holders of the shares of such
series upon voluntary or involuntary liquidation, dissolution or
winding up the Corporation, and the relative rights of priority,
if any, of payment of the shares of such series; |
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(vi) the price or prices at which, the period or periods
within which and the terms and conditions upon which the shares
of such series may be redeemed, in whole or in part, at the
option of the Corporation or at the option of the holder or
holders thereof or upon the happening of a specified event or
events; |
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(vii) the obligation, if any, of the Corporation to
purchase or redeem shares of such series pursuant to a sinking
fund or otherwise and the price or prices at which, the period
or periods within which and the terms and conditions upon which
the shares of such series shall be redeemed or purchases, in
whole or in part, pursuant to such obligation; |
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(viii) whether or not the shares of such series shall be
convertible or exchangeable, at any time or times at the option
of the holder or holders thereof or at the option of the
Corporation or upon happening of a specified event or events,
into shares of any other class or classes of stock of the
Corporation, and the price or prices or rate or rates of
exchange or conversion and any adjustments applicable
thereto; and |
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(ix) whether or not the holders of the shares of such
series shall have voting rights, in addition to the voting
rights provided by law, and if so the terms of such voting
rights. |
Subject to the rights of the holders of any series of Preferred
Stock, the number of authorized shares of any class or series of
Preferred Stock may be increased or decreased (but not below the
number of shares thereof then outstanding) by the affirmative
vote of the holders of a majority of the outstanding shares of
such class or series, voting together as a single class,
irrespective of the provisions of the Section 242(b)(2) of
the DGCL.
ARTICLE V
Section 203 of the DGCL
The Corporation hereby elects not to be governed by
Section 203 of the DGCL until the first time (the
Section 203 Time) on which the holders
of all the outstanding shares of Class B Common Stock
(assuming that all of the outstanding shares of Class A
Common Stock which are then exchangeable for Class B Common
Stock are so exchanged) are collectively entitled to cast less
than 15% of the Total Voting Power. At the Section 203
Time, Section 203 of the DGCL shall begin to apply
prospectively to the Corporation, but no Person shall be deemed
to be an interested stockholder (as such term is
defined in Section 203 of the DGCL) solely because such
Person became an interested stockholder prior to the
Section 203 Time.
ARTICLE VI
Class B Directors
The number of Directors of the Corporation shall be fixed from
time to time pursuant to the amended and restated bylaws of the
Corporation, as may be further amended from time to time (the
Bylaws); provided, however, that
notwithstanding the foregoing or anything in the Bylaws to the
contrary:
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(a) At all times when the holders of all the outstanding
shares of Class B Common Stock (assuming that all the
outstanding shares of Class A Common Stock which are then
exchangeable for Class B Common Stock have been so
exchanged) are collectively entitled to cast a majority of the
Total Voting Power: (i) the Board shall be comprised of
nine Directors, (ii) the Class B Common Stock shall be
entitled, voting separately as a class, to elect five of such
Directors to serve as Class B Directors, (iii) the
quorum for action by the Board shall be a majority of the Board,
which majority shall include at least four Class B
Directors, and (iv) the remaining four Directors will be
Class A Directors nominated by a nominating committee
consisting solely of the Class A Directors then in office
(the Nominating Committee) and elected by the
holders of the Common Stock, voting |
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together as a single class; provided, however, that at
all times when Rule 4350(d)(2)(A) of the NASDAQ Rules
applies to the Corporation a sufficient number of the
Class A Directors must satisfy the requirements of that
Rule with respect to the Corporation so that, together with any
Class B Directors which may also satisfy such requirements
with respect to the Corporation, there are enough Directors to
constitute an audit committee of the Board which complies with
the requirements of Rule 4350(d) of the NASDAQ Rules. As
used herein, NASDAQ Rules means the rules
promulgated by The Nasdaq Stock Market, Inc. which apply to
issuers whose common stock is listed on the Nasdaq Global Market. |
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(b) At all times when the holders of all of the outstanding
shares of Class B Common Stock (assuming that all the
outstanding shares of Class A Common Stock which are then
exchangeable for Class B Common Stock have been so
exchanged) are collectively entitled to cast a percentage of the
Total Voting Power (the Voting Percentage)
which is less than a majority but equal to or greater than 10%
of the Total Voting Power: (i) the Class B Common
Stock shall be entitled, voting separately as a class, to elect
a number of Class B Directors which represents the Voting
Percentage of the total number of Directors then comprising the
entire Board (rounded down to the next whole number of
Directors), and (ii) the remaining Directors will be
Class A Directors nominated by the Nominating Committee
(the composition of which shall comply with the requirements of
Rule 4350(c)(4) of the NASDAQ Rules) and elected by the
holders of the Common Stock, voting together as a single class;
provided, however, that at all times when such rules
apply to the Corporation a sufficient number of the Class A
Directors must (A) qualify as an Independent Director with
respect to the Corporation as such term is defined in
Rule 4200(15) of the NASDAQ Rules so that Board complies
with Rule 4350(c)(1) of the NASD Rules and (B) satisfy
the requirements of Rule 4350(d)(2)(A) of the NASDAQ Rules
with respect to the Corporation so that, together with any
Class B Directors which may also satisfy such requirements
with respect to the Corporation, there are enough Directors to
constitute an audit committee which complies with the
requirements of Rule 4350(d) of the NASDAQ Rules. |
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(c) The holders of the Class B Common Stock, voting
separately as a class, shall have the sole right to remove the
Class B Directors with or without cause at any time and for
any reason and the sole right to appoint successor Directors to
fill any vacancies on the Board caused by any such removals. The
holders of the Class A Common Stock, voting separately as a
class, shall have the sole right to remove the Class A Directors
without cause and the sole right to appoint successor Directors
to fill any vacancies on the Board caused by any such removals.
The holders of the Common Stock, voting together as a single
class, shall have the sole right to remove the Class A
Directors for cause and the sole right to appoint successor
Directors to fill any vacancies on the Board caused by any such
removals. Any vacancy created by any resignation, death or
incapacity of any Class B Director shall be filled by the
remaining Class B Directors then in office or, if there are
none, by the holders of the Class B Common Stock, voting
separately as a class. Any vacancy created by the resignation,
death or incapacity of any Class A Director shall be filled
by the remaining Class A Directors then in office or, if
there are none, by the holders of the Class A Common Stock,
voting separately as a class. |
Notwithstanding anything to the contrary contained in this
Amended and Restated Certificate of Incorporation, if any
transaction or transactions occur which entitle the holders of
Class B Common Stock to preemptive rights under
Article VIII hereof, then no determination of the
percentage of the Total Voting Power collectively entitled to be
cast by the holders of all of the outstanding Class B
Common Stock (assuming that all the outstanding shares of
Class A Common Stock which are then exchangeable for
Class B Common Stock have been so exchanged) shall be made
for any purpose of this Amended and Restated Certificate of
Incorporation until after the exercise or expiration of all such
preemptive rights in respect of all such transactions by such
holders.
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ARTICLE VII
Corporate Opportunities
Nothing in this Article VII will impair the
Corporations ability to enter into contractual
arrangements with a stockholder of the Corporation which
restrict the stockholder from engaging in activities otherwise
allowed by this Article and the following provisions shall be
subject to the terms of any such contractual arrangements. The
provisions of this Article VII shall be effective to the
maximum extent permitted by Law and are not intended to be
enforceable to any further extent.
Except as expressly provided in the proviso to the last sentence
of this Article VII, each holder of Class B Common
Stock shall have the right to, and none of such holders shall
have any fiduciary duty or other obligation to the Corporation,
any of its Subsidiaries or any stockholder of any of the
foregoing not to, take any of the following actions:
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(a) engage in the same or similar activities or lines of
business as the Corporation or any Subsidiary or develop or
market any products or services that compete, directly or
indirectly, with those of the Corporation or any of its
Subsidiaries; |
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(b) invest or own any interest in, or develop a business
relationship with, any Person engaged in the same or similar
activities or lines of business as, or otherwise in competition
with, the Corporation or any of its Subsidiaries; |
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(c) do business with any client or customer of the
Corporation or any of its Subsidiaries; |
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(d) employ or otherwise engage any former officer or
employee of the Corporation or any of its Subsidiaries. |
No holder of Class B Common Stock nor any of its Affiliates
nor any officer, director, employee or former employee of any
such holder or Affiliate that is not currently an employee of
the Corporation or any of its Subsidiaries (including any
Class B Directors) shall have any obligation, or be liable,
to the Corporation, any of its Subsidiaries or any stockholder
of any of the foregoing for or arising out of the conduct
described in the immediately preceding paragraph or the exercise
of any rights under the Formation, Contribution and Merger
Agreement, dated as of September 5, 2006, between Harris
Corporation and Stratex Networks, Inc. or any other agreement
attached thereto as an exhibit or contemplated thereby and none
of them shall be deemed to have acted (i) in bad faith,
(ii) in a manner inconsistent with the best interests of
the Corporation, any of its Subsidiaries or any of their
shareholders or (iii) in a manner inconsistent with, or
opposed to, any fiduciary duty owed by them to the Corporation,
any of its Subsidiaries or any of their stockholders by reason
of any such conduct or exercise of such rights or any of their
participation therein.
If any holder of Class B Common Stock, any Subsidiary of
such holder or any director, officer or employee of such holder
or any of such Subsidiaries, including any such individuals who
are also directors, officers or employees of the Corporation or
any of its Subsidiaries, (collectively, the
Class B Entities) acquires knowledge of
a potential opportunity, transaction or matter which may be a
corporate opportunity for both a Class B Entity, on the one
hand, and the Corporation or any of its Subsidiaries, on the
other hand, (each, a Corporate Opportunity),
then each Class B Entity shall have the right to, and none
of them shall have any fiduciary duty or other obligation not
to, pursue such Corporate Opportunity for itself or direct such
Corporate Opportunity to any of its Affiliates or any third
party and none of the Class B Entities (i) shall have
any duty to communicate, offer or present such corporate
opportunity to the Corporation, any of its Subsidiaries or any
director, officer or employee of any of the foregoing,
(ii) shall have any liability to the Corporation, any of
its Subsidiaries or any of their stockholders for breach of any
fiduciary duty or other duty as a stockholder, director, officer
or employee of the Corporation or any of its Subsidiaries or
otherwise, (iii) shall be deemed to have acted (x) in
bad faith, (y) in a manner inconsistent with the best
interests of the Corporation, any of its Subsidiaries or any of
their stockholders or (z) in a manner inconsistent with, or
opposed to, any fiduciary duty or other duty owed by them to the
Corporation, any of its Subsidiaries or any of their
stockholders, in each case by reason of the fact that any
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Class B Entity pursues or acquires such Corporate
Opportunity for itself, directs such Corporate Opportunity to
any of its Affiliates or any third party, or does not
communicate information regarding such Corporate Opportunity to
the Corporation or any of its Subsidiaries, directors, officers
or employees; provided, however, that notwithstanding
anything in this Article VII to the contrary a Corporate
Opportunity offered to an individual who is a director or
officer of both the Corporation and the holder of Class B
Common Stock shall belong to the Corporation if such Corporate
Opportunity is expressly offered to such individual in writing
solely in his or her capacity as a director or officer of the
Corporation.
Neither the alteration, amendment or repeal of this
Article VII nor the adoption of any provision of this
Amended and Restated Certificate of Incorporation inconsistent
with this Article VII nor the conversion or exchange of
Class B Common Stock shall eliminate or reduce the effect
of this Article VII in respect of any Corporate Opportunity
any Class B Entity began pursuing, any matter occurring or
any cause of action, suit or claim that, absent this
Article VII, would have accrued or arisen prior to such
alteration, amendment, repeal, adoption, conversion or exchange.
ARTICLE VIII
Preemptive Rights
If the Corporation proposes to issue (a Proposed
Issuance) any capital stock of the Corporation or any
securities convertible into, or exercisable or exchangeable for,
such capital stock (collectively, the Offered
Securities) at any time when the holders of all the
outstanding shares of Class B Common Stock (assuming that
all the outstanding shares of Class A Common Stock which
are then exchangeable for Class B Common Stock have been so
exchanged) are collectively entitled to cast a majority of the
Total Voting Power, the Corporation shall give written notice of
the Proposed Issuance to the holders of Class B Common
Stock (the Offer Notice) at least
30 days prior to such issuance. Such notice shall describe
all the material terms and conditions of such Proposed Issuance.
Each holder of Class B Common Stock shall have the right to
acquire at the same price and on the same terms and conditions,
an additional amount of the Offered Securities so that the
percentage of the outstanding Common Stock and Total Voting
Power then owned by such holder shall not change as a result of
such acquisition and Proposed Issuance; provided,
however, that notwithstanding the foregoing (i) such
holder may elect to acquire a lesser number of additional
Offered Securities as it may determine in its sole discretion
and (ii) if the Offered Securities are, or are convertible
into or exercisable or exchangeable for, Class A Common
Stock, then in lieu thereof such holder shall be entitled to
purchase Class B Common Stock or Offered Securities
convertible into or exercisable or exchangeable for Class B
Common Stock, as applicable. If any holder of Class B
Common Stock fails to accept such offer by written notice
received by the Corporation within fifteen (15) days
following the date on which such holder received the Offer
Notice, the Proposed Issuance may be consummated free and clear
of the preemptive right granted to the holders of Class B
Common Stock under this Article VIII. Notwithstanding the
foregoing, if the purchase price for any Proposed Issuance is to
be paid in whole or in part other than in cash, then the holders
of Class B Common Stock may pay the purchase price in cash
in an amount per Offered Security equal to the fair market value
of the aggregate non-cash consideration so payable, as
reasonably determined in good faith by the Board, divided by the
total number of Offered Securities to be issued without giving
effect to the preemptive right granted by this Article VIII.
Notwithstanding the foregoing, the preemptive right granted by
this Article VIII shall not apply to any Proposed Issuance
pursuant to any stock option, restricted stock or employee
benefit plan of the Corporation; provided, however, at
the end of each month the Corporation shall give the holders of
Class B Common Stock written notice of all such Proposed
Issuances during such month (the Monthly Offer
Notice) and each holder of Class B Common Stock
shall have the right, exercisable by delivering written notice
to the Corporation (each, a Monthly Exercise
Notice) within fifteen days after the date on which
such holder received the Monthly Offer Notice, to purchase for
cash a sufficient number of shares of Class B Common Stock
so that the percentage of the outstanding Common Stock and Total
Voting Power then owned by such holder shall not change as a
result of such acquisition and Proposed
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Issuances; provided, however, that such holder may elect
to acquire a lesser number of such shares of Class B Common
Stock as it may determine it its sole discretion. The per share
purchase price for any purchase of Class B Common Stock
pursuant to a Monthly Exercise Notice shall be (i) if the
Class A Common Stock is then listed on a national
securities exchange or quoted on an automated inter-dealer
quotation system, the closing price of the Class A Common
Stock on the trading day immediately preceding the date on which
the Corporation received the Monthly Exercise Notice or
(ii) in all other cases, the fair market value of one share
of Class A Common Stock as determined in good faith by the
Board.
ARTICLE IX
Limitation of Liability
A Director shall not be liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty
as a Director, except to the extent that such exemption from
liability or limitation thereof is not permitted under the DGCL
as currently in effect or as the same may hereafter be amended.
If the DGCL is hereafter amended to authorize corporate action
further limiting or eliminating the liability of Directors to
the Corporation or its stockholders, then without any further
action by any Person such liability shall be so limited or
eliminated to the fullest extent permitted by the DGCL as so
amended. No adoption, amendment, modification or repeal of this
Article IX or any other provision of this Amended and
Restated Certificate of Incorporation shall adversely affect any
right or protection of a Director existing at the time of such
adoption, amendment, modification or repeal with respect to acts
or omissions occurring prior to such time.
ARTICLE X
Bylaws
In furtherance and not in limitation of the powers conferred by
statute, the Board is expressly authorized to adopt, repeal,
alter, amend and rescind from time to time any or all of the
Bylaws of the Corporation.
ARTICLE XI
Amendment of Amended and Restated Certificate of Incorporation
This Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Amended and Restated
Certificate of Incorporation, in the manner now or hereafter
prescribed by statute, and all rights conferred on stockholders
herein are granted subject to this reservation.
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IN WITNESS WHEREOF, I have signed this Amended and Restated
Certificate of Incorporation
this day
of ,
2006.
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APPENDIX D
AMENDED AND RESTATED BYLAWS OF
HARRIS STRATEX NETWORKS, INC.
ARTICLE I
Offices
Section 1. The
registered office shall be in the City of Wilmington, County of
New Castle, State of Delaware.
Section 2. The
corporation may also have offices at such other places both
within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the
corporation may require.
ARTICLE II
Stockholders
Section 1. All
meetings of the stockholders for the election of directors shall
be held at such place as may be fixed from time to time by the
Board of Directors, or at such other place either within or
without the State of Delaware as shall be designated from time
to time by the Board of Directors and stated in the notice of
the meeting. Meetings of stockholders for any other purpose may
be held at such time and place, within or without the State of
Delaware, as shall be stated in the notice of the meeting or in
a duly executed waiver of notice thereof.
Section 2.
Annual meetings of stockholders shall be held on the third
Monday in October, if not a legal holiday and, if a legal
holiday, then on the next succeeding business day following, at
the same hour and place, or at such other date and time as shall
be designated from time to time by the Board of Directors and
stated in the notice of the meeting, at which they shall elect
by a plurality vote a Board of Directors, and transact such
other business as may properly be brought before the meeting.
Section 3.
Written notice of the annual meeting stating the place, date and
hour of the meeting shall be given to each stockholder entitled
to vote at such meeting not less than ten (10) nor more
than sixty (60) days before the date of the meeting.
Section 4. The
officer who has charge of the stock ledger of the corporation
shall prepare and make, at least ten (10) days before every
meeting of stockholders, a complete list of the stockholders
entitled to vote at the meeting, arranged in alphabetical order,
and showing the address of each stockholder and the number of
shares registered in the name of each stockholder. Such list
shall be open to the examination of any stockholder, for any
purpose germane to the meeting, during ordinary business hours,
for a period of at least ten (10) days prior to the
meeting, either at a place within the city where the meeting is
to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting
is to be held. The list shall also be produced and kept at the
time and place of the meeting during the whole time thereof, and
may be inspected by any stockholder who is present.
Section 5.
Special meetings of stockholders shall be called by the
president or secretary at the request in writing of a majority
of the Board of Directors or upon written application of one or
more stockholders who hold at least twenty percent (20%) of the
total voting power of all the capital stock entitled to vote at
such meeting. Such request of the Board of Directors or written
application of the stockholders shall state the purpose or
purposes of the proposed special meeting. The place, date and
time of any special meeting shall be determined by the Board of
Directors. Such determination shall include the record date for
determining the stockholders having the right to notice of and
to vote at such meeting.
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Section 6.
Written notice of a special meeting stating the place, date and
hour of the meeting and the purpose or purposes for which the
meeting is called, shall be given not less than ten
(10) nor more than sixty (60) days before the date of
the meeting, to each stockholder entitled to vote at such
meeting.
Section 7.
Only such business shall be conducted at a special meeting as
shall have been stated in the written notice of the meeting as
the purpose or purposes for the meeting.
Section 8. The
holders of capital stock entitled to cast a majority of the
voting power of all the capital stock issued and outstanding and
entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business except as otherwise
provided by statute or by the certificate of incorporation. If,
however, such quorum shall not be present or represented at any
meeting of the stockholders, the stockholders entitled to vote
thereat, present in person or represented by proxy, shall have
power to adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum shall be
present or represented. At such adjourned meeting at which a
quorum shall be present or represented any business may be
transacted which might have been transacted at the meeting as
originally notified. If the adjournment is for more than thirty
(30) days, or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each stockholder of record entitled to
vote at the meeting.
Section 9. In
all matters other than the election of directors, the
affirmative vote by the holders of capital stock entitled to
cast a majority of the voting power of all the capital stock
present in person or represented by proxy at any meeting and
entitled to vote on the subject matter shall be the act of the
stockholders, unless the question is one upon which, by express
provision of any statute or of the certificate of incorporation,
a different vote is required, in which case such express
provision shall govern and control the decision of such question.
Section 10.
Unless otherwise provided in the certificate of incorporation,
each stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share of the
capital stock having voting power held by such stockholder, but
no proxy shall be voted on after three years from its date,
unless the proxy provides for a longer period.
Section 11.
Unless otherwise provided in the certificate of incorporation,
and subject to the provisions of Article II,
Section 12 of these amended and restated bylaws (these
Bylaws), any action required to be taken at any
annual or special meeting of stockholders of the corporation, or
any action which may be taken at any annual or special meeting
of such stockholders, may be taken without a meeting, without
prior notice and without a vote, if a consent in writing setting
forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of
votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were
present and voted. Prompt notice of the taking of the corporate
action without a meeting by less than unanimous written consent
shall be given to those stockholders who have not consented in
writing.
Section 12. In
order that the corporation may determine the stockholders
entitled to consent to corporate action in writing without a
meeting pursuant to Article II, Section 11 of these
Bylaws, the Board of Directors may fix a record date, which
record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors, and
which record date shall not be more than ten (10) days
after the date upon which the resolution fixing the record date
is adopted by the Board of Directors. Any stockholder of record
seeking to have the stockholders authorize or take corporate
action by written consent shall, by written notice to the
secretary, request the Board of Directors to fix a record date.
The Board of Directors shall promptly, but in all events within
ten (10) days after the date on which such a request is
received, adopt a resolution fixing the record date. If no
record date has been fixed by the Board of Directors within such
ten (10) day period, the record date for determining
stockholders entitled to consent to corporate action in writing
without a meeting, when no prior action by the Board of
Directors is required by applicable law, shall be the first date
on which a signed written consent setting forth the action taken
or proposed to be taken is delivered to the corporation by
delivery to its registered office in
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the State of Delaware, its principal place of business, or an
officer or agent of the corporation having custody of the book
in which proceedings of stockholders meetings are
recorded, to the attention of the secretary of the corporation.
Delivery shall be by hand or by certified or registered mail,
return receipt requested. If no record date has been fixed by
the Board of Directors and prior action by the Board of
Directors is required by applicable law, the record date for
determining stockholders entitled to consent to corporate action
in writing without a meeting shall be at the close of business
on the date on which the Board of Directors adopts the
resolution taking such prior action.
Section 13. At
any annual meeting of the stockholders, only such business shall
be conducted as shall be properly before the meeting. To be
properly before an annual meeting, business must be
(a) specified in the notice of meeting (or any supplement
thereto) given by or at the direction of the Board of Directors,
(b) otherwise properly brought before the meeting by or at
the direction of the Board of Directors, or (c) otherwise
properly brought before the meeting by a stockholder. For
business to be properly brought before an annual meeting by a
stockholder, the stockholder must have given timely notice
thereof in writing to the secretary. To be timely, a
stockholders notice must be delivered to or mailed and
received at the principal place of business of the corporation
not less than sixty (60) days nor more than ninety
(90) days prior to the meeting; provided, however,
that in the event that less than seventy (70) days
notice or prior public disclosure of the date of the meeting is
given or made to stockholders, notice by the stockholder to be
timely must be received not later than the close of business on
the tenth day following the day on which such notice of the date
of the meeting was mailed or such public disclosure was made.(1)
A stockholders written notice to the secretary shall set
forth as to each matter the stockholder proposes to bring before
the annual meeting (a) a description of the business
desired to be brought before the annual meeting and the reasons
for conducting such business at the annual meeting, (b) the
name and address as they appear on the corporations books
of the stockholder proposing such business, (c) the class
and number of shares of the corporation which are beneficially
owned by such stockholder, and (d) any material interest of
such stockholder in such business. Notwithstanding anything in
these Bylaws to the contrary, no business shall be conducted at
any annual meeting unless properly brought before such meeting
in accordance with the procedures set forth in this
Section 13. The chairman of the meeting shall, if the facts
warrant, determine and declare to the meeting that business was
not properly brought before the meeting in accordance with the
provisions of this Section 13 and if it shall be so
determined, the chairman of the meeting shall so declare this to
the meeting and such business not properly brought before the
meeting shall not be transacted.
Section 14.
Only persons who are nominated in accordance with the procedures
set forth in this Section 14 shall be eligible for election
by the stockholders as Class A Directors (as defined in the
certificate of incorporation). Nominations of persons for
election as Class A Directors may be made at a meeting of
stockholders by or at the direction of the Class A
Directors (as defined in the certificate of incorporation) or by
any stockholder of the corporation (other than a stockholder who
holds Class B Common Stock of the corporation) entitled to
vote for the election of directors at the meeting who complies
with the notice procedures set forth in this Section 14.
Such nominations, other than those made by or at the direction
of the Class A Directors, shall be made pursuant to timely
notice in writing to the secretary. To be timely, a
stockholders notice shall be delivered to or mailed and
received at the principal place of business of the corporation
not less than sixty (60) nor more than ninety
(90) days prior to the meeting; provided, however,
that in the event that less than seventy (70) days
notice or prior public disclosure of the date of the meeting is
given or made to stockholders, notice by the stockholder to be
timely must be so received not less than the close of business
on the tenth day following the day on which such notice of the
date of the meeting was mailed or such public disclosure was
made. Such stockholders notice shall set forth (a) as
to each person whom the stockholder proposes to nominate for
election or re-election as a director (i) the name, age,
business address and residence address of such person,
(ii) the
(1) It shall be necessary for the corporation to determine
the date of each annual meeting at least 70 days in advance
thereof and make a public disclosure of such date and of the
provisions of Article II, Section 13 of these Bylaws.
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principal occupation or employment of such person,
(iii) the class and number of shares of the corporation
which are beneficially owned by such person and (iv) any
other information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors
or is otherwise required in each case pursuant to
Regulation 14A under the Securities and Exchange Act of
1934, as amended (including without limitation such
persons written consent to being named in the proxy
statement as a nominee and to serving as a director if elected);
and (b) as to the stockholder giving the notice
(i) the name and address, as they appear on the
corporations books of such stockholder, (ii) the
class and number of shares of the corporation which are
beneficially owned by such stockholder, and (iii) any
material relationship of the stockholder to the person the
stockholder proposes to nominate. At the request of the Board of
Directors any person nominated by the Board of Directors for
election as a director shall furnish to the secretary that
information required to be set forth in a stockholders
notice of nomination which pertains to the nominee. No person
shall be eligible for election as a Class A Director unless
nominated in accordance with the procedures set forth in this
Section 14. The chairman of the meeting shall, if the facts
warrant, determine and declare to the meeting that a nomination
was not made in accordance with the provisions of this
Section 14 and if it shall be so determined, the chairman
shall so declare this to the meeting and the defective
nomination shall be disregarded.
ARTICLE III
Directors
Section 1. Subject
to any requirements in the certificate of incorporation, the
number of directors that shall constitute the whole Board of
Directors shall be fixed by resolution of the Board of Directors
but in no event shall be less than six (6). The directors shall
be elected at the annual meeting of the stockholders, except as
provided in Section 2 of this Article, and each director
elected shall hold office until his or her successor is elected
and qualified. Directors need not be stockholders, but shall not
be older than 75 years of age on the date of their election
or appointment to be eligible to serve as a director unless
otherwise specifically approved by resolution passed by the
directors then in office or by the sole remaining director.
Section 2. Except
as otherwise provided in the certificate of incorporation,
vacancies and newly created directorships resulting from any
increase in the authorized number of directors elected by all of
the stockholders having a right to vote as a single class may be
filled by a majority of the directors then in office, though
less than a quorum, or by a sole remaining director, and the
directors so chosen shall hold office until the next annual
election and until their successors are duly elected and
qualified, unless sooner removed. If there are no directors in
office, then an election of directors may be held in the manner
provided by statute. If, at the time of filling any vacancy or
any newly created directorship, the directors then in office
shall constitute less than a majority of the whole Board of
Directors (as constituted immediately prior to any such
increase), the Court of Chancery may, upon application of any
stockholder or stockholders holding at least ten percent (10%)
of the total voting power of all the outstanding capital stock
entitled to vote generally in the election of such directors,
summarily order an election to be held to fill any such
vacancies or newly created directorships, or to replace the
directors chosen by the directors then in office.
Section 3. The
business of the corporation shall be managed by or under the
direction of its Board of Directors which may exercise all such
powers of the corporation and do all such lawful acts and things
as are not by statute or by the certificate of incorporation or
by these Bylaws directed or required to be exercised or done by
the stockholders.
Section 4. The
Board of Directors of the corporation may hold meetings, both
regular and special, either within or without the State of
Delaware.
Section 5. The
first meeting of each newly elected Board of Directors shall be
held at such time and place as shall be fixed by the vote of the
stockholders at the annual meeting and no notice of such meeting
shall be necessary to the newly elected directors in order
legally to constitute the meeting,
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provided a quorum shall be present. In the event of the failure
of the stockholders to fix the time or place of such first
meeting of the newly elected Board of Directors, or in the event
such meeting is not held at the time and place so fixed by the
stockholders, the meeting may be held at such time and place as
shall be specified in a notice given as hereinafter provided for
special meetings of the Board of Directors, or as shall be
specified in a written waiver signed by all of the directors.
Section 6. Regular
meetings of the Board of Directors may be held without notice at
such time and at such place as shall from time to time be
determined by the Board of Directors.
Section 7. Special
meetings of the Board of Directors may be called by the Chairman
of the Board of Directors, the president, any vice-president,
the secretary or any two (2) directors on four
(4) days notice to each director by mail or two
(2) days notice to each director either personally or
by telephone or electronic communication (e.g.,
electronic mail or similar means of communication).
Section 8. Subject
to any requirements in the certificate of incorporation, at all
meetings of the Board of Directors, one-third
(1/3)
of the authorized number of directors, or two (2), whichever is
greater, shall constitute a quorum for the transaction of
business and the act of a majority of the directors present at
any meeting at which there is a quorum shall be the act of the
Board of Directors, except as may be otherwise specifically
provided by statute, by the certificate of incorporation or by
Article III, Section 9 of these Bylaws. If a quorum
shall not be present at any meeting of the Board of Directors,
the directors present thereat may adjourn the meeting from time
to time without notice other than announcement at the meeting,
until a quorum shall be present.
Section 9. Unless
otherwise restricted by the certificate of incorporation or
these Bylaws, any action required or permitted to be taken
(i) at any meeting of the Board of Directors or of any
committee thereof or (ii) by the Class B Directors (as
defined in the certificate of incorporation) may be taken
without a meeting if all members of the Board of Directors or
committee thereof or all Class B Directors, as the case may
be, consent thereto in writing, and the writing or writings are
filed with the minutes of proceedings of the Board of Directors
or committee thereof.
Section 10. Unless
otherwise restricted by the certificate of incorporation or
these Bylaws, members of the Board of Directors or any committee
designated by the Board of Directors, may participate in a
meeting of the Board of Directors, or any committee thereof, by
means of conference telephone or similar communications
equipment by means of which all persons participating in the
meeting can hear each other, and such participation in a meeting
shall constitute presence in person at the meeting.
Section 11. The
Board of Directors may, by resolution passed by a majority of
the whole Board of Directors, designate one or more committees,
each committee to consist of one or more of the directors of the
corporation. The Board of Directors may designate one or more
directors as alternate members of any committee who may replace
any absent or disqualified member at any meeting of the
committee.
In the absence or disqualification of a member of a committee,
the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a
quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any such absent
or disqualified member.
Any such committee, to the extent provided in the resolution of
the Board of Directors, shall have and may exercise all the
powers and authority of the Board of Directors in the management
of the business and affairs of the corporation, and may
authorize the seal of the corporation to be affixed to all
papers which may require it, but no such committee shall have
the power or authority in reference to amending the certificate
of incorporation, adopting an agreement of merger or
consolidation, recommending to the stockholders the sale, lease
or exchange of all or substantially all of the
corporations property and assets, recommending to the
stockholders a dissolution of the corporation or a revocation of
a dissolution, or amending the Bylaws of the corporation, and,
unless the resolution or the certificate of incorporation
expressly so provide, no such committee shall have the power or
authority to declare a
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dividend or to authorize the issuance of stock. Such committee
or committees shall have such name or names as may be determined
from time to time by resolution adopted by the Board of
Directors.
Section 12. Each
committee shall keep regular minutes of its meetings and report
the same to the Board of Directors when required.
Section 13. Unless
otherwise restricted by the certificate of incorporation or
these Bylaws, the Board of Directors shall have the authority to
fix the compensation of directors. The directors may be paid
their expenses, if any, of attendance at each meeting of the
Board of Directors and may be paid a fixed sum for attendance at
each meeting of the Board of Directors or a stated salary as
director. No such payment shall preclude any director from
serving the corporation in any other capacity and receiving
compensation therefor. Members of special or standing committees
may be allowed like compensation for attending committee
meetings.
Section 14. Unless
otherwise provided in the certificate of incorporation or these
Bylaws, any director or the entire Board of Directors may be
removed, with or without cause, by the holders of a majority of
shares entitled to vote at an election of directors.
Section 15. The
Board of Directors shall appoint two (2) observers of the
Board of Directors, each of whom shall be an officer or employee
of the corporation. Such observers shall have the right to
(i) receive notice of all meetings of the Board of
Directors (other than any meeting or portion thereof where
employees of the corporation are intentionally excluded),
(ii) attend (in the same manner as the members of the Board
of Directors whether in person or otherwise) all meetings of the
Board of Directors (other than any meeting or portion thereof
where employees of the corporation are intentionally excluded)
as an observer with no right to vote on any matter at such
meeting and (iii) receive copies of all materials provided
by the corporation at, or in anticipation of, a meeting of the
Board of Directors (but only to the extent such observer is
permitted to attend such meeting, or portion of such meeting,
under this Section 15) at the same time and in the same
manner that the members of the Board of Directors receive such
items. The Board of Directors may remove any such observer, with
or without cause at any time, and, following such removal, may
appoint (but in no case is required to so appoint), subject to
this Section 15, another individual to replace such
observer.
ARTICLE IV
Notices
Section 1. Whenever,
under the provisions of statutes or of the certificate of
incorporation or of these Bylaws, notice is required to be given
to any director or stockholder, it shall not be construed to
mean personal notice, but such notice may be given in writing,
by mail, addressed to such director or stockholder, at his
address as it appears on the records of the corporation, with
postage thereon prepaid, and such notice shall be deemed to be
given at the time when the same shall be deposited in the United
States mail. Notice to directors may also be given by telephone
or electronic communication (e.g., electronic mail
or similar means of communication).
Section 2. Whenever
any notice is required to be given under the provisions of the
statutes or of the certificate of incorporation or of these
Bylaws, a waiver thereof in writing, signed by the person or
persons entitled to said notice, whether before or after the
time stated therein, shall be deemed equivalent thereto.
ARTICLE V
Officers
Section 1. The
officers of the corporation shall be chosen by the Board of
Directors and shall be a Chairman of the Board, a president, one
or more vice-presidents, a secretary and a chief financial
officer. The Board of Directors may elect from among its members
a Vice Chairman of the Board and may also
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choose one or more assistant secretaries and assistant
treasurers. Any number of offices may be held by the same
person, unless the certificate of incorporation or these Bylaws
otherwise provide.
Section 2. The
Board of Directors at its first meeting after each annual
meeting of stockholders shall choose the officers of the
corporation.
Section 3. The
Board of Directors may appoint such other officers and agents as
it shall deem necessary who shall hold their offices for such
terms and shall exercise such powers and perform such duties as
shall be determined from time to time by the Board of Directors.
Section 4. The
salaries of all officers and agents of the corporation shall be
fixed by the Board of Directors.
Section 5. The
officers of the corporation shall hold office until their
successors are duly elected and qualified. Any officer elected
or appointed by the Board of Directors may be removed at any
time by the affirmative vote of a majority of the Board of
Directors. Any vacancy occurring in any office of the
corporation shall be filled by the Board of Directors.
Section 6. The
Chairman of the Board shall preside at all meetings of the Board
of Directors and of the stockholders at which he shall be
present and shall have and may exercise such powers as are, from
time to time, assigned by the Board of Directors and as may be
provided by law.
Section 7. In
the absence of the Chairman of the Board, the Vice Chairman, if
any, shall preside at all meetings of the Board of Directors and
of the stockholders at which he shall be present. The Vice
Chairman shall have and may exercise such powers as are, from
time to time, assigned by the Board of Directors and as may be
provided by law.
Section 8. The
president shall be the general manager and chief executive
officer of the corporation, and in the absence of the Chairman
of the Board and Vice Chairman, shall preside at all meetings of
the stockholders and the Board of Directors. The president shall
have general and active management of the business of the
corporation and shall see that all orders and resolutions of the
Board of Directors are carried into effect.
Section 9. The
president shall execute bonds, mortgages and other contracts
requiring a seal, under the seal of the corporation, except
where required or permitted by law to be otherwise signed and
executed and except where the signing and execution thereof
shall be expressly delegated by the Board of Directors to some
other officer or agent of the corporation.
Section 10. In
the absence of the president or in the event of his inability or
refusal to act, the vice president, if any, (or in the event
there be more than one vice president, the vice presidents in
the order designated by the directors, or in the absence of any
designation, then in the order of their election) shall perform
the duties of the president, and when so acting, shall have all
the powers of and be subject to all the restrictions upon the
president. The vice presidents shall perform such other duties
and have such other powers as the Board of Directors may from
time to time prescribe.
Section 11. The
secretary shall attend all meetings of the Board of Directors
and all meetings of the stockholders and record all the
proceedings of the meetings of the corporation and of the Board
of Directors in a book to be kept for that purpose and shall
perform like duties for the standing committees when required.
The secretary shall give or cause to be given, notice of all
meetings of the stockholders and special meetings of the Board
of Directors and shall perform such other duties as may be
prescribed by the Board of Directors or president, under whose
supervision he shall be. The secretary shall have custody of the
corporate seal of the corporation, and the secretary or an
assistant secretary shall have authority to affix the same to
any instrument requiring it and when so affixed, it may be
attested by his signature or by the signature of such assistant
secretary. The Board of Directors may give general authority to
any other officer to affix the seal of the corporation and to
attest the affixing by his signature.
Section 12. The
assistant secretary, or if there be more than one, the assistant
secretaries in the order determined by the Board of Directors
(or if there be no such determination, then in the order of
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their election) shall, in the absence of the secretary or in the
event of his or her inability or refusal to act, perform the
duties and exercise the powers of the secretary and shall
perform such other duties and have such other powers as the
Board of Directors may from time to time prescribe.
Section 13. The
chief financial officer may also be designated by the alternate
title of treasurer. The chief financial officer
shall have the custody of the corporate funds and securities and
shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall
deposit all moneys and other valuable effects in the name and to
the credit of the corporation in such depositories as may be
designated by the Board of Directors.
Section 14. The
chief financial officer shall disburse the funds of the
corporation as may be ordered by the Board of Directors, taking
proper vouchers for such disbursements, and shall render to the
president and the Board of Directors, at its regular meetings,
or when the Board of Directors so requires, an account of all
his transactions as treasurer and of the financial condition of
the corporation.
Section 15. If
required by the Board of Directors, the chief financial officer
shall give the corporation a bond (which shall be renewed every
six years) in such sum and with such surety or sureties as shall
be satisfactory to the Board of Directors for the faithful
performance of the duties of his office and for the restoration
to the corporation, in case of his death, resignation,
retirement or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in his
possession or under his control belonging to the corporation.
Section 16. The
assistant treasurer, or if there shall be more than one, the
assistant treasurers in the order determined by the Board of
Directors (or if there be no such determination, then in the
order of their election) shall, in the absence of the chief
financial officer or in the event of his inability or refusal to
act, perform the duties and exercise the powers of the chief
financial officer and shall perform such other duties and have
such other powers as the Board of Directors may from time to
time prescribe.
ARTICLE VI
Stock
Section 1. Every
holder of stock in the corporation shall be entitled to have a
certificate, signed by, or in the name of the corporation by,
the Chairman or Vice Chairman of the Board of Directors, or the
president or a vice president and the treasurer or an assistant
treasurer, or the secretary or an assistant secretary of the
corporation, certifying the number of shares owned by the
stockholder in the corporation.
Certificates may be issued for partly paid shares and in such
case upon the face or back of the certificates issued to
represent any such partly paid shares, the total amount of the
consideration to be paid therefor, and the amount paid thereon
shall be specified.
If the corporation shall be authorized to issue more than one
class of stock or more than one series of any class, the powers,
designations, preferences and relative, participating, optional
or other special rights of each class of stock or series thereof
and the qualification, limitations or restrictions of such
preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate which the
corporation shall issue to represent such class or series of
stock, provided that, except as otherwise provided in
Section 202 of the General Corporation Law of Delaware, in
lieu of the foregoing requirements, there may be set forth on
the face or back of the certificate which the corporation shall
issue to represent such class or series of stock, a statement
that the corporation will furnish without charge to each
stockholder who so requests the powers, designations,
preferences and relative, participating, optional or other
special rights of each class of stock or series thereof and the
qualifications, limitations or restrictions of such preferences
and/or rights.
Section 2. Any
or all of the signatures on the certificate may be facsimile. In
case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or
registrar before such certificate is issued, it may be
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issued by the corporation with the same effect as if he were
such officer, transfer agent or registrar at the date of issue.
Section 3. The
Board of Directors may direct a new certificate or certificates
to be issued in place of any certificate or certificates
theretofore issued by the corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that
fact by the person claiming the certificate of stock to be lost,
stolen or destroyed. When authorizing such issue of a new
certificate or certificates, the Board of Directors may, in its
discretion and as a condition precedent to the issuance thereof,
require the owner of such lost, stolen or destroyed certificate
or certificates, or his legal representative, to advertise the
same in such manner as it shall require and/or to give the
corporation a bond in such sum as it may direct as indemnity
against any claim that may be made against the corporation with
respect to the certificate alleged to have been lost, stolen or
destroyed.
Section 4. Upon
surrender to the corporation or the transfer agent of the
corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignation or
authority to transfer, it shall be the duty of the corporation
to issue a new certificate to the person entitled thereto,
cancel the old certificate and record the transaction upon its
books.
Section 5. In
order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders
or any adjournment thereof, or entitled to receive payment of
any dividend or other distribution or allotment of any rights,
or entitled to exercise any rights in respect of any change,
conversion or exchange of stock or for the purpose of any other
lawful action, the Board of Directors may fix, in advance, a
record date, which shall not be more than sixty (60) nor
less than ten (10) days before the date of such meeting,
nor more than sixty (60) days prior to any other action. A
determination of stockholders of record entitled to notice of or
to vote at a meeting of stockholders shall apply to any
adjournment of the meeting: provided, however, that the Board of
Directors may fix a new record date for the adjourned meeting.
Section 6. The
corporation shall be entitled to recognize the exclusive right
of a person registered on its books as the owner of shares to
receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as
the owner of shares, and shall not be bound to recognize any
equitable or other claim to or interest in such share or shares
on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by
the laws of Delaware.
ARTICLE VII
General Provisions
Section 1. Dividends
upon the capital stock of the corporation, subject to the
provisions of the certificate of incorporation, if any, may be
declared by the Board of Directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in
property, or in shares of the capital stock, subject to the
provisions of the certificate of incorporation.
Section 2. Before
payment of any dividend, there may be set aside out of any funds
of the corporation available for dividends such sum or sums as
the Board of Directors from time to time, in its absolute
discretion, think proper as a reserve or reserves to meet
contingencies, or for equalizing dividends, or for repairing or
maintaining any property of the corporation, or for such other
purpose as the Board of Directors shall think conducive to the
interest of the corporation, and the directors may modify or
abolish any such reserve in the manner in which it was created.
Section 3. All
checks or demands for money and notes of the corporation shall
be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time
designate.
Section 4. The
fiscal year of the corporation shall be fixed by resolution of
the Board of Directors.
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Section 5. The
Board of Directors may adopt a corporate seal having inscribed
thereon the name of the corporation, the year of its
organization and the words Corporate Seal, Delaware.
The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
Section 6. Each
person who was or is made a party to or witness or other
participant in or is threatened to be made a party to or witness
or other participant in or is otherwise involved in any action,
suit or proceeding, whether civil, criminal, administrative,
investigative or other (hereinafter a proceeding),
by reason of the fact that he or she, or a person for whom he or
she is the legal representative, is or was a director or officer
of the corporation or is or was serving at the request of the
corporation as a director, officer, employee or agent of another
corporation or of a partnership, joint venture, trust or other
enterprise (hereinafter a designee), whether the
basis of the proceeding is alleged action in an official
capacity as a director, officer or designee or in any other
capacity while serving as a director, officer or designee, shall
be indemnified and held harmless by the corporation to the
fullest extent permitted by the General Corporation Law of
Delaware, as the same exists or may hereafter be amended,
against all expenses (including attorneys fees),
judgments, fines, penalties, amounts paid in settlement,
liability and loss (including, without limitation, all interest,
assessments and other charges paid or payable in connection with
or in respect of any of the foregoing) (hereinafter collectively
expenses, which expenses shall also include without
limitation any expenses of establishing a right to
indemnification or advancement under this Section 6 or
Article VII, Section 7 or 8) reasonably incurred
or suffered by such director, officer or designee in connection
therewith; provided, however, that, except as provided in
Article VII, Section 8, the corporation shall
indemnify any such director, officer or designee seeking
indemnification in connection with a proceeding (or part
thereof) initiated by such director, officer or designee only if
such proceeding (or part thereof) was authorized by the Board of
Directors of the corporation. The corporation may, by action of
the Board of Directors, provide indemnification to employees and
agents of the corporation with the same scope and effect as the
foregoing indemnification of directors, officers and designees.
Section 7. Expenses
incurred by or on behalf of any person in defending any
proceeding by reason of the fact that such person is or was a
director, officer or designee of the corporation shall be
advanced by the corporation prior to the final disposition of
such proceeding; provided, however, that if the General
Corporation Law of Delaware requires, the payment of such
expenses incurred by a director, officer or designee in his or
her capacity as a director, officer or designee (and not in any
other capacity in which service was or is rendered by such
person while a director, officer or designee, including, without
limitation, service to an employee benefit plan) in advance of
the final disposition of a proceeding shall be made only upon
delivery to the corporation of an undertaking by or on behalf of
such director, officer or designee to repay all amounts so
advanced if it shall ultimately be determined that such
director, officer or designee is not entitled to be indemnified
under Article VII, Section 6 or this Section 7 or
otherwise.
Section 8. If
a claim under either Article VII, Section 6 or 7 is
not paid in full by the corporation within 30 days after a
written claim has been received by the corporation, the claimant
may at any time thereafter bring suit against the corporation to
recover the unpaid amount of the claim and, if successful in
whole or in part, the claimant shall be entitled to be paid also
the expense of prosecuting such claim. It shall be a defense to
any such action (other than an action brought to enforce a claim
for expenses incurred in defending any proceeding in advance of
its final disposition where the required undertaking, if any is
required, has been tendered to the corporation) that the
claimant has not met the standards of conduct which make it
permissible under the General Corporation Law of Delaware for
the corporation to indemnify the claimant for the amount
claimed, but the burden of proving such defense shall be on the
corporation. Neither the failure of the corporation (including
the Board of Directors, independent legal counsel or the
stockholders) to have made a determination prior to the
commencement of such action that indemnification of the claimant
is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in the General
Corporation Law of Delaware, nor an actual determination by the
corporation (including the Board of Directors, independent legal
counsel or the stockholders) that the claimant has not met such
applicable standard of conduct, shall be a defense to the action
or create a presumption that the claimant has not met the
applicable standard of conduct.
D-10
Section 9. Article VII,
Sections 6 and 7 shall be deemed to be a contract between
the corporation and each director who serves in such capacity at
any time while this Bylaw is in effect, and any repeal or
modification thereof shall not affect any rights or obligations
then existing with respect to any state of facts then or
theretofore existing or any action, suit or proceeding
theretofore or thereafter brought based in whole or in part upon
any such state of facts.
Section 10. The
foregoing rights of indemnification shall not be deemed
exclusive of any other rights to which those seeking
indemnification may be entitled under any bylaw, agreement, vote
of stockholders or disinterested directors or otherwise, both as
to action in an official capacity and as to action in another
capacity while holding such office, to the extent such
additional rights to indemnification are authorized in the
certificate of incorporation. Persons seeking indemnification or
advancement may seek either or both at his or her discretion and
the pursuit of one shall neither be deemed a waiver of such
persons rights to pursue the other, nor shall it have any
effect on the outcome of such persons pursuit of the
other. Nothing contained in Article VII,
Section 6, 7, 8 or 9 or this Section 10 shall
affect any right to indemnification to which persons other than
directors, officers or designees may be entitled by contract or
otherwise. Nothing in this section shall restrict the power of
the corporation to indemnify its directors, officers, designees,
employees or agents under any provision of the General
Corporation Law of Delaware, as amended from time to time, or
under any other provision of law from time to time applicable to
the corporation, nor shall anything in Article VII,
Section 6, 7, 8 or 9 or this Section 10 authorize
the corporation to indemnify its directors, officers, designees,
employees or agents in situations prohibited by the General
Corporation Law of Delaware or other applicable law.
ARTICLE VIII
Amendments
Section 1. These
Bylaws may be altered, amended or repealed or new Bylaws may be
adopted by the stockholders or by the Board of Directors, when
such power is conferred upon the Board of Directors by the
certificate of incorporation, at any regular meeting of the
stockholders or of the Board of Directors or at any special
meeting of the stockholders or of the Board of Directors if
notice of such alteration, amendment, repeal or adoption of new
Bylaws be contained in the notice of such special meeting. If
the power to adopt, amend or repeal Bylaws is conferred upon the
Board of Directors by the certificate of incorporation, it shall
not divest or limit the power of the stockholders to adopt,
amend or repeal Bylaws.
Section 2. Notwithstanding
any other provision in these Bylaws, Sections 5,
12, 13, and 14 of Article II of these Bylaws and this
Section 2 shall not be amended, modified or repealed,
directly or indirectly except by (i) the affirmative vote
of two-thirds (2/3) or more of the Continuing Directors (as
defined below) and the approval of the stockholders otherwise
required by applicable law or these Bylaws for such amendment;
or (ii) the affirmative vote of the holders of capital
stock entitled to cast a majority of all the votes entitled to
be cast by the holders of all the capital stock entitled to vote
generally in the election of Class A Directors.
Continuing Director shall mean any person
then serving as a director of this corporation (i) who was
a member of the Board of Directors of this corporation
on ,
2006, or (ii) who becomes a director
after ,
2006 and whose election, or nomination for election by this
corporations stockholders, was approved by a majority of
the directors (or, in the case of a Class B Director, the
Class B Directors) who at that time are Continuing
Directors, either by a specific vote or by approval of the proxy
statement issued by this corporation on behalf of the Board of
Directors in which such person is named as nominee for director.
D-11
APPENDIX E
INVESTOR AGREEMENT
Between
HARRIS CORPORATION
and
HARRIS STRATEX NETWORKS, INC.
Dated: [Closing Date]
E-1
TABLE OF CONTENTS
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ARTICLE I |
Definitions and Construction |
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1.1. |
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Certain Definitions |
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E-4 |
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1.2. |
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Additional Definitions |
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E-6 |
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1.3. |
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Terms Generally |
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E-6 |
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ARTICLE II |
Scope of Agreement |
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2.1. |
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Scope of Agreement |
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E-7 |
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2.2. |
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Governing Instruments and Class B Common Stock |
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E-7 |
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ARTICLE III |
Boards of Directors |
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3.1. |
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Role and Composition of the Board |
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E-7 |
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3.2. |
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Removal and Vacancies |
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E-8 |
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3.3. |
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Committees |
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E-9 |
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3.4. |
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Voting Requirements |
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E-9 |
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3.5. |
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Determination of Total Voting Power |
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E-9 |
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ARTICLE IV |
Covenants |
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4.1. |
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Standstill Provisions |
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E-9 |
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4.2. |
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Access to Information, Audit and Inspection |
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E-9 |
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4.3. |
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Related Party Transactions |
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E-10 |
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4.4. |
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Freedom of Action |
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E-10 |
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4.5. |
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Preemptive Right |
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E-11 |
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4.6. |
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Covenants Relating to Financial, Accounting and Disclosure
Matters |
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E-12 |
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4.7. |
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Option Exercise |
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E-16 |
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E-2
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ARTICLE V |
Miscellaneous |
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5.1. |
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Termination |
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E-16 |
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5.2. |
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Governing Law and Venue; Waiver Of Jury Trial |
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E-16 |
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5.3. |
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Severability |
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E-17 |
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5.4. |
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Amendment; Waiver |
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E-17 |
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5.5. |
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Assignment |
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E-17 |
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5.6. |
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No Third-Party Beneficiaries |
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E-18 |
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5.7. |
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Notices |
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E-18 |
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5.8. |
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Entire Agreement |
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E-19 |
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5.9. |
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No Challenges; Specific Performance |
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E-19 |
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5.10. |
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Headings |
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E-19 |
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5.11. |
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Counterparts |
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E-19 |
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5.12. |
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Relationship of Parties |
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E-19 |
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5.13. |
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Construction |
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E-19 |
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5.14. |
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Effectiveness |
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E-19 |
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5.15. |
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Enforcement by the Company |
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E-19 |
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Exhibit A |
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Certificate of Incorporation |
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A-1 |
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Exhibit B |
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Bylaws |
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B-1 |
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E-3
INVESTOR AGREEMENT
INVESTOR AGREEMENT
(the Agreement), dated as of
[Closing Date], between HARRIS CORPORATION, a
Delaware corporation (Harris), and HARRIS
STRATEX NETWORKS, INC., a Delaware corporation (the
Company).
WHEREAS, Harris and STRATEX NETWORKS, INC., a Delaware
corporation (Stratex), have entered into a
Formation, Contribution and Merger Agreement, dated as of
September 5, 2006 (the Formation
Agreement), pursuant to which the Company was formed
to acquire Stratex pursuant to the Merger and to receive the
Contributed Assets from Harris in the Contribution Transaction,
in each case on the terms and subject to the conditions set
forth in the Formation Agreement; and
WHEREAS, Harris and Stratex would not have entered into the
Formation Agreement without the undertakings contained in this
Agreement and the execution and delivery of this Agreement is a
condition to closing under the Formation Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants in the Agreements the parties agree as follows:
ARTICLE I
Definitions and Construction
1.1. Certain Definitions.
All capitalized terms used but not defined in this Agreement
shall have the meanings assigned to them in the Formation
Agreement. In addition, the following terms shall have the
meanings specified below:
Affiliate shall have the meaning assigned to
such term by Rule 405 under the Securities Act;
provided, however, that neither the Company nor any of
its Subsidiaries shall be deemed to be an Affiliate of Harris or
any of its other Subsidiaries.
Agreements means, collectively, the Formation
Agreement, the Ancillary Agreements attached thereto as exhibits
and any other agreements provided or contemplated by any of the
foregoing.
Arms Length Terms means, with respect
to any transaction, terms and conditions for such transaction
that are no less favorable in any material respect to the
Company and its Subsidiaries, taken as a whole, than those which
could have been obtained in an arms length negotiation
between informed and willing unrelated parties under no
compulsion to act taking into account all the facts and
circumstances then prevailing; provided, however, that
notwithstanding the foregoing any terms and conditions of a
transaction approved by a majority of the Class A Directors
shall be deemed to be Arms Length Terms.
Audit Independent Director means any Director
who satisfies the requirements of Rule 4350(d)(2)(A) of the
NASDAQ Rules with respect to the Company.
A Person shall be deemed the beneficial owner
of, and shall be deemed to beneficially own,
any securities which such Person or any of its Affiliates would
be deemed to beneficially own within the meaning of
Rule 13d-3 under
the Exchange Act if the references to within
60 days in
Rule 13d-3(d)(1)(i)
were omitted.
Board means the board of directors of the
Company.
Business Day means any day other than a
Saturday, a Sunday or a day on which banks in The City of New
York are authorized or obligated by Law or executive order to
close.
Class A Common Stock means the
Class A Common Stock, par value $0.01, of the Company.
Class A Director means any Director
other than a Class B Director.
Class B Common Stock means the
Class B Common Stock, par value $0.01, of the Company.
E-4
Class B Director means any of the
Initial Harris Directors, any Director elected by a separate
class vote of the holders of the Class B Common Stock and
any Director appointed to replace or fill any vacancy created by
the removal, resignation, death or incapacity of any
Class B Director.
Closing Date means the date on which the
Closing occurred under the Formation Agreement.
Common Stock means, collectively, the
Class A Common Stock and the Class B Common Stock.
Director means any director who is a member
of the Board.
Exchange Act shall mean the Securities
Exchange Act of 1934, as amended.
Fair Market Value means, with respect to any
transaction, the fair market value of the total consideration
paid or payable for goods or services pursuant to such
transaction.
Governing Instruments means, collectively,
the Certificate of Incorporation and By-Laws of the Company
attached hereto as Exhibit A and
Exhibit B, respectively, as they may be amended from
time to time.
Government Entity means any domestic or
foreign governmental, regulatory or administrative authority,
agency, instrumentality, commission, body, court or other
entity, whether legislative, executive, judicial or otherwise,
and any arbitration panel, arbitrator or other entity with
authority to resolve any dispute.
Initial Directors means, collectively, the
Initial Harris Directors and Initial Stratex Directors.
Initial Harris Directors
means , , , ,
and .
Initial Stratex Directors
means , , and .
Law means any federal, state, local or
foreign law, statute, ordinance, rule, regulation, judgment,
order, injunction, decree, arbitration award, agency
requirement, license or permit of any Government Entity.
Litigation means any claim, suit, action,
arbitration, inquiry, investigation or other proceeding of any
nature (whether criminal, civil, legislative, administrative,
regulatory, prosecutorial or otherwise) by or before any
arbitrator or Government Entity.
NASDAQ Rules means the rules promulgated by
The Nasdaq Stock Market, Inc. which apply to issuers whose
common stock is listed on the Nasdaq Global Market
Nominee means, with respect to any Person,
any nominee, custodian or other Person who holds shares of
Common Stock for such Person without investment discretion.
Person means any individual, corporation
(including not-for-profit), general or limited partnership,
limited liability company, joint venture, estate, trust,
association, organization, Government Entity or other entity of
any kind or nature.
Securities Act shall mean the Securities Act
of 1933, as amended.
Subsidiary means, with respect to any Person,
(i) any corporation more than 50% of the outstanding Voting
Power of which is owned, directly or indirectly, by such Person,
any of its other Subsidiaries or any combination thereof or
(ii) any Person other than a corporation in which such
Person, any of its other Subsidiaries or any combination thereof
has, directly or indirectly, majority economic ownership or the
power to direct or cause the direction of the policies,
management and affairs thereof; provided, however, that
notwithstanding the foregoing neither the Company nor any of its
Subsidiaries shall be deemed to be a Subsidiary of Harris or any
of its other Subsidiaries for purposes of this Agreement.
Transfer means to sell, transfer or assign.
E-5
Total Voting Power means, at any time, the
total number of votes then entitled to be cast generally in the
election of Class A Directors by all holders of Voting
Securities (including the holders of Class B Common Stock).
Voting Securities means, at any time, all
classes of capital stock or other securities of the Company then
outstanding and entitled to vote generally in the election of
the Class A Directors.
1.2. Additional Definitions.
The following terms are defined in the Sections indicated:
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Defined Term: |
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Section: |
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Additional Voting Rights
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2.2 |
Affiliate Transaction
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4.3 |
Agreement
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Introductory Paragraph |
Annual Financial Statements
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4.6(j) |
Company
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Introductory Paragraph |
Company Auditors
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4.6(j) |
Corporate Opportunity
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4.4(c) |
Delaware Courts
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5.2 |
Filing Party
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4.6(e) |
Formation Agreement
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Recitals |
GAAP
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4.6 |
Harris
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Introductory Paragraph |
Harris Annual Statements
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4.6(j) |
Harris Auditors
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4.6(j) |
Harris Entities
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4.4(c) |
Harris Public Filings
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4.6(g) |
Monthly Exercise Notice
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4.5(b) |
Monthly Offer Notice
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4.5(b) |
Nominating Committee
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3.1(b) |
Non-Competition Agreement
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4.4(b) |
Offered Securities
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4.5 |
Offer Notice
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4.5 |
Proposed Issuance
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4.5 |
Stratex
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Recitals |
Tax Return
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4.2(b) |
Voting Percentage
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3.1(c) |
1.3. Terms Generally. The
definitions set forth or referred to above shall apply equally
to both the singular and plural forms of the terms defined.
Whenever the context may require, any pronoun shall include the
corresponding masculine, feminine and neuter forms. The words
include, includes and
including shall be deemed to be followed by the
phrase without limitation. All references herein to
Articles, Sections, Exhibits and Schedules shall be deemed to be
references to Articles and Sections of, and Exhibits and
Schedules to, this Agreement unless the context shall otherwise
require. Unless the context shall otherwise require, any
reference to any contract, instrument, statute, rule or
regulation is a reference to it as amended and supplemented from
time to time (and, in the case of a statute, rule or regulation,
to any successor provision). Any reference in this Agreement to
a day or a number of days (without the
explicit qualification of Business) shall be
interpreted as a reference to a calendar day or number of
calendar days.
E-6
ARTICLE II
Scope of Agreement
2.1. Scope of Agreement.
Harris and the Company desire to set forth in this Agreement
certain terms and conditions upon which Harris will hold its
equity interests in the Company, including but not limited its
rights as a holder of Class B Common Stock. Solely with
respect to Harris rights as a holder of Class B
Common Stock, if there is any inconsistency between the terms of
this Agreement and the Governing Instruments as a result of any
amendment of this Agreement or otherwise, the parties agree to
take promptly all necessary action to amend the Governing
Instruments to eliminate such inconsistency to the fullest
extent permitted by Law.
2.2. Governing Instruments and
Class B Common Stock. On or prior to the execution and
delivery of this Agreement, Harris and Stratex have caused the
Company to be incorporated under the laws of the State of
Delaware with Governing Instruments in the form attached hereto
as Exhibit A and Exhibit B. As of the
date of this Agreement, Harris owns, directly or indirectly
through its Affiliates, all the outstanding Class B Common
Stock and the shareholders of Stratex immediately prior to the
Effective Time own all the outstanding Class A Common
Stock. Pursuant to the Governing Instruments, the rights and
privileges of the Class A Common Stock and the Class B
Common Stock are identical in all respects except that the
holders of the Class B Common Stock have the additional
right to vote separately as a class to elect, remove and replace
the Class B Directors (the Additional Voting
Rights), the right to receive Class B Common
Stock instead of Class A Common Stock in certain
circumstances, the absence of certain duties and obligations
with respect to Corporate Opportunities (as defined in the
Governing Instruments) and preemptive rights consistent with
those granted in Section 4.5 hereof. The holders of
Class B Common Stock also have the right at any time to
exchange (a) any outstanding shares of Class A Common
Stock held by such holder for an equal number of shares of
Class B Common Stock or (b) any outstanding shares of
Class B Common Stock for an equal number of shares of
Class A Common Stock, in each case as provided in the
Governing Instruments. Each outstanding share of Class B
Common Stock shall convert into one outstanding share of
Class A Common Stock automatically and without any further
action by the Company or any other Person if: (i) the
holders of all of the outstanding shares of Class B Common
Stock (assuming that all the outstanding shares of Class A
Common Stock which are then exchangeable for Class B Common
Stock have been so exchanged) are collectively entitled to cast
less than 10% of the Total Voting Power or (ii) such
Class B Common Stock is transferred by a holder to any
Person who is not an Affiliate of such holder or a Nominee of
such holder or one of its Affiliates; provided, however,
that notwithstanding the foregoing no such conversion shall
occur if such transfer is part of a transfer by such holder and
its Affiliates of all of the shares of Class B Common Stock
then owned by them (either directly or through a Nominee (as
defined below)) to any other Person or to any other Person and
its Affiliates. As of the date of this Agreement, the
Class B Common Stock represents 56% of the outstanding
Common Stock determined on a fully diluted basis using the
treasury stock method assuming a market price per share of
Class A Common Stock equal to $20.80.
ARTICLE III
Boards of Directors
3.1. Role and Composition of the
Board. (a) As of the date of this Agreement, the Board
is comprised of nine directors of which the Initial Harris
Directors are the five Class B Directors and the Initial
Stratex Directors are the four Class A Directors. Of the
Initial Harris
Directors, is
an Audit Independent
Director, is
not an employee of Harris or any of its Subsidiaries
and is
the chief executive officer of the Company, in each case as of
the date of this Agreement. Of the Initial Stratex
Directors, and are
Audit Independent Directors
and is
the Chairman of the Board, in each case as of the date of this
Agreement. All Directors shall be elected at each annual meeting
of the Companys shareholders and the Initial Directors
shall serve until their successors are elected at the first such
annual meeting. Until the second anniversary of the date of this
E-7
Agreement, one of the Class B Directors must be an Audit
Independent Director and one of the other Class B Directors
must not be an employee of Harris or any of its Subsidiaries.
(b) At all times when the holders of all the outstanding
shares of Class B Common Stock (assuming that all the
outstanding shares of Class A Common Stock which are then
exchangeable for Class B Common Stock have been so
exchanged) are collectively entitled to cast a majority of the
Total Voting Power, (i) the Company will rely on the
Controlled Company exemption contained in Rule 4350(c)(5)
of the NASDAQ Rules, (ii) the Board will be comprised of
nine Directors, (iii) the holders of Class B Common
Stock shall be entitled to elect five of the Directors pursuant
to the Additional Voting Rights and the quorum for action by the
Board shall be a majority of the Board, which majority shall
include at least four Class B Directors and (iv) the
remaining four Directors will be Class A Directors
nominated by a nominating committee consisting solely of the
Class A Directors then in office (the Nominating
Committee), and elected by the holders of the Common
Stock, voting together as a single class; provided,
however, that at all times when Rule 4350(d)(2)(A) of
the NASDAQ Rules applies to the Company a sufficient number of
the Class A Directors must satisfy the requirements of that
Rule with respect to the Company so that, together with any
Class B Directors which are required or otherwise satisfy
such requirements with respect to the Company, there are enough
Directors to constitute an audit committee of the Board which
complies with the requirements of Rule 4350(d) of the
NASDAQ Rules. Harris agrees to vote, or caused to be voted, all
Voting Securities owned by it, its Affiliates and their
respective Nominees in favor of the election of the Class A
Directors nominated by the Nominating Committee pursuant to this
Section 3.1(b).
(c) At all times when the holders of all of the outstanding
shares of Class B Common Stock (assuming that all the
outstanding shares of Class A Common Stock which are then
exchangeable for Class B Common Stock have been so
exchanged) are collectively entitled to cast a percentage of the
Total Voting Power (the Voting Percentage)
which is less than a majority but equal to or greater than 10%
of the Total Voting Power (i) the Class B Common Stock
shall be entitled to elect pursuant to the Additional Voting
Rights a number of Class B Directors which represents the
Voting Percentage of the total number of Directors then
comprising the entire Board (rounded down to the next whole
number of Directors), and (ii) the remaining Directors will
be Class A Directors nominated by the Nominating Committee
(the composition of which shall comply with the requirements of
Rule 4350(c)(4) of the NASDAQ Rules) and elected by the
holders of the Common Stock, voting together as a single class;
provided, however, that at all times when such rules
apply to the Company a sufficient number of the Class A
Directors must (A) qualify as an Independent Director with
respect to the Company as such term is defined in
Rule 4200(15) of the NASDAQ Rules so that Board complies
with Rule 4350(c)(1) of the NASD Rules and (B) satisfy
the requirements of Rule 4350(d)(2)(A) of the NASDAQ Rules
with respect to the Company so that, together with any
Class B Directors which are required to or otherwise
satisfy such requirements with respect to the Company, there are
enough Directors to constitute an audit committee which complies
with the requirements of Rule 4350(d) of the NASDAQ Rules.
The Nominating Committee will nominate individuals for election
as Class A Directors who comply with the foregoing
requirements and Harris agrees to vote, or cause to be voted,
all Voting Securities owned by it, its Affiliates and their
respective Nominees in favor of the election of such nominees.
3.2. Removal and Vacancies.
(a) Without limiting Harris obligations under
Section 3.1(a), the holders of the Class B Common
Stock, voting separately as a class, shall have the sole right
to remove the Class B Directors with or without cause at
any time and for any reason and the sole right to elect
successor Directors to fill any vacancies on the Board caused by
any such removals. Any vacancy created by any resignation, death
or incapacity of any Class B Director shall be filled by
the remaining Class B Directors then in office or, if there
are none, by the holders of the Class B Common Stock,
voting separately as a class.
(b) The holders of the Class A Common Stock, voting
separately as a class, shall have the sole right to remove the
Class A Directors without cause and the sole right to
appoint successor Directors to fill any vacancies on the Board
caused by any such removals. Any vacancy created by the
resignation, death or incapacity of any Class A Director
shall be filled by the remaining Class A Directors then in
office or, if
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there are none, by the holders of the Class A Common Stock,
voting separately as a class. Harris agrees that none of the
shares of Class A Common Stock owned by it, any of its
Affiliates or any of their respective Nominees will be voted for
the removal of any Class A Director without cause and all
such shares will be voted for the election of the individual
nominated by the Nominating Committee to replace any
Class A Director who has been removed with or without cause.
(c) The holders of the Common Stock, voting together as a
single class, shall have the sole right to remove the
Class A Directors for cause and the sole right to elect
successor Directors to fill any vacancies on the Board caused by
any such removals.
3.3. Committees. At all
times, the audit, nominating and compensation committees of the
Board shall comply with the applicable requirements of
Rule 4350 of the NASDAQ Rules (after taking advantage of
all available exemptions for Controlled Companies under such
Rules).
3.4. Voting Requirements.
All actions of the Board must be approved by a majority of a
quorum.
3.5. Determination of Total
Voting Power. Notwithstanding anything in this Agreement to
the contrary, if any transaction or transactions occur which
entitle the holders of Class B Common Stock to preemptive
rights under Section 4.5, then no determination of the
percentage of the Total Voting Power collectively entitled to be
cast by the holders of all the outstanding shares of
Class B Common Stock (assuming that all the outstanding
shares of Class A Common Stock which are then exchangeable
for Class B Common Stock have been so exchanged) shall be
made for any purpose under this Agreement until after the
exercise or expiration of all such preemptive rights in respect
of all such transactions by such holders.
ARTICLE IV
Covenants
4.1. Standstill Provisions.
For a period of two years from the Closing Date, Harris may not
acquire or dispose of beneficial ownership of any Voting
Securities of the Company through open-market transactions,
third party purchases, business combinations or otherwise except
(i) pursuant to Section 4.5, (ii) as a result of
any actions taken by the Company that do not increase or
decrease the percentage of Voting Power which Harris and its
Affiliates are entitled to cast in respect of all Voting
Securities beneficially owned by Harris or (iii) with the
prior approval of a majority of the Class A Directors. From
the second to the fourth anniversary of the Closing Date, Harris
may not beneficially own Voting Securities which entitle Harris
and its Affiliates to cast more than 80% of the Voting Power
without the prior approval of a majority of the Class A
Directors. From the second until the fourth anniversary of the
Closing Date, Harris may not Transfer Voting Securities entitled
to cast a majority of the Voting Power in a single transaction
or series of related transactions if a single Person would
acquire beneficial ownership of all of such Voting Securities or
a portion of such Voting Securities that would entitle such
Person to cast a majority of the Total Voting Power unless
(i) such Transfer is approved in advance by a majority of
the Class A Directors or (ii) such Person offers to
acquire all the Voting Securities then owned by each other
holder of Voting Securities at the same price and on the same
terms and conditions as apply to the Transfer from Harris.
Notwithstanding the foregoing, nothing in this Section 4.1
shall prohibit or restrict any pro rata dividend or other pro
rata distributions of Voting Securities to Harris
shareholders or any bona fide sale to the public of Voting
Securities pursuant to Rule 144 under the Securities Act or
a bona fide registered public offering. For all purposes of this
Agreement, Harris shall be deemed to beneficially own all Voting
Securities beneficially owned by any of its Affiliates.
4.2. Access to Information,
Audit and Inspection. As long as Harris continues to
beneficially own Voting Securities that entitle it to cast at
least 20% of the Total Voting Power:
(a) Harris and its Representatives shall have (and the
Company shall cause its Subsidiaries to provide Harris and its
Representatives with) full access at reasonable times and during
normal business hours to all the books and records of the
Company and its Subsidiaries and their respective businesses
(including those books and records pertaining to periods prior
to the Closing Date), including the right to
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examine and audit any of such books and records and to make
copies and extracts therefrom. Harris shall bear all expenses
incurred by it or its Representatives in making any such
examination or audit and will reimburse the Company for all
reasonable
out-of-pocket expenses
incurred by it or its Subsidiaries in connection therewith. The
Company shall, and shall cause each of its Subsidiaries to, make
arrangements for Harris and its Representatives to have prompt
access at reasonable times and during normal business hours to
its officers, directors and employees to discuss the business
and affairs of the Company and its Subsidiaries and the books
and records pertaining thereto. The provisions of this
Section 4.2(a) shall continue to apply to the Company and
its Subsidiaries and be enforceable by Harris after Harris
ceases to beneficially own any Voting Securities of the Company
or Voting Securities of the Company that entitle it to cast at
least 20% of the Voting Power, but only to the extent, in each
case, that such books and records and such access to officers,
directors and other employees are reasonably requested by Harris
in connection with any pending or threatened Litigation,
proceeding or investigation involving Harris or any of its
Affiliates insofar as such matter relates to the business or
affairs of the Company or such Subsidiary (including any matters
relating to the business and affairs of any predecessor
businesses, including relating to periods prior to the Closing
Date).
(b) The Company shall provide Harris with copies of each
completed tax return required to be filed by the Company or any
of its Subsidiaries by applicable Law (each, a Tax
Return) at least 20 Business Days prior to the due
date (including any extensions of such due date) of the filing
of such Tax Return, and Harris may review such Tax Return prior
to its filing with the appropriate Government Entity. The
Company shall consult with Harris and negotiate in good faith to
resolve any issues arising as a result of the Harris
review of such Tax Return. Harris, the Company and its
Subsidiaries shall use all reasonable good faith efforts to
resolve any issue in dispute as promptly as possible, but in any
event prior to the due date for the filing of such Tax Return.
In the event an issue resulting from the review by Harris of
such Tax Return remains in dispute as of the due date for the
filing of such Tax Return, the Tax Return shall be filed with
the appropriate Government Entity in accordance with the
recommendation of the Companys external tax advisors.
4.3. Related Party
Transactions. Harris will not, and will not permit any of
its Affiliates to, directly or indirectly, enter into any
transaction or series of related transactions (including any
Transfer of any assets or the provision of any goods or
services) with the Company or any of its Subsidiaries (each, an
Affiliate Transaction) unless (i) such
Affiliate Transaction is on Arms Length Terms and
(ii) if the Affiliate Transaction has a Fair Market Value
of more than $5 million, such Affiliate Transaction shall
have been approved in advance by a majority of the Class A
Directors. The foregoing shall not apply to:
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(i) any issuance of securities to, or other payments,
awards or grants of in cash, securities or otherwise pursuant
to, or the funding of, employment arrangements, employee
benefits, stock options and stock ownership plans approved by
the Board, |
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(ii) the payment of reasonable and customary fees to
Directors who are not employees of the Company or any of its
Subsidiaries, |
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(iii) indemnification or insurance arrangements covering
directors and officers of the Company and its
Subsidiaries, and |
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(iv) any payments or other transactions pursuant to any
tax-sharing agreement between the Company and any other Person
with which the Company files a consolidated tax return or with
which the Company is part of a consolidated group for tax
purposes. |
4.4. Freedom of Action.
(a) Nothing in this Section 4.4 will impair the
Companys ability to enter into contractual arrangements
with a shareholder of the Company which restrict the shareholder
from engaging in activities otherwise allowed by this Section
and the following provisions shall be subject to the terms of
any such contractual arrangements.
(b) Except as expressly provided in the Non-Competition
Agreement, dated as of the date hereof, among the Company,
Harris and Stratex (the Non-Competition
Agreement) or the proviso at the end of
Section 4.4(c), Harris and its Affiliates shall have the
right to, and none of them shall have any
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fiduciary duty or other obligation to the Company, any of its
Subsidiaries or any of their shareholders not to, take any of
the following actions:
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(i) engage in the same or similar activities or lines of
business as the Company or any Subsidiary or develop or market
any products or services that compete, directly or indirectly,
with those of the Company or any of its Subsidiaries; |
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(ii) invest or own any interest in, or develop a business
relationship with, any Person engaged in the same or similar
activities or lines of business as, or otherwise in competition
with, the Company or any of its Subsidiaries; |
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(iii) do business with any client or customer of the
Company or any of its Subsidiaries; or |
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(iv) employ or otherwise engage any former officer or
employee of the Company or any of its Subsidiaries. |
(c) Neither Harris nor any of its Affiliates nor any
officer, director, employee or former employee of Harris or any
of its Affiliates that is not currently an employee of the
Company or any of its Subsidiaries (including any Class B
Directors) shall have any obligation, or be liable, to the
Company, any of its Subsidiaries or any of their shareholders
for or arising out of the conduct described in
Section 4.4(b) or the exercise of Harris rights under
any of the Agreements and none of them shall be deemed to have
acted (i) in bad faith, (ii) in a manner inconsistent
with the best interests of the Company, any of its Subsidiaries
or any of their shareholders or (iii) in a manner
inconsistent with, or opposed to, any fiduciary duty owed by
them to the Company, any of its Subsidiaries or any of their
shareholders by reason of any such conduct or exercise of such
rights or any of their participation therein. If Harris or any
of its Subsidiaries or any of their directors, officers or
employees, including any such individuals who are also
directors, officers or employees of the Company or any of its
Subsidiaries, (collectively, the Harris
Entities) acquires knowledge of a potential
opportunity, transaction or matter which may be a corporate
opportunity for both Harris or any of its Subsidiaries, on the
one hand, and the Company or any of its Subsidiaries, on the
other hand, (each, a Corporate Opportunity),
then each of the Harris Entities shall have the right to, and
none of them shall have any fiduciary duty or other obligation
not to, pursue such Corporate Opportunity for itself or to
direct such Corporate Opportunity to any of its Affiliates or to
any third party and none of the Harris Entities (i) shall
have any duty to communicate, offer or present such Corporate
Opportunity to the Company or any of its Subsidiaries,
directors, officers or employees, (ii) shall have any
liability to the Company, any of its Subsidiaries or any of
their shareholders for breach of any fiduciary duty or other
duty, as a shareholder, director, officer or employee of the
Company or any of its Subsidiaries or otherwise,
(iii) shall be deemed to have acted (x) in bad faith,
(y) in a manner inconsistent with the best interests of the
Company, any of its Subsidiaries or any of their shareholders or
(z) in a manner inconsistent with, or opposed to, any
fiduciary duty owed by them to the Company, any of its
Subsidiaries or any of their shareholders, in each case by
reason of the fact that any Harris Entity pursues or acquires
such Corporate Opportunity for itself, directs such Corporate
Opportunity to any of its Affiliates or any third party, or does
not communicate information regarding such Corporate Opportunity
to the Company or any of its Subsidiaries, directors, officers
or employees; provided, however, that notwithstanding
anything in this Section 4.4 to the contrary a Corporate
Opportunity offered to a person who is a director or officer of
both the Company and Harris shall belong to the Company if such
Corporate Opportunity is expressly offered to such person in
writing solely in his or her capacity as a director or officer
of the Company.
(d) The provisions of this Section 4.4 shall be
effective to the maximum extent permitted by Law and are not
intended to be enforceable to any further extent.
4.5. Preemptive Right.
(a) If the Company proposes to issue
(a Proposed Issuance) any capital stock
of the Company or any securities convertible into, or
exercisable or exchangeable for, such capital stock
(collectively, the Offered Securities) at any
time when the holders of all the outstanding shares of
Class B Common Stock (assuming that all the outstanding
shares of Class A Common Stock which are then exchangeable
for Class B Common Stock have been so exchanged) are
collectively entitled to cast a
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majority of the Total Voting Power, the Company shall give
written notice of the Proposed Issuance to the holders of
Class B Common Stock (the Offer Notice)
at least 30 days prior to such issuance. Such notice shall
describe all the material terms and conditions of such Proposed
Issuance. Each holder of Class B Common Stock shall have
the right to acquire at the same price and on the same terms and
conditions, an additional amount of the Offered Securities so
that the percentage of the outstanding Common Stock and Total
Voting Power then owned by such holder shall not change as a
result of such acquisition and Proposed Issuance; provided,
however, that notwithstanding the foregoing (i) such holder
may elect to acquire a lesser number of additional Offered
Securities as it may determine in its sole discretion and
(ii) if the Offered Securities are, or are convertible into
or exercisable or exchangeable for, Class A Common Stock,
then in lieu thereof such holder shall be entitled to purchase
Class B Common Stock or Offered Securities convertible into
or exercisable or exchangeable for Class B Common Stock, as
applicable. If any holder of Class B Common Stock fails to
accept such offer by written notice received by the Company
within fifteen (15) days following the date on which such
holder received the Offer Notice, the Proposed Issuance may be
consummated free and clear of the preemptive right granted to
the holders of Class B Common Stock under this
Section 4.5. Notwithstanding the foregoing, if the purchase
price for any Proposed Issuance is to be paid in whole or in
part other than in cash, then the holders of Class B Common
Stock may pay the purchase price in cash in an amount per
Offered Security equal to the fair market value of the aggregate
non-cash consideration so payable, as reasonably determined in
good faith by the Board, divided by the total number of Offered
Securities to be issued without giving effect to the preemptive
right granted by this Section 4.5.
(b) Notwithstanding the foregoing, the preemptive right
granted by this Section 4.5 shall not apply to any Proposed
Issuance pursuant to any stock option, restricted stock or
employee benefit plan of the Company; provided, however,
at the end of each month the Company shall give the holders of
Class B Common Stock written notice of all such Proposed
Issuances during such month (the Monthly Offer
Notice) and each holder of Class B Common Stock
shall have the right, exercisable by delivering written notice
to the Company (each, a Monthly Exercise
Notice) within fifteen days after the date on which
such holder received the Monthly Offer Notice, to purchase for
cash a sufficient number of shares of Class B Common Stock
so that the percentage of the outstanding Common Stock and Total
Voting Power then owned by such holder shall not change as a
result of such acquisition and Proposed Issuances; provided,
however, that such holder may elect to acquire a lesser
number of such shares of Class B Common Stock as it may
determine it its sole discretion. The per share purchase price
for any purchase of Class B Common Stock pursuant to a
Monthly Exercise Notice shall be (i) if the Class A
Common Stock is then listed on a national securities exchange or
quoted on an automated inter-dealer quotation system, the
closing price of the Class A Common Stock on the trading
day immediately preceding the date on which the Company received
the Monthly Exercise Notice or (ii) in all other cases, the
fair market value of one share of Class A Common Stock as
determined in good faith by the Board.
4.6. Covenants Relating to
Financial, Accounting and Disclosure Matters. (a) The
Company agrees to comply with the requirements of all of the
following paragraphs of this Section 4.6 other than
paragraph (m) at all times when Harris is required by
U.S. generally accepted accounting principles
(GAAP) to consolidate the Company or any of
its Subsidiaries. The Company agrees to comply with the
requirements of paragraphs (d), (e), (f), (j), (m) and
(n) of this Section 4.6 at all time when Harris is
required by GAAP to account for its investment in the Company or
any of its Subsidiaries under the equity method of accounting.
(b) Disclosure and Internal Controls. The Company
will (and will cause each of its Subsidiaries to) maintain
effective disclosure controls and procedures and internal
control over financial reporting as defined in
Rule 13a-15 under
the Exchange Act or any similar or successor rule applicable to
Harris. The Company shall cause each of its principal executive
and principal financial officers to (i) sign and deliver
certifications to its periodic reports and shall include the
certifications in its periodic reports, as and when required
pursuant to Exchange Act
Rule 13a-14 and
Item 601 of
Regulation S-K or
any similar or successor rule applicable to Harris and
(ii) sign and deliver to Harris such certification and
representation documents, and to participate in discussions of
related matters, with respect to Harris periodic reports
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under the Exchange Act as Harris may reasonably request. The
Company shall cause its management to evaluate its disclosure
controls and procedures and internal control over financial
reporting (including any change in internal control over
financial reporting) as and when required pursuant to Exchange
Act Rule 13a-15 or
any similar or successor rule applicable to Harris. The Company
shall disclose in its periodic reports filed with the SEC
information concerning its managements responsibilities
for and evaluation of its disclosure controls and procedures and
internal control over financial reporting (including the annual
management report and attestation report of its independent
auditors relating to internal control over financial reporting)
as and when required under Items 307 and 308 of
Regulation S-K and
other applicable SEC rules. Without limiting the general
application of the foregoing, the Company shall (and shall cause
each of its Subsidiaries to) maintain internal systems and
procedures which provide reasonable assurance that (i) its
financial statements are reliable and timely prepared in
accordance with GAAP and applicable Law, (ii) all
transactions of the Company and its Subsidiaries are recorded as
necessary to permit the preparation of their respective
financial statements, (iii) the receipts and expenditures
of the Company and its Subsidiaries are authorized at the
appropriate internal level, and (iv) unauthorized use or
disposition of the assets of any the Company or any of its
Subsidiaries that could have material effect on their financial
statements is prevented or detected in a timely manner. The
Company shall report in reasonable detail to Harris any of the
following events or circumstances promptly after any executive
officer of the Company or any Director becomes aware of such
matter: (i) any significant deficiency or material weakness
in the design or operation of internal control over financial
reporting that is reasonably likely to adversely affect the
Companys or any of its Subsidiaries ability to record,
process, summarize and report financial information,
(ii) any fraud, whether or not material, that involves
management or other employees who have a significant role in the
internal control over financial reporting of the Company and its
Subsidiaries, (iii) any illegal act within the meaning of
Section 10A(b) and (f) of the Exchange Act, and
(iv) any report of a material violation of Law that an
attorney representing the Company or any of its Subsidiaries has
formally made to any officers or directors of the Company
pursuant to the SECs attorney conduct rules
(17 C.F.R. Part 205).
(c) Fiscal Year, Fiscal Quarter
and Fiscal Monthly Accounting Periods. The Company shall
(and shall cause each of its Subsidiaries to) maintain the same
fiscal year, fiscal quarter and fiscal monthly accounting
periods as Harris as they may change from time to time.
(d) Quarterly and Annual
Information. The Company shall cooperate with Harris and use
its commercially reasonable efforts to deliver to Harris
consolidated quarterly and annual financial statements of the
Company by such dates as Harris shall reasonably determine in
order to give Harris reasonable time to review and include such
information in its Quarterly Report on
Form 10-Q or
Annual Report on
Form 10-K, as
applicable. The Company hereby acknowledges that Harris
internal policies and procedures will impose certain
requirements on its divisions and subsidiaries with respect to
the type and format of financial information provided to
Harris management at the end of each fiscal quarter and
fiscal year end and that Harris currently requires such
information to be so provided no later than the eighth (8th)
Business Day following the end of each fiscal quarter and fiscal
year end. The Company acknowledges that Harris is a Large
Accelerated Filer (as such term is defined in
Rule 12b-2 under
the Exchange Act) and is required to file its Quarterly Reports
on Form 10-Q and
Annual Reports on
Form 10-K with the
SEC on an accelerated basis and must make file such reports with
the SEC before the Company is currently required to file its
Quarterly Reports on
Form 10-Q or
Annual Reports on
Form 10-K or may
be required to file such reports in the future. Senior employees
of the Company and Harris with responsibility for preparation
and review of SEC filings will actively consult with each other
regarding the details of the Quarterly Reports on
Form 10-Q and
Annual Reports on
Form 10-K to be
filed by the Company and in particular review any changes
(whether or not substantive) that the Company is considering or
plans to make to the most recent draft provided to Harris before
such documents are filed with the SEC.
(e) Other SEC Filings. Each
of the Company and each of its Subsidiaries which files any
information with the SEC (each, a Filing
Party) shall promptly deliver to Harris: preliminary
and substantially final drafts, as soon as the same are
prepared, of (i) all reports, notices and proxy and
information statements to be sent or made available by such
Filing Party to its security holders, (ii) all
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regular, periodic and other reports (other than those on
Form 10-K or
Form 10-Q) to be
filed or furnished by such Filing Party under Sections 13,
14 and 15 of the Exchange Act, and (iii) all registration
statements and prospectuses to be filed by such Filing Party
with the SEC or any securities exchange pursuant to the listed
company manual (or similar requirements) of such exchange.
Thereafter, senior employees of the Company and Harris with
responsibility for preparation and review of SEC filings will
actively consult with each other regarding any changes (whether
or not substantive) that the Company may consider making to such
documents before they are filed with, or furnished to, the SEC.
(f) Earnings Releases and
Financial Guidance. Senior employees from the Company and
Harris with responsibility for such matters shall consult with
each other as to the timing of their annual and quarterly
earnings releases and any interim financial guidance for a
current or future period and the Company shall give Harris the
opportunity to review and comment on the information contained
in such releases or guidance. The Company shall make reasonable
efforts to issue its respective annual and quarterly earnings
releases at approximately the same time on the same date as
Harris. No later than eight hours prior to the time and date
(or, if the same will be published before noon, no later than
5 p.m. Melbourne, Florida time on the previous Business
Day) on which the Company intends to publish its regular annual
or quarterly earnings release, any financial guidance for a
current or future period or any other matters that could be
reasonably likely to have a material financial impact on the
earnings, results of operations, financial condition or
prospects of the Company and its Subsidiaries, taken as a whole,
the Company shall use commercially reasonable efforts to deliver
to Harris copies of substantially final drafts of all press
releases and other statements relating thereto which will be
made available by the Company or any of its Subsidiaries to
employees or public and senior employees with responsibility for
such maters shall consult regarding any changes (other than
typographical or other similar minor changes) to such
substantially final drafts. Immediately following the issuance
thereof, the Company shall deliver to Harris copies of final
versions of all such press releases and other public statements.
(g) Harris Public Filings.
The Company shall use its commercially reasonable efforts to
cooperate and to cause its auditors to cooperate with Harris to
the extent reasonably requested by Harris in the preparation of
Harris public earnings or other press releases, Quarterly
Reports on
Form 10-Q, Annual
Reports to Shareholders, Annual Reports on
Form 10-K, Current
Reports on
Form 8-K and any
other proxy, information and registration statements, reports,
notices, prospectuses and any other filings made by Harris with
the SEC or any national securities exchange or otherwise made
publicly available by or on behalf of Harris (collectively, the
Harris Public Filings) and Harris shall
reimburse the Company for all reasonable
out-of-pocket expenses
incurred by the Company or any of its Subsidiaries in connection
therewith. The Company shall use commercially reasonable efforts
to provide to Harris all information Harris reasonably requests
in connection with any Harris Public Filings or that, in the
reasonable judgment of legal advisors to Harris, is required to
be disclosed or incorporated by reference therein under
applicable Law. The Company shall provide such information in a
timely manner on the dates requested by Harris (which may be
earlier than the dates on which the Company otherwise would be
required hereunder to have such information available) to enable
Harris to prepare, print and release all Harris Public Filings
on such dates as Harris shall reasonably determine but in no
event later than as required by applicable Law. The Company
shall use its commercially reasonable efforts to cause the
Company Auditors to consent to any reference to them as experts
in any Harris Public Filings if required under applicable Law.
If and to the extent requested by Harris, the Company shall
diligently and promptly review all drafts of such Harris Public
Filings and prepare in a diligent and timely fashion any portion
of such Harris Public Filing pertaining to the Company. Prior to
any printing or public release of any Harris Public Filing, an
appropriate executive officer of the Company shall, if requested
by Harris, certify that the information relating to the Company,
any of its Subsidiaries or any of their businesses in such
Harris Public Filing is accurate, true, complete and correct in
all material respects. Unless required by Law, the Company shall
not publicly release any financial or other information that
conflicts with the information with respect to the Company, any
of its Subsidiaries or any of their respective businesses that
is included in any Harris Public Filing without Harris
prior written consent. Prior to the release or filing thereof,
Harris shall provide the Company with a draft of any portion of
a Harris Public Filing containing information relating
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to the Company, any of its Subsidiaries or any of their
businesses and shall give the Company an opportunity to review
such information and comment thereon.
(h) Company Disclosures.
Nothing in Section 4.6(d), Section 4.6(e),
Section 4.6(f) or Section 4.6(n) shall prevent or
otherwise limit the ability of the Company to make any
disclosure which the Company reasonably believes is necessary to
comply with applicable Law, including any changes to drafts
previously furnished to Harris. Nothing in Section 4.6(d),
Section 4.6(e), Section 4.6(f) or Section 4.6(n)
shall prevent or otherwise limit the ability of Harris to make
any disclosure which Harris reasonably believes is necessary to
comply with applicable Law, including any changes to drafts
previously furnished to the Company.
(i) Consistency of Accounting
Principles, Policies and Practices. All information to be
provided to Harris by, or with respect to, the Company or any of
its Subsidiaries or controlled Affiliates pursuant to this
Agreement shall be consistent in terms of format, detail and
otherwise with the accounting principles, policies and practices
of Harris, with such changes therein as may be requested by
Harris from time to time consistent with changes in such
accounting principles, policies and practices. Subject to the
foregoing, the Company shall give Harris as much prior notice as
reasonably practicable of any proposed determination of, or any
significant changes in, the Companys accounting estimates
or accounting principles. Senior employees of Harris and the
Company with responsibility for accounting and financial
reporting shall consult with each other (and their respective
auditors, if requested) with respect to any such proposed
determination or change. Unless otherwise required by applicable
Law, the Company shall not make any such determination or
changes without the prior written consent of Harris if such a
determination or change would be sufficiently material to be
required to be disclosed in financial statements or other
disclosure documents filed by the Company or Harris with the SEC.
(j) Auditors.
Ernst & Young shall initially serve as the independent
certified public accountants of the Company and its Subsidiaries
(the Company Auditors). The Company shall
thereafter maintain as the Company Auditors the same firm (and
its affiliated firms) as Harris appoints to act as the
independent certified public accountants for Harris and its
Subsidiaries, unless and until the audit committee of the
Company determines in good faith that it is required by Law or
that it is in the best interest of the stockholders of the
Company to appoint a different independent certified public
accountant for the Company than that appointed by Harris for
Harris and its Subsidiaries. The Company shall use commercially
reasonable efforts to enable the Company Auditors to complete
their audit such that they may date their opinion on the audited
financial statements of the Company (the Annual
Financial Statements) on the same date that
Harris independent certified public accountants (the
Harris Auditors) date their opinion on the
audited annual financial statements of Harris (the
Harris Annual Statements) and to enable
Harris to meet its timetable for the printing, filing and public
dissemination of the Harris Annual Statements, all in accordance
with this Agreement and as required by applicable Law. The
Company shall request that the Company Auditors date their
opinion on the Annual Financial Statements on the same date that
the Harris Auditors date their opinion on the Harris Annual
Statements. The Company shall provide to Harris on a timely
basis all information Harris reasonably requires to meet its
schedule for the preparation, printing, filing and public
dissemination of the Harris Annual Statements in accordance with
this Agreement and as required by applicable Law. Without
limiting the generality of the foregoing, the Company shall
provide all required financial information with respect to the
Company and its Subsidiaries to the Company Auditors in a
sufficient and reasonable time and in sufficient detail to
permit the Company Auditors to take all steps and perform all
reviews necessary to provide sufficient assistance to Harris
Auditors with respect to information to be included or contained
in the Harris Annual Statements. The Company shall authorize the
Company Auditors to make available to the Harris Auditors both
the personnel who performed, or are performing, the annual audit
of the Company and work papers related to the annual audit of
the Company, in all cases within a reasonable time prior to the
opinion date for the Company Auditors, so that the Harris
Auditors are able to perform the procedures they consider
necessary to take responsibility for the work of the Company
Auditors as it relates to the report of the Harris Auditors on
the Harris financial statements, all within sufficient time to
enable Harris to meet its timetable for the printing, filing and
public dissemination of the Harris Annual Statements.
E-15
(k) Inaccuracies. If Harris determines in good faith
that there may be an inaccuracy in any financial statements of
the Company or any of its Subsidiaries or any deficiency in the
internal accounting controls or operations of the Company or any
of its Subsidiaries that could materially impact Harris
financial statements, then upon request the Company shall
provide to Harris internal auditors access to the books
and records of Harris and its Subsidiaries so that Harris may
conduct reasonable audits relating to the financial statements
provided by the Company under this Agreement as well as to the
internal accounting controls and operations of the Company or
any of its Subsidiaries. Harris shall be responsible for the
fees and expense of its internal auditors in connection with
such audits but shall not be required to reimburse the Company
for any expenses incurred by the Company and its Subsidiaries in
connection therewith.
(l) Information for Equity Accounting Periods. The
Company shall provide to Harris on a timely basis all
information Harris reasonably requires to meet its schedule for
the preparation, printing, filing and public dissemination of
the Harris Annual Statements in accordance with this Agreement
and as required by applicable Law, and without limiting the
generality of the foregoing, the Company shall provide all
required financial information with respect to the Company and
its Subsidiaries to the Company Auditors in a sufficient and
reasonable time and in sufficient detail to permit the Company
Auditors to take all steps and perform all reviews necessary to
provide sufficient assistance to Harris Auditors with respect to
information to be included or contained in the Harris Annual
Statements.
(m) Certifications. The Company shall provide to
Harris certifications from appropriate employees of the Company,
at the times and in form and substance reasonably requested by
Harris, to provide backup support for any certifications by any
officers of Harris which are required to be included as part of,
or as an exhibit to, any report filed by Harris under the
Exchange Act pursuant to
Rule 13a-14 under
the Exchange Act, Item 601 of
Regulation S-K or
any successor or additional rule or regulation; provided,
however, that such employees need only provide such
certifications to the extent they believe they accurately
characterize the matters described therein.
(n) Nonpublic Information. Each party recognizes
that information shared pursuant to this Article IV may
constitute material nonpublic inside information, and will use
commercially reasonable efforts (i) to treat such material
nonpublic information as confidential, (ii) in the case of
Stratex only, not to disclose it to any Person who is not an
employee or director of such party or any of its Subsidiaries or
any of their advisers who need to know such information for
purposes of carrying out the provisions of this
Section 4.6. and (iii) in the case of Harris only, not
to disclose it to any Person who is not an employee or director
of such party or any of its Subsidiaries or any of their
advisers who need to know such information for purposes of
advising Harris with respect to its investment in the Company or
carrying out the provisions of this Section 4.6.
4.7. Option Exercise. If and
to the extent the Company shall determine to use the proceeds
from the exercise of any options to acquire Common Stock to
repurchase shares of Class A Common Stock in the market at
the then prevailing market price, at the request of Harris or
otherwise, such determination or repurchase shall not be deemed
to be an Affiliate Transaction or a breach by Harris or any
Class B Director of any duty or obligation they may have to
the Company or its stockholders.
ARTICLE V
Miscellaneous
5.1. Termination. This
Agreement shall terminate at the first time at which the Total
Voting Power of Voting Securities owned by Harris, its
Affiliates and their respective Nominees collectively represent
less than 10% of the Total Voting Power.
5.2. Governing Law and Venue;
Waiver Of Jury Trial. (a) THIS AGREEMENT SHALL BE
DEEMED TO BE MADE IN AND IN ALL RESPECTS SHALL BE INTERPRETED,
CONSTRUED AND GOVERNED BY AND IN ACCORDANCE WITH THE LAW OF THE
STATE OF DELAWARE WITHOUT REGARD TO THE CONFLICT OF LAW
PRINCIPLES THEREOF. The
E-16
parties hereby irrevocably submit to the jurisdiction of the
courts of the State of Delaware and the Federal courts of the
United States of America located in the State of Delaware
(collectively, the Delaware Courts) solely in
respect of the interpretation and enforcement of the provisions
of this Agreement and of the documents referred to in this
Agreement, and in respect of the transactions contemplated
hereby, and hereby waive, and agree not to assert, as a defense
in any action, suit or proceeding for the interpretation or
enforcement hereof or of any such document, that it is not
subject thereto or that such action, suit or proceeding may not
be brought or is not maintainable in any Delaware Court or that
the venue thereof may not be appropriate or that this Agreement
or any such document may not be enforced in or by such courts,
and the parties hereto irrevocably agree that all claims with
respect to such action or proceeding shall be heard and
determined in any Delaware Court; provided, however, that
notwithstanding the foregoing each party agrees that any claim
which primarily seeks injunctive relief and related monetary
claims that cannot be brought in any Delaware Court for
jurisdiction reasons may be commenced, heard and determined in
any other court having proper jurisdiction over such claim. The
parties hereby consent to and grant any Delaware Court
jurisdiction over the person of such parties and, to the extent
permitted by law, over the subject matter of such dispute and
agree that mailing of process or other papers in connection with
any such action or proceeding in the manner provided in
Section 5.6 or in such other manner as may be
permitted by law shall be valid and sufficient service thereof.
(b) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY
WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE
COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH SUCH PARTY
HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH
PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION
DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS
AGREEMENT, OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.
EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (I) NO
REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD
NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING
WAIVER, (II) EACH PARTY UNDERSTANDS AND HAS CONSIDERED THE
IMPLICATIONS OF THIS WAIVER, (III) EACH PARTY MAKES THIS
WAIVER VOLUNTARILY, AND (IV) EACH PARTY HAS BEEN INDUCED TO
ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL
WAIVERS AND CERTIFICATIONS IN THIS SECTION 5.2.
5.3. Severability. If any
provision of this Agreement shall be held to be illegal, invalid
or unenforceable, that provision will be enforced to the maximum
extent permissible so as to effect the intent of the parties,
and the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
If necessary to effect the intent of the parties, the parties
will negotiate in good faith to amend this Agreement to replace
the unenforceable language with enforceable language which as
closely as possible reflects such intent.
5.4. Amendment; Waiver. This
Agreement may be amended or any performance, term or condition
waived in whole or in part only by a writing signed by persons
authorized to so bind each party (in the case of an amendment)
or the waiving party (in the case of a waiver). Any such
amendment or waiver by the Company shall require the prior
approval of a majority of the Class A Directors. No failure
or delay by any party to take any action with respect to a
breach by another party of this Agreement or a default by
another party hereunder shall constitute a waiver of the former
partys right to enforce any provision of this Agreement or
to take action with respect to such breach or default or any
subsequent breach or default. Waiver by any party of any breach
or failure to comply with any provision of this Agreement by
another party shall not be construed as, or constitute, a
continuing wavier of such provisions, or a waiver of any other
breach of or failure to comply with any other provisions of this
Agreement.
5.5. Assignment. Harris
shall be entitled to assign all of its rights and obligations
under this Agreement to any Person to whom it transfers all of
the ownership interests in the Company then owned by Harris and
its Affiliates if such Person delivers a written undertaking to
the Company in which such Person expressly assumes all of
Harris obligations under this Agreement, and from and
after such a
E-17
transfer all references herein to Harris shall be deemed to be
references to such Person. Except as provided in the immediately
preceding sentence, no party may assign this Agreement or any
rights, benefits, obligations or remedies hereunder without the
prior written consent of the other party hereto, except that no
such consent shall be required for a transfer by operation of
Law in connection with a merger or consolidation of such party.
Any attempt so to assign or to delegate any of the foregoing
without such consent shall be void and of no effect. This
Agreement shall be binding upon, inure to the benefit of and be
enforceable by and against the parties hereto and their
respective successors and permitted assigns. All certificates
representing shares subject to the terms and conditions of this
Agreement shall bear an appropriate legend with respect thereto.
5.6. No Third-Party
Beneficiaries. This Agreement is intended to be for the sole
and exclusive benefit of the parties hereto and their respective
successors and permitted assigns. Nothing contained 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 to this Agreement or any provision herein contained.
5.7. Notices. Any notice,
request, instruction or other document to be given hereunder by
any party to the others shall be in writing and delivered
personally or sent by registered or certified mail or by
overnight courier, postage prepaid, or by facsimile:
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if to Harris: |
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Harris Corporation
1025 West NASA Blvd.
Melbourne, FL 32919
Attn: Scott T. Mikuen
fax: (321) 727-9222 |
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with a copy to (which shall not constitute notice): |
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Sullivan & Cromwell LLP
125 Broad Street
New York, NY 10004
fax: (212) 558-3588
Attention: Duncan C. McCurrach |
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if to the Company: |
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Harris Stratex Networks, Inc.
120 Rose Orchard Way
San Jose, CA 95134
Attn: General Counsel
fax: (408) 944-1770 |
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with a copy to (which shall not constitute notice):
[To be provided.] |
or to such other Persons or addresses as may be designated in
writing by the party to receive such notice as provided above.
Any notice, request, instruction or other document given as
provided above shall be deemed given to the receiving party upon
actual receipt, if delivered personally; three Business Days
after deposit in the mail, if sent by registered or certified
mail; upon confirmation of successful transmission if sent by
facsimile (provided that if given by facsimile such notice,
request, instruction or other document shall be followed up
within one Business Day by dispatch pursuant to one of the other
methods described
E-18
herein); or on the next Business Day after deposit with a
nationally recognized overnight courier, if sent by a nationally
recognized overnight courier.
5.8. Entire Agreement. This
Agreement, the Non-Competition Agreement, the Registration
Rights Agreement, dated as of the date hereof, between Harris
and the Company and, solely with respect to the defined terms
therein which are incorporated by reference herein, the
Formation Agreement between Harris and Stratex constitute the
entire and only agreements between the parties relating to the
subject matter hereof and thereof and any and all prior
arrangements, representations, promises, understandings and
conditions in connection with said matters and any
representations, promises or conditions not expressly
incorporated herein or therein or expressly made a part hereof
or thereof shall not be binding upon any party.
5.9. No Challenges; Specific
Performance. Each of Harris and the Company hereby
acknowledges and agrees that (a) it will not challenge the
validity of any provision of Articles III or IV hereof
in any Litigation or any other proceeding and (b) because
any breach of the provisions of Articles III or IV
would cause irreparable harm and significant injury that would
be difficult to ascertain and would not be adequately
compensable by damages alone, each party will have the right to
enforce such provisions by injunction, specific performance or
other equitable relief without prejudice to any other rights and
remedies the enforcing party may have. The reference to specific
Articles in this Section is not a waiver of any partys
rights to seek equitable relief for breaches of other Articles
or Sections.
5.10. Headings. The headings
in this Agreement are included for convenience of reference only
and shall not in any way limit or otherwise affect the meaning
or interpretation of this Agreement.
5.11. Counterparts. This
Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original, but all of which, taken
together, shall constitute one and the same instrument.
5.12. Relationship of
Parties. Nothing herein contained shall constitute the
parties hereto members of any partnership, joint venture,
association, syndicate, or other entity, or be deemed to confer
on any of them any express, implied, or apparent authority to
incur any obligation or liability on behalf of another party,
except as otherwise expressly provided in any Agreement.
5.13. Construction. This
Agreement has been negotiated by the parties and their
respective counsel in good faith and will be fairly interpreted
in accordance with its terms and without any strict construction
in favor of or against any party. Time shall be of the essence
of this Agreement.
5.14. Effectiveness. This
Agreement shall become effective only when one or more
counterparts shall have been signed by each party and delivered
to each other party
5.15. Enforcement by the
Company. Harris agrees that a majority of the Class A
Directors shall have the sole and exclusive right to direct the
exercise and enforcement of all rights of the Company hereunder.
[Remainder of Page Intentionally Left Blank]
E-19
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective officers
thereunto duly authorized as of the date first above written.
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Title: |
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HARRIS STRATEX NETWORKS, INC. |
APPENDIX F
NON-COMPETITION AGREEMENT
Among
HARRIS CORPORATION,
STRATEX NETWORKS, INC.
and
HARRIS STRATEX NETWORKS, INC.
Dated: [Closing Date]
F-1
NON-COMPETITION AGREEMENT
NON-COMPETITION AGREEMENT, dated as of [Closing Date]
(this Agreement), among HARRIS
CORPORATION, a Delaware corporation (Harris),
STRATEX NETWORKS, INC., a Delaware corporation
(Stratex), and HARRIS STRATEX NETWORKS, INC.,
a Delaware corporation (the Company).
WHEREAS, Harris and Stratex have entered into a Formation,
Contribution and Merger Agreement, dated as of September 5,
2006 (the Formation Agreement), pursuant to
which the Company was formed to acquire Stratex pursuant to the
Merger and to receive the Contributed Assets from Harris in the
Contribution Transaction, in each case on the terms and subject
to the conditions set forth in the Formation Agreement;
WHEREAS, because of the importance of preserving the value of
the business being contributed by Harris as a going concern,
Stratex was not willing to enter into the Formation Agreement
without the undertakings of Harris contained in this
Agreement; and
WHEREAS, the execution and delivery of this Agreement is a
condition to closing under the Formation Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants in the Agreements, the parties agree as follows:
1. Definitions. The term Restricted
Business means the development, manufacture,
distribution and sale of any microwave radio systems and related
components, systems and services which are (i) competitive
with the products listed in Schedule 1 hereto, or
(ii) which are substantially similar to such products in
form, fit and function when used in terrestrial microwave
point-to-point
communications networks that provide access and trunking of
voice and data for telecommunications networks anywhere in the
world. In addition, all capitalized terms used but not defined
in this Agreement shall have the meanings assigned to them in
the Formation Agreement; provided, however, that
notwithstanding the foregoing neither the Company nor any of its
Subsidiaries shall be deemed to be a Subsidiary or Affiliate of
Harris or any of its other Subsidiaries or Affiliates for
purposes of this Agreement.
2. Non-Competition. In consideration for the
issuance to Harris of shares of the Company pursuant to the
Formation Agreement and the performance by Stratex of its
obligations under the Agreements (collectively, the
Non-Compete Consideration), Harris agrees
that, during the period commencing on the date of this Agreement
and ending on the fifth anniversary of the date hereof, Harris
will not, and will not permit any of its Subsidiaries to
(a) engage, directly or indirectly, in the Restricted
Business, (b) form any Person other than the Company and
its Subsidiaries (a Covered Person) or change
or extend the current business activities of any existing
Covered Person for the purpose of engaging, directly or
indirectly, in the Restricted Business or (c) invest,
directly or indirectly, in any Covered Person engaged, directly
or indirectly, in the Restricted Business in any material
respect; provided, however, that notwithstanding the
foregoing Harris and/or its Subsidiaries may
(i) collectively own less than 20% of the total equity
interests in any Covered Person engaged in the Restricted
Business as long as none of the employees of Harris or any of
its Subsidiaries is involved in the management of such Covered
Person, (ii) participate as a passive investor with no
management rights in any investment fund that holds an ownership
interests in Covered Persons engaged in the Restricted Business
which is managed by Persons that are not Affiliates of Harris
(each, an Unaffiliated Person) (x) with
any employee benefit or retirement plan funds and (y) with
any other funds subject, in the case of this
clause (y) only, to a maximum interest in such
investment fund of 15% and (iii) acquire a Covered Person
or business unit of a Covered Person engaged in the Restricted
Business if (x) the Restricted Business contributed less
than 20% of such Covered Persons or business units,
as applicable, total revenues (based on its latest annual
audited financial statements, if available) and (y) such
Covered Person or Harris, as applicable, divests or ceases to
conduct the Restricted Business within 18 months after the
acquisition date. Notwithstanding anything in this Agreement to
the contrary, the defined term Restricted Business
shall not include, and the prohibition contained in this
Section 2 shall in no way prohibit Harris and/or its
Subsidiaries from,
F-2
(a) purchasing and reselling products produced by, and
marked with the brands of, an Unaffiliated Person in connection
with the sale, service, design or maintenance of a system that
contains or uses microwave radios or related components, systems
or services or (b) developing, manufacturing, distributing
or selling microwave radios or related components, systems or
services for use by Government Entities.
3. Sufficiency of Consideration. Each of the parties
acknowledges that the Non-Compete Consideration is sufficient
consideration for the duration and scope of the non-competition
agreement contained herein and that such duration and scope are
reasonable in all respects.
4. Severability; Enforceability. If any provision of
this Agreement, or any part thereof, is held by a court or other
authority of competent jurisdiction to be invalid or
unenforceable, the parties agree that the court or authority
making such determination will have the power to reduce the
duration or scope of such provision or to delete specific words
or phrases as necessary (but only to the minimum extent
necessary) to cause such provision or part to be valid and
enforceable. If such court or authority does not have the legal
authority to take the actions described in the preceding
sentence, the parties agree to negotiate in good faith a
modified provision that would, in so far as possible, reflect
the original intent of this Agreement without violating
applicable law.
5. Availability of Injunctive Relief. The parties
hereto acknowledge and recognize that irreparable damage could
result to the Company and its Subsidiaries, businesses and
properties if Harris fails or refuses to perform its obligations
under this Agreement and that no adequate remedy at law will
exist for any breach by Harris of this Agreement. In addition to
any other rights or remedies and damages available, the Company
shall be entitled to appropriate injunctive relief, including
preliminary and mandatory injunctive relief, enjoining or
restraining Harris or any of its Subsidiaries from any violation
or threatened violation of this Agreement.
6. Governing Law and Venue; Waiver of Jury Trial.
(a) THIS AGREEMENT SHALL BE DEEMED TO BE MADE IN AND IN
ALL RESPECTS SHALL BE INTERPRETED, CONSTRUED AND GOVERNED BY AND
IN ACCORDANCE WITH THE LAW OF THE STATE OF DELAWARE WITHOUT
REGARD TO THE CONFLICT OF LAW PRINCIPLES THEREOF. The
parties hereby irrevocably submit to the jurisdiction of the
courts of the State of Delaware and the Federal courts of the
United States of America located in the State of Delaware
(collectively, the Delaware Courts) solely in
respect of the interpretation and enforcement of the provisions
of this Agreement and hereby waive, and agree not to assert, as
a defense in any action, suit or proceeding for the
interpretation or enforcement hereof or of any such document,
that it is not subject thereto or that such action, suit or
proceeding may not be brought or is not maintainable in any
Delaware Court or that the venue thereof may not be appropriate
or that this Agreement or any such document may not be enforced
in or by such courts, and the parties hereto irrevocably agree
that all claims with respect to such action or proceeding shall
be heard and determined in any Delaware Court; provided,
however, that notwithstanding the foregoing each party
agrees that any claim which primarily seeks injunctive relief
and related monetary claims that cannot be brought in any
Delaware Court for jurisdiction reasons may be commenced, heard
and determined in any other court having proper jurisdiction
over such claim. The parties hereby consent to and grant any
Delaware Court jurisdiction over the person of such parties and,
to the extent permitted by law, over the subject matter of such
dispute and agree that mailing of process or other papers in
connection with any such action or proceeding in the manner
provided in Section 12 or in such other manner as
may be permitted by law shall be valid and sufficient service
thereof.
(b) Each party acknowledges and agrees that any controversy
which may arise under this Agreement is likely to involve
complicated and difficult issues, and therefore each such party
hereby irrevocably and unconditionally waives any right such
party may have to a trial by jury in respect of any litigation
directly or indirectly arising out of or relating to this
Agreement. Each party certifies and acknowledges that
(i) no representative, agent or attorney of any other party
has represented, expressly or otherwise, that such other party
would not, in the event of litigation, seek to enforce the
foregoing waiver, (ii) each party understands and has
considered the implications of this waiver, (iii) each
party makes this waiver voluntarily, and
F-3
(iv) each party has been induced to enter into this
Agreement by, among other things, the mutual waivers and
certifications in this Section 6.
7. Amendment; Waiver. This Agreement may be amended
or any performance, term or condition waived in whole or in part
only by a writing signed by persons authorized to so bind each
party (in the case of an amendment) or the waiving party (in the
case of a waiver). No failure or delay by any party to take any
action with respect to a breach by another party of this
Agreement or a default by another party hereunder shall
constitute a waiver of the former partys right to enforce
any provision of this Agreement or to take action with respect
to such breach or default or any subsequent breach or default.
Waiver by any party of any breach or failure to comply with any
provision of this Agreement by another party shall not be
construed as, or constitute, a continuing wavier of such
provisions, or a waiver of any other breach of or failure to
comply with any other provisions of this Agreement.
8. Entire Agreement. This Agreement constitutes the
entire agreement and understanding between the parties with
respect to the subject matter hereof.
9. Counterparts. This Agreement may be signed in any
number of counterparts, each of which shall be an original, with
the same effect as if the signatures thereto and hereto were
upon the same instrument. This Agreement shall become effective
when each party hereto shall have received a counterpart hereof
signed by the other party hereto. Until and unless each party
has received a counterpart hereof signed by the other party
hereto, this Agreement shall have no effect and no party shall
have any right or obligation hereunder (whether by virtue of any
other oral or written agreement or other communication).
10. Successors in Interest; Assignment. This
Agreement shall inure to the benefit of and be binding upon and
enforceable against the parties hereto and their respective
successors and permitted assigns. No party may assign, delegate
or otherwise transfer any of its rights or obligations under
this Agreement without the prior written consent of each other
party hereto.
11. No Third-Party Beneficiaries. This Agreement is
intended solely for the benefit of the parties and their
respective successors and permitted assigns and shall not confer
upon any other person any remedy, claim, liability,
reimbursement or other right. The Agreement is not intended and
shall not be construed to create any third party beneficiaries
or to provide to any third parties with any remedy, claim,
liability, reimbursement, cause of action or other right or
privilege.
12. Notices. Any notice, request, instruction or
other document to be given hereunder by any party to the others
shall be in writing and delivered personally or sent by
registered or certified mail or by overnight courier, postage
prepaid, or by facsimile:
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if to Harris: |
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Harris Corporation |
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1025 West NASA Blvd. |
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Melbourne, FL 32919 |
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Attn: Scott T. Mikuen |
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fax: (321) 727-9222 |
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with a copy to (which shall not constitute notice): |
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Sullivan & Cromwell LLP |
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125 Broad Street |
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New York, NY 10004 |
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fax: (212) 558-3588 |
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Attention: Duncan C. McCurrach |
F-4
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if to the Company: |
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Harris Stratex Networks, Inc. |
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120 Rose Orchard Way |
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San Jose, CA 95134 |
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Attn: General Counsel |
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fax: (408) 944-1770 |
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with a copy to (which shall not constitute notice): |
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[To be provided.] |
or to such other Persons or addresses as may be designated in
writing by the party to receive such notice as provided above.
Any notice, request, instruction or other document given as
provided above shall be deemed given to the receiving party upon
actual receipt, if delivered personally; three Business Days
after deposit in the mail, if sent by registered or certified
mail; upon confirmation of successful transmission if sent by
facsimile (provided that if given by facsimile such notice,
request, instruction or other document shall be followed up
within one Business Day by dispatch pursuant to one of the other
methods described herein); or on the next Business Day after
deposit with a nationally recognized overnight courier, if sent
by a nationally recognized overnight courier.
13. Fees. In any action or proceeding related to or
arising out of the enforcement of, or defense against, any
provision of this Agreement, the non-prevailing party in such
action or proceeding shall pay, and the prevailing party shall
be entitled to, all reasonable
out-of-pocket costs and
expenses (including reasonable attorneys fees) of the
prevailing party incurred in connection with such action or
proceeding.
14. Enforcement by the Company. Harris agrees that a
majority of the Class A Directors shall have the sole and
exclusive right to direct the exercise and enforcement of all
rights of the Company hereunder.
[Remainder of Page Intentionally Left Blank]
F-5
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first written above.
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Title: |
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STRATEX NETWORKS, INC. |
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By |
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Name: |
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Title: |
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HARRIS STRATEX NETWORKS, INC. |
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By |
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F-6
APPENDIX G
September 5, 2006
The Board of Directors
Stratex Networks, Inc.
120 Rose Orchard Way
San Jose, CA 95134
Gentlemen:
We understand that Stratex Networks, Inc. (Stratex)
and Harris Corporation (Harris) intend to enter into
a Formation, Contribution and Merger Agreement to be dated as of
September 5, 2006 (the Merger Agreement)
pursuant to which Stratex and Harris will combine the business
of the Microwave Communications Division (MCD) of
Harris (such business is referred to as the MCD
Business) with Stratex through (i) the formation of
Harris Stratex Networks, Inc. (Newco) and Stratex
Merger Corp., a wholly-owned subsidiary of Newco (Merger
Sub), (ii) the contribution by Harris to Newco of the
assets and liabilities of Harris and its subsidiaries (other
than Newco) associated with the MCD Business, the equity
interests in certain subsidiaries of Harris associated with the
MCD Business, and $25 million in cash (collectively, the
Contributed Assets) in exchange for approximately
32,601,268 shares of Newcos Class B Common
Stock, par value $0.01 per share (Class B Common
Stock) (the transactions described in this
clause (ii), collectively, the Contribution
Transaction) and (iii) the merger of Merger Sub with
and into Stratex with Stratex as the surviving corporation (the
Merger), pursuant to which (A) each issued and
outstanding share of common stock of Stratex, par value
$0.01 per share (Stratex Common Stock), subject
to certain exceptions, will be converted into one-fourth of one
share of Newcos Class A Common Stock, par value
$0.01 per share (Class A Common Stock)
(the Exchange Ratio), and (B) each outstanding
option to purchase Stratex Common Stock will be converted into
an option to acquire one-fourth of the number of shares of
Class A Common Stock issuable upon exercise of such option
immediately prior to such conversion, in each case upon the
terms and subject to the conditions set forth in the Merger
Agreement (the transactions described in clauses (i)
through (iii) are referred to collectively as the
Transaction). The number of shares of Class B
Common Stock to be issued at the Closing by Newco to Harris
indicated in clause (ii) above is based on the number of
shares of Stratex Common Stock and options, warrants and rights
to acquire Stratex Common Stock outstanding as of the date
hereof and is subject to adjustment as provided for in the
Merger Agreement. All capitalized terms used but not defined
herein shall have the meanings assigned to them in the Merger
Agreement.
Concurrently with the execution and delivery of the Merger
Agreement, each of the directors and executive officers of
Stratex will enter into Voting Agreements with Harris in the
form attached as an exhibit to the Merger Agreement. In
addition, as a condition to the closing of the Transaction,
Harris and Newco will enter into an Investor Agreement, Harris,
Stratex and Newco will enter into a Non-Competition Agreement,
and Harris and Newco will enter into a Registration Rights
Agreement, in the respective forms attached as exhibits to the
Merger Agreement (such agreements, together with the Voting
Agreements, the Additional Transaction
Documentation). You have provided us with a copy of the
Merger Agreement and the Additional Transaction Documentation in
substantially final form.
You have asked us to render our opinions as to whether the
Exchange Ratio is fair, from a financial point of view, to the
stockholders of Stratex.
G-1
The Board of Directors
Stratex Networks, Inc.
September 5, 2006
Page 2
In the course of performing our review and analyses for
rendering this opinion, we have:
|
|
|
|
|
reviewed drafts of the Merger Agreement and the Additional
Transaction Documentation; |
|
|
|
reviewed Stratexs Annual Reports to Stockholders and
Annual Reports on
Form 10-K for the
fiscal years ended March 31, 2004, 2005 and 2006, its
Quarterly Report on
Form 10-Q for the
period ended June 30, 2006 and its Current Reports on
Form 8-K filed
since March 31, 2006; |
|
|
|
reviewed Harriss Annual Reports to Stockholders and Annual
Reports on
Form 10-K for the
fiscal years ended June 30, 2004 and 2005, its press
release of its results for the fiscal year ended 2006, its
Quarterly Reports on
Form 10-Q for the
periods ended September 30, 2005, December 31, 2005
and March 31, 2006 and its Current Reports on
Form 8-K filed
since June 30, 2005; |
|
|
|
reviewed the final audited financial statements of the MCD
Business for the fiscal years ended June 30, 2004, 2005 and
2006; |
|
|
|
reviewed certain operating and financial information relating to
Stratexs business and prospects, including projections for
the five years ending June 30, 2011, all as prepared and
provided to us by Stratexs management; |
|
|
|
reviewed certain operating and financial information relating to
MCDs business and prospects, including projections for the
three years ending June 30, 2009, all as prepared and
provided to us by Harriss and MCDs management; |
|
|
|
reviewed certain operating and financial information relating to
Newcos business and prospects, including projections and
synergy estimates for the three years ending June 30, 2009,
all as prepared and provided to us by management of Harris, MCD
and Stratex, and projections and synergy estimates for the two
years ending June 30, 2011, as prepared and provided to us
by Stratexs management; |
|
|
|
reviewed certain estimates of cost savings and other combination
benefits expected to result from the Transaction, all as
prepared and provided to us by the management of Stratex, Harris
and MCD; |
|
|
|
met with certain members of management of Stratex to discuss
Stratexs and the MCD Business respective businesses,
operations, historical and projected financial results and
future prospects; |
|
|
|
met with certain members of management of Harris and MCD to
discuss the MCD Business businesses, operations,
historical and projected financial results and future prospects; |
|
|
|
reviewed the historical prices, trading multiples and trading
volumes of the shares of Stratex Common Stock; |
|
|
|
reviewed publicly available financial data, stock market
performance data and trading multiples of companies which we
deemed generally comparable to Stratex, the MCD Business and
Newco; |
|
|
|
reviewed the financial terms of recent mergers and acquisitions
involving companies which we deemed generally comparable to
Stratex; |
|
|
|
performed discounted cash flow and sensitivity analyses based on
the projections for Stratex, Newco and the synergy estimates
furnished to us; |
|
|
|
reviewed the pro forma financial results, financial condition
and capitalization of Newco giving effect to the Transaction; and |
|
|
|
conducted such other studies, analyses, inquiries and
investigations as we deemed appropriate. |
G-2
The Board of Directors
Stratex Networks, Inc.
September 5, 2006
Page 3
We have relied upon and assumed, without independent
verification, the accuracy and completeness of the financial and
other information provided to or discussed with us by Stratex
and Harris or obtained by us from public sources, including,
without limitation, the projections and synergy estimates
referred to above. With respect to the projections and synergy
estimates, we have relied on representations that they have been
reasonably prepared on bases reflecting the best currently
available estimates and judgments of the senior management of
each of Stratex and Harris as to the expected future performance
of Stratex, the MCD Business and Newco. We have not assumed any
responsibility for the independent verification of any such
information, including, without limitation, the projections and
synergy estimates, and we have further relied upon the
assurances of the senior management of each of Stratex and
Harris that they are unaware of any facts that would make the
information, projections and synergy estimates incomplete or
misleading.
In arriving at our opinion, we have not performed or obtained
any independent appraisal of the Contributed Assets or any of
the other assets or liabilities (contingent or otherwise) of
Stratex, Harris, the MCD Business or Newco, nor have we been
furnished with any such appraisals. In rendering our opinion, we
have not solicited, nor were we asked to solicit, third party
acquisition interest in Stratex. We have assumed that the Merger
will qualify as a tax-free reorganization within the
meaning of Section 368(a) of the Internal Revenue Code. We
have assumed that the Transaction will be consummated in a
timely manner and in accordance with the terms of the Merger
Agreement and the Additional Transaction Documentation without
any limitations, restrictions, conditions, amendments or
modifications, regulatory or otherwise, that collectively would
have a material effect on Stratex, the MCD Business or Newco. We
have also assumed for purposes of this opinion that the
Contribution Transaction will be consummated as of the date
hereof.
We do not express any opinion as to the price or range of prices
at which the shares of Stratex Common Stock or the shares of
common stock of Harris may trade subsequent to the announcement
or consummation of the Transaction or as to the price or range
of prices at which the shares of Class A Common Stock may
trade subsequent to the consummation of the Transaction.
We have acted as a financial advisor to Stratex in connection
with the Transaction and will receive a customary fee for such
services, a substantial portion of which is contingent on
successful consummation of the Transaction. In addition, Stratex
has agreed to indemnify us against certain liabilities arising
out of our engagement. In the ordinary course of business, Bear
Stearns and its affiliates may actively trade the equity and
debt securities and/or bank debt of Stratex and/or Harris and
their respective affiliates for our own account and for the
account of our customers and, accordingly, may at any time hold
a long or short position in such securities or bank debt.
It is understood that this letter is intended for the benefit
and use of the Board of Directors of Stratex and does not
constitute a recommendation to the Board of Directors of Stratex
or any holders of Stratex Common Stock as to how to vote in
connection with the Merger Agreement, the proposed Merger or
otherwise. This opinion does not address Stratexs
underlying business decision to pursue the Transaction, the
relative merits of the Transaction as compared to any
alternative business strategies that might exist for Stratex or
the effects of any other transaction in which Stratex might
engage. We express no view as to the federal, state or local tax
consequences of the Transaction. This letter is not to be used
for any other purpose, or be reproduced, disseminated, quoted
from or referred to at any time, in whole or in part, without
our prior written consent. Our opinion is subject to the
assumptions and conditions contained herein and is necessarily
based on economic, market and other conditions, and the
information made available to us, as of the date hereof. We
assume no responsibility for updating or revising our opinion
based on circumstances or events occurring after the date hereof.
G-3
The Board of Directors
Stratex Networks, Inc.
September 5, 2006
Page 4
Based on and subject to the foregoing, it is our opinion that,
as of the date hereof and assuming the consummation of the
Contribution Transaction, the Exchange Ratio is fair, from a
financial point of view, to the stockholders of Stratex.
Very truly yours,
BEAR, STEARNS & CO. INC.
|
|
|
By: |
/s/ Neil Morganbesser
|
|
G-4
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. Indemnification of
Directors and Officers.
Section 145 of the Delaware General Corporation Law
provides that a corporation may indemnify directors and officers
as well as other employees and individuals against expenses
(including attorneys fees), judgments, fines and amounts
paid in settlement in connection with specified actions, suits
or proceedings, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the
corporation a derivative action), if they acted in good faith
and in a manner they reasonably believed to be in or not opposed
to the best interests of the corporation and, with respect to
any criminal action or proceedings, had no reasonable cause to
believe their conduct was unlawful.
A similar standard is applicable in the case of derivative
actions, except that indemnification only extends to expenses
(including attorneys fees) actually and reasonably
incurred in connection with the defense or settlement of such
action, and the statute requires court approval before there can
be any indemnification where the person seeking indemnification
has been found liable to the corporation unless the Delaware
Court of Chancery or the court in which such action or suit was
brought shall determine upon application that such person is
fairly and reasonably entitled to indemnity for such expenses
which such court shall deem proper. The statute provides that it
is not exclusive of other indemnification that may be granted by
a corporations certificate of incorporation, bylaws,
disinterested director vote, stockholder vote, agreement or
otherwise.
As permitted by Section 145 of the Delaware General
Corporation Law, Harris Stratexs current certificate of
incorporation and bylaws provide that Harris Stratex will
indemnify and hold harmless, to the fullest extent permitted by
applicable law, a director or officer of Harris Stratex against
all liability and loss suffered and expenses (including
attorneys fees) reasonably incurred by those persons in
connection with any action, suit or proceeding in which they
were, are, or threatened to be involved by virtue of their
service as a director or officer of Harris Stratex or their
service at the request of Harris Stratex as a director, officer,
employee or agent of, or in any other capacity with respect to,
another corporation or a partnership, joint venture, trust or
other entity or enterprise. However, with limited exceptions,
Harris Stratex will indemnify such director or officer seeking
indemnification in connection with an action, suit or proceeding
initiated by such director or officer only if the action, suit
or proceeding was authorized by the board of directors of Harris
Stratex. In addition, Harris Stratex will pay, in advance of the
disposition of any action, suit or proceeding, any reasonable
expenses incurred by such a director or officer subject to such
person agreeing to repay any such amounts if it is judicially
determined that such person is not entitled to be indemnified
for such expenses. The indemnification provided by the bylaws
are not exclusive of any other rights such persons may have
under any bylaws, agreement, vote of stockholders or
disinterested directors or otherwise.
Prior to the transactions contemplated by the Formation,
Contribution and Merger Agreement (which is included as
Exhibit 2.1 of this registration statement), Harris
Stratex will amend and restate its certificate of incorporation
and bylaws.
The Harris Stratex certificate of incorporation and bylaws that
will be in effect upon completion of the transactions will
provide that Harris Stratex shall indemnify and hold harmless,
to the fullest extent permitted by applicable law, a director or
officer of Harris Stratex against all liability and loss
suffered and expenses (including attorneys fees)
reasonably incurred by those persons in connection with any
action, suit or proceeding in which they were, are, or
threatened to be involved by virtue of their service as a
director or officer of Harris Stratex or their service at the
request of Harris Stratex as a director, officer, employee or
agent of, or in any other capacity with respect to, another
corporation or a partnership, joint venture, trust or other
entity or enterprise. However, with limited exceptions, Harris
Stratex will indemnify such director or officer seeking
indemnification in connection with an action, suit or proceeding
initiated by such director or officer only if the action, suit
or proceeding was authorized by the board of directors of Harris
Stratex. In addition, the Harris Stratex certificate of
incorporation and bylaws that will be in effect upon completion
of the transactions will provide that Harris Stratex will pay,
in advance of the disposition
II-1
of any action, suit or proceeding, any reasonable expenses
incurred by such a director or officer subject to such person
agreeing to repay any such amounts if it is judicially
determined that such person is not entitled to be indemnified
for such expenses. The indemnification provided by the bylaws
are not exclusive of any other rights such persons may have
under any bylaws, agreement, vote of stockholders or
disinterested directors or otherwise.
Upon completion of the transactions, Harris Stratex will have
insurance on behalf of any person who is or was a director,
officer, employee or agent of Harris Stratex, or is or was
serving at the request of Harris Stratex as a director, officer,
employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability
asserted against him and incurred by him in any such capacity,
or arising out of his status as such, whether or not Harris
Stratex would have the power to indemnify him against such
liability under the provisions of Harris Stratexs amended
and restated certificate of incorporation and amended and
restated bylaws.
The foregoing statements are subject to the detailed provisions
of Section 145 of the Delaware General Corporation Law, the
full text of the amended and restated certificate of
incorporation of Harris Stratex, which is filed as
Exhibit 3.1 to this registration statement, and the
full text of the amended and restated bylaws of Harris Stratex,
which is filed as Exhibit 3.2 to this registration
statement.
ITEM 21. Exhibits and Financial
Statement Schedules.
The following exhibits are filed herewith or incorporated herein
by reference unless otherwise indicated:
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Exhibit |
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Number |
|
Description |
|
|
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|
2 |
.1 |
|
Formation, Contribution and Merger Agreement, dated as of
September 5, 2006, by and between Harris Corporation and
Stratex Networks, Inc. (incorporated by reference to
Exhibit 2.1 to the Current Report on Form 8-K of
Harris Corporation filed with the Securities and Exchange
Commission on September 8, 2006, File No. 001-03863)* |
|
3 |
.1 |
|
Amended and Restated Certificate of Incorporation of Harris
Stratex Networks, Inc. (attached as Appendix C to the proxy
statement/ prospectus forming a part of this registration
statement) |
|
3 |
.2 |
|
Amended and Restated Bylaws of Harris Stratex Networks, Inc.
(attached as Appendix D to the proxy statement/ prospectus
forming a part of this registration statement) |
|
5 |
.1** |
|
Opinion of Sullivan & Cromwell LLP regarding the
legality of securities being registered |
|
8 |
.1*** |
|
Opinion of Bingham McCutchen LLP regarding U.S. federal
income tax matters |
|
10 |
.1 |
|
Form of Investor Agreement (attached as Appendix E to the proxy
statement/ prospectus forming a part of this registration
statement) |
|
10 |
.3 |
|
Form of Non-Competition Agreement (attached as Appendix F to the
proxy statement/ prospectus forming a part of this registration
statement) |
|
10 |
.4 |
|
Form of Registration Rights Agreement between Harris Stratex
Networks, Inc. and Harris Corporation (incorporated by reference
to Exhibit 7 to Exhibit 2.1 to the Current Report on
Form 8-K of Harris Corporation filed with the Securities
and Exchange Commission on September 8, 2006, File
No. 001-03863) |
|
10 |
.5 |
|
Form of Intellectual Property Agreement between Harris Stratex
Networks, Inc. and Harris Corporation (incorporated by reference
to Exhibit 8 to Exhibit 2.1 to the Current Report on
Form 8-K of Harris Corporation filed with the Securities
and Exchange Commission on September 8, 2006, File
No. 001-03863) |
|
10 |
.6 |
|
Form of Trademark and Trade Name License Agreement between
Harris Stratex Networks, Inc. and Harris Corporation
(incorporated by reference to Exhibit 9 to Exhibit 2.1
to the Current Report on Form 8-K of Harris Corporation
filed with the Securities and Exchange Commission on
September 8, 2006, File No. 001-03863) |
II-2
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Exhibit |
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Number |
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Description |
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|
10 |
.7 |
|
Form of Lease Agreement between Harris Stratex Networks, Inc.
and Harris Corporation (incorporated by reference to
Exhibit 10 to Exhibit 2.1 to the Current Report on
Form 8-K of Harris Corporation filed with the Securities
and Exchange Commission on September 8, 2006, File
No. 001-03863) |
|
10 |
.8 |
|
Form of Transition Services Agreement between Harris Stratex
Networks, Inc. and Harris Corporation (incorporated by reference
to Exhibit 11 to Exhibit 2.1 to the Current Report on
Form 8-K of Harris Corporation filed with the Securities
and Exchange Commission on September 8, 2006, File
No. 001-03863) |
|
10 |
.9 |
|
Form of Warrant Assumption Agreement between Harris Stratex
Networks, Inc. and Harris Corporation (incorporated by reference
to Exhibit 12 to Exhibit 2.1 to the Current Report on
Form 8-K of Harris Corporation filed with the Securities
and Exchange Commission on September 8, 2006, File
No. 001-03863) |
|
10 |
.10 |
|
Form of NetBoss Service Agreement between Harris Stratex
Networks, Inc. and Harris Corporation (incorporated by reference
to Exhibit 14 to Exhibit 2.1 to the Current Report on
Form 8-K of Harris Corporation filed with the Securities
and Exchange Commission on September 8, 2006, File
No. 001-03863) |
|
10 |
.11 |
|
Restated Employment Agreement, dated as of May 14, 2002, by
and between Stratex Networks, Inc. and Charles D. Kissner
(incorporated by reference to Exhibit 10.7 to the Annual
Report on Form 10-K of Stratex Networks, Inc. for the
Fiscal Year Ended March 31, 2003, File No. 000-15895) |
|
10 |
.12 |
|
Employment Agreement, dated as of May 16, 2006, by and
between Stratex Networks, Inc. and Thomas H. Waechter
(incorporated by reference to Exhibit 10.18 to the Annual
Report on Form 10-K of Stratex Networks, Inc. for the
Fiscal Year Ended March 31, 2006, File No. 000-15895) |
|
10 |
.13 |
|
First Amendment, dated September 1, 2006, to Employment
Agreement, dated as of May 16, 2006, by and between Stratex
Networks, Inc. and Thomas H. Waechter (incorporated by reference
to Exhibit 10.1 to the Quarterly Report on Form 10-Q
of Stratex Networks, Inc. for the Fiscal Quarter Ended
September 30, 2006, File No. 000-15895) |
|
10 |
.14 |
|
Employment Agreement, dated April 1, 2006, by and between
Stratex Networks, Inc. and John Brandt (incorporated by
reference to Exhibit 10.19 to the Annual Report on
Form 10-K of Stratex Networks, Inc. for the Fiscal Year
Ended March 31, 2006, File No. 000-15895) |
|
10 |
.15 |
|
Amendment A, dated April 19, 2006, to Employment Agreement,
dated April 1, 2006, by and between Stratex Networks, Inc.
and John Brandt (incorporated by reference to Exhibit 10.20
to the Annual Report on Form 10-K of Stratex Networks, Inc.
for the Fiscal Year Ended March 31, 2006, File No.
000-15895) |
|
10 |
.16 |
|
Employment Agreement, dated as of May 14, 2002, by and
between the Stratex Networks, Inc. and Carl A. Thomsen.
(incorporated by reference to Exhibit 10.10 to the Annual
Report on Form 10-K of Stratex Networks, Inc. for the
Fiscal Year Ended March 31, 2003, File No. 000-15895) |
|
10 |
.17 |
|
Form of Employment Agreement, dated as of May 14, 2002, by
and between the Stratex Networks, Inc. and John C. Brandt
(incorporated by reference to Exhibit 10.11 to the Annual
Report on Form 10-K of Stratex Networks, Inc. for the
Fiscal Year Ended March 31, 2003, File No. 000-15895) |
|
10 |
.18 |
|
Form of Employment Agreement, dated as of May 14, 2002, by
and between the Stratex Networks, Inc. and Paul Kennard
(incorporated by reference to Exhibit 10.11 to the Annual
Report on Form 10-K of Stratex Networks, Inc. for the
Fiscal Year Ended March 31, 2003, File No. 000-15895) |
|
10 |
.19 |
|
Amendment A, dated April 1, 2006, to Employment Agreement,
dated May 14, 2002, by and between Stratex Networks, Inc.
and Paul Kennard (incorporated by reference to Exhibit 10.2
to the Quarterly Report on Form 10-Q of Stratex Networks,
Inc. for the Fiscal Quarter Ended June 30, 2006, File No.
000-15895) |
II-3
|
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Exhibit |
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Number |
|
Description |
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|
10 |
.20 |
|
Amendment B, dated April 1, 2006, to Employment Agreement,
dated May 14, 2002, by and between Stratex Networks, Inc.
and Paul Kennard (incorporated by reference to Exhibit 10.3
to the Quarterly Report on Form 10-Q of Stratex Networks,
Inc. for the Fiscal Quarter Ended June 30, 2006, File No.
000-15895) |
|
10 |
.21 |
|
Employment Agreement, dated as of April 1, 2006, by and
between Stratex Networks, Inc. and Larry Brittain (incorporated
by reference to Exhibit 10.4 to the Quarterly Report on
Form 10-Q of Stratex Networks, Inc. for the Fiscal Quarter
Ended June 30, 2006, File No. 000-15895) |
|
10 |
.22 |
|
Amendment A, dated April 14, 2006, to Employment Agreement,
dated as of April 1, 2006, by and between Stratex Networks,
Inc. and Larry Brittain (incorporated by reference to
Exhibit 10.5 to the Quarterly Report on Form 10-Q of
Stratex Networks, Inc. for the Fiscal Quarter Ended
June 30, 2006, File No. 000-15895) |
|
10 |
.23 |
|
Amendment B, dated April 14, 2006, to Employment Agreement,
dated as of April 1, 2006, by and between Stratex Networks,
Inc. and Larry Brittain (incorporated by reference to
Exhibit 10.5 to the Quarterly Report on Form 10-Q of
Stratex Networks, Inc. for the Fiscal Quarter Ended
June 30, 2006, File No. 000-15895) |
|
21 |
.1*** |
|
List of Subsidiaries of Harris Stratex Networks, Inc. |
|
23 |
.1*** |
|
Consent of Ernst & Young LLP, independent registered
public accounting firm for the Microwave Communications Division
of Harris Corporation |
|
23 |
.2*** |
|
Consent of Deloitte & Touche LLP, independent
registered public accounting firm for Stratex Networks, Inc. |
|
24 |
.1**** |
|
Power of Attorney (included on the signature page of the
Registration Statement on Form S-4 of Harris Stratex
Networks, Inc. filed on October 13, 2006) |
|
99 |
.1 |
|
Opinion of Bear, Stearns & Co., Inc. (included as
Appendix G to the proxy statement/ prospectus forming a part of
this registration statement) |
|
99 |
.2*** |
|
Consent of Bear, Stearns & Co., Inc. |
|
99 |
.3** |
|
Consent of Sullivan & Cromwell LLP (included in
Exhibit 5.1) |
|
99 |
.4*** |
|
Consent of Bingham McCutchen LLP (included in Exhibit 8.1) |
|
99 |
.5**** |
|
Consent of Charles D. Kissner |
|
99 |
.6*** |
|
Form of Proxy Card of Stratex Networks, Inc. |
The following documents have been furnished to the common
stockholders of Stratex Networks, Inc. along with the proxy
statement/ prospectus forming a part of this registration
statement. Accordingly, Exhibit 99.7 through
Exhibit 99.16 are hereby incorporated by reference:
|
|
|
|
|
|
99 |
.7 |
|
Annual Report on Form 10-K of Stratex Networks, Inc. for
the Fiscal Year Ended March 31, 2006 (as filed with the
Securities and Exchange Commission on June 14, 2006, File
No. 000-15895), as amended by Amendment No. 1 thereto (as
filed with the Securities and Exchange Commission on
June 20, 2006, File No. 000-15895) |
|
99 |
.8 |
|
Quarterly Report on Form 10-Q of Stratex Networks, Inc. for
the Fiscal Quarter Ended June 30, 2006 (as filed with the
Securities and Exchange Commission on August 9, 2006, File
No. 000-15895) |
|
99 |
.9 |
|
Quarterly Report on Form 10-Q of Stratex Networks, Inc. for
the Fiscal Quarter Ended September 30, 2006 (as filed with
the Securities and Exchange Commission on November 9, 2006,
File No. 000-15895) |
|
99 |
.10 |
|
Item 5.02 and Exhibit 99.2 only of the Current Report
on Form 8-K of Stratex Networks, Inc. as filed with the
Securities and Exchange Commission on May 18, 2006, File
No. 000-15895) |
|
99 |
.11 |
|
Current Report on Form 8-K of Stratex Networks, Inc. (as
filed with the Securities and Exchange Commission on
May 19, 2006, File No. 000-15895) |
|
99 |
.12 |
|
Current Report on Form 8-K of Stratex Networks, Inc. (as
filed with the Securities and Exchange Commission on
August 18, 2006, File No. 000-15895) |
II-4
|
|
|
|
|
|
99 |
.12 |
|
Current Report on Form 8-K of Stratex Networks, Inc. (as
filed with the Securities and Exchange Commission on
September 6, 2006, File No. 000-15895) |
|
99 |
.13 |
|
Current Report on Form 8-K of Stratex Networks, Inc. (as
filed with the Securities and Exchange Commission on
September 7, 2006, File No. 000-15895) |
|
99 |
.14 |
|
Current Report on Form 8-K of Stratex Networks, Inc. (as
filed with the Securities and Exchange Commission on
September 11, 2006, File No. 000-15895) |
|
99 |
.15 |
|
Proxy Statement on Schedule 14A for the 2006 Annual Meeting of
Stockholders of Stratex Networks, Inc. (as filed with the
Securities and Exchange Commission on July 10, 2006, File
No. 000-15895) |
|
99 |
.16 |
|
Description of common stock of Stratex Networks, Inc. set forth
in the Registration Statement on Form 8-A of Stratex
Networks, Inc. (as filed with the Securities and Exchange
Commission on November 1, 1991), as amended by Amendment
No. 1 thereto (as filed with the Securities and Exchange
Commission on December 27, 1996, File No. 000-15895) |
|
|
|
|
* |
Harris Stratex hereby agrees to furnish supplementally a copy of
the omitted schedules, disclosure letters and exhibits to the
Securities and Exchange Commission upon its request. |
|
|
|
|
** |
To be filed by amendment. |
II-5
(b) Financial Statement Schedules
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
THE MICROWAVE COMMUNICATIONS DIVISION OF
HARRIS CORPORATION AND SUBSIDIARIES
(In thousands)
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Col. A |
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Col. B | |
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Col. C |
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Col. D | |
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Col. E | |
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| |
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Additions |
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(1) | |
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(2) |
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Balance at | |
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Charged to | |
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Charged to |
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Beginning | |
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Costs and | |
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Other Accounts |
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Deductions | |
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Balance at | |
Description |
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of Period | |
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Expenses | |
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Describe |
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Describe | |
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End of Period | |
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| |
Year ended June 30, 2006:
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Amounts Deducted From
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|
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|
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$ |
(279 |
) |
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|
(A) |
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Respective Asset Accounts:
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3,693 |
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(B) |
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|
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|
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|
|
|
|
|
|
Allowances for collection losses
|
|
$ |
7,306 |
|
|
$ |
4,161 |
|
|
$ |
|
|
|
$ |
3,414 |
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|
|
|
|
|
$ |
8,053 |
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|
|
|
|
|
|
|
|
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|
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|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
$ |
(567 |
) |
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|
(A) |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
53,651 |
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(C) |
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|
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|
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Allowances for inventory valuation
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|
$ |
32,856 |
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|
$ |
38,512 |
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|
$ |
|
|
|
$ |
53,084 |
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|
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$ |
18,284 |
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|
|
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|
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|
|
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|
|
|
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Allowances for deferred tax assets
|
|
$ |
50,408 |
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$ |
18,775 |
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$ |
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$ |
|
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$ |
69,183 |
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|
|
|
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|
Year ended July 1, 2005:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts Deducted From
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(482 |
) |
|
|
(A) |
|
|
|
|
|
|
Respective Asset Accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
500 |
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(B) |
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Allowances for collection losses
|
|
$ |
6,301 |
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|
$ |
1,023 |
|
|
$ |
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|
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$ |
18 |
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$ |
7,306 |
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|
|
|
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$ |
1,915 |
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(A) |
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|
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|
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|
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(2,075 |
) |
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(C) |
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|
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|
|
|
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|
|
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Allowances for inventory valuation
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$ |
33,770 |
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|
$ |
(1,074 |
) |
|
$ |
|
|
|
$ |
(160 |
) |
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|
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$ |
32,856 |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowances for deferred tax assets
|
|
$ |
35,948 |
|
|
$ |
14,100 |
|
|
$ |
|
|
|
$ |
|
|
|
|
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$ |
50,048 |
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|
|
|
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|
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|
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|
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|
Year ended July 2, 2004:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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Amounts Deducted From
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(26 |
) |
|
|
(A) |
|
|
|
|
|
|
Respective Asset Accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,906 |
|
|
|
(B) |
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowances for collection losses
|
|
$ |
6,003 |
|
|
$ |
3,178 |
|
|
$ |
|
|
|
$ |
2,880 |
|
|
|
|
|
|
$ |
6,301 |
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|
|
|
|
|
|
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|
|
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|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
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|
$ |
(9 |
) |
|
|
(A) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,092 |
) |
|
|
(C) |
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|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
Allowances for inventory valuation
|
|
$ |
20,068 |
|
|
$ |
12,601 |
|
|
$ |
|
|
|
$ |
(1,101 |
) |
|
|
|
|
|
$ |
33,770 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowances for deferred tax assets
|
|
$ |
29,562 |
|
|
$ |
6,386 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
$ |
35,948 |
|
|
|
|
|
|
|
|
|
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Note A Foreign currency translation gains and
losses.
Note B Uncollectible accounts charged off, less
recoveries on accounts previously charged off.
Note C Obsolescence and excess inventory
charged off.
II-6
ITEM 22. Undertakings.
(A) The undersigned registrant hereby undertakes as follows:
|
|
|
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration
statement: |
|
|
|
(a) To include any prospectus required by
Section 10(a)(3) of the Securities Act of 1933; |
|
|
(b) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the Securities and Exchange Commission
pursuant to Rule 424(b) if, in the aggregate, the changes
in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the
Calculation of Registration Fee table in the
effective registration statement; |
|
|
(c) To include any material information with respect to the
plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement; |
|
|
|
(2) That, for the purpose of determining any liability
under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial
bona fide offering thereof; and |
|
|
(3) To remove from registration by means of a
post-effective amendment any of the securities being registered
which remain unsold at the termination of the offering. |
(B) The undersigned registrant hereby undertakes that, for
purposes of determining any liability under the Securities Act
of 1933, each filing of the registrants annual report
pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 that is incorporated by reference in the
registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(C) (1) The undersigned registrant hereby undertakes
as follows: that prior to any public reoffering of the
securities registered hereunder through use of a prospectus
which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of
Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the
applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the
information called for by the other Items of the applicable form.
|
|
|
(2) The registrant undertakes that every prospectus:
(i) that is filed pursuant to
paragraph (1) immediately preceding, or (ii) that
purports to meet the requirements of Section 10(a)(3) of
the Act and is used in connection with an offering of securities
subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used
until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act of 1933, each
such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered
therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof. |
(D) Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to directors,
officers and controlling persons of the registrant pursuant to
the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and is, therefore,
II-7
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.
(E) The undersigned registrant hereby undertakes to respond
to requests for information that is incorporated by reference
into the prospectus pursuant to Item 4, 10(b), 11 or 13 of
this Form, within one business day of receipt of such request,
and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained
in documents filed subsequent to the effective date of the
registration statement through the date of responding to the
request.
(F) The undersigned registrant hereby undertakes to supply
by means of a post effective amendment all information
concerning a transaction, and the company being acquired
involved therein, that was not the subject of and included in
the registration statement when it became effective.
II-8
SIGNATURES
Pursuant to the requirements of the Securities Act, the
registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Melbourne, State of Florida, on this
24th day of November, 2006.
|
|
|
HARRIS STRATEX NETWORKS, INC. |
Pursuant to the requirements of the Securities Act of 1933,
this registration statement has been signed below by the
following persons in the capacities and on the dates
indicated.
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Signature |
|
Title |
|
Date |
|
|
|
|
|
|
*
Guy
M. Campbell |
|
Chief Executive Officer; Director
(Principal Executive Officer) |
|
November 24, 2006 |
|
*
Sarah
A. Dudash |
|
Chief Financial Officer
(Principal Financial and
Accounting Officer) |
|
November 24, 2006 |
|
*
Howard
L. Lance |
|
Director |
|
November 24, 2006 |
|
/s/ Scott T. Mikuen
Scott
T. Mikuen |
|
Attorney-in-Fact* |
|
November 24, 2006 |
EXHIBIT INDEX
|
|
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
|
|
|
2 |
.1 |
|
Formation, Contribution and Merger Agreement, dated as of
September 5, 2006, by and between Harris Corporation and
Stratex Networks, Inc. (incorporated by reference to
Exhibit 2.1 to the Current Report on Form 8-K of
Harris Corporation filed with the Securities and Exchange
Commission on September 8, 2006, File No. 001-03863)* |
|
3 |
.1 |
|
Amended and Restated Certificate of Incorporation of Harris
Stratex Networks, Inc. (attached as Appendix C to the proxy
statement/ prospectus forming a part of this registration
statement) |
|
3 |
.2 |
|
Amended and Restated Bylaws of Harris Stratex Networks, Inc.
(attached as Appendix D to the proxy statement/ prospectus
forming a part of this registration statement) |
|
5 |
.1** |
|
Opinion of Sullivan & Cromwell LLP regarding the
legality of securities being registered |
|
8 |
.1*** |
|
Opinion of Bingham McCutchen LLP regarding U.S. federal
income tax matters |
|
10 |
.1 |
|
Form of Investor Agreement (attached as Appendix E to the proxy
statement/ prospectus forming a part of this registration
statement) |
|
10 |
.3 |
|
Form of Non-Competition Agreement (attached as Appendix F to the
proxy statement/ prospectus forming a part of this registration
statement) |
|
10 |
.4 |
|
Form of Registration Rights Agreement between Harris Stratex
Networks, Inc. and Harris Corporation (incorporated by reference
to Exhibit 7 to Exhibit 2.1 to the Current Report on
Form 8-K of Harris Corporation filed with the Securities
and Exchange Commission on September 8, 2006, File
No. 001-03863) |
|
10 |
.5 |
|
Form of Intellectual Property Agreement between Harris Stratex
Networks, Inc. and Harris Corporation (incorporated by reference
to Exhibit 8 to Exhibit 2.1 to the Current Report on
Form 8-K of Harris Corporation filed with the Securities
and Exchange Commission on September 8, 2006, File
No. 001-03863) |
|
10 |
.6 |
|
Form of Trademark and Trade Name License Agreement between
Harris Stratex Networks, Inc. and Harris Corporation
(incorporated by reference to Exhibit 9 to Exhibit 2.1
to the Current Report on Form 8-K of Harris Corporation
filed with the Securities and Exchange Commission on
September 8, 2006, File No. 001-03863) |
|
10 |
.7 |
|
Form of Lease Agreement between Harris Stratex Networks, Inc.
and Harris Corporation (incorporated by reference to
Exhibit 10 to Exhibit 2.1 to the Current Report on
Form 8-K of Harris Corporation filed with the Securities
and Exchange Commission on September 8, 2006, File
No. 001-03863) |
|
10 |
.8 |
|
Form of Transition Services Agreement between Harris Stratex
Networks, Inc. and Harris Corporation (incorporated by reference
to Exhibit 11 to Exhibit 2.1 to the Current Report on
Form 8-K of Harris Corporation filed with the Securities
and Exchange Commission on September 8, 2006, File
No. 001-03863) |
|
10 |
.9 |
|
Form of Warrant Assumption Agreement between Harris Stratex
Networks, Inc. and Harris Corporation (incorporated by reference
to Exhibit 12 to Exhibit 2.1 to the Current Report on
Form 8-K of Harris Corporation filed with the Securities
and Exchange Commission on September 8, 2006, File
No. 001-03863) |
|
10 |
.10 |
|
Form of NetBoss Service Agreement between Harris Stratex
Networks, Inc. and Harris Corporation (incorporated by reference
to Exhibit 14 to Exhibit 2.1 to the Current Report on
Form 8-K of Harris Corporation filed with the Securities
and Exchange Commission on September 8, 2006, File
No. 001-03863) |
|
10 |
.11 |
|
Restated Employment Agreement, dated as of May 14, 2002, by
and between Stratex Networks, Inc. and Charles D. Kissner
(incorporated by reference to Exhibit 10.7 to the Annual
Report on Form 10-K of Stratex Networks, Inc. for the
Fiscal Year Ended March 31, 2003, File No. 000-15895) |
|
10 |
.12 |
|
Employment Agreement, dated as of May 16, 2006, by and
between Stratex Networks, Inc. and Thomas H. Waechter
(incorporated by reference to Exhibit 10.18 to the Annual
Report on Form 10-K of Stratex Networks, Inc. for the
Fiscal Year Ended March 31, 2006, File No. 000-15895) |
|
|
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
|
|
|
10 |
.13 |
|
First Amendment, dated September 1, 2006, to Employment
Agreement, dated as of May 16, 2006, by and between Stratex
Networks, Inc. and Thomas H. Waechter (incorporated by reference
to Exhibit 10.1 to the Quarterly Report on Form 10-Q
of Stratex Networks, Inc. for the Fiscal Quarter Ended
September 30, 2006, File No. 000-15895) |
|
10 |
.14 |
|
Employment Agreement, dated April 1, 2006, by and between
Stratex Networks, Inc. and John Brandt (incorporated by
reference to Exhibit 10.19 to the Annual Report on
Form 10-K of Stratex Networks, Inc. for the Fiscal Year
Ended March 31, 2006, File No. 000-15895) |
|
10 |
.15 |
|
Amendment A, dated April 19, 2006, to Employment Agreement,
dated April 1, 2006, by and between Stratex Networks, Inc.
and John Brandt (incorporated by reference to Exhibit 10.20
to the Annual Report on Form 10-K of Stratex Networks, Inc.
for the Fiscal Year Ended March 31, 2006, File No.
000-15895) |
|
10 |
.16 |
|
Employment Agreement, dated as of May 14, 2002, by and
between the Stratex Networks, Inc. and Carl A. Thomsen.
(incorporated by reference to Exhibit 10.10 to the Annual
Report on Form 10-K of Stratex Networks, Inc. for the
Fiscal Year Ended March 31, 2003, File No. 000-15895) |
|
10 |
.17 |
|
Form of Employment Agreement, dated as of May 14, 2002, by
and between the Stratex Networks, Inc. and John C. Brandt
(incorporated by reference to Exhibit 10.11 to the Annual
Report on Form 10-K of Stratex Networks, Inc. for the
Fiscal Year Ended March 31, 2003, File No. 000-15895) |
|
10 |
.18 |
|
Form of Employment Agreement, dated as of May 14, 2002, by
and between the Stratex Networks, Inc. and Paul Kennard
(incorporated by reference to Exhibit 10.11 to the Annual
Report on Form 10-K of Stratex Networks, Inc. for the
Fiscal Year Ended March 31, 2003, File No. 000-15895) |
|
10 |
.19 |
|
Amendment A, dated April 1, 2006, to Employment Agreement,
dated May 14, 2002, by and between Stratex Networks, Inc.
and Paul Kennard (incorporated by reference to Exhibit 10.2
to the Quarterly Report on Form 10-Q of Stratex Networks,
Inc. for the Fiscal Quarter Ended June 30, 2006, File No.
000-15895) |
|
10 |
.20 |
|
Amendment B, dated April 1, 2006, to Employment Agreement,
dated May 14, 2002, by and between Stratex Networks, Inc.
and Paul Kennard (incorporated by reference to Exhibit 10.3
to the Quarterly Report on Form 10-Q of Stratex Networks,
Inc. for the Fiscal Quarter Ended June 30, 2006, File No.
000-15895) |
|
10 |
.21 |
|
Employment Agreement, dated as of April 1, 2006, by and
between Stratex Networks, Inc. and Larry Brittain (incorporated
by reference to Exhibit 10.4 to the Quarterly Report on
Form 10-Q of Stratex Networks, Inc. for the Fiscal Quarter
Ended June 30, 2006, File No. 000-15895) |
|
10 |
.22 |
|
Amendment A, dated April 14, 2006, to Employment Agreement,
dated as of April 1, 2006, by and between Stratex Networks,
Inc. and Larry Brittain (incorporated by reference to
Exhibit 10.5 to the Quarterly Report on Form 10-Q of
Stratex Networks, Inc. for the Fiscal Quarter Ended
June 30, 2006, File No. 000-15895) |
|
10 |
.23 |
|
Amendment B, dated April 14, 2006, to Employment Agreement,
dated as of April 1, 2006, by and between Stratex Networks,
Inc. and Larry Brittain (incorporated by reference to
Exhibit 10.5 to the Quarterly Report on Form 10-Q of
Stratex Networks, Inc. for the Fiscal Quarter Ended
June 30, 2006, File No. 000-15895) |
|
21 |
.1*** |
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List of Subsidiaries of Harris Stratex Networks, Inc. |
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Exhibit |
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Number |
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Description |
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23 |
.1*** |
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Consent of Ernst & Young LLP, independent registered
public accounting firm for the Microwave Communications Division
of Harris Corporation |
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23 |
.2*** |
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Consent of Deloitte & Touche LLP, independent
registered public accounting firm for Stratex Networks, Inc. |
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24 |
.1**** |
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Power of Attorney (included on the signature page of the
Registration Statement on Form S-4 of Harris Stratex
Networks, Inc. filed on October 13, 2006) |
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99 |
.1 |
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Opinion of Bear, Stearns & Co., Inc. (included as
Appendix G to the proxy statement/ prospectus forming a part of
this registration statement) |
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99 |
.2*** |
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Consent of Bear, Stearns & Co., Inc. |
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99 |
.3** |
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Consent of Sullivan & Cromwell LLP (included in
Exhibit 5.1) |
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99 |
.4*** |
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Consent of Bingham McCutchen LLP (included in Exhibit 8.1) |
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99 |
.5**** |
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Consent of Charles D. Kissner |
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99 |
.6*** |
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Form of Proxy Card of Stratex Networks, Inc. |
The following documents have been furnished to the common
stockholders of Stratex Networks, Inc. along with the proxy
statement/ prospectus forming a part of this registration
statement. Accordingly, Exhibit 99.7 through
Exhibit 9.16 are hereby incorporated by reference:
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99 |
.7 |
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Annual Report on Form 10-K of Stratex Networks, Inc. for
the Fiscal Year Ended March 31, 2006 (as filed with the
Securities and Exchange Commission on June 14, 2006, File
No. 000-15895), as amended by Amendment No. 1 thereto (as
filed with the Securities and Exchange Commission on
June 20, 2006, File No. 000-15895) |
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99 |
.8 |
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Quarterly Report on Form 10-Q of Stratex Networks, Inc. for
the Fiscal Quarter Ended June 30, 2006 (as filed with the
Securities and Exchange Commission on August 9, 2006, File
No. 000-15895) |
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99 |
.9 |
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Quarterly Report on Form 10-Q of Stratex Networks, Inc. for
the Fiscal Quarter Ended September 30, 2006 (as filed with
the Securities and Exchange Commission on November 9, 2006,
File No. 000-15895) |
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99 |
.10 |
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Item 5.02 and Exhibit 99.2 only of the Current Report
on Form 8-K of Stratex Networks, Inc. (as filed with the
Securities and Exchange Commission on May 18, 2006, File
No. 000-15895) |
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99 |
.11 |
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Current Report on Form 8-K of Stratex Networks, Inc. (as
filed with the Securities and Exchange Commission on
May 19, 2006, File No. 000-15895) |
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99 |
.12 |
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Current Report on Form 8-K of Stratex Networks, Inc. (as
filed with the Securities and Exchange Commission on
August 18, 2006, File No. 000-15895) |
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99 |
.13 |
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Current Report on Form 8-K of Stratex Networks, Inc. (as
filed with the Securities and Exchange Commission on
September 6, 2006, File No. 000-15895) |
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99 |
.14 |
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Current Report on Form 8-K of Stratex Networks, Inc. (as
filed with the Securities and Exchange Commission on
September 7, 2006, File No. 000-15895) |
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99 |
.15 |
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Current Report on Form 8-K of Stratex Networks, Inc. (as
filed with the Securities and Exchange Commission on
September 11, 2006, File No. 000-15895) |
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99 |
.16 |
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Proxy Statement on Schedule 14A for the 2006 Annual Meeting of
Stockholders of Stratex Networks, Inc. (as filed with the
Securities and Exchange Commission on July 10, 2006, File
No. 000-15895) |
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99 |
.17 |
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Description of common stock of Stratex Networks, Inc. set forth
in the Registration Statement on Form 8-A of Stratex
Networks, Inc. (as filed with the Securities and Exchange
Commission on November 1, 1991), as amended by Amendment
No. 1 thereto (as filed with the Securities and Exchange
Commission on December 27, 1996, File No. 000-15895) |
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* |
Harris Stratex hereby agrees to furnish supplementally a copy of
the omitted schedules, disclosure letters and exhibits to the
Securities and Exchange Commission upon its request. |
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** |
To be filed by amendment. |