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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(d)(4) OF THE
SECURITIES EXCHANGE ACT OF 1934
IFR SYSTEMS, INC.
(NAME OF SUBJECT COMPANY)
IFR SYSTEMS, INC.
(NAME OF PERSON FILING STATEMENT)
COMMON STOCK, $0.01 PAR VALUE
(INCLUDING THE ASSOCIATED COMMON STOCK PURCHASE RIGHTS)
(TITLE OF CLASS OF SECURITIES)
449507102 (COMMON STOCK)
(CUSIP Number of Class of Securities)
JEFFREY A. BLOOMER
PRESIDENT AND CEO
IFR SYSTEMS, INC.
10200 WEST YORK STREET
WICHITA, KANSAS 67215
(316) 522-4981
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE NOTICE AND
COMMUNICATIONS ON BEHALF OF THE PERSON FILING STATEMENT)
COPY TO:
HARVEY R. SORENSEN
FOULSTON SIEFKIN LLP
700 BANK OF AMERICA CENTER
WICHITA, KANSAS 67202
(316) 267-6371
[ ] Check the box if the filing relates solely to preliminary communications
made before the commencement of a tender offer
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ITEM 1. SUBJECT COMPANY INFORMATION.
The name of the subject company is IFR Systems, Inc., a Delaware
corporation (the "Company"). The address of the principal executive offices of
the Company is 10200 West York Street, Wichita, Kansas 67215. The telephone
number of the Company at its principal executive offices is (316) 522-4981.
The title of the class of equity securities to which this
Solicitation/Recommendation Statement on Schedule 14D-9 (this "Statement")
relates is the common stock, par value $0.01 per share, of the Company (the
"Common Stock") and the associated rights to purchase Common Stock (the
"Rights") issued pursuant to the Rights Agreement, dated as of February 28,
1999, between the Company and Harris Trust & Savings Bank, as Rights Agent, as
amended (the "Rights Agreement"). As of April 12, 2002, there were 8,282,009
shares of Common Stock outstanding.
ITEM 2. IDENTITY AND BACKGROUND OF FILING PERSONS.
The filing person is the subject company. The Company's name, business
address and business telephone number are set forth in Item 1 above.
This Statement relates to the offer by Testco Acquisition Corp. (the
"Purchaser"), a Delaware corporation and a wholly owned subsidiary of Aeroflex
Incorporated ("Aeroflex"), to purchase all of the outstanding shares of Common
Stock and the associated Rights (the shares of Common Stock together with any
associated Rights are referred to in this Statement as the "Shares"), at a
purchase price of $1.35 per Share, net to the seller in cash (the "Offer
Price"), upon the terms and subject to the conditions set forth in the
Purchaser's Offer to Purchase, dated April 19, 2002, and in the related Letter
of Transmittal (which, together with any amendments or supplements thereto,
collectively constitute the "Offer"). The Offer is described in a Tender Offer
Statement on Schedule TO (as amended or supplemented from time to time, the
"Schedule TO"), filed by Aeroflex and the Purchaser with the Securities and
Exchange Commission (the "Commission") on April 19, 2002. The Offer is being
made in accordance with the Agreement and Plan of Merger, dated as of April 13,
2002, among Aeroflex, the Purchaser and the Company (the "Merger Agreement").
The Merger Agreement provides that, subject to the satisfaction or waiver of
certain conditions, following completion of the Offer, and in accordance with
the General Corporation Law of the State of Delaware (the "DGCL"), the Purchaser
will be merged with and into the Company (the "Merger"). Following the
consummation of the Merger, the Company will continue as the surviving
corporation (the "Surviving Corporation") and will be a wholly owned subsidiary
of Aeroflex. As more fully described in Item 3 below, at the effective time of
the Merger (the "Effective Time"), each issued and outstanding Share (other than
Shares owned by Aeroflex, the Purchaser, any of their respective subsidiaries or
the Company, which will be cancelled, and Shares, if any, held by stockholders
who did not vote in favor of the Merger Agreement and who comply with all of the
relevant provisions of Section 262 of the DGCL relating to dissenters' rights of
appraisal) will be converted into the right to receive $1.35 in cash or any
greater amount per Share paid pursuant to the Offer (the "Merger
Consideration").
The Schedule TO states that the principal offices of the Purchaser and
Aeroflex are located at 35 South Service Road, Plainview, New York 11803.
ITEM 3. PAST CONTACTS, TRANSACTIONS, NEGOTIATIONS AND AGREEMENTS.
Certain contracts, agreements, arrangements or understandings between the
Company or its affiliates and certain of its directors and executive officers
are, except as noted below, described in the Information Statement pursuant to
Rule 14f-1 under the Securities Exchange Act (the "Information Statement") that
is attached as Annex B to this Statement and is incorporated herein by
reference. Except as described in this Statement (including in the Exhibits
hereto and in Annex B hereto) or incorporated herein by reference, to the
knowledge of the Company, as of the date of this Statement there exists no
material agreement, arrangement or understanding or any actual or potential
conflict of interest between the Company or its affiliates and (1) the Company's
executive officers, directors or affiliates or (2) Aeroflex, the Purchaser or
their respective executive officers, directors or affiliates.
2
The Merger Agreement. The summary of the Merger Agreement and the
description of the conditions of the Offer contained in Sections 11 and 15,
respectively, of the Offer to Purchase of Aeroflex and the Purchaser, dated
April 19, 2002 and filed as Exhibit (a)(1) to the Schedule TO, which is being
mailed to stockholders together with this Statement, are incorporated herein by
reference. Such summary and description are qualified in their entirety by
reference to the Merger Agreement, which has been filed as Exhibit (e)(1) hereto
and is incorporated herein by reference.
EFFECTS OF THE OFFER AND THE MERGER ON COMPANY STOCK PLANS AND AGREEMENTS
BETWEEN THE COMPANY AND ITS EXECUTIVE OFFICERS.
The Merger Agreement provides that each outstanding option to purchase
shares of Common Stock (including any Rights) granted under any stock option
plans of the Company or its subsidiaries (collectively, the "Company Option
Plans") (including those granted to current or former employees and directors of
the Company or any of its subsidiaries) (a "Stock Option") shall be cancelled as
of the Effective Time and each holder of a Stock Option shall be entitled to an
amount, in cash, equal to the greater of (i) $10.00 or (ii) the product of the
excess, if any, of the Merger Consideration over the exercise price per Share of
such Stock Option and the number of Shares covered by such Stock Option.
The following table sets forth the number of Shares purchasable pursuant to
Stock Options held by the directors and executive officers of the Company who
will receive payment in respect of their Stock Options pursuant to the Merger,
as well as the aggregate amount of cash to be received by them.
<Table>
<Caption>
TOTAL OPTIONS
NAME TITLE OUTSTANDING VALUE REALIZED
- ---- ----- ------------- --------------
Jeffrey A. Bloomer PRESIDENT AND CEO 224,000 $ 0
Frederick R. Hume DIRECTOR 3,000 105
Donald L. Graf DIRECTOR 15,000 105
John V. Grose DIRECTOR 13,500 105
Alfred H. Hunt III DIRECTOR 0 0
Oscar L. Tang DIRECTOR 10,500 105
Ralph R. Whitney, Jr. CHAIRMAN 15,000 105
------- ----
Total 281,000 $525
</Table>
The purchase of Shares pursuant to the Offer will constitute a "change of
control" for purposes of the change-of-control and termination agreements that
the Company has entered into with Mr. Bloomer (President and CEO), Mr. Robert
Vogel (Vice President Product Development), Mr. John Bickley (Vice President
Global Sales), and Mr. Lynn Giles (Vice President Human Resources).
Consequently, each of these officers would be entitled to payments under such
agreements as a result of the consummation of the transactions contemplated by
the Merger Agreement if their employment is terminated (including a termination
by the officer in certain circumstances) within certain periods of up to two
years from the consummation of the Offer. The cash severance payable to these
individuals, assuming termination of employment occurs in accordance with such
termination agreements, range from six months salary, in the case of Messrs.
Vogel, Bickley and Giles, to 2.95 times Mr. Bloomer's average annual
compensation over the past five years.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(A) Recommendation of the Board of Directors. The Board of Directors of
the Company (the "Board," the "Company Board," or the "Board of Directors"), at
a meeting held on April 10, 2002, with the advice of the Company's financial
advisor, TM Capital Corp. ("TM Capital"), determined that the terms of the Offer
and the Merger are fair to and in the best interests of the stockholders of the
Company from a financial point of view. At this meeting, the Board unanimously
approved (with one absence) the Offer and the Merger and the other transactions
contemplated by the Merger Agreement, and approved the Merger Agreement,
including for purposes of the "interested stockholder" provisions of the DGCL
and Article VII of
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the Company's Amended and Restated Certificate of Incorporation, as amended. The
Company received the written assent of the absent director to the Offer and the
Merger Agreement and to the Board's recommendation to the Shareholders. THE
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS ACCEPT THE OFFER AND
TENDER THEIR SHARES IN THE OFFER.
(B)(I) Background of the Offer; Contacts with Aeroflex.
BACKGROUND OF THE TRANSACTION
In November 2001, the Company Board met and determined that, in light of
prevailing market conditions, the general outlook for the test and measurement
industry, the Company's recent stock performance and the Company's defaults
under its credit agreement with its current bank lenders, it was advisable and
in the best interests of the Company, its employees and its stockholders to
pursue strategic alternatives, including arranging new financing or a possible
sale of the Company. At a November 25, 2001 meeting, the Board authorized the
engagement of TM Capital to act as the Company's investment bankers to assist
and advise the Company Board regarding financial matters and to pursue a full
range of financial and strategic alternatives on behalf of the Company. The
Company formally engaged TM Capital in such capacity on November 26, 2001.
On November 30, 2001, the Company's lenders suspended availability under
its credit agreement and declared all of its obligations thereunder due and
payable. On December 4, 2001, the Company, the Company's counsel and TM Capital
met with the Company's lenders to discuss the current financial position of the
Company, its business outlook and the recent retention of TM Capital to pursue
strategic alternatives.
Between December 4, 2001 and January 22, 2002, TM Capital met with
executives and employees of the Company, and visited its Wichita, Kansas and
Stevenage, England facilities. During this period TM Capital also reviewed
certain confidential information on the Company and assembled a confidential
descriptive memorandum on the Company (the "Confidential Memorandum").
On January 4, 2002, the Company entered into a forbearance agreement with
its lenders pursuant to which the lenders agreed not to take action with respect
to any existing or pending defaults through March 4, 2002, and rescinded the
acceleration of the obligations; provided that the Company retained the services
of a crisis manager acceptable to the lenders, adhered to certain financial
performance and reporting requirements, and met certain other conditions.
Between early January and March 22, 2002, TM Capital contacted 110
prospective parties in connection with a refinancing or sale of the Company. Of
these parties, 63 received the Confidential Memorandum, subject to a
confidentiality agreement substantially similar to that signed by Aeroflex.
On January 22, 2002, TM Capital contacted Mr. Michael Gorin, President of
Aeroflex, to discuss Aeroflex's possible interest in a strategic combination
with the Company. The next day the Company and Aeroflex signed a confidentiality
agreement and TM Capital provided Aeroflex with a copy of the Confidential
Memorandum.
In late January 2002, the Company determined that TM Capital should solicit
non-binding expressions of interest and indications of value from prospective
parties and set a deadline of February 15, 2002, for prospective parties to
submit such indications.
On February 8, 2002, TM Capital sent an email to Mr. Leonard Borow, Chief
Operating Officer of Aeroflex, with the Company's recently announced results for
the nine month period ended December 31, 2001, and a request for Aeroflex to
submit a non-binding indication of interest if Aeroflex was interested in
acquiring the Company.
On February 14, 2002, Mr. Jeffrey Bloomer, President and CEO of the
Company, Mr. Robert Vogel, Vice President Product Development of the Company,
Messrs. Gorin and Borow, two other employees of Aeroflex and representatives of
TM Capital participated in a conference call in which Aeroflex made inquiries of
Company management regarding the business, products and prospects of the
Company. On February 15,
4
2002, Aeroflex delivered a letter to TM Capital indicating its interest in
acquiring the Company on a debt-free basis for $60 million in cash.
By February 21, 2002, the Company received 11 indications of interest. Of
these 11 indications of interest, five, including Aeroflex's, were at a value
deemed by the Company to be worthy of pursuit.
On February 26 and 27, 2002, the Company and TM Capital met with four
interested parties in Chicago, including Aeroflex. Management presentations were
given by Messrs. Bloomer and Vogel and Mr. Steve Todd, Interim Chief Financial
Officer of the Company. The prospective purchasers were evaluated by TM Capital
and the Company as to their level of interest, financial strength, ability to
consummate a transaction, and potential synergy with the Company. Also at this
meeting, a date was set for Aeroflex's management to visit the Company's
facilities in Wichita, Kansas.
On February 28, 2002, TM Capital and the Company met with the Company's
lenders to review the Company's current business outlook and TM Capital reviewed
in detail the status of discussions with interested parties.
On March 4, 2002, the Company entered into an amendment to the forbearance
agreement with its bank lenders, whereby the lenders agreed to continue to
forbear with respect to existing and pending defaults through March 31, 2002,
subject to certain conditions.
On March 6, 2002, the fifth interested party met with the Company at its
Wichita headquarters.
On March 7, 2002, and March 8, 2002, Aeroflex met with TM Capital and the
Company at its Wichita headquarters. Additional management presentations were
given by Messrs. Bloomer, Vogel and Todd, Mr. Mike McCreary, Vice President
European Operations and Mr. John Bickley, Vice President Global Sales. Aeroflex
management also toured the Company's manufacturing facility, reviewed
information on the Company in a data room in Wichita and requested documents to
be copied.
On March 14, 2002, Aeroflex met with TM Capital and the Company and toured
its facilities in Stevenage, England and Pin Green, England.
On March 18, 2002, Mr. Gorin called TM Capital to reconfirm Aeroflex's
interest in acquiring the Company, but indicated that, based on its due
diligence investigations, Aeroflex was only willing to acquire the Company on a
debt-free basis for $55 million. TM Capital told Mr. Gorin that they did not
believe that such a value would be acceptable to the Company Board and its
lenders.
By March 20, 2002, three parties, including Aeroflex, had met with the
Company in Wichita and Stevenage, England and had visited the Company's data
room in Wichita, and continued to express an interest in acquiring the Company.
On March 20, 2002, TM Capital received from Aeroflex a non-binding
preliminary indication of interest offering to acquire the Company for $60
million in cash on a debt-free basis, to be divided between the Company's
stockholders and lenders in full satisfaction of all outstanding indebtedness,
and stating that Aeroflex would be prepared to acquire the Shares through a cash
tender offer for all outstanding Shares, subject to certain conditions. The
letter indicated that Aeroflex had substantially completed its due diligence and
that it had the financial resources on hand to complete the transaction.
On March 20, 2002, at the recommendation of the Company Board, TM Capital
requested that the two remaining interested parties submit their best and final
offers in writing.
On March 22, 2002, TM Capital met with the Company Board via teleconference
after having spoken with the two remaining interested parties. TM Capital
recommended that the Company Board proceed with the Aeroflex proposal and
recommended that the Company take the proposal to its lenders to effect a
settlement of the outstanding debt obligations. TM Capital briefed the Company
Board on the position of the other two interested parties which had been
confirmed to TM Capital by telephone. Each party had indicated a desire to
continue due diligence and evaluate an acquisition of the Company. Neither party
was willing to specify a value for the Company, but both parties specified that
they would only be prepared to acquire the assets of the Company through a
bankruptcy proceeding. Furthermore, both parties needed to arrange the
5
financing needed to complete a transaction. The Company Board directed that
Company management and TM Capital meet with the Company's lenders to discuss the
Aeroflex offer and to negotiate a settlement of the bank indebtedness.
By March 25, 2002, the two remaining parties submitted letters confirming
the positions that had been previously stated verbally.
On March 27, 2002, TM Capital, the Company's counsel and Mr. Bloomer met
with the steering committee of the Company's lenders. TM Capital presented the
status of interested parties as of March 27, 2002. By this date 110 prospective
parties had been contacted. Of these parties, 63 had been provided the
Confidential Memorandum. The Company had received 14 indications of interest. As
of such date, of the 14 parties, three, including Aeroflex, continued to be
interested. Company management expressed the Company Board's desire to move
forward with Aeroflex's proposal, subject to an acceptable allocation of the $60
million purchase price between the bank lenders and Company stockholders. After
extensive negotiations, the steering committee of the bank lenders agreed to
recommend to the lenders and the Company agreed to recommend to the Company
Board a transaction providing for a payment of $48.8 million plus certain fees
and expenses to the banks in full satisfaction of all claims against the Company
and $1.35 per Share in cash to Company stockholders for all outstanding Shares.
On March 28, 2002, the Company Board determined, with the advice of TM
Capital, that Aeroflex had made the best offer to acquire the Company and
authorized Company management and its counsel to negotiate definitive
documentation with Aeroflex on the terms specified above and the lenders
authorized their counsel to negotiate final documentation with the Company and
Aeroflex on the same terms. TM Capital called Mr. Gorin to inform him that such
authorizations had been made.
On April 4, 2002, the Board of Directors of Aeroflex convened a meeting to
discuss the terms of the proposal to acquire the Company. Also present at the
meeting was a representative from counsel to Aeroflex. At that meeting, the
Board of Directors of Aeroflex preliminarily approved the terms of the Offer and
Merger, subject to receipt of advice from Aeroflex's investment banker that the
terms of the proposed transaction, including the cost to discharge of the
Company's bank indebtedness, were fair to Aeroflex and authorized management to
continue negotiations with respect to the proposed transactions.
During the first two weeks of April 2002, numerous calls and meetings took
place involving senior management of the Company and Aeroflex and
representatives of TM Capital and legal counsel to Aeroflex and the Company.
On April 10, 2002, the Company Board met and approved terms of the proposed
agreements with the Company's lenders, the proposed Merger Agreement and the
transactions contemplated thereby, the payment and release agreement and the
amendment to the forbearance agreement with the Company's lenders. The Company
Board further unanimously determined that the terms of the Offer and the Merger
are fair to, and in the best interests of, the stockholders of the Company, and
recommended that the Company's stockholders accept the Offer and tender their
Shares pursuant to the Offer and approve and adopt the Merger Agreement. At the
meeting, TM Capital provided the Company Board its fairness opinion with respect
to the Offer and the Merger.
Negotiation of the final terms of the Merger Agreement and other
transaction documents continued through April 13, 2002.
On April 13, 2002, the Company and Aeroflex finalized the terms of the
transaction documents and executed the Merger Agreement the payment and release
agreement and the amendment to the forbearance agreement with the Company's
lenders.
Press releases announcing the execution of the Merger Agreement were issued
by each of Aeroflex and the Company on April 15, 2002.
6
On April 19, 2002, the Purchaser commenced the offer.
(II) Reasons for the Recommendation of the Board of Directors.
In reaching its recommendations described above in paragraph (A) of this
Item 4, the Board of Directors considered a number of factors, including the
following:
1. The Company's Default Under its Outstanding Credit Agreement. The
Company's interest and principal payment defaults since November 9, 2001
and financial covenant defaults under its credit agreement with its
lenders, the expiration of the extension of the Company's forbearance
agreement with its lenders, the prospects of no renewal of such extensions
and the unavailability of financing from third parties on terms acceptable
to the Company or in any case in amounts sufficient to sustain the
Company's operations for more than a short period of time.
2. The Payment and Release Agreement with the Company's Lenders. The
facts that the Company has been able to arrange for a release of collateral
and obligations from its lenders in exchange for a cash payment of
approximately $49 million in full satisfaction of the approximately $84
million owed under the credit agreement, that Aeroflex has agreed to lend
the Company $48.8 million upon completion of the Offer to pay substantially
all of this amount to the lenders, and that the Company has been unable to
obtain alternative sources of financing.
3. Company Operating and Financial Condition. The current and
historical financial condition and results of operations of the Company, as
well as prospects and strategic objectives of the Company, if it were to
retain its current ownership structure.
4. Best Acquisition Proposal Received. The fact that TM Capital had
made 110 contacts with third parties regarding a potential transaction
involving the Company and that the Aeroflex proposal was the best offer
received by the Company.
5. TM Capital Fairness Opinion. Presentations from TM Capital and
the opinion of TM Capital, dated April 10, 2002, that, based upon and
subject to certain considerations and assumptions, the consideration to be
received by holders of Shares pursuant to the Offer and the Merger
Agreement is fair from a financial point of view to such holders. A copy of
the opinion delivered by TM Capital to the Board of Directors, setting
forth the procedures followed, the matters considered and the assumptions
made by TM Capital in arriving at its opinion, is attached hereto as Annex
A and incorporated herein by reference. Shareholders are urged to read this
opinion in its entirety. The Board also considered that TM Capital becomes
entitled to certain fees described in Item 5 upon the consummation of the
Offer.
6. Limited Conditions to Consummation. Aeroflex's obligation to
consummate the Offer and the Merger is subject to a limited number of
conditions, with no financing condition.
7. Alternative Superior Proposals. The Board of Directors considered
that under the terms of the Merger Agreement, while the Company is
prohibited from soliciting acquisition proposals from third parties, the
Company may engage in discussions or negotiations with, and may furnish
non-public information to, a third party who makes an unsolicited written
acquisition proposal if, among other things, the Board determines in the
good faith exercise of its fiduciary duties, with the advice of its legal
counsel and financial advisor, that such acquisition proposal would, if
consummated, constitute a superior proposal and is more favorable to the
Company's stockholders from a financial point of view than the Offer and
the Merger. The Board further considered that the terms of the Merger
Agreement permit the Company to terminate the Merger Agreement to enter
into an agreement with respect to a superior proposal if (a) there is no
financing contingency, (b) the Company pays Aeroflex a $2.5 million, plus
out-of-pocket expenses of up to $500,000, termination fee prior to
terminating the Merger Agreement, (c) the person making the proposal for a
superior transaction is, in the opinion of a nationally recognized
investment bank, financially capable of consummating such proposal, and (d)
the proposed transaction is not subject to any condition the fulfillment of
which, in the good faith judgment of the Board is not highly probable. The
Board considered the possible effect of these provisions of the Merger
Agreement on third parties who might be interested in making a proposal to
acquire the Company. In this regard, the Board
7
recognized that the provisions of the Merger Agreement relating to
termination fees and solicitation of acquisition proposals were insisted
upon by Aeroflex as a condition to entering into the Merger Agreement.
8. Less Desirable Alternatives. The determination that bankruptcy or
liquidation of the Company was not an acceptable alternative to the Offer
because a liquidation would take a significant period of time to complete
and would not be likely to realize aggregate net proceeds per share of
Common Stock equal to or greater than $1.35. In addition, the Board
considered that if the offer is not completed, the Company may have no
alternative to bankruptcy or liquidation.
9. Less Risk to Shareholders. The determination by the Board that a
transaction with Aeroflex at the Offer Price of $1.35 per share and on the
terms set forth in the Merger Agreement is a preferable alternative that
subjects the Company's stockholders to substantially less risk than would
be created by rejecting the proposed Offer and Merger and continuing
negotiations with the Company's lenders, and the likely bankruptcy of the
Company.
10. Potential Nasdaq Delisting. In February 2002, the Company
received written notification from the Nasdaq National Market regarding the
Company's failure to maintain the minimum closing bid price requirement to
remain listed on the Nasdaq National Market. The letter also advised that
the Company had until May 22, 2002, to cure the deficiency or request a
hearing appealing the Nasdaq staff's decision. If the Shares are delisted
and the market price remains below $1.00, the Shares may be deemed a penny
stock, which would subject the Shares to rules that impose additional sales
practices on broker-dealers who sell the Company's securities. As a result
of the additional obligations, some brokers may not effect transactions in
penny stocks, which could adversely affect the liquidity of the Shares.
11. Potential Conflicts of Interest. The interests of certain
Company executives in the Offer and the Merger (see Item 3 "-- Effects of
the Offer and the Merger on Company Stock Plans and Agreements between the
Company and its Executive Officers").
The foregoing includes the material factors considered by the Board of
Directors. In view of its many considerations, the Board did not find it
practical to, and did not, quantify or otherwise assign relative weights to the
specific factors considered. In addition, individual members of the Board may
have given different weights to the various factors considered. After weighing
all of these considerations, the Board unanimously (1) determined that the terms
of the Offer and the Merger are fair to and in the best interests of the
stockholders of the Company, (2) approved the Merger Agreement and the
transactions contemplated thereby, including the Offer and the Merger, and (3)
recommended that the Company's stockholders accept the Offer and tender their
Shares pursuant to the Offer and approve and adopt the Merger Agreement.
(c) Intent to Tender. To the best knowledge of the Company, each executive
officer, director, affiliate or subsidiary of the Company who owns Shares
presently intends to tender in the Offer all Shares that they own of record or
beneficially, other than Shares, if any, that they may have the right to
purchase by exercising stock options and Shares, if any, that if tendered would
cause them to incur liability under the short-swing profits provisions of the
Securities Exchange Act.
ITEM 5. PERSONS/ASSETS RETAINED, EMPLOYED, COMPENSATED OR USED.
Pursuant to a letter agreement dated November 26, 2001, as amended, the
Company formally retained TM Capital to act as its financial advisor in
connection with the proposed sale of the Company. The Board of Directors
retained TM Capital based upon TM Capital's qualifications, experience and
expertise. TM Capital, as part of its investment banking and financial advisory
business, is continuously engaged in the valuation of businesses and securities
in connection with mergers and acquisitions, private placements and valuations
for corporate and other purposes.
Pursuant to TM Capital's engagement letter, the Company has agreed to pay
TM Capital: (i) retainer fees of $75,000 per month for the first four months,
beginning November 26, 2001, and $30,000 per month thereafter; (ii) a fairness
opinion fee of $100,000 upon TM Capital rendering a fairness opinion in
connection with the Offer; and (iii) a sale transaction fee equal to 1.5% of the
sum of (a) the consideration to be paid to
8
the Company's stockholders pursuant to the Offer and the Merger, and (b) the
Company's indebtedness, such fee being payable upon consummation of the Offer;
provided however, that any retainer fees in excess of $30,000 per month and the
fairness opinion fee shall be credited to the sale transaction fee. The Company
has also agreed to reimburse TM Capital for reasonable out-of-pocket expenses
and to indemnify TM Capital against liabilities arising out of TM Capital's
engagement.
Except as described above, neither the Company nor any person acting on its
behalf currently intends to employ, retain or compensate any other person to
make solicitations or recommendations to stockholders on its behalf concerning
the Offer.
ITEM 6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY.
No transactions in Shares have been effected during the past 60 days by the
Company or, to the knowledge of the Company, by any executive officer, director,
affiliate or subsidiary of the Company.
ITEM 7. PURPOSES OF THE TRANSACTION AND PLANS OR PROPOSALS.
Except as set forth in this Statement, the Company is not currently
undertaking or engaged in any negotiations in response to the Offer that relate
to (1) a tender offer for or other acquisition of the Company's securities by
the Company, any subsidiary of the Company or any other person; (2) an
extraordinary transaction, such as a merger, reorganization or liquidation,
involving the Company or any subsidiary of the Company; (3) a purchase, sale or
transfer of a material amount of assets of the Company or any subsidiary of the
Company; or (4) any material change in the present dividend rate or policy, or
indebtedness or capitalization of the Company.
Except as set forth in this Statement, there are no transactions,
resolutions of the Board of Directors, agreements in principle, or signed
contracts in response to the Offer that relate to one or more of the events
referred to in the preceding paragraph.
ITEM 8. ADDITIONAL INFORMATION.
Rights Agreement. Each Right issued pursuant to the Rights Agreement
entitles the registered holder thereof to purchase one share of Common Stock of
the Company at an initial exercise purchase price of $65 per Share (the
"Purchase Price"), subject to adjustment. On the earlier of (1) the tenth day
following a public announcement that a person or group of affiliated or
associated persons (an "Acquiring Person") has acquired beneficial ownership of
20% or more of the outstanding Shares or (2) the tenth business day (or such
later date as may be determined by action of the Board of Directors prior to the
time any person becomes an Acquiring Person) following the commencement of, or
announcement of an intention to make, a tender offer or exchange offer the
consummation of which would result in that person becoming an Acquiring Person
(the earlier of such dates being the "Distribution Date"), the Rights would
become exercisable. Upon the occurrence of a Distribution Date, a holder (other
than an Acquiring Person) would be entitled to receive that number of the
Company's Shares having a market value equal to two times the then current
Purchase Price, or, in certain circumstances, the right to acquire shares of the
Acquiring Person's capital stock having a market value of two times the exercise
price of the Right. The Rights may be redeemed at a price of $0.01 per Right at
any time prior to a person becoming an Acquiring Person.
The Company and the Rights Agent under the Rights Agreement amended the
Rights Agreement as of April 12, 2002, to provide that so long as the Merger
Agreement has not been terminated pursuant to the termination provisions
thereof, a Distribution Date will not occur or be deemed to occur, and that
neither Aeroflex nor the Purchaser will become an Acquiring Person as a result
of the execution, delivery or performance of the Merger Agreement, the
announcement, making or consummation of the Offer, the acquisition of Shares
pursuant to the Offer or the Merger, the consummation of the Merger or any other
transaction contemplated by the Merger Agreement.
Delaware General Corporation Law ("DGCL"). As a Delaware corporation, the
Company is subject to Section 203 of the DGCL In general, Section 203 would
prevent an "interested stockholder" (generally
9
defined as a person beneficially owning 15% or more of a corporation's voting
stock) from engaging in a "business combination" (as defined in Section 203)
with a Delaware corporation for three years following the date such person
became an interested stockholder unless: (1) before such person became an
interested stockholder, the board of directors of the corporation approved the
transaction in which the interested stockholder became an interested stockholder
or approved the business combination, (2) upon consummation of the transaction
which resulted in the interested stockholder becoming an interested stockholder,
the interested stockholder owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction commenced (excluding for
purposes of determining the number of shares of outstanding stock held by
directors who are also officers and by employee stock plans that do not allow
plan participants to determine confidentially whether to tender shares), or (3)
following the transaction in which such person became an interested stockholder,
the business combination is (x) approved by the board of directors of the
corporation and (y) authorized at a meeting of stockholders by the affirmative
vote of the holders of at least 66 2/3% of the outstanding voting stock of the
corporation not owned by the interested stockholder. In accordance with the
provisions of Section 203, the Board of Directors has approved the Merger
Agreement, as described in Item 4 above and, therefore, the restrictions of
Section 203 are inapplicable to the Merger.
Article VII of the Company's Certificate of Incorporation. Article VII of
the Company's Certificate of Incorporation, as amended, imposes higher voting
requirements for certain business combinations (as defined therein). In addition
to any affirmative vote required by law or the Certificate of Incorporation,
such business combinations require an affirmative vote of the holders of: (1) at
least 85% of the voting power of the then outstanding shares of capital stock of
the Company entitled to vote generally in the election of directors, considered
for this purpose as one class; and (2) the holders of a majority of the voting
stock not owned by any interested stockholder, considered for this purpose as
one class, unless: (x) the business combination has been approved by a majority
of the disinterested directors or (y) price and procedure requirements as
described in Article VII have been met. In accordance with Article VII of the
Certificate of Incorporation, the Board of Directors has approved the Merger
Agreement, as described in Item 4 above, and, therefore, the restrictions of
Article VII are inapplicable to the Merger.
THE PURCHASER'S DESIGNATION OF PERSONS TO BE ELECTED TO THE BOARD OF DIRECTORS.
The Information Statement attached as Annex B to this Statement is being
furnished in connection with the possible designation by Aeroflex, pursuant to
the terms of the Merger Agreement, of certain persons to be elected to the Board
of Directors other than at a meeting of the Company's stockholders.
10
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
The following Exhibits are filed herewith:
<Table>
<Caption>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
(a)(1) Letter to Shareholders of the Company, dated April 19,
2002.*
(a)(2) Opinion of TM Capital Corp., dated April 10, 2002 (included
as Annex A to the Statement).*
(a)(3) Press Release issued by the Company on April 15, 2002
(incorporated by reference to a Form 14D-9 for preliminary
communications filed by the Company April 15, 2002).
(a)(4) Sections 11 and 15 of the Offer to Purchase dated April 19,
2002 (incorporated by reference to Exhibit (a)(1) the Tender
Offer Statement on Schedule TO of Aeroflex and Purchaser
filed on April 19, 2002).
(e)(1) Agreement and Plan of Merger, dated as of April 13, 2002,
among Aeroflex, the Purchaser and the Company (incorporated
by reference to Exhibit 99.1 to the Current Report on Form
8-K of Aeroflex filed by the Aeroflex on April 15, 2002).
(e)(4) Confidentiality Agreement, dated January 22, 2002 between
Aeroflex and the Company.
(e)(5) The Information Statement of the Company dated April 19,
2002 (included as Annex B to the Statement).*
</Table>
- ---------------
* Included with the Statement mailed to stockholders.
11
SIGNATURE
After reasonable inquiry and to the best of its knowledge and belief, the
undersigned certifies that the information set forth in this statement is true,
complete and correct.
IFR SYSTEMS, INC.
By: /s/ JEFFREY A. BLOOMER
------------------------------------
Jeffrey A. Bloomer
President and CEO
Dated: April 19, 2002
12
ANNEX A
TM CAPITAL CORP. FAIRNESS OPINION
[TM CAPITAL CORP. LETTERHEAD]
April 10, 2002
Board of Directors
IFR Systems, Inc.
10200 West York Street
Wichita, KS 67215
Gentlemen:
We understand that Aeroflex Incorporated ("Aeroflex") proposes to make a
tender offer (the "Offer") for all of the issued and outstanding shares of
common stock, par value $0.01 per share, and the associated shareholder rights
(the "Shares"), of IFR Systems, Inc. (the "Company") at a cash price of $1.35
per Share pursuant to a merger agreement (the "Merger Agreement") which provides
that following completion of the Offer a subsidiary of Aeroflex shall merge with
the Company and each Share shall be acquired for consideration equal to that
paid per Share in the Offer (the "Merger"). We further understand that the
Company is in default of its Amended and Restated Credit Agreement dated March
19, 1998, as amended (the "Credit Agreement") and that Aeroflex and the Company
have entered into a Repayment and Mutual Release Agreement with the financial
institutions which are parties to the Credit Agreement (the "Lenders"), pursuant
to which the Lenders will receive a payment of $48.8 million plus certain fees
and expenses in full satisfaction of all Lender claims against the Company; such
payment to be made at the time Aeroflex acquires a majority of the issued and
outstanding Shares of the Company.
You have asked us whether or not, in our opinion, the proposed cash
consideration to be received by the shareholders of the Company pursuant to the
Offer and the Merger is fair to the shareholders of the Company, from a
financial point of view.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed the Company's Annual Reports on Form 10-K and related
financial information for the fiscal years ended March 31, 1999 - 2001
and the Company's Quarterly Report on Form 10-Q and the related
unaudited financial information for the nine months ended December 31,
2001;
(2) Reviewed unaudited financial information of the Company for the 11
months ended February 28, 2002;
(3) Reviewed the Company's most recent Proxy Statement relating to the
Annual Meeting of Shareholders held on August 7, 2001;
(4) Reviewed certain information, including financial forecasts, relating
to the business, earnings, cash flow, assets and prospects of the
Company, as well as certain asset appraisals performed by third
parties, all as furnished to us by the Company;
(5) Conducted discussions with members of senior management of the Company
concerning its business and prospects;
A-1
Board of Directors
April 10, 2002
Page Two
(6) Reviewed the Credit Agreement and its amendments, including the most
recent Amendment No. 2 to Forbearance Agreement and Amendment No. 9 to
Credit Agreement;
(7) Reviewed the historical market prices and trading activity for the
Shares;
(8) Compared certain financial information for the Company with that of
certain publicly traded companies which we deemed to be relevant;
(9) Compared the proposed financial terms of the Offer and Merger with the
financial terms of certain other mergers and acquisitions which we
deemed to be relevant;
(10) Reviewed the Merger Agreement and Repayment and Mutual Release
Agreement; and
(11) Reviewed such other financial studies and analyses and performed such
other investigations and took into account such other matters as we
deemed necessary, including our assessment of general economic, market
and monetary conditions.
In preparing our opinion, we have relied on the accuracy and completeness
of all information supplied or otherwise made available to us by the Company,
and we have not assumed any responsibility to independently verify such
information. We have been provided certain financial forecasts by management,
and we have relied upon the assurances of management that (i) the financial
forecasts provided to us reflect their best currently available estimates and
good faith judgments as to the future performance of the Company; and (ii) they
are unaware of any facts or circumstances that would make the information or
financial forecasts provided to us incomplete or misleading; provided, however,
that management has indicated that without a significant modification to the
Company's Credit Agreement or the availability of alternative financing on
substantially different terms and conditions than currently in place, the
achievement of the financial forecasts is unlikely and the Company's ability to
continue operations is in doubt.
We have not made any independent evaluation or appraisal of the assets or
liabilities (contingent or otherwise) of the Company nor have we been furnished
with any such evaluations or appraisals (except as noted above). We have also
assumed with your consent, that any material liabilities (contingent or
otherwise, known or unknown) of the Company are as set forth in the consolidated
financial statements of the Company.
This opinion is directed to the Board of Directors of the Company and does
not constitute a recommendation to any shareholder of the Company as to whether
any such shareholder should or should not tender shares in the Offer. This
opinion does not address the relative merits of the Offer as compared to any
other transactions or business strategies discussed by the Board of Directors of
the Company as alternatives to the Offer, or the decision of the Board of
Directors of the Company with respect to the Offer. Our opinion is based on
economic, monetary and market conditions existing on the date hereof.
TM Capital Corp. is currently acting as financial advisor to the Company in
connection with the Offer and will be receiving a fee in connection with the
rendering of this opinion and consummation of this transaction.
On the basis of, and subject to the foregoing, we are of the opinion that
the proposed cash consideration to be received by the shareholders of the
Company pursuant to the Offer and the Merger is fair to the Company's
shareholders from a financial point of view.
A-2
Board of Directors
April 10, 2002
Page Three
This opinion has been prepared for the information of the Board of
Directors of the Company in connection with the Offer and shall not be
reproduced, summarized, described or referred to, provided to any person or
otherwise made public or used for any other purpose without the prior written
consent of TM Capital Corp., provided, however, that this letter may be
reproduced in full in a Schedule 14D-9 filed by the Company related to the Offer
and in any solicitation materials regarding the Merger.
Very truly yours,
TM CAPITAL CORP.
/s/ PAUL R. SMOLEVITZ
--------------------------------------
PAUL R. SMOLEVITZ
Managing Director
A-3
ANNEX B
IFR SYSTEMS, INC.
10200 WEST YORK STREET
WICHITA, KANSAS 67215
INFORMATION STATEMENT PURSUANT TO SECTION 14(f) OF THE
SECURITIES EXCHANGE ACT OF 1934 AND RULE 14f-1 THEREUNDER
This Information Statement is being mailed on or about April 19, 2002, as
part of the Solicitation/ Recommendation Statement on Schedule 14D-9 (the
"Statement") of IFR Systems, Inc. (the "Company"). You are receiving this
Information Statement in connection with the possible election of persons
designated by Aeroflex Incorporated ("Aeroflex") to a majority of seats on the
Board of Directors (the "Board of Directors" or the "Board") of the Company. On
April 13, 2002, the Company entered into an Agreement and Plan of Merger (the
"Merger Agreement") with Aeroflex and Testco Acquisition Corp. (the
"Purchaser"), a Delaware corporation and a wholly owned subsidiary of Aeroflex,
pursuant to which the Purchaser has commenced a tender offer to purchase all
outstanding shares of Common Stock, par value $0.01 per share, of the Company
(the "Common Stock") and the associated rights to purchase Common Stock (the
shares of Common Stock and any associated purchase rights are referred to in
this Statement as the "Shares"), at a price per Share of $1.35, net to the
seller in cash (the "Offer Price"), upon the terms and conditions set forth in
the Purchaser's Offer to Purchase, dated April 19, 2002, and in the related
Letter of Transmittal (which, together with any amendments and supplements
thereto, collectively constitute the "Offer"). Copies of the Offer to Purchase
and the Letter of Transmittal have been mailed to stockholders of the Company
and are filed as Exhibits (a)(1) and (a)(2) respectively, to the Tender Offer
Statement on Schedule TO (as amended from time to time, the "Schedule TO") filed
by Aeroflex and the Purchaser with the Securities and Exchange Commission (the
"Commission") on April 19, 2002. The Merger Agreement provides that, subject to
the satisfaction or waiver of certain conditions, including the tender of 50.1%
of the Shares outstanding on a fully diluted basis, following completion of the
Offer, and in accordance with the General Corporation Law of the State of
Delaware (the "DGCL"), the Purchaser will be merged with and into the Company
(the "Merger"). Following consummation of the Merger, the Company will continue
as the surviving corporation and will be a wholly owned subsidiary of Aeroflex.
At the effective time of the Merger (the "Effective Time"), each issued and
outstanding Share (other than Shares that are owned by Aeroflex, the Purchaser,
any of their respective subsidiaries, or the Company, and Shares held by
stockholders of the Company who did not vote in favor of the Merger Agreement
and who comply with all of the relevant provisions of Section 262 of the DGCL)
will be converted into the right to receive $1.35 in cash or any greater amount
per Share paid pursuant to the Offer.
The Offer, the Merger, and the Merger Agreement are more fully described in
the Statement to which this Information Statement forms Annex B, which was filed
by the Company with the Commission on April 19, 2002, and which is being mailed
to stockholders of the Company along with this Information Statement.
This Information Statement is being mailed to you in accordance with
Section 14(f) of the Securities Exchange Act and Rule 14f-1 promulgated
thereunder. The information set forth herein supplements certain information set
forth in the Statement. Information set forth herein related to Aeroflex, the
Purchaser or the Aeroflex Designees (as defined herein) has been provided by
Aeroflex. You are urged to read this Information Statement carefully. You are
not, however, required to take any action in connection with the matters set
forth herein.
Pursuant to the Merger Agreement, the Purchaser commenced the Offer on
April 19, 2002. The Offer is currently scheduled to expire at 12:00 noon, New
York City time, on Monday, May 20, 2002, unless the Purchaser extends it.
B-1
GENERAL
The Common Stock is the only class of equity securities of the Company
outstanding which is entitled to vote at a meeting of the stockholders of the
Company. As of the close of business on April 12, 2002, there were 8,282,009
outstanding shares of Common Stock, of which Aeroflex and the Purchaser own no
shares.
RIGHTS TO DESIGNATE DIRECTORS AND AEROFLEX DESIGNEES
The Merger Agreement provides that, promptly upon the purchase of and
payment for Shares by the Purchaser pursuant to the Offer, Aeroflex will be
entitled to designate such number of directors (the "Aeroflex Designees") on the
Board of Directors, rounded up to the next whole number, as is equal to the
product obtained by multiplying the total number of directors on the Board by
the percentage that the number of Shares so purchased and paid for bears to the
total number of Shares then outstanding.
The Merger Agreement provides that the Company will, upon request of the
Purchaser, promptly exercise its best efforts to secure the resignations of such
number of directors as is necessary to enable the Aeroflex Designees to be
elected to the Board and, subject to Section 14(f) of the Securities Exchange
Act and Rule 14f-1 promulgated thereunder, will cause the Aeroflex Designees to
be so elected. At such time, the Company will, if requested by Aeroflex, also
cause directors designated by Aeroflex to constitute at least the same
percentage (rounded up to the next whole number) of each committee of the Board
of Directors as is on the Board of Directors.
The completion of the Offer is conditioned upon the receipt by the
Purchaser of letters of resignation from four current members of the Board of
Directors of the Company, including all employee directors. Notwithstanding the
foregoing, if Shares are purchased pursuant to the Offer, there will be until
the Effective Time at least three members of the Board who were directors on the
date of the Merger Agreement and who are not employees of the Company.
The Aeroflex Designees have been selected by Aeroflex and are listed in
Schedule I to Aeroflex's Offer to Purchase filed with the Securities and
Exchange Commission as Exhibit (a)(1) to the Tender Offer Statement on Schedule
TO on April 19, 2002, and mailed to stockholders, which is incorporated herein
by reference. Each of those individuals has consented to serve as a director of
the Company if appointed or elected. None of the Aeroflex Designees currently is
a director of, or holds any positions with, the Company. Aeroflex has advised
the Company that, to the best of Aeroflex's knowledge, except as set forth
below, none of the Aeroflex Designees or any of their affiliates beneficially
owns any equity securities or rights to acquire any such securities of the
Company, nor has any such person been involved in any transaction with the
Company or any of its directors, executive officers or affiliates that is
required to be disclosed pursuant to the rules and regulations of the Commission
other than with respect to transactions between Aeroflex and the Company that
have been described in the Schedule TO or the Statement.
The name, age, present principal occupation or employment and five-year
employment history of each of the individuals who may be selected as Aeroflex
Designees are set forth in Schedule I to Aeroflex's Offer to Purchase filed with
the Securities and Exchange Commission as Exhibit (a)(1) to the Tender Offer
Statement on Schedule TO on April 19, 2002, and mailed to stockholders, are
incorporated herein by reference.
STOCK OWNERSHIP
OUTSTANDING SHARES & PRINCIPAL SHAREHOLDERS
On April 12, 2002, the Company had issued and outstanding 8,282,009 shares
of Common Stock, not including 984,241 treasury shares, which is the only class
of securities entitled to vote at a meeting to elect directors. Based on copies
of reports filed with the Securities and Exchange Commission, which have been
B-2
received by the Company, the following table sets forth, as of April 9, 2002,
the only persons known to be beneficial owners of more than 5% of the Company's
outstanding Common Stock:
<Table>
<Caption>
NAME AND ADDRESS OF NUMBER OF SHARES PERCENT OF
BENEFICIAL OWNER BENEFICIALLY OWNED CLASS
- ------------------- ------------------ ----------
State of Wisconsin.......................................... 1,613,000 19.5%
Investment Board
P.O. Box 7842
Madison, WI 53707
Strong Capital Management................................... 786,920 9.5%
100 Heritage Reserve
Menomenee Falls, WI 53051
Dimensional Fund Advisors, Inc.............................. 680,036 8.2%
1299 Ocean Avenue
11th Floor
Santa Monica, CA 90401
</Table>
The following table contains information concerning beneficial ownership of
IFR Systems, Inc. Common Stock as of April 12, 2002, by each Director, by each
Executive Officer named in the Summary Compensation Table, below, and by all
Directors and Executive Officers as a group:
<Table>
<Caption>
NUMBER OF SHARES PERCENT
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) OF SHARES
- ------------------------ --------------------- ---------
Jeffrey A. Bloomer.......................................... 159,250 1.9%
Director, Chief Executive Officer and President
Dennis H. Coley............................................. 36,800(5) (*)
Treasurer and Chief Financial Officer
Donald L. Graf.............................................. 24,100(2) (*)
Director
John V. Grose............................................... 13,500 (*)
Director
Frederick R. Hume........................................... 1,500 (*)
Director
Alfred H. Hunt, III......................................... 70,190(3) (*)
Director
Oscar L. Tang............................................... 151,100(4) 1.8%
Director
Ralph R. Whitney, Jr........................................ 43,618 (*)
Director and Chairman
Directors and Executive Officers............................ 500,058 6.0%
as a Group (8 persons)
</Table>
- ---------------
(*) Denotes less than 1%.
(1) Includes shares that could be acquired within 60 days after April 9, 2002
upon the exercise of options granted pursuant to Company stock option plans
as follows: Mr. Bloomer, 135,250; Mr. Coley, 22,500; Mr. Hume, 1,500; Mr.
Graf, 13,500; Mr. Grose, 12,000; Mr. Hunt, 0; Mr. Tang, 9,000; Mr. Whitney,
13,500; all directors and executive officers as a group, 207,250 shares.
(2) Includes 5,300 shares owned by a trust of which Mr. Graf is trustee.
(3) Includes 10,284 shares owned by Mr. Hunt's children. Mr. Hunt disclaims
beneficial ownership of the shares owned by his children.
(4) Includes 60,000 shares held by Mr. Tang as trustee in various trusts for
members of Mr. Tang's family and 73,500 shares held by The Tang Fund of
which Mr. Tang is president and a director. Excludes 247,500 shares held in
trust for the benefit of Mr. Tang and 36,400 shares held by August
Associates, an
B-3
investment partnership in which Mr. Tang is a limited partner, because Mr. Tang
does not have the power to vote or dispose of the shares or to direct the voting
or acquisition or disposition of the shares through directing the exercise of
any warrants or options held by the partnership or any such trust, if any,
or through the power to terminate the partnership or revoke any of such
trusts within sixty (60) days, or to obtain the power to vote, acquire or
dispose of shares through the automatic termination of the partnership or
of any such trust within sixty (60) days.
(5) Mr. Coley resigned from the Company, January 14, 2002.
BOARD OF DIRECTORS
The Directors are divided into three classes. At each annual meeting, the
term of one class expires. Directors in each class serve three year terms.
<Table>
<Caption>
NAME, AGE,
PERIOD SERVED AS DIRECTOR PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE DURING PAST FIVE YEARS
------------------------- -------------------------------------------------------------------
DIRECTORS WHOSE TERMS EXPIRE IN 2004:
DONALD L. GRAF, 64 Mr. Graf is currently retired and a private investor. From July
Director since 1985 1997 to December 2000, Mr. Graf was the Corporate Vice President
and Chief Financial Officer of A. Duda & Sons, Inc., a privately
held nationwide agribusiness and real estate development company
with principal offices in Oviedo, Florida. From March 1996 to July
1997, Mr. Graf was a private investor and consultant. Prior to
then, Mr. Graf was the Senior Vice President and Chief Financial
Officer of Osborn Laboratories, Inc., a Medical testing laboratory
located in Overland Park, Kansas.
RALPH R. WHITNEY, JR., 67 Mr. Whitney is and has been a principal of Hammond, Kennedy,
Director since 1985 Whitney & Company, Inc., a private investment firm with offices at
230 Park Avenue, New York, New York for more than the past five
years. Mr. Whitney also serves as a director of Adage, Inc.;
Baldwin Technology Company, Inc.; Excel Industries, Inc.; Control
Devices, Inc.; and Selas Corporation of America. Mr. Whitney has
served as Chairman of the Board of the Company since August 7,
2001.
DIRECTORS WHOSE TERMS EXPIRE IN 2003:
FREDERICK R. HUME, 59 Mr. Hume is President and Chief Executive Officer of the Data I/O
Director since 2000 Corporation since February 23, 1999. From 1988 until his retirement
in 1998, Mr. Hume was Vice President and General Manager of
Keithley Instruments, Inc. in Cleveland, Ohio. Mr. Hume is also a
director of ILX Lightwave, Inc. Mr. Hume does not currently hold
any position with the Company.
ALFRED H. HUNT, III, 65 Mr. Hunt is currently retired and a private investor. From April
Director since 1971 1999 to September 2001 Mr. Hunt was the Chief Technology Officer of
the Company. Prior to April 1999, Mr. Hunt served as the President,
Chief Executive Officer, for more than the past five years, and as
Chairman or Vice Chairman of the Board of the Company since 1989.
DIRECTORS WHOSE TERMS EXPIRE IN 2002:
JOHN V. GROSE, 72 Mr. Grose is and has been a director and past President of Navair,
Director since 1992 Inc., for more than the past five years, which sells, services and
installs avionics in military and commercial aircraft. Navair also
distributes electronic test and measurement equipment. Navair's
headquarters are in Mississauga, Ontario, Canada. Mr. Grose remains
active in the distribution area of the business.
</Table>
B-4
<Table>
<Caption>
NAME, AGE,
PERIOD SERVED AS DIRECTOR PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE DURING PAST FIVE YEARS
------------------------- -------------------------------------------------------------------
DIRECTORS WHOSE TERMS EXPIRE IN 2002:
OSCAR L. TANG, 63 Mr. Tang is a private investor. From September 1993 to October
Director since 1995 2000, Mr. Tang was a director of Nvest, L.P. , an investment firm
located in New York. Prior to then, Mr. Tang was the President and
Chief Executive Officer and co-founder of Reich & Tang, L.P.,
predecessor of Nvest, L.P.
JEFFREY A. BLOOMER, 45 Mr. Bloomer has been the Chief Executive Officer and President of
Director since 1999 the Company since October 12, 1999. From April 1999 to October
1999, he served as Executive Vice President of the Company and from
November 1995 to April 1999, he was its Treasurer and Chief
Financial Officer. He served as the Company's Director of Finance
from August 1994 through November 1995.
</Table>
EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company are as follows:
<Table>
<Caption>
NAME AGE POSITION
- ---- --- --------
Jeffrey A. Bloomer........................ 45 President and Chief Executive Officer
Stephen P. Todd........................... 37 Interim Chief Financial Officer
</Table>
Executive officers are appointed by the Board of Directors on an annual
basis and serve until their successors have been duly elected. There are no
family relationships among any of the executive officers or directors of the
Company.
JEFFREY A. BLOOMER. Mr. Bloomer's positions with the Company and business
experience are set out in the preceding section "Directors".
STEPHEN P. TODD. Mr. Todd has been a management consultant since 1996 and
has participated in a variety of financial management assignments with public
and private companies. Prior to working as a management consultant, Mr. Todd was
employed as a senior financial manager for a manufacturer of life science
equipment. Earlier, he was with Arthur Andersen LLP, where he spent five years
providing business advisory services to large and small clients.
MEETINGS OF THE BOARD OF DIRECTORS AND COMMITTEES
During the fiscal year ended March 31, 2002, the Board of Directors met
eight times. The Board of Directors has a standing Compensation Committee and a
standing Audit Committee. There is no standing nominating committee or
stockholders relation committee. All Board members attended more than 75 percent
of the aggregate number of Board meetings and meetings of committees on which
each served during the fiscal year ended March 31, 2002.
The Compensation Committee is comprised of Messrs. Tang (Chairman), Hume,
Graf and Whitney. The Compensation Committee reviews and approves all
compensation plans, benefit programs, and perquisites for executives and other
employees. See "Compensation Committee Report on Executive Compensation" for a
more complete description of the functions of the Compensation Committee. The
Compensation Committee met three times during the last fiscal year.
The purposes and functions of the Company's Audit Committee are to meet
with the auditors; to recommend the engagement or discharge of independent
auditors; to review quarterly financial statements prior to issuance; to review
year-end financial statements prior to issuance; to review the services from
time to time being performed by the independent auditors, including nonaudit
services and the fees charged, or to be charged, for all such services; and to
make appropriate reports and recommendations to the Board of
B-5
Directors. The persons currently serving on the Audit Committee are Messrs. Graf
(Chairman), Grose, Hume and Whitney. The Audit Committee met two times during
the last fiscal year. The Company's Board of Directors has adopted a written
charter for the Audit Committee, a copy of which was attached as an appendix to
the Company's Proxy Statement for the August 7, 2001, Annual Meeting. Messrs.
Graf, Grose, Hume and Whitney are each independent for purposes of Section
4200(a)(15) of the listing standards of the NASDAQ Stock Exchange, on which the
Company's stock is traded.
COMPENSATION OF DIRECTORS
Each Director of the Company, other than persons compensated as executive
officers of the Company, received a retainer for the fiscal year ended March 31,
2002, of $16,000. Each such Director also receives $1,000 for each Board meeting
attended and $800 for each committee meeting attended and participates in the
Outside Director Compensation, Stock Option, and Retirement Plan described
below. If a Director is requested by the Company to travel out of town for
attendance at a Board meeting or a committee meeting, the Director is reimbursed
for reasonable travel expenses.
In August 1999, the Board of Directors adopted, and the stockholders
approved, the IFR Systems, Inc. Amended Outside Director Compensation, Stock
Option, and Retirement Plan (the "1999 Outside Director Plan"), pursuant to
which Directors who are not employees of the Company ("Outside Directors") are
entitled to receive certain cash compensation, stock options, and retirement
benefits, all as described below. The 1999 Outside Director Plan is administered
by the Board of Directors. Subject to the provisions of the 1999 Outside
Director Plan, the Board is authorized to interpret such provisions and to make
any determinations necessary or advisable for the administration of the 1999
Outside Director Plan, but no person exercises discretion with respect to the
selection of Directors who will receive options and retirement benefits, the
terms and provisions of the options, or the amount and duration of the
retirement benefits, all of which are established by the provisions of the 1999
Outside Director Plan.
The 1999 Outside Director Plan provides for the payment of an annual
retainer and meeting attendance fees to Outside Directors of the Company. Such
fees are established annually by the Board of Directors. The 1999 Outside
Director Plan also provides that the Board of Directors may from time to time
establish a program for the deferral of such fees and the purchase of term life,
travel, and accidental death and dismemberment insurance for Outside Directors.
The Board of Directors has no present intention to establish a deferral program
or purchase any such insurance.
The 1999 Outside Director Plan provides that each Outside Director shall be
granted a ten year option to purchase 1,500 shares of the Company's Common Stock
on the third business day after the annual meeting of the stockholders of the
Company held in each of the ten years commencing in 2000. The total number of
shares which may be issued under the 1999 Outside Director Plan may not exceed
120,000 shares, subject to adjustments for stock splits and stock dividends.
Options granted under the 1999 Outside Director Plan may be exercised at any
time after twelve months from the date of grant. Each of the options granted
under the 1999 Outside Director Plan is nontransferable except by will or
pursuant to the laws of descent and distribution, is exercisable during an
optionee's lifetime only by the optionee, and terminates upon the earlier of (i)
nine months after the date the optionee no longer serves as a member of the
Board of Directors or (ii) one year after the date of the optionee's death,
whether or not he is serving on the Board of Directors at the time of his death.
Payment for shares upon the exercise of each such option may be made in cash or
in shares of Common Stock of the Company already owned by the optionee on the
date of exercise (valued on the basis of fair market value thereof on the date
of exercise). The option price per share under the 1999 Outside Director Plan
shall be equal to 100% of the fair market value on the date of grant.
Under the 1999 Outside Director Plan, each Outside Director is entitled to
receive an annual retirement benefit in an amount equal to the annual retainer
fee in effect for the year immediately preceding his retirement or resignation
from the Board of Directors, payable in quarterly installments, for the same
number of years as the Outside Director served as a Director of the Company, up
to a maximum of ten years. In order to receive such retirement benefits, the
Outside Director must have reached age 65 and ceased serving as a Director of
the Company. If an Outside Director dies while serving as a Director or
following his retirement or
B-6
resignation from the Board of Directors, any retirement benefits that he would
have otherwise been entitled to receive shall be paid to his surviving spouse or
personal representative. Under the 1999 Outside Director Plan, no retirement
benefits are payable for past service as a Director prior to 1989. No retirement
benefits are payable for future service as a Director in years after 2000. The
retirement benefits are intended to be a non-qualified retirement plan for
purposes of the Internal Revenue Code and are deductible by the Company in the
year paid. Retirement benefits payable under the 1999 Outside Director Plan are
an unfunded general obligation of the Company.
SUMMARY COMPENSATION TABLE
SUMMARY COMPENSATION TABLE
The following table sets forth the annual and long-term compensation for
the Company's Chief Executive Officer and the most highly compensated executive
officers whose salary and bonus exceeded $100,000 for the fiscal year ended
March 31, 2002, as well as the total compensation paid to each such individual
for the Company's two previous fiscal years:
SUMMARY COMPENSATION TABLE
<Table>
<Caption>
ANNUAL COMPENSATION
------------------------------------------------------------------------------------
LONG-TERM
COMPENSATION
AWARDS
SECURITIES ALL OTHER
NAME AND OTHER ANNUAL UNDERLYING COMPENSATION
PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) COMPENSATION $(1) OPTIONS (#) ($)(2)
- ------------------ ---- ---------- --------- ----------------- ----------------- ------------
Jeffrey A. Bloomer........... 2002 300,000 -- 13,164 55,000 1,750
Chief Executive Officer 2001 300,000 -- 16,013 -- 3,200
and President(3) 2000 253,333 -- 11,483 100,000 3,745
Alfred H. Hunt, III.......... 2002 50,000 -- 130,768 -- 1,900
Chairman and Chief 2001 320,000 -- 17,812 -- 3,200
Technology Officer(4) 2000 246,667 -- 126,148 -- 3,200
Dennis H. Coley.............. 2002 125,000 -- 45,827 52,500 2,000
Chief Financial Officer 2001 147,500 2,492 6,750 10,000 2,950
and Treasurer(5) 2000 127,917 17,500 16,852 40,000 2,558
</Table>
- ---------------
(1) Includes life insurance premiums for Mr. Hunt in the amounts of $26,800 for
the year 2000 and deferred bonus amounts of $110,000 and vacation payments
of $20,768 in 2002 and includes for Mr. Coley separation pay of $26,500,
automobile pay of $7,500 and vacation payments of $11,826 in 2002.
(2) Includes the Company's contributions on behalf of each of the named
executives under the IFR Systems, Inc. Employees Profit Sharing Plan and
under the IFR Systems, Inc. Savings and Investment (401k) Plan.
(3) Mr. Bloomer has been Chief Executive Officer and President since October 12,
1999, and was Executive Vice President from April 20, 1999, to October 12,
1999. Prior to that time he was the Company's Treasurer and Chief Financial
Officer.
(4) Mr. Hunt Was Chairman of the Board until August 9, 2001. He was Chief
Technology Officer from April 1999 until September 2001.
(5) Mr. Coley resigned from the Company, January 14, 2002. Of the stock options
previously granted to him, all but 5,000 were cancelled. Pursuant to Mr.
Coley's termination agreement, 17,500 stock options were granted to him in
January 2002.
B-7
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information concerning options
granted during fiscal 2002 to the named executives:
<Table>
<Caption>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
---------------------------- VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OR OPTION TERM
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION ----------------------
NAME GRANTED (#) FISCAL YEAR(1) ($/SHARE)(2) DATE 5%($)(5) 10%($)(5)
- ---- ----------- -------------- ------------ ---------- --------- ----------
Jeffrey A. Bloomer(3)... 55,000 14.1% 1.790 07/19/11 61,915 156,904
Dennis H. Coley(3)...... 35,000 9.0% 1.790 07/19/11 39,400 99,848
Dennis H. Coley(4)...... 17,500 4.5% 0.875 01/23/03 9,630 24,400
</Table>
- ---------------
(1) In fiscal 2002, 388,000 options to purchase shares of the Company's common
stock were granted to 25 individuals.
(2) Options were issued at fair market value on date of grant.
(3) Options vest annually in four equal installments beginning on the
anniversary date of grant. The 35,000 options granted to Mr. Coley were
cancelled upon the termination of his employment on January 14, 2002.
(4) Options vest on the date of grant.
(5) The 5% and 10% rates of appreciation are pursuant to SEC regulations and are
not intended to forecast future appreciation, if any, of IFR's stock. If
IFR's stock has not increased in value above the exercise price at the time
the options expire, then the option grants described in the table will be
valueless.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table summarizes options exercised during fiscal 2002 and
presents the value of unexercised options held by the named executives at fiscal
year end:
<Table>
<Caption>
AGGREGATED OPTIONS/SAR EXERCISES
- ---------------------------------------------------------------------------------------------------------------
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS ON IN-THE-MONEY OPTIONS ON
SHARES MARCH 31, 2002(#) MARCH 31, 2002($)(1)
ACQUIRED ON VALUE ------------------------- -------------------------
NAME EXERCISE (#) REALIZED ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---- ------------ ------------ ------------------------- -------------------------
Jeffrey A. Bloomer........ -- -- 119,000/105,000 $--/$--
Alfred H. Hunt, III....... -- -- --/-- --/--
Dennis H. Coley........... -- -- 20,000/2,500 $7,437/--
</Table>
- ---------------
(1) Calculated on the basis of fair market value of the Common Stock on March
28, 2002 ($1.30) less the option price
AGREEMENTS RELATING TO TERMINATION OF EMPLOYMENT
The Company has an agreement with Mr. Bloomer that provides for certain
payments to him in the event his employment is terminated (including a
termination by Mr. Bloomer, in certain circumstances) for a reason other than
serious misconduct, death, normal retirement, or total and permanent disability
within two years after a Change of Control of the Company (as defined below).
The amount of the payments in each case is equal to 2.95 times Mr. Bloomer's
average annual compensation over the previous five years. In addition, following
a covered termination of employment, the Company is obligated to maintain in
effect disability and medical benefits for a period of three years. The Company
is also required to reimburse Mr. Bloomer the amount of any federal or state tax
incurred as a result of receiving an "excess parachute payment" (as defined in
the Internal Revenue Code) under these agreements. For purposes of the
agreement, a Change in Control of the Company means any event of a nature that
would be required to be reported to the Securities and
B-8
Exchange Commission in response to Item 6(e) of Schedule 14A of Regulation 14A
promulgated under the Securities Exchange Act of 1934, as amended, provided
that, without limitation, a Change in Control shall be deemed to have occurred
if: (a) any person (within the meaning of Sections 3(a)(9) and 13(d)(3) of the
Securities Exchange Act of 1934) or group of persons becomes the beneficial
owner, directly or indirectly, of Common Stock of the Company representing 20%
or more of the shares of voting stock of the Company; or (b) during any period
of two consecutive years, individuals who at the beginning of such period were
members of the Company's Board of Directors cease to constitute a majority of
the Board of Directors, unless the election of each Director who was not a
Director at the beginning of such period was approved by at least two-thirds of
the Directors then still in office. No Change in Control shall be deemed to have
occurred as to Mr. Bloomer if he is included in the person or group acquiring
control of the Company. The agreement is for a term ending on December 31, 2000,
but is automatically renewed, prior to a Change in Control, for successive
one-year terms unless terminated as provided in the agreement. After a Change in
Control, the agreement extends for a further three-year term after its next
anniversary date.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors is composed entirely
of independent outside directors and is responsible for establishing an
executive compensation policy and plan for the Company. The Compensation
Committee reviews and approves all compensation plans, benefit programs and
perquisites for executives and other certain employees.
OVERALL POLICY
The Company's executive compensation policy is intended (i) to attract and
retain the highest caliber of executives; (ii) to recognize and reward
individuals for their contributions and commitment to growth and profitability
of the Company; and (iii) to link compensation and stockholder value.
Compensation of the Company's executive officers consists of the following
elements: base salary, cash bonus payments under the Incentive Bonus Plan, stock
option awards and restricted stock grants. Each of these elements is discussed
below.
BASE SALARY
The Committee, with input from the Chief Executive Officer (CEO),
determines annual salary levels for the executive group. Factors considered in
setting base salaries include level of responsibilities and prior experience and
achievements. Base salaries may be greater or less than median competitive
levels.
In making changes in base salary for existing executive officers, other
than the CEO, the Compensation Committee considers the recommendations of the
CEO based on his personal evaluation of individual performance for the prior
year including attainment of personal objectives and goals, attainment of
Company performance goals, the Company's salary structure and competitive salary
data.
CASH BONUS PAYMENTS
In recent years, the Company's executive officers and certain other
employees were eligible for annual cash bonuses determined by a formula
established at the beginning of each fiscal year based on a minimum threshold of
financial objectives for the year. Recognizing that fiscal 2002 would be a
transition year based on significant organizational and structural changes
coupled with major cost-cutting measures, no incentive bonus plan was
established for fiscal 2002 and no incentive cash bonuses were paid.
STOCK OPTIONS
The grant of stock options under the Company's incentive stock option plans
or its nonqualified stock option plan is intended to provide long-term
performance based compensation to officers and key employees of the Company. The
quantity and recipients of options are determined by the Compensation Committee.
Options granted under the 1988 and 1996 Incentive Stock Option Plans are granted
at fair market value.
B-9
Options granted under the 1992 Nonqualified Stock Option Plans were granted at
the fair market value on the date of grant. All options granted under the 1988,
1992, and 1996 plans expire not more than ten years from the date of grant. The
1988 Incentive Stock Plan has expired and no options may be issued.
RESTRICTED STOCK GRANTS
The Company's restricted stock grant compensation combines elements of
short-term compensation and long term incentives. Stock grants may be used to
reward executives who have been responsible for successful past results and may
also be used to attract skilled management by providing stock for "sign-on"
bonus use. In either case, stock ownership is intended to provide an additional
incentive for executive management based on long-term results and growth in
stock value.
CHIEF EXECUTIVE OFFICER
On August 8, 2001, Jeffrey A. Bloomer was reelected President and Chief
Executive Officer of the Company and his annual base salary was continued at
$300,000 based on past performance, expected performance for fiscal 2002, and
salaries paid at comparable companies. Mr. Bloomer received no bonus for fiscal
2002.
COMPENSATION COMMITTEE:
Oscar L. Tang, Chairman
Donald L. Graf
Frederick R. Hume
Ralph R. Whitney, Jr.
B-10
STOCK PERFORMANCE GRAPH
The following graph sets forth the five-year cumulative total return
(assuming a $100 investment and dividend reinvestment) on the Common Stock of
the Company as well as the total returns on the Nasdaq Stock Market Composite
and for the S&P Equipment and Instruments Stocks:
[Stock Performance Graph]
<Table>
<Caption>
- --------------------------------------------------------------------------------------------------
03/31/1997 03/31/1998 03/31/1999 03/31/2000 03/30/2001 03/29/2002
- --------------------------------------------------------------------------------------------------
IFR Systems, Inc. 100.00 222.50 48.75 61.25 27.81 13.00
Nasdaq Composite
(US) 100.00 150.26 201.47 374.30 150.63 151.05
S&P Supercomposite
Electronic
Equipment &
Instruments Index 100.00 116.73 117.84 260.45 128.64 113.92
</Table>
In the immediately preceding year the Company included the Nasdaq
Non-Financial Stocks index in the Stock Performance Graph. The Nasdaq
Non-Financial Stocks index is not included in the Stock Performance Graph set
forth above because Nasdaq requires more time to compile the data for such index
than was available to the Company to timely file this Information Statement as
an Annex to its Schedule 14D-9 dated April 19, 2002. For the same reason, the
Company is not able to compare the total return data of the S&P Equipment and
Instruments Index to the total return of the Nasdaq Non-Financial Stocks index.
CERTAIN RELATIONSHIPS
Mr. Grose, a Director of the Company, is past President of Navair Inc.,
Mississauga, Ontario. Navair is a distributor of the Company's products in
Canada, which accounted for more than 25% of Navair's sales during its most
recent fiscal year. During the Company's fiscal year ended March 31, 2002,
Navair's purchases from the Company totaled $1,873,970 (less than 2% of the
Company's gross revenues). This relationship is expected to continue during the
current fiscal year.
B-11
SECTION 16(a) BENEFICIAL OWNERSHIP COMPLIANCE
Pursuant to Section 16(a) of the Securities and Exchange Act of 1934, as
amended, directors and executive officers of the Company are required to file
reports with the Securities and Exchange Commission indicating their holdings of
and transactions in the Company's equity securities. To the Company's knowledge,
based solely on a review of the copies of such reports furnished to the Company
and written representations that no other reports were required, the Directors
and executive officers of the Company complied with all filing requirements
during the fiscal year ended March 31, 2002.
END OF INFORMATION STATEMENT
B-12