Lawsuits challenge Micronetics sale

Lawsuit argues that Micronetics is underselling to Mercury Computer Systems


Another class action lawsuit was filed Friday charging that Micronetics Inc. executives are underselling the company to Mercury Computer Systems Inc. of Massachusetts, but the Hudson-based defense contractor is shrugging off the litigation and has set a date for shareholders to vote on the $75 million deal.

The latest suit, filed in U.S. District Court in Concord, is the first federal suit filed against the merger. There are at least two others filed in the state Court of Chancery in Delaware - since consolidated -- another in Hillsborough County Superior Court.

The federal suit, filed by Bhanwar Joshi, claims that the executives were selling the company as its shares were on the way up, robbing long-term investors of the chance of getting their money back after the company's stock price took a dive in the last recession.

His suit also complains that the proxy omitted many crucial details about the deal, including spelling out exactly what its top executives would be getting out of it.

On June 10, Micronetics announced the proposed sale to the much larger Mercury for $14.80 a share, arguing that it was double the amount of the market close the previous Friday. The company's stock price had dipped below $3 a share in 2009, the year it lost nearly $10 million. But the company has been bouncing back and ended the last fiscal year with $3.4 million in net income (74 cents a diluted share) and increased its sales to $46 million, 30 percent higher than the previous year.

But the federal lawsuit, filed by Brodsky and Smith, a Pennsylvania-based law firm, points to company's peak of $20 a share back in 2006, prior to the economic downturn, and notes that the stock price rose as high as $9.19 in January.

The suit argues that the sale price "does not adequately reflect the Company's historic revenue growth over the past year" and adds, "just when shareholders are primed to recognize a continued and ever-improving return on their investment, the Company announced the Merger Agreement that will strip from Plaintiff and the proposed class the opportunity to continue to earn equity, and for many, the opportunity to get back to "even."

Finally while the proxy did reveal that the top management would be initially employed by the surviving firm (controlled by Mercury) it did not give the terms of their employment.

The same day of the lawsuit, however, Micronetics disclosed in an amendment its annual statement the compensation of its various executives in fiscal 2012 (ending March 31). Such information is usually included in the company's regular annual proxy, which the company did not plan to release this year because of the merger.

CEO David Robbins was compensated $333,000 - nearly all of it in cash - a $74,000 increase. President Kevin Beals earned a total of $392,000, with $111,000 in options, a $176,000 raise, and chief financial officer Carl Lueders' package was $234,000, which fell $76,000 short compared to fiscal 2011.

Board members and executives own.10.6 percent of the stock (including options), and have pledged to back the merger, as has the company's largest stockholder, Nowelle Kalin, who holds 12.5 percent of outstanding shares.

The lawsuit challenges that pledge, as well as the $2.5 million termination fee that Micronetics would have to pay if it backs out of the merger.

A vote on the merger is scheduled for Wednesday, Aug. 8, at a the offices of a law firm in Boston, either in person or by proxy. Only shareholders of record as of July 2 can vote.

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