<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549-1004
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______________ TO _______________
COMMISSION FILE NUMBER 0-21681
TRANSCRYPT INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 47-0801192
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
4800 N.W. 1ST STREET
LINCOLN, NEBRASKA 68521
(402) 474-4800
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S
PRINCIPAL EXECUTIVE OFFICE)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
YES [X] NO [ ]
As of July 30, 1999, 12,946,624 shares of the Registrant's
Common Stock were outstanding.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TRANSCRYPT INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, 1999 and December 31, 1998
(in thousands)
ASSETS
<TABLE>
<CAPTION>
(unaudited)
JUNE 30, DECEMBER 31,
1999 1998
--------------------- ----------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 20,144 $ 20,262
Accounts receivable, net 7,736 9,287
Receivables - other 133 605
Cost in excess of billings on uncompleted contracts 1,831 1,216
Inventory 12,022 13,907
Prepaid expenses 725 552
Deferred tax assets 2,870 5,157
--------------------- ----------------------
Total current assets 45,461 50,986
Property, plant and equipment, net 5,924 11,885
Deferred tax assets 9,506 7,219
Intangible assets, net 16,021 16,711
Other assets 446 411
--------------------- ----------------------
$ 77,358 $ 87,212
--------------------- ----------------------
--------------------- ----------------------
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<S> <C> <C>
Current liabilities:
Revolving line of credit $ 6,089 $ 7,426
Current portion of long-term debt 71 2,732
Accounts payable 4,674 2,620
Billings in excess of cost on uncompleted contracts 3,779 4,541
Deferred revenue 397 1,140
Accrued expenses 6,959 5,101
Provision for litigation settlement - 10,000
--------------------- ----------------------
Total current liabilities 21,969 33,560
Provision for litigation settlement 5,996 -
Long-term debt, net of current portion 75 6
Deferred revenue 515 550
--------------------- ----------------------
28,555 34,116
--------------------- ----------------------
Commitments and contingencies
Stockholders' equity:
Preferred stock - -
Common stock 129 129
Additional paid-in capital 90,315 90,315
Accumulated deficit (41,641) (37,348)
--------------------- ----------------------
48,803 53,096
--------------------- ----------------------
$ 77,358 $ 87,212
--------------------- ----------------------
--------------------- ----------------------
</TABLE>
See accompanying notes to the consolidated financial statements.
2
<PAGE>
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
TRANSCRYPT INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the three and six months ended June 30, 1999 and 1998
(Unaudited) (in thousands, except share and per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------- ---------------------------
1999 1998 1999 1998
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
Revenues $ 12,727 $ 13,877 $ 22,436 $ 35,865
Cost of sales 8,646 10,853 16,380 23,763
------------ ----------- ----------- ------------
Gross profit 4,081 3,024 6,056 12,102
------------ ----------- ----------- ------------
Operating expenses:
Research and development 1,510 2,703 3,224 4,741
Sales and marketing 2,396 3,355 4,122 6,565
General and administrative 2,460 4,715 5,094 6,828
Restructuring charge 523 - 523 -
Provision for litigation settlement (2,221) - (2,221) -
------------ ----------- ----------- ------------
Total operating expenses 4,668 10,773 10,742 18,134
------------ ----------- ----------- ------------
Loss from operations (587) (7,749) (4,686) (6,032)
Other income 181 97 289 113
Interest income 202 174 404 568
Interest expense (132) (163) (300) (262)
------------ ----------- ----------- ------------
Loss before income taxes (336) (7,641) (4,293) (5,613)
Income tax benefit - (2,598) - (1,886)
------------ ----------- ----------- ------------
Net loss $ (336) $ (5,043) $ (4,293) $ (3,727)
------------ ----------- ----------- ------------
------------ ----------- ----------- ------------
Net loss per share - Basic and $ (0.03) $ (0.39) $ (0.33) $ (0.29)
Diluted
------------ ----------- ----------- ------------
------------ ----------- ----------- ------------
Weighted average common shares - Basic and Diluted 12,946,624 12,946,624 12,946,624 12,946,624
------------ ----------- ----------- ------------
------------ ----------- ----------- ------------
</TABLE>
See accompanying notes to the consolidated financial statements.
3
<PAGE>
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
TRANSCRYPT INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended June 30, 1999 and 1998
(Unaudited) (in thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
---------------------------------------------------
1999 1998
------------------------- -------------------------
<S> <C> <C>
Net cash flow used in operating activities $ (156) $ (9,396)
------------------------- -------------------------
Cash flow from investing activities:
Proceeds from sale of fixed assets 5,261 -
Purchase of fixed assets (303) (2,281)
Increase in intangible assets (144) -
Increase in other assets (35) -
Payments on restructuring reserve (666) (278)
Sale of investments - 12,900
------------------------- -------------------------
Net cash provided by investing activities 4,113 10,341
------------------------- -------------------------
Cash flow from financing activities:
Borrowings (payments) on revolving lines of credit, net (1,338) 9,117
Payment on term loans and capitalized leases (2,737) (2,551)
------------------------- -------------------------
Net cash provided by (used in) financing activities (4,075) 6,566
Net increase (decrease) in cash and cash equivalents (118) 7,511
Cash and cash equivalents, beginning of period 20,262 15,384
------------------------- -------------------------
Cash and cash equivalents, end of period $ 20,144 $ 22,895
------------------------- -------------------------
------------------------- -------------------------
</TABLE>
See accompanying notes to the consolidated financial statements.
4
<PAGE>
TRANSCRYPT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except share and per share data)
1. GENERAL
The condensed consolidated balance sheet of Transcrypt International,
Inc. ("Transcrypt" or the "Company") at December 31, 1998 has been taken from
audited consolidated financial statements at that date and condensed. The
condensed consolidated financial statements for the three and six months ended
June 30, 1999 and for the three and six months ended June 30, 1998 are unaudited
and reflect all normal and recurring accruals and adjustments which are, in the
opinion of management, necessary for a fair presentation of the financial
position, operating results and cash flows for the interim periods presented in
this quarterly report. The condensed consolidated financial statements should be
read in conjunction with the consolidated financial statements and notes
thereto, together with management's discussion and analysis of financial
condition and results of operations, contained in the Company's Annual Report on
Form 10-K for the year ended December 31, 1998. The results of operations and
cash flows for the six months ended June 30, 1999 are not necessarily indicative
of the results for the entire fiscal year ending December 31, 1999. Where
appropriate, items within the condensed consolidated financial statements have
been reclassified from the previous periods' presentation.
2. ORGANIZATION AND CONSOLIDATION
The Company is a manufacturer of information security products and
wireless communications products and systems. The Company designs and
manufactures information security products, which prevent unauthorized access to
sensitive voice communications. These products are based on a wide range of
analog scrambling and digital encryption technologies and are sold mainly to the
land mobile radio ("LMR") and telephony security markets. Through its E.F.
Johnson subsidiary, the Company designs, develops, manufactures and markets (1)
trunked and conventional radio systems, (2) stationary land mobile radio
transmitters/receivers and (3) mobile and portable radios. The Company sells its
LMR products and systems mainly to two broad markets: (1) business and
industrial ("B&I") users and (2) public safety and other governmental users.
The condensed consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries. All significant inter-company
accounts and transactions have been eliminated in the consolidation.
3. LOSS PER SHARE
Basic earnings per share (EPS) is calculated based upon the weighted
average number of common shares outstanding during the period. The diluted EPS
calculation reflects the potential dilution from common stock equivalents such
as stock options. For the three and six months ended June 30, 1999 a net loss
was incurred and the impact of outstanding stock options on diluted EPS is
anti-dilutive.
4. INVENTORY
The following is a summary of inventory at June 30, 1999 and December
31, 1998:
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
------------- -----------------
<S> <C> <C>
Raw materials and supplies $ 5,166 $ 6,267
Work in progress 1,522 1,337
Finished goods 5,334 6,303
------ ------
$ 12,022 $ 13,907
------ ------
------ ------
</TABLE>
5
<PAGE>
5. REVOLVING LINES OF CREDIT
The Company has a line of credit with a regional bank. It is a secured
line of credit not to exceed $10,000. The variable interest rate is 1.25% over
the interest rate earned on the $10,000 cash collateral used as security on the
bank line of credit. This line of credit is due on August 31, 1999. The working
capital line is collateralized by substantially all the Company's assets
including $10,000 in certificate of deposits with the bank.
At June 30, 1999, the Company had $6,089, outstanding on the
revolving line of credit. At December 31, 1998, the Company had $7,230
outstanding on this line of credit and $196 outstanding on an additional line
of credit.
6. COMMITMENTS AND CONTINGENCIES
The Company has been named as a defendant in class action lawsuits
that were filed subsequent to the Company's announcement on March 27, 1998
that the filing of its Annual Report on Form 10-K for year ended December 31,
1997 would be delayed and that adjustments would be made to the Company's
previously announced financial results. Between March 31, 1998 and May 27,
1998, twelve purported class action lawsuits were filed against the Company
in the United States District Court for the District of Nebraska, and one
complaint was filed in the District Court of Scotts Bluff County, Nebraska.
Certain of the complaints, as amended, also name one or more officers of the
Company and PriceWaterhouseCoopers, LLP as additional defendants. The longest
class period alleged in any of the class complaints is the period from
January 22, 1997 through April 24, 1998.
The federal class actions generally allege claims under Sections 11 and
15 of the Securities Act of 1933 and Sections 10 and 20(a) of the Securities
Exchange Act of 1934 and Rule 10b-5 promulgated thereunder, and relate primarily
to allegations of false and misleading financial statements and representations
and material omissions by the Company. The Nebraska action alleges violations of
Nebraska securities laws.
In July 1999, the Company announced that a memorandum of understanding
has been signed with lead plaintiffs' counsel to settle the pending stockholder
class action suits against the Company and certain of its current and former
officers in the United States District Court of Nebraska and the District Court
for Scotts Bluff County, Nebraska. The principal terms of the memorandum of
understanding require the establishment of a settlement fund consisting of (a)
4,460,000 shares of Transcrypt common stock and (b) at least $3,850,000 and up
to $8,850,000 to be paid by Transcrypt's insurance carriers (depending on the
outcome of an arbitration between plaintiffs and one of the insurance carriers).
Transcrypt would also pay $2,000,000 to the class if there is a purchase of
Transcrypt by acquisition or merger that occurs within 18 months of the signing
of the memorandum of understanding. The proposed settlement is subject to a
number of contingencies, including the court approval of a definitive agreement.
On November 4, 1998, Physician's Mutual Insurance Company filed an
action in the District Court of Douglas County, Nebraska against the Company,
PriceWaterhouseCoopers, LLP and two former officers of the Company. The
complaint contains common law causes of action for fraudulent misrepresentation,
fraudulent concealment and negligent misrepresentation against the defendants
arising from the same facts and circumstances underlying the class actions. The
complaint seeks damages in an amount to be proved at trial, but which is
currently alleged to be approximately $850,000.
In the quarter ended December 31, 1998, the Company recorded a
special provision of $10 million related to actions pending against the
Company. Upon entering the memorandum of understanding, the Company revised
its estimated costs related to the settlement of actions against the Company.
This lowered the Company's operating expenses by $2.2 million in the second
quarter as the settlement was for an amount less than previously provided.
The remaining reserves for litigation settlement and related costs include
$1,783 included in accrued expenses and $5,996 included in the provision for
litigation settlement. The remaining reserves for litigation settlement have
been classified as long term to the extent that they will be extinguished
through the issuance of common stock of the Company. The Company can provide
no assurances that the outcomes of pending litigation will not have a
material adverse effect on the Company's business, financial condition,
results of operations and cash flows.
The Company may in the future be the subject of additional lawsuits or
claims in connection with the events or facts surrounding its restatement of
previously announced financial results. The Company is unable to predict when or
whether such additional lawsuits or claims may be initiated or the likelihood of
the outcome or range or amount of potential liability that may arise therefrom.
6
<PAGE>
6. COMMITMENTS AND CONTINGENCIES (CONTINUED)
In April 1998, the Securities and Exchange Commission ("SEC") issued a
formal order of investigation to determine whether violations of certain aspects
of the Federal securities laws had occurred in connection with the Company. At
the present time, the Company is unable to predict whether the SEC is likely to
initiate enforcement action against the Company or its affiliated parties
relating to these events.
The Company is involved in certain other legal proceedings incidental
to the normal conduct of its business. The Company does not believe that any
liabilities relating to such other legal proceedings are likely to be,
individually or in the aggregate, material to the Company's business, financial
condition, results of operations or cash flows.
7. SEGMENT AND RELATED INFORMATION
The Company's reporting segments are strategic business units that
offer different products and services. Management considers its operations to
comprise two industry segments. One segment consists of business conducted in
the information security industry, which comprises the design, manufacture and
sale of devices that prevent the unauthorized interception of sensitive voice
and data communication. The second business segment competes in the wireless
communication industry where the Company designs, develops, manufactures and
markets stationary land mobile radio transmitters/receivers, mobile and portable
radios and trunked and conventional radio communication systems.
The following table is a summary of unaudited quarterly results for the
three and six months ended June 30, 1999 and 1998.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-----------------------------------------------------------------------------------------
IN THOUSANDS 1999 1998 1999 1998
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SALES
Information Security $ 1,606 $ 2,600 $ 3,562 $ 6,390
Wireless Communication 11,122 11,277 18,875 29,475
----------- ------------- ------------- -------------
TOTAL SALES 12,727 13,877 22,436 35,865
----------- ------------- ------------- -------------
COST OF GOODS SOLD
Information Security 603 1,276 1,678 2,153
Wireless Communication 8,044 9,577 14,702 21,610
----------- ------------- ------------- -------------
TOTAL COST OF GOODS SOLD 8,646 10,853 16,380 23,763
----------- ------------- ------------- -------------
GROSS MARGIN
Information Security 1,003 1,324 1,884 4,237
Wireless Communication 3,078 1,700 4,173 7,865
----------- ------------- ------------- -------------
TOTAL GROSS MARGIN $ 4,081 $ 3,024 $ 6,056 $ 12,102
=========================================================================================
-----------------------------------------------------------------------------------------
GROSS MARGIN PERCENTAGE
Information Security 62.5% 50.9% 52.9% 66.3%
Wireless Communication 27.7% 15.1% 22.1% 26.7%
TOTAL GM PERCENTAGE 32.1% 21.8% 27.0% 33.7%
-----------------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following table sets forth certain consolidated statements of
operations (in thousands) information as a percentage of revenues during the
periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
-----------------------------------------------------
1999 1998
-----------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 12,727 100.0% $ 13,877 100.0%
Cost of sales 8,646 67.9% 10,853 78.2%
----------- ----------- ------------ -----------
Gross profit 4,081 32.1% 3,024 21.8%
----------- ----------- ------------ -----------
Operating expenses:
Research and development 1,510 11.9% 2,703 19.5%
Sales and marketing 2,396 18.8% 3,355 24.2%
General and administrative 2,460 19.3% 4,715 34.0%
Restructuring charge 523 4.1% - 0.0%
Provision for litigation
settlement (2,221) (17.5)% - 0.0%
----------- ----------- ------------ -----------
Total operating expenses 4,668 36.7% 10,773 77.6%
----------- ----------- ------------ -----------
Loss from operations (587) (4.6)% (7,749) (55.8)%
Other income 181 1.4% 97 0.7%
Interest income 202 1.6% 174 1.3%
Interest (132) (1.0)% (163) (1.2)%
expense ----------- ----------- ------------ -----------
Loss before income taxes (336) (2.6)% (7,641) (55.1)%
Income tax benefit - 0.0% (2,598) (18.7)%
----------- ----------- ------------ -----------
Net loss $ (336) (2.6)% $ (5,043) (36.3)%
----------- ----------- ------------ -----------
----------- ----------- ------------ -----------
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-----------------------------------------------------
1999 1998
-----------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 22,436 100.0% $ 35,865 100.0%
Cost of sales 16,380 73.0% 23,763 66.3%
----------- ----------- ------------ -----------
Gross profit 6,056 27.0% 12,102 33.7%
----------- ----------- ------------ -----------
Operating expenses:
Research and development 3,224 14.4% 4,741 13.2%
Sales and marketing 4,122 18.4% 6,565 18.3%
General and administrative 5,094 22.7% 6,828 19.0%
Restructuring charge 523 2.3% - 0.0%
Provision for litigation
settlement (2,221) (9.9)% - 0.0%
----------- ----------- ------------ -----------
Total operating expenses 10,742 47.9% 18,134 50.6%
----------- ----------- ------------ -----------
Loss from operations (4,686) (20.9)% (6,032) (16.8)%
Other income 289 1.3% 113 0.3%
Interest income 404 1.8% 568 1.6%
Interest expense (300) (1.3)% (262) (0.7)%
Loss before income taxes (4,293) (19.1)% (5,613) (15.7)%
Income tax benefit - 0.0% (1,88) (5.3)%
----------- ----------- ------------ ------------
Net loss $ (4,293) (19.1)% $ (3,727) (10.4)%
----------- ----------- ------------ ------------
----------- ----------- ------------ ------------
</TABLE>
8
<PAGE>
Discussions of certain matters contained in this Quarterly Report on Form
10-Q may constitute forward-looking statements under Section 27A of the
Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of
the Securities Exchange Act of 1934, as amended, (the "Exchange Act"). These
statements may involve risks and uncertainties. These forward-looking
statements relate to, among other things, the court approved and finalization
of the proposed settlement of the pending class action litigation involving
the Company, the outcome of the pending investigation by the SEC, the results
of the Company's product development efforts, future sales levels, the
Company's future financial condition, liquidity and business prospects
generally, perceived opportunities in the marketplace for the Company's
products and its products under development, expectations regarding the
Company's efforts to resolve Year 2000 issues and the effects of a failure to
resolve such issues and the Company's other business plans for the future.
The actual outcomes of these matters may differ significantly from the
outcomes expressed or implied in these forward-looking statements and other
risks detailed in "ITEM 1. BUSINESS--Summary of Business Considerations and
Certain Factors That May Affect Future Results of Operations and/or Stock
Price" contained in the Company's Annual Report on Form 10-K for the year
ended December 31, 1998.
The following discussion is intended to provide a better understanding
of the significant changes in trends relating to the Company's financial
condition and results of operations. Management's Discussion and Analysis should
be read in conjunction with the accompanying Consolidated Financial Statements
and Notes thereto.
Restatement and Other Developments
In 1998, the Company restated its previously released results for the
year ended December 31, 1997, the Company's financial statements for the year
ended December 31, 1996 and the financial statements as of and for each of the
quarterly periods ended March 31, June 30, September 30 and December 31 during
1997 and 1996. The restatement of the Company's financial statements and other
events relating to the restatement, including the class action lawsuits and the
SEC investigation which occurred subsequent to March 31, 1998, have had an
adverse impact on the Company's business, financial condition, results of
operations, liquidity and cash flows. These events have had, to varying degrees,
an adverse impact on the Company's relationships with its customers and vendors.
Because of these events, the Company is also evaluating all of its product
lines, and has implemented and is continuing to look at various initiatives to
reduce operating expenses in order to keep them in line with revenues.
Implementation of any plan resulting from these initiatives in the future may
result in substantial up front costs and cash expenditures. The Company can
provide no assurance that the restatement of the financial statements and the
ongoing securities lawsuits and SEC investigation, regardless of their outcomes,
will not continue to have a material adverse effect on the Company's business,
financial condition, results of operations, liquidity and cash flows.
In connection with the bidding requirements on domestic systems
contracts with governmental agencies, the bidding procedures often require
suppliers of systems to supply a bond from an approved surety company at the
time the contract is awarded. A number of factors can limit the availability of
such bonds. These include the applicant's financial condition and operating
results, the applicant's record for completing similar systems contracts and the
extent to which the applicant has bonds in place for other projects.
The Company has identified a surety company to issue bonds for the
Company on a case by case basis subject to terms and conditions negotiated for
each such bond. The surety company has advised the Company that it will require
some amount of collateral on any bonds it may issue.
To the extent that the Company is a successful bidder on any domestic
systems contracts and depending on the Company's overall need for bonds, the
requirement that any additional bonds be collateralized could adversely affect
the Company's ability to bid on or be awarded new domestic systems contracts.
This, in turn, could have a material adverse affect on the Company's business,
financial condition, results of operations and liquidity.
On July 29, 1999, the Company announced that it has retained ING
Barings LLC as its financial advisor to assist Transcrypt in its review of
strategic and financial alternatives.
9
<PAGE>
Revenues
Revenues are recognized when product is shipped, less an estimate for
an allowance for returns, if applicable, if collection is reasonably assured.
For shipments where collection is not reasonably assured, the Company recognizes
revenue as cash is received. If collection is contingent on a future event, such
as a reseller of product selling the product to the end user, the Company
recognizes revenue when the contingency lapses, generally upon cash collection.
System sales under long-term contracts are accounted for under the
percentage-of-completion method. Under this method, revenues are recognized as
work on a contract progresses. The recognized revenue is that percentage of
estimated total revenue that incurred costs to date bear to estimated total
costs to complete the contract. Revisions in cost and profit estimates are made
when conditions requiring such revisions become known. Anticipated losses on
contracts are recognized in operations as soon as such losses are determined to
be probable and reasonably estimable.
Deferred revenue includes unearned warranty fees on extended product
warranty contracts sold to customers. The Company recognizes the fees based on
the expected warranty repairs to be incurred over the life of the contract.
Deferred revenue also includes an advanced payment received for products to be
sold to a former division of EFJ. The advance payment was negotiated as part of
the sale agreement of the division by EFJ. The advanced payment is recognized as
revenue is earned.
Revenues decreased 8.3% to $12.7 million in the second quarter of 1999
and 37.4% to $22.4 million during the first six months of 1999, compared to
$13.9 million and $35.9 million respectively during the same periods of 1998. Of
total revenues in the second quarter, the information security segment comprised
12.6% and the wireless communication segment comprised 87.4%. For the first six
months of 1999, the information security segment comprised 15.9% and the
wireless communication segment comprised 84.1% of total revenues.
The decrease in revenues in the second quarter of 1999 when compared
to the second quarter of 1998 was primarily attributable to a decrease in
sales in the information security segment due to weaker international sales.
The decrease in revenues for the first six months of 1999 was partially
attributable to the uncertainty raised by the restatement discussed above,
which has adversely impacted sales of LMR systems to governmental agencies.
The Company was not awarded any domestic system contracts in 1998. For the
first six months of 1999, the Company has been awarded multiple contracts in
the domestic public safety market for approximately $14.0 million. Revenues
on these contracts are expected to be recognized over the next 12 months.
Revenues from international sales decreased to $4.6 million for the
three months ended June 30, 1999, compared to $5.3 million for the same period
in 1998. For the first six months of 1999, international sales decreased to $7.9
million compared to $13.2 million for the same period in 1998. The decrease is
primarily due to a decline in sales in Central and Latin America. The Company's
revenue for the first six months of 1999 for Central and Latin America decreased
approximately 46.6% compared to the first six months of 1998. The decline in
revenues to Central and Latin America is attributable to economic uncertainty,
which resulted in recent currency fluctuations in the region. Middle East and
Asian revenues for the first six months of 1999 were down approximately 24%
compared to the first six months of 1998 and this decrease was due to continued
economic weakness in that region of the world. As a result of the continued
weakness in Asia, the Company closed its sales office in Hong Kong and will
continue to manage its sales in the region through its dealer network and a
sales representative in Thailand. Revenues in Europe, while a small percentage
of overall sales, decreased approximately 18.1% for the first six months of 1999
compared to the same period in 1998. The Company's international sales may
continue to be depressed for the rest of 1999 as compared to 1998 due to world
economic conditions.
In an effort to improve sales, the Company has introduced and plans
to continue the introduction of new products in 1999. Land mobile radio
secure products introduced in the first six months of 1999 include new
encryption modules for deployment in a wide range of mobile radios, including
the latest Motorola models. The Company also introduced new voice security
modules for Nokia and Qualcomm cellular phones. The EFJohnson subsidiary
released on March 31, 1999 the Company's LTR-Net-TM- trunked radio system.
The Company's EFJohnson subsidiary will introduce new models of our hand-held
land mobile radios and a new line of digital mobile radios, which are APCO-25
compliant. The timing of the Company's introduction of proposed new products
and the acceptance of any new products introduced by the Company are subject
to certain risks and uncertainties that could cause the actual results,
performance or achievements to differ materially from those expressed,
suggested or implied.
10
<PAGE>
Gross Profit
Cost of sales includes materials, labor, depreciation and overhead
costs associated with the production of the Company's products, as well as
shipping, royalty and warranty product costs. Gross profit was $4.1 million
(32.1% gross margin) for the second quarter of 1999, compared to $3.0 million
(21.8% gross margin) for the same period in 1998. For the first six months of
1999, gross profit was $6.1 million (27% gross margin) compared to $12.1 million
(33.7% gross margin) for the same period in 1998. Gross margin for the
information security segment for the three and six months ended June 30, was
62.5% and 52.9%, respectively, compared to 50.9% and 66.3% for the same periods
in 1998. Gross margin for the wireless communications segment for the three and
six months ended June 30, was 27.7% and 22.1%, respectively, compared to 15.1%
and 26.7% for the same periods in 1998.
On a quarterly comparison basis, the increase in gross margin
percentage in the second quarter of 1999 compared to the same period in 1998
is due to several factors. These include (1) the Company selling new products
with better margins in the second quarter of 1999; (2) the upgrading of
certain domestic public safety systems which have a higher margin than
initial system sales; and (3) the Company not incurring the level of product
costs to fix troubled system contracts as it did in 1998. For the first six
months of 1999 compared to the same period in 1998, the overall decline in
gross margin percentage was due to a number of factors primarily experienced
in the first quarter of 1999. These include (1) the decline in sales of
domestic system contracts to the public safety market which provides a higher
margin than the business and industrial portion of E.F. Johnson's wireless
segment; (2) product mix and the level of sales not being sufficient to fully
absorb the Company's manufacturing overhead; and (3) a shift in the Company's
information security product segment from primarily add-on products to more
radios and cellular phones incorporating the Company's encryption products,
which tends to have a lower gross margin. Gross margins are likely to vary in
the future based primarily upon the mix of products and the amount of
revenues for that period.
Research and Development
Research and development expenses consist primarily of the costs
associated with research and development personnel, materials and the
depreciation of research and development equipment and facilities. Research and
development expenses decreased to $1.5 million and $3.2 million for the three
and six months ended June 30, 1999, respectively, from $2.7 million and $4.7
million for the same periods in 1998. This decrease was primarily due to a
reduced engineering staff. The Company anticipates research and development
expenses to remain at a level similar to the second quarter of 1999.
The information security and wireless communications product markets in
which the Company competes are rapidly evolving and can be expected to further
evolve in the future as a result of changing technology, industry standards and
customer requirements. The Company's ability to compete effectively will depend
upon its ability to anticipate and react to these changes in a timely manner.
The Company may not have, either currently or in the future, adequate capital
resources or funds to respond to these changes.
Sales and Marketing
Sales and marketing expenses consist primarily of salaries and related
costs of sales personnel, including sales commissions and travel expenses, and
costs of advertising, public relations and trade show participation. Sales and
marketing expenses decreased to $2.4 million and $4.1 million for the three and
six month periods ended June 30, 1999, respectively, from $3.4 million and $6.6
million for the same periods in 1998. This was primarily due to a decrease in
sales commissions and fewer sales personnel. Sales and marketing expenses
decreased as a percentage of sales to 18.8% for the three months ended June 30,
1999 from 24.2% for the same period in 1998 and remained relatively flat as a
percentage of revenue for the first six months of 1999, 18.4%, compared to the
first six months of 1998, 18.3%.
11
<PAGE>
General and Administrative
General and administrative expenses consist primarily of salaries
and other expenses associated with the Company's management, accounting,
finance and administrative functions and amortization of intangible assets.
General and administrative expenses decreased to $2.5 million in the second
quarter of 1999 from $4.7 million in the second quarter of 1998. For the six
months ended June 30, 1999, general and administrative expenses decreased to
$5.1 million from $6.8 million for the first six months of 1998. The decrease
is due primarily to legal, accounting and severance costs, which were
incurred, in the first six months of 1998 associated with the Company's
financial restatement in 1998.
Restructuring Charge
The Company incurred a restructuring charge in the second quarter of
1999 of approximately $523,000 in connection primarily with the closure of
EFJohnson's sales office in Hong Kong.
Provision for Litigation Settlement
In the quarter ended December 31, 1998, the Company recorded a special
provision of $10 million related to actions pending against the Company. Upon
entering the memorandum of understanding, the Company revised its estimated
costs related to the settlement of actions against the Company. This lowered the
Company's operating expenses by $2.2 million in the second quarter as the
settlement was for an amount less than previously provided.
Other Income, net
Other income, net for the second quarter of 1999 increased primarily as
a result of the sale of Company's corporate headquarters in Lincoln, Nebraska.
Net Interest Income (Expense)
Net interest income consists of interest income earned on cash and
investable funds, net of interest expense related to amounts payable on the
Company's term and installment loans and bank lines of credit. Net interest
income was $70,000 in the second quarter of 1999, as compared to $11,000 in the
second quarter of 1998. The increase was due to the Company carrying a lower
average balance on its revolving line of credit in the second quarter of 1999.
For the first six months of 1999, net interest income was $104,000 compared to
$306,000 for the same period in 1998. This decrease was due to the Company
having a higher cash balance and lower average balance on its bank line of
credit in the first quarter of 1998.
Benefit for Income Taxes
The Company did not record a tax benefit in the second quarter of 1999,
compared to a tax benefit of $2.6 million in the second quarter of 1998. For the
first six months of 1999 the Company did not record a tax benefit compared to a
tax benefit of $1.9 million for the same period in 1998. The Company's decision
not to record a benefit for income taxes in 1999 is based on its analysis of the
need for a valuation allowance under Statement of Financial Accounting Standards
No. 109 "Accounting for Income Taxes". Management considers the scheduled
reversal of deferred tax liabilities, projected future taxable income, and tax
planning strategies in making this assessment.
Liquidity and Capital Resources
Since January 1, 1997, the Company has financed its operations and met
its capital requirements primarily through short-term borrowings, long-term debt
and stock offerings completed on January 22, 1997 and October 15, 1997.
The Company's operating activities used cash of $156,000 in the first
six months of 1999 compared to $9.4 million in the first six months of 1998.
Cash used in operating activities in the first six months of 1999 consisted
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primarily of a net loss plus a gain on a sale of assets, offset in part by
depreciation and amortization, a decrease in inventory, an increase in accounts
payable, an increase in accrued liabilities and a decrease in accounts
receivable.
The deferred tax assets totaling $12.4 million were 16% and 25.4% of
total assets and stockholders' equity, respectively, at June 30, 1999. As
mentioned above, the Company did not book a provision for income taxes in 1999.
Management believes that it is more likely than not that future taxable income
will be sufficient to fully utilize all deferred tax assets recorded, net of
existing valuation allowances.
Cash provided by investing activities was $4.1 million for the first
six months of 1999 as compared to cash provided by investing activities of $10.3
million in the first six months of 1998. The Company sold its Lincoln facility
in the second quarter of 1999 generating $5.3 million in cash. In the second
quarter of 1998, $12.9 million in cash was generated from the sale of
investments. Capital expenditures of $303,000 for the first six months of 1999
consisted primarily of manufacturing equipment, computer equipment and software.
Capital expenditures of $2.3 million for the first six months of 1998 consisted
primarily of computer and networking equipment, office furniture and
manufacturing equipment and phase III construction cost at the Company's Lincoln
facility.
Financing activities used cash of $4.1 million in the first six months
of 1999. Financing activities consisted of a $1.3 million decrease in borrowings
on the Company's line of credit and the elimination of $2.7 million in long term
debt on the Company's Lincoln facility. Cash provided by financing activities
for the first six months of 1998 consisted of $9.1 million in borrowings on the
Company's revolving line of credit less a $2.6 million payment on long-term
debt.
As of June 30, 1999, the Company had $6.1 million in outstanding
indebtedness under its line of credit with its bank. It is a secured line of
credit not to exceed $10.0 million. Interest is at a variable rate of 1.25% over
the interest rate earned on the $10.0 million on certificates of deposits
pledged as security on the bank line of credit. This line of credit is due on
August 31, 1999. The working capital line is collateralized by substantially all
the Company's assets including $10.0 million in certificate of deposits with the
bank.
The Company paid off its outstanding IDR Bonds totaling $2.7 million
during the second quarter of 1999 as a result of the sale of its Lincoln
facility.
The Company does not anticipate paying cash dividends in the
foreseeable future.
As of June 30, 1999, the Company had approximately $20.1 million in
cash and cash equivalents, which includes $10.0 million of certificates of
deposit pledged as security on its bank line of credit and $1.2 million pledged
as security for bonding on domestic system contracts with the Company's surety
company. $750,000 of the bank line of credit secures a letter of credit issued
to the Company's surety company for bonding on system contracts. There was
approximately $2.0 million available under the Company's bank line of credit at
June 30, 1999. The Company's bank line of credit expires on August 31, 1999 and
the Company is currently seeking to refinance its bank line of credit. The
Company believes it can either renew its current banking relationship or enter
into a new bank line of credit. The Company can provide no assurance that it
will be able to secure new financing and if successful, what would be the terms
of such financing. The requirement of the Company's surety company that the
Company provide collateral on bonds issued in the future could put a further
strain on the Company's liquidity and working capital. To improve its cash
position, the Company sold its facility in Lincoln and is actively marketing its
facility in Waseca. The Company believes that its cash, cash equivalents, and
lines of credit will be sufficient to meet anticipated cash needs for working
capital and for Year 2000 capital expenditures for the next 12 months. However,
if sales do not continue to increase and operating losses do not decline, or the
Company is not able to furnish collateral for bonds on new domestic systems, or
the Company incurs unanticipated substantial costs, the Company may be required
to seek additional financing or funding sources, including possible sale of
securities. Further, the Company has retained ING Barings as its financial
advisor to assist the Company in its review of strategic and financial
alternatives. No assurance can be given that the Company will be able to obtain
such additional funding or financing, or a renewal of its line of credit or be
able to obtain financing on satisfactory terms. Additionally, see "Note 6.
COMMITMENTS AND CONTINGENCIES" above for a discussion regarding certain pending
litigation, the resolution of which could materially adversely affect the
Company's liquidity, operating results and financial condition
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Impact of the Year 2000 Issue
State of Readiness
The Year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of the
Company's computer programs that have date-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result in
a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions or
engage in similar normal business activities.
All products currently being shipped by the Company are Year 2000
compliant. Should a customer use the Company's software with a personal computer
that is not compliant with the year 2000, at that time, the customer may
experience erroneous dates on usage reports, but should not experience any
operational issues. Customers inquiring about previously shipped products are
forwarded to the Year 2000 Compliance Manager in Engineering Product
Development. The Year 2000 Compliance Manager researches the customer's product
and responds in writing as to whether the product is compliant. One obsolete
software product has been identified which will incorrectly report the date
after December 31, 1999. A solution for this issue has been developed to correct
this problem and has been offered to customers identified as having purchased
systems, which include this application software. Written test instructions are
also published for the customer to check their equipment.
In February 1999, Transcrypt completed the first phase of identifying
and thoroughly researching non-compliant hardware and software. In addition, the
Company has completed the process of seeking quotes and delivery estimates for
the equipment and software that must be replaced or upgraded to be Year 2000
compliant.
Transcrypt has identified and prioritized the following non-compliant items:
- The current version of our Enterprise Resource Planning ("ERP")
software is non-compliant. Our ERP system consists of our
manufacturing and accounting software systems. A software upgrade
has been scheduled with the vendor. The manufacturing and
accounting system software will be converted as is, with very few
customizations. In addition to vendor support, three contractors
have been engaged to support the conversion process. The Company
has been advised that the software upgrade is Year 2000 compliant
and is scheduled for completion in the third quarter 1999.
- Four wide area network file servers, which run our software
applications and interconnects the Company's various locations,
must be replaced with compliant servers. Three of the servers were
installed or upgraded in June 1999 with the remaining one to be
completed in October 1999. The remaining servers have already been
upgraded with Year 2000 compliant operating software.
- The payroll system also must be upgraded to be Year 2000
compliant. The upgrade of the payroll system is currently in its
testing stage with completion scheduled by October 15, 1999.
- Approximately 98 workstations used by various Company personnel
must be replaced due to compliance issues. The upgrading and
replacement of these workstations has begun and is scheduled for
completion by the end of September 1999.
- The voicemail systems in Waseca and Lincoln are not Year 2000
compliant and must be upgraded. The necessary software to upgrade
the Waseca system has been received. The Lincoln voicemail system
software is on order with delivery expected by the end of August
1999. Both location installations are to be completed by the end
of the third quarter 1999.
Management believes that all projects relating to Year 2000 compliance will
be completed by the end of the third quarter of 1999.
The upgrade to the Company's ERP software discussed above only
addresses the information technology part of the Company's state of readiness
with Year 2000 issues. There are other computerized systems involved in
manufacturing and engineering systems of the Company that may contain
embedded technology such as microcontrollers. A preliminary assessment was
made as to what effect, if any, the Year 2000 issue will have on these
systems and whether or not there will be a material effect on future
financial results. As of July 30, 1999, no
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<PAGE>
definitive conclusions have been drawn. The Company anticipates finalizing
its assessment of manufacturing and engineering systems by September 30,
1999. Furthermore, the Company has initiated formal communications with all
of its significant suppliers to determine the extent to which the Company is
vulnerable to those third parties' failure to remediate their own Year 2000
issues. The Company has received reasonable verification and written
assurances from these suppliers as to their Year 2000 readiness as of July
30, 1999.
Certifications have been received from the security system, elevators,
fire alarm systems, air conditioning and heating systems at the Lincoln
facility. The same checks are being performed in Waseca, and remote offices.
Costs to Address the Year 2000 Issue.
The Company has budgeted expenditures of approximately $550,000 to
$750,000 to ensure that its systems are ready for processing information in the
Year 2000. The majority of these expenditures relate to the cost of purchasing
hardware and hardware installation. The Company estimates that it has incurred
approximately $176,000 in Year 2000 expenditures through June 30, 1999 with the
balance of the budgeted expenditures to be incurred by the end of 1999. In
addition, the Company has incurred, and will continue to incur, certain costs
relating to the temporary reallocation of its internal resources to address Year
2000 issues. The Company does not separately account for the internal costs
incurred for the Year 2000 issue. The Company anticipates funding year 2000
expenditures from current cash reserves and capital leases for certain portions
of the project. All costs specifically allotted to Year 2000 remediation are
expensed as incurred.
Risks Presented by the Year 2000 Issue
If the other internal computerized systems are found not to be Year
2000 compliant and significant suppliers were to become unable to process
shipments to the Company as a result of Year 2000 issues, the issues may have a
material adverse effect on the Company's business, results of operations, and
financial condition. There can be no guarantee that the systems of other
companies on which the Company relies upon will be timely converted. Any adverse
impact may include the requirement to pay significant overtime to manually
process certain transactions as a result of a systems failure resulting in the
inability to process transactions or engage in normal business activities. At
this time, the Company is unable to predict with any certainty the estimated
lost revenue it may experience as a result of such failure or disruption.
Contingency Plans
The Company does not currently have any contingency plans to address
the event of the Company or a major supplier not becoming Year 2000 compliant.
The contingency plan is in the process of being completed while at the same time
we continue to research all available information on products and vendors. The
project schedules will be closely monitored and additional resources will be
added early in the project. All systems are scheduled for completion by the end
of the third quarter. This allows the three months for final testing and
adjustments if necessary. During the last week of December 1999, all users will
be instructed to backup critical information, or to print paper copies of
critical data. Paper copy reports of production schedules, shipments, and forms
will be printed in advance. A team of information systems staff, department
representatives, and contractors will be scheduled for the weekend of January 1,
2000 to monitor the date change.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company does a significant amount of business in foreign countries.
The Company sales in these foreign countries are denominated in United States
dollars. Certain sales in foreign countries may be secured with irrevocable
letters of credit. The Company also carries foreign credit insurance to cover
receivables in a majority of the foreign countries where it does business.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
For a description of pending litigation, see NOTE 6. COMMITMENTS AND
CONTINGENCIES above.
15
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ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
On July 26, 1999, the Company filed a Certificate of Admendment of its
Second Amended and Restated Certificate of Incorporation.
The amendment increased the number of authorized shares of voting
common stock, par value $0.01 per share, from 19,4000,000 to 25,000,000.
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS.
(a) The Annual Meeting of Stockholders was held on May 20, 1999.
(b) At the meeting, management's nominees as set forth in the
proxy statement for the meeting, Thomas E. Henning and Michael
E. Jalbert were elected. The election of Mr. Henning was
approved by a vote of 11,118,131 shares in favor and 84,630
shares withheld, and Mr. Jalbert was approved by a vote of
11,114,963 shares in favor and 87,798 shares withheld.
(c) The proposal to amend the Second Amended and Restated
Certificate of Incorporation to increase the number of shares
of voting common stock was approved by a vote of 11,050,575
shares in favor, 113,564 shares against and 38,622 shares
abstaining. There were no broker nonvotes.
(d) The proposal to approve the 1999 Non-Employee Director Stock
Purchase Plan was approved by a vote of 10,846,175 shares in
favor, 303,514 shares against and 53,072 shares abstaining.
There were no broker nonvotes.
(e) The proposal to approve the 1999 Executive Officer Stock
Purchase Plan was approved by a vote of 10,856,284 shares in
favor, 290,920 shares against and 55,557 shares abstaining.
There were no broker nonvotes.
(f) The proposal to ratify the appointment of KPMG Peat Marwick
LLP, as independent public accountants for 1999 was approved
by a vote of 11,150,059 shares in favor, 23,752 shares against
and 28,950 shares abstaining.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits are being filed herewith:
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
3.1 Second Amended and Restated Certificate of
Incorporation, as amended
10.44 Employment Agreement between the Company and George
Spiczak dated April 1, 1999
11 Computation of net income per share.
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
The Company filed a report on Form 8-K on July 8, 1999, under Item 5.
"Other Events" to report a press release announcing that a memorandum
of understanding has been signed with lead plaintiffs' counsel to
settle the pending stockholder class action suits against the Company
and certain of its current and former officers in the United States
District Court of Nebraska and the District Court for Scotts Bluff
County, Nebraska.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
TRANSCRYPT INTERNATIONAL, INC.
<TABLE>
<S> <C>
Date: August 16, 1999 By: /s/ Michael E. Jalbert
----------------------
Michael E. Jalbert
Chairman of the Board of Directors
and Chief Executive Officer
(Principal Executive Officer)
Date: August 16, 1999 By: /s/ Craig J. Huffaker
---------------------
Craig J. Huffaker
Chief Financial Officer
(Principal Financial and
Accounting Officer)
</TABLE>
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<PAGE>
EXHIBIT 3.1
CERTIFICATE OF AMENDMENT OF
SECOND AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION OF
TRANSCRYPT INTERNATIONAL, INC.
a Delaware Corporation
Transcrypt International, Inc., a corporation organized and existing
under and by virtue of the laws of the State of Delaware (the "Corporation"),
hereby certifies as follows:
1. That Section 4.1 of the Certificate of Incorporation of the
Corporation is amended to read in full as follows:
"The Corporation is authorized to issue three classes of shares designated,
respectively, "Common Stock," "Non-Voting Common Stock" and "Preferred
Stock." The number of shares of Common Stock which the Corporation is
authorized to issue is twenty five million (25,000,000) shares, par value
$0.01 per share. The number of shares of Non-Voting Common Stock which the
Corporation is authorized to issue is six hundred thousand (600,000), par
value $0.01 per share. The number of shares of Preferred Stock which the
Corporation is authorized to issue is three million (3,000,000) shares, par
value $0.01 per share. All issued and outstanding shares of Non-Voting
Common Stock will become Common Stock when it ceases to be owned by First
Commerce Bancshares, Inc., its subsidiaries or affiliates, or any of their
successors and the Corporation will have the authority to issue twenty five
million (25,000,000) shares of Common Stock, all of which will be voting
Common Stock."
2. That said amendment has been duly adopted in accordance with
Sections 242 and 222 of the Delaware General Corporation Law ("DGCL") by:
(a) the adoption of resolutions of the Board of Directors of the
Corporation; and
(b) the adoption of resolutions by the holders of a majority of the
outstanding shares of capital stock entitled to vote thereon.
IN WITNESS WHEREOF, said TRANSCRYPT INTERNATIONAL, INC. has caused
this Certificate of Amendment to be signed by Michael E. Jalbert and R. Andrew
Massey, its President and Corporate Secretary, respectively.
/s/ Michael E. Jalbert
-----------------------------
Michael E. Jalbert, President
/s/ R. Andrew Massey
-------------------------------------
R. Andrew Massey, Corporate Secretary
<PAGE>
SECOND AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
TRANSCRYPT INTERNATIONAL, INC.
This Second Amended and Restated Certificate of Incorporation of
Transcrypt International, Inc. (the "Corporation") supersedes and replaces in
its entirety the existing First Amended and Restated Certificate of
Incorporation of the Corporation which were filed pursuant to Section 241 of
the Delaware General Corporation Law on June 14, 1996. The undersigned,
being the Secretary of the Corporation, hereby certifies that this Second
Amended and Restated Certificate of Incorporation has been duly adopted by
the Board of Directors of the Corporation and approved by the holders of at
least seventy-five percent of the outstanding stock of the Corporation in
accordance with the provisions of Section 242 of the Delaware General
Corporation Law.
ARTICLE I
The name of the Corporation is Transcrypt International, Inc.
ARTICLE II
The address of the registered office of the Corporation in the State of Delaware
is Corporation Trust Center, 1209 Orange Street, City of Wilmington, County of
New Castle, Delaware 19805, and the name of its registered agent at the address
of the Corporation's registered office is The Corporation Trust Company.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
ARTICLE IV
SECTION 4.1 The Corporation is authorized to issue three classes
of shares designated, respectively, "Common Stock," "Non-Voting Common Stock"
and "Preferred Stock." The number of shares of Common Stock which the
Corporation is authorized to issue is nineteen million four hundred thousand
(19,400,000) shares, par value $0.01 per share. The number of shares of
Non-Voting Common Stock which the Corporation is authorized to issue is six
hundred thousand (600,000), par value $0.01 per share. The number of shares
of Preferred Stock which the Corporation is authorized to issue is three
million (3,000,000) shares, par value $0.01 per share. All issued and
outstanding shares of Non-Voting Common Stock will become Common Stock when
it ceases to be owned by First Commerce Bancshares, Inc., its subsidiaries or
affiliates, or any of their successors and the Corporation will have the
authority to issue twenty million (20,000,000) shares of Common Stock, all of
which will be voting Common Stock.
SECTION 4.2 Holders of shares Common Stock shall be entitled to
one vote for each share
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of Common Stock held of record by such holder and shall be entitled to vote
with respect to all matters as to which a stockholder of a Delaware
corporation would be entitled to vote. Subject to the rights of the
Preferred Stock holders, if any, the holders of the Common Stock shall have
the exclusive right to vote for the election of directors and for all other
purposes and to receive notice of any meeting of stockholders, except as
otherwise required by law.
SECTION 4.3 Holders of shares of Non-Voting Common Stock shall
not be entitled to vote on any matters which come before the stockholders
except as otherwise expressly provided by law, in which case, each holder of
shares of Non-Voting Common Stock shall be entitled to one vote for each
share of Non-Voting Common Stock held. In all other respects, each holder of
shares of Non-Voting Common Stock shall posses all of the same rights as the
holders of shares of Common Stock including, without limitation, with respect
to notices of meetings, dividends and liquidation.
SECTION 4.4 Shares of Preferred Stock may be issued in one or
more series at such time or times and for such consideration as the Board of
Directors may determine, without further action by the holders of the
outstanding shares of Common Stock or Preferred Stock, if any. The Board of
Directors is authorized to fix the number of shares of any series of
Preferred Stock and to determine the designation of any such series. The
Board of Directors is also authorized to determine or alter the rights,
preferences, privileges and restrictions granted to or imposed upon any
wholly unissued series of Preferred Stock and, within the limits and
restrictions granted to or imposed upon any wholly unissued series of
Preferred Stock and, within the limits and restrictions stated in any
resolution or resolutions of the Board of Directors originally fixing the
number of shares constituting any series, to increase or decrease (but not
below the number of shares of such series then outstanding) the number of
shares of any such series subsequent to the issue of shares of that series.
SECTION 4.5 The Corporation shall be entitled to treat the person
in whose name any share of its Common Stock, Non-Voting Common Stock or
Preferred Stock, is registered as the owner thereof for all purposes and shall
not be bound to recognize any equitable or other claim to or interest in, such
share on the part of any other person, whether or not the Corporation shall have
notice thereof, except as expressly provided by applicable law.
ARTICLE V
Subject to the rights, if any, of holders of any series of Preferred
Stock, the Board of Directors is hereby authorized to create and issue, whether
or not in connection with the issuance and sale of any of its stock or other
securities or property, rights entitling the holders thereof to purchase from
the Corporation shares of stock or other securities of the Corporation or any
other corporation. The times at which and the terms upon which such rights are
to be issued will be determined by the Board of Directors and set forth in the
contracts or instruments that evidence such rights. The authority of the Board
of Directors with respect to such rights shall include, but not be limited to,
determination of the following:
(a) the initial purchase price per share or other unit of the stock
or other securities
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or property to be purchased upon exercise of such rights;
(b) provisions relating to the times at which and the
circumstances under which such rights may be exercised or sold or otherwise
transferred, either together with or separately from, any other stock or
other securities of the Corporation;
(c) provisions which adjust the number or exercise price of such
rights, or amount or nature of the stock or other securities or property
receivable upon exercise of such rights, in the event of a combination, split or
recapitalization of any stock of the Corporation, a change in ownership of the
Corporation's stock or other securities or a reorganization, merger,
consolidation, sale of assets or other occurrence relating to the Corporation or
any stock of the Corporation, and provisions restricting the ability of the
Corporation to enter into any such transaction absent an assumption by the other
party or parties thereto of the obligations of the Corporation under such
rights;
(d) provisions which deny the holder of a specified percentage of the
outstanding stock or other securities of the Corporation the right to exercise
such rights and/or cause the rights held by such holder to become void;
(e) provisions which permit the Corporation to redeem such rights;
and
(f) the appointment of a rights agent with respect to such rights.
ARTICLE VI
In furtherance and not in limitation of the powers conferred upon it
by law, the Board of Directors is expressly authorized to adopt, repeal, alter
or amend the Bylaws of the Corporation by the affirmative vote of 60% or more of
the entire Board of Directors. In addition to any requirements of law and any
provision of this Certificate of Incorporation, the stockholders of the
Corporation may adopt, repeal, alter or amend any provision of the Bylaws upon
the affirmative vote of the holders of 75% or more of the combined voting power
of the then outstanding stock of the Corporation entitled to vote generally in
the election of directors.
ARTICLE VII
SECTION 7.1. The business and affairs 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 law or by this Certificate of Incorporation directed or required to be
exercised or done by the stockholders.
SECTION 7.2. (a) Subject to the rights, if any, of holders of any
series of Preferred Stock, the number of directors constituting the Board of
Directors shall be set forth in or pursuant to the Bylaws of the Corporation,
but shall not be less than five (5) nor more than fifteen (15).
3
<PAGE>
(b) On the day following the date on which a registration statement
filed by the Corporation with the Securities and Exchange Commission is first
declared effective under the Securities Act of 1933, as amended (the "Effective
Date"), subject to the rights, if any, of holders of any series of Preferred
Stock, the directors, other than those who may be elected by any series of
Preferred Stock, shall be classified with respect to the time for which they
severally hold office, into three classes, designated Classes I, II and III,
which shall be as nearly equal in number as possible. The directors of Class I
shall hold office for an initial term expiring at the first annual meeting of
stockholders to be held after the Effective Date. The directors of Class II
shall hold office for an initial term expiring at the second annual meeting of
stockholders to be held after the Effective Date. The directors of Class III
shall hold office for an initial term expiring at the third annual meeting of
stockholders to be held after the Effective Date. At each annual meeting of
stockholders following such initial classification and election, the respective
successors of each class shall be elected for three-year terms. Subject to the
rights, if any, of holders of any series of Preferred Stock, after the election
or appointment of a director, the holders of a majority of the shares then
entitled to vote generally for the election of directors may remove such
director or the entire Board of Directors, but only for cause. Not less than
two of the directors shall be persons who are not officers or employees of the
Corporation or who are not beneficial owners of a controlling interest in the
Corporation.
SECTION 7.3. Subject to the rights, if any, of holders of any series
of Preferred Stock, advance notice of nominations for elections for the election
of directors shall be given in the manner and to the extent provided in the
Bylaws of the Corporation.
SECTION 7.4. Subject to the rights, if any, of holders of any series
of Preferred Stock, vacancies in the Board of Directors resulting from death,
resignation, retirement, disqualification, remove from office or other cause and
newly created directorships resulting from any increase in the authorized number
of directors shall be filled in the manner provided in the Bylaws of the
Corporation.
ARTICLE VIII
SECTION 8.1. A director shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, provided that this provision shall not eliminate or limit
the liability of a director (a) for any breach of the director's duty of loyalty
to the Corporation or its stockholders, (b) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law, (c)
under Section 174 of the General Corporation Law of the State of Delaware or (d)
for any transaction from which the director derived any improper personal
benefit. If the General Corporation Law of the State of Delaware is amended
after the filing of this Certificate of Incorporation to authorize corporate
action further eliminating or limiting the personal liability of directors, then
the liability of a director of the Corporation shall be eliminated or limited to
the fullest extent permitted by the General Corporation Law of the State of
Delaware, as so amended.
SECTION 8.2. Any repeal or modification of the foregoing paragraph by
the stockholders of the Corporation shall not adversely affect any right or
protection of a director or the Corporation
4
<PAGE>
existing at the time of such repeal or modification.
ARTICLE IX
A director of the Corporation, in determining what he or she reasonably
believes to be in the best interests of the Corporation, shall consider the
interests of the Corporation's stockholders and, in his discretion, may
consider any of the following:
(a) the interests of the Corporation's employees, independent
contractors, agents, suppliers, creditors and customers;
(b) the economy of the nation;
(c) community and societal interests; and
(d) the long-term as well as short-term interests of the Corporation
and its stockholders, including the possibility that these interests may be best
served by the continued independence of the Corporation.
ARTICLE X
SECTION 10.1 (a) Subject to the rights, if any, of holders of any series
of Preferred Stock, cumulative voting for the election of directors shall not
be permitted.
(b) Subject to the rights, if any, of holders of any series of
Preferred Stock, any action required or permitted to be taken by the
stockholders of the Corporation must be effected at a duly called annual or
special meeting of stockholders of the Corporation and the ability of the
stockholders to consent in writing to the taking of any action is hereby
specifically denied.
(c) The provisions of paragraphs (a) and (b) of this Section 10.1 shall
not take effect until the day following the Effective Date.
SECTION 10.2 (a) Except as otherwise required by law and subject to the
rights, if any, of holders of any series of Preferred Stock, special meetings
of stockholders, for any purpose or purposes, may only be called (i) by the
Chairman of the Board, (ii) the Chief Executive Officer or the President,
(iii) by the Board of Directors pursuant to a resolution adopted by a
majority of the entire Board of Directors or (iv) at the written request of
not less than 25% of the combined voting power of the then outstanding stock
of the Corporation entitled to vote generally in the election of directors.
(b) Election of directors at an annual or special meeting of stockholders
need not be by written ballot unless the Bylaws of the Corporation shall so
provide.
ARTICLE XI
5
<PAGE>
Subject to the rights, if any, of holders of any series of Preferred
Stock, the Corporation reserves the right at any time and from time to time
to amend, alter, change, or repeal any provision contained in this
Certificate of Incorporation, and any other provisions authorized by the laws
of the State of Delaware at the time in force may be added or inserted, in
the manner now or hereafter prescribed herein or by applicable law, and all
rights, preferences and privileges of whatsoever nature conferred upon
stockholders, directors or any other persons whomsoever by and pursuant to
this Certificate of Incorporation in its present form or as hereafter amended
are granted subject to the right reserved in this Article XI; provided,
however, that any amendment or repeal of Article VIII of this Certificate of
Incorporation shall not adversely affect any right or protection existing
hereunder immediately prior to such amendment or repeal, and provided,
further, that Articles V, VI, VII, VIII, IX, X and XI of this Certificate of
Incorporation shall not be amended, altered, changed or repealed without the
affirmative vote of the holders of at least 75% of the then outstanding stock
of the Corporation entitled to vote generally in the election of directors.
ARTICLE XII
The name and address of the incorporator is Steven W. Seline, 1650 Farnam
Street, Omaha, Nebraska, 68102.
IN WITNESS WHEREOF, Rebecca L. Schultz, Secretary of the Corporation, has
caused this Second Amended and Restated Certificate of Incorporation to be
executed this 30th day of September, 1996.
/s/ Rebecca Schultz
-----------------------------
Rebecca L. Schultz, Secretary
6
<PAGE>
EXHIBIT 10.44
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made by and between GEORGE
SPICZAK ("Employee") and TRANSCRYPT INTERNATIONAL, INC., a Delaware
corporation ("Company") this 1st day of April, 1999.
The Company wishes to employ Employee as Senior Vice President on the
terms set forth in this Agreement, and Employee desires to be employed by
Company in this capacity. Company and Employee desire to set forth in
writing the terms and conditions of their agreements and understandings.
THEREFORE, in consideration of the mutual promises set forth herein, it is
mutually agreed between the parties as follows:
SECTION 1. EMPLOYMENT TERM. The Company hereby employs the Employee
and the Employee hereby accepts employment as Senior Vice President on the
terms of this Agreement, commencing as of the date hereof and continuing for
a period of two (2) years, until April 1, 2001, unless terminated earlier in
accordance with the provisions set forth herein. Following the initial term
of employment, this Agreement may be renewed for additional one (1) year
terms. At the expiration of each term (the initial two year term or each one
year extension period), employment shall be automatically renewed for an
additional one (1) year term unless written notice to the contrary is given
by the Company or the Employee sixty (60) days preceding the April 1st
termination date. The provisions of the Agreement shall apply during the
initial term and any renewals of the term.
SECTION 2. DUTIES AND AUTHORITY. The Employee's duties shall be as
determined by the Chief Executive Officer. The duties of Senior Vice President
are generally set forth in the job description for such position, and such
duties may change from time to time.
SECTION 3. COMPENSATION.
A. BASE SALARY. Employee will receive a minimum base salary of One
Hundred Seventy-Five Thousand Dollars ($175,000.00) per year, paid
biweekly, as long as Employee is employed with the Company. Such
base salary will be subject to annual review, taking into
consideration employee's performance during the preceding year,
base salary adjustments for the executive staff and other internal
and external factors as described in the corporate bylaws and
public document filings.
<PAGE>
B. BONUS. Employee will receive a signing bonus of fifty Thousand
Dollars ($50,000.00), $25,000.00 upon signing employment agreement
and $25,000.00 on the one year anniversary of signing his
employment agreement. If the Company meets or exceeds the annual
objectives set forth for Employee by the Chief Executive Officer,
then the Employee will receive an annual bonus at the discretion of
the Board of Directors, in line with the Company's bonus program
for executives. The bonus, if awarded, will be paid annually in
February.
C. STOCK INCENTIVE OPTIONS. The Company grants to Employee an option
to purchase One Hundred Thousand (100,000) Shares of Common Stock
at a strike price to be set at the closing price of TRII stock on
the first day of employment (April 1, 1999). The terms of said
Option Agreement is set forth in the Non-Qualified Stock Option
Agreement, attached as Exhibit A. In the event of any
inconsistencies or conflict between the Agreement and Exhibit A,
then the terms of this Agreement shall control. The Company will
take all steps necessary to ensure that all shares are freely
transferable, subject to any volume restrictions imposed by federal
law on the transfer of Employee's shares. Fifty thousand (50,000)
of the shares will vest upon Employee's first day of employment.
Fifty thousand (50,000) of the shares will vest through the vesting
period set forth in the Non-Qualified Stock Option Agreement.
D. ADDITIONAL BENEFITS. Employee also will receive such additional
employee benefits commensurate with his position, including those
that the Company may from time to time make available to its
executive officers, including 4 weeks paid vacation, qualified
profit-sharing plans, employee group insurance and disability
insurance.
E. WITHHOLDINGS. All payments made to Employee pursuant to this
Agreement shall be reduced by all required federal, state and local
withholdings for taxes and similar charges and by all contributions
or payments required to be made by Employee in connection with any
employee benefit plan maintained by the Company.
SECTION 4. RELOCATION REIMBURSEMENT. Employee will be provided a
relocation package pursuant to the Relocation Policy for Officers, attached as
Exhibit B.
<PAGE>
Employee is expected to permanently relocate to Lincoln, Nebraska
within a reasonable period.
SECTION 5. REIMBURSEMENT FOR EXPENSES. Employee is expected to incur
certain expenses on behalf of the Company for travel, promotion, telephone,
entertainment and similar items. The Company will reimburse the Employee for
all ordinary, necessary and reasonable amounts of such expenses, as determined
by the Board of Directors, incurred by Employee. Such amounts shall be payable
promptly upon receipt of reasonable written documentation signed by the Employee
itemizing such expenses.
SECTION 6. INDEMNIFICATION. Employee shall be indemnified and held
harmless by the Company to the fullest extent authorized by the General
Corporation Law of the State of Delaware, as the same exists or may hereafter
be amended (however, in the case of any such amendment, only to the extent
that such amendment permits the Company to provide broader indemnification
rights than such law permitted the Company to provide prior to such
amendment). The Company's bylaws, attached as Exhibit C, contain an
indemnification procedure for directors and officers of the Company.
Generally, if Employee is made or is threatened to be made a party to any
action, suit or proceeding relating to his employment or service as a
director of the Company, he shall have the right to select individual counsel
and he shall be indemnified and held harmless by the Company against all
expenses, liability and loss reasonably incurred in connection with such
action. Employee has the right to bring suit against the Company if a claim
made in accordance with the Company's bylaws is not paid in full within sixty
(60) days after a written claim has been received, except in the case of a
claim for an advancement of expenses, in which case the applicable period is
twenty (20) days. The Company shall also maintain directors' and officers'
liability insurance in an amount sufficient to cover any claims made against
Employee.
SECTION 7. TERMINATION / SEVERANCE
A. The Company shall have the right to terminate this Agreement, upon
thirty (30) days written notice, if the following events occur:
1. The reasonable determination by the Chief Executive Officer
that the Employee has become disabled, and cannot complete
the essential functions of the position with reasonable
accommodation and is unable to continue his service to the
Company; or
2. The Employee's death; or
<PAGE>
3. The reasonable determination by the Chief Executive Officer
that there is "good cause" for termination of this
Agreement. For purposes of the Agreement, "good cause"
means the Employee's willful neglect of his duties under
this Agreement and the job duties as assigned by the Chief
Executive Officer, theft or misappropriation of the
Company's assets by the Employee, fraud of the Employee or
gross insubordination. The Company shall provide Employee
written notice of and a reasonable opportunity to cure
anything that the Company believes constitutes willful
neglect of duties or gross insubordination.
B. Either party may terminate this Agreement upon (60) days' prior
written notice without good cause. In the event of a termination
by the Company without good cause the Company shall continue to
provide all benefits for one year after termination and shall pay
Employee a lump sum severance payment equal to the greater of: 1)
his annual base salary (at the time of termination) or, 2) his base
salary (at the time of termination) for the remaining term of the
then current Agreement. If the employee terminates the Agreement
within the first twelve (12) months, he must repay the $25,000
signing bonus he receives and cancel any vested options. Upon
commencement of full time employment with a different company as
described in the attached non-compete agreement, or full time self
employment, all benefits shall cease. Employee's COBRA termination
date shall be the date all benefits cease.
All cash severance amounts described in sections 7A through 7B shall be paid
to Employee upon the termination of his employment.
C. Change in Control. For the purposes of this Agreement, "change in
control" means: 1) A change in the ownership of the shares of the
Company that results in a change in a majority of the board of
directors; or, 2) a sale, assignment or transfer of all or substantially
all of the assets of the Company. If there is a change in control, then
the Company may terminate this Agreement upon thirty (30) days written
notice. If there is a change in control and a material diminishment in
the employee's position, duties, or responsibilities, that is not
mutually agreed among the parties, then Employee may terminate this
Agreement upon thirty (30) days written notice. Upon
<PAGE>
notice of termination by either party pursuant to this section 7C,
all of Employee's stock options shall vest immediately. Upon termination
by either party pursuant to this section 7C, the Company shall pay to
Employee a lump sum severance payment equal to two years of base salary
(at the time of termination), and shall consider providing a transaction
bonus. In addition, the Company shall continue to provide all benefits
for one year after termination.
SECTION 8. AUTOMOBILE ALLOWANCE. The Company shall pay a car allowance
of $550.00 per month during the term of this Agreement.
SECTION 9. ENTIRE AGREEMENT. This Agreement contains the entire
understanding and agreement between the Company and the Employee and
supersedes any prior agreements and negotiations between them pertaining to
the Employee's terms and conditions of employment with the Company. There
are no representations, warranties, promises, covenants or understandings
between the Company and the Employee with respect to such employment other
than those expressly set forth in this Agreement. This Agreement takes
precedence over other conflicting agreements with the Employee.
SECTION 10. GOVERNING LAW. This Agreement shall be governed by the laws
of the State of Nebraska.
SECTION 11. NON-ASSIGNABILITY; SUCCESSORS. The obligations of the
Employee under this Agreement are not assignable by him. This Agreement is
personal in nature and may not be assigned by the Company without the written
consent of the Employee, except that the consent of the Employee shall not be
reasonably withheld in connection with the sale to any person, partnership,
corporation or other entity of substantially all the assets of the company,
provided that the assignee assumes all the liabilities of the Company
hereunder. Except as provided in the immediately preceding sentence, this
Agreement shall be binding upon and inure to the benefit of the parties
hereto and their successors.
SECTION 12. NOTICES. Any notice required to be given in writing by any
party to this Agreement may be personally delivered or mailed by registered
or certified mail to the last known address of the party to be notified. Any
such notice personally delivered shall be effective upon delivery and any
such notice mailed shall be effective four (4) business days after the date
of mailing by registered or certified mail with postage prepaid to the last
known address of the party to be notified.
<PAGE>
SECTION 13. SEVERABILITY. The invalidity or unenforceability of any
particular provision of this Agreement shall not affect the other provisions
of this Agreement, and this Agreement shall be construed in all respects as
if such invalid or unenforceable provision were omitted.
SECTION 14. HEADINGS. The Section and other headings contained in this
Agreement are for reference purposes only and shall not affect the
interpretation of this Agreement.
SECTION 15. CONSTRUCTION. Whenever required by the context, references
to the singular shall include the plural, and the masculine gender shall
include the feminine gender.
SECTION 16. RESTRICTIVE COVENANTS. Employee shall execute, concurrently
with this Agreement, a Confidentiality and Non Compete Agreement in the form
attached as Exhibit D.
SECTION 17. AMENDMENTS. No changes, modifications, waivers, discharges,
amendments or additions to this Employment Agreement shall be binding unless
it is in writing and signed by the Company and the Employee.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed
on its behalf and the Employee has signed his name hereto, effective as of
the date first written above.
TRANSCRYPT INTERNATIONAL, INC., a
Delaware corporation
BY: /s/ Michael E. Jalbert
-----------------------------------------
Its Chairman and Chief Executive Officer
/s/ George Spiczak
------------------------------------
George Spiczak
<PAGE>
EXHIBIT 11
TRANSCRYPT INTERNATIONAL, INC AND SUBSIDIARIES
COMPUTATION OF NET INCOME (LOSS) PER SHARE
(Unaudited)
(in thousands, except share and
per share data)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------------------ -----------------------------------
JUNE 30, 1999 JUNE 30, 1998 JUNE 30, 1999 JUNE 30, 1998
----------------- ----------------- ---------------- -----------------
Net loss $ (336) $ (5,043) $ (4,293) $ (3,727)
----------------- ----------------- ---------------- -----------------
----------------- ----------------- ---------------- -----------------
NET LOSS PER SHARE - BASIC
Weighted average common shares - Basic 12,946,624 12,946,624 12,946,624 12,946,624
----------------- ----------------- ---------------- ------------------
----------------- ----------------- ---------------- ------------------
Net loss per share - Basic $ (0.03) $ (0.39) $ (0.33) $ (0.29)
----------------- ----------------- ---------------- ------------------
----------------- ----------------- ---------------- ------------------
NET LOSS PER SHARE - DILUTED
Shares used in this computation:
Weighted average common shares - Basic 12,946,624 12,946,624 12,946,624 12,946,624
Dilutive effect of shares under employee stock
plans - - - -
----------------- ----------------- ---------------- -----------------
Weighted average common shares - Diluted 12,946,624 12,946,624 12,946,624 12,946,624
----------------- ----------------- ---------------- -----------------
----------------- ----------------- ---------------- -----------------
Net loss per share - Diluted $ (0.03) $ (0.39) $ (0.33) $ (0.29)
----------------- ----------------- ---------------- -----------------
----------------- ----------------- ---------------- -----------------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TRANSCRYPT
INTERNATIONAL, INC.'S CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
CONSOLIDATED CONDENSED BALANCE SHEETS AND IS QUALIFED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 20,144
<SECURITIES> 0
<RECEIVABLES> 9,732
<ALLOWANCES> 1,863
<INVENTORY> 12,022
<CURRENT-ASSETS> 47,748
<PP&E> 5,924
<DEPRECIATION> 0
<TOTAL-ASSETS> 77,358
<CURRENT-LIABILITIES> 21,969
<BONDS> 0
0
0
<COMMON> 129
<OTHER-SE> 48,674
<TOTAL-LIABILITY-AND-EQUITY> 77,358
<SALES> 22,436
<TOTAL-REVENUES> 22,436
<CGS> 16,380
<TOTAL-COSTS> 16,380
<OTHER-EXPENSES> 4,668<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (393)<F2>
<INCOME-PRETAX> (4,293)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,293)
<EPS-BASIC> (0.33)
<EPS-DILUTED> 0
<FN>
<F1>Includes a one time reversal of 2,221 for a reduction of the provision for
litigation settlement.
<F2>Interest expense is net of $693 of interest and other income less $300 of
interest expense.
</FN>
</TABLE>
