UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Commission File
Ended March 31, 1999 Number 0-7445
DATRON SYSTEMS INCORPORATED
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(Exact name of registrant as specified in its charter)
Delaware 95-2582922
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(State of Incorporation) (I.R.S. Employer Ident. No.)
3030 Enterprise Court, Vista, California 92083-8347
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (760) 734-5454
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01
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(Title of Class)
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 __.
Indicate by check mark if disclosure of delinquent
filings pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-
K. ( X )
The aggregate market value of the voting stock (which
consists solely of shares of Common Stock) held by non-
affiliates of the registrant as of June 18, 1999 was
$18.3 million, based on the closing price on that date
on the Nasdaq Stock Market.
The number of shares outstanding of each of the
registrant's classes of common stock as of June 18, 1999
was: Common Stock, par value $0.01 -- 2,693,753
shares.
DOCUMENTS INCORPORATED BY REFERENCE
1. Certain portions of registrant's Annual Proxy
Statement to be filed pursuant to Regulation 14A of
the Securities Exchange Act of 1934, as amended, in
connection with the Annual Meeting of Stockholders
of the registrant to be held August 9, 1999 are
incorporated by reference into Part III of this
report.
2. Registrant's Annual Report of its Employee Stock
Purchase Plan for the fiscal year ended March 31,
1999 is incorporated by reference into Exhibit
99.1.
3. Items contained in the above-referenced documents
that are not specifically incorporated by reference
are not included in this report.
<PAGE>
DATRON SYSTEMS INCORPORATED
FORM 10-K
FISCAL YEAR 1999
TABLE OF CONTENTS
PART I 1
Item 1. Business 1
Item 2. Properties 7
Item 3. Legal Proceedings 7
Item 4. Submission of Matters to a Vote of
Security Holders 7
PART II 9
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters 9
Item 6. Selected Financial Data 9
Item 7. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 9
Item 7A. Quantitative and Qualitative Disclosures
About Market Risk 9
Item 8. Financial Statements and Supplementary Data 9
Item 9. Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure 9
PART III 10
Item 10. Directors and Executive Officers of
the Registrant 10
Item 11. Executive Compensation 10
Item 12. Security Ownership of Certain Beneficial
Owners and Management 10
Item 13. Certain Relationships and Related
Transactions 10
PART IV 11
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K 11
<PAGE> 1
PART I
Item 1. Business.
Company Overview
Datron Systems Incorporated and its wholly owned
subsidiaries (the "Company") provide specialized
satellite communication products and systems and high
quality radio communication products to worldwide
commercial and governmental markets and to several
United States Government customers, including the
Department of Defense ("DoD"). The Company was founded
in 1969 and became an independent publicly held
corporation in 1985.
The Company operates its business through two
subsidiaries. In October 1985, the Company acquired its
wholly owned subsidiary, Datron World Communications
Inc., formerly known as Trans World Communications, Inc.
("DWC"). DWC conducts the Company's Communication
Products business. In June 1990, the Company acquired
its wholly owned subsidiary, Datron/Transco Inc.,
formerly known as Transco Communications Inc. ("D/T").
D/T conducts the Company's Antenna and Imaging Systems
business. In September 1993, the Company formed a
wholly owned subsidiary, Datron Telecommunications
International Inc., to provide private international
telecommunication systems. Datron Telecommunications
was merged into DWC on March 31, 1995. The Company
discontinued its private international
telecommunications business in fiscal 1996.
In March 1996, D/T consolidated its image processing
division in San Jose, California, which was acquired in
August 1994, with its remote sensing earth station
business in Simi Valley, California. In connection with
that consolidation, the Company recorded a restructuring
charge of $1,421,000 ($855,000, or $0.32 per share,
after taxes).
Investment Considerations
This report contains certain forward-looking statements
that may be used in evaluating the opportunities and
risks associated with future Company performance.
However, actual results could differ materially from
those described in the forward-looking statements due
to, among other things, the following factors:
Dependence on Sales to Foreign Customers; Worldwide
Economic Downturns and Currency Devaluations
Sales to foreign customers accounted for 55%, 55% and
49% of consolidated sales in fiscal 1999, 1998 and 1997,
respectively. Sales of Communication Products have been
even more highly concentrated with foreign customers:
93%, 88% and 94% in fiscal 1999, 1998 and 1997,
respectively. Sales to foreign customers often involve
risk because of political and economic uncertainties in
many foreign countries, which can result in funding
delays or inability of those customers to obtain
financing for anticipated purchases of Company products.
As a result, it is often more difficult to predict order
bookings from foreign customers than it is from domestic
customers. In addition, foreign political unrest, war,
economic downturns and currency devaluations could have
a significant negative impact on future Company sales
and income.
Reliance on Large Orders from a Small Number of Customers
A substantial percentage of sales may be heavily
concentrated with a small number of customers. Within
the Communication Products business segment, the same
single customer accounted for 7%, 24% and 30% of that
segment's sales in fiscal 1999, 1998 and 1997,
respectively. Although sales in the Antenna and Imaging
Systems business segment have not been so heavily
concentrated with one customer, it is common for a small
number of customers to each account for approximately 5%
to 15% of that segment's sales each year. Because it is
unusual to receive large orders from the same customer
in successive years, it is necessary to find new
customers each year to replace the previous year's
sales. There can be no assurance that the Company will
be able to do so in the future. In addition, reliance
on large orders can result in financial performance
varying widely from quarter-to-quarter, and also carries
contract cancellation risk that can more adversely
affect Company performance than it would if the Company
depended on small orders from a large number of
customers.
<PAGE> 2
Timely Development and Customer Acceptance of New Products
The Company's products are subject to obsolescence. To
prevent this from occurring, the Company has an ongoing
new product development program to keep the technologies
employed in its products current and to introduce new
products that meet changing market requirements. Lack
of timely development of new technologies and new
products, or lack of acceptance of new products by the
Company's customers could have a negative impact on
future sales and income.
U.S. Government Export Restrictions
Some of the Company's products are subject to export
licensing approval by agencies of the U.S. Government.
U.S. security concerns as well as foreign political
instability or unrest can affect the licensing process.
Although the requirement to obtain export licenses has
not prevented any sales of Company products to date, it
has on occasion delayed shipments of some products and
in some cases has placed the Company at a competitive
disadvantage. There can be no assurances that future
shipments may not likewise be delayed or that U.S.
security concerns may result in the denial of export
licenses or the loss of sales opportunities for some
Company products.
Fixed Price Development Contracts
The Company often accepts fixed-price contracts that
require custom engineering, custom software or the
development of new features and capabilities. Such
contracts usually include the sale of standard products
and components, but not always. Although engineering
cost estimates are prepared as a basis for quoting such
contracts, there can be no assurance the Company will be
able to develop the required features, capabilities or
software within established cost budgets. Should
development costs exceed established budgets, the result
could have a material adverse effect on earnings.
Consumer Products and Markets
In November 1995, the Company introduced its first
consumer product, a mobile direct broadcast satellite
("DBS") television reception system for recreational
vehicles and buses. This product represents a departure
from the Company's historical business that has focused
on large contracts, relatively small numbers of
deliverables and customers that are primarily government
agencies or large corporations. Several additional DBS
antenna products have subsequently been introduced,
including a marine product line and antenna systems for
large business jets and commercial jets. A production
line has been established to meet expected demand for
these products. In fiscal 1997, the Company determined
its method of using exclusive national distributors to
sell these products was not effective, and spent the
latter part of that year unwinding the distribution
agreements, clearing the distribution pipeline and
establishing a factory direct to dealer distribution
system. The Company does not have previous experience
in building or selling a consumer product. Although it
believes it can produce DBS products in required
quantities, there can be no assurance it will be able to
do so. Also, although the Company's new methods of
distribution for its DBS products have improved sales,
there can be no assurance they will continue to do so or
that consumer demand for its DBS products will be as
large as the Company anticipates.
<PAGE> 3
Competitors
The Company has competitors for all the products it
offers. The level of competition varies by product line
and ranges from many competitors for its radio products
to a few competitors for its tracking antenna products.
New competition has recently emerged for its mobile DBS
products. The Company could be adversely affected by
competitors' development of new or different products
that may provide or be perceived as providing greater
value than the Company's products. The Company may or
may not be successful in developing competing products.
Many of the Company's competitors and potential
competitors have substantially greater resources than
the Company and may be more successful in developing,
producing and marketing their products. In such case,
the Company may experience substantial competition,
which could have a material adverse effect on the
Company's business.
Declining Sales for the U.S. Department of Defense
In fiscal 1993, the Company restructured its operations
in response to declining DoD spending. Sales for the
DoD have declined from $31.9 million in fiscal 1993 to
$11.8 million in fiscal 1999, primarily due to
completion of long-term DoD contracts that have not been
replaced with new orders. There can be no assurance
that new DoD orders will be received or that the orders
received will be sufficient to meet the Company's sales
objectives.
General
The Company operates in two business segments: Antenna
and Imaging Systems, which are supplied by D/T, and
Communication Products, which are supplied by DWC.
Antenna and Imaging Systems
This segment designs and manufactures satellite
communication terminals, telemetry tracking and control
systems, servo control products and high-quality
microwave antennas. Its major products are remote
sensing satellite earth stations and image processing
software for worldwide scientific, military and
commercial customers, tracking antennas and systems for
U.S. and foreign governmental agencies and commercial
satellite service providers, and mobile satellite
television reception systems for recreational vehicles,
buses, boats and large business jets.
Descriptions of the major product areas follow:
Satellite Communication ("SATCOM") Terminals. The
Company is a supplier of satellite communication antenna
systems and subsystems used to receive defense-related
data and data transmitted through satellites of other
government and commercial organizations. The
stabilizing and automatic tracking capabilities of its
antenna systems make them particularly well suited for
use on ships, motor vehicles and other mobile platforms.
Over the past two decades, the Company has been a prime
contractor and a subcontractor for shipboard SATCOM
antenna systems used by the U.S. Navy. More recently,
the Company has been developing airborne SATCOM antenna
systems for the U.S. Air Force.
Telemetry Tracking and Control ("TT&C") Systems. TT&C
systems monitor and control vehicles such as satellites,
missiles and aircraft. They receive radio telemetry
signals containing vehicle status information, engage in
automatic tracking of the vehicle so contact is
maintained and transmit command signals so vehicle
control can be established and maintained.
Servo Control Products. The Company's involvement with
SATCOM and TT&C markets has required a high capability
in radio frequency electronics, antenna engineering,
servo controls and large precision mechanical systems.
The Company has developed a line of pedestals and
rotators, servo power amplifiers and positioning control
units that are often used as building blocks for
specific customer requirements.
<PAGE> 4
Microwave Products. The Company designs and
manufactures broad bandwidth microwave antennas for the
aerospace industry that are used on high performance
aircraft, missiles and space launch vehicles.
Remote Sensing Satellite ("RSS") Systems. The RSS
systems market is a subset of the broader earth
observation market. It involves using several types of
satellites containing optical and radar sensors in
conjunction with specific earth acquisition and data
processing equipment to produce images. The images are
in the form of hard copy and/or digital data that allow
the user to study changes on the earth's surface or
environment. Applications include locating minerals,
updating maps, forecasting weather, monitoring crops,
studying the environment, monitoring earth resources and
gathering economic or military intelligence.
The Company entered the commercial RSS market in fiscal
1994 and in fiscal 1995 acquired International Imaging
Systems, Inc. ("I2S"), a privately-held company in
Milpitas, California, to provide complete RSS systems
for the international marketplace. I2S's expertise was
in the fields of digital image processing and
photogrammetry. The Company now offers its customers
complete RSS earth stations, including image processing
capability. In fiscal 1999, RSS sales accounted for 41%
of the sales of the Antenna and Imaging Systems segment
compared with 33% of its sales in fiscal 1998.
Mobile DBS Television Systems. The Company introduced
its first DBS antenna product in fiscal 1996. That
product allows a recreational vehicle owner to receive
DBS television from a parked vehicle at the touch of a
button by automatically locating the satellite. During
fiscal 1997, the Company introduced several additional
DBS antenna products including systems for boats at
anchor, boats underway, and RVs and buses on the open
road. Also during fiscal 1997, the Company was first to
demonstrate live DBS television on a commercial
airliner, and in fiscal 1998, was first to obtain
Federal Aviation Administration certification of an
airborne DBS system designed for large business jets.
Customers and Marketing
Sales of Antenna and Imaging Systems' products have
historically been concentrated with the DoD, which
accounted for 28% of this segment's fiscal 1999 sales
and 31% of its fiscal 1998 sales. Marketing and sales
activities for its DoD customers and other non-defense
governmental agencies are conducted by internal sales
and engineering personnel. Most customers for the RSS
systems business are foreign government space and
communications agencies. Marketing and sales activities
for those products are conducted through independent
sales representatives in Europe, South America and Asia.
Introduction of mobile DBS television systems required
the establishment of new distribution methods to sell
these consumer products. The Company's initial approach
of using exclusive national distributors was not
effective and the Company is now selling its DBS
products direct to dealers and original equipment
manufacturers, as well as through select distributors
and agents. Company employees provide sales and
marketing support and installation training for the
dealers.
Manufacturing, Assembly and Sources of Supply
Products for the Company's Antenna and Imaging Systems
segment are designed, manufactured and assembled at
facilities in Simi Valley, California. The Company
purchases certain components and subsystems from
subcontractors and vendors. Some of these items are
standard off-the-shelf components and others are
fabricated to Company specifications. The Company also
fabricates electronic assemblies from purchased
electronic components and circuit boards. A production
line for DBS antenna products was established in fiscal
1996 and expanded in fiscal 1997.
<PAGE> 5
The Company is rarely dependent on a single source of
supply for materials, parts or components. However,
once a subcontractor is selected to provide components
built to Company specifications, the Company is often
dependent on that subcontractor. Failure of the
subcontractor to perform could jeopardize the ability of
the Company to meet its required delivery schedules.
Communication Products
This business segment designs, manufactures and
distributes high frequency ("HF") radios and accessories
for over-the-horizon radio communications and very high
frequency ("VHF") radios and accessories for line-of-
sight communications. The Company's HF radios operate
in the frequency range of 1.6 to 30 megahertz, where
radio waves generated from the transmitter reflect off
the ionosphere back to the point of receipt on earth.
The Company's VHF radio products, which operate in the
frequency range of 30 to 88 megahertz, provide users
high-quality transmission for line-of-sight
communications.
In addition to its standard radios, the Company offers
frequency hopping and encryption options to its VHF
product line and automatic link establishment options to
its HF product line. Frequency hopping is a technique
that prevents interruption or interception of radio
signals by changing, at very high speeds, the frequency
at which they are transmitted. This technology utilizes
advanced synchronized mechanisms that ensure all radios
in a network are synchronized and frequency hop at the
same time. Automatic link establishment, when used in
HF radio equipment, automatically determines the best
available frequencies on which to communicate.
The Company offers a wide range of accessory products to
complement the HF and VHF product lines. These
accessory products include antennas and antenna tuners,
power sources, amplifiers, remote control systems,
modems, data communications equipment and audio
accessories.
A substantial percentage of sales of Communication
Products are often concentrated with a small number of
customers. In fiscal 1999, an African customer
accounted for 20% of this segment's sales. In fiscal
1998, two Asian customers accounted for 24% and 10% of
this segment's sales and a South American customer
accounted for 12% of its sales. And, in fiscal 1997,
the same two Asian customers accounted for 30% and 24%
of this segment's sales. Because it is unusual to
receive large orders from the same customer in
successive years, it is often necessary to find new
customers each year to replace the previous year's
sales. To minimize the impact fluctuating sales may
have on the Company's operations, temporary employees
are used when practical.
Customers and Marketing
Sales to foreign customers accounted for 93% of this
segment's fiscal 1999 sales and 88% of the segment's
fiscal 1998 sales. Most of its international customers
are agencies of foreign governments that perform civil
defense, paramilitary and military operations, and
foreign governmental agencies that perform civilian
tasks unrelated to military operations, such as civil
aviation agencies, drug interdiction agencies, embassies
and disaster relief organizations. Domestic customers
are primarily various agencies of the United States
Government, including the Drug Enforcement
Administration and Department of State.
The Company's products are sold in over 80 countries by
a network of independent sales and service
representatives, most of whom are non exclusive sales
agents of the Company. These representatives provide
both pre-sale and post-sale support. Many of them
operate service facilities that offer both warranty and
long-term maintenance of the Company's products. Sales
are denominated in U.S. Dollars.
In addition to direct sales, the Company sometimes sells
its radio products to international suppliers of
complementary equipment. It also sometimes licenses the
local manufacturing of its products to customers in
certain countries. The latter practice is usually
followed where local regulations discourage the
importation of complete units.
<PAGE> 6
Manufacturing, Assembly and Sources of Supply
Communication products are designed and manufactured at
facilities in Vista, California. Company engineers work
closely with manufacturing and marketing personnel to
improve existing designs and to introduce new products
that meet the ever changing demands of the marketplace.
A new family of tactical VHF radios was introduced in
fiscal 1998 and a new family of handheld radios was
introduced in fiscal 1997. The Company purchases
certain electronic components, circuit boards and
fabricated metal parts, and painting and silk screening
services. Other than when it licenses overseas
manufacturing for a particular local market, the Company
performs most other manufacturing functions necessary
for the production of its products.
The Company is rarely dependent on any single source of
supply for the manufacture of its communication
products. Although only one supplier may be used for
certain parts, the Company believes that multiple
sources are usually available.
Backlog
Order backlog at March 31 was as follows:
1999 1998
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Antenna and Imaging Systems $20,484,000 $19,949,000
Communication Products 2,211,000 5,494,000
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Total $22,695,000 $25,443,000
=========== ===========
The 3% increase in Antenna and Imaging Systems backlog
at March 31, 1999 compared with March 31, 1998 was
primarily due to higher bookings of remote sensing
systems and DBS antenna products, partially offset by
lower bookings of antennas for the DoD and other
governmental agencies. Additional orders for remote
sensing systems and antennas in the amount of $6 million
were received in April 1999 after the close of fiscal
1999.
The 60% decrease in Communication Products backlog at
March 31, 1999 compared with March 31, 1998 was due to
lower order bookings in fiscal 1999. Worldwide economic
instability was responsible for the delay of several
anticipated orders. Future results of operations may be
adversely affected if those delayed orders are further
delayed or canceled or if procurements the Company has
identified as promising opportunities are canceled.
Competition
The Company competes in each of its business segments
with several companies. Depending on the specific
product, these companies may be similar in size to the
Company or may be large diversified companies which at
times may also be customers of the Company. The Company
believes its major competitive advantages are the
quality of its products, their cost effective designs,
timeliness of delivery, ease of use and easy
serviceability.
Patents, Trademarks, Copyrights and Licenses
The Company has applied for several patents related to
its DBS products. However, the Company believes that
patents are not a significant factor in the Company's
business and that the success of the Company depends
primarily on the technical competence and managerial and
marketing ability of the Company's personnel.
<PAGE> 7
DATRON(R) and design, TRANSWORLD(R), I2S(R), PRI2SM(R), OPEN
2000(R), DBS-2000(R), DBS-3000(R), DBS-4000(R) and VI2STA(R) are
registered trademarks of the Company. DBS-2100(TM), DBS-
2400(TM), CruiseTV(TM) and We Cover the Global Spectrum(TM) are
trademarks of the Company by application for
registration with the U.S. Patent and Trademark Office.
The Company has obtained licenses for the VHF frequency
hopping technology and for the automatic link
establishment technology used in the Company's VHF and
HF radio products, respectively.
Employees
The Company employed approximately 331 employees at the
end of fiscal 1999 compared with approximately 319
employees at the end of fiscal 1998. The 4% increase in
employment during fiscal 1999 was necessitated by the 8%
increase in sales for fiscal 1999.
None of the Company's employees are covered by a
collective bargaining agreement and the Company
considers its employee relations to be good.
Financial Information
Additional financial information concerning segment,
geographic and major customers is included in Note 9 of
the Notes to Consolidated Financial Statements. See
Part II, Item 8.
Item 2. Properties.
DWC leases approximately 70,000 square feet of office,
engineering and manufacturing space in Vista,
California. The lease commenced on March 26, 1999 and
expires on April 30, 2009 and contains a renewal option
of five years. DWC and the Company's corporate
headquarters operate from that facility. The Company
relocated from Escondido, California to Vista,
California in April 1999.
D/T owns through a subsidiary, Datron Resources Inc., a
110,000 square foot office, engineering and
manufacturing building located on a nine-acre site in
Simi Valley, California. D/T conducts operations from
that facility.
Information with respect to obligations for lease
rentals is included in Note 8 of the Notes to
Consolidated Financial Statements. See Part II, Item 8.
The Company considers its properties to be suitable and
adequate for its present needs. The facilities in Vista
and Simi Valley are being fully utilized.
Item 3. Legal Proceedings.
The Company is not involved in any litigation that is
expected to have a material effect on the Company's
business or consolidated financial position.
In August 1992, Trans World Communications, Inc. ("Trans
World"), a wholly owned subsidiary of the Company and
which was renamed Datron World Communications Inc. on
March 31, 1995, was named as defendant in a lawsuit
filed by ATACS Corporation ("ATACS") and AIRTACS
Corporation ("AIRTACS") relating to a contract to
provide radio communication shelters. ATACS and AIRTACS
contend that Trans World entered into an agreement to
team with them on the contract and then wrongfully
failed to use them as subcontractors. They seek damages
in excess of $2,000,000. In rulings on May 28, 1997 and
September 3, 1997, the court found Trans World in breach
of a teaming agreement and awarded ATACS and AIRTACS one
dollar ($1.00) in damages. On September 8, 1998, the
appeal court affirmed the district court's decision
except as to the award of nominal damages, and remanded
the matter to the district court for further hearing on
damages. The Company believes that final resolution of
this matter will not materially affect the consolidated
financial position of the Company or its results of
operations.
<PAGE> 8
Item 4. Submission of Matters to a Vote of Security
Holders.
None.
Executive Officers of the Registrant
David A. Derby, 57, has been President and Chief
Executive Officer of the Company since May 1982, and
Chairman of the Board since April 1998.
William L. Stephan, 53, has been Vice President, Chief
Financial Officer and Treasurer of the Company since
November 1993.
Executive officers are elected by and serve at the
discretion of the Board of Directors. There are no
family relationships among directors or executive
officers of the Company.
<PAGE> 9
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters.
Information required by Item 5 of Form 10-K is
incorporated herein by reference from the information
contained in the section captioned "Common Stock
Activity" on the inside back cover of the Annual Report,
that portion of which is attached hereto as Exhibit 13.
Item 6. Selected Financial Data.
Information required by Item 6 of Form 10-K is
incorporated herein by reference from the information
contained in the section captioned "Datron Systems
Incorporated Selected Financial Data" on the inside
front cover of the Annual Report, that portion of which
is attached hereto as Exhibit 13.
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
Information required by Item 7 of Form 10-K is
incorporated herein by reference from the information
contained in the section captioned "Management's
Discussion and Analysis of Financial Condition and
Results of Operations" on pages 6 through 11 of the
Annual Report, that portion of which is attached hereto
as Exhibit 13.
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk.
The Company does not currently use derivative financial
instruments for speculative purposes that expose the
Company to market risk. The Company is exposed to cash
flow and fair value risk due to changes in interest
rates with respect to its long-term debt. Information
with respect to this item is set forth in Note 5 of the
Notes to Consolidated Financial Statements and is
incorporated herein by reference to that note. See Item
8 below.
Item 8. Financial Statements and Supplementary Data.
Information required by Item 8 of Form 10-K is
incorporated herein by reference from the consolidated
financial statements of the Company at March 31, 1999
and 1998 and for each of the three years in the period
ended March 31, 1999 and the Independent Auditors'
Report appearing on pages 12 through 24 of the Annual
Report, that portion of which is attached hereto as
Exhibit 13.
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.
During the two most recent fiscal years ended March 31,
1999, there has not been a change in accountants or a
reported disagreement with accountants on any matter of
accounting principles or practices or financial
statement disclosure.
<PAGE> 10
PART III
Item 10. Directors and Executive Officers of the
Registrant.
Information required by Item 10 of Form 10-K with
respect to directors is incorporated herein by reference
from the information contained in the section captioned
"Nomination and Election of Directors" in the Company's
Notice of Annual Meeting of Stockholders to be Held
Monday, August 9, 1999 at 11:00 A.M. and Proxy Statement
("Proxy Statement"), a copy of which is to be filed as
Exhibit 22 within 120 days of the end of the
Registrant's fiscal year.
Information required by Item 10 of Form 10-K with
respect to executive officers is set forth in Part I of
this report under the section captioned "Executive
Officers of the Registrant," pursuant to instruction 3
to paragraph (b) of Item 401 of Regulation S-K.
Item 11. Executive Compensation.
Information required by Item 11 of Form 10-K is
incorporated herein by reference from the information
contained in the section captioned "Executive
Compensation" in the Proxy Statement, a copy of which is
to be filed as Exhibit 22 within 120 days of the end of
the Registrant's fiscal year.
Item 12. Security Ownership of Certain Beneficial
Owners and Management.
Information required by Item 12 of Form 10-K is
incorporated herein by reference from the information
contained in the section captioned "Security Ownership
of Certain Beneficial Owners and Management" in the
Proxy Statement, a copy of which is to be filed as
Exhibit 22 within 120 days of the end of the
Registrant's fiscal year.
Item 13. Certain Relationships and Related
Transactions.
Information required by Item 13 of Form 10-K is
incorporated herein by reference from the information
contained in the section captioned "Executive
Compensation" in the Proxy Statement, a copy of which is
to be filed as Exhibit 22 within 120 days of the end of
the Registrant's fiscal year.
<PAGE> 11
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K.
(a) The following documents are filed as part of this
report:
Page in 1999
Annual Report
(1)Financial Statements:
Consolidated Balance Sheets at March 31, 1999 and 1998 12
Consolidated Statements of Operations for the Years
Ended March 31, 1999, 1998 and 1997 13
Consolidated Statements of Stockholders' Equity
for the Years Ended March 31, 1999, 1998 and 1997 14
Consolidated Statements of Cash Flows for the Years
Ended March 31, 1999, 1998 and 1997 15
Notes to Consolidated Financial Statements 16-23
Independent Auditors' Report 24
(2)Financial Statement Schedules:
Page
Independent Auditors' Report on Financial Statement
Schedule S-1
Schedule II. Valuation and Qualifying Accounts S-2
All other schedules for which provision is made in
the applicable accounting regulations of the
Securities and Exchange Commission are not required
under the related instructions or are inapplicable,
and therefore have been omitted.
(b) No reports on Form 8-K were filed during the last
quarter of the period covered by this report.
(c) Exhibits. The following exhibits are filed as
part of this report:
Exhibit
Number Description
- ------ -----------
3.1 Certificate of Incorporation.(1)
3.2 Bylaws.(1)
4.15 Stockholder Rights Agreement dated August 21, 1990.(6)
4.16 First Amendment to Stockholder Rights Agreement dated as
of October 29, 1993.(7)
<PAGE> 12
10.5 1988 Key Employee Stock Purchase Plan.(2)
10.8 Employment Agreement between the Registrant and David A.
Derby.(3)
10.31 Lease of Trans World Communications, Inc. facilities at
298, 302 and 304 Enterprise Street, Escondido,
California.(4)
10.36 Amended and Restated 1985 Stock Option Plan.(5)
10.37 First Amendment to Trans World Communications, Inc. Lease
Agreement dated January 15, 1993.(8)
10.46 1995 Stock Option Plan.(9)
10.47 Second Amendment to Trans World Communications, Inc.
Lease Agreement dated February 8, 1995.(9)
10.48 Agreement and Plan of Merger between Datron
Telecommunications International Inc. and Trans World
Communications, Inc. dated as of March 14, 1995.(9)
10.53 Datron Systems Incorporated Supplemental Executive Profit
Sharing Plan (Effective as of April 1, 1994).(10)
10.54 Third Amendment to Trans World Communications, Inc. Lease
Agreement dated May 1, 1995.(10)
10.58 Datron Systems Incorporated Employee Stock Purchase Plan
(Adopted Effective July 1, 1997).(11)
10.59 Amended and Restated Credit Agreement and Note between
the Registrant and Union Bank of California dated
August 8, 1997.(12)
10.60 Waiver and First Amendment to Amended and Restated Credit
Agreement and Note between Registrant and Union Bank of
California dated February 10, 1998.(13)
10.61 Datron World Communications Inc. Lease Agreement dated as
of February 13, 1998.(13)
10.62 Fourth Amendment to Trans World Communications, Inc.
Lease Agreement dated March 1, 1998.(13)
10.64 Waiver and Second Amendment to Amended and Restated
Credit Agreement and Note between Registrant and Union
Bank of California dated April 30, 1998.(13)
10.65 Loan Agreement between Datron Resources Inc. and Jackson
National Life Insurance Company dated August 7,
1998.(14)
10.66 Datron Systems Incorporated Profit Sharing and Savings
Plan (Amended and Restated as of April 1, 1998).(14)
10.67 Credit Agreement between Datron World Communications
Inc., Datron/Transco Inc. and Comerica Bank-California
dated March 24, 1999.
<PAGE> 13
10.68 Borrower Agreement between Datron/Transco Inc. and
Comerica Bank-California dated March 24, 1999.
10.69 Guaranty of Datron Systems Incorporated of the
indebtedness of Datron World Communications Inc. and
Datron/Transco Inc. to Comerica Bank- California dated
March 24, 1999.
10.70 Severance Agreement between the Registrant and William L.
Stephan.
13 Certain portions of Registrant's Annual Report to
Stockholders for the fiscal year ended March 31, 1999
containing information required by Part I and Part II
of this report.
21 Subsidiaries.
22 Proxy Statement, Notice of Annual Meeting of Stockholders
to be Held Monday, August 9, 1999 at 11:00 A.M. and
Form of Proxy (to be deemed filed only to the extent
required by the instructions to exhibits for reports on
Form 10-K) to be filed within 120 days of the end of
the Registrant's fiscal year.
23 Independent Auditors' Consent - Deloitte and Touche.
24 Power of Attorney (on signature page 16).
27 Financial Data Schedule for the Twelve Months Ended
March 31, 1999.
99.1 Annual Report of the Datron Systems Incorporated Employee
Stock Purchase Plan.
- --------------
(1) Incorporated by this reference to the Exhibit
bearing the same number filed with the Registration
Statement on Form 8-B of the Registrant on November
13, 1987.
(2) Incorporated by this reference to the Registration
Statement on Form S-8 of the Registrant filed March
22, 1988.
(3) Incorporated by this reference to the Exhibit
bearing the same number filed with the Registrant's
Annual Report on Form 10-K for the fiscal year
ended March 31, 1988.
(4) Incorporated by this reference to the Exhibit
bearing the same number filed with the Registrant's
Annual Report on Form 10-K for the fiscal year
ended March 31, 1989.
(5) Incorporated by this reference to the Registration
Statement on Form S-8 of the Registrant filed April
16, 1993.
(6) Incorporated by this reference to Exhibit I to the
Registrant's Registration Statement on Form 8-A
filed November 5, 1990.
(7) Incorporated by this reference to the Exhibit
bearing the same number filed with the Registrant's
Quarterly Report on Form 10-Q for the quarter ended
December 31, 1993.
(8) Incorporated by this reference to the Exhibit
bearing the same number filed with the Registrant's
Annual Report on Form 10-K for the fiscal year
ended March 31, 1994.
<PAGE> 14
(9) Incorporated by this reference to the Exhibit
bearing the same number filed with the Registrant's
Annual Report on Form 10-K for the fiscal year
ended March 31, 1995.
(10) Incorporated by this reference to the Exhibit
bearing the same number filed with the Registrant's
Annual Report on Form 10-K for the fiscal year
ended March 31, 1996.
(11) Incorporated by this reference to the Exhibit
bearing the same number filed with the Registrant's
Annual Report on Form 10-K for the fiscal year
ended March 31, 1997.
(12) Incorporated by this reference to the Exhibit
bearing the same number filed with the Registrant's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997.
(13) Incorporated by this reference to the Exhibit
bearing the same number filed with the Registrant's
Annual Report on Form 10-K for the fiscal year
ended March 31, 1998.
(14) Incorporated by this reference to the Exhibit
bearing the same number filed with the Registrant's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998.
Supplemental Information
Copies of the Registrant's Proxy Statement for the
Annual Meeting of Stockholders to be held August 9, 1999
and copies of the form of proxy to be used for such
Annual Meeting will be furnished to the Securities and
Exchange Commission prior to the time they will be
distributed to Stockholders.
<PAGE> 15
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
Date: June 24, 1999 DATRON SYSTEMS INCORPORATED
By: /s/ David A. Derby
Chairman of the Board,
President, Chief Executive
Officer and Director
<PAGE> 16
KNOW ALL PERSONS BY THESE PRESENTS, that each person
whose signature appears below appoints David A. Derby
and William L. Stephan, jointly and severally, as his
true and lawful attorney-in-fact, each with full power
of substitution and re-substitution, for him and in his
name, place and stead, in any and all capacities, to
sign any and all amendments to this Annual Report on
Form 10-K, and to file the same, with all exhibits
thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting
unto said attorneys-in-fact, jointly and severally, full
power and authority to do and perform each and every act
and thing requisite and necessary to be done in
connection therewith, as fully to all intents and
purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-
fact, jointly and severally, or their or his substitute
or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the
capacities and on the dates indicated:
Signature Title Date
- --------------------- ---------------------------- ------------
Chairman of the Board,
President, Chief Executive
By:/s/ David A. Derby Officer and Director
David A. Derby (Principal Executive Officer) June 24, 1999
Vice President, Chief Financial
By:/s/ William L. Stephan Officer (Principal Financial
William L. Stephan and Accounting Officer) June 24, 1999
By:/s/ Kent P. Ainsworth Director June 21, 1999
Kent P. Ainsworth
By:/s/ Michael F. Bigham Director June 14, 1999
Michael F. Bigham
By:/s/ Adrian C. Cassidy Director June 14, 1999
Adrian C. Cassidy
By:/s/ William A. Preston Director June 17, 1999
William A. Preston
By: Director June __, 1999
Peter F. Scott
By:/s/ Robert D. Sherer Director June 14, 1999
Robert D. Sherer
<PAGE> S-1
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT
SCHEDULE
Board of Directors
Datron Systems Incorporated
Vista, California
We have audited the consolidated financial statements of
Datron Systems Incorporated (the "Company") as of March
31, 1999 and 1998, and for each of the three years in
the period ended March 31, 1999, and have issued our
report thereon dated May 12, 1999; such financial
statements and report are included in your 1999 Annual
Report to Stockholders and are incorporated herein by
reference. Our audits also included the financial
statement schedule of the Company listed in Item
14(a)(2). This financial statement schedule is the
responsibility of the Company's management. Our
responsibility is to express an opinion based on our
audits. In our opinion, such financial statement
schedule, when considered in relation to the basic
consolidated financial statements taken as whole,
presents fairly in all material respects the information
set forth therein.
DELOITTE & TOUCHE LLP
Deloitte & Touche LLP
San Diego, California
May 12, 1999
<TABLE>
<PAGE> S-2
DATRON SYSTEMS INCORPORATED
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED MARCH 31, 1999, 1998 AND 1997
<CAPTION>
Balance at Balance at
Beginning End
Description of Year Additions Write-offs of Year
- ----------------------- ---------- --------- ---------- ----------
Year ended March 31, 1997
- -------------------------
<S> <C> <C> <C> <C>
Allowance for doubtful
accounts $247,000 $136,000 $157,000 $226,000
Allowance for inventory
obsolescence 709,000 735,000 94,000 1,350,000
Allowance for warranties 1,015,000 632,000 940,000 707,000
---------- ---------- ---------- ----------
$1,971,000 $1,503,000 $1,191,000 $2,283,000
========== ========== ========== ==========
Year ended March 31, 1998
- -------------------------
Allowance for doubtful
accounts $226,000 $166,000 $202,000 $190,000
Allowance for inventory
obsolescence 1,350,000 477,000 171,000 1,656,000
Allowance for warranties 707,000 829,000 603,000 933,000
---------- ---------- -------- ----------
$2,283,000 $1,472,000 $976,000 $2,779,000
========== ========== ======== ==========
Year ended March 31, 1999
- -------------------------
Allowance for doubtful
accounts $190,000 $63,000 $66,000 $187,000
Allowance for inventory
obsolescence 1,656,000 432,000 708,000 1,380,000
Allowance for warranties 933,000 810,000 890,000 853,000
---------- ---------- ---------- ----------
$2,779,000 $1,305,000 $1,664,000 $2,420,000
========== ========== ========== ==========
</TABLE>
EXHIBIT 10.67
CREDIT AGREEMENT
BETWEEN
DATRON WORLD COMMUNICATIONS INC.
DATRON/TRANSCO INC.
AND
COMERICA BANK-CALIFORNIA
MARCH 24, 1999
TABLE OF CONTENTS
Page
1. DEFINITIONS 1
2. INDEBTEDNESS: CO-BORROWER FACILITY 10
3. INDEBTEDNESS: DT FACILITY 11
4. CONDITIONS AND SECURITY 12
5. REPRESENTATIONS AND WARRANTIES OF DWC 14
6. REPRESENTATIONS AND WARRANTIES OF DT 16
7. AFFIRMATIVE COVENANTS OF DWC 18
8. AFFIRMATIVE COVENANTS OF DT 20
9. NEGATIVE COVENANTS OF DWC 23
10. NEGATIVE COVENANTS OF DT 24
11. DEFAULTS 26
12. MISCELLANEOUS 27
CREDIT AGREEMENT
THIS AGREEMENT, made as of the 24th day of March 1999,
by and between DATRON WORLD COMMUNICATIONS INC., a
California corporation ("DWC"), DATRON/TRANSCO INC.,
("DT") a California corporation, (DWC and DT each a
"Borrower", and collectively "Borrowers") and COMERICA
BANK - CALIFORNIA, a California banking corporation, of
San Jose, California ("Bank").
1. DEFINITIONS
For purposes of this Agreement the following terms will
have the following meanings:
1.1 "Accounts," "Chattel Paper," "Documents,"
"Equipment," "Fixtures," "General Intangibles," "Goods,"
"Instruments" and "Inventory" shall have the meanings
assigned to them in the Uniform Commercial Code as in
effect in California on the date of this Agreement.
1.2 "Account Debtor" shall mean the party who is
obligated on or under any Account Receivable.
1.3 "Accounts Receivable" shall mean and include
Accounts, Chattel Paper and General Intangibles
(including, but not limited to tax refunds, trade names,
trade styles and goodwill, trade marks, copyrights and
patents, and applications therefor, trade and
proprietary secrets, formulae, designs, blueprints and
plans, customer lists, literary rights, licenses and
permits, receivables, insurance proceeds, beneficial
interests in trusts and minute books and other books and
records) now owned or hereafter acquired by a Borrower.
1.4 "Advance" shall mean a borrowing requested by
a Borrower and made by Bank under this Agreement.
1.5 "Affiliate" shall mean, when used with
respect to any person, any other person which, directly
or indirectly, controls or is controlled by or is under
common control with such person. For purposes of this
definition, "control" (including the correlative
meanings of the terms "controlled by" and "under common
control with"), with respect to any person, shall mean
possession, directly or indirectly, of the power to
direct or cause the direction of the management and
policies of such person, whether through the ownership
of voting securities or by contract or otherwise,
including any affiliate of DWC and DT.
1.6 "Applicable Interest Rate" shall mean with
respect to any Advance, the Prime-based Rate, subject to
the terms and conditions of this Agreement.
1.7 "Borrower Agreement" shall mean that Export-
Import Bank of the United States Working Capital
Guarantee Program Borrower Agreement entered into
between Bank and DT as of even date herewith.
1.8 "Borrowing Base Report" shall mean a report in
form and content satisfactory to Bank setting forth the
Formula Amount applicable to a Facility.
1.9 "Business Day" shall mean any day, other than
a Saturday, Sunday or holiday, on which Bank is open for
all or substantially all of its business in San Jose,
California.
1.10 "Cash Collateral" shall mean good funds on
deposit with Bank in the name of a Borrower and pledged
to Bank as security for indebtedness of Borrowers to
Bank.
1.11 "Co-Borrower Facility" shall mean the facility
for Advances to Borrowers provided for in Article 2 of
this Agreement.
1.12 "Co-Borrower Facility Maximum" shall mean as
of any date, the lesser of (a) the aggregate of the
Formula Amounts for DWC and DT minus the DT Reserve; or
(b) Eleven Million Dollars ($11,000,000).
1.13 "Co-Borrower Note" shall mean a Note issued by
DWC and DT under this Agreement in the form attached to
this Agreement as Exhibit "A" as evidence of Advances
under the Co-Borrower Facility.
1.14 "Debt" shall mean, as of any applicable date
of determination, all items of indebtedness, obligation
or liability of a person, whether matured or unmatured,
liquidated or unliquidated, direct or indirect, absolute
or contingent, joint or several, that should be
classified as liabilities in accordance with GAAP.
1.15 "Default" shall mean, an event or occurrence
which, with the giving of notice and/or the passage of
time, would constitute an Event of Default hereunder.
1.16 "DT Facility" shall mean the facility for
Advances to DT provided for in Article 3 of this
Agreement.
1.17 "DT Facility Maximum" shall mean as of any
date, the lesser of (a) the Formula Amount; or (b) Five
Million Dollars ($5,000,000).
1.18 "DT Note" shall mean a Note issued by DT in
the form attached as Exhibit "B" hereto as evidence of
Advances under the DT Facility.
1.19 "DT Reserve" shall mean, so long as the DT
Facility exists, Five Hundred Thousand Dollars
($500,000).
1.20 "DSI" shall mean Datron Systems Incorporated,
a Delaware corporation.
1.21 "Eligible Billed Accounts Receivable" shall
mean Accounts Receivable which meet the following
requirements:
(a) it is not owing more than ninety (90)
days from the due date on the invoice evidencing such
Account;
(b) it arises from the sale or lease of goods
and such goods have been shipped or delivered to the
Account Debtor under such Account; or it arises from
services rendered and such services have been performed,
excluding however, Accounts representing customer
deposits due but not yet paid;
(c) it is evidenced by an invoice, dated not
later than the date of shipment or performance, rendered
to such Account Debtor or some other evidence of billing
reasonably acceptable to Bank;
(d) it is not evidenced by any note, trade
acceptance, draft or other negotiable instrument or by
any chattel paper;
(e) it is a valid, legally enforceable
obligation of the Account Debtor thereunder (except to
the extent ultimate collection thereof may be limited by
laws relating to bankruptcy, insolvency or auditor's
rights generally), and is not subject to any defense on
the part of such Account Debtor or to any claim on the
part of such Account Debtor denying liability thereunder
in whole or in part and are not subject to any offset or
counterclaim;
(f) it is not subject to any sale of
accounts, any rights of offset, assignment, lien or
security interest whatsoever;
(g) it is not owing by an Account Debtor
which is a Foreign Person;
(h) it is not a Government Account, unless
the Federal Assignment of Claims Act of 1940 applies
thereto, and all necessary steps are taken to comply
with the Federal Assignment of Claims Act of 1940, as
amended, and with any comparable state law, if
applicable, and all other necessary steps are taken to
perfect Bank's security interest in such account,
provided, however, that the foregoing shall not apply
with respect to those Government Accounts arising under
a contract for the provision of goods and services, each
for less than $500,000, up to an aggregate of
$1,000,000;
(i) it is not owing by an Account Debtor for
which a Borrower has received any notice of (i) the
death of the Account Debtor, (ii) the dissolution,
liquidation, termination of existence, insolvency or
business failure of the Account Debtor, (iii) the
appointment of a receiver for any part of the property
of the Account Debtor, or (iv) an assignment for the
benefit of creditors, the filing of a petition in
bankruptcy, or the commencement of any proceeding under
any bankruptcy or insolvency laws by or against the
Account Debtor (which notice, in the case of a notice of
an event described in clauses (ii) through (iv), has not
been revoked or annulled);
(j) it is not an Account billed in advance,
payable on delivery, for goods which are placed on
consignment, guaranteed sale or other terms by reason of
which the payment by the Account Debtor may be
conditional, for guaranteed sales, for unbilled sales,
for progress billings, payable at a future date in
accordance with its terms, subject to a retainage or
holdback by the Account Debtor or insured by a surety
company;
(k) it is not owing by any Account Debtor
whose obligations Bank, acting in its reasonable
business discretion, shall have notified Borrower are
not deemed to constitute Eligible Accounts;
(l) it is not an Eligible Billed Foreign
Account Receivable or an Eligible Unbilled Foreign
Account Receivable;
(m) it is not an Account with respect to
which the Account Debtor is an officer, employee,
partner, joint venturer or agent of a Borrower;
(n) it is not an Account with respect to
which the Account Debtor is a subsidiary of, related to,
affiliated or has common shareholders, officers or
directors with a Borrower;
(o) it is not an Account with respect to
which a Borrower is or may become liable to the Account
Debtor for goods sold or services rendered by the
Account Debtor to Borrower;
(p) it is not an Account owed by a single
Account Debtor which is in excess of twenty percent
(20%) of all Eligible Accounts, other than Accounts
which are supported by a commercial letter of credit or
credit insurance satisfactory to Bank or Accounts with
an Account Debtor satisfactory to Bank; and
(q) it is not an Account due from a
particular Account Debtor as to which over twenty-five
percent (25%) of the aggregate amount owing from such
Account Debtor is greater than ninety (90) days from the
date of invoice, other than Accounts which are supported
by a commercial letter of credit or credit insurance
satisfactory to Bank or Accounts with an Account Debtor
satisfactory to Bank.
An Account Receivable which is at any time an Eligible
Billed Account Receivable, but which subsequently fails
to meet any of the foregoing requirements, shall
forthwith cease to be an Eligible Billed Account
Receivable unless and until it meets all of the
foregoing requirements again.
1.22 "Eligible Billed Foreign Account Receivable"
shall mean an Account Receivable which meets each of the
following requirements:
(a) it arises from an Account Receivable
where the Account Debtor is a Foreign Person;
(b) the payment of such Account Receivable
is, one hundred percent (100%) guaranteed or supported
by a commercial letter of credit or export credit
insurance satisfactory to Bank; and
(c) it meets requirements (a) through (f),
(i) through (k), and (m) through (o) of Eligible Billed
Account Receivable.
An Account Receivable which is at any time an Eligible
Billed Foreign Account Receivable, but which
subsequently fails to meet any of the foregoing
requirements, shall forthwith cease to be an Eligible
Billed Foreign Account Receivable.
1.23 "Eligible Domestic Inventory" shall mean all
Inventory which is in good and merchantable condition,
is not obsolete or discontinued, and which would
properly be classified as "raw materials", or as
"finished goods inventory" under generally accepted
accounting principles, consistently applied, excluding
(a) consigned goods and inventory located outside the
United States of America, (b) inventory covered by or
subject to a seller's right to repurchase, or any
consensual or nonconsensual lien or security interest
(including without limitation purchase money security
interests) other than in favor of Bank, whether senior
or junior to Bank's security interest, (c) inventory
that Bank, acting in its sole discretion, after having
notified Borrower, excludes, and (d) inventory intended
for export included in the Borrowing Base (as defined in
the Borrower Agreement). Inventory which is at any time
Eligible Domestic Inventory, but which subsequently
fails to meet any of the foregoing requirements, shall
forthwith cease to be Eligible Domestic Inventory.
1.24 "Eligible Export Inventory" shall mean
Inventory meeting the requirements of Eligible Domestic
Inventory other than requirement (d) thereof, and which
is intended for sale to a Foreign Person.
1.25 "Eligible Machinery and Equipment" shall mean
machinery and equipment owned by a Borrower subject to a
first perfected security interest granted to Bank and no
other liens or encumbrances whatsoever.
1.26 "Eligible Unbilled Accounts Receivable" shall
mean Accounts Receivable which meet each of the
requirements of (a), (d) through (g), and (i) through
(k), and (m) through (q) of Eligible Billed Accounts,
and the requirement that it is not a Government Account,
unless the Federal Assignment of Claims Act of 1940
applies thereto, and all necessary steps are taken to
comply with the Federal Assignment of Claims Act of
1940, as amended, and with any comparable state law, if
applicable, and all other necessary steps are taken to
perfect Bank's security interest in such account;
provided, however, that the foregoing shall not apply
with respect to any Government Account arising under a
contract for the provision of goods and services for
less than $500,000, up to an aggregate amount of
$1,000,000.
An Account Receivable which is at any time an Eligible
Unbilled Account Receivable, but which subsequently
fails to meet any of the foregoing requirements, shall
forthwith cease to be an Eligible Unbilled Account
Receivable unless and until it meets all of the
foregoing requirements again.
1.27 "Environmental Laws" shall mean all federal,
state and local laws including statutes, regulations,
ordinances, codes, rules, and other governmental
restrictions and requirements, relating to environmental
pollution, contamination or other impairment of any
nature, any hazardous or other toxic substances of any
nature, whether liquid, solid and/or gaseous, including
smoke, vapor, fumes, soot, acids, alkalis, chemicals,
wastes, by-products, and recycled materials.
1.28 "Event of Default" shall mean the occurrence
of any of the events described in Section 11 hereof.
1.29 "Eximbank" shall mean the Export-Import Bank
of the United States.
1.30 "Exim Guaranty" shall mean the guaranty, by
Eximbank, of ninety percent (90%) of the indebtedness of
DT, including unpaid interest, from time to time
outstanding under the DT Facility.
1.31 "Forced Sale Value" shall mean the estimated
probable price which could typically be realized at a
properly advertised and conducted public auction sale,
held under forced sale conditions and under present day
economic trends.
1.32 "Foreign Person" shall mean any person,
entity, firm or corporation (i) whose principal office
is located outside of the United States, (ii) is not
incorporated or organized under the laws of the United
States of America or any state thereof, or (iii) is the
government of any foreign country or sovereign state, or
of any state, province, municipality or other political
subdivision thereof or any department or agency thereof.
1.33 "Formula Amount" shall mean, as of the date of
any determination thereof, the sum of:
(a) in the case of DWC, and with respect to
the Co-Borrower Facility:
(i) the sum (without duplication) of (1)
eighty percent (80%) of its Eligible Billed Accounts
Receivable, (2) eighty percent (80%) of its Eligible
Billed Foreign Accounts Receivable, plus (3) fifty
percent (50%) of its Eligible Domestic Inventory, up to
$3,000,000, plus (4) the M&E Borrowing Base not included
in (b) below.
(b) in the case of DT, and with respect to
the Co-Borrower Facility:
(i) the sum (without duplication) of (1)
eighty percent (80%) of its Eligible Billed Accounts
Receivable, plus (2) sixty percent (60%) of its Eligible
Unbilled Accounts Receivable up to $2,000,000, plus (3)
fifty percent (50%) of its Eligible Domestic Inventory
up to $3,000,000, plus (4) the M&E Borrowing Base not
included in (a) above.
(c) in the case of DT, and with respect to
the DT Facility:
(i) the Borrowing Base (as defined in
the Borrower Agreement).
1.34 "GAAP" shall mean generally accepted
accounting principles in the United States of America,
applied consistently.
1.35 "Government Account" shall mean an Account
owing by the United States of America or any state or
political subdivision thereof, or by any department,
agency, public body corporate or other instrumentality
of any of the foregoing.
1.36 "Guaranties" shall mean guaranty agreements
from the Guarantors in form and content satisfactory to
Bank.
1.37 "Guarantor" shall mean, with respect to
indebtedness of DWC and DT under the Co-Borrower
Facility, DSI, and with respect to indebtedness of DT
under the DT Facility, DSI and DWC, jointly and
severally.
1.38 "Letter(s) of Credit" shall mean any standby
or commercial letters of credit issued by Bank for the
account of a Borrower, which Letters of Credit shall:
(a) in the case of the Co-Borrower Facility,
(x) have a stated expiry no later than six months beyond
the Maturity Date, (y) for commercial Letters of Credit,
at no time exceed an aggregate undrawn face amount of
One Million Dollars ($1,000,000) and have a maximum
tenor of no more than one hundred eighty (180) days, and
(z) for stand-by Letters of Credit, at no time exceed an
aggregate undrawn face amount of Eleven Million Dollars
($11,000,000); and
(b) in the case of the DT Facility, (x) be
stand-by Letters of Credit only, (y) have a stated
expiry no later than twelve months beyond the Maturity
Date, and (z) at no time shall the aggregate undrawn
face amount exceed Five Million Dollars ($5,000,000).
1.39 "Loan Documents" shall mean this Agreement,
the Notes, the Guarantees, the Exim Guaranty, the
Borrower Agreement, the Security Agreements, and all
other documents, instruments or agreements executed
and/or delivered to Bank pursuant hereto or pursuant to
any of the foregoing.
1.40 "M&E Borrowing Base" shall mean the lesser of
(y) seventy percent (70%) of the aggregate of Borrowers'
Forced Sale Value of the Eligible Machinery and
Equipment and (z) $1,330,000.
1.41 "Margin" shall mean, in the case of Advances
under either the Co-Borrower Facility or the DT
Facility, one half percent (0.5%).
1.42 "Material Adverse Effect" shall mean any
material adverse effect, or the occurrence of any event
or the existence of any condition that has or could
reasonably be expected to have a material adverse
effect, on (a) the business or financial condition or
performance of either Borrower or of a Borrower and its
subsidiaries taken as a whole, (b) the ability of a
Borrower to pay the Debt when due, (c) the validity or
enforceability of any of the Loan Documents, and lien
created or purported to be created by any of the Loan
Documents or the required priority of any such lien, or
(d) any material right or remedy of Bank under any of
the Loan Documents.
1.43 "Maturity Date" shall mean:
(a) with respect to the Co-Borrower Facility,
April 1, 2001;
(b) with respect to the DT Facility, April 1,
2000.
1.44 "Note(s)" shall mean the Co-Borrower Note and
the DT Note and any other promissory note heretofore or
hereafter made by Borrower to Bank as evidence of
indebtedness, or any one or more of the foregoing.
1.45 "Permitted Liens" shall mean:
(a) liens and encumbrances in favor of Bank;
(b) liens for taxes, assessments or other
governmental charges incurred in the ordinary course of
business and not yet past due or being contested in good
faith by appropriate proceedings and with proper
reserves therefor maintained in accordance with GAAP;
(c) liens not delinquent created by statute
in connection with worker's compensation, unemployment
insurance, social security and similar statutory
obligations;
(d) liens of mechanics, materialmen,
carriers, warehousemen or other like statutory or common
law liens securing obligations incurred in good faith in
the ordinary course of business that are not yet due and
payable or that are being contested in good faith by
appropriate proceedings and with proper reserves
therefor maintained in accordance with GAAP;
(e) encumbrances consisting of easements,
rights of way, zoning restrictions or other similar
restrictions on the use of real property, none of which
materially impairs the use of such property by Borrower
in the operation of the business for which it is used
and none of which is violated in any material respect by
any existing or proposed structure or land use;
(f) liens on real estate, furniture, fixtures
and equipment for purchase money financing (including
loans and leases) hereafter existing used for capital
expenditures permitted under the Guaranty;
(g) liens arising by operation of law in
connection with judgments being appealed; and
(h) liens on property acquired by a Borrower
or any subsidiary to the extent such Liens are in
existence when such property or subsidiary was acquired
and were not made in anticipation of such acquisition.
1.46 "Prime Rate" shall mean the per annum interest
rate established by Bank as its prime rate for its
borrowers as such rate may vary from time to time, which
rate is not necessarily the lowest rate on loans made by
Bank at any such time.
1.47 "Prime-based Advance" shall mean an Advance
which bears interest at the Prime-based Rate.
1.48 "Prime-based Rate" shall mean a per annum
interest rate which is equal to the Prime Rate plus the
Margin.
1.49 "Security Agreements" shall mean security
agreements in form and content satisfactory to Bank
pursuant to which DWC, DT and DSI grants to Bank a
security interest in all of its tangible and intangible
personal property, whether now owned or hereafter
existing or arising.
1.50 "Year 2000 Issue" shall mean the risk of
computer hardware, software or equipment containing
imbedded micro chips which perform functions relevant to
the business or operation of a Borrower which will not,
in the case of dates occurring after December 31, 1999,
function as effectively and reliably as in the case of
dates occurring prior to such date.
2. INDEBTEDNESS: CO-BORROWER FACILITY
2.1 Bank agrees to make Advances under the Co-
Borrower Note to DWC or DT from time to time from the
effective date hereof until the Maturity Date, in
aggregate principle amount at any time outstanding not
to exceed the Co-Borrower Facility Maximum, with
availability thereunder for stand-by and commercial
Letters of Credit. The obligations of DWC and DT under
the Co-Borrower Note shall be joint and several. All of
the Advances hereunder shall be evidenced by the Co-
Borrower Note under which advances, repayments and re-
advances may be made, subject to the terms and
conditions of this Agreement.
2.2 The Co-Borrower Note shall mature on its
Maturity Date, and each Advance from time to time
outstanding thereunder shall bear interest at the Prime-
based Rate. The amount and date of each Advance, and the
amount and date of any repayment shall be noted on
Bank's records, which records will be conclusive
evidence thereof absent manifest error.
2.3 Interest on the unpaid balance of all
Prime-based Advances from time to time outstanding under
the Co-Borrower Note shall be payable monthly commencing
on the last day of each month. Interest accruing at the
Prime-based Rate shall be computed on the basis of a 360
day year and assessed for the actual number of days
elapsed, and in such computation effect shall be given
to any change in the Prime-based Rate resulting from a
change in the Prime Rate on the date of such change in
the Prime Rate.
2.4 Either Borrower may request an Advance under
the Co-Borrower Note telephonically in compliance with
Bank's telephonic request procedures. Any request made
telephonically shall not be revocable by either
Borrower, and shall be promptly confirmed in writing.
Borrowers shall assume, and shall indemnify Bank from
loss with respect to, the risk of misunderstanding with
respect to any request for Advance. Upon communication
to Bank of any request for Advance, Bank may require
Borrower to deliver as a condition to the Advance, a
Borrowing Base Report.
2.5 Proceeds of the Co-Borrower Note shall be
available to Borrowers for the purpose of financing
their respective working capital needs. In the event
that Bank is not reimbursed on the same day that any
drawing is made under a Letter of Credit issued in
conjunction with the Co-Borrower Facility, such
unreimbursed draw shall be deemed an Advance under the
Co-Borrower Facility, and Borrowers hereby irrevocably
authorize and direct Bank to make such Advances for the
purpose, and in the amounts necessary to pay their
respective obligations related to unreimbursed drawings
on Letters of Credit, and to apply the proceeds of such
Advances toward repayment of such obligations.
2.6 With respect to the stand-by Letters of Credit
issued pursuant to this Section 2, Borrowers shall pay
to Bank Letter of Credit fees at a per annum rate equal
to one and one quarter percent (1.25%) calculated on the
face amount of each Letter of Credit for the period from
the date of issuance thereof until its stated expiry.
Such fees shall be payable quarterly in advance, and
shall not be refundable under any circumstance. With
respect to commercial Letters of Credit issued pursuant
to this Section 2, Borrowers will pay Bank's standard
letter of credit issuance fees. With respect to all
Letters of Credit, Borrowers shall pay standard
administration, payment and cancellation charges
assessed by Bank.
2.7 Borrowers shall pay to Bank an annual facility
fee of $12,500 for the Co-Borrower Facility, which fee
shall be due and payable on the date of this Agreement
and on each anniversary of the date of this Agreement
and shall not be refundable under any circumstance,
together with a documentation preparation fee of $350
which is due and payable on the date of this Agreement.
3. INDEBTEDNESS: DT FACILITY
3.1 Bank agrees to make Advances to DT under the
DT Note from time to time from the effective date hereof
until the Maturity Date, in aggregate principle amount
at any time outstanding not to exceed the DT Facility
Maximum, with availability thereunder for stand-by
Letters of Credit. All of the Advances hereunder shall
be evidenced by the DT Note, under which advances,
repayments and re-advances may be made, subject to the
terms and conditions of this Agreement.
3.2 The DT Facility shall mature on its Maturity
Date, and each Advance from time to time outstanding
thereunder shall bear interest at the Prime-based Rate.
The amount and date of each Advance, and the amount and
date of any repayment shall be noted on Bank's records,
which records will be conclusive evidence thereof absent
manifest error.
3.3 Interest on the unpaid balance of all
Prime-based Advances from time to time outstanding under
the DT Facility shall be payable monthly on the last day
of each month. Interest accruing at the Prime-based
Rate shall be computed on the basis of a 360 day year
and assessed for the actual number of days elapsed, and
in such computation effect shall be given to any change
in the Prime-based Rate resulting from a change in the
Prime Rate on the date of such change in the Prime Rate.
3.4 DT may request an Advance under the DT Note
telephonically in compliance with Bank's telephonic
request procedures. Any request made telephonically
shall not be revocable by DT, and shall be promptly
confirmed in writing. DT shall assume, and shall
indemnify Bank from loss with respect to, the risk of
misunderstanding with respect to any request for
Advance. Upon communication to Bank of any request for
Advance, Bank may require DT to deliver as a condition
to the Advance, a Borrowing Base Report.
3.5 Proceeds of the DT Facility shall be available
to DT solely for the purpose of financing DT's pre-
export working capital needs and in any event shall be
in compliance with the Borrower Agreement. In the event
that Bank is not reimbursed on the same day that any
drawing is made under a Letter of Credit issued in
conjunction with the DT Facility, such unreimbursed draw
shall be deemed an Advance under the DT Facility, and DT
hereby irrevocably authorizes and directs Bank to make
such Advances for the purpose, and in the amounts
necessary to pay its obligations related to unreimbursed
drawings on Letters of Credit, and to apply the proceeds
of such Advances toward repayment of such obligations.
3.6 DT shall pay to Bank Letter of Credit Fees
with respect to the Letters of Credit issued pursuant to
this Section 3 at a per annum rate equal to one and one
eighth percent (1.125%) calculated on the face amount of
each Letter of Credit for the period from the date of
issuance thereof until its stated expiry. Such fees
shall be payable quarterly in advance, and shall not be
refundable under any circumstance. In addition,
Borrowers will pay standard letter of credit issuance
fees and standard administration, payment and
cancellation charges assessed by Bank.
3.7 DT shall pay an Eximbank facility fee of
Thirty Eight Thousand Seven Hundred Fifty Dollars
($38,750) for the DT Facility, and a document
preparation fee of Three Hundred Fifty Dollars ($350),
which fees shall be due and payable on the date of this
Agreement and shall not be refundable under any
circumstance.
4. CONDITIONS AND SECURITY
4.1 Borrowers shall have executed and delivered to
Bank, or caused to have been executed and delivered to
the Bank, this Agreement, the Note, the Guaranties and
all other applicable Loan Documents, and this Agreement
(including all schedules, exhibits, certificates,
opinions, financial statements and other documents to be
delivered pursuant hereto), and the Notes and other
applicable Loan Documents (when executed and delivered
to Bank) shall be in full force and effect and binding
and enforceable obligations of Borrowers and any other
persons who may be parties thereto, except to the extent
limited by applicable bankruptcy, insolvency or other
insolvency laws.
4.2 Bank shall have received: (a) certified copies
of resolutions of the Board of Directors of DWC
evidencing approval of the borrowings hereunder and the
transactions contemplated hereby, (b) certified copies
of DWC's Articles of Incorporation and Bylaws; and (c) a
certificate of good standing from the state or other
jurisdiction of DWC's incorporation, and from each state
or other jurisdiction in which DWC is required, under
applicable law, to be qualified to do business.
4.3 Bank shall have received: (a) certified copies
of resolutions of the Board of Directors of DT
evidencing approval of the borrowings hereunder and the
transactions contemplated hereby, (b) certified copies
of DT's Articles of Incorporation and Bylaws; and (c) a
certificate of good standing from the state or other
jurisdiction of DT's incorporation, and from each state
or other jurisdiction in which DT is required, under
applicable law, to be qualified to do business
4.4 Bank shall have received copies of each
authorization, license, permit, consent, order or
approval of, or registration, declaration or filing
with, any governmental authority or any securities
exchange or other person obtained or made by Borrowers
and/or Guarantors in connection with the transactions
contemplated by this Agreement or the Loan Documents.
4.5 Bank shall have received initial Borrowing
Base Reports for each Facility and evidence of
satisfaction of the Federal Assignment of Claims Act
required for any Government Account included in the
Formula Amounts set forth therein.
4.6 The representations and warranties made by
Borrowers, and any other person who is a party to any of
the Loan Documents, under this Agreement or any of the
Loan Documents, and the representations and warranties
of any of the foregoing made to Bank which are contained
in any certificate, document or financial or other
statement furnished at any time hereunder or thereunder
or in connection herewith or therewith, shall have been
true and correct in all material respects when made.
4.7 Borrowers and any other person who is a party
to any of the Loan Documents shall have each performed
and complied in all material respects with all
agreements and conditions contained in the Loan
Documents applicable to it which are then in effect.
4.8 No Default or Event of Default shall have
occurred and be continuing and there shall have been no
material change in the condition (financial or
otherwise), properties, business, results or operations
of Borrowers since the date of the financial statements
mentioned in Sections 5.8 and 6.8 hereof.
4.9 Bank shall have received payment at closing
from Borrowers of arrangement fees in the aggregate
amount of Fifty One Thousand Nine Hundred Fifty Dollars
($51,950) which fees shall not be refundable under any
circumstances. Bank and DT agree that Thirty Eighty
Thousand Seven Hundred Fifty Dollars ($38,750) of such
amount shall be paid by it to Eximbank in satisfaction
of the fee due Eximbank in connection with its issuance
of the Exim Guaranty.
4.10 Bank shall have received such other
instruments and documents (not inconsistent with the
terms hereof) as Bank may request in connection with the
making of the Advances hereunder, and all such
instruments and documents shall be reasonably
satisfactory in form and substance to the Bank,
including (without limitation) all documents,
instruments, applications and agreements deemed
necessary by Bank as a condition to the effectiveness of
the Exim Guaranty.
4.11 The obligations of Bank to make Advances under
this Agreement shall be subject to the continuing
condition that all documents, instruments and agreements
executed or submitted pursuant hereto shall be
satisfactory in form and substance to Bank; Bank shall
have received all information, and such counterpart
originals or such certified or other copies of such
materials, as Bank and its counsel may reasonably
request; and all other legal matters relating to the
transactions contemplated by this Agreement (including,
without limitation, matters arising from time to time as
a result of changes occurring with respect to any
statutory, regulatory or decisional law applicable
hereto) shall be satisfactory to Bank.
5. REPRESENTATIONS AND WARRANTIES OF DWC
DWC represents and warrants and such representations and
warranties shall be deemed to be continuing
representations and warranties during the entire life of
this Agreement:
5.1 DWC is a corporation duly organized and
existing in good standing under the laws of the State of
California; is duly qualified and authorized to do
business in each jurisdiction where the character of its
assets or the nature of its activities makes such
qualification necessary; execution, delivery and
performance of this Agreement, and any other documents
and instruments required under this Agreement, and the
issuance of the Co-Borrower Note by DWC and the Guaranty
are within DWC's corporate powers, have been duly
authorized, are not in contravention of law or the terms
of the Articles of Incorporation or Bylaws of DWC, and
do not require the consent or approval of any
governmental body, agency or authority that has not been
obtained; and this Agreement, and any other documents
and instruments required under this Agreement, when
issued and delivered under this Agreement, will be valid
and binding upon DWC in accordance with their terms
subject only to applicable bankruptcy and insolvency
laws.
5.2 The execution, delivery and performance of
this Agreement, and any other documents and instruments
required under this Agreement, and the issuance of the
Co-Borrower Note by DWC, are not in contravention of the
unwaived terms of any indenture, agreement or
undertaking to which DWC is a party or by which it is
bound.
5.3 No litigation or other proceeding before any
court or administrative agency is pending, or to the
knowledge of the officers of DWC is threatened against
DWC other than as disclosed in DSI's annual report dated
March 31, 1998 and subsequent filings with the SEC.
5.4 There are no security interests in, liens,
mortgages, or other encumbrances on any of DWC's assets,
except to Bank, or as permitted under Section 9.7 of
this Agreement.
5.5 There are no subsidiaries of DWC.
5.6 There exists no default under the provisions
of any instrument evidencing any debt of DWC or of any
agreement relating thereto.
5.7 The unaudited balance sheet and operating statement
of DWC dated December 31, 1998, previously furnished
Bank, are complete and correct and fairly present the
financial condition of DWC and the results of its
operations; since said dates there has been no change in
the financial condition of DWC that has resulted, or
could result, in a Material Adverse Effect; DWC has no
contingent obligations (including any liability for
taxes) not disclosed by or reserved against in said
balance sheets, and at the present time there are no
material unrealized or anticipated losses from any
present commitment of DWC.
5.8 DWC is not a party to any litigation or
administrative proceeding, nor so far as is known by DWC
is any litigation or administrative proceeding
threatened against DWC the outcome of which if
determined adversely would materially impair the
financial condition of DWC or its ability to carry on
its business, which in either case (A) asserts or
alleges that DWC violated Environmental Laws, (B)
asserts or alleges that DWC is required to clean up,
remove, or take remedial or other response action due to
the disposal, depositing, discharge, leaking or other
release of any hazardous substances of materials, (C)
asserts or alleges that DWC is required to pay all or a
portion of the cost of any past, present, or future
cleanup, removal or remedial or other response action
which arises out of or is related to the disposal,
depositing, discharge, making or other release of any
hazardous substances or materials by DWC.
5.9 There are no conditions existing currently or
likely to exist during the term of this Agreement which
would subject DWC to damages, penalties, injunctive
relief or cleanup costs under any applicable
Environmental Laws or which require or are likely to
require cleanup, removal, remedial action or other
response pursuant to applicable Environmental Laws by
DWC.
5.10 DWC is not subject to any judgment, decree,
order or citation related to or arising out of
applicable Environmental Laws and to the best knowledge
of DWC after due inquiry, DWC has not been named or
listed as a potentially responsible party by any
governmental body or agency in a matter arising under
any applicable Environmental Laws.
5.11 DWC has all permits, licenses and approvals
required under applicable Environmental Laws.
5.12 DWC has reviewed its operations and is in the
process of reviewing its major commercial counterparts
with a view to assessing whether it will, in the
receipt, transmission, processing, manipulation,
storage, retrieval, retransmission or other utilization
of data, be vulnerable to a Year 2000 Issue. Based on
such review, DWC has no reason to believe that any
Material Adverse Effect will occur with respect to its
businesses or operations resulting from a Year 2000
Issue.
6. REPRESENTATIONS AND WARRANTIES OF DT
DT represents and warrants and such representations and
warranties shall be deemed to be continuing
representations and warranties during the entire life of
this Agreement:
6.1 DT is a corporation duly organized and
existing in good standing under the laws of California;
is duly qualified and authorized to do business in each
jurisdiction where the character of its assets or the
nature of its activities makes such qualification
necessary; execution, delivery and performance of this
Agreement, and any other documents and instruments
required under this Agreement, and the issuance of the
DT Note to be issued under the DT Facility are within
DT's corporate powers, have been duly authorized, are
not in contravention of law or the terms of the
organizational documents of DT, and do not require the
consent or approval of any governmental body, agency or
authority that has not been obtained; and this
Agreement, and any other documents and instruments
required under this Agreement, when issued and delivered
under this Agreement, will be valid and binding upon DT
in accordance with their terms subject only to
applicable bankruptcy and insolvency laws.
6.2 The execution, delivery and performance of
this Agreement, and any other documents and instruments
required under this Agreement, and the issuance of the
DT Note by DT, are not in contravention of the unwaived
terms of any indenture, agreement or undertaking to
which DT is a party or by which it is bound.
6.3 No litigation or other proceeding before any
court or administrative agency is pending, or to the
knowledge of the officers of DT is threatened against
DT.
6.4 There are no security interests in, liens,
mortgages, or other encumbrances on any of DT's assets,
except to Bank, or as permitted under Section 10.7 of
this Agreement.
6.5 There are no subsidiaries of DT other than
Datron Resources Inc., a California corporation.
6.6 There exists no default under the provisions
of any instrument evidencing any debt of DT or of any
agreement relating thereto.
6.7 The unaudited balance sheet and operating
statement of DT dated December 31, 1998, previously
furnished Bank, are to the best of the knowledge of DT
complete and correct and fairly present the financial
condition of DT and the results of its operations; since
said dates there has been no change in the financial
condition of DT that has resulted or could result, in a
Material Adverse Effect; DT has no contingent
obligations (including any liability for taxes) not
disclosed by or reserved against in said balance sheets,
and at the present time there are no material unrealized
or anticipated losses from any present commitment of DT.
6.8 DT is not a party to any litigation or
administrative proceeding threatened against DT the
outcome of which if determined adversely would
materially impair the financial condition of DT or its
ability to carry on its business, other than as
previously disclosed to Bank in writing, which in either
case (A) asserts or alleges that DT violated
Environmental Laws, (B) asserts or alleges that DT is
required to clean up, remove, or take remedial or other
response action due to the disposal, depositing,
discharge, leaking or other release of any hazardous
substances of materials, (C) asserts or alleges that DT
is required to pay all or a portion of the cost of any
past, present, or future cleanup, removal or remedial or
other response action which arises out of or is related
to the disposal, depositing, discharge, making or other
release of any hazardous substances or materials by DT.
6.9 Other than as previously disclosed to Bank in
writing, there are no conditions existing currently or
likely to exist during the term of this Agreement which
would subject DT to damages, penalties, injunctive
relief or cleanup costs under any applicable
Environmental Laws or which require or are likely to
require cleanup, removal, remedial action or other
response pursuant to applicable Environmental Laws by
DT.
6.10 DT is not subject to any judgment, decree,
order or citation related to or arising out of
applicable Environmental Laws and to the best knowledge
of DT after due inquiry, DT has not been named or listed
as a potentially responsible party by any governmental
body or agency in a matter arising under any applicable
Environmental Laws.
6.11 DT has all permits, licenses and approvals
required under applicable Environmental Laws.
6.12 The representations of DT under the Borrower
Agreement are true and correct on and as of the date
hereof with the same force and effect as though made on
and as of the date hereof, and Borrower is not otherwise
in default under the Borrower Agreement.
6.13 DT has reviewed its operations and is in the
process of reviewing those of its subsidiaries and major
commercial counterparts with a view to assessing whether
it or its subsidiaries' respective businesses will, in
the receipt, transmission, processing, manipulation,
storage, retrieval, retransmission or other utilization
of data, be vulnerable to a year 2000 issue. Based on
such review, DT has no reason to believe that any
Material Adverse Effect will occur with respect to its
or its subsidiaries businesses or operations resulting
from a year 2000 issue.
7. AFFIRMATIVE COVENANTS OF DWC
DWC covenants and agrees that it will, so long as Bank
is committed to make any Advances under this Agreement
and thereafter so long as any indebtedness remains
outstanding under this Agreement:
7.1 Furnish Bank:
(a) Within thirty days and as of the end of
each month, monthly agings of DWC's accounts receivable
and accounts payable, monthly inventory reports and
accounts receivable reports, each in form acceptable to
Bank, together with a Borrowing Base Report in such
detail as Bank may specify demonstrating that the
Advances under the Co-Borrower Facility do not exceed
the Co-Borrower Facility Maximum; and
(b) promptly, and in form to be satisfactory
to Bank, such other information as Bank may reasonably
request from time to time.
7.2 Pay and discharge, all taxes and other
governmental charges, and all contractual obligations
calling for the payment of money, before the same shall
become overdue, unless and to the extent only that such
payment is being contested in good faith.
7.3 Maintain insurance coverage on its physical
assets and against other business risks in such amounts
and of such types as-are customarily carried by
companies similar in size and nature, and in the event
of acquisition of additional property, real or personal,
or of incurrence of additional risks of any nature,
increase such insurance coverage in such manner and to
such extent as prudent business judgment and present
practice would dictate; and in the case of all policies
insuring property mortgaged or pledged to Bank or
property in which Bank shall have a security interest of
any kind whatsoever, all such insurance policies shall
provide that the loss payable thereunder shall be
payable to Bank.
7.4 Permit Bank, through its authorized attorneys,
accountants, and representatives, to examine the books,
accounts, records, ledgers and assets of every kind and
description of DWC at all reasonable times upon oral or
written request of Bank and, in connection therewith,
reimburse Bank for all costs and expenses incurred by
Bank in connection with audits of the assets and records
of DWC.
7.5 Promptly, not later than three (3) business
days after becoming aware thereof, notify Bank of any
condition or event which constitutes or with the running
of time and/or the giving of notice would constitute a
Default or Event of Default hereunder and promptly
inform Bank of any change in the financial condition of
DWC, that has resulted, or could result, in a Material
Adverse Effect.
7.6 Maintain in good standing all licenses
required by the State of California, or any agency
thereof, or any other governmental authority that may be
necessary or required for DWC to carry on its general
business objects and purposes.
7.7 Pay all of Bank's reasonable legal fees and
disbursements of counsel connected with the preparation
and closing of the transactions contemplated by this
Agreement, subject to a cap of $7,000 and, if there is
any Default or Event of Default, pay all of the expenses
incurred by Bank in connection with such Default or
Event of Default and Bank's exercise of its remedies
hereunder, under any security documents or under
applicable law, including, without limitation, Bank's
reasonable legal fees and disbursements of counsel
connected therewith.
7.8 In the event that, as of any date, the
principal amount of Advances under the Co-Borrower
Facility, together with the aggregate face amount of
Letters of Credit issued pursuant to the Co-Borrower
Facility, exceeds the Co-Borrower Facility Maximum,
promptly, and in any event within three (3 days) of
notice thereof from Bank, pay to Bank an amount not less
than such excess, for applications on the Advances under
the Co-Borrower Note, or deposit with Bank Cash
Collateral in an amount not less than such excess.
7.9 In the event of any condition or circumstance
that makes any environmental warranty, representation or
agreement incomplete or inaccurate as of any date, DWC
shall, at its sole expense, retain a professional
environmental consultant, reasonably acceptable to Bank,
to conduct a thorough and complete environmental audit
regarding the changed condition and/or circumstances and
any environmental concerns arising from that changed
condition and/or circumstance. A copy of the
environmental consultant's report will be promptly
delivered to Bank and DWC upon completion.
7.10 At any time DWC directly or indirectly through
any professional consultant or other representative,
determines to undertake an environmental audit,
assessment or investigation, DWC shall promptly provide
Bank with written notice of the initiation of the
environmental audit, fully describing the purpose and
intended scope of the environmental audit. Upon receipt,
DWC will promptly provide to Bank copies of all final
findings and conclusions of any such environmental
investigation. Preliminary findings and conclusions
shall be provided if final reports have not been
completed and delivered to Bank within sixty (60) days
following completion of the preliminary findings and
conclusions.
8. AFFIRMATIVE COVENANTS OF DT
DT covenants and agrees that it will, so long as Bank is
committed to make any Advances under this Agreement and
thereafter so long as any indebtedness remains
outstanding under this Agreement:
8.1 Furnish Bank:
(a) Within thirty days and as of the end of
each month, monthly agings of DT's accounts receivable
and accounts payable, monthly inventory reports and
accounts receivable reports, each in form acceptable to
Bank, together with Borrowing Base Reports in such
detail as Bank may specify demonstrating that the
Advances under the DT Facility do not exceed the DT
Facility Maximum and Advances under the Co-Borrower
Facility do not exceed the Co-Borrower Facility Maximum;
(b) As soon as available and in any event
within sixty (60) days after the end of each fiscal
quarter of DT "percent completion report" including
backlog by project; and
(c) promptly, and in form to be satisfactory
to Bank, such other information as Bank may reasonably
request from time to time.
8.2 Pay and discharge, all taxes and other
governmental charges, and all contractual obligations
calling for the payment of money, before the same shall
become overdue, unless and to the extent only that such
payment is being contested in good faith.
8.3 Maintain insurance coverage on its physical
assets and against other business risks in such amounts
and of such types as-are customarily carried by
companies similar in size and nature, and in the event
of acquisition of additional property, real or personal,
or of incurrence of additional risks of any nature,
increase such insurance coverage in such manner and to
such extent as prudent business judgment and present
practice would dictate; and in the case of all policies
insuring property mortgaged or pledged to Bank or
property in which Bank shall have a security interest of
any kind whatsoever, all such insurance policies shall
provide that the loss payable thereunder shall be
payable to Bank.
8.4 Permit Bank, through its authorized attorneys,
accountants, and representatives, to examine the books,
accounts, records, ledgers and assets of every kind and
description of DT at all reasonable times upon oral or
written request of Bank and, in connection therewith,
reimburse Bank for all costs and expenses incurred by
Bank in connection with audits of the assets and records
of DT.
8.5 Promptly, not later than three (3) business
days after becoming aware thereof, notify Bank of any
condition or event which constitutes or with the running
of time and/or the giving of notice would constitute a
Default or Event of Default hereunder and promptly
inform Bank of any change in the financial condition of
DT, that has resulted, or could result, in a Material
Adverse Effect.
8.6 Maintain in good standing all licenses
required by the State of California, or any agency
thereof, or any other governmental authority that may be
necessary or required for DT to carry on its general
business objects and purposes.
8.7 Pay all of Bank's reasonable legal fees and
disbursements of counsel connected with the preparation
and closing of the transactions contemplated by this
Agreement, subject to a cap of $7,000 and any costs or
fees incurred by Bank in connection with obtaining or
complying with the Exim Guaranty, and if there is any
Default or Event of Default, pay all of the expenses
incurred by Bank in connection with such Default or
Event of Default and Bank's exercise of its remedies
hereunder, under any security documents or under
applicable law, including, without limitation, Bank's
reasonable legal fees and disbursements of counsel
connected therewith.
8.8 In the event that, as of any date, the
principal amount of Advances under the Co-Borrower
Facility, together with the aggregate face amount of
Letters of Credit issued pursuant to the Co-Borrower
Facility, exceeds the Co-Borrower Facility Maximum,
promptly, and in any event within three (3) days of
notice thereof from Bank, pay to Bank an amount not less
than such excess, for applications on the Advances under
the Co-Borrower Note, or deposit with Bank Cash
Collateral in an amount not less than such excess.
8.9 In the event that, as of any date, the
principal amount of Advances under the DT Facility,
together with the aggregate face amount of Letters of
Credit issued pursuant to the DT Facility, exceeds the
DT Facility Maximum, promptly, and in any event within
three (3) days of notice thereof from Bank, pay to Bank
an amount not less than such excess for application on
the Advances outstanding under the DT Facility.
8.10 In the event of any condition or circumstance
that makes any environmental warranty, representation or
agreement incomplete or inaccurate as of any date, DT
shall, at its sole expense, retain a professional
environmental consultant, reasonably acceptable to Bank,
to conduct a thorough and complete environmental audit
regarding the changed condition and/or circumstances and
any environmental concerns arising from that changed
condition and/or circumstance. A copy of the
environmental consultant's report will be promptly
delivered to Bank and DT upon completion.
8.11 At any time DT directly or indirectly through
any professional consultant or other representative,
determines to undertake an environmental audit,
assessment or investigation, DT shall promptly provide
Bank with written notice of the initiation of the
environmental audit, fully describing the purpose and
intended scope of the environmental audit. Upon receipt,
DT will promptly provide to Bank copies of all final
findings and conclusions of any such environmental
investigation. Preliminary findings and conclusions
shall be provided if final reports have not been
completed and delivered to Bank within sixty (60) days
following completion of the preliminary findings and
conclusions.
8.12 DT acknowledges that, the advances under the
DT Facility, and Bank's ability to amend, waive or
modify provisions thereof, are subject to the Exim
Guaranty, the terms of which are incorporated herein by
this reference. DT agrees to comply with the terms of
applicable provisions of the Exim Guaranty, and hereby
waives and indemnifies Bank from all claims, judgments,
damages and costs which may at any time arise as a
result of, under the provisions of, or as a consequence
of Bank's compliance terms of the Exim Guaranty, and,
without limiting any of the foregoing, DT further
acknowledges that, under the terms of the Exim Guaranty:
(a) Bank's discretion to make certain
advances, waive provisions of this Agreement, Events of
Default hereunder, and/or to delay or forego remedies
available hereunder and under Collateral Documents, is
limited and/or controlled;
(b) information regarding occurrences and
transactions contemplated hereunder, and under the Loan
Documents, is required to be provided from time to time
by DT and/or Eximbank;
(c) upon occurrence of certain Events of
Default, Bank may be required, at the direction of
Eximbank, to accelerate indebtedness hereunder and under
the Note and other indebtedness of DT to Bank; and
(d) upon Eximbank's payment under the Exim
Guarantee, Eximbank shall be entitled to succeed to the
rights of Bank under this Agreement, the DT Note, the
Notes and the collateral granted to Bank securing the DT
Facility.
9. NEGATIVE COVENANTS OF DWC
DWC covenants and agrees that so long as any
indebtedness remains outstanding under this Agreement or
any of the Notes, DWC will not without the prior written
consent of Bank:
9.1 Purchase, acquire or redeem any of its capital
stock or make any material change in its capital
structure or general business objects or purpose, or pay
dividends on any class of its capital stock.
9.2 Enter into any merger or consolidation or
sell, lease, transfer, or dispose of all, substantially
all, or any material part of its assets.
9.3 Guarantee, endorse, otherwise become or remain
secondarily liable for or upon the obligations of
others, except:
(a) by endorsement for deposit in the ordinary course
of business; and
(b) its Guaranty of indebtedness of DT.
9.4 Make payments or distributions to DWC's
shareholders, Affiliates and/or controlling persons or
entities, except for dividends to DSI.
9.5 Purchase or otherwise acquire or become
obligated for the purchase of all or substantially all
of the assets of business interests of any person, firm
or corporation or any shares of stock of any
corporation, trusteeship or association or in any other
manner effectuate or attempt to effectuate an expansion
of present business by acquisition.
9.6 Make or allow to remain outstanding any
investment (whether such investment shall be of the
character of investment in shares of stock, evidences of
indebtedness or other securities or otherwise) in, or
any loans or advances to, any person, firm, corporation
or other entity or association except:
(a) Loans and advances to employees, officers
and directors not to exceed $200,000 in aggregate amount
at any time outstanding;
(b) Loans and investments in customers of DWC
arising in the ordinary course of business as the result
of the compromise or settlement of accounts payable
owing by such customers; and
(c) Loans and advances to DT or DSI.
9.7 Affirmatively pledge or mortgage any of its
assets, whether now owned or hereafter acquired, or
create, suffer or permit to exist any lien, security
interest in, or encumbrance thereon, except Permitted
Liens.
9.8 Sell, assign, transfer or confer a security
interest in any account, contract, note, trade
acceptance or other receivable, except to Bank.
9.9 Become or remain obligated for any
indebtedness for borrowed money, or for any indebtedness
incurred in connection with the acquisition of any
property, real or personal, tangible or intangible,
except for indebtedness to Bank and purchase money
indebtedness and capital lease obligations for fixed
assets incurred in connection with purchases of fixed
assets (or any refinancings thereof) to the extent
permitted in the DSI Guaranty.
10. NEGATIVE COVENANTS OF DT
DT covenants and agrees that so long as any indebtedness
remains outstanding under this Agreement or any of the
Notes, DT will not without the prior written consent of
Bank:
10.1 Purchase, acquire or redeem any of its capital
stock or make any material change in its capital
structure or general business objects or purpose, or pay
dividends on any class of its capital stock.
10.2 Enter into any merger or consolidation or
sell, lease, transfer, or dispose of all, substantially
all, or any material part of its assets.
10.3 Guarantee, endorse, otherwise become or remain
secondarily liable for or upon the obligations of
others, except by endorsement for deposit in the
ordinary course of business.
10.4 Make payments or distributions to DT's
shareholders, Affiliates and/or controlling persons or
entities, except for dividends paid to DSI.
10.5 Purchase or otherwise acquire or become
obligated for the purchase of all or substantially all
of the assets of business interests of any person, firm
or corporation or any shares of stock of any
corporation, trusteeship or association or in any other
manner effectuate or attempt to effectuate an expansion
of present business by acquisition.
10.6 Make or allow to remain outstanding any
investment (whether such investment shall be of the
character of investment in shares of stock, evidences of
indebtedness or other securities or otherwise) in, or
any loans or advances to, any person, firm, corporation
or other entity or association except:
(a) Loans and advances to employees, officers
and directors not to exceed $200,000 in aggregate amount
at any time outstanding;
(b) Loans and investments in customers of DT
arising in the ordinary course of business as the result
of the compromise or settlement of accounts payable
owing by such customers; and
(c) Loans and advances to DSI or DWC.
10.7 Affirmatively pledge or mortgage any of its
assets, whether now owned or hereafter acquired, or
create, suffer or permit to exist any lien, security
interest in, or encumbrance thereon, except Permitted
Liens.
10.8 Sell, assign, transfer or confer a security
interest in any account, contract, note, trade
acceptance or other receivable, except to Bank.
10.9 Become or remain obligated for any
indebtedness for borrowed money, or for any indebtedness
incurred in connection with the acquisition of any
property, real or personal, tangible or intangible,
except for indebtedness to Bank and purchase money
indebtedness and capital lease obligations for fixed
assets incurred in connection with purchases of fixed
assets (or any refinancings thereof) to the extent
permitted in the DSI Guaranty.
11. DEFAULTS
11.1 Upon (i) non-payment of the principal due
under the terms of this Agreement or on any Note, or
(ii) upon non-payment of interest or any other amount
required to be paid by either Borrower hereunder when
due in accordance with the terms hereof or the
performance of any covenant set forth in Section 9.1 or
10.1 hereof and the expiration of three (3) Business
Days after notice to such Borrower by Bank, Bank's
commitment to make further Advances and to issue Letters
of Credit under this Agreement shall automatically
terminate and the Notes shall, at Bank's sole
discretion, become immediately due and payable.
11.2 Upon occurrence of any of the following
defaults:
(a) default in the observance or performance
of any of the conditions, covenants or agreements of
Borrowers set forth in this Agreement and, in the case
only of the covenants set forth in Sections 7.2, 7.6,
7.7., 7.9, 7.10, 8.2, 8.6., 8.7, 8.10, or 8.11 hereof,
continuation thereof for a period in excess of thirty
(30) days from the earlier of a Borrower's actual
knowledge thereof or Bank's written notice to Borrowers
thereof;
(b) failure in the observance or performance
of any other conditions or covenants of either Borrower
set forth herein or any Loan Document and the expiration
of any period for cure thereof (if any) provided
therein;
(c) any representation or warranty made by a
Borrower herein or in any Loan Document or any other
instrument submitted pursuant hereto proves untrue in
any material respect;
(d) default in the payment of any other
obligation of a Borrower or a Guarantor for borrowed
money in principal amount in excess of the sum of Fifty
Thousand Dollars ($50,000), or in the observance or
performance of any conditions, covenants or agreements
related or given with respect thereto and continuation
of such default for ten (10) days after the occurrence
of such default;
(e) judgments for payment of money in excess
of the sum of Fifty Thousand ($50,000) in the aggregate
shall be rendered against a Borrower or a Guarantor, and
any of such judgments shall remain unpaid, unvacated,
unbonded or unstayed by appeal or otherwise for a period
of sixty (60) consecutive days from the date of its
entry;
(f) (i) uninsured or underinsured loss,
theft, substantial damage or destruction to or of any
part of the Collateral (as defined in the Security
Agreement) to the extent that the Formula Amount less
the uninsured or underinsured loss is less than the
aggregate amount of Advances and Letters of Credit
outstanding; provided, however, Borrower has 10 business
days to cure any such deficiency by reducing the amount
of Advances outstanding or by pledging additional
collateral to Bank; or (ii) the issuance or filing of
any attachment, levy, garnishment or the commencement of
any proceeding in connection with any Collateral;
(g) a default by DSI or DWC under their
respective Guaranties;
Bank's commitment to make further Advances and to issue
Letters of Credit under this Agreement shall
automatically terminate and then, or at any time
thereafter, Bank may give notice to Borrowers declaring
all outstanding indebtedness hereunder and under the
Notes to be due and payable, whereupon all indebtedness
then outstanding hereunder and under the Notes shall
immediately become due and payable without further
notice or demand.
11.3 If a creditors' committee shall have been
appointed for the business of Borrower or Guarantor; or
if Borrower or Guarantor shall have made a general
assignment for the benefit of creditors or shall have
been adjudicated bankrupt, or shall have filed a
voluntary petition in bankruptcy or for reorganization
or to effect a plan or arrangement with creditors; or
shall file an answer to a creditor's petition or other
petition filed against it, admitting the material
allegations thereof for an adjudication in bankruptcy or
for reorganization; or shall have applied for or
permitted the appointment of a receiver or trustee or
custodian for any of its property or assets; or such
receiver, trustee or custodian shall have been appointed
for any of its property or assets (otherwise than upon
application or consent of such person) and such
receiver, trustee, or custodian so appointed shall not
have been discharged within forty-five (45) days after
the date of his appointment; or if an order shall be
entered and shall not be dismissed or stayed within
forty-five (45) days from its entry, approving any
petition for reorganization of a Borrower or Guarantor;
then Bank's commitment to make further Advances or issue
Letters of Credit under this Agreement shall
automatically terminate and the Notes and all
indebtedness then outstanding hereunder shall
automatically become immediately due and payable.
11.4 Upon the occurrence of any of the defaults
specified in Sections 11.1, 11.2, or 11.3, Borrowers
shall deposit with Bank Cash Collateral in the
aggregate, undrawn face amount of any Letters of Credit.
11.5 From and after the maturity of any Debt
(whether upon stated maturity or any accelerated date
for payment thereof) Debt outstanding under this
Agreement and the Notes shall bear interest at three
percent (3%) above the Applicable Interest Rate as it
may vary from time to time, which interest shall be
payable daily.
12. MISCELLANEOUS
12.1 This Agreement shall be binding upon and shall
inure to the benefit of Borrowers and Bank and their
respective successors and assigns, except that the
credit provided for under this Agreement and no part
thereof and no obligation of Bank hereunder shall be
assignable or otherwise transferable by Borrowers.
12.2 Where the character or amount of any asset or
liability or item of income or expense is required to be
determined or any other accounting computation is
required to be made for the purposes of this Agreement,
unless the calculation of such item, amount or
computation is specifically defined to the contrary
herein, it shall be done in accordance with GAAP.
12.3 No delay or failure of Bank in exercising any
right, power or privilege hereunder shall affect such
right, power or privilege, nor shall any single or
partial exercise thereof preclude any further exercise
thereof, or the exercise of any other power, right or
privilege. The rights of Bank under this Agreement are
cumulative and not exclusive of any right or remedies
which Bank would otherwise have.
12.4 Until Borrowers or Bank, as the case may be,
shall notify one another in writing that notices shall
be sent to some other address, in which case subsequent
notice shall be completed upon mailing by certified mail
to such subsequent address, all notices with respect to
this Agreement shall be deemed to be completed upon
mailing by certified mail to the following:
To Borrowers:
Datron Systems Incorporated
304 Enterprise Street
Escondido, California 92029
Attn: William L. Stephan
To Bank:
Comerica Bank-California
600 "B" Street, Suite 100
San Diego, California 92101
Attn: William A. Burzynski
All agreements between the Borrowers and the Bank
pertaining to the indebtedness described herein are
expressly limited so that in no event whatsoever shall
the amount of interest paid or agreed to be paid to the
Bank exceed the highest rate of interest permissible
under applicable law. If, from any circumstances
whatsoever, fulfillment of any provision of this
Agreement, the Loan Documents, the Notes or any other
instrument securing the Notes or all or any part of the
indebtedness secured thereby, at the time performance of
such provision shall be due, shall involve exceeding the
interest limitation validly prescribed by law which a
court of competent jurisdiction may deem applicable
thereto, then, the obligation to be fulfilled shall be
reduced to an amount computed at the highest rate of
interest permissible under such applicable law, and if,
for any reason whatsoever, the Bank shall ever receive
as interest an amount which would be deemed unlawful
under such applicable law, such interest shall be
automatically applied to the payment of the principal
amount described herein or otherwise owed by the
relevant Borrowers to Bank (whether or not then due and
payable) and not to payment of interest.
12.5 This Agreement, the Loan Documents and the
Notes shall be governed by, and construed and enforced
in accordance with, California law.
12.6 Borrowers hereby indemnify, save and hold Bank
and any of its past, present and future officers,
directors, shareholders, employees, representatives and
consultants harmless from any and all loss, damages,
suits, penalties, costs, liabilities and expenses
(including but not limited to reasonable investigation,
environmental audit(s), and legal expenses) arising out
of any claim, loss or damage of any property, injuries
to or death of persons, contamination of or adverse
affects on the environment, or any violation of any
applicable Environmental Laws, caused by or in any way
related to the real property owned by Borrowers, or due
to any acts of Borrowers, its officers, directors,
shareholders, employees, consultants and/or
representatives. In no event shall the Borrowers be
liable hereunder for any loss, damages, suits,
penalties, costs, liabilities or expenses arising from
any act of gross negligence or willful misconduct of
Bank, or its agents or employees.
12.7 It is expressly understood and agreed that the
indemnifications granted herein are intended to protect
Bank, its past, present and future officers, directors,
shareholders, employees, consultants and representatives
from any claims that may arise by reason of the security
interest, liens and/or mortgages granted to Bank, or
under any other document or agreement given to secure
repayment of any indebtedness from Borrowers, whether or
not such claims arise before or after Bank has
foreclosed upon and/or otherwise become the owner of any
such property. All obligations of indemnity as provided
hereunder shall be secured by the Loan Documents.
12.8 It is expressly agreed and understood that the
provisions hereof shall and are intended to be
continuing and shall survive the repayment of any
indebtedness from Borrowers to the Bank.
12.9 Borrowers and the Bank acknowledge that the
right to trial by jury is a constitutional one, but that
it may be waived, and, after consulting with counsel of
their choice, knowingly and voluntarily, and for their
mutual benefit, waive any right to trial by jury in the
event of litigation regarding the performance or
enforcement of, or in any way related hereto.
[signature page follows]
WITNESS the due execution hereof as of the day and year
first above written.
COMERICA BANK DATRON WORLD COMMUNICATIONS INC.
By:/s/ WILLIAM A. BURZYNSKI By:/s/ WILLIAM L. STEPHAN
Its: Vice President Its: Secretary/Treasurer
DATRON/TRANSCO INC.
By:/s/ WILLIAM L. STEPHAN
Its: Secretary/Treasurer
EXHIBIT 10.68
ANNEX B
EXPORT-IMPORT BANK OF THE UNITED STATES
WORKING CAPITAL GUARANTEE PROGRAM
BORROWER AGREEMENT
THIS BORROWER AGREEMENT (this "Agreement") is made
and entered into by the entity identified as the
Borrower on the signature page hereof (the "Borrower")
and is acknowledged by the institution identified as the
Lender on the signature page hereof (the "Lender").
RECITALS
A. The Lender shall make a loan (the "Loan") to
the Borrower for the purpose of providing the Borrower
with pre-export working capital to finance the
manufacture, production or purchase and subsequent
export sale of the Items (as hereinafter defined).
B. The Loan shall be in a principal amount (the
"Loan Amount") not to exceed at any time outstanding the
amount specified in Section (5)(A) of the Loan
Authorization Agreement between the Lender and the
Export-Import Bank of the United States ("Eximbank")
which is attached hereto as Annex A1 or Annex A2 and
incorporated herein as a part of this Agreement. If the
Loan is being made pursuant to the Lender's Delegated
Authority from Eximbank, all references herein to the
Loan Authorization Agreement shall be deemed to be to
the Loan Authorization Notice provided to Eximbank and
the Borrower by the Lender.
C. The Loan shall be evidenced by a valid and
enforceable promissory note payable by the Borrower to
the order of the Lender (the "Note") and shall be made
pursuant to a written agreement related solely thereto
between the Borrower and the Lender (the "Loan
Agreement").
D. A condition precedent to the making of the Loan
by the Lender is that Eximbank guarantee the payment of
ninety percent (90%) of the Loan Amount and all interest
accrued thereon, subject to the terms and conditions of
a master guarantee agreement (the "Master Guarantee
Agreement") between Eximbank and the Lender.
E. In consideration for and as a condition
precedent to the Lender's making the Loan and Eximbank's
entering into the Master Guarantee Agreement, the
Borrower shall execute this Agreement for the benefit of
the Lender and Eximbank.
NOW, THEREFORE, the Borrower hereby agrees as
follows:
ARTICLE I
DEFINITIONS
"Accounts Receivable" shall mean those trade
accounts from the sale of the Items due and payable to
the Borrower in the United States and any notes, drafts,
letters of credit or insurance proceeds supporting
payment thereof.
"Availability Date" shall mean the last date on
which the Lender may make a Disbursement as set forth in
Section (10) of the Loan Authorization Agreement or, if
such date is not a Business Day, the next Business Day
thereafter.
"Borrowing Base" shall mean the Collateral Value
as discounted by the applicable Disbursement Rate(s).
"Borrowing Base Certificate" shall mean the
certificate in form provided by the Lender and executed
by the Borrower setting forth the Borrowing Base
supporting one or more Disbursements.
"Business Day" shall mean any day on which the
Federal Reserve Bank of New York is open for business.
"Buyer" shall mean an entity which has entered into
one or more Export Orders with the Borrower.
"Closing Date" shall mean the date on which the
Loan Documents are executed by the Borrower.
"Collateral" shall mean the property of the
Borrower in which the Borrower has granted to the Lender
a valid and enforceable security interest as security
for the payment of all principal and interest due under
the Loan, and which is identified in Section (6) of the
Loan Authorization Agreement, including all proceeds
(cash and non-cash) thereof.
"Collateral Value" shall mean at any given time the
value of all Collateral against which Disbursements may
be made as set forth in Section (5)(C) of the Loan
Authorization Agreement, valued according to GAAP.
"Country Limitation Schedule" shall mean the most
recent schedule published by Eximbank and provided to
the Borrower by the Lender which sets forth on a country
by country basis whether and under what conditions
Eximbank will provide coverage for the financing of
export transactions to countries listed therein.
"Debarment Regulations" shall have the meaning set
forth in Section 2.16.
"Disbursed Amount" shall mean the aggregate
outstanding amount of the Disbursements.
"Disbursement" shall mean an advance of the Loan
from the Lender to the Borrower under the Loan
Agreement.
"Disbursement Rate" shall mean the rate specified
in Section (5)(C) of the Loan Authorization Agreement
for each category of Collateral.
"Dollars" or "$" shall mean the lawful money of the
United States of America.
"Export Order" shall mean a written export order or
contract for the purchase by the Buyer from the Borrower
of any of the Items.
"GAAP" shall mean the generally accepted accounting
principles issued by the American Institute of Certified
Public Accountants.
"Guarantor" shall mean each person or entity, if
any, identified in Section (3) of the Loan Authorization
Agreement who shall guarantee (jointly and severally if
more than one) the Borrower's obligation to repay all
amounts outstanding under the Note.
"Inventory" shall mean the raw materials, work-in-
process and finished goods purchased or manufactured by
the Borrower for resale and located in the United
States.
"Items" shall mean the finished goods or services
which are intended for export, as specified in Section
(4)(A) of the Loan Authorization Agreement.
"Letter of Credit" shall mean an irrevocable letter
of credit subject to UCP 500, payable in the United
States or at the issuing bank and issued for the benefit
of the Borrower on behalf of a Buyer in connection with
the purchase of the Items.
"Loan Documents" shall mean the Note, the Loan
Agreement, this Agreement and any other instrument,
agreement or document previously, simultaneously or
hereafter executed by the Borrower or any Guarantors
evidencing, securing, guaranteeing or in connection with
the Loan.
"Principals" shall have the meaning set forth in
Section 2.16.
"Revolving Loan" shall mean a Loan under which
amounts disbursed and repaid may be disbursed on a
continuous basis during the term of the Loan.
"Transaction Specific Loan" shall mean a Loan under
which amounts disbursed and repaid may not be disbursed
again.
"U.S." or "United States" shall mean the United
States of America and its territorial possessions.
"U.S. Content" shall mean with respect to any Item
all the labor, materials and services which are of U.S.
origin or manufacture, and which are incorporated into
an Item in the United States.
ARTICLE II
OBLIGATIONS OF THE BORROWER
Until payment in full of the Loan, the Borrower
agrees to the following:
Section 2.1 Use of Disbursements. The Borrower
shall use Disbursements only for the purpose of enabling
the Borrower to finance the cost of manufacturing,
producing, purchasing or selling the Items. The
Borrower may not use Disbursements for the purpose of:
(a) servicing any of the Borrower's pre-existing or
future indebtedness unrelated to the Loan; (b) acquiring
fixed assets or capital goods for use in the Borrower's
business; (c) acquiring, equipping or renting commercial
space outside of the United States; (d) paying the
salaries of non-U.S. citizens or non-U.S. permanent
residents who are located in offices outside the United
States; or (e) serving as a retainage or warranty bond.
In addition, Disbursements may not be used to
finance the manufacture, purchase or sale of any of the
following:
(a) Items to be sold to a Buyer located in a
country in which Eximbank is legally prohibited from
doing business as designated in the Country Limitation
Schedule;
(b) that part of the cost of the Items which is not
U.S. Content unless such part is not greater than fifty
percent (50%) of the cost of the Items and is
incorporated into the Items in the United States;
(c) defense articles or defense services; or
(d) without Eximbank's prior written consent, any
Items to be used in the construction, alteration,
operation or maintenance of nuclear power, enrichment,
reprocessing, research or heavy water production
facilities.
Section 2.2 Borrowing Base Certificates and Export
Orders. In order to receive a Disbursement under the
Loan, the Borrower shall deliver to the Lender a
Borrowing Base Certificate current within the past five
(5) Business Days and a copy of the Export Order(s)
(or, for Revolving Loans, if permitted by the Lender, a
written summary of the Export Orders) against which the
Borrower is requesting a Disbursement. If the Lender
permits summaries of Export Orders, the Borrower shall
also deliver promptly to the Lender copies of any Export
Orders requested by the Lender. Additionally, the
Borrower shall deliver to the Lender at least once every
thirty (30) calendar days a Borrowing Base Certificate
current within the past five (5) Business Days, which
requirement may be satisfied by submission of a
Borrowing Base Certificate when requesting a
Disbursement.
Section 2.3 Exclusions from the Borrowing Base. In
determining the amount of a requested Disbursement, the
Borrower shall exclude from the Borrowing Base the
following:
(a) any Inventory which is not located in the
United States;
(b) any demonstration Inventory or Inventory
sold on consignment;
(c) any Inventory consisting of proprietary
software;
(d) any Inventory which is damaged, obsolete,
returned, defective, recalled or unfit for further
processing;
(e) any Inventory which has been previously
exported from the United States;
(f) any Inventory which constitutes defense
articles or defense services or any Accounts Receivable
generated by sales of such Inventory;
(g) any Inventory which is to be incorporated
into Items destined for shipment to, and any Account
Receivable in the name of a Buyer located in, a country
in which Eximbank is legally prohibited from doing
business as designated in the Country Limitation
Schedule;
(h) any Inventory which is to be incorporated
into Items destined for shipment to, and any Account
Receivable in the name of a Buyer located in, a country
in which Eximbank coverage is not available for
commercial reasons as designated in the Country
Limitation Schedule, unless and only to the extent that
such Items are to be sold to such country on terms of a
Letter of Credit confirmed by a bank acceptable to
Eximbank;
(i) any Inventory which is to be incorporated
into Items whose sale would result in an ineligible
Account Receivable;
(j) any Account Receivable with a term in
excess of net one hundred eighty (180) days;
(k) any Account Receivable which is more than
sixty (60) calendar days past the original due date,
unless it is insured through Eximbank export credit
insurance for comprehensive commercial and political
risk, or through Eximbank approved private insurers for
comparable coverage, in which case ninety (90) calendar
days shall apply;
(l) any intra-company Account Receivable or
any Account Receivable from a subsidiary of the
Borrower, from a person or entity with a controlling
interest in the Borrower or from an entity which shares
common controlling ownership with the Borrower;
(m) any Account Receivable evidenced by a
Letter of Credit, until the date of shipment of the
Items covered by the subject Letter of Credit;
(n) any Account Receivable which the Lender or
Eximbank, in its reasonable judgment, deems
uncollectible for any reason;
(o) any Account Receivable payable in a
currency other than Dollars, except as may be approved
in writing by Eximbank;
(p) any Account Receivable from a military
Buyer, except as may be approved in writing by Eximbank;
and
(q) any Account Receivable due and collectible
outside the United States, except as may be approved in
writing by Eximbank.
Section 2.4 Schedules, Reports and Other
Statements. The Borrower shall submit to the Lender in
writing each month (a) an Inventory schedule for the
preceding month and (b) an Accounts Receivable aging
report for the preceding month detailing the terms of
the amounts due from each Buyer. The Borrower shall
also furnish to the Lender promptly upon request such
information, reports, contracts, invoices and other data
concerning the Collateral as the Lender may from time to
time specify.
Section 2.5 Additional Security or Payment. The
Borrower shall at all times ensure that the Borrowing
Base exceeds the Disbursed Amount. If informed by the
Lender or if the Borrower otherwise has actual knowledge
that the Borrowing Base is at any time less than the
Disbursed Amount, the Borrower shall, within five (5)
Business Days, either (a) furnish additional security to
the Lender, in form and amount satisfactory to the
Lender and Eximbank, or (b) pay to the Lender an amount
equal to the difference between the Disbursed Amount and
the Borrowing Base.
Section 2.6 Continued Security Interest. The
Borrower shall notify the Lender in writing within five
(5) Business Days if (a) the Borrower changes its name
or identity in any manner, (b) the Borrower changes the
location of its principal place of business, (c) the
nature of any of the Collateral is changed or any of the
Collateral is transferred to another location or (d) any
of the books or records related to the Collateral are
transferred to another location. The Borrower shall
execute such additional financing statements or other
documents as the Lender may reasonably request in order
to maintain its perfected security interest in the
Collateral.
Section 2.7 Inspection of Collateral. The Borrower
shall permit the representatives of the Lender and
Eximbank to make at any time during normal business
hours reasonable inspections of the Collateral and of
the Borrower's facilities, activities, and books and
records, and shall cause its officers and employees to
give full cooperation and assistance in connection
therewith.
Section 2.8 Notice of Debtor's Relief, Dissolution
and Litigation. The Borrower shall notify the Lender in
writing within five (5) Business Days of the occurrence
of any of the following:
(a) a proceeding in bankruptcy or an action
for debtor's relief is filed by, against, or on behalf
of the Borrower;
(b) the Borrower fails to obtain the dismissal
or termination within thirty (30) calendar days of the
commencement of any proceeding or action referred to in
(a) above;
(c) the Borrower begins any procedure for its
dissolution or liquidation, or a procedure therefore has
been commenced against it; or
(d) any material litigation is filed against
the Borrower.
Section 2.9 Insurance. The Borrower shall
maintain insurance coverage in the manner and to the
extent customary in businesses of similar character.
Section 2.10 Merger or Consolidation. Without the
prior written consent of Eximbank and the Lender, the
Borrower shall not (a) merge or consolidate with any
other entity, (b) sell, lease, transfer or otherwise
dispose of any substantial part of its assets, or any
part of its assets which are essential to the conduct of
its business or operations, (c) make any material change
in its organizational structure or identity, or (d)
enter into any agreement to do any of the foregoing.
Section 2.11 Reborrowings and Repayment Terms.
(a) If the Loan is a Revolving Loan, provided that the
Borrower is not in default under any of the Loan
Documents, the Borrower may borrow, repay and reborrow
amounts under the Loan until the close of business on
the Availability Date. Unless the Revolving Loan is
renewed or extended by the Lender, the Borrower shall
pay in full the outstanding Loan Amount and all accrued
and unpaid interest thereon no later than the first
Business Day after the Availability Date.
(b) If the Loan is a Transaction Specific Loan,
the Borrower shall, within two (2) Business Days of the
receipt thereof, pay to the Lender (for application
against the outstanding Loan Amount and accrued and
unpaid interest thereon) all checks, drafts, cash and
other remittances it may receive in payment or on
account of the Accounts Receivable or any other
Collateral, in precisely the form received (except for
the endorsement of the Borrower where necessary).
Pending such deposit, the Borrower shall not commingle
any such items of payment with any of its other funds or
property, but will hold them separate and apart.
Section 2.12 Cross Default. The Borrower shall be
deemed in default under the Loan if the Borrower fails
to pay when due any amount payable to the Lender under
any loan to the Borrower not guaranteed by Eximbank.
Section 2.13 Financial Statements. The Borrower
shall provide quarterly financial statements to the
Lender no later than forty-five (45) days after the end
of each quarter. This is in addition to any other
financial statements that may be required by the Lender
under the Loan Agreement.
Section 2.14 Taxes, Judgments and Liens. The
Borrower shall remain current on all of its federal,
state and local tax obligations. In addition, the
Borrower shall notify the Lender in the event (i) any
judgment is rendered against the Borrower, or (ii) any
lien is filed against any of the assets of the Borrower.
Section 2.15 Munitions List. If any of the Items
are articles, services, or related technical data that
are listed on the United States Munitions List (part 121
of title 22 of the Code of Federal Regulations), the
Borrower shall send a written notice promptly to the
Lender describing the Item(s) and the corresponding
invoice amount.
Section 2.16 Suspension and Debarment, etc. On the
date of this Agreement neither the Borrower nor its
Principals (as defined below) are (A) debarred,
suspended, proposed for debarment with a final
determination still pending, declared ineligible or
voluntarily excluded (as such terms are defined under
any of the Debarment Regulations referred to below)
from participating in procurement or nonprocurement
transactions with any United States federal government
department or agency pursuant to any of the Debarment
Regulations (as defined below) or (B) indicted,
convicted or had a civil judgment rendered against the
Borrower or any of its Principals for any of the
offenses listed in any of the Debarment Regulations.
Unless authorized by Eximbank, the Borrower will not
knowingly enter into any transactions in connection with
the Items with any person who is debarred, suspended,
declared ineligible or voluntarily excluded from
participation in procurement or nonprocurement
transactions with any United States federal government
department or agency pursuant to any of the Debarment
Regulations. The Borrower will provide immediate
written notice to the Lender if at any time it learns
that the certification set forth in this Section 2.16
was erroneous when made or has become erroneous by
reason of changed circumstances. For the purposes
hereof, (1) "Principals" shall mean any officer,
director, owner, partner, key employee, or other person
with primary management or supervisory responsibilities
with respect to the Borrower; or any other person
(whether or not an employee) who has critical influence
on or substantive control over the transaction covered
by this Agreement and (2) the Debarment Regulations
shall mean (x) the Governmentwide Debarment and
Suspension (Nonprocurement) regulations (Common Rule),
53 Fed. Reg. 19204 (May 26, 1988), (y) Subpart 9.4
(Debarment, Suspension, and Ineligibility) of the
Federal Acquisition Regulations, 48 C.F.R. 9.400-9.409
and (z) the revised Governmentwide Debarment and
Suspension (Nonprocurement) regulations (Common Rule),
60 Fed. Reg. 33037 (June 26, 1995).
Section 2.17 Special Conditions. The Borrower
shall comply with all Special Conditions, if any,
referenced in Section (11) of the Loan Authorization
Agreement or the Loan Authorization Notice.
ARTICLE III
RIGHTS AND REMEDIES
Section 3.1 Indemnification. Upon Eximbank's
payment of a claim to the Lender in connection with the
Loan pursuant to the Master Guarantee Agreement,
Eximbank shall assume all rights and remedies of the
Lender under the Loan Documents and may enforce any such
rights or remedies against the Borrower, the Collateral
and any Guarantors. Additionally, the Borrower shall
hold Eximbank and the Lender harmless from and indemnify
them against any and all liabilities, damages, claims,
costs and losses incurred or suffered by either of them
resulting from (a) any materially incorrect
certification or statement knowingly made by the
Borrower or its agent to Eximbank or the Lender in
connection with the Loan, this Agreement or any of the
other Loan Documents or (b) any material breach by the
Borrower of the terms and conditions of this Agreement
or any of the other Loan Documents. The Borrower also
acknowledges that any statement, certification or
representation made by the Borrower in connection with
the Loan is subject to the penalties provided in Article
18 U.S.C. Section 1001.
ARTICLE IV
MISCELLANEOUS
Section 4.1 Governing Law. This Agreement shall be
governed by, and construed in accordance with, the law
of the State of California, United States of America.
Section 4.2 Notification. All notifications
required by this Agreement shall be given in the manner
provided in the Loan Agreement.
Section 4.3 Partial Invalidity. If at any time any
of the provisions of this Agreement becomes illegal,
invalid or unenforceable in any respect under the law of
any jurisdiction, neither the legality, the validity nor
the enforceability of the remaining provisions hereof
shall in any way be affected or impaired.
IN WITNESS WHEREOF, the Borrower has caused this
Agreement to be duly executed as of the 24th day of
March, 1999.
Datron/Transco Inc.
(Name of Borrower)
By:/s/ WILLIAM L. STEPHAN
(Signature)
Name William L. Stephan
(Print or Type)
Title Secretary and Treasurer
(Print or Type)
ACKNOWLEDGED:
Comerica Bank-California
(Name of Lender)
By:/s/ WILLIAM A. BURZYNSKI
(Signature)
Name William A. Burzynski
(Print or Type)
Title Vice President
(Print or Type)
Guaranteed Loan No.__________________
ANNEXES:
A1 - Loan Authorization Agreement or
A2 - Loan Authorization Notice
(Revised April 1, 1996)
EXHIBIT 10.69
GUARANTY OF DATRON SYSTEMS INCORPORATED OF THE
INDEBTEDNESS OF DATRON WORLD COMMUNICATIONS INC. AND
DATRON/TRANSCO INC. TO COMERICA BANK-CALIFORNIA DATED
MARCH 24, 1999
Guaranty
As of March 24, 1999, the undersigned, for value
received, unconditionally and absolutely guarantees to
Comerica Bank - California ("Bank"), a California
banking corporation, payment when due, whether by stated
maturity, demand, acceleration or otherwise, of all
existing and future indebtedness ("Indebtedness") to the
Bank of Datron World Communications Inc., a California
corporation ("DWC"), and Datron/Transco Inc., a
California corporation ("DT", and together with DWC,
"Borrower"). Indebtedness includes without limit any
and all obligations or liabilities of the Borrower to
the Bank, whether absolute or contingent, direct or
indirect, voluntary or involuntary, liquidated or
unliquidated, joint or several, known or unknown; any
and all indebtedness, obligations or liabilities for
which Borrower would otherwise be liable to the Bank
were it not for the invalidity, irregularity or
unenforceability of them by reason of any bankruptcy,
insolvency or other law or order of any kind, or for any
other reason; all amendments, modifications, renewals
and/or extensions of the above; and all costs of
collecting Indebtedness, including, without limit,
attorney fees. Any reference in this Guaranty to
attorney fees shall be deemed a reference to reasonable
fees, charges, costs and expenses of both in-house and
outside counsel and paralegals, whether or not a suit or
action is instituted, and to court costs if a suit or
action is instituted, and whether attorney fees or court
costs are incurred at the trial court level, on appeal,
in a bankruptcy, administrative or probate proceeding or
otherwise. All costs shall be payable by the
undersigned when incurred by the Bank, without demand,
and if not paid within ten (10) business days of when
first due, shall bear interest at the default rate of
interest applicable to the Indebtedness under Borrower's
agreements with Bank until paid in full, but not in
excess of the maximum rate permitted by law.
1. LIMITATION: The total obligation of the undersigned
under this Guaranty shall include, IN ADDITION TO the
principal guaranteed, all interest on the principal
amount, and all costs incurred by the Bank in collection
efforts against the Borrower and/or the undersigned or
otherwise incurred by the Bank in any way relating to
the Indebtedness, or this Guaranty, including without
limit attorney fees. The undersigned agrees that (a)
this limitation shall not be a limitation on the amount
of Borrower's Indebtedness to the Bank; (b) any payments
by the undersigned shall not reduce the maximum
liability of the undersigned under this Guaranty unless
written notice to that effect is actually received by
the Bank at, or prior to, the time of the payment; and
(c) the liability of the undersigned to the Bank shall
at all times be deemed to be the aggregate liability of
the undersigned under this Guaranty and any other
guaranties previously or subsequently given to the Bank
by the undersigned and not expressly revoked, modified
or invalidated in writing.
2. NATURE OF GUARANTY: This is a continuing Guaranty
of payment and not of collection, and remains effective
whether the Indebtedness is from time to time reduced
and later increased or entirely extinguished and later
reincurred. The undersigned delivers this Guaranty
based solely on the undersigned's independent
investigation of (or decision not to investigate) the
financial condition of Borrower and is not relying on
any information furnished by the Bank. The undersigned
assumes full responsibility for obtaining any further
information concerning the Borrower's financial
condition, the status of the Indebtedness or any other
matter which the undersigned may deem necessary or
appropriate now or later. The undersigned knowingly
accepts the full range of risk encompassed in this
Guaranty, which risk includes, without limit, the
possibility that Borrower may incur Indebtedness to the
Bank after the financial condition of the Borrower, or
the Borrower's ability to pay debts as they mature, has
deteriorated.
3. APPLICATION OF PAYMENTS: The undersigned
authorizes the Bank, either before or after termination
of this Guaranty, without notice to or demand on the
undersigned and without affecting the undersigned's
liability under this Guaranty, from time to time to: (a
apply any security and direct the order or manner of
sale; and (b) apply payments received by the Bank from
the Borrower to any indebtedness of the Borrower to the
Bank, in such order as the Bank shall determine in its
sole discretion, whether or not this indebtedness is
covered by this Guaranty, and the undersigned waives any
provision of law regarding application of payments which
specifies otherwise. The undersigned agrees to provide
to the Bank copies of the undersigned's financial
statements upon request.
4. SETOFF: The undersigned acknowledges the Bank's
right of setoff as to any and all deposits and other
amounts from time to time in the possession of, or owing
to the undersigned by, the Bank. The undersigned
further assigns to the Bank as collateral for the
obligations of the undersigned under this Guaranty all
claims of any nature that the undersigned now or later
has (have) against the Borrower (other than any claim
under a deed of trust or mortgage covering California
real property) with full right on the part of the Bank,
in its own name or in the name of the undersigned, to
collect and enforce these claims. The undersigned
agrees that no security now or later held by the Bank
for the payment of any Indebtedness, whether from the
Borrower, any guarantor, or otherwise, and whether in
the nature of a security interest, pledge, lien,
assignment, setoff, suretyship, guaranty, indemnity,
insurance or otherwise, shall affect in any manner the
unconditional obligation of the undersigned under this
Guaranty, and the Bank, in its sole discretion, without
notice to the undersigned, may release, exchange,
enforce and otherwise deal with any security without
affecting in any manner the unconditional obligation of
the undersigned under this Guaranty. The undersigned
acknowledges and agrees that the Bank has no obligation
to acquire or perfect any lien on or security interest
in any asset(s), whether realty or personalty, to secure
payment of the Indebtedness, and the undersigned is not
relying upon any asset(s) in which the Bank has or may
have a lien or security interest for payment of the
Indebtedness.
5. OTHER GUARANTORS: If any Indebtedness is
guaranteed by two or more guarantors, the obligation of
the undersigned shall be several and also joint, each
with all and also each with any one or more of the
others, and may be enforced at the option of the Bank
against each severally, any two or more jointly, or some
severally and some jointly. The Bank, in its sole
discretion, may release any one or more of the
guarantors for any consideration which it deems
adequate, and may fail or elect not to prove a claim
against the estate of any bankrupt, insolvent,
incompetent or deceased guarantor; and after that,
without notice to any guarantor, the Bank may extend or
renew any or all Indebtedness and may permit the
Borrower to incur additional Indebtedness, without
affecting in any manner the unconditional obligation of
the remaining guarantor(s). The undersigned
acknowledges that the effectiveness of this Guaranty is
not conditioned on any or all of the indebtedness being
guaranteed by anyone else.
6. TERMINATION: The undersigned may not terminate its
obligation under this Guaranty as to future Indebtedness
(except as provided below) by (and only by) delivering
written notice of termination to an officer of the Bank
and receiving from an officer of the Bank written
acknowledgment of delivery; provided, however, the
termination shall not be effective until the opening of
business on the fifth (5th) day ("effective date")
following written acknowledgment of delivery. Any
termination shall not affect in any way the
unconditional obligations of the remaining guarantor(s),
if any, whether or not the termination is known to the
remaining guarantor(s). Any termination shall not
affect in any way the unconditional obligations of the
terminating guarantor(s) as to any Indebtedness existing
at the effective date of termination or any Indebtedness
created after that pursuant to any commitment or
agreement of the Bank or pursuant to any Borrower loan
with the Bank existing at the effective date of
termination (whether advances or readvances by the Bank
after the effective date of termination are optional or
obligatory), or any modifications, extensions or
renewals of any of this Indebtedness, whether in whole
or in part, and as to all of this Indebtedness and
modifications, extensions or renewals of it, this
Guaranty shall continue effective until the same shall
have been fully paid. The Bank has no duty to give
notice of termination by any guarantor(s) to any
remaining guarantor(s). The undersigned shall indemnify
the Bank against all claims, damages, costs and
expenses, including, without limit, attorney fees,
incurred by the Bank in connection with any suit, claim
or action against the Bank arising out of any
modification or termination of a Borrower loan or any
refusal by the Bank to extend additional credit in
connection with the termination of this Guaranty.
7. REINSTATEMENT: Notwithstanding any prior
revocation, termination, surrender or discharge of this
Guaranty (or of any lien, pledge or security interest
securing this Guaranty) in whole or in part, the
effectiveness of this Guaranty, and of all liens,
pledges and security interests securing this Guaranty,
shall automatically continue or be reinstated in the
event that any payment received or credit given by the
Bank in respect of the Indebtedness is returned,
disgorged or rescinded under any applicable state or
federal law, including, without limitation, laws
pertaining to bankruptcy or insolvency, in which case
this Guaranty, and all liens, pledges and security
interests securing this Guaranty, shall be enforceable
against the undersigned as if the returned, disgorged or
rescinded payment or credit had not been received or
given by the Bank, and whether or not the Bank relied
upon this payment or credit or changed its position as a
consequence of it. In the event of continuation or
reinstatement of this Guaranty and the liens, pledges
and security interests securing it, the undersigned
agrees upon demand by the Bank, to execute and deliver
to the Bank those documents which the Bank determines
are appropriate to further evidence (in the public
records or otherwise) this continuation or
reinstatement, although the failure of the undersigned
to do so shall not affect in any way the reinstatement
or continuation. If the undersigned does not execute
and deliver to the Bank upon demand such documents, the
Bank and each Bank officer is irrevocably appointed
(which appointment is coupled with an interest) the true
and lawful attorney of the undersigned (with full power
of substitution) to execute and deliver such documents
in the name and on behalf of the undersigned.
8. WAIVERS: The undersigned waives any right to
require the Bank to: (a) proceed against any person or
property; (b) give notice of the terms, time and place
of any public or private sale of personal property
security held from the Borrower or any other person, or
otherwise comply with the provisions of Section 9-504
of the California Uniform Commercial Code or other
applicable Uniform Commercial Code; or (c) pursue any
other remedy in the Bank's power. The undersigned
waives notice of acceptance of this Guaranty and
presentment, demand, protest, notice of protest,
dishonor, notice of dishonor, notice of default, notice
of intent to accelerate or demand payment of any
Indebtedness, any and all other notices to which the
undersigned might otherwise be entitled, and diligence
in collecting any Indebtedness, and agrees that the Bank
may, once or any number of times, modify the terms of
any Indebtedness, compromise, extend, increase,
accelerate, renew or forbear to enforce payment of any
or all Indebtedness, or permit the Borrower to incur
additional Indebtedness, all without notice to the
undersigned and without affecting in any manner the
unconditional obligation of the undersigned under this
Guaranty.
The undersigned unconditionally and irrevocably
waives each and every defense and setoff of any
nature which, under principles of guaranty or
otherwise, would operate to impair or diminish in
any way the obligation of the undersigned under this
Guaranty, and acknowledges that each such waiver is
by this reference incorporated into each security
agreement, collateral assignment, pledge and/or
other document from the undersigned now or later
securing this Guaranty and/or the Indebtedness, and
acknowledges that as of the date of this Guaranty no
such defense or setoff exists.
The undersigned understands that, absent this
waiver, Bank's election of remedies, including but
not limited to its decision to proceed to
nonjudicial foreclosure on any real property
securing the Indebtedness, could preclude Bank from
obtaining a deficiency judgment against Borrower and
the undersigned pursuant to California Code of Civil
Procedures Sections 580a, 580b, 580d or 726 and
could also destroy any subrogation rights which the
undersigned has against Borrower. The undersigned
further understands that, absent this waiver,
California law, including without limitation,
California Code of Civil Procedure Sections 580a,
580b, 580d or 726, could afford the undersigned one
or more affirmative defenses to any action
maintained by Bank against the undersigned on this
Guaranty.
Although, the intent of the undersigned and the Bank
is that California law shall apply, the undersigned
waives any and all rights and provisions of
California Code of Civil Procedure Sections 580a,
580b, 580d and 726, including, but not limited to
any provision thereof that: (i) may limit the time
period for Bank to commence a lawsuit against
Borrower or the undersigned to collection any
Indebtedness owing by Borrower or the undersigned to
Bank; (ii) may entitle Borrower or the undersigned
to a judicial or nonjudicial determination of any
deficiency owed by Borrower or the undersigned to
Bank, or to otherwise limit Bank's right to collect
a deficiency based on the fair market value of such
real property security; (iii) may limit Bank's right
to collect a deficiency judgment after a sale of any
real property securing the indebtedness; (iv) may
require Bank to take only one action to collect the
indebtedness or that may otherwise limit the
remedies available to Bank to collect the
Indebtedness.
Although, the intent of the undersigned and the Bank
is that California law shall apply, the undersigned
waives all rights and defenses arising out of an
election of remedies by Bank even though that
election of remedies, such as a nonjudicial
foreclosure with respect to security for a guarantee
obligation, has destroyed the undersigned's rights
of subrogation and reimbursement against Borrower by
the operation of Section 580d of the Code of Civil
Procedure or otherwise.
9. WAIVER OF SUBROGATION: The undersigned postpones
any and all rights (whether by subrogation, indemnity,
reimbursement, or otherwise) to recover from the
Borrower any amounts paid by the undersigned pursuant to
this Guaranty until such time that all Indebtedness has
been finally and irrevocably paid to Bank.
10. SALE/ASSIGNMENT: The undersigned acknowledges that
the Bank has the right to sell, assign, transfer,
negotiate, or grant participations in all or any part of
the Indebtedness and any related obligations, including,
without limit, this Guaranty, without notice to the
undersigned and that the Bank may disclose any documents
and information which the Bank now has or later acquires
relating to the undersigned or to the Borrower in
connection with such sale, assignment, transfer,
negotiation, or grant. The undersigned agrees that the
Bank may provide information relating to this Guaranty
or relating to the undersigned to the Bank's parent,
affiliates, subsidiaries and service providers.
11. WITHHOLDING TAXES: All payments to be made by the
undersigned under this Guaranty shall be made without
setoff or counterclaim and without deduction for or on
account of any present or future withholding or other
taxes of any nature imposed by any governmental
authority or of any political subdivision thereof or any
federation or organization of which such governmental
authority may at the time of payment be a member, unless
the undersigned is compelled by law to make payment
subject to such tax. In such event, the undersigned
shall: (a) pay to the Bank for the account of the Bank
such additional amounts as may be necessary to ensure
that the Bank receives a net amount equal to the full
amount which would have been receivable under this
Guaranty had payment not been made subject to such tax;
and (b) send to the Bank such certificates or certified
copies of receipts as the Bank shall reasonably require
as proof of the payment by the undersigned of any such
taxes payable by the undersigned. As used herein, the
terms "tax", "taxes" and "taxation" include all existing
taxes, levies, imposts, duties, charges, fees,
deductions and withholdings and any restrictions or
conditions resulting in a charge, together with interest
thereon and fines and penalties with respect thereto,
which may be imposed by reason of any violation or
default with respect to the law regarding such tax,
assessed as a result of or in connection with the
Indebtedness or the obligation of the undersigned
hereunder, or the payment or delivery of funds into or
out of any jurisdiction other than the United States
(whether assessed against Borrower, the undersigned or
the Bank).
12. GENERAL: This Guaranty constitutes the entire
agreement of the undersigned and the Bank with respect
to the subject matter of this Guaranty. No waiver,
consent, modification or change of the terms of the
Guaranty shall bind any of the undersigned or the Bank
unless in writing and signed by the waiving party or an
authorized officer of the waiving party, and then this
waiver, consent, modification or change shall be
effective only in the specific instance and for the
specific purpose given. This Guaranty shall inure to
the benefit of the Bank and its successors and assigns
and shall be binding on the undersigned and the
undersigned's heirs, legal representatives, successors
and assigns including, without limit, any debtor in
possession or trustee in bankruptcy for any of the
undersigned. The undersigned has knowingly and
voluntarily entered into this Guaranty in good faith for
the purpose of inducing the Bank to extend credit or
make other financial accommodations to the Borrower. If
any provision of this Guaranty is unenforceable in whole
or in part for any reason, the remaining provisions
shall continue to be effective.
13. GOVERNING LAW AND JURISDICTION: THIS GUARANTY
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE INTERNAL LAWS OF THE STATE OF CALIFORNIA, UNITED
STATES OF AMERICA, WITHOUT REGARD TO CONFLICT OF LAWS
PRINCIPLES; The undersigned hereby irrevocably agrees
that any legal action, suit, or proceeding against it
with respect to its obligations, liabilities or any
other matter under or arising out of or in connection
with this Guaranty, the Indebtedness or the transactions
or documents contemplated hereby or for recognition or
enforcement of any judgment rendered in any such action,
suit or proceeding may be brought in the United States
Courts or in the courts of the State of California, or
in any other court having jurisdiction over the subject
matter, as the Bank in its sole discretion may elect,
and, by its execution and delivery of this Guaranty, the
undersigned hereby irrevocably accepts and submits to
the non-exclusive jurisdiction of each of the aforesaid
courts generally and unconditionally with respect to any
such action, suit or proceeding for itself and in
respect of its property. The undersigned further agrees
that final judgment against it in any action, suit, or
proceeding referred to herein shall be conclusive and
may be enforced in any other jurisdiction, within or
outside the United States of America, by suit on the
judgment, a certified or exemplified copy of which shall
be conclusive evidence of the fact and of the amount of
its indebtedness. The undersigned further irrevocably
consents and agrees to the service of any and all legal
process, summons, notices, and documents out of any of
the aforesaid courts in any action, suit or proceeding
by mailing copies thereof by registered or certified
mail, postage prepaid, to the undersigned at its address
set forth in this Guaranty or to any other address of
which the undersigned shall have given prior written
notice to Bank. The undersigned agrees that service
upon the undersigned as provided for herein shall
constitute valid and effective personal service upon the
undersigned. Nothing herein shall, or shall be
construed so as to, limit the right of the Bank, or any
of its successors or assigns, to bring actions, suits or
proceedings with respect to the obligations and
liabilities of the undersigned under, or any other
matter arising out of or in connection with, this
Guaranty, the Indebtedness or the transactions or
documents contemplated hereby, or for recognition or
enforcement of any judgment rendered in any proceeding,
in the courts of whatever jurisdiction in which the
Indebtedness or the obligations or liabilities of the
undersigned hereunder may arise or are created or in
which the assets of the undersigned may be found or as
otherwise shall seem appropriate to the Bank, or any of
its successors or assigns, or to affect the right to
service of process in any jurisdiction in any other
manner permitted by law; (c) In addition, the
undersigned hereby irrevocably and unconditionally
waives any objection which it may now or hereafter have
to the laying of venue of any of the aforesaid actions,
suits or proceedings arising out of or in connection
with this Guaranty, the Indebtedness or the transactions
contemplated hereby brought in any federal or state
court situate in the State of California, and hereby
further irrevocably and unconditionally waives and
agrees not to plead any claim that any such action, suit
or proceeding brought in any such court has been brought
in an inconvenient forum.
14. REPRESENTATIONS AND WARRANTIES:
The undersigned hereby represents and warrants to
Bank:
a. Undersigned is a corporation duly organized and
existing in good standing under the laws of Delaware,
is duly qualified and authorized to do business in each
jurisdiction where the character of its assets or the
nature of its activities makes such qualification
necessary and failure to so qualify could have a
Material Adverse Effect; execution, delivery and
performance of this Guaranty, and any other documents
and instruments required under this Guaranty, are within
its corporate powers, have been duly authorized, are not
in contravention of law or the terms of its
organizational documents, and do not require the consent
or approval of any governmental body, agency or
authority that has not been obtained; and this Guaranty,
and any other documents and instruments required under
this Guaranty, when issued and delivered under this
Guaranty, will be valid and binding upon the undersigned
in accordance with their terms.
b. The execution, delivery and performance of this
Guaranty, and any other documents and instruments
required under this Guaranty, are not in contravention
of the unwaived terms of any indenture, agreement or
undertaking to which the undersigned is party or by
which it is bound.
c. No litigation or other proceeding before any court
or administrative agency is pending, or to the knowledge
of the officers of the undersigned is threatened against
it, the outcome of which if determined adversely would
have a material adverse effect on the properties, assets
or financial condition of the undersigned ("Material
Adverse Effect").
d. The audited balance sheet and operating statement
of the undersigned dated March 31, 1998 and the
unaudited balance sheet and operating statement of the
undersigned dated December 31, 1998, previously
furnished Bank, are complete and correct and fairly
present the financial condition of the undersigned and
the results of its operations; since said dates there
has been no change in the financial condition of the
undersigned that has resulted, or could result, in a
Material Adverse Effect; to the knowledge of the
undersigned's officers, the undersigned has no
contingent obligations (including any liability for
taxes) not disclosed by or reserved against in said
balance sheets, and at the present time there are no
material unrealized or anticipated losses from any
present commitment.
e. The undersigned has reviewed its operations and
those of its subsidiaries and major commercial
counterparts with a view to assessing whether it or its
subsidiaries' respective businesses will, in the
receipt, transmission, processing, manipulation,
storage, retrieval, retransmission or other utilization
of data, be vulnerable to a year 2000 issue. Based on
such review, the undersigned has no reason to believe
that any Material Adverse Effect will occur with respect
to its or its subsidiaries businesses or operations
resulting from a year 2000 issue.
15. COVENANTS:
The undersigned covenants and agrees that it will,
and cause its subsidiaries to, so long as Bank is
committed to make any advances to either Borrower
and thereafter so long as any Indebtedness remains
outstanding:
a. Furnish Bank:
(i) within ninety (90) days after and as of the end of
the undersigned's fiscal years, financial statements of
the undersigned on a consolidated and consolidating
basis containing the balance sheet of the undersigned as
of the close of each such fiscal year, statements of
income and retained earnings and a statement of cash
flows for each such fiscal year, and such other comments
and financial details as are usually included in similar
reports. Such reports shall be prepared in accordance
with GAAP by independent certified public accountants of
recognized standing selected by the undersigned and
acceptable to Bank and shall contain unqualified
opinions as to the fairness of the statements therein
contained;
(ii) within thirty (30) days after the end of each
month, financial statements on a consolidated and
consolidating basis containing the balance sheet of the
undersigned as of the end of each such period and
statements of income of the undersigned for the portion
of the fiscal year up to the end of such period. These
statements shall be prepared on the same accounting
basis as the statements required in paragraph (i) above
and shall be in such detail as the Bank may reasonably
require, and the accuracy of the statements shall be
certified by the chief executive or financial officer of
the undersigned;
(iii) promptly, upon becoming available, a copy of
all financial statements, reports, notices, proxy
statements and other communications sent by the
undersigned or any of its subsidiaries to their
stockholders, and all regular and periodic reports filed
by the undersigned or any of its subsidiaries with any
securities exchange, the Securities and Exchange
Commission, and any state securities bureau or
commission;
(iv) as soon as available and in any event within thirty
(30) days after the end of each fiscal quarter of the
undersigned, and ninety (90) days after the fiscal year
end, a report in such detail as Bank may specify
demonstrating the undersigned's compliance with Sections
15 (g), (h), (i) and (j) hereof, certified by an
authorized officer of the undersigned,; and
(v) promptly, and in form to be satisfactory to Bank,
such other information as Bank may reasonably request
from time to time.
b. Pay and discharge, all taxes and other governmental
charges, and all contractual obligations calling for the
payment of money, before the same shall become overdue,
unless and to the extent only that such payment is being
contested in good faith.
c. Maintain insurance coverage on its physical assets
and against other business risks in such amounts and of
such types as-are customarily carried by companies
similar in size and nature, and in the event of
acquisition of additional property, real or personal, or
of incurrence of additional risks of any nature,
increase such insurance coverage in such manner and to
such extent as prudent business judgment and present
practice would dictate.
d. Permit Bank, through its authorized attorneys,
accountants, and representatives, to examine the books,
accounts, records, ledgers and assets of every kind and
description of the undersigned at all reasonable times
upon oral or written request of Bank and, in connection
therewith, reimburse Bank for all costs and expenses
incurred by Bank in connection with audits of the assets
and records of the undersigned.
e. Promptly, not later than three (3) business days
after becoming aware thereof, notify Bank of any
condition or event which constitutes or with the running
of time and/or the giving of notice would constitute a
default in the undersigned's performance of any
obligation hereunder.
f. Maintain in good standing all licenses required by
the jurisdiction of the incorporation, or any agency
thereof, or any other governmental authority that may be
necessary or required for the undersigned to carry on
its general business objects and purposes.
g. Maintain a Current Ratio, on an consolidated basis,
not less than 1.0 to 1.0, tested quarterly.
"Current Assets" shall mean, for any Person, such
Person's current assets determined in accordance with
GAAP.
"Current Liabilities" shall mean, as of
any applicable date of determination, all
liabilities of a person that would be classified as
current in accordance with GAAP, and shall also
include, notwithstanding any provisions of GAAP to
the contrary, the face amount of any letters of
credit outstanding and any funded advances under
the Co-Borrower Facility (as defined in the Credit
Agreement) and the DT Facility (as defined in the
Credit Agreement).
"Current Ratio" shall mean, as of any
applicable date of determination, the ratio of
Current Assets to Current Liabilities.
"Credit Agreement" shall mean that Credit
Agreement of even date herewith among DT, DWC and
Bank.
h. Maintain, on a consolidated basis, a Debt Ratio
less than 1.5 to 1.0, tested quarterly.
"Debt Ratio" shall mean, as of any applicable date
of determination, the ratio of Debt to Tangible
Net Worth.
"Debt" shall mean, as of any applicable date
of determination, all items of indebtedness,
obligation or liability of a person, whether
matured or unmatured, liquidated or unliquidated,
direct or indirect, absolute or contingent, joint
or several, that should be classified as
liabilities in accordance with GAAP, and shall also
include, notwithstanding any provisions of GAAP to
the contrary, the face amount of any letters of
credit outstanding.
"Tangible Net Worth" shall mean, as of the
date of any determination, the excess of (i) the
shareholders equity of the undersigned (minus
amounts included therein in accordance with GAAP as
intangible assets, including patents, patent
rights, trademarks, trade names, franchises,
copyrights, licenses, goodwill, investment in any
individual corporation, partnership, joint
ventures, advances to officers or employees in
excess of Two Hundred Thousand Dollars ($200,000))
after all appropriate deductions in accordance with
GAAP, consistently applied (including, without
limitation, reserves for doubtful receivables,
obsolescence, depreciation and amortization) over
(ii) all liabilities of the undersigned.
"GAAP" shall mean generally accepted
accounting principles, applied in a manner
consistent with those used in connection with the
preparation of the financial reports mentioned in
Section 15(a) above.
i. Maintain, on a consolidated basis, Tangible Net
Worth of not less than $24,750,000 plus fifty percent
(50%) of positive Net Income, accrued on a quarterly
basis.
"Net Income" shall mean, as of any applicable date
of determination, net income (or loss) of a person
for any period determined in accordance with GAAP
but excluding in any event:
(i) any gains or losses on the sale or other
disposition, not in the ordinary course of business, of
investments or fixed or capital assets, and any taxes on
the excluded gains and any tax deductions or credits on
account on any excluded losses; and
(ii) net earnings of any person in which the undersigned
has an ownership interest except for wholly owned
subsidiaries for which earnings have been consolidated
per GAAP unless such net earnings shall have actually
been received by the undersigned in the form of cash
distributions.
j. Not have a negative Net Income for any two
consecutive fiscal quarters.
k. Not purchase, acquire or redeem any of its capital
stock or make any material change in its capital
structure or general business objects or purpose, or pay
cash dividends on any class of its capital stock without
the prior written consent of the Bank.
l. Not enter into any merger or consolidation or sell,
lease, transfer, or dispose of all, substantially all,
or any material part of its assets without the prior
written consent of the Bank.
m. Not guarantee, endorse, otherwise become or remain
secondarily liable for or upon the obligations of
others, except:
(a) by endorsement for deposit in the ordinary course
of business;
(b) its Guaranty of indebtedness of Borrower; and
(c) its unsecured guaranty of Three Million Three
Hundred Thousand Dollar ($3,300,000) loan from Jackson
National Life Insurance Co to Datron Resources Inc.
n. Not purchase, lease or become obligated for the
purchase or lease of any fixed assets, except for
purchases, capital leases and obligations to purchase or
lease fixed assets which, in aggregate, do not exceed
$1,700,000 in any fiscal year.
o. Not become or remain obligated for any indebtedness
for borrowed money, or for any indebtedness incurred in
connection with the acquisition of any property, real or
personal, tangible or intangible, except:
(a) indebtedness to Bank;
(b) current unsecured trade, utility or
non-extraordinary accounts payable arising in the
ordinary course of undersigned's business;
(c) purchase money indebtedness and capital lease
obligations for fixed assets incurred in connection with
purchases of fixed assets (or any refinancings thereof)
to the extent consistent with the limitations of
paragraph 15(n) above; and
(d) indebtedness relating to the unsecured guaranty of
a Three Million Three Hundred Thousand Dollar
($3,300,000) loan from Jackson National Life Insurance
Co to Datron Resources Inc.
p. Not make payments or distributions to undersigned's
shareholders and/or controlling persons or entities.
q. Not purchase or otherwise acquire or become
obligated for the purchase of all or substantially all
of the assets of business interests of any person, firm
or corporation or any shares of stock of any
corporation, trusteeship or association or in any other
manner effectuate or attempt to effectuate an expansion
of present business by acquisition without the written
consent of Bank, except for purchases and acquisitions
permitted under paragraph 15 (n) above.
r. Not make or allow to remain outstanding any
investment (whether such investment shall be of the
character of investment in shares of stock, evidences of
indebtedness or other securities or otherwise) in, or
any loans or advances to, any person, firm, corporation
or other entity or association except:
(a) Loans and advances to employees, officers and
directors not to exceed $400,000 in aggregate amount at
any time outstanding, including a Two Hundred Forty Four
Thousand Dollars($244,000) Note from David A. Derby
recorded as a contra equity account; and
(b) Loans and investments in customers of undersigned
and Borrower arising in the ordinary course of business
as the result of the compromise or settlement of
accounts payable owing by such customers.
s. Not affirmatively pledge or mortgage any of its
assets, whether now owned or hereafter acquired, or
create, suffer or permit to exist any lien, security
interest in, or creditor encumbrance thereon, without
the written consent of Bank, except:
(a) liens and encumbrances in favor of Bank;
(b) liens for taxes, assessments or other governmental
charges incurred in the ordinary course of business and
not yet past due or being contested in good faith by
appropriate proceedings and with proper reserves
therefor maintained in accordance with GAAP;
(c) liens not delinquent created by statute in
connection with worker's compensation, unemployment
insurance, social security and similar statutory
obligations;
(d) liens of mechanics, materialmen, carriers,
warehousemen or other like statutory or common law liens
securing obligations incurred in good faith in the
ordinary course of business that are not yet due and
payable or that are being contested in good faith by
appropriate proceedings and with proper reserves
therefor maintained in accordance with GAAP;
(e) encumbrances consisting of easements, rights of
way, zoning restrictions or other similar restrictions
on the use of real property, none of which materially
impairs the use of such property by Borrower in the
operation of the business for which it is used and none
of which is violated in any material respect by any
existing or proposed structure or land use;
(f) liens on real estate, furniture, fixtures and
equipment (other than the Machinery and Equipment) for
purchase money financing (including loans and leases)
used to acquire fixed assets to the extent consistent
with the limitations of paragraph 15(n) above;
(g) liens arising by operation of law in connection
with judgments being appealed; and
(h) liens on property acquired by a Borrower or any
subsidiary to the extent such Liens are in existence
when such property or subsidiary was acquired and were
not made in anticipation of such acquisition.
t. Not sell, assign, transfer or confer a security
interest in any account, contract, note, trade
acceptance or other receivable, except to Bank.
16. JURY TRIAL WAIVER: THE UNDERSIGNED AND BANK
ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A
CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. EACH
PARTY, AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY
TO CONSULT) WITH COUNSEL OF THEIR CHOICE, KNOWINGLY AND
VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT WAIVES ANY
RIGHT TO TRIAL BY JURY IN THE EVENT OF LITIGATION
REGARDING THE PERFORMANCE OR ENFORCEMENT OF, OR IN ANY
WAY RELATED TO, THIS GUARANTY OR THE INDEBTEDNESS.
17. HEADINGS: Headings in this Agreement are included
for the convenience of reference only and shall not
constitute a part of this Agreement for any purpose.
IN WITNESS WHEREOF, Guarantor has signed and delivered
this Guaranty the day and year first written above.
WITNESSES: Datron Systems Incorporated
Signature of: By: /s/DAVID A. DERBY
Its: Chairman, President and CEO
Signature of: GUARANTOR'S ADDRESS:
304 Enterprise Street
Escondido, California 92029
EXHIBIT 10.70
August 17, 1998
Mr. William L. Stephan
Dear Bill:
In the event that you would be involuntarily terminated
from the Company for any reason other than cause,
("Cause" being defined as illegal activity, gross
negligence, or gross violation of company policy) Datron
Systems Incorporated agrees to pay you twelve months of
severance pay through salary continuance at your then
current rate of pay, exclusive of any incentive or bonus
payments except as may be defined in applicable bonus or
incentive plans in effect at the date of termination.
During your severance period, Datron Systems
Incorporated will continue to provide your medical,
dental, vision, and all life insurance policies in the
manner in which you enjoyed these benefits during
employment. After the severance period has passed, you
will be eligible to participate in these benefits under
COBRA provisions.
If within the twelve-month period immediately following
your involuntary termination, you engage in activities
directly competing with Datron Systems Incorporated,
severance benefits described above will cease.
Very truly yours,
/s/D. A. DERBY
Chairman, President and
Chief Executive Officer
EXHIBIT 13
CERTAIN PORTIONS OF REGISTRANT'S ANNUAL REPORT TO
STOCKHOLDERS FOR THE FISCAL YEAR ENDED MARCH 31, 1999
CONTAINING INFORMATION REQUIRED BY PART I AND PART II
OF THIS REPORT
Information required by Part II, Item 5: Market for
Registrant's Common Equity and Related Stockholder
Matters. This information is contained in the section
captioned "Common Stock Activity" on the inside back
cover of the Annual Report.
Common Stock Activity
The common stock of Datron Systems Incorporated is
traded on the Nasdaq Stock Market under the symbol DTSI.
The following table sets forth the high and low closing
sales prices for the two most recent fiscal years as
reported by Nasdaq:
Fiscal Year 1999
Quarter Ended High Low
------------------ ------ -----
June 30, 1998 $8.375 $6.75
September 30, 1998 $7.375 $4.75
December 31, 1998 $6.875 $4.75
March 31, 1999 $8.75 $5.25
Fiscal Year 1998
Quarter Ended High Low
------------------ -------- -------
June 30, 1997 $10.625 $9.00
September 30, 1997 $12.9375 $9.75
December 31, 1997 $11.625 $10.125
March 31, 1998 $10.375 $7.50
On March 31, 1999, there were approximately 1,500
stockholders of the Company's common stock. The Company
has never paid a cash dividend on its common stock and
does not anticipate doing so in the foreseeable future.
Information required by Part II, Item 6: Selected
Financial Data. This information is contained in the
section captioned "Datron Systems Incorporated Selected
Financial Data" on the inside front cover of the Annual
Report.
DATRON SYSTEMS INCORPORATED
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Fiscal Years Ended March 31,
---------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Statements of
Operations
Net sales $59,084,000 $54,628,000 $53,269,000 $61,165,000 $70,033,000
Net income
(loss) 1,702,000 (3,163,000) 268,000 (1,241,000) 3,920,000
Earnings (loss)
per share<F1>
- basic $0.63 $(1.18) $0.10 $(0.48) $1.51
- diluted $0.63 $(1.18) $0.10 $(0.48) $1.54
Balance Sheets
Working capital $20,307,000 $20,354,000 $24,756,000 $18,042,000 $14,241,000
Total assets 48,167,000 51,284,000 56,476,000 58,459,000 55,944,000
Long-term debt 3,254,000 5,600,000 8,900,000 5,200,000 0
Total
liabilities 16,772,000 21,679,000 23,868,000 26,588,000 23,079,000
Stockholders'
equity<F2> 31,395,000 29,605,000 32,608,000 31,871,000 32,865,000
Book value per
share $11.65 $11.05 $12.26 $12.24 $12.84
</TABLE>
[FN]
<F1> See Note 2 of Notes to Consolidated Financial Statements for
an explanation of the determination of shares used in
computing earnings (loss) per share.
<F2> No dividends were declared or paid during the years
presented.
</FN>
Information required by Part II, Item 7: Management's
Discussion and Analysis of Financial Condition and
Results of Operations. This information is contained on
pages 6 through 11 of the Annual Report.
Management's Discussion and Analysis of Financial
Condition and Results of Operations
OVERVIEW
Datron Systems Incorporated and its wholly owned
subsidiaries (the "Company") provide products and
services that address the needs of emerging satellite
and radio communication markets. It reports operations
in two business segments: Antenna and Imaging Systems,
and Communication Products.
The Antenna and Imaging Systems business segment designs
and manufactures satellite communication systems,
subsystems and antennas that are sold worldwide to
commercial and governmental customers. Its major
product lines are remote sensing satellite earth
stations, tracking antennas and systems for U.S. and
foreign governmental agencies (including the U.S.
Department of Defense ("DoD")) and commercial satellite
service providers, and mobile direct broadcast satellite
("DBS") television reception systems for recreational
vehicles, boats and large business jets. Fiscal 1999
sales for this segment were $39,084,000, a 16% increase
from fiscal 1998 sales of $33,789,000. Product line
sales for this segment in fiscal 1999 and 1998 were as
follows (in thousands):
1999 1998
------- ---- ------- ----
Remote sensing $16,169 41% $11,280 33%
DoD/Other 15,069 39% 16,284 48%
DBS 7,846 20% 6,225 19%
------- ---- ------- ----
Total $39,084 100% $33,789 100%
======= ==== ======= ====
During fiscal 1999, sale of a remote sensing system to a
European customer accounted for 14% of this segment's
sales and 9% of consolidated sales.
The Communication Products business segment designs,
manufactures and distributes high frequency and very
high frequency radios and accessories for worldwide
military and civilian purposes. Fiscal 1999 sales for
this segment were $20,000,000, a 4% decrease from fiscal
1998 sales of $20,839,000. Foreign customers accounted
for 93% of fiscal 1999 sales and 88% of fiscal 1998
sales. During fiscal 1999, this segment sold radio
products to an African customer that accounted for 20%
of this segment's sales and 7% of consolidated sales.
During fiscal 1998, sales of radio products to an Asian
customer accounted for 24% of this segment's sales and
9% of consolidated sales.
Consolidated sales for fiscal 1999 were $59,084,000, an
8% increase from fiscal 1998 consolidated sales of
$54,628,000. The increase in sales was due to higher
sales of remote sensing systems and DBS antenna
products, partially offset by lower sales of antenna
products for non-DoD agencies and by lower sales of
radio products. Net income for fiscal 1999 was
$1,702,000, or $0.63 per share, compared with a net loss
in fiscal 1998 of $3,163,000, or $1.18 per share. The
improvement from a net loss in fiscal 1998 to net income
in fiscal 1999 was primarily due to higher gross profits
on the higher sales, partially offset by an increase in
new product development expenses. The net loss in
fiscal 1998 included the write-off of the Company's
investment in EarthWatch Incorporated of $1,113,000, or
$0.42 per share.
This Management's Discussion and Analysis of Financial
Condition and Results of Operations contains "forward-
looking statements" as defined in the Private Securities
Litigation Reform Act of 1995. A variety of factors
could cause the Company's actual results to differ from
the anticipated results expressed in such forward-
looking statements. These include, among others,
uncertainties stemming from the dependence of the
Company on foreign sales and on large orders from a
relatively small number of customers, risks relating to
the decline in the Company's traditional defense
business and the Company's efforts to develop and market
consumer products, lack of timely development or
customer acceptance of new products, worldwide economic
downturns and currency devaluations, restrictions
imposed by the U.S. government on the export of Company
products, and the impact of competition. Investors are
referred to the Company's periodic reports under the
Securities Exchange Act of 1934, including without
limitation the Investment Considerations set forth in
the Company's Annual Report on Form 10-K.
The consolidated financial statements and notes thereto
that appear on pages 12 through 23 should be read in
conjunction with the following review.
RESULTS OF OPERATIONS
Operating results for the last three fiscal years are
presented for each of the Company's two business
segments (in thousands):
<TABLE>
<CAPTION>
ANTENNA AND IMAGING SYSTEMS
Years Ended March 31,
---------------------------
1999 1998 1997
------- ------ ------
<S> <C> <C> <C>
Net sales $39,084 $33,789 $33,304
======= ======= =======
Percent of consolidated
net sales 66% 62% 63%
=== === ===
Gross profit $11,315 $4,963 $9,923
Operating expenses before
corporate expenses 8,182 7,472 8,110
------- ------ -----
Operating income (loss) $3,133 $(2,509) $1,813
======= ======= ======
Percent of consolidated
operating income (loss)
before corporate expenses 73% 179% 80%
=== ==== ===
</TABLE>
Sales of Antenna and Imaging Systems increased
$5,295,000, or 16%, in fiscal 1999 compared with fiscal
1998 sales. The increase was due to higher sales of
remote sensing systems and DBS antenna products,
partially offset by lower sales of antenna products for
non-DoD agencies. Sales of Antenna and Imaging Systems
increased $485,000, or 1%, in fiscal 1998 compared with
fiscal 1997 sales. The increase was primarily due to
higher sales of DBS antenna products, partially offset
by lower sales for the DoD and other governmental
agencies and by lower sales of remote sensing systems.
Gross profit percentage on Antenna and Imaging Systems'
sales was 29.0% in fiscal 1999 compared with 14.7% in
fiscal 1998 and 29.8% in fiscal 1997. The increase in
fiscal 1999 from fiscal 1998 was primarily due to
production efficiencies and to a more favorable product
mix in the third and fourth quarters. The decrease in
fiscal 1998 from fiscal 1997 was primarily due to cost
overruns resulting in the necessity to substantially
increase cost estimates to complete several projects
that required redesign and rework.
Operating income percentage on sales of Antenna and
Imaging Systems' products was 8.0% in fiscal 1999
compared with an operating loss percentage of 7.4% of
sales in fiscal 1998 and compared with an operating
income percentage of 5.4% of sales in fiscal 1997. The
improvement from an operating loss in fiscal 1998 to
operating income in fiscal 1999 was primarily due to
higher gross profits, partially offset by higher new
product development expenses. The decline from
operating income in fiscal 1997 to an operating loss in
fiscal 1998 was primarily due to lower gross profits,
partially offset by lower new product development and
selling expenses.
<TABLE>
<CAPTION>
COMMUNICATION PRODUCTS
Years Ended March 31,
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Net sales $20,000 $20,839 $19,965
======= ======= =======
Percent of consolidated
net sales 34% 38% 37%
=== === ===
Gross profit $7,445 $6,404 $5,426
Operating expenses before
corporate expenses 6,308 5,293 4,970
------ ------ ------
Operating income $1,137 $1,111 $456
====== ====== ======
Percent of consolidated
operating income (loss)
before corporate expenses 27% (79%) 20%
=== ==== ==
</TABLE>
Sales of Communication Products decreased $839,000, or
4%, in fiscal 1999 compared with fiscal 1998 sales. The
decrease was due to lower bookings of radio products
resulting from economic instability in several of the
Company's international markets. Several anticipated
orders were delayed, and future anticipated orders may
likewise be delayed. Some or all of those delayed
orders may never be awarded and some procurements the
Company had previously identified as promising
opportunities may be canceled. Sales of radio products
to an African customer accounted for $4,026,000, or 20%,
of this segment's fiscal 1999 sales. Sales of
Communication Products increased $874,000, or 4%, in
fiscal 1998 compared with fiscal 1997 sales. The
increase was primarily due to a higher backlog of orders
at the beginning of fiscal 1998 than at the beginning of
fiscal 1997. Sales of radio products to two Asian
customers accounted for $7,181,000, or 34%, of this
segment's fiscal 1998 sales. One customer will often
account for a large percentage of this segment's annual
sales; however, it is unusual to have large sales from
the same customer in successive years.
Gross profit percentage on Communication Products' sales
was 37.2% in fiscal 1999 compared with 30.7% in fiscal
1998 and 27.2% in fiscal 1997. The improvement in
fiscal 1999 from fiscal 1998 was primarily due to
production efficiencies resulting from lower materials
costs and to a more favorable product mix. The
improvement in fiscal 1998 from fiscal 1997 was due to
production efficiencies resulting from lower labor and
overhead costs, partially offset by higher materials
costs resulting from a less favorable product mix.
Operating income percentage on sales of Communication
Products was 5.7% in fiscal 1999 compared with 5.3% of
sales in fiscal 1998 and 2.3% of sales in fiscal 1997.
The increase in fiscal 1999 compared with fiscal 1998
was due to higher gross margins, partially offset by
higher administrative, new product development and
selling expenses. The increase in fiscal 1998 compared
with fiscal 1997 was due to higher gross margins,
partially offset by higher administrative and new
product development expenses. Because an operating loss
was incurred in the Antenna and Imaging Systems business
segment in fiscal 1998, and because a consolidated
operating loss before corporate expenses was incurred in
fiscal 1998, operating income attributable to the
Communication Products business segment was (79%) of
consolidated operating loss before corporate expenses in
fiscal 1998.
Consolidated expenses were as follows:
Selling, general and administrative ("SG&A") expenses
were $12,610,000 in fiscal 1999 compared with
$12,179,000 in fiscal 1998 and $11,770,000 in fiscal
1997. Fiscal 1999 SG&A expenses increased 4% over
fiscal 1998 SG&A expenses primarily due to higher
selling expenses at both business segments and to higher
administrative expenses at the Communication Products
business segment. Fiscal 1998 SG&A expenses increased
3% over fiscal 1997 SG&A expenses primarily because of
higher administrative expenses at the Communication
Products business segment and because of increases in
reserves for commitments and contingencies at the
Antenna and Imaging Systems business segment. Selling
expenses at both business segments were lower in fiscal
1998 than in fiscal 1997.
Research and development ("R&D") expenses were
$3,269,000 in fiscal 1999 compared with $1,987,000 in
fiscal 1998 and $2,432,000 in fiscal 1997. Fiscal 1999
R&D expenses increased 65% over fiscal 1998 expenses
primarily due to higher spending on development programs
for mobile DBS antenna products and for new radio
products. Fiscal 1998 R&D expenses decreased 18% over
fiscal 1997 R&D expenses because of lower spending on
development programs for mobile DBS products, partially
offset by higher spending on development programs for
new radio products. The Company expects to increase
spending on new product development programs in fiscal
2000, although the increase is not expected to be as
large as it was in fiscal 1999.
Interest expense was $326,000 in fiscal 1999 compared
with $383,000 in fiscal 1998 and $620,000 in fiscal
1997. The 15% decrease in fiscal 1999 compared with
fiscal 1998 was due to lower levels of term debt in
fiscal 1999 and to a lower interest rate paid on a real
estate loan. See Note 5 to the Consolidated Financial
Statements. The 38% decrease in fiscal 1998 compared
with fiscal 1997 was due to much lower levels of term
debt during fiscal 1998. Interest income in fiscal 1999
was $231,000 compared with $10,000 in fiscal 1998 and
$13,000 in fiscal 1997. Fiscal 1999 interest income
included collection of interest on a past due account
and income from short term investments of excess cash.
The effective income tax provision (benefit) rates for
fiscal years 1999, 1998 and 1997 were 39.9%, (26.4%) and
51.1%, respectively. The low benefit rate in fiscal
1998 was due to the Company's inability to take a
deduction for the write-off of its investment in
EarthWatch Incorporated because of a lack of offsetting
capital gains. The high provision rate in fiscal 1997
was due to relatively high unallowable expenses for tax
purposes compared with low fiscal 1997 pre-tax book
income.
Order backlog at March 31 was as follows:
1999 1998
----------- -----------
Antenna and Imaging Systems $20,484,000 $19,949,000
Communication Products 2,211,000 5,494,000
----------- -----------
Total $22,695,000 $25,443,000
=========== ===========
The 3% increase in Antenna and Imaging Systems backlog
at March 31, 1999 compared with March 31, 1998 was
primarily due to higher bookings of remote sensing
systems and DBS antenna products, partially offset by
lower bookings of antennas for the DoD and other
governmental agencies. Additional orders for remote
sensing systems and antennas in the amount of $6 million
were received in April 1999 after the close of fiscal
1999.
The 60% decrease in Communication Products' backlog at
March 31, 1999 compared with March 31, 1998 was due to
lower order bookings in fiscal 1999. As previously
noted, worldwide economic instability was responsible
for the delay of several anticipated orders. Future
results of operations may be adversely affected if those
delayed orders are further delayed or canceled or if
procurements the Company has identified as promising
opportunities are canceled.
LIQUIDITY AND CAPITAL RESOURES
At March 31, 1999, working capital was $20,307,000
compared with $20,354,000 at March 31, 1998, a decrease
of $47,000. Significant changes affecting working
capital during fiscal 1999 were as follows: accounts
receivable decreased $4,520,000 primarily due to
improved contract negotiation and management and faster
collections; inventories decreased $2,158,000 primarily
due to better materials planning and shorter product
build cycles; accounts payable and accrued expenses
decreased $2,787,000. The Company's cash position at
March 31, 1999 was $5,548,000 compared with $634,000 at
March 31, 1998, an increase of 775%. At March 31, 1999,
the Company had no borrowings against its revolving line
of credit.
On August 7, 1998, the Company borrowed $3,300,000 from
a life insurance company in exchange for a promissory
note secured by a deed of trust on the Company's Simi
Valley facility. The promissory note bears interest at
6.76% per annum and has a maturity date of September 1,
2008. See Note 5 to the Consolidated Financial
Statements.
Capital expenditures were $1,535,000 in fiscal 1999, a
36% increase compared with fiscal 1998 capital
expenditures of $1,125,000. The increase was due to
improvements to the new production and office facility
the Communication Products business segment moved into
in April 1999. Capital expenditures in fiscal 2000 are
expected to be comparable to fiscal 1999 expenditures.
On March 24, 1999, the Company entered into a
$16,000,000 revolving line of credit with a new bank.
The line may be used for the issuance of letters of
credit and for direct working capital advances in any
combination up to the lesser of $16 million or an
availability limit determined by a borrowing base
formula. Five million dollars of the total credit
facility is restricted to working capital and letters of
credit required to finance non-military international
business. That portion of the line of credit expires on
April 1, 2000. The remaining $11,000,000 facility
expires on April 1, 2001. The Company believes its
existing working capital, anticipated future cash flows
from operations and available credit with its bank are
sufficient to finance presently planned capital and
working capital requirements.
The Company has never paid a cash dividend on its common
stock and does not anticipate doing so in the
foreseeable future. Inflation and changing prices have
not had a significant impact on the Company's historical
operations.
Year 2000 Issues
Some software included in products sold or licensed to
the Company's customers and certain portions of the
Company's internal operating systems may be subject to
failure as a result of what is commonly known as the
Year 2000 date issue (the "Year 2000 issue"). A
discussion of this issue follows.
The Company's state of readiness.
The Company believes all systems and products currently
sold and new products under development are Year 2000
compliant. Although the Company's assessment of its
Year 2000 exposure is not complete, the Company
currently believes its potential exposure to problems
arising from the Year 2000 issue lies in three areas:
. Information technology ("IT") previously sold or
licensed to the Company's customers and non-IT
components (such as computer chips imbedded in hardware)
previously sold to the Company's customers.
. IT and non-IT components used in the Company's
internal operating systems.
. Compliance with the Year 2000 issue by third
parties with whom the Company has a material
relationship.
Products sold or licensed to customers:
Most of the Company's antenna and image processing
products and some of its radio communication products
contain IT and non-IT components that may be affected by
the Year 2000 issue. The Company is pursuing a three-
phase program to identify and resolve this exposure:
1. Identify all products that contain IT and non-IT
systems that are not Year 2000 compliant. To the extent
practical, identify all customers who are still using
those products. Status: Completed.
2. Determine appropriate solutions to remedy the non-
compliant products and systems. Those solutions may
include software upgrades, replacement of non-compliant
components, referral of problems relating to third party-
provided software to the original supplier, or
determination that the age of the product or nature of
the problem is such that replacement of the product or
system is the only practical solution. Status:
Estimated 90% complete. Estimated completion date:
June 30, 1999.
3. Notify all identified customers of the Year 2000
issue associated with their products and systems, and
inform them of the Company's policy regarding their
situation. All products and systems under warranty or
service agreement as of December 31, 1998 will be made
Year 2000 compliant by the Company. Other customers who
have products and systems that can economically be made
Year 2000 compliant will be offered software upgrades
and component replacement for a fee. Customers who have
products or systems that cannot economically be made
Year 2000 compliant will be so notified and informed of
current product alternatives offered by the Company.
Status: Estimated 35% complete. Estimated completion
date: June 30, 1999.
Internal operating systems:
Some of the Company's internal operating systems are
Year 2000 compliant and some are not. The Company is
pursuing a two-phase program to identify and resolve
this exposure:
1. Systematically test and verify internal IT systems
and modules for Year 2000 compliance. To the extent
practical, systematically test and verify equipment and
facility systems that contain non-IT components.
Status: Estimated 90% complete. Estimated completion
date: June 30, 1999.
2. Use internal programmers and outside consultants to
upgrade those internal IT systems and modules that are
not Year 2000 compliant. Replace non-IT components that
are not Year 2000 compliant. Status: Estimated 75%
complete. Estimated completion date: June 30, 1999.
Third party relationships:
Although the Company is rarely dependent on a single
source of supply for IT and non-IT components, the
failure of a selected supplier to timely deliver Year
2000 compliant IT and non-IT components could jeopardize
the Company's ability to meet its required delivery
schedules. (The Company is also dependent on third
party service providers, such as telephone companies,
banks and insurance carriers; however, the Company does
not believe it has significant Year 2000 exposure from
those providers and has not implemented any programs to
assure Year 2000 compliance by them.) The Company is
pursuing a two-phase program to identify and resolve
Year 2000 exposure from third parties:
1. Develop a supplier compliance warranty for
incorporation in all purchase orders issued after March
31, 1999. That warranty will require suppliers selling
IT and non-IT components to the Company to certify that
items delivered are Year 2000 compliant and require them
to correct or replace any such item found to be non-
compliant. Status: Completed.
2. Develop alternative sources for IT and non-IT
components that are Year 2000 compliant in the event
existing suppliers are not able to meet compliance
requirements. Status: 50% complete. Estimated
completion date: September 30, 1999.
Costs to address the Company's Year 2000 issues.
To date, the Company has spent approximately $94,000 in
identifying and fixing Year 2000 issues and estimates it
will incur an additional $115,000 for remediation of its
remaining Year 2000 issues. Because the Company's
assessment of its Year 2000 exposure is not complete, it
is likely that this estimate will change.
Risks of the Company's Year 2000 issues.
The Company believes the most reasonably likely worst
case Year 2000 scenario would include a combination of
some or all of the following:
- - Products sold to some of its customers would fail
to perform some or all of their intended functions. The
Company estimates the maximum number of customers that
may be affected is 100. In such a situation, the
Company's maximum obligation would be to repair or
replace the defective products to the extent the Company
is required to do so under its contracts with its
customers.
- - Internal IT modules or systems may fail to operate
or may give erroneous information. Such failure could
result in production and shipping delays, inability to
generate or delays in generation of financial reports
and statements, and computer network downtime resulting
in numerous inefficiencies and higher payroll expenses.
- - Non-IT components in HVAC, lighting, telephone,
security and similar systems might fail and cause the
entire system to fail. Non-IT components in production
and test equipment might fail, resulting in delays in
production and new product development.
The Company's contingency plans.
The Company believes its plans for addressing the Year
2000 issue as outlined above are adequate to handle the
most reasonably likely worst case scenario. The Company
does not believe it will incur a material financial
impact for the risk of failure, or from the costs
associated with assessing the risks of failure, arising
from the Year 2000 issue. Consequently, the Company
does not intend to create a contingency plan other than
as set forth above.
Information required by Part II, Item 8: Financial
Statements and Supplementary Data. This information is
contained on pages 12 through 24 of the Annual Report.
<TABLE>
<CAPTION>
DATRON SYSTEMS INCORPORATED
CONSOLIDATED BALANCE SHEETS
March 31,
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $5,548,000 $634,000
Accounts receivable, net 10,967,000 15,487,000
Inventories 11,890,000 14,048,000
Deferred income taxes 2,998,000 3,502,000
Prepaid expenses and other current assets 754,000 848,000
------------ ------------
Total current assets 32,157,000 34,519,000
Property, plant and equipment, net 10,248,000 10,864,000
Goodwill, net 5,442,000 5,646,000
Other assets 320,000 255,000
------------ ------------
Total assets $48,167,000 $51,284,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $2,521,000 $4,087,000
Accrued expenses 7,369,000 8,590,000
Customer advances 1,594,000 965,000
Income taxes payable 282,000 203,000
Restructuring reserve --- 320,000
Current portion of long-term debt 84,000 ---
------------ ------------
Total current liabilities 11,850,000 14,165,000
Long-term debt 3,170,000 5,600,000
Deferred income taxes 1,752,000 1,914,000
------------ ------------
Total liabilities 16,772,000 21,679,000
------------ ------------
Commitments and contingencies -- Note 8
Stockholders' equity:
Preferred stock -- par value $0.01;
authorized 2,000,000 shares, none
issued or outstanding --- ---
Common stock -- par value $0.01;
authorized 10,000,000 shares,
3,084,532 and 3,070,063 shares issued
in 1999 and 1998, respectively 31,000 31,000
Additional paid-in capital 10,758,000 10,670,000
Retained earnings 22,956,000 21,254,000
Treasury stock, at cost; 390,779 shares
in 1999 and 1998 (2,106,000) (2,106,000)
Stock option plan and stock purchase
plan notes receivable (244,000) (244,000)
------------ ------------
Total stockholders' equity 31,395,000 29,605,000
------------ ------------
Total liabilities and stockholders' equity $48,167,000 $51,284,000
============ ============
See notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
DATRON SYSTEMS INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended March 31,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Net sales $59,084,000 $54,628,000 $53,269,000
Cost of sales 40,324,000 43,261,000 37,920,000
------------ ------------ ------------
Gross profit 18,760,000 11,367,000 15,349,000
Selling, general
and administrative 12,610,000 12,179,000 11,770,000
Research and development 3,269,000 1,987,000 2,432,000
------------ ------------ ------------
Operating income (loss) 2,881,000 (2,799,000) 1,147,000
Interest expense (326,000) (383,000) (620,000)
Interest income 231,000 10,000 13,000
Other income (expense) 47,000 (1,126,000) 8,000
------------ ------------ ------------
Income (loss) before income
taxes 2,833,000 (4,298,000) 548,000
Income taxes (benefit) 1,131,000 (1,135,000) 280,000
------------ ------------ ------------
Net income (loss) $1,702,000 ($3,163,000) $268,000
============ ============ ============
Earnings (loss) per common
share--basic $0.63 ($1.18) $0.10
============ ============ ============
Weighted average number of
common shares outstanding 2,688,000 2,670,000 2,629,000
============ ============ ============
Earnings (loss) per common
share--diluted $0.63 ($1.18) $0.10
============ ============ ============
Weighted average number of
common and common equivalent
shares outstanding 2,688,000 2,670,000 2,676,000
============ ============ ============
See notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
DATRON SYSTEMS INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Stock
Option Plan
& Stock
Purchase
Common Stock Additional Plan
Par Paid-In Retained Treasury Notes
Shares Value Capital Earnings Stock Receivable Total
--------- ------ ----------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at April 1,
1996 2,604,192 $31,000 $10,568,000 $24,149,000 ($2,633,000) ($244,000) $31,871,000
Purchase of treasury
stock (8,776) --- --- --- (84,000) - (84,000)
Stock options
exercised for
treasury stock
and tax benefits 64,000 --- (4,000) --- 519,000 --- 515,000
Stock option
compensation --- --- 38,000 --- --- --- 38,000
Net income --- --- --- 268,000 --- --- 268,000
--------- ------ ---------- ---------- ---------- --------- -----------
Balance at March 31,
1997 2,659,416 31,000 10,602,000 24,417,000 (2,198,000) (244,000) 32,608,000
Stock issued under
employee stock
purchase plan 6,126 --- 45,000 --- --- --- 45,000
Purchase of
treasury stock (4,058) --- --- --- (53,000) --- (53,000)
Stock options
exercised for
treasury stock and
tax benefits 17,800 --- 4,000 --- 145,000 --- 149,000
Stock option
compensation --- --- 19,000 --- --- --- 19,000
Net loss --- --- --- (3,163,000) --- --- (3,163,000)
Balance at March 31,
1998 2,679,284 31,000 10,670,000 21,254,000 (2,106,000) (244,000) 29,605,000
Stock issued under
employee stock
purchase plan and
tax benefits 14,469 --- 75,000 --- --- --- 75,000
Stock option
compensation --- --- 13,000 --- --- --- 13,000
Net income --- --- --- 1,702,000 --- --- 1,702,000
--------- ------- ----------- ----------- ------------ --------- -----------
Balance at March 31,
1999 2,693,753 $31,000 $10,758,000 $22,956,000 ($2,106,000)($244,000) $31,395,000
========= ======= =========== =========== =========== ======== ==========
See notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
DATRON SYSTEMS INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended March 31,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $1,702,000 ($3,163,000) $268,000
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 2,301,000 2,513,000 2,953,000
Loss on investment --- 1,113,000 ---
Changes in operating assets and liabilities:
Accounts receivable 4,520,000 2,409,000 (2,879,000)
Inventories 2,158,000 261,000 1,499,000
Deferred income taxes 342,000 (856,000) 801,000
Prepaid expenses and other assets 6,000 297,000 1,389,000
Accounts payable and accrued expenses (2,787,000) 1,927,000 (3,145,000)
Customer advances 629,000 221,000 (2,949,000)
Income taxes payable 79,000 9,000 (46,000)
Restructuring reserve (320,000) (904,000) (1,267,000)
------------ ------------ ------------
Net cash provided by (used in) operating activities 8,630,000 3,827,000 (3,376,000)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (1,535,000) (1,125,000) (891,000)
Proceeds from sales of property, plant and equipment 77,000 --- ---
Purchase of investment --- --- (223,000)
------------ ------------ ------------
Net cash used in investing activities (1,458,000) (1,125,000) (1,114,000)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt 3,300,000 --- ---
Repayments of long-term debt (46,000) --- ---
Increase (decrease) in revolving credit facility (5,600,000) (3,300,000) 3,700,000
Stock options exercised and tax benefits 1,000 168,000 553,000
Issuance of common stock 87,000 45,000 ---
Purchase of treasury stock --- (53,000) (84,000)
------------ ------------ ------------
Net cash provided by (used in) financing activities (2,258,000) (3,140,000) 4,169,000
------------ ------------ ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 4,914,000 (438,000) (321,000)
Cash and cash equivalents at beginning of year 634,000 1,072,000 1,393,000
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $5,548,000 $634,000 $1,072,000
============ ============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $327,000 $384,000 $635,000
Income tax paid (refunds received) $596,000 ($367,000) ($1,989,000)
See notes to consolidated financial statements.
</TABLE>
DATRON SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. NATURE OF OPERATIONS
Datron Systems Incorporated and its wholly owned
subsidiaries (the "Company") provide satellite
communication and image processing systems through its
Antenna and Imaging Systems business segment and high-
quality radio and other wireless communication products
to a worldwide market through its Communication Products
business segment. The Antenna and Imaging Systems
business segment designs and manufactures specialized
satellite communication systems, subsystems and antennas
that are sold worldwide to commercial and governmental
customers, including the U.S. Department of Defense.
This business segment also provides earth station
hardware, software and image processing systems for the
remote sensing satellite systems market, and produces
mobile satellite television reception systems for
recreational vehicles, boats and airplanes. This
business segment operates from facilities in Simi
Valley, California. Communication products include HF
(high frequency) and VHF (very high frequency) radio
products and communication systems that are designed and
manufactured in Vista, California. These products are
sold worldwide through a network of Company salespersons
and independent dealers and sales representatives.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the
accounts of the Company. All significant intercompany
accounts and transactions have been eliminated in
consolidation. Certain reclassifications have been made
to the financial statements for prior years to conform
to the presentation for fiscal 1999.
Estimates
The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and
contingent assets and liabilities at the date of the
financial statements. These estimates and assumptions
also affect the reported amounts of revenues and
expenses during the reporting period. Actual results
could differ from those estimates.
Cash Equivalents
Cash equivalents consist of highly liquid investments
purchased with original maturities of three months or
less and which are readily convertible into cash.
Inventories
Inventories are carried at the lower of cost
(first-in, first-out) or market (determined on the basis
of estimated realizable value).
Property, Plant and Equipment
Property, plant and equipment are carried at
cost. Depreciation is provided using the straight-line
method over the estimated useful lives of the assets.
Useful lives range from two to ten years for machinery
and equipment and furniture and fixtures, and from
twenty to forty years for buildings and building
improvements. Leasehold improvements are amortized over
the related lease term.
Goodwill
Goodwill represents the excess of the cost of
purchased businesses over the fair value of their net
assets at date of acquisition and is being amortized on
a straight-line basis over 38 years. The recoverability
of goodwill is evaluated on a recurring basis utilizing
the fair value methodology. Accumulated amortization of
goodwill was $2,260,000 at March 31, 1999 and $2,055,000
at March 31, 1998.
Treasury Stock
Repurchased shares of the Company's common stock are
included in treasury stock at cost. Shares issued from
treasury stock for exercise of stock options are issued
at original cost on a first-in, first-out basis.
Revenue Recognition
Revenue from product sales is recognized at the time
of shipment, except in the case of certain fixed-price
contracts requiring substantial performance over several
periods prior to commencement of deliveries, which are
accounted for under the percentage-of-completion (cost-
to-cost) method of accounting. Expected profits or
losses on these contracts are based upon the Company's
estimates of total sales value and cost at completion.
These estimates are reviewed and revised periodically
throughout the lives of the contracts, and adjustments
resulting from such revisions are recorded in the
periods in which revisions are made. Losses on
contracts are recorded in full as they are identified.
Accounts receivable include unbilled costs and
accrued profits related to contracts accounted for under
the percentage-of-completion method of accounting.
There are no material amounts of contract holdbacks or
claims subject to uncertainty of realization.
Substantially all amounts are expected to be collected
within one year. Funds received from customers in
advance of contract work are classified as current
liabilities.
Foreign Sales
All foreign sales are denominated in U.S. Dollars.
Income Taxes
The Company accounts for income taxes in accordance
with Statement of Financial Accounting Standards
("SFAS") No. 109, "Accounting for Income Taxes." This
statement requires that deferred income taxes be
reported in the Company's financial statements utilizing
the asset and liability method. Under this method,
deferred income taxes are determined based on enacted
tax rates applied to the differences between the
financial statement and tax basis of assets and
liabilities.
Earnings (Loss) Per Share
As required by SFAS No. 128, "Earnings Per Share,"
the Company has presented basic and diluted earnings per
share ("EPS") amounts. Basic EPS is calculated based on
the weighted average number of shares outstanding during
the year, while diluted EPS also gives effect to all
potential dilutive common shares outstanding during each
year.
Shares used in computing diluted EPS include the
weighted average of common stock outstanding plus
equivalent shares issuable under the Company's stock
option plans, when such amounts are dilutive. Options
to purchase 311,000 shares of common stock at prices
ranging from $6.50 - $15.73 were not included in the
computation of diluted EPS at March 31, 1999 because the
effect of such options would be anti-dilutive. Such
options expire at various dates from May 16, 1999 to
February 7, 2009.
Stock-Based Compensation
As permitted by SFAS No. 123, "Accounting for Stock-
Based Compensation," the Company accounts for costs of
stock-based compensation in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees," and, accordingly, discloses the
pro forma effect on net income (loss) and related per
share amounts using the fair value-based method to
account for its stock-based compensation (see Note 7).
Segment Disclosures
Effective March 31, 1999, the Company adopted SFAS
No. 131, "Disclosures about Segments of an Enterprise
and Related Information." This statement revises the
definition of an operating segment and requires expanded
disclosure of segment operations. Adoption of this
statement did not affect the Company's results of
operations or financial position. See Note 9.
NOTE 3. RESTRUCTURING
In fiscal 1993, the Company restructured its Antenna
and Imaging Systems business segment. The restructuring
reserve at March 31, 1998 includes then estimated future
losses on the Company's Camarillo, California facility
lease of $320,000.
NOTE 4. BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>
Accounts receivable at March 31:
1999 1998
----------- ----------
<S> <C> <C>
Billed $ 7,430,000 $8,676,000
Unbilled 3,724,000 7,001,000
----------- ----------
Subtotal 11,154,000 15,677,000
Allowance for doubtful
accounts (187,000) (190,000)
----------- -----------
Total $10,967,000 $15,487,000
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
Inventories at March 31:
1999 1998
----------- -----------
<S> <C> <C>
Raw materials $ 6,807,000 $ 7,830,000
Work-in-process 3,230,000 4,067,000
Finished goods 1,853,000 2,151,000
----------- -----------
Total $11,890,000 $14,048,000
=========== ===========
</TABLE>
Inventories are presented net of allowances for
obsolescence of $1,380,000 and $1,656,000 at March 31,
1999 and 1998, respectively.
<TABLE>
<CAPTION>
Property, plant and equipment at March 31:
1999 1998
------------ ----------
<S> <C> <C>
Land and buildings $ 8,743,000 $8,557,000
Machinery and equipment 15,110,000 15,201,000
Furniture and office
equipment 1,674,000 1,506,000
Leasehold improvements 1,328,000 821,000
Construction-in-process 52,000 299,000
----------- ----------
Subtotal 26,907,000 26,384,000
Accumulated depreciation
and amortization (16,659,000) (15,520,000)
----------- -----------
Total $10,248,000 $10,864,000
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
Accrued expenses at March 31:
1999 1998
---------- -----------
<S> <C> <C>
Salaries and employee
benefits $2,502,000 $1,740,000
Commission and service
fees 2,460,000 4,177,000
Warranty allowance 853,000 933,000
Royalties 350,000 450,000
Other 1,204,000 1,290,000
---------- ----------
Total $7,369,000 $8,590,000
========== ==========
</TABLE>
NOTE 5. LONG-TERM DEBT
On March 24, 1999, the Company entered into a
$16,000,000 revolving line of credit with a new bank.
The line may be used for the issuance of letters of
credit and for direct working capital advances in any
combination up to the lesser of $16,000,000 or an
availability limit determined by a borrowing base
formula. At March 31, 1999, the availability limit was
$14,802,000. Five million dollars of the total credit
facility is restricted to working capital and letters of
credit required to finance non-military international
business. That portion of the line of credit expires on
April 1, 2000. The remaining $11,000,000 credit
facility expires on April 1, 2001. Interest is payable
on borrowings under the line of credit at the bank's
prime rate plus 0.50%. At March 31, 1999, the bank's
prime rate was 7.75%. The line of credit is secured by
assets of the Company and contains certain financial
covenants with which the Company is in compliance. A
credit facility fee of $51,000 is payable annually to
the bank. At March 31, 1999, there were no borrowings
under the line and the bank had issued letters of credit
against the line totaling $8,144,000.
On August 7, 1998, the Company issued a promissory
note to a life insurance company in the amount of
$3,300,000 pursuant to a loan agreement under which the
Company borrowed the same amount. The note is secured
by a deed of trust on the Company's Simi Valley facility
and has a maturity date of September 1, 2008. Monthly
payments are calculated on a 20-year amortization.
Interest is payable at a rate of 6.76% per annum through
September 1, 2003, at which date the interest rate
becomes variable and tied to LIBOR, adjusting every
quarter for the remainder of the term. On September 1,
2003, the Company may either prepay the note without
penalty or accept the variable rate provisions as
determined at that time.
<TABLE>
<CAPTION>
At March 31, long-term debt was as follows:
1999 1998
---------- ----------
<S> <C> <C>
Revolving line of credit at prime plus
0.85% in 1998, paid off in 1999 $5,600,000
6.76% note payable due September 1, 2008 $3,254,000
---------- ----------
Total long-term debt 3,254,000 5,600,000
Less current portion (84,000)
---------- ----------
Long-term debt $3,170,000 $5,600,000
========== ==========
</TABLE>
Aggregate principal payments for each of the years
ending March 31 are as follows:
Year Principal Payments
---- ------------------
2000 $84,000
2001 90,000
2002 96,000
2003 103,000
2004 110,000
Thereafter 2,771,000
----------
Total $3,254,000
==========
The Company believes the carrying amount of its
outstanding long-term debt at March 31, 1999 and 1998 is
a reasonable estimate of its fair value. This was
determined based on a review of borrowing rates
available to the Company at March 31, 1999 and 1998 for
loans with similar terms and maturities.
NOTE 6. INCOME TAXES
The Company's deferred income tax assets and
liabilities at March 31 are as follows:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Deferred income tax assets:
Contract loss and other
allowances $1,709,000 $1,652,000
Accrued employee benefits 438,000 424,000
Alternative minimum tax
credits 353,000 557,000
Investment tax credits 236,000 207,000
Net operating loss
carryover 63,000 369,000
Restructuring reserve 137,000
Other 199,000 156,000
--------- ---------
Total 2,998,000 3,502,000
--------- ---------
Deferred income tax liabilities:
Depreciation (1,546,000) (1,639,000)
State taxes (206,000) (275,000)
--------- ---------
Total (1,752,000) (1,914,000)
--------- ---------
Net deferred income tax asset $1,246,000 $1,588,000
========= =========
</TABLE>
As of March 31, 1999, the Company had $170,000 and
$58,000 of federal and California net operating loss
carryforwards, respectively. In addition, the Company
had $335,000 and $254,000 of federal and California
credit carryforwards, respectively. The federal net
operating loss carryforwards expire in 2013, and the
California net operating loss carryforwards expire from
2001 to 2003. There is no expiration date for the
federal credit carryforwards. The California credit
carryforwards expire from 2004 to 2006. In the event of
certain ownership changes, federal law imposes certain
restrictions on the amount of net operating loss
carryforwards and tax credit carryforwards that may be
used in any year by the Company.
The provision (benefit) for income taxes for the
years ended March 31 is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ----------- ---------
<S> <C> <C> <C>
Federal:
Current $746,000 $ (280,000) $(599,000)
Deferred 139,000 (694,000) 811,000
State:
Current 43,000 78,000
Deferred 203,000 (161,000) (10,000)
---------- ------------ --------
Total $1,131,000 $(1,135,000) $280,000
========== ============ ========
</TABLE>
The provision (benefit) for income taxes differs from
the federal statutory tax rate for the years ended March
31 due to the following:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ----------- --------
<S> <C> <C> <C>
Expected tax (benefit) at
statutory rate $963,000 $(1,461,000) $186,000
Disallowed capital loss 378,000
State tax (benefit), net
of federal tax effect 163,000 (103,000) 20,000
Foreign Sales Corporation
earnings (104,000) (70,000) (28,000)
Goodwill amortization 70,000 70,000 70,000
Other differences 39,000 51,000 32,000
---------- ----------- --------
Total $1,131,000 $(1,135,000) $280,000
========== =========== ========
</TABLE>
NOTE 7. EMPLOYEE INCENTIVE PLANS
In May 1985, the Company adopted the 1985 Stock
Option Plan (1985 Plan). Under the 1985 Plan, as
amended, 500,000 shares of common stock may be issued
upon the exercise of options granted to employees of the
Company at not less than the fair market value on the
date of grant and to directors of the Company at not
less than 85% of the fair market value on the date of
grant. Options become exercisable ratably over three
years and expire ten years from the date of grant. The
1985 Plan expired in May 1995. As of March 31, 1999,
15,000 shares of common stock had been issued in
connection with the exercise of an option granted
pursuant to the 1985 Plan for which $80,000 of the
exercise price received was in the form of a secured
promissory note. The note is due June 11, 2001 and
bears interest at 5.50% per annum.
In February 1995, the Company adopted the 1995 Stock
Option Plan (1995 Plan). The 1995 Plan permits up to
500,000 shares of common stock to be issued upon the
exercise of options granted under the 1995 Plan.
However, because the number of shares available for
issuance under the 1995 Plan was reduced by the number
of options granted and outstanding under the 1985 Plan
at the time of its expiration in May 1995, the effective
number of shares authorized for issuance under the 1995
Plan is 206,700, of which 61,073 were available under
the 1985 Plan at the time of its expiration. Terms of
issuance and exercise of options granted under the 1995
Plan are similar to those under the 1985 Plan.
The Company has adopted the disclosure-only
provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation." Had compensation expense for the
Company's two fixed stock option plans (the 1985 Plan
and 1995 Plan) been determined consistent with the
provisions of SFAS No. 123 based on the fair value at
date of grant for awards made in fiscal years ended
March 31, 1999, 1998 and 1997, and assumed forfeiture
rates of 21%, 12% and 10%, respectively, net income
(loss) and earnings (loss) per share would have been
reduced (increased) to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ----------- --------
<S> <C> <C> <C>
Net income (loss)
- -----------------
As reported $1,702,000 $(3,163,000) $268,000
Pro forma $1,460,000 $(3,601,000) $62,000
Earnings (loss) per
common share - basic
- ----------------------
As reported $0.63 $(1.18) $0.10
Pro forma $0.54 $(1.35) $0.02
Earnings (loss) per
common share - diluted
- ------------------------
As reported $0.63 $(1.18) $0.10
Pro forma $0.54 $(1.35) $0.02
</TABLE>
The pro forma effect on net income (loss) for fiscal
years 1999, 1998 and 1997 is not representative of the
pro forma effect on net income in future years because
it does not take into consideration pro forma
compensation expense related to grants awarded prior to
April 1, 1995. The weighted-average fair value of
options granted under the two stock option plans with
exercise prices equal to market price during fiscal
years 1999, 1998 and 1997 is estimated at $2.87, $4.17
and $5.44, respectively, and the weighted-average
exercise prices for those options was $6.54, $8.92 and
$11.25, respectively. The weighted-average fair value
of options granted under the two stock option plans with
exercise prices at less than market price during fiscal
years 1999, 1998 and 1997 is estimated at zero, $4.36
and $7.06, respectively, and the weighted-average
exercise prices for those options was zero, $7.23 and
$11.26, respectively. These estimates were determined
by using the Black-Scholes option-pricing model with the
following weighted-average assumptions for grants
awarded in fiscal years 1999, 1998 and 1997,
respectively: dividend yield of 0%, 0% and 0%; expected
volatility of 41%, 44% and 45%; risk-free rate of return
of 5.31%, 5.81% and 6.42%; and expected lives of 5
years, 5 years and 5 years. A change in these
assumptions could result in a significant change to the
indicated fair value amounts.
A summary of the status of the Company's two fixed
stock option plans as of March 31, 1999, 1998 and 1997
and activity during the years then ended is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------------- ---------------- ---------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------- -------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year 319,960 $9.96 219,580 $11.35 270,150 $10.46
Granted 53,000 $6.54 164,000 $8.81 30,500 $11.25
Canceled (61,830) $10.22 (45,820) $13.42 (17,070) $12.90
Exercised (17,800) $7.67 (64,000) $7.13
------- ------ ------- ------ ------- ------
Outstanding at end
of year 311,130 $9.32 319,960 $9.96 219,580 $11.35
======= ===== ======= ===== ======= ======
Options exercisable
at end of year 173,667 $10.35 145,293 $10.86 143,780 $10.30
======= ====== ======= ====== ======= ======
</TABLE>
Stock option compensation expense related to
options granted at less than fair value on date of grant
pursuant to the 1985 Plan and 1995 Plan was $13,000,
$19,000 and $38,000 in fiscal years 1999, 1998 and 1997,
respectively.
Information about fixed stock options outstanding at
March 31, 1999 is as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------- ---------------------
Weighted-
Ave. Weighted- Weighted
Remaining Ave. Ave.
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life Price Exercisable Price
- --------------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$6.50 - $7.23 64,650 8.7 years $6.58 6,667 $6.68
$8.08 - $9.50 160,980 5.9 $8.66 97,667 $8.66
$10.00 - $12.75 60,500 6.9 $11.35 44,333 $11.59
$15.73 25,000 6.6 $15.73 25,000 $15.73
- --------------- ------- --- ------ ------- ------
$6.50 - $15.73 311,130 6.7 years $9.32 173,667 $10.35
=============== ======= === ====== ======= ======
</TABLE>
At March 31, 1999, 43,100 shares were available for
grant under the 1995 Plan.
In March 1988, the Company adopted the 1988 Key
Employee Stock Purchase Plan (Purchase Plan). Under
terms of the Purchase Plan, 75,000 shares of common
stock may be made available for purchase at fair market
value to key employees as determined by the board of
directors. As of March 31, 1999, 50,000 shares had been
purchased pursuant to the Purchase Plan, and a note
receivable in the amount of $164,000 due April 10, 2002
at an interest rate of 4.64% was outstanding.
The Company has a non-contributory qualified profit
sharing plan. Employees are eligible to participate on
April 1 following their date of employment and benefits
vest over seven years. Annual contributions are
determined by the board of directors. Such amounts were
$151,000, zero and zero for the fiscal years ended March
31, 1999, 1998 and 1997, respectively.
In November 1995, the Company adopted the
Supplemental Executive Profit Sharing Plan, effective as
of April 1, 1994. The plan is a deferred compensation
plan intended to provide certain executive employees
with additional funds for their retirement. Terms of
participation and vesting of benefits are similar to
those of the qualified profit sharing plan. Eligibility
for participation and annual contributions are
determined by the board of directors. Contributions for
the fiscal years ended March 31, 1999, 1998 and 1997,
were $14,000, zero and $56,000, respectively.
In August 1997, the Company adopted the Employee
Stock Purchase Plan, effective as of July 1, 1997.
Employees are eligible to participate in the plan if
they have been employed a minimum of five months and
work at least 20 hours per week. Eligible employees may
use funds from accumulated payroll deductions to
purchase shares of Company common stock at the end of
six-month offering periods. They may contribute up to
10% of gross earnings toward such purchases, not to
exceed $12,500 per offering period, and may purchase a
maximum of 1,000 shares per offering period. The
purchase price for the shares is 85% of the lesser of
the fair market value of the common stock at the
beginning of the offering period or at the end of the
offering period. Shares purchased must be held for a
minimum of three months before they can be sold. A total
of 200,000 shares has been authorized for issuance under
the Employee Stock Purchase Plan.
Common stock issued under the Employee Stock Purchase
Plan is summarized as follows:
<TABLE>
<CAPTION>
1998 1997
--------------------- -------------------
Offering Shares Purchase Shares Purchase
Period Ended Issued Price Issued Price
- ------------ ------ ------- ------ --------
<S> <C> <C> <C> <C>
June 30 6,648 $5.74 - -
December 31 7,821 $4.62 6,126 $7.33
------ -----
Total 14,469 6,126
====== =====
</TABLE>
NOTE 8. COMMITMENTS AND CONTINGENCIES
The Company leases certain production and office
facilities and certain equipment under noncancelable
operating leases. In March 1998, the Company signed a
new ten-year lease for a production and office facility
located in Vista, California. That lease commenced
March 26, 1999. Future minimum operating lease
obligations for each of the years ending March 31 are as
follows:
Total Lease
Year Obligation
---- -----------
2000 $638,000
2001 652,000
2002 649,000
2003 638,000
2004 617,000
Thereafter 3,132,000
---------
Total $6,326,000
==========
Total rent expense under noncancelable operating
leases was $624,000, $618,000 and $567,000 for the
fiscal years ended March 31, 1999, 1998 and 1997,
respectively. Additional rent payments in the amounts
of $175,000, $638,000 and $695,000 were charged to the
restructuring reserve during the fiscal years ended
March 31, 1999, 1998 and 1997, respectively.
In the normal course of business, the Company is
subject to claims and litigation that may be raised by
governmental agencies in connection with U.S. government
contracts, U.S. government export control regulations
and other regulatory issues, and civil claims by private
parties. In connection with a Defense Contract Audit
Agency (DCAA) audit of a $9.6 million U.S. Navy contract
completed in 1989, DCAA has submitted a report to the
Contracting Officer alleging deficiencies in the
information provided to the Navy at the time the
contract was negotiated and recommending a reduction in
the contract value of $2.7 million. During the fiscal
year ended March 31, 1995, DCAA amended its
recommendation to a reduction in contract value of $1.9
million. The Company is confident that its actions have
been appropriate at all times and believes the
conclusions in the DCAA report are erroneous; the
Company intends to challenge the report and its
conclusions vigorously. There was no activity on this
matter during the fiscal year ended March 31, 1999. The
Company believes that final resolution of this matter
will not materially affect the consolidated financial
position of the Company or its results of operations.
In August 1992, Trans World Communications, Inc.
(Trans World), a wholly owned subsidiary of the Company
and which was renamed Datron World Communications Inc.
on March 31, 1995, was named as defendant in a lawsuit
filed by ATACS Corporation (ATACS) and AIRTACS
Corporation (AIRTACS) relating to a contract to provide
radio communication shelters. ATACS and AIRTACS contend
that Trans World entered into an agreement to team with
them on the contract and then wrongfully failed to use
them as subcontractors. They seek damages in excess of
$2,000,000. In rulings on May 28, 1997 and September 3,
1997, the court found Trans World in breach of a teaming
agreement and awarded ATACS and AIRTACS one dollar
($1.00) in damages. On September 8, 1998, the appeal
court affirmed the district court's decision except as
to the award of nominal damages, and remanded the matter
to the district court for further hearing on damages.
The Company believes that final resolution of this
matter will not materially affect the consolidated
financial position of the Company or its results of
operations.
NOTE 9. SEGMENT AND GEOGRAPHIC INFORMATION
The Company operates in two business segments:
Antenna and Imaging Systems, and Communication Products.
See Note 1. Management evaluates performance and
allocates resources by focusing on operating income as
the principal measurement of segment performance.
Operating income is before net interest expense, other
income (expense) and income taxes. Accounting policies
of the two segments are the same as those described in
Note 2, Summary of Significant Accounting Policies. The
following table contains certain segment, geographic and
customer information about the Company. There were no
intersegment sales during the periods presented. All
assets of the Company are located in the United States.
<TABLE>
<CAPTION>
Year Ended March 31,
-----------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net sales:
Antenna and Imaging Systems $39,084,000 $33,789,000 $33,304,000
Communication Products 20,000,000 20,839,000 19,965,000
----------- ----------- -----------
Consolidated net sales $59,084,000 $54,628,000 $53,269,000
=========== =========== ===========
Operating income (loss):
Antenna and Imaging Systems $3,133,000 $(2,509,000) $1,813,000
Communication Products 1,137,000 1,111,000 456,000
General corporate expenses (1,389,000) (1,401,000) (1,122,000)
---------- ----------- ----------
Consolidated operating
income (loss) 2,881,000 (2,799,000) 1,147,000
Interest expense, net (95,000) (373,000) (607,000)
Other income (expense) 47,000 (1,126,000) 8,000
---------- ------------ ----------
Income (loss) before income
taxes $2,833,000 $(4,298,000) $ 548,000
========== =========== ==========
Identifiable assets:
Antenna and Imaging Systems $19,146,000 $24,891,000 $26,596,000
Communication Products 18,579,000 20,286,000 24,603,000
Corporate 10,442,000 6,107,000 5,277,000
----------- ----------- -----------
Consolidated total $48,167,000 $51,284,000 $56,476,000
=========== =========== ===========
Capital expenditures:
Antenna and Imaging Systems $ 404,000 $ 655,000 $ 190,000
Communication Products 1,046,000 456,000 688,000
Corporate 85,000 14,000 13,000
---------- ---------- -----------
Consolidated total $1,535,000 $1,125,000 $ 891,000
========== ========== ===========
Depreciation and amortization:
Antenna and Imaging Systems $1,226,000 $1,658,000 $ 1,791,000
Communication Products 1,060,000 837,000 1,149,000
Corporate 15,000 18,000 13,000
---------- ---------- -----------
Consolidated total $2,301,000 $2,513,000 $ 2,953,000
========== ========== ===========
Net sales by customer location:
Europe $11,841,000 $ 4,923,000 $2,251,000
Asia 9,009,000 16,104,000 18,148,000
Africa 6,620,000 3,979,000 2,484,000
South America 4,405,000 4,547,000 2,792,000
Other 488,000 486,000 278,000
----------- ----------- -----------
Subtotal foreign net sales 32,363,000 30,039,000 25,953,000
U.S. 26,721,000 24,589,000 27,316,000
----------- ----------- -----------
Consolidated net sales $59,084,000 $54,628,000 $53,269,000
=========== =========== ===========
Sales for U.S. Department of
Defense:
Antenna and Imaging Systems $11,105,000 $10,387,000 $15,787,000
Communication Products 713,000 866,000 558,000
----------- ----------- -----------
Consolidated total $11,818,000 $11,253,000 $16,345,000
=========== =========== ===========
</TABLE>
For the fiscal year ended March 31, 1999, two
customers accounted for 14% and 13% of Antenna and
Imaging Systems' net sales and one customer accounted
for 20% of Communication Products' net sales. For the
fiscal year ended March 31, 1998, two customers
accounted for 17% and 15% of Antenna and Imaging
Systems' net sales and three customers accounted for
24%, 12% and 10% of Communication Products' net sales.
For the fiscal year ended March 31, 1997, three
customers accounted for 13%, 12% and 11% of Antenna and
Imaging Systems' net sales and two customers accounted
for 31% and 24% of Communication Products' net sales.
NOTE 10. QUARTERLY FINANCIAL DATA - Unaudited
(in thousands, except per-share data)
<TABLE>
<CAPTION>
Fiscal Year 1999
---------------------------------------------
Net Gross Net Earnings Per
Sales Profit Income Share - Diluted
------- ------- ------ ---------------
<S> <C> <C> <C> <C>
First Quarter $15,289 $ 4,078 $ 163 $0.06
Second Quarter 13,729 4,068 379 0.14
Third Quarter 15,266 4,780 585 0.22
Fourth Quarter 14,800 5,834 575 0.21
------- ------- ------ -----
Fiscal Year $59,084 $18,760 $1,702 $0.63
======= ======= ====== =====
</TABLE>
First and second quarter results reflect lower gross
profits from sales of remote sensing systems and
military antennas. Gross profits improved in the third
and fourth quarter due to production efficiencies at the
Antenna and Imaging Systems business segment and to a
more favorable product mix at the Communication Products
business segment. The improvement in third and fourth
quarter gross profits was partially offset by higher new
product development expenses for radio and DBS products.
The 8% improvement in net sales from fiscal 1998 was
primarily due to higher sales of remote sensing systems.
<TABLE>
<CAPTION>
Fiscal Year 1998
-----------------------------------------------------
Earnings
Net Gross Net (Loss) Per
Sales Profit Income (Loss) Share - Diluted
------- ------- ------------ ---------------
<S> <C> <C> <C> <C>
First Quarter $10,341 $2,355 $(548) $(0.21)
Second Quarter 14,937 3,611 149 0.06
Third Quarter 17,081 4,268 347 0.13
Fourth Quarter 12,269 1,133 (3,111) (1.16)
------- ------- ------- ------
Fiscal Year $54,628 $11,367 $(3,163) $(1.18)
======= ======= ======== ======
</TABLE>
First quarter results reflect low sales of radio
communication products and military antennas. Sales of both
radio communication products and military antennas increased
in the second and third quarters, however, the improvement in
net income during those quarters was primarily due to higher
gross profits on the higher radio communication product
sales. Low gross margins on sales of antenna and imaging
systems during the first three quarters, resulting from
higher engineering costs and improperly bid contracts, were a
major factor contributing to the cumulative net loss through
the third quarter. The lower fourth quarter net sales and
large net loss were primarily due to cost overruns at the
Company's Datron/Transco Inc. subsidiary resulting in
increases in estimates to complete several projects that
required redesign and rework. Also included in the fourth
quarter net loss was a $1,113,000 ($0.42 per share) write-off
of the Company's investment in EarthWatch Incorporated.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Datron Systems Incorporated
Vista, California
We have audited the accompanying consolidated
balance sheets of Datron Systems Incorporated and its
subsidiaries as of March 31, 1999 and 1998, and the
related consolidated statements of operations,
stockholders' equity, and cash flows for each of the
three years in the period ended March 31, 1999. These
financial statements are the responsibility of the
Company's management. Our responsibility is to express
an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with
generally accepted auditing standards. Those standards
require that we plan and perform the audit to obtain
reasonable assurance about whether the financial
statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting
principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such consolidated financial
statements present fairly, in all material respects, the
financial position of Datron Systems Incorporated and
its subsidiaries as of March 31, 1999 and 1998 and the
results of their operations and their cash flows for
each of the three years in the period ended March 31,
1999 in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Deloitte & Touche LLP
San Diego, California
May 12, 1999
EXHIBIT 21
SUBSIDIARIES
DATRON SYSTEMS INCORPORATED
SUBSIDIARIES
MARCH 31, 1999
Percentage of Jurisdiction
Voting Securities in which
Name Owned by Parent Incorporated
- ----------------------------------- --------------- -------------
Datron World Communications Inc. 100% California
Datron/Transco Inc. 100% California
Datron Resources Inc. (a wholly owned
subsidiary of Datron/Transco Inc.) 100% California
Datron/Trans World Communications
Int'l Ltd. (a Foreign Sales Corporation) 100% U.S. Virgin
Islands
EXHIBIT 22
Proxy Statement, Notice of Annual Meeting of
Stockholders to be Held Monday, August 9, 1999 at 11:00
A.M. and Form of Proxy (to be deemed filed only to the
extent required by the instructions to exhibits for
reports on Form 10-K) to be filed within 120 days of the
end of the Registrant's fiscal year.
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in
Registration Statement Numbers 2-99763, 33-16985 and 33-
20785 of Datron Systems Incorporated on Form S-8 of our
reports dated May 12, 1999, appearing in and
incorporated by reference in the Annual Report on Form
10-K of Datron Systems Incorporated for the year ended
March 31, 1999.
DELOITTE & TOUCHE LLP
Deloitte & Touche LLP
San Diego, California
June 23, 1999
EXHIBIT 24
POWER OF ATTORNEY
(on signature page 16)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE REGISTRANT'S CONSOLIDATED BALANCE SHEET AND CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE TWELVE MONTHS ENDED MARCH 31, 1999
AND IS QUALIFIED IN ITS ENTIETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 5,548
<SECURITIES> 0
<RECEIVABLES> 11,154
<ALLOWANCES> 187
<INVENTORY> 11,890
<CURRENT-ASSETS> 32,157
<PP&E> 26,907
<DEPRECIATION> 16,659
<TOTAL-ASSETS> 48,167
<CURRENT-LIABILITIES> 11,850
<BONDS> 0
0
0
<COMMON> 31
<OTHER-SE> 31,364
<TOTAL-LIABILITY-AND-EQUITY> 48,167
<SALES> 59,084
<TOTAL-REVENUES> 59,362
<CGS> 40,324
<TOTAL-COSTS> 40,324
<OTHER-EXPENSES> 15,879
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 326
<INCOME-PRETAX> 2,833
<INCOME-TAX> 1,131
<INCOME-CONTINUING> 1,702
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,702
<EPS-BASIC> 0.63
<EPS-DILUTED> 0.63
</TABLE>
EXHIBIT 99.1
ANNUAL REPORT
For the fiscal year ended March 31, 1999
DATRON SYSTEMS INCORPORATED
EMPLOYEE STOCK PURCHASE PLAN
(Full title of the plan)
Datron Systems Incorporated
3030 Enterprise Court, Vista, California 92083-8347
(Name of issuer of the securities held pursuant to
the plan and the address of its principal executive
office)
<PAGE> F-1
DATRON SYSTEMS INCORPORATED
EMPLOYEE STOCK PURCHASE PLAN
Index To Financial Statements
Page
Independent Auditors' Report F-2
Financial Statements:
Statements of Assets Available for Benefits F-3
Statements of Changes in Assets Available for Benefits F-4
Notes to Financial Statements F-5
Schedules:
None
All schedules are omitted because they are not
applicable or the required information is shown in
the Financial Statements or the notes thereto.
<PAGE> F-2
INDEPENDENT AUDITORS' REPORT
Datron Systems Incorporated
Employee Stock Purchase Plan
We have audited the accompanying statements of assets
available for benefits of Datron Systems Incorporated
Employee Stock Purchase Plan (the "Plan") as of March
31, 1999 and 1998, and the related statements of
changes in assets available for benefits for the year
ended March 31, 1999 and the nine months ended March 31,
1998. These financial statements are the responsibility
of the Plan's management. Our responsibility is to
express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require
that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are
free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles
used and significant estimates made by management, as
well as evaluating the overall financial statement
presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to
above present fairly, in all material respects,
information regarding the Plan's assets available for
benefits as of March 31, 1999 and 1998, and the changes
in assets available for benefits of the Plan for the
year ended March 31, 1999 and the nine months ended
March 31, 1998 in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
Deloitte & Touche LLP
San Diego, California
June 4, 1999
<PAGE> F-3
DATRON SYSTEMS INCORPORATED
EMPLOYEE STOCK PURCHASE PLAN
STATEMENTS OF ASSETS AVAILABLE FOR BENEFITS
March 31, March 31,
1999 1998
-------- --------
Cash $17,970 $25,220
Participant contributions
receivable 2,520 2,312
------- -------
Assets available for benefits $20,490 $27,532
======= =======
See accompanying notes to financial statements.
<PAGE> F-4
DATRON SYSTEMS INCORPORATED
EMPLOYEE STOCK PURCHASE PLAN
STATEMENTS OF CHANGES IN ASSETS AVAILABLE FOR BENEFITS
Year Nine Months
Ended Ended
March 31, 1999 March 31, 1998
-------------- --------------
Participant contributions $84,161 $94,936
Benefits paid (74,294) (44,911)
Cash disbursements to employees
withdrawing from the plan (16,909) (22,493)
-------- -------
Net increase (decrease) $(7,042) $27,532
Assets available for benefits:
Beginning of period 27,532 0
------- -------
End of period $20,490 $27,532
======= =======
See accompanying notes to financial statements.
<PAGE> F-5
DATRON SYSTEMS INCORPORATED
EMPLOYEE STOCK PURCHASE PLAN
NOTES TO FINANCIAL STATEMENTS
Note 1. Plan Description
In August 1997, the stockholders of Datron Systems
Incorporated (the "Company") adopted, effective July 1,
1997, the Datron Systems Incorporated Employee Stock
Purchase Plan (the "Plan") under Section 423 of the
Internal Revenue Code. The Plan is intended to provide
eligible employees with the opportunity to acquire an
equity interest in the Company through the acquisition
of stock purchase rights.
Employees are eligible to participate in the Plan
if they have been employed a minimum of five months and
work at least 20 hours per week. Eligible employees may
use funds from accumulated payroll deductions to
purchase shares of Company common stock at the end of
six-month offering periods. They may contribute up to
10% of gross earnings toward such purchases, not to
exceed $12,500 per offering period, and may purchase a
maximum of 1,000 shares per offering period. The
purchase price for the shares is 85% of the lesser of
the fair market value of the common stock at the
beginning of the offering period or at the end of the
offering period. Shares purchased must be held for a
minimum of three months before they can be sold. A total
of 200,000 shares has been authorized for issuance under
the Plan.
Common stock issued under the Plan is summarized as
follows:
<TABLE>
<CAPTION>
1998 1997
------------------ ----------------
Offering Shares Purchase Shares Purchase
Period Ended Issued Price Issued Price
- ------------ ------ -------- ------ -------
<S> <C> <C> <C> <C>
June 30 6,648 $5.74 - -
December 31 7,821 $4.62 6,126 $7.33
------ -----
Total 14,469 6,126
====== =====
</TABLE>
Note 2. Summary of Significant Accounting Policies
Basis of Accounting
The Plan's financial statements are prepared on the
accrual basis of accounting.
<PAGE> F-6
Administrative Expenses of the Plan
All expenses incurred in the administration of the Plan
are paid by the Company.
Contributions
Contributions to the Plan are made on a weekly basis as
compensation is paid to participants.
Income Taxes
The Plan was established under Section 423 of the
Internal Revenue Code and is, therefore, exempt from
income taxes.
<PAGE> F-7
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange
Act of 1934, the Compensation Committee of the Datron
Systems Incorporated Employee Stock Purchase Plan has
duly caused this annual report to be signed by the
undersigned thereunto duly authorized.
DATRON SYSTEMS INCORPORATED
EMPLOYEE STOCK PURCHASE PLAN
By:/s/ William L. Stephan Date: June 24, 1999
William L. Stephan
Datron Systems Incorporated
Employee Stock Purchase
Plan Compensation Committee
