UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended April 1, 1995
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission file Number 1-5486
THE DIANA CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 36-2448698
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8200 W. Brown Deer Road, Suite 200, Milwaukee, Wisconsin 53223
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (414) 355-0037
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on
which registered
Common Stock, $1.00 Par Value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
NONE
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.
X Yes ___ No
Indicate by check mark if disclosure of delinquent filers 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.[ ]
At June 15, 1995, the aggregate market value of the voting stock of the
registrant held by stockholders who were not affiliates of the registrant was
$17,127,000. At June 15, 1995, the registrant had issued and outstanding an
aggregate of 3,914,837 shares of its Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive proxy statement to be filed
within 120 days after the end of the fiscal year covered by this report are
incorporated by reference into Part III hereof.
<PAGE>
PART I
ITEM 1. BUSINESS
(A) GENERAL DEVELOPMENT OF BUSINESS
The Diana Corporation ("Diana" or the "Company"), was incorporated in
1961 under the laws of the State of Delaware.
In fiscal 1995, the Company's principal businesses were the distribution
of telecommunications equipment through its subsidiary, C&L Communications,
Inc. ("C&L"), the wholesale distribution of meat and seafood through its
subsidiary, Atlanta Provision Co., Inc. ("APC") and managing its holdings of
short-term investments and marketable securities. The Company owns 100% of
C&L and 81.25% of Entree Corporation ("Entree") which owns 100% of APC.
(B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The net sales and operating earnings (loss) of each industry segment and
the identifiable assets attributable to each industry segment for the years
ended April 1, 1995, April 2, 1994 and April 3, 1993 are set forth in Note 12
to the Consolidated Financial Statements, which is incorporated herein by
reference.
(C) NARRATIVE DESCRIPTION OF BUSINESS
WHOLESALE DISTRIBUTION OF TELECOMMUNICATIONS EQUIPMENT
C&L operates nationwide with the administrative headquarters and the
distribution center located in San Antonio, Texas. C&L is a leading U.S.
distributor of call controllers and products used in digital networks for
integrated voice and data communication systems. A call controller is a
management control product that combines simplified access to an alternative
carrier network and validation/reporting of individual telephone activity.
The primary digital network products distributed by C&L are channel banks.
A channel bank, or multiplexor, is an electronic device which controls the
flow of data across a network.
C&L's customers are comprised of long distance carriers, interconnect
companies, value added resellers, networking companies, systems integrators,
independent telephone companies, and some large end users. The long distance
carrier portion of the customer base includes virtually all significant U.S.
long distance companies. No single customer accounted for more than 10% of
consolidated net sales for the year ended April 1, 1995.
C&L sales people have either a technical background, or knowledge of the
products' technical applications to allow for added services for C&L's
customers. Therefore, C&L operates as a value-added distributor, providing
technical support and training to its customers for call controllers and
digital network products.
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The Company's primary product suppliers are Mitel Corporation ("Mitel"),
which supplies call controllers, and Newbridge Networks, Inc. ("Newbridge"),
which supplies channel banks and other networking products. For the year
ended April 1, 1995, these two companies supplied approximately 85% of C&L's
inventory purchases. Although C&L distributes call controllers manufactured
by Teltronics, Inc. and channel banks and networking products made by other
manufacturers other than Newbridge, the loss of either Mitel or Newbridge
would have a negative impact on C&L's operations. C&L has no manufacturing
operations.
Mitel is an international manufacturer of call controllers and other
sophisticated business telecommunications equipment. C&L has been an
authorized distributor of Mitel call controllers since early 1985, and C&L's
management believes that its relationship with Mitel is satisfactory.
Newbridge is a leading international manufacturer of digital network
communications systems. In 1992, Newbridge acknowledged C&L as being the
largest of their authorized U.S. distributors, a distinction which it still
holds at April 1, 1995. In fiscal 1995, C&L began to distribute products on
a limited basis into Mexico. The products distributed into Mexico are
primarily manufactured by Newbridge.
C&L's competition comes from several different sources. In call
controllers, the competition can be classified as (1) other Mitel
distributors, (2) reconditioned call controller distributors and (3) direct
sales by manufacturers of call controllers. In the digital market, the
competition comes from (1) other telecommunications distributors and (2)
manufacturers of digital products who sell direct. C&L competes by offering
high quality products at competitive prices while providing technical
assistance to its customers. C&L believes that most of its competitors do
not offer C&L's level of technical assistance.
WHOLESALE DISTRIBUTION OF MEAT AND SEAFOOD
APC distributes primarily beef, pork, poultry, and seafood in the
southeastern region of the United States. APC sells primarily to retail food
outlets, meat wholesalers, food service enterprises and restaurants. It owns
and operates a warehouse facility in Atlanta, Georgia from which it delivers
these products to its customers. No single customer accounted for more than
10% of consolidated net sales for the year ended April 1, 1995. The products
purchased for distribution are supplied by food manufacturers and processors,
the two largest of which accounted for approximately 41% of total purchases.
APC does not have contracts with any suppliers.
Wholesale meat and seafood distribution in the geographic area in which
APC operates is highly competitive. APC competes with both national and
local food wholesalers and processors, many of which have greater financial
resources and sales volume. Competition is based primarily on price, service
and quality of product.
OTHER
In December 1994, Sattel Communications Company ("Satcom"), a general
partnership, was formed. The general partners, Diana and Sattel
Technologies, Inc. ("Sattel") each have a 50% ownership interest in the
partnership. Satcom is the exclusive U.S. distributor of public
telecommunications switching and transmission systems manufactured by Sattel,
a privately held manufacturer of advanced telecommunications equipment for
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<PAGE>
the public switched telephone network ("PSTN"). Satcom, through
manufacturers representatives, is pursuing national and international
opportunities for the various Sattel product lines.
In addition to distributing the existing Sattel product line, Satcom is
developing new products, one of which is a PSTN data delivery system called
DataNet. DataNet is a proprietary system which combines the reliability of
the public switched telephone network with a proprietary delivery system.
DataNet provides reduced dial-up data transportation costs, eliminates modems
at the service provider's premises, improves security at the network level
through authorization and billing by ANI, is transparent to dial-up data
customers and provides all-digital transmission from the point of entry to
the service provider's platform for improved error-corrected data throughput.
Satcom recently completed development of DataNet. It is currently being
introduced to a select group of large dial-up data users and will be
introduced to the general public in the near future.
(D) RESEARCH AND DEVELOPMENT
The registrant had no significant research and development activities
during the last three fiscal years.
(E) ENVIRONMENTAL PROTECTION
Compliance with federal, state and local regulations relating to
environmental protection do not have a material effect upon capital
expenditures, operating results or the competitive position of the Company.
(F) EMPLOYEES OF REGISTRANT
At April 1, 1995, Diana had 321 employees, of whom 44 were within the
wholesale telecommunications equipment distribution segment, 269 were within
the wholesale food distribution segment, and 8 performed corporate functions.
In the wholesale food distribution segment, 201 employees are truck drivers
and warehousemen, some of which are covered by a collective bargaining
agreement which expires in May 1997. No work stoppage occurred in fiscal
1995. The Company believes that it generally has good relationships with all
its employees.
ITEM 2. PROPERTIES
Diana's corporate offices are located in a leased 5,000 square foot
office located in Milwaukee. The Company owns vacant parcels of land in
Eldridge, Iowa.
C&L leases 8,000 square feet of warehouse space and 9,000 square feet of
office space in San Antonio, Texas. Substantially all of C&L's assets are
pledged as collateral under its Loan and Security Agreement (see Note 3 to
the Consolidated Financial Statements which is hereby incorporated by
reference).
APC owns a 91,000 square foot building in Atlanta, Georgia which
contains its office and warehouse space. APC owns or leases trucks used in
its distribution activities and various warehouse equipment used in its
warehouse operations. Substantially all of APC's assets are pledged as
collateral under its Loan and Security Agreement (see Note 3 to the
Consolidated Financial Statements which is hereby incorporated by reference).
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ITEM 3. LEGAL PROCEEDINGS
There are no material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth
quarter of fiscal 1995.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock is traded on the New York Stock Exchange
under the symbol DNA. The table below sets forth by quarter the high and low
sales prices of the Company's Common Stock on the New York Stock Exchange
Composite Tape for the last two fiscal years.
Fiscal Fiscal
1995 1994
Quarter High Low Quarter High Low
First 13 3/4 7 First 7 4 1/2
Second 9 3/8 6 1/2 Second 7 1/8 4
Third 8 5 5/8 Third 7 3/4 5 7/8
Fourth 6 1/4 4 Fourth 15 3/8 6 3/4
At June 5, 1995, the Company had 1,835 shareholders of record.
There were no cash dividends declared during the last two fiscal years.
The Company has no plans to pay cash dividends in the foreseeable future.
The payment of cash dividends by the Company is restricted by the Company's
Subordinated Debentures which provide that the consolidated tangible net-
worth of the Company cannot be reduced to less than an amount equal to the
aggregate principal amount of the Subordinated Debentures, or $1,254,000.
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ITEM 6. SELECTED FINANCIAL DATA
THE DIANA CORPORATION
SELECTED FINANCIAL DATA
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
April 1, April 2, April 3, March 28, March 30,
1995 1994 1993 1992 1991
(3) (2)
-------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net sales $250,386 $243,641 $222,254 $161,607 $185,245
======= ======= ======= ======= =======
Earnings (loss) from
continuing operations.... $ (720) $ 3,457 $ 1,857 $ (1,013) $ (2,519)
Loss from discontinued
operations............... --- --- --- --- (8,687)
Extraordinary items....... --- (266) 1,318 --- 16,937
Accounting change......... --- 262 --- --- ---
------- ------- ------- ------- -------
Net earnings (loss)....... $ (720) $ 3,453 $ 3,175 $ (1,013) $ 5,731
======= ======= ======= ======= =======
Earnings (loss) per
common share:
Primary
Continuing operations... $ (.19) $ .93 $ .51 $ (.27) $ (.61)
Discontinued operations. --- --- --- --- (2.10)
Extraordinary items..... --- (.07) .36 --- 4.09
Accounting change....... --- .07 --- --- ---
------- ------- ------- ------- -------
Net earnings (loss)... $ (.19) $ .93 $ .87 $ (.27) $ 1.38
Fully diluted
Continuing operations... $ (.19) $ .89 $ .51 $ (.27) $ (.61)
Discontinued operations. --- --- --- --- (2.10)
Extraordinary items..... --- (.07) .36 --- 4.09
Accounting change....... --- .07 --- --- ---
------- ------- ------- ------- -------
Net earnings (loss)... $ (.19) $ .89 $ .87 $ (.27) $ 1.38
Cash dividends per common
share................... $ --- $ --- $ --- $ --- $ ---
======= ======= ======= ======= =======
At period end:
Total assets............. $ 45,327 $ 54,043 $ 46,072 $ 40,536 $ 34,644
Long-term debt (1)....... 10,110 14,111 12,350 3,409 1,640
Working capital.......... 19,489 26,207 22,490 18,942 21,917
Shareholders' equity..... 19,729 18,852 15,492 12,326 13,959
(1) Includes current portion of long-term debt.
(2) The fourth quarter of fiscal 1992 contains the results of C&L, which
was acquired in December 1991.
(3) Fiscal 1993 contains 53 weeks. All other years contain 52 weeks.
</TABLE>
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<PAGE>
ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations - Fiscal Year Ended April 1, 1995
versus April 2, 1994
The following is a summary of sales for fiscal 1995 and 1994, including
sales by significant product line for APC:
1995 1994
(In Thousands)
C&L $ 35,245 $ 28,308
Beef 107,055 116,557
Pork 42,700 40,770
Other 65,386 58,006
------- -------
APC Total 215,141 215,333
------- -------
$250,386 $243,641
======= =======
For the fiscal year ended April 1, 1995, net sales increased $6,745,000
or 2.8% over fiscal 1994. C&L's net sales increased $6,937,000 or 24.5% over
fiscal 1994. C&L's sales increase is due primarily to increased sales of
call controllers (see discussion in the following paragraph) and products
used in digital networks for integrated voice and data communications
systems. APC's net sales decreased $192,000 or .1% over fiscal 1994 net
sales. APC's overall volume (based on tonnage) during this period increased
by 1.8%. The average sales price per pound decreased from $1.22 per pound in
fiscal 1994 to $1.20 per pound in fiscal 1995. The decrease in average sales
price per pound is attributable to sales price decreases in beef and pork
because of excess product availability in these markets as well as changes in
the mix of product sold. The decrease in beef sales is primarily
attributable to reduced average sales price per pound and to a lesser extent
decreased volume.
During the second quarter of fiscal 1995 C&L completed the sale of call
controllers pursuant to a purchase commitment made by a customer in fiscal
1994. This order resulted in call controller sales of $3,648,000 in fiscal
1995. Sales attributable to this order significantly impacted the increase
in C&L's year-to-date call controller sales and total year-to-date sales
over the prior year results. During the fourth quarter of fiscal 1995, C&L's
sales were 10% below fourth quarter fiscal 1994 sales. This decrease in
sales is primarily attributable to lower call controller sales. The fourth
quarter of fiscal 1994 included sales under the purchase commitment referred
to above. In addition, the market for call controllers has been negatively
impacted by a continuing consolidation of long distance carriers and
continuing growth of equal access resulting in a reduction of demand for the
product.
The components of other income (loss) and non-operating income are
disclosed in Note 7 to the Consolidated Financial Statements. The decrease
in other income (loss) is attributable to lower interest income from
marketable securities and losses incurred on the disposition of marketable
securities. The increase in interest rates during fiscal 1995 adversely
impacted Diana's marketable securities which prior to the end of the second
quarter of fiscal 1995 consisted primarily of investments in corporate debt
obligations.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations - (Cont.)
Consequently, Diana's corporate office has reduced its investment in these
securities resulting in reduced interest income and losses on investments
that were sold. In addition, during fiscal year 1994, Diana recorded
$747,000 of interest income resulting from the refund of federal income taxes
of $400,000 (shown separately as an income tax credit) paid in a prior year.
In fiscal 1995 gross profit increased $287,000 or 2.6% over fiscal 1994.
On a consolidated basis, gross profit as a percentage of net sales was 4.5%
in fiscal 1995 unchanged from fiscal 1994. C&L's gross profit percentage was
19.5% in fiscal 1995 as compared to 20.7% in fiscal 1994. The decrease in
C&L's gross profit percentage is due to a lower gross profit percentage
achieved on the large call controller sale discussed above and to an
increasingly competitive market for products used in digital networks for
integrated voice and data communications systems. APC's gross profit
percentage was 2% in fiscal 1995 as compared to 2.3% in fiscal 1994. APC's
fiscal 1995 gross profit and gross profit percentage decreased from fiscal
1994 primarily due to increased transportation and warehouse costs and
inventory losses due to inefficiencies in APC's warehouse and transportation
operations (see discussion below) partially offset by lower product costs.
For the fiscal year ended April 1, 1995, selling and administrative
expenses increased $1,157,000 or 12.6% over fiscal 1994. Selling and
administrative expenses have increased primarily because of increased selling
and advertising expenses incurred by C&L to penetrate new and existing
markets. C&L incurred additional expenses to add non-domestic customers with
an initial emphasis in Mexico. Selling and administrative expenses as a
percentage of net sales was 4.1% in fiscal 1995 as compared to 3.8% in fiscal
1994.
For the fiscal year ended April 1, 1995, interest expense decreased
$93,000 or 7.8% over fiscal 1994. The decrease is primarily attributable to
a reduction in short term borrowings by Diana's corporate office. Short term
borrowings were eliminated during the second quarter of fiscal 1995 because
of the reduction of marketable securities discussed above.
As further discussed in Note 11 to the Consolidated Financial
Statements, the decrease in minority interest is attributable to the
Company's acquisition of the remaining 20% of C&L's common stock from its
minority shareholders.
In fiscal 1995, APC continued to incur inefficiencies in its warehouse
and transportation operations which began in fiscal 1994. APC incurred
increased warehouse and transportation payroll expenses and inventory losses
resulting from a continuation of the operating inefficiencies. Consequently,
APC made management changes and implemented new procedures in an attempt to
improve its warehouse and transportation operations. Furthermore, during the
latter part of fiscal 1995's third quarter, APC obtained a significant, new
customer. APC services the Southeastern region of this national warehouse
club. This new customer will generate a significant amount of volume at
margins that are lower than APC's average historical margins. Initially, the
addition of this new business increased the operational inefficiencies
discussed above which management believes is the primary reason for the loss
of $749,000 incurred in the fourth quarter of fiscal 1995. After the
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations - (Cont.)
resolution of these operational inefficiencies, APC should be able to service
this customer at a lower average cost than its other customers because of
efficiencies that should result from shipping large volumes of product. Due
to the addition of this new customer and the limits on APC's ability to
efficiently service certain customers, APC is reviewing and evaluating the
service requirements and profitability of these customers to identify less
profitable business that can be discontinued.
Results of Operations - Fiscal Year Ended April 2, 1994
versus April 3, 1993
The following is a summary of sales for fiscal 1994 and 1993, including
sales by significant product line for APC:
1994 1993
(In Thousands)
C&L $ 28,308 $ 21,517
Beef 116,557 120,454
Pork 40,770 31,617
Other 58,006 48,666
------- -------
APC Total 215,333 200,737
------- -------
$243,641 $222,254
======= =======
For the fiscal year ended April 2, 1994, net sales increased $21,387,000
or 9.6% over fiscal 1993. C&L's net sales increased $6,791,000 or 31.6% over
fiscal 1993. C&L's sales increase is due primarily to increased sales of
products used in digital networks for integrated voice and data
communications systems and other digital products recently added to C&L's
product line. C&L had smaller increases in call controller sales than its
digital products because of reduced sales in the first and second quarter of
fiscal 1994. The market for call controllers has been negatively impacted by
a continuing consolidation of long distance carriers and continuing growth of
equal access resulting in a reduction of demand for the product. C&L has
mitigated this trend through the addition of call controller business by
acquiring Hollis. APC's net sales increased $14,596,000 or 7.3% over fiscal
1993. APC's overall volume (based on tonnage) during this period increased
by 5.2%. The average sales price per pound increased from $1.20 per pound in
fiscal 1993 to $1.22 per pound in fiscal 1994. This increase is primarily
due to a modest sales price increase in all product lines and to a lesser
extent a change in the mix of the product.
In fiscal 1994 gross profit increased $1,956,000 or 21.9% over fiscal
1993. On a consolidated basis, gross profit as a percentage of net sales was
4.5% in fiscal 1994 as compared to 4% in fiscal 1993. The increase in the
gross profit percentage is primarily attributable to an increase of C&L's
higher gross profit sales as a percentage of total sales (11.6% in fiscal
1994 compared to 9.7% in fiscal 1993). C&L's gross profit percentage was
20.7% in fiscal 1994 as compared to 20.5% in fiscal 1993. C&L's gross profit
percentage increased because of increased gross profit margins on products
used in digital networks for integrated voice and data communications
systems. APC's gross profit percentage was 2.3% in fiscal 1994 which was
unchanged from fiscal 1993.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations - (Cont.)
For the fiscal year ended April 2, 1994, selling and administrative
expenses increased $723,000 or 8.6% over fiscal 1993. The primary reasons
for this increase are due to increased selling expenses by C&L to penetrate
new and existing markets and increased expenses related to the acquisition of
Hollis. Selling and administrative expenses as a percentage of net sales was
3.8% in fiscal 1994 which was unchanged from fiscal 1993.
For the fiscal year ended April 2, 1994, interest expense increased
$453,000 or 61.4% over fiscal 1993. The primary reasons for this increase
are due to increased borrowings by APC under its revolving line of credit and
increased margin borrowings by Diana's corporate office used to purchase
marketable securities. In the first and second quarter of fiscal 1993, Diana
provided APC with its working capital funds which resulted in no interest
expense being recorded on a consolidated basis.
The components of other income and non-operating income are disclosed in
Note 7 to the Consolidated Financial Statements. Diana's corporate office
generated increased investment income in fiscal 1994 as compared to fiscal
1993. A portion of the increased investment in marketable securities was
funded by increased margin borrowings discussed above. In addition, in
fiscal 1994 other income included interest income of $747,000 resulting from
the refund of federal income taxes of $400,000 (shown separately as an income
tax credit) paid in a prior year.
The extraordinary items of $266,000 for fiscal 1994 are discussed in
Note 10 to the Consolidated Financial Statements.
APC began to incur inefficiencies in its warehouse and transportation
operations in the third quarter of fiscal 1994, partially attributable to
increased volume. These inefficiencies resulted primarily in increased
payroll expenses which exceeded prior years and budgeted amounts in fiscal
1994. These increased expenses adversely impacted APC's fourth quarter
results. As a result, APC incurred a loss of $71,000 during the fourth
quarter of fiscal 1994 after reporting profitable results of operations
during the first three quarters of fiscal 1994.
Liquidity and Capital Resources
The Company recorded cash flow from operating activities of $6,717,000
as compared to cash used by operating activities of $308,000 in fiscal 1994.
Cash outflow from the loss of $720,000 in fiscal 1995 was more than offset by
a net decrease in working capital items, primarily inventory and accounts
payable. Inventory decreased by $3,204,000 or 20.7% from fiscal 1994 due to
better management of inventory through a reduction in inventory levels and
increased inventory turnover. At the end of fiscal 1994, APC increased its
pork inventories in anticipation of price increases and C&L increased its
inventories because of a purchase commitment from a customer. Accounts
payable increased by $718,000 or 6.2% from fiscal 1994 which is primarily due
to longer payment terms obtained by APC from vendors providing product that
is sold to the significant new customer (previously discussed) as compared to
payment terms from APC's primary existing vendors.
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<PAGE>
The Company's investments in marketable securities decreased $5,043,000
in fiscal 1995. This decrease is primarily attributable to losses of
$1,227,000 incurred on the sales of marketable securities, the elimination of
short-term borrowings incurred to purchase marketable securities on margin
and the settlement payments in the Ossmann Suit. As more fully discussed in
Note 10 to the Consolidated Financial Statements, in March 1994 the Ossmann
Suit was settled. In fiscal 1995, pursuant to the settlement, total payments
of $3,417,000 were made by the defendants in the litigation of which
$2,822,000 was made by the Company.
In fiscal 1995, the Company had $599,000 of capital expenditures. C&L's
and APC's Loan and Security Agreements include covenants that restrict
capital expenditures. In fiscal 1996, C&L's and APC's capital expenditures
will be limited to an aggregate of $900,000 because of covenants in their
Loan and Security Agreements that restrict capital expenditures.
C&L's credit facility provides a revolving line of credit of up to
$6,000,000 with interest at the prime rate plus .25% (9.25%) through December
1995. At April 1, 1995, C&L borrowed $2,562,000 and had available unused
borrowing capacity of $3,011,000.
APC's credit facility provides a revolving line of credit of up to
$9,500,000 with interest at the prime rate plus 2% (11%) through November
1997. A $2 million letter of credit facility is included within the total
credit facility. At April 1, 1995, APC borrowed $4,241,000 and had letters
of credit of $1,500,000 issued on its behalf. At April 1, 1995, APC had
available unused borrowing capacity of $3,009,000. In June 1995, APC and its
lender entered into a waiver and amendment agreement relating to the Loan and
Security Agreement in order to avoid violating certain financial covenants in
fiscal 1995 and 1996.
Accounting Pronouncements
Effective April 2, 1994, the Company adopted the provisions of SFAS No.
115, "Accounting for Certain Investments in Debt and Equity Securities". The
effect as of April 2, 1994 of adopting SFAS No. 115 increased net earnings by
$412,000, or $.11 per fully diluted share.
Effective April 4, 1993, the Company adopted the liability method of
accounting for income taxes in accordance with SFAS No. 109, "Accounting for
Income Taxes". The cumulative effect as of April 4, 1993 of adopting SFAS
No. 109 increased net earnings for fiscal 1994 by $262,000.
Impact of Inflation
Inflation has not had a significant impact on net sales or earnings
(loss) before extraordinary items or accounting change for the three most
recent fiscal years.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
THE DIANA CORPORATION AND SUBSIDIARIES
PAGE
Report of Ernst & Young LLP, Independent Auditors............... 12
Consolidated Balance Sheets..................................... 13
Consolidated Statements of Operations........................... 14
Consolidated Statements of Changes in Shareholders' Equity...... 15
Consolidated Statements of Cash Flows........................... 16
Notes to Consolidated Financial Statements...................... 17
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REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors and Shareholders
The Diana Corporation
We have audited the accompanying consolidated balance sheets of The
Diana Corporation and subsidiaries (the Company) as of April 1,
1995 and April 2, 1994, and the related consolidated statements of
operations, changes in shareholders' equity and cash flows for each
of the three years in the period ended April 1, 1995. Our audits
also included the financial statement schedules listed in the Index
at Item 14(a). These financial statements and schedules are the
responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements and schedules
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, the consolidated financial
position of The Diana Corporation and subsidiaries at April 1, 1995
and April 2, 1994, and the consolidated results of its operations
and its cash flows for each of the three years in the period ended
April 1, 1995, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement
schedules, when considered in relation to the basic financial
statements taken as a whole, present fairly in all material
respects the information set forth therein.
As discussed in Note 8 to the consolidated financial statements,
the Company changed its method of accounting for income taxes,
effective April 4, 1993.
Milwaukee, Wisconsin ERNST & YOUNG LLP
June 2, 1995, except for Note 3
as to which the date is June 28, 1995
12
THE DIANA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
April 1, April 2,
1995 1994
-------- --------
<S> <C> <C>
ASSETS (NOTE 3)
Current assets
Cash and cash equivalents............................ $ 2,440 $ 1,661
Restricted short-term investment..................... 300 630
Marketable securities................................ 6,211 11,254
Receivables, less allowance for
doubtful accounts of $600 and $517.................. 14,785 15,310
Inventories.......................................... 12,237 15,441
Other current assets................................. 390 336
------ ------
Total current assets............................... 36,363 44,632
Property and equipment
Land................................................. 357 357
Building and improvements............................ 4,400 4,154
Fixtures and equipment............................... 3,298 3,315
------ ------
8,055 7,826
Less accumulated depreciation........................ (4,252) (3,945)
------ ------
3,803 3,881
Goodwill, net.......................................... 2,846 2,710
Covenants not to compete, net.......................... 1,291 1,663
Other assets........................................... 1,024 1,157
------ ------
$45,327 $54,043
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short-term borrowings................................ $ --- $ 2,144
Accounts payable..................................... 12,355 11,637
Accrued liabilities.................................. 1,390 1,072
Current portion of long-term debt.................... 3,129 3,572
------ ------
Total current liabilities...................... 16,874 18,425
Long-term debt......................................... 6,981 10,539
Net liabilities of unconsolidated subsidiary........... 698 3,615
Other liabilities ..................................... 1,045 977
Minority interest...................................... --- 1,635
Commitments and contingencies (Note 4).................
Shareholders' equity
Preferred stock - $.01 par value.
Authorized 5,000,000 shares; none issued............ --- ---
Common stock - $1 par value. Authorized 15,000,000
shares; issued 4,810,353 and 4,637,530 shares....... 4,810 4,638
Additional paid-in capital........................... 48,548 46,241
Accumulated deficit.................................. (28,178) (25,449)
Unrealized loss on marketable securities............. (713) (412)
Treasury stock at cost............................... (4,738) (6,166)
------ ------
Total shareholders' equity..................... 19,729 18,852
------ ------
$45,327 $54,043
====== ======
</TABLE>
See notes to consolidated financial statements.
13
<PAGE>
THE DIANA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Fiscal Year Ended
April 1, April 2, April 3,
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Net sales.............................. $250,386 $243,641 $222,254
Other income (loss).................... (417) 2,697 1,471
------- ------- -------
249,969 246,338 223,725
Cost of sales.......................... 239,198 232,740 213,309
Selling and administrative expenses.... 10,314 9,157 8,434
------- ------- -------
Operating earnings..................... 457 4,441 1,982
Interest expense....................... (1,098) (1,191) (738)
Non-operating income................... 34 --- 718
Income tax credit...................... --- 400 ---
Equity in earnings (loss) of
unconsolidated subsidiaries.......... (69) 97 69
Minority interest...................... (44) (290) (174)
------- ------- -------
Earnings (loss) before extraordinary
items and accounting change.......... (720) 3,457 1,857
Extraordinary items.................... --- (266) 1,318
------- ------- -------
Earnings (loss) before accounting
change............................... (720) 3,191 3,175
Cumulative effect of accounting change. --- 262 ---
------- ------- -------
Net earnings (loss).................... $ (720) $ 3,453 $ 3,175
======= ======= =======
Earnings (loss) per common share:
Primary
Before extraordinary items.......... $ (.19) $ .93 $ .51
Extraordinary items................. --- (.07) .36
Accounting change................... --- .07 ---
------- ------- -------
Net earnings (loss)................. $ (.19) $ .93 $ .87
======= ======= =======
Fully diluted
Before extraordinary items.......... $ (.19) $ .89 $ .51
Extraordinary items................. --- (.07) .36
Accounting change................... --- .07 ---
------- ------- -------
Net earnings (loss)................. $ (.19) $ .89 $ .87
======= ======= =======
Weighted average number of common
shares outstanding
Primary............................. 3,832 3,727 3,629
======= ======= =======
Fully diluted....................... 3,832 3,861 3,629
======= ======= =======
</TABLE>
See notes to consolidated financial statements.
14
<PAGE>
THE DIANA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Dollars in Thousands)
<TABLE>
<CAPTION>
Common Stock Additional Unrealized Loss Treasury Stock Total
Number of Par Paid in Accumulated on Marketable Number of Shareholders'
Shares Value Capital Deficit Securities Shares Cost Equity
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at March 28, 1992 4,637,530 $ 4,638 $ 45,786 $ (30,993) $ --- 1,339,667 $(7,105) $ 12,326
Net earnings --- --- --- 3,175 --- --- --- 3,175
Purchase of treasury stock --- --- --- --- --- 5,000 (9) (9)
--------- ----- ------ -------- -------- --------- ----- ------
Balance at April 3, 1993 4,637,530 4,638 45,786 (27,818) --- 1,344,667 (7,114) 15,492
Net earnings --- --- --- 3,453 --- --- --- 3,453
5% stock dividend --- --- 214 (1,084) --- (163,889) 866 (4)
Exercise of stock options --- --- (47) --- --- (15,500) 82 35
Unrealized loss on
marketable securities --- --- --- --- (412) --- --- (412)
Other --- --- 288 --- --- --- --- 288
--------- ----- ------ ------- ------ --------- ------ ------
Balance at April 2, 1994 4,637,530 4,638 46,241 (25,449) (412) 1,165,278 (6,166) 18,852
Net loss --- --- --- (720) --- --- --- (720)
5% stock dividend 172,823 172 1,830 (2,009) --- --- --- (7)
Exercise of stock options --- --- (14) --- --- (4,500) 24 10
Change in unrealized loss on
marketable securities --- --- --- --- (301) --- --- (301)
Acquisition of minority interest --- --- 491 --- --- (265,262) 1,404 1,895
--------- ----- ----- ------ --- ------- ----- ------
Balance at April 1, 1995 4,810,353 $ 4,810 $ 48,548 $ (28,178) $ (713) 895,516 $ (4,738) $ 19,729
========= ===== ====== ======= ======= ======= ====== =======
</TABLE>
See notes to consolidated financial statements.
15
<PAGE>
THE DIANA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
Fiscal Year Ended
April 1, April 2, April 3,
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Operating activities
Earnings (loss) before extraordinary
items and accounting change.......... $ (720) $ 3,457 $ 1,857
Adjustments to reconcile earnings
(loss) to net cash provided (used) by
operating activities:
Loss (gain) on sale of
marketable securities.............. 1,227 (479) (285)
Depreciation and amortization....... 1,154 1,098 852
Provision for losses on accounts
receivable......................... 313 153 406
Non-operating income................ --- --- (625)
Equity in loss (earnings) of
unconsolidated subsidiaries........ 69 (97) (69)
Minority interest................... 44 290 174
Payments of net liabilities of
unconsolidated subsidiary.......... (95) (361) (63)
Other............................... 311 (14) (320)
Changes in current assets and
liabilities........................ 4,414 (4,355) (2,838)
------ ------ ------
Net cash provided (used) by operating
activities............................ 6,717 (308) (911)
Investing activities
Additions to property and equipment... (599) (555) (251)
Acquisitions, net of cash acquired.... --- (1,983) (163)
Purchases of marketable securities.... (5,647) (20,218) (15,982)
Sales of marketable securities........ 9,276 21,031 6,895
Collection of notes receivable........ 194 252 268
Other................................. (195) --- ---
------ ------ ------
Net cash provided (used) by investing
activities............................ 3,029 (1,473) (9,233)
Financing activities
Changes in short-term borrowings...... (2,144) (640) 2,784
Payments on long-term debt............ (4,001) (390) (330)
Proceeds from long-term debt.......... --- 1,830 6,476
Payments toward bond settlements...... (2,822) (178) (1,081)
Purchase of treasury stock............ --- --- (9)
------ ------ ------
Net cash provided (used) by financing
activities............................ (8,967) 622 7,840
------ ------ ------
Increase (decrease) in cash and cash
equivalents........................... 779 (1,159) (2,304)
Cash and cash equivalents at the
beginning of the year................. 1,661 2,820 5,124
------ ------ ------
Cash and cash equivalents at the end of
the year.............................. $ 2,440 $ 1,661 $ 2,820
====== ====== ======
</TABLE>
See notes to consolidated financial statements.
16
<PAGE>
THE DIANA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 1, 1995
NOTE 1 - Summary of Significant Accounting Policies
Fiscal Year
The Company's fiscal year ends on the Saturday closest to March 31.
There were 53 weeks in fiscal 1993 and 52 weeks in all other years presented.
Basis of Presentation
The consolidated group (hereafter referred to as the "Company") included
the following companies during the past three years. The following describes
each entity in the consolidated group and its current status:
The Diana Corporation ("Diana")
Diana and its wholly-owned subsidiaries are included in the
consolidated group for all three fiscal years.
Entree Corporation ("Entree")
Entree and its wholly-owned subsidiary, Atlanta Provision Company,
Inc. ("APC"), are included in the consolidated group for all three
fiscal years. Diana owns 81.25% of Entree.
C&L Communications, Inc. ("C&L")
C&L is included in the consolidated group for all three fiscal
years. Effective June 1994, Diana increased its ownership interest in
C&L from 80% to 100% (see Note 11).
Investments in 20%-50% owned subsidiaries in which management has the
ability to exercise significant influence are accounted for using the equity
method of accounting (see Note 9). Accounts and transactions between members
of the consolidated group are eliminated in the consolidated financial
statements.
Cash Equivalents and Restricted Short-term Investments
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. Short-term
investments are valued at cost which approximates market. Certain short-term
investments are pledged to third parties and are therefore restricted and not
considered cash equivalents for purposes of financial reporting.
17
<PAGE>
NOTE 1 - Summary of Significant Accounting Policies (Continued)
Marketable Securities
The Company accounts for marketable securities in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for
Certain Investments in Debt and Equity Securities", as of April 2, 1994.
Prior to April 2, 1994, the Company accounted for marketable securities under
SFAS No. 12, "Accounting for Certain Marketable Securities".
Under SFAS No. 115, management determines the appropriate classification
of debt securities at the time of purchase and reevaluates such designation
as of each balance sheet date. Debt securities are classified as held-to-
maturity when the Company has the positive intent and ability to hold the
securities to maturity. Held-to-maturity securities are stated at amortized
cost, adjusted for amortization of premiums and accretion of discounts to
maturity. Such amortization is included in other income (loss). Marketable
equity securities and debt securities not classified as held-to-maturity are
classified as available-for-sale. Available-for-sale securities are carried
at fair value, with the unrealized gains and losses reported in a separate
component of shareholders' equity. The amortized cost of debt securities is
adjusted for amortization of premiums and accretion of discounts to maturity.
Such amortization is included in other income (loss). Realized gains and
losses, interest income and dividends are included in other income (loss).
For purposes of determining the gain or loss on a sale, the cost of
securities sold is determined using the average cost of all shares of each
such security held at the dates of sale.
Inventories
Inventories, consisting of finished product, are stated at the lower of
cost or market. Items are removed from inventory based on the specific
identification method or the average cost method.
Property and Equipment
Property and equipment are stated at cost. Provisions for depreciation
are computed on the straight-line method for financial reporting purposes
over 3 to 10 years for equipment and 5 to 25 years for building and
improvements.
Goodwill
Goodwill is amortized on a straight-line basis over a forty year period.
Accumulated amortization was $388,000 and $309,000 at April 1, 1995 and
April 2, 1994, respectively. Goodwill is reviewed for impairment whenever
events or circumstances provide evidence that suggest that the carrying
amount of the asset may not be recoverable. Impairment is determined by
using identifiable cash flows over the remaining amortization period.
18
<PAGE>
NOTE 1 - Summary of Significant Accounting Policies (Continued)
Covenants Not to Compete
Covenants not to compete are amortized on a straight-line basis over the
non-compete periods of five to seven years. Accumulated amortization was
$1,210,000 and $838,000 at April 1, 1995 and April 2, 1994, respectively.
Revenue Recognition
The Company recognizes revenue when product is shipped.
Income Taxes
The Company accounts for income taxes using the liability method in
accordance with SFAS No. 109, "Accounting for Income Taxes", in 1995 and
1994, and the liability method in accordance with SFAS No. 96, "Accounting
for Income Taxes", in 1993.
Earnings (Loss) Per Common Share
Primary and fully diluted per share amounts are determined by dividing
earnings (loss) by the weighted average number of shares of common stock and
materially dilutive common stock equivalents (stock options) outstanding.
Concentrations of Credit Risk
Trade accounts receivable are the only financial instruments which
potentially subject the Company to significant concentrations of credit risk.
APC distributes meat and seafood primarily to retail food outlets, meat
wholesalers, food service enterprises and restaurants. APC performs periodic
credit evaluations of its customers' financial condition and generally does
not require collateral. C&L distributes telecommunications equipment
nationwide primarily to long-distance carriers, systems integrators and
interconnect companies. C&L performs periodic credit evaluations of its
customers' financial condition and generally does not require collateral,
however, C&L attempts to obtain a purchase money security interest in
product sold to small to medium sized customers. At April 1, 1995, APC and
C&L had no significant concentrations of credit risk.
Reclassifications
Certain reclassifications have been made to the 1994 and 1993 financial
statements to conform with the 1995 presentation.
19
<PAGE>
NOTE 2 - Marketable Securities
Effective April 2, 1994, the Company adopted the provisions of SFAS No.
115. In accordance with SFAS No. 115, prior period financial statements have
not been restated to reflect the change in accounting principle. The effect
as of April 2, 1994 of adopting SFAS No. 115 increased net earnings by
$412,000 or $.11 per fully diluted share.
The following is a summary of available-for-sale and held-to-maturity
marketable securities:
<TABLE>
<CAPTION>
Available-for-Sale Marketable Securities
April 1, 1995
-----------------------------------------
Gross Gross Estimated
Unrealized Unrealized Fair
Cost Gains Losses Value
(In Thousands)
<S> <C> <C> <C> <C>
U.S. corporate securities $ 1,156 $ 21 $ 58 $ 1,119
Other debt securities --- --- --- ---
------ --- --- ------
Total debt securities 1,156 21 58 1,119
Equity securities 1,604 --- 676 928
------ --- --- ------
$ 2,760 $ 21 $ 734 $ 2,047
====== === ==== ======
</TABLE>
<TABLE>
<CAPTION>
Held-to-Maturity Marketable Securities
April 1, 1995
--------------------------------------
Gross Gross Estimated
Unrealized Unrealized Fair
Cost Gains Losses Value
(In Thousands)
<S> <C> <C> <C> <C>
U.S. treasury security $ 4,164 $--- $ --- $ 4,164
====== === ==== ======
</TABLE>
<TABLE>
<CAPTION>
Available-for-Sale Marketable Securities
April 2, 1994
----------------------------------------
Gross Gross Estimated
Unrealized Unrealized Fair
Cost Gains Losses Value
(In Thousands)
<S> <C> <C> <C> <C>
U.S. corporate securities $ 8,976 $ 23 $ 375 $ 8,624
Other debt securities 2,181 --- --- 2,181
------ --- ---- ------
Total debt securities 11,157 23 375 10,805
Equity securities 509 --- 60 449
$11,666 $ 23 $ 435 $11,254
====== === ==== ======
</TABLE>
20
<PAGE>
NOTE 2 - Marketable Securities (Continued)
The gross realized gains on sales of available-for-sale securities
totaled $14,000, $592,000 and $313,000 in fiscal 1995, 1994 and 1993,
respectively, and the gross realized losses totaled $1,241,000, $113,000 and
$28,000 in fiscal 1995, 1994 and 1993, respectively. The net adjustment to
unrealized losses on available-for-sale securities included as a separate
component of shareholders' equity totaled $713,000 and $412,000 at April 1,
1995 and April 2, 1994, respectively.
The Company considers its marketable securities to be primarily a
resource for potential acquisitions. Pending such uses, the Company invests
its marketable securities for the purpose of generating additional income
and/or capital appreciation. The Company does not limit its potential
investments of marketable securities based on level of risk or investment
concentration.
Expected maturities of marketable securities will differ from
contractual maturities because the issuers of the securities may have the
right to prepay obligations without prepayment penalties. The amortized cost
and estimated fair value of marketable securities at April 1, 1995, by
contractual maturity, are shown below:
Available-for-Sale Securities
-----------------------------
Estimated
Cost Fair Value
(In Thousands)
Due after five years $ 1,156 $ 1,119
Equity securities 1,604 928
------ ------
$ 2,760 $ 2,047
====== ======
Held-to-Maturity Securities
---------------------------
Estimated
Cost Fair Value
(In Thousands)
Due in one year or less $ 4,164 $ 4,164
====== ======
21
<PAGE>
NOTE 3 - Long-Term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
April 1, April 2,
Note Company Due Date 1995 1994
(In Thousands)
<S> <C> <C> <C> <C> <C>
Debentures and
interest A Diana January 2002 $ 2,240 $ 2,381
Note payable Diana --- 120
Notes payable B APC October 1996 158 306
Mortgage notes C APC August 2006 875 924
Line of credit D APC November 1997 4,241 6,622
Line of credit E C&L December 1995 2,562 3,705
Other obligations F C&L October 1996 34 53
------ ------
10,110 14,111
Less current portion (3,129) (3,572)
------ ------
$ 6,981 $10,539
====== ======
</TABLE>
A. Principal of $1,254,000 and capitalized interest of $986,000. Interest
at 11.25%. The debentures are unsecured (see Note 10).
B. Interest at 9.5% and 11%. The notes are collateralized by trailers and
equipment.
C. Interest at 7% and 8.25%. The mortgage notes are collateralized by land
and building with a carrying value of $2,618,000 as of April 1, 1995.
D. APC has a Loan and Security Agreement ("Agreement") with a lender
(amended effective June 28, 1995) providing a revolving line of credit
through November 1997 of up to $9,500,000 with interest at the prime
rate plus 2% (prime was 9% at April 1, 1995). A $2 million letter of
credit facility with fees of 2% is included within the total credit
facility. At April 1, 1995, APC borrowed $4,241,000 and had letters of
credit of $1,500,000 issued on its behalf by the lender. Management
estimates that the minimum level of borrowings that will be outstanding
during fiscal 1996 will be approximately $4,000,000 and has classified
$241,000 of the line of credit outstanding as a current liability at
April 1, 1995.
22
<PAGE>
Note 3 - Long-Term Debt (Continued)
Borrowings under the Agreement are restricted based on defined
percentages of eligible accounts receivable and inventories. The amount
available under the Agreement at April 1, 1995 was $3,009,000. APC pays
a fee of 1/2% on the average unused line of credit. Substantially all
assets of APC are pledged as collateral under the Agreement. The
Agreement provides for the maintenance of certain financial ratios and
restricts APC in a number of areas, including, but not limited to,
declaration of dividends, mergers and acquisitions, transactions with
affiliates, capital expenditures and additional indebtedness.
E. C&L has a Loan and Security Agreement ("Loan Agreement") with a lender
providing a revolving line of credit through December 23, 1995 of up to
$6,000,000, with interest at the prime rate plus .25%. Borrowings under
the Loan Agreement are restricted based on defined percentages of
eligible accounts receivable and inventories. The amount available
under the Loan Agreement at April 1, 1995, was $3,011,000.
Substantially all assets of C&L are pledged as collateral under the Loan
Agreement. The Loan Agreement provides for the maintenance of
certain financial ratios and restricts C&L in a number of areas,
including, but not limited to, declaration of dividends, payment of
salaries to officers, mergers and acquisitions, transactions with
affiliates, capital expenditures and additional indebtedness.
F. Interest at 3.9%. The obligation is collateralized by equipment.
Approximate annual amounts payable by Diana and its subsidiaries on
long-term debt for the next five fiscal years are as follows (in thousands):
1996 .................... $ 3,129
1997 .................... 247
1998 .................... 4,192
1999 .................... 195
2000 .................... 200
23
<PAGE>
NOTE 4 - Commitments and Contingencies
Diana subleases its corporate office space under a noncancelable
operating lease. APC leases tractors and trailers used in its distribution
activities under operating leases with terms ranging from five to eight
years. APC also leases various equipment used in its warehouse operations
under operating leases with terms generally not exceeding one year. C&L
leases its building and certain vehicles and equipment under operating
leases. Total rental expense (including contingent rentals based on miles
driven) under operating leases in fiscal 1995, 1994 and 1993 was $1,870,000,
$1,929,000 and $1,907,000, respectively.
Future minimum payments (excluding contingent rentals) under
noncancelable operating leases with initial terms of one year or more for
fiscal years subsequent to April 1, 1995 are as follows (in thousands):
1996 $ 1,037
1997 693
1998 483
1999 369
2000 213
Thereafter 139
In connection with the sale of substantially all of the assets of
Diana's wholesale food business, the buyer assumed certain indebtedness of
Diana, which terminates in 1998, for which Diana remains primarily liable.
Such indebtedness aggregated approximately $469,000 at April 1, 1995. The
buyer has pledged a letter of credit for the benefit of the trustee of the
indebtedness as collateral for this indebtedness.
C&L participates in an equipment leasing arrangement. C&L is subject to
a future subscription obligation relating to the equipment lease for
approximately $495,000 at April 1, 1995, if income from the underlying lease
is insufficient to fund future operations of the arrangement. The lease for
equipment expires in January 1999. The sellers have indemnified the Company
with respect to any future subscription obligations.
In the opinion of management, all of the matters discussed above will be
resolved without a material adverse impact on the Company's consolidated
financial position.
24
<PAGE>
NOTE 5 - Stock Options
In fiscal 1986, the Company's Board of Directors adopted The Diana
Corporation 1986 Nonqualified Stock Option Plan (the "Plan"), which permits
the Company to grant nonqualified stock options to key employees and
directors of the Company and its subsidiaries. The Plan is limited to
771,750 common shares. The Plan is administered by the Company's Board of
Directors, which is authorized, among other things, to determine which
persons receive options under the Plan, the number of shares for which an
option may be granted, and the exercise price and expiration date for each
option. Options granted under the Plan may not be exercised after eleven
years from the date of grant, and no options may be granted after
December 10, 1997. The exercise price will not be less than the fair market
value of the Company's common stock on the date of grant, although the Board
has discretion to set the exercise price at any amount that it may establish
from time to time. Transactions for fiscal 1995, 1994 and 1993 are as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Options outstanding at
beginning of year 544,264 533,110 528,110
Changes during year:
5% stock dividend 27,212 26,654 ---
Granted --- --- 5,000
Exercised (4,500) (15,500) ---
------ ------- -------
Net increase 22,712 11,154 5,000
------ ------- -------
Options outstanding
at end of year 566,976 544,264 533,110
======= ======= =======
Options exercisable 566,976 544,264 533,110
Option price range $2.15- $2.26- $2.38-
$6.12 $6.43 $6.75
</TABLE>
NOTE 6 - Employee Benefit Plans
APC contributes to a multiemployer defined benefit pension plan pursuant
to the terms of a collective bargaining agreement. Amounts contributed to
this plan by APC were $34,000, $39,000 and $36,000, for fiscal years 1995,
1994 and 1993, respectively. In fiscal 1995, C&L established a 401(k) plan
which covers all employees. APC has a 401(k) plan which covers non-union
employees. There were no contributions under these plans for any years
presented.
25
<PAGE>
NOTE 7 - Other Income (Loss) and Non-Operating Income
Other income (loss) consists of the following for the last three years:
<TABLE>
<CAPTION>
1995 1994 1993
(In Thousands)
<S> <C> <C> <C>
Interest income........................... $ 570 $2,132 $ 901
Net gains (losses) on sales of marketable
securities (See Note 2)................. (1,227) 479 285
Other..................................... 240 86 285
----- ----- -----
$ (417) $2,697 $1,471
===== ===== =====
</TABLE>
Non-operating income consists of the following for the last three years:
<TABLE>
<CAPTION>
1995 1994 1993
(In Thousands)
<S> <C> <C> <C>
Gain on settlements of lawsuits $ 34 $ --- $ ---
Gain from extinguishment of certain net
liabilities of unconsolidated subsidiary --- --- 625
Refund of certain expenses of a subsidiary --- --- 93
----- ----- -----
$ 34 $ --- $ 718
===== ===== =====
</TABLE>
NOTE 8 - Income Taxes
Effective April 4, 1993, the Company adopted the liability method of
accounting for income taxes in accordance with SFAS No. 109. The cumulative
effect as of April 4, 1993 of adopting SFAS No. 109 increased net earnings
for fiscal 1994 by $262,000.
A reconciliation of the income tax provision and the amount computed by
applying the statutory federal income tax rate (34%) to earnings (loss)
before extraordinary items, accounting change, minority interest and income
tax credit is as follows:
<TABLE>
<CAPTION>
Fiscal Year Ended
April 1, April 2, April 3,
1995 1994 1993
(In Thousands)
<S> <C> <C> <C>
Expense (credit) at statutory rate......... $ (230) $ 1,138 $ 691
Settlements of liabilities of
unconsolidated subsidiary................ (36) (1,357) (1,773)
Reversal of liabilities of unconsolidated
subsidiary............................... --- (71) (212)
Tax effect of net operating loss not
recognized............................... 198 180 1,214
Other, net................................. 68 110 80
------ ------ ------
Income tax provision....................... $ --- $ --- $ ---
====== ====== ======
In fiscal 1994, the Company recorded an income tax credit of $400,000
resulting from the refund of federal income taxes paid in a prior year.
26
<PAGE>
NOTE 8 - Income Taxes (Continued)
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and income tax purposes. Components of the
Company's deferred tax assets and liabilities are as follows:
</TABLE>
<TABLE>
<CAPTION>
April 1, April 2,
1995 1994
(In Thousands)
<S> <C> <C>
Deferred tax assets:
Federal net operating loss carryforwards $ 6,809 $ 7,274
Federal capital loss carryforward 417 ---
State net operating loss carryforwards 2,247 2,175
Capitalized interest on Diana debentures 394 451
Deferred compensation 530 437
Allowance for doubtful accounts 225 197
Covenants not to compete 227 157
General business credit carryforwards 145 145
Unrealized loss on marketable securities 242 140
All other 219 227
------- -------
Total deferred tax assets 11,455 11,203
Valuation allowance for deferred tax assets (10,279) (10,039)
------- -------
Net deferred tax assets 1,176 1,164
Deferred tax liabilities:
Building and improvements basis difference 523 552
Tax over book depreciation 263 245
All other 390 367
------- -------
Total deferred tax liabilities 1,176 1,164
------- -------
Net deferred taxes $ --- $ ---
======= =======
</TABLE>
The Company has approximately $20,025,000 in net operating loss
carryforwards for federal income tax purposes expiring in the years 2005 to
2010.
NOTE 9 - Equity in Earnings (Loss) of Unconsolidated Subsidiaries
Diana owns a 50% interest in a partnership that holds promissory notes,
secured by inventory and equipment, due over a five year period ending
November 1995 with interest at 12%. APC has a 50% ownership interest in
Fieldstone Meats of Alabama, Inc. ("Fieldstone"), a company which produces
cured hams and bacon. Diana also owns a 50% interest in Sattel
Communications Company, a partnership which was formed to develop and market
telecommunications products. At April 1, 1995 and April 2, 1994, the
carrying value of the Company's investment in these unconsolidated
subsidiaries was $557,000 and $604,000, respectively, and is included within
other assets.
27
NOTE 9 - Equity in Earnings (Loss) of Unconsolidated Subsidiaries (Continued)
The Company's equity in the earnings (loss) of unconsolidated
subsidiaries for the last three fiscal years are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
(In Thousands)
<S> <C> <C> <C>
Partnership $ 28 $ 49 $ 63
Fieldstone (35) 48 6
Sattel Communications (62) --- ---
---- ---- ----
$ (69) $ 97 $ 69
==== ==== ====
</TABLE>
NOTE 10 - Extraordinary Items
Carl and Dorothy Ossmann, Mary Leach, Wilmer and Florence Tiede, and
Rosemary and Ray Ward V. The Diana Corporation, Donald E. Runge and Richard
Y. Fisher (the "Ossmann Suit"), and First Trust National Association and
Norwest Bank Minnesota V. Farm House Foods Corporation and The Diana
Corporation (the "First Trust Suit"). In March 1994, the remaining parties
to the Ossmann Suit and the First Trust Suit entered into an Amended
Memorandum of Understanding (the "Settlement") providing for settlement of
the matter. In fiscal 1995, the defendants made total payments of $3,237,000
to the trustees pursuant to the Settlement as full and complete payment of
all amounts due, including principal and accrued interest with a carrying
value of $3,391,000 and trustee fees and costs. In addition, a payment of
$180,000 was made to the attorneys of the class pursuant to the Settlement.
The Company accounted for the Settlement in accordance with SFAS No. 76,
"Extinguishment of Debt" and recorded an extraordinary loss, including the
direct costs of settlement, of $266,000 in fiscal 1994.
In fiscal 1993, the Company recorded an aggregate extraordinary gain of
$1,318,000 as a result of a settlement in May 1992 in the Ossmann Suit and a
cash offer completed in January 1993. The May 1992 settlement, among other
things, provided for Diana to issue debentures (see Note 3) to holders of
Farm House Foods Corporation ("Farm House") bonds who participated in the
settlement in May 1992 and who properly filed a proof of claim. Diana
debentures with principal and interest totaling $2,661,000 were issued to
settle $3,190,000 of Farm House bonds and $660,000 of accrued interest. The
Company accounted for the May 1992 settlement in accordance with SFAS No. 15.
In January 1993, the Company completed an offer to purchase Farm House bonds
for cash from certain bondholders that declined to participate in the May
1992 settlement. The Company purchased $1,300,000 of Farm House bonds
(principal and accrued interest) for a cash payment of $526,000. The Company
accounted for the cash offer in accordance with SFAS No. 76.
The amounts included in extraordinary items are not net of taxes due to
the existence of net operating loss carryforwards (see Note 8).
28
<PAGE>
NOTE 11 - Related Party Transactions
Certain of the Company's non-employee directors provide services to the
Company and/or its subsidiaries for which they are compensated. Amounts
accrued or paid to all directors for these services during fiscal 1995, 1994
and 1993 are $367,000, $329,000 and $278,000, respectively.
Included in other assets is a receivable of $358,000 from the sellers of
C&L. Pursuant to the Stock Purchase Agreement executed in connection with
the acquisition of C&L, the sellers are to reimburse the Company for any of
the Company's net operating losses used to offset taxable income generated by
certain investments owned by C&L. As of April 1, 1995, the receivable
represents 34% of the initial excess of the financial reporting basis over
the income tax basis of such investments, less amounts collected for use of
net operating losses in fiscal 1993 through 1995. The sellers are currently
employed as officers by C&L.
C&L leases its building and certain vehicles from certain officers of
C&L. Total rent expense on such leases was $144,000, $141,000 and $158,000
for the years ended April 1, 1995, April 2, 1994 and April 3, 1993,
respectively.
Effective June 1994, the Company acquired the remaining 20% of C&L's
common stock from its minority shareholders in exchange for 265,262 shares
(adjusted for the 5% stock dividend paid in July 1994) of the Company's
common stock. The pro forma results of operations assuming that this
transaction had occurred on April 4, 1993 are as follows:
<TABLE>
<CAPTION>
Fiscal Years Ended
April 1, April 2,
1995 1994
(In Thousands, Except Per Share Amounts)
<S> <C> <C>
Earnings (loss) before extraordinary
items and accounting change $ (676) $3,747
===== =====
Fully diluted earnings (loss) per share
before extraordinary items and
accounting change $ (.17) $ .91
===== =====
</TABLE>
This pro forma information does not purport to be indicative of the
results that actually would have been obtained if the combined operations had
been conducted during the periods presented and is not intended to be a
projection of future results.
29
<PAGE>
NOTE 12 - Business Segment Information
The Company's principal business is the wholesale distribution of meat
and seafood and telecommunications equipment. The Company's wholesale meat
and seafood distribution operations are principally conducted in the
southeastern United States and the wholesale telecommunications distribution
operations are conducted throughout the United States. There are no material
foreign sales and no sales to a single customer totaling more than 10% of
consolidated sales.
<TABLE>
<CAPTION>
Fiscal Years Ended
April 1, April 2, April 3,
1995 1994 1993
(In Thousands)
<S> <C> <C> <C>
Net sales:
Meat and seafood................. $215,141 $215,333 $200,737
Telecommunications equipment..... 35,245 28,308 21,517
Corporate........................ --- --- ---
------- ------- -------
$250,386 $243,641 $222,254
======= ======= =======
Operating earnings (loss):
Meat and seafood................. $ 234 $ 1,013 $ 587
Telecommunications equipment..... 2,734 2,549 1,778
Corporate........................ (2,511) 879 (383)
------- ------- -------
$ 457 $ 4,441 $ 1,982
======= ======= =======
Depreciation and amortization:
Meat and seafood................. $ 605 $ 551 $ 420
Telecommunications equipment..... 524 496 412
Corporate........................ 25 51 20
------- ------- -------
$ 1,154 $ 1,098 $ 852
======= ======= =======
Capital expenditures:
Meat and seafood................. $ 474 $ 655 $ 277
Telecommunications equipment..... 113 217 103
Corporate........................ 12 3 5
------- ------- -------
$ 599 $ 875 $ 385
======= ======= =======
Identifiable assets:
Meat and seafood................. $ 20,569 $ 21,329 $ 17,956
Telecommunications equipment..... 16,720 18,109 12,798
Corporate........................ 8,038 14,605 15,318
------- ------- -------
$ 45,327 $ 54,043 $ 46,072
======= ======= =======
</TABLE>
30
<PAGE>
NOTE 13 - STATEMENT OF CASH FLOWS
Supplemental cash flow information is as follows for the last three
fiscal years:
<TABLE>
<CAPTION>
1995 1994 1993
(In Thousands)
<S> <C> <C> <C>
Change in current assets and
liabilities:
Restricted short-term investments $ 330 $ --- $ 1,457
Receivables......................... 189 (3,797) (1,196)
Inventories......................... 3,204 (4,760) 601
Other current assets................ (162) (218) (61)
Accounts payable.................... 718 4,287 (3,280)
Other current liabilities........... 135 133 (359)
------ ------ ------
$ 4,414 $(4,355) $(2,838)
====== ====== ======
Supplemental information:
Interest paid......................... $ 1,001 $ 1,090 $ 556
Non-cash transactions:
Purchase of minority interest with
common stock......................... 1,895 --- ---
Reduction of net liabilities of
unconsolidated subsidiary............ --- 655 ---
Purchase of property and equipment
financed by seller................... --- 320 134
Record obligation for Diana debentures
and capitalized interest............. --- --- 2,660
</TABLE>
NOTE 14 - Quarterly Results of Operations (Unaudited)
Fiscal Year Ended April 1, 1995:
<TABLE>
<CAPTION>
12 Weeks 12 Weeks 12 Weeks 16 Weeks
Ended Ended Ended Ended
April 1, January 7, October 15, July 23,
1995 1995 1994 1994
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Net sales....................... $64,223 $55,159 $56,255 $74,749
Cost of sales................... 62,218 52,274 53,059 71,647
Earnings (loss) before extra-
ordinary items and accounting
change......................... (749) 392 424 (787)
Earnings (loss) per common share (.19) .10 .10 (.22)
</TABLE>
31
<PAGE>
NOTE 14 - Quarterly Results of Operations (Unaudited) - (Continued)
Fiscal Year Ended April 2, 1994:
<TABLE>
<CAPTION>
12 Weeks 12 Weeks 12 Weeks 16 Weeks
Ended Ended Ended Ended
April 2, January 8, October 16, July 24,
1994 1994 1993 1993
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Net sales....................... $58,809 $56,695 $55,318 $72,819
Cost of sales................... 55,980 54,034 52,513 70,213
Earnings (loss) before extra-
ordinary items and accounting
change......................... 1,876 1,746 819 (984)
Earnings (loss) per common share .48 .48 .23 (.27)
</TABLE>
During the fourth quarter of fiscal 1994, the Company recorded non-
operating income of $1,500,000 due to the reversal of a provision of
$1,500,000 recorded in the first quarter of fiscal 1994 related to the
litigation discussed in Note 10.
The first quarter of fiscal 1994 was restated to reflect the cumulative
effect as of April 4, 1993 of adopting SFAS No. 109 (see Note 8). For the
sixteen weeks ended July 24, 1993, loss before extraordinary items and
cumulative effect of accounting change was increased by $12,000, or $.00 per
share, and net loss was reduced by $250,000, or $.07 per share.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
32
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning directors is incorporated by reference from the
Election of Directors and Principal Shareholders sections of the Company's
definitive proxy statement for the annual meeting of shareholders on
August 17, 1995.
Information regarding the executive officers, which is not a part of the
Company's definitive proxy statement, is set forth below:
Name Age Position
Richard Y. Fisher 62 Chairman of the Board
Donald E. Runge 57 President, effective April 2, 1995
Sydney B. Lilly 66 Senior Vice President, effective April 2,
1995
R. Scott Miswald 39 Vice President, Treasurer and Controller
Keith R. Steffel 34 Secretary
The following information is furnished with respect to each executive
officer who is not also a Director of the Company:
R. Scott Miswald, a Certified Public Accountant, became Vice President
of the Company in June 1992, Controller of the Company in July 1985 and
Treasurer in December 1989; Chief Accounting Officer of Entree since November
1990, Secretary and Treasurer since April 1991.
Keith R. Steffel, a Certified Public Accountant, became Secretary in
June 1992 and was Assistant Secretary from December 1989 to June 1992. Mr.
Steffel has been employed by the Company as Assistant Controller since
January 1986.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference from the Executive Compensation section of the
Company's definitive proxy statement for the annual meeting of shareholders
on August 17, 1995 [excluding the portions thereof specified in Regulation
S-K 402(a) (8)].
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference from the Principal Shareholders section of the
Company's definitive proxy statement for the annual meeting of shareholders
on August 17, 1995.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference from the Compensation Committee Interlocks and
Insider Participation section of the Company's definitive proxy statement for
the annual meeting of shareholders on August 17, 1995.
33
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
Form 10-K
(a) Financial Statements and Financial Statement Schedules Page Number
The following consolidated financial statements
of The Diana Corporation and its subsidiaries are
included in Item 8:
Report of Ernst & Young LLP, Independent Auditors 12
Consolidated Balance Sheets - April 1, 1995
and April 2, 1994 13
Consolidated Statements of Operations - Fiscal
Years Ended April 1, 1995, April 2, 1994 and
April 3, 1993 14
Consolidated Statements of Changes in Shareholders'
Equity - Fiscal Years Ended April 1, 1995,
April 2, 1994 and April 3, 1993 15
Consolidated Statements of Cash Flows -
Fiscal Years Ended April 1, 1995,
April 2, 1994 and April 3, 1993 16
Notes to Consolidated Financial Statements 17
The following consolidated financial statement schedules of
The Diana Corporation are included in Item 14(d):
Schedule I - Condensed Financial Information of Registrant 37
Schedule II - Valuation and Qualifying Accounts 41
All other schedules are omitted because the required information is not
present or is not present in amounts sufficient to require submission
of the schedules or because the information required is included in the
consolidated financial statements or the notes thereto.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the last quarter of fiscal
1995.
34
(c) Exhibits
Exhibit
Number Description
3.1 Restated Certificate of Incorporation, as amended September 1, 1992
(incorporated herein by reference to Exhibit 3.1 of Registrant's
Form 10-K for the year ended April 3, 1993).
3.2 By-Laws of Registrant, as amended (April 2, 1991) (incorporated
herein by reference to Exhibit 3.2 of the Registrant's Form 10-K
for the year ended March 30, 1991).
4.1 Loan and Security Agreement between Sanwa Business Credit
Corporation and C&L Communications, Inc. dated December 23, 1991
(incorporated herein by reference to Exhibit 10.12 of Registrant's
Form 10-K for year ended March 28, 1992).
4.2 Amendment to Loan and Security Agreement and Waiver between Sanwa
Business Credit Corporation and C&L Communications, Inc. dated June
25, 1993 (incorporated herein by reference to Exhibit 4.1 of
Registrant's Form 10-Q for the period ended July 24, 1993).
4.3 Amendment to Loan and Security Agreement between C&L
Communications, Inc. and Sanwa Business Credit Corporation dated
November 23, 1993 (incorporated herein by reference to Exhibit 4.2
of Registrant's Form 10-Q for the period ended October 16, 1993).
4.4 Amendment to Loan and Security Agreement between C&L
Communications, Inc. and Sanwa Business Credit dated August 15,
1994 (incorporated herein by reference to Exhibit 4.1 of
Registrant's Form 10-Q for the period ended July 23, 1994).
4.5 Loan and Security Agreement between Barclays Business Credit, Inc.
and Atlanta Provision Company, Inc. dated November 24, 1992
(incorporated herein by reference to Exhibit 10.10 of the
Registrant's Form 10-Q for the 40 weeks ended January 2, 1993).
4.6 Amendment to Loan and Security Agreement between Atlanta Provision
Company, Inc. and Barclays Business Credit, Inc. dated June 25,
1993 (incorporated herein by reference to Exhibit 4.2 of
Registrant's Form 10-Q for the period ended July 24, 1993).
4.7 Amendment to Loan and Security Agreement between Atlanta Provision
Company, Inc. and Barclays Business Credit, Inc. dated September 9,
1993 (incorporated herein by reference to Exhibit 4.1 of
Registrant's Form 10-Q for the period ended October 16, 1993).
4.8 Amendment to Loan and Security Agreement between Atlanta Provision
Company, Inc. and Barclays Business Credit, Inc. dated June 1, 1994
(incorporated herein by reference to Exhibit 4.8 of Registrant's
Form 10-K for the year ended April 2, 1994).
4.9 Amendment to Loan and Security Agreement between Atlanta Provision
Company, Inc. and Shawmut Capital Corporation (successor to
Barclays Business Credit, Inc.) dated June 28, 1995.
35
<PAGE>
Exhibit
Number Description
4.10 Certain other long-term debt as described in Note 3 of Notes to
Consolidated Financial Statements. The Registrant agrees to
furnish to the Commission, upon request, copies of any instruments
defining the rights of holders of any such long-term debt.
10.1 Employment Arrangement between Richard Y. Fisher and the Registrant
effective April 4, 1993 and ending April 1, 1995 (incorporated
herein by reference to Exhibit 10.12 of Registrant's Form 10-K for
the year ended April 3, 1993).*
10.2 Amended and Restated Employment Agreement between Richard Y. Fisher
and The Diana Corporation dated April 2, 1995.*
10.3 Employment Agreement between Donald E. Runge and Farm House Foods
Corporation dated October 16, 1987, which was guaranteed by the
Registrant on September 29, 1988 (incorporated herein by reference
to Exhibit 10.14 of Registrant's Form 10-K for the year ended April
3, 1993).*
10.4 Employment Agreement between Donald E. Runge and The Diana
Corporation dated April 2, 1995.*
10.5 Employment Agreement between Sydney B. Lilly and The Diana
Corporation dated April 2, 1995.*
10.6 Consulting Agreement dated December 23, 1991 and ending
December 23, 1996 between C&L Acquisition Corporation and Jack E.
Donnelly (incorporated herein by reference to Exhibit 10.11 of
Registrant's Form 10-K for the year ended April 3, 1993).*
10.7 Amendment to Consulting Agreement between C&L Acquisition
Corporation and Jack E. Donnelly dated March 7, 1995.*
10.8 1986 Nonqualified Stock Option Plan of Registrant as amended
(incorporated herein by reference to Exhibit 10.13 of Registrant'
s
Form 10-K for the year ended April 3, 1993).*
10.9 1993 Nonqualified Stock Option Plan of Entree Corporation
(incorporated herein by reference to Exhibit 10.12 of Registrant's
Form 10-K for the year ended April 2, 1994).*
10.10 Agreement dated May 13, 1992 between Atlanta Provision Company,
Inc. and the United Food & Commercial Worker's District Union #442
(incorporated herein by reference to Exhibit 10.15 of Registrant's
Form 10-K for the year ended March 28, 1992).
11 Computation of Earnings Per Share
22 Subsidiaries of Registrant
23 Consent of Independent Auditors
27 Financial Data Schedule
___________________________________________________________________________
* Represents a management contract or compensatory plan, contract or
arrangement in which a director or named executive officer of the
Company participated.
36
<PAGE>
THE DIANA CORPORATION AND SUBSIDIARIES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
April 1, April 2,
1995 1994
ASSETS
<S> <C> <C>
Current assets:
Restricted short-term investment................. $ 300 $ ---
Receivables...................................... 67 1,441
Other current assets............................. 22 16
------ ------
Total current assets........................... 389 1,457
Equipment (net).................................... 16 13
Investments in and advances to unconsolidated
subsidiary........................................ 23,789 24,903
------ ------
$24,194 $26,373
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accrued liabilities.............................. $ 682 $ 529
Current portion of long-term debt................ 141 261
------ ------
Total current liabilities...................... 823 790
Long-term debt..................................... 2,099 2,240
Other liabilities.................................. 845 876
Net liabilities of unconsolidated subsidiary....... 698 3,615
Shareholders' equity:
Common stock..................................... 4,810 4,638
Additional paid-in capital....................... 48,548 46,241
Accumulated deficit.............................. (28,178) (25,449)
Unrealized loss on marketable securities......... (713) (412)
Treasury stock................................... (4,738) (6,166)
------ ------
Total shareholders' equity..................... 19,729 18,852
------ ------
$24,194 $26,373
====== ======
</TABLE>
See notes to condensed financial statements and notes to consolidated
financial statements.
37
<PAGE>
THE DIANA CORPORATION AND SUBSIDIARIES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)
STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Fiscal Year Ended
April 1, April 2, April 3,
1995 1994 1993
<S> <C> <C> <C>
Other income.......................... $ 47 $ 755 $ 31
Selling and administrative expenses... (1,621) (1,388) (1,258)
Interest expense...................... (112) (119) (124)
Non-operating income.................. 199 208 625
Income tax credit..................... --- 400 ---
Equity in earnings of
unconsolidated subsidiary............ 767 3,601 2,583
------ ------ ------
Earnings (loss) before extraordinary
items and accounting change.......... (720) 3,457 1,857
Extraordinary items................... --- (266) 1,318
------ ------ ------
Earnings (loss) before accounting
change............................... (720) 3,191 3,175
Cumulative effect of accounting change --- 262 ---
------ ------ ------
Net earnings (loss)................... $ (720) $ 3,453 $ 3,175
====== ====== ======
Earnings (loss) per common share:
Primary
Before extraordinary items......... $ (.19) $ .93 $ .51
Extraordinary items................ --- (.07) .36
Accounting change.................. --- .07 ---
------ ------ ------
Net earnings (loss)................ $ (.19) $ .93 $ .87
====== ====== ======
Fully diluted
Before extraordinary items......... $ (.19) $ .89 $ .51
Extraordinary items................ --- (.07) .36
Accounting change.................. --- .07 ---
------ ------ ------
Net earnings (loss)................ $ (.19) $ .89 $ .87
====== ====== ======
Weighted average number of common
shares outstanding
Primary............................ 3,832 3,727 3,629
====== ====== ======
Fully diluted...................... 3,832 3,861 3,629
====== ====== ======
</TABLE>
See notes to condensed financial statements and notes to consolidated
financial statements.
38
<PAGE>
THE DIANA CORPORATION AND SUBSIDIARIES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)
STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
Fiscal Year Ended
April 1, April 2, April 3,
1995 1994 1993
<S> <C> <C> <C>
Operating activities
Earnings (loss) before extraordinary items
and accounting change..................... $ (720) $ 3,457 $ 1,857
Adjustments to reconcile earnings (loss)
to net cash used by operating activities:
Depreciation & amortization.............. 8 10 13
Equity in earnings of unconsolidated
subsidiary.............................. (767) (3,601) (2,583)
Non-operating income..................... --- (208) (625)
Changes in operating assets and
liabilities:
Restricted short-term investment....... (300) --- (660)
Receivables............................ 1,374 (1,370) (20)
Payments of net liabilities of
unconsolidated subsidiary............. (95) (361) (63)
Other.................................. 119 184 (573)
------ ------ ------
Net cash used by operating activities....... (381) (1,889) (2,654)
Investing activities
Additions to equipment.................... (11) (3) (5)
Changes in investments in and advances to
unconsolidated subsidiary................ 3,475 2,318 4,023
------ ------ ------
Net cash provided by investing activities... 3,464 2,315 4,018
Financing activities
Payments on long-term debt................. (261) (261) (261)
Purchases of treasury stock................ --- --- (9)
Payments toward bond settlements........... (2,822) (178) (1,081)
------ ------ ------
Net cash used by financing activities....... (3,083) (439) (1,351)
------ ------ ------
Increase (decrease) in cash................. --- (13) 13
Cash at the beginning of the year........... --- 13 ---
------ ------ ------
Cash at the end of the year................. $ --- $ --- $ 13
====== ====== ======
Supplemental information:
Interest paid.............................. $ 11 $ 17 $ 25
Non-cash transactions:
Purchase of minority interest with common
stock..................................... 1,895 --- ---
Reduction of net liabilities of
unconsolidated subsidiary................. --- 655 ---
</TABLE>
See notes to condensed financial statements and notes to consolidated
financial statements.
39
<PAGE>
THE DIANA CORPORATION AND SUBSIDIARIES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 1 - LONG-TERM OBLIGATIONS
Approximate annual amounts due on long-term obligations for the
five years subsequent to April 1, 1995 are:
1996 $ 141,000
1997 141,000
1998 141,000
1999 141,000
2000 141,000
NOTE 2 - COMMITMENTS AND CONTINGENCIES
Diana leases its corporate office space under a noncancelable lease
with a rental commitment of $30,000 in fiscal 1996.
Diana has guaranteed obligations of an unconsolidated subsidiary
not to exceed $1,050,000 of which $255,000 was outstanding at April 1, 1995.
40
<PAGE>
THE DIANA CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Fiscal Year Ended
April 1, April 2, April 3,
1995 1994 1993
(In Thousands)
<S> <C> <C> <C>
Valuation accounts deducted in balance
sheet from assets to which they apply:
Allowance for doubtful accounts:
Balance at beginning of period...... $ 517 $ 784 $ 739
Additions -
Charged to costs and expenses..... 313 153 406
Reductions -
Accounts written off, net of
recoveries....................... (230) (420) (361)
----- ----- -----
Balance at end of period............ $ 600 $ 517 $ 784
===== ===== =====
Allowance for unrealized losses on
inventory:
Balance at beginning of period...... $ 106 $ 345 $ 193
Additions -
Charged to costs and expenses...... 273 123 206
Reductions -
Amounts written off on sale of
inventories....................... (190) (362) (54)
===== ===== =====
Balance at end of period............ $ 189 $ 106 $ 345
===== ===== =====
Allowance for net unrealized losses on
current marketable securities:
Balance at beginning of period...... $ 412 $ --- $ ---
Addition-charge against
shareholders' equity............... 301 412 ---
----- ----- -----
Balance at end of period............ $ 713 $ 412 $ ---
===== ===== =====
</TABLE>
41
<PAGE>
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 this 29th day of
June, 1995.
THE DIANA CORPORATION
By /s/ Richard Y. Fisher
Richard Y. Fisher, Chairman of the
Board
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
/s/ Richard Y. Fisher Chairman of the Board
Richard Y. Fisher (Principal Executive Officer)
/s/ Donald E. Runge President and Director
Donald E. Runge
/s/ Sydney B. Lilly Senior Vice President and June 29, 1995
Sydney B. Lilly Director
/s/ R. Scott Miswald Vice President, Treasurer and
R. Scott Miswald Controller (Principal Financial
and Accounting Officer)
/s/ Edward J. Bailey Director
Edward J. Bailey
Director
Donald D. Barr
/s/ Jack E. Donnelly Director
Jack E. Donnelly
/s/ Jay M. Lieberman Director
Jay M. Lieberman
42
WAIVER AND FOURTH AMENDMENT
TO LOAN AND SECURITY AGREEMENT
June 28, 1995
Atlanta Provision Company, Inc.
1400 West Marietta Street, N.W.
Atlanta, Georgia 30318
Attention: G. Michael Coggins
Ladies and Gentlemen:
Reference is made to that certain Loan and Security
Agreement dated as of November 24, 1992, between Atlanta Provision
Company, Inc. ("Borrower") and Shawmut Capital Corporation
(successor in interest to Barclays Business Credit, Inc. ("Len-
der"), as amended to date (the "Loan Agreement"). Unless otherwise
defined herein, all capitalized terms used herein shall have the
same meanings provided for such terms in the Loan Agreement.
Borrower has informed Lender that Events of Default have
occurred under the Loan Agreement because of Borrower's failure to
satisfy certain financial covenants set forth therein (the
"Existing Defaults").
Borrower has requested that Lender (i) waive the Existing
Defaults and (ii) amend certain provisions of the Loan Agreement,
and Lender has agreed to such requests on the terms and conditions
set forth herein.
1. Waiver. Lender hereby waives the Events of Default
arising solely from the following:
a. the failure of Borrower to comply with the
$350,000 limitation of Capital Expenditures for fiscal
year 1995 as required under subsection 9.2(l) of the Loan
Agreement;
<PAGE>
Atlanta Provision Company, Inc.
June 28, 1995
Page 2
b. the failure of Borrower to achieve Consolidated
Adjusted Tangible Net Worth of $4,500,000 for the period
ended March 4, 1995 and $5,000,000 for the period ended
April 1, 1995 as required pursuant to subsection 9.3(a)
of the Loan Agreement;
c. the failure of Borrower to achieve Consolidated
Net Earnings From Operations of $568,000 for fiscal year
1995 as required under subsection 9.3(b) of the Loan
Agreement; and
d. the failure of Borrower to achieve Net Cash
Flow of $500,000 for the periods ending February 4, 1995,
March 4, 1995 and April 1, 1995 as required under
subsection 9.3(c) of the Loan Agreement.
The foregoing waivers are limited to the Events of Default
specified herein and shall not constitute a waiver of any other
existing or future Default or Event of Default or of any rights
that Lender may have under the Loan Agreement or applicable law
with respect thereto, all of which rights Lender hereby expressly
reserves.
2. Amendments. The Loan Agreement is hereby amended as
follows:
a. Section 1.1(j) of the Loan Agreement (Defined Terms
- - Bank) is deleted in its entirety and a new definition is
substituted therefor, as follows:
"Bank- Shawmut Bank Connecticut, N.A."
b. Section 3.3 of the Loan Agreement (Term of Agree-
ment) is amended to extend the Original Term (as therein defined)
to five (5) years from the date of the Loan Agreement, through and
including November 23, 1997.
c. Section 3.4 of the Loan Agreement (Termination) is
amended to add language to the end of the first sentence thereof,
as follows:
"; and one percent (1%) of the highest of the Average
Monthly Loan Balances outstanding pursuant to Section 2.1
during the Original Term if termination occurs during the
fifth twelve (12) month period of the Original Term
(November 24, 1996 through November 23, 1997)."
<PAGE>
Atlanta Provision Company, Inc.
June 28, 1995
Page 3
d. Section 9.2(l) of the Loan Agreements amended and
restated in its entirety, as follows:
"(l) Capital Expenditures. Make Capital Expen-
ditures (including without limitation by way of capital-
ized leases) which, in the aggregate, as to Borrower and
its Subsidiaries, exceed (i) $550,000 during fiscal year
1996, (ii) $500,000 during fiscal year 1997 and (iii)
$300,000 during the period from March 31, 1997 through
November 23, 1997."
e. Section 9.2(x) of the Loan Agreement (Leases) is
amended to add language to the end of the first sentence thereof,
as follows:
"for the fiscal year 1995 and One Million Nine Hundred
Thousand Dollars ($1,900,000) for each fiscal year
thereafter."
f. Section 9.3(a) of the Loan Agreement (Minimum
Adjusted Tangible Net Worth) is amended and restated in its
entirety, as follows:
"(a) Minimum Adjusted Tangible Net Worth. Maintain
at all times Consolidated Adjusted Tangible Net Worth of
not less than the amount shown below for the period
corresponding thereto:
Period Amount
April 1, 1995 through $4,000,000
March 29, 1996
March 30, 1996 through $4,500,000
March 28, 1997
March 29, 1997 and thereafter $5,000,000"
g. Section 9.3(b) of the Loan Agreement (Profitability)
is amended and restated in its entirety, as follows:
"(b) Profitability. Achieve Consolidated Adjusted
Net Earnings From Operations of not less than $400,000
for fiscal year 1996 and $500,000 for each fiscal year
thereafter."
h. Section 9.3(c) of the Loan Agreement (Net Cash Flow)
is amended and restated in its entirety, as follows:
<PAGE>
Atlanta Provision Company, Inc.
June 28, 1995
Page 4
"(c) Net Cash Flow. Achieve a Net Cash Flow on a
rolling thirteen (13) period basis (measured at the end
of each four (4) week period commencing April 2, 1995) of
(i) not in excess of negative One Hundred Thousand
Dollars (-$125,000) for the periods ending April 29, 1995
through July 22, 1995, (ii) not less than Zero Dollars
($0) for the periods ending August 19, 1995 through
October 14, 1995, (iii) not less than One Hundred
Thousand Dollars ($100,000) for the periods ending
November 11, 1995 through January 6, 1996 and (iv) not
less than Five Hundred Thousand Dollars ($500,000) for
all periods thereafter."
i. Section 12.10 of the Loan Agreement (Notice) is
hereby amended to delete the address for Lender in its entirety and
a new address is substituted therefor as follows:
"If to Lender: Shawmut Capital Corporation
20800 Swenson Drive
Suite 350
Waukesha, Wisconsin 53182
Attention: Robert J. Lund"
3. Effectiveness. This Waiver and Fourth Amendment to
Loan and Security Agreement shall be effective when duly executed
by both parties and delivered to Lender, together with a duly
executed Notice of Extension and Second Amendment to Junior Deed to
Secure Debt and Security Agreement in the form attached hereto as
Exhibit A. Except as expressly amended hereby, the Loan Agreement
shall remain in full force and effect as executed.
<PAGE>
Atlanta Provision Company, Inc.
June 28, 1995
Page 5
4. Counterparts. This Waiver and Fourth Amendment to
Loan and Security Agreement may be executed in counterparts all of
which, taken together, shall constitute but one instrument.
Very truly yours,
SHAWMUT CAPITAL CORPORATION
By /s/ Robert J. Lund
Vice President
Acknowledged and agreed to
this 28th day of June, 1995
ATLANTA PROVISION COMPANY, INC.
By /s/ R. Scott Miswald
Its Secretary
<PAGE>
NOTICE OF EXTENSION AND SECOND AMENDMENT TO
JUNIOR DEED TO SECURE DEBT AND SECURITY AGREEMENT
THIS NOTICE OF EXTENSION AND SECOND AMENDMENT TO JUNIOR
DEED TO SECURE DEBT AND SECURITY AGREEMENT is dated as of June 28,
1995 and is by and between Atlanta Provision Company, Inc., a
Georgia corporation ("Grantor"), and Shawmut Capital Corporation
(successor in interest to Barclays Business Credit, Inc.)
("Lender").
RECITALS
A. Lender has made a revolving loan to Grantor and
extended other financial accommodations to Grantor in an aggregate
principal amount not to exceed $9,500,000.00, with final payment
thereof being due on or before November 23, 1996. Said loan and
other financial accommodations were made pursuant to a certain Loan
and Security Agreement dated as of November 23, 1992, as amended
(the "Loan Agreement"). Said revolving loan and other financial
accommodations are secured by a certain Junior Deed to Secure Debt
and Security Agreement dated as of November 23, 1992 and recorded
in Deed Book 16005, Page 027, Fulton County, Georgia Records (the
"Deed to Secure Debt"), as amended by a certain Notice of Extension
and First Amendment to Junior Deed to Secure Debt and Security
Agreement dated as of June 1, 1994 and recorded in Deed Book 18401,
Page 297, Fulton County, Georgia Records. A legal description of
the real estate encumbered by the Deed to Secure Debt is attached
hereto as Exhibit A.
B. Lender and Grantor are entering into a certain
Waiver and Fourth Amendment, under Loan and Security Agreement (the
"Amendment") amending the terms of the Loan Agreement. Among other
things, the maturity date of said revolving loan and other
financial accommodations is being extended to November 23, 1997.
AGREEMENTS
1. All references to the "Loan Agreement" in the Deed
to Secure Debt are hereby modified to refer to the Loan Agreement,
as amended by the Amendment, and as otherwise now or hereafter
amended from time to time.
2. All references to "November 23, 1996" in the Deed to
Secure Debt are hereby modified to refer to November 23, 1997.
3. Except as expressly modified hereby, the Deed to
Secure Debt shall remain in full force and effect as originally
executed. The execution and delivery hereof shall not constitute
a novation of the lien or security title of the Deed to Secure
Debt, which instrument shall retain its priority as originally
filed for record.
<PAGE>
IN WITNESS WHEREOF, Grantor and Lender have executed this
instrument under seal by and through their duly authorized
representatives as of the day and year first above written.
GRANTOR:
ATLANTA PROVISION COMPANY,
ATTEST: INC., a Georgia corporation
R. Scott Miswald By /s/ Robert J. Zeman
Its Secretary Its CFO
Signed, sealed and delivered
in the presence of:
Cheryl Krajci
Unofficial Witness
Scott Martin
Notary Public
My Commission Expires:
06/28/98
(SEAL)
(Signatures continued on next page)
<PAGE>
LENDER:
ATTEST: SHAWMUT CAPITAL CORPORATION
_______________________________ By_____________________________
Its____________________________ Its__________________________
Signed, sealed and delivered
in the presence of:
_______________________________
Unofficial Witness
_______________________________
Notary Public
My Commission Expires:
_______________________________
(SEAL)
THIS INSTRUMENT PREPARED BY
AND AFTER RECORDING RETURN TO:
Kimberly Slotky Reich, Esq.
Goldberg, Kohn, Bell, Black,
Rosenbloom & Moritz, Ltd.
55 East Monroe Street
Suite 3700
Chicago, Illinois 60603
Amended and Restated Employment Agreement
This Agreement is entered into this 2nd day of April, 1995, by
and between THE DIANA CORPORATION, a Delaware corporation (the
"Company"), and RICHARD Y. FISHER ("Employee").
WHEREAS, Employee has served the Company in an executive
capacity since January 1985 pursuant to previously existing written
and oral agreements;
WHEREAS, the Company recognizes that the Employee's experience
has been and is expected to continue to be of great value to the
Company;
WHEREAS, the Company wishes this Agreement to be an incentive
for the Employee to continue to expend such effort on behalf of the
Company secure in the knowledge that he will be compensated for his
efforts and his accomplishments both during the Term and after the
Term has expired;
WHEREAS, the Employee is willing to commit the performance of
his services for the Company upon the terms and conditions herein
set forth;
WHEREAS, the Company and Employee desire to amend, restate and
extend their existing employment arrangement;
NOW THEREFORE, in consideration of the mutual covenants
contained herein, the Company hereby agrees to employ the Employee
and the Employee hereby agrees to accept such employment upon the
following terms and conditions:
1. Term. The term of Employee's employment (the "Term")
under this Agreement shall commence as of the date hereof and
continue until March 31, 1997, provided, however, that at the end
of such term or any extension thereof as provided herein, the Term
shall be automatically extended for an additional fiscal year of
the Company unless either party shall give written notice to the
other not less than ninety (90) days prior to the beginning of such
fiscal year that the Term shall not be so extended. The word
"Term" as used herein includes any extensions thereof.
2. Duties and Responsibilities. During the Term the
Employee is engaged and shall perform such duties and
responsibilities for the Company as may be assigned to him by the
Company's Board of Directors and which are reasonably consistent
with the duties of Chairman previously performed by Employee.
Employee's employment shall be within 25 miles of Milwaukee,
Wisconsin. The Employee may involve himself in private investments
and activities which do not significantly conflict with his duties
<PAGE>
under this Agreement and may serve as a director of such companies
on whose board he elects to serve providing said directorships do
not significantly conflict with his obligations as an Employee,
officer or director hereunder. After the Term, neither the Company
nor the Employee shall have any further obligations hereunder
except in the case of the Company for its duties under Section
4(a), Section 6, Section 12(h) and 12(i).
3. Compensation During the Term. The Company agrees to pay
to the Employee during the Term a guaranteed minimum annual salary
at a rate of $210,000. The guaranteed minimum salary hereunder
shall be payable at intervals not less often than bi-weekly and
subject to usual payroll deductions. During the Term, the Employee
shall not be discriminated against with respect to any other
Company bonus plans or with respect to medical, hospital and life
insurance programs, pension program, and other similar welfare
benefit programs from time to time, in each case, made available to
the Company's officers as a class. The Company shall provide
Employee six (6) week's paid vacation each year of the Term.
During the Term, the Company will pay the annual dues, but not the
initiation or other admission or purchase fee, relating to
membership in an athletic or such other similar social club of his
choice. In addition, nothing herein shall in any way cancel,
reduce or otherwise affect the Employee's rights to any stock
options granted to him in the past or in the future by the Board of
Directors of the Company. During the Term, the Company shall
provide the Employee with office space, secretarial assistance and
other facilities, as may be required in the proper performance of
his duties and responsibilities and shall reimburse him for
expenses reasonably incurred by him the performance of his duties.
4. Deferred Compensation and Certain Other Benefits.
(a) Deferred Compensation earned by Employee for services
rendered prior to the date hereof and through March 30, 1995
(fiscal 1995) shall be payable in the fiscal years and in the
amounts shown below. The right of Employee to receive these
deferred compensation payments bi-weekly is absolute and is in no
way dependent upon his continued employment with the Company under
this Agreement, and appears in this section 4(a) to evidence the
Company's existing liability to Employee for services rendered
prior to this Agreement.
Fiscal Year Amount
1996 $220,000
1997 $220,000
1998 $220,000
1999 $233,035
2000 $220,000
<PAGE>
(b) Bonus payments, if any, shall be paid as set forth
hereafter. Employee's bonus shall be the greater of:
(i) 1/3 of 1% of the "Purchase Price" of each Acquisition
made by the Company or an Affiliate of the Company, plus,
1/3 of 1% of the Sale Price of each divestiture made by
the Company or Affiliates of the Company, or
(ii) (ROI less Base Rate) x Investment x 10%.
In the case of bonus due under (ii) above, payment shall be
made within 90 days following each fiscal year of the Term in
respect of such fiscal year.
In the case of Purchases, bonus payments made under (i) above
are due at Closing.
In the case of Sales, bonus payments under (i) above are due
at the time the Company or its Affiliates receive payment in the
form of cash or marketable securities.
In measuring (i) against (ii) above the amount actually
received by Employee under (i) during each fiscal year shall be
used in determining whether (i) exceeds (ii).
Additionally, Employee shall be entitled to receive bonus
payments under (i) above in the case of contracts for purchases or
sales executed prior to the expiration of this Agreement, but
closed subsequent to expiration of this Agreement or payments for
Sales received subsequent to expiration, as though the contract was
ongoing but not measured against (ii) after expiration.
Definitions:
"Annual Profits" are the Company's EBIT earnings.
"Investment" equals the Company's total shareholders' equity
at the start of the Bonus period plus the average interest bearing
debt of the Company during the prior year.
"ROI" is a percentage determined by dividing Annual Profit by
Investment.
"Treasury Rate" is the yield on the thirty (30) year U.S.
Government Treasury Bond as reported in the Wall Street Journal on
the first day of the applicable fiscal year.
"Base Rate" 150% of Treasury Rate.
<PAGE>
"Purchase Price" shall be the total consideration paid by the
Company or any of its Affiliates for the purchase of a business
(whether stock or assets). Total consideration shall be the
Purchase Price plus Non-Competition payments as set forth in the
Purchase Agreement.
"Sale Price" shall be the total consideration paid to the
Company or any of its Affiliates for the sale of a business
(whether stock or assets). Total consideration shall be the Sale
Price plus Non-Competition payments as set forth in the Purchase
Agreement, and shall include but not be limited to, cash, stock,
bonds or other securities.
"Affiliate" of the Company is a person that directly or
indirectly though one or more intermediaries, controls, or is
controlled by, or is under common control with, such Company.
5. Board of Directors
Employee shall during the Term of this contract serve on the
Board of Directors of the Company at no additional charge.
6. Medical Payments
During and after this Agreement, the Company shall pay all
medical expenses, including but not limited to, medical, dental,
hospital, optometrical, nursing, nursing home, and drugs for the
Employee and his spouse for the remainder of each of their lives
provided that insofar as the spouse is concerned, such benefit is
applicable only during the marriage and after the death of the
Employee providing they are married at the time of Employee's
death.
7. Termination By Company.
(a) Disability. During the Term in the event that Employee
shall, because of physical or mental incapacity, be unable
substantially to perform his duties for a period of at least three
(3) successive months and at the end of such period a physician
selected by the Company certifies that it appears unlikely that
Employee will be able to substantially perform his duties for an
indefinite additional period of time because of such physical or
mental incapacity, the Company shall have the right to terminate
the active employment of Employee and end the Term according to the
provision stated herein; provided, however, that in the event that
Employee shall not agree with the certification of disability made
by the physician selected by the Company, to which the Employee
will make himself available for and submit to such examination as
and when requested, Employee may select his own physician who shall
make a determination as to Employee's disability; in the event that
the physician so selected by Employee shall disagree with the
physician selected by the Company, the two physicians shall, within
<PAGE>
thirty (30) days, select a third physician whose determination
shall be conclusive and binding on all parties hereto.
Notwithstanding anything herein to the contrary, the Company
may terminate the active employment of Employee and end the Term at
any time after Employee shall have been absent from his employment
for whatever cause, for a continuous period of more than four (4)
months.
In the event of any such termination pursuant to this
paragraph 7(a), the Company shall continue to pay to the Employee,
through the end of the fiscal year in which the Term ends, a salary
on a semi-monthly basis at a rate equal to three-quarters of the
guaranteed minimum annual salary in effect on the date of such
termination. Employee shall also be entitled to a bonus equal to
three-quarters of the bonus pursuant to paragraph 4(b) in respect
of the year of termination.
(b) Death. In the event of the death of the Employee, the
Term shall end and the Company shall make, until the end of the
fiscal year in which the death occurred, semi-monthly payments at
a rate equal to three-quarters of the guaranteed minimum annual
salary in effect on the date of death. Employee shall also be
entitled to a bonus equal to three-quarters of the bonus pursuant
to paragraph 4 in respect of the year of death. The payments to be
made under this Section 7(b) shall not be reduced by reason of any
insurance proceeds payable directly to the Employee's beneficiaries
or estate pursuant to insurance carried or provided by the Company,
and shall be made to such beneficiary as the Employee may designate
for that purpose in written notice given to the Secretary of the
Company prior to his death, or if the Employee has not so
designated, then to the personal representative of his estate.
8. Termination By Employee.
(a) Termination If Position Changes. In the event that at
any time during the Term, Employee, without his written consent,
does not hold the position set forth in Section 2 and have the
duties and responsibilities that would normally be expected
thereunder, Employee may terminate his employment with the Company
hereunder by giving to the Secretary of the Company written notice
of such termination within six (6) months after his right to
terminate arises.
(b) Termination By Employee Due To Change In Control Of
Company and Other Related Matters. During the Term the Employee
may further terminate his employment hereunder for the following
Good Reason, which shall mean (A) a change in control of the
Company (as defined below), (B) any removal of the Employee from or
any failure to re-elect the Employee as a Director without his
written consent thereto, or (C) failure of the Company to obtain an
agreement by and between the Company and any successor to the
<PAGE>
Company, as contemplated herein, for said successor's assumption of
the Company's obligations to perform this Agreement. For purposes
of this Agreement, a "change in control of the Company" shall be
deemed to occur if (a) any "Person" (as such term is used in
Section 13(d) and 14(d)(2) of the Securities Exchange Act of 1934),
other than Employee, Sydney B. Lilly, Donald E. Runge, Richard Y.
Fisher, or any of their respective spouses, lineal descendants,
personal representatives, estates, or trusts primarily for the
benefit of any of the foregoing, is or becomes the beneficial
owner, directly or indirectly, of securities of the Company
representing 20% or more of the combined voting power of the
Company's then outstanding voting securities of the Company; or (b)
during any period of two consecutive years during the term of this
Agreement, or any lesser period, individuals who at the beginning
of such period constitute the Board of Directors of the Company
cease for any reason to constitute at least a majority thereof
unless such change is expressly approved by Employee.
In the event of such termination under 8(a) or 8(b) above, the
Term shall end and the Company shall pay to the Employee, in a lump
sum and within thirty (30) days of such termination, an amount
equal to the aggregate balance (based on the guaranteed minimum
annual salary in effect at the time of such termination) which
would have been payable to the Employee during the remaining
portion of the fiscal year in which the Term ended. Upon
termination, under Section 7(a), 7(b), 8(a) or 8(b) of this
Agreement, the benefits provided for in Sections 4(a), 6, 12(h) and
12(i) hereof shall continue to be provided to Employee or his
spouse in accordance therewith. The Company shall also pay
Employee the bonus in paragraph 4(b) in respect of the entire year
of the year of termination.
Notwithstanding anything to the contrary contained herein, any
payments made to Employee pursuant to Section 8(a) or Section 8(b)
hereof (the "Accelerated Payment") shall not exceed one dollar
($1.00) less than the amount that would cause any part of the
Accelerated Payment to be nondeductible under Section 280G of the
Internal Revenue Code. The balance of any payments due to Employee
pursuant to Section 8(a) or 8(b) (after payment of the Accelerated
Payment), if any, shall be paid to Employee in the same amounts
(diminished pro rata by the effect of the Accelerated Payment), on
the same schedule and otherwise on the same terms as are provided
in this Agreement.
The Employee shall not be required to mitigate the amount of
any payments provided for in this Section by seeking other
employment or otherwise, and no payments required pursuant to this
Agreement shall be reduced as a result of any other income of
Employee, and any amounts due hereunder shall be absolute.
<PAGE>
The Company shall maintain in full force and effect, for the
continued benefit of the Employee for the full Term of this
Agreement, all employee benefit plans and programs in which the
Employee was entitled to participate immediately prior to the date
of termination provided, that if the Employee's continued
participation in any such plan or program is barred by reason of
the operation of law, the Employee shall be entitled to receive an
amount equal to the annual contributions, payments, credits or
allocations made by the Company to him, to his account or on his
behalf under such plans and programs from which his continued
participation is barred.
9. Successors. The Company will require any successor
(whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or
assets of the Company, by agreement in form and substance
satisfactory to the Employee, to expressly assume and agree to
perform this Agreement in the same manner and to the same extent
that the Company would be required to perform it if no such
succession had taken place. Failure of the Company to obtain such
agreement prior to the effectiveness of any such succession shall
be a breach of this Agreement and shall entitle the Employee to
compensation from the Company in the same amount and on the same
terms as he would be entitled to hereunder. As used in this
Agreement, "Company" shall mean the Company as hereinbefore defined
and any successor to its business and/or assets as aforesaid which
executes and delivers the agreement provided for in this Section 9
or which otherwise becomes bound by all the terms and provisions of
this Agreement by operation of law.
10. Notices. Any notice required or permitted to be given
under this Agreement shall be in writing and shall be deemed to
have been given when delivered personally or deposited in the U.S.
Mail in a registered, postage prepaid envelope addressed, if to the
Employee at his address set forth below, and if to the Company, c/o
Secretary, at the principal executive office of the Company, or to
such other addresses as either party shall designate by written
notice to the other.
11. Assignment. The Employee may not assign his rights or
obligations hereunder. The rights and obligations of the Company
hereunder shall inure to the benefit of and shall be binding upon
its respective successors and assigns.
12. Miscellaneous.
(a) This Agreement shall be subject to and governed by the
laws of the State of Wisconsin.
(b) The Company agrees to reimburse the Employee for all
costs and expenses incurred by him (including the reasonable fees
for his counsel) in enforcing any of his rights under this
<PAGE>
Agreement, including the fees of any arbitrator.
(c) Failure to insist upon strict compliance with any
provisions hereof shall not be deemed a waiver of such provisions
or any other provision hereof.
(d) This Agreement constitutes and expresses the whole
Agreement of parties hereto in reference to any employment of
Employee by the Company, and in reference to any of the matters or
things herein provided for, or hereinbefore discussed or mentioned
in reference to such employment, all promises, representations and
understandings relative thereto herein merged. This Agreement may
not be modified except by each of an agreement in written executed
by the parties hereto.
(e) The invalidity or unenforceability of any provision
hereof shall not affect the validity or enforceability of any other
provisions.
(f) Any controversy or claim which shall arise between the
parties herein arising out of or relating to this Agreement, or the
breach thereof, may be settled by arbitration in accordance with
the Commercial Arbitration Rules of the American Arbitration
Association at the election of either party hereto. All such
arbitration proceedings shall be had in the City of Milwaukee,
State of Wisconsin. In the event of such arbitration, judgment
upon the award rendered by the arbitrator, may be entered in any
court having jurisdiction thereof.
(g) The Company shall not be permitted to withhold any
payments due hereunder when such payments are due and any such
amounts due hereunder may not be withheld as set-off from any
obligations claimed against the Employee. In the event of any
dispute hereunder, all sums due hereunder shall be paid by the
Company in the amount and manner, and at the time or times,
provided for herein, subject to expedient resolution of such
disputes between the parties, and shall not be withheld pending
such resolution. Time is of the essence with respect to any and
all payments due hereunder.
(h) Nothing herein contained shall reduce or otherwise affect
any benefits previously earned and due to Employee at any time
hereafter under prior employment contracts with the Company.
(i) Employee shall have the right to purchase the furniture
in his personal office at book value at the termination of his
employment.
(j) This Agreement supercedes and replaces the Agreement
ratified by the Company's Board of Directors on March 7, 1995.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the day and year first above written.
THE DIANA CORPORATION
By:
R. Scott Miswald
Vice President and Treasurer
EMPLOYEE
Richard Y. Fisher
Employment Agreement
This Agreement is entered into this 2nd day of April, 1995, by
and between THE DIANA CORPORATION, a Delaware corporation (the
"Company"), and DONALD E. RUNGE ("Employee").
WHEREAS, the Company recognizes that the Employee's experience
is expected to be of great value to the Company;
WHEREAS, the Company wishes this Agreement to be an incentive
for the Employee to expend such effort on behalf of the Company
secure in the knowledge that he will be compensated for his efforts
and his accomplishments;
WHEREAS, Employee has his principal residence outside the
state of Wisconsin at the commencement of the Term, intends to
maintain such residence during the Term and intends to return to
such residence at the conclusion of the Term;
WHEREAS, the Employee is willing to commit the performance of
his services for the Company upon the terms and conditions herein
set forth;
NOW THEREFORE, in consideration of the mutual covenants
contained herein, the Company hereby agrees to employ the Employee
and the Employee hereby agrees to accept such employment upon the
following terms and conditions:
1. Term. The term of Employee's employment (the "Term")
under this Agreement shall commence as of the date hereof and
continue until March 31, 1997, provided, however, that at the end
of such term or any extension thereof as provided herein, the Term
shall be automatically extended for an additional fiscal year of
the Company unless either party shall give written notice to the
other not less than ninety (90) days prior to the beginning of such
fiscal year that the Term shall not be so extended. The word
"Term" as used herein includes any extensions thereof.
2. Duties and Responsibilities. During the Term the
Employee is engaged and shall perform such duties and
responsibilities for the Company as may be assigned to him by the
Company's Board of Directors and which are reasonably consistent
with the duties of President performed during the first three (3)
months of the Term.. The Employee may involve himself in private
investments and activities which do not significantly conflict with
his duties under this Agreement and may serve as a director of such
companies on whose board he elects to serve providing said
directorships do not significantly conflict with his obligations as
an Employee, officer or director hereunder. After the Term,
neither the Company nor the Employee shall have any further
obligations hereunder except in the case of the Company, for its
duties under Section 6 or Section 12(h).
<PAGE>
3. Compensation During the Term. The Company agrees to pay
to the Employee during the Term a guaranteed minimum annual salary
at a rate of $210,000. The guaranteed minimum salary hereunder
shall be payable at intervals not less often than bi-weekly and
subject to usual payroll deductions. During the Term, the Employee
shall not be discriminated against with respect to any other
Company bonus plans or with respect to medical, hospital and life
insurance programs, pension program, and other similar welfare
benefit programs from time to time, in each case, made available to
the Company's officers as a class. The Company shall provide
Employee six (6) week's paid vacation each year of the Term.
During the Term, the Company will pay the annual dues, but not the
initiation or other admission or purchase fee, relating to
membership in an athletic or such other similar social club of his
choice. In addition, nothing herein shall in any way affect the
Employee's rights to any stock options granted to him in the past
or in the future by the Board of Directors of the Company. During
the Term, the Company shall provide the Employee with office space,
secretarial assistance and other facilities, as may be required in
the proper performance of his duties and responsibilities and shall
reimburse him for expenses reasonably incurred by him the
performance of his duties. The Company shall pay all reasonable
moving expenses of employee to and from Milwaukee, Wisconsin at the
commencement and conclusion of the Term respectively.
4. Bonus.
Bonus payments, if any, shall be paid as set forth hereafter.
Employee's bonus shall be the greater of:
(a) 1/3 of 1% of the "Purchase Price" of each
Acquisition made by the Company or an Affiliate of
the Company, plus, 1/3 of 1% of the Sale Price of
each divestiture made by the Company or Affiliates
of the Company, or
(b) (ROI less Base Rate) x Investment x 10%.
In the case of bonus due under (b) above, payment shall be
made within 90 days following each fiscal year of the Term in
respect of such fiscal year.
In the case of Purchases, bonus payments made under (a) above
are due at Closing.
In the case of Sales, bonus payments under (a) above are due
at the time the Company or its Affiliates receive payment in the
form of cash or marketable securities.
In measuring (a) against (b) above the amount actually
received by Employee under (a) during each fiscal year shall be
used in determining whether (a) exceeds (b).
<PAGE>
Additionally, Employee shall be entitled to receive bonus
payments under (a) above in the case of contracts for purchases or
sales executed prior to the expiration of this Agreement, but
closed subsequent to expiration of this Agreement or payments for
Sales received subsequent to expiration, as though the contract was
ongoing but not measured against (b) after expiration.
Definitions:
"Annual Profits" are the Company's EBIT earnings.
"Investment" equals the Company's total shareholders' equity
at the start of the Bonus period plus the average interest bearing
debt of the Company during the prior year.
"ROI" is a percentage determined by dividing Annual Profit by
Investment.
"Treasury Rate" is the yield on the thirty (30) year U.S.
Government Treasury Bond as reported in the Wall Street Journal on
the first day of the applicable fiscal year.
"Base Rate" 150% of Treasury Rate.
"Purchase Price" shall be the total consideration paid by the
Company or any of its Affiliates for the purchase of a business
(whether stock or assets). Total consideration shall be the
Purchase Price plus Non-Competition payments as set forth in the
Purchase Agreement.
"Sale Price" shall be the total consideration paid to the
Company or any of its Affiliates for the sale of a business
(whether stock or assets). Total consideration shall be the Sale
Price plus Non-Competition payments as set forth in the Purchase
Agreement, and shall include but not be limited to, cash, stock,
bonds or other securities.
"Affiliate" of the Company is a person that directly or
indirectly though one or more intermediaries, controls, or is
controlled by, or is under common control with, such Company.
5. Board of Directors
Employee shall during the Term of this contract serve on the
Board of Directors of the Company at no additional charge.
6. Medical Payments
Pursuant to an earlier Employment Agreement with Employee,
Company committed, among other things, to pay all medical expenses,
including but not limited to, medical, dental, hospital,
optometrical, nursing, nursing home, and drugs for the Employee and
<PAGE>
his spouse for the remainder of each of their lives. All such
benefits previously earned by Employee shall remain in full force
and effect.
7. Termination By Company.
(a) Disability. During the Term in the event that Employee
shall, because of physical or mental incapacity, be unable
substantially to perform his duties for a period of at least three
(3) successive months and at the end of such period a physician
selected by the Company certifies that it appears unlikely that
Employee will be able to substantially perform his duties for an
indefinite additional period of time because of such physical or
mental incapacity, the Company shall have the right to terminate
the active employment of Employee and end the Term according to the
provision stated herein; provided, however, that in the event that
Employee shall not agree with the certification of disability made
by the physician selected by the Company, to which the Employee
will make himself available for and submit to such examination as
and when requested, Employee may select his own physician who shall
make a determination as to Employee's disability; in the event that
the physician so selected by Employee shall disagree with the
physician selected by the Company, the two physicians shall, within
thirty (30) days, select a third physician whose determination
shall be conclusive and binding on all parties hereto.
Notwithstanding anything herein to the contrary, the Company
may terminate the active employment of Employee and end the Term at
any time after Employee shall have been absent from his employment
for whatever cause, for a continuous period of more than four (4)
months.
In the event of any such termination pursuant to this
paragraph 7(a), the Company shall continue to pay to the Employee,
through the end of the fiscal year in which the Term ends, a salary
on a semi-monthly basis at a rate equal to three-quarters of the
guaranteed minimum annual salary in effect on the date of such
termination. Employee shall also be entitled to a bonus equal to
three-quarters of the bonus pursuant to paragraph 4 in respect of
the year of termination.
(b) Death. In the event of the death of the Employee, the
Term shall end and the Company shall make, until the end of the
fiscal year in which the death occurred, semi-monthly payments at
a rate equal to three-quarters of the guaranteed minimum annual
salary in effect on the date of death. Employee shall also be
entitled to a bonus equal to three-quarters of the bonus pursuant
to paragraph 4 in respect of the year of death. The payments to be
made under this Section 7(b) shall not be reduced by reason of any
insurance proceeds payable directly to the Employee's beneficiaries
or estate pursuant to insurance carried or provided by the Company,
and shall be made to such beneficiary as the Employee may designate
<PAGE>
for that purpose in written notice given to the Secretary of the
Company prior to his death, or if the Employee has not so
designated, then to the personal representative of his estate.
8. Termination By Employee.
(a) Termination If Position Changes. In the event that at
any time during the Term, Employee, without his written consent,
does not hold the position set forth in Section 2 and have the
duties and responsibilities that would normally be expected
thereunder, Employee may terminate his employment with the Company
hereunder by giving to the Secretary of the Company written notice
of such termination within six (6) months after his right to
terminate arises.
(b) Termination By Employee Due To Change In Control Of
Company and Other Related Matters. During the Term the Employee
may further terminate his employment hereunder for the following
Good Reason, which shall mean (A) a change in control of the
Company (as defined below), (B) any removal of the Employee from or
any failure to re-elect the Employee as a Director, without his
written consent thereto, or (C) failure of the Company to obtain an
agreement by and between the Company and any successor to the
Company, as contemplated herein, for said successor's assumption of
the Company's obligations to perform this Agreement. For purposes
of this Agreement, a "change in control of the Company" shall be
deemed to occur if (a) any "Person" (as such term is used in
Section 13(d) and 14(d)(2) of the Securities Exchange Act of 1934),
other than Employee, Donald Runge, Sydney B. Lilly, Richard Y.
Fisher, or any of their respective spouses, lineal descendants,
personal representatives, estates, or trusts primarily for the
benefit of any of the foregoing, is or becomes the beneficial
owner, directly or indirectly, of securities of the Company
representing 20% or more of the combined voting power of the
Company's then outstanding voting securities of the Company; or (b)
during any period of two consecutive years during the term of this
Agreement, or any lesser period, individuals who at the beginning
of such period constitute the Board of Directors of the Company
cease for any reason to constitute at least a majority thereof
unless such change is expressly approved by Employee.
In the event of such termination under 8(a) or 8(b) above, the
Term shall end and the Company shall pay to the Employee, in a lump
sum and within thirty (30) days of such termination, an amount
equal to the aggregate balance (based on the guaranteed minimum
annual salary in effect at the time of such termination) which
would have been payable to the Employee during the remaining
portion of the fiscal year in which the Term ended. Upon
termination, under Section 7(a), 7(b), 8(a) or 8(b) of this
Agreement, the benefits provided for in Sections 6 and 12(h) hereof
<PAGE>
shall continue to be provided to Employee or his spouse in
accordance therewith. The Company shall also pay Employee the
bonus in paragraph 4 in respect of the entire year of the year of
termination.
Notwithstanding anything to the contrary contained herein, any
payments made to Employee pursuant to Section 8(a) or Section 8(b)
hereof (the "Accelerated Payment") shall not exceed one dollar
($1.00) less than the amount that would cause any part of the
Accelerated Payment to be nondeductible under Section 280G of the
Internal Revenue Code. The balance of any payments due to Employee
pursuant to Section 8(a) or 8(b) (after payment of the Accelerated
Payment), if any, shall be paid to Employee in the same amounts
(diminished pro rata by the effect of the Accelerated Payment), on
the same schedule and otherwise on the same terms as are provided
in this Agreement.
The Employee shall not be required to mitigate the amount of
any payments provided for in this Section by seeking other
employment or otherwise, and no payments required pursuant to this
Agreement shall be reduced as a result of any other income of
Employee, and any amounts due hereunder shall be absolute.
The Company shall maintain in full force and effect, for the
continued benefit of the Employee for the full Term of this
Agreement, all employee benefit plans and programs in which the
Employee was entitled to participate immediately prior to the date
of termination provided, that if the Employee's continued
participation in any such plan or program is barred by reason of
the operation of law, the Employee shall be entitled to receive an
amount equal to the annual contributions, payments, credits or
allocations made by the Company to him, to his account or on his
behalf under such plans and programs from which his continued
participation is barred.
9. Successors. The Company will require any successor
(whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or
assets of the Company, by agreement in form and substance
satisfactory to the Employee, to expressly assume and agree to
perform this Agreement in the same manner and to the same extent
that the Company would be required to perform it if no such
succession had taken place. Failure of the Company to obtain such
agreement prior to the effectiveness of any such succession shall
be a breach of this Agreement and shall entitle the Employee to
compensation from the Company in the same amount and on the same
terms as he would be entitled to hereunder. As used in this
Agreement, "Company" shall mean the Company as hereinbefore defined
and any successor to its business and/or assets as aforesaid which
executes and delivers the agreement provided for in this Section 9
or which otherwise becomes bound by all the terms and provisions of
this Agreement by operation of law.
<PAGE>
10. Notices. Any notice required or permitted to be given
under this Agreement shall be in writing and shall be deemed to
have been given when delivered personally or deposited in the U.S.
Mail in a registered, postage prepaid envelope addressed, if to the
Employee at his address set forth below, and if to the Company, c/o
Secretary, at the principal executive office of the Company, or to
such other addresses as either party shall designate by written
notice to the other.
11. Assignment. The Employee may not assign his rights or
obligations hereunder. The rights and obligations of the Company
hereunder shall inure to the benefit of and shall be binding upon
its respective successors and assigns.
12. Miscellaneous.
(a) This Agreement shall be subject to and governed by the
laws of the State of Wisconsin.
(b) The Company agrees to reimburse the Employee for all
costs and expenses incurred by him (including the reasonable fees
for his counsel) in enforcing any of his rights under this
Agreement, including the fees of any arbitrator.
(c) Failure to insist upon strict compliance with any
provisions hereof shall not be deemed a waiver of such provisions
or any other provision hereof.
(d) This Agreement may not be modified except by each of an
agreement in written executed by the parties hereto.
(e) The invalidity or unenforceability of any provision
hereof shall not affect the validity or enforceability of any other
provisions.
(f) Any controversy or claim which shall arise between the
parties herein arising out of or relating to this Agreement, or the
breach thereof, may be settled by arbitration in accordance with
the Commercial Arbitration Rules of the American Arbitration
Association at the election of either party hereto. All such
arbitration proceedings shall be had in the City of Milwaukee,
State of Wisconsin. In the event of such arbitration, judgment
upon the award rendered by the arbitrator, may be entered in any
court having jurisdiction thereof.
(g) The Company shall not be permitted to withhold any
payments due hereunder when such payments are due and any such
amounts due hereunder may not be withheld as set-off from any
obligations claimed against the Employee. In the event of any
dispute hereunder, all sums due hereunder shall not be withheld
pending such resolution. Time is of the essence with respect to
any and all payments due hereunder.
<PAGE>
(h) Nothing herein contained shall reduce or otherwise affect
any benefits previously earned and due to Employee at any time
hereafter under prior employment contracts with the Company.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the day and year first above written.
THE DIANA CORPORATION
By:
R. Scott Miswald
Vice President and Treasurer
Richard Y. Fisher
Chairman
EMPLOYEE
Donald E. Runge
Employment Agreement
This Agreement is entered into this 2nd day of April, 1995, by
and between THE DIANA CORPORATION, a Delaware corporation (the
"Company"), and SYDNEY B. LILLY ("Employee").
WHEREAS, the Company recognizes that the Employee's experience
is expected to be of great value to the Company;
WHEREAS, the Company wishes this Agreement to be an incentive
for the Employee to expend such effort on behalf of the Company
secure in the knowledge that he will be compensated for his efforts
and his accomplishments;
WHEREAS, Employee has his principal residence outside the
state ofWisconsin at the commencement of the Term, intends to
maintain such residence during the Term and intends to return to
such residence at the conclusion of the Term;
WHEREAS, the Employee is willing to commit the performance of
his services for the Company upon the terms and conditions herein
set forth;
NOW THEREFORE, in consideration of the mutual covenants
contained herein, the Company hereby agrees to employ the Employee
and the Employee hereby agrees to accept such employment upon the
following terms and conditions:
1. Term. The term of Employee's employment (the "Term")
under this Agreement shall commence as of the date hereof and
continue until March 31, 1997, provided, however, that at the end
of such term or any extension thereof as provided herein, the Term
shall be automatically extended for an additional fiscal year of
the Company unless either party shall give written notice to the
other not less than ninety (90) days prior to the beginning of such
fiscal year that the Term shall not be so extended. The word
"Term" as used herein includes any extensions thereof.
2. Duties and Responsibilities. During the Term the
Employee is engaged and shall perform such duties and
responsibilities for the Company as may be assigned to him by the
Company's Board of Directors and which are reasonably consistent
with the duties of Senior Vice President performed during the first
three (3) months of the Term. The Employee may involve himself in
private investments and activities which do not significantly
conflict with his duties under this Agreement and may serve as a
director of such companies on whose board he elects to serve
providing said directorships do not significantly conflict with his
obligations as an Employee, officer or director hereunder. After
the Term, neither the Company nor the Employee shall have any
further obligations hereunder except in the case of the Company for
its duties under Section 3 or Section 6.
<PAGE>
3. Compensation During the Term. The Company agrees to pay
to the Employee during the Term a guaranteed minimum annual salary
at a rate of $210,000. In addition, Employee shall be granted
options to purchase up to 75,000 shares of Common Stock at $6.50
per share, which will expire on March 31, 2000. The guaranteed
minimum salary hereunder shall be payable at intervals not less
often than bi-weekly and subject to usual payroll deductions.
During the Term, the Employee shall not be discriminated against
with respect to any other Company bonus plans or with respect to
medical, hospital and life insurance programs, pension program, and
other similar welfare benefit programs from time to time, in each
case, made available to the Company's officers as a class. The
Company shall provide Employee six (6) week's paid vacation each
year of the Term. During the Term, the Company will pay the annual
dues, but not the initiation or other admission or purchase fee,
relating to membership in an athletic or such other similar social
club of his choice. In addition, nothing herein shall in any way
affect the Employee's rights to any stock options granted to him in
the past or in the future by the Board of Directors of the Company.
During the Term, the Company shall provide the Employee with office
space, secretarial assistance and other facilities, as may be
required in the proper performance of his duties and
responsibilities and shall reimburse him for expenses reasonably
incurred by him the performance of his duties. The Company shall
pay all reasonable moving expenses of employee to and from
Milwaukee, Wisconsin at the commencement and conclusion of the Term
respectively.
4. Bonus.
Bonus payments, if any, shall be paid as set forth hereafter.
Employee's bonus shall be the greater of:
(a) 1/3 of 1% of the "Purchase Price" of each
Acquisition made by the Company or an Affiliate of
the Company, plus, 1/3 of 1% of the Sale Price of
each divestiture made by the Company or Affiliates
of the Company, or
(b) (ROI less Base Rate) x Investment x 10%.
In the case of bonus due under (b) above, payment shall be
made within 90 days following each fiscal year of the Term in
respect of such fiscal year.
In the case of Purchases, bonus payments made under (a) above
are due at Closing.
In the case of Sales, bonus payments under (a) above are due
at the time the Company or its Affiliates receive payment in the
form of cash or marketable securities.
<PAGE>
In measuring (a) against (b) above the amount actually
received by Employee under (a) during each fiscal year shall be
used in determining whether (a) exceeds (b).
Additionally, Employee shall be entitled to receive bonus
payments under (a) above in the case of contracts for purchases or
sales executed prior to the expiration of this Agreement, but
closed subsequent to expiration of this Agreement or payments for
Sales received subsequent to expiration, as though the contract was
ongoing but not measured against (b) after expiration.
Definitions:
"Annual Profits" are the Company's EBIT earnings.
"Investment" equals the Company's total shareholders' equity
at the start of the Bonus period plus the average interest bearing
debt of the Company during the prior year.
"ROI" is a percentage determined by dividing Annual Profit by
Investment.
"Treasury Rate" is the yield on the thirty (30) year U.S.
Government Treasury Bond as reported in the Wall Street Journal on
the first day of the applicable fiscal year.
"Base Rate" 150% of Treasury Rate.
"Purchase Price" shall be the total consideration paid by the
Company or any of its Affiliates for the purchase of a business
(whether stock or assets). Total consideration shall be the
Purchase Price plus Non-Competition payments as set forth in the
Purchase Agreement.
"Sale Price" shall be the total consideration paid to the
Company or any of its Affiliates for the sale of a business
(whether stock or assets). Total consideration shall be the Sale
Price plus Non-Competition payments as set forth in the Purchase
Agreement, and shall include but not be limited to, cash, stock,
bonds or other securities.
"Affiliate" of the Company is a person that directly or
indirectly though one or more intermediaries, controls, or is
controlled by, or is under common control with, such Company.
5. Board of Directors
Employee shall during the Term of this contract serve on the
Board of Directors of the Company at no additional charge.
<PAGE>
6. Medical Payments
During the Term of this contract, the Company shall pay all
medical expenses, including but not limited to, medical, dental,
hospital, optometrical, nursing, nursing home, and drugs for the
Employee. For a period of five (5) years after date hereof, the
Company shall pay all medical expenses, including but not limited
to, medical, dental, hospital, optometrical, nursing, nursing home
and drugs for Diane Lilly, spouse of Employee.
7. Termination By Company.
(a) Disability. During the Term in the event that Employee
shall, because of physical or mental incapacity, be unable
substantially to perform his duties for a period of at least three
(3) successive months and at the end of such period a physician
selected by the Company certifies that it appears unlikely that
Employee will be able to substantially perform his duties for an
indefinite additional period of time because of such physical or
mental incapacity, the Company shall have the right to terminate
the active employment of Employee and end the Term according to the
provision stated herein; provided, however, that in the event that
Employee shall not agree with the certification of disability made
by the physician selected by the Company, to which the Employee
will make himself available for and submit to such examination as
and when requested, Employee may select his own physician who shall
make a determination as to Employee's disability; in the event that
the physician so selected by Employee shall disagree with the
physician selected by the Company, the two physicians shall, within
thirty (30) days, select a third physician whose determination
shall be conclusive and binding on all parties hereto.
Notwithstanding anything herein to the contrary, the Company
may terminate the active employment of Employee and end the Term at
any time after Employee shall have been absent from his employment
for whatever cause, for a continuous period of more than four (4)
months.
In the event of any such termination pursuant to this
paragraph 7(a), the Company shall continue to pay to the Employee,
through the end of the fiscal year in which the Term ends, a salary
on a semi-monthly basis at a rate equal to three-quarters of the
guaranteed minimum annual salary in effect on the date of such
termination. Employee shall also be entitled to a bonus equal to
three-quarters of the bonus pursuant to paragraph 4 in respect of
the year of termination.
(b) Death. In the event of the death of the Employee, the
Term shall end and the Company shall make, until the end of the
fiscal year in which the death occurred, semi-monthly payments at
a rate equal to three-quarters of the guaranteed minimum annual
salary in effect on the date of death. Employee shall also be
<PAGE>
entitled to a bonus equal to three-quarters of the bonus pursuant
to paragraph 4 in respect of the year of death. The payments to be
made under this Section 7(b) shall not be reduced by reason of any
insurance proceeds payable directly to the Employee's beneficiaries
or estate pursuant to insurance carried or provided by the Company,
and shall be made to such beneficiary as the Employee may designate
for that purpose in written notice given to the Secretary of the
Company prior to his death, or if the Employee has not so
designated, then to the personal representative of his estate.
8. Termination By Employee.
(a) Termination If Position Changes. In the event that at
any time during the Term, Employee, without his written consent,
does not hold the position set forth in Section 2 and have the
duties and responsibilities that would normally be expected
thereunder, Employee may terminate his employment with the Company
hereunder by giving to the Secretary of the Company written notice
of such termination within six (6) months after his right to
terminate arises.
(b) Termination By Employee Due To Change In Control Of
Company and Other Related Matters. During the Term the Employee
may further terminate his employment hereunder for the following
Good Reason, which shall mean (A) a change in control of the
Company (as defined below), (B) any removal of the Employee from or
any failure to re-elect the Employee as a Director without his
written consent thereto, or (C) failure of the Company to obtain an
agreement by and between the Company and any successor to the
Company, as contemplated herein, for said successor's assumption of
the Company's obligations to perform this Agreement. For purposes
of this Agreement, a "change in control of the Company" shall be
deemed to occur if (a) any "Person" (as such term is used in
Section 13(d) and 14(d)(2) of the Securities Exchange Act of 1934),
other than Employee, Sydney B. Lilly, Donald E. Runge, Richard Y.
Fisher, or any of their respective spouses, lineal descendants,
personal representatives, estates, or trusts primarily for the
benefit of any of the foregoing, is or becomes the beneficial
owner, directly or indirectly, of securities of the Company
representing 20% or more of the combined voting power of the
Company's then outstanding voting securities of the Company; or (b)
during any period of two consecutive years during the term of this
Agreement, or any lesser period, individuals who at the beginning
of such period constitute the Board of Directors of the Company
cease for any reason to constitute at least a majority thereof
unless such change is expressly approved by Employee.
In the event of such termination under 8(a) or 8(b) above, the
Term shall end and the Company shall pay to the Employee, in a lump
sum and within thirty (30) days of such termination, an amount
equal to the aggregate balance (based on the guaranteed minimum
annual salary in effect at the time of such termination) which
<PAGE>
would have been payable to the Employee during the remaining
portion of the fiscal year in which the Term ended. Upon
termination, the benefits provided for in Section 6 hereof shall
continue to be provided to Employee or his spouse in accordance
therewith. The Company shall also pay Employee the bonus in
paragraph 4 in respect of the entire year of the year of
termination.
Notwithstanding anything to the contrary contained herein, any
payments made to Employee pursuant to Section 8(a) or Section 8(b)
hereof (the "Accelerated Payment") shall not exceed one dollar
($1.00) less than the amount that would cause any part of the
Accelerated Payment to be nondeductible under Section 280G of the
Internal Revenue Code. The balance of any payments due to Employee
pursuant to Section 8(a) or 8(b) (after payment of the Accelerated
Payment), if any, shall be paid to Employee in the same amounts
(diminished pro rata by the effect of the Accelerated Payment), on
the same schedule and otherwise on the same terms as are provided
in this Agreement.
The Employee shall not be required to mitigate the amount of
any payments provided for in this Section by seeking other
employment or otherwise, and no payments required pursuant to this
Agreement shall be reduced as a result of any other income of
Employee, and any amounts due hereunder shall be absolute.
The Company shall maintain in full force and effect, for the
continued benefit of the Employee for the full Term of this
Agreement, all employee benefit plans and programs in which the
Employee was entitled to participate immediately prior to the date
of termination provided, that if the Employee's continued
participation in any such plan or program is barred by reason of
the operation of law, the Employee shall be entitled to receive an
amount equal to the annual contributions, payments, credits or
allocations made by the Company to him, to his account or on his
behalf under such plans and programs from which his continued
participation is barred.
9. Successors. The Company will require any successor
(whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or
assets of the Company, by agreement in form and substance
satisfactory to the Employee, to expressly assume and agree to
perform this Agreement in the same manner and to the same extent
that the Company would be required to perform it if no such
succession had taken place. Failure of the Company to obtain such
agreement prior to the effectiveness of any such succession shall
be a breach of this Agreement and shall entitle the Employee to
compensation from the Company in the same amount and on the same
terms as he would be entitled to hereunder. As used in this
Agreement, "Company" shall mean the Company as hereinbefore defined
and any successor to its business and/or assets as aforesaid which
<PAGE>
executes and delivers the agreement provided for in this Section 9
or which otherwise becomes bound by all the terms and provisions of
this Agreement by operation of law.
10. Notices. Any notice required or permitted to be given
under this Agreement shall be in writing and shall be deemed to
have been given when delivered personally or deposited in the U.S.
Mail in a registered, postage prepaid envelope addressed, if to the
Employee at his address set forth below, and if to the Company, c/o
Secretary, at the principal executive office of the Company, or to
such other addresses as either party shall designate by written
notice to the other.
11. Assignment. The Employee may not assign his rights or
obligations hereunder. The rights and obligations of the Company
hereunder shall inure to the benefit of and shall be binding upon
its respective successors and assigns.
12. Miscellaneous.
(a) This Agreement shall be subject to and governed by the
laws of the State of Wisconsin.
(b) The Company agrees to reimburse the Employee for all
costs and expenses incurred by him (including the reasonable fees
for his counsel) in enforcing any of his rights under this
Agreement, including the fees of any arbitrator.
(c) Failure to insist upon strict compliance with any
provisions hereof shall not be deemed a waiver of such provisions
or any other provision hereof.
(d) This Agreement constitutes and expresses the whole
Agreement of parties hereto in reference to any employment of
Employee by the Company, and in reference to any of the matters or
things herein provided for, or hereinbefore discussed or mentioned
in reference to such employment, all promises, representations and
understandings relative thereto herein merged. This Agreement may
not be modified except by each of an agreement in written executed
by the parties hereto.
(e) The invalidity or unenforceability of any provision
hereof shall not affect the validity or enforceability of any other
provisions.
(f) Any controversy or claim which shall arise between the
parties herein arising out of or relating to this Agreement, or the
breach thereof, may be settled by arbitration in accordance with
the Commercial Arbitration Rules of the American Arbitration
Association at the election of either party hereto. All such
arbitration proceedings shall be had in the City of Milwaukee,
<PAGE>
State of Wisconsin. In the event of such arbitration, judgment
upon the award rendered by the arbitrator, may be entered in any
court having jurisdiction thereof.
(g) The Company shall not be permitted to withhold any
payments due hereunder when such payments are due and any such
amounts due hereunder may not be withheld as set-off from any
obligations claimed against the Employee. In the event of any
dispute hereunder, all sums due hereunder shall not be withheld
pending such resolution. Time is of the essence with respect to
any and all payments due hereunder.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the day and year first above written.
THE DIANA CORPORATION
By:
R. Scott Miswald
Vice President and Treasurer
Richard Y. Fisher
Chairman
EMPLOYEE
Sydney B. Lilly
AMENDMENT TO CONSULTING AGREEMENT
This agreement entered into this 7th day of March 1995 by and
between C&L Acquisition Corporation, a Texas Corporation ("C&LA")
a wholly owned subsidiary of The Diana Corporation, a Delaware
Corporation and Jack E. Donnelly, a resident of the State of
Arizona ("Donnelly").
WITNESSETH:
WHEREAS the parties entered into a Consulting Agreement on the
23rd day of December 1991, and,
WHEREAS the parties desire to amend said Consulting Agreement
as hereinafter provided,
NOW THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereby agree as follows:
A. Paragraph Al of the Consulting Agreement is hereby amended to
read as follows:
"Employ Donnelly as a consultant until the conclusion of
C&LA's fiscal year ended 1997; provided however that Donnelly
shall upon four (4) months prior written notice have the
option of extending this Consulting Agreement through fiscal
year 1998."
B. Paragraph A2 of the Consulting Agreement is hereby amended to
read as follows:
"Pay Donnelly the sum of $325,000 which shall accrue at the
rate of $75,000 per year during each of the first three (3)
years and $50,000 per year during each of the last two (2)
years. In the event that Donnelly exercises his option
contained in Paragraph 1 hereof, to extend this agreement by
one (1) year, C&LA shall pay Donnelly an additional $50,000."
C. Paragraph A4(b) shall be amended by adding at the end of
paragraph A4(b) the following:
"The aforegoing notwithstanding, in the event that Donnelly
exercises his option to extend the term of his Consulting
Agreement through fiscal year 1998, the EARNINGS for the
purpose of calculating the incentive under this paragraph
shall be average Earnings for fiscal 1997 and 1998."
"In the event of Donnelly's death prior to the expiration of
this Consulting Agreement, the Earnings for the last full year
for which Donnelly consulted shall be used in calculating the
incentive, if any, due Donnelly and said monies due to
Donnelly, if any, shall be paid to his estate."
<PAGE>
Paragraph A4(b) shall be further amended with regard to the
second last sentence beginning with the word "Earnings" to
read as follows:
"Earnings" for the purpose of this paragraph are the net
pretax profits of C&L plus acquisition costs, if any, charged
during said fiscal year, excluding management fees."
D. Paragraph C1(d) shall be amended to read as follows:
"(d) at the expiration of the Consulting Agreement."
E. Paragraph C shall be amended to add thereto paragraph 4 which
shall read as follows:
"C&LA's President shall have the discretion to approve loans
to Donnelly, which shall be due at the expiration of this
Consulting Agreement, at the then prevailing prime interest
rate. Cumulative loans balances shall not exceed 25 % of the
estimated incentive payment which may become due to Donnelly."
F. All other provisions of the Consulting Agreement shall remain
in full force and effect.
IN WITNESS WHEREOF the parties have executed this agreement of the
day and year first above written.
C&L ACQUISITION CORPORATION
By
Richard Y . Fisher/President Jack E. Donnelly
EXHIBIT 11
THE DIANA CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS (LOSS) PER SHARE
<TABLE>
<CAPTION>
Fiscal Year Ended
April 1, April 2, April 3,
1995 1994 1993
(In Thousands, Except Per Share Data)
<S> <C> <C> <C>
Primary
Average shares outstanding............. 3,832 3,631 3,629
Net effect of dilutive stock options -
based on the treasury stock method
using average market price............ --- 96 ---
------ ------ ------
Total.................................. 3,832 3,727 3,629
====== ====== ======
Net earnings (loss).................... $ (720) $ 3,453 $ 3,175
====== ====== ======
Per share amount....................... $ (.19) $ .93 $ .87
====== ====== ======
Fully diluted
Average shares outstanding............. 3,832 3,631 3,629
Net effect of dilutive stock options-
based on the treasury stock method
using the greater of average market
price or year end market price........ --- 230 ---
------ ------ ------
Total.................................. 3,832 3,861 3,629
====== ====== ======
Net earnings (loss).................... $ (720) $ 3,453 $ 3,175
====== ====== ======
Per share amount....................... $ (.19) $ .89 $ .87
====== ====== ======
</TABLE>
EXHIBIT 21
THE DIANA CORPORATION AND SUBSIDIARIES
SUBSIDIARIES OF THE REGISTRANT
All significant subsidiaries of the Registrant have been listed.
Indentations indicate indirectly owned subsidiaries which are directly owned
by the named subsidiary.
State of
Subsidiaries of the Registrant Incorporation
D.O.N. Incorporated............................................. Nevada
Entree Corporation (an 81.25% owned subsidiary)............... Delaware
Atlanta Provision Company, Inc.............................. Georgia
C&L Communications, Inc....................................... Texas
D.O.N. Communications Corporation............................. Nevada
EXHIBIT 23
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statement (Form S-8) pertaining to The Diana Corporation 1986 Nonqualified
Stock Option Plan and the Registration Statement (Form S-3) of The Diana
Corporation and in the related Prospectus of our report dated June 2, 1995,
except for Note 3 as to which the date is June 28, 1995, with respect to the
consolidated financial statements and schedules of The Diana Corporation
included in the Annual Report (Form 10-K) for the fiscal year ended April 1,
1995.
Milwaukee, Wisconsin ERNST & YOUNG LLP
June 28, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF THE DIANA CORPORATION AS OF AND FOR
THE 52 WEEKS ENDED APRIL 1, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-1-1995
<PERIOD-START> APR-3-1994
<PERIOD-END> APR-1-1995
<CASH> 2740
<SECURITIES> 6211
<RECEIVABLES> 15385
<ALLOWANCES> (600)
<INVENTORY> 12237
<CURRENT-ASSETS> 36363
<PP&E> 8055
<DEPRECIATION> (4252)
<TOTAL-ASSETS> 45327
<CURRENT-LIABILITIES> 16874
<BONDS> 6981
<COMMON> 4810
0
0
<OTHER-SE> 20370
<TOTAL-LIABILITY-AND-EQUITY> 45327
<SALES> 250386
<TOTAL-REVENUES> 249969
<CGS> 239198
<TOTAL-COSTS> 239198
<OTHER-EXPENSES> 10314
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1098
<INCOME-PRETAX> (720)
<INCOME-TAX> 0
<INCOME-CONTINUING> (720)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (720)
<EPS-PRIMARY> (.19)
<EPS-DILUTED> (.19)
</TABLE>
