<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
COMMISSION FILE NUMBER: 0-4384
MICRODYNE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MARYLAND 52-0856493
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
3601 EISENHOWER AVENUE, ALEXANDRIA, VA 22304
(Address of principal executive office) (Zip Code)
(703) 329-3700
(Registrant's telephone number, including area code)
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 such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES /X/ NO / /
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
CLASS OUTSTANDING AT JUNE 30, 1996
---------------------------- ----------------------------
Common stock, $.10 par value 12,823,150
Page 1 of 14 pages
Exhibit Index appears on page 13
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MICRODYNE CORPORATION
INDEX
PAGE NUMBER
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Statements of Operations
Quarter and nine months ended June 30, 1996
and June 30, 1995 3
Balance Sheets
June 30, 1996 and October 1, 1995 4
Statements of Cash Flows
Nine months ended June 30, 1996
and June 30, 1995 5
Notes to Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 7
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports. 13
SIGNATURES 14
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MICRODYNE CORPORATION
Consolidated Statements of Operations
(In Thousands except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
---------------------------- ----------------------------
June 30, June 30, June 30, June 30,
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue $24,583 $47,663 $75,147 $120,059
Cost of goods sold 18,594 32,827 56,064 82,778
----------- ----------- ----------- -----------
Gross Profit 5,989 14,836 19,083 37,281
Selling, general and administrative
expense 6,113 6,687 19,152 17,241
Research and development 1,197 1,426 3,696 3,932
----------- ----------- ----------- -----------
Earnings (loss) from operations (1,321) 6,723 (3,765) 16,108
Other income (expense)
Interest expense (598) (549) (1,517) (1,340)
Other income (expense) 12 (28) (807)
----------- ----------- ----------- -----------
Earnings (loss) before income taxes (1,919) 6,186 (5,310) 13,961
Provision for (benefit from) income taxes (729) 2,413 (2,018) 5,445
----------- ----------- ----------- -----------
Net earnings (loss) ($1,190) $3,773 ($3,292) $8,516
=========== =========== =========== ===========
Net earnings (loss) per share ($0.09) $0.29 ($0.26) $0.66
=========== =========== =========== ===========
Weighted Average Shares Outstanding 12,811 13,149 12,803 12,958
=========== =========== =========== ===========
</TABLE>
The notes on the following pages are an integral part of these statements.
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MICRODYNE CORPORATION
Consolidated Balance Sheets
(Dollars in Thousands)
<TABLE>
<CAPTION>
June 30, October 1,
1996 1995
(Unaudited) (Audited)
------------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $1,460 $4,587
Accounts receivable, net 33,760 59,681
Inventories 27,325 25,917
Income tax receivable 1,546 1,306
Prepaid expenses and other 1,973 1,433
Deferred income taxes 1,260 1,243
------------- -------------
Total current assets 67,324 94,167
PROPERTY AND EQUIPMENT, net 4,022 4,749
PRODUCT LINE ACQUISITION COST 14,975 10,333
DEFERRED INCOME TAX BENEFIT 450
OTHER ASSETS 991 1,133
------------- -------------
$87,762 $110,382
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of l-t obligations $7,462 $5,483
Accounts payable 11,810 26,509
Accrued liabilities 8,855 21,603
------------- -------------
Total current liabilities 28,127 53,595
LONG-TERM OBLIGATIONS, net of current
maturities 23,419 16,999
DEFERRED INCOME TAX PAYABLE - 300
STOCKHOLDERS' EQUITY
Common stock, $.10 par value, authorized
50,000,000 shares, 12,823,150 issued and
outstanding at June 30, 1996 and 12,789,666
issued and outstanding at October 1, 1995 1,282 1,279
Additional paid-in capital 10,057 10,040
Retained earnings 24,877 28,169
------------- -------------
36,216 39,488
------------- -------------
$87,762 $110,382
============= =============
</TABLE>
The notes on the following pages are an integral part of these statements.
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MICRODYNE CORPORATION
Consolidated Statements of Cash Flows
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
6/30/96 6/30/95
------------- -------------
<S> <C> <C>
Increase (Decrease) in Cash:
Cash flows from operating activities:
Net (loss) earnings $ (3,292) $ 8,516
Adjustments to reconcile earnings to net cash
from operating activities, exclusive of effect of
acquisitions and dispositions:
Depreciation and amortization 2,407 1,616
Provisions for doubtful accounts receivable and
inventory obsolescence 440 984
Changes in assets and liabilities
Decrease (increase) in accounts receivable 26,498 (27,626)
Increase in inventories (1,758) (949)
Increase in prepaid expenses (607) (33)
Decrease in other assets 143 27
(Increase) decrease in income tax receivable (240) 140
(Increase) decrease in deferred tax asset (468) 13
(Decrease) increase in accounts payable and other accruals (28,598) 17,845
------------- -------------
Net cash (used in) provided by operating activities (5,475) 533
Cash flows from investing activities:
Product line acquisitions (6,852) (12,109)
Additions to property and equipment (389) (1,105)
Payments from officers 67 -
------------- -------------
Net cash used in investing activities (7,174) (13,214)
Cash flows from financing activities:
Net borrowings on long-term debt 9,502 9,639
Issuance of common stock 20 2,573
------------- -------------
Net cash provided by financing activities 9,522 12,212
------------- -------------
Net decrease in Cash (3,127) (469)
Cash at beginning of period 4,587 2,628
------------- -------------
Cash at end of period $ 1,460 $ 2,159
============= =============
</TABLE>
The notes on the following pages are an integral part of these statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The interim financial information is unaudited. In the opinion of
management, financial statements included in this report reflect all normal
recurring adjustments which Microdyne Corporation ("the Company") considers
necessary for a fair presentation of the results of operations for the interim
periods covered and of the financial position of the Company at the date of
the interim balance sheet. The results for interim periods are not necessarily
indicative of the results for the entire year.
2. The provision for income taxes presented in the Statements of Operations
is based upon the estimated effective tax rate at fiscal year-end, and is
largely determined by management's estimate as of the interim date of
projected taxable income for the entire fiscal year.
3. In the Balance Sheets, Product Line Acquisition Cost includes the
long-term portion of minimum royalties due Attachmate (formerly DCA) under the
Token Ring purchase agreement and intangibles acquired under the Eagle
Technology and National Semiconductor purchase agreements. Product Line
Acquisition Cost on the June 30, 1996 Balance Sheet also includes intangibles
acquired under the Novell agreement.
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PART 1. - FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
GENERAL
Microdyne's sales in the third quarter of fiscal 1996 were $24.6 million
and the Company recorded a net loss of $1.2 million. By comparison, the
Company reported sales of $47.7 million and net earnings of $3.8 million in
the third quarter of fiscal 1995. Third quarter 1996 results represented
improvements over second quarter 1996 sales of $17.5 million and net loss of
$2.5 million.
In January 1996, the Company announced a program to lower the level of
Networking Products inventory held by distributors. The level of third quarter
1996 Networking Products sales in part reflected a continuation of this
program. Also, 1996 sales of Networking Products hardware bundled with Novell
software ("Bundled Products") were significantly lower than in 1995 due to the
continued impact from changes in Novell's distribution policies and practices.
These changes included a decision by Novell to reduce the amount of its
inventory in its distribution channel by de-emphasizing sales of its products
as traditional, stand-alone software and by lowering the Company's discount on
Novell software purchases. The result of these events was a decrease in
Networking Products sales to $17.2 million in 1996's third quarter from $40.2
million in 1995's third quarter.
Improved sales and a lower net loss from 1996's second quarter to 1996's
third quarter were the result of several factors. Networking Products hardware
sales increased from the second quarter to the third quarter due principally
to greater OEM sales and higher sales into distribution as sales out of
distribution continued to be strong. The Company believes the level of
inventory held by its distributors continued to decline in 1996's third
quarter. As the Federal government resolved its budget impasse in the second
quarter, third quarter 1996 Aerospace Telemetry sales of $4.0 million
reflected a return to historically-seen levels of procurement by government
agencies. The Company also took steps in 1996's third quarter to more closely
conform operating expenses to anticipated sales levels: selling, general and
administrative expense was $600,000 lower than in 1996's second quarter.
Recognizing the changes in its Networking Products business, in March
1996, Microdyne outlined plans to augment the Company's growth. One such
strategy involved acquisitions. In March 1996, the Company signed a letter of
intent to acquire with Company stock Digital Products, Inc. ("DPI"), a
privately-held manufacturer of print servers. Based on the results of its
continued due diligence efforts, the Company elected in June 1996 not to
proceed with this acquisition on terms originally planned. The Company
continues to have an interest in acquisitions and continues to evaluate
opportunities which could provide
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revenues to replace declining sales in certain of the Company's product lines.
In April 1996, the Company purchased from Novell the exclusive,
royalty-free perpetual right to market certain hardware products and related
technology which were previously sold by the Company under license from
Novell. The $6.8 million purchase price gave Microdyne the right to sell more
than 30 products and product families in Novell trade dress. Previously, the
Company's right to sell under the Novell brand name could be withdrawn at any
time by Novell, and Novell could grant similar rights to other companies.
Through significantly reduced royalties, the Company expects this purchase to
improve Networking Products gross margins going forward.
Looking forward, the Company will continue to monitor sales out of
distribution and to assess desirable distribution inventory levels. Networking
Products inventories held by distributors have continued to decline since the
end of fiscal 1995. For three consecutive quarters, the Company has sold less
into the distribution channel than has been sold out. Beginning in July 1996,
the Company put in place new programs designed to spur increased demand for
its products by value-added resellers.
The Company cannot predict future Bundled Products sales with any
accuracy. As previously reported, margins on, and the attractiveness of,
Bundled Products sales have been reduced under discount terms currently
available to Microdyne from Novell.
The Company believes strong demand for its Aerospace Telemetry products
will continue, which the Company expects would result in a return to the level
of sales seen in late fiscal 1995 and early fiscal 1996.
Manufacturer Support Services ("MSS") revenue continues to meet
expectations and that business is expected to be on plan for the fourth
quarter of fiscal 1996. In March 1996, the Company announced a five-year
extension of its contract with the customer which supports this business.
The Company has moved aggressively to cut operating expenses within
Networking Products through a combination of personnel downsizing and expense
constraints, with further cost reductions to be enacted as appropriate.
Concurrently, the Company will continue its efforts to improve gross margins
through lower product costs that may be realized from component cost
reductions and product reconfigurations.
The statements in this Management's Discussion and Analysis contain
forward-looking statements that involve a number of risks and uncertainties,
the possible realization of which could have material adverse effects on the
Company's future operating results. Factors that may cause actual results to
differ materially include: development of new products and rapid changes in
technology that may displace products sold by the Company; the highly
competitive environment in which the Company operates; the Company's
dependence upon
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Novell and the effect that changes by Novell in its distribution and other
policies may have on the Company; the Company's reliance upon distributors
with respect to sales of networking and other products; fluctuations in the
Company's quarterly results of operations and in the timing of orders from
customers; the declining average selling price of the Company's products; the
Company's dependence upon a limited number of subcontractors for the
manufacture of the Company's products and upon a limited number of suppliers
for the availability of components used in the Company's products; the focus
of the Company's product lines on local area networking products; the
Company's success in identifying, acquiring and incorporating commercially
successful technology, products, or businesses; the Company's relationships
with sources of external financing; and the risk factors listed from time to
time in the Company's SEC filings, including but not limited to the S-3
Registration Statement dated November 9, 1995, Annual Report in Form 10-K for
the year ended October 1, 1995, and Quarterly Reports on Form 10-Q for the
quarters ended December 31, 1995 and March 31, 1996.
Any shortfall in revenue or earnings from the levels expected by
securities analysts could have an immediate and significant effect of the
trading price of the Company's common stock in any given period. Moreover, as
in the first quarter of fiscal 1996, the Company may not learn of such
shortfalls until late in the fiscal quarter as a result of historical ordering
patterns. Late receipt of this information could result in an even more
immediate and adverse effect on the trading price of the Company's stock.
RESULTS OF OPERATIONS
QUARTER ENDED JUNE 30, 1996 COMPARED TO QUARTER ENDED JUNE 30, 1995
Revenue for the third quarter of fiscal year 1996 decreased to $24.6
million from $47.7 million in the third quarter of fiscal year 1995, a
decrease of 48%.
Networking Products revenue decreased to $17.2 million in 1996 from $40.3
million in 1995. As described in the preceding section, the decline in sales
of hardware products (to $14.0 million from $26.9 million) was due to ongoing
efforts in 1996 to reduce the level of inventories held by distributors and is
not necessarily reflective of a general decline in end-user demand for the
Company's products. Ethernet PC Connectivity product sales into distribution
decreased to $13.5 million in 1996 from sales into distribution of $19.2
million in 1995. The ongoing program to reduce distribution inventories
decreases the usefulness of year-over-year comparisons of such sales. Token
Ring PC Connectivity product sales decreased to $1.0 million in 1996 from $4.2
million in 1995. Token Ring sales are largely dependent upon the efforts of
Attachmate Corporation, which, by virtue of acquiring DCA Corporation, has
assumed certain contractual sales obligations. Combined Minicomputer
Connectivity, Mainframe Connectivity, and Asynchronous product sales decreased
to $800,000 in 1996 from $3.6 million in 1995. Minicomputer Connectivity and
Mainframe Connectivity product sales are likely to continue to decrease over
time as networking
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customers move away from networks that employ such technologies. Asynchronous
product sales have declined due to the effect of an increasing number of
competing products. As anticipated, the decrease in Bundled Products sales (to
$3.2 million from $13.4 million) was attributable to changes in Novell
policies and practices.
Aerospace Telemetry sales declined to $4.0 million in 1996 from $4.5
million in 1995, due to lower levels of government procurement. MSS revenue
grew to $3.6 million in 1995 from $3.2 million in 1995, reflecting continued
growth in support activities for the Company's customer.
Gross profit decreased to $6.0 million in 1996 from $14.8 million in
1995, and as a percentage of sales decreased to 24.4% from 31.1%. The dollar
decline in gross profit was the result of lower Networking Product and
Aerospace Telemetry sales. Also in 1996, the Company elected to expense in one
quarter $975,000 in non-recurring costs associated with the Novell
acquisition. The decrease in gross profit as a percentage of sales reflects
the absorption of fixed manufacturing overhead costs over a smaller revenue
base.
SG&A expense decreased to $6.1 million in 1996 from $6.7 million in 1995
but as a percentage of sales grew to 24.9% in 1996 from 14.0% in 1995.
Although amortization of product line acquisition cost increased, the
Company's was successful in reducing real operating expenses.
Research and development expense was $1.2 million in 1996 compared to
$1.4 million in 1995. 1996's reduced expense was mostly attributable to lower
engineering staffing levels.
Interest and other expense in both 1996 and 1995 is primarily interest
expense associated with outstanding borrowings against the Company's line of
credit. Interest expense in 1996 also includes interest associated with the
Novell notes payable.
The tax rates utilized in 1996 and 1995 were comparable at 38% and 39%,
respectively.
NINE MONTHS ENDED JUNE 30, 1996 COMPARED TO NINE MONTHS ENDED JUNE 30, 1995
Revenue for the first nine months of fiscal year 1996 decreased to $75.1
million from $120.1 million in the first nine months of fiscal year 1995, a
decrease of 37%.
Networking Products revenue decreased to $53.1 million in 1996 from $99.3
million in 1995, for the reasons as described in the GENERAL and
QUARTER-TO-QUARTER sections above. Sales of hardware products decreased to
$38.6 million in 1996 from $65.4 million in 1995. Ethernet PC Connectivity
sales decreased to $36.7 million from $41.4 million (1996 sales were enhanced
by significant sales of new 100Mb adapters as a result of the National
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Semiconductor acquisition); Token Ring PC Connectivity product sales to $3.1
million from $14.4 million; and combined Minicomputer Connectivity, Mainframe
Connectivity, and Asynchronous product sales to $3.5 million from $10.7
million. Bundled Products sales declined to $14.5 million from $33.9 million
Aerospace Telemetry sales were relatively level at $12.2 million in 1996
and $12.5 million in 1995. MSS revenue grew to $10.6 million in 1996 from $8.6
million in 1995, reflecting continued growth in support activities for the
Company's customer.
Gross profit decreased to $19.1 million in 1996 from $37.3 million in
1995, and as a percentage of sales decreased to 25.4% from 31.1%. The
principal reasons for these declines are substantially the same as those
described in the QUARTER-TO-QUARTER section above.
SG&A expense increased to $19.2 million in 1996 from $17.2 million in
1995, and as a percentage of revenue grew to 25.5% in 1996 from 14.4% in 1995.
Many of 1996's first and second quarter expenses (in particular, sales and
marketing) were committed during the fourth quarter of 1995, when the level of
ongoing sales was anticipated to be much higher. Due to the Eagle, National
Semiconductor, and Novell acquisitions, amortization of product line
acquisition cost was also higher from 1995 to 1996.
Research and development expense was relatively level at $3.7 million in
1996 and $3.9 million in 1995.
Interest and other expense in both 1996 and 1995 includes interest
expense associated with outstanding borrowings against the Company's line of
credit. Interest expense in 1996 also includes interest associated with the
Novell notes payable. Other expense in 1995 includes a one-time charge of
$875,000 which represents an agreement to settle a stockholder class action
lawsuit against the Company.
The tax rates utilized in 1996 and 1995 were comparable at 38% and 39%,
respectively.
LIQUIDITY AND CAPITAL RESOURCES
During the past three years, the Company has financed its operations
principally through internally generated funds. However, the Company has
secured external financing in connection with acquisitions and the repurchase
of its common stock.
External financing has been primarily provided through bank borrowings.
As of June 30, 1996, the Company has $21.0 million of bank debt, consisting of
a $4.3 million term note which is repaid in monthly payments and scheduled to
be fully satisfied in May 1997; and $16.7 million in outstanding borrowings
under a revolving line of credit facility, the second amendment to which
expires on August 19, 1996. Of this $21.0 million in bank debt, $4.3
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million has been classified as short-term and $16.7 as long-term on the June
30, 1996 Balance Sheet. On June 30, 1996, the Company had $1.5 million in cash
and $5.8 million in unused line of credit.
In April 1996, the Company utilized cash and notes to purchase from
Novell the exclusive, royalty-free perpetual right to market certain hardware
products and related technology which were previously sold by the Company
under license from Novell, and to convert certain accounts payable. As of June
30, 1996, notes payable due Novell totalled $8.4 million, of which $2.4
million has been classified as a short-term obligation and $6.0 million as a
long-term obligation on the June 30, 1996 Balance Sheet.
During the third quarter of fiscal 1996, cash provided by operating
activities was $3.1 million. This resulted in a decrease in cash used by
operating activities to $5.5 million for the nine months ended June 30, 1996.
Cash used in investing activities during 1996 was $7.2 million, most of
which reflected the Novell acquisition. Capital expenditures were minimal and
the Company has no material commitments for future capital expenditures. Cash
used in investing activities during 1995 was $13.2 million, which mostly
represented the Eagle acquisition.
Cash provided by financing activities during 1996 was $9.5 million, which
represented $4.7 million in new borrowings on the Company's line of credit
plus $8.4 million in Novell notes minus $3.6 million in payments on the
Company's term note. Cash provided by financing activities during 1995 was
$12.2 million, which represented $12.0 million in new borrowings on the
Company's line of credit plus $2.5 million in stock option exercises minus
$2.3 million in payments on the Company's term note.
As of June 30, 1996, the Company entered into a second amendment to the
Company's credit facility with its bank lenders. This amendment expires on
August 19, 1996. The Company and its bank lenders are currently discussing the
terms of a more definitive agreement.
The Company believes its available cash, funds generated from operations,
and funds available under its credit facilities should be sufficient to
finance its continuing operations. The Company may from time to time consider
the acquisition of businesses, products, or technologies that may require
additional funds.
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PART II. - OTHER INFORMATION
Item 6. Exhibits and Reports.
(a) The following exhibit is enclosed herein.
Exhibit Number Description Pages
-------------- ----------------------- -----
10 Second Amendment to 15-22
Credit Agreement among
the Registrant, Crestar
Bank and NBD Bank dated
June 30, 1996
(b) No Form 8-K was filed during the quarter ended June 30, 1996.
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SIGNATURES
Pursuant to the requirements 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.
MICRODYNE CORPORATION
---------------------
Registrant
Date: August 14, 1996 /s/ Philip T. Cunningham
---------------------- -----------------------------
Philip T. Cunningham
President and Chief Executive Officer
[Duly Authorized Officer]
Date: August 14, 1996 /s/ Christian J. Spitz
---------------------- -----------------------
Christian J. Spitz
Vice President and Chief
Financial Officer
[Principal Financial Officer]
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EXHIBIT 10
SECOND AMENDMENT TO
CREDIT AGREEMENT
THIS SECOND AMENDMENT TO CREDIT AGREEMENT (the "Amendment"), dated and
effective as of June 30, 1996, is made by and between MICRODYNE CORPORATION, a
Maryland corporation (the "Borrower"), CRESTAR BANK and NBD BANK (the
"Banks"), and CRESTAR BANK ("Crestar") as agent (the "Agent") for the Banks.
RECITALS
The Borrower, the Banks and the Agent are parties to a Credit Agreement,
dated as of January 27, 1995, and amended by the First Amendment to Credit
Agreement, dated as of October 26, 1995 (as further amended, modified or
supplemented from time to time, the "Agreement"). Terms defined in the
Agreement shall have the same defined meanings when such terms are used in
this Amendment.
The Borrower, the Agent and the Banks have agreed to amend certain
provisions of the Agreement. Accordingly, for valuable consideration, the
receipt and sufficiency of which are acknowledged, the Borrower, the Banks and
the Agent agree as follows:
1. The following definition is added to Section 1.1 of the
Agreement:
"Borrowing Base Loans" means, at the time in question,
the sum of (a) the aggregate of the principal balances of the
outstanding Advances, (b) the aggregate of the principal balances of the
outstanding Term Loans, and (c) the aggregate of the face amounts of the
outstanding Letters of Credit.
2. The following definitions contained in Section 1.1 of the
Agreement are deleted in their entirety and replaced with the following
provisions:
"Advance Commitment" means $15,619,500 in the case of
Crestar and $6,880,500 in the case of NBD; provided, however that each
Bank's Advance Commitment shall be reduced automatically by its
Commitment Percentage of any Maximum Amount reduction resulting from a
prepayment of the Advances pursuant to Section 2.10(e).
"Borrowing Base" means, at the time in question, the sum
of the following: (a) 60% of Eligible Billed Receivables, plus (b) the
applicable Inventory Component.
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"Eligible Receivables" means Accounts Receivable of the
Borrower (a) that represent valid obligations incurred by a Customer for
goods shipped or delivered or services completed under valid contracts
of sale, lease or service that have been formally awarded to the
Borrower and for which all required contract documents have been
executed by the Customer and the Borrower and, in the case of Accounts
Receivable owed by the Government, for which funds have been
appropriated and allocated; (b) with respect to which the applicable
goods have been delivered to and accepted by the Customer on an absolute
sale basis and not on a bill and hold sale basis, a consignment sale
basis, a guaranteed sale basis, a sale or return basis or on the basis
of any other similar understanding; (c) on which the Customer is not an
Affiliate or Subsidiary of the Borrower; (d) with respect to which the
Borrower has no knowledge or notice of any inability of the Customer to
make full payment; (e) from the face amounts of which have been deducted
all payments, setoffs, amounts subject to adverse claims made in writing
to the Borrower, contractual allowances, bad debt reserves and other
credits applicable thereto; (f) that are subject to no Liens other than
those permitted by this Agreement; (g) that continue to be in full
conformity with the representations and warranties made by the Borrower
to the Banks in this Agreement and the Security Agreement; (h) with
respect to which the Banks are and continue to be satisfied with the
credit standing of the Customer; (i) on which the Customer is not a
creditor of the Borrower; and (j) on which, unless an Acceptable Foreign
Customer or otherwise approved by the Banks in writing, in their sole
discretion, the Customer is not a Foreign Customer; provided, however,
and without limiting any other provisions of this Agreement with respect
to the exclusion of Receivables from the category of Eligible
Receivables and the Borrowing Base, that (1) if either Bank reasonably
determines that the collectibility of any Account Receivable makes it
unacceptable for inclusion as an Eligible Receivable and gives written
notice to the Borrower indicating the reasons for such determination,
then such Account Receivable shall thereafter be excluded from the
category of Eligible Receivables, (2) if more than 50% of the aggregate
face amount of Accounts Receivable owed by a Customer other than the
Government are aged more than 90 days from the dates of the initial
invoices, then all Accounts Receivable owed by such Customer shall be
included in a separate line item on the Agings and, at the option of
either Bank, shall be excluded from the category of Eligible
Receivables, and (3) in no case shall Eligible Receivables include any
Account Receivable representing or arising out of retainages, holdbacks,
revenues recognized or costs incurred in excess of approved or allowed
reimbursement rates, cost overruns, unauthorized work or work beyond the
scope of a contract, rebillings or contracts secured by surety bonds.
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"Inventory Component" shall mean 15% of Eligible
Inventory, valued at the lower of cost or market, but in no event shall
the Inventory Component included in the Borrowing Base be more than
$5,000,000.
"Maximum Amount" means, with respect to the Advances,
$22,500,000; provided, however, that the applicable Maximum Amount on
any date shall be further reduced by the amount of the prepayment of the
Advances required by Section 2.10(e) of this Agreement.
"Spread" shall mean 2.50%.
"Termination Date" means August 19, 1996, any earlier
date of termination in whole of the Commitments pursuant to Section 9.1,
or any later date if the Termination Date is extended in the sole
discretion of the Banks in accordance with Section 2.4.
3. The last sentence of Section 2.1(a) is deleted in its entirety
and replaced with the following:
"Within the limits of each Bank's Advance Commitment and up to the
Maximum Amount, the Borrower may borrow, prepay pursuant to Section 2.10
and reborrow hereunder from the date of this Agreement until the
Termination Date; provided, however, that no Advance will be disbursed
by any Bank if, after such disbursement, the Borrower would be required
to make a prepayment of the Obligations in accordance with the
provisions of Section 2.10(d)."
17
<PAGE> 4
4. Section 2.1(b) is deleted in its entirety and replaced with the
following provisions:
"(b) In addition to the prepayments required by
Sections 2.10(d) and (e), the Borrower shall immediately prepay the
Advances to the extent that the sum of the aggregate unpaid principal
balance of the Advances plus the aggregate face amounts of the Letters
of Credit at any time exceeds the Maximum Amount then applicable. If,
after any mandatory prepayment of the Advances, all or a portion of the
aggregate face amount of outstanding Letters of Credit still exceeds the
applicable Maximum Amount, the Borrower, within five days of the Agent's
demand therefor, shall pay to the Agent an amount of cash equal to such
excess amount, and such amounts of cash shall be held by the Agent in a
cash collateral account for the benefit of the Banks, over which the
Agent shall have the exclusive power of withdrawal, as security for the
Obligations arising out of the Letters of Credit and the corresponding
LC Agreements."
5. The following provisions are added to the end of Section 2.10:
"(d) The Borrower shall immediately prepay the Obligations to
the extent that the Borrowing Base is less than 70% of the outstanding
Borrowing Base Loans at any time.
(e) The Borrower shall apply the net sales proceeds of any
debt or equity securities issued by the Borrower or any assets sold by
the Borrower (other than Inventory sold in the ordinary course of
business) to the prepayment of the Obligations.
(f) Any prepayments required by Sections 2.10(d) or (e)
shall be applied first to the Term Loans, then to the Advances and then
to the cash collateral account for the Letters of Credit described in
Section 2.1(b)."
6. The first sentence of Section 2.11 is deleted and replaced with
the following:
"(a) In consideration of Advances to be made by the Banks,
the Borrower agrees to pay to the Agent for the account of each Bank a
commitment fee equal to 1/8 of 1% per annum of the Maximum Amount, to be
paid on July 1, 1996."
18
<PAGE> 5
7. Subsection (1) of Section 7.1(b) is deleted in its entirety and
replaced with the following:
"(1) As soon as available and, in any event, within
20 days after the end of each calendar month, unaudited financial
statements consisting of a consolidated balance sheet of the Borrower
and its Subsidiaries as of the end of such month, consolidated
statements of operations and stockholders' equity of the Borrower and
its Subsidiaries for the period commencing at the end of the previous
fiscal year and ending with the last day of the preceding month, all in
reasonable detail and stating in comparative form the respective
consolidated figures for the corresponding date and period in the
previous fiscal year and all prepared in accordance with GAAP. Such
statements shall be accompanied by reports itemizing raw materials, work
in process and finished goods Inventory by division and revenues and
gross profits by division. Such financial statements and reports shall
be certified to be accurate by the chief financial officer of the
Borrower;"
8. Subsection (7) of Section 7.1(b) is deleted in its entirety and
replaced with the following:
"(7) On or before the 20th day of each calendar
month, (i) an Aging as of the last day of the previous calendar month,
(ii) a report identifying, in sufficient detail for the Banks, all
Inventory on hand as of the end of the previous calendar month, (iii) a
Borrowing Base Certificate signed by the chief financial officer of the
Borrower, (iv) such other supporting documents to the schedules as
either Bank from time to time reasonably may request, and (v) such
invoices, instruments, chattel paper and other evidence of indebtedness
representing any Accounts Receivable, duly endorsed in blank or to the
Banks, as the Banks may request. In addition to the foregoing, the
Borrower shall deliver to the Agent, within five Business Days after the
end of each week, a Borrowing Base Certificate setting forth a
calculation of the Borrowing Base as of the end of such week and a
detailed list of all cash receipts for, and non-cash credits issued
during, such week;"
9. Section 7.1(g) is deleted in its entirety and replaced with the
following:
"(g) Right of Inspection. At any reasonable time and from
time to time, permit the Banks, any agent or representative of the
Banks, or any consultant engaged by the Banks, to audit and verify the
Collateral, examine and make copies of and abstracts from the records
and books of account of, and visit the properties of, the Borrower and
any Subsidiary, to observe, analyze and review
19
<PAGE> 6
the operations and systems of the Borrower and any Subsidiary, and to
discuss the affairs, finances and accounts of the Borrower and any
Subsidiary with any of their respective officers and directors and the
Borrower's independent accountants. The Borrower shall provide its full
cooperation to the agents, representatives and consultants of the Banks
and shall reimburse the Banks for any expenses incurred by the Banks in
connection with any audits or consulting engagements."
10. Section 7.3 is deleted in its entirety.
11. In consideration of the Agent's services rendered in accordance
with the terms of the Loan Documents, simultaneously with the execution of
this Amendment, the Borrower agrees to pay to the Agent, for the sole benefit
of the Agent, the Agent's fee specified in the letter agreement of even date
herewith between the Borrower and the Agent, as the same may be amended from
time to time.
12. Except for the amendments to the Agreement expressly set forth
above, the Agreement and the other Loan Documents shall remain in full force
and effect. The Borrower acknowledges and agrees that this Amendment only
amends the terms of the Agreement and is not a novation, and the Borrower
ratifies and confirms the remaining terms and provisions of the Agreement and
the other Loan Documents in all respects. Nothing in this Amendment shall
require the Banks to grant any further amendments to the terms of the Loan
Documents.
13. The Borrower acknowledges and agrees that (a) there are no
defenses, counterclaims or setoffs against any of its obligations under the
Loan Documents, and (b) the prior grant of a security interest in the
Collateral created by the Security Agreement and the Patent and Trademark
Assignment continues to secure the Obligations, is in full force and effect,
and is ratified and confirmed by the Borrower in all respects.
14. The Borrower represents and warrants that this Amendment has
been duly authorized, executed and delivered by it in accordance with
resolutions adopted by its board of directors. All other representations and
warranties made by the Borrower in the Loan Documents are incorporated by
reference in this Amendment and are deemed to have been repeated as of the date
of this Amendment with the same force and effect as if set forth in this
Amendment, except that any representation or warranty relating to any financial
statements shall be deemed to be applicable to the financial statements most
recently delivered to the Banks in accordance with the provisions of the Loan
Documents.
20
<PAGE> 7
15. The Borrower agrees to pay all costs and expenses incurred by
the Agent and the Banks in connection with this Amendment, including, but not
limited to, reasonable attorneys' fees.
16. This Amendment shall be governed by the laws of the Commonwealth
of Virginia, without reference to conflict of laws principles.
17. This Amendment may be executed by the parties individually or in
any combination, in one or more counterparts, each of which shall be an
original and all of which together constitute one and the same instrument.
[SIGNATURES ON FOLLOWING PAGE]
21
<PAGE> 8
WITNESS the following signatures.
BORROWER:
MICRODYNE CORPORATION,
a Maryland corporation
By: /s/ Christopher M. Maginniss
----------------------------
Name: Christopher M. Maginniss
------------------------
Title: Executive Vice President
------------------------
AGENT:
-----
CRESTAR BANK
By: /s/ Miriam M. Sadler
--------------------
Miriam M. Sadler
Senior Vice President
BANKS:
-----
CRESTAR BANK
By: /s/ Miriam M. Sadler
---------------------
Miriam M. Sadler
Senior Vice President
NBD BANK
By: /s/ Larry E. Schuster
---------------------
Larry E. Schuster
Authorized Agent
22
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-29-1996
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,460
<SECURITIES> 0
<RECEIVABLES> 34,507
<ALLOWANCES> (757)
<INVENTORY> 27,325
<CURRENT-ASSETS> 67,324
<PP&E> 11,516
<DEPRECIATION> (7,494)
<TOTAL-ASSETS> 87,762
<CURRENT-LIABILITIES> 28,127
<BONDS> 23,419
0
0
<COMMON> 1,282
<OTHER-SE> 34,934
<TOTAL-LIABILITY-AND-EQUITY> 87,762
<SALES> 24,583
<TOTAL-REVENUES> 24,583
<CGS> 18,594
<TOTAL-COSTS> 18,594
<OTHER-EXPENSES> 7,280
<LOSS-PROVISION> 30
<INTEREST-EXPENSE> 598
<INCOME-PRETAX> (1,919)
<INCOME-TAX> (729)
<INCOME-CONTINUING> (1,190)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,190)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> (.09)
</TABLE>
