<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 MARCH 31, 1996
COMMISSION FILE NUMBER: 0-4384
MICRODYNE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
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)
</TABLE>
(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:
<TABLE>
<S> <C>
CLASS OUTSTANDING AT MARCH 31, 1996
---------------------------- -----------------------------
Common stock, $.10 par value 12,810,563
</TABLE>
Page 1 of 16 pages
Exhibit Index appears on page 14
<PAGE> 2
MICRODYNE CORPORATION
INDEX
<TABLE>
<CAPTION>
PAGE NUMBER
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Statements of Operations
Quarter and six months ended March 31, 1996
and March 31, 1995 3
Balance Sheets
March 31, 1996 and October 1, 1995 4
Statements of Cash Flows
Six months ended March 31, 1996
and March 31, 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 4. Submission of Matters to a Vote of Security Holders. 13
Item 6. Exhibits and Reports. 14
SIGNATURES 15
</TABLE>
2
<PAGE> 3
Microdyne Corporation
Consolidated Statements of Operations
(In Thousands except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
------------------- --------------------
March 31, March 31, March 31, March 31,
1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenue $17,546 $40,577 $50,564 $72,396
Cost of goods sold 13,064 27,922 37,470 49,951
--------- --------- -------- ---------
Gross Profit 4,482 12,655 13,094 22,445
Selling, general and administrative
expense 6,718 5,819 13,039 10,554
Research and development 1,230 1,344 2,499 2,506
--------- --------- -------- ---------
Earnings (loss) from operations (3,466) 5,492 (2,444) 9,385
Other income (expense)
Interest expense (503) (571) (919) (791)
Other income (expense) 1 16 (28) (819)
--------- --------- -------- ---------
Earnings (loss) before income taxes (3,968) 4,937 (3,391) 7,775
Provision for (benefit from) income taxes (1,508) 1,925 (1,289) 3,032
--------- --------- -------- ---------
Net earnings (loss) ($2,460) $3,012 ($2,102) $4,743
========= ========= ======== =========
Net earnings (loss) per share ($0.19) $0.24 ($0.16) $0.38
========= ========= ======== =========
Weighted Average Shares Outstanding 12,806 12,669 12,799 12,564
========= ========= ======== =========
</TABLE>
The notes on the following pages are an integral part of these statements.
3
<PAGE> 4
Microdyne Corporation
Consolidated Balance Sheets
(Dollars in Thousands)
<TABLE>
<CAPTION>
March 31, October 1,
1996 1995
(Unaudited) (Audited)
----------- -----------
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash $1,519 $4,587
Accounts receivable, net 37,322 59,681
Inventories 31,374 25,917
Income tax receivable 3,793 1,306
Prepaid expenses and other 2,199 1,433
Deferred income taxes 1,293 1,243
----------- -----------
Total current assets 77,500 94,167
PROPERTY AND EQUIPMENT, net 4,258 4,749
PRODUCT LINE ACQUISITION COST 8,827 10,333
OTHER ASSETS 1,162 1,133
----------- -----------
$91,747 $110,382
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of l-t obligations $5,486 $5,483
Accounts payable 17,712 26,509
Accrued liabilities 7,864 21,603
----------- -----------
Total current liabilities 31,062 53,595
LONG-TERM OBLIGATIONS, net of current
maturities 21,802 16,999
DEFERRED INCOME TAX PAYABLE 1,457 300
STOCKHOLDERS' EQUITY
Common stock, $.10 par value, authorized
50,000,000 shares, 12,810,563 issued and
outstanding at March 31, 1996 and 12,789,666
issued and outstanding at October 1, 1995 1,281 1,279
Additional paid-in capital 10,078 10,040
Retained earnings 26,067 28,169
----------- -----------
37,426 39,488
----------- -----------
$91,747 $110,382
=========== ===========
</TABLE>
The notes on the following pages are an integral part of these statements.
4
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Microdyne Corporation
Consolidated Statements of Cash Flows
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
3/31/96 3/31/95
------------ ------------
<S> <C> <C>
Increase (Decrease) in Cash:
Cash flows from operating activities:
Net (loss) earnings $ (2,102) $ 4,743
Adjustments to reconcile earnings to net cash
from operating activities, exclusive of effect of
acquisitions and dispositions:
Depreciation and amortization 1,439 834
Provisions for doubtful accounts receivable and
inventory obsolescence 258 1,113
Changes in assets and liabilities
Decrease (increase) in accounts receivable 22,966 (16,486)
Increase in inventories (5,655) (2,304)
Increase in prepaid expenses (2,487) (58)
(Increase) decrease in other assets (28) 45
(Increase) decrease in income tax receivable (807) 140
(Increase) decrease in deferred tax asset (51) 146
(Decrease) increase in accounts payable and other accruals (22,166) 12,042
------------ ------------
Net cash (used in) provided by operating activities (8,633) 215
Cash flows from investing activities:
Product line acquisitions (12) (12,100)
Additions to property and equipment (263) (891)
Payments from officers 41 --
------------ ------------
Net cash used in investing activities (234) (12,991)
Cash flows from financing activities:
Net (repayments) borrowings on long-term debt 5,759 11,159
Issuance of common stock 40 852
------------ ------------
Net cash provided by financing activities 5,799 12,011
------------ ------------
Net decrease in Cash (3,068) (765)
Cash at beginning of period 4,587 2,628
------------ ------------
Cash at end of period $ 1,519 $ 1,863
============ ============
</TABLE>
The notes on the following pages are an integral part of these statements.
5
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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.
6
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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 second quarter of fiscal 1996 were
$17,456,000 and the Company recorded a net loss of $2,460,000. By comparison,
the Company reported sales of $40,577,000 and net earnings of $3,012,000 in the
second quarter of fiscal 1995. The lower sales and net loss were the result of
several actions taken by or affecting the Company, particularly in its
Networking Products business.
In January 1996, the Company announced a program to reduce the amount
of Networking Products inventory held by its stocking distributors. This
program would be accomplished by selling less product to distributors than
those distributors sold to resellers and end-user customers in the same period.
The purpose of this action was two-fold: to move re-orders to dates earlier in
each quarter and to decrease the Company's promotional costs. Also, in March
1996, the Company said that because of changes in policies by Novell, Inc.
("Novell"), Microdyne expected to sell substantially less of its products
bundled with Novell software ("Bundled Products") during fiscal 1996.
These two events caused Networking Products sales in the second
quarter of fiscal 1996 to decline to $11.1 million from $33.8 million in the
second quarter of fiscal 1995. This decline, however, came amid a backdrop of
continuing, healthy end-user demand for Microdyne's Networking Products.
While shipments of Networking Products hardware were approximately
$10.2 million, end-user demand approximated $19 million. Bundled Products sales
into distribution of $900,000 compared with sales out of distribution of
approximately $9.4 million.
Changes in policies and practices at Novell affected Microdyne in
several ways. In February 1996, Novell announced it would substantially reduce
the amount of inventory in its distribution channel and would, in the future,
de-emphasize sales of its products as traditional, stand-alone software. A
second change by Novell curtailed the sale of NetWare upgrades. As a result of
these changes in Novell's policies and practices, Bundled Products sales into
distribution were reduced to $900,000 in the second quarter of 1996.
In addition, beyond the control of the Company, the impasse over the
Federal budget prevented certain agencies from ordering products from the
Company's Aerospace Telemetry division, thereby affecting that division's
performance in the second quarter of fiscal 1996. The Company had cautioned in
January 1996 that the inability of the Congress and the President to agree on a
budget would likely begin to affect that division beginning in the second
quarter. Revenue in the second quarter of 1996 of $3.2 million was down from
the $4.2 million reported in 1995's second quarter. Manufacturer Support
Services ("MSS") revenue of $3.5 million in fiscal 1996's second quarter met
expectations.
7
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quarter. Revenue in the second quarter of 1996 of $3.2 million was down from
the $4.2 million reported in 1995's second quarter. Manufacturer Support
Services ("MSS") revenue of $3.5 million in fiscal 1996's second quarter met
expectations.
Recognizing that many of the preceding events represent conditions
that will not change in one or two quarters, in March 1996, Microdyne outlined
plans to offset these business changes and to continue the Company's growth.
That plan includes two important actions:
- - First, in March 1996, the Company said it had signed a letter of
intent to acquire with Company stock Digital Products, Inc. ("DPI"), a
privately-held manufacturer of print servers with 1995 sales of approximately
$20 million. Negotiations and due diligence continue on this acquisition with
the anticipation that it may be closed during May 1996.
- - Second, 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 gives 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. The
anticipated impact of this purchase will be to improve gross margins going
forward.
With regard to the business changes outlined above, at this date the
Company cannot yet indicate that its Networking Products sales into
distribution will equal sales out of distribution in the third quarter of
fiscal 1996. While channel inventories are clearly lower than at January 1,
1996, the Company continues to monitor sales out of distribution and to assess
desirable inventory levels.
The Company believes that demand for its telemetry products is
fundamentally strong. The recent resolution of a 1996 federal budget
should improve Aerospace Telemetry's sales and contribution in fiscal 1996's
second half.
Manufacturer Support Services is expected to be on plan for the
balance of fiscal 1996. In March 1996, the Company anounced a five-year
extension of its contract with the customer which supports this business.
The Company has taken steps to more closely conform its operating
expenses to its anticipated sales levels. While there can be no certainty as to
the magnitude of the Company's success in this regard, management's goal is to
decrease operating expenses as a percentage of sales in each successive quarter
of fiscal 1996.
The above statements 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
8
<PAGE> 9
displace products sold by the Company; the highly competitive environment in
which the Company operates; the Company's dependence upon 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; 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 Report on Form 10-Q for the quarter ended December 31, 1995.
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 MARCH 31, 1996 COMPARED TO QUARTER ENDED MARCH 31, 1995
Revenue for the second quarter of fiscal year 1996 decreased to $17.5
million from $40.6 million in the second quarter of fiscal year 1995, a
decrease of 57%.
Networking Products revenue decreased to $11.1 million in 1996 from
$33.8 million in 1995. As described in the preceding section, this decline in
hardware products sales (to a net $10.2 million versus $23.4 million) was due
to a corporate decision to reduce the level of inventories held by distributors
and does not reflect a general decline in end-user demand for the Company's
products. The ongoing program to reduce distribution inventories decreases the
usefulness of year-over-year comparisons of sales into distribution of
individual product lines (the decrease in PC Connectivity sales into
distribution to a net $9.4 million in 1996 from sales into distribution of
$19.9 million in 1995 bears no relationship to sales out of distribution of
such products in the same period). Nevertheless, the Company recognizes that
end-user demand of certain of its Networking Products has declined during the
past year. Sales of Minicomputer Connectivity products and Mainframe
Connectivity products have decreased and are likely to continue to decrease as
networking customers move away from networks that employ such technologies. The
Company's sales of Asynchronous products have also decreased. While the market
for such products is expanding, the number of competing products has multiplied
rapidly. Also as described in the preceding section, the decrease in Bundled
Products sales ($900,000 versus $10.4 million) is attributable to changes in
Novell policies and practices, but also reflects a belief by the Company that
ongoing sales of Bundled Products will be lower in fiscal 1996.
9
<PAGE> 10
Aerospace Telemetry sales fell to $3.2 million in 1996 from $4.2
million in 1995, for reasons previously described. MSS revenue grew to $3.5
million in 1995 from $2.7 million in 1995, reflecting continued growth in
support activities for the Company's customer.
Gross profit decreased to $4.5 million in 1996 from $12.7 million in
1995, and as a percentage of sales decreased to 25.5% from 31.2%. The dollar
decline in gross profit was the result of lower Networking Product and
Aerospace Telemetry sales. The decrease in gross profit as a percentage of
sales reflects the absorption of fixed manufacturing overhead costs over a
smaller revenue base coupled with a shift in product mix toward lower margin
products within Networking Products.
SG&A expense increased to $6.7 million in 1996 from $5.8 million in
1996 and, as a percentage of sales, grew to 38.3% in 1996 from 14.3% in 1995.
The higher level of expense in 1996 reflects the Company's increased expenses
for reseller sales programs, marketing, and amortization of intangible assets.
Many of these higher expenses were committed prior to the end of fiscal 1996's
first quarter, when sales and gross margins were expected to be substantially
higher.
Research and development expense was approximately level at $1.2
million in 1996 and $1.3 million in 1995.
Other expense in both 1996 and 1995 includes interest expense
associated with outstanding borrowings against the Company's line of credit.
The tax rates utilized in 1996 and 1995 were comparable at 38% and
39%, respectively.
RESULTS OF OPERATIONS
SIX MONTHS ENDED MARCH 31, 1996 COMPARED TO SIX MONTHS ENDED MARCH 31, 1995
Revenue for the first half of fiscal year 1996 decreased to $50.6
million from $72.4 million in the first half of fiscal year 1995, a decrease of
30%.
Networking Products revenue decreased to $35.9 million in 1996 from
$59.1 million in 1995, for the reasons as described in the GENERAL and
QUARTER-TO-QUARTER sections above. PC Connectivity sales, which include the
Company's Ethernet and Token Ring adapter cards, decreased to $25.3 million in
1996 from $32.4 million in 1995. The effect of the Eagle and National
Semiconductor acquisitions slightly offset 1996 channel inventory adjustments
and Ethernet product sales increased to $23.1 million in 1996 from $22.1 in
1995. Token Ring sales are largely dependent on the efforts of Attachmate
Corporation and decreased to $2.2 million in 1996 from $10.3 million in 1995.
Bundled Products sales declined to $11.3 million in 1996 from $19.6 million in
1995. Sales of other products decreased $7.8 million
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from 1995 to 1996. Most of this decline was attributable to lower sales in the
older Minicomputer Connectivity and Mainframe Connectivity product lines.
Aerospace Telemetry sales were stable at $8.2 million in 1996 and $8.1
million in 1995. MSS revenue grew to $7.0 million in 1996 from $5.4 million in
1995, reflecting continued growth in support activities for the Company's
customer.
Gross profit decreased to $13.1 million in 1996 from $22.4 million in
1995, and as a percentage of sales decreased to 25.9% from 31.0%. These
declines reflect lower Networking Products sales, an unfavorable product mix
within Networking Products, and the absorption of fixed manufacturing overhead
costs over a smaller revenue base.
SG&A expense increased to $13.0 million in 1996 from $10.6 million in
1995, and as a percentage of revenue grew to 25.8% in 1996 from 14.6% 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 and National
Semiconductor acquisitions, amortization of product line acquisition cost was
also higher from 1995 to 1996.
Research and development expense was level at $2.5 million in 1996 and
$2.5 million in 1995.
Other expense in both 1996 and 1995 includes interest expense
associated with outstanding borrowings against the Company's line of credit.
Also included in 1995 is a one-time charge of $875,000 reflecting 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 provided through bank borrowings. As of
March 31, 1996, the Company has $25.7 million of bank debt, consisting of a
$5.5 million term note which is repaid in monthly payments and scheduled to be
fully satisfied in May 1997; and $20.2 million in outstanding borrowings under
a revolving line of credit facility that expires in January 1998. Of this $25.7
million in bank debt, $4.8 million is classified as short-term and $20.9 as
long-term on the March 31, 1996 Balance Sheet. The limit on the line
of credit facility was increased from $17.5 million to $22.5 million on October
26, 1995. On March 31, 1996, the Company had $1.5 million of cash and $2.3
million in available line
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of credit.
During the first half of fiscal 1996, cash used in operating
activities was $8.6 million, primarily resulting from the net loss and an
increase in inventories due to stock purchases which were committed in
anticipation of higher sales levels. Cash used in investing activities during
1996 was $234,000 (mostly due to capital expenditures) compared to $13.0
million during 1995, which reflected the Eagle acquisition. The Company has no
material commitments for future capital expenditures. Cash provided by
financing activities during 1996 was $5.8 million, which represented $8.2
million in new borrowings on the Company's line of credit partially offset by
$2.4 million in payments on the Company's term note. Cash provided by financing
activities during 1995 was $12.0 million, which represented $11.1 million in
net borrowings and $900,000 in proceeds from the exercise of stock options.
As a result of changes to the Company's business described previously,
the Company and its bank are currently in negotiation to amend the terms of the
Company's credit facility. The Company anticipates no difficulties in
completing such amendment. At the end of fiscal 1996's second quarter, the
Company was not in compliance with the coverage ratio required under the
convenants of its current credit facility. However, the bank plans no action at
this time.
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 4. Submission of Matters to a Vote of Security Holders.
The annual meeting of stockholders of the Registrant was held on March
21, 1996. At the annual meeting, the stockholders voted on the following
matters:
<TABLE>
<CAPTION>
Votes Votes Votes
For Against Abstained Unvoted
---------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Election of Directors
Philip T. Cunningham 12,012,233 115,908
Christopher M. Maginniss 12,011,933 116,208
Curtis M. Coward 12,011,933 116,208
Gregory W. Fazakerley 11,958,988 169,153
H. Brian Thompson 11,961,663 166,478
Increase in the number
of shares reserved for
issuance under the amended
and restated Microdyne
Corporation 1991 Key
Employee Stock Option Plan 7,770,992 1,109,773 45,695 3,201,681
An amendment to the
Microdyne Corporation 1993
Non-Employee Directors
Stock Option Plan 11,298,564 412,527 60,533 356,517
</TABLE>
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Item 6. Exhibits and Reports.
(a) The following exhibit is enclosed herein:
<TABLE>
<CAPTION>
Exhibit Number Description Page
-------------- ------------------------------ ----
<S> <C> <C>
10 Purchase Agreement re: 16
Hardware Technology Rights
and Marketing Rights, by and
between the Registrant and
Novell, Inc.
</TABLE>
(b) No Form 8-K was filed during the quarter ended March 31, 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: May 15, 1996 /s/ Philip T. Cunningham
--------------------- -----------------------------
Philip T. Cunningham
President and Chief Executive Officer
[Duly Authorized Officer]
Date: May 15, 1996 /s/ Christian J. Spitz
--------------------- -----------------------
Christian J. Spitz
Vice President and Chief
Financial Officer
[Principal Financial Officer]
15
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EXHIBIT 10
AGREEMENT
This Agreement made as of the 12th day of April, 1996, by and between
NOVELL, INC., a Delaware corporation, with offices at 2180 Fortune Drive, San
Jose, California 95131 ("Novell"); and MICRODYNE CORPORATION, a Maryland
Corporation with principal offices at 3601 Eisenhower Avenue, Alexandria, Va
22304 ("Microdyne"), Novell and Microdyne being herein collectively referred to
as the "Parties" provides as follows:
RECITALS
WHEREAS, Novell and Microdyne have entered into numerous commercial
agreements over a period of years for the mutual benefit of both Parties; and
WHEREAS, the Parties have recently conducted a review of the financial
results of said agreements for the purpose of resolving any outstanding claims
among the Parties and to provide a foundation for future cooperation.
NOW THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth, and other good and valuable consideration, the receipt
and adequacy of which is hereby acknowledged by both Parties, the Parties agree
as follows:
ARTICLE 1
OUTSTANDING ACCOUNTS
In settlement of all outstanding trade accounts and contract claims by
and between the Parties as of the date of this Agreement (except as provided
for in Article 3 herein), Microdyne will pay to Novell the amounts specified
below according to the following calculation and payment schedule:
(1) Calculation:
$10,024,293 accounts payable due Novell at March 29, 1996
minus
$3,489,293 for January 1996 royalty returns due to
Microdyne minus
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$1,500,000 estimate for anticipated net product
returns to be credited to Microdyne; provided that if
the net product return credit activity prior to May
1, 1996 is less than $1,500,000 then Microdyne will
pay Novell the difference in cash by May 31, 1996.
If the net product return credit activity prior to
May 1, 1996 is greater than $1,500,000, then Novell
will credit Microdyne's account for the difference
upon receipt of Microdyne's April royalty report.
Total
$5,035,000 amount due to Novell.
(2) Payment Schedule
$1,000,000 cash payment to be paid by Microdyne on
April 17, 1996.
$1,000,000 cash payment to be paid by Microdyne on
May 3, 1996.
$3,035,000 in a promissory note substantially in the
form attached hereto as Exhibit A for two years and
bearing an eight percent (8%) annual interest rate
commencing April 17, 1996 with payments of principal
and interest commencing May 17, 1996.
(3) Trade Credit
Novell will release any restrictions on trade credit
normally extended to Microdyne in the ordinary course
of business as of the date of this Agreement. Novell
retains the right to impose credit restrictions in
the event Microdyne fails to remain current on
payment obligations or as otherwise provided for
under the existing agreements between the parties.
ARTICLE 2
PURCHASE OF HARDWARE TECHNOLOGY RIGHTS
AND MARKETING RIGHTS
Microdyne will purchase the exclusive, royalty-free, perpetual right
to distribute certain hardware technology currently sold by Microdyne under
license from Novell as more fully set forth on Exhibit B ("Hardware") effective
as of April 17, 1996. As additional consideration for the purchase price,
Novell grants Microdyne a continuing, royalty-free right to market the Hardware
with Novell's trade dress and such product designations as currently
2
<PAGE> 3
provided for and as listed on Exhibit B. Nothing herein shall be construed to
grant Microdyne any right or interest in the underlying software technology
(source code) associated with the Hardware except as otherwise necessary to
exercise the rights granted herein. Microdyne will pay the purchase price of
$6,820,000 according to the following schedule:
(1) $100,000 cash payment by April 17, 1996.
(2) $900,000 cash payment by June 1, 1996.
(3) $5,820,000 in a promissory note substantially in the
form attached hereto as Exhibit C for five (5) years and
bearing an eight percent (8%) annual interest rate commencing
April 17, 1996 with monthly payments of principal and interest
commencing on May 17, 1996 and all outstanding principal and
interest due on April 17, 2001.
In the event Microdyne is in default under the payment terms of
Article 1 or Article 2 of this Agreement, or the Commercial Notes attached
hereto as Exhibit A and Exhibit C, the rights granted Microdyne pursuant to
Article 2 of this Agreement shall be immediately revoked without notice until
such time as such default is cured.
Microdyne will release all claims relating to all remaining royalty
credits relating to Microdyne's acquisition of National Semiconductor's adapter
card business, approximately $1,600,000, as of April 12, 1996, which Microdyne
acquired pursuant to the Assignment Agreement dated September 8, 1995.
Within thirty (30) days of the date of this Agreement, Microdyne and
Novell will sign a new standard Novell OEM agreement covering all hardware
products, excluding the Hardware, sold by Microdyne that carry the Novell trade
dress which will provide, without limitation, that Microdyne will pay Novell a
nine percent (9%) royalty on hardware products sold by Microdyne that carry the
Novell trade dress, excluding Hardware, subject to the general terms to be
negotiated by the parties.
Within thirty (30) days of the date of this Agreement Microdyne and
Novell will sign a new standard Novell OEM agreement which covers all software
products which will provide, without limitation, that Microdyne is entitled to
a discount of at least fifty (50%) on all such products, subject to the general
terms to be negotiated by the parties.
3
<PAGE> 4
ARTICLE 3
RELEASE OF CLAIMS
Each Party hereto (the "Releasing Party") hereby unconditionally
releases the other Party hereto (the "Released Party") from any claims, actions
or causes of action, defenses, counterclaims or setoffs of any kind or nature
which the Releasing Party may assert, as of December 31, 1995, against the
Released Party, including without limitation, the OEM Agreement dated June 14,
1993, and the Composite Signature Agreement dated January 18, 1994, together
with any amendments to any such agreements, or any related agreements, or any
matters whatsoever arising from or under any of the foregoing (hereinafter
referred to collectively as the "Claims"); provided, however, that this release
expressly excludes any claims, actions or causes of action arising from:
(a) that portion of Novell's Master License Agreement as to which
Microdyne has contractual obligations;
(b) the Advanced Access and Application Products amendment (LAN
Workplace for DOS) to the Desk Top OEM Agreement;
(c) the Novell DOS/DOS Kernel and Palm DOS under the Desk Top OEM
Agreement;
(d) the WordPerfect and GroupWise Products amendment to the June
14, 1993 Agreement;
(e) the Personal NetWare and NetWare Lite amendment to the Desk
Top OEM Agreement;
(f) the NetWare Multi-protocol Router amendment to the June 14,
1993 Agreement;
(g) the NetWare for SAA amendment to the June 14, 1993 Agreement;
(h) sales of Novell Asynchronous Communications Server under the
Composite Direct Purchase Signature Agreement dated March 31,
1992, as amended; and
(i) sales of Novell Access Server under the Composite Direct
Purchase Signature Agreement dated March 31, 1992, as amended.
Except as provided in (a) through (i) above, in the event the Releasing Party
has any Claims which the Releasing Party may assert as of the date hereof for
any act or omission occurring on or before December 31, 1995, against the
Released Party, the Releasing Party forever
4
<PAGE> 5
irrevocably waives and relinquishes them; provided that notwithstanding the
foregoing provisions of this Article 3, the release of Claims provided to
Microdyne by Novell hereunder shall be null and void upon any default under
Article 1 or Article 2 of this Agreement, or the Commercial Notes attached
hereto as Exhibit A and Exhibit C. The term "Released Party" shall include, but
shall not be limited to, its present and former officers, directors, employees,
agents and attorneys. The Releasing Party represents and warrants that it is
represented by counsel of its choice who has reviewed this release and advised
it of its contents and meaning. The Releasing Party further represents and
warrants that it is signing this release voluntarily and with full
understanding of its contents and meaning.
With respect to any claims, actions or causes of action not released
hereunder, each Party agrees that in any case in which it elects to assert any
such claim, action or cause of action against the other Party, such Party will
concurrently assert such claim, action or cause of action against any third
party which is also liable in whole or in part to the asserting Party for such
claim, action or cause of action.
ARTICLE 4
COSTS AND EXPENSE OF NEGOTIATION
Each Party will bear its own costs and expenses with regard to all
negotiations and activities relating to the subject of this Agreement.
ARTICLE 5
EFFECT OF AGREEMENT
This Agreement shall be binding on and inure to the benefit of the
Parties and their respective legal representatives, successors and assigns.
ARTICLE 6
GOVERNING LAW
This Agreement shall be interpreted in all respects according to the
law of the state of California.
5
<PAGE> 6
ARTICLE 7
ENTIRE AGREEMENT
The terms of this Agreement are intended by the Parties as a final,
complete, and exclusive expression of their agreement with respect to the
subject matter of this Agreement and are intended to supersede, cancel, and
take the place of all prior contracts and agreements between the parties, oral
or written, relating to the subject matter of this Contract. This Agreement
may not be contradicted, varied, substituted, or abridged in any manner except
by written amendment duly signed by Novell and Microdyne.
ARTICLE 8
PROTECTION OF INFORMATION
The Parties agree to keep confidential any trade secret or other
confidential business information related to the other Party's business of
which they are now or at any time while this Agreement is in effect may become
informed and which is not known generally to the public. The Parties'
obligations under this Article will survive the expiration or termination of
this Agreement.
IN WITNESS WHEREOF, The Parties have executed this Agreement in two
originals pursuant to due authority as of the day and year first above written.
NOVELL, INC. MICRODYNE CORPORATION
Signature: /s/ JAMES T. SULLIVAN Signature: /s/ CHRISTOPHER M. MAGINNIS
--------------------- -----------------------------
Name: JAMES T. SULLIVAN Name: CHRISTOPHER M. MAGINNIS
-------------------------- ----------------------------------
Title: V.P. OEM SALES Title: EXECTIVE VICE PRESIDENT
------------------------- ---------------------------------
6
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<FISCAL-YEAR-END> SEP-29-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
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0
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<COMMON> 1281
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