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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Annual Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 29, 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 Number)
incorporation or organization)
3601 EISENHOWER AVENUE, ALEXANDRIA, VA 22304
(Address of principal executive offices) (Zip Code)
(703) 329-3700
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.10 Par Value
(Title of Class)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND, (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENT FOR THE PAST 90 DAYS. YES X 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. (X)
THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES OF THE
REGISTRANT, BASED ON THE AVERAGE BID AND ASKED PRICES, APPROXIMATES $47,080,107
AS OF THE CLOSE OF BUSINESS ON DECEMBER 17, 1996.
THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S CLASSES OF COMMON
STOCK AS OF THE CLOSE OF BUSINESS ON DECEMBER 17, 1996 IS 12,832,203 SHARES OF
COMMON STOCK, $0.10 PAR VALUE.
DOCUMENTS INCORPORATED BY REFERENCE: THE INFORMATION REQUIRED BY PART III (ITEMS
10,11,12,AND 13) IS INCORPORATED BY REFERENCE FROM THE REGISTRANT'S DEFINITIVE
PROXY STATEMENT REQUIRED TO BE FILED PURSUANT TO REGULATION 14A.
SEE PAGE 34 FOR INDEX OF EXHIBITS.
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MICRODYNE CORPORATION 1996 ANNUAL REPORT ON FORM 10-K
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PART I
ITEM 1. BUSINESS.
GENERAL
Microdyne Corporation ("Microdyne" or "The Company") is engaged in three
businesses within its industry segment of data communications products and
services:
- Through its Networking Products Division, the Company designs, manufactures,
markets and supports a broad line of data communications hardware products that
facilitate inter-computer communications via local area networks (LANs).
- Through its Aerospace Telemetry Division, Microdyne designs, manufactures,
and markets aerospace telemetry receivers, combiners, and signal simulators for
use in data gathering and analysis.
- Through its Manufacturer Support Services Division, Microdyne provides
outsourced technical services for computer products companies.
The following table sets forth revenue from each of Microdyne's operations for
fiscal years 1994, 1995 and 1996:
<TABLE>
<CAPTION>
Years Ended
---------------------------------------------
Sept. 30, Oct. 1, Sept. 29,
1994 1995 1996
--------- ------- ---------
(in thousands)
<S> <C> <C> <C>
Networking Products..................... $ 80,281 $ 140,620 $ 67,695
Aerospace Telemetry..................... 12,255 17,358 17,033
Manufacturer Support Services........... 8,021 12,100 14,427
Industrial Telemetry(1).................. 738 -- --
--------- --------- ---------
Total Revenue........................... $ 101,295 $ 170,078 $ 99,155
========= ========= =========
</TABLE>
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(1) Industrial Telemetry was sold in December 1993.
NETWORKING PRODUCTS
Overview
The computer networking industry represents one of the fastest growing
segments of the technology industry. Industry growth has been a product of a
rising number of personal computers in use within organizations, generational
upgrades of computers, standardization of network operating system software, the
rising importance of network communications as an organizational productivity
tool and the increasing speed and flexibility of networks. According to
International Data Corporation ("IDC"), in 1996 there are an estimated 189
million PCs installed in businesses worldwide and 118 million PCs, or 62%, are
connected to LANs. By 1999, the installed base of business PCs is projected to
rise to 290 million, of which 220 million, or 76%, are expected to be connected
to a network.
Local area networks connect groups of personal computers, file servers,
printers and other devices, thereby facilitating communications among those
devices. The following is a brief description of the principal components of a
LAN:
Adapter cards. Most LANs utilize one of two generally accepted networking
topologies: Ethernet (approximately 80% of networks, according to IDC) or Token
Ring (approximately 20%). Generally, Ethernet LANs transmit data over a network
at 10 megabits per second ("Mb" or "Mbps"); Token Ring LANs generally operate at
4 or 16Mbps. A new standard called Fast Ethernet (also called 10/100 Ethernet or
100BaseT) transmits data at 100Mbps. For any PC connected to a network there is
a need for a LAN adapter card, which translates data to and from the computer in
a format understandable to the network. The adapter card must conform to the LAN
topology (Ethernet, Fast Ethernet, or Token Ring), to the internal architecture
of the PC (the 16-bit ISA bus or 32-bit PCI and EISA buses), the physical
dimensions of the PC (such as the credit-card-sized PCMCIA adapter cards
required for laptop computers), and to the physical wiring scheme of the network
(there are three commonly used wiring systems, the most popular one of which is
called 10BaseT). As such, there are numerous permutations of adapter cards
required to meet the needs of network users, and differentiating features that
further segment the market. Microdyne designs, manufactures, markets, and sells
each of the adapter cards described above.
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Concentrators and hubs. In addition, small groups of networked PCs are linked
by devices called concentrators or unmanaged hubs, which control data traffic
within a small group of PCs. Concentrators generally do not have on-board
microprocessors to provide "intelligence" to the data switching process. Hubs
that have such built-in microprocessors are generally called "managed" hubs and
can handle more PCs and peripherals at higher data rates. Microdyne markets and
sells concentrators and unmanaged hubs.
File server and printer adapter cards. Hubs and concentrators are, in turn,
connected to file servers and printers, each of which also requires a
specialized adapter card linking the device to the network. File servers may
also have links to redundant storage devices to ensure against loss of data in
the event of a catastrophic failure of the file server; such links require
specialized adapter cards at each device called mirrored server links. Microdyne
designs, manufactures, markets and sells file server adapter cards, and markets
and sells print servers and mirrored server link hardware.
Switches. Beyond a certain size, LANs experience congestion as too many users
vie for the available bandwidth of the network. To accomodate the needs of
larger organizations, LANs of either the same or different topologies can be
connected by switches, which route inter-computer traffic among different LANs.
Microdyne markets and sells several configurations of LAN switches connecting
Ethernet to Ethernet, Fast Ethernet to Fast Ethernet, and Ethernet to Fast
Ethernet.
Other adapter cards. Minicomputers and mainframe computers may also reside on
a LAN and such connections require adapter cards specific to the operating
system of each larger computer. Microdyne designs, manufactures, markets and
sells minicomputer and mainframe computer adapter cards.
Other networking products. Contiguous or non-contiguous LANs are connected
together via routers, which are devices that provide protocol translation and,
literally, "route" data traffic between networks. Microdyne does not offer such
products, which are generally considered wide-area-networking devices.
The changing role of networks
Networks have become an essential element of organizational productivity.
Initially, LANs performed simple file and print sharing tasks among a group of
PC users. As a result of faster processing capabilities of PCs, inexpensive,
more powerful mass storage file and application servers, generally falling
hardware prices and faster network speeds, LANs are now used to also deliver
critical applications among network users. These new applications include fax
origination and delivery, e-mail access, document imaging, storage and
manipulation, desktop video conferencing, real-time workgroup use of common
images and other CPU-intensive networking activities. As user requirements for
the network have increased -- including the need for greater throughput speeds
and bandwidth -new bus architectures, network topologies and transmission media
have been developed. The resulting upgrade and sale of new PCs, adapter cards
and ancillary networking hardware to the installed base have further stimulated
market growth.
The Internet and its graphical adjunct, the World-Wide Web, have contributed
to the explosive growth of PCs both in business and at home. At-home users
generally connect to the Internet via a modem and a telephone line (a connection
scheme which does not utilize any Microdyne products). Computer users within an
organization may also access the Internet via a modem and a dedicated telephone
line but, more likely, the organization maintains a direct connection to an
Internet Service Provider from one or more points on the organization's LAN. In
that case, PC users who wish to connect to the Internet or the World Wide Web do
so via their LAN, and Microdyne's adapter cards, hubs, and switches become an
integral part of the connection process.
Within the past year, the concept of the intranet has taken hold. An intranet
is a collection of interconnected local area networks within an organization, in
which a file server is designated as the internal organization's equivalent of a
"home page" for employees and others with access to it. Connecting to an
intranet is the same as accessing any other file server on a LAN. Microdyne's
adapter cards, hubs, and switches are an integral aspect of intranet
connectivity.
LAN usage has expanded from a group of physically proximate users connected by
wires to include remote users requiring periodic access to certain computers and
file servers. The growth of laptop and notebook PCs, combined with improved
modem technology, higher transmission speeds, falling telecommunications costs
and growth in online services and the Internet, have fueled demand for remote
access to and from networks. Remote access allows users to dial-in to LANs from
remote sites and to access external networks (e.g., Compuserve, Lexis/Nexis, the
Internet) via their office PC without the requirement of a dedicated telephone
line or modem. Remote access requires specialized software and board- or system-
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level hardware. Microdyne designs, manufactures, markets and sells board- and
system-level remote access hardware.
The networking environment
The Company believes that as LANs have evolved, many segments of local area
networking have become non-proprietary, price sensitivity has increased and
buyers have come to favor multi-product vendors. In addition, buyers have become
more cautious about embracing new technology if adopting it renders a large part
of an existing networking investment obsolete. As a result, the Company believes
that an ability to differentiate products through enhancements and added
features, the timing of product introductions, effective distribution and
marketing, efficient manufacturing and a low-cost infrastructure are critical
elements for success.
The Company has established itself as a leading supplier of LAN adapter cards
which provide the essential connection between computers (including personal
computers, file servers, minicomputers and mainframe computers) and the network.
The Company's products support all established computer bus structures, wiring
systems and network topologies, including Ethernet, Fast Ethernet and Token
Ring. The Company also sells a line of products directed to the remote access
market permitting both dial-up access to LANs and LAN access to remote
databases. The Company believes that its products provide a combination of
reliable, high performance, fully featured solutions at attractive prices.
To enhance its competitiveness, Microdyne offers a broad mix of networking
products that meet both the broad needs of those who build and maintain
networks, as well as specialty products that occupy niches within the networking
market. Microdyne's product family consists of more than 100 individual products
grouped into the principal categories of Fast Ethernet, Ethernet, and Token Ring
adapter cards, hubs, and switches; remote access products; wide-area and IBM
connectivity products; and minicomputer connectivity. Microdyne also sells
Bundled Products consisting of Microdyne hardware packaged with Novell Inc.'s
("Novell") NetWare. The Company leverages Novell's position as the largest
supplier of LAN operating system software through a perpetual, exclusive right
to distribute certain networking products using Novell trade dress. Microdyne
also sells products under the Eagle and EP brands.
Distribution
Products of the kind sold by Microdyne's Networking Products Division are
generally sold in one of three ways: The first is via direct sale to large
end-user organizations by bid. Generally, except for sales to the U.S.
Government via GSA schedules, Microdyne does not sell to such organizations. The
second method is to sell products directly to very large system integrators,
which install PCs and networks for clients. Generally, Microdyne does not sell
to such system integrators. These two channels of distribution are characterized
by intense marketing efforts. The third channel of distribution, described more
fully below, is the two-step distribution channel. According to IDC, this
channel accounted for more than 75% of all networking products sold in the
United States in 1994.
The two-step distribution process consists of distributors and resellers.
Electronics distributors stock products from hundreds of manufacturers. The
industry includes several hundred distributors specializing in computer products
and these firms serve regional, national or international markets. Microdyne's
largest distributors include Ingram Micro Corporation, Southern Electronics
Corporation, Tech Data, Inc., Merisel Inc. and C2000 GmbH. The customers of
those distributors are, in turn, more than 50,000 worldwide computer products
value-added resellers ("VARs") which sell to smaller systems integrators that
specify, assemble and install networks for end user customers; and integrators,
which install components and systems as a service to customers. The Company
believes that selling through distributors carries specific benefits, including
limiting the Company's customers to a finite number of generally well-financed
entities, limiting the amount of finished-goods inventory which the Company must
carry and lessening the need for a direct sales force.
Microdyne treats sales to distributors outside the United States (or
U.S.-based distributors with a majority of their sales in international markets)
in a manner substantially similar to U.S.-based accounts. All products are
priced to distributors in U.S. dollars, and distributors assume any risk of
currency fluctuation.
Because Microdyne reports revenue based upon sale of products to distributors,
which in turn are not the final customers for products, the Company places
considerable emphasis on tracking the sale of products from distributors to
resellers, VARs, and integrators. The quality of such sales information (called
"POS," for Point of Sale data) varies widely among distributors. POS from the
largest, U.S.-based distributors is
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available weekly and, although subject to revision, is generally accurate.
During the past year, Microdyne has invested in creating active programs to
obtain and interpret POS data from all distributors in all locations.
Extended Distribution Program; Novell Agreements
Beginning in 1993, Microdyne broadened its distribution network by adding a
second group of distributors for which Microdyne served as a source of both
networking hardware products and Novell NetWare network operating system
software. Microdyne combined its networking hardware products with appropriate
Novell NetWare in one package. The resulting combinations (called "Bundled
Products" beginning in 1994) were sold under the Extended Distribution Program.
Pursuant to an agreement with Novell, Microdyne sought out distributors that
were not otherwise authorized by Novell to sell NetWare and other Novell
software products. Distribution terms and discount policies were set by Novell.
The Company believed that by participating in the Extended Distribution Program,
Microdyne enhanced its position as a supplier of networking hardware products
and increased the likelihood that its products would be recommended by these
distributors. Sales rose rapidly through the end of 1995, but declined after the
first quarter of FY1996 as Novell decreased the discount available to Microdyne
for the purchase of NetWare, making the sale of Bundled Products less
attractive, and altered its distribution policies and practices.
In April, 1996, Microdyne obtained the perpetual, exclusive,
non-royalty-bearing rights to market a series of hardware products in Novell
trade dress, in return for a payment of $6.8 million in cash and notes. The
April 1996 agreement superceded an earlier series of agreements between the two
companies, signed between 1989 and 1995, under which the Company manufactured
and distributed various networking products utilizing Novell licensed technology
and trade dress. Those agreements, which required Microdyne to pay a royalty
based on sales into distribution, reserved to Novell the right to grant
identical rights to other manufacturers and to terminate Microdyne's rights at
any time. Microdyne paid $6.4 million of royalties under those earlier
agreements in FY1995.
Marketing, Sales and Customer Support
Because there are several levels of intermediaries between the Company and its
end user customer, Microdyne devotes its sales resources to working with
distributors ("push" programs) and must rely upon marketing efforts to reach
resellers and end user customers ("pull" programs). It is critical to the
Company's success that distributors' telemarketing representatives are familiar
with Microdyne's products and can explain to their customers how Microdyne
products are differentiated from those of its competitors. To that end, the
Company conducts periodic training programs for its distributors' telemarketing
representatives. The Company may also periodically run push programs including
promotions and rebates aimed at distributors' telemarketing representatives.
The Company's pull programs are aimed at resellers and end users. These
programs take the form of print advertising in computer industry trade
publications that reach resellers and corporate information systems managers,
direct mail to resellers, trade press publicity about new products and product
features, participation in the networking industry's trade shows, promotions
designed to increase sales in a specific period, and rebates.
The Company uses its Novell and Eagle brand names to establish and retain
customer loyalty to Microdyne's products. Microdyne believes the Novell name
connotes quality and reliability in the minds of customers, and that the Eagle
name is well established in the minds of many customers as a reliable,
price-competitive brand.
As part of the Company's acquisition of the IRMAtrac product line, Attachmate
assumed certain obligations for the continued sale of those products for a
period of five years commencing in 1994. Microdyne is dependent upon
Attachmate's efforts for the sale of Token Ring products.
Microdyne maintains a toll-free telephone technical support center in
Alexandria, Virginia and San Jose, California where help is available 12 hours a
day, five days a week. Networking products have a lifetime warranty against
failure or defective workmanship. Products are replaced upon submission of
the failed product together with purchase documentation.
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Research and Development
Research and development activities are carried out at the Company's facility
in San Jose, California by a staff of approximately 30 engineers. Research and
development expense in fiscal 1996 declined slightly to $3.5 million from $3.8
million in fiscal 1995. Expenditures for research and development in the
Networking Products Division was $2.3 million in 1994. Certain software
development expenses are capitalized, the amortization of which is included as
part of "Amortization of Intangibles" in the Consolidated Statements of
Operations.
The Company focuses its engineering efforts on product cost reduction,
extension of existing product lines and enrichment of features on existing
products. The Company has historically obtained new technologies or new products
primarily through OEM relationships or the purchase of technology as part of
larger business acquisitions. Each of the four acquisitions completed between
July 1994 and September 1995 contributed specific new products and/or
technologies to Microdyne.
Manufacturing and Supply
Because of variable demand for its products and the availability of low-cost
contract production capabilities, Microdyne outsources virtually all of its
board-level Networking Products manufacturing to contract manufacturers, which
are primarily established, U.S.-based corporations. The Company believes it can
maintain a high level of quality while reducing its cost of goods sold below
that which the Company would incur if it manufactured products in-house. The
Company believes there are a sufficient number of contract manufacturers to
ensure adequacy of supply for the foreseeable future. Microdyne has experienced
no substantial difficulty purchasing components and raw materials in the open
market from multiple suppliers; however, certain integrated circuits are
available from a single vendor and can require long lead times to obtain in
quantity.
Competition
The networking products market is very competitive. The Company believes its
ability to compete successfully depends on a number of factors, including:
price; product features; product quality; performance and reliability; name
recognition and reputation; international certification; retention of
experienced sales, marketing and service personnel; development of new products
and enhancements; and adherence to rapidly changing industry standards.
Microdyne competes with a number of vendors including 3Com Corporation,
Standard Microsystems Corporation and Intel Corporation. Each has significantly
greater financial, marketing, technical and other resources as well as the
capacity to obtain components at lower cost either by purchasing large
quantities of such components or by fabricating such components in-house. These
competitors have the financial resources to lower prices in order to increase
market share, and may be able to respond more quickly to new or emerging
technologies and changes in customer requirements, devote greater resources to
the development, promotion and sale of their products or control the timing of,
or respond more effectively to, new product introductions.
AEROSPACE TELEMETRY
Overview
Data gathering and analysis is a basic requirement in the testing and analysis
of any process or operation. When the process or device being measured is close
at hand, it is a relatively simple task to attach probes, sensors or other
measuring devices to the object. These devices convert physical measurements
(e.g., temperature, rotation, pressure) into a variable stream of electrical
current. The current flows over wires and is either shown on an analog display
(a thermometer or voltmeter, for example) or converted into digital form and fed
into a computer file. This well-established practice works well so long as the
object or process to be measured is sufficiently close to permit wires to
connect those probes and sensors with the computer logging the resulting output.
Telemetry is the technology of measuring various equipment performance
parameters at a distance, and is required when the object under test is moving
too quickly or is at too great a distance to use wires. Information may consist
of readings from hundreds of sensors recording such things as heat, vibration,
stress and operational performance. Each sensor will produce its own data stream
which must be transmitted and captured. In telemetry, data is gathered,
multiplexed, and transmitted at microwave frequencies, usually
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in a rapid burst form, toward a ground station. There, a highly selective radio
receiver gathers the information. In other applications such as weather
satellites or space vehicles, the information will consist of data and video
transmissions. The U.S. Government operates several hundred ground stations,
each of which may have racks of telemetry receivers. Other governments operates
dozens of sites.
Since 1968, Microdyne has manufactured telemetry receivers, sophisticated
radio receivers that can accurately tune in and hold the telemetry signals from
aircraft and space vehicles. During the past several years, Microdyne has
expanded and updated its telemetry product line, including the addition of
card-level products that perform essentially the same functions as the Company's
traditional rack-mounted devices. While there is and will continue to be a
substantial market for stand-alone rack-mounted products, two trends are pushing
telemetry receivers toward becoming board-level systems with computer control.
First, very powerful personal computers can process telemetry data at rates
previously unattainable. Second, telemetry receivers are increasingly being used
in mobile environments such as aircraft and on board ships where the receivers'
light weight and compactness are an advantage over larger rack mounted devices.
The Company's new telemetry products include:
- A single-card telemetry receiver designed to plug into a VME,
VXI or PC bus; and
- A board-level diversity combiner which is a special device to take the
input of two telemetry receivers, each of which has been tuned to the same
sets of frequencies, but at different polarity, and combine those two
signal streams into one continuously readable data stream. This type of
product is required whenever the telemetry stream comes from a vehicle
that is maneuvering or rotating.
Other Aerospace Telemetry products include compact telemetry receivers and a
sophisticated signal simulation source for use in calibrating telemetry
equipment and systems, to ensure that a system is set up correctly and fully
operational prior to a mission; and diversity combiners that allow data loggers
to record an uninterrupted stream of data from two receivers, regardless of the
polarity of the signal from the telemetry source.
The Company has long been a supplier of telemetry receivers to system
integrators both in the U.S. market and internationally. Since 1989, Microdyne
has actively bid on systems contracts in the $500,000 - $15 million range.
The growth of the Aerospace Telemetry market may be augmented by several
factors. First, there is a need to upgrade telemetry systems installed in the
1970s. Second, scientists' desire to take more detailed and more frequent
measurement of physical processes, coupled with the ability to process data
input more quickly, is leading to requirements for wider bandwidth receivers.
And, third, planned launches of low-earth-orbit ("LEO") satellites to facilitate
new communications services may spur demand for the installation of many new
ground stations, each of which must be equipped with telemetry equipment.
In addition, the Company has started to address markets beyond its traditional
one for telemetry receivers that serve the R&D, test and evaluation, and
military markets. These new markets and the products for them include:
- Antennae. Microdyne has designed, built, and sold prototypes of a low-cost,
portable antenna for use by the telemetry community. The antenna enhances the
ability to track and obtain data from missiles during the first minutes after
launch when the vertical change of the missile taxes the tracking ability of
most satellite dishes.
- New card-level receivers. Microdyne has received requests for proposals from
organizations with requirements for lower-cost receivers for use in a variety of
applications. One near-term opportunity is for receivers to capture and process
data from NASA's "Mission to Planet Earth" satellite series planned for launch
in 1997. Ground stations would be encouraged at schools and universities for
students to study real-time data from these satellites. Lower-cost board-level
Microdyne receivers may be used for such applications.
While each of the preceding are prospective opportunities, each opens a new,
multi-million-dollar market to the Company. However, there can be no assurance
that the Company will realize such opportunities.
Marketing and Sales
Telemetry systems are used in a variety of applications involving missiles,
aircraft, satellites and other
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space vehicles. The four major user groups include Government testing ranges,
aerospace companies engaged in the development and manufacture of missiles and
satellites, companies that design and manufacture antennae used in tracking and
receiving signals being sent from missiles and satellites and meteorological
systems used to gather weather data.
Microdyne markets its products directly to these user groups through a sales
and marketing department located at the Company's Ocala, Florida facility.
Because most telemetry products are purchased directly or indirectly with
Government funding, much of Microdyne's marketing effort is channeled into
establishing and maintaining name and product recognition for the Company with
Government agencies and aerospace and defense contractors. Microdyne also
undertakes projects combining the Company's telemetry components and subsystems
with those of other manufacturers for customers worldwide. To service these
customers, Microdyne maintains customer support operations in countries around
the world.
Government agency and Government prime contractor revenue in fiscal 1996 was
$9.3 million, or 54.7% of total Aerospace Telemetry revenue, compared to $9.6
million, or 55.3% in 1995. The telemetry industry is dependent upon Government
procurement and can be adversely affected by any substantial decreases in direct
Government purchases of the Company's products and services, or in indirect
purchases of products acquired under Government contract. The Company believes
there is growth potential both in domestic and international markets. To address
international opportunities, the Aerospace Telemetry Division has established a
sales office in London, and also uses international manufacturers'
representatives.
Research and Development and Manufacturing
Expenditures for Aerospace Telemetry research and development totaled $1.5
million, or 8.8% of telemetry revenue in 1996. This compared to $1.4 million, or
8.0% of telemetry revenue in 1995 and $1.2 million, or 9.7% of revenue in 1994.
Microdyne maintains a telemetry products manufacturing facility in Ocala,
Florida.
Competition
The Company believes the market for telemetry products has entered a new
growth stage after a period of years of stable revenues. Microdyne believes that
of telemetry receivers sold for use in research, development, test and
evaluation, the Company has the largest market share for such products sold in
the world. However, the market for defense electronics is very competitive
and marked by a shift toward fewer, but much larger vendors. Microdyne believes
that the relative maturity of the overall defense electronics market could
attract competition from vendors in related fields of defense electronics that
are seeking to expand total corporate sales by leveraging relationships with
existing customers to include additional product lines in ancillary fields.
MANUFACTURER SUPPORT SERVICES
Overview
There has been a growing trend in recent years toward the providing of labor
from third-party organizations -- "outsourcing" -- of both technical and
non-technical positions in industry. Outsourcing enables an organization to cope
with changes in growth, seasonality, and constraints on the number of full-time
worked counted as employees. Outsourcing allows an organization to focus its
internal and human resources on activities which will creates the highest rate
of return. Outsourcing may also lower an organization's cost of doing business.
Examples of outsourcing include staffing and operating telephone technical
support centers, warranty repair and after-warranty service centers.
Since 1989, the Company has provided outsourced services to one large
electronics manufacturer. The activities performed in behalf of this customer
include telephone technical support, component and board repair, warranty
administration, and the operation of a large transit warehouse. Microdyne
provides its customer with trained personnel, including, as of September 29,
1996, a staff of 271 full-time and 160 part-time employees in the customer's
facilities near Los Angeles, California and in Indianapolis, Indiana. The
Company's revenue is based on the number of units repaired or refurbished, or,
alternately, the number of employees assigned to each aspect of the customer's
business, the number of hours worked by those employees and the rate at which
Microdyne is paid for such services.
The Company maintains a contract with its customer which was renewed for a
period of five years in March 1996.
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Marketing
Microdyne believes it has the skills and depth of management to expand its
Manufacturer Support Services business. While the Company's primary focus is
maintaining and expanding its relationship with its current customer, Microdyne
believes it has the resources and qualifications to serve other customers, and
is currently exploring ways to capitalize on its expertise. There can be no
assurances that the Company will gain new customers through such efforts.
Competition
The competition for Manufacturer Support Services is both in-house sourcing
and other organizations that specialize in outsourcing. Microdyne's customer
may, upon notice, sever its contract with the Company and elect to perform these
tasks either using its own employees or a third-party support vendor. The
Company believes its relationship with its customer is excellent, and is
evidenced by the fact that the level of work performed for the customer has
expanded significantly during the past two years. Also, for the past three
years, the Company's customer has been ranked #1 in customer service in its
product area by a respected periodical.
Microdyne seeks to reduce the risk of being displaced by either in-house staff
or another third-party provider by continually recruiting highly skilled staff
to meet the customer's growing requirements, by upgrading the work skills of its
staff through training, and by providing its staff with a career path to reduce
turnover and increase efficiency so as to lower costs to the customer.
PATENTS AND PROPRIETARY RIGHTS
The Company does not consider that its business is dependent upon patent
protection. Nevertheless, the Company is subject to the risk of adverse claims
and litigation alleging infringement of the proprietary rights of others. From
time to time the Company has received claims of infringement of other parties'
proprietary rights. Although the Company believes that it does not infringe the
valid patents of others, there can be no assurance that third parties will not
assert infringement claims in the future with respect to the Company's current
or future products or that any such claims will not require the Company to enter
into license arrangements or result in protracted and costly litigation,
regardless of the merits of such claims. No assurance can be given that any
necessary licenses will be available or that, if available, such licenses can be
obtained on commercially reasonable terms.
UNITED STATES GOVERNMENT CONTRACTS
During fiscal 1996 and 1995, $13.5 million, or 14% and $13.1 million, or 8%,
respectively, of Microdyne's total sales were derived from contracts and
subcontracts involving the U.S. Government and its agencies. For fiscal 1996 and
1995, U.S. Government sales as a percentage of each activity's sales were as
follows:
<TABLE>
<CAPTION>
Fiscal 1996 Fiscal 1995
----------- -----------
<S> <C> <C>
Aerospace Telemetry................. 55% 55%
Networking Products................. 6% 3%
Manufacturer Support Services....... 0% 0%
</TABLE>
BACKLOG
Revenue backlog believed to be firm amounted to $5.0 million at September 29,
1996, and $4.8 million at October 1, 1995. Backlog by activity was as follows:
<TABLE>
<CAPTION>
Fiscal 1996 Fiscal 1995
----------- -----------
<S> <C> <C>
Networking Products................. $1,335,000 $2,170,000
Aerospace Telemetry................. 3,663,000 2,671,000
</TABLE>
The Company does not believe backlog is a meaningful indicator of future
business trends. Microdyne's Networking Products operation is not based upon
either long lead times for delivery or contract delivery schedules. Rather, with
the exception of back-ordered products, Networking Products are generally
shipped upon receipt of order. Aerospace Telemetry backlog is dependent upon the
receipt or renewal of Government contracts, the timing over which the Company
has no control.
- -------------------------------------------------------------------------------
PAGE 8
<PAGE> 10
MICRODYNE CORPORATION 1996 ANNUAL REPORT ON FORM 10-K
- -------------------------------------------------------------------------------
EMPLOYEES
As of September 29, 1996, Microdyne had 574 full-time and 168 part-time
employees. None of Microdyne's employees is covered by a collective bargaining
agreement. The Company believes its labor relations to be generally good.
Employment by operation is as follows:
<TABLE>
<CAPTION>
September 29, 1996 October 1, 1995
------------------ ---------------
Full-time Part-time Full-time Part-time
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Networking Products............... 138 0 182 0
Aerospace Telemetry............... 152 0 138 0
Manufacturer Support Services..... 271 160 252 85
Corporate ........................ 19 2 16 0
---- --- --- ---
Total........................ 580 162 588 85
==== ==== === ===
</TABLE>
Networking Products employees are located principally in Alexandria, Virginia
and San Jose, California; Aerospace Telemetry employees are located principally
in Ocala, Florida; Manufacturer Support Services employees are located at
customer-owned facilities near Los Angeles, California and in Indianapolis,
Indiana. Corporate employees are located in Alexandria, Virginia.
INDUSTRY SEGMENTS AND OTHER DATA
ITEM 2. PROPERTIES.
At September 29, 1996, the Company's principal facilities consist of the
following:
<TABLE>
<CAPTION>
Location Facility Size Own/Lease Function
- ---------------- -------------- --------- ------------------------------------------------
<S> <C> <C> <C>
Alexandria, VA 26,000 sq. ft. Leased Headquarters, Networking Products Div. mktg/sales
Ocala, FL 112,000 sq. ft. Owned Aerospace Telemetry Division
San Jose CA 95,000 sq. ft. Leased Networking Products Div. mfg/engrg/warehouse
</TABLE>
A portion of the Ocala facility was financed by and stands as collateral for
industrial revenue bonds, of which $254,000 was outstanding at September 29,
1996. The Ocala facility includes 5.5 acres of land. The industrial revenue bond
was repaid in October 1996.
ITEM 3. LEGAL PROCEEDINGS
The Company is not aware of any material legal proceedings against it at this
time.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of fiscal 1995 to a vote of
security holders, either through the solicitation of proxies or otherwise.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on the Nasdaq National Market under the
symbol MCDY. The following table sets forth for the fiscal periods indicated the
high and low sales prices of the Common Stock, as reported on the Nasdaq
National Market.
<TABLE>
<CAPTION>
Fiscal Year Ended October 1, 1995 Fiscal Year Ended September 29, 1996
--------------------------------- ------------------------------------
Quarter ended: Quarter ended:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/94 3/31/95 6/30/95 10/1/95 12/31/95 3/31/96 6/30/96 9/29/96
-------- -------- -------- -------- -------- -------- -------- --------
High 10.625 15.500 21.625 26.375 31.250 17.750 9.750 7.000
Low 4.500 10.125 13.875 18.875 14.750 5.750 6.375 4.375
</TABLE>
As of October 1, 1996, there were an estimated 951 holders of record of the
Common Stock. The Company estimates there are approximately 4,500 shareholders
whose shares are held in "street" name. As of October 1, 1996, there were no
unregistered sales of the Company's securities.
- -------------------------------------------------------------------------------
PAGE 9
<PAGE> 11
MICRODYNE CORPORATION 1996 ANNUAL REPORT ON FORM 10-K
- -------------------------------------------------------------------------------
ITEM 6. SELECTED FINANCIAL DATA.
STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
Years Ended
-------------------------------------------------------------------------------------------
September 30, September 30, September 30, October 1, September 29,
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Revenue $72,693 $78,174 $ 101,294 $ 170,078 $ 99,155
Cost of goods sold 41,035 52,525 73,259 117,308 71,819
------ ------ ------- ------- --------
Gross profit 31,658 25,649 28,035 52,770 27,336
Operating expenses:
Selling, general and administrative 23,710 18,032 16,650 23,629 23,372
Research and development 3,886 4,172 3,282 4,707 4,167
Amortization of intangibles -- -- 304 1,233 2,587
Restructuring charges 8,503 3,462 -- -- --
----- ----- ------ ------ ------
Total operating expenses 36,099 25,666 20,236 29,566 30,126
------ ------ ------ ------ ------
Earnings (loss) from operations (4,441) (17) 7,799 23,204 (2,790)
Other income (expense) (176) (468) (499) (2,804) (2,161)
----- ------ ------ ------- ------
Earnings (loss) before income taxes (4,617) (485) 7,300 20,400 (4,951)
Provision (benefit) for income taxes (2,461) (252) 2,701 7,806 (2,007)
------- ------ ------ ------ ------
Net earnings before cumulative effect
of accounting change (2,156) (233) 4,599 12,594 (2,944)
Cumulative effect of accounting change. -- 1,744 -- -- --
------- ------- ------ ------ ------
Net earnings (loss) $(2,156) $ 1,511 $ 4,599 $ 12,594 $ (2,944)
======= ======= ========= ========== =========
Net earnings (loss) per share $ (0.15) $ 0.10 $ 0.35 $ 0.96 $ (.23)
======= ======= ========= ========== =========
Shares used in computing net earnings
(loss) per share 14,592 14,428 13,088 13,096 12,811
====== ====== ====== ====== ======
<CAPTION>
BALANCE SHEET DATA
September 30, September 30, September 30, October 1, September 29,
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Cash, cash equivalents, and
short-term investments $ 1,602 $ 2,135 $ 2,628 $ 4,587 $ 1,791
Working capital 17,711 19,965 22,744 40,572 28,676
Total assets 45,226 48,174 55,840 110,382 79,994
Long-term obligations 425 817 11,675 16,999 11,071
Total stockholders' equity 24,119 26,094 18,290 39,488 36,524
</TABLE>
- -------------------------------------------------------------------------------
PAGE 10
<PAGE> 12
MICRODYNE CORPORATION 1996 ANNUAL REPORT ON FORM 10-K
- -------------------------------------------------------------------------------
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Microdyne's fiscal 1996 results were affected by several events in the
Company's Networking Products Division which overshadowed the excellent
performance of the Company's Aerospace Telemetry and Manufacturer Support
Services divisions. These events included an excess of distribution channel
inventory resulting from an over-estimation of end-user demand for Microdyne's
networking products during 1995, and the adverse effect of changes in Novell,
Inc.'s ("Novell") distribution policies.
- - Beginning in the first quarter of 1996 and continuing throughout the year,
Microdyne sold less product to distributors than those same distributors sold to
end user customers. The $52.7 million of Networking Products hardware shipped in
1996 was substantially less than the Company believes was sold to end user
customers in the same period, based on sales reports supplied to the Company by
distributors.
- - In late 1995 Novell initiated changes in the net effective discount on NetWare
available to Microdyne, which made the sale of NetWare network operating system
software bundled with Microdyne hardware products ("Bundled Products") less
financially attractive to Microdyne in 1996. Fiscal 1995 sales also included
non-recurring demand for NetWare upgrades, the sale of which was curtailed in
December 1995. As a result, Microdyne's sales of Bundled Products declined from
1995 to 1996, from $51.5 million to $15.7 million, with $10.3 million of such
sales occurring in the first quarter.
- - The aerospace telemetry market in which Microdyne competes is in the midst of
a growth cycle. This growth is due to the launching or planned launch of a new
generation of satellites, a desire for more data from vehicles being tested via
telemetry coupled with increased ability to process and evaluate such data, and
an expansion of educational and international opportunities. Microdyne has
developed and is marketing products to serve these audiences.
- - The outsourcing industry, of which the Company's Manufacturer Support Services
division is a part, is experiencing rapid growth. Such growth is a result of
organizations' desire to control costs, constrain headcount, and generally focus
human and financial resources on activities that will produce higher rates of
return. Microdyne believes its core competency in this field can serve as a
template for becoming a provider of high-quality outsourced services to other
customers, though it can provide no assurances of success.
The above discussion contains forward-looking statements that involve
risks and uncertainties. In addition, certain other factors could cause actual
results to differ materially from management's expectations. The following risk
factors apply to Microdyne's businesses in fiscal 1997 and beyond:
The networking products industry is one of continuing evolution. While
the LAN adapter card segment is comparatively technologically stable, network
speeds are increasing. In 1996, LAN adapter card manufacturers agreed on a
standard for 100 megabit per second, or "Fast" Ethernet. By mid-year, industry
reports showed that Fast Ethernet sales accounted for more than 15% of total LAN
adapter card demand. Fast Ethernet adapter card prices, which began the year at
a 50% premium to the traditional 10Mbps Ethernet cards, closed to within a 20%
pemium by year-end. While Microdyne believes it has a defensible market share of
the 10Mbps adapter card market, there can be no assurances that the Company's
Fast Ethernet products will be adopted by users, or that Microdyne will be
accorded a similar share of the market.
For Microdyne to effectively compete in the LAN adapter card industry,
it must match both the price and the features of cards offered by its
competitors. Microdyne believes that, at present, its product prices and
features compare favorably to those of the industry leader. However, Microdyne
believes the coming year will be one of rapid change, with probable decreases in
prices for both 10Mbps and Fast Ethernet products. Should prices decline faster
than Microdyne's ability to reduce manufacturing costs, gross margins will be
adversely affected.
Microdyne competes against companies far larger than itself, which
offer broader families of networking products, which have substantially greater
marketing resources, and which can call directly on the resellers and end users.
The Company believes the cumulative effect of such competition has the potential
to erode Microdyne's sales over time.
Microdyne's Networking Products revenue does not always accurately
reflect underlying end-user demand for its products. Determining the appropriate
stocking level for products requires that the Company rely on periodic Point of
Sale ("POS") reports from distributors to assess end-user demand. The
reliability and timeliness of POS information from distributors is not uniform.
The Company endeavors to pro-actively obtain the most reliable reports of sales
out of distribution but, even so, results may be unreliable for reasons beyond
the control of the Company. POS data can only reflect past demand for current
products; not future demand for new or existing products. Ultimately, the
Company must use its best judgement as to what represents adequate distributor
stocks.
Microdyne believes the use of Novell trade dress (including the Novell
name) on certain of its networking products benefits the Company and accords it
a certain level of continuing demand. In April 1996, Microdyne acquired the
perpetual, exclusive, non-royalty-bearing rights to market more than 30 products
in Novell trade dress, for which Microdyne paid $6.8 million. The marketplace's
perception of Novell's product quality and longevity directly affects the value
of the Novell name on Microdyne's products. This value may be diminished by
erosion of Novell's share of the network operating system market.
- -------------------------------------------------------------------------------
PAGE 11
<PAGE> 13
MICRODYNE CORPORATION 1996 ANNUAL REPORT ON FORM 10-K
- -------------------------------------------------------------------------------
The Company's Networking Products Division continues to depend upon
Novell for certain technology and marketing rights. Changes in Novell policies,
channels of distribution, or corporate direction could adversely affect the
Division by impairing the value of its assets or limiting its access to products
and technology.
Microdyne's Networking Products Division has historically operated with
limited backlog because its products are shipped shortly after orders are
received, and frequently realizes a substantial portion of its net revenues in
the last month of the quarter. As a result, revenue in any quarterly period is
substantially dependent on orders booked and shipped in the last month of that
period. Delays in receipt of end-of-quarter orders in a given quarter may
adversely affect the Company's results of operations for that quarter, as the
Company's expense levels are based primarily on full-quarter revenue estimates
and only a small portion of the Company's operating expenses vary with its
revenue. Accordingly, the Company may be subject to significant and
unanticipated quarter-to-quarter fluctuations.
Any shortfall in revenue or earnings from the levels expected by
securities analysts could have an immediate and significant effect on the
trading price of the Company's common stock in any given period. Moreover, in
view of historical selling patterns, the Company may not learn of such
shortfalls until late in the fiscal quarter, which could result in an even more
immediate and adverse effect on the trading price of the Company's stock.
Finally, the Company participates in an intensely competitive industry marked by
rapidly changing technology, which may result in significant volatility of the
Company's common stock price.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, selected information
from the Company's Consolidated Statements of Operations, expressed as a
percentage of revenue:
<TABLE>
<CAPTION>
Years Ended
-----------------------------------
Sept. 30, Oct. 1, Sept. 29,
1994 1995 1996
-------- ------- --------
<S> <C> <C> <C>
Revenue 100.0% 100.0% 100.0%
Cost of goods sold 72.3 69.0 72.4
----- ----- -----
Gross profit 27.7 31.0 27.6
Operating expenses:
Selling, general and administrative 16.4 13.8 23.6
Research and development 3.3 2.8 4.2
Amortization of intangibles 0.3 0.7 2.6
----- ----- -----
Total operating expenses 20.0 17.3 30.4
----- ----- -----
Earnings (loss) from operations 7.7 13.7 (2.8)
Other income (expense) (0.5) (1.6) (2.2)
----- ----- -----
Earnings (loss) before income taxes 7.2 12.1 (5.0)
Provision (benefit) for income taxes 2.7 4.6 (2.0)
----- ----- -----
Net earnings (loss) 4.5% 7.4% (3.0)%
===== ===== =====
</TABLE>
FISCAL YEARS ENDED SEPTEMBER 29, 1996 AND OCTOBER 1, 1995
Revenue. Revenue for fiscal 1996 decreased to $99.2 million from $170.1 million
in fiscal 1995, a decrease of 41.8%. This decrease was a result of lower sales
at the Company's Networking Products division.
As a result of lower networking hardware sales and higher revenue from
professional service sources, Microdyne now reports revenue derived from
products and revenue derived from services separately. Service revenue accounted
for 15.0% of fiscal 1996 revenue compared to 7.4% in fiscal 1995.
Networking Products revenue decreased to $68.4 million in 1995 from
$141.3 million in 1994, a decrease of 51.6%. The decrease reflects lower sales
of Bundled Products, which declined from $51.5 million to $15.7 million for the
reasons outlined in the "Overview" above. Sales of networking hardware products
declined from $89.8 million to $52.7 million. The preponderance of this decrease
was due to the Company's decision to re-balance channel inventory held by
distributors.
The Company shipped less product in each of its principal sales
categories: PC Connectivity products (including Ethernet and Token Ring adapter
cards), and Minicomputer and Mainframe Connectivity products. Within the PC
Connectivity products, Microdyne saw an increase in demand for Fast Ethernet
adapter cards, which the Company believes will gradually replace 10Mbps
technology. Fast Ethernet products accounted for 23.8% of shipments in the
fourth quarter of fiscal 1996.
The Company also saw increases in two distribution segments in 1996:
sales to other adapter card providers of Microdyne's 100Mbps ISA-bus adapter,
and sales to U.S. Government ("Government") agencies. Microdyne sells its Fast
Ethernet ISA-bus product to three companies on an OEM basis, and its products
are now included on 11 Government contracts, up from six in 1995.
Microdyne believes there was an absolute decline in demand for
Minicomputer and Mainframe
- -------------------------------------------------------------------------------
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<PAGE> 14
MICRODYNE CORPORATION 1996 ANNUAL REPORT ON FORM 10-K
- -------------------------------------------------------------------------------
Connectivity products in 1996, reflecting the industry's evolution away from
such computing solutions.
Aerospace Telemetry revenue was relatively stable at $17.0 million in
1996 versus $17.4 million in 1995, largely as a result of continued demand for
the Company's telemetry products. Manufacturer Support Services revenue
increased to $14.4 million from $12.1 million in fiscal 1995, reflecting
continued growth in support activities for this division's customer.
Gross Profit. Gross profit decreased to $27.3 million in 1996 from
$52.8 million in 1995, and as a percentage of revenue decreased to 27.6% from
31.0%. The decrease in dollars reflects lower sales versus fiscal 1995. The
percentage decrease in gross margin is attributable to lower gross margins in
the Company's Networking Products activity, which was affected by lower
absorption of manufacturing overhead over a small sales base and acceleration of
certain expenses offset partially by lower sales of low-gross-margin Bundled
Products and decreased royalty payments in the fourth quarter. Gross profit was
relative unchanged at the Aerospace Telemetry and Manufacturer Support Services
divisions.
Selling, General and Administrative. Selling, general and
administrative expense was relatively stable at $23.4 million in 1996 versus
$23.6 million in 1995, but increased as a percentage of revenue to 23.6% from
13.9%. The increase as a percentage of sales was due principally to the
Company's inability to shed committed costs in the first half of the year at the
Networking Products division. By the fourth quarter, annualized SG&A expense had
fallen to $21.8 million. Amortization of product line acquisition costs rose to
$2.6 million in 1996 from $1.2 million in 1995, due principally to the purchase
of National Semiconductor's Ethernet adapter card product line in September 1995
and the acquisition in April 1996 of perpetual rights to market certain
Novell-developed technology and the use of Novell trade dress on certain
products.
Research and Development. Research and development expense decreased to
$4.2 million in 1996 from $4.7 million in 1995 but increased as a percentage of
revenue to 4.2% from 2.8%. The percentage increase is due principally to
relatively stable R&D costs at the Company's Networking Products division spread
over a lower sales base.
Other Income (Expense). Other expense in both 1996 and 1995 includes
interest expense associated with outstanding borrowings against the Company's
line of credit. The higher interest expense in 1996 was due to larger
outstanding borrowings caused by acquisitions and reduction of trade payables.
Provision for Income Taxes. The Company accrued a benefit from income
taxes of $2.0 million in 1996 versus a provision for income taxes of $7.8
million in 1995. The benefit was due to the Company's net loss for the year.
FISCAL YEARS ENDED OCTOBER 1, 1995 AND SEPTEMBER 30, 1994
Revenue. Revenue for fiscal 1995 increased to $170.1 million from $101.3 million
in fiscal 1994, an increase of 67.9%. This increase was a result of internal
growth in each of the Company's three operations and Networking Products
acquisitions.
Networking Products revenue increased to $141.3 million in 1995 from
$80.5 million in 1994, an increase of 75.5%. The growth reflects acquisitions by
Microdyne, the continued growth of the LAN products industry and the Company's
increased market share. PC Connectivity products, which include the Company's
Ethernet and Token Ring adapter cards, increased to $76.5 million in 1995 from
$31.6 million in 1994, an increase of 142.0%. The increase reflects recent
acquisitions, particularly the Eagle acquisition in January 1995. Total Ethernet
revenue increased to $60.6 million in 1995 from $27.3 million in 1994. Token
Ring revenue increased to $15.9 million in 1995 from $4.4 million in 1994.
Revenue from sales of Microdyne hardware bundled with Novell software ("Bundled
Products") increased to $51.5 million in 1995 from $28.8 million in 1994.
Reflecting industry trends, Minicomputer Connectivity and Mainframe Connectivity
product revenue declined $4.1 million in 1995 from 1994.
Aerospace Telemetry revenue increased to $17.4 million in 1995 from
$12.3 million in 1994, largely as a result of demand for the Company's new
telemetry products and Government contracts received late in 1994. Manufacturer
Support Services revenue increased to $12.1 million from $8.0 million in fiscal
1994, reflecting continued growth in support activities for the Company's
customer. The Industrial Telemetry operations, which contributed $738,000 in
1994, was sold in December 1993.
Gross Profit. Gross profit increased to $52.8 million in 1995 from
$28.0 million in 1994, and as a percentage of revenue increased to 31.0% from
27.7%. The increase in gross margin is attributable to higher gross margins in
the Company's Networking Products activity. Gross profit also increased in the
Aerospace Telemetry and Manufacturer Support Services operations.
Selling, General and Administrative. Selling, general and
administrative expense grew to $24.4 million in 1995 from $16.7 million in 1994,
but decreased as a percentage of revenue to 14.3% from 16.4%. Amortization of
product line acquisition cost from acquisitions made to date will result in an
annual expense of approximately $1.3 million for the next six fiscal years and
approximately $900,000 in the following year.
Research and Development. Research and development expense increased to
$5.2 million in 1995 from $3.6 million in 1994 but decreased as a percentage of
revenue to 3.1% from 3.5%. The dollar increase
- -------------------------------------------------------------------------------
PAGE 13
<PAGE> 15
MICRODYNE CORPORATION 1996 ANNUAL REPORT ON FORM 10-K
- -------------------------------------------------------------------------------
is attributable to the addition of former DCA Token Ring engineers in the fourth
quarter of 1994 as well as the development of new products introduced in 1995.
Other Income (Expense). Other expense in both 1995 and 1994
includes interest expense associated with outstanding borrowings against the
Company's line of credit. The higher interest expense in 1995 was due to larger
outstanding borrowings which financed the Eagle acquisition. Also included in
1995 are one-time charges totaling $875,000, in connection with the settlement
of a stockholder class action lawsuit filed against the Company in 1992.
Provision for Income Taxes. Provision for income taxes was $7.8 million
(38.3% of pre-tax earnings) and $2.7 million (37.0% of pre-tax earnings) in 1995
and 1994, respectively. The increase in the effective tax rate resulted in part
from reduced tax credits, the impact of which was partially offset by lower
percentage state income taxes and benefits from the Company's foreign sales
corporation.
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 September 29, 1996, the Company has $17.5 million of bank debt, consisting
of a $3.1 million term note which is repaid in monthly payments and scheduled to
be fully satisfied in May 1997; and $14.4 million in outstanding borrowings
under a revolving line of credit facility (see Note G to the Notes to the
Consolidated Financial Statements). On September 29, 1996, the Company had $1.8
million of cash and $3.1 million available for borrowing under its revolving
credit facility. The Company is required to repay its bank borrowings on a
schedule which will result in the extinguishment of all current bank debt prior
to December 31, 1997. The Company believes that based on its current forecast of
cash generation it will meet that schedule.
In April 1996, the Company utilized cash and notes to purchase from
Novell the exclusive, royalty-free perpetual right to market certain hardware
and related technology which were previously sold by the Company under license
from Novell, and to convert certain accounts payable. As of September 29, 1996,
notes payable due Novell totaled $7.9 million, of which $2.5 million has been
classified as as short-term obligation and $5.4 million as long-term obligations
on the September 29, 1996 Balance Sheet.
During fiscal 1996, net cash used by operating activities was $0.9
million, primarily due to a net loss. Decreases in accounts receivable and
inventories were mostly offset by decreases in accounts payable and accrued
expenses. The decreases in accounts receivable and accounts payable reflect the
Company's reduced level of business. Cash used from investing activities was
$1.4 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 financing activities was $0.4 million
representing payments on notes largely offset by additional borrowings.
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 in fiscal 1997. The Company may from time
to time consider the acquisition of businesses, products, or technologies that
may require additional funds.
INFLATION
For the past three years, inflation has not had a significant impact on
the Company's operations.
- -------------------------------------------------------------------------------
PAGE 14
<PAGE> 16
MICRODYNE CORPORATION 1996 ANNUAL REPORT ON FORM 10-K
- -------------------------------------------------------------------------------
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
MICRODYNE CORPORATION
FINANCIAL STATEMENTS FOR THE FISCAL YEARS ENDED
SEPTEMBER 30, 1994, OCTOBER 1, 1995, AND SEPTEMBER 29, 1996
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 16
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS 17
CONSOLIDATED STATEMENTS OF OPERATIONS 18
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY 19
CONSOLIDATED STATEMENTS OF CASH FLOWS 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 21-31
</TABLE>
- -------------------------------------------------------------------------------
PAGE 15
<PAGE> 17
MICRODYNE CORPORATION 1996 ANNUAL REPORT ON FORM 10-K
- -------------------------------------------------------------------------------
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Microdyne Corporation
We have audited the accompanying consolidated balance sheets of Microdyne
Corporation (the Corporation) as of September 29, 1996 and October 1, 1995, and
the related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended September 29, 1996. These
financial statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above, present
fairly, in all material respects, the financial position of Microdyne
Corporation as of September, 29, 1996 and October 1, 1995, and results of its
operations and its cash flows for each of the three years in the period ended
September 29, 1996 in conformity with generally accepted accounting principles.
GRANT THORNTON LLP
Washington, D.C.
October 30, 1996
- -------------------------------------------------------------------------------
PAGE 16
<PAGE> 18
MICRODYNE CORPORATION 1996 ANNUAL REPORT ON FORM 10-K
- -------------------------------------------------------------------------------
MICRODYNE CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
October 1, September 29,
1995 1996
-------- -------
(in thousands)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 4,587 $ 1,791
Accounts receivable, net (note C)....................... 59,681 30,954
Inventories (notes A2 and D)........................... 25,917 24,100
Loan receivable -- officers (note K).................... 193 --
Income tax receivable (note H).......................... 1,306 1,946
Prepaid expenses and deposits.......................... 1,240 1,231
Deferred income tax asset (note H)..................... 1,243 1,053
-------- -------
Total current assets................................. 94,167 61,075
PROPERTY AND EQUIPMENT, net (notes A3 and E)................... 4,749 3,746
PRODUCT LINE ACQUISITION COST (note B)......................... 10,333 14,417
DEFERRED INCOME TAX BENEFIT (Note H) -- 113
OTHER ASSETS (note A4)......................................... 1,133 643
-------- -------
$110,382 $79,994
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term obligations (note G)..... $ 5,483 $15,719
Accounts payable -- trade................................ 26,509 9,365
Accrued liabilities (note F)............................. 21,603 7,315
-------- -------
Total current liabilities............................ 53,595 32,399
LONG-TERM OBLIGATIONS, net of current maturities (note G)...... 16,999 11,071
DEFERRED INCOME TAX PAYABLE (note H)........................... 300 --
COMMITMENTS AND CONTINGENCIES (note I)......................... -- --
STOCKHOLDERS' EQUITY (note J)
Common stock, $.10 par value, authorized 50,000,000,
shares 12,789,666 shares, issued and outstanding at
October 1, 1995 and 12,832,203 shares issued and
outstanding at September 29, 1996...................... 1,279 1,283
Additional paid-in capital................................ 10,040 10,016
Retained earnings......................................... 28,169 25,225
-------- -------
Total Stockholders' Equity........................... 39,488 36,524
-------- -------
$110,382 $79,994
======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
- -------------------------------------------------------------------------------
PAGE 17
<PAGE> 19
MICRODYNE CORPORATION 1996 ANNUAL REPORT ON FORM 10-K
- -------------------------------------------------------------------------------
MICRODYNE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended
September 30, October 1, September 29,
1994 1995 1996
------------- ---------- -------------
<S> <C> <C> <C>
Revenue
Product (note A1).............................. $ 93,403 $ 157,427 $ 84,298
Service (note A1).............................. 8,891 12,651 14,857
--------- ---------- ----------
Total revenue 101,294 170,078 99,155
Cost of goods sold and service provided
Product ........................................ 67,593 109,021 61,729
Service ........................................ 5,666 8,287 10,090
--------- ---------- ----------
Total cost of products sold and service provided 73,259 117,308 71,819
--------- ---------- ----------
Gross profit.................................. 28,035 52,770 27,336
Operating expenses:
Selling, general and administrative expense... 16,650 23,629 23,372
Research and development...................... 3,282 4,704 4,167
Amortization of intangibles................... 304 1,233 2,587
--------- ---------- ----------
Total operating expenses................. 20,236 29,566 30,126
--------- ---------- ----------
Earnings (loss) from operations.................... 7,799 23,204 (2,790)
Other (expense) income
Interest expense.............................. (554) (1,820) (2,113)
Other......................................... 55 (984) (48)
--------- ---------- ----------
Earnings (loss) before income taxes...... 7,300 20,400 (4,951)
Provision (benefit) for income taxes (note H)
Current....................................... 644 7,410 (1,783)
Deferred...................................... 2,057 396 (224)
--------- ---------- ----------
2,701 7,806 (2,007)
--------- ---------- ----------
NET EARNINGS (LOSS)....................... $ 4,599 $ 12,594 $ (2,944)
========= ========== ==========
Earnings (loss) per share.......................... $ 0.35 $ 0.96 $ (0.23)
========= ========== ==========
Weighted average shares outstanding (note A5)...... 13,088 13,096 12,811
========= ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
- -------------------------------------------------------------------------------
PAGE 18
<PAGE> 20
MICRODYNE CORPORATION 1996 ANNUAL REPORT ON FORM 10-K
- -------------------------------------------------------------------------------
MICRODYNE CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended September 30, 1994, October 1, 1995, and September 29, 1996
<TABLE>
<CAPTION>
Common Stock
--------------------------- Additional
Number of paid-in Retained
shares Par Value capital earnings
--------- ---------- ----------- ----------
(in thousands)
<S> <C> <C> <C> <C>
Balance, September 30, 1993 ................................ 14,046 $ 1,405 $ 13,713 $ 10,976
Issuance of stock associated with
stock options .......................................... 50 5 256 --
Issuance of stock associated with 10 1 39 --
stock purchase plan ....................................
Unrealized loss on marketable
equity security ........................................ -- -- (33) --
Purchase and cancellation of common stock .................. (2,291) (230) (12,441) --
Net earnings ............................................... -- -- -- 4,599
-------- -------- -------- --------
Balance, September 30, 1994 ................................ 11,815 $ 1,181 $ 1,534 $ 15,575
Issuance of stock associated with
stock options .......................................... 965 97 3,526 --
Issuance of stock associated with
stock purchase plan .................................... 10 1 112 --
Tax benefit from option exercises .......................... -- -- 4,868 --
Net earnings -- -- -- 12,594
-------- -------- -------- --------
Balance, October 1, 1995 ................................... 12,790 $ 1,279 $ 10,040 $ 28,169
Issuance of stock associated with
stock options .......................................... 20 2 71 --
Issuance of stock associated with
stock purchase plan .................................... 22 2 163 --
Adjustment to tax benefit from
option exercises ....................................... -- -- (258) --
Net loss ................................................... -- -- -- (2,944)
-------- -------- -------- --------
Balance, September 29, 1996 ................................ 12,832 $ 1,283 $ 10,016 $ 25,225
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
- -------------------------------------------------------------------------------
PAGE 19
<PAGE> 21
MICRODYNE CORPORATION 1996 ANNUAL REPORT ON FORM 10-K
- -------------------------------------------------------------------------------
MICRODYNE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
September 30, October 1, September 29,
1994 1995 1996
------- -------------- ------
(in thousands)
<S> <C> <C> <C>
Increase (Decrease) in Cash
Cash flows from operating activities
Net earnings (loss) ....................................................... $ 4,599 $ 12,594 $ (2,994)
Adjustments to reconcile net earnings to net cash from
operating activities, exclusive of effect of acquisitions
and dispositions:
Depreciation and amortization ........................................ 1,771 2,094 3,293
Provision for doubtful accounts receivable and
inventory obsolescence ............................................. 1,315 1,734 442
Changes in assets and liabilities:
(Increase) decrease in accounts receivable ........................ (10,939) (30,703) 29,340
Decrease (increase) in inventories ................................ 3,585 (3,865) 1,429
(Increase) decrease in prepaid expenses ........................... (557) 159 10
Decrease in other assets .......................................... 198 392 491
Decrease (increase) in income tax receivable ...................... 3,091 (1,167) (640)
Decrease in deferred taxes ........................................ 2,057 456 76
Increase (decrease) in accounts payable and
other accruals ................................................... 6,883 26,051 (32,399)
-------- -------- --------
Net cash provided by operating activities ......................... 12,003 7,745 (902)
Cash flows from investing activities
Product line acquisitions ................................................. (4,750) (20,862) (1,163)
Additions to property and equipment ....................................... (826) (887) (478)
Cash from sale of subsidiary .............................................. 1,000 -- --
(Loans to) payments from stockholder/officer .............................. 103 (165) 193
-------- -------- --------
Net cash used in investing activities ............................. (4,473) (21,914) (1,448)
Cash flows from financing activities
Borrowings on (payment on) bank debt ...................................... 5,333 7,981 (2,382)
Issuance of note payable .................................................. -- -- 3,035
Payments on notes payable ................................................. -- -- (1,079)
Issuance of common stock .................................................. 300 3,279 238
Redemption of common stock ................................................ (12,670) -- --
Tax benefit adjustment associated with exercise
of stock options ...................................................... -- 4,868 (258)
-------- -------- --------
Net cash provided by (used in) financing activities ............... (7,037) 16,128 (446)
-------- -------- --------
Net increase (decrease) in cash ................................... 493 1,959 (2,796)
Cash at beginning of year .................................................... 2,135 2,628 4,587
-------- -------- --------
Cash at end of year .......................................................... $ 2,628 $ 4,587 $ 1,791
======== ======== --------
</TABLE>
The accompanying notes are an integral part of these financial statements.
- -------------------------------------------------------------------------------
PAGE 20
<PAGE> 22
MICRODYNE CORPORATION 1996 ANNUAL REPORT ON FORM 10-K
- -------------------------------------------------------------------------------
MICRODYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1994, October 1, 1995, and September 29, 1996
NOTE A - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. NATURE OF OPERATIONS
Microdyne Corporation is comprised of three divisions. Its Networking
Products division develops, manufactures, and markets a broad line of network
connectivity products. Its Aerospace Telemetry division manufactures and sells
aerospace telemetry receivers and ancillary devices, and provides systems
integration services. Its Manufacturer Support Services division provides
outsourced services including telephone technical support and warranty and
product repair.
2. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include Microdyne Corporation,
Microdyne Ltd., and Microdyne U.K. All significant intercompany amounts have
been eliminated in consolidation.
3. REVENUE RECOGNITION
Revenue from the sale of computer hardware, peripheral equipment and
computer networking products, including software, is recognized when the
products are shipped. Service revenue is recognized as service is provided.
Revenue from the manufacture of aerospace telemetry products and systems is
recognized using the percentage-of-completion method where progress is measured
based on costs incurred to date as compared to total expected costs. Estimated
losses on aerospace telemetry contracts, if any, are recognized when they are
identified.
The Company provides terms of net 30 days for most products its sells. On
certain products, these terms may be extended at the discretion of management.
The Company's agreements with distributors allow defective products to be
returned for credit. Distributor terms also permit stock rotation of products, a
standard practice in the electronics industry. The Company from time to time
sells products on a non-cancellation, no-return basis. In such cases, pricing
will reflect the non-cancellable nature of the order. Distributor agreements
also provide distributors with protection against price decreases applicable to
products in distributors' inventories at the time of the decrease. Provision has
been made in the accompanying financial statements for the estimated liability
associated with defective product returns, stock rotations, and price decreases.
The Company's business activity is geographically diverse, with sales
within the United States as well as in foreign countries. The Company's exposure
to credit risk associated with nonperformance of these customers in fulfilling
its contractual commitment is limited to the contractual amount of the
receivable.
Generally, in its Networking Products business, the Company must
manufacture products in advance of orders from distributors and must, therefore,
estimate demand as accurately as possible. Distributors provide certain
information regarding their levels of sales to value-added resellers and other
customers, called Point of Sale ("POS") data, but such POS information cannot be
assured to be either timely or accurate. In addition, distributors maintain
target stocking levels of products, and such targeted levels may change without
notice, which could decrease the Company's revenue in a given period. Moreover,
distributors characteristically sell products at a small mark-up to the price
from which they are obtained from manufacturers, and terms of sale may influence
a distributor's decision to carry certain products. Based on inadequate POS and
end user information, unanticipated distributor targeted stocking levels,
unanticipated price competition, or otherwise, the Company may be unable to
estimate production requirements of its distributors and future sales levels
generally, the Company's revenue may fluctuate due to production in excess of
demand. Moreover, the inability of the Company to timely market excess
inventory, if any, on economically viable terms could have a material adverse
effect on the Company. Conversely, if the Company's production is insufficient
to satisfy demand, the Company could be adversely affected.
4. INVENTORIES
Inventories are stated at the lower of cost or market. Inventories are
standard-cost based, with such standards reviewed periodically against purchase
prices and adjusted as appropriate.
- -------------------------------------------------------------------------------
PAGE 21
<PAGE> 23
MICRODYNE CORPORATION 1996 ANNUAL REPORT ON FORM 10-K
- -------------------------------------------------------------------------------
NOTE A - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES - CONTINUED
5. PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and are depreciated or amortized using
the straight-line method over the following estimated useful lives:
<TABLE>
<S> <C>
Machinery and equipment 3-10 years
Buildings 20 years
Furniture and fixtures 3 - 5 years
Automobiles 3-5 years
Leasehold improvements Shorter of term of lease or life of asset
</TABLE>
6. CAPITALIZED SOFTWARE COSTS
Included in other assets as of September 29, 1996 is $433,000 in net
capitalized software costs. The Company's policy is to expense the costs
incurred prior to establishment of technological feasibility. The establishment
of technological feasibility and the ongoing assessment of recoverability of
capitalized software development costs require considerable judgment by
management with respect to certain external factors, including anticipated
future gross revenue, estimated economic life and changes in technologies.
Development costs beyond the point of technological feasibility are capitalized.
Amortization, which begins when the product is available for general release,
occurs over the estimated economic life which is typically between one and two
years. Amortization expense associated with capitalized software costs for the
years ended September, 30, 1994, October 1, 1995, and September 29, 1996 was
$473,000, $494,000 and $775,000, respectively.
7. EARNINGS PER SHARE
Earnings per common and common equivalent share is computed by dividing
the earnings or loss by the weighted average number of common and common
equivalent shares outstanding during the respective years.
The weighted average number of shares outstanding with the number of
shares used in the computation of earnings per share is as follows (in
thousands):
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Common shares 12,715 12,224 12,811
Common equivalent shares from stock options, when
dilutive 373 872 --
------- ------- ------
13,088 13,096 12,811
</TABLE>
8. FISCAL YEAR
During fiscal year 1995, the Company changed its fiscal year from
September 30 each year to a 52 or 53 week year ending on the Sunday nearest the
last day of September in each year. Therefore, fiscal years 1995 and 1996 ended
on October 1, 1995 and September 29, 1996, respectively, whereas fiscal year
1994 was under the fiscal calendar which ended on September 30. 1994. All
references to years relate to fiscal years rather than calendar years.
9. USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
10. CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents.
11. RECLASSIFICATIONS
Certain amounts in the 1994 and 1995 financial statements have been
reclassified to conform to the 1996 presentation.
- -------------------------------------------------------------------------------
PAGE 22
<PAGE> 24
MICRODYNE CORPORATION 1996 ANNUAL REPORT ON FORM 10-K
- -------------------------------------------------------------------------------
NOTE B - ACQUISITIONS AND DISPOSITIONS
In April 1996, the Company purchased from Novell the exclusive
royalty-free perpetual rights to market certain hardware products and related
technology for $6.8 million in cash and notes. See Notes G and I4. The
amortization period for the purchased intangibles, based on management's
estimate of the useful life of the acquired rights, is seven years. The Company
had previously licensed the rights to sell and market such products under
various license agreements.
In September 1995, the Company acquired the Ethernet product line from
National Semiconductor ("National"). This acquisition included certain
intangibles of $1.8 million and National's 10Mb and 10/100Mb Ethernet adapter
card inventory of approximately $3.5 million. The amortization period for the
intangibles, based on management's estimate of the useful life of the acquired
technology, is seven years.
In January 1995, the Company acquired the Eagle Technology ("Eagle")
business from Artisoft, Inc. Eagle provided the Company with a family of
Ethernet adapter cards, file server cards, hubs, and print server cards. The
purchase price was $16.5 million, representing $8.3 million in inventory, $7.5
million in goodwill and other intangibles, and $700,000 in fixed assets. The
amortization period for the intangibles, based on management's estimate of the
useful life of the acquired technology, is seven years.
The Company also acquired certain product lines, inventory, fixed
assets and intellectual property from Gateway Communications, Inc. for two
million dollars in a purchase transaction initiated in June 1994 and completed
in September 1994.
In July 1994, Digital Communications Associates (DCA) sold to the
Company certain fixed assets, property, rights, and inventory related to DCA's
Token Ring product line. The purchase price was approximately seven million
dollars, representing the net book value of the assets sold and guaranteed
minimum royalties of three million dollars. This minimum royalty commitment
covers five years and the long-term portion is presented as both a product line
acquisition cost and a long-term obligation in the consolidated balance sheets.
Such deferred minimum royalties will be amortized over five years as payments
are made.
In December 1993, the Company sold the net assets and operations of
Wireless Data Corporation, a subsidiary which manufactured industrial telemetry
products, for one million dollars in cash and a $300,000 note which was
subsequently paid.
On an ongoing basis, management reviews the valuation and amortization
of product line acquisition cost to determine possible impairment. The
recoverability of product line acquisition cost is assessed by determining
whether the amortization of such cost over its remaining life can be recovered
through projected undiscounted future cash flows.
NOTE C - ACCOUNTS RECEIVABLE
Accounts receivable are comprised of the following:
<TABLE>
<CAPTION>
As of As of
October 1, 1995 September 29, 1996
--------------- ------------------
(in thousands)
<S> <C> <C>
Commercial
Billed $ 53,915 $ 25,620
Unbilled 2,618 3,362
-------- --------
56,533 28,982
U.S. Government
Billed 3,774 591
Unbilled 1,064 2,475
-------- --------
4,838 3,066
Other 89 28
-------- --------
61,460 32,076
Allowance for doubtful accounts and other reserves (1,779) (1,122)
-------- --------
$ 59,681 $ 30,954
======== ========
</TABLE>
- -------------------------------------------------------------------------------
PAGE 23
<PAGE> 25
MICRODYNE CORPORATION 1996 ANNUAL REPORT ON FORM 10-K
- -------------------------------------------------------------------------------
NOTE C - ACCOUNTS RECEIVABLE - CONTINUED
Following is a table depicting the activity in the Company's allowance
for doubtful accounts and other related receivables reserves for the years
ended:
<TABLE>
<CAPTION>
September 30, October 1, September 29,
1994 1995 1996
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Beginning balance $ 362 $ 923 $ 1,779
Provision charged to operations 954 1,271 50
Amounts written off (393) (415) (707)
------- ------- ------
Ending balance $ 923 $ 1,779 $ 1,122
======= ======= ======
</TABLE>
Certain amounts of returns and other charges have been recorded directly to the
statements of operations and are not reflected in the above table.
NOTE D - INVENTORIES
Inventories are comprised of the following:
<TABLE>
<CAPTION>
As of As of
October 1,1995 September 29,1996
-------------- -----------------
(in thousands)
<S> <C> <C>
Raw materials $ 6,122 $ 5,945
Work-in-process 1,145 2,788
Finished goods 20,449 17,139
-------- --------
27,716 25,872
Less reserves for obsolescence (1,799) (1,772)
-------- --------
25,917 24,100
======== ========
</TABLE>
The following is a table depicting the activity in the Company's reserve for
obsolescence for the years ended:
<TABLE>
<CAPTION>
September 30, October 1, September 29,
1994 1995 1996
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Beginning balance $ 796 $ 2,005 $ 1,799
Increase in reserves
Provision charged to operations 321 463 388
Established upon acquisitions 1,185 1,090 --
Amounts written off to reserves (297) (1,759) (415)
------- ------- -------
Ending balance $ 2,005 $ 1,799 $ 1,772
======= ======= =======
</TABLE>
NOTE E - PROPERTY AND EQUIPMENT
Property and equipment are comprised of the following:
<TABLE>
<CAPTION>
As of As of
October 1,1995 September 29,1996
-------------- -----------------
(in thousands)
<S> <C> <C>
Machinery and equipment $ 7,619 $ 8,284
Buildings and land 1,859 1,859
Furniture and fixtures 1,411 1,239
Automobiles 91 51
Leasehold improvements 147 172
-------- --------
11,127 11,605
Accumulated depreciation and amortization (6,378) (7,859)
-------- --------
$ 4,749 $ 3,746
======== ========
</TABLE>
- -------------------------------------------------------------------------------
PAGE 24
<PAGE> 26
MICRODYNE CORPORATION 1996 ANNUAL REPORT ON FORM 10-K
- -------------------------------------------------------------------------------
NOTE F - ACCRUED LIABILITIES
Accrued liabilities are comprised of the following:
<TABLE>
<CAPTION>
As of As of
October 1,1995 September 29,1996
-------------- -----------------
(in thousands)
<S> <C> <C>
Inventory purchases $16,259 $ 3,938
Commissions and royalties 798 695
Payroll and payroll taxes 928 944
Vacation 584 631
Amounts associated with product line acquisitions 2,255 --
Other 779 1,107
------- -------
$21,603 $ 7,315
======= =======
</TABLE>
NOTE G - LONG-TERM OBLIGATIONS
Long-term obligations consists of the following as of:
<TABLE>
<CAPTION>
October 1,1995 September 29,1996
-------------- -----------------
(in thousands)
<S> <C> <C>
Amounts outstanding on a Line of Credit which limit was $22.5 million at October
1, 1995. Under the terms stipulated under the Company's present Credit Agreement
as amended, the amount available on this Line of Credit is calculated as the
lesser of: the Borrowing Base less amounts outstanding on the Term Note, or (a)
$17.5 million as of September 30, 1996 until December 30, 1996; (b) $14.5
million as of December 31, 1996 until March 30, 1997; (c) $8.0 million as of
March 31, 1997 and until June 29, 1997; and (d) $5.0 million as of June 30, 1997
and at all times thereafter. Borrowing availability for the Line of Credit was
$17.5 million at September 29, 1996. The Borrowing Base Loans (defined as the
sum of outstanding balances on the Line of Credit and Term Note) are
collateralized by a security interest in the Company's receivables, inventories,
equipment, and land and building. Under the Credit Agreement in place at October
1, 1995, interest was payable monthly and was at prime or the London Interbank
Offer Rate (LIBOR) plus a premium that ranged from 1.4% to 1.8%. Under the
present Credit Agreement as amended, interest is payable monthly at prime plus
one percent (prime at September 29, 1996 was 8.25%). The present Credit
Agreement as amended expires on September 30, 1997, unless extended pursuant to
the terms of the Credit Agreement. The Credit Agreement as amended contains
certain restrictive covenants with which the Company had complied as of
September 29, 1996. Amounts outstanding on a $12.0 million Term Note. As of
September 29, 1996, remaining principal is due in fixed monthly payments of $ 12,000 $ 14,418
$400,000 through April 1997 and $300,000 due on May 1, 1997. Under the Credit
Agreement in place at October 1, 1995, interest was payable monthly at either:
1) the prime rate (which was 8.75% on October 1, 1995); or 2) LIBOR plus a premium
that ranged from 1.5% to 1.9%. Under the present Credit Agreement as amended,
interest is payable monthly at prime plus one percent.
7,900 3,100
</TABLE>
- -------------------------------------------------------------------------------
PAGE 25
<PAGE> 27
MICRODYNE CORPORATION 1996 ANNUAL REPORT ON FORM 10-K
- -------------------------------------------------------------------------------
NOTE G - LONG-TERM OBLIGATIONS - CONTINUED
<TABLE>
<CAPTION>
October 1,1995 September 29,1996
-------------- -----------------
(in thousands)
<S> <C> <C>
Amounts outstanding on a $5.8 million acquisition note. Interest is -- 5,419
8% with principal and interest of $118,000 to be paid monthly from
May 1996 through April 2001
Amounts outstanding on a $3.0 million accounts payable financing -- 2,442
note. Interest is 8% with principal and interest of $137,000 to be
paid monthly from May 1996 through April 1998
Commitment for minimum royalties due under product line acquisition 2,219 1,132
agreement (see note B); payable over five years, expiring in fiscal
year 1999
Industrial revenue bond payable monthly at $4,167 plus interest at 304 254
85.5% of prime, due in 2001, collateralized by land
Other 59 25
-------- --------
22,482 26,790
Less current portion (5,483) (15,719)
-------- --------
$ 16,999 $ 11,071
======== ========
</TABLE>
<TABLE>
<CAPTION>
Long-term debt is due as follows:
Year ending
<S> <C>
September 28, 1997 $ 15,719
September 27, 1998 7,775
October 3, 1999 1,196
October 1, 2000 1,295
September 30, 2001 805
$ 26,790
</TABLE>
Under Statement of Financial Accounting Standards No. 107, "Disclosures
about Fair Value of Financial Instruments," effective for fiscal years that end
after December 15, 1995, the Company is required to provide fair value
disclosures of its financial instruments beginning in fiscal year 1996.
Outstanding Borrowing Base Loans approximate their fair values as the
interest rate fluctuates. The notes payable are not instruments with readily
available market values. The stated note interest rates are 8% and, based on the
currently prevailing prime rate of approximately 8%, the net book values of the
notes payable as of September 29, 1996 approximate their fair values as
calculated.
NOTE H - INCOME TAXES
The Company provides for income taxes using the liability method.
Deferred income taxes are classified as current or noncurrent, based on the
classification of the related assets and liabilities giving rise to the
temporary difference.
- -------------------------------------------------------------------------------
PAGE 26
<PAGE> 28
MICRODYNE CORPORATION 1996 ANNUAL REPORT ON FORM 10-K
- -------------------------------------------------------------------------------
NOTE H - INCOME TAXES (CONTINUED)
Following are the components of the deferred tax asset (liability) recognized
on the accompanying balance sheet:
<TABLE>
<CAPTION>
As of As of
October 1,1995 September 29,1996
-------------- -----------------
(in thousands)
<S> <C> <C>
Current
Inventory $ 799 $ 891
Accounts receivable 435 88
Financial statement income not taxable
until following year, net 9 74
------ ------
$1,243 $1,053
Non-current
Capitalized software costs $ (263) $ (170)
Intangibles amortization 154 533
State income taxes 92 113
Depreciation (266) (66)
Other (17) (297)
------ ------
$ (300) $ 113
------ ------
Net deferred income tax assets $ 943 $1,166
====== ======
</TABLE>
A valuation allowance against deferred tax assets has not been
recognized since there is sufficient prior-year taxable income against which
calculated deferred losses can be applied.
Following is a reconciliation of the statutory federal income tax rate
to the effective rates reflected in the statement of operations:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
Percent of Percent of Percent of
Pretax Pretax Pretax
Amount Earnings Amount Earnings Amount Earnings
------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Federal tax (benefit) at statutory rate $2,482 34.0% $6,936 34.0% $(1,683) (34.0)%
State income taxes, net of federal
benefit 572 7.9 931 4.6 (358) (7.2)
Benefit from foreign sales corporation -- -- (380) (1.9) (113) (2.3)
Benefits from research and development (90) (1.2) -- -- -- --
credits
Other items, net (263) (3.7) 319 1.6 147 3.0
Income tax expense (benefit) $2,701 37.0% $7,806 38.3% $(2,007) (40.5)%
</TABLE>
NOTE I - COMMITMENTS AND CONTINGENCIES
1. OPERATING LEASE COMMITMENTS
The Company is committed under noncancelable operating leases which
expire over the next four years and include purchase and renewal options,
primarily for office space. Rent expense under such leases was $1,244,000,
$1,000,000, and $1,120,000 for the years ended September 30, 1994, October 1,
1995, and September 29, 1996, respectively.
Future minimum lease payments under such operating leases as of
September 29, 1996 (in thousands) are as follows:
<TABLE>
<CAPTION>
Year ending
<S> <C>
September 28, 1997 $ 991
September 27, 1998 584
October 3, 1999 327
October 1, 2000 8
---------
$ 1,910
</TABLE>
- -------------------------------------------------------------------------------
PAGE 27
<PAGE> 29
MICRODYNE CORPORATION 1996 ANNUAL REPORT ON FORM 10-K
- -------------------------------------------------------------------------------
NOTE I - COMMITMENTS AND CONTINGENCIES (CONTINUED)
2. LITIGATION
In fiscal 1995, the Company settled (and reflected as an $875,000
charge to Other Expense) a shareholder class action lawsuit.
3. EMPLOYMENT AND NONCOMPETITION AGREEMENTS
The Company is committed under long-term employment and noncompetition
agreements with an officer. Approximate future minimum annual payments required
under the agreements are $475,000 and expire in fiscal 1999.
4. ROYALTIES
Prior to April 1996, the Company paid royalties to Novell in return
for the non-exclusive, worldwide right to manufacture and distribute various
hardware networking products under multiple licensing agreements.
In April 1996, the Company purchased from Novell the exclusive
royalty-free perpetual right to market certain hardware products and related
technology which had been subject to many of the licensing agreements above.
The $6.8 million purchase price gave the Company 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. See Note G.
The Company is required to pay royalties to Attachmate (formerly DCA)
pursuant to that product line acquisition in July 1994 (see Note B). The
residual guaranteed minimum royalty due Attachmate at September 29, 1996 in the
amount of $1,132,000 has been capitalized as a product line acquisition cost
with a corresponding liability. The recovery of the capitalized cost is
dependent upon related sales levels sufficient to generate such outstanding
guaranteed minimum royalty.
Total royalty expense was $4,560,000, $6,374,000, and $2,445,000 for
the years ended September 30, 1994, October 1, 1995, and September 29, 1996,
respectively. In addition, included in cost of goods sold are product purchases
from Novell of $25,758,000, $43,455,000, and $12,575,000 for the years ended
September 30, 1994, October 1, 1995, and September 29, 1996.
NOTE J - STOCK OPTION, STOCK PURCHASE, AND EMPLOYEE BENEFIT PLANS
1. STOCK OPTION PLANS
Under the terms of the Company's stock option plans, options to
purchase shares of the Company's common stock have been granted at exercise
prices equal to the market price of the stock at the date of grants. One
individual stock option was granted in June 1993 and another in August 1994.
Periods of exercisability vary but are typically over three years. Following is
a summary of transactions:
<TABLE>
<CAPTION>
Shares Under Option
1994 1995 1996
----- ---- ----
<S> <C> <C> <C>
Outstanding, beginning of year 1,043,300 1,343,050 660,712
Granted during the year 382,250 322,700 519,200
Canceled during the year (35,000) (39,917) (42,033)
Exercised during the year (at prices ranging from
$2.72 to $8.6875 per share) (47,500) (965,121) (20,062)
--------- --------- ---------
Outstanding, end of year 1,343,050 660,712 1,117,817
--------- --------- ---------
Eligible, end of year for exercise currently
(at prices ranging from $2.72 to $29.00 per share) 902,800 253,349 415,038
========= ========= =========
</TABLE>
- -------------------------------------------------------------------------------
PAGE 28
<PAGE> 30
MICRODYNE CORPORATION 1996 ANNUAL REPORT ON FORM 10-K
- -------------------------------------------------------------------------------
NOTE J - STOCK OPTION, STOCK PURCHASE, AND EMPLOYEE BENEFIT PLANS (CONTINUED)
2. STOCK PURCHASE PLAN
The Company has an Employee Stock Purchase Plan whereby eligible
employees may authorize payroll deductions up to 15% of their regular base
salary to purchase shares at 85% of fair market value at time of purchase. As
of September 29, 1996, 58,800 shares had been purchased by employees on a
cumulative basis.
3. EMPLOYEE BENEFIT PLAN
The Company has a 401(k) plan in effect as of September 29, 1996. This
plan covers all employees over the age of 18 who have completed six consecutive
months of service. The Company's contributions to the plan are based on a
certain percentage of each dollar contributed by the employee. The Company
contributed approximately $50,000, $58,000 and $73,000 in each of the years
ended September 30, 1994, October 1, 1995, and September 29, 1996,
respectively.
NOTE K - RELATED PARTY TRANSACTIONS
The following summarizes transactions with related parties:
1. The Company periodically has loaned amounts to its officers. No
amounts are due as of September 29. 1996. Receivables due from officers as of
October 1, 1995 were $193,000.
2. In September 1995, the Company appointed a partner of a law firm as
one of the Company's outside directors. The Company incurred $271,000 and
$295,000 in expense associated with the services of this law firm in fiscal
1995 and fiscal 1996, respectively.
NOTE L - INDUSTRY SEGMENTS, EXPORT REVENUE, AND CONCENTRATIONS
The Company operates in one business segment, data communications.
Within data communications, the Company's dominant activity is the manufacture,
sale and distribution of networking products to commercial customers. Export
revenue accounted for approximately 29%, 25%, and 25% of total sales in fiscal
years 1994, 1995, and 1996, respectively.
Following is detail of export revenue by geographic region:
<TABLE>
<CAPTION>
(Percentage of total export revenue)
1994 1995 1996
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Europe 70% 60% 73%
Pacific Rim 13% 24% 11%
South America and other 17% 16% 16%
</TABLE>
Revenue from two customers comprised 11% and 10%, respectively, of the
Company's total revenue in the fiscal year ended September 29, 1996.
Approximately 47%, 73%, and 37% of the Company's revenue in the years
ended September 30, 1994, October 1, 1995, and September 29, 1996,
respectively, was generated pursuant to a number of manufacturing and
technology agreements and licenses. Most of these licenses were superseded by
the April 1996 agreement which gave the Company the exclusive royalty-free
perpetual right to market certain hardware products. See Note B.
- -------------------------------------------------------------------------------
PAGE 29
<PAGE> 31
MICRODYNE CORPORATION 1996 ANNUAL REPORT ON FORM 10-K
- -------------------------------------------------------------------------------
NOTE M - SUPPLEMENTAL CASH FLOW AND INCOME STATEMENT INFORMATION
The Company paid the following amounts for interest and income taxes
as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
September 30, 1994 September 29, 1995 October 1, 1996
------------------ ------------------ ---------------
(in thousands)
<S> <C> <C> <C>
Interest $ 513 $ 1,524 $ 2,128
Income taxes $ 256 $ 4,235 $ 169
</TABLE>
During fiscal year 1995, the Company realized tax benefits of
$4,610,000 from the exercise of stock options resulting in a reduction in income
taxes payable and an increase in additional paid-in capital.
NOTE N - ACCOUNTING STANDARDS
1. ACCOUNTING FOR STOCK-BASED COMPENSATION
The Financial Accounting Standards Board recently issued Statement of
Financial Accounting Standards No. 123 (SFAS 123), "Accounting for Stock-Based
Compensation," effective for fiscal years that begin after December 15, 1995.
The new standard encourages all entities to adopt a fair value based method of
accounting for all employee stock option plans. Under this method, compensation
cost is measured at the grant date based on the value of the stock option award
and is recognized over the service period, which is usually the vesting period.
Optionally, a company may continue to use the intrinsic value method, as
described by Opinion 25, that measures compensation costs only to the extent
that the option price is lower than the quoted market price of the stock at the
date of the award. In fiscal year 1997, the Company expects to continue the
application of Opinion 25, but will comply with the pro forma disclosures of
net income, and earnings per share, as if the fair value based method of
accounting defined in SFAS 123 had been applied.
2. ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED
ASSETS TO BE DISPOSED OF
The Financial Accounting Standards Board recently issued Statement of
Financial Accounting Standards No. 121 (SFAS 121), "Accounting for the
Impairment of Long-Lived Assets to Be Disposed Of," effective for fiscal years
that begin after December 15, 1995. The new standard requires a company to
review for impairment long-lived assets and certain identifiable intangibles to
be held and used whenever events or changes in circumstances indicate the the
carrying amount of an asset may not be recoverable. If the events or changes in
circumstances are present, an impairment loss should be recognized. The
Company's long-lived assets consist of land and buildings in Ocala, Florida;
purchased intangibles; and capitalized software costs. In management's opinion,
no events or changes in circumstances exist relating to the Company's
long-lived assets that would have resulted in any impairment losses being
recognized had the Company implemented SFAS 121 in fiscal year 1996 and earlier
years.
- -------------------------------------------------------------------------------
PAGE 30
<PAGE> 32
MICRODYNE CORPORATION 1996 ANNUAL REPORT ON FORM 10-K
- -------------------------------------------------------------------------------
NOTE O -- QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following table sets forth certain unaudited quarterly financial
information for each of the Company's last eight quarters.
<TABLE>
<CAPTION>
Dollars in thousands 1Q96 2Q96 3Q96 4Q96 1996
<S> <C> <C> <C> <C> <C>
Revenue:
Product $29,348 $13,939 $20,950 $20,061 $ 84,298
Service 3,669 3,607 3,633 3,948 14,857
------- ------- ------- ------- --------
Total revenue 33,017 17,546 24,583 24,009 99,155
Cost of product sold and service provided:
Product 22,024 10,560 16,145 13,000 61,729
Service 2,381 2,504 2,449 2,756 10,090
------- ------- ------- ------- --------
Total costs 24,405 13,064 18,594 15,756 71,819
Gross Profit 8,612 4,482 5,989 8,253 27,336
Gross margin as a percentage of sales 26.1% 25.5% 24.4% 34.4% 27.6%
Selling, G&A Expense 5,978 6,376 5,560 5,458 23,372
SG&A as a percentage of sales 18.1% 36.3% 22.6% 22.7% 23.6%
Research and Development 1,161 1,042 981 983 4,167
R&D as a percentage of sales 3.5% 5.9% 4.0% 4.1% 4.2%
Amortization of intangibles 451 530 769 837 2,587
------- ------- ------- ------- --------
Earnings from Operations 1,022 (3,466) (1,321) 975 (2,790)
Operating income as a percentage of sales 3.1% -19.8% -5.4% 4.1% -2.8%
Other Expense, net (445) (502) (598) (616) (2,161)
------- ------- ------- ------- --------
Earnings Before Income Taxes 577 (3,968) (1,919) 359 (4,951)
Pre-tax Income as a percentage of sales 1.7% -22.6% -7.8% 1.5% -5.0%
Provision for Income Taxes 219 (1,508) (729) 11 (2,007)
------- ------- ------- ------- --------
Net Earnings $ 358 $(2,460) $(1,190) 348 $ (2,944)
Net Earnings as a percentage of sales 1.1% -14.0% -4.8% 1.4% -3.0%
Net Earnings (Loss) per Share $ .03 $ (0.19) $ (0.09) $ 0.03 $ (0.23)
Weighted average shares (000's) 12,793 12,806 12,811 12,828 12,811
Dollars in thousands 1Q95 2Q95 3Q95 4Q95 1995
Revenue:
Product $28,911 $37,678 $44,377 $46,461 $157,427
Service 2,908 2,899 3,286 3,558 12,651
------- ------- ------- ------- --------
Total revenue $31,819 $40,577 $47,663 $50,019 $170,078
Cost of product sold and service provided:
Product 20,165 25,885 30,714 32,257 109,021
Service 1,864 2,037 2,113 2,273 8,287
------- ------- ------- ------- --------
Total costs 22,029 27,922 32,827 34,530 117,308
Gross Profit 9,790 12,655 14,836 15,489 52,770
Gross margin as a percentage of sales 30.8% 31.2% 31.1% 31.0% 31.0%
Selling, G&A Expense 4,735 5,549 6,312 7,033 23,629
SG&A as a percentage of sales 14.9% 13.7% 13.2% 14.1% 13.9%
Research and Development 1,058 1,230 1,318 1,098 4,704
R&D as a percentage of sales 3.3% 3.0% 2.8% 2.2% 2.8%
Amortization of intangibles 104 384 483 262 1,233
------- ------- ------- ------- --------
Earnings from Operations 3,893 5,492 6,723 7,096 23,204
Operating income as a percentage of
sales 12.2% 13.5% 14.1% 14.2% 13.6%
Litigation settlement expense (875) -- -- (109) (984)
Other Expense, net (180) (555) (537) (548) (1,820)
------- ------- ------- ------- --------
Earnings Before Income Taxes 2,838 4,937 6,186 6,439 20,400
Pre-tax Income as a percentage of sales 8.9% 12.2% 13.0% 12.9% 12.0%
Provision for Income Taxes 1,107 1,925 2,413 2,361 7,806
------- ------- ------- ------- --------
Net Earnings $ 1,731 $ 3,012 $ 3,773 $ 4,078 $ 12,594
Net Earnings (Loss) per Share $ .14 $ .24 $ .29 $ 0.31 $ 0.96
Shares outstanding (000's) 12,431 12,669 13,149 13,281 13,096
</TABLE>
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PAGE 31
<PAGE> 33
MICRODYNE CORPORATION 1996 ANNUAL REPORT ON FORM 10-K
- --------------------------------------------------------------------------------
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no changes in or disagreements with Accountants on accounting and
financial disclosures in fiscal 1996.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
This information is incorporated by reference from the Company's definitive
1997 Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
This information is incorporated by reference from the Company's definitive
1997 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
This information is incorporated by reference from the Company's definitive
1997 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
This information is incorporated by reference from the Company's definitive
1997 Proxy Statement.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
No Form 8-K was filed during the last quarter of fiscal 1996.
- --------------------------------------------------------------------------------
PAGE 32
<PAGE> 34
MICRODYNE CORPORATION 1996 ANNUAL REPORT ON FORM 10-K
- --------------------------------------------------------------------------------
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
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
By: /s/ Philip T. Cunningham December 18, 1996
----------------------------
Philip T. Cunningham
President and Chief Executive Officer
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
PRINCIPAL EXECUTIVE OFFICER:
/s/ Philip T. Cunningham President December 18, 1996
- ------------------------------- Chief Executive Officer
Philip T. Cunningham and Director
PRINCIPAL FINANCIAL OFFICER:
/s/ Christian Spitz Chief Financial Officer December 18, 1996
- -------------------------------
Christian Spitz
/s/ Gregory W. Fazakerley Director December 18, 1996
- -------------------------------
Gregory W. Fazakerley
/s/ H. Brian Thompson Director December 18, 1996
- -------------------------------
H. Brian Thompson
/s/ Curtis M. Coward Director December 18, 1996
- ----------------------------------
Curtis M. Coward
</TABLE>
- --------------------------------------------------------------------------------
PAGE 33
<PAGE> 35
MICRODYNE CORPORATION 1996 ANNUAL REPORT ON FORM 10-K
- --------------------------------------------------------------------------------
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT No. DESCRIPTION SEQUENTIAL PAGE NO.
<S> <C> <C>
2.1 Merger Agreement between Incorporated by reference
Federal Technology Corporation to Exhibit 2.1 to the
and Registrant, dated March 7, Registrant's 1991 Form S-4
1991. Registration Statement.
3.1 Articles of Merger. Incorporated by reference
to Exhibit 3.1 to the
Registrant's 1991 Form S-4
Registration Statement.
3.2 Articles of Amendment and Incorporated by reference
Restatement of Articles of to Exhibit 4(A)(1) to the
Incorporation of Registrant. Registrant's 1989 Form S-2
Registration Statement.
3.3 Bylaws of Registrant. Incorporated by reference
to Exhibit 4(B)(1) to the
Registrant's 1990 Form S-3
Registration Statement.
4.1 Specimen Common Stock Incorporated by reference
Certificate. to Exhibit 49A) to the
Registrant's 1979
Registration Statement
(File. No. 2-634130).
10.3 Form of Amended and Restated Incorporated by reference
1991 Key Employee Stock to Exhibit 4.1 to the
Option Plan. Registrant's Registration
Statement on Form S-8
dated May 6, 1992
(File No. 33-47709).
10.7 Form of 1993 Non-Employee Incorporated by reference
Directors Stock Option Plan. to Exhibit 10.7 to
Registrant's 1994
Form 10-K Annual Report
10.8 Form of 1992 Employee Stock Incorporated by reference
Purchase Plan. to Exhibit 4.1 to the
Registrant's Registration
Statement on Form S-8
dated May 6, 1992
(File No. 33-47710).
10.9 Credit Agreement dated Incorporated by reference
January 27, 1995 among the to Exhibit 10.11 to
Registrant, Crestar Bank and Amendment No. 2 to the
NBD Bank Registrant's 1995 Form S-3
Registration Statement
10.10 First Amendment to Credit Incorporated by reference
Agreement among the Registrant, to Exhibit 10.12 to
Crestar Bank and NBD bank, dated Amendment No. 2 to the
October 26, 1995 Registrant's 1995 Form S-3
Registration Statement
</TABLE>
- --------------------------------------------------------------------------------
PAGE 34
<PAGE> 36
MICRODYNE CORPORATION 1996 ANNUAL REPORT ON FORM 10-K
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
10.11 Second Amendment to Credit Filed with this Form 10-K
Agreement among the Registrant,
Crestar Bank and NBD bank, dated
June 30, 1996.
10.12 Third Amendment to Credit Filed with this Form 10-K
Agreement among the Registrant,
Crestar Bank and NBD bank, dated
August 19, 1996.
10.13 Fourth Amendment to Credit Filed with this Form 10-K
Agreement among the Registrant,
Crestar Bank and NBD bank, dated
September 27, 1996.
10.14 Incentive Stock Option Plan of Incorporated by reference
1988 ("1988 Plan"). to Exhibit No. 1 to
Registrant's Form 8-K Report dated April 27,
1988 (File No. 0-4384).
10.15 Amendment of 1988 Plan adopted Incorporated by reference
by the Board of Directors on to Exhibit No. 4(F)(1)(a) to
June 27, 1989. Registrant's 1989 Form
10-K Annual Report.
10.16 Amendment of 1988 Plan adopted Incorporated by reference
by the Board of Directors on to Exhibit No. 10(G)(3) to
January 25, 1990. Registrant's 1990 Form
10-K Annual Report.
10.18 Microdyne Corporation 401-K Incorporated by reference
Summary Plan Description. to Exhibit No. 10.18 to the
Registrant's September 30,
1992 10K.
10.19 Federal Technology Corporation Incorporated by reference
Long-Term Incentive Plan. to Exhibit No. 10 to the
Registrant's June 21, 1991
Form 10-K.
10.20 Token Ring Purchase Agreement Incorporated by reference
dated July 26, 1994 between the to Exhibit 1 to the
Registrant and Digital Registrant's Form 8-K
Communications Associates. Report dated July 29, 1994.
(File No. 0-4384)
10.21 Noncompetition Agreement dated Incorporated by reference
June 21, 1995 between Microdyne to Exhibit 10.1 to
Corporation and Philip T. Amendment No. 1 to the
Cunningham Registrant's 1995 Form S-3
Registration Statement
10.22 Executive Employment Agreement Incorporated by reference
dated October 24, 1995 between to Exhibit 10.2 to
Microdyne Corporation and Philip Amendment No. 1 to the
T. Cunningham Registrant's 1995 Form S-3
Registration Statement
</TABLE>
- --------------------------------------------------------------------------------
PAGE 35
<PAGE> 37
MICRODYNE CORPORATION 1996 ANNUAL REPORT ON FORM 10-K
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
10.23 WNIM Purchase Agreement dated Incorporated by reference
June 14, 1994 between Microdyne to Exhibit 10.3 to
Peyton Street Corporation and Amendment No. 1 to the
Gateway Communication, Inc. Registrant's 1995 Form S-3
Registration Statement
10.24 Asset Purchase Agreement dated Incorporated by reference
June 14, 1994 between Microdyne to Exhibit 10.4 to
Peyton Street Corporation and Amendment No.1 to the
Gateway Communications, Inc. Registrant's 1995 Form S-3
Registration Statement
10.25 Asset Purchase Agreement dated Incorporated by reference
January 6, 1995 between the to Exhibit 1 to the
Registrant and Artisoft, Inc. Registrant's Form 8-K
dated January 6, 1995
10.26 Asset Purchase Agreement dated Incorporated by reference
January 6, 1995 between the to Exhibit 1 to the Registrant's
Registrant and Artisoft, Inc. Form 8-K dated January 6, 1995
10.27 Asset Purchase Agreement dated Incorporated by reference
September 12, 1995 between the to Exhibit 1 to Amendment
Registrant and National No.1 to the Registrant's 1995 Form
Semiconductor Corporation S-3 Registration Statement
10.28 License Agreement between Incorporated by reference
Novell Inc. and the Registrant to Exhibit No. 10.8 to Amendment No.
Dated July 31, 1992 2 to the Registrant's 1995 Form
S-3 Registration Statement
10.29 OEM Agreement between Incorporated by reference
Novell Inc. and the Registrant to Exhibit No. 10.9 to Amendment No.
Dated June 14, 1994 2 to the Registrant's 1995 Form S-3
Registration Statement
10.30 Technology Purchase Agreement Filed with this Form 10-K
between Novell Inc. and the Registrant
Dated April 22, 1996
10.31 Agreement between Epson America, Inc. Filed with this Form 10-K
and the Registrant Dated March 20, 1996.
11.1 Statement regarding computation of Filed with this Form 10-K
per-share earnings.
23.1 Consent of Grant Thornton to the Filed with this Form 10-K
incorporation by reference in the
Registration Statements on Form S-8
dated December 27, 1991, February
28, 1992, May 6, 1992, March 3, 1995,
November 2, 1995, and October 7, 1996.
27.1 Financial Data Schedule Incorporated by reference
to Exhibit No. 27 to
Amendment No. 1 to the
Registrant's 1995 Form S-3
Registration Statement.
</TABLE>
- --------------------------------------------------------------------------------
PAGE 36
<PAGE> 1
EXHIBIT 10.11
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.
<PAGE> 2
"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.
"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
2
<PAGE> 3
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)."
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.
3
<PAGE> 4
(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."
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.l(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
4
<PAGE> 5
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 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
5
<PAGE> 6
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.
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]
6
<PAGE> 7
WITNESS the following signatures.
BORROWER:
---------
MICRODYNE CORPORATION,
a Maryland corporation
By: [sig]
------------------------------
Name: [sig]
----------------------------
Title: Executive Vice President
---------------------------
AGENT:
------
CRESTAR BANK
By:
-----------------------------
Miriam M. Sadler
Senior Vice President
BANKS:
------
CRESTAR BANK
By:
-----------------------------
Miriam M. Sadler
Senior Vice President
NBD BANK
By:
----------------------------
Larry E. Schuster
Authorized Agent
7
<PAGE> 1
EXHIBIT 10.12
THIRD AMENDMENT TO
CREDIT AGREEMENT
THIS THIRD AMENDMENT TO CREDIT AGREEMENT (the "Amendment"),
dated and effective as of August 19, 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, and the Second Amendment Credit
Agreement, dated as of June 30, 1996 (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:
"Mortgage" means a Mortgage, in form and
substance acceptable to the Banks, creating a lien against
the land, buildings and fixtures located at 491 Oak Road,
Ocala, Florida, as the same may be amended, modified or
supplemented from time to time. The Mortgage shall be a Loan
Document, as defined in this Agreement.
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 $13,884,000 in
the case of Crestar and $6,116,000 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).
"Maximum Amount" means, with respect to the
Advances, $20,000,000; provided, however, that the applicable
Maximum Amount on any date
<PAGE> 2
shall be further reduced by the amount of the prepayment of
the Advances required by Section 2.10(e) of this Agreement.
"Termination Date" means September 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. Section 2.l(a) is deleted in its entirety and
replaced with the following:
"Subject to the terms and conditions of this Agreement, each
Bank severally may make Advances to the Borrower from time to
time until the Termination Date in an aggregate amount not to
exceed at any time outstanding such Bank's Advance Commitment.
The aggregate outstanding amount of Advances shall not exceed
the Maximum Amount at any time, unless the Banks, in their
sole discretion elect to make Advances in excess of such
limit, which Advances, if made, shall be subject to the terms
of this Agreement. All Advances will be made from time to
time in the sole discretion of the Banks, and this Agreement,
the making of any Advance or any other action by any Bank
shall not obligate the Banks to make further Advances to the
Borrower. The Borrower acknowledges and agrees that the Banks
may decline to make an Advance for any reason, even if no
Default or Event of Default has occurred and if the Borrower
is in compliance with all of the terms and conditions of this
Agreement. By close of business on Tuesday of each week prior
to the Termination Date, Borrower shall prepare and deliver to
the Agent a weekly cash projection showing Borrower's
projected receipts, disbursements, and Advance requests for
the next seven calendar days. Subject to the foregoing,
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."
4. The following provisions are added to the end of
Article 4:
"SECTION 4.4 Mortgage. As additional security for
the Obligations, the Borrower shall use its best efforts to
execute, deliver and record the Mortgage in the appropriate
land records not later than September 6, 1996, and deliver to
the Agent, not later than September 13, 1996, a mortgagee
title insurance commitment, issued by a title insurance
company acceptable to the Banks, to insure the Lien of the
Mortgage as a second Lien, subordinate only to the Lien
securing the Industrial Development Revenue Bonds described on
Schedule 4 to this Agreement, and containing no exceptions to
title that are not acceptable to the Banks in their sole
discretion.
SECTION 4.5 Cash Collateral Account. The Borrower agrees that
it shall direct all payments on Receivables to a lockbox
established with the Agent. The Borrower also agrees to remit
all payments on Receivables received by the Borrower, as well
as any
2
<PAGE> 3
other revenues of any kind (including, without limitation, any
income tax refunds) received by the Borrower, to the Agent.
All of the foregoing payments and revenues shall be remitted
or delivered to the lockbox or the Agent, as applicable, in
their original form on the date of receipt. All such payments
and revenues shall be credited to a cash collateral account
over which the Agent shall have the exclusive power of
withdrawal. The Agent shall hold all funds in the cash
collateral account as security for the Obligations and is
authorized to apply funds in the cash collateral to pay the
Obligations from time to time. The Borrower represents that
it does not have an account with any financial institution
other than the Agent, save and except those accounts set forth
on Schedule A ("Other Accounts"). The Borrower agrees that it
shall not establish any other account hereafter without prior
written approval of the Agent. The Borrower further agrees
that proceeds of Receivables totalling in excess of $25,000
deposited in any Other Account shall be transferred to the
cash collateral account established hereunder within 24 hours
of such deposit and all other proceeds of Receivables
deposited in any Other Account shall be transferred to said
cash collateral account within 48 hours of such deposit. The
Borrower shall respond to requests by the Agent for
information or documents relating to the Other Accounts and
the balances therein within 24 hours of its receipt of each
such request."
5. Pursuant to the provisions of Subsection (9) of
Section 7.1(b), the Borrower agrees to provide to the Agent, (a) on each
Business Day on which Receivables are created or collected, or on which
Inventory is purchased, shipped or returned, or on which a credit is issued or
created with respect to a Receivable, a sales journal on a form provided by the
Agent reflecting such activity and the resulting balance of Receivables and
Inventory, and (b) on each Business Day, a summary, by budget category, of all
disbursements in excess of $5,000 made by the Borrower on the immediately
preceding Business Day.
6. 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. Without limiting the generality of the foregoing, the
Borrower acknowledges and agrees that it is obligated to develop a business
plan acceptable to the Banks as required by the August 19, 1996 letter from the
Agent to the Borrower, and that no Advances will be made after September 16,
1996, unless such business plan is received by the Banks.
7. 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.
3
<PAGE> 4
8. 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.
9. 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.
10. This Amendment shall be governed by the laws of the
Commonwealth of Virginia, without reference to conflict of laws principles.
11. 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]
4
<PAGE> 5
WITNESS the following signatures.
BORROWER:
---------
MICRODYNE CORPORATION,
a Maryland corporation
By: /s/ PHILIP T. CUNNINGHAM
--------------------------------
Name: Philip T. Cunningham
------------------------------
Title: 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/ PHILLIP D. MARTIN
-------------------------------
Phillip D. Martin
Authorized Agent
5
<PAGE> 6
SCHEDULE A - OTHER ACCOUNTS
<TABLE>
<CAPTION>
BANK PURPOSE ACCOUNT #
===================================================================================================================
<S> <C> <C>
Wells Fargo Bank San Jose Petty Cash 0491-059366
Barnett Bank Ocala Operating Account 1150065051
First Interstate Bank Lancaster Petty Cash 502628619
Chase Manhattan Bank Microdyne Ltd. Account 719-1-305783
Royal Bank of Scotland UK Division Petty Cash 10032563
Royal Bank of Scotland UK Division Corporate Account 10032571
Deutsch Bank German Office Operating Account 5411160-00
Crestar Bank Flexible Spending Account 202258521
</TABLE>
<PAGE> 1
EXHIBIT 10.13
FOURTH AMENDMENT TO
CREDIT AGREEMENT
THIS FOURTH AMENDMENT TO CREDIT AGREEMENT ("the "Amendment"), dated and
effective as of September 27, 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, as amended by the First Amendment to
Credit Agreement, dated as of October 26, 1995, the Second Amendment to Credit
Agreement, dated as of June 30, 1996 (the "Second Amendment"), and the Third
Amendment to Credit Agreement, dated as of August 19, 1996 (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 definitions are added to Section 1.1 of
the Agreement:
"Applicable DC Advance Percentage" means the percentage
approved by the Banks from time to time for purposes of determining the
appropriate amounts of Eligible Data Communications Receivables to be
included in the Borrowing Base. As of September 30, 1996, the
Applicable DC Advance Percentage shall be 40%. If the average Dilution
Rate is 20% or less for two successive fiscal quarters, the Banks will
increase the Applicable DC Advance Percentage to 60%; provided,
however, that if the Dilution Rate exceeds 20% for any subsequent
fiscal quarter, the Banks may reduce the Applicable DC Advance
Percentage to 40%. Notwithstanding the foregoing, if the Banks
determine in their sole discretion at any time that the then-applicable
percentage is not an appropriate percentage based on the Dilution Rate
for a particular quarter, the Banks may lower the Applicable DC Advance
Percentage to a level that they deem appropriate, but in no event to
less than 20%. Each change in the Applicable DC Advance Percentage
shall become effective on the next Business Day following written
notice from the Agent to the Borrower.
"Dilution Rate" means, for any fiscal quarter, a fraction
(expressed as a percentage), the numerator of which is the aggregate
amount of cash and non-cash
<PAGE> 2
credits issued to Customers of the Data Communications division during
such quarter (including, without limitation, returns, stock rotation
credits and billing adjustments), and the denominator of which is the
gross sales of the Borrower for the immediately preceding fiscal
quarter.
"Eligible Data Communications Receivables" means Eligible
Receivables arising out of the operation of the Borrower's Data
Communications division.
"Eligible Equipment" means machinery and equipment, in good
and workable condition, to which the Borrower has title and in which
the Banks have a first priority security interest, free and clear of
all other Liens, including, without limitation, any Liens arising out
of Capital Leases; provided, however, that in no event shall Eligible
Equipment include fixtures that form part of the Eligible Real Estate.
"Eligible Real Estate" means the Land and the building and
fixtures located on the Land; provided, however, that such Land,
building and fixtures shall not become Eligible Real Estate unless and
until the Agent receives a mortgagee title insurance policy, issued by
Ticor Title Insurance Company, in the amount of $5,000,000, insuring
the Mortgage as a valid first Lien against the fee simple title to the
Land and such buildings and fixtures, and containing no exceptions,
printed form or otherwise, other than (a) real estate taxes not yet due
and payable, (b) an exception for matters that would be disclosed by a
current survey, and (c) the exceptions listed as items 4 through 14 in
Section II of Schedule B of Attorney's Title Insurance Fund, Inc.
Commitment No. C-2358100, dated September 13, 1996.
"Land" means Lots 23 through 38, inclusive, Block 722, Unit
No. 29. Silver Spring Shores, Marion County, Florida, as the same are
platted in Plat Book J, Pages 227 through 231, Public Records of
Marion County, Florida.
"Value" means, with respect to the Eligible Real Estate (a)
prior to the receipt and approval by the Banks of an appraisal of the
Eligible Real Estate, the assessed value thereof, based on the Marion
County, Florida real estate tax assessment, and (b) upon the receipt
and approval by the Banks of such appraisal, 80% of the appraised value
of the Eligible Real Estate; in either case, not to exceed $5,000,000.
Any appraisal shall be ordered by the Agent and shall conform to the
regulatory guidelines applicable to each Bank.
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 (a) from the date hereof until
December 30, 1996, $12,148,500 in the case of Crestar and $5,351,500
in the
2
<PAGE> 3
case of NBD; (b) as of December 31, 1996, and until March 30, 1997,
$10,065,900 in the case of Crestar and $4,434,100 in the case of NBD;
and (c) as of March 31, 1997, and until June 29, 1997, $5,553,600 in
the case of Crestar and $2,446,400 in the case of NBD; and (d) as of
June 30, 1997, and at all times thereafter, $3,471,000 in the case of
Crestar and $1,529,000 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) Applicable DC Advance Percentage of Eligible Data
Communications Receivables, plus (b) 80% of Eligible Billed Receivables
that do not arise out of the Borrower's Data Communications division,
plus (c) the applicable Inventory Component, plus (d) 30% of the net
book value of Eligible Equipment, plus (e) the Value of the Eligible
Real Estate, provided, however, that at no time shall the Borrowing
Base attributable to the Inventory Component exceed the Borrowing Base
attributable to clauses (a) and (b) of this definition.
"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,
3
<PAGE> 4
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 date of the initial invoices, then all Accounts Receivable
owed by such Customer shall be included in a separate line item on the
Aging and 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.
"Inventory Component" means 20% 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 $6,000,000.
"Maximum Amount" means, with respect to the Advances, (a) as
of September 30, 1996, until December 30, 1996, $17,500,000, (b) as of
December 31, 1996, and until March 30, 1997, $14,500,000, (c) as of
March 31, 1997, and until June 29, 1997, $8,000,000, and (d) as of June
30, 1997, and at all times thereafter, $5,000,000; 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.
"Termination Date" means September 30, 1997, 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. Section 2.1(a) is deleted in its entirety and replaced
with the following:
"SECTION 2.1 The Advances.
(a) Each Bank severally agrees, subject to the terms and
conditions of this Agreement, to make Advances to the Borrower from
time to time on any Business Day during the period from the date hereof
until the Termination Date in an aggregate amount not to exceed at any
time outstanding the amount of such Bank's Advance Commitment. The
aggregate outstanding amount of Advances shall not exceed the Maximum
Amount at any time. With 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
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<PAGE> 5
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)."
4. The Borrower acknowledges and agrees that the term "Borrowing
Base Loans" means, at any time, 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. Section 2.10(d) is amended to read
as follows:
"(d) The Borrower shall immediately prepay the Obligations to
the extent that (1) the Borrowing Base is less than 75% of the
outstanding Borrowing Base Loans at any time until December 30, 1996,
(2) as of December 31, 1996, and until March 30, 1997, the Borrowing
Base is less than 80% of the Borrowing Base Loans at any time, and (3)
as of March 31, 1997, and at all times thereafter, the Borrowing Base
is less than 100% of the outstanding Borrowing Base Loans at any time."
5. The Borrower agrees that it shall no longer have the right to
designate a Loan to be, continue a Loan as or convert a Loan into a Eurodollar
Rate Loan, and the provisions of Section 2.9 are no longer applicable. In
addition, Section 2.6 is deleted in its entirely and replaced with the
following:
"SECTION 2.6 Interest". The Borrower shall pay interest on the
unpaid principal amount of each Advance and Term Loan, on each Interest
Payment Date, at a rate per annum equal to the Base Rate plus 1%,
adjusted daily when and as the Base Rate is changed."
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 1/2 of 1% per annum of the Maximum Amount, to
be paid in advance on the first day of each calendar quarter, beginning
on October 1, 1996."
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
15 days after the end of each of the first two calendar months of each
fiscal quarter and within 30 days after the end of the last calendar
month of each fiscal quarter, 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 month
then ended and 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 comparative
5
<PAGE> 6
form the respective consolidated figures for the corresponding dates
and periods 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 15th 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,
accompanied by a current summary Aging, a current listing and aging of
accounts payable, and a detailed list of all cash receipts for, and
non-cash credits issued during, such week;"
9. Pursuant to the provisions of Subsection 9 of Section 7.1(b),
the Borrower (a) agrees to provide to the Agent, within 45 days after the end of
each March 31 and September 30, a listing of any product line of the Borrower
for which the turnover ratio determined in accordance with GAAP) was less than 2
to 1 for the 12-month period then ended, (b) authorizes the Agent to receive
such information as it may request with respect to Accounts Receivable
verifications obtained by the Borrower's independent accounting firm, and the
Borrower authorizes such accounting firm to review and discuss the results of
such verifications with the Banks.
10. Clause (4) of Section 7.2(c) is deleted.
11. Notwithstanding the provisions of Section 7.2(d)(1) and
7.2(i), the Borrower shall not enter into any Permitted Acquisition without the
prior written consent of the Banks.
12. Section 7.3, which was deleted by the Second Amendment,
is now reinstated and shall be amended to read in its entirety as
follows:
"SECTION 7.3 Financial Covenants. So long as any Note
shall remain unpaid, any Letter of Credit shall remain
outstanding or any Bank shall have any
6
<PAGE> 7
Commitment hereunder, the Borrower shall maintain, unless the Banks
shall otherwise consent in writing.
(a) Net Income. For the fiscal quarter ending on
December 31, 1996, and each subsequent fiscal quarter, Net Income or
greater than $1.
(b) Tangible Net Work. As of the end of each
fiscal quarter of the Borrower, beginning on December 31, 1996,
Tangible Net Worth of not less than the Tangible Net Worth reflected
in the Borrower's audited financial statements for the fiscal year
ending September 29, 1996.
13. Within 30 Business Days after its receipt of the written
request of the Agent, the Borrower agrees that it shall (a) contribute the
assets of its Telemetry and Manufacturing Support Services divisions to two
wholly-owned Subsidiaries of the Borrower in a manner acceptable to the Banks,
and (b) pledge the stock of such Subsidiaries to the Banks as security for the
Obligations pursuant to a pledge agreement in form and substance acceptable to
the Banks. Such Subsidiaries shall become jointly and severally liable under the
Loan Documents and shall pledge all of their assets to secure the Obligations in
a manner acceptable to the Banks.
14. The Borrower agrees that not later than October 10, 1996, the
Borrower shall record the Mortgage among the Marion County, Florida, land
records and deliver to the Agent the mortgagee title insurance policy described
in the definition of Eligible Receivables.
15. 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. The failure of
the Borrower to perform or observe any covenant or agreement contained herein
shall constitute an Event of Default under the Credit Agreement.
16. 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.
17. 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
7
<PAGE> 8
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.
18. 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.
19. This Amendment shall be governed by the laws of the
Commonwealth of Virginia, without reference to conflict of laws principles.
20. 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]
8
<PAGE> 9
WITNESS the following signatures.
BORROWER:
MICRODYNE CORPORATION
a Maryland corporation
By: /s/ PHILIP T. CUNNINGHAM
----------------------------
Name: Philip T. Cunningham
-------------------------
Title: 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/ PHILLIP D. MARTIN
--------------------------
Phillip D. Martin
Authorized Agent
9
<PAGE> 1
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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<PAGE> 2
$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
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<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. MAGINNISS
--------------------- ----------------------------
Name: James T. Sullivan Name: /s/ Christopher M. Maginniss
-------------------------- ----------------------------------
Title: VP. Dem Sales Title: Executive Vice President
------------------------- --------------------------------
6
<PAGE> 7
EXHIBIT A
PAYMENT OF THIS NOTE IS SUBORDINATED TO PAYMENT OF THE "SENIOR DEBT" AS DEFINED
HEREIN
COMMERCIAL NOTE
$3,035,000 April 17, 1996
FOR VALUE RECEIVED, the undersigned (the "Borrower") promises
to pay to the order of NOVELL, INC., a Delaware corporation (the "Lender,"
which term shall include any holder of this Note) without offset, at the
Lender's office located at 2180 Fortune Drive, San Jose, California 95131 (or
at such other address as the Lender shall designate), the principal sum of
Three Million Thirty-five Thousand Dollars ($3,035,000), together with interest
on the principal balance outstanding from time to time at the rate provided in
this Note.
INTEREST RATE. This Note shall bear interest on the
principal balance outstanding from time to time, from the date of this Note
until paid in full, at a fixed rate per annum of eight percent (8.0%). Interest
shall be computed on the basis of a 360 day year, counting the actual number of
days elapsed.
PAYMENT TERMS. The Borrower agrees to pay this Note in
installments of $137,264.83 including interest, beginning May 17, 1996 and on
the same day of each consecutive month thereafter; provided, however,
principal, interest and all other charges shall be due and payable in full on
April 17, 1998.
PREPAYMENT. The Borrower may pay the whole or any part of
the outstanding indebtedness evidenced by this Note at any time without penalty
by paying the principal amount to be prepaid together with accrued interest
thereon to the date of prepayment. Any prepayment of principal shall not
affect the obligation of the Borrower to make subsequent scheduled principal
payments at the times and in the amounts required until this Note is paid in
full.
Page 1 of 5
<PAGE> 8
DEFAULT. Each of the following events or conditions shall
constitute a default ("Default") under this Note:
(a) the failure to make any payment of principal,
interest or any other amount due under this Note within three (3) business
days from the date on which Borrower receives written notice from Lender that
such payment is due and unpaid;
(b) the failure to perform or observe any warranty,
covenant, or other condition of this Note; or
(c) the insolvency of the Borrower, the filing of a
petition by or against the Borrower under the provisions of any bankruptcy,
reorganization, arrangement, insolvency, liquidation or similar law for relief
of debtors, the appointment or application for appointment of any receiver for
the Borrower or the property of the Borrower, or an assignment for the benefit
of creditors by the Borrower.
ACCELERATION. At the option of the Lender, upon the
occurrence of a Default as defined above, the full amount remaining unpaid on
this Note shall become immediately due and payable without presentment, demand
or notice of any kind; and the Lender may exercise any or all remedies
available to it under applicable law and the Loan Documents.
IMMEDIATELY AVAILABLE FUNDS. The principal of and interest
on this Note shall be payable in immediately available funds in lawful money of
the United States which shall be legal tender for public and private debts at
the time of payment.
APPLICATION OF PAYMENTS. Payments will be applied to
interest, principal, and late charges and other charges due at the time such
payments are received, in that order. All payments shall be applied to
satisfaction of scheduled payments in the order in which they become due.
LATE CHARGE; ATTORNEYS' FEES. If the Borrower fails to pay
any amount due under this Note within 15 days of the date due, the Borrower
shall pay to the Lender on demand a late charge equal to five percent (5%) of
the amount due. The Borrower shall pay to the Lender on demand all reasonable
costs incurred by the Lender, and reasonable attorneys' fees, in the collection
or enforcement of this Note in the event of Default, whether or not suit is
brought.
Page 2 of 5
<PAGE> 9
SUBORDINATION. The Lender hereby subordinates the payment of
this Note (the "Subordinated Debt") to the payment in full of all loans,
advances, liabilities and indebtedness now or hereafter owed by the Borrower to
Crestar Bank, a Virginia banking corporation (the "Bank") and all renewals,
extensions, and modifications thereof and substitutions therefor and all loans,
advances, liabilities and indebtedness now or hereafter owed by the Borrower to
NBD Bank under the Credit Agreement, dated as of January 27, 1995, among NBD
Bank, Crestar Bank and the Borrower, and all extensions, renewals and
modifications thereof and substitutions therefor, with respect to which Crestar
Bank acts as agent for NBD Bank (the "Senior Debt"). The Lender further agrees
that any lien, encumbrance or other security for the payment of the
Subordinated Debt, whether now existing or hereafter arising, is and shall be
expressly subordinated to any lien, encumbrance or other security for the
payment of the Senior Debt.
Notwithstanding the provisions of the preceding paragraph, as
long as no default has occurred under any instrument or agreement evidencing or
securing the Senior Debt, scheduled payments of principal, interest and fees on
the Subordinated Debt, and no other payments, may be received, accepted and
retained by the Lender; provided, however in no event will the Lender receive,
accept or retain any prepayment of the Subordinated Debt prior to the scheduled
due date.
The Lender agrees that until the Senior Debt is paid in full
it will not (i) ask, demand, sue for take or receive from the Borrower directly
or indirectly, in cash, securities or other property or by set-off or in any
other manner (including, without limitation, from or by way of collateral),
payment of all or any part of the Subordinated Debt, or (ii) commence or join
with other creditors in commencing any bankruptcy, reorganization, receivership
or insolvency proceeding against the Borrower. In the event of any Default
described in paragraph (c) of the DEFAULT section of this Note, then and in any
such event the Bank and NBD Bank shall be entitled to receive payment in full
in cash or cash equivalents of all amounts due or to become due on or in
respect of all Senior Debt before the Lender shall be entitled to receive and
retain any payment on account of the principal, interest or other amounts due
or to become due on the Subordinated Debt, and to that end the Bank and NBD
Bank shall be entitled to receive, for application to the payment of the Senior
Debt, any payment or distribution of any kind or character whether in cash,
securities, or other property, which may be payable or deliverable in respect
of the Subordinated Debt in any such case, proceeding, dissolution, liquidation
or other winding up or event. Accordingly, any payment or distribution of
assets of the Borrower of any kind or character which would otherwise have been
made to the Lender but for the provisions of this section shall instead be made
by the Borrower or by the trustee in bankruptcy, receiver liquidating trustee,
custodian, assignee, agent or other person making payment or distribution of
assets of the Borrower directly to the Bank and NBD Bank for application to the
payment of all Senior Debt remaining unpaid to the extent necessary to pay all
Senior Debt in full in cash or cash equivalents after giving effect to any
concurrent payment or distribution to or for the benefit of the Bank and NBD
Bank. The Lender irrevocably authorizes and empowers the Bank to file claims
and take such other actions, in the Bank's own name or in the name of the
Lender
Page 3 of 5
<PAGE> 10
or otherwise, as the Bank may deem necessary or advisable for the enforcement
of this section of this Note, and to vote the full amount of the Lender's
claims in any receivership, insolvency or bankruptcy proceeding in the Lender's
place and stead. The Under further irrevocably appoints the Bank its true and
lawful attorney-in-fact for the purposes specified herein, with full power of
substitution, and such power shall be a power coupled with an interest. The
Lender further agrees to execute and deliver to the Bank such powers of
attorney, assignments or other instruments as may be reasonably requested by
the Bank in order to enable the Bank to enforce any and all claims upon or with
respect to any or all of the Subordinated Debt and to collect and receive any
and all payments or distributions which may be payable or deliverable at any
time upon or with respect to any of the Subordinated Debt.
If, notwithstanding the provisions of this section of this
Note, the Lender shall have received any payment or distribution of assets of
the Borrower of any kind or character before all amounts due or to become due
on or in respect of all Senior Debt have been paid in full in cash or cash
equivalents, then and in such event such payment or distribution shall be
received in trust for the Bank and NBD Bank and shall be forthwith paid over or
delivered by the Lender receiving the same directly to the Bank and NBD Bank or
to the extent legally required, to the trustee in bankruptcy, receiver
liquidating trustee, custodian, assignee, agent or other person making such
payment or distribution of assets of the Borrower for application to the
payment of all Senior Debt remaining unpaid to the extent necessary to pay all
Senior Debt in full after giving effect to any concurrent payment or
distribution to or for the Bank and NBD Bank.
The Lender agrees that until the Senior Debt is paid in full
it will not subordinate any part of the Subordinated Debt to any indebtedness
owed to any person other than the Bank and NBD Bank.
The terms of this section of this Note shall continue to be
effective or be reinstated, as the case may be, if at any time any payment of
any of the Senior Debt is rescinded or must otherwise be returned by the Bank
or NBD Bank upon the insolvency, bankruptcy or reorganization of the Borrower
or otherwise, all as though such payment had been due but not made at such
time.
ADDITIONAL TERMS.
The proceeds of this Note shall be used to acquire or carry
on a business, professional, investment, or commercial enterprise or activity.
The rights and remedies of the Lender under this Note, the
other Loan Documents, and applicable law shall be cumulative and concurrent,
and the exercise of any one or more of them shall not preclude the simultaneous
or later exercise by the Lender of any or all such other rights or remedies.
In the event any provision of this Note is held to be
Page 4 of 5
<PAGE> 11
invalid, illegal, or unenforceable for any reason, then such provision only
shall be deemed null and void and shall not affect any other provisions of this
Note, which shall remain effective.
This Note shall be governed by and construed in accordance
with the laws of the Commonwealth of Virginia.
WITNESS the following signature and seal:
MICRODYNE CORPORATION
[SEAL]
By:
--------------------------------------
Name:
Title:
Page 5 of 5
<PAGE> 12
EXHIBIT B
<TABLE>
<CAPTION>
PRODUCT APPLICABLE
CONTRACT
<S> <C>
10mbETHERENT PRODUCTS
NE1000 Adapter (1)
NE2000 Series Adapters (1)
NE3200 Series Adapters (1)
Exos 235 Series Adapters (5)
NC5000 Series Hubs No Contract
NCB/12/24 Series Hubs No Contract
NE3210 Adapter No Contract
NE3300 Adapter No Contract
EP2000 plus Series Adapters No Contract
NE2500 Series Adapters No Contract
NE5500 Series Adapters No Contract
NE/2 Series Adapters No Contract
NE2000 plus Series Adapters No Contract
NMSL Series Adapters No Contract
NE4200 Series PCMCIA No Contract
NE4000 PCMCIA No Contract
NPE400 Series Print Server No Contract
Infomover NE2000plus Series Adapters No Contract
Infomover NE4100 Series PCMCIA No Contract
WIDE AREA PRODUCTS
WNIM Series Adapters No Contract
CoaxMux Adapter (2)
SAA Adapter for PC (2)
SAA Adapter for PS/2 (2)
SyncPlus Series Adapters (2)
V.35 Adapters (PCOX) (3)
</TABLE>
<PAGE> 13
<TABLE>
<CAPTION>
PRODUCT APPLICABLE
CONTRACT
<S> <C>
Sync Adapter (PCOX) (3)
Coax Adapter (PCOX) (3)
NW2000 Adapter No Contract
NTR2000 Token Ring Adapter No Contract
EXCELAN PRODUCTS
Exos 20x Series "Big Bus" Controllers (4)
Exos 30x Series "Big Bus" Controllers (4)
Exos 205/215 Series Controllers (4)
</TABLE>
CONTRACT KEY:
(1) Novell NE1000, NE1500T, NE2000, NE2000T, NE2100, and NE3200 NIC
Technology License Agreement dated July 31, 1992
(2) SNA Gateway Technology License and Manufacturing Agreement dated May 1,
1992
(3) Novell PCOX Products Technology License and Manufacturing Agreement
dated July 16, 1991
(4) Exos Technology License and Manufacturing Agreement dated Mary 31, 1990
(5) Novell NE3200 Technology License Agreement date February 5, 1991
<PAGE> 14
EXHIBIT C
PAYMENT OF THIS NOTE IS SUBORDINATED TO PAYMENT OF THE "SENIOR
DEBT" AS DEFINED HEREIN
COMMERCIAL NOTE
$5,820,000.00 April 17, 1996
FOR VALUE RECEIVED, the undersigned (the "Borrower") promises
to pay to the order of NOVELL, INC., a Delaware corporation (the "Lender,"
which term shall include any holder of this Note) without offset, at the
Lender's office located at 2180 Fortune Drive, San Jose, California 95131 (or
at such other address as the Lender shall designate), the principal sum of Five
Million Eight Hundred Twenty Thousand and no/100 Dollars ($5,820,000.00),
together with interest on the principal balance outstanding from time to time
at the rate provided in this Note.
INTEREST RATE. This Note shall bear interest on the
principal balance outstanding from time to time, from the date of this Note
until paid in full, at a fixed rate per annum of eight percent (8.0%). Interest
shall be computed on the basis of a 360 day year, counting the actual number of
days elapsed.
PAYMENT TERMS. The Borrower agrees to pay this Note in
installments of $118,008.61 each, including interest, beginning May 17, 1996
and on the same day of each consecutive month thereafter; provided, however,
principal, interest and all other charges shall be due and payable in full on
April 17, 2001.
PREPAYMENT. The Borrower may pay the whole or any part of
the outstanding indebtedness evidenced by this Note at any time without penalty
by paying the principal amount to be prepaid together with accrued interest
thereon to the date of prepayment. Any prepayment of principal shall not
affect the obligation of the Borrower to make subsequent scheduled principal
payments at the times and in the amounts required until this Note is paid in
full.
DEFAULT. Each of the following events or conditions shall
constitute a default ("Default") under this Note:
Page 1 of 5
<PAGE> 15
(a) the failure to make any payment of principal,
interest or any other amount due under this Note within three business days of
the date on which Borrower receives written notice from Lender that such
payment is due and unpaid;
(b) the failure to perform or observe any warranty,
covenant, or other condition of this Note; or
(c) the insolvency of the Borrower, the filing of a
petition by or against the Borrower under the provisions of any bankruptcy,
reorganization, arrangement, insolvency, liquidation or similar law for relief
of debtors, the appointment or application for appointment of any receiver for
the Borrower or the property of the Borrower, or an assignment for the benefit
of creditors by the Borrower.
ACCELERATION. At the option of the Lender, upon the
occurrence of a Default as defined above, the full amount remaining unpaid on
this Note shall become immediately due and payable without presentment, demand
or notice of any kind; and the Lender may exercise any or all remedies
available to it under applicable law and the Loan Documents.
IMMEDIATELY AVAILABLE FUNDS. The principal of and interest
on this Note shall be payable in immediately available funds in lawful money of
the United States which shall be legal tender for public and private debts at
the time of payment.
APPLICATION OF PAYMENTS. Payments will be applied to
interest, principal, and late charges and other charges due at the time such
payments are received, in that order. All payments shall be applied to
satisfaction of scheduled payments in the order in which they become due.
LATE CHARGE; ATTORNEYS' FEES. If the Borrower fails to pay
any amount due under this Note within 15 days of the date due, the Borrower
shall pay to the Lender on demand a late charge equal to five percent (5%) of
the amount due. The Borrower shall pay to the Lender on demand all reasonable
costs incurred by the Lender, and reasonable attorneys' fees, in the collection
or enforcement of this Note in the event of Default, whether or not suit is
brought.
SUBORDINATION. The Lender hereby subordinates the payment of
this Note (the "Subordinated Debt") to the payment in full of all loans,
advances, liabilities and indebtedness now or hereafter owed by the Borrower to
Crestar Bank, a Virginia banking corporation (the "Bank") and all renewals,
extensions, and modifications thereof and
Page 2 of 5
<PAGE> 16
substitutions therefor and all loans, advances, liabilities and indebtedness
now or hereafter owed by the Borrower to NBD Bank under the Credit Agreement,
dated as of January 27, 1995, among NBD Bank, Crestar Bank and the Borrower,
and all extensions, renewals and modifications thereof and substitutions
therefor, with respect to which Crestar Bank acts as agent for NBD Bank (the
"Senior Debt"). The Lender further agrees that any lien, encumbrance or other
security for the payment of the Subordinated Debt, whether now existing or
hereafter arising, is and shall be expressly subordinated to any lien,
encumbrance or other security for the payment of the Senior Debt.
Notwithstanding the provisions of the preceding paragraph, as
long as no default has occurred under any instrument or agreement evidencing or
securing the Senior Debt, scheduled payments of principal, interest and fees on
the Subordinated Debt, and no other payments, may be received, accepted and
retained by the Lender; provided, however in no event will the Lender receive,
accept or retain any prepayment of the Subordinated Debt prior to the scheduled
due date.
The Lender agrees that until the Senior Debt is paid in full
it will not (i) ask, demand, sue for take or receive from the Borrower directly
or indirectly, in cash, securities or other property or by set-off or in any
other manner (including, without limitation, from or by way of collateral),
payment of all or any part of the Subordinated Debt, or (ii) commence or join
with other creditors in commencing any bankruptcy, reorganization, receivership
or insolvency proceeding against the Borrower. In the event of any Default
described in paragraph (c) of the DEFAULT section of this Note, then and in any
such event the Bank and NBD Bank shall be entitled to receive payment in full
in cash or cash equivalents of all amounts due or to become due on or in
respect of all Senior Debt before the Lender shall be entitled to receive and
retain any payment on account of the principal, interest or other amounts due
or to become due on the Subordinated Debt, and to that end the Bank and NBD
Bank shall be entitled to receive, for application to the payment of the Senior
Debt, any payment or distribution of any kind or character whether in cash,
securities, or other property, which may be payable or deliverable in respect
of the Subordinated Debt in any such case, proceeding, dissolution, liquidation
or other winding up or event. Accordingly, any payment or distribution of
assets of the Borrower of any kind or character which would otherwise have been
made to the Lender but for the provisions of this section shall instead be made
by the Borrower or by the trustee in bankruptcy, receiver liquidating trustee,
custodian, assignee, agent or other person making payment or distribution of
assets of the Borrower directly to the Bank and NBD Bank for application to the
payment of all Senior Debt remaining unpaid to the extent necessary to pay all
Senior Debt in full in cash or cash equivalents after giving effect to any
concurrent payment or distribution to or for the benefit of the Bank and NBD
Bank. The Lender irrevocably authorizes and empowers the Bank to file claims
and take such other actions, in the Bank's own name or in the name of the
Lender or otherwise, as the Bank may deem necessary or advisable for the
enforcement of this section of this Note, and to vote the full amount of the
Lender's claims in any receivership, insolvency or bankruptcy proceeding in the
Lender's place and stead. The Lender further irrevocably appoints the Bank its
true and lawful attorney-in-fact for the purposes specified
Page 3 of 5
<PAGE> 17
herein, with full power of substitution, and such power shall be a power
coupled with an interest. The Lender further agrees to execute and deliver to
the Bank such powers of attorney, assignments or other instruments as may be
reasonably requested by the Bank in order to enable the Bank to enforce any and
all claims upon or with respect to any or all of the Subordinated Debt and to
collect and receive any and all payments or distributions which may be payable
or deliverable at any time upon or with respect to any of the Subordinated
Debt.
If, notwithstanding the provisions of this section of this
Note, the Lender shall have received any payment or distribution of assets of
the Borrower of any kind or character before all amounts due or to become due
on or in respect of all Senior Debt have been paid in full in cash or cash
equivalents, then and in such event such payment or distribution shall be
received in trust for the Bank and NBD Bank and shall be forthwith paid over or
delivered by the Lender receiving the same directly to the Bank and NBD Bank or
to the extent legally required, to the trustee in bankruptcy, receiver
liquidating trustee, custodian, assignee, agent or other person making such
payment or distribution of assets of the Borrower for application to the
payment of all Senior Debt remaining unpaid to the extent necessary to pay all
Senior Debt in full after giving effect to any concurrent payment or
distribution to or for the Bank and NBD Bank.
The Lender agrees that until the Senior Debt is paid in full
it will not subordinate any part of the Subordinated Debt to any indebtedness
owed to any person other than the Bank and NBD Bank.
The terms of this section of this Note shall continue to be
effective or be reinstated, as the case may be, if at any time any payment of
any of the Senior Debt is rescinded or must otherwise be returned by the Bank
or NBD Bank upon the insolvency, bankruptcy or reorganization of the Borrower
or otherwise, all as though such payment had been due but not made at such
time.
ADDITIONAL TERMS.
The proceeds of this Note shall be used to acquire or carry on
a business, professional, investment, or commercial enterprise or activity.
The rights and remedies of the Lender under this Note, the
other Loan Documents, and applicable law shall be cumulative and concurrent,
and the exercise of any one or more of them shall not preclude the simultaneous
or later exercise by the Lender of any or all such other rights or remedies.
In the event any provision of this Note is held to be invalid, illegal, or
unenforceable for any reason, then such provision only shall be deemed null and
void and shall not affect any other provisions of this Note, which shall remain
effective.
Page 4 of 5
<PAGE> 18
This Note shall be governed by and construed in accordance
with the laws of the Commonwealth of Virginia.
WITNESS the following signature and seal:
MICRODYNE CORPORATION
[SEAL]
By:
----------------------------
Name:
Title:
Page 5 of 5
<PAGE> 19
PAYMENT OF THIS NOTE IS SUBORDINATED TO PAYMENT OF THE "SENIOR DEBT" AS DEFINED
HEREIN
COMMERCIAL NOTE
$3,035,000 April 17, 1996
FOR VALUE RECEIVED, the undersigned (the "Borrower") promises
to pay to the order of NOVELL, INC., a Delaware corporation (the "Lender,"
which term shall include any holder of this Note) without offset, at the
Lender's office located at 2180 Fortune Drive, San Jose, California 95131 (or
at such other address as the Lender shall designate), the principal sum of
Three Million Thirty-five Thousand Dollars ($3,035,000), together with interest
on the principal balance outstanding from time to time at the rate provided in
this Note.
INTEREST RATE. This Note shall bear interest on the principal
balance outstanding from time to time, from the date of this Note until paid in
full, at a fixed rate per annum of eight percent (8.0%). Interest shall be
computed on the basis of a 360 day year, counting the actual number of days
elapsed.
PAYMENT TERMS. The Borrower agrees to pay this Note in
installments of $137,264.83 including interest, beginning May 17, 1996 and on
the same day of each consecutive month thereafter; provided, however,
principal, interest and all other charges shall be due and payable in full on
April 17, 1998.
PREPAYMENT. The Borrower may pay the whole or any part of the
outstanding indebtedness evidenced by this Note at any time without penalty by
paying the principal amount to be prepaid together with accrued interest
thereon to the date of prepayment. Any prepayment of principal shall not
affect the obligation of the Borrower to make subsequent scheduled principal
payments at the times and in the amounts required until this Note is paid in
full.
Page 1 of 5
<PAGE> 20
DEFAULT. Each of the following events or conditions shall
constitute a default ("Default") under this Note:
(a) the failure to make any payment of principal,
interest or any other amount due under this Note within three (3) business days
from the date on which Borrower receives written notice from Lender that such
payment is due and unpaid;
(b) the failure to perform or observe any warranty,
covenant, or other condition of this Note; or
(c) the insolvency of the Borrower, the filing of a
petition by or against the Borrower under the provisions of any bankruptcy,
reorganization, arrangement, insolvency, liquidation or similar law for relief
of debtors, the appointment or application for appointment of any receiver for
the Borrower or the property of the Borrower, or an assignment for the benefit
of creditors by the Borrower.
ACCELERATION. At the option of the Lender, upon the
occurrence of a Default as defined above, the full amount remaining unpaid on
this Note shall become immediately due and payable without presentment, demand
or notice of any kind; and the Lender may exercise any or all remedies
available to it under applicable law and the Loan Documents.
IMMEDIATELY AVAILABLE FUNDS. The principal of and interest on
this Note shall be payable in immediately available funds in lawful money of
the United States which shall be legal tender for public and private debts at
the time of payment.
APPLICATION OF PAYMENTS. Payments will be applied to
interest, principal, and late charges and other charges due at the time such
payments are received, in that order. All payments shall be applied to
satisfaction of scheduled payments in the order in which they become due.
LATE CHARGE; ATTORNEYS' FEES. If the Borrower fails to pay
any amount due under this Note within 15 days of the date due, the Borrower
shall pay to the Lender on demand a late charge equal to five percent (5%) of
the amount due. The Borrower shall pay to the Lender on demand all reasonable
costs incurred by the Lender, and reasonable attorneys' fees, in the collection
or enforcement of this Note in the event of Default, whether or not suit is
brought.
Page 2 of 5
<PAGE> 21
SUBORDINATION. The Lender hereby subordinates the payment of
this Note (the "Subordinated Debt") to the payment in full of all loans,
advances, liabilities and indebtedness now or hereafter owed by the Borrower to
Crestar Bank, a Virginia banking corporation (the "Bank") and all renewals,
extensions, and modifications thereof and substitutions therefor and all loans,
advances, liabilities and indebtedness now or hereafter owed by the Borrower to
NBD Bank under the Credit Agreement, dated as of January 27, 1995, among NBD
Bank, Crestar Bank and the Borrower, and all extensions, renewals and
modifications thereof and substitutions therefor, with respect to which Crestar
Bank acts as agent for NBD Bank (the "Senior Debt"). The Lender further agrees
that any lien, encumbrance or other security for the payment of the
Subordinated Debt, whether now existing or hereafter arising, is and shall be
expressly subordinated to any lien, encumbrance or other security for the
payment of the Senior Debt.
Notwithstanding the provisions of the preceding paragraph, as
long as no default has occurred under any instrument or agreement evidencing or
securing the Senior Debt, scheduled payments of principal, interest and fees on
the Subordinated Debt, and no other payments, may be received, accepted and
retained by the Lender; provided, however in no event will the Lender receive,
accept or retain any prepayment of the Subordinated Debt prior to the scheduled
due date.
The Lender agrees that until the Senior Debt is paid in full
it will not (i) ask, demand, sue for take or receive from the Borrower directly
or indirectly, in cash, securities or other property or by set-off or in any
other manner (including, without limitation, from or by way of collateral),
payment of all or any part of the Subordinated Debt, or (ii) commence or join
with other creditors in commencing any bankruptcy, reorganization, receivership
or insolvency proceeding against the Borrower. In the event of any Default
described in paragraph (c) of the DEFAULT section of this Note, then and in any
such event the Bank and NBD Bank shall be entitled to receive payment in full
in cash or cash equivalents of all amounts due or to become due on or in
respect of all Senior Debt before the Lender shall be entitled to receive and
retain any payment on account of the principal, interest or other amounts due
or to become due on the Subordinated Debt, and to that end the Bank and NBD
Bank shall be entitled to receive, for application to the payment of the Senior
Debt, any payment or distribution of any kind or character whether in cash,
securities, or other property, which may be payable or deliverable in respect
of the Subordinated Debt in any such case, proceeding, dissolution, liquidation
or other winding up or event. Accordingly, any payment or distribution of
assets of the Borrower of any kind or character which would otherwise have been
made to the Lender but for the provisions of this section shall instead be made
by the Borrower or by the trustee in bankruptcy, receiver liquidating trustee,
custodian, assignee, agent or other person making payment or distribution of
assets of the Borrower directly to the Bank and NBD Bank for application to the
payment of all Senior Debt remaining unpaid to the extent necessary to pay all
Senior Debt in full in cash or cash equivalents after giving effect to any
concurrent payment or distribution to or for the benefit of the Bank and NBD
Bank. The Lender irrevocably authorizes and empowers the Bank to file claims
and take such other actions, in the Bank's own name or in the name of the
Lender
Page 3 of 5
<PAGE> 22
or otherwise, as the Bank may deem necessary or advisable for the enforcement
of this section of this Note, and to vote the full amount of the Lender's
claims in any receivership, insolvency or bankruptcy proceeding in the Lender's
place and stead. The Lender further irrevocably appoints the Bank its true and
lawful attorney-in-fact for the purposes specified herein, with full power of
substitution, and such power shall be a power coupled with an interest. The
Lender further agrees to execute and deliver to the Bank such powers of
attorney, assignments or other instruments as may be reasonably requested by
the Bank in order to enable the Bank to enforce any and all claims upon or with
respect to any or all of the Subordinated Debt and to collect and receive any
and all payments or distributions which may be payable or deliverable at any
time upon or with respect to any of the Subordinated Debt.
If, notwithstanding the provisions of this section of this
Note, the Lender shall have received any payment or distribution of assets of
the Borrower of any kind or character before all amounts due or to become due
on or in respect of all Senior Debt have been paid in full in cash or cash
equivalents, then and in such event such payment or distribution shall be
received in trust for the Bank and NBD Bank and shall be forthwith paid over or
delivered by the Lender receiving the same directly to the Bank and NBD Bank or
to the extent legally required, to the trustee in bankruptcy, receiver
liquidating trustee, custodian, assignee, agent or other person making such
payment or distribution of assets of the Borrower for application to the
payment of all Senior Debt remaining unpaid to the extent necessary to pay all
Senior Debt in full after giving effect to any concurrent payment or
distribution to or for the Bank and NBD Bank.
The Lender agrees that until the Senior Debt is paid in full
it will not subordinate any part of the Subordinated Debt to any indebtedness
owed to any person other than the Bank and NBD Bank.
The terms of this section of this Note shall continue to be
effective or be reinstated, as the case may be, if at any time any payment of
any of the Senior Debt is rescinded or must otherwise be returned by the Bank
or NBD Bank upon the insolvency, bankruptcy or reorganization of the Borrower
or otherwise, all as though such payment had been due but not made at such
time.
ADDITIONAL TERMS.
The proceeds of this Note shall be used to acquire or carry on
a business, professional, investment, or commercial enterprise or activity.
The rights and remedies of the Lender under this Note, the
other Loan Documents, and applicable law shall be cumulative and concurrent,
and the exercise of any one or more of them shall not preclude the simultaneous
or later exercise by the Lender of any or all such other rights or remedies.
In the event any provision of this Note is held to be
Page 4 of 5
<PAGE> 23
invalid, illegal, or unenforceable for any reason, then such provision only
shall be deemed null and void and shall not affect any other provisions of this
Note, which shall remain effective.
This Note shall be governed by and construed in accordance
with the laws of the Commonwealth of Virginia.
WITNESS the following signature and seal:
MICRODYNE CORPORATION
[SEAL]
By: /s/ CHRISTOPHER M. MAGINNISS
--------------------------------
Name: Christopher M. Maginniss
Title: Executive Vice President
Page 5 of 5
<PAGE> 24
PAYMENT OF THIS NOTE IS SUBORDINATED TO PAYMENT OF THE "SENIOR DEBT" AS DEFINED
HEREIN
COMMERCIAL NOTE
$5,820,000.00 April 17, 1996
FOR VALUE RECEIVED, the undersigned (the "Borrower") promises
to pay to the order of NOVELL, INC., a Delaware corporation (the "Lender,"
which term shall include any holder of this Note) without offset, at the
Lender's office located at 2180 Fortune Drive, San Jose, California 95131 (or
at such other address as the Lender shall designate), the principal sum of Five
Million Eight Hundred Twenty Thousand and no/100 Dollars ($5,820,000.00),
together with interest on the principal balance outstanding from time to time
at the rate provided in this Note.
INTEREST RATE. This Note shall bear interest on the principal
balance outstanding from time to time, from the date of this Note until paid in
full, at a fixed rate per annum of eight percent (8.0%). Interest shall be
computed on the basis of a 360 day year, counting the actual number of days
elapsed.
PAYMENT TERMS. The Borrower agrees to pay this Note in
installments of $118,008.61 each, including interest, beginning May 17, 1996
and on the same day of each consecutive month thereafter; provided, however,
principal, interest and all other charges shall be due and payable in full on
April 17, 2001.
PREPAYMENT. The Borrower may pay the whole or any part of the
outstanding indebtedness evidenced by this Note at any time without penalty by
paying the principal amount to be prepaid together with accrued interest
thereon to the date of prepayment. Any prepayment of principal shall not
affect the obligation of the Borrower to make subsequent scheduled principal
payments at the times and in the amounts required until this Note is paid in
full.
DEFAULT. Each of the following events or conditions shall
constitute a default ("Default") under this Note:
Page 1 of 5
<PAGE> 25
(a) the failure to make any payment of principal,
interest or any other amount due under this Note within three business days of
the date on which Borrower receives written notice from Lender that such
payment is due and unpaid;
(b) the failure to perform or observe any warranty,
covenant, or other condition of this Note; or
(c) the insolvency of the Borrower, the filing of a
petition by or against the Borrower under the provisions of any bankruptcy,
reorganization, arrangement, insolvency, liquidation or similar law for relief
of debtors, the appointment or application for appointment of any receiver for
the Borrower or the property of the Borrower, or an assignment for the benefit
of creditors by the Borrower.
ACCELERATION. At the option of the Lender, upon the
occurrence of a Default as defined above, the full amount remaining unpaid on
this Note shall become immediately due and payable without presentment, demand
or notice of any kind; and the Lender may exercise any or all remedies
available to it under applicable law and the Loan Documents.
IMMEDIATELY AVAILABLE FUNDS. The principal of and interest on
this Note shall be payable in immediately available funds in lawful money of
the United States which shall be legal tender for public and private debts at
the time of payment.
APPLICATION OF PAYMENTS. Payments will be applied to
interest, principal, and late charges and other charges due at the time such
payments are received, in that order. All payments shall be applied to
satisfaction of scheduled payments in the order in which they become due.
LATE CHARGE; ATTORNEYS' FEES. If the Borrower fails to pay
any amount due under this Note within 15 days of the date due, the Borrower
shall pay to the Lender on demand a late charge equal to five percent (5%) of
the amount due. The Borrower shall pay to the Lender on demand all reasonable
costs incurred by the Lender, and reasonable attorneys' fees, in the collection
or enforcement of this Note in the event of Default, whether or not suit is
brought.
SUBORDINATION. The Lender hereby subordinates the payment of
this Note (the "Subordinated Debt") to the payment in full of all loans,
advances, liabilities and indebtedness now or hereafter owed by the Borrower to
Crestar Bank, a Virginia banking corporation (the "Bank") and all renewals,
extensions, and modifications thereof and
Page 2 of 5
<PAGE> 26
substitutions therefor and all loans, advances, liabilities and indebtedness
now or hereafter owed by the Borrower to NBD Bank under the Credit Agreement,
dated as of January 27, 1995, among NBD Bank, Crestar Bank and the Borrower,
and all extensions, renewals and modifications thereof and substitutions
therefor, with respect to which Crestar Bank acts as agent for NBD Bank (the
"Senior Debt"). The Lender further agrees that any lien, encumbrance or other
security for the payment of the Subordinated Debt, whether now existing or
hereafter arising, is and shall be expressly subordinated to any lien,
encumbrance or other security for the payment of the Senior Debt.
Notwithstanding the provisions of the preceding paragraph, as
long as no default has occurred under any instrument or agreement evidencing or
securing the Senior Debt, scheduled payments of principal, interest and fees on
the Subordinated Debt, and no other payments, may be received, accepted and
retained by the Lender; provided, however in no event will the Lender receive,
accept or retain any prepayment of the Subordinated Debt prior to the scheduled
due date.
The Lender agrees that until the Senior Debt is paid in full
it will not (i) ask, demand, sue for take or receive from the Borrower directly
or indirectly, in cash, securities or other property or by set-off or in any
other manner (including, without limitation, from or by way of collateral),
payment of all or any part of the Subordinated Debt, or (ii) commence or join
with other creditors in commencing any bankruptcy, reorganization, receivership
or insolvency proceeding against the Borrower. In the event of any Default
described in paragraph (c) of the DEFAULT section of this Note, then and in any
such event the Bank and NBD Bank shall be entitled to receive payment in full
in cash or cash equivalents of all amounts due or to become due on or in
respect of all Senior Debt before the Lender shall be entitled to receive and
retain any payment on account of the principal, interest or other amounts due
or to become due on the Subordinated Debt, and to that end the Bank and NBD
Bank shall be entitled to receive, for application to the payment of the Senior
Debt, any payment or distribution of any kind or character whether in cash,
securities, or other property, which may be payable or deliverable in respect
of the Subordinated Debt in any such case, proceeding, dissolution, liquidation
or other winding up or event. Accordingly, any payment or distribution of
assets of the Borrower of any kind or character which would otherwise have been
made to the Lender but for the provisions of this section shall instead be made
by the Borrower or by the trustee in bankruptcy, receiver liquidating trustee,
custodian, assignee, agent or other person making payment or distribution of
assets of the Borrower directly to the Bank and NBD Bank for application to the
payment of all Senior Debt remaining unpaid to the extent necessary to pay all
Senior Debt in full in cash or cash equivalents after giving effect to any
concurrent payment or distribution to or for the benefit of the Bank and NBD
Bank. The Lender irrevocably authorizes and empowers the Bank to file claims
and take such other actions, in the Bank's own name or in the name of the
Lender or otherwise, as the Bank may deem necessary or advisable for the
enforcement of this section of this Note, and to vote the full amount of the
Lender's claims in any receivership, insolvency or bankruptcy proceeding in the
Lender's place and stead. The Lender further irrevocably appoints the Bank its
true and lawful attorney-in-fact for the purposes specified
Page 3 of 5
<PAGE> 27
herein, with full power of substitution, and such power shall be a power
coupled with an interest. The Lender further agrees to execute and deliver to
the Bank such powers of attorney, assignments or other instruments as may be
reasonably requested by the Bank in order to enable the Bank to enforce any and
all claims upon or with respect to any or all of the Subordinated Debt and to
collect and receive any and all payments or distributions which may be payable
or deliverable at any time upon or with respect to any of the Subordinated
Debt.
If, notwithstanding the provisions of this section of this
Note, the Lender shall have received any payment or distribution of assets of
the Borrower of any kind or character before all amounts due or to become due
on or in respect of all Senior Debt have been paid in full in cash or cash
equivalents, then and in such event such payment or distribution shall be
received in trust for the Bank and NBD Bank and shall be forthwith paid over or
delivered by the Lender receiving the same directly to the Bank and NBD Bank or
to the extent legally required, to the trustee in bankruptcy, receiver
liquidating trustee, custodian, assignee, agent or other person making such
payment or distribution of assets of the Borrower for application to the
payment of all Senior Debt remaining unpaid to the extent necessary to pay all
Senior Debt in full after giving effect to any concurrent payment or
distribution to or for the Bank and NBD Bank.
The Lender agrees that until the Senior Debt is paid in full
it will not subordinate any part of the Subordinated Debt to any indebtedness
owed to any person other than the Bank and NBD Bank.
The terms of this section of this Note shall continue to be
effective or be reinstated, as the case may be, if at any time any payment of
any of the Senior Debt is rescinded or must otherwise be returned by the Bank
or NBD Bank upon the insolvency, bankruptcy or reorganization of the Borrower
or otherwise, all as though such payment had been due but not made at such
time.
ADDITIONAL TERMS.
The proceeds of this Note shall be used to acquire or carry on
a business, professional, investment, or commercial enterprise or activity.
The rights and remedies of the Lender under this Note, the
other Loan Documents, and applicable law shall be cumulative and concurrent,
and the exercise of any one or more of them shall not preclude the simultaneous
or later exercise by the Lender of any or all such other rights or remedies.
In the event any provision of this Note is held to be invalid, illegal, or
unenforceable for any reason, then such provision only shall be deemed null and
void and shall not affect any other provisions of this Note, which shall remain
effective.
Page 4 of 5
<PAGE> 28
This Note shall be governed by and construed in accordance
with the laws of the Commonwealth of Virginia.
WITNESS the following signature and seal:
MICRODYNE CORPORATION
[SEAL]
By: /s/ CHRISTOPHER M. MAGINNISS
-------------------------------
Name: Christopher M. Maginniss
Title: Executive Vice President
Page 5 of 5
<PAGE> 1
EXHIBIT 10.31
SUPPORT services AGREEMENT between Microdyne Corporation ("Microdyne"), a
Maryland corporation located at 3601 Eisenhower Avenue, Alexandria, VA., 22304,
and Epson America, Inc. ("Epson"), 20770 Madrona Avenue, Torrance, CA., 90509.
RECITALS
In the course of the distribution and sale of its products, Epson requires
product and subassembly repair and refurbishment, warranty administration,
product upgrade projects, telephone technical support, and other miscellaneous
Services. Epson has determined that it is in its best interest to contract for
personnel to perform these Services, and Microdyne desires to provide personnel
to perform these Services on an independent contractor basis. Additionally,
Epson and Microdyne wish to terminate the previous Depot Repair, Product
Refurbishment, and Warranty Administration Agreement, dated December 13, 1990,
and replace it with this Agreement to reflect current Epson requirements,
working conditions, and revised pricing. The Depot Repair, Product
Refurbishment, and Warranty Administration Agreement, dated December 13, 1990,
and all its amendments, including Amendment 1, dated September 1, 1991,
Amendment 2, dated October 2, 1992, Amendment 3, dated December 1, 1992,
Amendment 4, dated May 1, 1993, Amendment 5, dated December 1, 1993, and
Amendment 6, dated October 1, 1994, are cancelled, terminated, and superseded
by this Agreement.
1 . TERM.
Five years effective April 1, 1996.
2. MICRODYNE PROVISION OF PERSONNEL AND SERVICES.
Microdyne will provide qualified personnel to perform depot repair of
products and subassemblies, product refurbishment, product upgrade
projects, warranty administration, telephone technical support, and other
miscellaneous Services (collectively called "Services") as requested by
Epson. The type and quantity of personnel and Services requested by
Epson are subject to change from time to time to meet Epson's business
needs. Some Services may be performed by Epson personnel or by other
independent contractors retained by Epson. The Services performed by
Microdyne will be mutually agreed upon and identified in writing, signed
by the parties."
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2.1 Responsibility for Employees.
Pursuant to the terms of this agreement, Microdyne will provide
employees to work for and at the direction of Epson ("Leased
Employees"). By signing below, the parties expressly acknowledge
that all employees leased by Microdyne to Epson shall remain
employees of Microdyne (and not employees of Epson) for all
purposes. In particular, said employees shall remain subject to
Microdyne's employee policies and procedures which cannot be
modified by Epson without the express written authority of
Microdyne's Director of Human Resources.
The governing policies and procedures of Microdyne supersede those
of Epson in all areas, subject to limitations of federal and state
law, including, but not limited to:
Salary Status
Bonuses
Promotions/Demotions
Expense Accounts/Travel Guidelines
Attendance Schedules
Vacations
Sick time
Comp Time
Holiday Schedules/Pay
Flexible Work Schedules
Telecommuting
Performance Reviews
Identification Mechanisms (i.e., Business Cards, Employee Badges)
Disciplinary Action/Procedures
Reduction in Staff
Hiring/Rehiring
Terminations of Employment of Any Kind
Employee Benefits
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2.2 Services.
Microdyne shall provide the Leased Employees and Services to Epson
as an independent contractor in accordance with the terms and
conditions of this agreement (as more fully described in the
Statement of Work, Attachment A hereto). Epson retains full
management control over its service terms and programs, as well as
Epson's customer and end user relations. For all practical
purposes, Microdyne's provisions of the Services shall be
invisible to Epson's customers and end users.
Microdyne, on a semi-annual basis, or sooner, shall provide Epson
a value engineering change proposal which shall identify
methodologies that may result in increased Epson customer service
and/or cost reductions.
2.3 Training.
Epson will provide, at no charge to Microdyne, ongoing training
for new Epson products to enable Leased Employees to perform the
Services.
2.4 Facilities and Equipment.
Services will be performed at Epson's facilities currently located
in Torrance and Carson, California, and Indianapolis, Indiana, and
other locations as mutually agreed upon in writing, signed by the
parties. Epson will provide use of these facilities and all
equipment, tools, test equipment, documentation, and supplies
needed for the Services at no charge to Microdyne. Both parties
shall have a mutual and affirmative obligation to maintain the
integrity and security of all facilities and equipment. Both
parties will take all reasonable steps to assure the security of
the facilities and their contents. Microdyne will reimburse Epson
for any damage or loss caused by negligence on the part of
Microdyne.
2.5 Insurance.
Microdyne shall indemnify, defend and hold Epson, its employees
and affiliates harmless from any and all damages, liabilities,
costs and expenses incurred by Epson as a result of any claims,
judgments, or adjudication against Epson for any breach by
Microdyne of the provisions of this Agreement or
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<PAGE> 4
arising from any misconduct or negligence of Microdyne's employees
in the scope of their employment. Epson shall indemnify, defend
and hold Microdyne, its employees and affiliates harmless from any
and all damages, liabilities, costs and expenses incurred by
Microdyne as a result of any breach of this Agreement by Epson,
arising out of processes or procedures required by Epson or
arising from any misconduct or negligence of Epson's employees in
the scope of their employment.
To support these indemnities, Microdyne and Epson will obtain and
maintain in effect at all times contractual liability insurance in
support of this agreement. Epson will be named as an additional
insured and policy limits should not be less than $1 million per
occurrence and $10 million total. Evidence of insurance will be
provided to Epson within thirty (30) days of each policy renewal
by Certificate of Insurance.
Microdyne's insurance policies will waive any and all subrogation
against Epson.
2.6 Operating Assets and Equipment.
During the course of the previous agreement, Microdyne purchased
some assets and equipment as described in Attachment D. These
assets and equipment will continue to be owned and used by
Microdyne as required with no additional charge to Epson.
2.7 Parts, Inventory, and Ordering.
Epson will provide all parts necessary for the Services at no cost
to Microdyne. Microdyne will order parts from Epson on an as
needed basis in conformance with Epson's existing parts and
accounting procedures.
2.8 Records and Audit Rights.
(a) Microdyne agrees to keep and maintain commercially reasonable
records of the charges associated with Microdyne's provision
of the Leased Employees and Services. Epson retains the
right to have a representative of Epson's certified public
accounting firm inspect and audit Microdyne's books and
records pertaining to the
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<PAGE> 5
Leased Employees and Services upon notice to Microdyne, at
Epson's expense, to insure compliance with the terms of this
agreement. If the audit at Epson's expense reveals
deficiencies greater than 2% of billing, then the cost of the
audit will be paid by Microdyne.
(b) Microdyne agrees to furnish to Epson a statement within
fifteen (15) days following the end of each month identifying
the Services performed during the preceding month and labor
expended. Microdyne shall keep and maintain true and
accurate records regarding all information and data
reasonably necessary or required for the computation and
verification of all amounts payable to Microdyne hereunder.
(c) Microdyne agrees to provide any information required by Epson
to comply with government rules and regulations. The
information will be made available on a mutually agreeable
schedule determined at the time of any request.
2.9 Product Safety.
Microdyne agrees to notify Epson immediately in writing upon
discovery that any Epson product fails to comply with any
applicable consumer product or electrical safety law or
regulation, or upon discovery that any such product contains a
defect which could, in the reasonable opinion of Microdyne, create
a substantial operational problem or consumer product safety or
electrical hazard.
2.10 Failure to Perform.
(a) If Epson determines that Microdyne has consistently failed to
meet the mutually agreed upon quality and performance
standards for Services and Leased Employees, described in
Attachment A.II.A. and B., Epson will notify Microdyne in
writing of such discrepancies. Microdyne will have 15 days
to develop a written plan of corrective action to meet
quality and performance standards. Upon approval of the
corrective action plan by Epson, Microdyne will have 60 days
to restore Services or Leased Employees to quality and
performance standards.
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<PAGE> 6
(b) Additionally, if Epson executive management determines that
any Leased Employee has significantly failed to meet quality
or performance standards, or performed any other detrimental
act, Epson at its sole discretion may request that Microdyne
immediately replace that Leased Employee and Microdyne will
comply.
(c) Any personnel actions, including reductions in staff or
terminations, performed as a result of 2.10. a. or b. above
will be Microdyne's sole responsibility as defined in 2.1
above.
3. USE OF EPSON TRADEMARKS AND LOGOS.
During the term of this agreement, Microdyne is authorized to use the
Epson trademarks, proprietary logos, and designations applicable to the
products as may be necessary for Microdyne to provide the Services, in
conformity with Epson's written guidelines for trademark usage. Upon
expiration or termination of this agreement, Microdyne shall cease all
references and use of any and all Epson names, trademarks, logos, and
designations. Microdyne shall not use Epson trademarks, logos, or
designations in any advertising materials, nor publicize the agreement
without prior written authorization from Epson.
4. PROPRIETARY NATURE OF PRODUCTS.
4.1 Epson Rights.
No title to or ownership of Epson's products, including software
or any of the parts, is transferred to Microdyne by this agreement
or the provision of the Services by Microdyne. Title to all
applicable rights and patents, copyrights and trade secrets in
Epson's products shall remain with Epson, and Microdyne agrees to
respect and observe the proprietary nature thereof. Microdyne
agrees to take appropriate action by instructions or agreement
with its employees, agents, and contractors who are permitted
access to the Epson products or other proprietary information to
fulfill its obligations hereunder. Notwithstanding any provision
of this agreement, Epson owns and retains all title and ownership
of all intellectual property rights; all software; all firmware;
all master diskettes; and related materials provided by Epson to
Microdyne hereunder.
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<PAGE> 7
4.2 Reverse Engineering, Etc.
Microdyne agrees not to decompile, reverse engineer, reverse
compile, modify, or perform any similar type of operation on
products, parts, software or furniture furnished by Epson without
the express prior written consent of Epson.
5. TECHNICAL SUPPORT.
Epson shall make technical support available to Microdyne during the term
of this agreement without cost to Microdyne, to answer questions and
provide support for Microdyne in connection with the Services.
6. INTELLECTUAL PROPERTY RIGHTS, INDEMNIFICATION.
6.1 By Epson.
Epson shall indemnify, defend, and hold Microdyne harmless from
any and all damages, liabilities, costs, and expenses incurred by
Microdyne as a result of any claims, judgments, or adjudication
against Microdyne that Epson products infringe any U.S. patent or
copyright of any third part, provided: (i) Microdyne shall
promptly notify Epson in writing of such claim; and (ii) Epson
shall have the sole control of the defense of any such action and
all negotiations for its settlement and compromise.
6.2 By Microdyne.
Microdyne shall indemnify, defend, and hold Epson harmless from
any and all damages, liabilities, costs, and expenses incurred by
Epson as a result of any claims, judgments, or adjudication
against Epson that Epson products modified by Microdyne outside of
the approved procedures supplied and enforced by Epson infringe
any U.S. patent or copyright of any third party, provided: (i)
Epson shall promptly notify Microdyne in writing of such claim;
and (ii) Microdyne shall have the sole control of the defense of
any such action and all negotiations for its settlement and
compromise.
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<PAGE> 8
7. CONFIDENTIALITY.
Both parties acknowledge that confidential information provided
hereunder, including the transfer of technology and software, constitute
a trade secret and, as such, shall be held and maintained in confidence,
as set forth in the Confidentiality and Non-Disclosure Agreement,
Attachment C hereto.
8. WARRANTIES AND DISCLAIMERS
8.1 Warranty.
Microdyne warrants that the depot repairs, product refurbishment,
product retrofits and Services will be performed in accordance
with the repair and refurbishment criteria for the applicable
service provided by Epson, and industry standards. In the event
any such repair, refurbishment, or retrofit does not perform in
accordance with the applicable specifications in Attachment A for
a period of ninety (90) days after shipment thereof by Epson to a
customer, Microdyne will remedy such failure by repair at no
additional cost to Epson.
8.2 Disclaimer.
Microdyne expressly disclaims all warranties except the limited
warranty set forth above.
9. PAYMENT.
Epson agrees to pay for the Leased Employees at those rates set forth in
Attachment B hereto. Microdyne shall invoice Epson monthly in arrears
for applicable Leased Employees and other related charges, accompanied by
the report described in Section 2.6(b) above. Said invoice shall be
paid in full within thirty (30) days after receipt. Any invoices which
are unpaid after this thirty (30) day period will be amended to include
interest charges of 1.5% (percent) a month on the invoice amount from the
thirty-first (31st) day following invoice date to date of payment to
Microdyne, or the highest amount allowed by law,
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<PAGE> 9
whichever is applicable. Further, Microdyne reserves the right to
suspend all Services provided under this agreement or require payment in
advance in the event any two consecutive invoices are not paid in full
within forty-five (45) days after the second invoice date.
The charges identified herein in Attachment C shall be reviewed and
negotiated, for the next twelve (12) month period, commencing ninety
(90) days prior to each anniversary date of this agreement. Either party
may request review and renegotiation of the rates charged at the
completion of the first three (3) months of this agreement.
10. TAXES.
Epson shall be responsible for the payment of all sales, use and personal
property taxes assessed on products provided or sold in connection with
this agreement, excluding taxes based upon the net income of Microdyne.
Microdyne shall be responsible for all taxes arising from Epson's
payments for the Services and Leased Employees, including but not limited
to withholding taxes, FICA payments, workman's compensation and state
disability payments.
11. TERMINATION AND DEFAULT.
11.1 Without Cause.
Either party may terminate this agreement at any time upon 90 days
written notice of termination to the other. Upon the effective
date of such termination, Epson will resume possession and control
over the Epson assets, and is free to hire or rehire any and all
of Microdyne's employees used in the provision of the Services.
11.2 For Cause.
Either party may terminate this agreement upon written notice to
the other party in the event that such other party fails to cure a
material breach within ninety (90) days after notice of breach
from the nonbreaching party. This agreement shall automatically
be cancelled if either party becomes insolvent or makes an
assignment for the benefit of creditors or if any insolvency
proceeding is initiated by or against it. All unpaid charges
accrued under this agreement shall become immediately due
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and payable upon the happening of such event of termination. The
aforesaid rights shall be in addition to all other rights and
remedies provided at law, in equity, or hereunder. In the event
of termination for any of the foregoing reasons, Epson will resume
possession and control over the Epson assets, and is free to hire
any and all of Microdyne's employees used in the provision of the
Services.
11.3 In the event that Epson resumes possession and control of the
Epson assets, Microdyne agrees to sell and assign a complete copy
of Microdyne's depot repair activity management system as defined
in Attachment A, III, to Epson for a reasonable, mutually agreed
upon price. Microdyne further agrees to assist Epson in obtaining
any necessary consents from third parties with rights in said
software.
12. FORCE MAJEURE.
If either party shall be prevented from performing any portion of this
agreement (except the payment of money) by causes beyond its reasonable
control, including, without limitation, labor disputes, civil commotion,
war, governmental regulations or controls, casualty, inability to obtain
materials or Services, or acts of God, such party shall be excused from
performance for the period of the delay.
13. NOTICE.
Unless otherwise agreed to by the parties, all notices required hereunder
shall be made in writing by certified mail, return receipt requested, to
the addresses first above written and to the attention of the parties
executing this agreement or their successor(s) in office.
14. WAIVER.
No waiver of any right or remedy on one occasion shall be deemed a waiver
of such right or remedy on any other occasion or of any other right or
remedy.
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15. SEVERABILITY.
If any provision(s) of this agreement is held to be illegal,
unenforceable, or invalid by a court of competent jurisdiction, the
validity, legality, and enforceability of the remaining provisions shall
not in any way be affected or impaired thereby, so long as the verifiable
intent of the parties is not materially affected thereby.
16. INDEPENDENT CONTRACTORS.
Both parties hereto are independent contractors and neither party shall
represent itself as an agent or legal representative of the other.
17. COMPLIANCE WITH LAWS.
Each party shall comply, at its own expense, with all statutes,
regulations, rules, ordinances, and orders of any governmental body,
department, or agency thereof, which apply to or result from its
obligations hereunder.
18. ATTACHMENTS.
The attachments referred to in the body of this agreement are an integral
part of this agreement and reference to this agreement shall be deemed to
include all the attachments.
19. HEADINGS.
The headings of this agreement are included solely for convenience of
reference and shall not control the meaning or interpretation of any
provision of the agreement.
20. ENTIRE AGREEMENT/GOVERNING LAW.
This document constitutes the entire agreement between the parties
regarding the subject matter hereof. No agent, employee, or
representative of Microdyne has any authority to bind Microdyne to any
affirmation, representation, or warranty concerning the products or
Services furnished under this agreement, unless the same is expressly
included within this written agreement. This agreement may be modified
only by a written instrument signed by both parties hereto or by their
duly authorized agents. The terms and conditions herein shall
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govern with respect to the subject matter hereto and shall override all
terms and conditions contained on any purchase order or acknowledgement
form, previous letters, etc., issued by the parties hereto. This
agreement shall be governed by the laws of the State of California. This
agreement may be executed in counterparts, each of which shall be deemed
an original. The individuals signing this agreement on behalf of each
party represents and warrants that he/she has the power and authority to
sign.
MICRODYNE CORPORATION EPSON AMERICA, INC.
BY: [SIG] BY: [SIG]
-------------------------- --------------------------
Authorized Signature Authorized Signature
TITLE: VP Operations TITLE: Vice President, Operations & Logistics
DATE: March 20, 1996 DATE: March 20, 1996
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ATTACHMENT A
STATEMENT OF WORK
I. Services.
During the period of this agreement, Microdyne will provide Leased
Employees to perform Services as indicated below.
A. Warranty Administration.
1. Administrative Services involving review and processing of
warranty claims, Epson Extra Care (service contract) claims,
and billable repair or exchange orders, including initiation
of warranty labor payments or credits, and parts orders.
2. Receipt and verification of warranty and billable repair
parts or products.
3. Preparation of parts or products for induction into the depot
repair process.
B. Product and Subassembly Repair.
1. Depot repair to the discrete component level for Epson
products, including whole units and subassemblies.
2. Administrative functions involved with depot activities and
customer interface.
3. Coordination and administration of outsourced repair
activity.
4. Development and maintenance of repair, test, and quality
procedures.
C. Product Refurbishment.
Inspection and rework of Epson products will be performed in
accordance to Epson's criteria by product type. This process will
include a physical inspection, testing, repair cleaning and
repackaging to Epson specifications. Items to be completed during
these functions are as follows:
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1. Physical Inspection - The physical inspection process will include
an inspection for physical and cosmetic damage.
2. Testing - Each unit will be tested according to Epson's criteria.
3. Repair - The repair process will be performed on units deemed
economical to repair as determined by Epson standards. The repair
process will be limited to assembly level repair.
4. Cleaning - The units passing the Criteria in Items (a), (b), and
(c) above, will be cleaned to a like new condition. Any unit
which cannot be restored to this condition will be so noted and
returned to Epson.
5. Kitting - Accessories and collateral materials will be inspected,
cleaned, and repackaged.
6. Repackaging - Product which passes the cleaning stage will be
repackaged in accordance to Epson's standards. This would entail
repacking the unit into a new package configuration.
D. Telephone Technical Support.
1. Telephone technical support for Epson customers on product
specification, configuration, installation, operation, failure
identification, customer relations, and reseller/service center
referral or service dispatch.
2. Assist Epson in continually standardizing and enhancing the
information bases, both printed and system based, available for
each TTS representative to enable more rapid and accurate response
to customer questions, and to shorten average call handle times.
3. Fully utilize all systems and tools provided to increase
productivity and accuracy levels.
4. Services to be provided during hours specified by Epson, up to and
including 7 days per week, 24 hours per day.
E. Product Upgrade Projects.
1. Performance of periodic special projects to repackage, upgrade,
configure, or modify products as requested by Epson.
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2. Review and estimate labor and materials requirements on a
case-by-case basis for each project. Epson will review and accept
each project estimate prior to authorizing work by Microdyne.
3. Microdyne will prepare a cost analysis at the end of each project
comparing actual cost to project estimates, and will explain
significant variances.
4. Maintain a core group of Microdyne employees as specified by Epson
to plan, coordinate, and supervise project activities.
5. Provide additional temporary or part-time Microdyne personnel to
fulfill project requirements as authorized in (2) above. If the
required number of Microdyne employees are not available to meet
project quantity and time requirements, Microdyne will recruit
outside temporary agency personnel following Epson's procedures
for procuring temporary agency personnel.
F. Miscellaneous Services.
Provide Leased Employees for a wide variety of positions as requested by
Epson. These may be individual positions or a group of positions. The
positions may be long term or temporary. Microdyne Leased Employees in
these positions may receive operational direction from Epson personnel
subject to the provisions of section 2.l.
II QUALITY AND PERFORMANCE STANDARDS.
A. Quality Standards.
1. Microdyne Leased Employees will be qualified to satisfactorily
perform their duties as specified in their job description.
2. All Services will be performed to generally accepted industry
standards and practices.
3. Written quality standards will be developed and maintained by
Epson and Microdyne jointly for all major processes.
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B. Performance Standards.
1. Written performance standards will be developed and agreed to by
Epson and Microdyne for each of the Services specified in (I)
above as applicable. These performance standards may include
items such as turnaround time, average repair time, and TTS
average call handle time (ACHT).
2. Performance standards will be reviewed and updated every six (6)
months at a minimum.
C. Reporting.
1 Microdyne will provide monthly reports as requested by Epson
indicating achievement to quality and performance standards.
2. As a result of providing the Services, Microdyne may collect
information that can be applied to improve Epson's products and
Services. Microdyne shall actively seek to identify such
information and report back to Epson on a timely basis.
D. Efficiency.
Microdyne will insure all Leased Employees are utilized efficiently, and
will continuously strive to increase the level of efficiency.
III REPAIR ACTIVITY MANAGEMENT SYSTEM (RAM).
A. Microdyne will install, maintain, and periodically update subject to
mutual agreement, repair activity management systems at Indianapolis and
Carson depots at no charge to Epson. These systems will minimally
maintain a database which will provide the following information:
1. Tracking of specific units or lots in the repair process by model,
serial number, and customer.
2. Labor utilization, repair time.
3. Parts usage by unit and model.
4. Failure history including no trouble found.
5. Efficiency and productivity.
6. Repeat repairs.
7. Summary data on failure analysis, average cost per unit, scrap
rate, and refurbishment yield rates.
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B. RAM system design will be compatible for future linkage with Epson's
systems.
C. Epson may request additional major functions be added to these systems.
Microdyne will perform these upgrades subject to negotiation of
development costs with Epson.
IV INVENTORY MANAGEMENT.
All product and parts inventory (product) will remain the property of
Epson. At no time will title of any Epson product pass on to Microdyne.
Microdyne will be responsible for protecting all inventory in its
possession from loss or damage. Products lost or damaged through
negligence, while in the possession of Microdyne, will result in
compensation to Epson for Epson's cost of the product in question.
Additionally, Microdyne will be responsible for maintaining and tracking
inventory levels while the product is in its possession. Transfer of
product into and out of Microdyne's control will be through a mutually
accepted transfer process.
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ATTACHMENT B
SCHEDULE OF PRICES
I. GENERAL.
Under the terms of this agreement, the Services and Leased Employees to
be provided by Microdyne, as outlined in both the basic agreement and
Attachment A, will be charged according to the following pricing
provisions:
A. Job Descriptions and Salary Ranges.
1. Microdyne will develop and maintain written job descriptions for
each Leased Employee based on the Services requested by Epson.
2. Microdyne will assign a salary grade to each job description based
on fair market value for each position at the employment location.
3. All job descriptions and salary grades must be approved by Epson
and Microdyne executive management.
4. As duties change, job descriptions may be modified periodically
and salary grades evaluated for the revised job description.
5. All job descriptions will be reviewed annually.
B. Leased Employee Types.
1. Full Time Employee - Regular, full time, salaried or hourly
employee with full Microdyne benefits.
2. Temporary Employee - Temporary employee with modified Microdyne
benefits.
3. Part Time Employee - Temporary employee with no Microdyne benefits.
C. Leased Employee Staffing Levels.
1. Epson will specify in writing the quantity of full time Microdyne
employees requested by job description, with thirty (30) days
advance notification of increases or decreases subject to the
limitation of C.3 below.
1
<PAGE> 19
2. Epson will specify in writing the quantity of temporary or part
time Microdyne employees requested by job description and will
estimate the duration of the requirement. Epson will make a best
effort to provide a minimum of two (2) days advance notice for
increases and one (1) day advance notice for decreases.
3. Epson will provide 65 days advanced notice for any decrease in
Leased Employee staffing levels which may trigger the requirements
of the Workers Adjustment and Retraining Notification Act of 1988.
4. All changes to requested staff levels require approval by Epson
executive management or authorized Epson management.
D. Monthly Charges (Based on Rates in Table 1)
1. Full Time Employees, Salaried:
a. Charges will be at a monthly flat rate per employee based on
the applicable pay grade.
b. Epson will not be charged for full time, salaried employees
who are absent due to short or long term disability, leave of
absence, or jury duty; nor will these absences be counted
against Microdyne attendance percentages.
c. Microdyne will be expected to maintain acceptable levels of
full time, salaried employee attendance as follows:
<TABLE>
<S> <C>
# Salaried employee days worked in month = Monthly Attendance %
----------------------------------------
# Salaried employees x # work days in month
</TABLE>
A rolling six month minimum monthly attendance average of 94%
must be maintained for the immediate preceding six months.
In any month where the six month average falls below 94%, the
monthly invoice will be reduced in percentage by the amount
that the six month average is below 94%. For example, a six
month average attendance percent of 92.5% would cause a 1.5%
decrease in the invoice for that month.
2
<PAGE> 20
2. Full Time Employees, Hourly:
Billing will be for actual hours worked based on the applicable
pay grade. All other hours and payments are excluded.
3. Temporary and Part-Time Employees, Hourly:
Billing will be for actual hours worked on a cost plus basis. All
other hours and payments are excluded.
4. Volume Discount:
A volume discount will be applied to the total monthly invoice
amount.
E. Overtime Authorization.
For each operational area, Epson will authorize Microdyne the authority
to work a reasonable amount of overtime sufficient to provide operational
flexibility. Overtime in excess of this amount must be approved in
advance by Epson.
F. Pricing Equity.
1 Microdyne will insure that all Leased Employees meet or exceed
minimum job description qualifications for their assigned job and
pay grade as charged to Epson, and that actual pay rates for
Leased Employees will meet or exceed the low pay range of the pay
grade charged to Epson for that Leased Employee.
2. Microdyne will further insure that it hires and administers Leased
Employee salaries within the guidelines of Microdyne's employee
policies and procedures, meeting reasonable industry standards.
G. Skill Range Progression.
1. Certain jobs have skill range progressions, e.g., technicians, TTS
representatives. Microdyne and Epson will agree on the desired
number of employees at each skill level.
3
<PAGE> 21
2. Microdyne may be unable to provide sufficient qualified personnel
to meet the agreed upon skill level allocation. If this occurs
Microdyne, with Epson's approval, may elect to provide Leased
Employees at a lower skill level, charging at the appropriate
lower pay rate. At some time, some of these Leased Employees may
have increased their skills to meet the job description
requirements for the next higher pay rate. Microdyne may promote
these Leased Employees to a higher pay grade and increase charges
to Epson, subject to Epson's agreement that the Leased Employee
meets job description requirements and is within the skill level
allocation stated in Gl.
H. Other Charges.
1 . Epson may request travel for non-management Leased Employees or
special travel for management Leased Employees. Microdyne will
insure travel expenses are incurred within Microdyne's travel
expense policies, and will invoice Epson for actual charges. No
charges will be invoiced for normal business travel by Microdyne
management employees.
2. Epson will pay directly for all outside vendors, services, and
temporary agency personnel utilized in performing Services.
3. No other charges will apply.
4
<PAGE> 22
ATTACHMENT B
TABLE 1
SALARY RANGES AND CHARGES
<TABLE>
<CAPTION>
======================================================= ================================================
FULL TIME SALARIED EMPLOYEES FULL TIME HOURLY EMPLOYEES
- ------------------------------------------------------- ------------------------------------------------
SALARY RANGE SALARY RANGE
PAY --------------------------- MONTHLY PAY ----------------------------- HOURLY
GRADE LOW MID HIGH CHARGE GRADE LOW MID HIGH CHARGE
- ------------------------------------------------------- -------------------------------------------------
<S> <C>
S1 $25,500 $30,250 $35,000 $4,235 H1 $5.58 $6.18 $6.78 $11.37
S2 $26,500 $31,250 $36,000 $4,375 H2 $5.81 $6.44 $7.06 $11.84
S3 $27,500 $32,250 $37,000 $4,515 H3 $6.05 $6.70 $7.35 $12.33
S4 $29,750 $34,500 $39,250 $4,830 H4 $6.28 $6.95 $7.63 $12.80
S5 $31,000 $35,750 $40,500 $5,005 H5 $6.51 $7.21 $7.91 $13.27
S6 $33,500 $38,250 $43,000 $5,323 H6 $6.74 $7.47 $8.19 $13.74
S7 $34,500 $39,250 $44,000 $5,462 H7 $6.98 $7.73 $8.48 $14.22
S8 $36,000 $40,750 $45,500 $5,671 H8 $7.21 $7.98 $8.76 $14.69
S9 $37,000 $42,250 $47,500 $5,880 H9 $7.44 $8.24 $9.04 $15.16
S10 $38,500 $45,250 $52,000 $6,297 H10 $7.67 $8.50 $9.32 $15.63
S11 $40,000 $47,500 $55,000 $6,571 H11 $7.91 $8.76 $9.61 $16.12
S12 $45,000 $52,500 $60,000 $7,306 H12 $8.14 $9.01 $9.89 $16.59
S13 $52,000 $59,500 $67,000 $8,280 H13 $8.37 $9.27 $10.17 $17.06
S14 $60,000 $66,500 $73,000 $9,255 H14 $8.60 $9.53 $10.45 $17.53
S15 $70,000 $78,500 $87,000 $10,925 H15 $8.84 $9.79 $10.74 $18.01
S16 $75,000 $82,500 $90,000 $11,481 H16 $9.07 $10.04 $11.02 $18.38
======================================================= H17 $9.30 $10.30 $11.30 $18.85
H18 $9.53 $10.56 $11.58 $19.32
H19 $9.77 $10.82 $11.87 $19.80
======================================================= H20 $10.00 $11.07 $12.15 $20.27
TEMPORARY (TMH) AND PART-TIME (PTH) EMPLOYEES - HOURLY H21 $10.23 $11.33 $12.43 $20.73
- ------------------------------------------------------- H22 $10.46 $11.59 $12.71 $21.20
H23 $10.70 $11.85 $13.00 $21.69
TYPE RATE + MARKUP% = CHARGE H24 $10.93 $12.10 $13.28 $22.04
- ------------------------------------------------------- H25 $11.16 $12.36 $13.56 $22.62
H26 $11.39 $12.62 $13.84 $23.09
PTH EMPLOYEE 52.0% HOURLY CHARGE H27 $11.63 $12.88 $14.13 $23.57
PAY RATE H28 $11.86 $13.13 $14.41 $24.04
H29 $12.09 $13.39 $14.69 $24.50
PTH EMPLOYEE 42.9% OVERTIME HOURLY H30 $12.32 $13.65 $14.97 $24.97
OVERTIME CHARGE H31 $12.56 $13.91 $15.26 $25.32
PAY RATE H32 $12.79 $14.16 $15.54 $25.78
H33 $13.02 $14.42 $15.82 $26.24
TMH EMPLOYEE 58.0% HOURLY CHARGE H34 $13.25 $14.68 $16.10 $26.71
PAY RATE H35 $13.49 $14.94 $16.39 $27.19
H36 $13.72 $15.19 $16.67 $27.65
TMH EMPLOYEE 48.5% OVERTIME HOURLY H37 $13.95 $15.45 $16.95 $28.12
OVERTIME CHARGE H38 $14.18 $15.71 $17.23 $28.58
PAY RATE H39 $14.42 $15.97 $17.52 $29.07
======================================================= H40 $14.65 $16.22 $17.80 $29.53
H41 $14.88 $16.48 $18.08 $29.99
H42 $15.11 $16.74 $18.36 $30.46
======================================================= H43 $15.35 $17.00 $18.65 $30.94
VOLUME DISCOUNT H44 $15.58 $17.25 $18.93 $31.40
- ------------------------------------------------------- H45 $15.81 $17.51 $19.21 $31.87
H46 $16.04 $17.77 $19.49 $32.15
MONTHLY INVOICE DISCOUNT % APPLIED H47 $16.28 $18.03 $19.78 $32.63
AMOUNT TO MONTHLY AMOUNT H48 $16.51 $18.28 $20.06 $33.10
OVER $1,100,000 H49 $16.74 $18.54 $20.34 $33.56
H50 $16.97 $18.80 $20.62 $34.02
FROM TO H51 $17.21 $19.06 $20.91 $34.50
---- -- H52 $17.44 $19.31 $21.19 $34.96
H53 $17.67 $19.57 $21.47 $35.42
Less than $ 1,100,000 0.0% H54 $17.90 $19.83 $21.75 $35.88
$ 1,100,001 - $ 1,200,000 - 3.0% H55 $18.14 $20.09 $22.04 $36.35
$ 1,200,001 - $ 1,300,000 - 4.0% H56 $18.37 $20.34 $22.32 $36.82
$ 1,300,001 - $ 1,400,000 - 4.4% H57 $18.60 $20.60 $22.60 $37.29
$ 1,400,001 - $ 1,500,000 - 4.8% H58 $18.83 $20.86 $22.88 $37.75
$ 1,500,001 - $ 1,600,000 - 5.2% H59 $19.07 $21.12 $23.17 $38.22
$ 1,600,001 - $ 1,700,000 - 5.6% LE $10.58 $12.75 $14.92 $20.53
$ 1,700,001 - $ 1,800,000 - 6.0% L1 $12.26 $14.79 $17.31 $23.66
$ 1,800,001 - $ 1,900,000 - 6.4% L2 $13.22 $15.99 $18.75 $25.42
$ 1,900,001 - $ 2,000,000 - 6.8% L3 $14.30 $17.13 $19.95 $27.06
$ 2,000,001 - $ 2,100,000 - 7.2% L4 $15.62 $19.40 $23.17 $30.45
======================================================= ================================================
=======================================================
FULL TIME HOURLY - OVERTIME CHARGE
- -------------------------------------------------------
HOURLY CHARGE + 41% MARK UP = OVERTIME HOURLY CHARGE
=======================================================
</TABLE>
5
<PAGE> 23
ATTACHMENT C
CONFIDENTIALITY AND NON-DISCLOSURE AGREEMENT
This Agreement is made as of the 1st day of April, 1996, by and between Epson
America, Inc., a California corporation with its principal place of business at
20770 Madrona Avenue, Torrance, California 90509 ("Epson") and Microdyne
Corporation, a Virginia corporation located at 3601 Eisenhower Avenue,
Alexandria, Virginia 22304 ("Microdyne").
Whereas Epson will disclose to Microdyne certain information relating to its
products, parts, customers, and business practices for the purpose of enabling
Microdyne to perform various maintenance, repair, and distribution services
pertinent to certain Epson products and sub-assemblies sold by Epson and its
other appointees in the marketplace. Epson desires that any confidential and/or
proprietary information ("Information") disclosed to Microdyne be used only to
further the business relationship between the parties hereto.
In order to ensure that the information disclosed by Epson to Microdyne is used
only in accordance with the purposes stated above, the parties agree to the
following:
I. This Agreement shall be in effect for five (5) years.
II. Microdyne shall prevent the disclosure to others of
Information transmitted to Microdyne where such
Information is prominently designated as confidential,
and is disclosed in the performance of, or in
connection with, Microdyne services performed for
Epson. Any Information delivered by Epson to Microdyne
marked "secret", "confidential", or with words of
similar meaning, shall be conclusively deemed, as
between the parties, confidential and trade secret
information of Epson. Any Information not bearing such
marking shall not, however, be deemed to be non-secret
or non-confidential, but any such unmarked information
shall be subject to the same restrictions as contained
herein.
III. Epson warrants that no restriction is made upon
Microdyne relating to Microdyne's freedom to offer
services to any other persons or to transmit any
Information to other persons where such Information (a)
shall have been in its possession prior to the
disclosure by Epson, (b) shall have become part of the
public domain through no fault of Microdyne, (c) shall
have been developed subsequent to, and independent of,
the disclosure by Epson, or (d) shall have been
released in writing by Epson so that Microdyne may make
public disclosure or otherwise deemed no longer to be
confidential.
1
<PAGE> 24
IV. Microdyne shall not use such confidential information
itself, disclose it to others to permit the disclosure
of such information to others, and will prevent
Microdyne employees (so long as they shall remain
employed by Microdyne) from divulging, publishing, or
using such information, except as is necessary to
perform the aforementioned maintenance repair and
distribution services.
V. All information disclosed by Epson to Microdyne shall remain
the property of Epson. At Epson's request, the tangible
information from Epson shall be promptly returned or
destroyed, together with all copies thereof. Upon request,
Microdyne shall provide written certification of the
destruction.
VI. Any notice or other communication provided under this
Agreement will be in writing and be sent via facsimile,
or certified or registered mail, return receipt
requested, to the respective addresses as either party
has designated to the other by notice in writing. Any
such notice will be deemed given when received by the
other party, attention directed to the individual
singing this Agreement.
VII. This Agreement will be governed by the laws of the
State of California and constitutes the entire
Agreement between Epson and Microdyne pertaining to the
subject matter hereof. No provisions of this Agreement
will be deemed waived, amended, or modified by either
party unless such waiver, amendment, or modification be
in writing signed by the party against whom it is
sought to enforce the waiver, amendment, or
modification. If any provision of this Agreement is
held to be illegal or unenforceable, such shall not
effect the balance thereof.
VIII. The parties hereto acknowledge that they have read this
Agreement, understand it, and agree to be bound by its terms
and conditions. Further, the parties acknowledge that this
Agreement supersedes all prior agreements, oral or written,
and all other communications between the parties relating to
the subject matter of this Agreement.
2
<PAGE> 25
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed. The persons signing warrant that they are authorized to sign for, and
on behalf of, the respective parties.
MICRODYNE CORPORATION EPSON AMERICA, INC.
BY: [SIG] BY: [SIG]
----------------------- -----------------------------
Authorized Signature Authorized Signature
TITLE: V.P. Operations TITLE: Vice President, Operations & Logistics
---------------------- --------------------------
DATE: March 20, 1996 DATE: March 20, 1996
---------------------- ---------------------------
3
<PAGE> 26
ATTACHMENT D
MICRODYNE ASSETS
The following Microdyne assets are located at the Carson, California, service
depot:
<TABLE>
<CAPTION>
Manufacturer Description Model Quantity
- ------------ ----------- ----- --------
<S> <C> <C> <C>
Weller Soldering Iron EC1002 9
Weller Soldering Iron WTCPS 1
Weller Soldering Iron WTCPT 2
Weller Soldering Iron EC1201 2
Weller Soldering Iron WCC100 2
Weller Soldering Iron TC201T 2
Weller Soldering Iron EC1001 1
Weller Soldering Iron EC2001 2
Microtech Soldering Iron MT1000 1
EST Soldering Iron BT-1011 1
Pace Soldering Station MBT 13
Solder Aid Desoldering Station SA-150 1
Hakko Desolder 470 1
Fluke DVM 77 12
Fluke DVM 8021B 2
Triplet DVM 3550 1
Tektronic DVM DMM251 6
Tektronix Scope 475 5
Tektronix Scope 2235A 4
OK Industries Hot Air Machine FCR-21Q1 1
Goldstar Video Cassette Player GVPB115 10
Opticon Barcode Reader (Wand) Opticon 8
Welch Allyn Barcode (Wand) 2350 18
Welch Allyn Barcode Reader 3400 1
Scanteam Barcode Reader 5500 1
Huntron Tracker 1000 8
Worthington Data
Solutions Barcode Reader 5310HP43 1
Dayton Air Compressor 32419 1
(Speed Air)
Aqua Blaster Washing Machine 1200 1
Nu-Concept Sys. Hot Air Desoldering Tool Hart 200A 1
HP O'Scope 54502A 1
</TABLE>
1
<PAGE> 1
Exhibit 11.1
MICRODYNE CORPORATION
STATE RE: COMPUTATION OF PER SHARE EARNINGS
FOR THE YEAR ENDED SEPTEMBER 29, 1996
<TABLE>
<CAPTION>
PRIMARY FULLY DILUTED
------------- --------------
<S> <C> <C>
Shares Outstanding at
Beginning of Period 12,789,666 12,789,666
Shares Issued During
the Period 21,078 21,078
Dilutive Effect of
Stock Options 227,612 92,681
------------- --------------
Weighted Average Shares
Outstanding 13,038,356 12,903,425
</TABLE>
<PAGE> 1
EXHIBIT 23.1
Suite 375
2070 Chain Bridge Road
Vienna, Va 22182-2536
703-847-7500
fax 703-848-9580
[LOGO]
GRANT THORTON LLP
Accounts and
Management Consultatants
The U.S. Member Firm of
Grant Thorton International
We have issued our report dated October 30, 1996, accompanying the
consolidated financial statements incorporated by reference or included in the
Annual Report of Microdyne Corporation on Form 10-K for the year ended
September 29, 1996. We hereby consent to the incorporation by reference of
said reports in the Registration Statements of Microdyne Corporation on Forms
S-8 (dated December 27, 1991, February 28, 1992, May 6, 1992, March 3, 1995,
November 2, 1995 and October 7, 1996).
/s/GRANT THORTON LLP
--------------------
Vienna, Virginia
December 18, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-29-1996
<PERIOD-START> OCT-02-1995
<PERIOD-END> SEP-29-1996
<CASH> 1,791
<SECURITIES> 0
<RECEIVABLES> 32,076
<ALLOWANCES> 1,122
<INVENTORY> 24,100
<CURRENT-ASSETS> 61,075
<PP&E> 11,605
<DEPRECIATION> 7,859
<TOTAL-ASSETS> 79,994
<CURRENT-LIABILITIES> 32,399
<BONDS> 0
0
0
<COMMON> 1,283
<OTHER-SE> 35,241
<TOTAL-LIABILITY-AND-EQUITY> 79,994
<SALES> 99,155
<TOTAL-REVENUES> 99,155
<CGS> 71,819
<TOTAL-COSTS> 71,819
<OTHER-EXPENSES> 30,126
<LOSS-PROVISION> 50
<INTEREST-EXPENSE> 2,113
<INCOME-PRETAX> (4,951)
<INCOME-TAX> (2,007)
<INCOME-CONTINUING> (2,944)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,944)
<EPS-PRIMARY> (.23)
<EPS-DILUTED> (.23)
</TABLE>
