<PAGE> 1
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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 28, 1997
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.( )
THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES OF THE
REGISTRANT, BASED ON THE AVERAGE BID AND ASKED PRICES, APPROXIMATES $79,837,795
AS OF THE CLOSE OF BUSINESS ON DECEMBER 15, 1997.
THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S CLASSES OF COMMON
STOCK AS OF THE CLOSE OF BUSINESS ON DECEMBER 15, 1997 IS 13,034,742 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 35 FOR INDEX OF EXHIBITS.
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MICRODYNE CORPORATION 1997 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 two
businesses in three industries: aerospace electronics, communications equipment
and outsourced technical support services industries.
- Through its Aerospace Telemetry Division, Microdyne designs, manufactures,
and markets aerospace telemetry receivers, combiners, and signal simulators for
use in data gathering and analysis. The division also provides telemetry systems
consultation, evaluation, design, integration and installation services.
- Through its outsourcing Support Services Division, Microdyne provides
outsourced technical services, including telephone technical support and
warranty repair services, for electronic products companies.
Microdyne's operations in the networking products segment of the data
communications industry, conducted by its Networking Products Division, were
discontinued in 1997.
The following table sets forth revenue from each of Microdyne's continuing
divisions for fiscal years 1995, 1996 and 1997:
<TABLE>
<CAPTION>
Aerospace Outsourced
Telemetry Support
In Thousands of Dollars Division Services Total
- --------------------------------------- ----------------------------
<S> <C> <C> <C>
1995 $ 17,358 $ 12,100 $ 29,458
1996 17,033 14,426 31,459
1997 26,240 17,381 43,621
</TABLE>
AEROSPACE TELEMETRY
Overview
Data gathering and analysis is a basic requirement in the testing and
evaluation 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 direct connection. 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 in a
continuous 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 also
operate a great number 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
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MICRODYNE CORPORATION 1997 ANNUAL REPORT ON FORM 10-K
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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.
- A board-level diversity combiner which is a special device to take the
input of two or more 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.
- A cosecant squared tracking antenna utilized for short and long range
tracking facilities. The model controller provides both manual control
and auto track functions with programmable features. The antennas are
available in fixed, mobile and transportable configurations.
- A compact, lightweight, low power consumption telemetry receiver with AC
or DC power supplies.
- A data simulator that uses state-of-the-art digital processing techniques
to generate multiple modulation formats covering both narrow and wide
deviations and data rates. Typically used as a bore-site source for test
range system calibration, it can also be used as a satellite uplink,
command generator or test signal source for bench level calibration and
service.
Other Aerospace Telemetry products include compact telemetry receivers;
specialized and transportable antennae; 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 mid-size systems integration contracts which typically range
from $500,000 to $15 million.
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.
Third, planned launches of low-earth-orbit ("LEO") satellites to facilitate new
communications services may spur demand for the installation of 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. 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.
- Systems Integration Services. During 1997, Microdyne bid and was
awarded a systems integration contract with the Italian Ministry of
Defense. This contract marked the entry of Microdyne's Aerospace
Telemetry Division into the mid-size telemetry systems integration
services. Microdyne plans to maintain and expand the systems integration
services it provides to existing and new customers in the midsize
telemetry systems integration contracts markets.
While each of the preceding are prospective opportunities, each opens a new,
multi-million-dollar market to the Company. There can be no assurance, however,
that the Company will realize such opportunities.
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MICRODYNE CORPORATION 1997 ANNUAL REPORT ON FORM 10-K
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Marketing and Sales
Telemetry systems are used in a variety of applications involving missiles,
aircraft, satellites and other 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 and related systems integration services
directly to these user groups primarily through a sales and marketing department
located at the Company's Ocala, Florida facility as well as through independent
agents. Because most telemetry products and related systems integration services
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.
U.S. Government agency and U.S. Government prime contractor revenue in fiscal
1997 was $8.3 million, or 31.6% of total Aerospace Telemetry revenue, compared
to $9.3 million, or 54.7% in 1996. The telemetry industry is dependent upon U.S.
Government procurement and can be adversely affected by any substantial
decreases in direct U.S. Government purchases of the Company's products and
services, or in indirect purchases of products acquired under U.S. 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 $1.6
million, or 6.1% of telemetry revenue in 1997. This compared to $1.5 million, or
8.8% of telemetry revenue in 1996 and $1.4 million, or 8.0% of revenue in 1995.
Microdyne maintains a telemetry products manufacturing facility in Ocala,
Florida.
Competition
The Company believes the market for telemetry products and related systems
integration services has entered a new growth stage after a period of years of
stable revenues. Microdyne believes that of marketers 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, and systems integration services in particular, 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.
OUTSOURCING SUPPORT SERVICES
Overview
There has been a growing trend in recent years toward providing human
resources 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
workers counted as employees. Outsourcing allows an organization to focus its
internal and human resources on activities which will create 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 cus-
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MICRODYNE CORPORATION 1997 ANNUAL REPORT ON FORM 10-K
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tomer with trained personnel, including, as of September 28, 1997, a staff of
390 full-time and 217 part-time employees in the customer's facilities near Los
Angeles, California and in Indianapolis, Indiana was well as in Microdyne's own
facility in Southern California. The Company's revenue is based on the number of
telephone technical support minutes spent on a service call, 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.
In September 1997, Microdyne opened its new 300 seat telephone technical
support (TTS) facility in Southern California. The facility is expected to
provide Microdyne with the ability to provide both telephone technical support
and warranty repair services to its customers from one location.
The Company maintains a contract with its customer which was renewed for a
period of five years in March 1996. Microdyne has also signed an additional
contract with another customer which began in October of 1997.
Marketing
Microdyne believes it has the skills and depth of management to expand its
outsourcing Support Services business. While the Company's primary focus is
maintaining and expanding its relationship with its current customer, and has
signed a contract with another manufacturer effective October 1997, 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 other new customers through such efforts.
Competition
The competition for outsourcing Support Services is both in-house sourcing
and other organizations that specialize in outsourcing. Competitors in this
rapidly growing industry vary in both their size and in the scope of their
services. In a very competitive environment, Microdyne's outsourcing customers
may, upon notice, sever their contracts 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 four 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. In
September 1997, Microdyne opened a new telephone technical support facility in
Southern California, near Los Angeles, which should also provide the Company
with additional capacity and flexibility to expand services to its current and
future customers from one location.
DISCONTINUED OPERATIONS
During fiscal year 1997, the operations of Microdyne's Networking Products
Division (NPD) were restructured and subsequently discontinued. Prior to the
discontinuance of its operations, NPD designed, manufactured, marketed and
supported a broad line of data communications hardware products that facilitated
inter-computer communications via local area networks (LANs). Local area
networks connect groups of personal computers, file servers, printers and other
devices, thereby facilitating communications among those devices.
The operations of the Networking Products Division were discontinued after 18
months of disappointing financial performance results for the division. The
disappointing performance and subsequent decision to dispose of the division by
Microdyne were the result of several inherent economic and competitive factors
of the networking products segment of the data communications industry. Among
these factors are intense price competition, thinning gross profit margins,
capital intensive product development, increasingly short product life cycles,
and economies of scale (which adversely affect relatively small competitors in
this industry such as Microdyne). Based upon an evaluation of the factors
described above, the financial results of the division, and an evaluation of the
future prospects for the company and industry, Microdyne elected to exit the
networking products business and focus on its two other divisions.
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MICRODYNE CORPORATION 1997 ANNUAL REPORT ON FORM 10-K
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The decision to discontinue the Networking Products Division's operations was
made and announced in June 1997. As of December 15, 1997, the plan for the
disposal of the assets of NPD has been substantially completed. The completion
of the disposal of the assets of the Networking Products Division included an
agreement to license its Fast Ethernet ISA adapter card product line and
technology to Intel Corporation (completed in November 1997) and an agreement
with Sundaynet Computer Company Ltd. to license the NE2000plus series Ethernet
adapter technology and trade dress rights. In addition, Microdyne wrote down or
disposed of substantially all of its inventory by December 15, 1997. The sale of
the fixed assets of the Networking Products Division was achieved through an
auction held during October 1997. Microdyne is in the process of collecting or
writing off any remaining accounts receivable and issuing any credits that may
be necessary to resolve all remaining accounts receivable balances.
The sale or disposal of the assets of the Networking Products Division did
not entail the assumption of liabilities by the purchasers of the assets. As
such, Microdyne has made provision for, and will continue to recognize, all
remaining liabilities of the discontinued division. This provision includes, but
is not limited to, future returns and repair work for products previously sold
and still under warranty.
Microdyne's Management's Discussion and Analysis (MD&A), as well as its
Financial Statements and accompanying Notes, include additional details
regarding the amounts and accounting treatment of the restructuring reserve and
loss on disposal of the discontinued operations. The MD&A, Financial Statements
and Notes are included elsewhere in this Form 10K.
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 1997 and 1996, $8.3 million, or 19%, and $9.3 million, or 29%,
respectively, of Microdyne's total sales from continuing operations were derived
from contracts and subcontracts involving the U.S. Government and its agencies.
For fiscal 1997 and 1996, U.S. Government sales as a percentage of each
activity's sales were as follows:
<TABLE>
<CAPTION>
Fiscal 1997 Fiscal 1996
----------- -----------
<S> <C> <C>
Aerospace Telemetry 32% 55%
Outsourcing Support Services 0% 0%
</TABLE>
BACKLOG
Revenue backlog believed to be firm amounted to $10.8 million at September
28, 1997, and $3.6 million at September 29, 1996. Backlog by activity was as
follows:
<TABLE>
<CAPTION>
Fiscal 1997 Fiscal 1996
----------- -----------
<S> <C>
Service 7,495,000 -
Product 3,310,000 3,663,000
</TABLE>
The Company does not believe backlog is a meaningful indicator of future
business trends. Aerospace Telemetry backlog is dependent upon the receipt or
renewal of U.S. and foreign government contracts, the timing over which the
Company has no control.
EMPLOYEES
As of November 30, 1997, Microdyne had 599 full-time and 249 part-time
employees. None of
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MICRODYNE CORPORATION 1997 ANNUAL REPORT ON FORM 10-K
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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>
November 30, 1997 September 29, 1996
----------------- ------------------
Full-time Part-time Full-time Part-time
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Aerospace Telemetry......... 198 1 152 0
Outsourcing Support Services 369 247 271 160
Corporate .................. 22 1 19 2
Networking Products (1)..... 10 0 138 0
------ ----- ----- -----
Total.................. 599 249 580 162
====== ===== ===== =====
</TABLE>
- --------
(1) Discontinued in June 1997.
Aerospace Telemetry employees are located principally in Ocala, Florida;
outsourcing Support Services employees are located at customer-owned facilities
near Los Angeles, California and in Indianapolis, Indiana. Corporate employees
are located in Alexandria, Virginia. Employees of the discontinued Networking
Products Division were located principally in Alexandria, Virginia and San Jose,
California.
INDUSTRY SEGMENTS AND OTHER DATA
ITEM 2. PROPERTIES.
At September 28, 1997, 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, outsourcing Support Services mktg/sales
Ocala, FL 112,000 sq. ft. Owned Aerospace Telemetry Division
Torrance, CA 41,471 sq. ft. Leased Outsourcing Support Services TTS and warranty repair
</TABLE>
A portion of the Ocala facility was financed by industrial revenue bonds,
which were repaid in October 1996. The Ocala facility includes 5.5 acres of
land. During October 1997, the Company's headquarters and the outsourcing
Support Services Division were moved to a new facility within the same
Alexandria, Virginia location. This size of the new location is approximately
9,100 square feet.
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 1997 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 September 28, 1997 Fiscal Year Ended September 29, 1996
------------------------------------ ------------------------------------
Quarter ended: Quarter ended:
-------------- --------------
12/31/96 3/31/97 6/30/97 9/28/97 12/31/95 3/31/96 6/30/96 9/29/96
-------- ------- ------- ------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
High 8.500 6.500 6.000 6.625 31.250 17.750 9.750 7.000
Low 4.813 4.500 3.688 4.250 14.750 5.750 6.375 4.375
</TABLE>
As of December 15, 1997, there were an estimated 890 holders of record of the
Common Stock. The Company estimates there are approximately 6300 shareholders
whose shares are held in "street" name. During the fiscal year ended September
28, 1997, there were no unregistered sales by the Company of the Company's
securities.
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MICRODYNE CORPORATION 1997 ANNUAL REPORT ON FORM 10-K
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ITEM 6. SELECTED FINANCIAL DATA.
STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
Years Ended
--------------------------------------------------------------------------
September 30, September 30, October 1, September 29, September 28,
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Revenue:
Product $11,081 $11,385 $16,807 $16,602 $17,398
Service 7,528 8,891 12,651 14,857 26,223
------- ------- -------- --------- ---------
Total revenue 18,609 20,276 29,458 31,459 43,621
Cost of goods and services provided 10,814 11,633 16,076 17,701 25,473
------ ------- -------- --------- ---------
Gross profit 7,795 8,643 13,382 13,758 18,148
Gross margin as a percentage of 42% 43% 45% 44% 42%
sales
Selling, G&A Expense 5,420 5,232 6,430 7,189 8,511
SG&A as a percentage of sales 29% 26% 22% 23% 20%
Research and development 1,110 1,184 1,389 1,466 1,609
-------- ------- -------- --------- ---------
R&D as a percentage of sales 6% 6% 5% 5% 4%
Earnings from continuing operations 1,265 2,226 5,563 5,103 8,028
Other expense, net (542) (554) (1,820) (1,831) (994)
-------- -------- --------- ---------- ----------
Pre-tax earnings from continuing 723 1,672 3,743 3,272 7,034
operations
Provision for Income Taxes (275) (635) (1,422) (1,243) (1,876)
-------- -------- --------- ---------- ----------
Net Earnings from Continuing $ 448 $ 1,037 $ 2,321 $ 2,029 $ 5,158
Operations ------ ------- -------- --------- ---------
Discontinued Operations
Operating income (loss) 1,062 3,562 10,273 (4,973) (29,381)
Loss on disposal - - - - (4,222)
-------- -------- -------- --------- ----------
Net income (loss), discontinued
operations 1,062 3,562 10,273 (4,973) (33,603)
------- ------- -------- ---------- ---------
Net income (loss) $ 1,510 $ 4,599 $ 12,594 $ (2,944) $ (28,445)
======= ======= ======== ========== ==========
Net Earnings (Loss) per Share,
continuing operations $ 0.03 $ 0.08 $ 0.18 $ 0.16 $ 0.40
Net Earnings (Loss) per Share,
discontinued operations $ 0.08 $ 0.27 $ 0.78 $ (0.39) $ (2.61)
Earnings (loss) per share $ 0.11 $ 0.35 $ 0.96 $ (0.23) $ (2.21)
Weighted average shares (000's) 14,428 13,088 13,096 12,811 12,873
<CAPTION>
BALANCE SHEET DATA
September 30, September 30, October 1, September 29, September 28,
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Cash, cash equivalents, and
short-term investments $ 2,135 $ 2,628 $ 4,587 $ 1,791 $1,056
Working capital 19,965 22,744 40,572 28,676 14,413
Total assets 48,174 55,840 110,382 79,994 34,541
Long-term obligations 817 11,675 16,999 11,071 9,698
Total stockholders' equity 26,094 18,290 39,488 36,524 8,402
</TABLE>
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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 1Q97 2Q97 3Q97 4Q97 1997
- ------------------------------------------------------------------------------------------------------
Revenue:
<S> <C> <C> <C> <C> <C>
Product $4,690 $4,361 $4,017 $4,330 $17,398
Service 3,971 6,404 8,508 7,340 26,223
----- ------ ------ ------ -------
Total revenue 8,661 10,765 12,525 11,670 43,621
Cost of goods and services provided 4,767 6,537 7,635 6,534 25,473
----- ------ ------ ------ -------
Gross Profit 3,894 4,228 4,890 5,136 18,148
Gross margin as a percentage of sales 45% 39% 39% 44% 42%
Selling, G&A Expense 1,810 2,045 2,233 2,423 8,511
SG&A as a percentage of sales 21% 19% 18% 21% 20%
Research and Development 359 384 409 457 1,609
----- ------ ------ ------ -------
R&D as a percentage of sales 4% 4% 3% 4% 4%
Earnings from Continuing Operations 1,725 1,799 2,248 2,256 8,028
Operating income as a percentage of sales 20% 17% 18% 20% 19%
Other Expense, net (373) (331) (197) (160) (994)
------ ------- ------- ------- -------
Earnings Before Income Taxes 1,352 1,534 2,051 2,096 7,034
Pre-tax Income as a percentage of sales 14% 13% 16% 18% 17%
Provision for Income Taxes (514) (583) (779) (1,876)
------ ------- ------- ------- --------
Net Earnings from Continuing Operations $ 838 $ 951 $1,272 $2,097 $ 5,158
Net Earnings from continuing operations
as a percentage of sales 10% 9% 11% 18% 12%
Net Earnings (Loss) per share from continuing $ 0.07 $ 0.07 $ 0.10 $ 0.16 $ 0.40
operations
Weighted average shares (000's) 12,387 12,864 12,877 12,901 12,873
<CAPTION>
Dollars in thousands 1Q96 2Q96 3Q96 4Q96 1996
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue:
Aerospace Telemetry $4,884 $3,062 $3,904 $4,752 $16,602
Outsourcing Support Services 3,669 3,607 3,633 3,948 14,857
----- ------ ------ ------ -------
Total revenue 8,553 6,669 7,537 8,700 31,459
Cost of goods and services provided 4,706 3,989 4,228 4,778 17,701
----- ------ ------ ------ -------
Gross Profit 3,847 2,680 3,309 3,922 13,758
Gross margin as a percentage of sales 45% 40% 44% 45% 44%
Selling, G&A Expense 1,824 1,766 1,669 1,930 7,189
SG&A as a percentage of sales 21% 26% 22% 22% 23%
Research and Development 354 334 377 401 1,466
----- ------ ------ ------ -------
R&D as a percentage of sales 4% 5% 5% 5% 5%
Earnings from Continuing Operations 1,669 580 1,263 1,591 5,103
Operating income as a percentage of sales 20% 9% 17% 19% 17%
Other Expense, net (416) (503) (481) (431) (1,831)
------ ------- ------- ------- -------
Earnings Before Income Taxes 1,253 77 782 1,160 3,272
Pre-tax Income as a percentage of sales 15% 2% 11% 14% 11%
Provision for Income Taxes (476) (29) (297) (441) (1,243)
------ ------- ------- ------- --------
Net Earnings from Continuing Operations $ 777 $ 48 $ 485 $ 719 $ 2,029
Net Earnings from continuing operations
as a percentage of sales 18% 1% 7% 9% 7%
Net Earnings (Loss) per share from continuing $ 0.06 $ 0.00 $ 0.04 $ 0.06 $ 0.16
operations
Weighted average shares (000's) 12,793 12,806 12,811 12,828 12,811
</TABLE>
The quarterly financial data have been restated to exclude the results of
Microdyne's Networking Products Division, which was discontinued in June 1997.
Restructuring costs and other costs associated with that division are not shown.
- --------------------------------------------------------------------------------
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<PAGE> 10
MICRODYNE CORPORATION 1997 ANNUAL REPORT ON FORM 10-K
- --------------------------------------------------------------------------------
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
The discussions of Results of Operations as well as Liquidity and Capital
Resources are grouped as follows:
CONTINUING OPERATIONS
CONSOLIDATED--represents the consolidated data of Microdyne Corporation and its
two continuing divisions.
AEROSPACE TELEMETRY--represents Microdyne's operations related to the
development and manufacture of telemetry receivers; the specialized
high-frequency radios used in aerospace and satellite communications. The
products and system integration services provided by Aerospace Telemetry serve
the needs of the aerospace industry, satellite communications providers, and
other users of high-precision, high-reliability long-range monitoring and
control equipment. The Microdyne Aerospace Telemetry Division (ATD) is located
in Ocala, Florida.
The aerospace telemetry market in which Microdyne competes is in the midst
of a growth cycle. According to the U.S. Bureau of the Census, the defense
electronics and communications equipment industries, of which aerospace
telemetry is a part, grew at a combined rate of 17% to $100 billion between
calendar year-end 1995 and 1996 (based on manufacturing factory shipments). The
growth in aerospace telemetry 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 and services to serve these audiences.
Microdyne is also in the process of developing new products and expanding the
breadth of its services to these markets.
OUTSOURCED SUPPORT SERVICES--represents Microdyne's operations as a provider of
outsourcing support services. Outsourcing Support Services provides trained
technical staff and management of telephone technical support centers,
in-warranty and after-warranty repair services, and special project staffing.
The Microdyne outsourcing Support Services Division (SSD) employees are based in
Indiana, Virginia, and California (including the staff for the new outsourced
telephone technical support facility in Southern California which opened in
September 1997, but which had begun operations elsewhere in March 1997).
The outsourcing industry, of which the Microdyne's outsourcing Support
Services division is a part, is experiencing rapid growth. According to market
research conducted by Microdyne, sales in the telephone technical support
industry more than doubled in the period between 1993 and 1997, for a compounded
annual growth rate of 19%. 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. As companies
focus on their core business processes, many are choosing to outsource those
services in which they do not have a core competency. Microdyne believes its
core competency in the field of outsourced telephone technical support,
in-warranty and after-warranty repair and special projects staffing 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.
DISCONTINUED OPERATIONS
NETWORKING PRODUCTS--represents Microdyne's operations as a supplier of Local
Area Network (LAN) adapter cards which provide the connection between computers
and the network. Microdyne's Networking Products operations were discontinued
during June of 1997. The disposal of the Microdyne's Networking Products
Division (NPD) has been accounted for as a discontinued operation and
accordingly, its operations, including certain restructuring charges, have been
segregated and reported as discontinued operations in Microdyne's financial
statements. Prior year information has been reclassified to conform to the
current year presentation.
- --------------------------------------------------------------------------------
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<PAGE> 11
MICRODYNE CORPORATION 1997 ANNUAL REPORT ON FORM 10-K
- --------------------------------------------------------------------------------
RISK FACTORS
The information included in this Management's Discussion and Analysis, and
elsewhere in the form 10K, contains forward-looking statements that involve
risks and uncertainties. Important factors that could cause actual results to
differ materially include: rapid changes in products and technology that may
displace products sold by Microdyne; the competitive industries within which
Microdyne operates; the Company's success in identifying, acquiring and
incorporating commercially successful technology, products or businesses, and in
identifying and taking advantage of growth opportunities; the effect on cash
flow and liquidity of differences between the expected and the actual timing of
collection of accounts receivable, uncertainty associated with certain future
events outside of Microdyne's control which could affect the adequacy of the
amount of the loss estimated for the disposal of the Networking Products
Division; dependence upon a limited customer base at outsourcing Support
Services Division and several large customers at Aerospace Telemetry; limited
product lines and service offerings relative to other suppliers; contractual
agreements between Microdyne and other companies; the discontinued Networking
Products Division's reliance upon distributors to continue to sell networking
products; fluctuations in the Company's quarterly results of operations and the
timing of orders from customers; and the Company's relationships with sources of
external financing. In addition, 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 Microdyne's common stock in any given period.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, selected
information from Microdyne's Consolidated Statements of Operations expressed as
a percentage of revenue. Microdyne's complete financial statements and notes for
the periods indicated are included elsewhere in the form 10K.
<TABLE>
<CAPTION>
YEARS OCTOBER 1, SEPTEMBER 29, SEPTEMBER 28,
ENDED 1995 1996 1997
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total Revenue 100% 100% 100%
Total cost of products sold and service provided 55% 56% 58%
--------------------------------------------
Gross profit 45% 44% 42%
Operating expenses:
Selling, general and administrative expense 22% 23% 20%
Research and development 5% 5% 4%
--------------------------------------------
Total operating expenses 27% 28% 24%
--------------------------------------------
Earnings from continuing operations 19% 16% 18%
Other expense, net (6)% (6)% (2)%
--------------------------------------------
Earnings from continuing operations before taxes 13% 10% 16%
Provision for income taxes 5% 4% 4%
--------------------------------------------
Net earnings from continuing operations 8% 6% 12%
--------------------------------------------
Discontinued operations:
Income (loss) from discontinued operations 35% (16)% (67)%
Loss on disposal 0% 0% (10)%
--------------------------------------------
Net income (loss) from discontinued operations 35% (16)% (77)%
--------------------------------------------
Net earnings (loss) 43% (10)% (65)%
============================================
</TABLE>
FISCAL YEARS ENDED SEPTEMBER 28, 1997 AND SEPTEMBER 29, 1996
In 1997, Microdyne had net income from continuing operations of $5.2 million
or $0.40 per share on revenues of $43.6 million, compared to net income from
continuing operations of $2.0 million or $0.16 per share on revenues of $31.4
million in 1996.
The net loss of $28.4 million in 1997, or $2.21 per share, consists of net
income from continuing operations, as noted above, a loss on discontinued
operations of the Networking Products Division of $29.4
- --------------------------------------------------------------------------------
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MICRODYNE CORPORATION 1997 ANNUAL REPORT ON FORM 10-K
- --------------------------------------------------------------------------------
million (including a restructuring charge, net of tax effect, of $26.6 million)
and a loss on disposal of the discontinued operations of the Networking Products
Division of $4.2 million. In 1996, the net loss of $2.9 million, or $0.23 per
share, included net income from operations, as noted above, and a loss from
discontinued operations of $4.9 million.
Revenue. Consolidated revenues from continuing operations of $43.6 million
in 1997 increased $12.2 million, or 39%, over 1996 revenues of $31.4 million.
This increase in revenues was the result of internal growth in each of
Microdyne's two operating divisions.
Aerospace Telemetry's sales of $26.2 million represented a $9.2 million
increase, or 54%, over 1996 division sales of $17.0 million. Sales for the
Aerospace Telemetry Division increased as a result of the improved demand for
the division's product line and its system integration services. Systems
integration revenue for Aerospace Telemetry, in particular, grew from
approximately $0.8 million in 1996 to approximately $8.7 million in 1997,
principally as the result of a large systems integration contract with the
Italian Ministry of Defense.
The outsourcing Support Services Division 1997 sales of $17.4 million
represented a $3.0 million increase, or 20%, over 1996 division sales of $14.4
million. The Support Services Division sales increased as a result of the
expansion of services provided to existing customers. In particular, the number
of in-sourced staff (staff working directly in the customer facility) increased,
as did the new services of outsourced staff (staff working for customer at a
Microdyne location) in telephone technical support (TTS).
Gross Profit (Revenue less cost of goods and services provided).
Consolidated gross profit as a percentage of sales from continuing operations in
1997 dipped to 42% from 44% in 1996. The decrease was the result of both
operating divisions experiencing lower gross profit as a percentage of sales. In
dollars terms, and as a result of higher sales volume, 1997 consolidated gross
profit from continuing operations increased $4.4 million to $18.2 million, a 32%
increase over 1996 gross profit of $13.8 million.
Aerospace Telemetry's 1997 gross profit of $13.2 million represented a $4.0
million increase, or 43%, over 1996 division gross profit of $9.2 million. As a
percentage of sales, gross profit declined from 54% to 50% from 1996 to 1997.
The primary factor contributing to the decline in the gross profit was the
increase in systems integration revenue, which carries a significantly lower
margin than product sales, as a percentage of the total revenues.
The outsourcing Support Services division's gross profit of $5.0 million
represented a $0.4 million increase, or 9%, over the 1996 division gross profit
of $4.6 million. As a percentage of sales, gross profit of 29% in 1997 declined
from 32% in 1996. Three factors were responsible for the lower gross profit as a
percentage of sales at SSD. First, a new contract with the existing customer had
lower gross profits than in the previous contract. Second, with the new
outsourced TTS facility, additional expenses such as depreciation and rent were
allocated to cost of services provided. These expenses were not present in the
prior year since there was no outsourced TTS facility. Third, in-sourced revenue
per employee did not change commensurately with the hourly rate paid to the
employee. Therefore, as more experienced employees remained with SSD and
received merit and seniority pay increases, there was a reduction in the gross
profit per in-sourced employee, until such time as commensurate charge rate
increases were negotiated with the customer.
Selling, General and Administrative Expenses (SG&A). Consolidated SG&A for
continuing operations as a percentage of revenue decreased from 23% in 1996 to
20% in 1997. This decrease is the result of a reduction in corporate
headquarters expenditures as a percentage of sales and a reduction in the
advertising expenditures as well as administrative staff at Aerospace Telemetry.
Consolidated SG&A for continuing operations increased 18% to $8.5 million from
$7.2 million in 1996. This increase is primarily the result of increased general
management and human resources expenses for outsourcing Support Services and
selling expenses for Aerospace Telemetry. Corporate SG&A allocated to the
discontinued Networking Products Division was $0.9 million in 1997 and $3.6
million in 1996.
- --------------------------------------------------------------------------------
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MICRODYNE CORPORATION 1997 ANNUAL REPORT ON FORM 10-K
- --------------------------------------------------------------------------------
Research and Development. Research and development expense for continuing
operations increased to $1.6 million in 1997 from $1.5 million in 1996 but
decreased as a percentage of revenue to 3.7% from 4.7%. The percentage decrease
is due principally to relatively stable R&D costs at Microdyne's Aerospace
Telemetry division spread over a higher sales base.
Other Expense. Other expense in both 1997 and 1996 includes interest expense
associated with outstanding borrowings against Microdyne's line of credit. The
lower interest expense in 1997 was due to lower outstanding borrowings as a
result of the discontinuance of the Networking Products Division. The amount of
debt outstanding on the balance sheet declined from $25.6 million in 1996 to
$11.7 million in 1997. The lower outstanding debt led to the reduction in
interest expense of $0.8 million, or 46%, for the year ended September 28, 1997.
In addition, interest expense directly attributable to the Networking Products
division was allocated to discontinued operations and is not included in the
other expense from continuing operations. For 1997, $0.4 million of interest was
directly charged to discontinued operations. In 1996, the amount charged to
discontinued operations was $0.3 million.
Provision for Income Taxes. The Company accrued a benefit from income taxes
of $3.7 million in 1997 versus a benefit for income taxes of $2.0 million in
1996. In 1997, the tax benefit of $3.7 million includes a tax provision for
continuing operations of $1.9 million, a tax benefit from discontinued
operations of $5.0 million, and a benefit from the disposal of discontinued
operations of $0.6 million. In 1996, the tax benefit of $2.0 million includes a
tax provision for continuing operations of $1.2 million and a tax benefit from
discontinued operations of $3.2 million. The benefits were due to Microdyne's
Consolidated net loss for both the years, which were the result of losses
stemming from the operations and disposal of the Networking Products division.
During June 1997, Microdyne recorded a valuation allowance of approximately
$9.8 million against deferred tax assets, based upon management's consideration
of various factors which will contribute to Microdyne generating taxable income
in the future. The deferred tax assets arose principally as a result of the
approximately $28 million in net operating loss carry-forward as of September
28, 1997. The income statement effect of this allowance was charged against tax
benefits associated with losses from discontinued operations. In September 1997,
Microdyne reduced the valuation allowance by approximately $0.8 million based
upon a re-evaluation of its continuing operations, which included considering
several new contracts and the level of fourth quarter earnings generated by its
continuing lines of business. No such valuation allowance was considered
necessary in 1996.
FISCAL YEARS ENDED SEPTEMBER 29, 1996 AND OCTOBER 1, 1995
In 1996, Microdyne had net income from continuing operations of $2.0 million
or $0.16 per share on revenues of $31.4 million, compared to net income from
continuing operations of $2.3 million or $0.18 per share on revenues of $29.5
million in 1995.
In 1996, the net loss of $2.9 million, or $0.23 per share, included a loss
from discontinued operations of $4.9 million. In 1995, the company had net
earnings of $12.6 million, or $0.96 per share, including net income from
discontinued operations of $10.3 million.
Revenue. Consolidated revenues from continuing operations of $31.4 million
in 1996 increased $2.0 million, or 7%, over 1995 revenues of $29.4 million. This
increase in revenues was the result of internal growth in Microdyne's
outsourcing Support Services division.
Aerospace Telemetry's 1996 sales of $17.0 million represented a $0.4 million
decrease, or 2%, over 1995 division sales of $17.4 million. Sales for the
Aerospace Telemetry Division were relatively stable in 1996 versus 1995,
largely as a result of continued demand for the Company's telemetry products.
The outsourcing Support Services Division sales of $14.4 million represented
a $2.3 million increase, or 19%, over 1995 division sales of $12.1 million. The
Support Services Division sales increased reflecting continued growth in support
activities for this division's customer.
Gross Profit (Revenue less cost of goods and services provided).
Consolidated gross profit as a percentage of sales from continuing operations
in 1996 decreased to 44% from 45% in 1995. The decrease was the result of
- --------------------------------------------------------------------------------
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MICRODYNE CORPORATION 1997 ANNUAL REPORT ON FORM 10-K
- --------------------------------------------------------------------------------
outsourcing Support Services experiencing lower gross profit as a percentage of
sales. In dollars terms, consolidated gross profit from continuing operations
increased $0.4 million to $13.8 million, a 3% increase over 1995 gross profit of
$13.4 million, due mostly to the increase in sales volume.
Aerospace Telemetry's 1996 gross profit of $9.2 million represented a $0.1
million decrease, or 1%, over 1995 division gross profit of $9.3 million. As a
percentage of sales, gross profit remained steady at 54% in 1996 and 1995.
The outsourcing Support Services division's gross profit of $4.6 million
represented a $0.5 million increase, or 13%, over the 1995 division gross profit
of $4.1 million. As a percentage of sales, gross profit of 32% in 1996 declined
from 34% in 1995. Responsible for the lower gross profit as a percentage of
sales at SSD were lower gross profits per in-sourced employee as a result of
revenue per in-sourced staff not keeping pace with wage increases.
Selling, General and Administrative Expenses (SG&A). Consolidated SG&A for
continuing operations increased 12% to $7.2 million in 1996 from $6.4 million in
1995. As a percentage of revenue, SG&A increased from 22% in 1995 to 23% in
1996. The increases as a percentage of sales and in dollars are primarily the
result of selling and administrative expenditures increasing at a faster pace
than revenue for both of Microdyne's operating divisions. Corporate SG&A
allocated to the discontinued Networking Products Division remained stable at
$3.6 million in 1996 and as compared to 1995.
Research and Development. Research and development expense for continuing
operations increased to $1.5 million in 1996 from $1.4 million in 1995 but
remained at 5% of revenue. The stable percentage is due to R&D costs at
Microdyne's Aerospace Telemetry increasing at a lower rate (6%) than overall
revenue growth.
Other Expense. Other expense in both 1996 and 1995 includes interest expense
associated with outstanding borrowings against Microdyne's line of credit.
Interest expense in 1996 and 1995 remained at $1.8 million. However, in 1996,
$0.3 million in interest expense was charged to discontinued operations. There
were no such charges in 1995. Taking into account the interest charged to
discontinued operations, interest expense increased 17% from 1995 to 1996,
reflecting the larger outstanding borrowings in 1996 for 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. In 1996, the tax benefit of $2.0 million included a tax provision for
continuing operations of $1.2 million and a tax benefit from discontinued
operations of $3.2 million. In 1995, the tax provision of $7.8 million included
a provision for continuing operations of $1.4 million and a provision for
discontinued operations of $6.4 million. The tax benefit in 1996 was due to
Microdyne's Consolidated net loss for the year, which was the result of the net
operating loss of the discontinued Networking Products division.
DISCONTINUED OPERATIONS
In March 1997, Microdyne restructured its Networking Products Division by
reducing the amount of product held by distributors and realigning its product
offerings with a new line of low-cost, high-performance adapter cards. The
realignment of the Company's product lines included abandoning certain products
and technology acquired during 1994 through 1996, resulting in the write off of
capitalized acquisition costs and a write down in the net realizable value of
inventory. The financial statement impact of the above actions was to record a
restructuring charge, which is reflected in the operating loss of the
discontinued operation, of $26,607,000, net of tax effect, which was comprised
of the following:
<TABLE>
<S> <C>
Write off of abandoned technology and product rights $ 14,539,000
Write down of inventories 9,394,000
Charges associated with product returns
and distribution credits,
net of release of associated reserves 2,674,000
------------
$ 26,607,000
============
</TABLE>
In June 1997, the Company elected to exit the networking products business
and to discontinue its Networking Products division. In association with the
decision, the company recorded a charge of
- --------------------------------------------------------------------------------
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<PAGE> 15
MICRODYNE CORPORATION 1997 ANNUAL REPORT ON FORM 10-K
- --------------------------------------------------------------------------------
approximately $4,222,000 representing the anticipated loss on disposal, net of
tax effects, of the division, and the anticipated operating losses until the
division is closed or sold. Negotiations on the sale of the division's assets
and on the reduction of certain of the division's liabilities, have been
substantially completed. At present, the remaining liabilities of the
discontinued operations are not expected to be assumed by the proposed buyers of
the division's assets, and will therefore continue to be assumed by Microdyne.
While Microdyne has entered into agreements through which the divisions assets
have been sold, certain amounts to be realized by Microdyne from these
agreements are contingent upon future events, whose outcome is not certain.
However, management continues to believe that the amounts estimated for the loss
on disposal of the discontinued operations are adequate based upon the presently
available information.
The Condensed Statement of Operations relating to the discontinued
operations for the years ended October 1, 1995, September 29, 1996 and September
28, 1997 are presented below.
<TABLE>
<CAPTION>
(In thousands) 1995 1996 1997
----------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue $ 140,620 $ 67,695 $ 24,350
Costs and Expenses 123,963 75,917 58,683
--------------------------------------------
Income (loss) before income taxes 16,657 (8,222) (34,333)
Income tax (provision) benefit (6,384) 3,249 4,952
--------------------------------------------
Net income (loss) $ 10,273 $ (4,973) $ (29,381)
============================================
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
During the past three years, Microdyne has financed its operations
principally through internally generated funds. However, Microdyne has secured
external financing in connection with acquisitions and repurchases of common
stock.
External financing has been primarily provided through bank borrowings.
As of September 28, 1997, Microdyne had $6.4 million of bank debt under a
revolving line of credit facility (see Note G to the Notes to the Consolidated
Financial Statements). On September 28, 1997, Microdyne had $1.1 million of cash
and $4.5 million available for borrowing under its revolving credit facility.
Microdyne is required to repay its bank borrowings by October 30, 1998, unless
such agreements are renewed. Microdyne believes that based on its current
forecast of cash generation it will meet that schedule. In addition, Microdyne
believes that the previously mentioned borrowing agreements will be renewed or
replaced.
In April 1996, Microdyne utilized cash and notes to purchase from
Novell, Inc. (Novell) the exclusive, royalty-free perpetual right to market
certain hardware and related technology which were previously sold by Microdyne
under license from Novell, and to convert certain accounts payable into notes
payable. As of September 28, 1997, notes payable due Novell totaled $5.3
million, of which $2.0 million has been classified as a short-term obligation
and $3.3 million as a long-term obligation on the September 28, 1997 Balance
Sheet.
During fiscal 1997, net cash provided by operations was $14.2 million,
primarily due to cash provided by discontinued operations of $14.0 million.
Increases in accounts receivable, inventories and deferred taxes were mostly
offset by increases in accounts payable and accrued expenses as well as earnings
from continuing operations. The increases in accounts receivable reflect a
buildup of unbilled accounts receivable for both of the operating divisions.
This trend in accounts receivable should continue as Microdyne's outsourcing
technical support and Telemetry systems integration revenue continue to
increase. The increase in accounts payable reflect Microdyne's increased level
of business in its operating divisions. The increase in the deferred tax asset
relates to Microdyne's consolidated losses in 1997 and 1996. Cash used in
investing activities was $1.4 million, which primarily relates to additional
equipment for the outsourcing Support Services Division's TTS facility in
California. Microdyne has no material commitments for future capital
expenditures. Cash used in financing activities was $13.6 million, representing
payments on bank debt and notes payable.
Microdyne 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 1998. In addition, Microdyne
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MICRODYNE CORPORATION 1997 ANNUAL REPORT ON FORM 10-K
- --------------------------------------------------------------------------------
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
Microdyne's operations.
YEAR 2000
Microdyne is currently evaluating the impact of the year 2000 on
operations, suppliers and customers. Nothing has come to the attention of the
Company that would materially impact the results of operations of the Company.
- --------------------------------------------------------------------------------
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<PAGE> 17
MICRODYNE CORPORATION 1997 ANNUAL REPORT ON FORM 10-K
- --------------------------------------------------------------------------------
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
MICRODYNE CORPORATION
FINANCIAL STATEMENTS FOR THE FISCAL YEARS ENDED
OCTOBER 1, 1995, SEPTEMBER 29, 1996, AND SEPTEMBER 28, 1997
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 17
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS 18
CONSOLIDATED STATEMENTS OF OPERATIONS 19
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY 20
CONSOLIDATED STATEMENTS OF CASH FLOWS 21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 22
</TABLE>
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MICRODYNE CORPORATION 1997 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 28, 1997 and September 29, 1996,
and the related consolidated statements of operations, stockholders' equity and
cash flows for each of the three years in the period ended September 28, 1997.
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 28, 1997 and September 29, 1996, and results of its
operations and its cash flows for each of the three years in the period ended
September 28, 1997 in conformity with generally accepted accounting principles.
GRANT THORNTON LLP
Vienna, Virginia
October 31, 1997
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MICRODYNE CORPORATION 1997 ANNUAL REPORT ON FORM 10-K
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MICRODYNE CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 29, September 28,
1996 1997
---- ----
(in thousands)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 1,791 $ 1,056
Accounts receivable, net 9,527 17,327
Inventories 3,604 4,560
Income tax receivable 1,946 1,022
Prepaid expenses and deposits 384 391
Current assets of discontinued operations 42,770 2,442
Deferred income tax asset 1,053 4,056
-------- --------
Total current assets 61,075 30,854
PROPERTY AND EQUIPMENT, net 2,451 3,225
DEFERRED INCOME TAX ASSET 113 123
NONCURRENT ASSETS
OF DISCONTINUED OPERATIONS 16,232 112
OTHER ASSETS 123 227
-------- --------
Total assets $ 79,994 $ 34,541
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term obligations $ 15,119 $ 2,040
Accounts payable - trade 1,579 3,094
Accrued liabilities 2,194 6,135
Current liabilities of discontinued operations 13,507 5,172
-------- --------
Total current liabilities 32,399 16,441
LONG-TERM OBLIGATIONS, net of current maturities 10,539 9,698
LONG TERM LIABILITIES OF DISCONTINUED
OPERATIONS 532 -
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY
Common stock, $.10 par value, authorized 50,000,000,
shares 12,832,203 shares, issued and outstanding
at September 29, 1996 and 12,904,313 shares
issued and outstanding at September 28, 1997 1,283 1,290
Additional paid-in capital 10,016 10,332
Retained earnings (deficit) 25,225 (3,220)
-------- --------
Total stockholders' equity 36,524 8,402
-------- --------
Total liabilities and stockholders' equity $ 79,994 $ 34,541
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
- --------------------------------------------------------------------------------
PAGE 18
<PAGE> 20
MICRODYNE CORPORATION 1997 ANNUAL REPORT ON FORM 10-K
- --------------------------------------------------------------------------------
MICRODYNE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended
October 1, September 29, September 28,
1995 1996 1997
------- ------- --------
(In thousands)
<S> <C> <C> <C>
Revenue:
Product $ 16,807 $16,602 $ 17,398
Service 12,651 14,857 26,223
------- ------- --------
Total Revenue 29,458 31,459 43,621
Cost of products sold and service provided:
Product 7,789 7,611 7,404
Service 8,287 10,090 18,069
------- ------- --------
Total cost of goods sold and service provided 16,076 17,701 25,473
------- ------- --------
Gross profit 13,382 13,758 18,148
Operating expenses:
Selling, general and administrative expense 6,430 7,189 8,511
Research and development 1,389 1,466 1,609
------- ------- --------
Total operating expenses 7,819 8,655 10,120
------- ------- --------
Earnings from continuing operations 5,563 5,103 8,028
Other expense, net (1,820) (1,831) (994)
------- ------- --------
Earnings from continuing operations
before income taxes 3,743 3,272 7,034
Provision for income taxes:
Current 1,350 1,104 -
Deferred 72 139 1,876
------- ------- --------
Net earnings from continuing operations 2,321 2,029 5,158
------- ------- --------
Discontinued operations:
Income (loss) from discontinued operations, net
of tax effect of $(6,384); $3,249 and $4,952
respectively 10,273 (4,973) (29,381)
Loss on disposal, net of tax effect of $598 - - (4,222)
------- ------- --------
Net income (loss) from discontinued
operations 10,273 (4,973) (33,603)
------- ------- --------
Net earnings (loss) $12,594 $(2,944) $(28,445)
======= ======= ========
Earnings per share, continuing operations $ 0.18 $ 0.16 $ 0.40
======= ======= ========
Earnings (loss) per share,
discontinued operations $ 0.78 $ (0.39) $ (2.61)
======= ======= ========
Earnings (loss) per share $ 0.96 $ (0.23) $ (2.21)
======= ======= ========
Weighted average shares outstanding 13,096 12,811 12,873
</TABLE>
The accompanying notes are an integral part of these financial statements.
- --------------------------------------------------------------------------------
PAGE 19
<PAGE> 21
MICRODYNE CORPORATION 1997 ANNUAL REPORT ON FORM 10-K
- --------------------------------------------------------------------------------
MICRODYNE CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended October 1, 1995, September 29, 1996, and September 28, 1997
<TABLE>
<CAPTION>
Common Stock
--------------------- Additional Retained
Number of paid-in earnings
shares Par Value capital (deficit)
------ --------- ------- ---------
(in thousands)
<S> <C> <C> <C> <C>
Balance, October 1, 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
Issuance of stock associated with
stock options 50 5 219 -
Issuance of stock associated with
stock purchase plan 22 2 97 -
Net loss - - - (28,445)
------ ------ ------- --------
Balance, September 28, 1997 12,904 $1,290 $10,332 $ (3,220)
====== ====== ======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
- --------------------------------------------------------------------------------
PAGE 20
<PAGE> 22
MICRODYNE CORPORATION 1997 ANNUAL REPORT ON FORM 10-K
- --------------------------------------------------------------------------------
MICRODYNE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Oct. 1, Sept. 29, Sept. 28,
1995 1996 1997
-------- --------- ---------
(in thousands.)
<S> <C> <C> <C>
Increase (decrease) in Cash:
Cash flows from operating activities:
Net income (loss) $ 12,594 $(2,944) $(28,445)
Adjustments to reconcile net loss to net cash
from operating activities:
Depreciation and amortization 563 550 606
(Earnings) loss on discontinued operations (10,273) 4,973 33,603
Changes in assets and liabilities,
net of effect of discontinued operations
Increase in accounts receivable (2,156) (431) (7,800)
Increase in inventories (244) (270) (956)
(Decrease) increase in prepaid expenses 16 (91) (7)
Decrease (increase) in other assets 200 111 (104)
(Increase) decrease in income tax receivable (1,166) (640) 924
Decrease (increase) in deferred income tax asset 456 (224) (3,013)
Increase in accounts payable and other accruals 554 380 5,456
-------- ------- --------
Net cash provided by continuing operations 544 1,414 264
Net cash (used in) provided by discontinued operations (13,960) (9,342) 13,978
-------- ------- --------
(13,416) (7,928) 14,242
Cash flows from investing activities:
Additions to property and equipment (384) (243) (1,380)
-------- ------- --------
Net cash used in investing activities (384) (243) (1,380)
Cash flows from financing activities:
Borrowings (payments) on bank debt 7,612 10,236 (6,676)
Payments on notes payable - (4,841) (7,244)
Issuance of common stock 3,279 238 323
Tax benefit (adjustment) associated with exercise of stock options
4,868 (258) -
-------- ------- --------
Net cash provided by (used in) financing activities 15,759 5,375 (13,597)
Net decrease in Cash 1,959 (2,796) (735)
Cash at beginning of period 2,628 4,587 1,791
-------- ------- --------
Cash at end of period $ 4,587 $ 1,791 $ 1,056
======== ======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
- --------------------------------------------------------------------------------
PAGE 21
<PAGE> 23
MICRODYNE CORPORATION 1997 ANNUAL REPORT ON FORM 10-K
- --------------------------------------------------------------------------------
MICRODYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 1, 1995, September 29, 1996, and September 28, 1997
NOTE A - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. NATURE OF OPERATIONS
Microdyne Corporation's continuing business is comprised of two divisions.
Its Aerospace Telemetry division manufactures and sells aerospace telemetry
receivers and ancillary devices, and provides systems integration services. Its
outsourcing Support Services division provides outsourced services including
telephone technical support and warranty and product repair. The Company's
disposal of its Networking Products division is described in note B.
2. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include Microdyne Corporation,
Microdyne Ltd., and Microdyne U.K. All significant inter-company amounts have
been eliminated in consolidation.
3. REVENUE RECOGNITION
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 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.
4. INVENTORIES
Inventories are stated at the lower of cost or market. Inventories are
standard-cost based using a FIFO flow assumption, with such standards reviewed
periodically against purchase prices and adjusted as appropriate.
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>
<CAPTION>
<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. 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, when dilutive, 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>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Common shares 12,224 12,811 12,873
Common equivalent shares from
stock options, when dilutive 872 - -
------ ------ ------
13,096 12,811 12,873
====== ====== ======
</TABLE>
- --------------------------------------------------------------------------------
PAGE 22
<PAGE> 24
MICRODYNE CORPORATION 1997 ANNUAL REPORT ON FORM 10-K
- --------------------------------------------------------------------------------
7. 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, 1996 and 1997
ended on October 1, 1995, September 29, 1996 and September 28, 1997,
respectively. All references to years relate to fiscal years rather than
calendar years.
8. 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.
9. CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with an original maturity of three
months or less to be cash equivalents.
10. STOCK OPTIONS
The company accounts for the value of stock options granted in
accordance with Accounting Principles Board Opinion 25 (APB 25), whereby if
stock options exercise prices are set at fair market value or above at the date
of grant, no compensation expense is recognized at that date.
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, 1996.
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 APB 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 will 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.
11. RECLASSIFICATIONS
As a result of the discontinued operations presentation of the
disposal of the Networking Products Division, certain amounts in the 1995 and
1996 financial statements have been reclassified to conform to the 1997
presentation. Unless specifically stated otherwise, all amounts in these notes
relate to the continuing operations of the Company.
NOTE B - DISCONTINUED OPERATIONS
In the second quarter of fiscal 1997, management restructured its
Networking Products business by reducing the amount of product held by
distributors and realigning its product offerings with a new line of low-cost,
high-performance adapter cards. The realignment of the Company's product lines
included abandoning certain products and technology acquired during 1994 through
1996, resulting in the write-off of capitalized acquisition costs. The financial
statement impact of the above actions was to record a restructuring charge,
which is now reflected in the operating loss of the discontinued operation, of
$26,607,000, net of tax effect, which was comprised of the following:
<TABLE>
<S> <C>
Write off of abandoned technology and product rights $ 14,539,000
Write down of inventories 9,394,000
Charges associated with product returns and distribution credits,
net of release of associated reserves 2,674,000
------------
$ 26,607,000
============
</TABLE>
- --------------------------------------------------------------------------------
PAGE 23
<PAGE> 25
MICRODYNE CORPORATION 1997 ANNUAL REPORT ON FORM 10-K
- --------------------------------------------------------------------------------
In the third quarter of 1997, the Company elected to exit the networking
products business and to discontinue its Networking Products division. In
association with the decision, the company recorded a charge of approximately
$4,222,000 representing the anticipated loss on disposal, net of tax effects, of
the division, and includes anticipated operating losses until the division is
closed or sold. Negotiations continue on the sale of the division's assets and
on the reduction of certain of the division's liabilities. At present, the
liabilities of the discontinued operations presented in the accompanying Balance
Sheet as of September 28, 1997, are not expected to be assumed by the proposed
buyers of the division's assets. There can be no assurance that these
negotiations will result in definitive agreements being reached.
The disposal of the Networking Products Division has been accounted for
as a discontinued operation and accordingly, its operations, including the above
restructuring charges, have been segregated and reported as discontinued
operations in the accompanying Consolidated Balance Sheets, Consolidated
Statements of Operations and Consolidated Statements of Cash Flows. Prior year
financial statements have been reclassified to conform to the current year
presentation. The Condensed Statement of Operations relating to the discontinued
operations for the years ended October 1, 1995, September 29, 1996 and September
28, 1997 are presented below.
<TABLE>
<CAPTION>
(In thousands) 1995 1996 1997
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue $ 140,620 $ 67,695 $ 24,350
Costs and Expenses 123,963 75,917 58,683
--------------------------------------------
Income (loss) before income taxes 16,657 (8,222) (34,333)
Income tax (provision) benefit (6,384) 3,249 4,952
--------------------------------------------
Net income (loss) $ 10,273 $ (4,973) $ (29,381)
============================================
</TABLE>
NOTE C - ACCOUNTS RECEIVABLE
Accounts receivable are comprised of the following:
<TABLE>
<CAPTION>
As of As of
September 29, 1996 September 28, 1997
------------------ ------------------
(in thousands)
<S> <C> <C>
Commercial and foreign governments
Billed $ 3,106 $ 3,885
Unbilled 3,362 10,528
-------- --------
6,468 14,413
U.S. Government
Billed 584 1,298
Unbilled 2,475 1,616
-------- --------
3,059 2,914
-------- --------
$ 9,527 $ 17,327
======== ========
</TABLE>
Included in the unbilled accounts receivable at September 28, 1997 is
approximately $8.0 million associated with revenue recognized on the Company's
contract with the Italian Ministry of Defense. The Company expects to invoice
the customer in November 1997 and collect this amount soon thereafter.
Following is a table depicting the activity in the Company's allowance
for doubtful accounts and other related accounts receivable reserves for the
years ended:
<TABLE>
<CAPTION>
October 1, September 29, September 28,
1995 1996 1997
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Beginning balance $ - $ - $ -
Provision charged to operations 2 1 -
Amounts written off (2) (1) -
------- ------ -------
Ending balance $ - $ - $ -
======= ====== =======
</TABLE>
- --------------------------------------------------------------------------------
PAGE 24
<PAGE> 26
MICRODYNE CORPORATION 1997 ANNUAL REPORT ON FORM 10-K
- --------------------------------------------------------------------------------
NOTE D - INVENTORIES
Inventories are comprised of the following:
<TABLE>
<CAPTION>
As of As of
September 29,1996 September 28,1997
----------------- -----------------
(in thousands)
<S> <C> <C>
Raw materials $ 2,449 $ 2,928
Work-in-process 1,072 1,715
Finished goods 639 685
------- -------
4,160 5,328
Less reserves for obsolescence (556) (768)
------- -------
$ 3,604 $ 4,560
======= =======
</TABLE>
The following is a table depicting the activity in the Company's reserve for
obsolescence for the years ended:
<TABLE>
<CAPTION>
October 1, September 29, September 28,
1995 1996 1997
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Beginning balance $ 516 $ 524 $ 556
Increase in reserves
Provision charged to operations 8 32 212
------ ------- ------
Ending balance $ 524 $ 556 $ 768
====== ======= ======
</TABLE>
NOTE E - PROPERTY AND EQUIPMENT
Property and equipment are comprised of the following:
<TABLE>
<CAPTION>
As of As of
September 29,1996 September 28,1997
----------------- -----------------
(in thousands)
<S> <C> <C>
Machinery and equipment $ 3,368 $ 4,264
Buildings and land 1,879 1,879
Furniture and fixtures 350 692
Leasehold improvements 163 307
---------- -----------
5,760 7,142
Accumulated depreciation and amortization (3,309) (3,917)
---------- -----------
$ 2,451 $ 3,225
========== ===========
</TABLE>
NOTE F - ACCRUED LIABILITIES
Accrued liabilities are comprised of the following:
<TABLE>
<CAPTION>
As of As of
September 29,1996 September 28,1997
----------------- -----------------
(in thousands)
<S> <C> <C>
Inventory purchases $ 104 $ 2,604
Commissions and royalties 507 1,073
Payroll and payroll taxes 830 1,111
Vacation 484 405
Other 269 942
-------- ---------
$ 2,194 $ 6,135
======== =========
</TABLE>
- --------------------------------------------------------------------------------
PAGE 25
<PAGE> 27
MICRODYNE CORPORATION 1997 ANNUAL REPORT ON FORM 10-K
- --------------------------------------------------------------------------------
NOTE G - LONG-TERM OBLIGATIONS
Long-term obligations consists of the following as of:
<TABLE>
<CAPTION>
September September
29,1996 28,1997
------- -------
(in thousands)
<S> <C> <C>
Amounts outstanding on a Line of Credit with a limit was $12.0
million at September 28, 1997. 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 or $12.0 million as of September 15, 1997
until December 28, 1997, and $9.0 million thereafter until
October 30, 1998. Borrowing availability for the Line of Credit
was $4.5 million at September 28, 1997. The Borrowing Base Loans
(defined as the sum of outstanding balances on the Line of
Credit and all letters of credit) are collateralized by a
security interest in the Company's accounts receivable,
inventories, equipment, land and buildings. Under the Credit
Agreement in place at September 28, 1997, interest was payable
monthly and was at the London Inter-bank Offer Rate (LIBOR) plus
a premium that ranged from 1.0% to 2.5%, or prime. The present
Credit Agreement as amended expires on October 30, 1998, unless
extended pursuant to the terms of the Credit Agreement. The $ 14,418 $ 6,404
Credit Agreement as amended contains certain restrictive
covenants with which the Company had complied as of September
28, 1997.
Amounts outstanding on a $12.0 million Term Note. As of
September 29, 1996, remaining principal was due in fixed monthly
payments of $400,000 through April 1997 and $300,000 due on May
1, 1997. Under the Credit Agreement in place at September 29,
1996, interest was payable monthly at prime plus one percent.
The term note was paid in full as of May 1, 1997 3,100 -
Amounts outstanding on a $5.8 million acquisition note. Interest
is 8% with principal and interest of $118,000 to be paid
monthly from May 1997 through April 2001 5,419 4,399
Amounts outstanding on a $3.0 million accounts payable financing
note. Interest is 8% with principal and interest of $137,000 to
be paid monthly from May 1997 through April 1998 2,442 935
Other 279 -
---------- -------
25,658 11,738
Less current portion (15,119) (2,040)
---------- -------
$ 10,539 9,698
========== =======
</TABLE>
Long-term debt is due as follows:
<TABLE>
<CAPTION>
Year ending
<S> <C>
September 27, 1998 $ 2,040
October 3, 1999 7,598
October 1, 2000 1,295
September 30, 2001 805
September 29, 2002 -
------------
$ 11,738
=========
</TABLE>
- --------------------------------------------------------------------------------
PAGE 26
<PAGE> 28
MICRODYNE CORPORATION 1997 ANNUAL REPORT ON FORM 10-K
- --------------------------------------------------------------------------------
Under Statement of Financial Accounting Standards No. 107, "Disclosures
about Fair Value of Financial Instruments," effective for fiscal years that end
after December 15, 1996, 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 8.5%, the net book values of
the notes payable as of September 28, 1997 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 non-current, based on the
classification of the related assets and liabilities giving rise to the
temporary difference.
Following are the components of the deferred tax asset (liability) recognized on
the accompanying balance sheet:
<TABLE>
<CAPTION>
As of As of
September 29,1996 September 28,1997
----------------- -----------------
(in thousands)
<S> <C> <C>
Current
Inventory $ 891 $ 1,463
Accounts receivable 88 469
Net operating loss, current portion - 2,107
Financial statement income not taxable
until following year, net 74 17
------- -------
$ 1,053 $ 4,056
Non-current
Capitalized software costs $ (170) $ -
Intangibles amortization 533 -
State income taxes 113 -
Depreciation (66) 46
Net operating loss, net of current - 9,008
portion
Other (297) 77
Valuation allowance - (9,008)
------- -------
$ 113 $ 123
------- -------
Net deferred income tax assets $ 1,166 $ 4,179
======= =======
</TABLE>
The provision for income taxes on earnings from continuing operations
before taxes differs from the amount computed by applying the U.S. federal
income tax rate (34%) because of the effect of the following items:
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
Percent Percent Percent
of Pretax of Pretax of Pretax
Amount Earnings Amount Earnings Amount Earnings
------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Federal tax (benefit) at statutory rate $ 1,273 34.0% $1,112 34.0% $ 2,391 34.0%
State income taxes, net of
federal benefit 172 4.6 236 7.2 317 4.5
Benefit from foreign sales (71) (1.9) (75) (2.3) -
corporation
Valuation allowance adjustments - - - - (832) (11.8)
Other items, net 48 1.3 (30) (0.9) - -
-------------------------------------------------------------
Income tax expense (benefit) $ 1,422 38.0% $1,243 38.0% $ 1,876 26.7%
</TABLE>
- --------------------------------------------------------------------------------
PAGE 27
<PAGE> 29
MICRODYNE CORPORATION 1997 ANNUAL REPORT ON FORM 10-K
- --------------------------------------------------------------------------------
The Company has a net operating loss carry-forward as of September 28,
1997 of approximately $28,000,000 which is available to offset future taxable
income generated through fiscal 2012. In evaluating whether a valuation
allowance is necessary to reserve against the realizability of future tax
benefits associated with this net operating loss and other deductible temporary
differences, management considered various factors which will contribute to the
Company generating taxable income in the future. In 1996 and 1995, management
concluded that an allowance was not necessary. However, in the third quarter of
fiscal 1997, the Company recorded a valuation allowance of approximately
$9,800,000 against deferred tax assets based upon this evaluation. The income
statement effect of this allowance was charged against tax benefits associated
with losses from discontinued operations. In the fourth quarter of fiscal 1997,
the Company reduced the valuation allowance by approximately $800,000 based upon
a re-evaluation of its continuing operations which included considering several
new contracts and the level of fourth quarter earnings generated by its
continuing lines of business.
NOTE I - COMMITMENTS AND CONTINGENCIES
1. OPERATING LEASE COMMITMENTS
The Company is committed under non-cancelable 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 $1,000,000,
$1,120,000 and $922,000 for the years ended October 1, 1995, September 29, 1996,
and September 28, 1997, respectively.
Future minimum lease payments under such operating leases as of
September 28, 1997 (in thousands) are as follows:
<TABLE>
<CAPTION>
Year ending
<S> <C>
September 27, 1998 $ 565
October 3, 1999 455
October 1, 2000 460
September 30, 2001 347
September 29, 2002 17
--------
$ 1,844
</TABLE>
2. EMPLOYMENT AND NON-COMPETITION AGREEMENTS
The Company is committed under long-term employment and non-competition
agreements with an officer. Approximate future minimum annual payments required
under the agreements are $620,000 and expire in fiscal 1999.
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. Accordingly, no
compensation expense has been recognized for the plan. The plans allow the
Company to grant options to employees for up to 2,000,000 shares of common
stock. These options, which have variable terms, typically vest at a rate of one
third per year from the date of grant. The maximum term of the options is five
years from the grant date.
Had compensation cost been determined based on the fair value of the
options at the grant dates consistent with SFAS 123, the company's net income
and earnings per share would have been:
- --------------------------------------------------------------------------------
PAGE 28
<PAGE> 30
MICRODYNE CORPORATION 1997 ANNUAL REPORT ON FORM 10-K
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1997
------------- -------------
<S> <C> <C>
Net Income from
continuing operations As Reported $ 2,029 $ 5,158
Pro Forma $ 1,582 $ 4,386
Earnings per share,
continuing operations As Reported $ 0.16 $ 0.40
Pro Forma $ 0.12 $ 0.34
</TABLE>
The fair value of each option grant is estimated on the date of the
grant using the Black-Sholes options-pricing model with the following weighted
average assumptions used for grants in 1997 and 1996, respectively: expected
volatility 15% and 129%, risk free rate 5.06% and expected lives of 2 years.
Following is a summary of transactions:
<TABLE>
<CAPTION>
Shares Under Option
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Outstanding, beginning of year 1,343,050 660,712 1,117,817
Granted during the year 322,700 519,200 604,000
Canceled during the year (39,917) (42,033) (217,062)
Exercised during the year (at prices ranging from
$2.72 to $8.6875 per share) (965,121) (20,062) (49,786)
---------- ---------- ----------
Outstanding, end of year 660,712 1,117,817 1,454,969
---------- ---------- ----------
Eligible, end of year for exercise currently
(at prices ranging from $2.72 to $29.00 per share) 253,349 415,038 510,705
========== ========== ==========
Weighted average stock option exercise price $ 7.03 $ 6.10 $ 5.01
========== ========== ==========
</TABLE>
In addition the outstanding options above, there are 110,000 options
granted to external directors as of September 28, 1997. The exercise prices of
these options range from $5.63 to $29.00.
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 28, 1997, 80,800 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 28, 1997. 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 $58,000, $73,000 and $61,000 in each of the years
ended October 1, 1995, September 29, 1996, and September 28, 1997, 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 were due as of September 28, 1997 or September 29, 1996.
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
$66,000 in expense associated with the services of this law firm in fiscal 1996
and fiscal 1997, respectively.
- --------------------------------------------------------------------------------
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<PAGE> 31
MICRODYNE CORPORATION 1997 ANNUAL REPORT ON FORM 10-K
- --------------------------------------------------------------------------------
NOTE L - INDUSTRY SEGMENTS, EXPORT REVENUE, AND CONCENTRATIONS
The Company operates in two business segments: aerospace telemetry and
outsourced services. Information about the Company's operations in the segments
for the three years ended September 28, 1997 is as follows:
<TABLE>
<CAPTION>
Aerospace Outsourced
Telemetry Support Corporate Consolidated
In Thousands of Dollars Division Services and Other Total
- ------------------------------------------- --------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Net sales to unaffiliated customers
- -----------------------------------
1995 $ 17,358 $ 12,100 - $ 29,458
1996 17,033 14,426 - 31,459
1997 26,240 17,381 - 43,621
Earnings from continuing operations
- -----------------------------------
1995 $ 5,031 $ 3,183 $ (2,651) $ 5,563
1996 4,135 3,506 (2,538) 5,103
1997 6,569 3,503 (2,044) 8,028
Identifiable assets
- -------------------
1995 $ 12,491 $ 2,583 $ 7,776 $ 22,850
1996 13,016 2,579 5,397 20,992
1997 21,028 4,258 6,701 31,987
Capital Expenditures
- --------------------
1995 $ 229 $ 4 $ 151 $ 384
1996 189 - 54 243
1997 267 922 191 1,380
Depreciation Expense
- --------------------
1995 $ 396 $ 3 164 $ 563
1996 451 2 97 550
1997 519 22 65 606
</TABLE>
Export revenue accounted for approximately 10%, 14%, 22% of total sales
in fiscal years 1995, 1996 and 1997, respectively. Following is the detail of
export revenue by geographic region as a percentage of total export revenue:
<TABLE>
<CAPTION>
Region 1995 1996 1997
- -------------------- --------------- ------------ ------------------
<S> <C> <C> <C>
Europe 46% 48% 86%
Pacific Rim 46% 29% 9%
Canada 8% 8% 2%
Latin America and other - 15% 3%
</TABLE>
Three customers represented 40%, 19% and 19% respectively of the
Company's total revenues for the year ended September 28, 1997.
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
October 1, 1995 September 29, 1996 September 28, 1997
--------------- ------------------ ------------------
(in thousands)
<S> <C> <C> <C>
Interest $ 1,524 $ 1,846 $ 1,074
Income taxes $ 771 $ 105 $ 17
</TABLE>
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<PAGE> 32
MICRODYNE CORPORATION 1997 ANNUAL REPORT ON FORM 10-K
- --------------------------------------------------------------------------------
During fiscal years 1995 and 1996, the Company realized net 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. EARNINGS PER SHARE
The Financial Accounting Standards Board recently issued Statement of
Financial Accounting Standards No. 128 (SFAS 128), "Earnings Per Share,"
effective for periods ending after December 15, 1997. This Statement establishes
standards for computing and presenting earnings per share (EPS) and applies to
entities with publicly held common stock or potential common stock. This
Statement simplifies the standards for computing earnings per share previously
found in APB Opinion No. 15, "Earnings per Share," and makes them comparable to
international EPS standards. It replaces the presentation of primary EPS with a
presentation of basic EPS. It also requires dual presentation of basic and
diluted EPS on the face of the income statement for all entities with complex
capital structures and requires a reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and denominator of the
diluted EPS computation. Basic EPS excludes dilution and is computed by dividing
income available to common stockholders by the weighted-average number of common
shares outstanding for the period. Diluted EPS reflects the potential dilution
that could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in the earnings of the entity. Diluted EPS is computed
similarly to fully diluted EPS pursuant to Opinion 15. This Statement requires
restatement of all prior-period EPS data presented. The Company will comply with
the requirements of SFAS No. 128 during the first quarter of fiscal year 1998.
2. REPORTING COMPREHENSIVE INCOME
The Financial Accounting Standards Board recently issued Statement of
Financial Accounting Standards No. 130 (SFAS 130), "Reporting Comprehensive
Income," effective for fiscal years beginning after December 15, 1997. This
Statement establishes standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains, and losses) in a full set
of general-purpose financial statements. This Statement requires that all items
that are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. SFAS 130 does not require a
specific format for that financial statement but requires that an enterprise
display an amount representing total comprehensive income for the period in that
financial statement. The Statement requires that an enterprise classify items of
other comprehensive income by their nature in a financial statement and display
the accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of a statement of
financial position. Reclassification of financial statements for earlier periods
provided for comparative purposes is required. The Company will comply with the
disclosure requirements of SFAS 130 in fiscal year 1999.
3. DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION
The Financial Accounting Standards Board recently issued Statement of
Financial Accounting Standards No. 131 (SFAS 131), "Disclosures about Segments
of an Enterprise and Related Information," effective for periods beginning after
December 15, 1997. This Statement establishes standards for the way that public
business enterprises report information about operating segments in annual
financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas, and major customers. This Statement
requires that a public business enterprise report financial and descriptive
information about its reportable operating segments. Operating segments are
components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance. Generally,
financial information is required to be reported on the basis that it is used
internally for evaluating segment performance and deciding how to allocate
resources to segments. This Statement requires that a public business enterprise
report a measure of segment profit or loss, certain specific revenue and expense
items, and segment assets. It requires a reconciliation of total segment
revenues, total segment profit or loss,
- --------------------------------------------------------------------------------
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<PAGE> 33
MICRODYNE CORPORATION 1997 ANNUAL REPORT ON FORM 10-K
- --------------------------------------------------------------------------------
total segment assets, and other amounts disclosed for segments to corresponding
amounts in the enterprise's general-purpose financial statements. It requires
that all public business enterprises report information about the revenues
derived from the enterprise's products or services (or groups of similar
products and services), about the countries in which the enterprise earns
revenues and holds assets, and about major customers regardless of whether that
information is used in making operating decisions. However, this Statement does
not require an enterprise to report information that is not prepared for
internal use if reporting it would be impracticable. This Statement also
requires that a public business enterprise report descriptive information about
the way that the operating segments were determined, the products and services
provided by the operating segments, differences between the measurements used
in reporting segment information and those used in the enterprise's
general-purpose financial statements, and changes in the measurement of segment
amounts from period to period. The Company will comply with the disclosure
requirements of SFAS 131 in fiscal year 1998.
- --------------------------------------------------------------------------------
PAGE 32
<PAGE> 34
MICRODYNE CORPORATION 1997 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 1997.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
This information is incorporated by reference from the Company's definitive
1998 Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
This information is incorporated by reference from the Company's definitive
1998 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
This information is incorporated by reference from the Company's definitive
1998 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
This information is incorporated by reference from the Company's definitive
1998 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 1997.
- --------------------------------------------------------------------------------
PAGE 33
<PAGE> 35
MICRODYNE CORPORATION 1997 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/ Michael E. Jalbert December 18, 1997
--------------------------
Michael E. Jalbert
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>
<CAPTION>
PRINCIPAL EXECUTIVE OFFICER:
<S> <C> <C>
/s/ Michael E. Jalbert President December 18, 1997
- ----------------------------- Chief Executive Officer
Michael E. Jalbert
PRINCIPAL FINANCIAL OFFICER:
/s/ Massoud Safavi Chief Financial Officer December 18, 1997
- ----------------------------------
Massoud Safavi
/s/ Phillip T. Cunningham Director December 18, 1997
- ---------------------------------- Chairman, Board of Directors
Phillip T. Cunningham
/s/ Gregory W. Fazakerley Director December 18, 1997
- ----------------------------------
Gregory W. Fazakerley
/s/ H. Brian Thompson Director December 18, 1997
- ----------------------------------
H. Brian Thompson
/s/ Curtis M. Coward Director December 18, 1997
- ----------------------------------
Curtis M. Coward
/s/ Christopher Maginniss Director December 18, 1997
- ---------------------------------- Vice-President, SSD
Christopher Maginniss
</TABLE>
- --------------------------------------------------------------------------------
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<PAGE> 36
MICRODYNE CORPORATION 1997 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>
- --------------------------------------------------------------------------------
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<PAGE> 37
MICRODYNE CORPORATION 1997 ANNUAL REPORT ON FORM 10-K
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
10.11 Second Amendment to Credit Incorporated by reference
Agreement among the Registrant, to Exhibit 10.11 to
Crestar Bank and NBD bank, dated Registrant's 1996 Form
June 30, 1996. 10K Annual Report
10.12 Third Amendment to Credit Incorporated by reference
Agreement among the Registrant, to Exhibit 10.12 to
Crestar Bank and NBD bank, dated Registrant's 1996 Form
August 19, 1996. 10K Annual Report
10.13 Fourth Amendment to Credit Incorporated by reference
Agreement among the Registrant, to Exhibit 10.13 to
Crestar Bank and NBD bank, dated Registrant's 1996 Form
September 27, 1996. 10K Annual Report
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
10.23 WNIM Purchase Agreement dated Incorporated by reference
</TABLE>
- --------------------------------------------------------------------------------
PAGE 36
<PAGE> 38
MICRODYNE CORPORATION 1997 ANNUAL REPORT ON FORM 10-K
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
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 Incorporated by reference
between Novell Inc. and the Registrant to Exhibit 10.30 to the Registrant's
Dated April 22, 1996 1996 Form 10-K Annual Report
10.31 Agreement between Epson America, Inc. Incorporated by reference to Exhibit 10.31
and the Registrant Dated to the Registant's 1996 Form 10-K
March 20, 1996. Annual Report Filed with this form 10-K
10.32 Amendment One to the agreement Filed with this Form 10-K
between Epson America, Inc. and the
Registrant Dated January 20, 1997
10.33 Amendment Two to the agreement Filed with this Form 10-K
between Epson America, Inc. and the
Registrant Dated August 1, 1997
10.34 Agreement between Alpine Electronics Filed with this form 10-K
of America Inc. and the Registrant
Dated September 26, 1997
10.35 Fifth Amendment to Credit Filed with this form 10-K
Agreement among the Registrant,
Crestar Bank and NBD bank
Dated March 14, 1997
</TABLE>
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MICRODYNE CORPORATION 1997 ANNUAL REPORT ON FORM 10-K
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
10.36 Sixth Amendment to Credit Filed with this form 10-K
Agreement among the Registrant,
Crestar Bank and NBD bank
Dated June 17, 1997
10.37 Seventh Amendment to Credit Filed with this form 10-K
Agreement among the Registrant,
Crestar Bank and NBD bank
Dated September 15, 1997
10.38 Employment Agreement dated Filed with this form 10-K
February 10, 1997 between Microdyne
Corporation and Michael E.
Jalbert
10.39 Agreement between the Italian Ministry Filed with this form 10-K
of Defense and the Registrant
Dated December 6, 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 38
<PAGE> 1
MICRODYNE CORPORATION 1997 ANNUAL REPORT ON FORM 10-K
- --------------------------------------------------------------------------------
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 canceled, 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."
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
- --------------------------------------------------------------------------------
PAGE 39
<PAGE> 2
MICRODYNE CORPORATION 1997 ANNUAL REPORT ON FORM 10-K
- --------------------------------------------------------------------------------
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
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> 3
MICRODYNE CORPORATION 1997 ANNUAL REPORT ON FORM 10-K
- --------------------------------------------------------------------------------
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 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.
- --------------------------------------------------------------------------------
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<PAGE> 4
MICRODYNE CORPORATION 1997 ANNUAL REPORT ON FORM 10-K
- --------------------------------------------------------------------------------
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.
(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
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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.
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.
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
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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, 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
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accrued under this agreement shall become immediately due 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.
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.
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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 govern with respect to the
subject matter hereto and shall override all terms and conditions
contained on any purchase order or acknowledgment 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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EXHIBIT 10.32
REDACTED
AMENDMENT ONE TO THE SUPPORT SERVICES AGREEMENT
Epson America, Inc. (Epson,) and Microdyne Corporation (Microdyne) amend the
Support Services Agreement (the "Agreement") which commenced effective April 1,
1996.
RECITALS
Whereas, Epson has established a telephone support center in Torrance,
California (commonly referred to as the "Epson Connection") and Epson
anticipates a level of calls that will exceed the Epson Connection's current
capacity,
Whereas, Microdyne has offered Epson an interim solution to the excessive call
load through a telephone support facility that Microdyne will set up in the
general vicinity of Torrance, California, and,
Whereas, Epson wants to accept Microdyne's offer of services and assist
Microdyne in operating the telephone service center,
Now, therefore, the parties agree as follows:
1. Term- This Amendment will remain in effect for a six (6) month period
beginning March 1, 1997 when Microdyne will commence responding to
customer calls. After the expiration of six months, this Amendment
will continue in effect on a month by month basis unless either party
provides the other with thirty (30) days prior written notice of its
intent to terminate the Amendment. Prior to the expiration of the six
(6) month period described above, this Amendment can only be
terminated for cause, as defined in Provision 11.2 of the Agreement.
2. Microdyne's Telephone Support Center: Microdyne will open a telephone
support center in the general vicinity of Epson's headquarters in
Torrance, California and provide qualified personnel to respond to
customer calls, primarily regarding ink jet printers, The parties
anticipate a ramp-up period with increasing support capabilities over
the first two (2) months of this Amendment. Microdyne will provide
computer equipment and lease NEC telephone equipment sufficient to
interface with the Epson Connection and provide high quality support
to customers. Microdyne will also provide the T I telephone and data
link to connect its facility to the Epson Connection at Epson's
Madrona facility.
3. Minimum Call Level Commitment: Epson will refer a minimum number of
(confidentiality requested) calls per month to Microdyne. This
(confidentiality requested) minimum call level is intended to provide
Microdyne with a sufficient volume of calls to establish and staff the
telephone service center. The parties anticipate, however, that
Microdyne will not be able to handle the entire minimum volume of
calls during the first two (2) months of operation.
4. Epson's Costs: Epson will compensate Microdyne for providing telephone
support service (confidentiality requested). (As referred to herein,
talk minutes refer to on-line time actually expended by Microdyne
employees in Talk Mode pursuant to the ACD records for such calls and
NEC Navigator activity reports.) Epson will pay the telephone
communication costs for 800 number calls by customers. Epson shall
also provide product training and telephone support training for
Microdyne personnel in the same manner that training is currently
provided to Microdyne employees assigned to work directly within the
Epson Connection. Upon termination of the Amendment, Epson may, if
mutually agreeable to the parties, take over the NEC equipment lease
entered by Microdyne for telephone equipment. If Microdyne chooses to
purchase NEC equipment, instead of leasing, Epson may purchase
equipment if a mutually agreeable price can be negotiated.
5 Microdyne's Costs: Microdyne will provide the facilities, equipment
and staff sufficient to provide high quality technical support to
customers. Microdyne will be solely responsible
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for all facility leasing costs, costs for telephone, and computer
equipment, the cost of the T-1 link, all safety and all general
administrative expenses required to operate the Microdyne telephone
support center.
6. Record Retention: Microdyne will retain such electronic data and
records regarding customer calls as may reasonably be requested by
Epson.
7. Entire Agreement: This Amendment includes the entire Agreement of the
parties regarding the telephone support service to be provided by
Microdyne. Except as explicitly set forth in this Amendment, all of
the provision of the Support Services Agreement remain in full force
and effect.
<TABLE>
EPSON AMERICA, INC. MICRODYNE CORPORATION
<S> <C>
By: /s/ Richard D. Bullot By: /s/ John Dillender
Name Richard D. Bullot Name: John Dillender
Title: Vice-President Services and Support Title: Vice-President Support Services Division
Date: January 20, 1997 Date: January 20, 1997
</TABLE>
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EXHIBIT 10.33
REDACTED
AMMENDMENT TWO TO THE SUPPORT SERVICES AGREEMENT
THIS AMENDMENT (the "Amendment"), dated as of August 1, 1997, is
between Epson America, Inc. ("Epson") and Microdyne Corporation
("Microdyne"). This Amendment amends the Support Services Agreement which
commenced effective April 1, 1996 (as amended by the Amendment One to the
Support Services Agreement of January 20, 1997, the "Original Agreement").
Recitals
A. Under the Original Agreement, Microdyne has established the Watson Call
Center, an off-site telephone support facility that handles excess Epson
call load which Microdyne is unable to handle at Epson's site.
B. Because of Epson's continuing, heavy call load, Microdyne intends to
establish a new, larger off-site call center (the "New Center") and to move
the Watson Call Center into the New Center.
C. The parties wish to enter into an agreement establishing the terms of
Microdyne's expanded off-site call support for Epson, and providing for the
phase-in of that expanded support.
NOW, THEREFORE, the parties agree as follows:
Agreement
1. Outsourced Telephone Technical Support. Under the terms of this
Amendment, and in accordance with Microdyne's March 18, 1997
response (the "RFP Response") to Epson's RFP of February 17, 1997
(the "RFP"), Microdyne will provide outsourced telephone technical
support service to Epson end users and other Epson customers as may
be designated by Epson. The services will be phased in over two
phases.
1.1 In Phase 1, Microdyne will expand the Watson Call Center in
order to handle increased call load from Epson. Phase 1 will
commence on August 1, 1997 and continue until the start of
Phase 2. As provided in Section 5 of this amendment, Epson
will compensate Microdyne (confidentiality requested) from the
start of Phase 1.
1.2 In Phase 2, Microdyne will establish the New Center, and move
the personnel and equipment from the Watson Call Center to the
New Center. The commencement date for Phase 2 is September 2,
1997.
Except as specifically stated otherwise in this Amendment, all the
terms and conditions of this Amendment apply from August 1, 1997,
across both phases.
2. Level of Support. Microdyne will supply Level One telephone support.
In the future, Epson may wish to move to Microdyne's Level One/Level
Two support. In that case, the parties will negotiate mutually
satisfactory terms of the support, including billing rate, billing
method and management metrics. Until terms are negotiated, the terms in
this agreement will continue as provided in this agreement.
3. Hours. Support will be provided from 6:00 AM to 8:00 PM, Pacific Time,
Monday through Friday, and from 7:00 AM to 4:00 PM, Pacific Time,
Saturday and Sunday. Epson may increase or decrease the hours of
coverage over time. Epson will provide Microdyne with a written 14 day
notice for changes in operating hours. Microdyne will not be required
to provide support on holidays designated by Epson. For the remainder
of 1997, the holidays are: Labor Day, Thanksgiving Day, Christmas Day
and December 26. Holidays for subsequent years shall be communicated to
Microdyne by January 10 of each calendar year. The first holiday in
1998 will be New Year's Day.
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4. Dedicated Personnel. Microdyne will provide adequate personnel to
service the Epson business. Each representative who handles Epson
business shall handle only Epson business. Each representative will
speak English as his/her primary language. As stated in the RFP
Response (Part B, Section Relevant Experience, Question 6), "If we have
a service objective, once we reach that threshold, we will continue to
focus the efforts of our 'Epson dedicated' staff to further improve the
service level (and not balance their time in order to achieve some
other customer's minimum target)."
5. Cost. As detailed in Exhibit G (Pricing Table Worksheet) of the RFP
Response, the only cost to Epson for Microdyne's off-site services will
be a fixed price per agent connection minute (talk time). Microdyne
billing to Epson will be based on queue-time service level. The
queue-time service level Epson has selected (confidentiality
requested). Epson will compensate Microdyne for the cost per talk
minute for this Level One service (confidentiality requested). This
rate shall be effective from August 1, 1997.
6. Minimum Level of Calls. Epson will refer a (confidentiality requested)
calls per month to Microdyne at the New Center. There will be a ramp up
period where calls will be offered to match agent resources. It is
anticipated that the New Center will be staffed to handle the
(confidentiality requested) calls per month volume by November 1, 1997.
7. Microdyne's-Costs. Microdyne will provide the facilities, telephone
and data links to connect its facility to the Epson Connection at
Epson's Madrona facility, equipment and staff sufficient to provide
high quality technical support to Epson's customers, while meeting or
exceeding the performance metrics specified herein. Microdyne will be
solely responsible for all facility leasing costs, furniture, costs for
telephone, network and computing equipment, software applications and
associated licenses, the cost of T-l and data lines, all salaries, and
all general administrative expenses required to operate the Microdyne
off-site telephone support call centers. Epson will pay for the inbound
per minute usage fees for Epson's toll free telephone numbers.
8. Casepoint-System. Microdyne will totally integrate the Epson CBR2
Casepoint knowledge-base system and software at the New Center.
Microdyne personnel will continue to participate in the Casepoint
database development.
9. Reporting in General
9.1 Microdyne will provide a greatly expanded reporting platform
with the New Center. Also, reports will be available from
several additional systems, including the VRU and Auto
Quality/P&Q Review. Microdyne will not charge Epson for any
additional reporting.
9.2 Microdyne will provide Epson with access to the Rockwell
InfoServer, an information gateway platform. The InfoServer has
the ability to gather data from various systems and generate
integrated reporting. Per the RFP Response (Part B, Page 3),
depending on the integration limitations of the existing NEC
ACD, Microdyne will actively explore the feasibility of
utilizing the InfoServer to generate combined reports from the
Epson systems and the Rockwell/VoiceTek platforms. If the NEC
ACD platforms are open and the traffic data is available to the
InfoServer, Microdyne will work closely with Epson to design
the report package.
10. Measurement, Confirmation and Reporting of Customer Satisfaction.
10.1 In response to Epson's request that Microdyne (a) monitor
customer satisfaction, (b) maintain Epson's currently high
level of customer satisfaction and (c) take corrective actions
at the individual and program level when customer satisfaction
levels do not meet Epson targets, Microdyne will implement a
program to measure, confirm and report customer satisfaction.
Reports will be made in a manner and frequency acceptable to
Epson. This program will begin no later than 60 days after
execution of this Amendment. Rather than create a separate and
new measurement program, Epson suggests that Microdyne
coordinate efforts with the existing Service 800, Inc. program.
10.2 Microdyne will review its current monitoring program, and the
Connection Stentor monitoring program (currently functioning in
Canada), and make a recommendation to
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Epson regarding the future of the Microdyne monitoring program.
This recommendation will be made within 60 days of execution of
this Amendment.
10.3 Results of Microdyne's internal agent monitoring and quality
program will be presented to Epson as follows:
Weekly during the first four weeks after implementation of
Phase I and Phase 2.
Weekly for three weeks after each new hire and new product
training session.
Quarterly.
10.4 Microdyne will track and report to Epson the number of hours of
training each dedicated representative receives. Microdyne will
also specify the skills required of a technician to effectively
and efficiently provide support to Epson end users. Microdyne
will report to Epson the percentage of agents not meeting these
requirements on a monthly basis.
10.5 Microdyne will provide Epson with employee turnover data. For
support representatives and management (up to but excluding the
call center site manager) this data will be tracked monthly,
measured on an annualized basis, and presented to Epson monthly.
10.6 Epson will provide product, procedure and Epson system training
to Microdyne trainers. This train-the-trainer program will cover
the ink-jet product family for the initial Phase 2 start-up. As
new Epson products are released, Epson will provide product
training to the Microdyne trainers. Epson will also provide one
of each product for training and subsequent technical support.
11. Disaster Plan. As described in the RFP Response (Part A, Section
4.2.2), Microdyne will present its multi-level disaster plan to Epson
within 30 days of Phase 2 implementation.
12. Standards.
12.1 In light of Epson's decision to work more closely with Microdyne,
and its commitment to greatly increase Microdyne's call center
business, it is Epson's desire that Microdyne pursue and obtain
COPC-2000 Certification for its existing and New Center
operations. Epson understands this certification process is
currently under evaluation by Microdyne, and that Microdyne may
elect to not follow through with the COPC certification.
Nevertheless, Microdyne acknowledges that Epson will look to the
COPC standards as one measure of Microdyne's performance, whether
Microdyne pursues certification or not.
12.2 Maintaining high levels of customer satisfaction requires Epson
to carefully manage Microdyne. Epson's goal is to achieve
superior customer satisfaction results. These results are
produced by Microdyne people and processes. Epson management of
Microdyne will focus on these four key areas:
Performance Measurement, Processes, People, and Planning and
Leadership.
These areas were thoroughly addressed in the RFP. The commitments
in the RFP Response in these areas will become part of the
measurement criteria used to continually monitor and evaluate
Microdyne's performance. Microdyne data presented to Epson
relative to each area must be accurate, objective and valid. The
data must be gathered at an appropriate frequency. This data must
be used by Microdyne to make decisions, take action and produce
results. This will help ensure that Microdyne delivers superior
customer service and improved operational performance.
13. Call Monitoring. As part of the on-going quality process, Epson will be
provided with the capability of remotely and silently monitoring
telephone calls. This monitoring will be conducted randomly and weekly.
This spot checking is not intended to replace Microdyne's internal
agent monitoring programs. Microdyne shall maintain the procedures
required by Epson from time to time (including consents signed by
Microdyne representatives and recorded notices to end user callers) for
enabling this call monitoring.
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14. Performance Metrics. Microdyne will measure and report the following
metrics at the intervals listed. These metrics and objectives will be
reviewed quarterly and adjustments can be made with joint approval from
Epson and Microdyne.
14.1 Talk Time. Microdyne will measure Talk Time and strive to achieve
and maintain the lowest possible talk time for Level One Inkjet
and MAC calls, while balancing call quality, customer
satisfaction and talk time. The following are talk time
objectives for this Level One support. It is assumed Microdyne
will require a two month ramp up period prior to achieving these
targets:
Average monthly Inkjet talk time of (confidentiality requested).
Average monthly MAC talk time of (confidentiality requested).
14.2 Abandonment Rate. Microdyne will measure the Abandonment Rate.
The total abandonment rate is defined as the total number of
calls dropped after being seized by the Microdyne ACD divided by
the Total number of calls seized by the Microdyne ACD. This
number will be reported as a percentage.
Abandoned calls shall not exceed 10% of the total number of
inbound calls seized by the Microdyne ACD in any given hour of
operation.
Abandoned calls shall not exceed 8% of the total number of
inbound calls seized by the Microdyne ACD on any given day of
operation.
Abandoned calls shall not exceed 7% of the total number of
inbound calls seized by the Microdyne ACD in any calendar month.
Microdyne will also provide a monthly pareto analysis of the
various points the calls abandon. This would be prior to menu
selection, during menu selection, after menu selection, during
the queue, after call is presented to agent.
14.3 Busy Calls. Microdyne will provide a measurement of Percent of
Calls Busy using an All Trunks Busy Measurement and a Blocked
Call measurement.
The All Trunks Busy measurement will be Total Time, in seconds,
the Trunks are busy during business hours divided by the Total
Time, in seconds, during the business day. This will be measured
as a percentage each hour of operation and reported monthly by
day.
The Blocked Call measurement will be the number of calls
prevented from connecting to the Microdyne ACD divided by the
number of calls offered to the Microdyne ACD. This blockage will
be measured hourly by day and reported weekly (Sunday - Saturday)
and for each calendar month. It is understood that Microdyne will
need to obtain these blocked call statistics from either MCI (the
network provider), NEC (Epson's ACD vendor), Rockwell
(Microdyne's ACD provider), or Microdyne's local exchange
carrier.
14.4 ASA. Microdyne will measure the Average Speed of Answer (ASA).
The Speed of Answer is defined as the time, in seconds, for a
caller to reach a live agent after the caller has navigated
through an automated selection process. If there is no automated
selection process, then the speed of answer would be the time, in
seconds, from the call entering the Microdyne ACD to call being
answered by a live agent.
The Average Speed of Answer (ASA) would be the Total Speed of
Answer Time, in seconds, for all Calls Handled by Live Agents
divided by the Total Calls Handled by Live Agents.
Microdyne will measure the ASA in half-hour increments.
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The ASA data will be reported by hour, by day of week and by calendar
month. The data will be delivered to Epson by 8:00 AM on the next
business day following the close of the reporting period.
The ASA distribution will also be measured and reported. The report
will show the percentage of calls answered in 0-30 seconds, 31-90
seconds, 91-180 seconds, 181- 300, and 301- 480 seconds, and 481+
seconds. This ASA distribution will be delivered to Epson at the end
of each seven day week (Sunday - Saturday) and at the end of each
calendar month.
14.5 Transferred Calls In an effort to monitor First Call Resolution,
Microdyne will measure and report transferred calls. Microdyne
will analyze transferred calls, calls requiring callbacks,
consultation calls, and any other calls requiring an action other
than First Contact Resolution. A pareto analysis will be
presented monthly for three months. During the fourth month Epson
and Microdyne will agree upon and implement monthly call transfer
objectives. These statistics will be tracked daily and weekly
(Sunday - Saturday) and will be reported monthly.
14.6 Logs. Microdyne will create a complete (as defined by Epson) call
log for each call handled. The complete call log objective is
93%. This will be reported monthly.
14.7 Inference-Usage,. Microdyne will track and measure Inference
usage. For products supported (when a domain exists), usage
objectives will be 83%. The Unresolved/Canceled objective will be
5%. The Resolved Cases objective will be 93%. These figures will
be measured and reported weekly. EPSON will allow Microdyne to
access this data through the EPSON Highway in order to prepare
these statistical reports.
14.8 ACD Statistics. Microdyne will provide Epson with a comprehensive
set of ACD statistics on a daily, weekly and monthly basis. For
Monday through Thursday of each week, daily statistics will be
delivered to Epson by the close of business on the following
business day. For Friday through Sunday, daily statistics and all
weekly reports will be delivered by the close of business on the
following Tuesday. Monthly reports will be delivered by the close
of business on the second business day of the following month.
The reports will include at the least, the following information:
Number of calls offered
Number of calls handled
Number of abandoned calls
Percent of abandoned calls
Abandon call distribution
Average talk time
Total talk time
Average speed of answer
Average speed of answer distribution
Longest waiting call
Percent of all trunks busy
Percent of call blockage
First call resolution
Number of escalated calls
Percent of escalated calls
Call activity summary by product split
Transferred call reports
Outbound call activity
Service level
Call queue time
Distribution of queued calls
15. Miscellaneous
15.1 Other Services. Epson may elect to outsource additional product
support and services, in its
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MICRODYNE CORPORATION 1997 ANNUAL REPORT ON FORM 10-K
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sole discretion. These include, but are not limited to:
Other Epson product lines
Fulfillment
Ad reply
Accessory sales
End user surveys
Other support methods
15.2 Record Retention: Microdyne will retain such electronic data and
records regarding customer calls as may reasonably be requested
by Epson.
15.3 Entire Agreement: This Amendment includes the entire agreement of
the parties regarding the off-site telephone support service to
be provided by Microdyne. Except as explicitly se,. forth in this
Amendment, all of the provisions of the Original Agreement remain
in full force and effect.
IN WITNESS WHEREOF, this Amendment is executed in counterparts by
duly authorized representatives, each of which counterpart shall be
deemed an original.
<TABLE>
<CAPTION>
EPSON AMERICA, INC. MICRODYNE CORPORATION
<S> <C>
By: /s/ Richard D. Bulot By: /s/ Christopher Maginniss
Name Richard D. Bulot Name: Christopher Maginniss
Title: Vice-President Services and Support Title: President Support Services Division
Date: August 1, 1997 Date: July 31, 1997
</TABLE>
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<PAGE> 1
MICRODYNE CORPORATION 1997 ANNUAL REPORT ON FORM 10-K
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Exhibit 10.34
SUPPORT SERVICES AGREEMENT
This Support Services Agreement (the "Agreement") is made this 26 day of
September, 1997, by and between Microdyne Corporation ("Microdyne"), a Maryland
corporation located at 3601 Eisenhower Avenue, Alexandria, VA., 22304, and
Alpine Electronics of America, Inc. ("Alpine"), a corporation with a principal
place of business at 19145 Gramercy Place, Torrance, Ca., 90501.
1. DESCRIPTION OF SERVICES AND PRICING.
Microdyne will provide to Alpine the services specified in Schedule A
("Services"), for the fees which are set forth in Schedule B which is
incorporated herein by reference.
2. EFFECTIVE DATE AND TERM.
This Agreement shall become effective on the 3rd day of November, 1997 (the
"Effective Date") and shall continue for eighteen (18) months through the 3rd
day of May, 1999 (the "Initial Term"). Thereafter, this Agreement shall
automatically renew for successive one-year periods (the "Renewal Term(s)")
unless canceled by either party by giving notice of such cancellation to the
other not less than thirty (30) days before the beginning of any Renewal Term.
3. ACCOUNT MANAGEMENT AND PERSONNEL.
(A) Account Manager. Microdyne will designate an Account Manager ("Account
Manager") who will be directly responsible for coordinating and managing the
delivery of the Services and will have full authority to act on Microdyne's
behalf with respect to all matters relating to this Agreement. The Account
Manager will work with the Alpine Representative (hereinafter defined) to
address Alpine's customer service issues and strategies and the parties'
relationship under this Agreement.
(B) Alpine Representative. Alpine will designate a representative ("Alpine
Representative") who will be directly responsible for supervising the delivery
of the Services and have full authority to act on Alpine's behalf with respect
to all matters relating to this Agreement. The Alpine Representative will work
with the Account Manager to address Alpine's customer service issues,
information technology issues and strategies, and the parties' relationship
under this Agreement.
(C) Microdyne's Personnel. Microdyne will use reasonable commercial efforts
to ensure that all personnel who are to perform any tasks, work, functions or
obligations under this Agreement for or on behalf of Microdyne shall be
competent, experienced, and trained in the tasks, work, functions or obligations
to be performed by such personnel.
(D) Personnel Training. Microdyne shall implement and maintain a policy of
on-going training for all personnel to ensure that all personnel have the
requisite skills and knowledge required to perform the tasks, work, functions
and obligations assigned to them by Microdyne. Both parties acknowledge,
however, that the initial product training of personnel will be undertaken by
Alpine.
(E) Information Available to Microdyne Personnel. Alpine shall timely
supply Microdyne with all necessary information and printed advertising
materials regarding Alpine's products and services and shall maintain the
currency and accuracy of such materials and information. In addition, Alpine
shall assist Microdyne in developing communications materials and standard
responses to customer requests and make technical information available to
Microdyne without cost to Microdyne in order to enable Microdyne to provide the
Services.
(F) Customer Service Quality Monitoring. Microdyne will monitor the quality
of performance of Microdyne's personnel employed to render Services hereunder by
conducting scheduled random recordings of Alpine's customer calls for personnel
training purposes.
4. REPORTING REQUIREMENTS AND ALPINE'S DATA
(A) Records and Audit Rights. Microdyne agrees to keep and maintain records
of the charges associated with Microdyne's provision of Services. Alpine retains
the right to have a representative of Alpine's certified public accounting firm
inspect and audit Microdyne's books and records pertaining to the Services
during normal business hours upon reasonable notice to Microdyne, at Alpine's
expense, to insure compliance with the terms of this Agreement.
Microdyne agrees to furnish to Alpine a statement within fifteen (15) days
following the end of each month identifying the Services performed during the
preceding month. 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.
Microdyne agrees to provide any information required by Alpine 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.
(B) Other Reports. Microdyne will provide Alpine with other type of
reports, customer call data and information, in a form and with content mutually
agreed by the parties, form time to time agreed to by the parties, including
tracking reports generated by Microdyne. Microdyne shall give to Alpine on
demand an
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MICRODYNE CORPORATION 1997 ANNUAL REPORT ON FORM 10-K
- --------------------------------------------------------------------------------
electronic copy of any information kept pursuant to this paragraph.
(C) Confidential Information. During the term of this Agreement, Microdyne
will have access to information that is confidential and proprietary to Alpine
and not generally known to the industry. Such "Confidential Information"
includes, but is not limited to, the following types of information or other
information of a similar nature (whether or not reduced to writing):
discoveries, ideas, concepts, software in various stages of development,
designs, drawings, specifications, techniques, models, data, source code, object
code, documentation, diagrams, flow charts, research, development, processes,
procedures, marketing plans, information related to customers, price lists,
pricing policies and financial information. Such Confidential Information shall
belong exclusively to Alpine and Microdyne agrees to turn over all copies of
such materials in its control to Alpine upon request or upon termination of this
Agreement.
Microdyne agrees to hold in confidence and not to directly or indirectly reveal,
report, publish, disclose or transfer any of the Confidential Information to any
person or entity, or utilize any of the Confidential Information for any
purpose. Microdyne shall segregate and keep separate from any other records,
documents, drawings or similar material any and all Confidential Information and
any and all information generated by Microdyne which relates to or is based upon
such Confidential Information.
Microdyne shall limit availability of Confidential Information within its
organization to those employees or consultants who have a reasonable need to see
and use the same. Each employee and consultant who obtains access to
Confidential Information shall be fully informed of its confidential nature, and
shall be required to enter into a written agreement acknowledging that such
employee or consultant agrees to abide by any and all disclosure and use
restrictions imposed upon Microdyne by reason of this Agreement.
5. PAYMENT TERMS.
(A) Invoice. Alpine agrees to remit payment to Microdyne at the remittance
address and on the due date indicated on Microdyne's invoices to Alpine ("Due
Date"). In the event Alpine fails to make full payment to the proper address
within thirty (30) days after the Due Date, Alpine shall also pay an interest
charge in the amount of one and one-half percent (1.5%) of the unpaid balance
per month or the maximum lawful rate under applicable state law, whichever is
greater.
Payment for all monthly recurring charges, installation and other agreed upon
charges shall be billed following the receipt of any such Services.
(B) Suspension of Services. In the event payment in full is not
received from Alpine on or before sixty (60) days following the Due Date,
Microdyne shall have the right, after giving Alpine ten (10) days notice, to
suspend all or any portion of the Services to Alpine. If only a portion of the
Services are suspended and Alpine does not cure its nonpayment, Microdyne may
suspend, after giving Alpine ten (10) days notice, all or any additional portion
of the Services to Alpine. Microdyne may continue the suspension until such time
as Alpine has paid in full all charges then due, including any late fees as
specified herein. If Alpine fails to make such payment by a date determined by
and acceptable to Microdyne, Alpine shall be deemed to have canceled the
Services provided under this Agreement effective on the date of such suspension
and shall remain liable for all cancellation charges set forth in the Service
Schedule.
(C) Taxes. Alpine 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 Alpine's payments for
the Services, including but not limited to withholding taxes, FICA payments,
worker's compensation and state disability payments.
(D) Minimum Calls. The parties acknowledge that Microdyne's pricing for the
Service is based upon a minimum of 6,000 calls per month being received by
Microdyne's call center from Alpine's customers. The parties agree that in the
event such minimum is not met, they will meet to discuss adjustments to the
pricing set out in Schedule B hereto.
6. TERMINATION AND DEFAULT.
(A) Termination. If Microdyne is prohibited by any governmental authority
from furnishing all or a portion of the Services, or if any material rate or
term contained herein and relevant to the affected Service is substantially
changed by order of the highest court of competent jurisdiction to adjudicate
the matter, the Federal Communications Commission, or other local, state or
federal government authority, then Microdyne may upon thirty (30) days prior
written notice to Alpine, terminate this Agreement or the affected portion of
the Service.
(B) Events of Default. With respect to any of the Services hereunder,
Alpine may terminate that Service, upon written notice to Microdyne and
following a period of thirty (30) days in which Microdyne may cure such default,
if the quality of Services provided hereunder fall consistently below the level
of quality as agreed upon by Microdyne and Alpine. Either party may terminate
this Agreement if the other is in default of any material obligation contained
herein, which default has not been cured within fifteen (15) days following
notice of such default. In the event this Agreement is terminated by Alpine
during the initial term other than as provided in the two preceding sentences,
or by Microdyne because of Alpine's default, Alpine shall pay the
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MICRODYNE CORPORATION 1997 ANNUAL REPORT ON FORM 10-K
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amount of installation fees determined by multiplying $10,000 by the fraction,
the denomination of which is 12, the numerator of which is the number 12 minus
the number of full months from the Effective Date. If the number is a negative
number, there will be no charge. This Agreement shall automatically be canceled
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 and
payable upon the happening of the event of termination. The aforesaid rights
shall be in addition to all other rights and remedies provided at law, in
equity, or hereunder.
7. GENERAL AGREEMENT.
(A) Warranty and Disclaimer of Warranty. Microdyne warrants that Services
shall be provided to Alpine in accordance with the parameters set forth in the
Service Schedule. Microdyne shall use reasonable efforts under the circumstances
to remedy any delays, interruptions, omissions, mistakes, accidents or errors in
the Services and restore such Services to comply with the terms hereof. THE
FOREGOING WARRANTY IS EXCLUSIVE AND IN LIEU OF ALL OTHER WARRANTIES OR REMEDIES,
WHETHER EXPRESS, IMPLIED OR STATUTORY, INCLUDING WITHOUT LIMITATION, IMPLIED
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
(B) Limitation of Liability. IN THE EVENT OF ANY BREACH OF THIS AGREEMENT,
MICRODYNE SHALL NOT BE LIABLE FOR ANY CONSEQUENTIAL, SPECIAL, INCIDENTAL OR FOR
ANY LOST PROFITS OF ANY KIND OR NATURE WHATSOEVER AND, WITH RESPECT TO PARTIES
OTHER THAN ALPINE THAT USE THE SERVICES THROUGH ALPINE, ALPINE SHALL INDEMNIFY
MICRODYNE AGAINST ANY CLAIMS FOR SUCH DAMAGES BROUGHT AGAINST IT BY THIRD
PARTIES, UNLESS CAUSED BY THE GROSS NEGLIGENCE OR WILLFUL WRONGDOING OF
MICRODYNE.
(C) Alpine Content and Indemnity. Alpine shall make all arrangements with
copyright holders, or other parties for necessary authorizations, clearances or
consents ("Consents") with respect to information, data or other contents
("contents") provided to Microdyne for distribution to callers. Alpine shall
indemnify and hold harmless Microdyne against and from any action, suit or
claim, whether civil or criminal, private or public, brought against Microdyne
arising out of or related to the contents distributed hereunder (by Microdyne's
employees, over the Internet, Microdyne's network or otherwise) or related to
Alpine's products including, but not limited to, claims, actual or alleged,
relating to any infringement of copyright, patents, any violation of export
control laws, failure to procure Consents or that such transmission Content
violate third party intellectual property rights. Alpine agrees not to use the
Services for any unlawful purpose, including without limitation any use which
constitutes or may constitute a violation of any local, state or federal
obscenity law.
(D) Force Majeure. If either party's performance of this Agreement or any
obligation (other than the obligation to make payments) hereunder is prevented,
restricted or interfered with by causes beyond its reasonable control including,
but not limited to, acts of God, fire, explosion, vandalism, cable cut, storm or
other similar occurrence including rain fade or other atmospheric conditions,
any law, order, regulation, direction, action or request of the United States
Government or state or local governments, or of any department, agency,
commission, court, bureau, corporation or other instrumentality of any one or
more said governments, or of any civil or military authority, or by national
emergencies, insurrections, riots, wars, acts of terrorism, strikes, lockouts or
work stoppages or other labor difficulties, supplier failures, shortages,
breaches or delays, then the affected party shall be excused from such
performance on a day-to-day basis to the extent of such prevention, restriction
or interference. The affected party shall use reasonable efforts under the
circumstances to avoid and remove such causes of non-performance and shall
proceed to perform with reasonable dispatch whenever such causes cease. Failure
of equipment or transmission services of a telecommunications carrier involving
Microdyne's Services ("Outage") shall be considered an event of Force Majeure
hereunder. In the event of an occurrence of such Outage causing failure of
Services which is beyond the control of Microdyne, the unaffected portion of the
Service may be subject to interruption as Microdyne deems necessary. Microdyne
shall not be liable for such interruption.
(E) Press Releases. Alpine agrees that Microdyne may provide press
releases, regarding this Agreement, and the Services to be provided hereunder,
provided Alpine reviews and approves such press releases which approval is not
unreasonably delayed or withheld. Alpine understands and agrees that Microdyne
may disclose such information as may be required under applicable law, including
information Microdyne considers material to its business and prospects.
8. MISCELLANEOUS PROVISIONS.
(A) Title to Equipment. This Agreement shall not, and shall not be deemed
to, convey to Alpine title of any kind to any of the transmission facilities,
digital encoder/decoders, telephone lines, microwave facilities or other
facilities utilized in connection with the Services.
(B) Notice. Notices under this Agreement shall be in writing and delivered
either via U.S. mail, certified with return receipt requested, or via Federal
Express priority next-day delivery, to the person identified in this Section at
the full business addresses of the parties as they appear herein. The effective
date for any
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MICRODYNE CORPORATION 1997 ANNUAL REPORT ON FORM 10-K
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notice under this Agreement shall be the date of delivery of such notice, not
the date of mailing. The full business address for purposes of notice under this
Section as well as telephone voice and facsimile numbers for reservation of
services and troubleshooting shall be:
<TABLE>
<S> <C>
Microdyne Corporation Alpine Electronics of America, Inc.
Attn: President Attn: Jim Ayalde, Customer Relations Mgr.
3601 Eisenhower Avenue 19145 Gramercy Place
Alexandria, VA. 22304 Torrance, Ca. 90501
Telephone: (703) 329-0500 Telephone: (310) 783-7018
Facsimile: (703) 329-3722 Facsimile: (310) 782-0726
</TABLE>
(C) Merger/Integration. This Agreement (including the attached Service
Schedule, as it may be modified from time to time) consists of all the terms and
conditions contained herein and in documents incorporated herein specifically by
reference. This Agreement constitutes the complete and exclusive statement of
the understanding between the parties and supersedes all proposals and prior
agreements (oral or written) between the parties relating to Services provided
hereunder.
(D) Written Amendment. Alpine agrees that any addition, deletion or
modification to this Agreement shall not be binding on Microdyne except by
written agreement executed by Microdyne.
(E) No Venture. The provision of Services shall not create a partnership
or joint venture between the parties.
(F) Conflict of Law. In addition to the nonpayment of any sum due
hereunder, Microdyne may immediately suspend Services in whole or part if
Microdyne determines that such Services violate the Communications Act of 1934,
as amended (including the Telecommunications Act of 1996), or that the
imposition of any state or federal statute, or promulgation of any rule,
regulation, or order of the Federal Communications Commission ("FCC") or other
governing body makes Microdyne's performance commercially impracticable.
(G) Assignment. Alpine shall not assign or transfer its rights or
obligations under this Agreement without the prior written consent of Microdyne,
provided that Alpine may reincorporate in any state without the prior written
consent of Microdyne. Any such assignment or transfer of Alpine's rights or
obligations without such consent shall entitle Microdyne to terminate the
Services provided hereunder at its option upon ten (10) days' prior written
notice to Alpine. A change in control shall be deemed to be an assignment or
transfer.
(H) Choice of Law. This Agreement shall be governed by the laws of the
Commonwealth of Virginia.
(I) Interpretation. No rule of construction requiring interpretation
against the draftsman hereof shall apply in the interpretation of this
Agreement.
(J) No Third Party Beneficiary. The provisions of this Agreement are for
the benefit only of the parties hereto, and no third party may seek to enforce
or benefit from these provisions.
(K) Arbitration. Any and all disputes arising from or in connection with
this Agreement shall be settled, promptly and in good faith, by mutual
consultation between the parties. Failing such amicable settlement, such
disputes shall be settled by arbitration in Los Angeles, California, in
accordance with the commercial dispute rules of the American Arbitration
Association. The award of arbitration shall be final and binding upon the
parties.
(L) Attorneys' Fees. If a proceeding is brought for the enforcement of this
Agreement or because of any alleged or actual dispute, breach, default or
misrepresentation in connection with any of the provisions of this Agreement,
the prevailing party shall be entitled to recover reasonable attorneys' fees and
other costs and expenses incurred in such action or proceeding in addition to
any other relief to which such party may be entitled.
(M) Severability. In the event any provision of this Agreement conflicts
with any statute, rule or order of any governmental unit or regulatory body, or
tariff then, if required by law, such statute, rule, order or tariff shall
control.
(N) No Waiver. The failure of either party to enforce any provision hereof
shall not constitute the permanent waiver of such provision.
<TABLE>
<CAPTION>
MICRODYNE CORPORATION ALPINE ELECTRONICS OF AMERICA, INC.
<S> <C>
/s/ John Dillender /s/Jim Ayalde
Signature Signature
Vice President, Operations Customer Relations Manager
Title Title
September 26, 1997 September 26, 1997
Date Date
</TABLE>
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<PAGE> 1
MICRODYNE CORPORATION 1997 ANNUAL REPORT ON FORM 10-K
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Exhibit 10.35
FIFTH AMENDMENT TO
CREDIT AGREEMENT
THIS FIFTH AMENDMENT TO CREDIT AGREEMENT (the "Amendment"), dated and
effective as of March 14, 1997, 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 Third Amendment to Credit Agreement,
dated as of August 19, 1996, and the Fourth Amendment to Credit Agreement dated
as of September 27, 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:
11.. The Applicable DC Advance Percentage shall be 0% and Eligible
Data Communications Receivables shall not be included in the Borrowing Base
unless the Banks elect, in their sole discretion, to increase the Applicable DC
Advance Percentage at some subsequent date. The Banks will reconsider the
Borrower's request to reestablish the Applicable DC Advance Percentage after the
Banks review the Borrower's financial statements for its fiscal quarter ending
on June 29, 1997.
22. Eligible Inventory shall not include at any time more than
$250,000 of finished goods completed under a Telemetry Division contract and for
which payment is not yet due from a Customer.
33. Section 7.3 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 Commitment hereunder, the Borrower shall maintain,
unless the Banks shall otherwise consent in writing:
(a) Net Income. For the fiscal quarter ending on June
29, 1997, and each subsequent fiscal quarter, Net Income of greater
than $1.
(b) Tangible Net Worth. As of the end of each fiscal
quarter of the Borrower, beginning on June 29, 1997, Tangible Net Worth
of not less than the Tangible Net Worth reflected in the Borrower's
financial statements for the fiscal quarter ending March 30, 1997."
44. 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.
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MICRODYNE CORPORATION 1997 ANNUAL REPORT ON FORM 10-K
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55. 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.
66. 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.
77. 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.
88. This Amendment shall be governed by the laws of the Commonwealth
of Virginia, without reference to conflict of laws principles.
99. 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]
WITNESS the following signatures.
BORROWER:
MICRODYNE CORPORATION,
a Maryland corporation
By: /s/ Christian J. Spitz
Name: Christian J. Spitz
Title: Senior Vice President and CFO
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/Robert J. Hill
Name: Robert J. Hill
Title: First Vice-President
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<PAGE> 1
MICRODYNE CORPORATION 1997 ANNUAL REPORT ON FORM 10-K
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Exhibit 10.36
SIXTH AMENDMENT TO
CREDIT AGREEMENT
THIS SIXTH AMENDMENT TO CREDIT AGREEMENT (the "Amendment"), dated and
effective as of June 17, 1997, 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 Third Amendment to Credit Agreement,
dated as of August 19, 1996, the Fourth Amendment to Credit Agreement, dated as
of September 27, 1996, and the Fifth Amendment to Credit Agreement, dated as of
March 14, 1997 (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:
The Maximum Amount, as of June 29, 1997, and at all times thereafter,
shall be $7,000,000.
The Banks waive compliance with the requirements of Section 7.3 of the
Credit Agreement for the fiscal quarter ending on June 29, 1997. In
consideration of this waiver, the Borrower shall pay to the Agent, for the
account of the Banks, a fee of $25,000, which shall be payable on the date
hereof.
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 or waivers of 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.
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.
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.
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.
This Amendment shall be governed by the laws of the Commonwealth of
Virginia, without reference to conflict of laws principles.
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MICRODYNE CORPORATION 1997 ANNUAL REPORT ON FORM 10-K
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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]
WITNESS the following signatures.
BORROWER:
MICRODYNE CORPORATION,
a Maryland corporation
By: /s/ Christian Spitz
Name: Christian Spitz
Title: Senior Vice President and CFO
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
Name: Phillip D. Martin
Title: Vice President
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MICRODYNE CORPORATION 1997 ANNUAL REPORT ON FORM 10-K
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Exhibit 10.37
SEVENTH AMENDMENT TO
CREDIT AGREEMENT
THIS SEVENTH AMENDMENT TO CREDIT AGREEMENT (the "Amendment"), dated as
of September 15, 1997, is made by and between MICRODYNE CORPORATION, a Maryland
corporation (the "Borrower"), CRESTAR BANK (the "Bank"), and CRESTAR BANK, as
agent (the "Agent").
RECITALS
The Borrower, the Bank, NBD Bank ("NBD") 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 Third Amendment to
Credit Agreement, dated as of August 19, 1996, the Fourth Amendment to Credit
Agreement, dated as of September 27, 1996 (the "Fourth Amendment"), the Fifth
Amendment to Credit Agreement, dated as of March 14, 1997 and the Sixth
Amendment to Credit Agreement, dated as of June 17, 1997 (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.
Upon the satisfaction of the conditions to the effectiveness of this
Amendment set forth below, the Bank will acquire from NBD all of its rights
under the Agreement. 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:
The following definitions are added to Section 1.1 of the Agreement:
"Annualized Cash Flow" means (a) for the fiscal quarter of the Borrower
ending on September 28, 1997, Cash Flow for such fiscal quarter divided by .25;
(b) for the fiscal quarter of the Borrower ending on December 28, 1997, (1) Cash
Flow for such fiscal quarter plus Cash Flow for the immediately preceding fiscal
quarter, divided by (2) .50; (c) for the fiscal quarter of the Borrower ending
on March 29, 1998 (1) Cash Flow for such fiscal quarter and the two immediately
preceding fiscal quarters, divided by (2) .75; and (d) for the fiscal quarter of
the Borrower ending on June 28, 1998, and for each succeeding fiscal quarter,
Cash Flow for such fiscal quarter plus Cash Flow for the three immediately
preceding fiscal quarters.
"Annualized EBITDA" means (a) for the fiscal quarter of the Borrower
ending on September 28, 1997, EBITDA for such fiscal quarter divided by .25; (b)
for the fiscal quarter of the Borrower ending on December 28, 1997, (1) EBITDA
for such fiscal quarter plus EBITDA for the immediately preceding fiscal
quarter, divided by (2) .50; (c) for the fiscal quarter of the Borrower ending
on March 29, 1998 (1) EBITDA for such fiscal quarter and the two immediately
preceding fiscal quarters, divided by (2) .75; and (d) for the fiscal quarter of
the Borrower ending on June 28, 1998, and for each succeeding fiscal quarter,
EBITDA for such fiscal quarter plus EBITDA for the three immediately preceding
fiscal quarters.
"ATD" means the Borrower's Aerospace Telemetry Division.
"Cash Flow" means, for any period, Net Income from continuing
operations of the Borrower and its Subsidiaries, plus, to the extent deducted to
determine Net Income, depreciation and amortization, and, for any determination
made after December 28, 1997, minus the amount by which aggregate capital
expenditures paid, accrued or incurred by the Borrower and its Subsidiaries
after June 30, 1997 exceed $3,500,000.
"Funded Debt" means the sum of the consolidated indebtedness of the
Borrower and its Subsidiaries for 11(aa) borrowed money, (bb) Capital Lease
obligations, (cc) the amount of any outstanding Debt guaranteed, (dd)
obligations of joint ventures in which the Borrower or any Subsidiary has an
interest and for which the Borrower or any Subsidiary of the Borrower is liable,
and (ee) contingent or matured reimbursement obligations for letters of credit
issued for the account of the Borrower or any Subsidiary, in each case
determined in accordance with GAAP.
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MICRODYNE CORPORATION 1997 ANNUAL REPORT ON FORM 10-K
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"Funded Debt Ratio" means, as of the end of any fiscal quarter of the
Borrower, the ratio of Funded Debt then outstanding to Annualized Cash Flow.
"LIBOR" means for each calendar month, the rate at which dollar
deposits with a one-month maturity are offered to leading banks in the London
interbank market at 11:00 a.m. (London time) on the first Business Day of such
calendar month (with each such determination to become effective as of the first
day of such calendar month if not a Business Day), based on quotations provided
by the British Bankers Association and published by an On-Line Information
Service, as selected by the Agent, plus adjustments (expressed as a percentage)
for reserve requirements, deposit insurance premium assessments, broker's
commissions and other regulatory costs, all of the foregoing as determined by
the Agent's Funds Management Division in accordance with its customary
practices.
"NPD" means the Borrower's Networking Products Division.
"On-Line Information Service" means a text line or other on-line
information service provided to the Agent by any of Reuters Information
Services, Inc., Knight-Ridder Financial/Americas, Dow Jones Telerate, Inc. or
Bloomberg Financial Markets News Services, or any comparable reporting service
selected by the Agent.
"Percent Complete ATD Inventory" means Eligible Inventory of ATD
consisting of finished goods (a) completed and ready for delivery under a valid
purchase order or contract, (b) that have been tagged and segregated from other
Inventory, and (c) with respect to which the Borrower has recognized the revenue
to be derived from the sale of such finished goods and carries such recognized
revenue on its books as an unbilled Receivable in accordance with GAAP.
"SSD" means the Borrower's Support Services Division.
Each of the following definitions contained in Section 1.1 of the
Agreement is amended to read in its entirety as follows:
"Acceptable Foreign Customers" means any Foreign Customer whose
obligations under an Eligible Receivable are payable in United States Dollars
and are secured by a trade letter of credit (and not a standby or performance
letter of credit) acceptable to the Agent or are insured by the Foreign Credit
Insurance Association under a policy acceptable to the Agent.
"Advance Commitment" means $12,000,000 until December 28, 1997, and
$9,000,000 as of December 29, 1997, and at all times thereafter; provided
however that the Advance Commitment shall be automatically reduced by the amount
of any prepayment required by Section 2.10(c).
"Borrowing Base" means, at any time, the sum of the following, without
duplication: (a) 80% of Eligible Billed Receivables that arise out of the ATD
and are not due from Foreign Customers; (b) 90% of Eligible Billed Receivables
due from Acceptable Foreign Customers; (c) such percentage of Eligible Billed
Receivables due from other Foreign Customers of ATD as may be approved by the
Agent in writing from time to time, in its sole discretion; (d) 80% of the
Eligible Billed Receivables that arise out of the SSD, (e) 80% of the net book
value of Eligible Equipment, excluding software, cabling, taxes, and facility
modifications, acquired by the Borrower subsequent to June 29, 1997, plus 30% of
the net book value of all other Eligible Equipment; (f) the Value of the
Eligible Real Estate; and (g) the applicable Inventory Component; provided,
however, that in no event shall the Borrowing Base attributable to the Inventory
Component exceed the Borrowing Base attributable to clauses (a), (b), (c) and
(d) of this definition.
"Borrowing Base Loans" means, at any time, the aggregate amount of
outstanding Advances and Letters of Credit.
"EBITDA" means, for any period, Net Income plus, to the extent deducted
in determining Net Income for such period, interest expenses, income tax
expense, depreciation and amortization.
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MICRODYNE CORPORATION 1997 ANNUAL REPORT ON FORM 10-K
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"Inventory Component" means the sum of the following, without
duplication (a) 60% of the Percent Complete ATD Inventory, provided that the
Inventory Component attributable to this clause (a) shall not exceed $1,000,000,
and (b) 20% of all other Eligible Inventory of the ATD, provided that the
Inventory Component attributable to this clause (b) shall not exceed $4,000,000.
In each case, Eligible Inventory shall be valued at the lower of cost or market.
"Maximum Amount" means $12,000,000 until December 28, 1997, and
$9,000,000 as of December 29, 1997, and at all times thereafter; provided,
however, that the Maximum Amount shall be automatically reduced by the amount of
any prepayment required by Section 2.10(c).
"Permitted Acquisition" means any merger, consolidation, stock or asset
acquisition, or any combination thereof, concerning the Borrower or a
Subsidiary, that is approved by the Agent in its sole discretion.
"Spread" means the applicable percentage corresponding to the
applicable Funded Debt Ratio set forth below, as calculated by the Agent. The
Spread shall be 2.50% until the first adjustment following delivery of the
Borrower's financial statements for the fiscal quarter ending on September 28,
1997. Thereafter, the Spread will be adjusted quarterly based on the table set
forth below:
<TABLE>
<CAPTION>
Funded Debt Ratio Spread
----------------- ------
<S> <C>
Less than 1 1.00%
Greater than or equal to 1
but less than 1.5 1.25%
Greater than or equal to 1.5
but less than 1.75 1.65%
Greater than or equal to 1.75
but less than 2 1.90%
Greater than or equal to 2
but less than 2.25 2.20%
Greater than or equal to 2.25 2.50%
</TABLE>
The Spread will be adjusted to the percentage corresponding to the
Funded Debt Ratio in effect on the last day of each fiscal quarter of the
Borrower. The adjustment will become effective as of the first day of the
calendar month next succeeding delivery to the Agent of the Borrower's quarterly
financial statements. No decrease in the Spread shall become effective if, at
the time, any Default or Event of Default has occurred and is continuing. If the
Borrower's quarterly financial statements are not delivered to the Agent within
the time period specified by this Agreement, the Spread will be increased, at
the option of the Agent, to 2.50% from the date on which such statements were
due until the next adjustment date.
"Termination Date" means October 30, 1998.
The fourth sentence of Section 2.2(a), requiring delivery of a "Notice
of Borrowing," is deleted.
Sections 2.2(b) and (c) are deleted.
Sections 2.3(a) and (b) are amended to read in their entirety as
follows:
"(a) Subject to the terms and conditions of this Agreement,
the Agent, in reliance on the Agreements of the Banks set
forth in Section 2.3(d) below, will from time to time at the
request of the Borrower issue Letters of Credit for the
account of the Borrower until the Termination Date, in an
aggregate face amount not to exceed $3,000,000 at any time
outstanding. The Advance Commitment of each Bank shall be
reduced by each Bank's Commitment Percentage of the Letters of
Credit.
(b) Prior to the issuance of a Letter of Credit, the Agent
must receive an appropriately completed LC Agreement, executed
by the Borrower, not less than five Business Days prior
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MICRODYNE CORPORATION 1997 ANNUAL REPORT ON FORM 10-K
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to the date on which the Letter of Credit is to be issued.
In the event of any conflict between the terms of this
Agreement and any LC Agreement, this Agreement shall
control. The form, substance and term of each Letter of
Credit must be acceptable to the Agent. The Borrower agrees
to reimburse the Agent or demand for any drawing paid by the
Agent under a Letter of Credit, together with interest
therein from the date of such demand at the rate applicable
to the Advances."
Section 2.6 of the Agreement is amended to read in its entirety as
follows:
"SECTION 2.6 Interest. The unpaid principal balance
of the Advances shall bear interest at a rate per annum equal
to (a) the Base Rate in effect from time to time or (b) LIBOR
plus the applicable Spread in effect from time to time,
whichever is selected by the Borrower. If the Borrower wishes
to select the Base Rate option, it must give written notice of
such selection to the Agent at least two Business Days prior
to the first day of the calendar month in which such option is
to become effective. When the LIBOR option is in effect, the
interest rate on the Advances shall be determined based on
LIBOR as of the first day of the applicable calendar month and
shall remain fixed for the entire month. Once selected, the
LIBOR option shall remain in effect until the Borrower elects
to convert to the Base Rate option by giving written notice to
the Agent at least two Business Days prior to the first day of
the next succeeding calendar month. When the Base Rate option
is in effect, the interest rate on the Advances shall be
changed on each day on which there is a change in the Base
Rate. If the Borrower does not select the Base Rate option,
interest shall be calculated by reference to the LIBOR option.
Payments of interest on each Advance shall be made on each
Interest Payment Date, beginning on the Interest Payment Date
next succeeding the date of disbursement of such Advance.
Section 2.10 of the Agreement is amended to read in its entirety as
follows:
"SECTION 2.10 Prepayments.
(a) The Advances may be prepaid in whole or in part, at
any time, without premium or penalty.
(b) The Borrower shall prepay the Obligations to the
extent that the aggregate amount of outstanding Advances and
Letters of Credit exceed the Maximum Amount at any time.
(c) 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 and the sale of the NPD Assets) to
the prepayment of the Obligations and the Maximum Amount shall
be automatically reduced by the amount of such required
prepayment.
(d) The Borrower shall immediately prepay the Obligations
to the extent that (1) the Borrowing Base is less than 60% of
the Borrowing Base Loans at any time through December 28,
1997, or (2) the Borrowing Base is less than 90% of the
Borrowing Base Loans as of December 29, 1997, or at any time
thereafter. If any mandatory prepayment is required with
respect to outstanding Letters of Credit, the amount of such
prepayment shall be held by the Agent in a cash collateral
account, over which the Agent shall have the exclusive power
of withdrawal, as security for the Obligations arising out of
the LC Agreements."
Section 2.11 of the Agreement is amended to amend in its entirety as
follows:
"SECTION 2.11 Fees. (a) The Borrower agrees to pay to
the Banks a fee equal to 0.10% per annum of the average daily
balance of the amount by which the Maximum Amount exceeds the
aggregate outstanding Advances and Letters of Credit, which
fee shall begin to accrue on September 15, 1997, and shall be
payable quarterly, in arrears, on the last
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MICRODYNE CORPORATION 1997 ANNUAL REPORT ON FORM 10-K
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day of each March, June, September, and December, beginning on
September 30, 1997, and on the Termination Date.
(b) The Borrower agrees to pay to the Agent an
administrative fee of $75,000, $50,000 of which shall be
payable on October 1, 1997, and $25,000 of which shall be
payable on December 31, 1997. The administrative fee shall be
immediately due and payable upon the termination of the
Commitments or the occurrence of an Event of Default. The
Agent is authorized to debit the Borrower's account with the
Agent for payment of the administrative fee when due."
Subsection (7) of Section 7 1(b) is amended to read in its entirety as
follows:
"(7) the following information, in a format acceptable
to the Agent:
On or before the fifteenth day of each fiscal month
of the Borrower, an Aging as of the most recently
ended fiscal month, accompanied by a Borrowing
Base Certificate calculating the Borrowing Base
as of the last day of the most recently ended
fiscal month;
On or before the last day of each fiscal month of
the Borrower through December 28, 1997, an Aging
as of the fifteenth day of such fiscal month,
accompanied by a Borrowing Base Certificate as of
such fifteenth day of such fiscal month;
Within 25 days after the end of each fiscal month of
the Borrower an Inventory summary for the fiscal
month most recently ended, together with a
contract backlog report for the ATD and a percent
complete ATD Inventory Report;
Within 25 days after the end of each fiscal month of
the Borrower, a listing and aging of its accounts
payable as of the end of such fiscal month; and
Within 30 days after the end of each fiscal month
through and including the fiscal month ending on
December 28, 1997, a cash flow statement for such
fiscal month."
Section 7.3 of the Agreement is 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 remains outstanding
or any Bank shall have any Commitment hereunder, the Borrower
shall:
(a) Tangible Net Worth. Maintain as of the end of each
fiscal quarter of the Borrower, Tangible Net Worth of not
less than (1) $6,200,000 as of September 28, 1997, and (2)
$8,250,000 as of December 28, 1997, and each fiscal quarter
thereafter.
(b) Funded Debt Ratio. Maintain as of the end of each
fiscal quarter of the Borrower a Funded Debt Ratio of not
greater than (a) 3 to 1 as of September 28, 1997 and
December 28, 1997, and (b) 2.5 to 1 for each fiscal quarter
thereafter.
(c) Debt Service Ratio. Maintain as of the end of each
fiscal quarter of the Borrower, beginning on September 28,
1997, a ratio of Annualized EBITDA to interest expense for
the 12-month period then ended plus current maturities of
long-term Debt (excluding the Advances) scheduled to be
repaid during such 12-month period of not less than 1.65 to 1.
(d) Capital Expenditures. Not permit capital expenditures
for the fiscal quarter of the Borrower beginning on June 30,
1997, and ending on December 28, 1997, to exceed
$3,500,000."
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This Amendment shall not become effective unless and until the
following conditions are satisfied:
The Agent receives an audit of the Borrower's systems and the
Collateral, acceptable to the Agent in its sole discretion;
The Agent receives a copy of the payment schedule for accounts
payable of the NPD;
The Agent has received certified copies of the resolutions of
the Borrower's Board of Directors with respect to the
designation of the Borrower's officers who are authorized to
execute and deliver this Amendment; and
No Default or Event of Default shall have occurred and be
continuing.
Paragraph 13 of the Fourth Amendment is deleted.
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 Agreement shall require the Banks to
grant any further amendments to or waivers of 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 Agreement.
The Borrower acknowledges and agrees that (a) there are no defenses,
counterclaims or setoffs against any of its obligations under the Loan Document,
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.
The Borrower represents and warrants that this Amendment has been duly
authorized, executed and delivered by it. 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.
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 attorney fees.
This Amendment shall be governed by the laws of the Commonwealth of
Virginia, without reference to conflict of laws principles.
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]
WITNESS the following signatures.
BORROWER:
MICRODYNE CORPORATION,
a Maryland corporation
By: /s/ Massoud Safavi
Name: Massoud Safavi
Title: Chief Financial Officer
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MICRODYNE CORPORATION 1997 ANNUAL REPORT ON FORM 10-K
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AGENT:
CRESTAR BANK
By: /s/ Miriam M. Sadler
Miriam M. Sadler
Senior Vice President
BANK:
CRESTAR BANK
By: /s/ Miriam M. Sadler
Miriam M. Sadler
Senior Vice President
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MICRODYNE CORPORATION 1997 ANNUAL REPORT ON FORM 10-K
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Exhibit 10.38
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement") is made as of February 10, 1997
between MICRODYNE, a Maryland corporation (the "Company"), and MICHAEL E.
JALBERT (the "Executive").
RECITALS
The Company manufactures and sells electronic equipment and
provides technical services in the United States and overseas government and
commercial marketplaces.
The Company wishes to hire the Executive as its President and
Chief Executive Officer and Executive wishes to accept such employment on the
terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing and the agreements
contained herein, the parties hereto agree as follows:
Employment. The Company employs the Executive and the
Executive accepts employment by the Company as its President and Chief Executive
Officer. The initial term of such employment is two years from March 10, 1997
(the Employment Date ) until March 9, 1999. Following the initial term of
employment, this Agreement may be renewed for additional two (2) year terms. At
the expiration of each term (the initial two year term or each two year
extension period), employment shall be automatically terminated unless written
notice to the contrary is given by the Company to the Executive by the November
9 of each year preceding the March 9 termination date. If at the conclusion of
any employment term, the company elects not to renew the Agreement, the
Executive shall receive base salary and all benefits up until the November 9
following the termination of the Agreement.
Duties. During his employment the Executive shall hold such
positions and perform such services as may be assigned to him from time-to-time
by the Board of Directors of the Company. The Executive shall report to the
Board of Directors or such other officer as may be designated from time to time
by the Board of Directors. The Executive shall devote his attention and energies
to, and shall use his best efforts to do all of those things which maximize
shareholder value in the company on a full time basis. The Executive shall not
be engaged in any other business activity which diverts his time and energies
from the performance of his duties for the Company.
Compensation.
During the term of this Agreement, the Executive shall be
compensated on an annual basis with a base salary of $250,000.00, which shall be
payable in accordance with the Company's standard payroll practices. In
addition, the Executive may be entitled to an annual bonus if, in the sole
discretion of the Board, the Executive has met or exceeded some or all of the
annual performance objectives established by the Board and communicated to the
Executive. The board shall not unreasonably withhold the distribution of a bonus
that has been granted to the Executive. An annual bonus shall not exceed 100% of
the Executive's annual base salary.
In addition to the salary and bonus opportunities set
forth in Section 3(a), as soon as practicable following the Employment Date, the
Company shall take all steps necessary at its expense to effect a grant of stock
options for 300,000 shares of Microdyne common stock under the Company's Key
Employee Stock Option Plan. The exercise price of the options is the market
price as of March 10, 1997 (date of employment). The options will vest and be
exercisable at the following times: 50,000 on the Employment Date; 50,000 on
March 9, 1998; 100,000 on March 9, 1999; and 100,000 on March 9, 2000; provided,
however, that any termination of the Executive's employment under this Agreement
shall extinguish the Executive's rights in any options which have not vested as
of the date of such termination. The options which have vested will be
exercisable from the date of vesting until the earlier of five years form the
date of grant or two years from the Executive's termination of employment for
any reason.
Executive will be paid a car allowance of $760.00 per
month plus maintenance during the original term and any additional terms of this
Agreement.
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Benefits. The Company shall provide the Executive with group
life insurance, group medical insurance and other such benefits as may be
consistent with the Company's policies applicable to those employees of similar
rank and position. The Company may from time to time add to, reduce, eliminate
or otherwise modify those benefits at its discretion as provided by law.
Executive is entitled to four weeks of paid vacation per year.
Business Expenses. The Company shall reimburse the Executive
for reasonable and necessary business expenses, ancillary expenses for travel
and similar items, incurred or expended by the Executive in the performance of
his duties hereunder. Such reimbursement shall be in accordance with the
Company's policy and procedures governing reimbursement of such expenses, which
may be altered or modified from time to time in the Company's sole discretion.
Confidential and Proprietary Information.
The Executive recognizes that by virtue of his employment
with the Company he will have access to confidential and proprietary information
relating to the Company's business. The Executive agrees that this information
is a valuable and unique asset of the Company and, if divulged to others, could
cause irreparable harm to the Company's business. The Executive also recognizes
and acknowledges that such information may include data or material that may not
technically qualify as a trade secret or other type of confidential information
but that the Company nevertheless has a legitimate business interest in
protecting its confidentiality.
Accordingly, regardless of the reason for termination, the
Executive shall not use or disclose, for himself or others, any confidential or
proprietary information of the Company, including but not limited to "Trade
Secrets", "Technology" or "Customer Information". For purposes of this
Agreement, the term "Trade Secrets" means information relating to the
manufacture and sale of products made and sold, or proposed to be made and sold,
by the Company including, without limitation, research and development,
engineering, purchasing, manufacturing, marketing or sales plans, customer
lists, financial data, cost and price information and other business records,
together with all concepts or ideas (oral or written) reasonably related
thereto; the term "Technology" means machinery and equipment, drawings, designs,
processes, computer hardware and software, methods, formulae, techniques,
know-how, discoveries, concepts and ideas, whether or not they can be patented,
copyrighted or registered as a trademark, and all improvements to any of the
foregoing used in or relating to the manufacture and sale of the products made
and sold, proposed to be made and sold or considered to be made and sold, by the
Company; and the term "Customer Information" means the name or address of any
customer or any information concerning the transactions of any customer or
supplier with the Company. A Customer of the Company as of any date shall
include any individual or entity who purchased any products or services from, or
entered into any other transactions or negotiations with, the Company during the
one-year period preceding such date. Within ten (10) working days following
termination of employment the Executive must demand a list of Company Customers.
The Company must provide such a list within thirty (30) calendar days. Failure
by the Executive to demand a list waives any challenge by the Executive to the
Company's designation of an entity as a Customer.
Notwithstanding the above, the disclosure of
confidential or proprietary information, including but not limited to Trade
Secrets, Technology or Customer Information, shall not be deemed to violate the
provisions of Section 6(a) if such disclosure (i) is pursuant to a valid order
of a court or governmental agency of competent jurisdiction, (ii) is pursuant to
a credit or other agreement to which the Company is a party and which has been
approved by the Board of Directors, (iii) is to attorneys, auditors or other
professional advisors of the Company, (iv) is to a reputable financial or
similar institution which agrees to preserve the confidentiality of such
information or records, or (v) has been approved by the Board of Directors, and,
in any such case, the Executive reasonably believes at the time of such
disclosure that the disclosure is being made in the ordinary course and within
the usual scope of his duties and serves the best interests of the Company and
its shareholders.
The Executive understands and agrees that all
confidential and proprietary business information, files, research, records,
memoranda, notations, letters, computer hardware and software, customer lists,
books, lists and other documents received from the Company during the term of
his employment are the property of the Company, and that upon the Executive's
termination of employment, for whatever reason, the Executive will promptly
deliver to the Company all such materials, including all copies thereof, in the
Executive's possession or under the Executive's control.
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MICRODYNE CORPORATION 1997 ANNUAL REPORT ON FORM 10-K
- --------------------------------------------------------------------------------
Covenants Not to Compete or Interfere.
The Executive agrees that during the term of his
employment and for a period of one year after the date of termination of his
employment, regardless of the reason for termination, he will not:
directly or indirectly, in the same or a similar
capacity as that with the Company, be employed by, affiliated with, direct the
business of, or act on behalf of, a business that competes with the Company in
the 50 states of the United States;
solicit, sell or attempt to sell in the 50 states of
the United States any product involved in the Company's business to any customer
or prospect of the Company with whom the Executive had dealings or material
contact during the course of his employment with the Company; or
solicit, induce or attempt to solicit or induce, any
person employed by the Company to leave such employment for employment with a
competing business.
It is the intention of the parties that this
Agreement provide the Company the maximum protection possible in the geographic
areas in which the Company does business and therefore has legitimate business
interests. However, the parties in no way intend to include a provision which
contravenes the public policy of any state. If, at the time of enforcement of
this paragraph, a court should hold the duration, scope or area of restriction
stated herein unreasonable under the circumstances then existing, the parties
agree that the court may enforce the restrictive covenant set forth in Section
7(a) to the extent it deems reasonable.
Termination. This Agreement shall terminate automatically on
March 9, 1999 unless renewed per Section 1, and may be sooner terminated as
follows:
Notwithstanding any other provision in this Agreement
to the contrary, if the Company enters into any agreement with any third party
prior to the Employment Date which results in the Company terminating this
Agreement, the Company shall pay the sum of $125,000 to the Executive, on or
before March 15, 1997, whereupon this Agreement shall be null and void and
neither party shall have any further obligations hereunder.
The Company may terminate the Executive's employment
and its obligations under this Agreement at any time without notice for cause.
For purposes of this Agreement, "cause" means theft, embezzlement or fraud by
the Executive, other criminal misconduct or dishonesty in connection with any
facet of the Corporation's business or which, in the reasonable judgment of the
Board of Directors of the Corporation, impairs or is likely to impair the
effectiveness of the Executive in carrying out his obligations under this
Agreement, or the Executive's involvement in any other unlawful scheme or
conspiracy pursuant to which the Corporation has lost assets or has obtained
assets to which it is not entitled. If the Company terminates the Executive's
employment pursuant to this provision, it shall have no further obligation to
the Executive under this Agreement other than for such benefits as it may be
required to provide under an applicable benefits policy.
The Company may terminate the Executive's employment
and its obligations under this Agreement at any time after the Employment Date
upon sixty (60) days' prior written notice without cause. In the event of a
termination without cause, the Executive shall receive a lump sum payment equal
to his annual base salary and an additional twelve months' of base salary and
all benefits continuance (plus the car allowance referenced in 3(c)). Upon
commencement of full time employment with a different company or full time self
employment, all benefits and base salary shall cease. Otherwise, Executive's
COBRA termination date shall be the date all benefits cease.
Death of Executive. This Agreement shall terminate
automatically upon the Executive's death. In such case, the Company shall have
no further obligations to the Executive under this Agreement other than for any
compensation earned or accrued to the date of his death and such benefits as the
Company may be required to provide under an applicable benefits policy.
Survival of Obligations. The obligations of the Executive
under Sections 6 and 7 of this Agreement shall survive the termination of his
employment and this Agreement, regardless of the reason for or method of
termination. Each of the provisions in these Sections shall be enforceable
independently of
- --------------------------------------------------------------------------------
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<PAGE> 4
MICRODYNE CORPORATION 1997 ANNUAL REPORT ON FORM 10-K
- --------------------------------------------------------------------------------
every other provision, and the existence of any claim or cause of action the
Executive may have against the Company shall not constitute a defense to the
enforcement of these Sections by the Company, except that a material breach of
this Agreement by the Company shall constitute a defense to enforcement of the
non-competition provisions (Sections 7(a)(i), (ii)) of Section 7.
Enforcement and Severability.
In the event of a breach or threatened breach by
either party by any of the provisions of this Agreement, the other party shall
be entitled to an injunction restraining the party in breach or the party
threatening breach. Nothing contained herein shall be construed as prohibiting
either party from pursuing any other remedies available to it/him for such
breach or threatened breach, including the recovery of damages. The parties
agree that the losing party shall pay to the prevailing parties all costs,
including reasonable attorney's fees associated with and incurred in enforcing
it/his rights under this Agreement.
If any provision of this Agreement is deemed void or
unenforceable, such provision shall not be deemed part of this Agreement, which
otherwise shall remain in full force and effect.
A waiver by the Company or the Executive of a breach
of any provision of this Agreement by the other party shall not operate or be
construed as a waiver of any subsequent breach by the other party.
Governing Law and Arbitration Agreement.
This Agreement shall be governed by and construed and
enforced in accordance with the laws of the Commonwealth of Virginia.
The parties agree that any and all disputes or causes of
action arising under this Agreement by and between them shall be resolved in
accordance with the procedures set forth herein. Prior to the institution of a
legal action in a court of competent jurisdiction or under the applicable rules
of the American Arbitration Association, the party seeking to initiate such
action shall provide the other party with at least ten (10) business days
written notice of the claimed breach of this Agreement and the opportunity to
cure the breach. Moreover, in the event the party seeking to initiate such
action believes the other party has not cured the alleged breach, such party
shall initiate non-binding mediation to resolve the matter. In the event the
matter is not resolved in such mediation, such party may submit the matter to
arbitration in accordance with the Commercial Arbitration Rules of the American
Arbitration Association. Any arbitration hearing shall occur in McLean, Virginia
and each party agrees that it shall be bound by the arbitration award. Judgment
upon any award rendered by the arbitrator may be entered in any court having
jurisdiction thereof. The losing party shall pay to the prevailing party all
costs, including reasonable attorney's fees associated with the arbitration
proceeding and the enforcement of any award rendered. The parties agree that
written notice of an alleged breach must be provided with one hundred eighty
(180) calendar days of the date of the alleged breach or otherwise any claim
with respect to the alleged breach is forever waived.
Notices. Any notice required or permitted to be given under
this Agreement shall be sufficient if in writing and given by telex, fax,
telegram, telecopy, hand-delivery or by first class mail, in the case of the
Executive, to either his office or personal residence, or in the case of the
Company, to the Chairman or Executive Vice President at the Company's principal
office. In the event notice is given by facsimile, a copy of such notice shall
be mailed or hand delivered to the other party within three calendar days of
transmission by facsimile.
Assignment. This Agreement is personal in nature and may not
be assigned by the Company without the written consent of the Executive except
that the consent of the Executive shall not be unreasonably withheld in
connection with the sale to any person, partnership, corporation or other entity
of substantially all the assets of the Company, provided that the assignee
assumes all the liabilities of the Company hereunder. Notwithstanding the
foregoing, this Agreement may be assigned to a wholly-owned subsidiary or parent
of the Company. The rights and duties of the Executive hereunder are
non-assignable. In the event of a material change in operations of the Company
or the Executive's duties or responsibilities, Executive may petition the Board
of Directors for early termination of the term of the Agreement and receipt of
the payments referenced in 8(c) above. If the Board refuses Executive's
petition, Executive may avail himself of the remedies described in Section 12 of
the Agreement.
- --------------------------------------------------------------------------------
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MICRODYNE CORPORATION 1997 ANNUAL REPORT ON FORM 10-K
- --------------------------------------------------------------------------------
Entire Agreement. This instrument contains the entire
agreement of the parties, supersedes any prior employment or consulting
agreement between the parties and may be changed only by an agreement in writing
signed by the party against whom enforcement of any waiver, change,
modification, extension or discharge is sought. Both parties acknowledge that
they have read these terms, have had the opportunity to consult counsel, and
fully understand and freely and voluntarily agree to the provisions set forth
herein.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day first above written.
MICRODYNE CORPORATION
By /s/ Philip T. Cunningham
Philip T. Cunningham
Chairman of the Board of Directors
/s/ Michael E. Jalbert
Michael E. Jalbert
- --------------------------------------------------------------------------------
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<PAGE> 1
MICRODYNE CORPORATION 1997 ANNUAL REPORT ON FORM 10-K
- --------------------------------------------------------------------------------
Exhibit 10.39
SUBJECT: Purchase of Lock On/Sky Screen System, Installation and Job Training
1. With reference to your quotation in WCS-95-065 REVA dated May 1996, we
hereby place a firm order for:
Lot 1 Purchase of Lock-On/Sky Screen, technicals and maintenance
manual;
Lot 2 Installation of the System at PISQ;
Lot 3 On the job training at PISQ;
Option 1 Microwave link from PCC to Central Facility;
* TERMS OF DELIVERY: FOB Factory
2. Goods should be brand new of original manufacture and in perfect condition
and supplied with a "Certificate of Conformity" compliant with the
technical specification of builder WCS-95-065-REVA and technicals
specification of the MOD sent with letter 253/0922/LSS dated 26 April 1996.
3. The purchase order is for a total amount of U.S. $10,865,400 = (Lot 1,2,3)
fixed and not subject to revision price, inclusive of export packaging and
packed for shipment as specified at point 9 below. Amount for Option 1 is
U.S. $ 196,600 = fixed and not subject to revision price if exercised
within March 1997, inclusive of export packaging and packed for shipment as
specified at point 9 below.
4. The Italian M.O.D. has already taken necessary steps to open an
irrevocable, transferable, divisible Letter of Credit in your favor in a
primary Italian Bank operating in U.S.A. valid 16 months and renewable at
your expenses. You will receive notification of same from the Bank in due
course.
5. Upon notification of Letter of Credit, a bank guarantee of 10% of the
amount of the P.O. and validity up to expiration of the guarantee period
(12 months) in favor of "Ministero della Defesa Italiano - TELECOMDIFE 5 12
1" to warrantee the proper fulfillment of the contract is required.
6. Italian M.O.D. reserves the right to directly verify the work and also to
carry out all technical checks which shall deem useful and appropriate. For
this purpose Italian M.O.D. will nominate a Committee that will fulfill
testing and inspection of goods relevant to:
Lot 1: for project reviews and milestone certificate (progress
payment report) in accordance with LockOn task described at
page 1-19 of your economic proposal: for Final Acceptance
Test in your firm at Ocala (FL)
Lot 2: at Sardinia Test Range
Lot 3: Training, a "head of course" shall be named by TELECOMDIFE
who shall prepare a report of "Good Execution"
MICRODYNE will communicate the testing date to TELECOMDIFE 5.12.1.,
TELECOMDIFE 2.5.3 and Air Attache Office in Washington, at least 10
days in advance.
7. Goods of Lot 1 shall be ready for test within 9 months of the receipt
of bank notification about the opening of Letter of Credit.
Lot 2: Installation Testing shall be performed within 60 days from the
date of communication by Telecomdife of the receipt of goods and
availability of the premises at PISQ. Sites of installation will be
communicated by Telecomdife during First Project Review.
Lot 3: On the job training shall start 30 days after positive
Installation Testing relative to the Lot 2.
8. Goods, export packed, shall be delivered "ex-work F.O.B. Factory - OCALA
(Florida USA)". Unless otherwise notified, the Freight Forwarding Agent,
designated by the Italian M.O.D. is:
SAIMA AVANDERO U.S.A.
Expressport Plaza
1160 Mclester Street
Unit 7
Elisabeth
07201 New Jersey
- --------------------------------------------------------------------------------
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<PAGE> 2
MICRODYNE CORPORATION 1997 ANNUAL REPORT ON FORM 10-K
- --------------------------------------------------------------------------------
Therefore, you are kindly requested to notify the Air Attache Office in
Washington by telex, about the dates under which the goods have been
consigned to the forwarding Agent. The goods must be forwarded by air.
9. Goods shall be packed in suitable boxes for protection during transport and
storage. N.2 copies of packing list shall be enclosed in each box. A sealed
envelope containing one copy of invoice and shipping documents shall be
stuck outside each box.
10. Unless otherwise notified, each box shall be marked accordingly to the
final destination as follows:
Ministero della Defesa
Telecomdife 2.5.3
M/F SAIMA per 4O G.R.S. Aeroporto CIAMPINO
for further delivery to
M.S.A. CAPO S. LORENZO - CAGLIARI - ITALY
N.B.: "BOXES SHALL BE DELIVERED IN GOOD CONDITION AND CLOSED"
11. Payment will take place as follows:
DOWN PAYMENT
After notification of opening of the letter of credit the down payment 10% of
the total contractual price shall be paid to the seller upon presentation
of documentation attesting the issue of the bank guarantee foreseen at
point 5 and of original invoice and 8 copies.
LOT 1:
- progress payment of 20% of the total amount of the lot 1 at completion
of Critical Design Review, and after the issuing of the bank guarantee
of the same amount valid until positive test of the lot 1;
- progress payment up to 70% of the total amount of the lot 1 at
milestone certificate (progress payment report) issued by Telecomdife
delegate after the issuing of a bank guarantee of the same amount valid
until a positive test of the lot 1. The firm shall make available to
Telecomdife representatives, appointed to verify, all the necessary
documentation to evaluate the quantity of parts and raw material and
their value;
- the balance payment of the lot 1 shall be liquidated upon final
acceptance test and upon presentation to the Bank of the following
documents;
[ ] Invoice, no 1 original plus no. 8 copies made out to:
Ministero Difesa
Telecomdife 5 12 1
Viale dell'Universita n 4
00185 ROMA (ITALY)
partita IVA n IT0455171004
[ ] Certificate of Conformity no 1 original plus no 4 copies issued by
you;
[ ] Testing Certificate no 1 original plus no 4 copies;
[ ] Shipping Certificate
[ ] Authorization of payment signed by the Italian Air Attache in
WASHINGTON or his delegate.
LOT 2
90% of the total amount of lot 2 at the final installation and calibration test
and presentation of invoice.
LOT 3
90% of the total amount of lot 3 upon presentation of the reports of "Goods
Execution" of the course and invoice.
1. Delivery terms and conditions of presentation to test are considered
essential. In case of default of fulfillment this Office will deduct when
issuing the "Authorization of payment":
[ ] 0.20% per day of the value of the goods not presented for testing,
for each day of delay up to a maximum equal to 10% of the amount
of the Lot.
- --------------------------------------------------------------------------------
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<PAGE> 3
MICRODYNE CORPORATION 1997 ANNUAL REPORT ON FORM 10-K
- --------------------------------------------------------------------------------
1. Goods must be guaranteed 12 months from the shipping date, with total
refurbishment of goods found defective during warranty period.
2. All terms and conditions establish in this P.O. are firm and irrevocable.
Events beyond the Seller's control excepted (i.e., sabotages, natural
cataclysm, etc.)
3. This P.O. will be fully operative upon notification to You by the bank of
the opening of the letter of credit. The order number should be quoted in
all correspondence. This P.O. is drawn up in two languages (Italian and
English) both having the same force.
FOR M.O.D. SIGNED FOR ACCEPTANCE
MICRODYNE CORPORATION
/s/ Authorized Signature /s/ Christian J. Spitz
MOD Italy Telecomdife Vice President
6 December 1996 6 December 1996
- --------------------------------------------------------------------------------
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<PAGE> 1
MICRODYNE CORPORATION 1997 ANNUAL REPORT ON FORM 10-K
- --------------------------------------------------------------------------------
Exhibit 11.1
MICRODYNE CORPORATION
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
FOR THE YEAR ENDED SEPTEMBER 28, 1997
<TABLE>
<CAPTION>
PRIMARY FULLY DILUTED
------- -------------
<S> <C> <C>
Shares Outstanding at
Beginning of Period 12,832,203 12,932,203
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 78
<PAGE> 1
MICRODYNE CORPORATION 1997 ANNUAL REPORT ON FORM 10-K
- --------------------------------------------------------------------------------
Exhibit 23.1
Board of Directors
Microdyne Corporation
We have issued our reports dated October 31, 1997, accompanying the financial
statements of Microdyne Corporation appearing in the Annual Report of the
Company to its shareholders and accompanying schedules included in the Annual
Report on Form 10-K for the year ended September 28, 1997, which we are
incorporating by reference of said reports in the Registration Statements of the
Company on Forms S-8 (File No 333-44820 effective December 27, 1991; File No.
333-47709, effective May 6, 1992; File No 333-89982 effective March 3, 1995;
File No 333-89980, effective April 26, 1995; and File No 333-14121, effective
October 15, 1996.) We consent to the incorporation by reference in the
Registration Statement of the aforementioned reports and to the use of our name
as it appears under the caption "Experts."
/s/ Grant Thornton
Vienna, Virginia
December 18, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-28-1997
<PERIOD-START> SEP-29-1996
<PERIOD-END> SEP-28-1997
<CASH> 1,056
<SECURITIES> 0
<RECEIVABLES> 17,327
<ALLOWANCES> 0
<INVENTORY> 5,560
<CURRENT-ASSETS> 30,854
<PP&E> 7,142
<DEPRECIATION> 3,917
<TOTAL-ASSETS> 34,541
<CURRENT-LIABILITIES> 16,441
<BONDS> 0
0
0
<COMMON> 1,290
<OTHER-SE> 7,112
<TOTAL-LIABILITY-AND-EQUITY> 34,541
<SALES> 43,621
<TOTAL-REVENUES> 43,621
<CGS> 7,404
<TOTAL-COSTS> 25,473
<OTHER-EXPENSES> 10,120
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 994
<INCOME-PRETAX> 7,034
<INCOME-TAX> 1,876
<INCOME-CONTINUING> 5,158
<DISCONTINUED> (33,603)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (28,445)
<EPS-PRIMARY> (2.21)
<EPS-DILUTED> (2.21)
</TABLE>
