<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1997
COMMISSION FILE NUMBER: 0-4384
MICRODYNE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
MARYLAND 52-0856493
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
3601 EISENHOWER AVENUE, ALEXANDRIA, VA 22304
(Address of principal executive office) (Zip Code)
</TABLE>
(703) 329-3700
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
<TABLE>
<S> <C>
CLASS OUTSTANDING AT DECEMBER 31, 1997
- ------------------------------ --------------------------------
Common stock, $.10 par value 13,031,081
</TABLE>
Page 1 of 11 pages
Exhibit Index appears on page 11
<PAGE> 2
MICRODYNE CORPORATION
INDEX
<TABLE>
<CAPTION>
PAGE NUMBER
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Statements of Earnings
Three months ended December 31, 1997
and December 29, 1996 3
Balance Sheets
December 31, 1997 and September 28, 1997 4
Statements of Cash Flows
Three months ended December 31, 1997
and December 29, 1996 5
Notes to Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 8
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports. 11
SIGNATURES 11
</TABLE>
2
<PAGE> 3
MICRODYNE CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
Quarter Ended
December 29, December 31,
1996 1997
----------- -----------
(In thousands)
<S> <C> <C>
Revenue:
Product $ 4,690 $ 5,707
Service 3,971 6,978
----------- ------------
Total revenue 8,661 12,685
Cost of products sold and service provided:
Product 1,918 2,651
Service 2,849 4,956
----------- ------------
Total cost of products sold and service provided 4,767 7,607
----------- ------------
Gross profit 3,894 5,078
Operating expenses:
Selling, general and administrative expense 1,810 2,425
Research and development 359 397
----------- ------------
Total operating expenses 2,169 2,822
----------- ------------
Earnings from continuing operations 1,725 2,256
Other expense, net (373) (228)
----------- ------------
Earnings from continuing operations
before income taxes 1,352 2,028
Provision for income taxes: (514) -
----------- ------------
Net earnings from continuing operations $ 838 $ 2,028
----------- ------------
Loss from discontinued operations, net of tax effect (228) -
----------- ------------
Net earnings $ 610 $ 2,028
=========== ============
Basic earnings per share, continuing operations $ 0.07 $ 0.16
Basic loss per share, discontinued operations (0.02) -
----------- ------------
-
Basic earnings per share $ 0.05 $ 0.16
=========== ============
Weighted average shares outstanding, basic 12,837 12,966
Diluted earnings per share, continuing operations $ 0.06 $ 0.15
Diluted loss per share, discontinued operations (0.01) -
----------- ------------
Diluted earnings per share $ 0.05 $ 0.15
=========== ============
Weighted average shares outstanding, diluted 13,070 13,390
</TABLE>
The notes on the following pages are an integral part of these statements
3
<PAGE> 4
MICRODYNE CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 28, December 31,
1997 1997
------ ------
(audited) (unaudited)
(In thousands)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 1,056 $ 710
Accounts receivable, net 17,327 20,317
Inventories 4,560 4,265
Income tax receivable 1,022 1,022
Prepaid expenses and deposits 391 696
Current assets of discontinued operations 2,442 722
Deferred income tax asset 4,056 4,056
------------ --------
Total current assets 30,854 31,788
PROPERTY AND EQUIPMENT, net 3,225 4,657
DEFERRED INCOME TAX ASSET 123 123
NONCURRENT ASSETS
OF DISCONTINUED OPERATIONS 112 32
OTHER ASSETS 227 84
------------ --------
Total assets $34,541 $ 36,684
============ ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term obligations $ 2,040 10,179
Accounts payable - trade 3,094 3,179
Accrued liabilities 6,135 6,297
Current liabilities of discontinued operations 5,172 2,328
----------- --------
Total current liabilities 16,441 21,983
LONG-TERM OBLIGATIONS, net of current maturities 9,698 3,904
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY
Common stock, $.10 par value, authorized 50,000,000,
shares 12,904,313 shares, issued and outstanding at
September 28, 1997 and 13,031,081 shares issued and
outstanding at December 31, 1997 1,290 1,303
Additional paid-in capital 10,332 10,686
Retained deficit (3,220) (1,192)
----------- --------
Total stockholders' equity 8,402 10,797
----------- --------
Total liabilities and stockholders' equity $34,541 $36,684
=========== ========
</TABLE>
The notes on the following pages are an integral part of these statements
4
<PAGE> 5
MICRODYNE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
December 29, December 31,
1996 1997
------------- --------------
(In thousands)
<S> <C> <C>
Increase (decrease) in Cash:
Cash flows from operating activities:
Net income 610 2,028
Adjustments to reconcile net income to net cash
from operating activities:
Depreciation and amortization 144 284
Loss on discontinued operations 228 -
Changes in assets and liabilities,
net of effect of discontinued operations
Increase in accounts receivable (1,568) (2,990)
(Increase) decrease in inventories (198) 295
Decrease in prepaid expenses 208 12
(Increase) decrease in other assets (15) 143
Decrease in income tax receivable 725 -
(Increase) in deferred income tax asset (762) -
Increase in accounts payable and other accruals 286 247
--------- ---------
Net cash (used in) provided by continuing operations (342) 19
Net cash (used in) provided by discontinued operations 4,691 (1,044)
--------- ---------
4,349 (1,025)
Cash flows from investing activities:
Additions to property and equipment (78) (1,716)
--------- ---------
Net cash used in investing activities (78) (1,716)
Cash flows from financing activities:
(Payments) borrowings on bank debt (4,186) 1,805
Proceeds from issuance of long-term obligations - 1,227
Payments on notes payable (876) (687)
Issuance of common stock 103 50
--------- ---------
Net cash provided by (used in) financing activities (4,959) 2,395
Net decrease in Cash (688) (346)
Cash at beginning of period 1,791 1,056
--------- ---------
Cash at end of period $ 1,103 $ 710
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The interim financial information is unaudited. In the opinion of
management, financial statements included in this report reflect all normal
recurring adjustments which Microdyne Corporation (the "Company" or
"Microdyne") considers necessary for a fair presentation of the results of
operations for the interim periods covered and of the financial position of
the Company at the date of the interim balance sheet. The results for
interim periods are not necessarily indicative of the results for the
entire year. In addition, preparation of financial statements in
conformance 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 these estimates.
The accompanying unaudited financial statements have been prepared in
accordance with the instructions for Form 10-Q, and therefore footnote
disclosures normally accompanying financial statements have been
substantially omitted. These condensed financial statements should be read
in conjunction with complete disclosures accompanying the financial
statements contained in the Company's most recent Annual Report on Form
10-K.
The provision for income taxes presented in the Statements of
Operations is based upon the estimated effective tax rate at fiscal
year-end, and is largely determined by management's estimate as of the
interim date of projected taxable income for the entire fiscal year. In the
first quarter of fiscal 1998, the Company reduced its valuation allowance
against deferred tax assets by approximately $770,000 based upon a
re-evaluation of its continuing operations and the level of first quarter
earnings.
2. During the first quarter of 1998, Microdyne adopted Statement of Financial
Accounting Standards No. 128 ("SFAS 128"), "Earnings Per Share," which is
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 has disclosed basic and diluted earnings per share on the
income statement. The quarterly earnings per share for the three month
period ended December 29, 1996 on the face of the financial statements have
been restated to reflect the requirements of SFAS 128. The adoption of
SFAS 128 had no effect on the assets, liabilities, stockholder's equity or
income of the Company.
3. During the Company's first quarter of fiscal year 1998, Microdyne entered
into an agreement with Mellon U.S. Leasing ("Mellon") whereby Microdyne
sold and then leased back from Mellon certain fixed assets of the Company's
outsourcing Support Services Division. The value of the assets sold and
subsequently leased back was approximately $1.2 million. No profit or loss
was realized on the sale, and therefore no profit or loss will be amortized
over the life of the lease. The leased assets have been included with other
property, plant and equipment on the December 31, 1997 Balance Sheet. The
lease obligation has been accounted for as a capital lease and is included
with current maturities and non-current maturities of long term obligations
on the December 31, 1997 Balance Sheet.
4. During the first quarter of 1998, Microdyne amended the agreement which
governs the terms of the Company's Line of Credit with Crestar Bank ("the
Line of Credit"). This agreement was disclosed in footnote G to the
financial statements filed with the Company's Fiscal 1997 Annual Report on
Form 10K. The new amendment extends the applicable date of certain of the
terms of the Line of Credit. Under the terms stipulated under the Line of
Credit, 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 and until March 31, 1998, and $9.0 million thereafter
until October 30, 1998.
6
<PAGE> 7
5. The Company operates in two business segments: aerospace telemetry and
outsourced services. Information about the Company's operations in the
segments for the three month periods ended December 28, 1996 and December
31, 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
- -----------------------------------
First Quarter, Fiscal 1997 4,786 3,875 - 8,661
First Quarter, Fiscal 1998 7,271 5,414 - 12,685
Pretax earnings from continuing operations
- ------------------------------------------
First Quarter, Fiscal 1997 1,309 846 (803) 1,352
First Quarter, Fiscal 1998 1,948 724 (644) 2,028
Identifiable assets
- -------------------
As of September 28, 1997 21,028 4,258 6,701 31,987
As of December 31, 1997 23,633 5,294 7,003 35,930
</TABLE>
The consolidated total for identifiable assets above excludes assets of
the discontinued Networking Products Division. As of September 28, 1997 and
December 31, 1997 the discontinued operations of the Networking Products
Division had identifiable assets totaling approximately $2,554,000 and
$754,000 respectively.
6. As of October 1, 1997, Microdyne entered into an agreement with an officer
of the company. Under the terms of the agreement, the officer exchanged a
$317,000 note receivable for 116,702 shares of the Company's stock. The
shares were available to the officer pursuant to the exercise of stock
options granted under the Company's stock option plans. The note receivable
bears interest at the rate of 6% annually and is to be paid in full no
later than October 1, 2000. The note and accrued interest remain
outstanding as of December 31, 1997.
7. On December 29, 1997, Microdyne changed its fiscal year from a 52/53 week
fiscal year ending on the Sunday closest to September 30 to a calendar year
ending on September 30. As a result, the Company's 1998 fiscal year will
now end on September 30, 1998, rather than on September 27, 1998.
7
<PAGE> 8
PART 1. - FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
GENERAL
Year-on-year sales from continuing operations increased in the first
quarter of fiscal 1998 by $4.0 million, or 46% from the first quarter of fiscal
1997. Net earnings from continuing operations increased $1.2 million, or 142%
during the same period. The increase in revenue is a result of the continued
strength in Aerospace Telemetry and outsourcing Support Services operations.
The increase in earnings reflects an overall growth in the company's revenues
over the first quarter of the prior fiscal year as well as the Company's
efforts to reduce sales, general and administrative ("SG&A") costs as a
percentage of revenue and an overall reduction in interest expense.
The Company believes demand for its Aerospace Telemetry products is strong
and that such demand should continue. Aerospace Telemetry revenues increased
52% over the same quarter of the prior fiscal year. Aerospace Telemetry saw
both its systems integration services and its product sales increase by $1.3
million and $1.2 million, respectively, over the first quarter of 1997. The
Aerospace Telemetry Division continued on its scheduled progress toward
completing the requirements of the Company's contract with Italian Ministry of
Defense, currently valued at $11.0 million, with an expected completion date no
later than the third quarter of fiscal year 1998.
Outsourcing Support Services revenue continues to meet the Company's
expectations. Compared to the first quarter of fiscal year 1997, the
outsourcing Support Services Division experienced a 40% increase in sales. This
increase is the result of both an increase in revenues from existing business
of $0.4 million as well as additional revenue of $1.2 million generated by the
new outsourcing facility in Southern California. The new outsourcing
facility, which provides telephone technical support and warranty repair work
from one location in Southern California, was opened in September 1997.
Microdyne also signed a contract with a new customer to provide telephone
technical support and warranty work from this facility beginning in October
1997.
RISK FACTORS
The information included in this Management's Discussion and Analysis, and
elsewhere in the Form 10Q, 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; and the risk factors listed from time to time in the
Company's SEC filings, including but not limited to the Annual Report on Form
10-K for the year ended September 28, 1997. 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.
8
<PAGE> 9
RESULTS OF OPERATIONS
Quarter Ended December 31, 1997 Compared to Quarter Ended December 29, 1996
Consolidated revenue from continuing operations for the first
quarter of fiscal year 1997 increased to $12.7 million from $8.7 million in the
first quarter of fiscal year 1996, an increase of 46%. Both the Aerospace
Telemetry Division and the outsourcing Support Services Division had overall
increases in sales from both established and new sources of revenue.
First quarter 1998 Aerospace Telemetry revenue increased 52% to $7.3
million from $4.8 million in the first quarter of fiscal 1997. The division's
revenue reflect a changing mix of product sales and system integration sales in
1998 compared to the year-earlier period. Systems integration sales represented
21% of 1998 first quarter sales compared to 4% during the same period in fiscal
year 1997. In the first fiscal quarter of 1998, system sales increased to $1.5
million from $0.2 million during the same period in 1997. First quarter 1998
Aerospace Telemetry product sales increased to $5.7 million from $4.5 million in
1997.
Outsourcing Support Services revenue increased 39% to $5.4 million
in the first quarter of 1998 from $3.9 million in 1997. The increase in revenues
reflect continued demand for established support services as well as demand for
the services provided under the new contract for outsourced technical support
and warranty work at the Company's outsourcing facility in Southern California.
As noted previously, the new outsourcing facility generated $1.2 million in
revenue during the first quarter of 1998. The facility was not in operation
during the first fiscal quarter of 1997.
Gross profit from continuing operations increased 31% to $5.1
million in 1998 from $3.9 million in 1997. As a percentage of continuing
operations sales, gross profit decreased to 40% in 1998 from 45% in 1997. The
dollar increase in gross profit was the result of higher sales at both Aerospace
Telemetry and Outsourcing Support Services. The decrease in gross margin as a
percentage of sales reflects a higher percentage of Aerospace Telemetry system
integration services sales, as noted above, which typically carry lower margins
than product sales, and a lower overall margin at outsourcing Support Services.
The lower overall margin at outsourcing Support Services is the result of higher
fixed costs at its new telephone technical support facility thereby increasing
the per unit cost of providing services. As the facility increases the volume of
its services, the per unit fixed costs are expected to decrease.
As a percentage of sales, SG&A decreased to 19% in the first quarter
of 1998 from 21% in 1997. The decrease in SG&A expense as a percentage of
revenue reflects corporate cost control. In dollar terms, SG&A expense increased
to $2.4 million in 1998 from $1.8 million in the first quarter of 1997. The
increase in SG&A is the result of: higher sales commissions at Aerospace
Telemetry as a result of increased sales as well as higher infrastructure and
administrative costs at the outsourcing Support Services Division resulting from
its expanded activities. Research and Development expense was $397,000 in the
first quarter of 1998, compared to $359,000 in the first quarter of 1997,
reflecting Aerospace Telemetry's continued efforts to improve and develop new
products and services.
Interest and other expenses were 39% lower in 1998 than in 1997. The
reduction to $228,000 in 1998 from $373,000 in 1997, reflected the overall
reduction in outstanding debt held by Microdyne in the first quarter of fiscal
year 1998 as compared to the same period in 1997.
Microdyne's income tax expense during the first fiscal quarter of
1998 was offset by an adjustment to the Company's deferred tax asset valuation
account, resulting in no tax provision for the quarter. The deferred tax assets,
as shown on the Balance Sheets, are net of valuation adjustments of $8.2 million
as of December 31, 1997, and $9.0 million as of September 28, 1997.
During the first quarter of 1998, Microdyne had $1.9 million in
expenses, net of income, which were offset against its reserve for discontinued
operations. Based on its current experience, Microdyne believes that the $4.8
million reserve set up in June 1997 for the discontinuance of its Networking
Products Division is adequate.
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 December 31, 1998, Microdyne had $8.2 million of bank debt
under a revolving line of credit facility. On December
9
<PAGE> 10
31, 1997, Microdyne had $0.7 million in cash and $2.7 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 plans for the previously
mentioned borrowing agreements to be renewed or replaced within the current
fiscal year.
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 December 31, 1997, notes payable due Novell totaled $4.7
million, of which $1.7 million has been classified as a short-term obligation
and $3.0 million as a long-term obligation on the December 31, 1997 Balance
Sheet.
During the first fiscal quarter of 1998, net cash used in operations was
$1.0 million, primarily due to cash used in discontinued operations of $1.0
million. The increases in accounts receivable was mostly offset by increases
in accounts payable, accrued expenses, earnings from continuing operations and
a reduction in inventory. The increases in accounts receivable reflect a
buildup of unbilled accounts receivable for both of the operating divisions.
This trend in accounts receivable is expected to continue as Microdyne's
outsourcing Support Services and Aerospace Telemetry systems integration
revenue increases. The increase in accounts payable reflect Microdyne's
increased level of business in its operating divisions. Cash used in investing
activities was $1.7 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
provided by financing activities was $2.4 million, representing the increase in
bank borrowings and cash proceeds from the sale lease-back transaction.
Microdyne believes its available cash, funds generated from operations, and
funds available under its credit facility should be sufficient to finance its
continuing operations in fiscal 1998. In addition, Microdyne may from time to
time consider the acquisition of businesses, products, or technologies that may
require additional funds.
10
<PAGE> 11
PART II. - OTHER INFORMATION
Item 6. Exhibits and Reports.
(a) See exhibit index
(b) No form 8-K was filed during the quarter ended December 31, 1997.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MICRODYNE CORPORATION
---------------------
Registrant
Date: February 10, 1998 /s/ Michael E. Jalbert
--------------------- ---------------------------
Michael E. Jalbert
Chief Executive Officer
[Duly Authorized Officer]
Date: February 10, 1998 /s/ Massoud Safavi
--------------------- -------------------
Massoud Safavi
Chief Financial Officer
[Principal Financial Officer]
11
<PAGE> 12
Exhibit Index
-------------
<TABLE>
<CAPTION>
Exhibit Description Sequential Page No.
- ------- ----------- -------------------
<S> <C> <C>
10.40 Eighth Amendment Filed with this Form 10-Q
to Credit Agreement
dated as of December
24, 1997, between Microdyne
and Crestar Bank
10.41 Master Lease Agreement Filed with this Form 10-Q
dated as of December 23, 1997
between Mellon US Leasing,
and Microdyne
27 Financial Data Schedule Filed with this Form 10-Q
</TABLE>
<PAGE> 1
EIGHTH AMENDMENT TO
CREDIT AGREEMENT
THIS EIGHTH AMENDMENT TO CREDIT AGREEMENT (the "Amendment"), dated as
of December 24, 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 Fifth Amendment to Credit
Agreement, dated as of March 14, 1997, the Sixth Amendment to Credit Agreement,
dated as of June 17, 1997, and the Seventh Amendment to Credit Agreement, dated
as of September 15, 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 Bank has acquired from NBD all of its rights under the Agreement.
The Borrower, the Agent and the Bank have agreed to amend certain provisions of
the Agreement. Accordingly, for valuable consideration, the receipt and
sufficiency of which are acknowledged, the Borrower, the Bank and the Agent
agree as follows:
1. Each of the following definitions in Section 1.1 of the
Agreement is amended to read in its entirety:
"Advance Commitment" means $12,000,000 until March 31, 1998,
and $9,000,000 as of April 1, 1998, 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).
"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 31, 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 31, 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 30, 1998, and
for each succeeding fiscal quarter, Cash Flow for such fiscal
quarter plus Cash Flow for the three immediately preceding
fiscal quarters.
<PAGE> 2
"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 31, 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 31, 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 30, 1998, and for each
succeeding fiscal quarter, EBITDA for such fiscal quarter plus
EBITDA for the three immediately preceding fiscal quarters.
"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
31, 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.
"Maximum Amount" means $12,000,000 until March 31, 1998, and
$9,000,000 as of April 1, 1998, 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).
2. Section 2.10(d) of the Agreement is amended to read in its
entirety as follows:
"(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 March 31, 1998,
or (2) the Borrowing Base is less than 90% of the Borrowing
Base Loans as of April 1, 1998, 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."
3. 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:
(i) 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;
2
<PAGE> 3
(ii) On or before the last day of each fiscal month of the
Borrower through March 31, 1998, 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;
(iii) 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;
(iv) 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
(v) Within 30 days after the end of each fiscal month
through and including the fiscal month ending on March
31, 1998, a cash flow statement for such fiscal month."
4. 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 31, 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
31, 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 31, 1997, to exceed
$3,500,000."
3
<PAGE> 4
5. Pursuant to Section 7.2(a) of the Agreement, the Bank hereby
consents to the sale and leaseback transaction between the Borrower and Mellon
US Leasing (Mellon) pursuant to which the Borrower will sell the Equipment of
the SSD to Mellon for $1,227,264.02 and lease such Equipment from Mellon for a
period of 36 months at a rental rate of $32,473.41 per month, and the Bank
agrees to release its Lien on such Equipment upon receipt by the Bank of the
net sales proceeds as a prepayment of the Obligations. Notwithstanding the
provisions of Section 2.10(c) and the definition of Maximum Amount, such
prepayment shall not reduce the Maximum Amount.
6. Except for the amendments to the Agreement expressly set forth
above, the Agreement and the other Loan Documents shall remain in full force
and effect. The Borrower acknowledges and agrees that this Amendment only
amends the terms of the Agreement and is not a novation, and the Borrower
ratifies and confirms the remaining terms and provisions of the Agreement and
the other Loan Documents in all respects. Nothing in this Agreement shall
require the Bank 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.
7. 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.
8. 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 Bank in accordance with the provisions of the Loan
Documents.
9. The Borrower agrees to pay all costs and expenses incurred by
the Agent and the Bank in connection with this Amendment, including, but not
limited to, reasonable attorney fees.
10. This Amendment shall be governed by the laws of the
Commonwealth of Virginia, without reference to conflict of laws principles.
11. This Amendment may be executed by the parties individually or
in any combination, in one or more counterparts, each of which shall be an
original and all of which together constitute one and the same instrument.
[SIGNATURES ON FOLLOWING PAGE]
4
<PAGE> 5
WITNESS the following signatures.
BORROWER:
--------
MICRODYNE CORPORATION,
a Maryland corporation
By: /s/ Massoud Safaui
Name: Massoud Safaui
Title: C.F.O.
AGENT:
-----
CRESTAR BANK
By: /s/ Miriam Sadler
Miriam M. Sadler
Senior Vice President
BANK:
----
CRESTAR BANK
By: /s/ Miriam Sadler
Miriam M. Sadler
Senior Vice President
5
<PAGE> 1
MASTER LEASE AGREEMENT
MELLON US LEASING
DATED AS OF DECEMBER 23, 1997
LESSOR:
Mellon US Leasing, a Division of Mellon Leasing Corporation
ADDRESS:
525 Market Street, Suite 3500
San Francisco, California 94105-2743
LESSEE:
MICRODYNE CORPORATION
ADDRESS:
3601 Eisenhower Avenue
Alexandria, VA 22304
TERMS AND CONDITIONS OF LEASE
The undersigned Lessee hereby requests Lessor to purchase the personal property
described in any Equipment Schedule hereunder (herein called "Equipment") from
the supplier(s) listed in any Equipment Schedule hereunder (herein called
"Vendor" and/or "Manufacturer", as applicable) and to lease the Equipment to
Lessee on the terms and conditions of the lease set forth below.
Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor, the
Equipment upon the following terms and conditions:
1. NO WARRANTIES BY LESSOR. Lessee has selected the Equipment and may have
entered into certain purchase, licensing, or maintenance agreements with
the Vendor and/or Manufacturer (herein referred to as an "Acquisition
Agreement") covering the Equipment as further described in Paragraph 26
hereof. If Lessee has entered into any Acquisition Agreement, each
agreement shall provide for certain rights and obligations of the parties
thereto with respect to the Equipment, and Lessee shall perform all of the
obligations set forth in each Acquisition Agreement as if this lease did
not exist. LESSOR MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO ANY MATTER
WHATSOEVER, INCLUDING THE CONDITION OF THE EQUIPMENT, ITS MERCHANT ABILITY
OR ITS FITNESS FOR ANY PARTICULAR PURPOSE, AND, AS TO LESSOR, LESSEE LEASES
THE EQUIPMENT "AS IS." LESSOR SHALL HAVE NO LIABILITY FOR ANY LOSS, DAMAGE
OR EXPENSE OF ANY KIND WHATSOEVER RELATING THERETO, INCLUDING WITHOUT
LIMITATION ANY SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES OF
ANY CHARACTER.
2. CLAIMS AGAINST VENDOR AND/OR MANUFACTURER. If the Equipment is not properly
installed, does not operate as represented or warranted by Vendor and/or
Manufacturer, or is unsatisfactory for any reason, Lessee shall make any
claim on account thereof solely against Vendor and/or Manufacturer pursuant
to the Acquisition Agreement, if any, and shall, nevertheless, pay Lessor
all rent payable under this lease. All warranties from Vendor and/or
Manufacturer are, to the extent they are assignable, hereby assigned to
Lessee for the term of this lease or until an Event of Default occurs
hereunder, for Lessee's exercise at Lessee's expense. Lessee may directly
inquire with Vendor and/or Manufacturer to receive an accurate and complete
statement of such warranties, including any disclaimers or limitations of
such warranties or of any remedies with respect thereto.
3. VENDOR NOT AN AGENT. Lessee understands and agrees that neither Vendor, nor
any sales representative or other agent of Vendor, is an agent of Lessor.
Sales representatives or agents of Vendor, and persons that are not
employed by Lessor (including brokers and agents) are not authorized to
waive or alter any term or condition of this lease, and no representation
as to the Equipment or any other matter by Vendor or any other person that
is not employed by Lessor (including brokers and agents) shall in any way
affect Lessee's duty to pay the rent and perform its other obligations as
set forth in this lease.
<PAGE> 2
4. NON-CANCELABLE LEASE. This lease and any Equipment Schedule hereto cannot
be canceled or terminated except as expressly provided herein. Lessee
agrees that its obligation to pay all rent and other sums payable hereunder
and the rights of Lessor in and to such rent are absolute and unconditional
and are not subject to any abatement, reduction, setoff, defense,
counterclaim or recoupment due or alleged to be due to, or by reason of,
any past, present or future claims which Lessee may have against Lessor,
any assignee, any Manufacturer or Vendor, or against any person for any
reason whatsoever.
5. ORDERING EQUIPMENT. Lessee shall arrange for delivery of the Equipment so
that it can be accepted in accordance with Paragraph 6 hereof within 90
days after the date on which Lessor accepts Lessee's offer to enter into
this lease with respect to any Equipment Schedule or by such other date as
may be set forth in an Equipment Schedule or Approval Letter issued by
Lessor as the Approval Expiration Date. Unless otherwise specified on the
Equipment Schedule, Lessee shall be responsible for all transportation,
packing, installation, testing and other charges in connection with the
delivery, installation and use of the Equipment. Lessee hereby authorizes
Lessor to insert in any Equipment Schedule hereunder the serial numbers and
other identification data of Equipment when determined by Lessor.
6. ACCEPTANCE. Lessee acknowledges that for purposes of receiving or accepting
the Equipment from Vendor, Lessee is acting on Lessor's behalf. Upon
delivery of the Equipment to Lessee and Lessee's inspection thereof, Lessee
shall furnish Lessor a written statement (a) acknowledging receipt of the
Equipment in good condition and repair and (b) accepting it as satisfactory
in all respects for the purposes of this lease (the "Certificate of
Acceptance"). Unless otherwise set forth in the applicable Equipment
Schedule, the first day of the month following receipt and acceptance of
the Equipment covered by an Equipment Schedule shall be the Rent
Commencement Date therefor However, should Lessee have a previous lease
with Lessor which is active at the time of acceptance of the Equipment
under the Equipment Schedule and said lease and the current Equipment
Schedule hereunder shall have the same invoice address then the Rent
Commencement Date shall occur in the month immediately following acceptance
of the Equipment on the rent payment due date established with Lessee for
said previous active lease. Lessor is authorized to fill in on any
Equipment Schedule hereunder the Rent Commencement Date in accordance with
the foregoing.
7. TERMINATION BY LESSOR. If, by the Approval Expiration Date, the Equipment
described in any Equipment Schedule has not been delivered to Lessee and
accepted by Lessee as provided in Paragraph 6 hereof, or if other
conditions of Lessor's Approval Letter, if any, have not been met, then
Lessor may, at its option, terminate this lease and its obligations
hereunder with respect to such Equipment Schedule at any time after the
expiration of such 90 days or any date after the Approval Expiration Date,
as applicable. Lessor shall give Lessee written notice whether or not it
elects to exercise such option within 10 days after Lessor's receipt of
Lessee's written request for such notice.
8. TERM. The term of this lease shall be comprised of an Interim Term and an
Initial Term. The Interim Term shall commence on the date the Certificate
of Acceptance is executed by Lessee (the "Acceptance Date") and terminate
on the Rent Commencement Date. The Initial Term of this lease shall begin
on the Rent Commencement Date, and shall terminate on the later of (i) the
last day of the last month of the Initial Term (as that Term is set forth
in the applicable Equipment Schedule hereto) or (ii) the date Lessee
fulfills all Lessee's obligations hereunder.
9. RENTAL. The rental amount payable to Lessor by Lessee for the Equipment
will be set forth in the Equipment Schedule(s) ("Rental Amount"). As the
first rent payment for the Equipment, Lessee shall pay Lessor in
immediately available funds on the Rent Commencement Date the sum of, (i)
the Rental Amount, and (ii) Interim Rent in an amount equal to 1/30th of
the Rental Amount times the number of days from and including the
Acceptance Date through but excluding the Rent Commencement Date, and
subsequent rent payments shall be due on the same day of each calendar
period as indicated on the Equipment Schedule for the balance of the
Initial Term. Rent payments shall be due whether or not Lessee has received
any notice that such payments are due. All rent payments shall be paid to
Lessor at its address set forth on the Equipment Schedule or as otherwise
directed by Lessor in writing.
10. RENEWAL. If no default shall have occurred and be continuing, Lessee shall
be entitled to renew this lease with respect to all, but not less than all,
of the Equipment covered by an Equipment Schedule for a minimum 12 month
period at an amount equal to the fair market rental value thereof, in use
and operational, in the condition required by this lease, payable on a
periodic basis, as mutually agreed by Lessor and Lessee ("Renewal Rent").
Lessee must give Lessor written notice of its intention to exercise said
option, which notice must be received by Lessor at least 90 days before
expiration
<PAGE> 3
of the Initial Term. The first installment of the Renewal Rent shall be due
at expiration of the Initial Term of this lease. Should Lessee fail to
comply with the provisions described above covering renewal, upon
expiration of the Initial Term, the term of this lease shall be
automatically extended for a term of 3 months. Thereafter, the term of this
lease will be extended for subsequent full month periods, on a month to
month basis, until Lessee has given at least 90 days written notice
terminating this lease. Such termination will take effect upon completion
of all Lessee's obligations under this lease (including payment of all
periodic rental payments due during such 90 day period, as provided in
Paragraph 9 of this lease). At any time after the expiration of the Initial
Term, if this lease has been automatically extended as set forth herein,
Lessor reserves the fight to terminate this lease by 30 days written notice
to Lessee.
11. LOCATION; INSPECTION; LABELS. The Equipment shall be delivered to and shall
not be removed without Lessor's prior written consent from the "Equipment
Location" shown on the related Equipment Schedule, or it none is specified,
Lessee's billing address shown on the Equipment Schedule. Lessor shall have
the right to inspect the Equipment at any reasonable time. If Lessor
supplies Lessee with labels stating that the Equipment is owned by Lessor,
Lessee shall affix such labels to and keep them in a prominent place on the
Equipment.
12. REPAIRS; USE; ALTERATIONS. Lessee, at its own cost and expense, shall keep
the Equipment in good repair and working order, in the same condition as
when delivered to Lessee, reasonable wear and tear excepted, and in
accordance with the manufacturers recommended specifications; shall use the
Equipment lawfully; shall not alter the Equipment without Lessor's prior
written consent, shall use the Equipment in compliance with any existing
Manufacturer's service and warranty requirements and any insurance policies
applicable to the Equipment and shall furnish all parts and servicing
required therefor. All parts, repairs, additions, alterations and
attachments placed on or incorporated into the Equipment which cannot be
removed without damage to the Equipment shall immediately become part of
the Equipment and shall be the property of the Lessor. Lessee will obtain
and maintain all permits, licenses and registrations necessary to lawfully
operate the facility where the Equipment is located. Lessee shall comply
with all applicable environmental and industrial hygiene laws, rules and
regulations (including but not limited to federal, state, and local
environmental protection, occupational, health and safety or similar laws,
ordinances and restrictions). Lessee shall, not later than 5 days after the
occurrence, provide Lessor with copies of any report required to be filed
with governmental agencies regulating environmental claims. Lessee shall
immediately notify Lessor in writing of any existing, pending or threatened
investigation, inquiry, claim or action by any governmental authority in
connection with any law, rule or regulation relating to industrial hygiene
or environmental conditions that could affect the Equipment.
13. MAINTENANCE. If the Equipment is such that Lessee is not normally capable
of maintaining it, Lessee, at its expense, shall enter into and maintain in
full force and effect throughout the Initial Term, and any renewal term,
Vendor and/or Manufacturer's standard maintenance contract, and shall
comply with all its obligations thereunder. An alternate source of
maintenance may be used with Lessor's prior written consent. Such consent
shall be granted if, in Lessor's reasonable opinion, the Equipment will be
maintained in an equivalent state of good repair, condition and working
order.
14. SURRENDER. Provided that Lessee does not exercise the purchase option as
set forth in Paragraph 28 hereof, upon the expiration of the Initial Term,
or any renewal term, or upon demand by Lessor made pursuant to Paragraph 22
of this lease, Lessee, at its expense, shall return all, but not less than
all, of the Equipment by delivering it to such place or on board such
carrier, packed for shipping, as Lessor may specify. Lessee agrees that the
Equipment, when returned, shall be in the same condition as when delivered
to Lessee, reasonable wear and tear excepted, and in a condition which will
permit Lessor to be eligible for Manufacturer's standard maintenance
contract without incurring any expense to repair or rehabilitate such
Equipment. Lessee shall be liable for reasonable and necessary expenses to
place the Equipment in such condition. Lessee shall remain liable for the
condition of the Equipment until it is received and accepted at the
destination designated by Lessor as set forth above. If any items of
Equipment are missing or damaged when returned, such occurrence shall be
treated as an event of Loss or Damage with respect to such missing or
damaged items and shall be subject to the terms specified in Paragraph 15
below. Lessee shall provide Lessor with a Letter of Maintainability from
the Manufacturer of the Equipment, which letter shall state that the
Equipment will be eligible for the Manufacturer's standard maintenance
contract when sold or leased to a third party. Lessee shall give Lessor
prior written notice that it is returning the Equipment as provided above,
and such notice must be received by Lessor at least 90 days prior to such
return. Should Lessee fail to comply with the provisions described above
covering surrender, upon expiration of the Initial Term, the term of this
lease shall be automatically extended for a term of 3 months. Thereafter,
the term of this lease will be extended
<PAGE> 4
for subsequent full month periods, on a month to month basis, until Lessee
has given at least 90 days written notice terminating this lease. Such
termination will take effect upon completion of all Lessee's obligations
under this lease (including payment of all periodic rental payments due
during such 90 day period, as provided in Paragraph 9 of this lease). At
any time after the expiration of the Initial Term, if this lease has been
automatically extended as set forth herein, Lessor reserves the right to
terminate this lease by 30 days written notice to Lessee.
15. LOSS OR DAMAGE. Lessee shall bear the entire risk of loss, theft,
destruction of or damage to the Equipment or any item thereof (herein "Loss
or Damage') from any cause whatsoever. No Loss or Damage shall relieve
Lessee of the obligation to pay rent or of any other obligation under this
lease. In the event of Loss or Damage, Lessee, at the option of Lessor,
shall: (a) place the same in good condition and repair; (b) replace the
same with like equipment acceptable to Lessor in good condition and repair
with clear title thereto in Lessor; or (c) pay to Lessor the total of the
following amounts: (i) the total rent and other amounts due and owing at
the time of such payment, plus (ii) an amount calculated by Lessor which is
the present value at 5% per annum simple interest discount of all rent and
other amounts payable by Lessee with respect to said item from date of such
payment to date of expiration of its Initial Term, plus (iii) the
"reversionary value" of the Equipment, which shall be determined by Lessor
as the total cost of the Equipment less 60% of the total rent (net of
sales/use taxes, if any) required to be paid pursuant to Paragraph 9. Upon
Lessor's receipt of such payment, Lessee and/or Lessee's insurer shall be
entitled to Lessor's interest in said item, for salvage purposes, in its
then condition and location, 'as-is", without any warranty, express or
implied.
16. INSURANCE. Lessee shall provide, maintain and pay for (a) all risk property
insurance against the loss or theft of or damage to the Equipment, for the
full replacement value thereof, naming Lessor as a loss payee, and (b)
commercial general liability insurance (and if Lessee is a doctor, hospital
or other health care provider, medical malpractice insurance). All such
policies shall name Lessor as an additional insured and shall have combined
single limits in amounts acceptable to Lessor. All such insurance policies
shall be endorsed to be primary and non-contributory to any policies
maintained by Lessor In addition Lessee shall cause Lessor to be named as
an additional insured on any excess or umbrella policies purchased by
Lessee. A copy of each paid-up policy evidencing such insurance
(appropriately authenticated by the insurer) or a certificate of the
insurer providing such coverage proving that such policies have been
issued, providing the coverage required hereunder shall be delivered to
Lessor prior to the Rent Commencement Date. All insurance shall be placed
with companies satisfactory to Lessor and shall contain the insurer's
agreement to give 30 days written notice to Lessor before cancellation or
any material change of any policy of insurance.
17. TAXES. Lessee shall reimburse to Lessor (or pay directly if, but only if,
instructed by Lessor) all charges and taxes (local, state and federal)
which may now or hereafter be imposed or levied upon the sale, purchase,
ownership, leasing, possession or use of the Equipment; excluding, however,
all income taxes levied on (a) any rental payments made to Lessor
hereunder, (b) any payment made to Lessor in connection with Loss or Damage
to the Equipment under Paragraph 15 hereof, or (c) any payment made to
Lessor in connection with Lessee's exercise of its purchase option under
Paragraph 28 hereof.
18. LESSOR'S PAYMENT If Lessee fails to provide or maintain said insurance, to
pay said taxes, charges and fees, or to discharge any levies, liens and
encumbrances created by Lessee, Lessor shall have the right, but shall not
be obligated, to obtain such insurance, pay such taxes, charges and fees,
or effect such discharge. In that event, Lessee shall remit to Lessor the
cost thereof with the next rent payment.
19. INDEMNITY. (a) General Indemnity. Lessee shall indemnify Lessor against and
hold Lessor harmless from any and all claims, actions, damages, costs,
expenses including reasonable attorneys' fees, obligations, liabilities and
liens (including any of the foregoing arising or imposed under the
doctrines of "strict liability" or "product liability" and including
without limitation the cost of any fines, remedial action, damage to the
environment and cleanup and the fees and costs of consultants and experts),
arising out of the manufacture, purchase, lease, ownership, possession,
operation, condition, return or use of the Equipment, or by operation of
law, excluding however, any of the foregoing resulting from the gross
negligence or willful misconduct of Lessor. Lessee agrees that upon written
notice by Lessor of the assertion of such a claim, action, damage,
obligation, liability or lien, Lessee shall assume full responsibility for
the defense thereof. Lessee's choice of counsel shall be mutually
acceptable to both Lessee and Lessor. This indemnity also extends to any
environmental claims arising out of or relating to prior acts or omissions
of any party whatsoever. The provisions of this paragraph shall survive
termination of this lease with respect to events occurring prior to such
termination. (b) Tax Indemnity. Lessee acknowledges that Lessor shall
<PAGE> 5
be entitled to all tax benefits of ownership with respect to the Equipment
(the "Tax Benefits"), including but not limited to, (i) the accelerated
cost recovery deductions determined in accordance with Section 168(b)(1) of
the Internal Revenue Code of 1986 for the Equipment based on the original
cost of the Equipment to Lessor (ii) deductions for interest on any
indebtedness incurred by Lessor to finance the Equipment and (iii) sourcing
of income and losses attributable to this lease to the United States.
Lessee represents that the Equipment shall be depreciable for Federal tax
purposes utilizing the MACRS Recovery Period as set forth in the Equipment
Schedule, with such depreciation commencing as of the date of Equipment
acceptance by Lessee as set forth on the Certificate of Acceptance. Lessee
agrees to take no action inconsistent with the foregoing or any action
which would result in the loss, disallowance or unavailability to Lessor of
all or any part of the Tax Benefits. Lessee hereby indemnities and holds
harmless Lessor and its assigns from and against (i) the loss,
disallowance, unavailability or recapture of all or any part of the Tax
Benefits resulting from any action, statement, misrepresentation or breach
of warranty or covenant by Lessee of any nature whatsoever including but
not limited to the breach of any representations, warranties or covenants
contained in this paragraph, plus (ii) all interest, penalties, fines or
additions to tax resulting from such loss, disallowance, unavailability or
recapture, plus (iii) all taxes required to be paid by Lessor upon receipt
of the indemnity set forth in this paragraph. Any payments made by Lessee
to reimburse Lessor for lost Tax Benefits shall be calculated (i) on the
assumption that Lessor is subject to the maximum Federal Corporate Income
Tax with respect to each year and that all Tax Benefits are currently
utilized, and (ii) without regard to whether Lessor or any members of a
consolidated group of which Lessor is also a member is then subject to any
increase in tax as a result of the loss of Tax Benefits. For the purposes
of this paragraph, "Lessor" includes for all tax purposes the consolidated
taxpayer group of which Lessor is a part. (c) Payment. The amounts payable
pursuant to this Paragraph 19 shall be payable upon demand of Lessor,
accompanied by a statement describing in reasonable detail such claim,
action, damage, cost, expense, fee, obligation, liability, lien or tax and
setting forth the computation of the amount so payable, which computation
shall be binding and conclusive upon Lessee, absent manifest error. The
indemnities and assumptions of liabilities and obligations contained in
this Paragraph 19 shall continue in full force and effect not withstanding
the expiration or other termination of this Lease.
20. ASSIGNMENT Without Lessor's prior written consent, Lessee shall not assign,
transfer, pledge, hypothecate or otherwise dispose of this lease, the
Equipment, or any interest therein. Without Lessor's prior written consent,
Lessee shall not sublet or lend the Equipment or permit it to be used by
any one other than Lessee or Lessee's employees. Lessor may assign this
lease in whole or in part without notice to Lessee. If Lessee is given
notice of such assignment it agrees to acknowledge receipt thereof in
writing. Each such assignee shall have all of the rights, but none of the
obligations, of Lessor under this lease. Lessee shall not assert against
assignee any defense, counterclaim or offset that Lessee may have against
Lessor. Notwithstanding any such assignment, Lessor warrants that Lessee
shall quietly enjoy use of the Equipment subject to the terms and
conditions of this lease so long as Lessee is not in default hereunder.
Subject to the foregoing, this lease inures to the benefit of and is
binding upon the successors and assigns of the parties hereto.
21. DELINQUENT PAYMENTS. (a) Service Charge. Since it would be impractical or
extremely difficult to fix Lessor's actual damages for collecting and
accounting for a late payment, if any payment to Lessor required herein
(including, but not limited to, rental, renewal, tax, purchase and other
amounts) is not paid on or before its due date, Lessee shall pay to Lessor
an amount equal to 5% of any such late payment. (b) Interest. Lessee shall
also pay interest on any such late payment from the due date thereof until
the date paid at the lesser of 18% per annum or the maximum rate allowed by
law.
22. DEFAULT, REMEDIES. Any of the following shall constitute an Event of
Default: If a) Lessee fails to pay when due any rent or other amount
required herein to be paid by Lessee, or b) Lessee makes an assignment for
the benefit of creditors, whether voluntary or voluntary, or c) a petition
is filed by or against Lessee under any bankruptcy, insolvency or similar
legislation, or d) Lessee violates or fails to perform any provision of
either this lease or any Acquisition Agreement, or violates or fails to
perform any covenant or representation made by Lessee herein, or e) Lessee
makes a bulk transfer of furniture, furnishings, fixtures or other
equipment or inventory, or f) Lessee ceases doing business as a going
concern or terminates its existence, or g) Lessee consolidates with, merges
with or into, or conveys or leases all or substantially all of its assets
as an entirety to any person or engages in any other form of
reorganization, or there is a change in the legal structure of Lessee, in
each case which results, in the opinion of Lessor, in a material adverse
change in Lessee's ability to perform its obligations under this lease, or
h) any representation or warranty made by Lessee in this lease or in any
other document or agreement furnished by Lessee to Lessor shall prove to
have been false or misleading in
<PAGE> 6
any material respect when made or when deemed to have been made, or i)
Lessee shall be in default under any material obligation for the payment of
borrowed money or the deferred purchase price of, or for the payment of any
rent due with respect to, any real or personal property, or j) Lessee shall
be in default under any other agreement now existing or hereafter made with
Lessor or any of Lessors affiliates, or k) any event or condition described
in the foregoing clauses (b), (c), (e), (f), (g), (h) (in clauses (g) and
(h) substituting the phrase "guaranty or other credit support document" for
the word "lease"), (i) or (j) shall have occurred with respect to any
guarantor of, or other party liable in whole or in part for, Lessee's
obligations hereunder, or such guarantor or other party shall have
defaulted in the observance or performance of any covenant, condition or
agreement to be observed or performed by it under the guaranty or other
credit support document pursuant to which it is liable for Lessee's
obligations hereunder, or such guaranty or other credit support document
shall have been revoked or terminated or shall have otherwise ceased, for
any reason, to be in full force and effect. An Event of Default with
respect to any Equipment Schedule shall constitute an Event of Default for
all Equipment Schedules. Lessee shall promptly notify Lessor of the
occurrence of any Event of Default. If an Event of Default occurs, Lessor
shall have the right to exercise any one or more of the following remedies
in order to protect the interests and reasonably expected profits and
bargains of Lessor: a) Lessor may terminate this lease with respect to all
or any part of the Equipment, b) Lessor may recover from Lessee all rent
and other amounts then due and as they shall thereafter become due
hereunder, c) Lessor may take possession of any or all items of Equipment,
wherever the same may be located, without demand or notice, without any
court order or other process of law and without liability to Lessee for any
damages occasioned by such taking of possession, and any such taking of
possession shall not constitute a termination of this lease, d) Lessor may
recover from Lessee, with respect to any and all items of Equipment, and
with or without repossessing the Equipment the sum of (1) the total amount
due and owing to Lessor at the time of such default, plus (2) an amount
calculated by Lessor which is the present value at 5% per annum simple
interest discount of all rent and other amounts payable by Lessee with
respect to said item(s) from date of such payment to date of expiration of
its Initial Term, plus (3) the "reversionary value" of the Equipment, which
shall be determined by Lessor as the total cost of the Equipment less 60%
of the total rent (net of sales/use taxes, if any) required to be paid
pursuant to Paragraph 9, and which the parties agree is a reasonable
estimate of such value; and upon the payment of all amounts described in
clauses (1), (2) and (3) above, Lessee will become entitled to the
Equipment AS IS, WHERE IS, without warranty whatsoever; provided, however,
that if Lessor has repossessed or accepted the surrender of the Equipment,
Lessor shall sell, lease or otherwise dispose of the Equipment in a
commercially reasonable manner, with or without notice and on public or
private bid, and apply the net proceeds thereof (after deducting all
expenses, including attorneys' fees incurred in connection therewith), to
the sum of (1), (2) and (3) above, and e) Lessor may pursue any other
remedy available at law or in equity, including but not limited to seeking
damages or specific performance and/or obtaining an injunction. No right or
remedy herein conferred upon or reserved to Lessor is exclusive of any
right or remedy herein or by law or equity provided or permitted; but each
shall be cumulative of every other right or remedy given hereunder or now
or hereafter existing at law or in equity or by statute or otherwise, and
may be enforced concurrently therewith or from time to time, but Lessor
shall not be entitled to recover a greater amount in damages than Lessor
could have gained by receipt of Lessee's full, timely and complete
performance of its obligations pursuant to the terms of this lease plus
accrued delinquent payments under Paragraph 21.
23. LESSOR'S EXPENSE. Lessee shall pay Lessor all costs and expenses, including
attorneys' fees and the fees of collection agencies, incurred by Lessor in
enforcing any of the terms, conditions, or provisions hereof or in
protecting Lessor's rights herein. Lessee's obligation hereunder includes
all such costs and expenses expended by Lessor (a) prior to filing of an
action, (b) in connection with an action which is dismissed, and (c) in the
enforcement of any judgment. Lessee's obligation to pay Lessor's attorneys'
fees incurred in enforcing any judgment is a separate obligation of Lessee,
severable from Lessee's other obligations hereunder, which obligation will
survive such judgment and will not be deemed to have been merged into such
judgment.
24. OWNERSHIP; PERSONAL PROPERTY. The Equipment shall at all times remain the
property of Lessor and Lessee shall have no right, title or interest
therein or thereto except as expressly set forth in this lease and the
Equipment shall at all times be and remain personal property
notwithstanding that the Equipment or any part thereof may now be, or
hereafter become, in any manner, affixed or attached to real property or
any improvements thereon.
25. NOTICES. Service of all notices under this lease shall be sufficient if
given personally or mailed to the respective party at its address set forth
on any Equipment Schedule, or at such address as either party may provide
in writing from
<PAGE> 7
time to time. Any such notice mailed to said address shall be effective
when deposited in the United States mail, duly addressed and with postage
prepaid.
26. ACQUISITION AGREEMENTS. If the Equipment is subject to any Acquisition
Agreement, Lessee, as part of this lease, transfers and assigns to Lessor
all of its rights, but none of its obligations (except for Lessee's
obligation to pay for the Equipment conditioned upon Lessee's acceptance in
accordance with Paragraph 6), in and to the Acquisition Agreement,
including but not limited to the right to take title to the Equipment.
Lessee shall indemnify and hold Lessor harmless in accordance with
Paragraph 19 from any liability resulting from any Acquisition Agreement as
well as liabilities resulting from any Acquisition Agreement Lessor is
required to enter into on behalf of Lessee or with Lessee for purposes of
this lease.
27. UPGRADES. Any existing lease between Lessor and Lessee subject to an
"upgrade" program shall continue in full force and effect and shall be kept
free of default by Lessee (even if the Equipment covered by the existing
lease is sold, traded-in, etc.) until any such existing lease is canceled
by Lessor when, if applicable, the new Equipment is accepted by Lessee for
all purposes of this lease.
28. PURCHASE OPTION. If no default shall have occurred and be continuing,
Lessee shall be entitled, at its option upon written notice to Lessor,
which notice must be received by Lessor at least 90 days prior to the end
of either the Initial Term or any renewal term of any Equipment Schedule,
to purchase all, but not less than all, of the Equipment covered by such
Equipment Schedule from Lessor at the end of the Initial Term or any
renewal term for such Equipment Schedule at a purchase price equal to the
then fair market value of the Equipment in use and operational, in the
condition required by this lease, as mutually agreed by Lessor and Lessee.
On a date which is no later than the expiration date of the Initial Term or
any renewal term, as applicable, Lessee shall pay to Lessor the purchase
price for the Equipment covered by such Equipment Schedule (plus any taxes
levied thereon) and Lessor shall sell the Equipment "as-is where-is"
without any warranties express or implied.
29. RELATED EQUIPMENT SCHEDULES. In the event that any Equipment Schedule
hereunder shall include Equipment that may become attached to, affixed to,
or used in connection with Equipment covered under another Equipment
Schedule hereunder ("Related Equipment Schedule"), Lessee acknowledges the
following: (a) if Lessee elects to exercise a purchase option or renewal
option under any Equipment Schedule, if provided; or (b) if Lessee elects
to return the Equipment under any Equipment Schedule as described in
Paragraph 14, then Lessor, at its discretion, may require the similar
disposition of all Related Equipment Schedules as provided for by this
lease.
30. MISCELLANEOUS. This instrument and any Approval Letter issued by Lessor and
any Equipment Schedule hereunder constitutes the entire agreement between
Lessor and Lessee, and shall not be amended, altered or changed except by a
written agreement signed by the parties hereto, and in the case of Lessor,
such agreement shall not be valid unless executed by Lessor at Lessor's
home off ice. To the extent any provision of this lease may be determined
to be invalid or unenforceable, it shall be ineffective without affecting
the other provisions of this lease. To the extent permitted by applicable
law, Lessee hereby waives any provisions of law which render any provision
of this lease unenforceable in any respect. Unless specified otherwise, in
the event such written agreement is attached to and made a part of an
Equipment Schedule, the terms and conditions of said written agreement
shall apply only to said Equipment Schedule and shall not apply to any
other Equipment Schedule made a part of this lease. In the event Lessee
issues a purchase order to Lessor covering Equipment to be leased
hereunder, it is agreed that such purchase order is issued for purposes of
authorization and Lessee's internal use only, and none of its terms and
conditions shall modify the terms and conditions of this lease and/or
related documentation, or affect Lessor's responsibility to Lessee as
defined in this lease. An executed Equipment Schedule that incorporates by
reference the terms of this Master Lease Agreement, marked "Original,"
shall be the original of this lease for the Equipment described therein for
all purposes. All other executed counterparts of this lease shall be marked
"Duplicate." To the extent this lease constitutes chattel paper, as such
term is defined in the Uniform Commercial Code of the applicable
jurisdiction, no security interest in this lease may be created through the
transfer of possession of any counterpart other than the Original of this
lease. Lessor reserves the right to charge Lessee fees for its provision of
additional administrative services related to this lease requested by
Lessee. Lessee shall provide Lessor with such corporate resolutions,
opinions of counsel, financial statements, and other documents (including
documents for filing or recording) as Lessor may request from time to time.
LESSEE HEREBY APPOINTS LESSOR OR ITS ASSIGNEE ITS TRUE AND LAWFUL ATTORNEY
IN FACT TO EXECUTE ON BEHALF OF LESSEE ALL UNIFORM COMMERCIAL CODE
<PAGE> 8
FINANCING STATEMENTS OR OTHER DOCUMENTS WHICH, IN LESSOR'S DETERMINATION,
ARE NECESSARY TO SECURE LESSOR'S INTEREST IN SAID EQUIPMENT. The filing of
UCC Financing Statements is precautionary and shall not be evidence that
this lease is intended as security. If for any reason this agreement is
determined not to be a lease, Lessee hereby grants Lessor a security
interest in this lease, the Equipment or collateral pertaining thereto and
the proceeds thereof, including release, sale or disposition of the
Equipment or other collateral. If more than one Lessee is named in this
lease, the liability of each shall be joint and several. Time is of the
essence with respect to this lease. Lessee represents and warrants that the
Equipment is being leased hereunder for business purposes. The descriptive
headings which are used in this lease are for convenience of the parties
only and shall not affect the meaning of any provision of this lease. Any
failure of the Lessor to require strict performance by the Lessee or any
waiver by Lessor of any provision herein shall not be construed as a
consent or waiver of any other breach of the same or of any other
provision. This agreement shall be governed by the laws of the state of
California (without giving effect to principles of conflicts of law
thereof).
31. LESSEE'S REPRESENTATIONS; WAIVER OF JURY TRIAL. Lessee represents and
warrants, as of the date of this lease: (a) Lessee is duly organized,
validly existing and in good standing under the laws of the state of its
incorporation or organization, and is duly qualified to do business
wherever necessary to carry on its present business and operations and to
own its property; (b) this lease (and any Equipment Schedule entered into
pursuant to this lease) has been duly authorized by all necessary action on
the part of Lessee, duly executed and delivered by authorized officers or
agents of Lessee, does not require any further shareholder or partner
approval, does not require the approval of, or the giving notice to, any
federal, state, local or foreign governmental authority, does not
contravene any law binding on Lessee or contravene any certificate or
articles of incorporation or by-laws or partnership certificate or
agreement, or any agreement, indenture or other instruments to which Lessee
is a party or by which it or any of its assets or property may be bound;
(c) this lease (and any Equipment Schedule entered into pursuant to this
lease) constitutes the legal, valid and binding obligation of Lessee and is
enforceable in accordance with its terms; (d) all credit and financial
information, and all other information submitted to Lessor at any time is
true and correct, and there does not exist any pending or threatened action
or proceeding before any court or administrative agency which might
materially adversely affect Lessee's financial condition or operations; (e)
Lessee agrees to furnish to Lessor (i) as soon as available, and in any
event within 120 days after the last day of each fiscal year of Lessee, a
copy of the financial statements of Lessee as of the end of such fiscal
year, certified by an independent certified public accounting firm; (ii) as
soon as available, and in any event within 60 days after the last day of
each quarter of Lessee's fiscal year, a copy of quarterly financial
statements certified by the principal financial officer of Lessee; and
(iii) such additional information concerning Lessee as Lessor may
reasonably request. LESSEE AND LESSOR HEREBY WAIVE THE RIGHT TO TRIAL BY
JURY OF ANY MATTERS ARISING OUT OF THIS LEASE OR ANY OTHER AGREEMENT
EXECUTED IN CONNECTION HEREWITH.
32. GOOD FAITH DEPOSIT REQUIREMENT Lessee agrees, with respect to each
transaction, to pay the Good Faith Deposit specified in Lessor's proposal
for such transaction or in the Equipment Schedule related thereto. This
Good Faith Deposit is given in consideration for Lessor's costs and
expenses in investigating and appraising and/or establishing credit for
Lessee. This Good Faith Deposit shall not be refunded unless Lessor
declines to accept Lessee's offer to enter into this lease. Upon Lessor's
acceptance of Lessee's offer to enter into this lease, unless otherwise
specified in the proposal or Equipment Schedule, the amount shall be
applied to the first period's rent payment. Lessee acknowledges that
Lessor's act of depositing any Good Faith Deposit into Lessor's bank
account shall not in itself constitute Lessor's acceptance of Lessee's
offer to enter into this lease.
IN WITNESS WHEREOF, the parties have executed this Master Lease Agreement
effective as of the first date it is executed by Lessee below.
Mellon US Leasing, a Division of Mellon Leasing Corporation
(LESSOR)
Name /s/ Authorized Signature
Title Mellon U.S. Leasing
<PAGE> 9
HOME OFFICE: 525 MARKET STREET, Suite 3500
SAN FRANCISCO, CA 94105-2743 (415) 538-7100
MICRODYNE, CORPORATION
(LESSEE)
TITLE VP, CFO
DATE 1 2 / 2 3 / 97
By /s/ M. Safavi
Massoud Safavi
Not valid unless executed by Lessor at Lessor's home office.
LMS-139 (Rev.03/97)
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<PERIOD-START> SEP-29-1997
<PERIOD-END> DEC-31-1997
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0
0
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