FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1999
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission File No. 0-8574
MICROWAVE POWER DEVICES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 13-3622306
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(State or other jurisdiction of (I.R.S. Employer Identification)
incorporation or organization)
49 Wireless Boulevard
Hauppauge, New York 11788-3935
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(Address of principal executive offices) (Zip Code)
(631) 231-1400
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(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, par value $.01 per share
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(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
requirements 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. |_|
Aggregate market value of voting stock held by non-affiliates of registrant as
of February 29, 2000: $51,518,265.
Number of shares of Common Stock outstanding as of February 29, 2000: 10,653,507
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive proxy statement pursuant to Regulation
14A, which statement will be filed not later than 120 days after the end of the
fiscal year covered by this Report, are incorporated by reference in Part III
hereof.
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MICROWAVE POWER DEVICES, INC.
1999 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
Item No. Page
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Part I
1. Business ..................................................... 3
2. Properties ................................................... 14
3. Legal Proceedings ............................................ 15
4. Submission of Matters to a Vote of Security Holders .......... 15
Part II
5. Market for Registrant's Common Equity
and Related Stockholder Matters ............................ 15
6. Selected Consolidated Financial Data ......................... 16
7. Management's Discussion and Analysis
of Financial Condition and Results of Operations ........... 17
7A. Quantitative and Qualitative Disclosures About Market Risk ... 22
8. Financial Statements and Supplementary Data .................. 22
9. Changes in and Disagreements with
Accountants on Accounting and Financial Disclosure ......... 23
Part III
10. Directors and Executive Officers of the Registrant ........... 23
11. Executive Compensation ....................................... 23
12. Security Ownership of Certain Beneficial Owners and Management 23
13. Certain Relationships and Related Transactions ............... 23
Part IV
14. Exhibits, Financial Statements and Reports on Form 8-K ....... 23
Signatures ................................................................ 24
Exhibit Index ............................................................. 25
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PART I
ITEM 1. BUSINESS
General
Microwave Power Devices, Inc. (the "Company") designs, manufactures and
sells highly linear power amplifiers and related subsystems to the worldwide
wireless telecommunications market. These amplifiers, which are a key component
in wireless base stations and other wireless telecommunications networks,
increase the power of radio frequency ("RF") and microwave signals with low
distortion for both wireless data and voice applications. The Company's wireless
telecommunications products consist of solid-state, RF and microwave, single and
multi-channel power amplifiers that support a broad range of analog and digital
transmission protocols including AMPS, CDMA, TDMA, TACS, GSM, W-CDMA and
cdma2000. These products are marketed to the cellular, personal communications
services ("PCS"), paging and wireless local loop ("WLL") segments of the
wireless telecommunications industry. The Company's largest wireless
telecommunications customers are integrated wireless telecommunications original
equipment manufacturers ("OEMs"). The Company is also pursuing opportunities
with emerging wireless telecommunications infrastructure equipment manufacturers
and service providers.
In addition to its presence in the wireless telecommunications industry,
the Company designs and manufactures high-power, solid-state amplifiers for
satellite communications and medical applications. The Company also designs and
manufactures amplifiers and other products for the military market.
The Company is capitalizing on its 32 years of experience developing power
amplifiers for the military market by transitioning that technology to
commercial applications. The Company began devoting substantial resources to the
wireless telecommunications market at the end of 1994. The Company has received
purchase orders from Lucent Technologies, LG Information and Communications,
Ltd. ("LGIC"), Ericsson Wireless Communications Inc., AT&T Wireless Services,
Metricom, Inc. and Unique Broadband Systems, Inc. and, as part of its business
strategy, is actively seeking to expand its business with these and other
integrated wireless telecommunications OEMs, as well as with emerging industry
participants.
The Company was incorporated in Delaware in July 1991 to acquire the stock
of MPD Technologies, Inc., the Company's operating subsidiary. MPD Technologies,
Inc. was incorporated in New York in 1967.
Forward-Looking Statements
Certain information contained in this Annual Report on Form 10-K,
including, without limitation, information appearing under Part I, Item 1,
"Business," and Part II, Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations," are forward-looking statements
(within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934). Factors set forth under Part I, Item 1,
"Business - Risk Factors," together with other factors that appear with the
forward-looking statements, or in the Company's other Securities and Exchange
Commission filings, including its Registration Statement on Form S-1 dated
September 29, 1995, could affect the Company's actual results and could cause
the Company's actual results to differ materially from those expressed in any
forward-looking statements made by, or on behalf of, the Company in this Annual
Report on Form 10-K.
Wireless Telecommunications Industry Background
Wireless service providers compete in dynamic markets characterized by
evolving industry standards, technologies and applications. In recent years,
there has been a significant increase in the demand for wireless
telecommunications services from business and consumer users worldwide. This
trend has been driven by lower overall subscriber cost requirements, changes in
the regulatory environment that encourage competition and the emergence of new
enabling technologies. Wireless service providers are seeking to increase system
capacity in order to accommodate the growing number of subscribers and their
demands for enhanced services. To increase capacity, these service providers are
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investing in infrastructure equipment that provides greater efficiency in the
management of the limited spectrum licensed to them.
Wireless service has been one of the fastest growing segments of the
wireless telecommunications market. According to consensus estimates from
infrastructure OEMs, there were approximately 425 million wireless subscribers
worldwide at year-end 1999, as compared to approximately 300 million at year-end
1998, 200 million at year-end 1997 and 140 million at year-end 1996. The growth
in wireless communications has required, and will continue to require,
substantial investment by wireless service providers in wireless infrastructure
equipment. Moreover, intensified competition among wireless service providers is
resulting in declining costs to end-users as well as new types of service
offerings. In response to the increase in subscribers, wireless service
providers are taking steps to expand the capacity of their existing systems,
such as incorporating microcellular networks, converting from analog to digital
protocols and implementing adaptive channel allocation.
Partially in response to concerns about the limited capacity of existing
wireless networks, the Federal Communications Commission ("FCC") began to
allocate spectrum for new wireless services in 1989. This led to the auctioning
of spectrum for PCS, at that time, a new licensed wireless telecommunications
service. PCS proponents believe that increased competition, brought about by the
availability of additional spectrum, will significantly lower rates, leading to
an increase in demand for wireless services. PCS applications may include mobile
telephone services, personal digital services and long distance carrier bypass
of local exchange carriers.
In many developing countries, where access to the public switch telephone
network ("PSTN") by the general population is significantly less than in
developed countries, the Company believes that wireless telecommunications
systems are the most economic means to provide basic telephone service. The
expense, difficulty and time requirements of building and maintaining a wireless
network are generally less than the cost of building and maintaining a
comparable wireline network. Thus, in many less developed countries, wireless
service may provide the primary service platform for both mobile and fixed
telecommunications applications. In a WLL system, radio systems are used instead
of wireline networks to connect telephone subscribers to the PSTN. The Company
believes that the potential opportunities for wireless telecommunications in
countries without reliable or extensive wireline systems may be even greater
than in countries with developed telecommunications systems. The Company also
believes that in developed countries, market trends such as deregulation and
increased competition for subscribers are leading to the increased use of WLL
systems as an alternative to the existing wireline network.
The same factors which are driving the growth of wireless
telecommunications services and equipment sales are also creating new market
dynamics for industry participants. The Company believes that competition among
wireless service providers for subscribers will intensify and that future market
growth will be realized primarily through the penetration of the consumer
market. The shift of the customer base from relatively high-usage,
price-insensitive business subscribers to price-sensitive consumer subscribers
is expected to lead to reduced revenue per subscriber. The Company also expects
that increasing competition for subscribers and decreasing revenue per
subscriber will cause wireless service providers to seek the most cost-effective
infrastructure available without sacrificing quality. In addition, the
uncertainty surrounding analog and emerging digital protocols provides an
incentive for service providers to minimize platform and protocol selection
risk. These changing market conditions, the emergence of open hardware standards
and protocols, and new market entrants in the form of PCS providers create an
opportunity for new equipment suppliers to emerge.
In order to further increase system capacity and add additional services,
a third generation ("3G") of wireless systems is beginning to emerge. These
systems are expected to provide high speed data transmission (at 2 megabytes per
second), wireless internet connectivity and other multi-media capabilities in
the mobile environment, all features driven by the demands of the subscriber.
For systems utilizing cdmaOne technology, the upgrade to 3G is anticipated to be
cdma2000. For GSM/TDMA 3G infrastructure systems, W-CDMA technology is
anticipated to be utilized.
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Power Amplification
Given the large expenditures associated with wireless telecommunications
infrastructure equipment, those wireless service providers that are able to
increase the efficiency and lower the cost of new and existing systems, while
improving reliability, will be positioned to compete most effectively. The
Company believes that the following five factors must be addressed by amplifier
manufacturers in order to compete effectively in this evolving market:
Linearity. Wireless service providers' ability to manage scarce
spectrum resources more effectively and accommodate a larger number
of subscribers is largely dependent on their ability to broadcast
signals with high linearity, which pertains to the ability of a
component to amplify a wave form without altering its
characteristics in undesirable ways. Linear amplifiers allow signals
to be amplified without introducing spurious emissions that might
interfere with adjacent channels. Higher linearity increases the
capacity of wireless systems by enabling a more efficient use of
analog and digital transmission technologies. In current wireless
systems, the power amplifier is generally the source of the greatest
amount of signal distortion. Consequently, obtaining power
amplifiers with high linearity is critical to wireless service
providers' ability to improve spectrum efficiency.
Analog to Digital Transition. Traditional wireless systems, which
are based on analog technology, are capable of carrying only one
call per channel. Such systems are being supplanted by digital
systems, which allow a given channel to carry multiple calls
simultaneously thereby increasing system capacity. In addition, in
order to maintain compatibility with existing analog subscriber
equipment while converting their systems to a digital platform, many
wireless service providers in the United States are installing dual
mode systems that support both digital and analog technologies
simultaneously.
Multiple Protocols. Current and emerging wireless networks
throughout the world utilize different protocols. In order to
address the needs of OEMs and service providers, design and
development efforts must result in amplifiers that can be used for
each specific protocol. Current analog protocols include AMPS, TACS
and NMT, and current cellular and PCS digital protocols include
CDMA, TDMA and GSM. Digital protocols that are being utilized in
emerging WLL systems include W-CDMA and cdma2000.
Multi-Channel Functionality. Single channel amplifiers require a
separate power amplifier and cavity filter for each channel.
Multi-channel power amplifiers allow for the simultaneous
amplification of all channels within a base station. Multi-channel
power amplifiers require significantly higher linearity compared to
single channel designs, but do not require separate,
high-maintenance, tunable cavity filters. This architecture allows
less space to be allocated to the amplifier in the base station,
while also reducing deployment and maintenance costs. In addition,
multi-channel amplification functionality enables adaptive channel
allocation which instantaneously allocates unused channels between
cell sites in order to increase system capacity.
Reliability and Low Maintenance. The Company believes that the power
amplifier in cell sites historically has been the single most common
point of equipment failure in wireless telecommunications networks.
Increasingly reliable power amplifiers will, therefore, improve the
level of service offered by wireless service providers, while
reducing their operating costs. In addition, multi-channel
amplifiers eliminate the need for high-maintenance, tunable cavity
filters, which should further reduce costs.
By drawing on its experience in producing high-quality, custom amplifiers
for the military market, the Company has developed the technical capabilities to
achieve high linearity in its amplification products. The Company has developed
products that support a number of existing analog and digital protocols, and is
continuing to develop new products for other protocols. Certain of the Company's
products support both analog and digital protocols in a dual mode format. The
Company has also developed and is supplying multi-channel amplification products
that integrate the functions of multiple power amplifiers and cavity filters
into a single smaller unit. The Company has consistently manufactured highly
reliable amplifiers that conform to stringent military specifications. The
Company has obtained ISO 9001 certification, which the Company believes will
ensure even greater process and quality control.
The Company uses CAE/CAD and computer-aided modeling, solid-state device
physics, advanced signal processing techniques and digital control systems in
the development of its products. The Company designs amplifiers to be
manufactured in high volumes at low cost. The integration of the Company's
design and production processes is a
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key element in the Company's ability to address wireless telecommunications
OEMs' quantity and time to market requirements for power amplification products.
Strategy
The Company's objective is to be one of the leading independent suppliers
of highly linear power amplification products to wireless telecommunications
OEMs. The Company's strategy incorporates the following key elements:
Leverage Existing Technological Expertise to Commercial Markets. The
Company has 32 years of engineering experience in the design and production of
power amplifiers for the military market. The Company believes that it has
compiled one of the most extensive design libraries in the solid-state, high
power amplifier industry. The Company intends to continue to adapt its expertise
to various commercial market applications and new product requirements. The
Company believes that its long standing technological capability will allow for
wireless market share growth with a continued nurturing of its satellite,
medical and military product lines.
Increase Penetration of Leading Integrated Wireless Infrastructure
Equipment Manufacturers. The Company has developed relationships with certain
large integrated wireless telecommunications OEMs. The Company seeks to
capitalize on its existing customer relationships and become a more significant
source of its customers' amplifiers. The Company believes it can achieve this
objective by working closely with OEM customers to develop insight into their
amplification product requirements and to design products that meet their
specific needs.
Develop Relationships with Emerging Wireless Infrastructure Equipment
Manufacturers. The Company anticipates that emerging wireless infrastructure
equipment manufacturers will make contributions to the growth of the wireless
telecommunications industry, especially in the WLL sector. The Company believes
that its multi-channel power amplifiers will assist these equipment
manufacturers in providing high capacity, low cost per channel products and
continues to sell amplifiers to several emerging wireless infrastructure
equipment manufacturers.
Develop Products for Multiple Protocols. The Company intends to continue
to invest resources in the research and development of new products for various
protocols. For cellular systems, the Company currently supports the AMPS, TACS,
CDPD and NMT-450 analog protocols, and the CDMA, TDMA and GSM-900 digital
protocols. For PCS systems, the Company currently supports CDMA, TDMA, DCS-1800
and PCS-1900 digital protocols. In addition, the Company is continuing to
develop products that incorporate protocols which the Company believes will
address the needs of established and emerging wireless systems. The Company
believes the development of products for multiple protocols will enable the
Company to benefit from the continuing growth of existing wireless systems and
other emerging wireless telecommunications markets while reducing the risks
associated with relying on the success of one or a limited number of existing or
emerging industry protocols.
Target Development to Meet Customer Requirements. The Company focuses its
development efforts on markets where it anticipates there to be emerging demand.
The Company coordinates its marketing and development functions by producing
prototypes for these targeted markets toward the goal of being one of the early
suppliers to meet emerging customer requirements. In this way, the Company hopes
to develop additional relationships with worldwide wireless telecommunications
OEMs.
Provide Support from Product Design through Installation and Operation.
The Company works with its customers throughout the design process to assist
them in refining and developing their amplifier specifications. Once the
specifications have been met and the product delivered, the Company continues to
provide technical support to facilitate system integration, start-up and
continued operation. By providing customer support services from the product
design phase through installation and operation, the Company believes it fosters
increased levels of customer loyalty and satisfaction.
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Wireless Technology
A typical wireless communications system comprises a geographic region
containing a number of cells, each with a base station, which are networked to
form a wireless service provider's coverage area. Each base station or cell site
houses the equipment that transmits and receives telephone calls to and from the
wireless subscriber within the cell and the switching office of the local
wireline telephone system. Currently, such equipment includes a series of
transceivers, power amplifiers, tunable cavity filters and an antenna. In a
single channel system, each channel requires a separate transceiver, power
amplifier and tunable cavity filter. The power amplifier within the base station
receives a relatively weak signal from the transceiver and significantly boosts
the power of the outgoing wireless signal so that it can be broadcast throughout
the cell. The radio power levels necessary to transmit the signal over the
required range must be achieved without distorting the modulation
characteristics of the signal. The signal must also be amplified with linearity
in order to remain in the assigned channel with low distortion or interference
with adjacent channels.
Conventional cell sites today are macrocells containing high power
amplifiers of 45 watts per channel which are designed to cover a geographic area
typically up to three miles in radius. With 48 channels in a typical base
station and one power amplifier per channel, a conventional analog macrocell's
capacity is typically 1,000 subscribers per cell, or approximately 20
subscribers per analog channel and power amplifier. When the number of
subscribers within the cell exceeds the capacity of the macrocell's equipment,
the cell may be split into several smaller radius microcells in order to add
capacity to a service provider's network. These microcells require less power
and less expensive equipment, but necessitate adding more base stations in the
same geographic area.
Because the radio frequencies assigned to wireless transmissions are
finite, wireless service providers continuously seek new methods of more
efficiently using frequencies in order to increase the capacity of their
networks. One such method, adaptive channel allocation, instantaneously
allocates unused channels between cell sites across a wireless network to follow
user loading patterns. Commuter density changes during rush hours and traffic
jams are examples of the dynamic nature of user loading patterns. Adaptive
channel allocation allows the wireless service provider to re-allocate unused
channels automatically from less active cell sites to busier adjacent cell sites
as the load moves. A key enabling technology for adaptive channel allocation is
multi-channel amplification, in which all channels are amplified together by a
multi-channel power amplifier rather than each channel using a separate power
amplifier. The multi-channel power amplifier allows instantaneous electronic
channel allocation. Functionally, it provides the same capability as numerous
single channel amplifiers and cavity filters, but its technology permits the
amplification of 2 to 96 channels without adding hardware. Multi-channel power
amplifiers require significantly higher linearity compared to single channel
designs.
In addition to adaptive channel allocation and multi-channel
amplification, wireless service providers are transitioning from traditional
analog technologies to various digital technologies in order to increase system
capacity and reduce the cost of wireless service. Conversion to digital
transmission is expected to allow up to 10 times as many voice conversations to
occupy the same frequency bands. Significant improvements in power amplifier
linearity permit multiple conversations on a single channel without unacceptable
channel interference.
A further trend in the development of base stations involves the
transition from narrowband to broadband capabilities. For example, 3G
technology, which will be used for data transmission and internet access, as
well as for voice, is expected to utilize a wide-band 5-20 MHz CDMA signal. This
transition is leading to the reduction in the size of base station equipment.
Size constraints are an important consideration in urban areas, which typically
represent the most capacity constrained regions of existing wireless networks. A
multi-channel power amplifier requires less space than multiple single channel
power amplifiers, facilitating the size reduction of base stations and
potentially lowering the real estate costs associated with establishing base
stations.
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Products
Wireless Telecommunications. The Company designs customized products to
address the specific requirements and protocols of its OEM customers. The
Company produces single channel and multi-channel amplifiers for the wireless
telecommunications market in the 400-3500 MHz frequency bands, with peak power
ranging from 10 watts to 2000 watts. The Company's amplifiers meet linearity
requirements of applicable governmental agencies, industry standards and
customer specifications, as appropriate. The Company increases the efficiency of
its product development efforts by employing modular architectures and
configurable core technologies.
The product development cycle begins with the prototype phase, with
product typically designed for a particular customer using core technologies.
The Company usually manufactures such prototypes in the engineering lab in order
to help market its products in a timely manner. Low volume production (or the
pre-production phase) of such prototypes has not contributed significantly to
the Company's backlog. If customer demand for such pre-production units is
sufficient, the Company designs additional customized features and implements
high volume production methodologies. The Company believes that the evolution to
the high volume production phase from the prototype phase can be implemented in
most cases within three to six months following the decision to proceed with
high volume production methods. The following tables list the Company's single
channel and multi-channel amplifiers, within the product development cycle,
ranging from the prototype phase to pre-production units to high volume
production products:
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Single Channel Amplifiers Multi-Channel Amplifiers
Wireless System Protocol Protocol
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Analog Cellular: AMPS AMPS
CDPD N-AMPS
TACS
SETACS
ETACS
NMT-450
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Digital Cellular: CDMA CDMA
TDMA TDMA
GSM-900 GSM-900
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PCS: CDMA CDMA
TDMA TDMA
DCS-1800 DCS-1800 *
PCS-1900 PCS-1900
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IMT-2000: W-CDMA * W-CDMA *
cdma2000 * cdma2000 *
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* Products in the prototype phase.
The Company has used its technological expertise to improve the linearity
of its amplifiers by introducing various compensation techniques. Several of the
Company's single channel amplifiers include linearity correction and
compensation networks. These techniques are combined with digital automatic
error correction circuits to enhance the linearity and performance of the
Company's feed-forward amplifiers. The Company's digital processing techniques
implemented in its feed-forward products allow for simultaneous amplification of
NMT, AMPS, TDMA and CDMA channels.
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The Company's wireless telecommunications amplifiers can be configured as
modules, separate plug-in amplifier units or integrated subsystems, and range in
price from approximately $500 to $40,000. A power amplifier subsystem consists
of multiple cast housings and adds digital signal processing to enhance
linearity. The Company's products are integrated into systems by OEM customers,
and therefore must be engineered to be compatible with industry standards and
with certain customer specifications, such as frequency, power, linearity and
built-in test (BIT) for automatic fault diagnostics.
Satellite Communications. The Company's solid-state amplifiers are
critical components in the International Maritime Satellite Organization
("INMARSAT") communications system used by commercial and military aircraft. The
INMARSAT communication link is a vast improvement over high frequency oceanic
and continental communications and is becoming the primary communication link
between ground control and in-flight aircraft. INMARSAT allows commercial
aircraft flying over any region in the world to communicate instantaneously. In
addition, weather-related variations in communication transmissions are all but
eliminated. For passengers, INMARSAT means better and more comprehensive
in-flight voice and data service.
Medical. The Company's primary focus in the medical equipment market is
the production of microwave driver amplifiers for cancer treatment systems. The
Company's amplifiers provide the input signals at 3 GHz to a 10 megawatt, tube
driven klystron amplifier, which controls the intensity of an electron beam and
directs it to an x-ray target. The resultant radiation is then focused to
provide precisely calibrated dosages to exact cancerous locations in the human
body.
Military. The Company's extensive experience in military amplifiers
includes high-power jammers, communication, radar and other defense oriented
equipment. An example of a military system that incorporated one of the
Company's products was the "Worldwide Color Television" used in the Persian Gulf
War. The Company's amplifier was a primary component of that system, which
injected television and radio signals into the Iraqi communications system. The
Company continues to capitalize on this experience, both by maintaining its
military activities and by developing and producing amplifiers for commercial
applications. The Company also makes air-defense radar environment simulators,
navigational simulators and test equipment, and electronic warfare simulators.
Backlog
The Company's backlog of orders as of December 31, 1999 and December 31,
1998 was $76.2 million and $123.3 million, respectively, of which, as of
December 31, 1999, approximately $50.8 million is currently scheduled to be
shipped during fiscal 2000. The $76.2 million backlog as of December 31, 1999
included $29.4 million to wireless telecommunications customers, $18.0 million
to satellite communications customers, $5.8 million to medical and other
commercial customers and $23.0 million to military customers. In general, the
Company includes in its backlog only those orders for which it has accepted
purchase orders, some of which may be of a consignment nature. Backlog is not
necessarily indicative of future sales. Moreover, nearly all of the Company's
backlog can be cancelled and/or delayed at any time (including the consignment
orders) without penalty, except, in some cases, for the recovery of the
Company's actual costs up to the date of cancellation. Certain of the purchase
orders comprising backlog set forth product specifications that would require
the Company to complete additional product development. A failure to develop
products meeting such specifications could lead to a cancellation of the related
purchase order. Certain of the purchase orders comprising backlog at December
31, 1999 include product specifications not yet achieved by the Company.
Customers, Sales and Marketing
The market for wireless infrastructure equipment is primarily concentrated
among a few companies that supply equipment to wireless service providers in
North America and overseas. The Company believes that Ericsson, Lucent,
Motorola, Nokia and Nortel supply the majority of the wireless infrastructure
equipment worldwide. In addition, a number of South Korean infrastructure OEMs
are participating in the wireless infrastructure build-out in that country and
are emerging as providers of wireless infrastructure equipment worldwide. These
equipment manufacturers compete in high-growth, highly competitive market
segments in which technology changes rapidly and numerous industry standards
currently exist and are continuing to evolve. In response to these market
dynamics and as the performance requirements of certain components of wireless
base stations increase, many of these equipment
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manufacturers are focusing on their core technologies and competencies and are
relying on independent sources for certain system components, such as power
amplifiers.
The Company sells wireless power amplification products throughout the
world to a limited number of OEM customers principally through its direct sales
organizations, as well as through its exclusive representative network. The
Company expects that sales of its products will continue to be concentrated
among a limited number of major OEM customers. If the Company were to lose a
major OEM customer or if orders by such OEM customer were to otherwise decrease,
the Company's business, financial condition and results of operations would be
materially adversely affected.
The Company uses a customer focused, team-based sales approach to address
the high-power amplification needs of its OEM customers. Sales to integrated
wireless telecommunications OEMs require close account management by the
Company. As such, relationships are established at multiple levels of its OEM
customers' organizations, including management, engineering and purchasing
personnel. In addition, the Company's amplifiers require experienced sales and
engineering personnel to match the customer's requirements to the Company's
product capabilities. The Company believes that close technical collaboration
with the OEM customer during the design and qualification phase of new
communications equipment is critical to the integration of its amplification
products into the new base stations. The Company's integrated sales approach
involves a team consisting of a senior executive, a business development
specialist, members of the Company's engineering department and, occasionally, a
local technical sales representative. This sales approach allows the Company's
engineering personnel to work closely with their counterparts at the OEM
customer to assure compliance of the product to the OEM customer's
specification. The Company's executive officers are also involved in certain
aspects of the Company's relationships with its major OEM customers and work
closely with their senior managements. At times, the Company includes a
transistor supplier as part of its sales team when working with a major OEM
customer and will consider including key suppliers in its future sales
presentations.
To date, the Company has sold its products overseas with the assistance of
independent sales representatives to OEM customers. As of December 31, 1999, the
Company has worldwide relationships with approximately 75 independent sales
representative organizations. The Company's direct sales staff provides
direction and support to its worldwide independent sales representative
organizations. Sales outside of the United States represented 23%, 16% and 24%
of net sales in fiscal 1999, 1998 and 1997 respectively. Sales outside of the
United States are denominated in U.S. dollars in order to reduce the risks
associated with the fluctuations of foreign currency exchange rates.
Manufacturing
The Company assembles, tests, packages and ships amplifier products at its
manufacturing facility located in Hauppauge, Long Island, New York.
Historically, the volume of the Company's production requirements in the
military markets was not sufficient to justify the implementation of automated
manufacturing processes. Anticipating that sales of its products to the wireless
telecommunications industry would require a significant increase in the
Company's manufacturing capacity, the Company began to introduce automated
manufacturing techniques in the second quarter of 1995. In connection with its
transition to automated manufacturing processes, the Company purchased
computerized surface-mount machinery and related process equipment to support
automated assembly, which were delivered, installed and made fully operational
during the third quarter of 1995. During the fourth quarter of 1997, a second
stencil printer and convection oven for the surface-mount center was put into
service. In the second quarter of 1998, a second automated surface-mount
pick-n-place machine was added. In the first quarter of 1999, the Company added
a third stencil printer and convection oven.
The Company began introducing automated tuning and testing into its
manufacturing processes in the second half of 1996. Essentially all wireless
production amplifiers are now tuned and tested in an automated fashion, as are
certain satellite, medical and military production amplifiers. As a by-product
of its automated tuning and testing efforts, the Company has been able to
implement statistical process control ("SPC") as well. With SPC in place,
various data measurements are accumulated automatically and can be graphically
displayed in real time. Through continuous feedback, the benefits of SPC are
that corrective actions can be implemented more timely and with more accuracy,
product design ideology can be adjusted accordingly to optimize manufacturing
efficiencies and product performance, and product throughput can be more
effectively measured. The Company expects the implementation of SPC to result in
greater production yields.
10
<PAGE>
The Company's movement during the past few years into high volume
automated surface-mount production was the result of time-to-market and pricing
demands of the wireless telecommunications industry. Furthermore, the Company
has introduced the automated manufacturing processes described above into its
other product segments much to the benefit of the satellite, medical and
military customers and their associated equipment. As a result, the Company has
begun to leverage its high volume design and production capabilities into its
low and medium volume product lines.
Research and Development
The Company's research and development efforts are focused on the design
of amplifiers for new protocols, the improvement of existing product
performance, cost reductions and improvements in the manufacturability of
existing products. The Company is continuing to focus heavily on designs that
support continuous flow, high volume production for its wireless
telecommunications products. The Company uses an automated design environment
employing advanced workstations to model overall amplifiers and their associated
circuits.
The Company has historically devoted a significant portion of its
resources to research and development programs and expects to continue to
allocate significant resources to these efforts. The Company's research and
development expenses in fiscal 1999, 1998 and 1997 were $6.8 million, $6.0
million, and $4.4 million, respectively, and represented 9.6%, 10.7% and 8.4%,
respectively, of net sales. In addition, certain other development costs are
incurred in connection with long-term contracts pursuant to which these costs
are financed, in whole or in part, by the customer. These costs are included in
cost of sales and the related revenues are included in net sales in the
Company's consolidated statements of operations.
The markets in which the Company and its OEM customers compete are
characterized by rapidly changing technology, evolving industry standards and
continuous improvements in products and services. The Company's future success
depends on its ability to develop in a timely manner new products that compete
effectively on the basis of price and performance and that adequately address
customer requirements. In addition, as is characteristic of the wireless
telecommunications equipment industry, the average sales prices of the Company's
products have historically decreased over the products' lives and are expected
to continue to do so.
Competition
The ability of the Company to compete successfully depends in part upon
the rate at which OEM customers incorporate the Company's products into their
systems. The Company believes that a substantial majority of the present
worldwide production of power amplifiers is captive within the manufacturing
operations of a small number of wireless telecommunications OEMs and offered for
sale as part of their wireless telecommunications systems. The Company's future
success is dependent upon the extent to which these OEMs elect to purchase from
outside sources rather than manufacture their own amplification products. There
can be no assurance that OEM customers will incorporate the Company's products
into their systems or that, in general, OEM customers will continue to rely, or
expand their reliance, on external sources of supply for their power
amplification products. Since each OEM product involves a separate proposal by
the amplifier supplier, there can be no assurance that the Company's current OEM
customers will not rely upon internal production capabilities or a non-captive
competitor for future amplifier product needs. The Company's major OEM customers
continuously evaluate whether to manufacture their own amplification products or
purchase them from outside sources. These OEM customers and other large
manufacturers of wireless telecommunications equipment could also elect to enter
into the non-captive market and compete directly with the Company. Such
increased competition could materially adversely affect the Company's business,
financial condition and results of operations.
Most of the Company's competitors have, and potential future competitors
could have, substantially greater technical, financial, marketing, distribution
and other resources than the Company and have, or could have, greater name
recognition and market acceptance of their products and technologies. In
addition, certain of these competitors may already be better established in the
wireless amplification market than the Company. No assurance can be given that
the Company's competitors will not develop new technologies or enhancements to
existing products or introduce new products that will offer superior price or
performance features. To the extent that OEMs increase their reliance on
external sources for their power amplification needs, more competitors could be
attracted to the market.
11
<PAGE>
The Company expects its competitors to offer new and existing products at
prices necessary to gain or retain market share. The Company expects to
experience significant price competition, which could have a materially adverse
effect on gross margins. Certain of the Company's competitors have substantial
financial resources which may enable them to withstand sustained price
competition or downturns in the power amplification market as well as enabling
them to more aggressively pursue various pre-production opportunities.
In the military market, the Company competes with certain large OEMs that
design and assemble their own high power amplifiers. However, almost all of
these OEMs are also the Company's customers. The Company believes this is due to
its broad range of solid-state power and frequency capabilities and its 32 year
military industry stature.
Proprietary Technology
The Company believes that the success of its amplifier business depends
more on its specifications, CAE/CAD design and modeling tools, technical
processes and employee expertise than on patent protection. The Company
generally enters into confidentiality and non-disclosure agreements with its
employees and limits access to and distribution of its proprietary technology.
The Company may in the future be notified that it is infringing certain patent
and/or other intellectual property rights of others. Although there are no such
pending lawsuits against the Company or unresolved notices that the Company is
infringing intellectual property rights of others, there can be no assurance
that litigation or infringement claims will not occur in the future. Through
Republic Electronics, the Company holds one U.S. patent, owns two U.S.
trademarks and has two U.S. patents pending.
The Company has a U.S. patent (which expires in January 2012) relating to
a windshear radar warning system tester. The Company also has a U.S. patent
pending for this windshear radar warning system tester to be used as a radome
tester as well. The Company's Weather/Windshear Radar Tester (WRT-100) simulates
microbursts, storms and gust fronts in order to test a commercial aircraft's
radar systems signal processing ability to properly display hazard warning
conditions. In addition, the WRT-100 is capable of receiving and recording
antenna patterns in order to evaluate a commercial aircraft's radome
performance. "REPUBLIC" and "MRES 2000" are U.S. registered trademarks of the
Company. The Company also has a U.S. patent pending for a flightline test of
satellite-based airborne navigation systems. This invention relates to the
testing of instrument approach and landing systems which utilize a global
navigation satellite system.
Employees
As of February 7, 2000, the Company had a total of 378 regular, temporary
and contract employees, including 242 in operations and quality, 94 in
engineering, 10 in sales and marketing and 32 in administration. The Company
believes its future performance will depend in large part on its ability to
attract and retain highly skilled employees. None of the Company's employees are
represented by a labor union and the Company has not experienced any work
stoppages. The Company considers its employee relations to be good.
Risk Factors
Historically, the Company's revenues have been derived principally from
sales to military markets. The Company only began to focus on commercial markets
in 1992. More specifically, the Company only began to focus on the wireless
telecommunications market in 1994. As a result, the Company is subject to all of
the risks inherent in the operation of a new business enterprise.
The Company anticipates that sales of its products to relatively few
customers will continue to account for a significant portion of its net sales.
In addition, certain of the purchase orders comprising backlog at December 31,
1999 set forth product specifications not yet achieved by the Company that would
require the Company to complete additional product development. A failure to
develop products meeting such specifications could lead to a cancellation of the
related purchase order. The reduction, delay or cancellation of orders from one
or more significant customers would materially adversely affect the Company's
business, financial condition and results of operations.
12
<PAGE>
The Company has limited experience in producing and manufacturing its
products on a high volume basis and in contracting for such manufacture.
Manufacture of the Company's products is an extremely complex process, and the
Company may from time to time experience quality problems with products
manufactured on an automated basis internally or by its contract manufacturers.
Furthermore, there can be no assurance that the Company's internal manufacturing
processes will prove sufficient to fulfill the Company's production commitments,
or that contract manufacturers will be able to fulfill any shortfall. If such
problems occur, the Company could experience increased costs, delays,
cancellations or reschedulings of orders or deliveries and product returns and
discounts, any of which could damage relationships with current or prospective
customers and have a material adverse effect on the Company's business,
financial condition and results of operations.
A large portion of the Company's expenses are fixed and difficult to
reduce. If net sales do not meet the Company's expectations, the fixed nature of
the Company's expenses would exacerbate the effect of any net sales shortfall.
Other factors that may cause the Company's net sales, gross margins and results
of operations to vary significantly from period to period include mix of systems
sold; price discounts or changes; market acceptance and the timing and
availability of new products by the Company or its customers; usage of different
distribution and sales channels; product development, warranty and customer
support expenses; customization of systems; and general economic and political
conditions. All of the above factors are difficult for the Company to forecast,
and these or other factors could materially adversely affect the Company's
business, financial condition and results of operations.
Wireless telecommunications OEMs have come under increasing price pressure
from cellular and PCS service providers, and the Company expects to experience
downward pricing pressure on its products. In addition, competition among
non-captive suppliers has increased the downward pricing pressure on the
Company's products. As these wireless manufacturers frequently negotiate supply
arrangements far in advance of delivery dates, the Company often must commit to
price reductions for its products before it is aware of how, or if, cost
reductions can be obtained. To offset declining average sales prices, the
Company will attempt in the near term to achieve manufacturing cost reductions
and, in the longer term, to develop new products that can be sold at higher
average sales prices or that can be manufactured at a lower cost. If, however,
the Company is unable to achieve such cost reductions and to develop new
products that can be sold at higher average sales prices or that can be
manufactured at a lower cost, the Company's gross margins will decline, and such
decline will have a material adverse effect on the Company's business, financial
condition and results of operations.
Despite the risks associated with purchasing components from a limited
number of sources, the Company has made the strategic decision to enter into
arrangements with a select group of limited source suppliers in order to obtain
lower pricing, receive more timely delivery and maintain quality control.
Certain of the Company's limited source suppliers have limited operating
histories and limited financial and other resources and, therefore, may prove to
be unreliable sources of supply. Further, during the past few years, the Company
has begun to purchase key components in large volume. If the Company were unable
to obtain sufficient quantities of components, particularly power transistors,
delays or reductions in product shipments could occur which would have a
material adverse effect on the Company's business, financial condition and
results of operations. Furthermore, delays in filling orders due to limited
availability of components may have a material adverse effect on the Company's
relationships with its OEM customers, which may result in the termination of
material orders from its OEM customers and/or cause a permanent loss of future
sales.
Sales of power amplifiers to wireless telecommunications OEMs are expected
to account for a majority of the Company's future product sales. The success of
the Company depends to a considerable extent upon the continued growth and
increased availability of cellular, PCS and other wireless telecommunications
services in the United States and internationally. If the wireless
telecommunications market fails to grow or grows more slowly than the Company
currently anticipates, the Company's business, financial condition and results
of operations would be materially and adversely affected.
The Company's major OEM customers continuously evaluate whether to
manufacture their own amplification products. These OEM customers and other
large manufacturers of wireless telecommunications equipment could elect to
enter into the non-captive market and compete directly with the Company. Also,
the Company's competitors could develop new technologies, make enhancements to
existing products, or introduce new products that could offer superior price or
performance features. Such increased competition could materially adversely
affect the Company's business, financial condition and results of operations.
13
<PAGE>
Sales of the Company's products outside of the United States are
denominated in United States dollars. An increase in the value of the U.S.
dollar relative to foreign currencies would make the Company's products more
expensive and, therefore, potentially less competitive outside the United
States. The Company may in the future be notified that it is infringing certain
patent and/or other intellectual property rights of others. Although there are
no such pending lawsuits against the Company or unresolved notices that the
Company is infringing intellectual property rights of others, there can be no
assurance that litigation or infringement claims will not occur in the future.
Regulatory approvals generally must be obtained by the Company in
connection with the manufacture and sale of its products, and by the Company's
customers to operate the Company's products. The United States Federal
Communications Commission ("FCC") has recently adopted new regulations that
impose more stringent RF and microwave emissions standards on the
telecommunications industry. There can be no assurance that, as a result of such
regulations, the Company and its OEM customers will not be required to alter the
manner in which radio signals are transmitted or otherwise alter the equipment
transmitting such signals, which could materially adversely affect the Company's
products and markets. Also, the enactment by federal, state, local or
international governments of new laws or regulations or a change in the
interpretation of existing regulations could effect the market for the Company's
products.
The Company anticipates that a material portion of its 2000 wireless
product revenue could result from shipments (directly or indirectly) into
countries facing economic uncertainty or political unrest. While the pricing of
such products is in U.S. dollars, the effect of the economic uncertainty or
political unrest could cause a reduction, cancellation or delay in these
wireless product shipments. In addition, financial instability in these
countries could cause currency fluctuations that make these products more
expensive than the customer originally anticipated, which could result in the
reduction, delay or elimination of future orders. These factors could materially
adversely affect the Company's business, financial condition and results of
operations.
The Company has recently begun to enter into arrangements with its major
OEM customers whereby those customers stock the Company's amplifiers on a
consignment basis until they are consumed in production. Under these
arrangements, the Company receives a forecast each week from the customer
reflecting the customer's future product requirements. These forecasts provide
the Company with a one year forward-look which details the weekly requirements
for the first 26 weeks and the monthly requirements for the remaining six
months. If those product needs do not ultimately meet the Company's expectations
or, conversely, if they substantially exceed those expectations such that the
Company cannot fulfill them, there could be a material adverse effect on the
Company's business, financial condition and results of operations.
ITEM 2. PROPERTIES.
The Company's operations are located in an 86,000 square foot facility on
7.4 acres of land in Hauppauge, Long Island, New York. The building was
constructed in 1986 and purchased by the Company in June 1992 with the proceeds
from Industrial Development Revenue Bonds ("IDRBs") issued through the Suffolk
County Industrial Development Agency ("SCIDA"). In connection with this
financing, the Company transferred ownership of this facility to the SCIDA at
closing, and immediately leased back the facility for a term equal to the term
of the bonds. The lease provides the Company with a $1.00 buyback option
exercisable at lease end and also permits for transfer of ownership of the
facility back to the Company if it prepays the bonds.
This facility houses all of the Company's engineering, manufacturing,
quality assurance, sales and marketing and administrative personnel. The plant
has been customized to suit the Company's operations, which includes various
electrical power upgrades. While the current facility is sufficient to support
the Company's anticipated growth into fiscal year 2001, the Company has zoning
approvals and architectural drawings for a 55,000 square foot expansion of its
current facility which the Company believes should be adequate to meet the
Company's presently foreseeable needs.
14
<PAGE>
ITEM 3. LEGAL PROCEEDINGS.
From time to time, the Company is involved in litigation relating to
claims arising out of its operations in the normal course of business. The
Company is currently not party to any other legal proceedings, the adverse
outcome of which, individually or in the aggregate, management believes would
have a material adverse effect on the financial position or results of
operations of the Company.
The Company's operations are subject to environmental laws and regulations
which impose limitations on the discharge of pollutants into the air and water
and establish standards for the treatment, storage and disposal of solid and
hazardous wastes. The Company reviews the effects of any new laws and
regulations on its operations and modifies its operations as appropriate. The
Company believes that it is in substantial compliance with all applicable
environmental laws and regulations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to a vote of security holders during the
fourth quarter of 1999.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Common Stock of the Company is traded on The Nasdaq Stock Market(R)
("Nasdaq") under the symbol MPDI. On March 1, 2000 there were approximately
2,500 beneficial owners of the Company's Common Stock.
The following table sets forth the high and low sales prices for the
Company's Common Stock as reported by Nasdaq. Such quotations reflect
interdealer prices without adjustments for retail markups, markdowns, or
commissions and may not necessarily represent actual transactions.
Calendar Period High Low
--------------- ---- ---
1999:
First Quarter...................... 13 6-1/2
Second Quarter..................... 19-1/8 7-15/16
Third Quarter...................... 22-1/4 7-5/8
Fourth Quarter..................... 17-1/4 6-1/2
1998:
First Quarter...................... 9-1/4 4-7/8
Second Quarter..................... 9 5-5/8
Third Quarter...................... 6-7/8 2-1/4
Fourth Quarter..................... 13-1/16 2-1/4
The Company has never declared or paid any cash dividends on its Common
Stock. The Company currently anticipates that it will retain all future earnings
for the expansion and operation of its business and does not anticipate paying
cash dividends in the foreseeable future. In addition, the Company's credit
facility contains provisions restricting the payment of dividends.
15
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.
The following selected consolidated financial data as of and for the years
ended December 31, 1999 and 1998, and for the year ended December 31, 1997 have
been derived from, and are qualified by reference to, the Consolidated Financial
Statements of the Company audited by Arthur Andersen LLP, independent public
accountants, included elsewhere in this Annual Report on Form 10-K and should be
read in conjunction with those Consolidated Financial Statements and Notes
thereto and Management's Discussion and Analysis of Financial Condition and
Results of Operations. The following selected consolidated financial data as of
December 31, 1997 and as of and for the years ended December 31, 1996 and 1995
have been derived from the Consolidated Financial Statements of the Company
audited by Arthur Andersen LLP, independent public accountants, not included
herein.
<TABLE>
<CAPTION>
Year Ended
---------------------------------------------------------------------------
December 31, December 31, December 31, December 31, December 31,
1999 1998 1997 1996 1995
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Consolidated Statements of Operations Data: (in thousands, except per share data)
Net sales .......................... $ 70,811 $ 55,774 $ 52,037 $ 47,362 $ 27,302
Cost of sales ...................... 58,989 38,482 38,142 41,501 20,122
-------- -------- -------- -------- --------
Gross profit ....................... 11,822 17,292 13,895 5,861 7,180
Operating expenses:
General and administrative ...... 4,281 3,877 3,575 3,221 3,091
Selling ......................... 4,533 3,748 3,963 3,720 3,346
Research and development ........ 6,833 5,973 4,367 7,364 4,306
-------- -------- -------- -------- --------
Total operating expenses ...... 15,647 13,598 11,905 14,305 10,743
-------- -------- -------- -------- --------
Income (loss) from operations ...... (3,825) 3,694 1,990 (8,444) (3,563)
Interest expense, net .............. 1,282 1,185 1,237 948 1,310
Other (income) expense, net ........ 8 2 (16) 6 55
-------- -------- -------- -------- --------
Income (loss) before income taxes .. (5,115) 2,507 769 (9,398) (4,928)
Provision (benefit) for income taxes (2,202) 775 189 (3,759) (1,976)
-------- -------- -------- -------- --------
Net income (loss) .................. $ (2,913) $ 1,732 $ 580 $ (5,639) $ (2,952)
======== ======== ======== ======== ========
Net income (loss) per common share:
Basic ........................... $ (0.28) $ 0.17 $ 0.06 $ (0.54) $ (0.36)
======== ======== ======== ======== ========
Diluted ......................... $ (0.28) $ 0.17 $ 0.06 $ (0.54) $ (0.36)
======== ======== ======== ======== ========
Common shares used in computing
per share amounts:
Basic ........................... 10,537 10,380 10,376 10,375 8,172
======== ======== ======== ======== ========
Diluted ......................... 10,537 10,478 10,465 10,375 8,172
======== ======== ======== ======== ========
<CAPTION>
December 31, December 31, December 31, December 31, December 31,
1999 1998 1997 1996 1995
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Consolidated Balance Sheet Data: (in thousands)
Cash and cash equivalents .......... $ 618 $ 667 $ 687 $ 1,149 $ 388
Working capital .................... 17,423 21,676 18,183 16,151 24,529
Total assets ....................... 47,530 46,875 41,822 38,890 41,227
Total debt ......................... 16,179 13,244 13,276 12,789 9,718
Total stockholders' equity ......... 20,027 20,781 18,949 18,302 23,941
</TABLE>
16
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Overview
The Company commenced operations in 1967. During the past 32 years, the
Company has designed, manufactured and marketed high-power, solid-state, RF and
microwave power amplifiers and related subsystems for military, medical,
satellite and wireless telecommunications applications.
The Company historically had been dependent upon the military market as
its principal source of revenue. In 1992, as the military market was declining,
the Company leveraged its military technological leadership position and
increased the scope of its business by entering commercial markets, thereby
broadening its product offerings. In 1994, the Company started producing power
amplifiers for the wireless telecommunications market. The Company now develops
precision high-power amplifiers for a variety of commercial uses.
The following table summarizes certain key financial information:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
Change Change
1999 From 1998 From 1997
($000s) prior year ($000s) prior year ($000s)
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Sales $ 70,811 27% $ 55,774 7% $ 52,037
---------------------------------------------------------------------------------------------------------
Gross Profit $ 11,822 (32)% $ 17,292 24% $ 13,895
Gross Profit Margin 16.7% 31.0% 26.7%
---------------------------------------------------------------------------------------------------------
General and Administrative Expenses $ 4,281 10% $ 3,877 8% $ 3,575
Percentage of Net Sales 6.0% 7.0% 6.9%
---------------------------------------------------------------------------------------------------------
Selling Expenses $ 4,533 21% $ 3,748 (5)% $ 3,963
Percentage of Net Sales 6.4% 6.7% 7.6%
---------------------------------------------------------------------------------------------------------
Research and Development Expenses $ 6,833 14% $ 5,973 37% $ 4,367
Percentage of Net Sales 9.6% 10.7% 8.4%
---------------------------------------------------------------------------------------------------------
Interest Expense $ 1,282 8% $ 1,185 (4)% $ 1,237
Percentage of Net Sales 1.8% 2.1% 2.3%
---------------------------------------------------------------------------------------------------------
Provision (Benefit) for Income Taxes $ (2,202) (384)% $ 775 310% $ 189
Effective Tax Rate 43.0% 30.9% 24.6%
---------------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE>
Results of Operations
Fiscal Years Ended December 31, 1999 and December 31, 1998
Net Sales. The Company derives its revenues principally from the sale of
solid-state, RF and microwave power amplifiers and from the sale of radar
environmental and electronic warfare simulators. Net sales increased by 27% to
$70.8 million in 1999 from $55.8 million in 1998. This sales increase was
primarily due to higher shipments of the Company's commercial products,
partially offset by lower shipments of the Company's military products. Sales of
commercial products increased by 72% to $45.2 million in 1999 from $26.2 million
in 1998, representing 64% and 47%, respectively, of net sales in such years. The
commercial sales increase was predominantly due to higher shipments to one
domestic and one foreign wireless telecommunications OEM, partially offset by
lower shipments to one domestic wireless telecommunications OEM. Sales of
military products decreased by 13% to $25.6 million in 1999 from $29.6 million
in 1998, representing 36% and 53%, respectively, of net sales in such years. The
military sales decrease was predominantly due to lower shipments on a U.S.
Government military program, partially offset by higher shipments to a foreign
military OEM.
International sales increased by 86% to $16.5 million in 1999 from $8.8
million in 1998, totaling 23% of net sales in 1999 compared to 16% in 1998. The
increase in international sales was primarily due to higher market demand for
foreign wireless telecommunications OEM business and higher shipments of foreign
military products. In 1999, sales to one domestic commercial OEM (Customer B),
one domestic military OEM (Customer F) and one foreign military OEM (Customer D)
accounted for 41%, 9% and 9%, respectively, of the Company's net sales. In 1998,
sales to two domestic military OEMs (Customer F and Customer G) and one domestic
commercial OEM (Customer B) accounted for 26%, 10% and 17%, respectively, of the
Company's net sales.
The Company has recently begun to enter into arrangements with its major
wireless OEM customer whereby the customer stocks the Company's amplifiers on a
consignment basis until they are consumed in the customer's production process,
at which time revenue is recognized by the Company. Under these arrangements,
the Company receives a forecast each week from the customer reflecting the
customer's estimated future product requirements. These forecasts provide the
Company with a one year forward-look which details the expected weekly
requirements for the first 26 weeks and monthly requirements for the remaining
six months. The Company's business, financial condition and results of
operations could be materially adversely affected if the customer's actual
product needs ultimately are less than the customer's forecasted expectations
or, conversely, if the customer's actual product needs ultimately substantially
exceed the customer's forecasted expectations such that the Company cannot
fulfill them.
Gross Profit. The Company's cost of sales consists principally of direct
labor, labor overhead, direct material, material overhead, other direct costs
and work-in-process inventory changes from the beginning to the end of a period.
Gross profit decreased by 32% to $11.8 million in 1999 from $17.3 million in
1998. The Company's gross profit margin (gross profit as a percentage of net
sales) also decreased to 16.7% in 1999 from 31.0% in 1998. The decrease in gross
profit margin was primarily due to significant cost overruns, in the fourth
quarter of 1999, which led to corresponding inventory and gross profit margin
adjustments on a number of programs including two foreign military contracts and
one wireless telecommunications program.
Certain of the Company's inventory costing techniques involve developing a
standard cost which estimates the average, or standard, cost per unit over the
extended manufacturing life cycle of a product. Such costs include labor,
material, other direct costs and related overheads. If the extended
manufacturing life cycle of a product does not materialize or if there is no
reasonable certainty that product maturation will take place within the near
future, write-offs of work-in-process inventory would be required. Such
write-offs could materially adversely affect the Company's gross profit and
results of operations.
Certain of the purchase orders or contracts comprising backlog at December
31, 1999 set forth product specifications not yet achieved by the Company that
would require the Company to complete additional product development. Failure to
develop products meeting such specifications could lead to the cancellation of
the related purchase orders or contracts. The reduction, delay or cancellation
of orders or contracts from one or more significant customers could materially
adversely affect the Company's business, financial condition and results of
operations.
18
<PAGE>
There can be no assurances that gross profit margin will improve. If the
Company is not able to reduce its production costs to the extent anticipated, or
to introduce new products with greater gross profit margins, and if average
selling prices decline beyond current expectations, the Company's gross profit
and results of operations could be materially adversely affected. The Company's
gross profit margin may also be affected by a variety of other factors,
including the mix of systems and equipment sold; production, reliability or
quality problems; and price competition.
General and Administrative Expenses. General and administrative expenses
consist principally of salaries and other expenses for management, finance,
accounting, contracts and human resources as well as legal and other
professional services. General and administrative expenses increased by 10% to
$4.3 million in 1999 from $3.9 million in 1998, representing 6.0% and 7.0%,
respectively, of net sales. The increase in general and administrative expenses
resulted primarily from the costs associated with certain executive and
non-executive employee terminations.
Selling Expenses. Selling expenses consist principally of salaries and
other expenses for sales and marketing personnel, sales commissions, travel
expenses, advertising and trade shows. Selling expenses increased by 21% to $4.5
million in 1999 from $3.7 million in 1998, representing 6.4% and 6.7%,
respectively, of net sales. The increase in selling expenses resulted primarily
from higher bid and proposal activity (primarily directed toward wireless
telecommunications customers), higher accrued warranty costs (due to the
increased revenue level) and higher bad debt expense.
Research and Development Expenses. Research and development expenses
consist principally of direct labor, labor overhead, direct material, material
overhead and other direct costs associated with product development. Research
and development expenses increased by 14% to $6.8 million in 1999 from $6.0
million in 1998, representing 9.6% and 10.7%, respectively, of net sales. The
increase in research and development expenses resulted primarily from increased
wireless telecommunications product development. The Company believes that the
continued introduction of new products is essential to its competitiveness,
especially in the wireless telecommunications market, and is committed to
continued investment in research and development.
Interest Expense. Interest expense consists principally of interest
expended on the Company's credit facility and IDRBs, partially offset by
interest earned on the Company's cash balances. Interest expense increased by 8%
to $1.3 million in 1999 from $1.2 million in 1998, representing 1.8% and 2.1%,
respectively, of net sales.
Provision for Income Taxes. The Company accounts for income taxes in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes." The Company has recorded deferred tax assets for
the benefit of federal income tax loss carryforwards and timing differences
generated in those years, which were reduced by a valuation allowance. This
valuation allowance reduced the deferred tax asset to a net amount which the
Company believed that it would more likely than not realize, based on the
Company's estimates of future earnings and the expected timing of temporary
difference reversals. During 1999, the Company concluded that a valuation
allowance was no longer necessary given its estimates of future earnings and the
expected timing of temporary difference reversals. The Company's effective tax
rate increased to a 43.0% benefit in 1999 from 30.9% in 1998. The 1999 rate was
favorably impacted by the partial recovery of previously reserved deferred tax
assets. Without the benefit of this change in the valuation allowance, the
effective tax rate for 1999 would have been 39.6%. The 1998 rate was also
favorably impacted by the partial recovery of previously reserved deferred tax
assets. Without the benefit of this change in the reserve, the effective tax
rate for 1998 would have been 40.7%. There can be no assurances that the Company
will continue to achieve taxable income in the future.
Fiscal Years Ended December 31, 1998 and December 31, 1997
Net Sales. Net sales increased by 7% to $55.8 million in 1998 from $52.0
million in 1997. This sales increase was primarily due to higher shipments of
the Company's military products, partially offset by lower shipments of the
Company's commercial products. Sales of military products increased by 120% to
$29.6 million in 1998 from $13.4 million in 1997, representing 53% and 26%,
respectively, of net sales in such years. The military sales increase was
predominantly due to higher shipments on a U.S. Government military program and
higher shipments to a domestic military OEM, partially offset by lower shipments
to other military customers. Sales of commercial products decreased by 32% to
$26.2 million in 1998 from $38.6 million in 1997, representing 47% and 74%,
respectively, of net sales in such years. The commercial sales decrease was
predominantly due to lower shipments to one domestic and one foreign
19
<PAGE>
wireless telecommunications OEM and lower shipments to one domestic satellite
communications OEM, partially offset by higher shipments to other domestic and
foreign wireless telecommunications OEMs.
International sales decreased by 30% to $8.8 million in 1998 from $12.7
million in 1997, totaling 16% of net sales in 1998 compared to 24% in 1997. The
decrease in international sales was primarily due to lower market demand for
foreign wireless telecommunications OEM business. In 1998, sales to two domestic
military OEMs (Customer F and Customer G) and one domestic commercial OEM
(Customer B) accounted for 26%, 10% and 17%, respectively, of the Company's net
sales. In 1997, sales to two domestic commercial OEMs (Customer B and Customer
C) and one foreign commercial OEM (Customer A) accounted for 33%, 16% and 13%,
respectively, of the Company's net sales.
Gross Profit. Gross profit increased by 24% to $17.3 million in 1998 from
$13.9 million in 1997. The Company's gross profit margin (gross profit as a
percentage of net sales) also increased to 31.0% in 1998 from 26.7% in 1997. The
increase in gross profit margin was primarily due to a more favorable revenue
mix of higher gross profit margin business in the MPD military versus commercial
product lines, a more favorable revenue mix of higher gross profit margin
business in the Company's single channel versus multi-channel wireless product
line and a lower commercial warranty expense (specifically for the Company's
multi-channel, cellular CDMA wireless product). Despite the above, the following
factors adversely affected the gross profit margin for 1998: (i) the low gross
profit margins the Company experienced on three foreign military OEM contracts
(the result of technical problems and competitive pricing pressures), (ii) the
costs associated with the introduction and pre-production of GSM products and
(iii) the overall low gross profit margin the Company experienced on one of its
single channel, cellular CDMA wireless products (due to a customer-directed slow
down, creating inefficient manufacturing lot sizes).
General and Administrative Expenses. General and administrative expenses
increased by 8% to $3.9 million in 1998 from $3.6 million in 1997, representing
7.0% and 6.9%, respectively, of net sales. The increase in general and
administrative expenses resulted primarily from higher compensation expenses
associated, in part, with the Company achieving certain fiscal year performance
goals, the costs associated with the settlement of an employee-related lawsuit
and higher professional fees.
Selling Expenses. Selling expenses decreased by 5% to $3.7 million in 1998
from $4.0 million in 1997, representing 6.7% and 7.6%, respectively, of net
sales. The decrease in selling expenses resulted primarily from lower accrued
warranty costs due to a decrease in wireless warranty requirements, as a
percentage of net sales, from the higher levels experienced in early 1997.
Research and Development Expenses. Research and development expenses
increased by 37% to $6.0 million in 1998 from $4.4 million in 1997, representing
10.7% and 8.4%, respectively, of net sales. The increase in research and
development expenses resulted primarily from increased wireless
telecommunications product development and, to a lesser extent, increased
military research and development. The Company believes that the continued
introduction of new products is essential to its competitiveness, especially in
the wireless telecommunications market, and is committed to continued investment
in research and development. The Company viewed the lower level of wireless
telecommunications product development in 1997 as a short term solution to
assist in reducing costs to match reduced wireless revenue. Fundamental to this
effort was a planned temporary reallocation (in the first quarter of 1997) of
some of the Company's engineering and technology resources to either revenue
producing or customer-funded product development. This action enabled the
Company to leverage its other commercial and military product lines while
insuring a continued and focused emphasis on critical wireless
telecommunications development projects.
Interest Expense. Interest expense remained relatively stable at $1.2
million in both 1998 and 1997 but represented 2.1% and 2.3%, respectively, of
net sales.
Provision for Income Taxes. The Company's effective tax rate increased to
30.9% in 1998 from 24.6% in 1997. The 1998 rate was favorably impacted by the
partial recovery of the previously reserved deferred tax asset resulting from
the Company's improved profitability position as compared to 1997. Without the
benefit of this change in the reserve, the effective tax rate for 1998 would
have been 40.7%. The 1997 rate was also favorably impacted by the partial
recovery of the previously reserved deferred tax asset resulting from the
Company's improved profitability position as compared to 1996. Without the
benefit of this change in the reserve, the effective tax rate for 1997 would
have been 40.2%. The Company will continue to assess the reserved deferred tax
asset each reporting quarter. There can be no assurances that the Company will
continue to achieve taxable income in the future.
20
<PAGE>
Liquidity and Capital Resources
Since the successful completion its initial public offering in 1995, the
Company has financed its operations and met its capital requirements through the
following two sources: (i) a credit facility and/or (ii) cash provided by
operating activities.
In March 2000, the Company amended its loan agreement with IBJ Whitehall
Business Credit Corporation ("IBJ"). The loan agreement now provides for a $18.9
million credit facility consisting of a revolving line of credit in the amount
of $13.7 million, a term loan in the amount of $0.9 million and two capital
equipment ("Capex") loan facilities, Capex #1 and Capex #2, in the amounts of
$2.0 million and $2.3 million, respectively. The revolving line of credit and
both the term loan and Capex loans bear interest at annual rates equal to the
prime rate plus 0.50% and the prime rate plus 0.75%, respectively. The credit
facility matures in February 2002 and automatically renews for one-year periods
thereafter, unless terminated by either the Company or IBJ. Aggregate borrowings
under the revolving line of credit are limited by a borrowing base, which is
calculated as the sum of 85% of eligible accounts receivable and 40% of eligible
raw materials and work-in-process inventories (with borrowings based on
aggregate eligible inventory limited to $7.0 million). The term loan requires a
monthly principal payment of $0.05 million. The Capex loans require monthly
principal payments that are recalculated each month based on the prior month's
Capex borrowings, if any, amortized over 60 months. Capex #2 loan borrowings
must occur prior to December 31, 2000. At December 31, 1999, credit facility
borrowings totaled $11.7 million which consisted of a term loan balance of $1.1
million, a Capex #1 loan balance of $2.2 million, a Capex #2 loan balance of
$0.7 million (with $0.8 million of the $2.3 million utilized) and revolving line
of credit borrowings of $7.7 million. In addition, $3.5 million of the revolving
line of credit is committed to the Company's outstanding letters of credit. The
credit facility is subject to customary covenants, including, among other
things, limitations with respect to incurring indebtedness, payment of dividends
and affiliate advances, and a provision for maintaining a certain fixed charge
coverage ratio. At December 31, 1999, the Company did not comply with a certain
covenant requirement, which noncompliance was waived in connection with the
March 2000 amendment.
Operating activities used net cash of $2.1 million and provided net cash
of $1.9 million in 1999 and 1998, respectively. From December 31, 1998 to
December 31, 1999, accounts receivable increased by $0.1 million, inventory
decreased by $2.8 million, accounts payable and accrued liabilities decreased by
$0.6 million and customer advance payments decreased by $0.9 million. The
decrease in inventory was predominantly due to significant cost overruns, in the
fourth quarter of 1999, which led to corresponding inventory and gross profit
margin adjustments on a number of programs including two foreign military
contracts and one wireless telecommunications program. The decrease in customer
advance payments was primarily due to performance under a contract, for which
advance payments had been received in the fourth quarter of 1997 and in the
second quarter of 1998, from a foreign military OEM. Investing activities, which
consisted primarily of equipment acquisitions, used net cash of $2.3 million and
$1.9 million in 1999 and 1998, respectively. Financing activities, which
consisted predominantly of proceeds from long-term debt, principal payments of
long-term debt, net proceeds from (repayments on) the revolving line of credit
and net proceeds from the exercise of common stock options provided net cash of
$4.4 million and $0.05 million in 1999 and 1998, respectively.
Capital expenditures were $2.3 million and $1.9 million in 1999 and 1998,
respectively. These expenditures were funded primarily through cash provided by
the Company's credit facility. Principal capital expenditures for 1999 included
the procurement of engineering and manufacturing test equipment (including a
discounted buy-out of an off-balance-sheet lease), a third stencil printer and
convection oven, a tinning machine and an x-ray machine to support the Company's
automated assembly efforts, a manufacturing execution software and hardware
system, enhancements to the Company's CAD systems and sales demonstration
equipment.. The Company expects that 2000 capital expenditures will be financed
by the Company's credit facility, cash provided by operating activities and/or
third party financing sources.
As of December 31, 1999, the Company had working capital of approximately
$17.4 million, compared to approximately $21.7 million as of December 31, 1998.
Working capital as of December 31, 1999 included approximately $12.2 million and
$16.1 million in accounts receivable and inventory, respectively, compared to
December 31, 1998 working capital which included approximately $12.2 million and
$18.9 million in accounts receivable and inventory, respectively. The Company's
current ratio (ratio of current assets to current liabilities) as of December
31, 1999 was 2.4:1, compared with a current ratio of 2.6:1 as of December 31,
1998. As of December 31, 1999, the Company's debt to equity ratio was 0.8:1,
compared with a debt to equity ratio at December 31, 1998 of 0.6:1.
21
<PAGE>
The Company believes that cash generated from operations, amounts
available under its credit facility, and/or other third party financing will be
sufficient to fund necessary capital expenditures and to provide adequate
working capital for at least the next 12 months. There can be no assurance,
however, that the Company will not require additional financing prior to such
date to fund its operations, and, if required, that such financing will be
available on commercially reasonable terms. In addition, the Company may require
additional financing after such date to fund its operations.
YEAR 2000 - The Company did not experience any significant Year 2000
problems. The Company's Year 2000 Readiness Plan addressed three main areas: (a)
information technology systems (including the Company's business systems,
engineering and test equipment, both hardware and software related), (b)
non-information technology systems (including embedded technology such as
microcontrollers, typically found in such equipment as telephone systems, fax
systems, elevators, security systems, HVAC, etc.) and (c) supply chain readiness
or third party issues (including customers as well as inventory and
non-inventory suppliers). The Company's Chief Operating and Financial Officer
had been tasked with overseeing this process and reported periodically to the
Company's Board of Directors. The Company's CEO will monitor any future affects
from Year 2000 issues that may arise, if any, and report such matters to the
Company's Board of Directors.
Out-of-pocket costs associated with the Company's Year 2000 compliance
proved to be immaterial and were incurred in 1999, as anticipated. No additional
expenses are projected. The Company has not experienced any operational
difficulties relating to Year 2000 issues. For example, there were no spending,
revenue, product returns or accrual patterns that have resulted, to-date, from
the Year 2000. There were no significant information technology projects or
capital spending that were deferred due to Year 2000 preparation. There do not
appear to be any material problems associated with any of the Company's third
party relationships. The Company knows of no reasons for any future Year 2000
related contingency requirements nor does it know of any Year 2000 legal
proceedings against it or any reasons for such a proceeding to commence.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company's principal financial instrument is long-term debt under a
credit facility (consisting of a revolving line of credit, term loan and two
Capex loan facilities) that provides for interest at the prime rate or the prime
rate plus 0.25% (depending upon the individual credit facility component). The
Company is affected by market risk exposure primarily through the effect of
changes in interest rates on amounts payable by the Company under this credit
facility. A significant rise in the prime rate could materially adversely affect
the Company's business, financial condition and results of operations. At
December 31, 1999, an aggregate principal amount of $11.7 million was
outstanding under the Company's credit facility and represented a weighted
average annual interest rate of 9.3%. If principal amounts outstanding under the
Company's credit facility remained at this year-end level for an entire year and
the prime rate increased or decreased, respectively, by 0.9%, the Company would
pay or save, respectively, an additional $0.1 million in interest in that year.
The Company does not utilize derivative financial instruments to hedge against
changes in interest rates or for any other purpose.
Where appropriate, the Company requires that letters of credit be provided
on foreign sales. In addition, all transactions by the Company are denominated
in U.S. dollars. As such, the Company has shifted foreign currency exposure onto
its foreign customers. As a result, if exchange rates move against foreign
customers, the Company could experience difficulty collecting unsecured accounts
receivable, the cancellation of existing orders or the loss of future orders.
The foregoing could materially adversely affect the Company's business,
financial condition and results of operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See Item 14 of Part IV of this Report.
22
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
The information required by Part III (Items 10 through 13) is incorporated
by reference to the captions "Principal Stockholders," "Election of Directors,"
"Management" and "Certain Transactions" in the Company's definitive Proxy
Statement to be filed pursuant to Regulation 14A within 120 days after the end
of the Company's fiscal year covered by this Report.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, AND REPORTS ON FORM 8-K.
(a) See Index to Financial Statements immediately following Exhibit
Index.
(b) No reports on Form 8-K have been filed during the fourth quarter of
1999.
(c) Exhibits
See Exhibit Index immediately following signature pages.
23
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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.
MICROWAVE POWER DEVICES, INC.
By /s/ Alfred Weber
--------------------------------
Alfred Weber
Chairman/Chief Executive Officer
Date: March 21, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ Alfred Weber Chairman/Chief Executive Officer March 21, 2000
- ------------------------- (Principal Executive Officer)
Alfred Weber
/s/ William J. Moore Corporate Controller March 21, 2000
- ------------------------- (Principal Financial Officer and
William J. Moore Principal Accounting Officer)
/s/ George J. Sbordone Director March 21, 2000
- -------------------------
George J. Sbordone
/s/ Merril M. Halpern Director March 21, 2000
- -------------------------
Merril M. Halpern
/s/ A. Lawrence Fagan Director March 21, 2000
- -------------------------
A. Lawrence Fagan
/s/ David J. Aldrich Director March 21, 2000
- -------------------------
David J. Aldrich
/s/ Warren A. Law Director March 21, 2000
- -------------------------
Warren A. Law
/s/ James S. Silver Director March 21, 2000
- -------------------------
James S. Silver
24
<PAGE>
EXHIBIT INDEX
3.1 - Certificate of Incorporation of the Company (incorporated by
reference to Exhibit 3.1 to the Company's Registration Statement on
Form S-1 dated September 29, 1995 (Registration No. 33-94142)).
3.2 - By-laws of the Company (incorporated by reference to Exhibit 3.2 to
the Company's Registration Statement on Form S-1 dated September 29,
1995 (Registration No. 33-94142)).
10.1 - Loan and Security Agreement dated as of February 13, 1997 among IBJ
Schroder Bank & Trust Company, as Lender and Agent, and MPD
Technologies, Inc. (incorporated by reference to Exhibit 10.1 to the
Company's Form 8-K dated February 13, 1997 (Commission File No.
0-8574)).
10.2 - Indenture of Trust, $4,810,000, Suffolk County Industrial
Development Agency, 1992 Industrial Development Revenue Bonds (MPD
Wireless, Inc. Facility - Series A and Series B) dated June 1, 1992
(incorporated by reference to Exhibit 10.2 to the Company's
Registration Statement on Form S-1 dated September 29, 1995
(Registration No. 33-94142)).
10.3 - Lease Agreement dated as of June 1, 1992 between MPD Wireless, Inc.
and the Suffolk County Industrial Development Agency (incorporated
by reference to Exhibit 10.3 to the Company's Registration Statement
on Form S-1 dated September 29, 1995 (Registration No. 33-94142)).
10.4 - Registration Rights Agreement dated as of June 29, 1995 among the
Registrant, Charter Technologies Limited Liability Company, George
J. Sbordone, Edward J. Shubel, James S. Silver and Lee Leong
(incorporated by reference to Exhibit 10.4 to the Company's
Registration Statement on Form S-1 dated September 29, 1995
(Registration No. 33-94142)).
10.5 - Microwave Power Devices, Inc. 1995 Stock Option Plan (incorporated
by reference to Exhibit 10.5 to the Company's Registration Statement
on Form S-1 dated September 29, 1995 (Registration No. 33-94142)).
10.6 - Security Control Agreement dated September 5, 1997 between MPD
Technologies, Inc. and the United States Department of Defense
(incorporated by reference to Exhibit 10.12 to the Company's Annual
Report on Form 10-K dated December 31, 1997).
10.7 - Amendment No. 1 dated as of February 27, 1998 to a Loan and Security
Agreement dated as of February 13, 1997 among IBJ Schroder Business
Credit Corporation, as Lender and Agent, and MPD Technologies, Inc
(incorporated by reference to Exhibit 10.13 to the Company's Annual
Report on Form 10-K dated December 31, 1997).
10.8 - Microwave Power Devices, Inc. 1996 Stock Option Plan, Amendment No.1
(incorporated by reference to Exhibit 4.2 to the Company's Form S-8
dated July 30, 1998 (Commission File No. 333-60165)).
10.9 - Change in Control Agreement dated as of March 1, 1999 between
Microwave Power Devices, Inc. and Fuat Agi (incorporated by
reference to Exhibit 10.18 to the Company's Annual Report on Form
10-K dated December 31, 1998).
10.10 - Change in Control Agreement dated as of March 1, 1999 between
Microwave Power Devices, Inc. and Larry Konopelko (incorporated by
reference to Exhibit 10.19 to the Company's Annual Report on Form
10-K dated December 31, 1998).
10.11 - Amendment No. 2 dated as of May 19, 1999 to a Loan and Security
Agreement dated as of February 13, 1997 among IBJ Whitehall Business
Credit Corporation (formerly known as IBJ Schroder Business Credit
Corporation), as Lender and Agent, and MPD Technologies, Inc
(incorporated by reference to Exhibit 10.21 to the Company's
Quarterly Report on Form 10-Q dated June 30, 1999).
10.12 - Employment Agreement dated December 2, 1999 between Microwave Power
Devices, Inc. and Alfred Weber. *
10.13 - Change in Control Agreement dated as of December 2, 1999 between
Microwave Power Devices, Inc. and Alfred Weber.*
10.14 - Agreement dated as of December 2, 1999 between Microwave Power
Devices, Inc. and Alfred Weber.*
25
<PAGE>
10.15 - Microwave Power Devices, Inc. 1999 Stock Option Plan.*
10.16 - Amendment No. 3 dated as of March xx, 2000 to a Loan and Security
Agreement dated as of February 13, 1997 among IBJ Whitehall Business
Credit Corporation (formerly known as IBJ Schroder Business Credit
Corporation), as Lender and Agent, and MPD Technologies, Inc. *
21.1 - Subsidiaries of the Company (incorporated by reference to the
Company's Annual Report on Form 10-K dated December 31, 1995
(Commission File No. 0-8574)).
23.1 - Consent of Independent Public Accountants. *
27.1 - Financial Data Schedule. *
* Filed herewith.
26
<PAGE>
MICROWAVE POWER DEVICES, INC. AND SUBSIDIARY
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Public Accountants...........................................................F-2
Consolidated Balance Sheets as of December 31, 1999 and 1998.......................................F-3
Consolidated Statements of Operations for the three years ended December 31, 1999..................F-4
Consolidated Statements of Shareholders' Equity for the three years ended December 31, 1999........F-5
Consolidated Statements of Cash Flows for the three years ended December 31, 1999..................F-6
Notes to Consolidated Financial Statements.........................................................F-7
Report of Independent Public Accountants on Schedule...............................................S-1
Schedule II........................................................................................S-2
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Microwave Power Devices, Inc.:
We have audited the accompanying consolidated balance sheets of Microwave
Power Devices, Inc. (a Delaware corporation) and subsidiary as of December 31,
1999 and 1998, and the related consolidated statements of operations,
shareholders' equity and cash flows for the three years ended December 31, 1999.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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 financial statements referred to above present fairly,
in all material respects, the financial position of Microwave Power Devices,
Inc. and subsidiary as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for the three years ended December 31, 1999 in
conformity with accounting principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
Melville, New York
March 17, 2000
F-2
<PAGE>
MICROWAVE POWER DEVICES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
-------- --------
(in thousands,
except share data)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents .................................................. $ 618 $ 667
Accounts receivable, net of allowance for doubtful accounts of $160 and $75,
respectively ......................................................... 12,167 12,178
Inventories, net ........................................................... 16,062 18,861
Prepaid expenses and other current assets .................................. 529 476
Deferred income taxes ...................................................... 789 3,426
-------- --------
Total current assets ................................................. 30,165 35,608
PROPERTY, PLANT AND EQUIPMENT, net ............................................ 9,614 8,834
INTANGIBLE ASSETS, net ........................................................ 247 307
OTHER LONG-TERM ASSETS ........................................................ 442 673
DEFERRED INCOME TAXES ......................................................... 7,062 1,453
-------- --------
$ 47,530 $ 46,875
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt .......................................... $ 1,418 $ 1,082
Accounts payable ........................................................... 7,528 8,970
Accrued liabilities ........................................................ 3,796 2,959
Customer advance payments .................................................. -- 921
-------- --------
Total current liabilities ............................................ 12,742 13,932
-------- --------
LONG-TERM DEBT ................................................................ 14,761 12,162
-------- --------
COMMITMENTS AND CONTINGENCIES (Note 12)
SHAREHOLDERS' EQUITY:
Preferred stock, $.01 par value; 5,000,000 shares authorized;
no shares issued or outstanding ..................................... -- --
Common stock, $.01 par value; 25,000,000 shares authorized;
10,638,664 and 10,397,520 shares issued and outstanding, respectively 106 104
Additional paid-in capital ................................................. 25,498 23,406
Notes receivable from shareholders ......................................... (123) (188)
Retained earnings (accumulated deficit) .................................... (5,454) (2,541)
-------- --------
Total shareholders' equity ........................................... 20,027 20,781
-------- --------
$ 47,530 $ 46,875
======== ========
</TABLE>
The accompanying notes are an integral part of
these consolidated balance sheets.
F-3
<PAGE>
MICROWAVE POWER DEVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended
-------------------------------------------
December 31, December 31, December 31,
1999 1998 1997
---- ---- ----
(in thousands, except per share data)
<S> <C> <C> <C>
NET SALES ........................................... $ 70,811 $ 55,774 $ 52,037
COST OF SALES ....................................... 58,989 38,482 38,142
-------- -------- --------
Gross profit .................................. 11,822 17,292 13,895
-------- -------- --------
OPERATING EXPENSES:
General and administrative ....................... 4,281 3,877 3,575
Selling .......................................... 4,533 3,748 3,963
Research and development (Note 2) ................ 6,833 5,973 4,367
-------- -------- --------
15,647 13,598 11,905
-------- -------- --------
Income (loss) from operations ................. (3,825) 3,694 1,990
INTEREST EXPENSE, net ............................... 1,282 1,185 1,237
OTHER (INCOME) EXPENSE, net ......................... 8 2 (16)
-------- -------- --------
Income (loss) before income taxes ............. (5,115) 2,507 769
PROVISION (BENEFIT) FOR INCOME TAXES ................ (2,202) 775 189
-------- -------- --------
Net income (loss) ............................. $ (2,913) $ 1,732 $ 580
======== ======== ========
PER SHARE INFORMATION (Note 2):
Net income (loss) per common share:
Basic ......................................... $ (0.28) $ 0.17 $ 0.06
======== ======== ========
Diluted ....................................... $ (0.28) $ 0.17 $ 0.06
======== ======== ========
Common shares used in computing per share amounts:
Basic ......................................... 10,537 10,380 10,376
======== ======== ========
Diluted ....................................... 10,537 10,478 10,465
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated statements.
F-4
<PAGE>
MICROWAVE POWER DEVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
Notes Retained
Preferred Stock Common Stock Additional Receivable Earnings
-------------------- ------------------ Paid-in from (Accumulated
Shares Amount Shares Amount Capital Shareholders Deficit) Total
------ ------ ------ ------ ------- ------------ -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1996 .. -- $ -- 10,375 $ 104 $ 23,276 $ (225) $ (4,853) $ 18,302
Net income ............... -- -- -- -- -- -- 580 580
Exercise of stock options -- -- 4 -- 30 -- -- 30
Repayment of notes
receivable from
shareholders (Note 7) . -- -- -- -- -- 37 -- 37
------ -------- ------ ------- -------- -------- -------- --------
BALANCE, December 31, 1997 .. -- -- 10,379 104 23,306 (188) (4,273) 18,949
Net income ............... -- -- -- -- -- -- 1,732 1,732
Exercise of stock options -- -- 19 -- 100 -- -- 100
------ -------- ------ ------- -------- -------- -------- --------
BALANCE, December 31, 1998 .. -- -- 10,398 104 23,406 (188) (2,541) 20,781
Net loss ................. -- -- -- -- -- -- (2,913) (2,913)
Exercise of stock
options, including
income tax benefits of
$711 .................. -- -- 241 2 2,092 -- -- 2,094
Repayment of notes
receivable from
shareholders (Note 7) . -- -- -- -- -- 65 -- 65
------ -------- ------ ------- -------- -------- -------- --------
BALANCE, December 31, 1999 .. -- $ -- 10,639 $ 106 $ 25,498 $ (123) $ (5,454) $ 20,027
====== ======== ====== ======= ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated statements.
F-5
<PAGE>
MICROWAVE POWER DEVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended
-----------------------------------------
December 31, December 31, December 31,
1999 1998 1997
------- ------- -------
(in thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) ........................................... $(2,913) $ 1,732 $ 580
Adjustments to reconcile net income (loss) to net cash (used
in) provided by operating activities:
Depreciation and amortization .............................. 1,568 1,470 1,211
Provision for doubtful accounts ............................ 85 -- --
Deferred income taxes ...................................... (2,261) 725 194
(Gain) loss on sale of property, plant and equipment ....... 5 -- (19)
Changes in operating assets and liabilities:
Accounts receivable ....................................... (74) (3,849) (847)
Inventories ............................................... 2,799 (1,930) (2,569)
Prepaid expenses and other assets ......................... 178 460 63
Accounts payable and accrued liabilities .................. (605) 3,895 235
Customer advance payments ................................. (921) (642) 1,563
------- ------- -------
Net cash (used in) provided by operating activities (2,139) 1,861 411
------- ------- -------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment .................. (2,265) (1,937) (1,337)
Proceeds from sale of property, plant and equipment ......... 5 10 23
------- ------- -------
Net cash used in investing activities ............. (2,260) (1,927) (1,314)
------- ------- -------
FINANCING ACTIVITIES:
Proceeds from long-term debt ................................ 1,659 2,133 2,700
Principal payments of long-term debt ........................ (1,311) (896) (495)
Net proceeds from (repayments on) revolving credit loans .... 2,587 (1,269) (1,717)
Deferred financing costs .................................... (33) (22) (114)
Repayment of notes receivable from shareholders ............. 65 -- 37
Net proceeds from exercise of common stock options .......... 1,383 100 30
------- ------- -------
Net cash provided by financing activities ......... 4,350 46 441
------- ------- -------
DECREASE IN CASH AND CASH EQUIVALENTS ......................... (49) (20) (462)
CASH AND CASH EQUIVALENTS, beginning of year .................. 667 687 1,149
------- ------- -------
CASH AND CASH EQUIVALENTS, end of year ........................ $ 618 $ 667 $ 687
======= ======= =======
SUPPLEMENTAL DATA:
Cash paid for interest ...................................... $ 1,311 $ 1,239 $ 1,302
======= ======= =======
Cash paid for income taxes .................................. $ 137 $ 155 $ 104
======= ======= =======
Non-cash tax benefits from exercise of common stock options . $ 711 $ -- $ --
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these
consolidated statements.
F-6
<PAGE>
MICROWAVE POWER DEVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
(in thousands, except per share data)
1. THE COMPANY:
The Company, headquartered in Hauppauge, Long Island, New York, is
primarily engaged in the engineering and manufacturing of radio frequency and
microwave power amplifiers for commercial and military applications. The Company
currently markets its products to the wireless telecommunications industry and
to the satellite communications, medical and both the U.S. and foreign military
marketplaces.
2. SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
The consolidated financial statements include the accounts of Microwave
Power Devices, Inc. and its wholly-owned operating subsidiary, MPD Technologies,
Inc. (together, the "Company"). All intercompany balances and transactions have
been eliminated in consolidation.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
Inventories
Inventories are stated at the lower of cost (using the first-in, first-out
cost method) or net realizable value. Work-in-process associated with fixed
price long-term contracts is valued at the sum of the direct labor, direct
material, other direct costs and related overhead costs incurred under each
contract, less amounts charged to cost of sales.
Progress Payments
Progress payments received from customers are offset against inventories
associated with the contracts for which the payments were received (Note 3).
Under contractual arrangements by which progress payments are received from the
U.S. Government, the U.S. Government has a lien title interest in the
inventories identified with related contracts.
Long-term Contracts
In accordance with industry practice, all contract-related assets and
liabilities are classified as current, even though certain of these
contract-related assets and liabilities may not be realized within one year.
This practice is reflective of the Company's operating cycle as a contractor
under long-term contracts.
Property, Plant and Equipment
Property, plant and equipment is stated at cost less accumulated
depreciation and amortization (Note 4). Depreciation and amortization are
provided using the straight-line method over the estimated useful lives of the
assets which are as follows:
Building and improvements .................. 7 to 40 years
Machinery and equipment .................... 3 to 7 years
Furniture and fixtures ..................... 5 to 10 years
F-7
<PAGE>
MICROWAVE POWER DEVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Intangible Assets
Intangible assets, net of accumulated amortization of approximately $525
and $432 at December 31, 1999 and 1998, respectively, consist of goodwill, bond
issuance costs and deferred financing costs. Goodwill represents costs in excess
of net assets acquired related to certain acquisitions made by the Company, and
is being amortized over periods of 5 and 10 years. Bond issuance costs are being
amortized over 30 years, which represents the term of the respective underlying
debt agreement. Deferred financing costs are being amortized over the life of
the related credit facility agreements (typically 3 years). During 1999 and
1998, the Company incurred $33 and $22, respectively, in deferred financing
costs associated with a loan agreement (Note 6).
Long-Lived Assets
The Company follows the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of." This statement establishes
financial accounting and reporting standards for the impairment of long-lived
assets, certain identifiable intangibles, and goodwill related to those assets
to be held and used, and for long-lived assets and certain identifiable
intangibles to be disposed of. The effect of the adoption of this standard and
its current application have not been material.
Revenue Recognition
Revenue and profits on fixed-price long-term and commercial contracts are
recognized using the unit of delivery method. Profits expected to be realized on
contracts are based on total sales value as related to estimated costs at
completion. These estimates are reviewed and revised periodically throughout the
lives of the contracts, and adjustments to profits resulting from such revisions
are made cumulative to the date of the change. Estimated losses on long-term
contracts-in-progress are recorded in the period in which such losses become
known.
Research and Development
Research and development costs are expensed as incurred. Such costs
amounted to $6,833, $5,973 and $4,367 for the years ended December 31, 1999,
1998 and 1997, respectively. Certain other development costs are incurred in
connection with long-term contracts pursuant to which these costs are financed
under related contracts. These costs are included in cost of sales and the
related revenues are included in net sales in the accompanying consolidated
statements of operations.
Income Taxes
The Company provides for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." Under the asset and liability method specified by
SFAS No. 109, the deferred tax amounts included in the balance sheet are
determined based on the difference between the financial statement and tax bases
of assets and liabilities as measured by the enacted tax rates that will be in
effect when these differences reverse. Differences between assets and
liabilities for financial statement and tax return purposes are principally
related to property, plant and equipment, inventories, accrued vacation expense,
accrued warranty costs, real estate taxes, accounts receivable and contract
research and development.
F-8
<PAGE>
MICROWAVE POWER DEVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Net Income (Loss) Per Common Share
The Company follows the provisions of SFAS No. 128, "Earnings Per Share."
Basic net income (loss) per common share ("Basic EPS") is computed by dividing
net income (loss) by the weighted average number of common shares outstanding.
Diluted net income (loss) per common share ("Diluted EPS") is computed by
dividing net income (loss) by the weighted average number of common shares and
dilutive common share equivalents then outstanding. SFAS No. 128 requires the
presentation of both Basic EPS and Diluted EPS on the face of the consolidated
statement of operations.
A reconciliation between the numerator and denominator of Basic EPS and
Diluted EPS is as follows:
<TABLE>
<CAPTION>
Net Income (Loss)
Net Income (Loss) Common Shares Per Common Share
----------------- ------------- ----------------
For the year ended December 31, 1997
------------------------------------
<S> <C> <C> <C>
Basic EPS
Net income attributable to common stock $ 580 10,376 $0.06
Effect of dilutive securities: stock options -- 89 --
------- ------ -----
Diluted EPS
Net income attributable to common stock and
assumed option exercises $ 580 10,465 $0.06
======= ====== =====
For the year ended December 31, 1998
------------------------------------
Basic EPS
Net income attributable to common stock $ 1,732 10,380 $0.17
Effect of dilutive securities: stock options -- 98 --
------- ------ -----
Diluted EPS
Net income attributable to common stock and
assumed option exercises $ 1,732 10,478 $0.17
======= ======= =====
For the year ended December 31, 1999
------------------------------------
Basic EPS
Net loss attributable to common stock $(2,913) 10,537 $(0.28)
Effect of dilutive securities: stock options -- -- --
------- ------ ------
Diluted EPS
Net loss attributable to common stock and assumed
option exercises $(2,913) 10,537 $(0.28)
======= ====== ======
</TABLE>
Diluted EPS for 1997 and 1998 does not include the impact of other stock
options then outstanding as their inclusion would be anti-dilutive. Diluted EPS
for 1999 does not include the impact of stock options then outstanding as their
inclusion would be anti-dilutive.
Stock-Based Compensation
The Company follows the provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation." This statement establishes financial accounting and
reporting standards for stock-based employee compensation plans. SFAS No. 123
encourages entities to adopt a fair value based method of accounting for stock
compensation plans. However, SFAS No. 123 also permits the Company to continue
to measure compensation costs under pre-existing accounting pronouncements. If
the fair value based method of accounting is not adopted, SFAS No. 123 requires
pro forma disclosures of net income (loss) and net income (loss) per common
share in the notes to financial statements. The Company has elected to provide
the necessary pro forma disclosures (Note 9).
F-9
<PAGE>
MICROWAVE POWER DEVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Comprehensive Income
The Company follows the provisions of SFAS No. 130, "Reporting
Comprehensive Income," which requires companies to report all changes in equity
during a period, except those resulting from investment by owners and
distribution to owners, for the period in which they are recognized.
Comprehensive income is the total of net income and all other nonowner changes
in equity (or other comprehensive income) such as unrealized gains or losses on
securities classified as available-for-sale, foreign currency translation
adjustments and minimum pension liability adjustments. Comprehensive and other
comprehensive income must be reported on the face of annual financial
statements. The Company's operations did not give rise to items includible in
comprehensive income which were not already included in net income for the years
ended December 31, 1999, 1998 and 1997. Accordingly, the Company's comprehensive
income is the same as its net income for all periods presented.
Recently Issued Accounting Standard
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." The
Statement establishes accounting and reporting standards for derivative
instruments (including certain derivative instruments embedded in other
contracts) and for hedging activities. SFAS No. 133 is effective for all fiscal
quarters beginning after June 15, 2000 (as amended by SFAS No. 137) and will not
require retroactive restatement of prior-period financial statements. The
Company currently does not use derivative instruments or engage in hedging
activities and, accordingly, does not expect that this statement will have an
impact on its consolidated statements when adopted.
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.
Reclassifications
Certain prior year financial statement amounts have been reclassified to
conform with the current year's presentation.
F-10
<PAGE>
MICROWAVE POWER DEVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
3. INVENTORIES, NET:
At December 31, 1999 and 1998, inventories, net consist of the following:
1999 1998
---- ----
Raw materials ...................... $ 10,219 $ 8,598
Work-in-process .................... 9,039 14,316
Finished goods ..................... 1,174 296
Unliquidated progress payments ..... (2,237) (2,755)
-------- --------
18,195 20,455
Less: Reserves ..................... (2,133) (1,594)
-------- --------
$ 16,062 $ 18,861
======== ========
4. PROPERTY, PLANT AND EQUIPMENT, NET:
At December 31, 1999 and 1998, property, plant and equipment, net consists
of the following:
1999 1998
---- ----
Land ............................... $ 937 $ 937
Building and improvements .......... 4,509 4,485
Machinery and equipment ............ 11,372 9,211
Furniture and fixtures ............. 213 201
-------- --------
17,031 14,834
Less: Accumulated depreciation and
amortization ................... (7,417) (6,000)
-------- --------
$ 9,614 $ 8,834
======== ========
5. ACCRUED LIABILITIES:
At December 31, 1999 and 1998, accrued liabilities consist of the
following:
1999 1998
---- ----
Accrued payroll, benefits and
termination costs ............... $ 2,167 $ 1,537
Accrued commissions ................ 435 512
Accrued warranty ................... 925 685
Other .............................. 269 225
-------- --------
$ 3,796 $ 2,959
======== ========
F-11
<PAGE>
MICROWAVE POWER DEVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
6. LONG-TERM DEBT:
At December 31, 1999 and 1998, long-term debt consists of the following:
1999 1998
---- ----
Industrial Development Revenue Bonds (a) $ 4,515 $ 4,570
Loan and security agreement (b) .... 11,664 8,674
-------- --------
16,179 13,244
Less: Current portion .............. (1,418) (1,082)
-------- --------
$ 14,761 $ 12,162
======== ========
(a) On June 30, 1992, MPD purchased a 7.4 acre parcel of land and an 86,000
square foot building for use as a corporate headquarters and manufacturing
operation for $4,295. MPD financed the acquisition with Industrial
Development Revenue Bonds ("IDRBs") totaling $4,810 issued through the
Suffolk County Industrial Development Agency ("SCIDA"). The issuance was
comprised of $490 Series A Bonds at 7.75% and $4,320 Series B Bonds at
8.5% with interest payable quarterly. The Series A Bonds and the Series B
Bonds mature on June 30, 2002 and June 30, 2022, respectively, and are
subject to annual mandatory sinking fund redemptions on June 30 of each
year beginning with June 30, 1993 and June 30, 2003, respectively. The
Series B Bonds include a $425 Debt Service Reserve Fund due and payable on
June 30, 2022. Approximately $442 was in an escrow account in accordance
with the terms of the IDRBs and is included in long-term assets in the
accompanying consolidated balance sheets as of both December 31, 1999 and
1998. Under IDRB terms, MPD transferred ownership of this facility to the
SCIDA at closing and immediately leased back the facility with a lease
term equal to the IDRB terms and provided for a one dollar buy-back option
at lease end.
(b) On March 17, 2000, the Company amended its loan agreement with IBJ
Whitehall Business Credit Corporation ("IBJ"). The loan agreement now
provides for a $18,942 credit facility consisting of a revolving line of
credit in the amount of $13,750, a term loan in the amount of $900 and two
capital equipment ("Capex") loan facilities, Capex #1 and Capex #2, in the
amounts of $2,026 and $2,266, respectively. The revolving line of credit
and both the term loan and Capex loans bear interest at annual rates equal
to the prime rate plus 0.50% and the prime rate plus 0.75%, respectively.
The credit facility matures in February 2002 and automatically renews for
one-year periods thereafter, unless terminated by either the Company or
IBJ. Aggregate borrowings under the revolving line of credit are limited
by a borrowing base, which is calculated as the sum of 85% of eligible
accounts receivable and 40% of eligible raw materials and work-in-process
inventories (with borrowings based on aggregate eligible inventory limited
to $7,000). The term loan requires a monthly principal payment of $50. The
Capex loans require monthly principal payments that are recalculated each
month based on the prior month's Capex borrowings, if any, amortized over
60 months. Capex #2 loan borrowings must occur prior to December 31, 2000.
At December 31, 1999, credit facility borrowings totaled $11,664, which
consisted of a term loan balance of $1,050, a Capex #1 loan balance of
$2,176, a Capex #2 loan balance of $713 (with $792 of the $2,266 utilized)
and revolving line of credit borrowings of $7,725. In addition, $3,550 of
the revolving line of credit was committed to the Company's outstanding
letters of credit. The credit facility is subject to customary covenants,
including, among other things, limitations with respect to incurring
indebtedness, payment of dividends and affiliate advances, and a provision
for maintaining a certain fixed charge coverage ratio. At December 31,
1999, the Company did not comply with a certain covenant requirement,
which noncompliance was waived in connection with the March 17, 2000
amendment.
F-12
<PAGE>
MICROWAVE POWER DEVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The aggregate annual maturities of long-term debt, at December 31, 1999,
are as follows:
2000 ........................................... $ 1,418
2001 ........................................... 1,273
2002 ........................................... 9,168
2003 ........................................... 80
2004 ........................................... 85
Thereafter ..................................... 4,155
-------
Total ........................ $16,179
=======
7. SHAREHOLDERS' EQUITY:
Notes receivable from shareholders resulted from the issuance of the
Company's common stock and are secured by the pledge of such stock. The notes
bear interest at 8.0% and are due on September 3, 2001. In 1999 and 1997, $65
and $37, respectively, of the outstanding notes receivable from shareholders was
repaid.
8. INCOME TAXES:
For the years ended December 31, 1999, 1998 and 1997, the provision
(benefit) for income taxes consists of the following:
1999 1998 1997
---- ---- ----
Current:
Federal ........ $ -- $ -- $ --
State .......... -- -- --
------- ------- -------
-- -- --
------- ------- -------
Deferred:
Federal ........ (1,982) 698 170
State .......... (220) 77 19
------- ------- -------
(2,202) 775 189
------- ------- -------
$(2,202) $ 775 $ 189
======= ======= =======
The following table reconciles the Federal statutory rate to the Company's
effective income tax rate for the years ended December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Statutory rate .................................... 34% 34% 34%
State taxes, net of federal benefit ............... 6 6 6
Change in valuation allowance on deferred tax asset 3 (9) (15)
-- -- --
Effective Rate .................................... 43% 31% 25%
== == ==
</TABLE>
F-13
<PAGE>
MICROWAVE POWER DEVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
For the years ended December 31, 1999, 1998 and 1997, the deferred income
tax provision (benefit) is related to differences between the financial and tax
bases of assets and liabilities resulting from the following:
1999 1998 1997
---- ---- ----
Depreciation .................... $ 66 $ 82 $ 46
Inventories ..................... (171) (203) (218)
Accrued vacation expense ........ (48) (13) (23)
Accrued warranty costs .......... (96) 12 (126)
Prepaid real estate taxes ....... -- -- (7)
Accounts receivable ............. (34) -- --
Contract research and development (92) (92) (46)
Other ........................... 18 7 --
Net operating loss carryforwards. (1,845) 982 563
------- ------- -------
$(2,202) $ 775 $ 189
======= ======= =======
At December 31, 1998, the Company had recorded deferred tax assets for the
benefit of federal income tax loss carryforwards and timing differences
generated in those years, which had been reduced by a valuation allowance. This
valuation allowance reduced the deferred tax asset to a net amount which the
Company believed that it would more likely than not realize, based on the
Company's estimates of future earnings and the expected timing of temporary
difference reversals. During 1999, the Company concluded that a valuation
allowance was no longer necessary given its estimates of future earnings and the
expected timing of temporary difference reversals.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax asset, net, at December 31, 1999 and 1998, are as
follows:
1999 1998
---- ----
Depreciation ................................. $ (417) $ (350)
Inventories .................................. 902 730
Accrued vacation expense ..................... 338 290
Accrued warranty costs ....................... 370 274
Prepaid real estate taxes .................... (54) (54)
Accounts receivable .......................... 64 30
Contract research and development ............ -- (92)
Tax benefit from the exercise of stock options 711 --
Net operating loss carryforwards ............. 5,937 4,222
------- -------
7,851 5,050
Less: valuation allowance .................... -- (171)
------- -------
Deferred tax asset, net ...................... $ 7,851 $ 4,879
======= =======
F-14
<PAGE>
MICROWAVE POWER DEVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
9. STOCK OPTION PLANS:
In June 1995, the Company adopted the 1995 Stock Option Plan (the "1995
Plan") pursuant to which key employees of the Company and eligible consultants
to the Company are eligible to receive incentive and/or non-qualified stock
options to purchase up to 525 shares of the Company's common stock. The 1995
Plan, which expires on June 26, 2005, is administered by the Compensation
Committee of the Board of Directors. The selection of participants, grant of
options, determination of price and other conditions relating to the exercise of
options are determined by the Compensation Committee of the Board of Directors.
In March 1996, the Company adopted the 1996 Stock Option Plan (the "1996
Plan"), which was amended in March 1998, pursuant to which key employees of the
Company and eligible consultants to the Company are eligible to receive
incentive and/or non-qualified stock options to purchase up to 975 shares of the
Company's common stock. The 1996 Plan, which expires on March 5, 2006, is
administered by the Compensation Committee of the Board of Directors. The
selection of participants, grant of options, determination of price and other
conditions relating to the exercise of options are determined by the
Compensation Committee of the Board of Directors.
In December 1999, the Company adopted the 1999 Stock Option Plan (the
"1999 Plan"), subject to stockholder approval, pursuant to which key employees
of the Company and eligible consultants to the Company are eligible to receive
incentive and/or non-qualified stock options to purchase up to 500 shares of the
Company's common stock. The 1999 Plan, which expires on December 2, 2009, is
administered by the Compensation Committee of the Board of Directors. The
selection of participants, grant of options, determination of price and other
conditions relating to the exercise of options are determined by the
Compensation Committee of the Board of Directors.
Incentive and non-qualified stock options granted under the 1995 Plan,
1996 Plan and 1999 Plan are exercisable for a period of up to 10 years from the
date of grant. Incentive stock options are exercisable at an exercise price
which is not less than the fair market value of the common shares on the date of
the grant, except that the term of an incentive stock option granted, under the
1995 Plan, 1996 Plan and 1999 Plan, to a shareholder owning more than 10% of the
outstanding common shares may not exceed 5 years and its exercise price may not
be less than 110% of the fair market value of the common shares on the date of
the grant. Non-qualified stock options are exercisable at an exercise price
which is not less than the par value of the Company's common stock on the date
of the grant.
Transactions involving the 1995 Plan, 1996 Plan and 1999 Plan for the
years ended December 31, 1999, 1998 and 1997 are summarized as follows:
<TABLE>
<CAPTION>
1995 Plan 1996 Plan 1999 Plan
--------- --------- ---------
Shares Option Price Shares Option Price Shares Option Price
------ ------------ ------ ------------ ------ ------------
<S> <C> <C> <C> <C> <C> <C>
December 31, 1996
Outstanding............. 513 $8.00 - $11.375 49 $11.125 -- --
Granted................. 25 $2.875 - $9.50 187 $2.875 - $9.50 -- --
Exercised............... (4) $8.00 -- -- -- --
Cancelled............... (18) $8.00 - $10.75 (8) $2.875 -- --
--- --------------- --- ---------------- --- ----
December 31, 1997
Outstanding............. 516 $2.875 - $11.375 228 $2.875 - $11.125 -- --
Granted................. -- -- 208 $6.375 - $7.0625 -- --
Exercised............... (8) $8.00 - $10.75 (10) $2.875 -- --
Cancelled............... (12) $8.00 (25) $2.875 - $9.50 -- --
--- --------------- --- ---------------- --- ----
</TABLE>
F-15
<PAGE>
MICROWAVE POWER DEVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
December 31, 1998
Outstanding............. 496 $2.875 - $11.375 401 $2.875 - $11.125 -- --
Granted................. 1 $10.5625 218 $10.00 - $13.9375 300 $7.00
Exercised............... (97) $2.875 - $10.75 (144) $2.875 - $11.125 -- --
Cancelled............... -- -- (14) $2.875 - $10.00 -- --
--- ---------------- --- ----------------- --- -----
December 31, 1999
Outstanding............. 400 $2.875 - $11.375 461 $2.875 - $13.9375 300 $7.00
=== ================ === ================= === =====
</TABLE>
At December 31, 1999, 392 shares were exercisable and 15 shares were
available for grant under the 1995 Plan, 147 shares were exercisable and 360
shares were available for grant under the 1996 Plan, and no shares were
exercisable and 200 shares were available for grant under the 1999 Plan.
The Company accounts for these plans under APB No. 25, under which no
compensation cost is recognized for stock options granted with an exercise price
at or above the prevailing market price on the date of the grant. Had
compensation cost for these plans been determined consistent with the fair value
approach required by SFAS No. 123, the Company's net income (loss) and net
income (loss) per common share would have been the following pro forma amounts:
1999 1998 1997
---- ---- ----
Net income (loss): As reported $(2,913) $1,732 $ 580
Pro forma (3,379) 1,396 78
Basic net income (loss)
per common share: As reported $ (0.28) $ 0.17 $0.06
Pro forma (0.32) 0.13 0.01
Diluted net income (loss)
per common share: As reported $ (0.28) $ 0.17 $0.06
Pro forma (0.32) 0.13 0.01
The fair value of each option grant is estimated on the date of the grant
using the Black-Scholes option pricing model with the following weighted average
assumptions:
1999 1998 1997
---- ---- ----
Fair value ................. $ 6.21 $ 3.49 $ 1.94
Expected life (years) ...... 3.8 4.0 4.0
Risk-free interest rate .... 5.8% 5.7% 6.1%
Volatility ................. 113% 66% 70%
Dividend yield ............. 0% 0% 0%
The effects of applying SFAS No. 123 in this pro forma disclosure may not
be indicative of future amounts because additional stock option grants are
anticipated in future years.
10. DEFINED CONTRIBUTION PENSION PLAN:
MPD maintains a defined contribution pension plan which covers
substantially all employees and provides for employee contributions of up to 14%
of their salary, a portion of which is matched by MPD. Contributions by MPD were
$598, $536 and $500, in 1999, 1998 and 1997, respectively.
F-16
<PAGE>
MICROWAVE POWER DEVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
11. SEGMENT INFORMATION:
Effective December 31, 1998, the Company adopted SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information."
Reportable operating segments are determined based on the Company's management
approach. The management approach, as defined by SFAS No. 131, is based on the
way that the chief operating decision maker organizes the segments within an
enterprise for making operating decisions and assessing performance. While the
Company's results of operations are primarily reviewed on a consolidated basis,
the chief operating decision maker also manages the enterprise in two segments:
(i) wireless products and (ii) satellite, medical and military products. The
following represents selected consolidated financial information for the
Company's segments for the years ended December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
Satellite, Medical
Wireless Products and Military Products Total 1999
----------------- --------------------- ----------
<S> <C> <C> <C>
Net sales .............. $ 36,979 $ 33,832 $ 70,811
Gross profit ........... 5,839 5,983 11,822
Net income (loss) ...... (3,293) 380 (2,913)
Assets ................. 18,584 28,946 47,530
<CAPTION>
Satellite, Medical
Wireless Products and Military Products Total 1998
----------------- --------------------- ----------
<S> <C> <C> <C>
Net sales .............. $ 16,986 $ 38,788 $ 55,774
Gross profit ........... 3,799 13,493 17,292
Net income (loss) ...... (3,322) 5,054 1,732
Assets ................. 12,492 34,383 46,875
<CAPTION>
Satellite, Medical
Wireless Products and Military Products Total 1997
----------------- --------------------- ----------
<S> <C> <C> <C>
Net sales .............. $ 26,397 $ 25,640 $ 52,037
Gross profit ........... 5,048 8,847 13,895
</TABLE>
The Company has not restated any other prior period information, as it
would be impracticable.
F-17
<PAGE>
MICROWAVE POWER DEVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
For the years ended December 31, 1999, 1998 and 1997, sales and accounts
receivable as a percentage of net sales and total accounts receivable,
respectively, by geographic area and major customer are as follows:
<TABLE>
<CAPTION>
Geographic Data: 1999 1998 1997
---- ---- ----
Sales:
<S> <C> <C> <C>
U.S. Commercial OEMs & Prime Contractors......................... 66% 56% 72%
U.S. Government.................................................. 11% 28% 4%
Europe........................................................... 13% 10% 10%
Asia............................................................. 4% 4% 14%
South America.................................................... 6% 2% --
Other Foreign (less than 1%)..................................... -- -- --
Accounts Receivable:
U.S. Commercial OEMs & Prime Contractors......................... 52% 50% 62%
U.S. Government.................................................. 1% 21% 7%
Europe........................................................... 24% 18% 26%
Asia............................................................. -- 2% 5%
South America.................................................... 23% 9% --
Other Foreign (less than 1%)..................................... -- -- --
<CAPTION>
Major Customers: 1999 1998 1997
---- ---- ----
Sales:
<S> <C> <C> <C>
Customer A....................................................... -- -- 13%
Customer B....................................................... 41% 17% 33%
Customer C....................................................... -- -- 16%
Customer D....................................................... 9% -- --
Customer E....................................................... -- -- --
Customer F....................................................... 9% 26% --
Customer G....................................................... -- 10% --
Accounts Receivable:
Customer A....................................................... -- -- --
Customer B....................................................... 29% 16% 26%
Customer C....................................................... -- -- 11%
Customer D....................................................... 16% -- 12%
Customer E....................................................... 23% -- --
Customer F....................................................... -- 18% --
Customer G....................................................... -- 13% --
</TABLE>
F-18
<PAGE>
MICROWAVE POWER DEVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
12. COMMITMENTS AND CONTINGENCIES:
Operating Leases
Rent expense, including amounts charged to inventory as part of overhead
allocations and the rental of machinery and equipment (on a month-to-month
basis) was $696, $1,270 and $1,487 for the years ended December 31, 1999, 1998
and 1997, respectively.
Litigation
In the normal course of business, the Company is a party to various claims
and/or litigation. Management believes that the settlement of all such claims
and/or litigation, considered in the aggregate, will not have a material adverse
effect on the Company's financial position and results of operations.
Employment, Consulting and Other Agreements
The Company has an employment agreement with its Chairman, President and
Chief Executive Officer which expires on December 31, 2002 and provides for an
annual base salary of $300. The terms of the agreement are automatically renewed
for successive one year terms. Additionally, the Company had consulting
agreements with two director/shareholders which provided for aggregate annual
compensation of $225. Both consulting agreements were terminated on January 31,
2000. The Company also has agreements with certain individuals which include
certain provisions related to severance and other benefits due upon a change in
control of the Company, as defined in those agreements.
Letters of Credit
As of December 31, 1999 and 1998, the Company had outstanding letters of
credit aggregating $3,550 and $3,859, respectively.
F-19
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
To Microwave Power Devices, Inc.:
We have audited, in accordance with auditing standards generally accepted
in the United States, the consolidated financial statements of Microwave Power
Devices, Inc. (a Delaware corporation) and subsidiary included in this Form 10-K
and have issued our report thereon dated March 17, 2000. Our audits were made
for the purpose of forming an opinion on the basic financial statements taken as
a whole. The accompanying schedule is the responsibility of the Company's
management and is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not a part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in the
audits of the basic financial statements and, in our opinion, fairly states in
all material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Melville, New York
March 17, 2000
S-1
<PAGE>
MICROWAVE POWER DEVICES, INC. AND SUBSIDIARY
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
Allowance for Balance at Charged to Costs Balance at
Doubtful Accounts January 1, and Expenses Deductions December 31,
- ----------------- ---------- ------------ ---------- ------------
1999 $75 $153 $68 $160
1998 75 38 38 75
1997 76 (40) (39) 75
S-2
EXHIBIT 10.12
MICROWAVE POWER DEVICES, INC.
49 Wireless Boulevard
Hauppauge, New York 11788
As of December 2, 1999
Mr. Alfred Weber
c/o Microwave Power Devices, Inc.
49 Wireless Boulevard
Hauppauge, New York 11788
Dear Mr. Weber:
Microwave Power Devices, Inc., a Delaware corporation (the
"Company"), hereby agrees to employ you and you hereby agree to accept such
employment under the following terms and conditions:
1. Term of Employment.
(a) Except for earlier termination as provided in Section 9 below,
your employment under this Agreement shall be for an initial term commencing on
the date hereof (the "Effective Date") and terminating on December 31, 2002 (the
"Initial Term"),
(b) After the Initial Term, this Agreement shall be automatically
renewed for successive renewal terms of one year each, unless prior to the end
of any such renewal term either party shall have given to the other party at
least 90 days' prior written notice of its intention not to renew this
Agreement.
<PAGE>
2. Compensation.
(a) You shall be compensated for all services rendered by you
under this Agreement at the rate of $300,000 per annum (such salary, as it may
from time to time be increased, is hereinafter referred to as the "Base
Salary"), payable in such manner as is consistent with the Company's payroll
practices for executive employees. Prior to each anniversary of the Effective
Date, the Board of Directors shall review your performance, the earnings of the
Company during the prior year and the Company's economic prospects for the
coming year and shall consider in its sole discretion whether to increase the
Base Salary payable to you hereunder.
(b) With respect to the Company's fiscal year ending December
31, 2000, and with respect to each subsequent fiscal year of the Company during
the term of this Agreement, you shall be eligible to receive an incentive bonus
in accordance with the terms of the Company's Executive Incentive Bonus Plan, if
any, adopted by the Compensation Committee of the Board of Directors with
respect to such fiscal year.
(c) As of the date hereof you have been granted stock options
to purchase up to 300,000 shares of the Company's Common Stock at an exercise
price of $7.00 per share pursuant to the Company's 1999 Stock Option Plan. You
shall also be eligible for future stock option grants as determined by the
Compensation Committee of the Board of Directors.
3. Duties.
(a) You shall serve as the Chairman of the Board, President
and Chief Executive Officer of the Company, subject to the direction and control
of the Board of Directors
2
<PAGE>
of the Company. You shall also be a member of the Board of Directors of the
Company. Your principal office shall be located in the vicinity of Long Island,
New York.
(b) You shall devote such of your business time, energies and
attention to the business and affairs of the Company and its subsidiaries as may
be reasonably required to enable you to fulfill the responsibilities of Chief
Executive Officer of the Company.
(c) You shall, except as otherwise provided herein, be subject
to the Company's rules, practices and policies applicable to the Company's
senior executive employees.
4. Benefits. You shall be entitled to such benefits, if any, as are
generally provided by the Company to its senior executive employees including,
without limitation, personal leave, sick leave, and holiday leave to the extent
such leaves are provided to all senior executive employees. You also shall have
the benefit of any life and medical insurance plans, pensions and other similar
plans as the Company may have or may establish from time to time for its senior
executive employees. The foregoing, however, shall not be construed to require
the Company to establish any such plans or to prevent the Company from modifying
or terminating any such plans, and no such action or failure thereof shall
affect this Agreement. In addition, you shall be entitled to twenty work days'
paid vacation per year. The Company shall also provide you with the use of a
luxury automobile and $5,000 per year for personal tax and financial planning
services.
5. Expenses. The Company will reimburse you for reasonable expenses,
including travel expenses, incurred by you in connection with the business of
the Company upon the presentation by you of appropriate substantiation for such
expenses.
3
<PAGE>
6. Restrictive Covenants.
(a) During such time as you shall be employed by the Company,
and for a period of two years thereafter, you shall not, without the written
consent of the Board of Directors, directly or indirectly become associated
with, render services to invest in, represent, advise or otherwise participate
as an officer, employee, director, stockholder, partner, agent of or consultant
for, any business which is conducted in any of the jurisdictions in which the
Company's business is conducted and which is competitive with the business in
which the Company is engaged at the time your employment with the Company
ceases; provided, however, that: (1) nothing herein shall prevent you from
acquiring up to 3% of the securities of any company listed on a national
securities exchange or quoted on the NASDAQ quotation system, provided your
involvement with any such company is solely that of a stockholder; and (2) if
your employment hereunder shall be terminated by the Company without Just Cause
(as defined below) therefor having been given by you, then the foregoing
noncompetition agreement shall, at the election of the Company, be effective for
a period of up to two years after such termination provided the Company shall
pay you during such period at a per annum rate equal to your Base Salary in
effect at the time of such termination. In the event the Company is making
payments to you pursuant to clause (2) of the immediately preceding sentence,
the Company shall have the right to terminate such payments at any time upon 30
days' prior written notice to you, in which event the foregoing noncompetition
agreement shall terminate on the 30th day following your receipt of such notice.
(b) The parties hereto intend that the covenant contained in
this Section 6 shall be deemed a series of separate covenants for each country,
state, county and city in
4
<PAGE>
which the Company's business is conducted. If, in any judicial proceeding, a
court shall refuse to enforce all the separate covenants deemed included in this
Section 6 because, taken together, they cover too extensive a geographic area,
the parties intend that those of such covenants (taken in order of the
countries, states, counties and cities therein which are least populous) which
if eliminated would permit the remaining separate covenants to be enforced in
such proceeding shall, for the purpose of such proceeding, be deemed eliminated
from the provisions of this Section 6.
7. Confidentiality, Non-Interference and Proprietary Information.
(a) Confidentiality. In the course of your employment by the
Company hereunder, you will have access to confidential or proprietary data or
information of the Company and its operations. You will not at any time divulge
or communicate to any person nor shall you direct any Company employee to
divulge or communicate to any person (other than to a person bound by
confidentiality obligations similar to those contained herein and other than as
necessary in performing your duties hereunder) or use to the detriment of the
Company or for the benefit of any other person, any of such data or information.
The provisions of this Section 7(a) shall survive your employment hereunder,
whether by the normal expiration thereof or otherwise. The term "confidential or
proprietary data or information" as used in this Agreement shall mean
information not generally available to the public including, without limitation,
personnel information, financial information, customer lists, supplier lists,
trade secrets, information regarding operations, systems, services, knowhow,
computer and any other processed or collated data, computer programs, pricing,
marketing and advertising data.
5
<PAGE>
(b) Non-Interference. You agree that you will not at any time
after the termination of your employment by the Company, for your own account or
for the account of any other person, tortiously interfere with the Company's
relationship with any of its suppliers, customers or employees.
(c) Proprietary Information and Disclosure. You agree that you
will at all times promptly disclose to the Company (which, for the purposes of
this Section 7, shall include the Company and any subsidiaries and affiliates of
the Company), in such form and manner as the Company may reasonably require, any
inventions, improvements or procedural or methodological innovations, programs
methods, forms, systems, services, designs, marketing ideas, products or
processes (whether or not capable of being trade-marked, copyrighted or
patented) conceived or developed or created by you during or in connection with
your employment hereunder and which relate to the business of the Company and
any subsidiaries or affiliates ("Intellectual Property"). You agree that all
such Intellectual Property shall be the sole property of the Company. You
further agree that you will execute such instruments and perform such acts as
may reasonably be requested by the Company to transfer to and perfect in the
Company all legally protectible rights in such Intellectual Property.
(d) Return of Property. All written materials, records and
documents made by you or coming into your possession during your employment
concerning any products, processes or equipment, manufactured, used, developed,
investigated or considered by the Company or otherwise concerning the business
or affairs of the Company, shall be the sole property of the Company, and upon
termination of your employment, or upon request of the Company during your
employment, you shall promptly deliver same to the Company. In addition, upon
6
<PAGE>
termination of your employment, or upon request of the Company during your
employment, you will deliver to the Company all other Company property in your
possession or under your control, including, but not limited to, financial
statements, marketing and sales data, patent applications, drawings and other
documents, and all Company credit cards and automobiles.
8. Equitable Relief. With respect to the covenants contained in
Sections 6 and 7 of this Agreement, you agree that any remedy at law for any
breach of said covenants may be inadequate and that the Company shall be
entitled to specific performance or any other mode of injunctive and/or other
equitable relief to enforce its rights hereunder or any other relief a court
might award.
9. Earlier Termination. Your employment hereunder shall terminate
prior to the expiration of the Initial Term (or any renewal term, in the event
of renewal) on the following terms and conditions:
(a) This Agreement shall terminate automatically on the date
of your death.
(b) This Agreement shall be terminated if you are unable to
perform your duties hereunder for 90 days (whether or not continuous) during any
period of 360 consecutive days by reason of physical or mental disability. The
disability shall be deemed to have occurred on the 90th day of your absence or
lack of adequate performance.
(c) This Agreement shall terminate immediately upon the
Company's sending you written notice terminating your employment hereunder for
"Just Cause," which shall mean (i) an act or acts of fraud or dishonesty by you
which results in the personal enrichment of
7
<PAGE>
you or another person or entity at the expense of the Company; (ii) your
admission, confession or conviction of (X) any felony (other than third degree
vehicular infractions), or (Y) of any other crime or offense involving misuse or
misappropriation of money or other property; (iii) your continued material
breach of any obligations under this Agreement 30 days after the Company has
given you notice thereof in reasonable detail, if such breach has not been cured
by you during such period; or (iv) your gross negligence or willful misconduct
with respect to your duties or gross misfeasance of office.
(d) This Agreement shall terminate immediately upon the Company's
sending you written notice terminating your employment hereunder (without Just
Cause therefor having been given by you) for any reason or for no reason. In the
event of any termination of this Agreement pursuant to this Section 9(d), or in
the event the Company gives you notice pursuant to Section 1(b) of its intention
not to renew this Agreement, the Company's sole obligation to you shall be (i)
to pay you one year's worth of Base Salary in effect as of the date of
termination of your employment hereunder, (ii) to pay you the amount, if any,
you would have been entitled to receive pursuant to Section 2(b) of this
Agreement with respect to the fiscal year of the Company in which your
employment was terminated and (iii) to continue for one year the benefits
provided in the second sentence and in the last sentence of Section 4 of this
Agreement. The amounts payable pursuant to clauses (i) and (ii) of the
immediately preceding sentence shall be paid to you as and when such amounts
would have been due had your employment continued. In addition, in the event of
the termination of this Agreement pursuant to this Section 9(d), or in the event
the Company gives you notice pursuant to Section 1(b) of its intention not to
renew this Agreement, you shall be credited with one year's additional vesting
for all stock options then held by you.
8
<PAGE>
Compensation under this Section 9(d) shall not be payable in the event you
receive compensation under Section 4 of the Change of Control Agreement.
(e) Except as specifically set forth in Section 9(d) above,
upon termination or non-renewal of this Agreement, the Company's obligations
hereunder shall cease.
10. Change of Control. You shall be entitled to the payments and
benefits provided in (i) the Change of Control Agreement attached hereto as
Exhibit A (the "Change of Control Agreement") and (ii) the Parachute Gross Up
Agreement attached hereto as Exhibit B.
11. Representation and Warranty. The execution, delivery and
performance of this Agreement by you will not conflict with or result in a
violation of any agreement to which you are a party or any law, regulation or
court order applicable to you.
12. Entire Agreement; Modification. This Agreement constitutes the
full and complete understanding of the parties with respect to your employment
arrangements. No representations, inducements, promises, agreements or
understandings, oral or otherwise, have been made by either party to this
Agreement, or anyone acting on behalf of either party, which are not set forth
herein, and any others are specifically waived. This Agreement may not be
modified or amended except by an instrument in writing signed by the party
against which enforcement thereof may be sought.
13. Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining
9
<PAGE>
terms and provisions of this Agreement or affecting the validity or
enforceability of any of the terms or provisions of this Agreement in any other
jurisdiction.
14. Waiver of Breach. The waiver of either party of a breach of any
provision of this Agreement, which waiver must be in writing to be effective,
shall not operate as or be construed as a waiver of any subsequent breach,
15. Notices. All notices hereunder shall be in writing and shall be
sent by express mail or by certified or registered mail, postage prepaid, return
receipt requested, if to you, to your residence as listed in the Company's
records, and if to the Company, to its address set forth at the head of this
Agreement, attention of Secretary with a copy to Proskauer Rose LLP, 1585
Broadway, New York, New York 10036, attention of Stephen W. Rubin, Esq.
16. Assignability; Binding Effect. This Agreement shall not be
assignable by you without the written consent of the Board of Directors of the
Company. This Agreement shall be binding upon and inure to the benefit of you,
your legal representatives, heirs and distributees, and shall be binding upon
and inure to the benefit of the Company, its successors and assigns.
17. Governing Law. All questions pertaining to the validity,
construction, execution and performance of this Agreement shall be construed and
governed in accordance with the laws of the State of New York, without regard to
the conflicts or choice of law provisions thereof.
10
<PAGE>
18. Headings. The headings of this Agreement are intended solely for
convenience of reference and shall be given no effect in the construction or
interpretation of this Agreement.
19. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
20. Disputes. In the event of any dispute under this Agreement, the
non-prevailing party shall pay all legal fees and expenses of the prevailing
party.
If this letter correctly sets forth our understanding, please sign
the duplicate original in the space provided below and return it to the Company,
whereupon this shall constitute the employment agreement between you and the
Company effective and for the term as stated herein.
MICROWAVE POWER DEVICES, INC.
By: /s/ William J. Moore
-------------------------
William J. Moore
Agreed as of the date Controller
first above written:
/s/ Alfred Weber
- --------------------
Alfred Weber
11
EXHIBIT 10.13
CHANGE IN CONTROL AGREEMENT
AGREEMENT, made as of this 2nd day of December, 1999, by and between
Microwave Power Devices, Inc., a Delaware corporation (the "Company"), and
Alfred Weber, the Chairman of the Board, President and Chief Executive Officer
of the Company (the "Executive").
W I T N E S S E T H:
WHEREAS, the Company believes that the establishment and maintenance
of a sound and vital management of the Company is essential to the protection
and enhancement of the interests of the Company and its stockholders;
WHEREAS, the Company also recognizes that the possibility of a
Change in Control of the Company (as defined in Section 1 hereof), with the
attendant uncertainties and risks, might result in the departure or distraction
of key employees of the Company to the detriment of the Company; and
WHEREAS, the Company has determined that it is appropriate to take
steps to induce key employees to remain with the Company, and to reinforce and
encourage their continued attention and dedication, when faced with the
possibility of a Change in Control of the Company.
NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained, the parties hereto hereby agree as follows:
1. Change in Control Definition. A Change in Control shall mean the
occurrence of any of the following: (i) any person (as defined in Section
3(a)(9) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")
and as used in Sections 13(d) and 14(d)
<PAGE>
thereof), excluding the Company, any Affiliates (as hereinafter defined) of the
Company, or any employee benefit plan sponsored or maintained by the Company or
its Affiliates (including any trustee of any such plan acting in his capacity as
trustee), becoming the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act) of securities of the Company representing more than fifty percent
(50%) of the total combined voting power of the Company's then outstanding
securities; (ii) the merger, consolidation or other business combination of the
Company (a "Transaction"), other than a Transaction involving only the Company's
Affiliates or a Transaction immediately following which the stockholders of the
Company immediately prior to the Transaction continue to have a majority of the
voting power in the resulting entity; (iii) during any period of three (3)
consecutive years beginning on or after the date hereof, the persons who were
members of the Board of Directors of the Company (the "Board") immediately
before the beginning of such period (the "Incumbent Directors") ceasing (for any
reason other than death) to constitute at least a majority of the Board or the
board of directors of any successor to the Company, provided that, any director
who was not a director as of the date hereof shall be deemed to be an Incumbent
Director if such director was elected to the board of directors by, or on the
recommendation of or with the approval of, at least two-thirds of the directors
who then qualified as Incumbent Directors either actually or by prior operation
of the foregoing unless such election, recommendation or approval occurs as a
result of an actual or threatened election contest (as such terms are used in
Rule 14a-11 of Regulation 14A promulgated under the Exchange Act or any
successor provision) or other actual or threatened solicitation of proxies or
contests by or on behalf of a person other than a member of the Board; or (iv)
the approval by the stockholders of the Company of any plan of complete
liquidation of the Company or an agreement for the sale of all or substantially
all of the Company's assets, other than the sale of all or substantially all of
the
2
<PAGE>
assets of the Company to any of the Company's Affiliates. Only one Change in
Control may occur under this Agreement. For purposes of this Agreement, the term
"Affiliates" shall have the same meaning as set forth under the definition of
"affiliates" in Rule 405 of the Securities Act of 1933, as amended.
2. Term. This Agreement shall commence on the date hereof and shall
expire on the earlier of (i) three (3) years from the date hereof, or (ii) the
date of the death of the Executive, or (iii) the termination of the Executive's
employment with the Company (for any reason) prior to a Change of Control.
3. Effect of a Change in Control. If a Change in Control occurs
simultaneous with or prior to the expiration of this Agreement pursuant to
Section 2 hereof, then the Executive shall be entitled to the amounts and
benefits provided under Section 4 hereof regardless of whether or not, upon or
after a Change of Control, the Executive continues to be employed with the
Company. In the event the Executive continues to be employed with the Company
upon or after a Change in Control, any and all amounts and benefits provided to
the Executive under Section 4 hereof shall be in addition to, and not in lieu
of, any and all salary, amounts and benefits that Executive receives from the
Company in respect of such continued employment.
4. Payments upon a Change in Control. If pursuant to Section 3
above, the Executive is entitled to amounts and benefits under this Section 4,
the Company shall pay or provide, as the case may be, the following items:
(a) within five (5) business days following a Change of Control, the
Company shall pay to the Executive in a lump sum an amount equal to two (2)
times the sum of (i) the
3
<PAGE>
Executive's then current annual salary plus (ii) the Executive's then current
annual targeted bonus pursuant to the terms of that certain Executive Incentive
Bonus Plan of the Company (as such plan may be modified from time to time.)
(b) upon the occurrence of a Change in Control, all outstanding
stock options granted by the Company to the Executive under the Company's stock
option plans (collectively, the "Plan") shall immediately vest and be
exercisable notwithstanding any provisions of the Plan to the contrary.
(c) within five (5) business days (or at such earlier time as
required by applicable law) following his termination of employment with the
Company, the Company shall pay to the Executive in a lump sum: (i) any earned
but unpaid base salary, (ii) any earned but unpaid bonus, (iii) accrued but
unused vacation time as of the date of termination, and (iv) incurred but
unreimbursed business expenses for the period prior to termination.
(d) for a period of twenty-four (24) months commencing on the date
of the Change of Control, subject to the Executive's continued copayment of
premiums which shall not exceed the level of copayments prior to such Change of
Control, the Company shall continue to pay the premiums to provide health
benefits and coverage for the Executive and his dependents under the Company's
health plans in effect prior to such Change of Control which cover senior
executives. The Company's obligation to pay premiums hereunder shall cease upon
the Executive's employment with any employer (other than due to self-employment)
following a Change of Control. Upon the expiration of such twenty-four (24)
month period, the Company shall offer COBRA continuation health coverage to the
Executive and his dependents in accordance with applicable law.
4
<PAGE>
5. No Duty to Mitigate/Set-off; Terminate Employment Agreement;
Severance. If pursuant to Section 4 hereof the Executive is entitled to payment,
the Executive will not be required to seek other employment or to attempt in any
way to reduce any amounts payable to the Executive by the Company pursuant to
this Agreement. Further, the amounts and benefits provided for in this Agreement
shall not be reduced by any compensation earned by the Executive or benefits
provided to the Executive as the result of employment by another employer or
otherwise. Notwithstanding anything herein to the contrary, if pursuant to
Section 4 hereof the Executive is entitled to payment: (i) the Executive's
Employment Agreement with the Company shall immediately terminate and the
Executive shall not be entitled to any payment with respect to such Employment
Agreement and (ii) the payment pursuant to Section 4 hereof shall be in lieu of
any other severance payments to which Executive may be entitled pursuant to any
severance plan of the Company or otherwise.
6. Successors; Binding Agreement. In addition to any obligations
imposed by law upon any successor to the Company, the Company will require any
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company to expressly assume and agree in writing to perform this Agreement in
the same manner and to the same extent that the Company would be required to
perform it. This Agreement shall inure to the benefit of and be enforceable by
the Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive shall
die while any amount would still be payable to the Executive hereunder if the
Executive had continued to live, all such amounts, unless otherwise provided
herein, shall be paid in accordance with the terms of this Agreement to the
executors,
5
<PAGE>
personal representatives or administrators of the Executive's estate. This
Agreement is personal to the Executive and neither this Agreement or any rights
hereunder may be assigned by the Executive.
7. Miscellaneous. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing and signed by the Executive and such officer as may be specifically
designated by the Board. No waiver by either party hereto at any time of any
breach by the other party hereto of, or compliance with, any condition or
provision shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. This Agreement
constitutes the entire Agreement between the parties hereto pertaining to the
subject matter hereof. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by
either party which are not expressly set forth in this Agreement. All references
to any law shall be deemed also to refer to any successor provisions to such
laws. This Agreement may be executed in several counterparts, each of which
shall be deemed to be an original but all of which together will constitute one
and the same instrument. If any provisions of this Agreement shall be declared
to be invalid or unenforceable, in whole or in part, such invalidity or
unenforceability shall not affect the remaining provisions hereof which shall
remain in full force and effect.
8. Notices. All notices under this Agreement shall be given in
writing and shall be either delivered personally or sent by certified or
registered mail, return receipt requested, addressed to the other party at the
appropriate address first set forth above, or to such other address as such
party shall designate by written notice as aforesaid. Notices shall be deemed
given when received or two (2) days after mailing, whichever is earlier.
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9. Non-Exclusivity of Rights. Nothing in this Agreement shall
prevent or limit the Executive's continuing or future participation in any
benefit, bonus, incentive, equity or other plan or program provided by the
Company and for which the Executive may qualify. Amounts that are vested
benefits or which the Executive is otherwise entitled to receive under any plan
or program of the Company, at or subsequent to the date of termination shall be
payable in accordance with such plan or program, except as otherwise
specifically provided herein.
10. Not an Agreement of Employment. This is not an agreement
assuring employment and, subject to any other agreement between the Executive
and the Company, the Company reserves the right to terminate the Executive's
employment at any time with or without cause.
11. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York, without
reference to rules relating to conflicts of law.
IN WITNESS WHEREOF, this Agreement has been executed as of the day
and year first above written.
MICROWAVE POWER DEVICES, INC.
By: /s/ William J. Moore
----------------------------------
Name: William J. Moore
Title: Controller
/s/ Alfred Weber
----------------------------------
Alfred Weber
7
EXHIBIT 10.14
AGREEMENT
AGREEMENT (this "Agreement"), made as of this 2nd day of December,
1999, by and between Microwave Power Devices, Inc., a Delaware corporation (the
"Company"), and Alfred Weber, the Chairman of the Board, President and Chief
Executive Officer of the Company (the "Executive").
W I T N E S S E T H:
WHEREAS, the Company and the Executive have entered into that
certain Change in Control Agreement dated of even date herewith (the "Control
Agreement"); and
WHEREAS, the parties desire to enter into this Agreement in order to
address certain tax payments that may be incurred by Executive pursuant to the
Control Agreement.
NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained, the parties agree as follows:
1. Parachute Gross Up. (a) In the event that you shall become
entitled to payments and/or benefits provided by Section 4 of the Control
Agreement or any other amounts in the "nature of compensation" (whether pursuant
to the terms of the Control Agreement or any other plan, arrangement or
agreement with the Company, any person whose actions result in a change of
ownership or effective control covered by Section 280G(b)(2) of the Internal
Revenue Code of 1986, as amended (the "Code") or any person affiliated with the
Company or such person) as a result of such change in ownership or effective
control (collectively the "Company Payments"), and such Company Payments will be
subject to the tax (the "Excise Tax") imposed by Section 4999 of the Code (and
any similar tax that may hereafter be imposed) the Company shall pay to you at
the time specified in subsection (d) below an additional amount (the "Gross-up
Payment") such that the net amount retained by you, after deduction of any
Excise Tax on the Company Payments and any U.S. federal, state, and local income
or payroll tax upon the Gross-up Payment provided for by this paragraph (a), but
before deduction for any U.S. federal, state, and local income or payroll tax on
the Company Payments, shall be equal to the Company Payments.
(b) For purposes of determining whether any of the Company
Payments and Gross-up Payments (collectively the "Total Payments") will be
subject to the Excise Tax and the amount of such Excise Tax, (x) the Total
Payments shall be treated as "parachute payments" within the meaning of Section
280G(b)(2) of the Code, and all "parachute payments" in excess of the "base
amount" (as defined in Code Section 280G(b)(3) of the Code) shall be treated as
subject to the Excise Tax, unless and except to the extent that, in the opinion
of the Company's independent certified public accountants appointed prior to
<PAGE>
any change in ownership (as defined under Code Section 280G(b)(2)) or tax
counsel selected by such accountants (the "Accountants") such Total Payments (in
whole or in part) either do not constitute "parachute payments," represent
reasonable compensation for services actually rendered within the meaning of
Section 280G(b)(4) of the Code in excess of the "base amount" or are otherwise
not subject to the Excise Tax, and (y) the value of any non-cash benefits or any
deferred payment or benefit shall be determined by the Accountants in accordance
with the principles of Section 280G of the Code.
(c) For purposes of determining the amount of the Gross-up
Payment, you shall be deemed to pay U.S. federal income taxes at the highest
marginal rate of U.S. federal income taxation in the calendar year in which the
Gross-up Payment is to be made and state and local income taxes at the highest
marginal rate of taxation in the state and locality of your residence for the
calendar year in which the Company Payment is to be made, net of the maximum
reduction in U.S. federal income taxes which could be obtained from deduction of
such state and local taxes if paid in such year. In the event that the Excise
Tax is subsequently determined by the Accountants to be less than the amount
taken into account hereunder at the time the Gross-up Payment is made, you shall
repay to the Company, at the time that the amount of such reduction in Excise
Tax is finally determined, the portion of the prior Gross-up Payment
attributable to such reduction (plus the portion of the Gross-up Payment
attributable to the Excise Tax and U.S. federal, state and local income tax
imposed on the portion of the Gross-up Payment being repaid by you if such
repayment results in a reduction in Excise Tax or a U.S. federal, state and
local income tax deduction), plus interest on the amount of such repayment at
the rate provided in Section 1274(b)(2)(B) of the Code. Notwithstanding the
foregoing, in the event any portion of the Gross-up Payment to be refunded to
the Company has been paid to any U.S. federal, state and local tax authority,
repayment thereof (and related amounts) shall not be required until actual
refund or credit of such portion has been made to you, and interest payable to
the Company shall not exceed the interest received or credited to you by such
tax authority for the period it held such portion. You and the Company shall
mutually agree upon the course of action to be pursued (and the method of
allocating the expense thereof) if your claim for refund or credit is denied.
In the event that the Excise Tax is later determined by the
Accountants or the Internal Revenue Service to exceed the amount taken into
account hereunder at the time the Gross-up Payment is made (including by reason
of any payment the existence or amount of which cannot be determined at the time
of the Gross-up Payment), the Company shall make an additional Gross-up Payment
in respect of such excess (plus any interest or penalties payable with respect
to such excess) at the time that the amount of such excess is finally
determined.
(d) The Gross-up Payment or portion thereof provided for in
subsection (c) above shall be paid not later than the thirtieth (30th) day
following an event occurring which subjects you to the Excise Tax; provided,
however, that if the amount of such Gross-up Payment or portion thereof cannot
be finally determined on or before such day, the Company shall pay to you on
such day an estimate, as determined in good faith by the Accountants, of the
minimum amount of such payments and shall pay the remainder of such payments
(together with interest at the rate provided in Section 1274(b)(2)(B) of the
Code), subject to further payments pursuant to subsection (c) hereof, as soon as
the amount thereof
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<PAGE>
can reasonably be determined, but in no event later than the ninetieth (90th)
day after the occurrence of the event subjecting you, to the Excise Tax. In the
event that the amount of the estimated payments exceeds the amount subsequently
determined to have been due, such excess shall constitute a loan by the Company
to you, payable on the fifth (5th) day after demand by the Company (together
with interest at the rate provided in Section 1274(b)(2)(B) of the Code).
(e) In the event of any controversy with the Internal Revenue
Service (or other taxing authority) with regard to the Excise Tax, you shall
permit the Company to control issues related to the Excise Tax (at its expense),
provided that such issues do not potentially materially adversely affect you,
but you shall control any other issues. In the event the issues are
interrelated, you and the Company shall in good faith cooperate so as not to
jeopardize resolution of either issue, but if the parties cannot agree you shall
make the final determination with regard to the issues. In the event of any
conference with any taxing authority as to the Excise Tax or associated income
taxes, you shall permit the representative of the Company to accompany you, and
you and your representative shall cooperate with the Company and its
representative.
(f) The Company shall be responsible for all charges of the
Accountants.
2. Successors; Binding Agreement. In addition to any obligations
imposed by law upon any successor to the Company, the Company will require any
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company to expressly assume and agree in writing to perform this Agreement in
the same manner and to the same extent that the Company would be required to
perform it. This Agreement shall inure to the benefit of and be enforceable by
the Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. This Agreement is
personal to the Executive and neither this Agreement or any rights hereunder may
be assigned by the Executive.
3. Miscellaneous. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing and signed by the Executive and such officer as may be specifically
designated by the Company. No waiver by either party hereto at any time of any
breach by the other party hereto of, or compliance with, any condition or
provision shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. This Agreement
constitutes the entire Agreement between the parties hereto pertaining to the
subject matter hereof. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by
either party which are not expressly set forth in this Agreement. All references
to any law shall be deemed also to refer to any successor provisions to such
laws. This Agreement may be executed in several counterparts, each of which
shall be deemed to be an original but all of which together will constitute one
and the same instrument. If any provisions of this Agreement shall be declared
to be invalid or unenforceable, in whole or in part, such invalidity or
unenforceability shall not affect the remaining provisions hereof which shall
remain in full force and effect.
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<PAGE>
4. Notices. All notices under this Agreement shall be given in
writing and shall be either delivered personally or sent by certified or
registered mail, return receipt requested, addressed to the other party at the
appropriate address first set forth above, or to such other address as such
party shall designate by written notice as aforesaid. Notices shall be deemed
given when received or two (2) days after mailing, whichever is earlier.
5. Governing Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of New York, without reference to
rules relating to conflicts of law.
IN WITNESS WHEREOF, this Agreement has been executed as of the day
and year first above written.
MICROWAVE POWER DEVICES, INC.
By: /s/ William J. Moore
----------------------------
Name: William J. Moore
Title: Controller
/s/ Alfred Weber
----------------------------
Executive
4
EXHIBIT 10.15
Microwave Power Devices, Inc.
1999 Stock Option Plan
1. Purposes of the Plan
The purpose of this Microwave Power Devices, Inc. 1999 Stock Option Plan
(the "Plan") is to enable Microwave Power Devices, Inc. (the "Company") and its
Affiliates (as defined herein) to attract, retain and motivate certain key
employees and certain consultants who are important to the success and growth of
the business of the Company and its Affiliates and to create a long-term
mutuality of interest between such persons and the stockholders of the Company
by granting the options to purchase Common Stock (as defined herein).
2. Definitions
In addition to the terms defined elsewhere herein, for purposes of this
Plan, the following terms will have the following meanings when used herein with
initial capital letters:
a. "Affiliate" shall mean each of the following: (i) any Subsidiary;
(ii) any Parent; (iii) any other corporation or any trade or
business (including, without limitation, a partnership or limited
liability company) which is directly or indirectly controlled 50% or
more (whether by ownership of stock, assets or an equivalent
ownership interest or voting interest) by the Company or one of its
Affiliates; and (iv) any other entity in which the Company or any of
its Affiliates has a material equity interest and which is
designated as an "Affiliate" by resolution of the Committee.
b. "Board" means the Board of Directors of the Company.
c. "Cause" means, with respect to a Participant's Termination of
Service, (i) in the case where there is no employment agreement,
consulting agreement or similar agreement between the Company or an
Affiliate and the Participant at the time of grant of the Option or
where there is such an agreement, but it does not define "cause" (or
words of like import), termination due to a Participant's
dishonesty, fraud, insubordination or refusal to perform for any
reason other than illness or incapacity or materially unsatisfactory
performance of his or her duties for the Company as determined by
the Committee in its sole discretion, or (ii) in the case
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where there is an employment agreement, consulting agreement or
similar agreement between the Company or an Affiliate and the
Participant at the time of the grant of an Option, that defines the
word "cause" (or words of like import), "cause" as defined under
such employment agreement.
d. "Code" means the Internal Revenue Code of 1986, as amended.
e. "Committee" means a committee of the Board appointed from time to
time by the Board consisting of two or more non-employee directors,
each of whom shall be, to the extent required by Section 162(m) of
the Code and the regulations thereunder, an "outside director" as
defined in Section 162(m) of the Code and, to the extent required
under Rule 16b-3, a "non-employee director" as defined in Rule 16b-3
except that if and to the extent that no Committee exists which has
the authority to administer the Plan, the functions of the Committee
shall be exercised by the Board and all references herein to the
Committee shall be deemed to be references to the Board.
f. "Common Stock" means the common stock of the Company, par value $.01
per share, any Common Stock into which the Common Stock may be
converted and any Common Stock resulting from any reclassification
of the Common Stock.
g. "Company" means Microwave Power Devices, Inc., a Delaware
corporation.
h. "Disability" means a permanent and total disability, rendering a
Participant unable to perform the duties performed by the
Participant for the Company or its Affiliates by reason of physical
or mental disability for a period of four consecutive months, or for
a period of more than an aggregate of six months in any twelve month
period. A Disability shall only be deemed to occur at the time of
the determination by the Committee of the Disability.
i. "Eligible Consultants" means the executive-level consultants of the
Company and its Affiliates who are eligible to participate in the
Plan, as determined by the Committee in its sole discretion.
j. "Exchange Act" means the Securities Exchange Act of 1934, as
amended, and all rules and regulations promulgated thereunder.
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<PAGE>
k. "Fair Market Value" means, for purposes of this Plan, unless
otherwise required by any applicable provision of the Code or any
regulations issued thereunder, as of any date, the last sales prices
reported for the Common Stock on the applicable date, (i) as
reported by the principal national securities exchange on which it
is then traded or the Nasdaq Stock Market, Inc. or (ii) if not
traded on any such national securities exchange or the Nasdaq Stock
Market, Inc., as quoted on an automated quotation system sponsored
by the National Association of Securities Dealers or if the sale of
the Common Stock shall not have been reported or quoted on such
date, on the first day prior thereto on which the Common Stock was
reported or quoted. If the Common Stock is not readily tradable on a
national securities exchange, the Nasdaq Stock Market, Inc. or any
system sponsored by the National Association of Securities Dealers,
its Fair Market Value shall be set by the Committee in good faith
based on reasonable methods set forth under Section 422 of the Code
and the regulations thereunder including, without limitation, a
method utilizing the average of prices of the Common Stock reported
on the principal national securities exchange on which it is then
traded during a reasonable period designated by the Committee. For
purposes of the grant of any Stock Option, the applicable date shall
be the date for which the last sales price is available at the time
of grant.
l. "Incentive Stock Option" means any Option awarded under this Plan
intended to be and designated as an "Incentive Stock Option" within
the meaning of Section 422 of the Code.
m. "Key Employee" means any individual who is an officer or other
valuable employee of the Company or an Affiliate who is eligible to
be granted Options hereunder, as determined by the Committee in its
sole discretion.
n. "Non-Qualified Stock Option" means any Option awarded under this
Plan that is not an Incentive Stock Option.
o. "Option" means the right to purchase Shares granted to Participants
under Article V of this Plan.
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p. "Parent" means any parent corporation of the Company within the
meaning of Section 424(e) of the Code.
q. "Participant" means an Eligible Consultant or Key Employee to whom
an Option has been granted hereunder; provided, however, that any
Eligible Consultant shall be a Participant for purposes of the Plan
solely with respect to grants of Non-Qualified Stock Options and
shall be ineligible for Incentive Stock Options.
r. "Retirement" means a Participant's Termination of Service without
cause by a Participant at or after age 65 or such earlier date after
age 55 as may be approved by the Committee with respect to such
Participant.
s. "Rule 16b-3" means Rule 16b-3 as promulgated under Section 16(b) of
the Exchange Act.
t. "Securities Act" means the Securities Act of 1933, as amended, and
all rules and regulations promulgated thereunder.
u. "Share" means a share of Common Stock.
v. "Subsidiary" means any subsidiary corporation of the Company within
the meaning of Section 424(f) of the Code.
w. "Ten Percent Shareholder" means a person owning stock possessing
more than ten percent (10%) of the total combined voting power of
all classes of stock of the Company, [its Subsidiaries] or its
Parent as defined in Section 422 of the Code.
x. "Termination of Consultancy" means the termination of an Eligible
Consultant's consulting contract or performance of consulting
services, as determined by the Committee in its sole discretion. In
the event an entity shall cease to be an Affiliate, there shall be
deemed a Termination of Consultancy of any individual who is not
otherwise an Eligible Consultant to the Company or another Affiliate
at the time the entity ceases to be an Affiliate. In the event that
an Eligible Consultant becomes a Key Employee upon the termination
of his consultancy, the Committee, in its sole and absolute
discretion, may determine that no Termination of Consultancy shall
be deemed to occur until such time as such Eligible Consultant is no
longer an Eligible Consultant or a Key Employee.
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<PAGE>
y. "Termination of Employment" means that individual is no longer
actively employed by the Company or an Affiliate on a full-time
basis, irrespective of whether or not such employee is receiving
salary continuance pay, is continuing to participate in other
employee benefit programs or is otherwise receiving severance type
payments. In the event an entity shall cease to be an Affiliate,
there shall be deemed a Termination of Employment of any Key
Employee who is not otherwise an employee of the Company or another
Affiliate at the time the entity ceases to be an Affiliate. A
Termination of Employment shall not include a leave of absence
approved for purposes of the Plan by the Committee. For purposes of
this plan, a full-time employee is a person who is scheduled to work
at least thirty (30) hours per week. In the event that a Key
Employee becomes an Eligible Consultant upon the termination of his
employment, the Committee, in its sole and absolute discretion, may
determine that no Termination of Employment shall be deemed to occur
until such time as such Key Employee is no longer a Key Employee or
an Eligible Consultant.
z. "Termination of Service" means a Termination of Employment or
Termination of Consultancy, as applicable.
aa. "Withholding Election" means the election set forth in Article XIII.
3. Administration
a. Duties of the Committee. The Plan shall be administered and
interpreted by the Committee. If for any reason the appointed
Committee does not meet the requirements of Rule 16b-3 or Section
162(m) of the Code, such non-compliance shall not affect the
validity of Option grants, interpretations or other actions of the
Committee hereunder. The Committee's authority shall include the
ability to: select Participants to whom Options may from time to
time be granted hereunder; determine, in accordance with the terms
of this Plan, the number of shares of Common Stock to be covered by
each Option granted hereunder; determine the terms and conditions,
not inconsistent with the terms of this Plan, of any Option
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<PAGE>
granted to a Participant hereunder (including, but not limited to, the exercise
price, any restriction or limitation, any vesting requirements or acceleration
thereof and any forfeiture restrictions or waiver thereof, regarding any Stock
Option and the shares of Common Stock relating thereto, based on such factors,
if any, as the Committee shall determine, in its sole discretion); determine
whether and under what circumstances an Option may be settled in cash and/or
Common Stock under Section 5.e. hereof; determine whether, to what extent and
under what circumstances to provide loans (which shall bear interest at the rate
the Committee shall provide) to Participants in order to exercise Options
hereunder; determine as a condition of the granting of any Option, whether to
prohibit a Participant from selling or otherwise disposing of shares of Common
Stock acquired pursuant to the exercise of an Option for a period of time as
determined by the Committee, in its sole discretion, following the date of the
acquisition of such Option; modify, extend or renew an Option, subject to
Article IX herein, provided, however, that if an Option is modified, extended or
renewed and thereby deemed to be the issuance of a new Option under the Code or
the applicable accounting rules, the exercise price of the Option may continue
to be the original exercise price even if less than the Fair Market Value of the
Common Stock at the time of such modification, extension or renewal; offer to
buy out an Option previously granted, based on such terms and conditions as the
Committee shall establish and communicate to the Participant at the time such
offer is made; prescribe the form or forms of instruments evidencing Options and
any other instruments required under the Plan and to change such forms from time
to time; and make all other determinations and to take all such steps in
connection with the Plan and the Options as the Committee, in its sole
discretion, deems necessary or desirable. The Committee shall not be bound to
any standards of uniformity or similarity of action, interpretation or conduct
in the discharge of its duties hereunder, regardless of the apparent similarity
of the matters coming before it. Any determination, action or conclusion of the
Committee shall be final, conclusive and binding on all parties.
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<PAGE>
b. Guidelines. Subject to Article IX hereof, the Committee shall have
the authority to adopt, alter and repeal such administrative rules,
guidelines and practices governing this Plan and perform all acts,
including the delegation of its administrative responsibilities, as
it shall, from time to time, deem advisable; to construe and
interpret the terms and provisions of this Plan and any Option
issued under this Plan (and any agreements relating thereto); and to
otherwise supervise the administration of this Plan. The Committee
may correct any defect, supply any omission or reconcile any
inconsistency in this Plan or in any agreement relating thereto in
the manner and to the extent it shall deem necessary to effectuate
the purpose and intent of this Plan. The Committee may adopt special
guidelines and provisions for persons who are residing in, or
subject to, the taxes of, foreign jurisdictions to comply with
applicable tax and securities laws and may impose any limitations
and restrictions that it deems necessary to comply with the
applicable tax and securities laws of such foreign jurisdictions. To
the extent applicable, this Plan is intended to comply with Section
162(m) of the Code and the applicable requirements of Rule 16b-3 and
shall be limited, construed and interpreted in a manner so as to
comply therewith.
c. Reliance on Counsel. The Company, the Board or the Committee may
consult with legal counsel, who may be counsel for the Company or
other counsel, with respect to its obligations or duties hereunder,
or with respect to any action or proceeding or any question of law,
and shall not be liable with respect to any action taken or omitted
by it in good faith pursuant to the advice of such counsel.
d. Advisors. The Committee may employ such consultants and agents as it
may deem desirable for the administration of the Plan, and may rely
upon any advice or opinion received from any such consultant or
agent and any computation received from any such consultant or
agent. Expenses incurred by the Committee in the engagement of any
counsel, consultant or agent shall be paid by the Company.
e. Indemnification. The Committee, its members and any person
designated pursuant to paragraph (a) above shall not be liable for
any action or determination made in good faith with respect to this
Plan. To the maximum extent permitted
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<PAGE>
by applicable law, no officer of the Company or member or former
member of the Committee or of the Board shall be liable for any
action or determination made in good faith with respect to this Plan
or any Option granted under it. To the maximum extent permitted by
applicable law or the Certificate of Incorporation or By-Laws of the
Company and to the extent not covered by insurance, each officer and
member or former member of the Committee or of the Board shall be
indemnified and held harmless by the Company against any cost or
expense (including reasonable fees of counsel reasonably acceptable
to the Company) or liability (including any sum paid in settlement
of a claim with the approval of the Company), and advanced amounts
necessary to pay the foregoing at the earliest time and to the
fullest extent permitted, arising out of any act or omission to act
in connection with this Plan, except to the extent arising out of
such officer's, member's or former member's own fraud or bad faith.
Such indemnification shall be in addition to any rights of
indemnification the officers, directors or members or former
officers, directors or members may have under applicable law or
under the Certificate of Incorporation or By-Laws of the Company or
any Affiliate. Notwithstanding anything else herein, this
indemnification will not apply to the actions or determinations made
by an individual with regard to Options granted to him or her under
this Plan.
f. Procedures. If the Committee is appointed, the Board may designate
one of the members of the Committee as chairman and the Committee
shall hold meetings, subject to the By-Laws of the Company, at such
times and places, including, without limitation, by telephone
conference or by written consent, as the Committee shall deem
advisable. A majority of the Committee members shall constitute a
quorum. All determinations of the Committee shall be made by a
majority of its members. Any decision or determination reduced to
writing and signed by all the Committee members in accordance with
the By-Laws of the Company, shall be fully as effective as if it had
been made by a vote at a meeting duly called and held. The Committee
shall keep minutes of its meetings and shall
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<PAGE>
make such rules and regulations for the conduct of its business as
it shall deem advisable.
g. Determinations. Any determination, interpretation or other action
made or taken in good faith pursuant to the provisions of this Plan
by or at the direction of the Company, the Board or the Committee
(or any of its members) shall be final, conclusive and binding for
all purposes and upon all persons, including, without limitation,
the Participants, the Company and its Affiliates, directors,
officers and other employees of the Company and its Affiliates, and
the respective heirs, executors, administrators, personal
representatives and other successors in interest of each of the
foregoing.
4. Shares; Adjustment Upon Certain Events
a. Number of Shares. Subject to adjustment as provided in this Article
IV, the maximum aggregate number of Shares that may be issued under
the Plan shall be 500,000 which may be either authorized and
unissued Common Stock or Common Stock held in or acquired for the
treasury of the Company or both. If any Option granted under this
Plan expires, terminates or is canceled for any reason without
having been exercised in full or the Company repurchases any Option,
the number of shares of Common Stock subject to such Option shall
again be available for the purposes of awards under this Plan. In
determining the number of shares of Common Stock available for
Non-Statutory Stock Options, if Common Stock has been delivered or
exchanged by a Participant as full or partial payment to the Company
for payment of the exercise price, or for payment of withholding
taxes in connection with the exercise of a Stock Option, or if the
number shares of Common Stock otherwise deliverable has been reduced
for payment of the exercise price or for payment of withholding
taxes, the number of shares of Common Stock exchanged as payment in
connection with the exercise or for withholding or reduced shall
again be available for purposes of Non-Statutory Stock Options under
this Plan.
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b. Adjustments; Recapitalization, etc. The existence of the Plan and
the Options granted hereunder shall not affect in any way the right
or power of the Board or the stockholders of the Company to make or
authorize any adjustment, recapitalization, reorganization or other
change in the Company's capital structure or its business, any
merger or consolidation of the Company, any issue of bonds,
debentures, preferred or prior preference stocks ahead of or
affecting Common Stock, the dissolution or liquidation of the
Company or an Affiliate, any sale or transfer of all or part of its
assets or business or any other corporate act or proceeding. Except
as provided below, the Committee may make or provide for such
adjustments in the maximum number of Shares specified in Section
4.a., in the number of Shares covered by outstanding Options granted
hereunder, and/or in the Purchase Price (as hereinafter defined)
applicable to such Options or such other adjustments in the number
and kind of securities received upon the exercise of Options, as the
Committee in its sole discretion may determine is equitably required
to prevent dilution or enlargement of the rights of Participants or
to otherwise recognize the effect that otherwise would result from
any stock dividend, extraordinary dividend, stock split or reverse
stock split, combination or exchange of shares, recapitalization or
other change in the capital structure of the Company, merger,
consolidation, spin-off, split-up, reorganization, partial or
complete liquidation, issuance of rights or warrants to purchase
securities or any other corporate transaction or event having an
effect similar to any of the foregoing and any such adjustment
determined by the Committee shall be binding and conclusive on the
Company and all Participants and employees and their respective
heirs, executors, administrators, successors and assigns. In the
event of a merger or consolidation in which the Company is not the
surviving entity or in the event of any transaction that results in
the acquisition of substantially all of the Company's outstanding
Common Stock by a single person or entity or by a group of persons
and/or entities acting in concert, or in the event of the sale or
transfer of all or substantially all of the Company's assets (the
foregoing being referred to as "Acquisition Events"), then the
Committee may in its sole discretion terminate all
10
<PAGE>
outstanding Options effective as of the consummation of the
Acquisition Event by delivering notice of termination to each
Participant at least 20 days prior to the date of consummation of
the Acquisition Event; provided that, during the period from the
date on which such notice of termination is delivered to the
consummation of the Acquisition Event, each Participant shall have
the right to exercise in full all the Options that are then
outstanding (without regard to limitations on exercise otherwise
contained in the Options) but contingent on occurrence of the
Acquisition Event, and, provided further that, if the Acquisition
Event does not take place within a specified period after giving
such notice for any reason whatsoever, the notice and exercise shall
be null and void. Except as hereinbefore expressly provided, the
issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, for cash,
property, labor or services, upon direct sale, upon the exercise of
rights or warrants to subscribe therefor or upon conversion of
shares or other securities, and in any case whether or not for fair
value, shall not affect, and no adjustment by reason thereof shall
be made with respect to, the number and class of shares and/or other
securities or property subject to Options theretofore granted or the
Purchase Price.
c. Fractional Shares. No fractional Shares will be issued or
transferred upon the exercise of any Option. In lieu thereof, the
Company shall pay a cash adjustment equal to the same fraction of
the Fair Market Value of one Share on the date of exercise.
5. Awards and Terms of Options
a. Grant. The Committee may grant Non-Qualified Stock Options or
Incentive Stock Options, or any combination thereof to Key
Employees, and Non-Qualified Stock Options to Eligible Consultants,
provided that the maximum number of Shares with respect to which
Options may be granted to any Key Employee or any Eligible
Consultant during any calendar year may not exceed 400,000. To the
extent that the maximum number of authorized Shares with respect to
which
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<PAGE>
Options may be granted are not granted in a particular calendar year
to a Participant (beginning with the year in which the Participant
receives his or her first grant of Options hereunder), such
ungranted Options for any year shall increase the maximum number of
Shares with respect to which Options may be granted to such
Participant in subsequent calendar years during the term of the Plan
until used. Notwithstanding anything herein to the contrary to the
extent that any Option does not qualify as an Incentive Stock Option
(whether because of its provisions or the time or manner of its
exercise or otherwise), such Option or the portion thereof which
does not qualify, shall constitute a separate Non-Qualified Stock
Option. Each Option shall be evidenced by an Option agreement (the
"Option Agreement") in such form as the Committee shall approve from
time to time.
b. Exercise Price. The purchase price per Share (the "Purchase Price")
deliverable upon the exercise of a Non-Qualified Stock Option shall
be determined by the Committee and set forth in a Participant's
Option Agreement, provided that the Purchase Price shall not be less
than the par value of a Share. The Purchase Price deliverable upon
the exercise of an Incentive Stock Option shall be determined by the
Committee and set forth in a Participant's Option Agreement but
shall be not less than 100% of the Fair Market Value of a Share at
the time of grant; provided, however, if an Incentive Stock Option
is granted to a Ten Percent Shareholder, the Purchase Price shall be
no less than 110% of the Fair Market Value of a Share.
c. Number of Shares. The Option Agreement shall specify the number of
Options granted to the Participant, as determined by the Committee
in its sole discretion.
d. Exercisability. At the time of grant, the Committee shall specify
when and on what terms the Options granted shall be exercisable. In
the case of Options not immediately exercisable in full, the
Committee may at any time accelerate the time at which all or any
part of the Options may be exercised and may waive any other
conditions to exercise. No Option shall be exercisable after the
expiration of ten years from the date of grant; provided, however,
the term of an Incentive Stock Option granted to a Ten Percent
Shareholder may not exceed five years.
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<PAGE>
Each Option shall be subject to earlier termination as provided in
Article VI below.
e. Exercise of Options.
i. A Participant may elect to exercise one or more Options by
giving written notice to the Committee of such election and of
the number of Options such Participant has elected to
exercise, accompanied by payment in full of the aggregate
Purchase Price for the number of Shares for which the Options
are being exercised.
ii. Shares purchased pursuant to the exercise of Options shall be
paid for at the time of exercise as follows:
(A) in cash or by check, bank draft or money order payable
to the order of Company;
(B) if the Shares are traded on a national securities
exchange, the Nasdaq Stock Market, Inc. or quoted on a
national securities system sponsored by the National
Association of Securities Dealers through a "cashless
exercise" whereby the Participant delivers irrevocable
instructions to a broker to deliver promptly to the
Company an amount equal to the aggregate Purchase Price;
(C) on such other terms and conditions as may be acceptable
to the Committee including, without limitation, the
relinquishment of Options or by payment of Shares which
have been owned by the Participant for a period of at
least 6 months, or such other period necessary to avoid
an accounting charge against the Company's earnings as
reported on the Company's financial statements and for
which the Participant has good title free and clear of
any liens or encumbrance based upon the Fair Market
Value of the Shares on the payment date. No shares shall
be issued until payment, as provided herein, has been
made or provided for.
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iii. Upon receipt of payment, the Company shall deliver to the
Participant as soon as practicable a certificate or
certificates for the Shares then purchased.
f. Incentive Stock Option Limitations. To the extent that the aggregate
Fair Market Value (determined as of the time of grant) of the Common
Stock with respect to which Incentive Stock Options are exercisable
for the first time by the Participant during any calendar year under
the Plan and/or any other stock option plan of the Company or any
Subsidiary or Parent corporation exceeds $100,000, such Options
shall be treated as Options which are not Incentive Stock Options.
Should any of the foregoing provisions not be necessary in order for
the Options to qualify as Incentive Stock Options, or should any
additional provisions be required, the Committee may amend the Plan
accordingly, without the necessity of obtaining the approval of the
shareholders of the Company, except as otherwise required by law.
g. Form, Modification, Extension and Renewal of Stock Options. Subject
to the terms and conditions and within the limitations of this Plan,
the Committee may (i) modify, extend or renew outstanding Options
granted under this Plan (provided that the rights of a Participant
are not reduced without his consent) and (ii) accept the surrender
of outstanding Options (up to the extent not theretofore exercised)
and authorize the granting of new Options in substitution therefor
(to the extent not theretofore exercised).
h. Deferred Delivery of Common Shares. The Committee may in its
discretion permit Participants to defer delivery of Common Stock
acquired pursuant to a Participant's exercise of a Non-Statutory
Stock Option in accordance with the terms and conditions established
by the Committee. a.
i. Other Terms and Conditions. Options may contain such other
provisions, which shall not be inconsistent with any of the
foregoing terms of the Plan, as the Committee shall deem
appropriate.
6. Effect of Termination of Employment
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a. Termination Other than for Cause Except as otherwise provided in the
Participant's Option Agreement, upon Termination of Service, all
outstanding Options then exercisable and not exercised by the
Participant prior to such Termination of Service (and any Options
not previously exercisable but made exercisable by the Committee at
or after the Termination of Service) shall remain exercisable by the
Participant to the extent not exercised for the following time
periods, or, if earlier, the prior expiration of the Option in
accordance with the terms of the Plan and grant:
1. In the event of the Participant's death, Retirement or
Disability, such Options shall remain exercisable by the
Participant (or by the Participant's estate or by the person
given authority to exercise such Options by the Participant's
will or by operation of law) for a period of one year from the
date of the Participant's death, Retirement or Disability,
provided that the Committee, in its sole discretion, may at
any time extend such time period.
2. In the event the Participant's employment is terminated by the
Company or an Affiliate without Cause, such Options shall
remain exercisable for 90 days from the date of the
Participant's Termination of Service, provided that the
Committee, in its sole discretion, may at any time extend such
time period.
b. Cause, Voluntary Termination. Upon a Participant's Termination of
Service for Cause, or upon a Participant's voluntary termination of
employment, or if the Company or an Affiliate obtains or discovers
information after Termination of Service that such Participant had
engaged in conduct that would have justified a Termination of
Service for Cause during employment, all outstanding Options of such
Participant shall immediately terminate and shall be null and void.
c. Cancellation of Options. Except as otherwise provided in Article VI
hereof, no Options that were not exercisable during the period of
employment shall thereafter become exercisable upon a Termination of
Service, and such Options shall terminate and become null and void
upon a Termination of Service, unless the Committee determines in
its sole discretion that such Options shall be exercisable.
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<PAGE>
7. Nontransferability of Options
No Option shall be transferable by the Participant otherwise than by will
or under applicable laws of descent and distribution, and during the lifetime of
the Participant may be exercised only by the Participant or his or her guardian
or legal representative. In addition, except as provided above, no Option shall
be assigned, negotiated, pledged or hypothecated in any way (whether by
operation of law or otherwise), and no Option shall be subject to execution,
attachment or similar process. Upon any attempt to transfer, assign, negotiate,
pledge or hypothecate any Option, or in the event of any levy upon any Option by
reason of any execution, attachment or similar process contrary to the
provisions hereof, such Option shall immediately terminate and become null and
void.
8. Rights as a Stockholder
A Participant (or a permitted transferee of an Option) shall have no
rights as a stockholder with respect to any Shares covered by such Participant's
Option until such Participant (or permitted transferee) shall have become the
holder of record of such Shares, and no adjustments shall be made for dividends
in cash or other property or distributions or other rights in respect to any
such Shares, except as otherwise specifically provided in this Plan.
9. Termination, Amendment and Modification
The Plan shall terminate at the close of business on the tenth anniversary
of the Effective Date (the "Termination Date"), unless terminated sooner as
hereinafter provided, and no Option shall be granted under the Plan on or after
that date. The termination of the Plan shall not terminate any outstanding
Options that by their terms continue beyond the Termination Date.
The Committee may at any time, and from time to time, amend, in whole or
in part, any or all of the provisions of the Plan (including any amendment
deemed necessary to ensure that the Company may comply with any regulatory
requirements referred to in Article XII), or suspend or terminate it entirely,
retroactively or otherwise; provided, however, that, unless otherwise required
by law or specifically provided herein, the rights of a Participant with respect
to Options granted prior to such amendment, suspension or termination, may not,
be materially
16
<PAGE>
impaired without the consent of such Participant and, provided further, of the
Board shall obtain shareholder approval for any amendment to the extent required
by law or any exchange.
The Committee may amend the terms of any Option granted, prospectively or
retroactively, but, except as otherwise provided herein, no such amendment or
other action by the Committee shall materially impair the rights of any
Participant without the Participant's consent.
10. General Provisions
a. Right to Terminate Service. Neither the adoption of the Plan nor the
grant of Options shall impose any obligation on the Company or its
Affiliates to continue the employment of any Participant or the
consulting arrangement with any Eligible Consultant, nor shall it
impose any obligation on the part of any Participant to remain in
the employ of the Company or any Affiliate or to remain as a
consultant of the Company or its Affiliates.
b. Purchase for Investment. The Board or the Committee may require any
person who receives Shares upon any exercise or conversion of an
Option hereunder, to execute and deliver to the Company a written
statement, in form satisfactory to the Company, representing and
warranting that such Participant is purchasing or accepting the
Shares then acquired for such Participant's own account and not with
a view to the resale or distribution thereof, and such other
securities law related representations as the Board or the Committee
shall request. All certificates for Shares delivered under this Plan
shall be subject to such stock transfer orders and other
restrictions as the Committee may deem advisable under the rules,
regulations and other requirements of the Securities and Exchange
Commission, any stock exchange upon which the Common Stock is then
listed or any national securities association system upon whose
system the Common Stock is then quoted, any applicable Federal or
state securities law, and any applicable corporate law, and the
Committee may cause a legend or legends to be put on any such
certificates to make appropriate reference to such restrictions.
17
<PAGE>
c. Trusts, etc. Nothing contained in the Plan and no action taken
pursuant to the Plan (including, without limitation, the grant of
any Option thereunder) shall create or be construed to create a
trust of any kind, or a fiduciary relationship, between the Company
and any Participant or the executor, administrator or other personal
representative or designated beneficiary of such Participant, or any
other persons. The Plan is intended to constitute an "unfunded" plan
for incentive and deferred compensation. Any reserves that may be
established by the Company in connection with the Plan shall
continue to be part of the general funds of the Company, and no
individual or entity other than the Company shall have any interest
in such funds until paid to a Participant. If and to the extent that
any Participant or such Participant's executor, administrator or
other personal representative, as the case may be, acquires a right
to receive any payment from the Company pursuant to the Plan, such
right shall be no greater than the right of an unsecured general
creditor of the Company.
d. Notices. Any notice to the Company required by or in respect of this
Plan will be addressed to the Company, Microwave Power Devices,
Inc., 49 Wireless Boulevard, Hauppauge, New York 11788-3935,
Attention: Chief Financial Officer, or such other place of business
as shall become the Company's principal executive offices from time
to time. Each Participant shall be responsible for furnishing the
Committee with the current and proper address for the mailing to
such Participant of notices and the delivery to such Participant of
agreements, Shares and payments. Any such notice to the Participant
will, if the Company has received notice that the Participant is
then deceased, be given to the Participant's personal representative
if such representative has previously informed the Company of his
status and address (and has provided such reasonable substantiating
information as the Company may request) by written notice under this
Section. Any notice required by or in respect of this Plan will be
deemed to have been duly given when delivered in person or when
dispatched by telegram or one business day after having been
dispatched by a nationally recognized overnight courier service or
three business days after having been mailed by
18
<PAGE>
United States registered or certified mail, return receipt
requested, postage prepaid. The Company assumes no responsibility or
obligation to deliver any item mailed to such address that is
returned as undeliverable to the addressee and any further mailings
will be suspended until the Participant furnishes the proper
address.
e. Severability of Provisions. If any provisions of the Plan shall be
held invalid or unenforceable, such invalidity or unenforceability
shall not affect any other provisions of the Plan, and the Plan
shall be construed and enforced as if such provisions had not been
included.
f. Payment to Minors, Etc. Any benefit payable to or for the benefit of
a minor, an incompetent person or other person incapable of receipt
thereof shall be deemed paid when paid to such person's guardian or
to the party providing or reasonably appearing to provide for the
care of such person, and such payment shall fully discharge the
Committee, the Company and their employees, agents and
representatives with respect thereto.
g. Headings and Captions. The headings and captions herein are provided
for reference and convenience only. They shall not be considered
part of the Plan and shall not be employed in the construction of
the Plan.
h. Controlling Law. The Plan shall be construed and enforced according
to the laws of the State of Delaware.
i. Other Benefits. No payment under this Plan shall be considered
compensation for purposes of computing benefits under any retirement
plan of the Company or its Affiliates nor affect any benefits under
any other benefit plan now or subsequently in effect under which the
availability of benefits is related to the level of compensation.
j. Costs. The Company shall bear all expenses included in administering
this Plan, including expenses of issuing Common Stock pursuant to
any Options hereunder.
k. Section 162(m) Deduction Limitation. The Committee at any time may
in its sole discretion limit the number of Options that can be
exercised in any taxable year of the Company, to the extent
necessary to prevent the application of Section 162(m)
19
<PAGE>
of the Code (or any similar or successor provision), provided that
the Committee may not postpone the earliest date on which Options
can be exercised beyond the last day of the stated term of such
Options. a.
l. Section 16(b) of the Exchange Act. All elections and transactions
under the Plan by persons subject to Section 16 of the Exchange Act
involving shares of Common Stock are intended to comply with all
exemptive conditions under Rule 16b-3. The Committee may establish
and adopt written administrative guidelines, designed to facilitate
compliance with Section 16(b) of the Exchange Act, as it may deem
necessary or proper for the administration and operation of the Plan
and the transaction of business thereunder.
m. Death/Disability. The Committee may in its discretion require the
transferee of a Participant to supply it with written notice of the
Participant's death or Disability and to supply it with a copy of
the will (in the case of the Participant's death) or such other
evidence as the Committee deems necessary to establish the validity
of the transfer of an Option. The Committee may also require that
the agreement of the transferee to be bound by all of the terms and
conditions of this Plan.
11. Issuance of Stock Certificates;
Legends; Payment of Expenses
a. Stock Certificates. Upon any exercise of an Option and payment of
the exercise price as provided in such Option, a certificate or
certificates for the Shares as to which such Option has been
exercised shall be issued by the Company in the name of the person
or persons exercising such Option and shall be delivered to or upon
the order of such person or persons.
b. Legends. Certificates for Shares issued upon exercise of an Option
shall bear such legend or legends as the Committee, in its sole
discretion, determines to be necessary or appropriate to prevent a
violation of, or to perfect an exemption from, the registration
requirements of the Securities Act or to implement the
20
<PAGE>
provisions of any agreements between Company and the Participant
with respect to such Shares.
c. Payment of Expenses. The Company shall pay all issue or transfer
taxes with respect to the issuance or transfer of Shares, as well as
all fees and expenses necessarily incurred by the Company in
connection with such issuance or transfer and with the
administration of the Plan.
12. Listing of Shares and Related Matters
A0 Unless otherwise determined by the Committee, as long as the Common
Stock is listed on a national securities exchange or system sponsored by a
national securities association, the issue of any shares of Common Stock under
an Option shall be conditioned upon such shares being listed on such exchange or
system. The Company shall have no obligation to issue such shares unless and
until such shares are so listed, and the right to exercise any Option with
respect to such shares shall be suspended until such listing has been effected.
b If at any time counsel to the Company shall be of the opinion that any
sale or delivery of shares of Common Stock under an Option is or may in the
circumstances be unlawful or result in the imposition of excise taxes on the
Company under the statutes, rules or regulations of any applicable jurisdiction,
the Company shall have no obligation to make such sale or delivery, or to make
any application or to effect or to maintain any qualification or registration
under the Securities Act or otherwise with respect to shares of Common Stock,
and the right to exercise any Option shall be suspended until, in the opinion of
said counsel, such sale or delivery shall be lawful or will not result in the
imposition of excise taxes on the Company.
c. Upon termination of any period of suspension under this Article XII,
any Option affected by such suspension which shall not then have expired or
terminated shall be reinstated as to all shares available before such
suspension, but no such suspension shall extend the term of any Option.
d. A Participant shall be required to supply the Company with any
certificates, representations and information that the Company requests and
otherwise cooperate with the Company in obtaining any listing, registration,
qualification, exemption, consent or approval the Company deems necessary or
appropriate.
21
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13. Withholding Taxes
The Company shall have the right to deduct from any payment to be made to a
Participant, or to otherwise require, prior to the issuance or delivery of any
shares of Common Stock or the payment of any cash hereunder, payment by the
Participant of, any Federal, state or local taxes required by law to be
withheld.
Any statutorily required withholding obligation with regard to any Participant
may be satisfied, subject to the consent of the Committee, by reducing the
number of shares of Common Stock otherwise deliverable or by delivering shares
of Common Stock already owned. Any fraction of a share of Common Stock required
to satisfy such tax obligations shall be disregarded and the amount due shall be
paid instead in cash by the Participant.
14. Effective Date.
The Plan shall become effective upon adoption by the Board, subject to the
approval of this Plan by the stockholders of the Company in accordance with the
requirements of the laws of the State of Delaware or such later date as provided
in the adopting resolution.
22
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MICROWAVE POWER DEVICES, INC.
1999 STOCK OPTION PLAN
December 2, 1999
- --------------------------------------------------------------------------------
<PAGE>
Page
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Table of Contents
1. Purposes of the Plan...................................................1
2. Definitions............................................................1
3. Administration.........................................................5
a. Duties of the Committee....................................5
b. Guidelines.................................................7
c. Reliance on Counsel........................................7
d. Advisors...................................................7
e. Indemnification............................................7
f. Procedures.................................................8
g. Determinations.............................................9
4. Shares; Adjustment Upon Certain Events.................................9
a. Number of Shares...........................................9
b. Adjustments; Recapitalization, etc........................10
c. Fractional Shares.........................................11
5. Awards and Terms of Options...........................................11
a. Grant.....................................................11
b. Exercise Price............................................12
c. Number of Shares..........................................12
d. Exercisability............................................12
e. Exercise of Options.......................................13
f. Incentive Stock Option Limitations........................14
g. Form, Modification, Extension and Renewal of Stock Options14
h. Deferred Delivery of Common Shares........................14
i. Other Terms and Conditions................................14
6. Effect of Termination of Employment...................................14
a. Termination Other than for Cause..........................15
b. Cause, Voluntary Termination..............................15
c. Cancellation of Options...................................15
<PAGE>
Page
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7. Nontransferability of Options.........................................16
8. Rights as a Stockholder...............................................16
9. Termination, Amendment and Modification...............................16
10. General Provisions....................................................17
a. Right to Terminate Service................................17
b. Purchase for Investment...................................17
c. Trusts, etc...............................................18
d. Notices...................................................18
e. Severability of Provisions................................19
f. Payment to Minors, Etc....................................19
g. Headings and Captions.....................................19
h. Controlling Law...........................................19
i. Other Benefits............................................19
j. Costs.....................................................19
k. Section 162(m) Deduction Limitation.......................19
l. Section 16(b) of the Exchange Act.........................20
m. Death/Disability..........................................20
11. Issuance of Stock Certificates;.......................................20
Legends; Payment of Expenses....................................20
a. Stock Certificates........................................20
b. Legends...................................................20
c. Payment of Expenses.......................................21
12. Listing of Shares and Related Matters.................................21
13. Withholding Taxes.....................................................22
14. Effective Date........................................................22
Form of Option Agreement.............................................Exhibit A
EXHIBIT 10.16
WAIVER AND AMENDMENT NO. 3
TO
LOAN AND SECURITY AGREEMENT
THIS WAIVER AND AMENDMENT NO. 3 ("Amendment") is entered into as of March
17, 2000, by and between MPD TECHNOLOGIES, INC., a New York corporation
("Borrower") having its principal place of business at 49 Wireless Boulevard,
Hauppauge, New York and IBJ WHITEHALL BUSINESS CREDIT CORPORATION (formerly
known as IBJ Schroder Business Credit Corporation) ("IBJ") having its principal
place of business at One State Street, New York, New York and each of the other
financial institutions named in or which hereafter become a party to the Loan
Agreement (as defined below) (IBJ and such other financial institutions, the
"Lenders") and IBJ as agent for the Lenders (IBJ in such capacity, the "Agent").
BACKGROUND
Borrower, Agent and Lenders are parties to a Loan and Security Agreement
dated as of February 13, 1997 (as amended, supplemented or otherwise modified
from time to time, the "Loan Agreement") pursuant to which Lenders provided
Borrower with certain financial accommodations.
Borrower has requested that Lenders and Agent amend the Loan Agreement to,
among other things, (a) waive certain Events of Default and (b) amend certain
financial covenants, and Agent and Lenders are willing to do so on the terms and
conditions hereafter set forth.
NOW, THEREFORE, in consideration of any loan or advance or grant of credit
heretofore or hereafter made to or for the account of Borrower by Agent and
Lenders, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
1. Definitions. All capitalized terms not otherwise defined herein shall
have the meanings given to them in the Loan Agreement.
2. Amendment to Loan Agreement. Subject to satisfaction of the conditions
precedent set forth in Section 4 below, the Loan Agreement is hereby amended as
follows:
2.1. Section 1.2 of the Loan Agreement is hereby amended by inserting the
following defined terms in their appropriate alphabetical order:
Amendment No. 3 - means Waiver and Amendment No. 3 to Loan and
Security Agreement dated as of the Amendment No. 3 Effective Date
among Borrower, Lenders and Agent.
Amendment No. 3 Effective Date - means March 17, 2000.
Maximum Additional Capex Amount - Two Million Two Hundred Sixty-Six
<PAGE>
Thousand and 00/100 ($2,266,000), less principal payments of the
Additional Capex Loans.
2.2 Section 1.2 of the Loan Agreement is hereby amended by amending the
defined terms "Fixed Charge Coverage" and "Permitted Purchase Money
Indebtedness" in their entirety to provide as follows:
"Fixed Charge Coverage - with respect to a particular period, the
ratio of (a) EBITDA for such period minus non-financed Capital
Expenditures during such period to (b) the sum of all amounts paid
during such period with respect to (i) federal, state and local
taxes, (ii) scheduled principal payments, (iii) interest on
Indebtedness for borrowed money and (iv) Capitalized Lease
Obligations."
"Permitted Purchase Money Indebtedness - Purchase Money Indebtedness
of Borrower incurred after the date hereof which is secured by a
Purchase Money Lien and which, when aggregated with the principal
amount of all other such Indebtedness and Capitalized Lease
Obligations of Borrower at the time outstanding, does not exceed
either (a) $2,500,000 in any fiscal year or (b) $5,000,000 in the
aggregate during the Original Term. For the purposes of this
definition, (i) the principal amount of any Purchase Money
Indebtedness consisting of capitalized leases shall be computed as a
Capitalized Lease Obligation, (ii) any renewals, extensions or
refinancings of Purchase Money Indebtedness shall not be computed in
the limitation set forth above and (iii) Indebtedness owing to Agent
and Lenders under this Agreement shall not be computed in the
limitations set forth above."
2.3. Section 2.3 of the Loan Agreement is hereby amended by inserting a
new subsection "(D)" at the end thereof as follows:
"(D) Anything in Section 2.3(c) to the contrary
notwithstanding, from and after the Amendment No. 3 Effective Date,
(i) the maximum amount of new Additional Capex Loans shall be
limited to $1,000,000, (ii) subject to the terms and conditions set
forth in this Agreement including, without limitation, Sections 10.2
and 10.4 hereof, Additional Capex Loans may be borrowed up to and
including December 31, 2000."
2.4. Section 3.1(A) of the Loan Agreement is hereby amended by (i)
deleting the reference in clause (a) to "Alternate Base Rate plus one-quarter of
one percent (.25%)" and inserting "Alternate Base Rate plus three-quarters of
one percent (.75%)" in its place and stead, (ii) deleting the reference in
clause (b) to "Alternate Base Rate" and inserting "Alternate Base Rate plus
one-half of one percent (.50%)" in its place and stead, and (iii) deleting the
last paragraph of Section 3.1(A).
2.5. Section 3.3(C) of the Loan Agreement is hereby amended in its
entirety to provide as follows:
"(C) At the effective date of any such termination by Borrower
(the "Prepayment Date"), Borrower shall pay to Agent (in addition to
the then outstanding principal, accrued interest and other charges
owing under the terms of
2
<PAGE>
this Agreement and any of the other Loan Documents), as liquidated
damages for the loss of the bargain and not as a penalty, an amount
equal to (x) one percent (1%) of the Maximum Revolving Amount plus
the Maximum Capex Amount plus the Maximum Additional Capex Amount
plus the outstanding principal balance of the Term Loan if the
Prepayment Date occurs from the Amendment No. 3 Effective Date to
and including the date immediately preceding the first anniversary
of the Amendment No. 3 Effective Date, and (y) one-half of one
percent (.50%) of the Maximum Revolving Amount plus the Maximum
Capex Amount plus the Maximum Additional Capex Amount plus the
outstanding principal balance of the Term Loan if the Prepayment
Date occurs on or after the first anniversary of the Amendment No. 3
Effective Date to and including February 11, 2002."
2.6. Section 9.3 of the Loan Agreement is hereby amended in its entirety
to provide as follows:
"9.3 Specific Financial Covenants. Borrower covenants that,
unless otherwise consented to by Agent in writing, it shall:
(a) maintain a Fixed Charge Ratio of not less than (i) (1.70)
to 1.00 for the three month period ending March 31, 2000, (ii) (.50)
to 1.00 for the six month period ending June 30, 2000, (iii) .50 to
1.00 for the nine month period ending September 30, 2000, (iv) 1.00
to 1.00 for the twelve month period ending December 31, 2000, (v)
1.10 to 1.00 for the twelve month period ending March 31, 2001 and
as at the end of each fiscal quarter thereafter for the twelve month
period then ended.
(b) until it has maintained a Fixed Charge Ratio of not less
than 1.10 to 1.00 as at the end of any fiscal quarter for the twelve
month period then ended commencing with the fiscal quarter ending
December 31, 2000, maintain an Excess Availability at all times of
not less than $900,000."
2.7. Section 10.4 of the Loan Agreement is hereby amended to include the
following new clause (d) at the end thereof:
"(d) and Borrower shall have been in compliance with Section
9.3(b) of the Loan Agreement at all times since the Amendment No. 3
Effective Date."
2.8. Section 11.1 of the Loan Agreement is hereby amended to include the
following new clause (S) at the end thereof:
(S) Borrower shall fail to provide Agent with an appraisal of
Equipment from Daley-Hodkin Corporation (i) on or before May 15,
2000, and (ii) which sets forth an orderly liquidation value of
Equipment of at least $4,800,000.
3. Waiver. Subject to the satisfaction of the conditions precedent set
forth in Section 5 below, Agent and Lenders hereby waive the requirement that
Borrower maintain a Fixed Charge Ratio of not less than 1.00 to 1.00 for the
twelve month period ended December 31, 1999.
3
<PAGE>
4. Credit Limit. The maximum credit limit for SAMM for purposes of clause
(xiii) of the defined term "Eligible Account" shall be $3,529,412.
5. Conditions of Effectiveness. This Amendment shall become effective upon
satisfaction of the following conditions precedent: Agent shall have received
(i) four (4) copies of this Amendment executed by Borrower and consented and
agreed to by Microwave Power Devices, Inc., as guarantor, (ii) an amendment fee
equal to $50,000, (iii) evidence in the form of corporate resolutions
demonstrating that Borrower shall have taken all necessary corporate action for
the authorization, execution, delivery and performance of this amendment, (iv) a
Second Amended and Restated Revolving Credit Note to replace the original Second
Amended and Restated Revolving Credit Note which, if delivered to Agent, is no
longer in Agent's possession, (v) an Amended and Restated Additional Capex Note
reflecting the new Maximum Additional Capex Amount, (vi) UCC-1 Financing
Statements to be filed in all necessary jurisdictions to perfect Agent's lien in
Inventory kept at Lucent Technology locations in Ohio and New Jersey and (vii)
such other certificates (including an updated Incumbency Certificate),
instruments, documents, agreements and opinions of counsel as may be required by
Agent or its counsel, each of which shall be in form and substance satisfactory
to Agent and its counsel.
6. Representations and Warranties. Borrower hereby represents and warrants
as follows:
(a) This Amendment and the Loan Agreement, as amended hereby,
constitute legal, valid and binding obligations of Borrower and are
enforceable against Borrower in accordance with their respective
terms.
(b) Upon the effectiveness of this Amendment, Borrower hereby
reaffirms all covenants, representations and warranties made in the
Loan Agreement to the extent the same are not amended hereby and
agree that all such covenants, representations and warranties shall
be deemed to have been remade as of the effective date of this
Amendment.
(c) No Event of Default or Default has occurred and is
continuing or would exist after giving effect to this Amendment.
(d) Borrower has no defense, counterclaim or offset with
respect to the Loan Agreement.
7. Effect on the Loan Agreement.
(a) Upon the effectiveness of this Amendment, each reference in the
Loan Agreement to "this Agreement," "hereunder," "hereof," "herein" or words of
like import shall mean and be a reference to the Loan Agreement as amended
hereby.
(b) Except as specifically amended herein, the Loan Agreement, and
all other documents, instruments and agreements executed and/or delivered in
connection therewith, shall remain in full force and effect, and are hereby
ratified and confirmed.
(c) Except as specifically provided in Section 3 hereof, the
execution, delivery
4
<PAGE>
and effectiveness of this Amendment shall not operate as a waiver of any right,
power or remedy of Agent, nor constitute a waiver of any provision of the Loan
Agreement, or any other documents, instruments or agreements executed and/or
delivered under or in connection therewith.
8. Governing Law. This Amendment shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns and
shall be governed by and construed in accordance with the laws of the State of
New York.
9. Headings. Section headings in this Amendment are included herein for
convenience of reference only and shall not constitute a part of this Amendment
for any other purpose.
10. Counterparts; Telecopied Signatures. This Amendment may be executed in
any number of and by different parties hereto on separate counterparts, all of
which, when so executed, shall be deemed an original, but all such counterparts
shall constitute one and the same agreement. Any signature delivered by a party
by facsimile transmission shall be deemed to be an original signature hereto.
5
<PAGE>
IN WITNESS WHEREOF, this Amendment has been duly executed as of the
day and year first written above.
MPD TECHNOLOGIES, INC.
By: /s/ A. Weber
--------------------------------
Name: A. Weber
Title: Chairman, President/CEO
IBJ WHITEHALL BUSINESS CREDIT
CORPORATION, as Agent and a Lender
By: /s/ Joseph J. Zautra
--------------------------------
Name: Joseph J. Zautra
Title: Vice President
CONSENTED AND AGREED TO:
MICROWAVE POWER DEVICES, INC.
By: /s/ A. Weber
---------------------------
Name: A. Weber
Title: Chairman, President/CEO
6
<PAGE>
SECOND AMENDED AND RESTATED
REVOLVING CREDIT NOTE
$13,750,000.00 New York, New York
as of May 19, 1999
This Second Amended and Restated Revolving Credit Note is executed
and delivered under and pursuant to the terms of that certain Loan and Security
Agreement dated as of February 13, 1997 (as the same has been and may be further
amended, supplemented or modified from time to time, the "Loan Agreement") by
and among MPD TECHNOLOGIES, INC., a New York corporation having its chief
executive office at 49 Wireless Boulevard, Hauppauge, New York 11788
("Borrower"), IBJ WHITEHALL BUSINESS CREDIT CORPORATION (formerly known as IBJ
Schroder Business Credit Corporation) ("IBJ"), each of the other financial
institutions named in or which hereafter become parties to the Loan Agreement
(IBJ and such other financial institutions, the "Lenders") and IBJ as agent for
the Lenders (IBJ in such capacity, "Agent"). Capitalized terms not otherwise
defined herein shall have the meanings as provided in the Loan Agreement.
FOR VALUE RECEIVED, Borrower hereby promises to pay to the order of
Agent for the ratable benefit of Lenders at Agent's offices located at One State
Street, New York, New York 10004 or at such other place as Agent may from time
to time designate in writing to Borrower:
(i) the principal sum of THIRTEEN MILLION SEVEN HUNDRED FIFTY
THOUSAND AND 00/100 DOLLARS ($13,750,000.00) or, if different from such amount,
such amount of Revolving Advances as may be due and owing under the Loan
Agreement, payable in accordance with the provisions of the Loan Agreement and
subject to acceleration upon the occurrence of an Event of Default under the
Loan Agreement, earlier termination of the Loan Agreement or earlier prepayment
as required pursuant to the terms thereof; and
(ii) interest on the principal amount of this Note from time to time
outstanding until such principal amount is paid in full, at such interest rates
and at such times as are provided in the Loan Agreement. Upon and after the
occurrence of an Event of Default, and during the continuation thereof, interest
shall be payable at the Default Rate. In no event, however, shall interest
hereunder exceed the maximum interest rate permitted by law.
This Second Amended and Restated Revolving Credit Note amends and
restates in its entirety and is given in substitution for, but not in
satisfaction of, that certain Amended and Restated Revolving Credit Note dated
as of February 13, 1998 issued by Borrower in favor of Agent for the ratable
benefit of Lenders in the original principal amount of $12,000,000 and replaces
an identical Second Amended and Restated Revolving Credit Note which Agent
cannot locate in its files.
This Note is the Revolving Credit Note referred to in the Loan
Agreement and is secured, inter alia, by the liens granted pursuant to the Loan
Agreement and the Other Agreements, is entitled to the benefits of the Loan
Agreement and the Other Agreements and is subject to all of the agreements,
terms and conditions therein contained.
7
<PAGE>
This Note is subject to mandatory prepayment and may be voluntarily
prepaid, in whole or in part, on the terms and conditions set forth in the Loan
Agreement.
If an Event of Default under Sections 11.1(J) or 11.1(K) of the Loan
Agreement shall occur, then this Note shall immediately become due and payable,
without notice, together with reasonable attorneys' fees if the collection
hereof is placed in the hands of an attorney to obtain or enforce payment
hereof. If any other Event of Default shall occur under the Loan Agreement or
any of the Other Agreements which is not cured within any applicable grace
period, then this Note may, as provided in the Loan Agreement, be declared to be
immediately due and payable, without notice, together with reasonable attorneys'
fees, if the collection hereof is placed in the hands of an attorney to obtain
or enforce payment hereof.
This Note is being delivered in the State of New York, and shall be
construed and enforced in accordance with the laws of such State.
Borrower expressly waives any presentment, demand, protest, notice
of protest, or notice of any kind except as expressly provided in the Loan
Agreement.
MPD TECHNOLOGIES, INC.
By: /s/ A. Weber
----------------------------------------
Name: A. Weber
Title: Chairman, President/CEO
STATE OF NEW YORK )
: ss.:
SUFFOLK COUNTY OF NEW YORK )
On the 17 day of March, 2000, before me personally came A. Weber, to
me known, who being by me duly sworn, did depose and say that he is the
Chairman, President/CEO of MPD Technologies, Inc., the corporation described in
and which executed the foregoing instrument; and that he was authorized to sign
his name thereto.
/s/ Concetta Ombrellino
--------------------------------------------
Notary Public
CONCETTA OMBRELLINO
Notary Public, State of New York
Suffolk County No. 01OM6015966
Commission Expires November 09, 2000
8
<PAGE>
AMENDED AND RESTATED
ADDITIONAL CAPEX NOTE
$2,266,000.00 New York, New York
as of March 17, 2000
This Amended and Restated Additional Capex Note is executed and
delivered under and pursuant to the terms of that certain Loan and Security
Agreement dated as of February 13, 1997 (as the same has been and may be further
amended, supplemented or modified from time to time, the "Loan Agreement") by
and among MPD TECHNOLOGIES, INC., a New York corporation having its chief
executive office at 49 Wireless Boulevard, Hauppauge, New York 11788
("Borrower"), IBJ WHITEHALL BUSINESS CREDIT CORPORATION (formerly known as IBJ
Schroder Business Credit Corporation) ("IBJ"), each of the other financial
institutions named in or which hereafter become parties to the Loan Agreement
(IBJ and such other financial institutions, the "Lenders") and IBJ as agent for
the Lenders (IBJ in such capacity, "Agent"). Capitalized terms not otherwise
defined herein shall have the meanings as provided in the Loan Agreement.
FOR VALUE RECEIVED, Borrower hereby promises to pay to the order of
Agent for the ratable benefit of Lenders at Agent's offices located at One State
Street, New York, New York 10004 or at such other place as Agent may from time
to time designate to Borrower in writing:
(i) the principal sum of TWO MILLION TWO HUNDRED SIXTY-SIX THOUSAND
AND 00/100 DOLLARS ($2,266,000.00) or such lesser amount as shall be advanced by
Lender on or before December 31, 2000, payable in consecutive monthly
installments each in an amount equal to the applicable monthly payment on
Additional Capex Loans as set forth in the Loan Agreement, subject to
acceleration upon the occurrence of an Event of Default under the Loan
Agreement, earlier termination of the Loan Agreement or earlier prepayment as
required pursuant to the terms of the Loan Agreement; and
(ii) interest on the principal amount of this Note from time to time
outstanding until such principal amount is paid in full, at such interest rates
and at such times as are provided in the Loan Agreement. Upon and after the
occurrence of an Event of Default, and during the continuation thereof, interest
shall be payable at the Default Rate. In no event, however, shall interest
hereunder exceed the maximum interest rate permitted by law.
This Amended and Restated Additional Capex Note amends and restates
in its entirety and is given in substitution for, but not in satisfaction of,
that certain Additional Capex Note dated as of May 19, 1999 issued by Borrower
in favor of Agent for the ratable benefit of Lenders in the original principal
amount of $3,000,000.
This Note is the Additional Capex Note referred to in the Loan
Agreement and is secured, inter alia, by the liens granted pursuant to the Loan
Agreement and the Other Agreements, is entitled to the benefits of the Loan
Agreement and the Other Agreements and is subject to all of the agreements,
terms and conditions therein contained.
9
<PAGE>
This Note is subject to mandatory prepayment and may be voluntarily
prepaid, in whole or in part, on the terms and conditions set forth in the Loan
Agreement.
If an Event of Default under Sections 11.1(J) or 11.1(K) of the Loan
Agreement shall occur, then this Note shall immediately become due and payable,
without notice, together with reasonable attorneys' fees if the collection
hereof is placed in the hands of an attorney to obtain or enforce payment
hereof. If any other Event of Default shall occur under the Loan Agreement or
any of the Other Agreements, which is not cured within any applicable grace
period, then this Note may, as provided in the Loan Agreement, be declared to be
immediately due and payable, without notice, together with reasonable attorneys'
fees, if the collection hereof is placed in the hands of an attorney to obtain
or enforce payment hereof.
This Note is being delivered in the State of New York, and shall be
construed and enforced in accordance with the laws of such State.
Borrower expressly waives any presentment, demand, protest, notice
of protest, or notice of any kind except as expressly provided in the Loan
Agreement.
MPD TECHNOLOGIES, INC.
By: /s/ A. Weber
-----------------------------------------
Name: A. Weber
Title: Chairman, President/CEO
STATE OF NEW YORK )
: ss.:
SUFFOLK COUNTY OF NEW YORK )
On the 17 day of March, 2000, before me personally came A. Weber, to
me known, who being by me duly sworn, did depose and say that he is the
Chairman, President/CEO of MPD Technologies, Inc., the corporation described in
and which executed the foregoing instrument; and that he signed his name thereto
by order of the board of directors of said corporation.
/s/ Concetta Ombrellino
---------------------------------------------
Notary Public
CONCETTA OMBRELLINO
Notary Public, State of New York
Suffolk County No. 01OM6015966
Commission Expires November 09, 2000
10
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 10-K, into the Company's previously filed
Registration Statement File Nos. 333-34107 and 333-60165.
ARTHUR ANDERSEN LLP
Melville, New York
March 22, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from consolidated
financial statements found on the Annual Report on Form 10-K, December 31, 1999,
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 618
<SECURITIES> 0
<RECEIVABLES> 12,327
<ALLOWANCES> 160
<INVENTORY> 16,062
<CURRENT-ASSETS> 30,165
<PP&E> 17,031
<DEPRECIATION> 7,417
<TOTAL-ASSETS> 47,530
<CURRENT-LIABILITIES> 12,742
<BONDS> 14,761
0
0
<COMMON> 106
<OTHER-SE> 19,921
<TOTAL-LIABILITY-AND-EQUITY> 47,530
<SALES> 70,811
<TOTAL-REVENUES> 70,811
<CGS> 58,989
<TOTAL-COSTS> 58,989
<OTHER-EXPENSES> 8
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,282
<INCOME-PRETAX> (5,115)
<INCOME-TAX> (2,202)
<INCOME-CONTINUING> (2,913)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,913)
<EPS-BASIC> (0.28)
<EPS-DILUTED> (0.28)
</TABLE>
