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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _______ to _______
Commission file number 0-12734
STANFORD TELECOMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-2207636
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1221 Crossman Avenue 94089
Sunnyvale, California (Zip Code)
(Address of principal
executive offices)
Registrant's telephone number, including area code:
(408) 745-0818
Securities registered pursuant to section 12(b) of the Act:
None
Securities registered pursuant to section 12(g) of the Act:
Common Stock
Common Stock Purchase Rights
(Title of Class)
Indicate by check mark whether the registrant (l) 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
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[X] 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
amendments to this Form 10-K.
As of May 31, 1996, the aggregate market value of voting stock held by non-
affiliates of the registrant, based on the closing sale price of such stock on
the Nasdaq National Market System, was $161,537,464. Shares of Common Stock
held by each officer, director and ten percent stockholder of the registrant
have been excluded in that such persons may be deemed to be affiliates. This
determination of affiliate status is not necessarily a conclusive determination
for other purposes.
The number of shares of the registrant's Common Stock outstanding on May 31,
1996 was 6,358,661.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Annual Report to Stockholders for the fiscal year
ended March 31, 1996 (the "Annual Report to Stockholders") are incorporated in
Parts II and IV of this form 10-K. Portions of the definitive proxy statement
for the Annual Meeting of Stockholders to be held on June 26, 1996 (the "Proxy
Statement"), are incorporated by reference in Part III of this form 10-K.
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PART I
ITEM 1. BUSINESS
Stanford Telecommunications, Inc. (the "Company") was incorporated in
California in 1973 and reincorporated in Delaware in 1988. The Company designs,
manufactures, and markets advanced digital telecommunications products and
systems to establish or enhance communications via satellites, terrestrial
wireless and cable. The Company also provides communication systems networking
solutions and GPS navigation products. Stanford Telecom's expertise encompasses
all the technologies required for these systems including radio frequency (RF),
spread spectrum, waveform, coding, modem, ASIC, software and system design. The
Company maintains a low cost commercial manufacturing capability and offers cost
effective engineering services.
The Company's principal base business areas and products include:
Tri-band Terminals
Transportable Milstar Terminal
Advanced Communications for Government Agencies
Communication Satellite Performance Monitoring
Terrestrial Based Wireless Telephony
Commercial Telecommunications Chip and Board Level Products
Global Positioning System Aircraft Navigation
Commercial Electronic Contract Manufacturing
The following discussion addresses elements and applications which comprise
the significant majority of the Company's base business.
BASE BUSINESS DISCUSSION
TRI-BAND TERMINALS
DEFENSE INFORMATION INFRASTRUCTURE CONTINGENCY SATELLITE COMMUNICATIONS
TERMINAL ("DSAT"). During fiscal 1995, the Company received a contract from the
Defense Information Systems Agency ("DISA") for tri-band transportable satellite
terminals. The DSAT terminals are valued in excess of $1 million each. The
Company commenced delivery of the first units in January 1995. These satellite
terminals are self-contained trailer-mounted with tri-band capability and can be
configured for military, domestic and international satellites operating in C, X
or Ku bands. The Company delivered seven DSAT systems through fiscal 1996 and
plans to deliver the final two that are presently under contract in fiscal 1997.
The existing contract allows DISA to exercise options for additional systems
although their is no assurance that they will do so. The Company plans to
pursue additional transportable tri-band satellite terminal opportunities for
various agencies of the U.S. Government.
TRANSPORTABLE MILSTAR TERMINAL AND OTHER MILSTAR ACTIVITIES
MILSTAR SATELLITE COMMUNICATIONS. The Company has been involved since 1981
in development of the U.S. Government's Milstar satellite communications
program, designed to support stationary and mobile users in the joint military
services in the 1990's and beyond. In addition to performing system engineering
tasks, the Company has developed special test equipment in support of the
Milstar program, including a subcontract for the Milstar EHF Test System to test
the Milstar satellites in orbit. Presently, the Company is under contract to
upgrade its Milstar Test Terminals to support the Medium Data Rate communication
capabilities being added to the Milstar Block II satellites. During fiscal 1997
the Company plans to continue its development activities towards a proprietary
low-cost transportable Milstar terminal. The
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Company has begun a series of demonstrations of this new terminal to the Milstar
communications satellite user community. The Company believes that the market
for this product maybe significant although there is no assurance that the
Company will realize sales of its terminals or that the terminals will ever gain
market acceptance.
ADVANCED COMMUNICATIONS FOR GOVERNMENT AGENCIES
DSCS OPERATIONAL CONTROL SYSTEM ("DOCS"). The Company developed, installed
and now assists in the operation of an extensive network of computers and
software which performs control and monitoring functions for the Defense
Satellite Communication System ("DSCS"). Control of DSCS is complex due to the
different types of multiple access techniques used and the need to react quickly
to communications requirements and to hostile jamming actions. The task of
optimizing and controlling the many thousand of parameters in the DSCS network
is a sophisticated computational problem requiring both advanced computers and
extensive information processing. In September 1992, the Company was awarded a
DOCS Support Services contract with four one-year renewable options for an
aggregate of $38 million for operations, hardware, and software support. The
Company has received funding to continue work through January 1997. The Company
anticipates that within the next year, the Government will issue a request for
proposals for a competitive multi-year procurement for a continuation of the
effort currently being performed by the Company under the DOCS contract. The
Company plans to pursue this multi-year competitive contract and believes it
remains in a good position to support this anticipated future requirement.
Under a separate contract, the Company is replacing existing Digital VAX
equipment with newer minicomputers and operating systems. The upgraded hardware
and software is currently being integrated at sixteen facilities worldwide in
support of the DSCS Operational Control System.
REPLACEMENT SATELLITE CONFIGURATION CONTROL ELEMENT ("RSCCE"). The Company
has been awarded a contract from the U.S. Army to provide the configuration
control element in support of network management for the U.S. Government's DSCS.
Under this contract, the Company will provide the software and hardware
necessary to fully configure, test, and deliver this element of the satellite
system. The base contract is expected to be completed during fiscal 1997.
Production options are expected to extend the contract's period of performance
through the year 2000 although there is no assurance that the Government will
exercise their options to procure additional production hardware.
TDMA GROUND SYSTEMS. Stanford Telecom has developed a thin route, point-
to-multipoint TDMA ground system for satellite-based communications which
provides efficient use of the satellite transponders and can provide substantial
cost and flexibility advantages over conventional "time" or "frequency" division
multiple access systems. In a typical SATCOM network, the TDMA system will
operate with a hub terminal and up to 32 remote terminals providing "capacity on
demand" Demand Assignment Multiple Access services. Under contract with the
U.S. Government, the Company developed and manufactured its TDMA system, the
STEL 1105A, and has delivered approximately 330 systems to U.S. Government
customers. The Company has also developed an advanced version of the TDMA
system, the STEL 1105B, which has successfully completed customer field
evaluation. The Company is under contract with the U.S. Navy to provide
advanced TDMA network systems that can operate over commercial satellites to
support voice, data and video communications to the fleet.
SINGLE CHANNEL TRANSPONDER INJECTION SUBSYSTEM ("SCTIS"). The Company has
employed its spread spectrum technology in the design, production and
installation of high performance anti-jam uplink transmission systems for the
U.S. Air Force which protect emergency messages being sent through the Defense
Satellite Communications System against jamming and interception. Since the
program commenced in 1978, the Company has delivered twelve SCTIS
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systems plus spare parts to the U.S. Air Force. During fiscal 1996, the Company
was awarded a contract to upgrade the system to replace obsolete units and
enhance performance. Development of this upgrade is currently on-going and a
product follow-on is expected to be awarded during fiscal 1997. The Company is
currently under contract to deliver an Enhanced Link Simulator in support of
SCTIS. Delivery of these units is expected to be completed in fiscal year 1997.
The Company believes the U.S. Air Force is considering future enhancements for
both the SCTIS and the simulators and the Company remains in a good position to
support future requirements.
TRACKING AND DATA RELAY SATELLITE SYSTEMS ("TDRSS"). The National
Aeronautics and Space Administration (NASA) Tracking and Data Relay Satellites
enable NASA to maintain global continuous communications with the space shuttle
and NASA satellites even when they are not in direct line-of-sight to tracking
stations in the continental United States. The Company has several important
roles in this billion dollar satellite system, including study and system
engineering support, a major long-term subcontract to support TDRSS network
control, prime contracts to develop and assess space/ground segment
architectures for upgrading the TDRSS system, and assisting NASA in the
deployment of a new TDRSS ground terminal in Guam. The Company has developed a
portable S-band, spread spectrum transmitter and companion receiver designed for
operation with TDRSS. The Company believes the market may be significant for
these products although revenues from these products have not been material to
date and there is no assurance that these products will gain market acceptance.
COMMUNICATION SATELLITE PERFORMANCE MONITORING
COMMUNICATIONS SIGNAL MONITORING. In April 1993, the Company was awarded a
$13 million multi-year contract to provide a signal monitoring system for the
world's largest communications satellite network, owned and operated by
Intelsat, an international consortium of over 100 nations. The contract
required the development, assembly, installation and test of multiple systems to
be deployed world-wide. During fiscal 1994 and 1995 the Company recognized
losses totaling $3.5 million against the completion of this contract. During
fiscal 1996 the Company successfully delivered all systems required by the
contract and completed all necessary installations and tests. During early
fiscal 1997, the Company received final system acceptance from Intelsat. The
Company currently has a maintenance contract with Intelsat to support the
monitoring systems. In addition, the Company offers its Transponder Access
Control System (TACS) to serve the needs of customers with smaller communication
satellite networks. Customers including the U.S. Government, Martin Marietta,
Hughes, Network Systems, British Telecom, GTE Spacenet and Eutelsat have used
TACS to monitor transponder performance including frequency power, bandwidth,
interference, and unauthorized use to ensure that the satellite is functioning
properly and efficiently.
TERRESTRIAL BASED WIRELESS TELEPHONY
TERRESTRIAL BASED WIRELESS TELEPHONY. The Company has developed an advanced
OCDMA architecture for Wireless Local Loop applications. In June 1995, the
Company and DSC Communications signed a joint development agreement in which the
Company will provide its radio frequency and modem technology, as well as its
ASIC and waveform technology to expand DSC's wireless local loop access system
capabilities. The enhanced Wireless Local Loop capabilities are expected to be
demonstrated by the Company during fiscal 1997.
The Company provides an RF Monitoring Unit ("RFMU") which is located
inside PCS base stations. This unit has measurement and monitoring capabilities
and is used by PCS system operators to monitor the interference environment such
that PCS providers can share frequencies with existing microwave systems. The
Company's RFMU products are currently operational in the Washington D. C. area
and support the PCS network offered by American Personal Communications. The
Company has delivered several hundred units and believes there are opportunities
to deliver additional units in fiscal 1997 and beyond.
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COMMERCIAL TELECOMMUNICATIONS CHIP AND BOARD LEVEL PRODUCTS
COMMERCIAL TELECOMMUNICATIONS CHIP AND BOARD LEVEL PRODUCTS. The Company
designs, manufactures and markets a wide range of Application Specific
Integrated Circuits (ASIC) and board level assemblies for a variety of
commercial telecommunication applications. These products provide the digital
signal processing required to transmit and receive information. The Company
offers products for PSK modulation and demodulation, digital down conversion,
the reception and transmission of spread spectrum information, forward error
correction, adaptive equalization and direct digital frequency synthesis. Key
market areas addressed by the Company include:
- Cable/Internet Communications. Stanford Telecom has developed
the modulation/demodulation technology required for the
"upstream" (from the subscriber set-top box to the cable
"headend") transmission of data over hybrid fiber/coax (HFC)
networks. Products offered include the STEL-1108, a single-chip
complete BPSK/QPSK modulator ASIC, specifically designed for the
transmission of data from the subscriber to the headend and the
STEL-9244, a Burst Demodulator board level assembly that provides
demodulation of burst QPSK signals in the upstream environment.
The Company believes that a number of Internet access product
manufactures have incorporated Stanford Telecom's products into
systems which are currently in field trials at locations
throughout the United States. Although revenues from these
products have not been material to date, the Company believes
that future revenues may be significant if production orders are
forthcoming.
- Very Small Aperture Terminal (VSAT) Receiver Assemblies. The
Company offers board level receiver assemblies for use in VSAT
satellite systems. These digital demodulator assembly products
are used for rural telephony, background music services and
business data transmissions. The STEL-9236 product family can
provide signal timing recovery, demodulation, down conversion,
carrier tracking and forward error correction functions. Since
product introduction, the Company has received orders for
approximately 17,000 VSAT receiver assemblies.
- Spread Spectrum Wireless Communications. The Company offers
products for spread spectrum applications such as wireless
telephony, cordless PBX's, wireless LAN's, vehicle tracking and
other positioning systems. Stanford Telecom has integrated many
complex digital signal processing functions into a single ASIC
architecture for its STEL-2000A wireless signal processor.
GLOBAL POSITIONING SYSTEM AIRCRAFT NAVIGATION.
AIR TRAFFIC CONTROL SYSTEM MODERNIZATION. Since 1984, the Company has been
supporting an FAA program to upgrade and modernize the nation's air traffic
control and air transport navigation system. The Company's activities include
air traffic control (ATC) automation and communications system engineering and
support to FAA special projects activities such as the relocation of the Chicago
O'Hare ATC Tower Complex. The Company is also supporting the FAA in its
acquisition of the new terminal area ATC automation system. The above
activities are being conducted under two separate contracts: one to GSA/FEDSIM
for communication system engineering and one to DOT for transportation system
engineering and R&D support.
In addition, the Company was awarded a long term contract in fiscal 1996 to
support the FAA's implementation of a Global Positioning System (GPS) Wide Area
Augmentation System (WAAS). The FAA's WAAS Program is a central element of the
FAA's plans to move toward a satellite based Air Traffic Control System. The
WAAS, through supplementing the GPS system, will enable this system to become a
sole means navigation source for en route and terminal area aviation navigation
purposes. This will greatly enhance aircraft navigation capability and allow
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FAA to provide a more cost effective navigation infrastructure for civil
aviation in the National Airspace System. The Company has performed a central
role in the development of the WAAS concept through support to concept
definition, prototyping and field testing. This contract will leverage the
Company's substantial in-house expertise in satellite navigation to the
provision of technical support services addressing communications, navigation,
hardware, software and test issues that surround development of the WAAS. The
Company believes that an international need exist for WAAS capabilities and its
plans to pursue such opportunities as they arise.
GPS INSTRUMENTATION. The Company provides standard off-the-shelf GPS
navigation instrumentation products and GPS simulators, which allow
laboratories, system integrators and manufactures of receivers to perform an
automated test of GPS equipment by simulating a wide range of vehicle motions
including aircraft flight, the motion of a ship or the route of a vehicle along
a road. Automated testing using GPS simulators avoids time consuming dynamic
testing on testbeds such as aircraft and ships. The Company believes that the
market for this type of specialized product is currently limited and future
revenues in this area are unlikely to be significant.
COMMERCIAL ELECTRONIC CONTRACT MANUFACTURING
COMMERCIAL ELECTRONIC CONTRACT MANUFACTURING. During fiscal 1993, the
Company began to pursue opportunities in commercial contract manufacturing. In
addition to producing its own products, the Company offers its contract
manufacturing services to commercial customers. Revenues for the Company's
contract manufacturing business amounted to approximately 20% of total revenues
for fiscal year 1996, an increase from approximately 10% of revenues for fiscal
year 1995. The Company's Sunnyvale, California manufacturing facilities
received ISO-9001 certification during fiscal year 1996. Approximately 10% of
the Company's manufacturing capacity was used in support of the Company's own
products.
COMMERCIAL STRATEGIC PRODUCT DEVELOPMENT
Stanford Telecom has initiated a number of strategic product developments
and business arrangements, including those addressed below, to address a growing
worldwide market for digital telecommunication products and services. Revenues
from these initiates have not been significant to date and there is no assurance
that the Company will be successful in the development, marketing, distribution
and sales of these products however the Company believes that the market for
these product and services is substantial.
SATELLITE PERSONAL COMMUNICATIONS. In recent years a number of worldwide
satellite-based cellular systems have been proposed, including TRW/Teleglobe's
Odyssey, Inmarsat's ICO, Motorola's Iridium and Loral/Qualcomm's Globalstar.
The Company has been carrying out research and development on the medium
altitude Odyssey system being proposed by TRW/Teleglobe. The Company hopes to
play a key role in the ground station terminals that interface with the public
switch telephone network. The Company expects Odyssey to use a Stanford Telecom
proprietary version of the OCDMA (Orthogonal Code Division Multiple Access) wave
form in transmission of voice communications. There has been no decision on
whether Odyssey will proceed however a decision is expected this calendar year.
The Company is also a member of an international team competing for a regional
personal communication system.
WIRELESS BROADBAND COMMUNICATIONS (LMDS). Wireless broadband
communications, also called Local Multipoint Distribution System (LMDS), or
wireless cable", is a new technique for two-way transmission of high speed
digital data using terrestrial microwave links to homes and offices. Stanford
Telecom and Hewlett Packard have signed a memorandum of understanding to develop
a complete LMDS system. These systems operate in the 28-29 GHz microwave
frequency spectrum. The Company has begun to conduct technology demonstrations
and plans to enhance the
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capabilities of its system throughout fiscal 1997. It is unlikely that a
sizable market will develop for this system until after the FCC completes the
auction for utilization of the frequency spectrum and the system has been
adequately field demonstrated to potential customers such as Regional Bell
Operating Companies, long distance carriers and others. The Company believes
that the potential for significant revenues will not occur until fiscal 1998.
CABLE/INTERNET COMMUNICATIONS. One of the major new cable markets that can
be addressed by the CATV service provider is that of high-speed two-way Internet
and worldwide Web access. The full potential of the Internet can be realized
when high-resolution images can be quickly transmitted to the user. The use of
cable for this application offers the potential to increase the rate of
transmission by a factor of approximately 1,000 over typical telephone modem
access. In order to realize these increased transmission speeds, the cable
system needs to be augmented with both upstream and high speed downstream links.
Stanford Telecom has developed and currently offers for sale products which
address both upstream and downstream links. The Company plans to develop and
offer second generation products to provide improved performance at lower cost.
The Company believes it is in a good position to receive initial production
orders towards the end of fiscal 1997.
INTEGRATED SATCOM/WIRELESS LOCAL LOOP. To address the needs of the
developing world for telephony services, the Company plans to develop a low-cost
version of the OCDMA wireless local loop which will be integrated with a
satellite communication link and small satellite terminals. The Company is
currently evaluating market opportunities in the Far East and South America and
has begun development work to reduce the cost of system components. The Company
believes that providing a low-cost system is critical to a successful product
offering and plans to continue to evaluate the market opportunities and the
economic model required to assure a profitable business venture. The Company
does not expect to recognize revenues in this area during fiscal 1997.
OTHER BUSINESS
MANUFACTURING.
Stanford Telecom's products are generally manufactured from standard
components, its proprietary ASICs and other components or subsystems produced to
the Company's specifications. Most of the Company's current products contain
microprocessors for which proprietary software is designed and tested by the
Company's engineers. The Company does not have a semiconductor foundry or
fabrication facility. For the production of ASICs, the Company contracts with
companies that have foundry capability including Zilog (under a strategic
relationship), American Microsystems Inc., Hitachi, and AT&T Microelectronics.
In many cases only a single source is available for specific components,
and thus there is a risk of delay in delivering finished systems within
contractual schedules. The Company attempts to minimize this risk by securing
second sources, finding alternate technologies to perform the same function and
maintaining adequate inventories of single source components. To date the
Company has experienced no material adverse impact due to component
unavailability, product returns or contract renegotiations. Many of the
Company's products are covered by a 90-day to one-year warranty under which the
Company will repair or replace defective parts. To date, warranty expense has
not been significant.
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MARKETING AND CUSTOMERS.
The Company markets its products and services to agencies of the U.S.
Government, prime contractors to these agencies and an increasing number of
commercial customers. The Company's marketing is conducted by its management
and technical staff, and in the case of its commercial business, domestic and
international sales representatives are also utilized. The Company's marketing
efforts for its government business consist of responding to requests for
proposals and solicitations for bids from U.S. Government agencies or prime
contractors to these agencies and direct marketing of its off-the-shelf,
standardized products. The Company markets its ASICs and commercial products
primarily through its direct sales personnel consisting of five full-time
employees, 24 independent sales representative locations covering the U.S. and
Canada and 23 other independent sales representative offices covering other
international territories. The Company also places advertisements for
commercial products, particularly its ASIC products, in a number of trade
magazines and participates in trade shows and industry symposiums.
During the fiscal years ended March 31, 1996, 1995 and 1994 approximately
54%, 69%, and 73%, respectively, of the Company's revenues were attributable to
contracts with numerous agencies of the U.S. Government. No single contract
accounted for more than 10% of revenues during fiscal 1996, 1995 or 1994. Some
of the Company's U.S. Government sales are made under letter contracts in which
the final contract price is agreed upon after work has begun. To date, the
Company has had a small amount of revenue from international customers. Such
sales are often subject to U.S. State Department approval and export license
requirements.
COMPETITION.
Competition is intense among providers of digital telecommunications
equipment, products and services. In the Company's government business,
competitors include major defense contractors, telecommunications equipment and
electronics firms, and systems integrators, most of which have significantly
greater financial, marketing and operating resources than the Company, as well
as broader product lines and technological capabilities. As a result of reduced
defense spending by the U.S. and other governments, competition has become more
intense in the Company's government business. Although no single competitor
competes with the Company in all of its product lines, a number of competitors
such as Harris Corporation, Loral-Space, Lockheed-Martin, TRW, BDM, CSC, Texas
Instruments, Hitachi, and Rockwell International compete with the Company in
various market segments. Certain of the Company's customers have technological
capabilities in the Company's product areas and could choose to develop and
manufacture certain products themselves rather than purchase from suppliers such
as the Company. As the Company continues to transition to more commercial
business, it expects to face new and increasing competition with respect to its
commercially oriented products and services. The Company believes that, in its
highly specialized technical environment, price, performance, reputation,
reliability, on-time delivery and customer support are the primary competitive
factors among companies having similar technical capabilities.
BACKLOG AND BOOKINGS.
Funded backlog includes: (i) projects and orders covered by signed
contracts for which the government has specifically allocated funding; and (ii)
purchase orders from commercial customers. The Company's backlog is largely
attributable to agencies of the U.S. Government. In the case of certain long-
term contract awards, the U.S. Government typically makes the funds available
over the life of the contract as opposed to the time of the contract award. In
such cases the Company reports as funded bookings only the amount of the funds
specifically allocated and the resultant backlog as funded backlog. The Company
does not include unexercised options in backlog. The Company's funded bookings
for fiscal years 1996 and 1995 were $155.0 million and $127.8 million,
respectively, and the Company's backlog at the end of fiscal years 1996 and
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1995 was $82.4 million and $72.5 million, respectively. At March 31, 1996
backlog from the Company's government and commercial businesses were
approximately $46.8 million and $35.6 million, respectively. There is no
assurance that funded backlog will be completed and booked as revenue. The
Company's contracts typically contain contingency provisions permitting
termination by the customer at any time. Cancellation of pending contracts or
termination or reductions of contracts in progress may have a material adverse
effect on the Company's results of operations.
RESEARCH AND DEVELOPMENT.
The telecommunications industry is characterized by rapid technological
change, requiring a continuous effort to enhance existing products and develop
new products. The Company believes that its continued success depends in large
part on its ability to develop new and enhanced digital telecommunications
products. The Company conducts extensive research, development and engineering
activities with the objective of developing products and systems that provide
for cost-effective, high-quality satellite communications and digital wireless
telecommunications. Since its inception, the Company has developed a number of
innovative and proprietary digital telecommunications technologies through a
combination of customer and internally funded research and development. A
significant portion of these expenditures include bid and proposal expenditures
which are largely the initial advanced technology development efforts directed
toward a specific product or technical task for which the Company must show
technical viability. Company-funded expenditures for research and development
including bid and proposal activities for fiscal years 1996, 1995, and 1994 were
approximately $8.4 million, $7.7 million, and $6.4 million, respectively, which
represented 5.8%, 6.8%, and 6.5% of total revenues, respectively.
The Company's revenues have historically been derived primarily from
performing contract research and development and engaging in limited production
contracts with agencies of the U.S. Government and their prime contractors. As
a result, a substantial portion of the digital telecommunications research and
development performed by the Company since its inception has been funded by its
customers and recorded as revenues by the Company. Accordingly, the cost of
performing this customer-funded research and development is included in "Costs
of Revenues" in the Company's financial statements. The Company is continually
seeking to develop new products for commercial applications to leverage its
leading digital telecommunications technologies that have been funded through
many military and government research and development contracts since the early
1970's.
EMPLOYEES.
As of March 31, 1996, the Company employed 890 full-time and 24 part-time
employees and 30 professional consultants. Of the full-time and part-time
employees, 427 are in technical operations, 173 in manufacturing operations, and
314 in management and support for technical and corporate operations. The
majority of the Company's employees are highly skilled technical personnel.
Several are nationally known leaders in the field of digital telecommunications.
Over 490 employees hold advanced degrees, including approximately 30 with
doctoral degrees. None of the employees are represented by a labor union and
the Company has never had a work stoppage. The Company believes its employee
relations to be excellent. Due to the nature of the Company's business, a large
number of its technical employees must obtain security clearances from the U.S.
Government, which limits the available pool of eligible candidates for such
positions to those who can satisfy prerequisites for such clearances.
PATENTS AND PROPRIETARY RIGHTS.
The success of the Company's business depends in part upon its ability to
protect trade secrets, obtain or license patents and operate without infringing
on the rights of others. Although the Company has obtained patents covering
certain of its technologies, it believes that the
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ownership of patents has not generally been a significant factor in its
government business and that its success depends primarily on innovative skills,
technical competence, and the marketing and managerial abilities of its
personnel. The Company relies on a combination of trade secrets, copyrights,
patents, nondisclosure agreements and technical measures to protect its
proprietary rights in its products and technology. Such protection may not
preclude competitors from developing products with features similar to the
Company's products. The Company believes that patents will play an increasingly
important role in its commercial business and during the past two years the
Company has received or filed for approximately 50 patents with the U.S. Patent
and Trademark Office. The Company expects it will continue to aggressively
pursue additional patents to protect its intellectual property. The Company
requires its employees to execute proprietary rights and nondisclosure
agreements and to maintain the confidentiality of the Company's proprietary
information.
GOVERNMENT REGULATION.
The Company's operations are subject to compliance with regulatory
requirements of federal, state and local authorities, including regulations
concerning employment obligations and affirmative action, workplace safety and
protection of the environment. In addition, many of the Company's products and
proposed products are or will be subject to various regulations including
regulations promulgated by the Federal Communications Commission, the FAA and
the DoD. While compliance with applicable regulations has not adversely
affected the Company's operations in the past, there can be no assurance that
the Company will continue to be in compliance in the future or that these
regulations will not change.
In addition, the Company must comply with detailed government procurement
and contracting regulations and with U.S. Government security regulations,
including those necessary to maintain required facility clearances. Certain of
these regulations carry substantial penalty provisions for nonperformance or
misrepresentation in the course of negotiations. Failure of the Company to
comply with its government procurement, contracting or security obligations
could result in penalties or suspension of the Company from government
contracting, which would have a material adverse effect on the Company's results
of operations.
The Company is required to maintain a U.S. Government facility clearance at
most of its locations. This clearance could be suspended or revoked if the
Company is found not to be in compliance with applicable security regulations.
Any such revocation or suspension would delay the Company's delivery of its
products to customers. Although the Company has adopted policies designed to
assure its compliance with applicable regulations and there have been no
suspensions or revocations of any of its facilities, there can be no assurance
that the approved status of the Company's facilities will continue without
interruption.
CAUTIONARY STATEMENTS
In the interest of providing the Company's shareholders and potential investors
with certain Company information, including management's assessment of the
Company's future potential, certain statements set forth herein contain or are
based on projections of revenue, income, earnings per share and other financial
items or relate to management's future plans and objectives or to the Company's
future economic performance. Such statements are "forward-looking statements"
within the meaning of Section 27A(i) of the Securities Act of 1933, as amended,
and in Section 21E(i) of the Securities Exchange Act of 1934, as amended.
Although any forward-looking statements contained herein or otherwise expressed
by or on behalf of the Company are to the knowledge and in the judgment of the
officers and directors of the Company, expected to prove true and to come to
pass, management is not able to predict the future with absolute certainty.
Accordingly, shareholders and potential investors are hereby cautioned
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<PAGE>
that certain events or circumstances could cause actual results to differ
materially from those projected or predicted herein. In addition, the forward-
looking statements herein are based on management's knowledge and judgment as of
the date hereof, and the Company does not intend to update any forward-looking
statements to reflect events occurring or circumstances existing hereafter.
In particular, the Company believes that the following factors could impact
forward-looking statements made herein or in future written or oral releases and
by hindsight, prove such statements to be overly optimistic and unachievable:
1. Future revenues on government contracts, including contracts in
progress, are subject to reduction or cancellation without prior notice at the
convenience of the U.S. Government. Budgetary constraints and changes in
spending priorities in government agencies such as the Department of Defense,
NASA, and the FAA have resulted in sudden program changes, reductions or
cancellations in the past and such conditions may be expected to continue.
2. The Company has in the past accepted fixed price development
commitments for both government and commercial contracts. Although the Company
attempts to bid fixed price development contracts at an amount above the
expected costs of development and production, the Company has from time to time
experienced significant cost overruns which cannot be recovered from the
customer. The Company may in the future experience material cost overruns which
could adversely affect operating results over the life of the program.
3. The Company's basic strategy is to employ its technology in wireless
telecommunications and digital signal processing in the commercial environment,
generally as components or subsystems in the product or service offerings for
large telecommunications companies. The transition from a government contracts
focus to commercial development will expose the Company to certain business
risks not previously encountered. Of greatest significance will be the success
of the Company's customers in marketing the products or services for which the
Company provides key technology components, or subsystems. A successful product
development effort will not produce meaningful long-term revenues or profits for
the Company unless its customer obtains market acceptance of its end product or
service. Factors such as system price, competitive pressures, consumer demand
and the like will impact the customer's and the Company's level of commercial
success. In addition, even if a product or service proves to be a commercial
success, the Company will experience the continued risk that the customer will
develop or obtain lower cost alternatives to the Company's products or technical
solutions.
4. The Company's Commercial Manufacturing Division has grown
significantly since being established in 1993. The Division provides
manufacturing services to producers of electronics and medical products on
either an inventory consignment or turnkey basis. The contract manufacturing
business is subject to wide swings in demand, is price sensitive and extremely
competitive. In addition, to the extent inventory is purchased in anticipation
of future contracts, the failure to obtain such contracts can lead to a
reduction in the value of such inventory. The Company's Commercial
Manufacturing Division does not generally operate with long-term contracts and
is often required to bid each new job even for major customers.
5. Many of the components incorporated in the Company's commercial
products, including all semiconductor components, are purchased from third party
vendors. Certain key components are sole sourced. From time to time, the
Company may experience significant delays in component availability which could
adversely impact its ability to make timely deliveries to its customers. Such
events could cause expected revenues to be delayed and the possible loss of
future orders.
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<PAGE>
ITEM 2. PROPERTIES
The Company's headquarters and principal engineering and manufacturing
facilities are currently located in four adjacent buildings in Sunnyvale,
California where it leases approximately 172,000 square feet. The Company's
Sunnyvale facility leases will expire in the year 2000. The leases contain
options for renewal under terms and conditions to be negotiated at the time of
expiration. The Company also leases approximately 84,000, 34,000, 30,900,
15,300, and 11,300 square feet of office space in Reston, Virginia, Colorado
Springs, Colorado, Annapolis Junction, Maryland, Lowell, Massachusetts, and
Seabrook, Maryland, respectively, which space is used primarily for the
performance of study, system engineering and hardware contracts. The Reston
facility leases expire in 1997 through 2001. The Colorado Springs, Annapolis
Junction, Lowell, and Seabrook leases expire in 1999, 2003, 2001, and 1997,
respectively. The Company believes its current facilities are suitable and
adequate for the Company's operations over the next fiscal year.
ITEM 3. LEGAL PROCEEDINGS.
The Company is involved from time to time in litigation incidental to its
business. Management believes that the outcome of current litigation will not
have a material adverse effect on its financial position or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Inapplicable.
PART II
ITEM 5. - MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS.
Incorporated by reference from page 28 of the Annual Report to Stockholders.
ITEM 6. SELECTED FINANCIAL DATA.
Incorporated by reference from page 28 of the Annual Report to Stockholders.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Incorporated by reference from pages 15 through 18 of the Annual Report to
Stockholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Financial statements of Stanford Telecommunications, Inc. as of March 31,
1996 and March 31, 1995 and for each of the three years in the period ended
March 31, 1996 and the report of independent public accountants thereon are
incorporated by reference from pages 19 through 27 of the Annual Report to
Stockholders. See Part IV, Item 14(a).
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Inapplicable.
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<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Set forth below are the names and ages of the executive officers and
directors of the Company, their principal occupations at present and for the
past five years, certain directorships held by each, and the year in which each
became a director or executive officer of the Company.
Dr. James J. Spilker, Jr. (age 62), a founder of the Company, is Chairman of the
Board. He served as President and Chief Executive Officer of the Company from
August 1981 to June 1995.
Dr. Val P. Peline (age 65) was elected as a Director of the Company in October
1985. Dr. Peline joined the Company as its President and Chief Executive
Officer effective June 5, 1995. Dr. Peline served as President of the
Electronic Systems Group, a division of Lockheed Corp., from 1987 until he
retired from such position in March 1995. Dr. Peline had been President of the
Lockheed Space Division from 1984 to March 1987.
Mr. Michael Berberian (age 62), a private investor, was appointed to fill a
vacancy on the Board of Directors in December 1989. From 1973 to 1990 he served
on the Board of Directors of Lockheed Corporation.
Mr. John W. Brownie (age 62), a founder of the Company, served as Executive Vice
President of the Company from June 1982 and as General Manager from July 1981
until his retirement in January 1985. He has been a Director and Vice President
of the Company since the Company's organization in May 1973.
Dr. P. Marshall Fitzgerald (age 63), a founder of the Company, has served as a
Director since its organization in May 1973 and served as President of the
Company from May 1973 until his retirement in July 1981.
Mr. Milton W. Holcombe (age 63) was appointed to fill a vacancy on the Board of
Directors in September 1990. Mr. Holcombe served as President of Chrysler
Technologies Airborne Systems, Inc. from 1988 until his retirement in 1990. In
1970 he co-founded Electrospace Systems, Inc. where he served as Group Vice
President and Assistant Treasurer prior to the acquisition of Electrospace
Systems by Chrysler Corporation in 1988.
Mr. Leonard Schuchman (age 59) was elected as a Director of the Company in April
1985. Mr. Schuchman joined the Company in January 1976 and became Vice
President in February 1977. He is responsible for directing the Company's
Communications and Navigation Systems Operation.
Dr. C. Jerome Waylan (age 54) was appointed to fill a vacancy on the Board of
Directors in May 1994. Dr. Waylan served as President of GTE Spacenet
Corporation from 1985 to 1993 and as Executive Vice President of GTE Mobilnet
from 1993 until his retirement in April 1996. In June 1996, Dr. Waylan was
named Executive Vice President and Member of the Office of the Chairman of
NextWave Telecom, Inc.
Mr. Ernest L. Dickens, Jr. (age 49) joined the Company in October 1981. From
April 1990 to October 1995 he directed the Company's Government Systems Services
operation. Mr. Dickens was elected Vice President in November 1995 and
currently directs the Company's Satcom Ground Systems operation.
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<PAGE>
Mr. Bronic C. Knarr (age 50) joined the Company in November 1988. From November
1988 to April 1992 Mr. Knarr held various management positions at the Company in
support of key programs. From April 1992 to September 1995 Mr. Knarr directed
the Company's Satellite Communications operations. In September 1995 Mr. Knarr
was appointed director of the Company's Manufacturing and Quality Assurance
operation and was elected Vice President in November 1995.
Dr. John E. Ohlson (age 56) joined the Company in March 1981 as Director of
Telecommunications Programs Operations and became Vice President in January
1982. In February 1991 he was named Director of Military Ground Terminals. Dr.
Ohlson directed the Satellite Communications Group from June 1992 to November
1994. Dr. Ohlson was named as the Company's Chief Technical Officer in
November 1994 and currently directs the Company's Satellite Personal
Communications Operation.
Mr. Gary S. Wolf (age 45) joined the Company in May 1978 and was elected Vice
President, Chief Financial Officer, Secretary and Treasurer in December 1984.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORT COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's Directors and executive officers and holders of more than 10% of
the outstanding Common Stock ("insiders") to file with the SEC reports of
ownership and changes in ownership of Common Stock and other equity securities
of the Company. Insiders also are required to furnish the Company with a copy
of all reports that they file with the SEC pursuant to Section 16(a).
Based solely on its review of such reports or written representations with
respect to Section 16(a) reports by insiders, the Company believes that during
fiscal year 1996, each of the insiders complied with all applicable filing
requirements under Section 16(a).
ITEM 11. EXECUTIVE COMPENSATION.
The information set forth under the caption "Executive Compensation"
beginning on page 5 of the Company's Proxy Statement is incorporated herein by
reference and made a part hereof in response to the information required by this
item.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information set forth under the caption "Stock Ownership" beginning on
page 12 of the Company's Proxy Statement is incorporated herein by reference and
made a part hereof in response to the information required by this item.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Inapplicable.
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<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following report, financial statements and other information are
incorporated by reference from the Annual Report to stockholders and form a part
of this report:
REFERENCE PAGE
1996
Annual
Report Form 10-K
------- ---------
1. FINANCIAL STATEMENTS.
Report of Independent Public
Accountants 19
Statements of income for each
of the three years in the period
ended March 31, 1996 19
Balance sheets at March 31, 1996 and
March 31, 1995 20
Statements of shareholders' equity for
each of the three years in the period
ended March 31, 1996 21
Statements of cash flow for each of
the three years in the period ended
March 31, 1996 22
Notes to financial statements 23
2. FINANCIAL STATEMENT SCHEDULES
II - Valuation and Qualifying Accounts 19
All other schedules have been omitted since the required information is not
present or not present in amounts sufficient to require submission of the
schedule or because the information required is included in the financial
statements or notes thereto.
With the exception of such information in the Annual Report to Stockholders
incorporated herein by reference, the Annual Report to Stockholders is not
deemed "filed" as part of this report.
3. Exhibits.
Exhibit Number Description
- -------------- -----------
3.1(2) Certificate of Incorporation, as amended.
3.2(2) Bylaws, as amended.
4.1(6) Rights Agreement dated as of May 9, 1995 between the Company
and The First National Bank of Boston.
4.2 Agreement re. Rights of Holders of Long-Term Debt.
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<PAGE>
10.1(5) Consolidated, Amended and Restated Deed of Lease for the premises
located at 1761 Business Center Drive, Reston, Virginia dated
October 1, 1993 between the Company and the Variable Annuity Life
Insurance Company.
10.2(1)* 1982 Stock Option Plan, as amended, and form of Agreements.
10.3(3)* 1992 Employee Stock Purchase Plan.
10.4(4) Lease dated November 19, 1992 for 480 Java Drive, Sunnyvale,
California, 440 Moffett Park Drive, Sunnyvale, California, and
1221 Crossman Avenue, Sunnyvale, California.
10.5(5) Office Lease Agreement for 141 National Business Parkway,
Annapolis Junction, Maryland dated March 1, 1993 between the
Company and Constellation Real Estate, Inc.
10.6* 1991 Stock Option Plan and form of Agreements.
10.7* Management Incentive Plan.
10.8 Credit Agreement dated December 20, 1995 between the Company and
Bank of America National Trust and Savings Association.
13.1(7) Annual Report to Stockholders for the fiscal year ended March 31,
1996.
23.1 Consent of Arthur Andersen LLP, independent public accountants.
24.1 Power of Attorney (included on page 15 hereof).
27.1 Financial Data Schedule
- ---------------------------
*Compensatory Plan
(1) Incorporated by reference from the Company's Annual Report on Form l0-K for
the fiscal year ended March 31, 1987.
(2) Incorporated by reference from the Company's Annual Report on Form l0-K for
the fiscal year ended March 31, 1989.
(3) Incorporated by reference from the Company's Annual Report on Form l0-K for
the fiscal year ended March 31, 1992.
(4) Incorporated by reference from the Company's Annual Report on Form l0-K for
the fiscal year ended March 31, 1993.
(5) Incorporated by reference from the Company's Registration Statement on Form
S-1, No. 33-72720.
(6) Incorporated by reference from the Company's Registration Statement on Form
8-A, dated May 24, 1995.
(7) Only those portions of the Annual Report to Stockholders that are
specifically incorporated by reference in this form 10-K are included in
this exhibit.
REPORTS OF FORM 8-K
No current Reports on Form 8-K were filed by the Company with the Securities and
Exchange Commission during the last quarter of the period covered by this Form
10-K.
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<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
STANFORD TELECOMMUNICATIONS, INC.
Dated: June 24, 1996 /s/ James J. Spilker, Jr.
----------------------------------
James J. Spilker, Jr.
Chairman of the Board
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints James J. Spilker, Jr. and Gary S. Wolf
and both of them, as his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments to this Form
10-K and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said attorneys-in-
fact and agents, or either of them, or their or his substitute or substitutes,
may lawfully do or cause to be done by virtue hereof.
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:
Signature Title Date
--------- ----- ----
/s/ James J. Spilker, Jr. Chairman of the Board June 24, 1996
- ------------------------------
James J. Spilker, Jr.
/s/ Val P. Peline President (Principal Executive June 24, 1996
- ------------------------------ Officer) and Director
Val P. Peline
/s/ Gary S. Wolf Vice President, Treasurer and June 24, 1996
- ------------------------------ Secretary, (Principal Financial
Gary S. Wolf and Accounting Officer)
/s/ Michael Berberian Director June 24, 1996
- ------------------------------
Michael Berberian
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<PAGE>
/s/ John W. Brownie Director June 18, 1996
- ------------------------------
John W. Brownie
/s/ P. Marshall Fitzgerald Director June 19, 1996
- ------------------------------
P. Marshall Fitzgerald
/s/ Milton W. Holcombe Director June 19, 1996
- ------------------------------
Milton W. Holcombe
/s/ Leonard Schuchman Vice President and Director June 24, 1996
- ------------------------------
Leonard Schuchman
/s/ C. J. Waylan Director June 17, 1996
- ------------------------------
C. J. Waylan
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<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON SCHEDULES
To Stanford Telecommunications, Inc.:
We have audited in accordance with generally accepted auditing standards, the
financial statements included in Stanford Telecommunications, Inc.'s annual
report to stockholders incorporated by reference in this Form l0-K, and have
issued our report thereon dated April 22, 1996. Our audit was made for the
purpose of forming an opinion on those statements taken as a whole. The
schedule listed at Item 14(a)(2) 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 part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in the audit
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
San Jose, California
April 22, 1996
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<PAGE>
SCHEDULE II
STANFORD TELECOMMUNICATIONS, INC.
Valuation and Qualifying Accounts
Three years ended March 31, 1996
(In Thousands)
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Bal. at Beg. Charged to Bad Debts Bal. at End
Year of period expense Written Off of Period
---- ----------- ------------ ----------- -------------
1994 $175 $375 $(307) $243
1995 $243 $541 $(134) $650
1996 $650 $468 $(198) $920
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<PAGE>
EXHIBIT NUMBER 4.2
AGREEMENT RE. RIGHTS OF HOLDERS OF LONG-TERM DEBT
The Company hereby agrees to furnish to the Securities and Exchange Commission,
upon request, a copy of the instruments which define the rights of holders of
long-term debt of the Company. None of such instruments not included as
exhibits herein represents long-term debt in excess of 10% of the total assets
of the Company.
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<PAGE>
EXHIBIT 10.6
STANFORD TELECOMMUNICATIONS, INC.
1991 STOCK OPTION PLAN
(Amended and Restated Effective February 15, 1995)
<PAGE>
TABLE OF CONTENTS
Page
1. Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
3. Effective Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
4. Administration. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(a) Committee Procedures . . . . . . . . . . . . . . . . . . . . . . 4
(b) Committee Responsibilities . . . . . . . . . . . . . . . . . . . 4
(c) Modification, Extension and Renewal of Options . . . . . . . . . 6
5. Eligibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
(a) Ten Percent Shareholders . . . . . . . . . . . . . . . . . . . . 7
(b) Stock Ownership. . . . . . . . . . . . . . . . . . . . . . . . . 7
(c) Outstanding Stock. . . . . . . . . . . . . . . . . . . . . . . . 7
6. Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
7. Terms and Conditions of Options . . . . . . . . . . . . . . . . . . . 8
(a) Number of Shares . . . . . . . . . . . . . . . . . . . . . . . . 8
(b) Exercise Price . . . . . . . . . . . . . . . . . . . . . . . . . 8
(c) Medium and Time of Payment . . . . . . . . . . . . . . . . . . . 9
(d) Agreement To Serve . . . . . . . . . . . . . . . . . . . . . . . 10
(e) Term and Exercise of Options; Nontransferability of Options. . . 10
(f) Termination of Employment. . . . . . . . . . . . . . . . . . . . 11
(g) Rights as a Stockholder. . . . . . . . . . . . . . . . . . . . . 11
(h) Other Provisions . . . . . . . . . . . . . . . . . . . . . . . . 11
8. Term of the Plan. . . . . . . . . . . . . . . . . . . . . . . . . . . 12
9. Adjustment of and Changes in the Shares . . . . . . . . . . . . . . . 12
10. Securities Law Requirements . . . . . . . . . . . . . . . . . . . . . 15
11. Amendment of the Plan . . . . . . . . . . . . . . . . . . . . . . . . 16
12. Deliveries of Certificates and Resale . . . . . . . . . . . . . . . . 16
13. Construction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
14. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
15. Execution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
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<PAGE>
STANFORD TELECOMMUNICATIONS, INC.
1991 STOCK OPTION PLAN
(Amended and Restated Effective February 15, 1995)
1. PURPOSE. This amended and restated Stock Option Plan of Stanford
Telecommunications, Inc., a Delaware corporation (the "Corporation"), and its
eligible subsidiaries, is intended to provide incentive to employees of the
Corporation or of its subsidiaries, to encourage employee proprietary interest
in the Corporation, to encourage employees to remain in the employ of the
Corporation or of its subsidiaries and to attract and retain the best available
personnel for service as directors of the Corporation. Options granted under
the Plan may include both Nonstatutory Options and Incentive Stock Options.
This amended and restated Plan (a) increases the number of shares subject to the
Plan, (b) permits the grant of options to certain nonemployee directors,
(c) adds an individual grant limitation required by Code section 162(m) for
option income for certain individuals to be tax deductible by the Corporation,
and (d) makes certain additional changes.
2. DEFINITIONS.
(a) "Board" shall mean the Board of Directors of the Corporation.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(c) "Common Stock" shall mean the Common Stock of the Corporation.
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<PAGE>
(d) "Committee" shall mean the Committee, if any, appointed by the Board
in accordance with Section 4 of the Plan.
(e) "Corporation" shall mean Stanford Telecommunications, Inc., a Delaware
corporation.
(f) "Employee" shall mean an individual (who may be an officer or a
director) employed by the Company (within the meaning of Code section 3401 and
the regulations thereunder).
(g) "Exercise Price" shall mean the price per Share of Common Stock,
determined by the Committee, at which an option may be exercised.
(h) "Fair Market Value" shall mean the value of one (1) Share of Common
Stock, determined as follows:
(i) If the shares are traded on an exchange, the price at which
Shares traded at the close of business on the date of valuation;
(ii) If the shares are traded over-the-counter on The Nasdaq
Stock Market, the mean between the bid and the asked price at the close of
business on the date of valuation, or, in the event the shares are traded
on The Nasdaq Stock Market, the last price on the date of valuation; and
(iii) If neither (i) nor (ii) applies, the Fair Market
Value as determined by the Committee in good faith. Such
determination shall be conclusive and binding on all persons.
(i) "Incentive Stock Option" shall mean an Option described in Code
section 422(b).
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<PAGE>
(j) "Nonstatutory Option" shall mean an employee stock option not
described in sections 422(b), 423(b) or 424(b) of the Code.
(k) "Option" shall mean an Incentive Stock Option or a Nonstatutory Option
granted pursuant to the Plan.
(l) "Purchase Price" shall mean the Exercise Price times the number of
whole Shares with respect to which an Option is exercised.
(m) "Optionee" shall mean an Employee or a nonemployee member of the Board
who has received an Option.
(n) "Plan" shall mean this stock option plan, as amended and restated
herein.
(o) "Share" shall mean one Share of Common Stock, adjusted in accordance
with Section 9 of the Plan (if applicable).
(p) "Subsidiary" shall mean any corporation (other than the Corporation)
in an unbroken chain of corporations beginning with the Corporation where each
of the corporations in the unbroken chain (other than the last corporation) owns
stock possessing fifty percent (50%) or more of the total combined voting power
of all classes of stock in one of the other corporations in such chain.
3. EFFECTIVE DATE. This amended and restated Plan was adopted by the
Board effective February 15, 1995; provided, however, that if the Plan, as
hereby amended and restated, is not approved by the stockholders of the
Corporation within twelve (12) months from the date of its adoption by the
Board, the
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<PAGE>
amended and restated Plan shall terminate and all Options granted hereunder
shall be cancelled.
4. ADMINISTRATION.
(a) COMMITTEE PROCEDURES. The Committee shall be designated by the Board
and shall have such membership composition which enables the Plan to qualify
under Rule 16b-3 issued under the Securities Exchange Act of 1934 (the "Exchange
Act") with regard to the grant of Options to persons who are subject to
Section 16 of the Exchange Act. The Committee may hold meetings at such times
and places as it shall determine. The acts of a majority of the Committee
members present at meetings at which a quorum exists, or acts reduced to or
approved in writing by all Committee members, shall be valid acts of the
Committee.
(b) COMMITTEE RESPONSIBILITIES. Subject to the provisions of the Plan,
the Committee shall have full authority and discretion to take the following
actions:
(i) To interpret the Plan and to apply its provisions;
(ii) To adopt, amend or rescind rules, procedures and forms
relating to the Plan;
(iii) To authorize any person to execute, on behalf of the
Corporation, any instrument required to carry out the purposes of the
Plan;
(iv) To determine when Options are to be granted under the
Plan;
(v) To select the recipients of Options;
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<PAGE>
(vi) To determine the number of shares to be subject to
each Option;
(vii) To prescribe the terms and conditions of each Option,
including (without limitation) the exercise price, the vesting or
duration of the Option (including accelerating the vesting of the
Option), to determine whether an Option is to be classified as an
incentive stock option or a nonstatutory option, and to specify the
provisions of the Option Agreement relating to such Option;
(viii) To amend any outstanding Option, subject to
applicable legal restrictions and to the consent of the Optionee who
entered into such agreement;
(ix) To prescribe the consideration for the grant of each
Option under the Plan and to determine the sufficiency of such
consideration;
(x) To determine the disposition of each Option under the
Plan in the event of an Employee's divorce or dissolution of marriage;
(xi) To determine whether Options will be granted in
replacement of other grants under an incentive or other compensation
plan of an acquired business;
(xii) To correct any defect, supply any omission, or
reconcile any inconsistency in the Plan, or any Option; and
(xiii) To take any other actions deemed necessary or
advisable for the administration of the Plan.
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Subject to the requirements of applicable law, the Committee may designate
persons other than members of the Committee to carry out its responsibilities
and may prescribe such conditions and limitations as it may deem appropriate,
except that the Committee may not delegate its authority with regard to the
selection for participation of or the granting of Options under the Plan to
persons subject to Section 16 of the Exchange Act. All decisions,
interpretations and other actions of the Committee shall be final and binding on
all Optionees, and all persons deriving their rights from an Optionee. No
member of the Committee shall be liable for any action that he or she has taken
or has failed to take in good faith with respect to the Plan or any Option to
acquire Shares under the Plan.
(c) MODIFICATION, EXTENSION AND RENEWAL OF OPTIONS. Within the
limitations of the Plan, the Committee may modify, extend or renew outstanding
Options or may accept the cancellation of outstanding Options (to the extent not
previously exercised) in return for the grant of new Options at the same or a
different price or without regard to such grants. The foregoing
notwithstanding, no modification of an Option shall, without the consent of the
Optionee, impair his rights or increase his obligations under such Option.
5. ELIGIBILITY. Optionees shall be such key Employees (who may be
officers, whether or not they are directors) of the Corporation or of its
Subsidiaries as the Committee shall, in its complete discretion, select, but
subject to the terms and conditions set forth below. Optionees may also include
any
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nonemployee member of the Board who is not a member of the Committee at the time
of the grant.
(a) TEN PERCENT SHAREHOLDERS. An Employee who owns more than ten percent
(10%) of the total combined voting power of all classes of outstanding stock of
the Corporation, its parent or any of its Subsidiaries shall not be eligible to
receive an Incentive Stock Option pursuant to this Plan unless, at the time such
Option is granted to him or her, the Exercise Price of the Shares subject to
such Option to such Employee is at least one hundred and ten percent (110%) of
the Fair Market Value of such Shares, and such Option by its terms is not
exercisable after the expiration of five (5) years from the date such Option is
granted.
(b) STOCK OWNERSHIP. For purposes of this section, in determining stock
ownership, an Employee shall be considered as owning the Shares owned, directly
or indirectly, by or for his brothers and sisters, spouse, ancestors, and lineal
descendants. Shares owned, directly or indirectly, by or for a corporation,
partnership, estate, or trust shall be considered as being owned proportionately
by or for its shareholders, partners, or beneficiaries. Shares with respect to
which such Employee holds an option shall not be counted.
(c) OUTSTANDING STOCK. For purposes of this section, "Outstanding Stock"
shall include all Shares actually issued and outstanding immediately after the
grant of the Incentive Stock Option to the Optionee. Outstanding Stock shall
not include
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treasury Shares or Shares authorized for issue under outstanding Options held by
the optionee or by any other person.
6. STOCK. The stock subject to Options authorized to be granted under the
Plan shall consist of one million (1,000,000) Shares of the Corporation's
authorized but unissued or reacquired Common Stock. In the event that any
outstanding Option for any reason expires or is terminated, the Shares allocable
to the unexercised portion of such Option may again be subject to an Option.
The limitations established by this Section 6 shall be subject to
adjustment upon the occurrence of the events specified and in the manner
provided in Section 9 hereof.
7. TERMS AND CONDITIONS OF OPTIONS. Options shall be evidenced by written
agreements in such form as the Committee shall from time to time determine,
which agreements shall comply with and be subject to the following terms and
conditions:
(a) NUMBER OF SHARES. Each Option shall state the number of Shares to
which it pertains and shall provide for the adjustment thereof in accordance
with the provisions of Section 9 hereof. The Stock Option Agreement shall also
specify whether the option is an Incentive Stock Option or a Nonstatutory
Option. Notwithstanding the foregoing, no Optionee shall be granted Options
pertaining to more than two hundred thousand (200,000) Shares over the life of
the Plan.
(b) EXERCISE PRICE. Each Option shall state the Exercise Price. The
Exercise Price under an Incentive Stock Option shall not be less than the Fair
Market Value of a Share on the date of
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grant, or, in the case of an Option granted to an optionee who is described in
Section 5(a) hereof, than one hundred ten percent (110%) of the Fair Market
Value of a Share on the date of grant. The Exercise Price under a Nonstatutory
Option shall be not less than eighty-five percent (85%) of the Fair Market Value
of a Share on the date of grant.
(c) MEDIUM AND TIME OF PAYMENT. The Purchase Price shall be payable in
full in United States dollars upon the exercise of the Option; provided,
however, that, in its discretion, the Committee may permit the Purchase Price to
be paid by one of the following the alternative methods:
(i) The surrender of Shares in good form for transfer,
owned for such period prescribed by the Committee by the person
exercising the Option and having a Fair Market Value on the date of
exercise equal to the Purchase Price;
(ii) In any combination of cash and Shares, so long as the
sum of the cash so paid and the Fair Market Value of the Shares so
surrendered equals the Purchase Price;
(iii) In whole or in part with a full recourse promissory
note executed by the Optionee. No Share shall be issued until full
payment therefor has been made.
(iv) By delivery (on a form prescribed by the Committee) of
an irrevocable direction to a securities broker to sell Shares and to
deliver all or part of the
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sale proceeds to the Company in payment of the aggregate exercise price.
As a condition to the exercise of an Option, the Optionee shall make such
arrangements as the Committee may require for the satisfaction of any federal,
state or local tax obligations that may arise in connection with such exercise.
The Optionee shall also make such arrangements as the Committee may require for
the satisfaction of any federal, state or local tax obligations that may arise
in connection with the disposition of Shares acquired by exercising an Option.
Such arrangements may include share withholding or the delivery of previously
owned Shares in accordance with the Committee's rules.
(d) AGREEMENT TO SERVE. Each Optionee shall agree that he or she will
remain in the Corporation's or a Subsidiary's employ or service for at least one
year from the date of grant. Such provision does not offset the Corporation's
right to terminate an Optionee's employ or service at any time and for any
reason.
(e) TERM AND EXERCISE OF OPTIONS; NONTRANSFERABILITY OF OPTIONS. Each
Option shall specify the date when all or any installment of the Option is to
become exercisable. The Option shall also specify the term of the Option, but
in no event shall the term of an ISO be greater than ten (10) years from the
date of grant. Subject to the preceding two sentences, the Committee in its
sole discretion shall determine when all or any installment of an Option is to
become exercisable and when an Option is to expire. Except to the extent the
Option agreement otherwise provides, each Option shall be transferable only by
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will or the laws of descent and distribution and shall only be exercisable by
the Optionee during his or her lifetime.
(f) TERMINATION OF EMPLOYMENT. Each Option shall set forth the extent to
which the Optionee shall have the right to exercise the Option following
termination of employment and/or service with the Corporation or a Subsidiary,
and the right to exercise the Option of any executors or administrators of the
Optionee's estate or any person who has acquired such Option(s) directly from
the Optionee by bequest or inheritance. Such provisions shall be determined in
the sole discretion of the Committee, need not be uniform among all Options
issued pursuant to the Plan, and may reflect distinctions based on the reasons
for termination of employment and/or service.
(g) RIGHTS AS A STOCKHOLDER. An Optionee or a transferee of an Optionee
shall have no rights as a stockholder with respect to any Shares covered by his
or her Option until the date of the issuance of a stock certificate for such
Shares. No adjustment shall be made for dividends (ordinary or extraordinary,
whether in cash, securities or other property) or distributions or other rights
for which the record date is prior to the date such stock certificate is issued,
except as provided in Section 9.
(h) OTHER PROVISIONS. The Option agreements authorized under the Plan
shall contain such other provisions not inconsistent with the terms of the Plan,
including, without limitation, restrictions upon the exercise of the Option, as
the Committee shall deem advisable.
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8. TERM OF THE PLAN. Options may be granted until the termination of the
Plan on January 26, 2001.
9. ADJUSTMENT OF AND CHANGES IN THE SHARES. In the event the outstanding
Shares, as presently constituted, shall be changed into or exchanged for a
different number or kind of shares of stock or other securities of the
Corporation or of another corporation (whether by reason of reorganization,
merger, consolidation, recapitalization, reclassification, split-up, combination
of shares, or otherwise), or if the number of the outstanding Shares of the
Corporation shall be increased through the payment of a stock dividend, the
Committee shall substitute for or add to each Share theretofore appropriated or
thereafter subject to or which may become subject to an Option, the number and
kind of shares of stock or other securities into which each outstanding Share
shall be so changed, or for which each Share shall be exchanged, or to which
each such Share shall be entitled, as the case may be. In addition, the
Committee shall make appropriate adjustment in the number and kind of shares as
to which outstanding Options, or portions thereof then unexercised, shall be
exercisable, so that any Optionee's proportionate interest in the Corporation by
reason of his rights under unexercised portions of such Options shall be
maintained as before the occurrence of such event. Such adjustment in
outstanding options shall be made without change in the total price to the
unexercised portion of the Option and with a corresponding adjustment in the
Option price per Share.
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Notwithstanding the foregoing, in the event of the sale, dissolution or
liquidation of the Corporation, a merger or consolidation in which the
Corporation is not the surviving or resulting corporation, or a merger or
consolidation in which the Corporation becomes the subsidiary of another person
or entity, the Committee shall have the power to cause the termination of every
Option outstanding hereunder, except that the surviving, resulting or parent
corporation may, in its absolute and uncontrolled discretion, tender an option
or options to purchase its shares on its terms and conditions, both as to the
number of shares and otherwise; provided, however, that in all events, each
Optionee shall have the right, immediately prior to such sale, dissolution,
liquidation, merger or consolidation, to notification thereof as soon as
practicable and, thereafter, to exercise each Option with respect to which a
period of at least one (1) year has elapsed from the date of grant of the
Option, and purchase Shares subject thereto to the extent of any unexercised
portion of such Option, regardless of any vesting provisions hereunder. This
right of exercise shall be conditioned upon the execution of a final plan of
dissolution or liquidation or a definitive agreement of merger or consolidation
and upon the Corporation's receipt of written notice of such exercise at least
five (5) days prior to such sale, dissolution, liquidation, merger or
consolidation. For purposes of this paragraph, the Corporation shall be deemed
to be a "subsidiary" of any person or entity that owns or controls, directly or
indirectly, more than fifty percent (50%) of the outstanding shares of the
Corporation.
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In the event of an offer by any person or entity to all shareholders of the
Corporation to purchase more than fifty percent (50%) of the Shares outstanding
immediately prior to such offer (or shares of stock or other securities which
shall be substituted for such Shares or to which such Shares shall be adjusted
as provided in this Section 9), any Optionee shall have the right upon the
commencement of such offer to exercise each Option with respect to which of a
period at least one year has elapsed from the date of grant of the Option, and
purchase Shares subject thereto to the extent of any unexercised or unvested
portion of such Option, regardless of any vesting provisions hereunder. This
right of exercise shall be conditioned upon the consummation of the transaction
described in the preceding sentence and upon the Corporation's receipt of
written notice of such exercise at least five (5) days prior to the consummation
of such transaction.
No right to purchase fractional Shares shall result from any adjustment in
Options pursuant to this Section 9. In case of any such adjustment, the Shares
subject to the Option shall be rounded down to the nearest whole Share. Notice
of any adjustment shall be given by the Committee to each Optionee and such
adjustment (whether or not such notice is given) shall be effective and binding
for all purposes of the Plan.
To the extent any adjustments required pursuant to this Section 9 relate to
stock or securities of the Corporation, such adjustments shall be made by the
Committee, whose determination in that respect shall be final, binding and
conclusive.
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Except as expressly provided in this Section 9, an Optionee shall have no
rights by reason of any of the following events: (i) a subdivision or
consolidation of shares of stock of any class; (ii) payment of any stock
dividend; (iii) any other increase or decrease in the number of shares of stock
of any class; or (iv) any dissolution, liquidation, merger, consolidation or
spin-off of assets or stock of another corporation. Any issue by the
Corporation of shares of stock of any class, or securities convertible into
shares of any class, shall not affect the number or price of Shares subject to
the Option, and no adjustment by reason thereof shall be made.
The grant of an Option pursuant to the Plan shall not affect in any way the
right or power of the Corporation to make
adjustments, reclassifications, recapitalizations, reorganizations or changes of
its capital or business structure or to merge or to consolidate or to dissolve,
liquidate or sell, or transfer all or any part of its business or assets.
10. SECURITIES LAW REQUIREMENTS. No Shares shall be issued upon the
exercise of any Option unless and until the Corporation has determined that:
(i) it and the Optionee have taken all actions required to register the Shares
under the Securities Act of 1933 or perfect an exemption from the registration
requirements thereof; (ii) any applicable listing requirement of any stock
exchange on which the Common Stock is listed has been satisfied; and (iii) any
other applicable provision of state or federal law has been satisfied.
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11. AMENDMENT OF THE PLAN. The Board may suspend or discontinue the Plan
or revise or amend it in any respect whatsoever, and any such action shall be
subject to the approval of the Corporation's stockholders only to the extent
required by applicable laws, regulations or rules.
12. DELIVERIES OF CERTIFICATES AND RESALE. Certificates for the Shares
acquired through the exercise of an Option shall be delivered to the Optionee
involved as soon as possible after such exercise and the receipt by the
Corporation of payment for such Shares. Such certificates shall be subject to
such legends, stop-transfer instructions, or other conditions as counsel for the
Corporation may require in order to ensure the Corporation's compliance with all
applicable state and federal laws. There is no assurance that an Optionee may
sell the Shares acquired through the exercise of an Option until such Shares
have been registered or qualified for such sale with the Securities and Exchange
Commission and any appropriate state agencies. The Corporation is not obligated
to so register or qualify such Shares.
13. CONSTRUCTION. As used herein, the singular shall include the plural,
and vice versa, and the masculine shall include the feminine.
14. GOVERNING LAW. The interpretation and performance of the Plan shall
be governed by the laws of the State of Delaware.
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15. EXECUTION. To record the adoption of the amended and restated Plan by
the Board, the Corporation has caused its duly authorized officer to affix the
corporate name and seal hereto.
STANFORD TELECOMMUNICATIONS, INC.
By
------------------------------------
As its
---------------------------------
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STANFORD TELECOMMUNICATIONS, INC.
1991 STOCK OPTION PLAN
INCENTIVE STOCK OPTION AGREEMENT
Stanford Telecommunications, Inc., a Delaware corporation (the "Company"),
hereby grants an option to purchase Shares of its common stock to the optionee
named below. The terms and conditions of the option are set forth in this cover
sheet, in the attachment and in the Company's 1991 Stock Option Plan (the
"Plan").
Date of Option Grant: __________ __, 199_
Name of Optionee: __________________________________________________________
Optionee's Social Security Number: ____-___-____
Number of Shares of Common Stock Covered by Option: __________
Exercise Price per Share: $____.___ (must be at least 100% of Fair Market Value
on the Date of Option Grant)
Vesting Start Date: __________ __, 199_
BY SIGNING THIS COVER SHEET, YOU AGREE TO ALL OF THE TERMS AND CONDITIONS
DESCRIBED IN THE ATTACHED AGREEMENT AND IN THE PLAN, A COPY OF WHICH IS ALSO
ENCLOSED.
Optionee: ________________________________________________________________
(Signature)
Company: ________________________________________________________________
(Signature)
Title: ___________________________________
Attachment
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STANFORD TELECOMMUNICATIONS, INC.
1991 STOCK OPTION PLAN
INCENTIVE STOCK OPTION AGREEMENT
INCENTIVE STOCK OPTION This option is intended to be an incentive stock option
under section 422 of the Internal Revenue Code and will
be interpreted accordingly.
VESTING Your right to exercise this option vests as to 25% of
the shares covered by this option on each one-year
anniversary of the Vesting Start Date, as shown on the
cover sheet. The number of Shares which may be
purchased under this option by you at the Purchase
Price shall be equal to the difference between (i) the
product of the number of one-year anniversaries of your
continuous employment with the Company (including all
days of any approved leaves of absence) from the
Vesting Starting Date times the number of Shares
covered by this option times .25 minus (ii) the number
of Shares purchased pursuant to this Option prior to
such exercise. The resulting number of Shares will be
rounded to the nearest whole number. No additional
Shares will vest after your Company service has
terminated for any reason.
TERM Your option will expire in any event at the close of
business at Company headquarters on the day before the
10th anniversary of the Date of Grant, as shown on the
cover sheet. (It will expire earlier if your Company
service terminates, as described below.)
REGULAR TERMINATION If your service as an employee of the Company (or any
subsidiary) terminates for any reason except death or
Disability, then your option will expire at the close
of business at Company headquarters on the 90th day
after your termination date.
DEATH If you die as an employee of the Company (or any
subsidiary), then your option will expire at the close
of business at Company headquarters on the date _____
months after the date of death. During that period,
your estate or heirs may exercise the vested portion of
your option.
DISABILITY If your service as an employee of the Company (or any
subsidiary) terminates because of your disability, then
your option will expire at the close of business at
Company headquarters on the date 12 months after your
termination date.
"Disability" means that you are unable to engage in any
substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be
expected to result in death or which has lasted, or can
be expected to last, for a continuous period of not
less than twelve months.
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LEAVES OF ABSENCE For purposes of this option, your service does not
terminate when you go on a BONA FIDE leave of absence
that was approved by the Company in writing, if the
terms of the leave provide for continued service
crediting, or when continued service crediting is
required by applicable law. However, for purposes of
this Option qualifying as an incentive stock option,
your service will be treated as terminating 90 days
after you went on leave, unless your right to return to
active work is guaranteed by law or by a contract.
Your service terminates in any event when the approved
leave ends unless you immediately return to active
work.
The Company determines which leaves count for this
purpose, and when your service terminates for all
purposes under the Plan.
RESTRICTIONS ON EXERCISE The Company will not permit you to exercise this option
if the issuance of Shares at that time would violate
any law or regulation.
NOTICE OF EXERCISE When you wish to exercise this option, you must notify
the Company by filing the proper "Notice of Exercise"
form at the address given on the form. Your notice
must specify how many Shares you wish to purchase.
Your notice must also specify how your Shares should be
registered (in your name only or in your and your
spouse's names as community property or as joint
tenants with right of survivorship). The notice will
be effective when it is received by the Company.
If someone else wants to exercise this option after
your death, that person must prove to the Company's
satisfaction that he or she is entitled to do so.
FORM OF PAYMENT When you submit your notice of exercise, you must
include payment of the option price for the Shares you
are purchasing. Payment may be made in one (or a
combination) of the following forms:
- Your personal check, a cashier's check or a money
order.
- Common Shares which have already been owned by you
for more than _________ months and which are
surrendered to the Company. The value of the
Shares, determined as of the effective date of the
option exercise, will be applied to the option
price.
- By delivery (on a form prescribed by the
Committee) of an irrevocable direction to a
securities broker to sell Shares and to deliver
all or part of the sale proceeds to the Company in
payment of the aggregate Exercise Price.
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WITHHOLDING TAXES You will not be allowed to exercise this option
unless you make acceptable arrangements to pay any
withholding or other taxes that may be due as a
result of the option exercise or sale of the
option shares.
RESTRICTIONS ON RESALE By signing this Agreement, you agree not to sell
any option Shares at a time when applicable laws,
regulations or Company or underwriter trading
policies prohibit a sale.
TRANSFER OF OPTION Prior to your death, only you may exercise this
option. You cannot transfer or assign this
option. For instance, you may not sell this
option or use it as security for a loan. If you
attempt to do any of these things, this option
will immediately become invalid. You may,
however, dispose of this option in your will or by
beneficiary designation.
Regardless of any marital property settlement
agreement, the Company is not obligated to honor a
notice of exercise from your spouse, nor is the
Company obligated to recognize your spouse's
interest in your option in any other way.
RETENTION RIGHTS Your option or this Agreement do not give you the
right to be retained by the Company (or any
subsidiaries) in any capacity. The Company (and
any subsidiaries) reserve the right to terminate
your service at any time and for any reason.
SHAREHOLDER RIGHTS You, or your estate or heirs, have no rights as a
shareholder of the Company until a certificate for
your option Shares has been issued. No
adjustments are made for dividends or other rights
if the applicable record date occurs before your
stock certificate is issued, except as described
in the Plan.
ADJUSTMENTS In the event of a stock split, a stock dividend or
a similar change in the Company stock, the number
of Shares covered by this option and the exercise
price per share may be adjusted pursuant to the
Plan. Your option shall be subject to the terms
of the agreement of merger, liquidation or
reorganization in the event the Company is subject
to such corporate activity.
APPLICABLE LAW This Agreement will be interpreted and enforced
under the laws of the State of Delaware.
THE PLAN AND The text of the Plan is incorporated in this
OTHER Agreement by reference. Certain capitalized terms
AGREEMENTS used in this Agreement are defined in the Plan.
This Agreement and the Plan constitute the entire
understanding between you and the Company
regarding this option. Any prior agreements,
commitments or negotiations concerning this option
are superseded.
BY SIGNING THE COVER SHEET OF THIS AGREEMENT, YOU AGREE TO ALL OF THE TERMS
AND CONDITIONS DESCRIBED ABOVE AND IN THE PLAN.
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EXHIBIT 10.7
STANFORD TELECOMMUNICATIONS, INC.
MANAGEMENT INCENTIVE PLAN
___________________________________
PURPOSE:
This Management Incentive Plan (the "Plan") has been adopted by the Board
of Directors of Stanford Telecommunications, Inc. (the "Company") to provide
motivation for superior Company and individual performance though the payment of
incentive compensation to key management employees who by their ability,
ingenuity and industry have a measurable impact on the success of the Company.
This Plan provides incentive to eligible employees to promote the success
of the Company through their contributions and performance, with the following
intent:
1. Achieving profit, cash flow, revenue and bookings objectives.
2. Stimulating attitudes that will result in increased
interorganizational cooperation.
3. Generating products and systems that advance the Company's
strategic goals.
4. Stimulating attitudes which will result in more effective
discharge of assigned responsibilities.
Individual compensation awards are based on both overall Company
performance as well as individual performance.
RESPONSIBILITIES:
A. The Board of Directors shall:
1. Establish performance objectives for the Company at the beginning of
the Fiscal Year and evaluate the quality of performance at year end to determine
the Company's rating.
2. Recommend the annual incentive dollar pool based on performance
against Company objectives to the Compensation Committee of the Board of
Directors for authorization to pay the incentive compensation.
B. The Company will form a Management Incentive Plan Committee to
determine those eligible for participation, their tier level and approval of
individual performance ratings. The committee shall be appointed by the
President.
C. No participant shall have any right to require the Board of Directors
to make any appropriation to the Plan for any fiscal year, nor shall any
participant have any vested interest in any amounts which may be appropriated to
the Plan.
ELIGIBILITY FOR PARTICIPATION:
A. An employee shall be considered eligible for Management Incentive Plan
participation only if he/she is selected by the Management Incentive Plan
Committee. Selection of employees is to be made annually and no employee shall
be eligible for Plan participation merely by having participated in the Plan in
any prior year. Employees shall be selected to participate if by execution of
the employee's duties and responsibilities, he/she can make a significant and
demonstrable effect on the success of the Company measured in terms of
efficiency, profitability and future growth.
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B. In order to receive an award for the Fiscal Year Performance, the
employee must be approved as a participant at the beginning of the year or if
approved after the beginning of the fiscal year, the participant's incentive
award will be determined by multiplying the participant's salary compensation
earned while the employee was an approved participant in the Plan by the
Company's percentage rating times the participant's tier level performance
rating.
C. For employees who have been employed by the Company for a minimum of
ten (10) years and terminate during the Fiscal Year due to retirement, incentive
awards will be determined at the end of the fiscal year in which the employee
retired by multiplying the participant's salary compensation earned during that
portion of the fiscal year worked by the Company's percentage rating times the
participant's tier level performance rating, provided:
1. that the employee actually works to the date of retirement,
otherwise payment will be made to the last day worked.
2. that the employee works a minimum of six (6) months during the
fiscal year.
3. that the employee's rating is based on performance against
objectives as provided by the Plan.
D. Employees who voluntarily terminate or are discharged shall be
ineligible to receive an incentive payment.
ESTABLISHMENT OF OBJECTIVES:
A. The Board of Directors shall approve objectives for the Company at the
beginning of the Fiscal Year. The Company's objectives shall become the
objectives of the President and the Chairman.
B. The President shall establish measurable objectives for each business
area Vice President and those objectives shall be discussed and mutually agreed
upon.
C. The Company's and Business area objectives will be based on two
factors:
1. Specific financial objectives such as:
- Pre-tax earnings
- Cash flow management
- Revenues
- New contract bookings
2. Other objectives such as:
- Long-term or short-term financial goals
- Production or operating goals
- Productization of technology
- Human Resources goals such as management development
These two factors may be weighted by the Board in determining the funding for
the Company. For example, the specific financial objectives may be weighted 75%
and all other objectives weighted 25%.
D. As soon as practical after the President and the business area Vice
President agree to the objectives, the business area Vice President and each
eligible employee reporting to the business area Vice President shall also
establish and agree to measurable objectives. The objectives should be
established such that the expected cumulative results of eligible employee's
efforts towards meeting their individual objectives will significantly
contribute to the realization
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of objectives established and agreed to by the President and business area Vice
President. Collectively, the realization of objectives established and agreed
to by the President and all business area Vice Presidents should meet or exceed
those objectives established for the Company and the President by the Board of
Directors.
INDIVIDUAL RATING:
A. The measurable and mutually agreed upon objectives for each
participant in this Plan should be listed in the appropriate column of the
Individual-Performance Rating Sheet and approved as indicated. At the end of
the Fiscal Year, the participant's performance and accomplishments toward these
objectives will be determined, recorded and approved on the Rating Sheet and
will be the basis for the individual's rating. The participant's performance
rating will be based on the following guidelines:
Top Contributor: On balance far exceeded high performance expectations
Superior Contributor: Exceeded or achieved all objectives, or on balance
exceeded or met high performance expectations
Very Good Contributor: Met the most significant objectives but may have
fallen short of meeting all objectives. Overall very good performance.
Satisfactory Contributor: Met some objectives, but overall performance not
as high as possible or expected.
Non-Qualifying Contributor: Did not achieve sufficient overall performance.
COMPANY RATING AND BONUS POOL:
At the close of the fiscal year, the Board of Directors will determine
Company level funding for the Plan by evaluating the quality of performance in
accomplishing established Company objectives based upon the following rating
scale:
101% - 125% On balance far exceeded high performance expectations.
100% Achieved all objectives or on balance met high performance
expectations.
75% - 99% Met most objectives. Overall performance was good, but not
as high as possible or expected.
51% - 74% Met some objectives, but overall performance not as good as
possible or expected.
0% Did not achieve sufficient overall performance level.
The Bonus Pool dollar amount will be equal to the cumulative total of each
participants salary times the percentage factor indicated below for Very Good
Contributor in his assigned tier times the percentage determined by the Board of
Directors for the Company's rating.
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CALCULATION OF INDIVIDUAL MANAGERS INCENTIVE PAYMENT:
A. Participants will be placed in a tier level based on the level of
importance and responsibility of their position in the Company.
Tier level assignments will be recommended to the President by the
Incentive Plan Committee and approved by the Compensation Committee of the Board
of Directors in accordance with the following Tier guidelines:
Tier 1: Company Salary Grade 17E
Tier 2: Company Salary Grade 16E and 15E
Tier 3: Company Salary Grade 15E
Tier 4: Company Salary Grade 14E and 13E
Tier 5: Company Salary Grade 13E and Less than 13E
Salary grades do not ensure participation in the Plan.
B. The participant's incentive award will be determined by multiplying
the Company's percentage rating times the percentage factor for the
participant's tier level performance rating times the participant's fiscal year
salary compensation.
The applicable percentage factor for the participant's tier level and
performance rating will be determined by the following table:
Level of Performance Tier 1 Tier 2 Tier 3 Tier 4 Tier 5
- -------------------- ------ ------ ------ ------ ------
Top Contributor 40% 35% 30% 25% 20.0%
Superior Contributor 30% 25% 20% 15% 12.5%
Very Good Contributor 25% 20% 15% 10% 7.5%
Satisfactory Contributor 15% 15% 10% 5% 5.0%
Non-Qualifying Contributor 0% 0% 0% 0% 0%
The target award for each tier level is at the performance level for a Very Good
Contributor.
Example:
- ----------
- During the fiscal year under evaluation, the Company received a
rating of 92% by the Board of Directors.
- During the fiscal year under evaluation, a Tier 3 employee earned
a Very Good Contributor performance rating (equal to 15%).
- The employee's fiscal year salary compensation totaled $120,000.
The employee's incentive compensation earned under the term of this plan is
computed as follows: Company Rating (CR) x Individual Rating (IR) x Fiscal Year
Salary Compensation (SC) = Incentive Earned (IE).
CR x IR x SC = IE
.92 x .15 x $120,000 = $16,560
D. Payment of individual awards will be made within 60 days after the end
of each fiscal year.
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<PAGE>
EFFECTIVE DATE:
This Plan shall be effective with the Company's fiscal year 1996 and shall
continue in effect until amended or terminated by the Company's Board of
Directors. This Plan supersedes and replaces all management level cash
incentive or bonus compensation programs. The Board of Directors shall have the
right to amend, modify or terminate this Plan at any time.
RIGHTS AS AN EMPLOYEE:
Nothing in this Plan shall be construed to give any person the right to
remain in the employ of the Company or to affect the right of the Company to
terminate the employment of any person at any time with or without cause.
COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS AUTHORITY:
The Compensation Committee of the Board of Directors shall have full
authority to interpret and administer this Plan and decide all questions and
settle all disputes which may arise. All interpretations, decisions and
determinations made by the Compensation Committee of the Board of Directors
shall be final and binding on all persons concerned.
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<PAGE>
EXHIBIT 10.8
AMENDED AND RESTATED
CREDIT AGREEMENT
(MULTICURRENCY)
DATED AS OF DECEMBER 20, 1995
BETWEEN
STANFORD TELECOMMUNICATIONS, INC.,
AND
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
<PAGE>
TABLE OF CONTENTS
Section Page
ARTICLE I
Definitions and Financial Requirements . . . . . . . . . . 1
1.01 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.02 Financial Requirements . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE II
The Credit Facilities. . . . . . . . . . . . 7
2.01 The Revolving Facility . . . . . . . . . . . . . . . . . . . . . . . 7
2.02 Advances Under the Revolving Facility. . . . . . . . . . . . . . . . 8
2.03 Acceptances under the Revolving Facility . . . . . . . . . . . . . . 8
2.04 Commercial Letters of Credit under the Revolving
Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.05 Standby Letters of Credit Under the Revolving Facility . . . . . . . 11
2.06 Local Currency Advances. . . . . . . . . . . . . . . . . . . . . . . 12
2.07 Bank Guaranties. . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.08 Mandatory Payment. . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.09 Commitment Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.10 Default Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.11 Early Termination of Commitment. . . . . . . . . . . . . . . . . . . 14
ARTICLE III
Extensions of Credit, Payments and Interest Calculations . . . 15
3.01 Requests for Credit. . . . . . . . . . . . . . . . . . . . . . . . . 15
3.02 Disbursements and Payments . . . . . . . . . . . . . . . . . . . . . 15
3.03 Branch Accounts. . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.04 Evidence of Indebtedness . . . . . . . . . . . . . . . . . . . . . . 15
3.05 Interest Calculation . . . . . . . . . . . . . . . . . . . . . . . . 15
3.06 Late Payments; Compounding . . . . . . . . . . . . . . . . . . . . . 15
3.07 Business Day . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.08 Taxes and Other Charges. . . . . . . . . . . . . . . . . . . . . . . 16
3.09 Illegality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.10 Increased Costs. . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.11 Funding Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.12 Inability to Determine Rates . . . . . . . . . . . . . . . . . . . . 18
3.13 Certificate of the Bank. . . . . . . . . . . . . . . . . . . . . . . 18
3.14 Debits to Borrower's Account . . . . . . . . . . . . . . . . . . . . 18
3.15 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE IV
Conditions to Availability of Credit. . . . . . . . . . . . . 19
4.01 Conditions to First Extension of Credit. . . . . . . . . . . . . . . 19
4.02 Conditions to Each Extension of Credit . . . . . . . . . . . . . . . 20
i
<PAGE>
ARTICLE V
Representations and Warranties . . . . . . . . . . . . . . . 20
5.01 Corporate Existence and Power. . . . . . . . . . . . . . . . . . . . 20
5.02 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.03 Enforceability . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.04 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . 21
5.05 Permits, Franchises. . . . . . . . . . . . . . . . . . . . . . . . . 21
5.06 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.07 No Event of Default. . . . . . . . . . . . . . . . . . . . . . . . . 21
5.08 Other Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.09 Tax Returns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.10 Information Submitted. . . . . . . . . . . . . . . . . . . . . . . . 22
5.11 No Material Adverse Effect . . . . . . . . . . . . . . . . . . . . . 22
5.12 ERISA Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.13 Environmental Matters. . . . . . . . . . . . . . . . . . . . . . . . 22
5.14 Swap Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE VI
Affirmative Covenants. . . . . . . . . . . . . . . . . . 23
6.01 Notices of Certain Events. . . . . . . . . . . . . . . . . . . . . . 23
6.02 Financial and Other Information. . . . . . . . . . . . . . . . . . . 24
6.03 Books, Records, Audits and Inspections . . . . . . . . . . . . . . . 24
6.04 Use of Facility. . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.05 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.06 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . 25
6.07 Change in Name, Structure or Location. . . . . . . . . . . . . . . . 25
6.08 Existence and Properties . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE VII
Negative Covenants. . . . . . . . . . . . . 26
7.01 Other Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . 26
7.02 Liens. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7.03 Capital Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7.04 Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7.05 Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7.06 Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7.07 Liquidations and Mergers . . . . . . . . . . . . . . . . . . . . . . 28
7.08 Sale of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.09 Business Activities. . . . . . . . . . . . . . . . . . . . . . . . . 28
7.10 Regulations G, T, U, and X . . . . . . . . . . . . . . . . . . . . . 28
7.11 Use of Proceeds - Ineligible Securities. . . . . . . . . . . . . . . 28
7.12 Compliance with ERISA. . . . . . . . . . . . . . . . . . . . . . . . 29
7.13 Tangible Net Worth . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.14 Leverage Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.15 Quick Ratio. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.16 Profitability. . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
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<PAGE>
ARTICLE VIII
Events of Default. . . . . . . . . . . . . 30
8.01 Events of Default. . . . . . . . . . . . . . . . . . . . . . . . . . 30
(a) Failure to Pay. . . . . . . . . . . . . . . . . . . . . . . . . 30
(b) Breach of Representation or Warranty. . . . . . . . . . . . . . 30
(c) Specific Defaults . . . . . . . . . . . . . . . . . . . . . . . 30
(d) Other Defaults. . . . . . . . . . . . . . . . . . . . . . . . . 30
(e) Judgments . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
(f) Failure to Pay Debts; Voluntary Bankruptcy. . . . . . . . . . . 30
(g) Involuntary Bankruptcy. . . . . . . . . . . . . . . . . . . . . 31
(h) Default of Other Financial Obligations. . . . . . . . . . . . . 31
(i) Default under other Credit Documents. . . . . . . . . . . . . . 31
(j) Default of Other Bank Obligations . . . . . . . . . . . . . . . 31
(k) Material Adverse Effect . . . . . . . . . . . . . . . . . . . . 31
(l) ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
8.02 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
ARTICLE IX
Miscellaneous. . . . . . . . . . . . . . 33
9.01 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . 33
9.02 Consents and Waivers . . . . . . . . . . . . . . . . . . . . . . . . 33
9.03 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
9.04 Costs and Attorneys' Fees. . . . . . . . . . . . . . . . . . . . . . 33
9.05 Integration; Amendment; Effect of Amendment and
Restatement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
9.06 Borrower's Documents . . . . . . . . . . . . . . . . . . . . . . . . 34
9.07 Participations . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
9.08 General Indemnification. . . . . . . . . . . . . . . . . . . . . . . 34
9.09 Arbitration; Reference Proceeding. . . . . . . . . . . . . . . . . . 35
9.10 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.11 Headings; Interpretation . . . . . . . . . . . . . . . . . . . . . . 36
9.12 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.13 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Exhibit A Form of Compliance Certificate
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<PAGE>
AMENDED AND RESTATED CREDIT AGREEMENT
(MULTICURRENCY)
THIS AMENDED AND RESTATED CREDIT AGREEMENT (MULTICURRENCY) (this
"AGREEMENT") is entered into as of December 20, 1995, between STANFORD
TELECOMMUNICATIONS, INC., a Delaware corporation (the "BORROWER"), and BANK OF
AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION (the "BANK").
WHEREAS, the Borrower and the Bank are parties to a Credit Agreement
(Including Overdraft Facility) dated as of July 31, 1993, as amended by a First
Amendment to Credit Agreement dated September 19, 1994, by a Second Amendment to
Credit Agreement dated September 11, 1995, and by a Third Amendment to Credit
Agreement dated as of November 29, 1995, effective as of November 30, 1995 (as
so amended, the "Existing Credit Agreement"), pursuant to which the Bank has
extended certain credit facilities to the Borrower.
WHEREAS, the Borrower and the Bank have agreed to amend, restate and
replace the Existing Credit Agreement in its entirety in this Agreement, which
completely amends, restates and replaces the Existing Credit Agreement, all upon
the terms and provisions and subject to the conditions hereinafter set forth;
NOW THEREFORE, in consideration of the mutual covenants and agreements
contained herein, the Borrower and the Bank agree as follows:
ARTICLE I
DEFINITIONS AND FINANCIAL REQUIREMENTS
1.01 DEFINITIONS. The following terms (including plural and singular
versions thereof) have the meanings indicated:
"ADVANCE": an advance hereunder.
"AVAILABILITY PERIOD": the period commencing on the date of this Agreement
and ending on the date that is the earlier to occur of (a) December 19, 1996,
and (b) the date on which the Bank's commitment to extend credit hereunder
terminates.
"BANK GUARANTY": a guaranty issued hereunder by an Offshore Credit
Provider for the Borrower's account.
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<PAGE>
"BANK GUARANTY OUTSTANDING AMOUNT": at any time, the amount or Equivalent
Amount guaranteed pursuant to any Bank Guaranty but not disbursed thereunder at
such time, plus all amounts paid under any Bank Guaranty by an Offshore Credit
Provider which have not yet been reimbursed, plus any other obligation or
liability of the Borrower to any Offshore Credit Provider with respect to any
Bank Guaranty.
"BUSINESS DAY": any day other than a Saturday, a Sunday, or other day on
which commercial banks in San Francisco, California, are authorized or required
by law to close and, if the applicable Business Day relates to any Offshore Rate
Advance, means such a day on which dealings are carried on in the applicable
offshore interbank market.
"CLOSING DATE": the date on which all conditions to the initial extension
of credit hereunder are satisfied.
"CODE": the Internal Revenue Code of 1986, as amended, and the rules and
regulations promulgated thereunder as from time to time in effect.
"CREDIT DOCUMENTS": collectively, this Agreement and each other agreement,
documents and instrument now or hereafter delivered to the Bank (including any
Offshore Credit Provider) in connection with the credits established herein and
the transactions contemplated hereby.
"CREDIT LIMIT": the amount of $15,000,000 or the Equivalent Amount
thereof.
"DEFAULT": any event or circumstance which, with the giving of notice, the
lapse of time, or both, would (if not cured or otherwise remedied during such
time) constitute an Event of Default.
"DOLLARS", "DOLLARS" and "$": each, lawful money of the United States.
"DOLLAR ADVANCES": specified in subsection 2.01(b).
"ENVIRONMENTAL LAWS": any foreign, federal, state, local, or municipal
laws, rules, orders, regulations, statutes, ordinances, codes, decrees,
requirements of any governmental authority, any and all requirements of law and
any and all common law requirements, rules, and bases of liability regulating,
relating to, or imposing liability or standards of conduct concerning pollution
or protection of human health or the environment, as now or may at any time
hereafter may be in effect.
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<PAGE>
"EQUIVALENT AMOUNT": (a) whenever this Agreement requires or permits a
determination on any date of the equivalent in dollars of an amount expressed in
a currency other than dollars, the equivalent amount in dollars of any amount
expressed in a currency other than dollars as determined by the Bank on such
date on the basis of the Spot Rate for the purchase of dollars with such other
currency on the relevant date; or (b) whenever this Agreement requires or
permits a determination on any date of the equivalent in a currency other than
dollars of an amount expressed in dollars, the equivalent amount in a currency
other than dollars of an amount expressed in dollars as determined by the Bank
on such date on the basis of the Spot Rate for the purchase of such other
currency with dollars on the relevant date.
"ERISA": the Employee Retirement Income Security Act of 1974, as amended,
and the rules and regulations promulgated thereunder as from time to time in
effect.
"ERISA AFFILIATE": any trade or business (whether or not incorporated)
under common control with the Borrower within the meaning of Section 414(b) or
(c) of the Code (and Sections 414(m) and (o) of the Code for purposes of
provisions relating to Section 412 of the Code).
"ERISA EVENT": (a) a Reportable Event with respect to a Pension Plan;
(b) a withdrawal by the Borrower or any ERISA Affiliate from a Pension Plan
subject to Section 4063 of ERISA during a plan year in which it was a
substantial employer (as defined in Section 4001(a)(2) of ERISA) or a cessation
of operations which is treated as such a withdrawal under Section 4062(e) of
ERISA; (c) a complete or partial withdrawal by the Borrower or any ERISA
Affiliate from a Multiemployer Plan or notification that a Multiemployer Plan is
in reorganization; (d) the filing of a notice of intent to terminate, the
treatment of a Plan amendment as a termination under Section 4041 or 4041A of
ERISA, or the commencement of proceedings by the PBGC to terminate a Pension
Plan or Multiemployer Plan; (e) an event or condition which might reasonably be
expected to constitute grounds under Section 4042 of ERISA for the termination
of, or the appointment of a trustee to administer, any Pension Plan or
Multiemployer Plan; or (f) the imposition of any liability under Title IV of
ERISA, other than PBGC premiums due but not delinquent under Section 4007 of
ERISA, upon the Borrower or any ERISA Affiliate.
"EVENT OF DEFAULT": any event listed in Article VIII of this Agreement.
"FDIC": the Federal Deposit Insurance Corporation, or any entity
succeeding to any of its principal functions.
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<PAGE>
"FINAL MATURITY DATE": (a) in respect of any Advances, December 19, 1996;
(b) in respect of any commercial letters of credit, June 19, 1997; (c) in
respect of any standby letters of credit, December 19, 1997; (d) in respect of
any Bank Guaranties, December 19, 1997; and (e) in respect of any acceptances,
June 19, 1997.
"FRB": the Board of Governors of the Federal Reserve System, or any entity
succeeding to any of its principal functions.
"HAZARDOUS SUBSTANCE": any hazardous or toxic substance, material, or
waste, defined, listed, classified, or regulated as such in or under any
Environmental Laws, including asbestos, petroleum, or petroleum products
(including gasoline, crude oil, or any fraction thereof), polychlorinated
biphenyls, and urea-formaldehyde insulation.
"IRS": the Internal Revenue Service or any entity succeeding to any of its
principal functions under the Code.
"L/C OUTSTANDING AMOUNT": at any time, the undrawn amount or Equivalent
Amount at such time of any letter of credit issued hereunder, plus the amount of
all drafts or drawings paid or accepted by the Bank or an Offshore Credit
Provider which have not yet been reimbursed to the Bank or such Offshore Credit
Provider, plus any other obligation or liability of the Borrower to the Bank or
an Offshore Credit Provider with respect to any letter of credit issued under
this Agreement.
"LOCAL CURRENCY": specified in subsection 2.01(b).
"LOCAL CURRENCY ADVANCE": specified in subsection 2.01(b).
"MATERIAL ADVERSE EFFECT": (a) a material adverse change in, or a material
adverse effect upon, the operations, business, properties, condition (financial
or otherwise) or prospects of the Borrower or the Borrower and its Subsidiaries
taken as a whole; (b) a material impairment of the ability of the Borrower to
perform under any Credit Document; or (c) a material adverse effect upon the
legality, validity, binding effect or enforceability of any Credit Document.
"MULTIEMPLOYER PLAN": a "multiemployer plan" (within the meaning of
Section 4001(a)(3) of ERISA) and to which the Borrower or any ERISA Affiliate
makes, is making, or is obligated to make contributions or has made, or been
obligated to make, contributions.
"OFFSHORE CREDIT PROVIDER": a foreign office, foreign branch or foreign
affiliate of the Bank, acceptable to the Bank.
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<PAGE>
"OFFSHORE RATE": for each Offshore Rate Interest Period, the rate of
interest (rounded upward to the next 1/16th of 1%) determined pursuant to the
following formula:
Offshore Rate = Offered Rate
------------------------------------------
1.00 - Eurodollar Reserve Percentage
Where:
"OFFERED RATE" means the rate of interest at which
deposits in the applicable currency in the approximate amount of the
Offshore Rate Advance to be made and having a maturity comparable to such
Offshore Rate Interest Period would be offered by the Bank's London Branch
(or such other office as may be designated for such purpose by the Bank) to
major banks in the London interbank market upon request of such banks at
approximately 11:00 a.m. (London, England time) two Business Days prior to
the first day of such Offshore Rate Interest Period.
"EURODOLLAR RESERVE PERCENTAGE" means, for any Offshore
Rate Interest Period, the maximum reserve percentage (expressed as a
decimal, rounded upward to the next 1/100th of 1%) in effect on the first
day of such Offshore Rate Interest Period (whether or not applicable to the
Bank) under regulations issued from time to time by the FRB for determining
the maximum reserve requirement (including any emergency, supplemental or
other marginal reserve requirement) with respect to Eurocurrency funding
(currently referred to as "Eurocurrency liabilities") having a term
comparable to such Offshore Rate Interest Period.
"OFFSHORE RATE ADVANCE": an Advance for which interest is based on the
Offshore Rate.
"OFFSHORE RATE INTEREST PERIOD": for each Offshore Rate Advance the period
commencing on the date the Offshore Rate Advance begins to bear interest at a
rate based on the Offshore Rate and ending one, two, three, or six months
thereafter, as requested by the Borrower; provided, however, that the last day
of each Offshore Rate Interest Period shall be determined in accordance with the
practices of the applicable offshore interbank markets as from time to time in
effect, and provided further that no such interest period shall extend beyond
the Final Maturity Date.
"PBGC": the Pension Benefit Guaranty Corporation or any entity succeeding
to any of its principal functions under ERISA.
-5-
<PAGE>
"PENSION PLAN": a pension plan, as defined in Section 3(2) of ERISA,
subject to Title IV of ERISA, which the Borrower or any ERISA Affiliate sponsors
or maintains, or to which the Borrower or any ERISA Affiliate makes, is making,
or is obligated to make contributions, or in the case of a multiple employer
plan, as described in Section 4064(a) of ERISA, has made contributions at any
time during the immediately preceding five plan years; but excluding in all
cases any Multiemployer Plan.
"PERMITTED SWAP OBLIGATIONS": all obligations (contingent or otherwise) of
the Borrower or any Subsidiary existing or arising under Swap Contracts,
provided that each of the following criteria is satisfied: (a) such obligations
are (or were) entered into by such Person in the ordinary course of business for
the purpose of directly mitigating risks associated with liabilities,
commitments or assets held by such Person, or changes in the value of securities
issued by such Person in conjunction with a securities repurchase program not
otherwise prohibited hereunder, and not for purposes of speculation or taking a
"market view;" and (b) such Swap Contracts do not contain (i) any provision
("walk-away" provision) exonerating the non-defaulting party from its obligation
to make payments on outstanding transactions to the defaulting party or (ii) any
provision creating or permitting the declaration of an event of default,
termination event or similar event upon the occurrence of an Event of Default
hereunder (other than an Event of Default under subsection 8.01.(a)).
"PLAN": an employee benefit plan (as defined in Section 3(3) of ERISA)
which the Borrower or any ERISA Affiliate sponsors or maintains or to which the
Borrower or any ERISA Affiliate makes or is obligated to make contributions; and
includes any Pension Plan or Multiemployer Plan.
"REFERENCE RATE": for any day, the rate of interest in effect for such day
as publicly announced from time to time by the Bank in San Francisco,
California, as its "reference rate." It is a rate set by the Bank based upon
various factors including the Bank's costs and desired return, general economic
conditions and other factors, and is used as a reference point for pricing some
loans, which may be priced at, above, or below such announced rate. Any change
in the reference rate announced by the Bank shall take effect at the opening of
business on the day specified in the public announcement of such change.
"REFERENCE RATE ADVANCE": an Advance that bears interest based on the
Reference Rate.
"REPORTABLE EVENT": any of the events set forth in Section 4043(c) of
ERISA or the regulations promulgated thereunder, other
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<PAGE>
than any such event for which the 30-day notice requirement under ERISA has been
waived in regulations issued by the PBGC.
"REVOLVING FACILITY": the line of credit described in Section 2.01.
"SPOT RATE": for a currency, the rate quoted by the Bank as the spot rate
for the purchase by the Bank of such currency with another currency through its
Foreign Exchange Trading Center #5193, San Francisco, California, or such other
of the Bank's offices as it may designate from time to time, at approximately
8:00 a.m. (San Francisco time) on the date two Business Days prior to the date
as of which the foreign exchange computation is made.
"SUBSIDIARY": of the Borrower, any corporation, association, partnership,
joint venture, or other business entity of which more than 50% of the voting
stock or other equity interests (in the case of entities other than
corporations), is owned or controlled directly or indirectly by the Borrower or
one or more Subsidiaries of the Borrower or a combination thereof.
"SWAP CONTRACT": any agreement, whether or not in writing, relating to any
transaction that is a rate swap, basis swap, forward rate transaction, commodity
swap, commodity option, equity or equity index swap or option, bond, note or
bill option, interest rate option, forward foreign exchange transaction, cap,
collar or floor transaction, currency swap, cross-currency rate swap, swaption,
currency option or any other, similar transaction (including any option to enter
into any of the foregoing) or any combination of the foregoing, and, unless the
context otherwise clearly requires, any master agreement relating to or
governing any or all of the foregoing.
"UNFUNDED PENSION LIABILITY": the excess of a Pension Plan's benefit
liabilities under Section 4001(a)(16) of ERISA, over the current value of that
Plan's assets, determined in accordance with the assumptions used for funding
the Pension Plan pursuant to Section 412 of the Code for the applicable plan
year.
1.02 FINANCIAL REQUIREMENTS. Unless otherwise specified in this
Agreement, all accounting terms used in this Agreement shall be interpreted, all
financial computations required under this Agreement shall be made, and all
financial information required under this Agreement shall be prepared, in
accordance with generally accepted accounting principles in effect from time to
time in the United States, consistently applied.
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ARTICLE II
THE CREDIT FACILITIES
2.01 THE REVOLVING FACILITY. (a) From time to time during the
Availability Period, subject to the terms and provisions hereof, the Bank, on a
revolving basis, will (i) make Advances to the Borrower, (ii) create and
discount acceptances for the Borrower's account, and (iii) create and issue
commercial and standby letters of credit for the Borrower's account.
(b) Advances hereunder may be made in (i) dollars ("DOLLAR
ADVANCES"), or (ii) in a lawful currency other than dollars which is available
at a branch or affiliate of the Bank located in a country other than the United
States and is the legal tender of that country where the branch or affiliate is
located (a "LOCAL CURRENCY") ("LOCAL CURRENCY ADVANCES").
(c) The aggregate of (i) all Dollar Advances, (ii) the Equivalent
Amount of all Local Currency Advances, (iii) the face amount of all acceptances
(whether or not discounted), (iv) the Bank Guaranty Outstanding Amount of all
Bank Guaranties and (v) the L/C Outstanding Amount of all letters of credit may
not exceed at any one time the Credit Limit.
2.02 ADVANCES UNDER THE REVOLVING FACILITY. (a) Subject to the other
provisions of this Section, Dollar Advances under the Revolving Facility shall
bear interest at a rate per annum equal to the Reference Rate. The Borrower
shall pay interest monthly, on the last day of each month until the Final
Maturity Date, on which date all accrued and unpaid interest shall be due and
payable. The Borrower shall repay the principal amount of each Reference Rate
Advance on the date such advance is converted into an Offshore Rate Advance
under subsection (b) below, and on the Final Maturity Date.
(b) In lieu of the interest rate described above, the Borrower may
elect during the Availability Period to have all or portions of Advances under
the Revolving Facility be in dollars and bear interest at the Offshore Rate plus
1.00% per annum during an Offshore Rate Interest Period, subject to the
following requirements:
(i) Each Offshore Rate Advance shall be for an amount not less
than $1,000,000.
(ii) The Borrower shall pay interest on each Offshore Rate
Advance on the last day of the Offshore Rate Interest Period for such
Advance; PROVIDED, HOWEVER, that if any Interest Period for a Offshore Rate
Advance exceeds one
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month, interest shall also be payable on the date which falls one month
after the beginning of such Interest Period and on each date which falls
one month after any such interest payment date. The Borrower shall repay
the principal balance of each Offshore Rate Advance on the last day of the
Offshore Rate Interest Period for such Advance, and (if sooner occurring)
on the Final Maturity Date.
(iii) Any payment of an Offshore Rate Advance prior to the last
day of the Offshore Rate Interest Period for such Advance, whether
voluntary, by reason of acceleration or otherwise, including any mandatory
payments required under this Agreement and applied by the Bank to an
Offshore Rate Advance, shall be accompanied by the amount of accrued
interest on the amount repaid and by the amount (if any) required by
Section 3.11.
2.03 ACCEPTANCES UNDER THE REVOLVING FACILITY. (a) Each acceptance shall
be in an amount not less than $250,000 and shall be denominated in dollars.
(b) The creation and discount of acceptances shall be pursuant to the
terms and conditions hereof and of a Bank standard form agreement for
acceptances executed by the Borrower.
(c) Each draft related to an acceptance hereunder shall: (i) mature
no earlier than 14 and no later than 180 days after the date of such draft but
in no event later than the Final Maturity Date; and (ii) be otherwise in form
and substance satisfactory to the Bank.
(d) The discount and commission for each draft shall be at Bank's
"all-in-rate" for acceptances which the Bank advises the Borrower is applicable
to acceptances on the date of acceptance and discount plus 1.00%.
(e) The Borrower shall pay to the Bank the face amount of each
acceptance created hereunder on the maturity date of the draft related to such
acceptance. Any sum owed to the Bank with respect to an acceptance created and
discounted for the Borrower's account which is not paid when due shall, at the
option of the Bank in each instance, be deemed to be an Advance to the Borrower
outstanding under the Revolving Facility and shall thereafter bear interest at
the Reference Rate. Sums owed to the Bank with respect to an acceptance created
and discounted for the Borrower's account, if not paid when due or deemed to be
an Advance as provided for in the immediately preceding sentence, shall bear
interest, payable on demand, from the date of such drawing or payment, at the
per annum rate of the Reference Rate plus 3%.
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(f) At the expiration of the Availability Period, the Borrower shall
provide cash collateral in the amount of any acceptances outstanding under this
Agreement (whether or not discounted), and, in addition to any other rights or
remedies which Bank may have under this Agreement or otherwise, upon the
occurrence of an Event of Default, the Bank may require the Borrower to
immediately prepay the amount of any acceptances outstanding under this
Agreement (whether or not discounted).
(g) The Bank shall have no obligation to issue an acceptance
hereunder if the requested acceptance is not in compliance with applicable
regulations of the FRB governing bankers' acceptances or is ineligible for
discount by Federal Reserve Banks. In the event that any regulatory development
or other circumstance relating to the creation of acceptances hereunder or their
eligibility for discount shall at any time in the reasonable opinion of the Bank
make it unlawful or impracticable for the Bank to create acceptances hereunder
or to discount them, no acceptances shall be created hereunder thereafter until
and unless the Bank determines that such creation would be lawful and
practicable. In the event that any acceptance hereunder is created and is not
eligible for discount by Federal Reserve Banks, the Borrower shall indemnify the
Bank for all costs and expenses resulting from such determination (including
costs under Regulation D of the FRB).
2.04 COMMERCIAL LETTERS OF CREDIT UNDER THE REVOLVING FACILITY. (a) Each
commercial letter of credit shall be denominated in dollars or, if agreed to by
the Bank in its sole discretion, a Local Currency, and issued pursuant to the
terms and conditions hereof and of a Bank standard form Application and Security
Agreement for Commercial Letter of Credit (or such other forms and agreements as
the Bank or the applicable Offshore Credit Provider may require) executed by the
Borrower.
(b) Each commercial letter of credit shall:
(i) expire on or before 180 days after the date such letter of
credit is issued, but in no event later than the Final Maturity Date;
(ii) require drafts payable in dollars or, if applicable, the
Local Currency, at sight or up to 180 days after sight, but in no event
later than the Final Maturity Date; and
(iii) be otherwise in form and substance and in favor of
beneficiaries and for purposes satisfactory to the Bank and any applicable
Offshore Credit Provider.
(c) The Borrower shall pay to the Bank and, if applicable, the
Offshore Credit Provider, issuance fees,
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negotiation fees, and other fees at the times and in the amounts the Bank
advises the Borrower from time to time as being applicable to the Borrower's
commercial letters of credit.
(d) Each draft paid by the Bank or an Offshore Credit Provider under
a commercial letter of credit issued hereunder shall be reimbursed by the
Borrower in the applicable currency to the Bank or the applicable Offshore
Credit Provider on the date such draft is paid by the Bank or such Offshore
Credit Provider. Any sum owed to the Bank or an Offshore Credit Provider with
respect to a commercial letter of credit issued for the Borrower's account which
is not paid when due shall, at the option of the Bank in each instance, be
deemed to be an Advance to the Borrower outstanding under the Revolving Facility
and shall thereafter bear interest at the Reference Rate. Reimbursement
obligations in respect of drawings, if not paid when due or deemed to be an
Advance as provided for in the immediately preceding sentence, shall bear
interest, payable on demand, from the date of such drawing or payment, at the
per annum rate of the Reference Rate plus 3% or, in the case of a commercial
letter of credit denominated in a Local Currency, at such rate as agreed to by
the parties at the time of issuance thereof.
(e) At the expiration of the Availability Period, the Borrower shall
provide cash collateral in the amount of the L/C Outstanding Amount of any
commercial letters of credit outstanding under this Agreement, and, in addition
to any other rights or remedies which the Bank may have under this Agreement or
otherwise, upon the occurrence of an Event of Default, the Bank may require the
Borrower to provide cash collateral in the amount of the L/C Outstanding Amount
of any commercial letters of credit outstanding under this Agreement.
2.05 STANDBY LETTERS OF CREDIT UNDER THE REVOLVING FACILITY. (a) Each
standby letter of credit shall be denominated in dollars or, if agreed to by the
Bank in its sole discretion, a Local Currency, and issued pursuant to the terms
and conditions hereof and of a Bank standard form Application and Agreement for
Standby Letter of Credit (or such other forms and agreements as the Bank or the
applicable Offshore Credit Provider may require) executed by the Borrower.
(b) Each standby letter of credit shall: (i) expire on or before one
year after the date such letter of credit is issued, but in no event later than
the Final Maturity Date; and (ii) be otherwise in form and substance and in
favor of beneficiaries and for purposes satisfactory to the Bank and any
applicable Offshore Credit Provider.
(c) The Borrower shall pay to the Bank a non-refundable fee equal to
the amount set forth below:
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If the face amount (or Equivalent Amount thereof, if applicable) of the
letter of credit is:
$-0- TO $249,999 $250,000 OVER $1,000,000
TO $1,000,000
1.75% per annum 1.50% per annum 1.00% per annum
times the outstanding undrawn amount of each such standby letter of credit, with
a minimum fee of $250.00, payable annually in advance, and calculated on the
basis of the face amount outstanding on the day the fee is calculated. However,
if an Event of Default exists, at the option of the Bank, the amount of the fee
shall be increased by an additional 3% per annum, commencing on the day the Bank
provides notice of the increase to the Borrower. The Borrower shall also pay
such other fees and commissions at the times and in the amounts the Bank advises
the Borrower from time to time as being applicable to the Borrower's standby
letters of credit.
(d) Each draft paid by the Bank or an Offshore Credit Provider under
a standby letter of credit issued hereunder shall be reimbursed by the Borrower
in the applicable currency to the Bank or the applicable Offshore Credit
Provider on the date such draft is paid by the Bank or such Offshore Credit
Provider. Any sum owed to the Bank or an Offshore Credit Provider with respect
to a standby letter of credit issued for the Borrower's account which is not
paid when due shall, at the option of the Bank in each instance, be deemed to be
an Advance outstanding under the Revolving Facility and shall thereafter bear
interest at the Reference Rate. Reimbursement obligations in respect of
drawings, if not paid when due or deemed to be an Advance as provided for in the
immediately preceding sentence, shall bear interest, payable on demand, from the
date of such drawing or payment, at the per annum rate of the Reference Rate
plus 3% or, in the case of a standby letter of credit denominated in a Local
Currency, at such rate as agreed to by the parties at the time of issuance
thereof.
(e) At the expiration of the Availability Period, the Borrower shall
provide cash collateral in the amount of the L/C Outstanding Amount of any
standby letters of credit outstanding under this Agreement, and, in addition to
any other rights or remedies which the Bank may have under this Agreement or
otherwise, upon the occurrence of an Event of Default, the Bank may require the
Borrower to provide cash collateral in the amount of the L/C Outstanding Amount
of any standby letters of credit outstanding under this Agreement.
(f) For purposes of determining the Borrower's compliance with
subsection 2.01(c), the Equivalent Amount of
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letters of credit (either standby or commercial) denominated in a Local Currency
will be determined, and redetermined by the Bank as of the applicable issuance
date in respect of such letter of credit and on the last Business Day of each
month.
2.06 LOCAL CURRENCY ADVANCES. (a) From time to time during the
Availability Period, the Bank or any Offshore Credit Provider may, in its sole
discretion, make Local Currency Advances to the Borrower.
(b) Neither the Bank nor any Offshore Credit Provider shall have any
obligation to make any Local Currency Advance unless the following conditions
are satisfied:
(i) the Bank and the Borrower agree, at the time of Borrower's
request for a Local Currency Advance, on the currency, the amount, the
principal payment date(s), the interest rate and payment date(s), the
prepayment and overdue payment terms, and the reserve, tax and other
material provisions for such Advance; and
(ii) The Borrower shall execute such additional documentation as
the Bank or such Offshore Credit Provider may require relating to each
Local Currency Advance.
(c) For purposes of determining the Borrower's compliance with
subsection 2.01(c), the Equivalent Amount of Local Currency Advances will be
determined, and redetermined by the Bank as of the applicable borrowing date in
respect of such Advance and on the last Business Day of each month.
2.07 BANK GUARANTIES. (a) From time to time during the Availability
Period, the Bank may, in its sole discretion, issue Bank Guaranties to the
Borrower. Each Bank Guaranty shall be issued by an Offshore Credit Provider and
pursuant to the laws of the jurisdiction in which such Offshore Credit Provider
is located and subject to any other applicable law. Each Bank Guaranty shall be
issued pursuant to the terms and conditions hereof and of a Bank standard form
indemnity agreement and any other Bank standard forms for guaranties executed by
the Borrower
(b) Each Bank Guaranty shall:
(i) expire on or before the date which is one year after the
date it is issued, but in any event no later than the Final Maturity Date;
and
(ii) be otherwise in form and substance and in favor of
beneficiaries and for purposes satisfactory to the Bank.
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(c) The Borrower shall pay the Offshore Credit Provider issuance fees
and other fees at the times and in the amounts the Bank advises the Borrower
from time to time as being applicable to Bank Guaranties issued for the
Borrower's account.
(d) Each payment by the Offshore Credit Provider under a Bank
Guaranty shall be reimbursed by the Borrower in the applicable currency to the
Offshore Credit Provider on the date of such payment. Any sum owed to the
Offshore Credit Provider with respect to a Bank Guaranty issued under this
Section which is not paid when due shall, at the option of the Offshore Credit
Provider in each instance, be deemed to be an Advance to the Borrower by the
Bank outstanding under the Revolving Facility and shall thereafter bear interest
at the Reference Rate. Reimbursement obligations in respect of payments made by
an Offshore Credit Provider under a Bank Guaranty, if not paid when due or
deemed to be an Advance as provided for in the immediately preceding sentence,
shall bear interest, payable on demand, from the date of such payment, at the
per annum rate of the Reference Rate plus 3%, or at such rate as agreed to by
the parties at the time of issuance thereof.
(e) At the expiration of the Availability Period, the Borrower shall
provide cash collateral in the amount of the Bank Guaranty Outstanding Amount,
and, in addition to any other rights or remedies which the Bank may have under
this Agreement or otherwise, upon the occurrence of an Event of Default, the
Bank may require the Borrower to provide cash collateral in the amount of the
Bank Guaranty Outstanding Amount.
(f) For purposes of determining the Borrower's compliance with
subsection 2.01(c), the Equivalent Amount of Bank Guaranties will be determined,
and redetermined by the Bank as of the applicable borrowing date in respect of
such Advance and on the last Business Day of each month.
2.08 MANDATORY PAYMENT. If at any time and for any reason the total
amount of credit outstanding under this Agreement exceeds the limitations set
forth herein, the Borrower shall pay to the Bank, upon demand, the amount of the
excess; provided, that if the foregoing applies due to a change in applicable
rates of exchange between Dollars or Local Currencies, the Borrower shall be
obligated to pay such amount only if the excess is greater than $100,000 or the
Equivalent Amount thereof. Payments under this Section may be applied to the
obligations of the Borrower to the Bank in the order and manner as the Bank in
its discretion may determine. Payments to be applied to outstanding
acceptances, letters of credit and drafts accepted under letters of credit, and
Bank Guaranties may, at the Bank's option, be used to prepay, or held as cash
collateral to secure, the Borrower's obligations to the Bank or any Offshore
Credit Providers with respect thereto.
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2.09 COMMITMENT FEE. The Borrower shall pay to the Bank a commitment fee
at the rate of 0.25% per annum on the average daily unused portion of the credit
provided under this Agreement. For purposes of computing the unused portion,
the L/C Outstanding Amount and the Bank Guaranty Outstanding Amount shall be
deemed to be usage. The commitment fee shall be computed on a calendar quarter
basis, except for the first period which shall commence on the date this
Agreement is signed by the Borrower and end on December 31, 1995, and the last
period which shall end on the last day of the Availability Period. The
commitment fee shall be payable in arrears on December 31, 1995 (on which date
commitment fees due under the Existing Credit Agreement for the period ending on
the date this Agreement is signed by the Borrower shall also be due and payable
hereunder), on the last day of each successive calendar quarter thereafter, and
on the last day of the Availability Period.
2.10 DEFAULT RATE. Upon the occurrence and during the continuation of any
Event of Default, and without constituting a waiver of any such Event of
Default, Advances under the Revolving Facility shall at the option of the Bank
bear interest at a rate per annum which is 3% per annum higher than the rate of
interest otherwise provided under this Agreement.
2.11 EARLY TERMINATION OF COMMITMENT. The Borrower may upon not less than
five Business Days' prior notice to the Bank, permanently reduce the Commitment
by an aggregate minimum amount of $1,000,000 or any multiple of $500,000 in
excess thereof; provided that no such reduction shall be permitted if, after
giving effect thereto, the aggregate of (i) all Dollar Advances, (ii) the
Equivalent Amount of all Local Currency Advances, (iii) the face amount of all
acceptances (whether or not discounted), (iv) the Bank Guaranty Outstanding
Amount of all Bank Guaranties and (v) the L/C Outstanding Amount of all letters
of credit would exceed the amount of the Commitment then in effect and, provided
further, that once reduced in accordance with this Section, the Commitment may
not thereafter be increased.
ARTICLE III
EXTENSIONS OF CREDIT, PAYMENTS AND INTEREST CALCULATIONS
3.01 REQUESTS FOR CREDIT. Each request for an extension of credit shall
be made in writing on a form acceptable to the Bank or in any other manner
acceptable to the Bank.
3.02 DISBURSEMENTS AND PAYMENTS. Each disbursement by the Bank and each
payment by the Borrower under this Agreement shall
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be made in the funds and at such branch of the Bank as the Bank may from time to
time select.
3.03 BRANCH ACCOUNTS. Each extension of credit under this Agreement shall
be made for the account of such branch, office, or affiliate of the Bank as the
Bank may from time to time select.
3.04 EVIDENCE OF INDEBTEDNESS. Principal, interest, and all other sums
due to the Bank (or any Offshore Credit Provider) under this Agreement shall be
evidenced by entries in records maintained by the Bank (or such Offshore Credit
Provider), and, if required by the Bank, by a promissory note or notes. Each
payment on and any other credits with respect to principal, interest, and all
other sums due under this Agreement shall be evidenced by entries to records
maintained by the Bank or such Offshore Credit Provider. The loan accounts or
records maintained by the Bank or any Offshore Credit Provider shall be
conclusive absent manifest error of the amount of the credit extended hereunder
and the interest and payments thereon. Any failure to so record or any error in
doing so shall not, however, limit or otherwise affect the obligation of the
Borrower hereunder or under any other Credit Document to pay any amount owing.
3.05 INTEREST CALCULATION. Interest based on the Reference Rate shall be
computed on the basis of a 365/366-day year, actual days elapsed. All other
interest and fees payable under this Agreement shall be computed on the basis of
a 360 day year and actual days elapsed, which results in more interest or a
larger fee than if a 365-366 day year were used.
3.06 LATE PAYMENTS; COMPOUNDING. Any sum payable by the Borrower
hereunder (including unpaid interest) if not paid when due shall bear interest
(payable on demand) from its due date until payment in full at a rate per annum
equal to the Reference Rate plus 3.00% per annum. At the option of the Bank, in
each instance, any sum payable hereunder which is not paid when due (including
unpaid interest) may be added to principal of the Revolving Facility and shall
thereafter bear interest at the rate applicable to principal.
3.07 BUSINESS DAY. Any sum payable by the Borrower hereunder which
becomes due on a day which is not a Business Day shall be due on the next
Business Day after such due date, unless, in the case of an Offshore Rate Loan,
the result of such extension would be to carry such Offshore Rate Interest
Period into another calendar month, in which event such Offshore Rate Interest
Period shall end on the immediately preceding Business Day. Any payments
received by the Bank on a day which is not a
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Business Day shall be deemed to be received on the next Business Day after such
date of receipt.
3.08 TAXES AND OTHER CHARGES. (a) (i) If any taxes (other than taxes on
net income (A) imposed by the country or any subdivision of the country in which
the Bank's principal office or actual lending office is located and (B) measured
by the United States taxable income the Bank would have received if all payments
under or in respect of this Agreement and any instrument or agreement required
hereunder were exempt from taxes levied by the Borrower's country) are at any
time imposed on any payments under or in respect of this Agreement or any
instrument or agreement required hereunder including, but not limited to,
payments made pursuant to this Section, the Borrower shall pay all such taxes
and shall also pay to the Bank, at the time interest is paid, all additional
amounts which the Bank specifies as necessary to preserve the after-tax yield
the Bank would have received if such taxes had not been imposed.
(ii) The additional amounts necessary to preserve the
after-tax yield the Bank would have received if such taxes had not been imposed
shall be calculated pursuant to the formula:
(w)(t)(i)
y = -----------
1-w-t
where the terms are defined as follows:
y = additional payment to be made to the Bank
w = withholding tax rate levied by foreign
government
t = the Bank's combined Federal and state tax
rate
i = amount of interest to be paid on Credit
(computed by using the base rate plus quoted spread)
1 = one
(b) The Borrower will provide the Bank with original tax receipts,
notarized copies of tax receipts, or such other documentation as will prove
payment of tax in a court of law applying the United States Federal Rules of
Evidence, for all taxes paid by the Borrower pursuant to subsection (a) above.
The Borrower will deliver receipts to the Bank within 30 days after the due date
for the related tax.
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3.09 ILLEGALITY. (a) If the Bank determines that (i) the introduction of
any law, rule, regulation, treaty, or determination of an arbitrator or court or
other governmental authority or any change in or in the interpretation or
administration thereof has made it unlawful, or that any central bank or other
governmental authority has asserted that it is unlawful, for the Bank (directly
or through any Offshore Credit Provider) to make or extend any Advance or other
credit under this Agreement, or (ii) any order, judgment, or decree of any
governmental authority or arbitrator purports by its terms to enjoin or restrain
the Bank (or any Offshore Credit Provider) from making or extending any Advance
or other credit hereunder, THEN, on notice thereof by the Bank to the Borrower,
the obligation of the Bank to make or extend such Advance or other credit
(directly or through any Offshore Credit Provider) shall be suspended until the
Bank shall have notified the Borrower that the circumstances giving rise to such
determination no longer exist.
(b) If the Bank determines that it is unlawful for it or any
applicable Offshore Credit Provider to maintain any Offshore Rate Advance or
Local Currency Advance hereunder, the Borrower shall prepay in full all Offshore
Rate Advances or Local Currency Advances, as the case may be, then outstanding,
together with interest accrued thereon, either on the last day of the applicable
Offshore Rate Interest Period or the interest period applicable to the Local
Currency Advance if the Bank or such Offshore Credit Provider may lawfully
continue to maintain such Advances to such day and such loans have an interest
period, or immediately, if the Bank may not lawfully continue to maintain such
Advances or such loans have no interest period, together with any amounts
required to be paid in connection therewith pursuant to Section 3.11.
3.10 INCREASED COSTS. The Borrower shall pay to the Bank, on demand, the
Bank's costs or losses arising from any statute or regulation, or any request or
requirement of a regulatory agency which is applicable to all national banks or
a class of all national banks. The costs and losses will be allocated to this
facility in a manner determined by the Bank, using any reasonable method. The
costs include the following:
(a) any reserve or deposit requirements; and
(b) any capital requirements relating to the Bank's assets and
commitments for credit.
3.11 FUNDING LOSSES. The Borrower shall reimburse the Bank and hold the
Bank harmless from any loss or expense which the Bank may sustain or incur as a
consequence of the failure of the
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Borrower to make any payment or prepayment of principal of any Advance hereunder
made at a rate of interest related to the Offshore Rate (including payments made
after any acceleration thereof), or to borrow at such a rate, or the prepayment
of an Advance which bears interest at such a rate on a day which is not the last
day of the interest period with respect thereto (including payments made after
any acceleration thereof or because the total amount of credit exceeds the
limitations set forth herein), or the redenomination and conversion, upon the
occurrence of any Event of Default, of an Advance which bears interest at such a
rate; including any such loss or expense arising from the liquidation or
reemployment of funds obtained by it to maintain its Advances made at a rate
related to the Offshore Rate hereunder or from fees payable to terminate any
deposits from which such funds were obtained or deemed obtained.
3.12 INABILITY TO DETERMINE RATES. The Bank has no obligation to accept
an election for an Offshore Rate Advance if (a) Dollar deposits in the principal
amount, and for the period equal to the interest period, for such Advance are
not available in the applicable funding market; or (b) the Offshore Rate does
not accurately reflect the cost of such Advance. Nothing contained herein
shall, however, obligate the Bank to obtain the funds for any Advance in any
particular manner.
3.13 CERTIFICATE OF THE BANK. If the Bank claims any reimbursement or
compensation pursuant to Section 3.10 or Section 3.11 hereof, then the Bank
shall deliver to the Borrower a certificate setting forth in reasonable detail
the amount payable to the Bank thereunder and such certificate shall be
conclusive and binding on the Borrower in the absence of manifest error.
3.14 DEBITS TO BORROWER'S ACCOUNT. The Borrower hereby authorizes the
Bank to debit the Borrower's deposit account number 1486100284 at the Global
Payments Operations, Concord, CA office of the Bank in the amount of principal,
interest, fees, or any other amount due under this Agreement or under any
instrument or agreement required under this Agreement. The Bank may, at its
option, debit the account on the date such amounts become due, or, if such due
date is not a Business Day, on the next Business Day after such due date. If
there are insufficient funds in the account to cover the amount debited to the
accounts in accordance with this Section, such debit may be reversed in whole or
in part, at the option of the Bank in its sole discretion, and the amount not
debited shall be deemed to remain unpaid.
3.15 SURVIVAL. The agreements and obligations of the Borrower under
Sections 3.08 through 3.11 hereof shall survive the payment of all other
obligations of the Borrower hereunder.
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ARTICLE IV
CONDITIONS TO AVAILABILITY OF CREDIT.
The Bank's obligation to extend credit under this Agreement is subject to
the Bank's receipt of the following, each in form and substance satisfactory to
the Bank:
4.01 CONDITIONS TO FIRST EXTENSION OF CREDIT. Before the first extension
of credit:
(a) This Agreement, executed by the Borrower;
(b) Satisfactory evidence of due authorization of the execution,
delivery, and performance by the Borrower of this Agreement and any other Credit
Documents, including certified resolutions, incumbency certificate, articles of
incorporation and bylaws;
(c) An opinion of counsel for the Borrower (which counsel must be
satisfactory to the Bank) with respect to such legal matters relating hereto as
the Bank may request;
(d) Certificates of state officials showing that the Borrower is in
good standing or qualified to conduct business under the laws of the state of
its organization and, if requested by the Bank, in any other state in which the
Borrower is required to be so qualified;
(e) Payment of any fee or expense required hereunder prior to the
first extension of credit;
(f) Such other approvals, opinions, documents or instruments as the
Bank may request;
PROVIDED, however, that if the conditions set forth in subsections (a), (b), (e)
and (f) of this Section 4.01 are satisfied, the Borrower shall have until
January 31, 1996 to deliver the items required in subsections (c) and (d) of
this Section 4.01 and the Borrower hereby covenants and agrees to deliver such
items on or before such date.
4.02 CONDITIONS TO EACH EXTENSION OF CREDIT. Before each extension or
renewal of credit (including pursuant to any election under Section 2.02(b)),
including the first:
(a) The representations and warranties of the Borrower contained in
this Agreement shall be true on and as of the date of each extension of credit;
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(b) Immediately prior to and immediately after giving effect to such
extension of credit, no Default or Event of Default shall exist;
(c) Executed originals of all Credit Documents required under Article
II shall have been delivered to the Bank.
Each request for an extension of credit hereunder shall constitute a
representation and warranty by the Borrower, as of the date of each such request
and as of the date of each extension of credit, that the conditions in this
Section are satisfied.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants that:
5.01 CORPORATE EXISTENCE AND POWER. The Borrower and each of its
Subsidiaries: (a) is a corporation duly organized and existing under the laws
of the state of its organization; (b) has the power and authority and all
governmental licenses, authorizations, consents, and approvals to own its
assets, carry on its business, and, in the case of the Borrower, to execute,
deliver, and perform its obligations under, the Credit Documents; and (c) is
duly qualified and properly licensed and in good standing under the laws of each
jurisdiction where its ownership, lease, or operation of property or the conduct
of its business requires such license or qualification.
5.02 AUTHORIZATION. The execution, delivery, and performance by the
Borrower of this Agreement and any other Credit Document have been duly
authorized by all necessary corporate action, and do not and will not:
(a) contravene the terms of any organizational or charter documents;
(b) conflict with or result in any breach or contravention of, or the
creation of any lien, security interest, or charge under, any agreement,
contract, indenture, document, or instrument to which the Borrower or any
Subsidiary is a party or by which any property is bound, or any order,
injunction, writ, or decree of any governmental authority to which the Borrower
or any Subsidiary or any of their respective properties is subject; or
(c) violate any law, rule, regulation, or determination of an
arbitrator or of a court or other governmental authority, in each case
applicable to or binding
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upon the Borrower or any Subsidiary or any of their respective properties.
5.03 ENFORCEABILITY. This Agreement is a legal, valid, and binding
agreement of the Borrower, enforceable against the Borrower in accordance with
its terms, and the other Credit Documents and any other instrument or agreement
required under this Agreement, when executed and delivered, will be legal,
valid, binding, and enforceable in accordance with its terms against the
Borrower.
5.04 COMPLIANCE WITH LAWS. The Borrower and its Subsidiaries are in
compliance with all foreign, federal, state and local laws, rules, regulations
and determinations of arbitrators, courts and other governmental authorities
materially affecting the business, operations or property of the Borrower
(including Environmental Laws).
5.05 PERMITS, FRANCHISES. The Borrower or its Subsidiaries possess all
permits, memberships, franchises, contracts, and licenses required and all
trademark rights, trade name rights, patent rights, and fictitious name rights
necessary to enable the Borrower and its Subsidiaries to conduct the businesses
in which they are now engaged.
5.06 LITIGATION. There is no litigation, tax claim, proceeding,
governmental or administrative action, arbitration proceeding or dispute
pending, or, to the knowledge of the Borrower, threatened, against or affecting
the Borrower or any of its Subsidiaries or any of their properties, the adverse
determination of which would result in a Material Adverse Effect.
5.07 NO EVENT OF DEFAULT. There exists no Default or Event of Default.
5.08 OTHER OBLIGATIONS. Neither the Borrower nor any of its Subsidiaries
is in default under any other agreement involving the borrowing of money, the
extension of credit, or the lease of real or personal property, to which the
Borrower or such Subsidiary is a party as borrower, guarantor, installment
purchaser, or lessee, except as disclosed in writing to the Bank prior to the
Closing Date.
5.09 TAX RETURNS. The Borrower has no knowledge of any material pending
assessments or adjustments with respect to its income tax liabilities for any
year, except as disclosed in writing to the Bank prior to the Closing Date.
5.10 INFORMATION SUBMITTED. All financial and other information that has
been submitted by the Borrower to the Bank, including the Borrower's financial
statement delivered to the
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Bank most recently prior to the Closing Date: (a) in the case of financial
statements, is prepared in accordance with generally accepted accounting
principles consistently applied; and (b) is true and correct in all material
respects and is complete insofar as may be necessary to give the Bank true and
accurate knowledge of the subject matter thereof.
5.11 NO MATERIAL ADVERSE EFFECT. Since March 31, 1995, there has been no
Material Adverse Effect.
5.12 ERISA COMPLIANCE.
(a) Each Plan is in compliance in all material respects with the
applicable provisions of ERISA, the Code and other federal or state law. Each
Plan which is intended to qualify under Section 401(a) of the Code has received
a favorable determination letter from the IRS and to the best knowledge of the
Borrower, nothing has occurred which would cause the loss of such qualification.
The Borrower and each ERISA Affiliate has made all required contributions to any
Plan subject to Section 412 of the Code, and no application for a funding waiver
or an extension of any amortization period pursuant to Section 412 of the Code
has been made with respect to any Plan.
(b) There are no pending or, to the best knowledge of Borrower,
threatened claims, actions or lawsuits, or action by any governmental authority,
with respect to any Plan which has resulted or could reasonably be expected to
result in a Material Adverse Effect. There has been no prohibited transaction
or violation of the fiduciary responsibility rules with respect to any Plan
which has resulted or could reasonably be expected to result in a Material
Adverse Effect.
(c) (i) No ERISA Event has occurred or is reasonably expected to
occur; (ii) no Pension Plan has any Unfunded Pension Liability; (iii) neither
the Borrower nor any ERISA Affiliate has incurred, nor reasonably expects to
incur, any liability under Title IV of ERISA with respect to any Pension Plan
(other than premiums due and not delinquent under Section 4007 of ERISA); (iv)
neither the Borrower nor any ERISA Affiliate has incurred, nor reasonably
expects to incur, any liability (and no event has occurred which, with the
giving of notice under Section 4219 of ERISA, would result in such liability)
under Section 4201 or 4243 of ERISA with respect to a Multiemployer Plan; and
(v) neither the Borrower nor any ERISA Affiliate has engaged in a transaction
that could be subject to Section 4069 or 4212(c) of ERISA.
5.13 ENVIRONMENTAL MATTERS. (a) (i) The properties of the Borrower and
its Subsidiaries do not contain and have not previously contained (at, under, or
about any such property) any Hazardous Substances or other contamination (A) in
amounts or concentrations that constitute or constituted a violation of, or
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could give rise to liability under, any Environmental Laws, (B) which could
interfere with the continued operation of such property, or (C) which could
impair the fair market value thereof; and (ii) there has been no transportation
or disposal of Hazardous Substances from, nor any release or threatened release
of Hazardous Substances at or from, any property of the Borrower or any of its
Subsidiaries in violation of or in any manner which could give rise to liability
under any Environmental Laws.
(b) Neither the Borrower nor any of its Subsidiaries has received or
is aware of any material claim or notice of material violation, alleged material
violation, non-compliance, liability or potential liability regarding
environmental matters or compliance with Environmental Laws with regard to the
properties or operations of the Borrower or any of its Subsidiaries, nor does
the Borrower have knowledge or reason to believe that any such action is being
contemplated, considered, or threatened.
5.14 SWAP OBLIGATIONS. Neither the Borrower nor any of its Subsidiaries
has incurred any outstanding obligations under any Swap Contracts, other than
Permitted Swap Obligations.
ARTICLE VI
AFFIRMATIVE COVENANTS
So long as credit is available under this Agreement and until full and
final payment of all of the Borrower's obligations under this Agreement and any
other Credit Document:
6.01 NOTICES OF CERTAIN EVENTS. The Borrower shall promptly give written
notice to the Bank of:
(a) all litigation, proceedings or actions affecting the Borrower or
its Subsidiaries where the amount claimed is $2,000,000 or more;
(b) any substantial dispute which may exist between the Borrower or
its Subsidiaries and any governmental regulatory body or law enforcement
authority;
(c) any Default or Event of Default;
(d) of the occurrence of any of the following events affecting the
Borrower or any ERISA Affiliate (but in no event more than 10 days after such
event), and deliver to the Bank a copy of any notice with respect to such event
that is filed with a governmental authority and any notice delivered by a
governmental authority to the Borrower or any ERISA Affiliate with respect to
such event: (i) an ERISA Event; (ii) a material
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increase in the Unfunded Pension Liability of any Pension Plan; (iii) the
adoption of, or the commencement of contributions to, any Plan subject to
Section 412 of the Code by the Borrower or any ERISA Affiliate; or (iv) the
adoption of any amendment to a Plan subject to Section 412 of the Code, if such
amendment results in a material increase in contributions or Unfunded Pension
Liability; and
(e) any other matter which has resulted or could reasonably be
expected to result in a Material Adverse Effect.
6.02 FINANCIAL AND OTHER INFORMATION. The Borrower shall deliver to the
Bank in form and detail satisfactory to the Bank, and in such number of copies
as the Bank may request:
(a) Within 90 days after the end of each fiscal year, the Borrower's
consolidated financial statements for such year audited by an independent
certified public accountant together with an unqualified opinion of such
certified public accountant and including, at a minimum, the Borrower's balance
sheet and statements of income, retained earnings, and cash flow;
(b) Within 45 days after the end of each fiscal quarter, the
Borrower's consolidated financial statements for such period prepared by the
Borrower and including, at a minimum, the Borrower's balance sheet and
statements of income, retained earnings, and cash flow;
(c) Concurrently with the delivery of the financial statements
referred to in subsections 6.01(a) and (b) above, a certificate of a Responsible
Officer in the form attached hereto as EXHIBIT A.
(d) Promptly after the date of filing with the Securities and
Exchange Commission, copies of any of the Borrower's Form 10-K Annual Reports,
Form 10-Q Quarterly Reports and Form 8-K Current Reports and any other filing
made by Borrower or any of its Subsidiaries with the Securities and Exchange
Commission; and
(e) Promptly upon request, such other materials and information
relating to the Borrower or its Subsidiaries as the Bank may request.
6.03 BOOKS, RECORDS, AUDITS AND INSPECTIONS. The Borrower shall, and
shall cause its Subsidiaries to, maintain adequate books, accounts and records,
and prepare all financial statements required hereunder in accordance with
generally accepted accounting principles consistently applied, and in compliance
with the regulations of any governmental regulatory body having jurisdiction
over the Borrower or its Subsidiaries, or the Borrower's or its Subsidiaries'
businesses, and permit employees
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or agents of the Bank at any reasonable time to inspect the Borrower's and its
Subsidiaries' properties, and to examine or audit the Borrower's and its
Subsidiaries' books, accounts, and records and make copies and memoranda
thereof.
6.04 USE OF FACILITY. The Borrower shall use the credit facility provided
herein solely for working capital and trade finance purposes not in
contravention of any requirement of law or of any Credit Document.
6.05 INSURANCE. The Borrower shall, and shall cause its Subsidiaries to,
maintain and keep in force insurance of the types and in amounts customarily
carried in lines of businesses similar to those of the Borrower, including fire,
extended coverage, public liability (including coverage for contractual
liability), property damage (including use and occupance), business
interruption, and workers' compensation, all carried by insurers and in amounts
satisfactory to the Bank, with loss payable endorsements on such types of
insurance as the Bank may request, and deliver to the Bank from time to time, at
the Bank's request, a copy of each insurance policy, or if permitted by the
Bank, a certificate of insurance setting forth all insurance then in effect.
6.06 COMPLIANCE WITH LAWS. The Borrower shall at all times comply with,
and cause its Subsidiaries to comply with, all laws, statutes (including any
fictitious name statute), rules, regulations, orders, and directions of any
governmental authority having jurisdiction over the Borrower or any of its
Subsidiaries or the business of the Borrower or any of its Subsidiaries
(including all Environmental Laws).
6.07 CHANGE IN NAME, STRUCTURE OR LOCATION. The Borrower shall notify the
Bank in writing prior to any change in (a) the Borrower's name, (b) the
Borrower's business or legal structure, or (c) the Borrower's place of business
or chief executive office if the Borrower has more than one place of business.
6.08 EXISTENCE AND PROPERTIES. The Borrower and each of its Subsidiaries
shall maintain and preserve its existence and all rights, privileges, and
franchises now enjoyed, conduct its business in an orderly, efficient, and
customary manner, keep all of its properties in good working order and
condition, and from time to time make all needed repairs, renewals, or
replacements thereto and thereof so that the efficiency of such property shall
be fully maintained and preserved.
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ARTICLE VII
NEGATIVE COVENANTS
So long as credit is available under this Agreement and until full and
final payment of all of the Borrower's obligations under this Agreement and any
other Credit Document:
7.01 OTHER INDEBTEDNESS. The Borrower shall not, and shall not suffer or
permit any Subsidiary to, create, incur, assume, or permit to exist any
indebtedness or liabilities for or resulting from borrowed money, loans, or
advances, or for the deferred purchase price of property under capital leases,
whether secured or unsecured, matured or unmatured, liquidated or unliquidated,
joint or several, or any other contingent obligation (including in respect of
Swap Contracts) or become liable as a surety, guarantor, accommodation endorser,
or otherwise for or upon the obligation of any other person, firm, or
corporation; provided, however, that this Section shall not prohibit:
(a) the acquisition of goods, supplies, or merchandise on normal
trade credit;
(b) the execution of bonds or undertakings in the ordinary course of
its business as presently conducted;
(c) the endorsement of negotiable instruments received in the
ordinary course of its business as presently conducted;
(d) indebtedness in favor of the Bank or any of its affiliates;
(e) indebtedness or other obligations to other creditors which is
subordinated on terms and conditions satisfactory to the Bank in its sole
discretion to all of Borrower's and its Subsidiaries' indebtedness or other
obligations to the Bank or any affiliate of the Bank (including any Offshore
Credit Provider) whether now existing or hereafter arising, and is otherwise on
terms and conditions satisfactory to the Bank in its sole discretion;
(f) indebtedness secured by liens permitted under subsection 7.02(f);
(g) subject to Section 7.03, capital lease obligations not to exceed
$5,000,000 outstanding at any one time for the acquisition of fixed or capital
assets; and
(h) Permitted Swap Obligations.
7.02 LIENS. The Borrower shall not, and shall not suffer or permit any of
its Subsidiaries to, create, assume, or suffer
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to exist any security interest, deed of trust, mortgage, lien (including the
lien of an attachment, judgment, or execution), or encumbrance, securing a
charge or obligation, on or of any of its or their property, real or personal,
whether now owned or hereafter acquired, except: (a) security interests and
deeds of trust in favor of the Bank; (b) liens, security interests, and
encumbrances in existence as of the date of this Agreement and disclosed to the
Bank in writing prior to the Closing Date; (c) liens for current taxes,
assessments, or other governmental charges which are not delinquent or remain
payable without any penalty; (d) liens (other than those imposed by ERISA) in
connection with workers' compensation, unemployment insurance, or other social
security obligations; (e) mechanics', worker's, materialmen's, landlords',
carriers', or other like liens arising in the ordinary and normal course of
business with respect to obligations which are not due; (f) purchase money
security interests in personal property hereafter acquired in the ordinary
course of business when the security interest does not extend beyond the
property purchased; and (g) liens in connection with capital lease obligations
permitted under subsection 7.01(g).
7.03 CAPITAL ASSETS. The Borrower on a consolidated basis shall not, in
any of its fiscal years, expend or incur obligations (including obligations
incurred under any capital leases) of more than $10,000,000 for the acquisition
of fixed or capital assets.
7.04 ACQUISITIONS. The Borrower and its Subsidiaries shall not acquire or
purchase control of, or the assets or business of, any other person, firm, or
corporation.
7.05 DIVIDENDS. Neither the Borrower nor any of its Subsidiaries that is
not wholly-owned by the Borrower shall declare or pay any dividends or
distributions on any of its shares now or hereafter existing, or purchase,
redeem or otherwise acquire for value any of its shares, or create any sinking
fund in relation thereto, except dividends payable solely in its capital stock.
7.06 LOANS. Neither the Borrower nor any of its Subsidiaries shall make
any loans, advances, or other extensions of credit to any of the Borrower's or
such Subsidiary's executives, officers, or directors or shareholders (or any
relatives of any of the foregoing) other than in the ordinary course of business
in the aggregate principal amount outstanding at any one time not to exceed
$1,000,000; or make loans, advances or other extensions of credit to or invest
in any other person, firm, corporation, or other entity, other than, in each
case, in the ordinary course of business, (a) investments in cash equivalents
and short-term marketable investments; (b) extensions of credit in the nature of
accounts receivable or notes
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receivable arising from the sale or lease of goods or services in the ordinary
course of business; (c) extensions of credit by the Borrower to any of its
wholly-owned Subsidiaries or by any of its wholly-owned Subsidiaries to another
of its wholly-owned Subsidiaries; and (d) investments constituting Permitted
Swap Obligations or payments or advances under Swap Contracts relating to
Permitted Swap Obligations.
7.07 LIQUIDATIONS AND MERGERS. The Borrower shall not, and shall not
suffer or permit any Subsidiary to, liquidate or dissolve or enter into any
consolidation, merger, partnership, joint venture, or other combination, except
that a Subsidiary may Subsidiary may merge with the Borrower, provided that the
Borrower shall be the continuing or surviving corporation, or with any one or
more Subsidiaries, provided that if any transaction shall be between a
Subsidiary and a wholly-owned Subsidiary, the wholly-owned Subsidiary shall be
the continuing or surviving corporation.
7.08 SALE OF ASSETS. Neither the Borrower nor any of its Subsidiaries
shall (a) sell, lease, or otherwise dispose of its business or assets as a whole
or such as in the opinion of the Bank constitutes a substantial portion of its
business or assets; (b) sell or otherwise dispose of any of its accounts
receivable except in connection with the collection of same in the ordinary
course of business; (c) sell or otherwise dispose of any of its assets except
for full, fair and reasonable consideration; or (d) enter into any sale and
leaseback agreement covering any of its fixed or capital assets.
7.09 BUSINESS ACTIVITIES. The Borrower shall not, and shall not suffer or
permit any Subsidiary to, engage in any business activities or operations
substantially different from or unrelated to its present business activities and
operations.
7.10 REGULATIONS G, T, U, AND X. The Borrower shall not, and shall not
permit any of its Subsidiaries to, use any portion of the proceeds of any
Advances or extensions of credit hereunder, directly or indirectly, (i) to
purchase or carry margin stock (within the meanings of Regulations G, T, U, and
X of the FRB), (ii) to repay or otherwise refinance indebtedness of the Borrower
or others incurred to purchase or carry any such margin stock, (iii) to extend
credit for the purpose of purchasing or carrying any such margin stock, or (iv)
to acquire any security in any transaction that is subject to Section 13 or 14
of the Securities Exchange Act of 1934, as amended.
7.11 USE OF PROCEEDS - INELIGIBLE SECURITIES. The Borrower shall not,
directly or indirectly, use any portion of the proceeds of any Advances or
extensions of credit hereunder (i) knowingly to purchase Ineligible Securities
from BASI during any period in
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which BASI makes a market in such Ineligible Securities, (ii) knowingly to
purchase during the underwriting or placement period Ineligible Securities being
underwritten or privately placed by BASI, or (iii) to make payments of principal
or interest on Ineligible Securities underwritten or privately placed by BASI
and issued by or for the benefit of the Borrower or any affiliate of the
Borrower. As used in this Section, "BASI" means BA Securities, Inc., a wholly-
owned subsidiary of BankAmerica Corporation. BASI is a registered broker-dealer
and permitted to underwrite and deal in certain Ineligible Securities; and
"INELIGIBLE SECURITIES" means securities which may not be underwritten or dealt
in by member banks of the Federal Reserve System under Section 16 of the Banking
Act of 1933 (12 U.S.C. Section 24, Seventh), as amended.
7.12 COMPLIANCE WITH ERISA. The Borrower shall not, and shall not suffer
or permit any of its ERISA Affiliates to: (a) engage in a prohibited
transaction or violation of the fiduciary responsibility rules with respect to
any Plan which has resulted or could reasonably expected to result in liability
of the Borrower in an aggregate amount in excess of $500,000; or (b) engage in a
transaction that could be subject to Section 4069 or 4212(c) of ERISA.
7.13 TANGIBLE NET WORTH. The Borrower shall not permit its Tangible Net
Worth on a consolidated basis at any time to be less than $58,000,000 PLUS 75%
of the Borrower's consolidated net income (but not less any net losses for any
period) earned in each fiscal quarter commencing after September 30, 1995 PLUS
the value of all Net Issuance Proceeds (whether in cash, other property or in
kind) of equity securities issued by the Borrower from and after September 30,
1995. For purposes of this Section and Section 7.14, "Tangible Net Worth"
means, as of any date of determination, (i) total assets (exclusive of goodwill,
patents, trademarks, trade names, organization expense, treasury shares,
unamortized debt discount and premium, deferred charges and other like
intangibles) LESS (ii) all reserves applicable thereto and all liabilities
(including accrued and deferred income taxes and subordinated liabilities). For
purposes of this Section, "Net Issuance Proceeds" means, in respect of any
issuance of common or preferred equity, proceeds (whether in cash, other
property, or in kind) received in connection therewith, net of out-of-pocket
costs and expenses paid or incurred in connection therewith in favor of any
person not an affiliate of the Borrower and not to exceed 5% of the gross
proceeds thereof.
7.14 LEVERAGE RATIO. The Borrower shall not at any time permit the ratio
of its (a) total liabilities, on a consolidated basis, to (b) its consolidated
Tangible Net Worth, to exceed 1.00 to 1.00.
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7.15 QUICK RATIO. The Borrower shall not suffer or permit, at any time,on
a consolidated basis, the ratio of (a) the sum of its cash, cash equivalents,
short-term marketable investments and current, invoiced account receivables net
of bad debt reserves, to (b) its current liabilities (which shall include all
Advances outstanding hereunder and the face amount of all letters of credit,
Bank Guaranties and acceptances issued hereunder, whether drawn or undrawn, and
whether or not discounted, as applicable, to be less than 1.00 to 1.00.
7.16 PROFITABILITY. The Borrower shall not incur, on a consolidated
basis, (a) any quarterly net or operating loss in any two consecutive fiscal
quarters or (b) any quarterly net or operating loss in excess of $3,000,000.
ARTICLE VIII
EVENTS OF DEFAULT
8.01 EVENTS OF DEFAULT. The occurrence of any of the following events
shall constitute an "EVENT OF DEFAULT" under this Agreement:
(a) FAILURE TO PAY. The Borrower fails to pay, when due, any
installment of principal, or within three Business Days after the date when due
any interest, fee or any other sum due under this Agreement or any other Credit
Document in accordance with the terms hereof or thereof.
(b) BREACH OF REPRESENTATION OR WARRANTY. Any representation or
warranty herein or in any other Credit Document proves to have been false or
misleading in any material respect when made.
(c) SPECIFIC DEFAULTS. The Borrower fails to perform or observe any
term, covenant or agreement contained in Section 6.01, 6.02 or 6.03 or Article
VII hereof.
(d) OTHER DEFAULTS. The Borrower fails to perform or observe any
other term or covenant contained in this Agreement or any Credit Document, and
such default shall continue unremedied for a period of 20 days after the earlier
of (i) the date upon which the chief executive or chief financial officer of the
Borrower knew or should have known of such failure or (ii) the date upon which
written notice thereof is given to the Borrower by the Bank.
(e) JUDGMENTS. One or more judgments or arbitration awards are
entered against the Borrower or any of its Subsidiaries, or the Borrower enters
into any settlement agreement
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with respect to any litigation or arbitration, in the aggregate amount of
$5,000,000 or more on a claim or claims not covered by insurance.
(f) FAILURE TO PAY DEBTS; VOLUNTARY BANKRUPTCY. The Borrower or any
Subsidiary (i) fails to pay the Borrower's or such Subsidiary's debts generally
as they come due, or (ii) files any petition, proceeding, case, or action for
relief under any bankruptcy, reorganization, insolvency, or moratorium law, or
any other law or laws for the relief of, or relating to, debtors.
(g) INVOLUNTARY BANKRUPTCY. An involuntary petition is filed under
any bankruptcy or similar statute against the Borrower or any Subsidiary, or a
receiver, trustee, liquidator, assignee, custodian, sequestrator, or other
similar official is appointed to take possession of the properties of the
Borrower or any Subsidiary; provided, however, that such Event of Default shall
be deemed cured if such petition or appointment is set aside or withdrawn or
ceases to be in effect within 60 days from the date of said filing or
appointment.
(h) DEFAULT OF OTHER FINANCIAL OBLIGATIONS. Any default occurs under
any other agreement involving the borrowing of money or the extension of credit
to which the Borrower or any Subsidiary may be a party as borrower, guarantor,
or installment purchaser, if such default consists of the failure to pay any
obligation when due or if such default gives to the holder of the obligation
concerned the right to accelerate the obligation, or there occurs under any Swap
Contract an Early Termination Date resulting from (1) any event of default under
such Swap Contract as to which the Borrower or any Subsidiary is the Defaulting
Party or (2) any Termination Event as to which the Borrower or any Subsidiary is
an Affected Party (for purposes of this subsection, the terms "Early Termination
Date", "Defaulting Party", "Termination Event", and "Affected Party" shall have
the meanings assigned to them in the relevant Swap Contract, it being understood
that such definitions contemplate Swap Contracts documented on International
Swaps and Derivatives Association ("ISDA") standard forms; if such Swap Contract
is not documented on an ISDA standard form, such terms shall be given similar or
analogous meanings as used in such non-ISDA standard agreements).
(i) DEFAULT UNDER OTHER CREDIT DOCUMENTS. Any Credit Document (other
than this Agreement), guaranty, subordination agreement, or other agreement or
instrument required hereunder or executed in connection herewith is breached or
becomes ineffective or any default occurs under any such agreement or instrument
or any guarantor or subordinated creditor disavows its obligations under its
guaranty or subordination agreement.
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(j) DEFAULT OF OTHER BANK OBLIGATIONS. Any default occurs under any
other obligation of the Borrower or any Subsidiary to the Bank or to any
subsidiary or affiliate of the Bank.
(k) MATERIAL ADVERSE EFFECT. There occurs a Material Adverse Effect.
(l) ERISA. An ERISA Event shall occur with respect to a Pension Plan
or Multiemployer Plan which has resulted or could reasonably expected to result
in liability of the Borrower under Title IV of ERISA to the Pension Plan,
Multiemployer Plan or the PBGC in an aggregate amount in excess of $500,000;
(ii) the aggregate amount of Unfunded Pension Liability among all Pension Plans
at any time exceeds $500,000; or (iii) the Borrower or any ERISA Affiliate shall
fail to pay when due, after the expiration of any applicable grace period, any
installment payment with respect to its withdrawal liability under Section 4201
of ERISA under a Multiemployer Plan in an aggregate amount in excess of
$500,000.
8.02 REMEDIES. If any Event of Default occurs,
(a) any indebtedness of the Borrower under any of the Credit
Documents, any term thereof to the contrary notwithstanding, shall at the Bank's
option (but automatically upon the occurrence of an Event of Default described
in subsection 8.01(f)(ii) or subsection 8.01(g)) and without notice become
immediately due and payable without presentment, demand, protest, or notice of
dishonor, or any other notice, all of which are hereby expressly waived by the
Borrower to the full extent permitted by law, and the Bank may declare an amount
equal to the maximum aggregate amount that is or at any time thereafter may
become available for drawing under any then-outstanding letters of credit
(whether or not any beneficiary shall have presented, or be entitled at such
time to present, the drafts or other documents required to draw under such
letters of credit), any acceptances outstanding hereunder and the Bank Guaranty
Outstanding Amount to be immediately due and payable;
(b) the obligation, if any, of the Bank (including through any
Offshore Credit Provider) to make further loans or extensions of credit
hereunder shall immediately cease and terminate; and
(c) the Bank and each Offshore Credit Provider shall have all rights,
powers, and remedies available under each of the Credit Documents, or accorded
by law, including the right to resort to any or all security for any credit
accommodation described herein, and to exercise any or all of the rights of a
beneficiary or secured party pursuant to applicable law.
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<PAGE>
All rights, powers, and remedies of the Bank and each Offshore Credit Provider
may be exercised at any time by the Bank or such Offshore Credit Provider and
from time to time after the occurrence of an Event of Default. All rights,
powers, and remedies of the Bank and any Offshore Credit Provider in connection
with each of the Credit Documents are cumulative and not exclusive and shall be
in addition to any other rights, powers, or remedies provided by law or equity.
ARTICLE IX
MISCELLANEOUS
9.01 SUCCESSORS AND ASSIGNS. This Agreement shall bind and inure to the
benefit of the parties hereto and their respective successors and assigns;
provided, however, that the Borrower shall not assign this Agreement or any
other Credit Document or any of the rights, duties or obligations of the
Borrower hereunder without the prior written consent of the Bank.
9.02 CONSENTS AND WAIVERS. No failure to exercise and no delay in
exercising, on the part of the Bank or any Offshore Credit Provider, any right,
remedy, power, or privilege hereunder, shall operate as a waiver thereof; nor
shall any single or partial exercise of any right, remedy, power, or privilege
hereunder preclude any other or further exercise thereof or the exercise of any
other right, remedy, power, or privilege. No consent or waiver under this
Agreement shall be effective unless in writing. No waiver of any breach or
default shall be deemed a waiver of any breach or default thereafter occurring.
9.03 GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of California.
9.04 COSTS AND ATTORNEYS' FEES. The Borrower shall, whether or not the
transactions contemplated hereby shall be consummated, pay or reimburse the Bank
on demand for all costs and expenses incurred by the Bank in connection with the
development, preparation, delivery, administration, and execution of, and any
amendment, supplement, waiver or modification to, this Agreement and any other
Credit Document and the consummation of the transactions contemplated hereby and
thereby, including reasonable attorney fees and disbursements and the allocated
cost of internal counsel and disbursements, incurred by the Bank with respect
thereto; and in connection with the enforcement, attempted enforcement or
preservation of any rights or remedies hereunder or under any Credit Document,
including any "workout" or restructuring under this Agreement, including
attorney fees and
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disbursements and the allocated cost of internal counsel and disbursements.
9.05 INTEGRATION; AMENDMENT; EFFECT OF AMENDMENT AND RESTATEMENT. This
Agreement, together with the other Credit Documents, embodies the entire
agreement and understanding between the Borrower and the Bank. This Agreement
may be amended or modified only in writing, signed by the Borrower and the Bank.
This Agreement is intended to completely amend, restate and replace the Existing
Credit Agreement, without novation. The Borrower hereby acknowledges and agrees
that its obligation to repay any advances or other extensions of credit
(including outstanding letters of credit and acceptances) made as of the date
hereof under the Existing Credit Agreement shall continue under and be governed
by the terms and conditions of this Agreement and shall constitute utilization
of the Credit Limit, that all documents related to such advances and extensions
of credit shall be Credit Document hereunder, and that all such advances shall
be deemed Advances hereunder, or letters of credit or acceptances issued or
created hereunder, as applicable, subject to the terms and provisions of this
Agreement.
9.06 BORROWER'S DOCUMENTS. The Bank shall be under no obligation to
return any schedules, invoices, statements, budgets, forecasts, reports or other
papers delivered by the Borrower and shall destroy or otherwise dispose of same
at such time as the Bank, in its discretion, deems appropriate.
9.07 PARTICIPATIONS. The Bank may at any time sell, assign, grant
participations in, or otherwise transfer to any other person, firm, corporation
or other entity (a "PARTICIPANT") all or part of the obligations of the Borrower
under this Agreement and any other Credit Document. The Borrower authorizes the
Bank and each Participant, upon the occurrence of an Event of Default, to
proceed directly by right of setoff, banker's lien, or otherwise, against any
assets of the Borrower which may be in the hands of the Bank or such
Participant, respectively. The Borrower authorizes the Bank to disclose to any
prospective Participant and any Participant any and all information in the
Bank's possession concerning the Borrower and its Subsidiaries, this Agreement
or any other Credit Document; provided, however, that any such prospective
Participant or Participant shall agree to keep any such information
confidential.
9.08 GENERAL INDEMNIFICATION. The Borrower shall pay and indemnify the
Bank, the Offshore Credit Providers, the Bank's parent company, and each of
their respective officers, directors, employees, counsel, agents and
attorneys-in-fact (each, an "INDEMNIFIED PERSON") harmless from and against any
and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, charges, expenses, or disbursements
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(including attorneys' fees and disbursements and the allocated costs of internal
counsel) of any kind or nature whatsoever with respect to the execution,
delivery, enforcement, performance, and administration of this Agreement and any
other Credit Documents, or the transactions contemplated hereby and thereby, and
with respect to any investigation, litigation, or proceeding related to this
Agreement, any violation of any Environmental Law by the Borrower or its
Subsidiaries, any release of a Hazardous Substance at or from any property of
the Borrower or any of its Subsidiaries, or the loans and other extensions of
credit hereunder or the use of the proceeds thereof, whether or not any
Indemnified Person is a party thereto (all the foregoing, collectively, the
"INDEMNIFIED LIABILITIES"); PROVIDED, that the Borrower shall have no obligation
hereunder to any Indemnified Person with respect to Indemnified Liabilities
arising from the gross negligence or willful misconduct of such Indemnified
Person. The agreements in this Section shall survive payment of all other
obligations of the Borrower hereunder or under the other Credit Documents.
9.09 ARBITRATION; REFERENCE PROCEEDING. (a) Any controversy or claim
between or among the parties, including but not limited to those arising out of
or relating to this Agreement or any other Credit Document or other agreements
or instruments relating hereto or delivered in connection herewith and any claim
based on or arising from an alleged tort, shall at the request of any party be
determined by arbitration. The arbitration shall be conducted in accordance
with the United States Arbitration Act (Title 9, U.S. Code), notwithstanding any
choice of law provision in this Agreement, and under the Commercial Rules of the
American Arbitration Association ("AAA"). The arbitration shall be conducted
within the following California county or counties: San Francisco and Santa
Clara. The arbitrator(s) shall give effect to statutes of limitation in
determining any claim. Any controversy concerning whether an issue is
arbitrable shall be determined by the arbitrator(s). Judgment upon the
arbitration award may be entered in any court having jurisdiction. The
institution and maintenance of an action for judicial relief or pursuit of a
provisional or ancillary remedy shall not constitute a waiver of the right of
any party, including the plaintiff, to submit the controversy or claim to
arbitration if any other party contests such action for judicial relief.
(b) Notwithstanding the provisions of subsection (a) of this Section,
no controversy or claim shall be submitted to arbitration without the consent of
all parties if, at the time of the proposed submission, such controversy or
claim arises from or relates to an obligation to the Bank which is secured by
real property collateral located in California. If all parties do not consent
to submission of such a controversy or claim to arbitration, the controversy or
claim shall be determined as provided in subsection (c) of this Section.
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<PAGE>
(c) A controversy or claim which is not submitted to arbitration as
provided and limited in subsections (a) and (b) of this Section shall, at the
request of any party, be determined by a reference in accordance with California
Code of Civil Procedure Sections 638 et seq. If such an election is made, the
parties shall designate to the court a referee or referees selected under the
auspices of the AAA in the same manner as arbitrators are selected in
AAA-sponsored proceedings. The presiding referee of the panel, or the referee
if there is a single referee, shall be an active attorney or retired judge.
Judgment upon the award rendered by such referee or referees shall be entered in
the court in which such proceeding was commenced in accordance with California
Code of Civil Procedure Sections 644 and 645.
(d) No provision of this paragraph shall limit the right of any party
to this Agreement to exercise self-help remedies such as setoff, to foreclose
against or sell any real or personal property collateral or security, or to
obtain provisional or ancillary remedies from a court of competent jurisdiction
before, after, or during the pendency of any arbitration or other proceeding.
The exercise of a remedy does not waive the right of either party to resort to
arbitration or reference. At the Bank's option, foreclosure under a deed of
trust or mortgage may be accomplished either by exercise of power of sale under
the deed of trust or mortgage or by judicial foreclosure.
9.10 NOTICES. (a) All notices, requests and other communications
provided for hereunder shall be in writing and mailed or delivered to a party at
its address specified on the signature pages hereof, or to such other address as
shall be designated by such party in a written notice to the other parties.
(b) All such notices and communications shall, when transmitted by
overnight delivery, be effective when delivered for overnight delivery, or if
personally delivered, upon such personal delivery, except that notices pursuant
to Article II shall not be effective until actually received by the Bank.
(c) The Borrower acknowledges and agrees that any agreement of the
Bank pursuant to Article II hereof to receive notices by telephone or facsimile
is solely for the convenience and at the request of the Borrower. Telephone
requests may be made by any individual identified in writing to the Bank on a
form acceptable to the Bank as being authorized to make such requests. The Bank
shall be entitled to rely upon any written or telephone request from persons it
reasonably believes to be authorized by the Borrower to make such requests
without making independent inquiry. The Borrower assumes the full risk of, and
the Bank shall not be responsible for, any delays or errors in transmission, and
the obligation of the Borrower to repay the loans and other extensions of credit
hereunder shall not be
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affected in any way or to any extent by any failure by the Bank to receive
written confirmation of any telephonic or facsimile notice or the receipt by the
Bank of a confirmation which is at variance with the terms understood by the
Bank to be contained in the telephonic or facsimile notice.
9.11 HEADINGS; INTERPRETATION. Article, section, and paragraph headings
are for reference only and shall not affect the interpretation or meaning of any
provisions of this Agreement. The meaning of defined terms shall be equally
applicable to the singular and plural forms of the defined terms. The words
"hereof", "herein", "hereunder" and words of similar import when used in this
Agreement shall refer to this Agreement as a whole and not to any particular
provision of this Agreement; and subsection, section, schedule and exhibit
references are to this Agreement unless otherwise specified. The term
"including" is not limiting and means "including without limitation." In the
computation of periods of time from a specified date to a later specified date,
the word "from" means "from and including"; the words "to" and "until" each mean
"to but excluding", and the word "through" means "to and including."
9.12 SEVERABILITY. The illegality or unenforceability of any provision of
this Agreement or any instrument or agreement required hereunder shall not in
any way affect or impair the legality or enforceability of the remaining
provisions of this Agreement or any instrument or agreement required hereunder.
9.13 COUNTERPARTS. This Agreement may be executed in as many counterparts
as may be deemed necessary or convenient, and by the different parties hereto on
separate counterparts each of which, when so executed, shall be deemed an
original but all such counterparts shall constitute but one and the same
agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
STANFORD TELECOMMUNICATIONS, INC.
By:
-------------------------------
Typed Name:
-----------------------
Title:
Address where notices to
Borrower are to be sent:
Stanford Telecommunications, Inc.
1221 Crossman Avenue.
Sunnyvale, CA 94089
Attn: Mr. Chris Smallman,
Corporate Controller
Telecopier: (408) 745-1429
Telephone: (408) 745-0818
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By:
------------------------------
Typed Name:
----------------------
Title:
Address where notices to
Bank are to be sent:
Bank of America National Trust and Savings Association
The Mid-Cap Technology Group #5974
530 Lytton Avenue, 2nd Floor
Palo Alto, CA 94301
Attn: Christopher Gernhard,
Vice President
Telecopier: (415) 853-4476
Telephone: (415) 853-4458
<PAGE>
EXHIBIT 13.1
MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDIDTION AND RESULTS OF OPERATION
OVERVIEW
Since the Company's inception in 1973, revenues have been generated primarily
from sales to agencies of the U.S. Government, including the DoD, the U.S. Air
Force, Army and Navy, NASA and the FAA, or their prime contractors. Such
revenues are generated from many contracts including programs requiring multi-
year hardware and software development and limited production of products and
systems. The Company's contracts often require the design, production, operation
and maintenance of sophisticated equipment and systems and provision of system
integration services in the digital telecommunications and satellite
communications fields. A substantial portion of the digital telecommunications
and satellite communications research and development performed by the Company
since its inception has been funded by its customers and recorded as revenues by
the Company. Accordingly, the cost of performing this customer-funded research
and development is included in "Cost of Revenues" in the Company's financial
statements. The Company's government contracts are generally cost-reimbursement
plus profit or fixed-price contracts. The Company generally recognizes revenues
from its long-term government contracts on a percentage-of-completion basis.
Commencing in the late 1980's, the Company began to pursue commercial
opportunities utilizing its digital telecommunications technology developed and
enhanced by the Company since its inception. Commercial revenues have risen from
less than 6% of total revenues in fiscal year 1989 to approximately 46% of total
revenues in fiscal year 1996. During fiscal year 1996, commercial revenues which
amounted to approximately $66.3 million included: (i) contract manufacturing
revenues from the Company's electronics assembly business ($29.1 million); (ii)
sales of ASICs, circuit boards and subsystems to the telecommunications industry
($13.3 million); (iii) development programs for INTELSAT and DSC Communications
Corporation ($14.7 million); (iv) sales of off-the-shelf products for secure
voice transmissions and GPS instrumentation ($3.3 million); and (v) other
commercial systems and product business ($5.9 million). The Company includes in
commercial revenues sales of standardized or off-the-shelf products such as the
digital interfaces for secure voice transmissions or GPS simulators to any
customers, including government customers.
The Company's operating results have from time to time been adversely affected
by non-recoverable cost overruns on certain fixed-price contracts, primarily
fixed-price development contracts which have included significant software and
hardware development. The Company's net income in fiscal year 1994 and 1995 was
adversely affected due to losses on a number of fixed-price development
contracts. The Company has instituted additional management controls to more
closely monitor its bidding process and costs incurred on fixed-price
development contracts, however, no assurance can be given that the Company will
not incur losses on future fixed-price contracts or additional losses on
existing contracts. The Company believes that development contracts are an
important element in maintaining its technological leadership position in
digital telecommunications. The Company plans to selectively bid on programs
where it would be the sole provider or its technology leadership provides a
competitive advantage. In addition, in order to position itself in the
commercial marketplace, the Company may selectively enter into contracts with
customers to deliver products where the Company will be funding a portion of the
development costs. As a result, the Company may incur losses on certain fixed-
price contracts. Such losses will be charged against results of operations in
the period when they first become known, typically near the initiation of the
contract and may have a material adverse effect on the Company's results of
operations.
<PAGE>
RESULTS OF OPERATIONS
The following tables set forth, for the periods indicated, certain items from
the Company's Statements of Income expressed as a percentage of the Company's
total revenues:
Year Ended March 31
-------------------
1994 1995 1996
---- ---- ----
Revenues . . . . . . . . . . . . . . . . . . . . 100.0% 100.0% 100.0%
Cost of revenues . . . . . . . . . . . . . . . . .82.0 83.6 80.0
---- ---- ----
Gross profit . . . . . . . . . . . . . . . . . .18.0 16.4 20.0
---- ---- ----
Research and development . . . . . . . . . . . . . 6.5 6.8 5.8
Marketing and administrative . . . . . . . . . . . 6.9 8.2 8.4
---- ---- ----
Total expenses . . . . . . . . . . . . . . . . .13.4 15.0 14.2
Operating income . . . . . . . . . . . . . . . . . 4.6 1.4 5.8
Interest income (expense), net . . . . . . . . . .(0.1) 0.6 0.6
Arbitration settlement charge. . . . . . . . . . . - (1.8) -
---- ---- ----
Income before provision for income taxes and
change in accounting method. . . . . . . . . . . . 4.5 0.2 6.4
Provision for income taxes . . . . . . . . . . . .(1.6) (0.1) (2.1)
----- ----- -----
Income before change in accounting method. . . . . 2.9 0.1 4.3
Cumulative effect of change in accounting method . 0.7
---- ---- ----
Net income . . . . . . . . . . . . . . . . . . . 3.6% 0.1% 4.3%
---- ---- ----
<PAGE>
CAUTIONARY STATEMENTS
In the interest of providing the Company's shareholders and potential investors
with certain Company information, including management's assessment of the
Company's future potential, certain statements set forth herein contain or are
based on projections of revenue, income, earnings per share and other financial
items or relate to management's future plans and objectives or to the Company's
future economic performance. Such statements are "forward-looking statements"
within the meaning of Section 27A(i) of the Securities Act of 1933, as amended,
and in Section 21E(i) of the Securities Exchange Act of 1934, as amended.
Although any forward-looking statements contained herein or otherwise expressed
by or on behalf of the Company are to the knowledge and in the judgment of the
officers and directors of the Company, expected to prove true and to come to
pass, management is not able to predict the future with absolute certainty.
Accordingly, shareholders and potential investors are hereby cautioned that
certain events or circumstances could cause actual results to differ materially
from those projected or predicted herein. In addition, the forward-looking
statements herein are based on management's knowledge and judgment as of the
date hereof, and the Company does not intend to update any forward-looking
statements to reflect events occurring or circumstances existing hereafter.
For further information on the foregoing, reference is made to the Company's
Securities and Exchange Commission reports including its recent reports on Forms
10-Q and 10-K.
COMPARISON OF FISCAL YEARS 1994, 1995 AND 1996
REVENUES. Revenues were $98.1 million, $114.4 million and $145.1 million in
fiscal year 1994, 1995 and 1996, respectively, representing year-to-year
increases of 17% in fiscal year 1995 and 27% in fiscal year 1996. The increase
in revenues from fiscal year 1994 to fiscal year 1995 was attributable to
increases in the Company's commercial operations, including its commercial
telecommunication products and services and its commercial manufacturing
services as well as increases in its government business sector. During fiscal
year 1996, revenues of approximately $79 million generated by its government
business sector remained relatively unchanged from fiscal year 1995. Revenues
generated from commercial telecommunications product and services were $21.1
million, $23.3 million and $37.1 million in fiscal year 1994, 1995 and 1996,
respectively. Revenues generated from commercial manufacturing services were
$5.4 million, $12.1 million and $29.1 million in fiscal year 1994, 1995 and
1996, respectively.
Although the Company experienced an increase in its government business revenues
during fiscal year 1995 and the level of government business during fiscal year
1996 remained relatively unchanged from fiscal year 1995, the Company expects
that budgetary pressures will continue to affect Department of Defense and NASA
budgets. The Company anticipates that its revenues from these government
customers may remain flat and could decline in future periods. All contracts
with the government are cancelable at any time for the convenience of the
government. The Company is not aware of the cancellation or proposed
cancellation of any of its current contracts. The Company plans to continue to
selectively pursue government business where it has a competitive advantage, can
be the sole provider or can be a prime contractor rather than a subcontractor.
Over the past several years the percentage of the Company's commercial revenues
has increased. The Company's commercial business represented approximately 27%
of total revenues in fiscal year 1994, 31% in fiscal year 1995 and 46% in fiscal
year 1996. During this period, commercial activities of the Company included the
expansion of its contract manufacturing operations which followed the
acquisition of a small electronics assembly facility in fiscal year 1993, the
organization of a separate division in fiscal year 1991 to pursue opportunities
for selling ASICs, circuit boards and subsystems to the telecommunications
industry, the sale of off-the-shelf products and development programs for
INTELSAT, NYNEX Assurance Services and DSC Communications. The Company is
currently pursuing commercial opportunities in satellite, wireless and cable
communication products. The Company expects that the percentage of its overall
business represented by commercial sales will increase if it successfully
develops, markets and sells those products currently under development.
COST OF REVENUES. Cost of revenues were $80.4 million, $95.7 million and $116.0
million in fiscal year 1994, 1995 and 1996, respectively, representing 82.0%,
83.6% and 80.0% of revenues in fiscal year 1994, 1995 and 1996, respectively.
The increase in cost of revenues as a percentage of revenues in fiscal year 1995
relative to fiscal year 1994 is attributable primarily to an increase in
reserves and non-recoverable cost overruns on certain fixed-price contracts. For
fiscal year 1995, the company announced a reserve of $2.8 million against the
completion of a development contract with Intelsat and incurred losses on
several other development contracts totaling $1.4 million. The decrease in cost
of revenues as a percentage of revenues in fiscal year 1996 relative to fiscal
year 1995 is attributable primarily to the avoidance of material cost overruns
on its contracts and increased margins on its commercial catalog products.
During fiscal year 1996 the Company recognized revenues on the Intelsat contract
and a U.S. Army satellite terminal contract totaling $16.2 million in which the
cost of revenues approximated the revenues recognized. In fiscal year 1994, 1995
and 1996, the Company experienced losses totaling $2.4 million, $4.2 million and
$.2 million, respectively on a number of fixed-price development contracts.
<PAGE>
GROSS PROFIT. Gross profit was $17.6 million, $18.7 million and $29.1 million in
fiscal year 1994, 1995 and 1996, respectively. Gross profit as a percentage of
revenues decreased in fiscal year 1995 relative to 1994 as a result of the need
to increase reserves and non-recoverable cost overruns on certain fixed-price
contracts. Gross profit increased during fiscal year 1996 as a percentage of
revenues relative to fiscal year 1995 as the Company experienced operational
efficiencies as a result of its expanding business base, the avoidance of
material cost overruns on its contracts and increased margins on its commercial
catalog products.
RESEARCH AND DEVELOPMENT. The Company's research and development expenses
include bid and proposal expenses associated with government contracts and
certain large commercial programs. Bid and proposal expenditures are largely the
initial advanced technology development efforts directed toward a specific
product or technical task for which the Company must show technical viability.
Bid and proposal expenses have decreased since fiscal year 1994 as the Company
has focused its available research and development funds on the development of
commercial products. Research and development expenses, including bid and
proposal expenses were $6.4 million, $7.7 million and $8.4 million in fiscal
year 1994, 1995 and 1996, respectively. Excluding bid and proposal expenses, the
Company's research and development expenses applied to the development of its
products were $2.9 million, $4.4 million and $5.7 million in fiscal year 1994,
1995 and 1996 respectively. The Company expects research and development
expenses to increase in the future as it pursues additional commercial
activities.
MARKETING AND ADMINISTRATIVE. Marketing and administrative expenses were $6.8
million, $9.4 million and $12.2 million in fiscal year 1994, 1995, and 1996,
respectively, representing year-to-year increases of 38% in fiscal year 1995 and
30% in fiscal year 1996. These increases were primarily a result of hiring
additional technical marketing personnel and increased marketing expenses in
pursuit of commercial opportunities. In addition, the Company has expanded its
patent activities and has experienced increased legal costs associated with the
prosecution of its patent activities.
OPERATING INCOME. Operating income was $4.5 million, $1.6 million and $8.4
million for fiscal year 1994, 1995 and 1996, respectively, representing a year-
to-year decrease of 64% in fiscal year 1995 and a increase of 425% in fiscal
year 1996. The decrease in fiscal year 1995 was primarily attributable to an
increase in reserves and non-recoverable cost overruns on certain fixed-price
contracts and the recognition of revenues on certain large system level
contracts at zero or minimal operating margins. The increase in fiscal year 1996
was primarily attributable to operational efficiencies experienced as the
Company expanded its business base, the avoidance of material cost overruns on
its contracts and increased margins on its commercial catalog products. The
Company has entered into and may continue to enter into certain fixed-price
development contracts which it believes are essential to maintain and strengthen
its competitive market position.
INTEREST INCOME (EXPENSE), NET. Interest expense, net was $.1 million and
interest income, net was $.7 million, and $.8 million in fiscal year 1994, 1995
and 1996, respectively. The increase in interest income, net from fiscal year
1994 to 1995 reflects interest earned from proceeds generated from the Company's
secondary public offering of its common stock in January 1994. During fiscal
year 1996 the Company increased the amount of cash available for investment by
generating positive cash from its operations which it invested in interest
bearing short-term investments. In addition, the Company received interest from
the U.S. Government associated with overpayment of estimated taxes in prior
years and from the Government's delay in payments on certain U.S. Government
contracts.
ARBITRATION SETTLEMENT EXPENSES. During the third quarter of fiscal year 1995,
the Company received an unfavorable decision in an arbitration hearing involving
an alleged default under a 1990 joint product development agreement. A charge of
$1.6 million associated with the award to the prevailing party and other direct
arbitration costs of $.5 million were recognized.
PROVISION FOR INCOME TAXES. Provision for income taxes was $1.5 million, $.1
million and $3.1 million in fiscal year 1994, 1995 and 1996, respectively. This
represents an effective tax rate of 35.0% for fiscal year 1994 and 1995 and
33.5% tax rate for fiscal year 1996. The decrease in the effective tax rate
during fiscal year 1996 compared to fiscal year 1994 and 1995 results primarily
from increased Research and Development (R&D) tax credits and other state income
tax credits. The Company anticipates that its effective tax rate in future
fiscal year years will fall within the range of rates experienced over the past
three years assuming continued extension of the federal R&D tax credit.
ACCOUNTING CHANGE. Effective April 1, 1993, the Company adopted the provisions
of Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes". The cumulative effect of this change in accounting principle was an
increase in net income of $.7 million in the first quarter of fiscal year 1994.
This item is non-recurring and does not affect any prior or later periods.
BOOKINGS AND BACKLOG. Funded bookings were $106.6 million, $127.8 million and
$155.0 million in fiscal year 1994, 1995 and 1996, respectively, representing
year-to-year increases of 20% in fiscal year 1995 and 21% in fiscal year 1996.
Government contract bookings were $61.9 million, $87.3 million and $79.7 million
during fiscal year 1994, 1995 and 1996, respectively. Commercial contract
bookings were $44.7 million, $40.5 million and $75.3 million during fiscal year
1994, 1995 and 1996, respectively. The increase in bookings has resulted in the
Company's backlog increasing from $59.1 million at the end of fiscal year 1994
to $72.5 million at the end of fiscal year 1995, an increase of 23% and a
further increase to $82.4 million at the end of fiscal year 1996, an increase of
14% from fiscal year 1995 ending backlog.
<PAGE>
QUARTERLY RESULTS
The following table presents the Company's financial results by quarter for
fiscal year 1994, 1995 and 1996. These quarterly financial results are
unaudited. In the opinion of management, however, they have been prepared on the
same basis as the audited financial information and include all adjustments
necessary for a fair presentation of the information set forth therein. The
operating results for any quarter are not necessarily indicative of the results
that may be expected for any future period.
STATEMENTS OF OPERATIONS DATA:
QUARTER ENDED (IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Fiscal year 1994 Fiscal year 1995 Fiscal year 1996
---------------- ---------------- ----------------
June 30 Sept. 30 Dec. 31 Mar. 31 June 30 Sept. 30 Dec. 31 Mar. 31 June 30 Sept. 30 Dec. 31 Mar. 31
------- -------- ------- ------- ------- -------- ------- ------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $24,322 $25,260 $23,445 $25,028 $24,645 $28,319 $26,499 $34,921 $35,952 $35,597 $36,384 $37,168
Costs of revenues 19,607 20,983 19,575 20,277 19,244 22,633 24,689 29,113 28,876 28,215 28,922 29,001
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Gross profit 4,715 4,277 3,870 4,751 5,401 5,686 1,810 5,808 6,076 7,382 7,462 8,167
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Expenses:
Research and
development 2,102 1,202 1,120 1,931 2,032 2,302 1,345 2,044 1,793 2,050 2,046 2,541
Marketing and
administrative 1,411 1,793 1,631 1,925 2,000 2,423 2,166 2,773 2,659 3,239 3,104 3,211
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total
expenses 3,513 2,995 2,751 3,856 4,032 4,725 3,511 4,817 4,452 5,289 5,150 5,752
Operating
income (loss) 1,202 1,282 1,119 895 1,369 961 (1,701) 991 1,624 2,093 2,312 2,415
Interest income
(expense), net (70) (88) (77) 100 180 156 191 130 178 152 164 345
Arbitration
settlement
expenses -- -- -- -- -- -- (2,075) -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income
(loss) before
(provision)
credit for
income taxes
and accounting
change 1,132 1,194 1,042 995 1,549 1,117 (3,585) 1,121 1,802 2,245 2,476 2,760
(Provision) credit
for income taxes (442) (404) (378) (303) (557) (403) 1,282 (393) (676) (842) (863) (729)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income (loss) before
change in
accounting
method $690 $790 $664 $692 $992 $714 $(2,303) $728 $1,126 $1,403 $1,613 $2,031
Cumulative effect of
change in
accounting
method 700 -- -- -- -- -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net income (loss) $1,390 $790 $644 $692 $992 $714 $(2,303) $728 $1,126 $1,403 $1,613 $2,031
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net income (loss)
per share $0.28 $0.16 $0.13 $0.12 $0.16 $0.11 $(0.37) $0.12 $0.18 $0.22 $0.25 $0.32
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Weighted average
common shares
and equivalents 4,900 4,976 5,058 5,867 6,211 6,244 6,256 6,252 6,272 6,346 6,361 6,409
</TABLE>
<PAGE>
The Company's revenues and results of operations are subject to fluctuation from
period to period. Factors that could cause the Company's revenues and operating
results to vary from period to period include: underestimating costs on fixed-
price contracts particularly for software and hardware development; timing,
bidding activity and delivery of significant contracts and orders; termination
of contracts; mix of products and systems sold, and services provided;
historically reduced levels of operation during the holidays which occur
primarily in the Company's third fiscal year quarter; disruptions in delivery of
components or subsystems; regulatory developments; and general economic
conditions. Revenues have generally increased on a quarterly basis since fiscal
year 1994 as a result of increasing commercial activities during the past three
years and increased government related activities experienced during fiscal year
1995. Revenues are generally lower during the third fiscal year quarter ending
December 31 because the Company reduces operations during the holiday period,
and it expects to continue to reduce activities in future holiday periods. The
Company's results of operation are adversely affected by losses on fixed-price
development contracts. Direct and indirect costs were adversely affected
throughout fiscal year 1994 and 1995 by cost overruns on certain fixed-price
development contracts. Research and development expenses include both research
and development costs as well as bid and proposal expenses. Bid and proposal
expenses vary significantly from period to period based on the number of
proposals being prepared at any time. These requests for proposals are not
received evenly during the year or in any predictable pattern.
LIQUIDITY AND CAPITAL RESOURCES
Working capital decreased from $48.7 million to $48.0 million at March 31, 1994
and 1995, respectively, and increased to $56.5 million at March 31, 1996. The
decrease in working capital at March 31, 1995 was primarily attributable to a
cash award paid to the prevailing party in an arbitration dispute and the need
to fund certain contact losses. The increase in working capital at March 31,
1996 was primarily attributable to cash generated from net income from
operations.
Net cash provided by operating activities for the years ended March 31, 1994,
1995 and 1996 was $9.8 million, $1.2 million and $8.7 million, respectively. The
decrease in net cash provided by operating activities from fiscal year 1994 to
1995 was largely attributable to an increase in receivables, an increase in
inventories associated with commercial contracts and a decrease in net income.
The increase in cash provided by operating activities from fiscal year 1995 to
fiscal year 1996 was largely attributable to an increase in net income and a
decrease in billed and unbilled receivables.
The Company utilized its cash for the purchase of property and equipment
totaling $5.8 million, $6.2 million and $4.5 million in fiscal year 1994, 1995
and 1996, respectively. Capital expenditures in recent years are attributable to
increased investments in the Company's commercial activities and leasehold
improvements in the Company's facilities in order to support its growth.
During fiscal year 1994, 1995 and 1996, $12.5 million, $.5 million and $1.1
million, respectively, of net cash was provided by financing activities. During
fiscal year 1994, the Company received proceeds from the sale of common stock of
$18.0 million. Payments on notes payable exceeded the proceeds from term notes
by $7.1 million. During fiscal year 1995 the Company received proceeds of $.6
million from transactions under stock plans and made payments of $.1 million on
capital lease obligations. During fiscal year 1996 the Company received proceeds
of $1.3 million from transactions under the stock plans and made payments of $.2
million on capital lease obligations.
The Company has a bank credit commitment of $15.0 million which it has utilized
to augment cash flow needs and to secure term loans or standby letters of
credit. Available borrowings under this line at March 31, 1996, were $15.0
million. Under this credit line the Company must maintain certain financial
covenants, including a covenant prohibiting the Company from incurring a
quarterly net operating loss in any two consecutive quarters. The Company was in
compliance with all covenants throughout fiscal year 1996. At March 31, 1996,
the Company's long-term obligations (including current maturities) and capital
lease obligations totaled approximately $.2 million. At March 31, 1996, cash and
cash equivalents of $4.4 million were held in money market accounts and short-
term investments of $14.1 million were held in U.S. Government Treasury
instruments.
The Company believes that its current cash position, funds generated from
operations and funds available from its existing bank credit agreement, will be
adequate to meet the Company's requirements for working capital, capital
expenditures and debt service for the next several fiscal year quarters.
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." The Company is not required to adopt the provisions of this
statement until its fiscal year 1997. The provisions of this statement must be
made on a prospective basis. The Company plans to adopt the disclosure
provisions of this statement in its fiscal year 1997, and believes the effect on
its financial position and results of operation, upon adoption, will not be
significant.
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Stanford Telecommunications, Inc.:
We have audited the accompanying balance sheets of Stanford Telecommunications,
Inc. (a Delaware Corporation) as of March 31, 1996 and 1995, and the related
statements of income, shareholders' equity and cash flows for each of the three
years in the period ended March 31, 1996. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Stanford Telecommunications,
Inc. as of March 31, 1996 and 1995 and the results of its operations and its
cash flows for each of the three years in the period ended March 31, 1996 in
conformity with generally accepted accounting principles.
As discussed in Note 6 of the notes to financial statements, effective April 1,
1993, the Company changed its method of accounting for income taxes.
ARTHUR ANDERSEN LLP
San Jose, California
April 22, 1996
<PAGE>
STATEMENTS OF INCOME
(in thousands, except for per share amounts)
<TABLE>
<CAPTION>
Year Ended March 31
-------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Revenues $145,100 $114,384 $ 98,055
Costs of revenues 116,014 95,679 80,442
------- ------ ------
Gross profit 29,086 18, 705 17,613
------ ------- ------
Research and development 8,429 7,723 6,355
Marketing and administrative 12,213 9,362 6,760
------- ------ ------
Total expenses 20, 642 17,085 13,115
------- ------ ------
Operating income 8,444 1,620 4,498
Interest income (expense), net 839 657 (135)
Arbitration settlement charge -- (2,075) --
------- ------ ------
Income before provision for income taxes and
change in accounting method 9,283 202 4,363
Provision for income taxes (3,110) (71) (1,527)
------- ------ ------
Income before change in accounting method 6,173 131 2,836
Cumulative effect of change in accounting method -- -- 700
------- ------ ------
Net income $ 6,173 $ 131 $ 3,536
------- ------ ------
Earnings per share:
Income before change in accounting method $ .97 $ .02 $ .54
Cumulative effect of change in accounting method -- -- .14
------- ------ ------
Net income $ .97 $ .02 $ .68
------- ------ ------
------- ------ ------
Weighted average number of common and
common equivalent shares outstanding 6,351 6,242 5,197
------- ------ ------
------- ------ ------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
BALANCE SHEETS
(in thousands, except for per share amounts)
<TABLE>
<CAPTION>
March 31
--------
1996 1995
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,409 $ 2,910
Short-term investments 14,127 9,907
Accounts receivable 22,018 22,930
Unbilled receivables 11,993 16,891
Inventories, net of related progress billings 18,702 15,798
Prepaid expenses and other 4,903 3,558
------ ------
Total current assets 76,152 71,994
------ ------
Property and equipment at cost:
Electronic test equipment 39,541 38,108
Furniture and fixtures 2,967 2,889
Leasehold improvements 3,657 3,052
------ ------
46,165 44,049
Less: Accumulated depreciation and amortization (31,665) (28,441)
------ ------
Net property and equipment 14,500 15,608
------ ------
Other assets 296 403
------ ------
$ 90,948 $ 88,005
------ ------
------ ------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term obligations $ 80 $ 158
Accounts payable 6,097 11,268
Advance payments from customers 515 963
Accrued liabilities 10,044 10,183
Accrued and current deferred income taxes 2,921 1,463
------ ------
Total current liabilities 19,657 24,035
------ ------
Long-term obligations, less current maturities 85 161
------ ------
Other long-term liabilities 986 927
------ ------
Deferred income taxes 631 785
------ ------
Commitments and contingencies (Notes 3 and 8)
Shareholders' equity:
Common stock - par value $.01; 15,000 shares authorized;
6,328 and 6,234 shares issued and outstanding
in 1996 and 1995, respectively 63 62
Paid-in capital 38,369 37,051
Retained earnings 31,157 24,984
------ ------
Total shareholders' equity 69,589 62,097
------ ------
$ 90,948 $ 88,005
------ ------
------ ------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
Common Stock Total
------------ Paid-In Retained Shareholders'
Shares Amount Capital Earnings Equity
------ ------ ------- -------- ------
<S> <C> <C> <C> <C> <C>
BALANCE, MARCH 31, 1993 4,864 $ 48 $ 16,206 $ 21,317 $ 37,571
Sale of common stock, net
of issuance costs 1,150 12 17,985 -- 17,997
Sale of common stock under
Employee Stock Purchase Plan 8 -- 182 -- 182
Sale of common stock under
Employee Stock Option Plan,
net of shares exchanged 155 2 1,582 -- 1,584
Issuance of common stock
as awards to employees 4 -- 50 -- 50
Tax benefits from employee
stock transactions -- -- 447 -- 447
Net income -- -- -- 3,536 3,536
----- ---- -------- -------- --------
BALANCE, MARCH 31, 1994 6,181 $ 62 $ 36,452 $ 24,853 $ 61,367
Sale of common stock under
Employee Stock Purchase Plan 36 -- 430 -- 430
Sale of common stock under
Employee Stock Option Plan,
net of shares exchanged 14 -- 86 -- 86
Issuance of common stock
as awards to employees 3 -- 42 -- 42
Tax benefits from employee
stock transactions -- -- 41 -- 41
Net income -- -- -- 131 131
----- ---- -------- -------- --------
BALANCE, MARCH 31, 1995 6,234 $ 62 $ 37,051 $ 24,984 $ 62,097
Sale of common stock under
Employee Stock Purchase Plan 35 -- 540 -- 540
Sale of common stock under
Employee Stock Option Plan 55 1 479 -- 480
Issuance of common stock
as awards to employees 4 -- 74 -- 74
Tax benefits from employee
stock transactions -- -- 225 -- 225
Net income -- -- -- 6,173 6,173
----- ---- -------- -------- --------
BALANCE, MARCH 31, 1996 6,328 $ 63 $ 38,369 $ 31,157 $ 69,589
----- ---- -------- -------- --------
----- ---- -------- -------- --------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Year Ended March 31
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 6,173 $ 131 $ 3,536
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 5,009 4,330 3,960
Issuances of stock to employees under bonus
and award plans 74 42 50
Change in provision for losses on receivables,
contracts and inventories 857 3,073 202
Loss on retirements of property and equipment 143 210 159
Change in accounting method -- -- (700)
(Increase) decrease in assets:
Receivables billed and unbilled 5,634 (8,355) 5,251
Inventories (3,492) (6,888) (3,467)
Prepaid expenses and other assets (1,238) (2,018) (84)
Increase (decrease) in liabilities:
Accounts payable, advance payments
and accrued expenses (5,851) 9,484 (488)
Other long-term liabilities 59 301 601
Accrued and deferred income taxes 1,304 874 798
-------- ------- --------
Net cash provided by operating activities 8,672 1,184 9,818
-------- ------- --------
Cash used in investing activities:
Purchase of short-term investments (17,058) (9,907) (11,466)
Proceeds from maturities of short-term investments 12,838 11,466 --
Purchase of property and equipment (4,482) (6,210) (5,846)
Proceeds from sale of property and equipment 438 67 --
-------- ------- --------
Net cash used in investing activities (8,264) (4,584) (17,312)
-------- ------- --------
Cash flows from financing activities:
Payments on capital lease obligations (154) (87) (176)
Payments on notes payable to bank -- -- (14,925)
Proceeds from term notes -- -- 7,800
Proceeds from transactions under stock plans 1,245 557 1,766
Proceeds from sale of common stock -- -- 17,997
Net cash provided by financing activities 1,091 470 12,462
-------- ------- --------
Net increase (decrease) in cash and cash equivalents 1,499 (2,930) 4,968
Cash and cash equivalents at beginning of year 2,910 5,840 872
-------- ------- --------
Cash and cash equivalents at end of year $ 4,409 $ 2,910 $ 5,840
-------- ------- --------
-------- ------- --------
SUPPLEMENTAL CASH FLOW INFORMATION (IN THOUSANDS)
Cash paid for interest and income taxes 1996 1995 1994
---- ---- ----
Interest $ 12 $ 51 $ 264
Income taxes $ 3,987 $ 769 $ 1,353
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
March 31, 1996
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY. Stanford Telecommunications Inc. (the Company), incorporated in
Delaware, designs, manufactures and markets advanced digital telecommunication
products and systems to establish or enhance communications via satellites,
terrestrial wireless and cable. The Company also produces communication systems
networking solutions and GPS navigation products. The Company's government
revenues are generated from U.S. government contracts where the Company may be
either the prime contractor or a subcontractor. The Company's commercial
revenues include contract manufacturing revenues, sales of integrated circuits,
circuit boards and subsystems, and development programs. In addition to the
U.S. government, the principle markets for the Company's products include
telecommunications and electronics markets primarily located in the U.S.
FISCAL YEAR. The Company's fiscal year is composed of four 13-week quarters,
each of which ends on the Thursday closest to the corresponding calendar
quarter end. For convenience, the Company has presented its fiscal year as
ending on March 31.
USE OF ESTIMATES. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that effect 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 period.
The Company prepares and evaluates ongoing cost to complete estimates in order
to monitor its project costs. These estimates form the basis for calculating
revenues and gross margins for each project under the percentage-of-completion
method of accounting. Due to uncertainties inherent in the estimation process,
estimated total costs are subject to revision on an on-going basis as
additional information becomes available. The estimates are subject to change
and actual results could be materially different from these estimates.
CASH EQUIVALENTS. The Company considers all highly liquid securities with
original maturities of 90 days or less to be cash equivalents.
SHORT-TERM INVESTMENTS. Effective April 1, 1994, the Company adopted Statement
of Financial Accounting Standards No. 115 (SFAS 115), "Accounting for Certain
Investments in Debt and Equity Securities." The Adoption of SFAS 115 did not
have a material impact on the Company's financial statements. At March 31,
1996, the Company's short-term investments consisted of U.S Treasury securities
totalling $14,127,000 at cost with unrealized gains of $109,000. At March 31,
1995 the Company's short-term investments consisted of U.S. Treasury securities
totalling $9,907,000 at cost with unrealized gains of $183,000. The securities
mature at various dates within one year.
RECEIVABLES. The Company provides a reserve for doubtful accounts where
circumstances indicate that one is necessary. As of March 31, 1996 and 1995,
the Company's reserve for doubtful accounts was $920,000 and $650,000,
respectively.
UNBILLED RECEIVABLES. Unbilled receivables represent differences between
billings and revenues recognized on government contracts. On fixed price
contracts, the unbilled amounts represent revenues recognized under the
percentage-of-completion method of accounting which exceed the amounts that are
billable according to contract terms. In general, the Company is authorized to
bill between 75% to 100% of the costs expended on a contract. The remaining
portion (if any) is billable as contract deliverables are accepted by the
customer. On cost plus contracts, the unbilled amounts mainly represent (a) a
portion (generally 15%) of the negotiated contract fees which are not billable
until the completion of the contract and (b) differences between actual
indirect rates and government approved billing rates which are not billable
until approval of final indirect rates by the respective governmental agencies.
As of March 31, 1996, the Company has received final indirect rate approval for
charges through fiscal 1988.
INVENTORIES. Inventories are stated at the lower of cost (first-in, first-out)
or market. Cost includes materials, labor and related indirect expenses.
General and administrative costs are only included in inventory for government
contracts, as such costs are reimbursed by the government. Work-in-process
mainly represents costs incurred on short-term contracts. The components of
inventory are as follows (in thousands):
<TABLE>
<CAPTION>
March 31
--------
1996 1995
------- --------
<S> <C> <C>
Raw materials and supplies $ 158 $ 175
Work-in-process 18,615 13,027
Finished goods 1,850 1,820
Allocated general and administrative costs 808 938
Less progress billings (2,729) (162)
------- -------
$18,702 $15,798
------- -------
------- -------
</TABLE>
<PAGE>
The Company purchases certain inventories that have long purchase lead times and
may be single sourced. Although there are a limited number of manufacturers of
these particular inventory items, management believes that other suppliers could
provide similar inventory on comparable terms. A change in suppliers, however,
could cause a delay in manufacturing and a possible loss of sales, which would
affect operating results adversely.
CAPITALIZED COMPUTER SOFTWARE. Capitalization of computer software development
costs begins upon the establishment of technological feasibility of the product.
The establishment of technological feasibility and the ongoing assessment of the
recoverability of these costs require considerable judgment by management with
respect to certain external factors, including, but not limited to, anticipated
future gross product revenues, estimated economic life and changes in software
and hardware technology. The Company capitalizes direct costs incurred in
connection with the software development subsequent to the establishment of
technological feasibility for the products. Capitalized software development
costs amounted to $71,000 and $367,000 in 1996 and 1995, respectively with
cumulative costs of $438,000 as of March 31, 1996 and are included in property
and equipment in the accompanying balance sheet. Amortization of capitalizated
software begins upon initial product shipment and extends over the estimated
economic life of the product. As of March 31, 1996 and 1995, $110,000 and
$30,000 has been amortized and the net value is $328,000 and $337,000
respectively.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization are provided over
the estimated useful lives of the assets (5 to 7 years or the term of the
lease), using the straight-line method for financial reporting purposes and
accelerated methods for certain depreciable assets for tax purposes.
ACCRUED LIABILITIES. Accrued liabilities consist of the following (in
thousands):
<TABLE>
<CAPTION>
March 31
--------
1996 1995
-------- --------
<S> <C> <C>
Compensation and employee benefits $ 7,221 $ 5,710
Accrued contract cost 2,125 3,595
Other 698 878
-------- --------
$ 10,044 $ 10,183
-------- --------
-------- --------
</TABLE>
REVENUE RECOGNITION. The Company principally uses the percentage-of-completion
method of accounting for contract revenues. The percentage-of-completion method
is based on total costs incurred to date compared with estimated total costs
upon completion of contracts. Revenues for fixed price contracts, which do not
have progress payment clauses, are recognized at the time of delivery of the
finished product. Certain contracts provide for milestone billings which are
recorded as revenues when the defined milestones are met. The Company recognizes
revenues for standard, off the shelf products and certain commercial products
upon shipment to the customer. The Company charges all losses on contracts to
cost of sales in the period when the loss is known. The principle government
agencies to which the Company sells are the Department of Defense (DoD), NASA
and the FAA. The DoD accounted for 31%, 44%, and 47% of total revenues in 1996,
1995, and 1994, respectively.
CONCENTRATION OF CREDIT RISK. Financial instruments which potentially subject
the Company to concentrations of credit risk consist principally of cash
equivalents, short-term investments, and trade receivables. Concentrations of
credit risk with respect to trade receivables are limited due to a balanced mix
of receivables due from the U.S. government and other customers which are
dispersed across different industries and geographic regions.
CLASSIFICATION. Consistent with industry practice, assets and liabilities
relating to government long-term contracts are classified as current although a
portion of these amounts is not expected to be realized within one year.
STOCK BASED COMPENSATION. In October 1995, the Financial Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." The Company is not required to adopt this statement until its
fiscal year 1997. The provisions of this statement must be made on a prospective
basis. The Company plans to adopt the disclosure provisions of this statement
in its fiscal year 1997, and believes the effect on its financial position and
results of operation, upon adoption, will not be significant.
2. LINE OF CREDIT
On December 20, 1995, the Company amended and restated its bank line agreement
extending expiration until December 1996. The Company has $15,000,000 in credit
under this line, all of which is available at March 31, 1996. Under this line of
credit the Company must maintain certain financial covenants, including a
minimum debt coverage for two consecutive fiscal quarters. As of March 31,
1996, the Company was in compliance with all such covenants.
<PAGE>
3. COMMITMENTS
The Company leases its buildings and other equipment under noncancellable
operating lease agreements that expire at various dates through 2003. The
Company also leases certain office equipment under capital leases which expire
during 2000. The terms of several of the Company's leases provide for deferral
of cash rental payments over various periods. Rental expense under these
agreements is recognized on a straight-line basis. As of March 31, 1996 the
Company has accrued approximately $912,000 in related expense which is included
in other long-term liabilities in the accompanying balance sheet. Approximate
future minimum lease payments under these leases are as follows (in thousands):
<TABLE>
<CAPTION>
Year Ending March 31
--------------------
Operating Leases Capital Leases
---------------- --------------
<S> <C> <C>
1997.............................. $ 3,433 $ 86
1998.............................. 3,343 70
1999.............................. 3,204 23
2000.............................. 2,730 7
2001.............................. 1,823 --
Thereafter........................ 1,262 --
-------- -----
Total minimum lease payments...... $ 15,795 186
-------- -----
Less: interest............................... (21)
-----
165
-----
Less current portion......................... (80)
-----
$ 85
-----
-----
</TABLE>
Rental expenses charged to operations totaled approximately $4,272,000,
$3,432,000, and $3,387,000 for the years ended March 31, 1996, 1995 and 1994,
respectively. During 1996, 1995, and 1994 the Company acquired equipment under
capital leases in the amounts of $8,000, $81,000, and $52,000, respectively.
4. EARNINGS PER SHARE
Earnings per share is computed using the weighted average number of shares of
common stock and common stock equivalents outstanding during the reporting
periods. Common stock equivalents consist of the dilutive effect of outstanding
options to purchase common stock. Fully diluted earnings per share is
substantially the same as reported earnings per share.
5. RETIREMENT PLAN
The Company maintains a defined contribution plan covering substantially all
employees. Amounts contributed are based on a percentage of eligible employees
annual compensation. Percentages contributed equaled 4% in 1996 and 3% in each
of 1995 and 1994. The Company's contributions totaled approximately $1,425,000
in 1996, $1,037,000 in 1995, and $1,006,000 in 1994. The Plan also permits
eligible employees to make voluntary before-tax salary deferral contributions.
6. INCOME TAXES
Effective April 1, 1993, the Company adopted Statement of Financial Accounting
Standards No. 109 (SFAS 109), "Accounting for Income Taxes." This statement
provides for a liability approach under which deferred income taxes are provided
based on enacted tax laws and rates applicable to the periods in which the taxes
become payable. SFAS 109 was adopted on a prospective basis and amounts
presented for prior years have not been restated. The cumulative effect of this
change in accounting method increased earnings in fiscal 1994 by $700,000 or
$0.14 per share.
<PAGE>
The provision for income taxes charged to operations were comprised of the
following (in thousands):
<TABLE>
<CAPTION>
Year Ending March 31
--------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Provision for (benefit from) income taxes:
Current
Federal................................. $ 4,422 $ 1,870 $ 984
State................................... 233 503 212
Deferred, net
Federal................................. (1,470) (1,817) 210
State................................... (75) (485) 121
-------- -------- -------
Net tax provision............................ $ 3,110 $ 71 $ 1,527
-------- -------- -------
-------- -------- -------
</TABLE>
The provision for income taxes for the three years ended March 31, 1996 differs
from the U.S. statutory rate principally as follows:
<TABLE>
<CAPTION>
Year Ending March 31
--------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Statutory Federal income tax rate.................. 34.0% 34.0% 34.0%
State income taxes, net of Federal benefit......... 1.7 5.3 5.3
Research and development credits................... (1.0) (5.0) --
Other.............................................. 1.0 0.7 2.4
Change in valuation allowance...................... (2.2) -- (6.7)
----- ----- -----
Effective income tax rate.......................... 33.5% 35.0% 35.0%
----- ----- -----
</TABLE>
The major components of deferred tax assets and liabilities as computed under
SFAS 109 consisted of the following (in thousands):
<TABLE>
<CAPTION>
March 31
--------
1996 1995
---- ----
<S> <C> <C>
Deferred tax asset:
Reserves and accruals not currently
deductible for tax purposes........................ $ 4,232 $ 3,489
Tax credits.......................................... 395 256
------- --------
Total deferred tax asset.......................... 4,627 3,745
Valuation allowance -- (206)
------- --------
Deferred tax asset net of allowance............... 4,627 3,539
------- --------
Deferred tax liability:
Accelerated depreciation............................. (631) (785)
Percentage of completion contract accounting......... (116) (419)
------- --------
Total deferred tax liability...................... (747) (1,204)
------- --------
Net deferred tax asset............................... $ 3,880 $ 2,335
------- --------
------- --------
</TABLE>
The $3,880,000 net deferred tax asset as of March 31, 1996 was allocated on the
accompanying balance sheet with $631,000 included in long term liabilities, and
the remaining $4,511,000 included in prepaid expenses and other.
<PAGE>
7. COMMON STOCK
On June 28, 1995, the Company's stockholders approved an amendment to Article 4
of the Company's Certificate of Incorporation, increasing the number of
authorized shares of common stock with a par value $.01 per share ("common
stock"), from 10,000,000 to 15,000,000. The Amendment also eliminated provisions
authorizing the Board of Directors to issue the common stock in series and
eliminated the Company's series B common stock.
On May 9, 1995, the Board of Directors adopted a Stockholder's Rights Plan and
declared a dividend of one Common Share Purchase Right (the "Right") for each
share of the Company's common stock outstanding on May 25, 1995. Each Right
entitles the holder thereof to purchase one share of the Company's common stock
for $60. The Rights will be exercisable if a person or group acquires 15% or
more of the Company's common stock. Upon such acquisition, each Right (other
than those held by the acquiring person or group) will be exercisable for the
number of shares of the Company's common stock having a market value at that
time of twice the exercise price of the Right. If the Company subsequently
enters into certain business combinations, each Right (other than those held by
the acquiring person or group) will be exercisable for that number of shares of
common stock of the other party to the business combination having a market
value of two times the exercise price of the Right. The Rights are subject to
redemption at the option of the Board of Directors at a price of $.01 per Right.
The Rights expire on May 9, 2005.
In January 1994, the Company issued an additional 1,150,000 shares of common
stock at a price of $17.00 per share through a secondary public offering,
resulting in net proceeds of approximately $18 million.
In August 1990, the Board of Directors authorized the purchase of up to
$2,500,000 of the Company's common stock on the open market. During 1996 and
1995 no shares were repurchased. Since August 1990, the Company has repurchased
272,500 shares at an average price of $5.51 per share.
The 1982 Stock Option Plan expired on January 26, 1991 precluding the issuance
of option grants under that plan. However, existing and non-expired options may
be exercised in accordance with the terms of the option agreement.
In June, 1995, the Company's stockholders passed a resolution to amend and
restate the Company's 1991 Stock Option Plan. The amended and restated plan
increases the number of shares subject to the plan and available for future
issuance to employees from 500,000 to 1,000,000, permits the grant of options to
certain non-employee directors, adds individual grant limitations required under
Internal Revenue Code section 162(m), allowing option income for certain
individuals to be tax deductible by the Corporation and make other
administrative changes. The 1991 Plan provides for the issuance of either
incentive or non-qualified options. Incentive options can be granted at an
exercise price not less than fair market value of the stock on the date of
grant. Non-qualified options can be granted at an exercise price not less than
85% of the fair market value of the stock on the date of the grant. Options
granted under the 1991 Plan become exercisable over such periods as determined
by the Board of Directors. The 1991 Plan will expire in the year 2001.
Information with respect to these plans is as follows:
<TABLE>
<CAPTION>
1982 Stock Option Plan 1991 Stock Option Plan
---------------------- ----------------------
Available
Outstanding Option Prices for Grant Outstanding Option Prices
----------- ------------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE AT MARCH 31, 1993 226,545 $ 4.50 - $13.80 425,250 74,750 $ 5.00 - $10.00
Granted -- -- (107,684) 107,684 $ 9.25 - $21.25
Exercised (136,743) $ 4.50 - $13.80 -- (24,062) $ 5.00 - $10.00
Terminated (50,302) $ 9.25 - $11.60 4,936 (4,936) $ 9.25 - $ 9.50
BALANCE AT MARCH 31, 1994 39,500 $ 4.50 - $12.00 322,502 153,436 $ 5.00 - $21.25
Granted -- -- (128,167) 128,167 $12.50 - $19.75
Exercised (15,750) $ 4.75 - $11.30 -- (4,661) $ 5.50 - $11.25
Terminated -- -- 2,400 (2,400) $ 9.25 - $17.38
BALANCE AT MARCH 31, 1995 23,750 $ 4.50 - $12.00 196,735 274,542 $ 5.00 - $21.25
Additional Authorized -- -- 500,000 -- --
Granted -- -- (182,721) 182,721 $14.50 - $20.00
Exercised (3,750) $ 4.50 - $7.63 -- (50,679) $ 5.00 - $19.75
Terminated -- -- 57,901 (57,901) $ 5.50 - $21.25
BALANCE AT MARCH 31, 1996 20,000 $11.00 - $12.00 571,915 348,683 $ 5.00 - $20.00
</TABLE>
<PAGE>
Options to purchase 20,000 and 23,750 shares were exercisable on March 31, 1996
and March 31, 1995, respectively, under the 1982 Stock Option Plan. Under the
1991 Stock Option Plan, options to purchase 51,858 and 39,420 shares were
exercisable on March 31, 1996 and March 31, 1995, respectively.
Under the 1992 Employee Stock Purchase Plan (the "1992 Purchase Plan"), a total
of 200,000 shares of common stock has been reserved for issuance. The Company
makes offerings at such time and of such duration as its Board determines. As of
March 31, 1996, 116,172 shares remained available for purchase.
8. LITIGATION AND CONTINGENCIES
The Company is contingently liable with respect to lawsuits and other matters
which arise in the normal course of business. The Company must comply with
detailed government procurement and contracting regulations and periodically
receives letters requesting proof of support for costs. The Company has prepared
and presented documentation and support to the U.S. Government addressing post-
award audit recommendations made by the Defense Contract Audit Agency.
Management believes that the outcome of such contingencies will not have a
material adverse effect on the Company's financial position or results of
operations.
<PAGE>
SELECTED FINANCIAL DATA
(in thousands, except for per share data)
<TABLE>
<CAPTION>
Year Ended March 31
-------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS FOR THE FISCAL YEAR
Revenues $145,100 $114,384 $ 98,055 $ 92,821 $ 94,908
Operating income 8,444 1,620 4,498 2,319 5,601
Income before change in accounting method 6,173 131 2,836 1,159 3,105
Cumulative effect of change in accounting method -- -- 700 -- --
Net income 6,173 131 3,536 1,159 3,105
Income per share before change in accounting method .97 .02 .54 .24 .63
Cumulative effect of change in accounting method -- -- .14 -- --
Weighted average shares 6,351 6,242 5,197 4,865 4,913
Net income as a percent of revenues 4.3% .1% 3.6% 1.3% 3.3%
FINANCIAL POSITION AT END OF FISCAL YEAR
Current assets $ 76,152 $ 71,994 $ 60,125 $ 45,007 $ 42,791
Current liabilities 19,657 24,035 11,466 18,792 16,716
Working capital 56,495 47,959 48,659 26,215 26,075
Current ratio 3.9 3.0 5.2 2.4 2.6
Property and equipment, net $ 14,500 $ 15,608 $ 14,005 $ 12,226 $ 11,038
Total assets 90,948 88,005 74,503 57,492 54,088
Long-term debt 85 161 235 358 246
Shareholders' equity 69,589 62,097 61,367 37,571 36,500
Common stock outstanding 6,328 6,234 6,181 4,864 4,870
Book value per share $ 11.00 $ 9.96 $ 9.93 $ 7.72 $ 7.50
</TABLE>
SELECTED COMMON STOCK DATA
Stanford Telecommunications, Inc. Common Stock was offered to the public on
October 6, 1983, and since that date has been traded on the Nasdaq stock market
under the symbol STII. During January 1994, the Company completed a secondary
offering of its common stock. The price per share reflected in the table
represents the closing prices in the Nasdaq National Market System. The
quotations represent inter-dealer quotations, without retail markups, markdowns
or commissions, and may not necessarily represent actual transactions.
The Company has not paid dividends on its Common Stock since its incorporation
and anticipates that for the foreseeable future it will continue to retain its
earnings for use in its business. A covenant under the current Line of Credit
would require prior approval of any dividend by the Bank.
On March 31, 1996, there were approximately 1,494 holders of record of the
Company's Common Stock.
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
Fiscal 1996
First Quarter 17 1/2 13
Second Quarter 25 3/4 14
Third Quarter 23 3/8 16
Fourth Quarter 31 1/4 16 1/4
Fiscal 1995
First Quarter 18 3/4 11
Second Quarter 20 1/4 12 1/2
Third Quarter 20 13 1/8
Fourth Quarter 15 1/2 12 1/2
</TABLE>
NASDAQ TRADING VOLUME
Fiscal 1996 - 6,327,091 shares / Fiscal 1995 - 6,160,978 shares
NASDAQ MARKET MAKERS
Montgomery Securities Inc . - William K. Woodruff & Co., Inc. - Volpe Welty &
Company - Oppenheimer & Co
Dain, Bosworth, Inc. - Mayer & Schweitzer - John G. Kinnard & Co., Inc. -
Herzog, Heine, Geduld, Inc.
<PAGE>
EXHIBIT NUMBER 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
reports included in or incorporated by reference in this Form 10-K, into the
Company's previously filed Registration Statements on Forms S-8 (file nos.
2-88852, 2-88853, 33-00714, 33-11743, 33-22956, 33-36977, 33-45090 and
33-68534).
/s/ Arthur Andersen LLP
San Jose, California
June 24, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 4,409
<SECURITIES> 14,127
<RECEIVABLES> 34,011
<ALLOWANCES> 0
<INVENTORY> 18,702
<CURRENT-ASSETS> 76,152
<PP&E> 46,165
<DEPRECIATION> 31,665
<TOTAL-ASSETS> 90,948
<CURRENT-LIABILITIES> 19,657
<BONDS> 0
0
0
<COMMON> 63
<OTHER-SE> 69,526
<TOTAL-LIABILITY-AND-EQUITY> 90,948
<SALES> 145,100
<TOTAL-REVENUES> 145,100
<CGS> 116,014
<TOTAL-COSTS> 136,656
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 9,283
<INCOME-TAX> 3,110
<INCOME-CONTINUING> 6,173
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,173
<EPS-PRIMARY> 0
<EPS-DILUTED> .97
</TABLE>
