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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
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COMMISSION FILE NUMBER: 0-15277
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VERTEX COMMUNICATIONS CORPORATION
(Exact name of Registrant as specified in its charter)
TEXAS 75-1982974
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2600 N. LONGVIEW STREET, KILGORE, TEXAS 75662
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (903) 984-0555
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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None None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $.10 PAR VALUE
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(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days: Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [X]
As of October 31, 1997, 5,091,938 shares of the Registrant's Common Stock, $.10
par value, were outstanding. The aggregate market value of the Registrant's
Common Stock held by non-affiliates based on the closing sales price on October
31, 1997, as reported by The Nasdaq Stock Market (National Market System), was
approximately $105,000,000.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Shareholders for the fiscal year
ended September 30, 1997, are incorporated by reference into Items 5, 6, 7, and
8 under Part II and Item 14 of Part IV hereof.
Portions of the Registrant's definitive Proxy Statement to be filed in
connection with the solicitation of proxies for its 1998 Annual Meeting of
Shareholders are incorporated by reference into Items 10, 11, 12, and 13 under
Part III hereof.
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VERTEX COMMUNICATIONS CORPORATION
ANNUAL REPORT ON FORM 10-K
For the Fiscal Year Ended
September 30, 1997
==============================================================
PART I
ITEM 1. BUSINESS.
GENERAL
Vertex Communications Corporation (the "Registrant," the "Company"
or "Vertex") designs, develops, manufactures, markets and supports an extensive
line of precision products for satellite and deep space communications
applications. These products include sophisticated earth station antennas
ranging in size from 1.2 to 34 meters in diameter (which operate in various
relevant frequency bands, including L-, C-, X, Ku- and Ka-bands, and are
available for commercial and military applications), integrated communications
network systems, and optical and radio telescopes. The Company also manufactures
state-of-the-art control systems designed to manage and monitor the operation,
guidance, tracking and telemetry capabilities of communications network systems
as well as individual antennas, related electronic components used to amplify
radio frequency ("RF") signals, and precision waveguide components for
application as component parts of communications systems. The Company also
provides custom engineering, turnkey field installation, site testing and
after-sale and maintenance services, and spare and replacement parts in support
of its products.
The Company's strategy is to provide a wide variety of precision
satellite communications products compliant with state-of-the-art technology to
satisfy an expanding range of customer and industry requirements. To accomplish
its objectives, the Company engages in ongoing efforts to introduce, in a timely
manner, products that are designed to meet applicable domestic and international
specifications. The Company believes that it offers a more diverse line of
products than any of its principal competitors. Due to the exacting design and
engineering requirements necessary to produce satellite communications systems,
subsystems and related products, quality control and precision engineering are
central to the manufacturing process. The Company believes it has developed a
reputation as a leader in quality control procedures which has enhanced its
position in the marketplace.
While the Company markets its products to systems integrators and
end users who combine the Company's products with other communications equipment
to form complete communications systems, Vertex also markets integrated
communications network systems utilizing its own products. In the United States,
Vertex markets its products through a direct sales force; while in international
markets, the Company utilizes a direct sales force, supplemented by independent
foreign sales representatives. Vertex's customers include the television
broadcast industry, international telecommunications companies, communications
common carriers, private communications networks, and government agencies,
including certain agencies of the U. S. Government and various foreign
governments.
The Company was organized pursuant to Texas law in 1984. The
Company's wholly-owned subsidiaries include: TIW Systems, Inc., a Nevada
corporation headquartered in Santa Clara, California; Gamma-f Corp., a Nevada
corporation headquartered in Torrance, California; Maxtech, Inc., a Pennsylvania
corporation which is located in State College, Pennsylvania; Vertex
Antennentechnik GmbH, a corporation organized pursuant to the laws of the
Federal Republic of Germany, with its headquarters in Duisburg, Germany; Vertex
Foreign Sales Corporation, organized pursuant to the laws of The Virgin Islands,
with its office in St. Thomas, The Virgin Islands; and Vertex International,
Ltd., formed under the laws of England. As used herein, the terms the
"Registrant," the "Company," and "Vertex" refer to
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Vertex Communications Corporation and its wholly-owned subsidiaries, unless
otherwise indicated. The Company's principal executive offices are located at
2600 North Longview Street, Kilgore, Texas 75662; its telephone number is (903)
984-0555; and its website on the Internet is: www.vertexcomm.com.
SATELLITE COMMUNICATIONS EQUIPMENT INDUSTRY
An increase in demand for transmission and reception capacity to
support high-speed voice, video, and data communications has resulted in
significant demand for additional satellite communications network systems and
related earth station equipment. Communications satellites, once placed in orbit
above the earth, relay microwave radio signals from one or more earth stations
to one or more other earth stations at various geographical locations. The
primary function of an earth station is to transmit or receive a microwave radio
signal via satellite in order to efficiently facilitate the telecommunications
process. Telecommunication is the process of communication through electronic
means such as radio, telegraph, television, and computer. Each earth station is
interconnected to a local communications network which distributes and/or
collects the desired information to or from the users of such information. A
typical earth station consists of several components, including an antenna and
associated electronic components, some of which amplify RF signals and others
that control and manage the movement, monitoring and tracking capabilities of
the antenna.
A principal advantage of satellite communications systems over
terrestrial communications systems is that once a satellite has been launched,
the incremental cost of adding new transmission and reception points is limited
to the cost of the earth station. With a terrestrial communications system, each
transmission route must receive a right-of-way clearance and incur additional
costs attendant to laying connecting cable or erecting microwave towers and
repeater stations. As a result, a satellite communications system frequently
offers advantages as a cost-effective medium for long-distance communications,
as compared to the cost of a terrestrial communications system which is usually
higher.
Communications satellites use the L-band, C-band, X-band, Ku-band and
Ka-band for transmission in the radio frequency spectrum. The Company designs
and manufactures satellite communications network systems as well as individual
earth station antennas that operate in each of these frequency bands. L-band
antennas operate in the frequency band of one to two gigahertz and are primarily
utilized by the maritime industry. C-band antennas are capable of receiving and
transmitting information in the radio frequency band of four to six gigahertz.
The C-band frequency spectrum is also used for terrestrial microwave
transmissions. Due to the increasing use of the C-band frequency, the Ku-band
frequency (12 to 14 gigahertz) has been reserved exclusively for satellite
transmission by the Federal Communications Commission ("FCC") and an
international agreement. Since wavelengths in the Ku-band are relatively short,
they can be gathered and concentrated by a smaller antenna dish than is required
with longer wavelength C-band transmissions. Accordingly, Ku-band transmission
enables earth station vendors and voice, video, and data communications service
providers to bring satellite communications directly to customers' facilities.
Ka-band antennas are in the developmental stage and operate in the radio
frequency band of 27 to 50 gigahertz. These emerging antennas will primarily be
utilized for voice and data transmission. The X-band frequency spectrum (seven
to eight gigahertz) is reserved for utilization in worldwide military satellite
communications.
THE VERTEX STRATEGY
The Company's strategy is to provide a wide variety of advanced
satellite communications products, including integrated communications network
systems, precision earth station antennas, related control systems, associated
electronic and electroformed components, and services to satisfy evolving
customer requirements. The Company believes its proven products and expertise,
experience in refining current products, and developing new products will enable
it to expand distribution and gain market share.
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The Company believes this strategy has been, and will continue to be,
successful because of the following key elements:
TECHNICAL EXPERTISE. Vertex believes its technical expertise,
together with its ability to comply with exacting engineering and design
specifications, has contributed to its ability to increase sales. The ability of
its engineering and design staff to respond rapidly to detailed customer
requirements has enhanced the Company's competitive position.
BROAD PRODUCT LINE. The Company's product strategy is to establish
and maintain a prominent market share by emphasizing the development and
distribution of a wide array of quality systems, subsystems and associated
products. The Company believes its telecommunications products comprise one of
the industry's broadest product lines. This extensive product line positions the
Company to respond to a variety of customer requirements and to gain market
share by expanding penetration into new and existing markets.
SKILLED SALES FORCE. The Company's distribution strategy focuses on
the needs of systems integrators and large end users that require a sales force
possessing advanced technical knowledge and expertise. The Company believes its
sales force is qualified to differentiate and promote the benefits of its
products from those offered by competitors, to respond promptly to solve
customers' communications problems, and to address customers' future
communications requirements as their needs evolve and organizational functions
change.
INTERNATIONAL OPERATIONS. Continuing and emerging demands have
created the need for substantial investment in telecommunications
infrastructures in many international markets. The Company believes that
significant opportunities exist in the market for satellite communications
equipment and associated products outside of the United States. The Company
adapts its product development, marketing and distribution strategies to comply
with the unique requirements of specific international markets. The Company
expects its international sales volume will continue to grow.
ACQUISITIONS AND GROWTH. The Company expects that planned sales
growth will be largely dependent on its ability to expand its existing plant
facilities and increase personnel or to implement selected, strategic
acquisitions which will complement existing business and enhance market share in
the industry.
PRODUCT DEVELOPMENT. The Company works closely with its customers to
identify market needs and define product specifications early in the
development process. This approach results in a thorough understanding of end
user requirements prior to commencement of the design process and often
positions the Company to develop and deliver new products or refinements of
existing products in response to its customers' needs more rapidly than many of
its competitors. The Company believes that the flexibility of its product
designs and the capabilities of its engineering staff, combined with its
adherence to superior quality control standards, have enabled it to be
consistently among the first-to-market with competitive new products or
innovative refinements of existing products.
VERTEX PRODUCTS
GENERAL. The Company designs, develops, manufactures and markets
communications network systems and subsystems, including an extensive line of
earth station antennas capable of operating in the commercial and military
frequency bands from one to 30 gigahertz, which range in size from 1.2 to 34
meters in diameter, as well as the related electronic components used to
control, manage and monitor the operation, guidance, tracking and telemetry
capabilities of antennas. These products require exacting engineering skills and
detailed standards or specifications as established by each customer, involving
not
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only systems or product design, but the complete integration of other components
acquired from the Company or other sources.
The Company's products are utilized by its customers principally for
telecommunications applications with certain products used in radio astronomy.
The Company's operating divisions and subsidiaries include Vertex
Antenna Division ("VAD"), TIW Systems, Inc. ("TIW"), Gamma-f Corp. ("Gamma-f"),
Maxtech, Inc. ("Maxtech"), Vertex Control Systems Division ("VCSD"), and Vertex
Antennentechnik GmbH ("VA"), which design, develop, manufacture and market the
respective products described below.
Vertex Antenna Division. VAD, the Company's largest operating unit,
designs, develops and manufactures RF satellite earth station antennas ranging
in size from 1.2 to 34 meters in diameter, RF feed components, and related
products with emphasis in the L-, S-, C-, X-, Ku- and Ka-band frequency ranges
for applications in the domestic, international and military radio
communications frequencies. VAD also offers custom and unique research and
development solutions for electrical, civil, structural and mechanical
engineering-specific satellite communications projects.
TIW Systems, Inc. In accordance with the Company's strategy of from
time to time effecting selected, strategic acquisitions, Vertex acquired TIW, of
Santa Clara, California, in June 1997. TIW designs, manufactures and markets
telecommunications network systems and related equipment used in satellite and
deep space communications, including large steerable parabolic antenna systems
and precision major path earth station antennas, related components, a complete
line of satellite-based communications networking products which facilitate
voice and data communications, and optical and radio telescopes. These products
include earth station tracking, telemetry, command and monitoring ("TTC&M")
equipment, frequency conversion products and digital communications products,
including Time Division Multiple Access ("TDMA") and Single Channel Per Carrier
("SCPC") modems and voice and data channel processing equipment which provide
multimedia transmission services via satellite. To address the most prominent
evolving segment of the very small aperture terminal ("VSAT") market, TIW has
developed its FlexiDAMA ("Division Assigned Multiple Access") communications
network system, with sophisticated network management, switching and Global
Positioning Satellite-based frequency and network coordination capabilities for
applications in thin route voice networks, medium- and high-capacity networks
and low-rate video conferencing networks. The Company believes the combination
of offering TIW's TDMA, SCPC and DAMA modem technologies with broad signaling
standard compatibility qualities provides a competitive advantage in marketing
its network systems, which include comprehensive voice, data and video
networking capabilities, to customers around the world.
The Company believes that the acquisition of TIW is complementary to
Vertex's broad product lines, with minimum duplication, and will enable the
Company to pursue new market opportunities and further expand its presence in
existing markets, resulting in enhanced market share in the marketplace.
Gamma-f Corp. Through this subsidiary, the Company designs and
manufactures precision microwave components for applications in the
telecommunications, space and defense industries. Gamma-f's products include a
variety of standard antenna feed components as well as custom designed and
fabricated RF components. Additionally, a standard product line of filters,
diplexers, ortho-mode transducers, polarizers, and RF feed subsystems addresses
market requirements for S-band through Q-band frequencies. These products are
sold directly to end users and suppliers who integrate such products with other
components in telecommunications systems. The Company also utilizes these
products as component parts of certain of its antenna products.
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Maxtech, Inc. Through Maxtech, the Company designs and manufactures a
variety of solid-state power amplifiers (SSPAs), low-noise amplifiers (LNAs),
line drivers, redundant amplifier systems and other related high-performance
products used in telecommunications systems.
Vertex Control Systems Division. This division of the Company designs
and manufactures antenna positioning and tracking systems, antenna control
systems, automatic de-ice systems, and uplink power control systems.
Additionally, VCSD specializes in turnkey retrofit services, including the
provision of products, technical engineering expertise, and on-site services
required to modernize and enhance the usefulness of existing earth station
installations and related assets.
Vertex Antennentechnik GmbH. Through this subsidiary, headquartered
in Duisburg, Germany, the Company designs and supplies products which complement
its existing broad line of antenna products, such as precision antenna
reflectors, multi-axis pedestals (antenna support structures), controller drive
systems, radio telescopes, and optical telescopes. VA performs highly technical
antenna engineering designs for applications in the academic institution,
governmental, and radio telescope markets, and is a dominant supplier in Europe
of superior quality RF antennas and radio telescopes. Additionally, VA and VAD
frequently cooperate to combine the technical expertise of the two Vertex groups
in the field of high-precision telescope equipment.
CUSTOM ENGINEERING. The Company relies upon its engineering
experience and expertise to provide its customers with custom-engineered
products that are not otherwise readily available in the marketplace. Management
believes this capability is a significant attribute that distinguishes the
Company from its competitors.
CUSTOMER SERVICES. In addition to the manufacture and supply of a
broad line of telecommunications, systems, subsystems and related products, the
Company also offers a wide range of related services, including consulting;
design and configuration; turnkey field installation; site testing and
performance analysis; and after-sale maintenance services.
MARKETING, SALES, AND CUSTOMERS
MARKETING. The Company's marketing strategy is to offer a complete
line of high-technology antenna and associated products, while also marketing
certain complete communications systems. The Company believes that this approach
enables Vertex to comply with its own communications systems requirements while
also satisfying the needs of systems integrators (companies which sell complete
communications systems, but do not manufacture antennas or the particular
antenna or associated products needed) and end users (ultimate customers) who
combine the antennas and associated products with other systems components to
form complete communications systems. The Company markets and supports its
products through a distribution system comprised of a direct sales force,
supplemented in international markets by independent sales representatives.
Vertex augments these sales methods by advertising certain products in trade
magazines and by displaying certain products at trade shows. The marketing and
sales activities of the Company focus on domestic and international markets for
commercial, governmental, and military applications. Vertex's marketing plan
contemplates sales growth through increasing market share and continued
development of new markets for its products.
SALES. The Company maintains a direct sales force in the United
States and Germany, and a staffed sales office in Singapore. In addition to
providing product and pricing information, Vertex's sales personnel provide
customers and potential customers value-added solutions and detailed
explanations of the benefits and advantages of the Company's products and
services as compared to those of its competitors. The Company's sales force
includes sales managers, engineers, sales representatives, and technical support
personnel. The Company's worldwide marketing and sales efforts are directed and
coordinated from its headquarters in Kilgore, Texas.
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The Company believes that the rapidly evolving international market
will continue to be an important source of sales. The Company's international
sales are comprised of products manufactured in the United States, Germany and
Estonia, and services performed on-site by its engineers and technical support
personnel. To enhance its foreign sales, the Company also engages the services
of foreign independent sales representatives to supplement its direct sales
force. These foreign sales representatives also offer products of other
manufacturers which are complementary to, but not competitive with, the
Company's products.
Sales to foreign customers involving products or services
originating in the United States are typically contracted for in U. S. dollars.
Foreign sales of products or services originating in Germany are usually
conducted in the German mark. International sales are subject to certain
government controls and other risks, including export licensing, currency
exchange rate fluctuations, political instability, trade restrictions, and
changes in tariffs and freight rates. Should any of these factors prove onerous
or change in a material unfavorable manner, the Company's delivery or completion
of a sales contract could be adversely affected. To date, the Company has not
experienced any material difficulties related to these factors.
Sales in Western Europe were 14%, 19%, and 16% of total sales in
fiscal 1997, 1996, and 1995, respectively. Sales in the Middle East were 10% of
total sales in fiscal 1996. Sales in Asian countries were 21%, 18%, and 28%, of
total sales in fiscal 1997, 1996, and 1995, respectively. Export sales were 56%,
59%, and 64% of total sales in fiscal 1997, 1996, and 1995, respectively.
CUSTOMERS. Typical users of the Company's products include the
broadcast industry, international telecommunications companies, communications
common carriers, universities and academic institutions, private communications
networks, and government agencies. The Company's customers include a number of
major companies and government agencies throughout the world, including certain
agencies of the U. S. Government and various foreign governments.
The Company sells its products throughout the world to many
customers. No single customer accounted for as much as 10% of the Company's
total sales in fiscal 1997. GTE Corporation and Satellite Transmission Systems,
Inc. accounted for 12% and 16% of the Company's total sales in fiscal 1996 and
1995, respectively.
The Company has been successful in recent years in diversifying its
customer base by increasing its penetration of existing and emerging markets and
developing new markets for its products. Sales growth during this period has
been fueled, in part, by the Company's ability to secure new customers and to
maintain relationships with existing customers. Due to large contracts which may
occur from time to time, one or more different customers may represent a
material part of the Company's total sales or unfilled backlog of orders in any
given year or at any point in time. The Company believes that its relationships
with its customers are excellent and that it will continue to be a major
supplier of satellite communications equipment and associated products to its
major customers. If required, the Company believes that it could maintain sales
of its products at current levels to other customers if current relationships
with major customers were interrupted. Although several of these relationships
have existed for a number of years, there can be no assurance that such
relationships will continue. The loss of any of such major customers could have
a material adverse effect on the Company and its business.
Vertex does not seek to maintain a specific level of sales to the
various agencies of the U. S. Government, but rather targets certain types of
projects where the Company's existing products and/or expertise will enable it
to submit competitive bid proposals. Most of the Company's business with the U.
S. Government is on a fixed-price basis. Contracts with the U. S. Government
customarily include provisions which provide for cancellation at the convenience
of the Government. In addition, upon cancellation by the Government, the Company
could be entitled to reimbursement of costs incurred, plus a pro rata share of
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profit. The Company has never received a cancellation of a material Government
contract and has no reason to anticipate any such cancellation. Products sold,
characteristics, and business risks associated with U. S. Government business do
not differ materially from those associated with sales of the Company's products
to its commercial customers.
CUSTOMER SUPPORT AND SERVICE. The Company services, repairs, and
provides technical support for its products. Through its sales network and
design and support services, the Company is constantly made aware of customers'
needs and their use of its products and services. Accordingly, a superior level
of continuing customer service and support is integral to the Company's
objective of developing and maintaining long-term relationships with its
customers. The majority of the Company's service and support activities are
provided by its field engineering team, systems engineers, and sales and
administrative support personnel, both on-site at the customer's location and by
telephone.
FOREIGN OPERATIONS
The Company's foreign operations are conducted through its
wholly-owned German subsidiary, Vertex Antennentechnik GmbH, located in
Duisburg, Germany. Financial information relating to these foreign operations
for the past three years is shown below:
<TABLE>
<CAPTION>
(In thousands)
1997 1996 1995
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<S> <C> <C> <C>
Sales to Unaffiliated Customers ............. $5,881 $3,918 $3,724
Transfers between Geographic Areas .......... 106 1,360 889
Operating Income (Loss) ..................... 91 (306) (263)
Identifiable Assets .......................... 4,034 3,703 2,366
</TABLE>
The Company translates the financial statements of its German
subsidiary from its functional currency, the German mark, into U. S. dollars in
accordance with applicable financial accounting standards. Assets and
liabilities are translated at the exchange rate in effect at each fiscal year
end. Sales and expenses are translated at the weighted average exchange rate in
effect for the period reported. Any resulting gains or losses are recorded in
shareholders' equity and excluded from net income.
MANUFACTURING AND ENGINEERING
The Company's products are manufactured from standard components and
parts that are either built by the Company or by other manufacturers pursuant to
the Company's specifications. Vertex considers these components and related
materials to be commercially available in sufficient volume in the industry and
expects to experience no difficulty in obtaining any materials or components
needed in its manufacturing activities. However, should any of these materials
or components become unavailable for a significant period, the result could have
an adverse effect on the Company's business.
The Company's products require substantial engineering, design, and
technical support. In addition, although many of the Company's products are
standardized, custom engineering is frequently required to accomplish the
product modifications necessary for a particular application or installation.
The Company's engineering staff is also important to its research and
development activities. The Company has been successful in attracting and
retaining well-qualified engineering personnel and does not anticipate a
shortage of qualified personnel in the future.
The Company believes that its current manufacturing facilities
provide adequate manufacturing space for the foreseeable future. See Item 2 -
"Properties."
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PRODUCT DEVELOPMENT
The Company's product research and development efforts are directed
primarily toward development, design, engineering, and implementation activities
rather than pure research. These activities are generally undertaken in response
to specific customer requests or anticipated requirements of the U. S.
Government for programs that have been identified by the Company. Funding for
these activities is derived from internally generated sources and, from time to
time, customers. For the years 1997, 1996, and 1995, the Company expended
$3,775,000, $3,217,000, and $2,165,000, respectively, on research and
development. Costs associated with product development work funded by customers
are included in the Company's cost of sales and the related revenues are
included in sales. The Company strives to continually upgrade its existing
products and develop new products to meet changing customer requirements and to
keep pace with evolving technology in the industry.
COMPETITION
The Company experiences substantial competition from a number of
established companies which provide a broad range of products to the satellite
communications equipment market, including Andrew Corporation, Comsat RSI SatCom
Technologies, Nippon Electronic Company, and Scientific-Atlanta, Inc. Certain of
these companies have substantially greater financial and personnel resources
than those available to the Company. The Company's products may not be
proprietary or patentable, and may be subject to duplication and exploitation by
its competitors. Although many of these competitors offer satellite
communications products which are among the types or sizes produced by the
Company, the Company believes that no single competitor offers the diversity of
satellite communications products produced by the Company.
The Company believes that the most important competitive factors are
technical performance, capabilities, product performance, dependable delivery,
and price. Maintenance and service capabilities and manufacturing experience in
the industry are also important factors to customers. Accordingly, the Company
strives to price its products competitively while stressing its custom
engineering and servicing capabilities based upon the years of experience and
technical expertise of its personnel in designing and manufacturing satellite
communications products and the Company's precision metal manufacturing methods.
The Company believes that its expertise in custom engineering and its ability to
meet customers' relatively short-lead time requirements provide it with a
distinct competitive advantage.
Due to competition in the industry where the Company competes,
periodic advances in technology can be expected. Therefore, the Company's
ability to maintain and improve in its existing markets and to enter new markets
is partially dependent upon its ability to evaluate advances in technology and
incorporate such advances where appropriate into its products in a timely and
effective manner.
INTELLECTUAL PROPERTY
The Company holds patents for certain technologies, products and
processes. The Company does not, however, consider patents important to its
business, but instead relies principally upon innovative management, technical
expertise, and marketing and managerial skills to develop, enhance, and market
its products. The Company believes it is less dependent on the protection of
proprietary product information than on its ability to timely and effectively
develop, enhance, and market its products to maintain the competitiveness of its
products with those of others. The Company protects its proprietary product
information through reliance on a combination of trade secrets, copyrights,
patents, and technical measures, the selective use of nondisclosure agreements
with customers, suppliers, and industry partners, and by limiting access to
sensitive information.
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The Company has no reason to believe that its products and
proprietary rights infringe on the proprietary rights of any third parties.
There can be no assurance, however, that the Company's protective measures will
preclude competitors from developing products with features similar to its
products or that third parties will not assert infringement claims in the
future.
BACKLOG AND SEASONALITY
At October 31, 1997 and 1996, the Company's backlog of unfilled
orders believed to be firm was approximately $73 million and $41 million,
respectively. The backlog of unfilled orders at October 31, 1997, included
approximately $8 million of contracts with the U. S. Government. As is
customary, these contracts include provisions which allow for cancellation at
the convenience of the Government or prime contractor. Upon exercise of these
provisions, the Company would be entitled to reimbursement of costs incurred and
a pro rata share of profit. The Company has never received a cancellation of a
material government contract and believes no such event is threatened. The
Company expects that a substantial portion of the October 31, 1997 backlog will
be completed and delivered in fiscal year 1998.
The levels of sales and net income of the Company fluctuate
moderately on a quarterly basis. The variability in recent years has been
demonstrated by typically higher sales and net income in the fiscal quarters
ending in June and September of each fiscal year. The primary reason for this
pattern is the need for customers to complete installations during warm weather
months. The fiscal quarter ending in September can also be affected by the
timing of sales to U. S. Government agencies.
Other factors which have caused quarterly fluctuations in sales and
net income include variability of shipments under large contracts and variations
in product mix and in profitability of individual orders. The Company believes
these aberrations may continue to have similar impact on future results of
operations, but their timing and placement within particular quarterly periods
on an ongoing basis cannot be predicted. Consequently, the Company believes it
is more meaningful to focus on annual rather than interim results. In addition,
due to the timing differences from year-to-year in the receipt of large
nonrecurring sales contracts, year-to-year comparisons of backlog can be
misleading and are not necessarily indicative of future revenues.
ENVIRONMENTAL COMPLIANCE
Due to the nature of the Company's products, it has not been
materially affected to date by environmental laws. The Company does not
anticipate its business will be materially affected by any current or expected
environmental laws.
GOVERNMENT REGULATION
Although the Company is not directly regulated by any governmental
agency, most of its United States customers, and the telecommunications industry
in general, are subject to regulation by the Federal Communications Commission
(the "FCC"). In recent years, FCC decisions permitting greater competition among
common carriers have had a favorable impact on the Company. In addition, the FCC
controls the allocation of transmission frequencies and the performance
characteristics of earth station antennas. As a result of these controls, the
Company's product design specifications must conform on an ongoing basis to meet
FCC or other regulatory requirements. These regulations are not expected to
adversely affect the operations of the Company.
Outside the United States, where some of the customers of the
Company have been government-owned and operated entities, changes in government
economic policy and communications regulation have affected in the past, and may
be expected to affect in the future, the volume of foreign business. However,
the effect of regulation in countries other than the United States in which the
Company does business has
-9-
<PAGE> 11
generally not been detrimental to the international activities of the Company
taken as a whole and is not expected to be detrimental to such activities in the
foreseeable future.
EMPLOYEES
As of October 31, 1997, the Company employed 872 full-time
employees.
None of the Company's employees is represented by a labor
organization and the Company is not a party to any collective bargaining
agreement. The Company has never had an employee strike or a work stoppage and
considers its relations with its employees to be good. The Company has not
experienced any difficulty in attracting and retaining qualified employees.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides for
forward-looking statements. Certain information in Items 1, 2, 3, 7, and 8 of
this Annual Report on Form 10-K includes information that is forward-looking,
such as the Company's anticipated sales levels, its anticipated liquidity and
capital requirements and the results of legal proceedings. The matters referred
to in forward-looking statements could be affected by the risks and
uncertainties involved in the Company's business. These risks and uncertainties
include, but are not limited to, the effect of economic and market conditions,
unpredictable reductions in funding for government defense expenditures, and the
risks associated with international sales, including restrictions, export
license requirements, tariff regulations, and other United States and foreign
risks described above in this Item under "Marketing, Sales and Customers,"
"Manufacturing and Engineering," "Competition," "Intellectual Property,"
"Backlog and Seasonality," and Government Regulation" and below in Item 3 in
"Legal Proceedings" and in Item 7 in "Management's Discussion and Analysis of
Financial Condition and Results of Operations." Subsequent written and oral
forward-looking statements attributable to the Company or persons acting on its
behalf are expressly qualified in their entirety by the cautionary statements in
this paragraph and elsewhere in this Annual Report on Form 10-K.
ITEM 2. PROPERTIES.
The Company owns and maintains executive and administrative
offices, manufacturing facilities, and a product testing site at its
headquarters at 2600 N. Longview Street, Kilgore, Texas, and owns or leases
certain facilities at other locations. The following is a listing of the
properties owned or leased by Vertex and its subsidiaries as of October 31,
1997.
<TABLE>
<CAPTION>
APPROXIMATE AREA OWNED
LOCATION PRINCIPAL USE IN SQUARE FEET OR LEASED
-------- ------------- ---------------- ---------
<S> <C> <C> <C>
Kilgore, Texas Executive, administrative, 231,000 on Owned in fee
engineering, and manufacturing 55 acres of land
Kilgore, Texas Manufacturing 33,000 on Owned in fee
1 acre of land
Longview, Texas Administrative, engineering, and 30,000 Leased to October
manufacturing 1998
Santa Clara, California Administrative, engineering, and 83,000 Leased to December
manufacturing 2003
Santa Clara, California Warehouse 5,000 Leased to April 1998
</TABLE>
-10-
<PAGE> 12
<TABLE>
<S> <C> <C> <C>
Torrance, California Administrative, engineering, and 37,000* Leased to June
manufacturing 2002
Albuquerque, Administrative and manufacturing 27,000 on 17 acres Owned in fee
New Mexico of land
Chantilly, Virginia Fabrication 9,000 Leased to March
2001
Nepean, Ontario, Fabrication 5,000 Leased to February
Canada 2002
State College, Administrative, engineering, and 18,000 Leased to March
Pennsylvania manufacturing 1998
Duisburg, Germany Administrative and engineering 4,000 Leased to February
1998
Singapore Administrative Less than 1,000 Leased to July 1998
</TABLE>
- ------------------------------------
* Approximately 15,000 square feet of the total floor space is
subleased to a third party.
The Company believes its facilities are adequate and will be
suitable to meet its requirements for the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not a party to any legal proceedings which would
have a material, adverse effect on the Company or its business and does not
believe that any such legal proceedings are threatened.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted during the fourth quarter of the
fiscal year covered by this report to a vote of security holders of the Company,
through solicitation of proxies or otherwise.
-11-
<PAGE> 13
PART II
The information required by Items 5 through 8, inclusive, of this
report is contained in the Registrant's Annual Report to Shareholders for its
fiscal year ended September 30, 1997 (the "1997 Annual Report"), selected
portions of which are incorporated herein by reference, as described below. With
the exception of the material incorporated by reference herein, the 1997 Annual
Report is not deemed filed as a part of this Annual Report on Form 10-K.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The information appearing under the caption "Market for Common
Stock" on page 23 of the 1997 Annual Report is hereby incorporated herein by
reference.
ITEM 6. SELECTED FINANCIAL DATA.
The information appearing in the "Selected Financial Data" table on
page 1 of the 1997 Annual Report is hereby incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The information appearing under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations" on
pages 12 and 13 of the 1997 Annual Report is hereby incorporated herein by
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Consolidated Financial Statements of Vertex Communications
Corporation and Subsidiaries and Notes thereto, appearing on pages 14 through
22, inclusive, together with the Report of Arthur Andersen LLP, Independent
Public Accountants, thereon, appearing on page 23 of the 1997 Annual Report, are
hereby incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
-12-
<PAGE> 14
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
DIRECTORS
The information regarding directors of the Registrant in response
to Item 7 of Schedule 14A promulgated pursuant to the Securities Exchange Act of
1934 (the "Exchange Act"), which will appear in the Registrant's definitive
Proxy Statement in connection with the solicitation of proxies for its 1998
Annual Meeting of Shareholders, is hereby incorporated herein by reference.
EXECUTIVE OFFICERS
The following table sets forth the names and ages of all
executive officers of the Registrant, their respective positions and offices
with the Registrant, and the period during which each has served as an executive
officer.
<TABLE>
<CAPTION>
SERVED AS
EXECUTIVE
NAME AGE POSITION(S)* OFFICER SINCE
---- --- ----------- -------------
<S> <C> <C> <C>
J. REX VARDEMAN.......................... 58 CHAIRMAN OF THE BOARD, OCTOBER, 1984
PRESIDENT, CHIEF EXECUTIVE OFFICER
AND DIRECTOR
A. DON BRANUM............................ 60 SENIOR VICE PRESIDENT, ASSISTANT OCTOBER, 1984
SECRETARY AND DIRECTOR OF THE
COMPANY; AND
VICE PRESIDENT/GENERAL MANAGER,
VERTEX ANTENNA DIVISION
JAMES D. CARTER.......................... 50 VICE PRESIDENT AND CHIEF FINANCIAL OCTOBER, 1984
OFFICER, TREASURER
AND DIRECTOR
REIN LUIK ............................... 62 VICE PRESIDENT AND DIRECTOR OF THE JUNE, 1997
COMPANY; AND
PRESIDENT, TIW SYSTEMS, INC.
JOE A. YLITALO........................... 51 SECRETARY AND GENERAL COUNSEL JANUARY, 1997
WILLIAM L. ANTON......................... 59 VICE PRESIDENT OF THE COMPANY; AND DECEMBER, 1984
VICE PRESIDENT - MARKETING,
VERTEX ANTENNA DIVISION
H. DEAN BUNNELL.......................... 50 VICE PRESIDENT OF THE COMPANY; AND JANUARY, 1995
PRESIDENT AND CHIEF EXECUTIVE
OFFICER, MAXTECH, INC.
MANFRED STUPNIK ......................... 54 VICE PRESIDENT OF THE COMPANY; AND JANUARY, 1995
PRESIDENT, GAMMA-F CORP.
</TABLE>
- ----------------------------------------
* ALL EXECUTIVE OFFICERS OF THE REGISTRANT ARE ELECTED ANNUALLY BY THE BOARD
OF DIRECTORS AND SERVE AT THE DISCRETION OF THE BOARD. THERE ARE NO FAMILY
RELATIONSHIPS BETWEEN ANY DIRECTOR OR EXECUTIVE OFFICER OF THE REGISTRANT
AND ANY OTHER SUCH PERSON.
-13-
<PAGE> 15
THE FOLLOWING INFORMATION, AS FURNISHED BY EACH OF THE PERSONS
NAMED, RELATES TO THE BUSINESS EXPERIENCE OF EACH EXECUTIVE OFFICER OF THE
REGISTRANT NAMED ABOVE.
J. REX VARDEMAN IS A CO-FOUNDER OF THE COMPANY AND HAS SERVED AS
CHAIRMAN OF THE BOARD, PRESIDENT, CHIEF EXECUTIVE OFFICER AND A DIRECTOR SINCE
ITS INCEPTION IN OCTOBER 1984. PRIOR TO FOUNDING THE COMPANY, MR. VARDEMAN
SERVED AS VICE PRESIDENT OF HARRIS ANTENNA OPERATIONS ("HARRIS ANTENNA
OPERATIONS"), A UNIT OF THE SATELLITE COMMUNICATIONS DIVISION OF HARRIS
CORPORATION ("HARRIS"), UNTIL THE ACQUISITION IN 1984 OF THE HARRIS ANTENNA
OPERATIONS BY THE COMPANY. IN 1973, MR. VARDEMAN CO-FOUNDED RADIO MECHANICAL
STRUCTURES, INC. ("RMS"), THE PREDECESSOR TO THE HARRIS ANTENNA OPERATIONS, AND
SERVED AS ITS VICE PRESIDENT AND GENERAL MANAGER AND A DIRECTOR UNTIL THE
ACQUISITION OF RMS BY HARRIS IN 1977. FOR MORE THAN TEN YEARS PRIOR THERETO, HE
WAS EMPLOYED BY E-SYSTEMS, INC., A MAJOR ELECTRONICS COMPANY, IN VARIOUS
ENGINEERING AND MANAGEMENT POSITIONS.
A. DON BRANUM, A CO-FOUNDER OF THE COMPANY, HAS SERVED AS SENIOR
VICE PRESIDENT, ASSISTANT SECRETARY, AND A DIRECTOR SINCE ITS INCEPTION IN
OCTOBER 1984, AND AS VICE PRESIDENT/GENERAL MANAGER OF THE COMPANY'S VERTEX
ANTENNA DIVISION SINCE APRIL 1994. PRIOR TO JOINING THE COMPANY, MR. BRANUM
SERVED AS VICE PRESIDENT OF THE HARRIS ANTENNA OPERATIONS, WITH RESPONSIBILITY
FOR PRODUCT MARKETING. MR. BRANUM SERVED AS PRESIDENT OF DALLAS
TELECOMMUNICATIONS, INC., A COMMUNICATIONS MARKETING AND CONSULTING FIRM WHICH
HE FOUNDED FROM 1981 THROUGH 1984. FROM 1978 THROUGH 1981, MR. BRANUM SERVED AS
VICE PRESIDENT AND GENERAL MANAGER OF THE SATELLITE COMMUNICATIONS DIVISION OF
HARRIS, OF WHICH THE HARRIS ANTENNA OPERATIONS WERE A PART. MR. BRANUM WAS A
CO-FOUNDER OF RMS IN 1973 AND SERVED AS ITS PRESIDENT AND A DIRECTOR UNTIL ITS
ACQUISITION BY HARRIS IN 1977.
JAMES D. CARTER HAS SERVED THE COMPANY AS VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER, TREASURER, AND A DIRECTOR SINCE ITS INCEPTION IN
OCTOBER 1984. PRIOR TO JOINING THE COMPANY, MR. CARTER WAS EMPLOYED BY HARRIS
AS CONTROLLER OF THE HARRIS ANTENNA OPERATIONS SINCE 1978. FOR MORE THAN SIX
YEARS PRIOR THERETO, MR. CARTER WAS EMPLOYED BY HARRIS IN VARIOUS ACCOUNTING
POSITIONS.
REIN LUIK HAS SERVED AS A DIRECTOR OF THE COMPANY SINCE AUGUST
1997 AND AS VICE PRESIDENT OF THE COMPANY SINCE JUNE 1997, IMMEDIATELY FOLLOWING
THE ACQUISITION OF TIW AS A WHOLLY-OWNED SUBSIDIARY OF THE COMPANY. DR. LUIK,
THE FOUNDER OF TIW, HAS SERVED AS PRESIDENT OF TIW SINCE ITS INCEPTION IN 1976
AND CONTINUES TO SERVE IN THAT POSITION SINCE ITS ACQUISITION BY THE COMPANY.
PRIOR TO FOUNDING TIW, DR. LUIK WAS EMPLOYED BY THE WDL DIVISION OF AERONUTRONIC
FORD CORPORATION FROM 1962 TO 1976, INITIALLY AS AN ENGINEER AND SUBSEQUENTLY AS
MANAGER OF ITS ANTENNA SUBSYSTEMS ENGINEERING DEPARTMENT.
JOE A. YLITALO HAS SERVED AS SECRETARY AND GENERAL COUNSEL OF THE
COMPANY SINCE JANUARY 1997, PRIOR TO WHICH TIME HE WAS EMPLOYED AS GENERAL
COUNSEL TO THE COMPANY FOR MORE THAN FIVE YEARS.
WILLIAM L. ANTON HAS SERVED AS VICE PRESIDENT OF THE COMPANY SINCE
OCTOBER 1984 AND AS VICE PRESIDENT - MARKETING OF VERTEX ANTENNA DIVISION SINCE
SEPTEMBER 1995. PRIOR TO APPOINTMENT TO HIS CURRENT POSITIONS, MR. ANTON
PREVIOUSLY SERVED IN THE POSITION OF VICE PRESIDENT - INTERNATIONAL MARKETING
SINCE 1987 AND AS VICE PRESIDENT - OPERATIONS FROM DECEMBER 1984 THROUGH OCTOBER
1987. FROM APRIL 1984 THROUGH DECEMBER 1984 AND FROM AUGUST 1977 UNTIL APRIL
1984, MR. ANTON SERVED AS DIRECTOR OF OPERATIONS AND PROGRAM DIRECTOR,
RESPECTIVELY, OF THE HARRIS ANTENNA OPERATIONS.
H. DEAN BUNNELL HAS SERVED AS VICE PRESIDENT OF THE COMPANY SINCE
JANUARY 1995, IMMEDIATELY FOLLOWING THE ACQUISITION OF MAXTECH, INC. ("MAXTECH")
AS A WHOLLY-OWNED SUBSIDIARY OF THE COMPANY. MR. BUNNELL IS A CO-FOUNDER OF
MAXTECH AND HAS SERVED AS ITS PRESIDENT AND CHIEF EXECUTIVE OFFICER SINCE ITS
INCEPTION IN 1989, AND HAS CONTINUED TO SERVE IN SUCH POSITIONS SINCE THE
COMPANY'S ACQUISITION OF MAXTECH.
-14-
<PAGE> 16
MANFRED STUPNIK HAS SERVED AS VICE PRESIDENT OF THE COMPANY SINCE
JANUARY 1995 AND AS PRESIDENT OF GAMMA-F CORP., A WHOLLY-OWNED SUBSIDIARY OF THE
COMPANY, SINCE 1991. PRIOR THERETO, MR. STUPNIK HELD POSITIONS AS VICE PRESIDENT
OF OPERATIONS AND VICE PRESIDENT-COMMERCIAL PRODUCTS DURING HIS 26 YEARS OF
CONTINUOUS TENURE WITH GAMMA-F CORP.
EMPLOYMENT AGREEMENTS
J. Rex Vardeman, A. Don Branum, and James D. Carter, in their
capacities as (i) Chairman of the Board, President and Chief Executive Officer,
(ii) Senior Vice President and Assistant Secretary, and (iii) Vice President and
Chief Financial Officer, and Treasurer, respectively, have each executed
employment agreements with the Company. These employment agreements are each for
three-year terms which automatically renew on a daily basis.
Among other provisions, these agreements provide that, in
consideration for remaining in the employ of the Company, each officer is
entitled, subject to certain conditions, to receive benefits in the event of
termination of employment under certain circumstances, including, among other
reasons, a change of control of the Company. If such an officer is terminated
for a reason other than (a) his death, disability or retirement, (b) for cause,
or his voluntary termination other than for good reason, such officer would be
entitled to receive from the Company, except as otherwise indicated below, a
lump-sum severance payment equal to the sum of the following payments: (i) the
officer's full base salary through the effective date of his termination at the
rate then in effect, (ii) any authorized but unreimbursed business expenses and
any vacation benefits which have accrued but are unpaid or unused as of the
effective date of termination, (iii) any accrued but unpaid annual bonus
compensation to the effective date of termination, but without accelerating the
bonus payment date, (iv) an amount equal to three times the average aggregate
direct annual compensation (salary and bonus) of the officer for the five fiscal
years of the Company ended immediately prior to the effective date of his
termination, and (v) in the event such officer is subject to the excise tax
imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the
"Code"), resulting from any "excess parachute payment" received by such officer
as described in Section 280G(b) of the Code, an amount sufficient to ensure that
after payment of such excise tax, plus interest or penalties thereon, if any, as
the result of such "excess parachute payment," such officer will retain free and
clear of all claims, taxes, and impositions an amount equal to such excise tax,
interest and penalties, if any, imposed upon the excess payment received. In the
event that any such officer receives a parachute payment as a result of
termination of employment, such officer would be deemed to receive an "excess
parachute payment" if it equals or exceeds 300% of the officer's "base amount,"
generally the average annual compensation received by such officer over the five
most recent tax years. The "excess parachute payment" is computed as that
portion of the "parachute payment" which exceeds the "base amount."
In addition, Rein Luik, in his capacity as President of TIW, a
wholly-owned subsidiary of the Company, entered into an agreement with TIW,
effective as of June 11, 1997, which includes the same provisions for a similar
term as summarized above as related to his employment in such capacity with TIW.
COMPLIANCE WITH SECTION 16 OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires the Registrant's
directors and officers, and persons who own more than 10% of a registered class
of the Registrant's equity securities, to file initial reports of ownership and
reports of changes in ownership of the Registrant's securities with the
Securities and Exchange Commission (the "Commission") on Forms 3, 4, or 5, as
applicable. Such persons are required by regulations promulgated by the
Commission pursuant to the Exchange Act to furnish the Registrant with copies of
all such Section 16(a) report forms they file with the Commission.
Based solely on its review of the copies of such report forms
received by it with respect to fiscal year 1997, or written representations from
certain reporting persons, the Registrant believes that all
-15-
<PAGE> 17
filing requirements applicable to its directors, officers, and persons who own
more than 10% of a registered class of the Registrant's equity securities have
been timely complied with in accordance with Section 16(a) of the Exchange Act.
ITEM 11. EXECUTIVE COMPENSATION.
The information regarding executive compensation in response to
Item 8 of Schedule 14A which will appear in the Registrant's definitive Proxy
Statement in connection with the solicitation of proxies for its 1998 Annual
Meeting of Shareholders is hereby incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information regarding security ownership of certain
beneficial owners and management in response to Item 6 of Schedule 14A which
will appear in the Registrant's definitive Proxy Statement in connection with
the solicitation of proxies for its 1998 Annual Meeting of Shareholders is
hereby incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information regarding certain relationships and related
transactions in response to Item 7 of Schedule 14A which will appear in the
Registrant's definitive Proxy Statement in connection with the solicitation of
proxies for its 1998 Annual Meeting of Shareholders is hereby incorporated
herein by reference.
-16-
<PAGE> 18
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
<TABLE>
<CAPTION>
PAGE IN 1997
(a)1. CONSOLIDATED FINANCIAL STATEMENTS. ANNUAL REPORT
-------------
<S> <C>
Report of Independent Public Accountants.................. 23
Consolidated Statements of Income
For the years ended September 30,
1997, 1996, and 1995................................. 14
Consolidated Balance Sheets
As of September 30, 1997 and 1996.................... 15
Consolidated Statements of Cash Flows
For the years ended September 30,
1997, 1996, and 1995................................. 16
Consolidated Statements of Shareholders' Equity
For the years ended September 30,
1997, 1996, and 1995................................. 17
Notes to Consolidated Financial Statements................ 18
</TABLE>
<TABLE>
<CAPTION>
2. FINANCIAL STATEMENT SCHEDULES. PAGE NO.
--------
<S> <C>
Report of Independent Public Accountants on Schedule...... S-1
SCHEDULE
--------
II - Valuation and Qualifying Accounts..............S-2
</TABLE>
All other schedules are omitted because they are either not required
or not applicable or the required information is shown in the Consolidated
Financial Statements or Notes thereto.
(b) REPORTS ON FORM 8-K.
The Registrant did not file any reports on Form 8-K during the last
quarter of the period covered by this report, and none was required.
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<PAGE> 19
(c) EXHIBITS.
The following Exhibits are filed herewith pursuant to Item 601 of
Regulation S-K or are incorporated herein by reference to previous filings
noted, as applicable:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<S> <C> <C>
3.1 ....... Restated Articles of Incorporation of the Registrant filed as Exhibit 3-A to the
Registrant's Statement on Form S-18 (File No. 33-1094-FW).
3.2 ....... Bylaws of the Registrant filed as Exhibit 3-B to the Registrant's Registration
Statement on Form S-18 (File No. 33-1094-FW).
3.3 ....... Articles of Amendment to the Restated Articles of Incorporation of the Registrant
filed as Exhibit 3-C to the Registrant's
Annual Report on Form 10-K for the fiscal
year ended September 30, 1988 (File No.
0-15277).
3.4 ....... Articles of Amendment to the Restated Articles of Incorporation, as amended, of
the Registrant.
3.5 ....... First Amendment to the Bylaws of the Registrant filed as Exhibit 3-D to the
Registrant's Annual Report on Form 10-K for the fiscal year ended September 30,
1988 (File No. 0-15277).
3.6 ....... Second Amendment to the Bylaws of the Registrant adopted October 29, 1991
filed as Exhibit 3-E to the Registrant's Annual Report on Form 10-K for the fiscal
year ended September 30, 1991 (File No. 0-15277).
10.1 ....... Savings/Profit Sharing Plan of the Registrant, as amended and restated, effective
as of June 1, 1991 filed as Exhibit 10-A to the Registrant's Annual Report on
Form 10-K for the fiscal year ended September 30, 1991 (File No. 0-15277).
10.2 ....... Stock Option Plan for Key Employees of the Registrant filed as Exhibit A to the
Registrant's definitive Proxy Statement in connection with the solicitation of
proxies for its 1987 Annual Meeting of Shareholders (File No. 0-15277).
10.3 ....... First Amendment to the Stock Option Plan for Key Employees filed as Exhibit 10-
E to the Registrant's Annual Report on Form 10-K for the fiscal year ended
September 30, 1988 (File No. 0-15277).
10.4 ....... Second Amendment to the Stock Option Plan for Key Employees - Filed as Exhibit A
to the Registrant's definitive Proxy Statement in connection with the solicitation
of proxies for its 1992 Annual Meeting of Shareholders (File No. 0-15277).
10.5 ....... 1995 Stock Compensation Plan of the Registrant filed as Exhibit A to the
Registrant's definitive Proxy Statement in connection with the solicitation of
proxies for its 1995 Annual Meeting of Shareholders (File No. 0-15277).
10.6 ....... Management Incentive Compensation Plan of the Registrant filed as Exhibit 10-F
to the Registrant's Registration Statement on Form S-18 (File No. 33-1094-FW).
10.7 ....... Qualified Employee Stock Purchase Plan of the Registrant filed as Exhibit 10-G
to the Registrant's Registration Statement on Form S-18 (File No. 33-1094-FW).
</TABLE>
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<PAGE> 20
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<S> <C> <C>
10.8 ....... Outside Directors Stock Option Plan of the Registrant filed as Exhibit B to the Registrant's
definitive Proxy Statement in connection with the solicitation of proxies for its 1987 Annual Meeting of
Shareholders (File No. 0-15277).
10.9 ....... Executive Employment Agreement, dated November 10, 1994, by and between the Registrant and J. Rex
Vardeman, Chairman of the Board, President and Chief Executive Officer of the Registrant, filed as
Exhibit 10.9 to the Registrant's Annual Report on Form 10-K for the fiscal year ended September 30,
1994 (File No. 0-15277).
10.10 ....... Executive Employment Agreement, dated November 10, 1994, by and between the Registrant and A.Don Branum,
Senior Vice President of the Registrant, filed as Exhibit 10.10 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended September 30, 1994 (File No. 0-15277).
10.11 ....... Executive Employment Agreement, dated November 10, 1994, by and between the Registrant and James D. Carter,
Vice President - Finance and Treasurer of the Registrant, filed as Exhibit 10.11 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended September 30, 1994 (File No. 0-15277).
10.12 ....... Executive Employment Agreement, dated June 11, 1997, by and between TIW Systems, Inc., a wholly-owned
subsidiary of the Registrant, and Rein Luik, President of TIW Systems, Inc. and a Vice President of the
Registrant, filed as an Exhibit to the Registrant's Current Report on Form 8-K/A dated June 26, 1997 (Date of
Earliest Event Reported: May 9, 1997; File No. 0-15277).
10.13 ....... Indemnification Agreement, dated October 26, 1994, by and between the Registrant and J. Rex Vardeman; and
schedule of other officers and directors of the Registrant, each of whom has entered into a similar agreement
with the Registrant, filed as Exhibit 10.15 to the Registrant's Annual Report on Form 10-K for the fiscal year
ended September 30, 1994 (File No. 0-15277).
10.14 ....... Management Incentive Compensation Plan of the Registrant, as amended and restated effective October 1, 1995,
filed as Exhibit 10.12 to the Registrant's Annual Report on Form 10-K for the fiscal year ended September 30,
1995 (File No. 0-15277).
10.15 ....... Management Incentive Compensation Plan for Divisions of the Registrant, as amended and restated effective
October 1, 1995, filed as Exhibit 10.13 to the Registrant's Annual Report on Form 10-K for the fiscal year
ended September 30, 1995 (File No. 0-15277).
10.16 ....... Management Incentive Compensation Plan of Gamma-f Corp., a wholly-owned subsidiary of the Registrant, as
amended and restated effective October 1, 1995, filed as Exhibit 10.14 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended September 30, 1995 (File No. 0-15277).
10.17 ....... Management Incentive Compensation Plan of Maxtech, Inc., a wholly-owned subsidiary of the Registrant, as
amended and restated effective October 1, 1995, filed as Exhibit 10.15 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended September 30, 1995 (File No. 0-15277).
</TABLE>
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<PAGE> 21
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<S> <C> <C>
10.18 ....... Employee Profit Sharing Bonus Plan of the Registrant, as amended and restated effective October 1, 1996,
filed as Exhibit 10.16 to the Registrant's Annual Report on Form 10-K for the fiscal year ended September 30,
1996 (File No. 0- 15277).
10.19 ....... Employee Profit Sharing Bonus Plan of Gamma-f Corp., a wholly-owned subsidiary of the Registrant, as amended
and restated effective as of October 1, 1996, filed as Exhibit 10.17 to the Registrant's Annual Report on Form
10-K for the fiscal year ended September 30, 1996 (File No. 0-15277).
10.20* ....... Management Incentive Compensation Plan of TIW Systems, Inc., a wholly-owned subsidiary of the Registrant,
effective as of October 1, 1997.
10.21* ....... Management Incentive Compensation Plan of Vertex-New Mexico, Inc., a wholly-owned subsidiary of TIW Systems,
Inc., effective as of October 1, 1997.
10.22* ....... Employee Profit Sharing Bonus Plan of Maxtech, Inc., a wholly-owned subsidiary of the Registrant, effective
as of October 1, 1997.
10.23* ....... Employee Profit Sharing Bonus Plan of Vertex-New Mexico, Inc., a wholly-owned subsidiary of TIW Systems,
Inc., effective as of October 1, 1997.
10.24* ....... Revolving Credit Loan Agreement and related Promissory Note, each dated June 11, 1997, by and between Bank
One, Texas, National Association and the Registrant.
11* ....... Computation of Net Income Per Share.
13* ....... Annual Report to Shareholders of the Registrant for the year ended September 30, 1997, to the extent
specified in Parts II, III and IV hereof.
21* ....... Subsidiaries of the Registrant.
23* ....... Consent of Independent Public Accountants.
27* ....... Financial Data Schedule.
</TABLE>
- ---------------------------
*Filed herewith.
-20-
<PAGE> 22
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: December 19, 1997 Vertex Communications Corporation
(Registrant)
By: /s/ J. REX VARDEMAN
--------------------------
J. Rex Vardeman
Chairman of the Board,
President and Chief
Executive Officer
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 date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ J. REX VARDEMAN Chairman of the Board, December 19, 1997
- --------------------------- President, Chief
J. Rex Vardeman Executive Officer (Principal
Executive Officer) and
Director
/s/ A. DON BRANUM Director December 19, 1997
- ---------------------------
A. Don Branum
/s/ JAMES D. CARTER Vice President and December 19, 1997
- --------------------------- Chief Financial Officer
James D. Carter (Principal Financial and
Accounting Officer), Treasurer
and Director
/s/ BILL R. WOMBLE Director December 19, 1997
- ---------------------------
Bill R. Womble
/s/ DONALD E. HEITZMAN, SR. Director December 19, 1997
- ---------------------------
Donald E. Heitzman, Sr.
</TABLE>
-21-
<PAGE> 23
<TABLE>
<S> <C> <C>
/s/ JOHN G. FARMER Director December 19, 1997
- ---------------------------
John G. Farmer
/s/ REIN LUIK Director December 19, 1997
- ---------------------------
Rein Luik
</TABLE>
-22-
<PAGE> 24
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON
SCHEDULE
To the Shareholders of Vertex Communications Corporation:
We have audited, in accordance with generally accepted auditing
standards, the consolidated financial statements included in Vertex
Communications Corporation's 1997 annual report to shareholders incorporated by
reference in this Form 10-K, and have issued our report thereon dated October
24, 1997. Our audits were made for the purpose of forming an opinion on those
statements taken as a whole. The supplemental schedule II 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
Dallas, Texas
October 24, 1997
S-1
<PAGE> 25
VERTEX COMMUNICATIONS CORPORATION AND SUBSIDIARIES
(In thousands)
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
------------------------
BALANCE AT CHARGES TO CHARGES TO BALANCE
BEGINNING COST AND OTHER AT END
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
- ----------- ---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR
DOUBTFUL ACCOUNTS
Year Ended 9/30/97 $268 $210 $805(4) $29 (1) $1,254
Year Ended 9/30/96 241 35 -- (8)(1) 268
Year Ended 9/30/95 263 (22) -- -- 241
ALLOWANCE FOR
INVENTORY OBSOLESCENCE
Year Ended 9/30/97 $771 $449 $518(4) $285 (2) $1,453
Year Ended 9/30/96 417 536 -- 182 (2) 771
Year Ended 9/30/95 451 (34) -- -- 417
ALLOWANCE FOR
WARRANTY CLAIMS
Year Ended 9/30/97 $530 $761 $200(4) $439 (3) $1,052
Year Ended 9/30/96 591 343 -- 404 (3) 530
Year Ended 9/30/95 460 303 -- 172 (3) 591
</TABLE>
- ---------------------------
(1) Doubtful accounts written off, less recoveries.
(2) Disposal of obsolete inventory.
(3) Warranty claims processed.
(4) Beginning balance of allowance account balance brought forward from
acquisition of TIW Systems, Inc.
S-2
<PAGE> 26
VERTEX COMMUNICATIONS CORPORATION AND SUBSIDIARIES
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
Number DESCRIPTION
- ------ -----------
<S> <C>
10.20 Management Incentive Compensation Plan of TIW Systems, Inc., a
wholly-owned subsidiary of the Registrant, effective as of October 1, 1997.
10.21 Management Incentive Compensation Plan of Vertex-New Mexico, Inc., a
wholly-owned subsidiary of TIW Systems, Inc., effective as of October 1, 1997.
10.22 Employee Profit Sharing Bonus Plan of Maxtech, Inc., a wholly-owned
subsidiary of the Registrant, effective as of October 1, 1997.
10.23 Employee Profit Sharing Bonus Plan of Vertex-New Mexico, Inc., a
wholly-owned subsidiary of TIW Systems, Inc., effective as of October 1, 1997.
10.24 Revolving Credit Loan Agreement and related Promissory Note, each dated
June 11, 1997, by and between Bank One, Texas, National Association and
the Registrant.
11 Computation of Net Income Per Share.
13 Annual Report to Shareholders of the Registrant for the year ended
September 30, 1997, to the extent specified in Parts II, III and IV hereof.
21 Subsidiaries of the Registrant.
23 Consent of Independent Public Accountants.
27 Financial Data Schedule.
</TABLE>
<PAGE> 1
EXHIBIT 10.20
MANAGEMENT INCENTIVE COMPENSATION PLAN
OF
TIW SYSTEMS, INC.
1. PURPOSE OF PLAN. This Management Incentive Compensation Plan is intended
to attract and retain key employees of outstanding competence and to promote the
growth and development of the Company by providing incentive compensation as a
reward to those officers, managers, and other key employees who contribute by
their ability, industry, and ingenuity to the management, development, and
successful operations of the Company.
2. DEFINITIONS. For purposes of the Plan, the following terms shall have
the ascribed meanings unless otherwise clearly apparent from the context:
"Annual Operating Plan" (AOP) - shall mean the projected plan of
operations of the Company as approved by the Board of Directors for a designated
Fiscal Year.
"Annual Performance Objectives" - shall mean the financial
objectives of the Company which the Compensation Committee shall promulgate and
define as applicable for each Fiscal Year relative to various degrees of
achievement of Awards under the Plan at various levels of Pretax Income achieved
by the Company for such Fiscal Year and such other measurements of financial
accomplishment by the Company as it shall in its sole discretion authorize and
approve as conditions precedent to full realization by Participants of Awards
under the Plan, which Annual Performance Objectives shall be communicated
annually in a comprehensive memorandum from the Compensation Committee to all
Participants in the Plan.
"Award" - shall mean a cash distribution to be made to a
Participant for a Fiscal Year as determined in accordance with the provisions of
the Plan.
"Board of Directors" - shall mean the Board of Directors of
Vertex Communications Corporation, the corporate parent of the Company, unless
otherwise clearly indicated.
<PAGE> 2
"Compensation Committee" - shall mean the Compensation Committee
of the Board of Directors.
"Company" - shall mean TIW Systems, Inc., a Subsidiary of Vertex
Communications Corporation (Vertex).
"Employee" - shall mean a person who is in the regular full-time
employment of the Company as determined by the personnel policies and practices
of the Company.
"Fiscal Year" - shall mean the taxable year of the Company ending
September 30.
"Participant" - shall mean any Employee who is eligible to
receive an Award during a Fiscal Year, as designated and approved for such
Fiscal Year by the Compensation Committee. "Plan" - shall mean the Management
Incentive Compensation Plan of the Company. "Pretax Income" shall mean for each
Fiscal Year the net income of the Company before federal and state taxes
determined in accordance with generally accepted accounting principles
consistently applied and as approved by the independent public accountants who
have examined the financial accounts and records of the Company for such Fiscal
Year; provided, however, that such Pretax Income determination shall be
adjusted to include the effect of the amount of any Award paid or to be paid to
a Participant pursuant to the Plan.
"Projected Pretax Income" - shall mean for each Fiscal Year the
level of Pretax Income projected and approved by the Board of Directors to be
achieved by the Company for such Fiscal Year pursuant to the Annual Operating
Plan for such Fiscal Year.
"Target Bonus Fund" - shall mean the target fund established from
time to time by the Board of Directors to fund the payment of the Awards for a
designated Fiscal Year hereunder.
3. ADMINISTRATION OF THE PLAN. The Plan shall be administered by the
Compensation Committee appointed by the Board of Directors. The Compensation
Committee shall consist of
<PAGE> 3
not less than two (2) members of the Board of Directors. The Board of Directors
may from time to time appoint members of the Compensation Committee in
substitution for or in addition to members previously appointed and may fill
vacancies, however caused, in the Compensation Committee. The Compensation
Committee shall select one of its members as its Chairman and shall hold its
meetings at such times and places as it shall deem advisable.
A majority of the members of the Compensation Committee shall
constitute a quorum. All action of the Compensation Committee shall be taken by
a majority of its members. Any action may be taken by written instrument signed
by a majority of the members, and any action so taken shall be deemed fully as
effective as if it had been taken by a vote of the majority of the members at
the meeting duly called and held. The Compensation Committee may appoint a
Secretary, shall keep minutes of its meetings, and shall make such rules and
regulations for the conduct of its business as it shall deem advisable.
The Compensation Committee shall have the sole authority and
power, subject to the express provisions and limitations of the Plan, to
construe the Plan and to adopt, prescribe, amend, and rescind rules and
regulations relating to the Plan, and to make all determinations necessary or
advisable for administering the Plan. No member of the Board of Directors or the
Compensation Committee shall be liable for any action or determination made in
good faith with respect to the Plan.
All determinations, decisions, and directions made or given by
the Board of Directors or the Compensation Committee under the Plan shall be
final and conclusive. The decision of the Board of Directors or the Compensation
Committee on any question concerning or involving the interpretation or
administration of the Plan shall be final and conclusive, and no provisions of
the Plan shall be deemed to give any Employee, his/her legal representative or
<PAGE> 4
assigns, any right to participate in the Plan, except to such extent, if any, as
the Compensation Committee may have determined or approved pursuant to the
provisions of the Plan.
4. PARTICIPATION IN THE PLAN. During the existence of the Plan, the
Compensation Committee shall designate for each Fiscal Year the Employees
eligible to participate in the Plan for such Fiscal Year. The Compensation
Committee shall give consideration to the recommendations and suggestions
submitted to it by officers, managers, and department heads of the Company, with
respect to Employees who are mainly responsible in an executive, administrative,
professional, technical, or advisory capacity for the management of the
operations of the Company.
5. DETERMINATION OF INCENTIVE COMPENSATION. Prior to the commencement of
each Fiscal Year, the Board of Directors shall determine the Target Bonus Fund
that will be available for payment of Awards for such Fiscal Year, subject to
the achievement and satisfaction of certain Annual Performance Objectives by the
Company for such Fiscal Year. Within thirty (30) days thereafter, the
Compensation Committee in its discretion shall determine the amount of the
targeted Award for each of the Participants in the Plan for such Fiscal Year by
determining the share of the Target Bonus Fund that each Participant will be
eligible to receive for such Fiscal Year, subject to the terms of the Plan,
including, without limitation, compliance and satisfaction by the Company with
the Annual Performance Objectives established by the Compensation Committee for
such Fiscal Year and set forth in a comprehensive memorandum from the
Compensation Committee to the Participants of the Plan for such Fiscal Year. The
payment schedule will be delineated annually by the Compensation Committee in a
memo from the Chairman of the Compensation Committee to the President of the
Company as soon as practical after the determination thereof. The Compensation
Committee, through the President of the Company, shall notify each Participant
of his/her selection to participate in the Plan and the
<PAGE> 5
share of such Participant in and to the Target Bonus Fund for such Fiscal Year,
including the Annual Performance Objectives applicable for such Fiscal Year.
6. AWARD OF INCENTIVE COMPENSATION. Within forty-five (45) days after
completion of the Company's Fiscal Year, the Compensation Committee shall
determine the amount of the Award to be paid to each Participant for such Fiscal
Year. The amount of the Award of each Participant for each Fiscal Year shall be
determined by measuring (i) the actual Pretax Income achieved for such Fiscal
Year compared to the Projected Pretax Income reflected in the Annual Operating
Plan for such Fiscal Year and (ii) the degree of accomplishment by the Company
of the Annual Performance Objectives for such Fiscal Year set forth in the
comprehensive memorandum to the Plan Participants referred to in Section 5
hereof as related to the projected objectives contained in the Annual Operating
Plan for such Fiscal Year. The amount of each Award thus determined shall be
distributed by the Company to the Participants as soon as practical after the
determination thereof. Unless the Participant has filed with the Company written
instructions to the contrary, any Award payable with respect to a deceased
Participant shall be paid to such Participant's surviving spouse, if any;
otherwise, such Award shall be paid to such Participant's estate.
7. FORFEITURE OF INCENTIVE COMPENSATION. A Participant shall be entitled to
and shall receive the full amount of his/her Award for a Fiscal Year, provided
such Participant remains in the full-time employ of the Company for such Fiscal
Year. A Participant whose employment is terminated for any reason shall forfeit
his/her participation in the Plan and shall not be entitled to any Award for
such Fiscal Year. Notwithstanding the preceding, in the event of the death or
permanent disability of a Participant during any Fiscal Year, the Compensation
Committee shall have the power and authority to determine whether an Award
should be paid to such Participant for such Fiscal Year. The determination of
the Compensation Committee in the exercise of such
<PAGE> 6
power and authority in its sole discretion shall be final and binding upon each
Participant and anyone claiming by or through such Participant.
8. AMENDMENT OR TERMINATION. The Board of Directors of the Company may,
from time to time, amend, modify, change, suspend, or terminate, in whole or in
part, any or all of the provisions of the Plan, except that:
(a) No amendment, modification, change, suspension, or termination
may affect any right of any Participant to receive Awards made to
such Participant prior to the effective date of such amendment,
modification, change, suspension, or termination; and,
(b) No amendment, modification, or change may withdraw the obligation
and right of interpretation and administration of the Plan from the
Compensation Committee.
9. NO RIGHT TO EMPLOYMENT. Nothing in the Plan shall be deemed to give any
Employee or his/her legal representative or assigns, or any other person or
entity claiming under or though the Employee, any contract or other right to
participate in the benefits of the Plan other than as expressly set forth
herein. Nothing in the Plan shall be construed as constituting a commitment,
guarantee, agreement, or understanding of any kind or nature that the Company
will continue to employ any individual (whether or not an Employee or a
Participant); nor shall the Plan affect in any way the right of the Company to
terminate the employment of any individual (whether or not an Employee or a
Participant) at any time.
10. INDEMNIFICATION OF COMPENSATION COMMITTEE. In addition to such other
rights of indemnification as they may have as members of the Board of Directors
or as members of the Compensation Committee, the members of the Compensation
Committee shall be indemnified by the Company and Vertex against the reasonable
expenses, including attorneys' fees, actually
<PAGE> 7
and necessarily incurred in connection with the defense of any action, suit, or
proceedings, or in connection with any appeal thereof, to which they or any of
them may be party by reason of any action taken or failure to act under or in
connection with the Plan, and against all amounts paid by them in settlement
thereof (provided such settlement is approved by independent legal counsel
selected by the Company and Vertex) or paid by them in satisfaction of a
judgment in any such action, suit, or proceedings, except in relation to matters
as to which it shall be adjudged in such action, suit, or proceedings that such
Compensation Committee member is liable for negligence or misconduct in the
performance of his/her duties, provided that within thirty (30) days after
institution of any such action, suit, or proceedings a Compensation Committee
member shall in writing offer Vertex the opportunity, at its own expense, to
pursue and defend the same.
11. EFFECTIVE DATE AND TERM. This Plan (as hereby amended and restated)
supersedes all prior management incentive compensation plans applicable to the
Company, and shall be effective commencing as of October 1, 1997, and shall
remain in effect until terminated by the Board of Directors of the Company.
Executed this 17th day of September, 1997.
TIW SYSTEMS, INC.
By: /s/ J. REX VARDEMAN
---------------------
J. REX VARDEMAN, Chairman of the Board
ATTEST:
By: /s/ JOE A. YLITALO
-------------------------
JOE A. YLITALO, Secretary
<PAGE> 1
EXHIBIT 10.21
MANAGEMENT INCENTIVE COMPENSATION PLAN
OF
VERTEX-NEW MEXICO, INC.
1. PURPOSE OF PLAN. This Management Incentive Compensation Plan is intended
to attract and retain key employees of outstanding competence and to promote the
growth and development of the Company by providing incentive compensation as a
reward to those officers, managers, and other key employees who contribute by
their ability, industry, and ingenuity to the management, development, and
successful operations of the Company.
2. DEFINITIONS. For purposes of the Plan, the following terms shall have
the ascribed meanings unless otherwise clearly apparent from the context:
"Annual Operating Plan" (AOP) - shall mean the projected plan of
operations of the Company as approved by the Board of Directors for a designated
Fiscal Year.
"Annual Performance Objectives" - shall mean the financial
objectives of the Company which the Compensation Committee shall promulgate and
define as applicable for each Fiscal Year relative to various degrees of
achievement of Awards under the Plan at various levels of Pretax Income achieved
by the Company for such Fiscal Year and such other measurements of financial
accomplishment by the Company as it shall in its sole discretion authorize and
approve as conditions precedent to full realization by Participants of Awards
under the Plan, which Annual Performance Objectives shall be communicated
annually in a comprehensive memorandum from the Compensation Committee to all
Participants in the Plan.
"Award" - shall mean a cash distribution to be made to a
Participant for a Fiscal Year as determined in accordance with the provisions of
the Plan.
"Board of Directors" - shall mean the Board of Directors of
Vertex Communications Corporation, the indirect corporate parent of the Company,
unless otherwise clearly indicated.
<PAGE> 2
"Compensation Committee" - shall mean the Compensation Committee
of the Board of Directors.
"Company" - shall mean Vertex-New Mexico, Inc., an indirect
Subsidiary of Vertex Communications Corporation (Vertex).
"Employee" - shall mean a person who is in the regular full-time
employment of the Company as determined by the personnel policies and practices
of the Company.
"Fiscal Year" - shall mean the taxable year of the Company ending
September 30.
"Participant" - shall mean any Employee who is eligible to
receive an Award during a Fiscal Year, as designated and approved for such
Fiscal Year by the Compensation Committee.
"Plan" - shall mean the Management Incentive Compensation Plan
of the Company.
"Pretax Income" shall mean for each Fiscal Year the net income
of the Company before federal and state taxes determined in accordance with
generally accepted accounting principles consistently applied and as approved
by the independent public accountants who have examined the financial accounts
and records of the Company for such Fiscal Year; provided, however, that such
Pretax Income determination shall be adjusted to include the effect of the
amount of any Award paid or to be paid to a Participant pursuant to the Plan.
"Projected Pretax Income" - shall mean for each Fiscal Year the
level of Pretax Income projected and approved by the Board of Directors to be
achieved by the Company for such Fiscal Year pursuant to the Annual Operating
Plan for such Fiscal Year.
"Target Bonus Fund" - shall mean the target fund established from
time to time by the Board of Directors to fund the payment of the Awards for a
designated Fiscal Year hereunder.
3. ADMINISTRATION OF THE PLAN. The Plan shall be administered by the
Compensation Committee appointed by the Board of Directors. The Compensation
Committee shall consist of
<PAGE> 3
not less than two (2) members of the Board of Directors. The Board of Directors
may from time to time appoint members of the Compensation Committee in
substitution for or in addition to members previously appointed and may fill
vacancies, however caused, in the Compensation Committee. The Compensation
Committee shall select one of its members as its Chairman and shall hold its
meetings at such times and places as it shall deem advisable.
A majority of the members of the Compensation Committee shall
constitute a quorum. All action of the Compensation Committee shall be taken by
a majority of its members. Any action may be taken by written instrument signed
by a majority of the members, and any action so taken shall be deemed fully as
effective as if it had been taken by a vote of the majority of the members at
the meeting duly called and held. The Compensation Committee may appoint a
Secretary, shall keep minutes of its meetings, and shall make such rules and
regulations for the conduct of its business as it shall deem advisable.
The Compensation Committee shall have the sole authority and
power, subject to the express provisions and limitations of the Plan, to
construe the Plan and to adopt, prescribe, amend, and rescind rules and
regulations relating to the Plan, and to make all determinations necessary or
advisable for administering the Plan. No member of the Board of Directors or the
Compensation Committee shall be liable for any action or determination made in
good faith with respect to the Plan.
All determinations, decisions, and directions made or given by
the Board of Directors or the Compensation Committee under the Plan shall be
final and conclusive. The decision of the Board of Directors or the Compensation
Committee on any question concerning or involving the interpretation or
administration of the Plan shall be final and conclusive, and no provisions of
the Plan shall be deemed to give any Employee, his/her legal representative or
<PAGE> 4
assigns, any right to participate in the Plan, except to such extent, if any, as
the Compensation Committee may have determined or approved pursuant to the
provisions of the Plan.
4. PARTICIPATION IN THE PLAN. During the existence of the Plan, the
Compensation Committee shall designate for each Fiscal Year the Employees
eligible to participate in the Plan for such Fiscal Year. The Compensation
Committee shall give consideration to the recommendations and suggestions
submitted to it by officers, managers, and department heads of the Company, with
respect to Employees who are mainly responsible in an executive, administrative,
professional, technical, or advisory capacity for the management of the
operations of the Company.
5. DETERMINATION OF INCENTIVE COMPENSATION. Prior to the commencement of
each Fiscal Year, the Board of Directors shall determine the Target Bonus Fund
that will be available for payment of Awards for such Fiscal Year, subject to
the achievement and satisfaction of certain Annual Performance Objectives by the
Company for such Fiscal Year. Within thirty (30) days thereafter, the
Compensation Committee in its discretion shall determine the amount of the
targeted Award for each of the Participants in the Plan for such Fiscal Year by
determining the share of the Target Bonus Fund that each Participant will be
eligible to receive for such Fiscal Year, subject to the terms of the Plan,
including, without limitation, compliance and satisfaction by the Company with
the Annual Performance Objectives established by the Compensation Committee for
such Fiscal Year and set forth in a comprehensive memorandum from the
Compensation Committee to the Participants of the Plan for such Fiscal Year. The
payment schedule will be delineated annually by the Compensation Committee in a
memo from the Chairman of the Compensation Committee to the President of the
Company as soon as practical after the determination thereof. The Compensation
Committee, through the President of the Company, shall notify each Participant
of his/her selection to participate in the Plan and the
<PAGE> 5
share of such Participant in and to the Target Bonus Fund for such Fiscal Year,
including the Annual Performance Objectives applicable for such Fiscal Year.
6. AWARD OF INCENTIVE COMPENSATION. Within forty-five (45) days after
completion of the Company's Fiscal Year, the Compensation Committee shall
determine the amount of the Award to be paid to each Participant for such Fiscal
Year. The amount of the Award of each Participant for each Fiscal Year shall be
determined by measuring (i) the actual Pretax Income achieved for such Fiscal
Year compared to the Projected Pretax Income reflected in the Annual Operating
Plan for such Fiscal Year and (ii) the degree of accomplishment by the Company
of the Annual Performance Objectives for such Fiscal Year set forth in the
comprehensive memorandum to the Plan Participants referred to in Section 5
hereof as related to the projected objectives contained in the Annual Operating
Plan for such Fiscal Year. The amount of each Award thus determined shall be
distributed by the Company to the Participants as soon as practical after the
determination thereof. Unless the Participant has filed with the Company written
instructions to the contrary, any Award payable with respect to a deceased
Participant shall be paid to such Participant's surviving spouse, if any;
otherwise, such Award shall be paid to such Participant's estate.
7. FORFEITURE OF INCENTIVE COMPENSATION. A Participant shall be entitled to
and shall receive the full amount of his/her Award for a Fiscal Year, provided
such Participant remains in the full-time employ of the Company for such Fiscal
Year. A Participant whose employment is terminated for any reason shall forfeit
his/her participation in the Plan and shall not be entitled to any Award for
such Fiscal Year. Notwithstanding the preceding, in the event of the death or
permanent disability of a Participant during any Fiscal Year, the Compensation
Committee shall have the power and authority to determine whether an Award
should be paid to such Participant for such Fiscal Year. The determination of
the Compensation Committee in the exercise of such
<PAGE> 6
power and authority in its sole discretion shall be final and binding upon each
Participant and anyone claiming by or through such Participant.
8. AMENDMENT OR TERMINATION. The Board of Directors of the Company may,
from time to time, amend, modify, change, suspend, or terminate, in whole or in
part, any or all of the provisions of the Plan, except that:
(a) No amendment, modification, change, suspension, or termination may
affect any right of any Participant to receive Awards made to such
Participant prior to the effective date of such amendment,
modification, change, suspension, or termination; and,
(b) No amendment, modification, or change may withdraw the obligation
and right of interpretation and administration of the Plan from the
Compensation Committee.
9. NO RIGHT TO EMPLOYMENT. Nothing in the Plan shall be deemed to give any
Employee or his/her legal representative or assigns, or any other person or
entity claiming under or though the Employee, any contract or other right to
participate in the benefits of the Plan other than as expressly set forth
herein. Nothing in the Plan shall be construed as constituting a commitment,
guarantee, agreement, or understanding of any kind or nature that the Company
will continue to employ any individual (whether or not an Employee or a
Participant); nor shall the Plan affect in any way the right of the Company to
terminate the employment of any individual (whether or not an Employee or a
Participant) at any time.
10. INDEMNIFICATION OF COMPENSATION COMMITTEE. In addition to such other
rights of indemnification as they may have as members of the Board of Directors
or as members of the Compensation Committee, the members of the Compensation
Committee shall be indemnified by the Company and Vertex against the reasonable
expenses, including attorneys' fees, actually
<PAGE> 7
and necessarily incurred in connection with the defense of any action, suit, or
proceedings, or in connection with any appeal thereof, to which they or any of
them may be party by reason of any action taken or failure to act under or in
connection with the Plan, and against all amounts paid by them in settlement
thereof (provided such settlement is approved by independent legal counsel
selected by the Company and Vertex) or paid by them in satisfaction of a
judgment in any such action, suit, or proceedings, except in relation to matters
as to which it shall be adjudged in such action, suit, or proceedings that such
Compensation Committee member is liable for negligence or misconduct in the
performance of his/her duties, provided that within thirty (30) days after
institution of any such action, suit, or proceedings a Compensation Committee
member shall in writing offer Vertex the opportunity, at its own expense, to
pursue and defend the same.
11. EFFECTIVE DATE AND TERM. This Plan (as hereby amended and restated)
supersedes all prior management incentive compensation plans applicable to the
Company, and shall be effective commencing as of October 1, 1997, and shall
remain in effect until terminated by the Board of Directors of the Company.
Executed this 17th day of September, 1997.
VERTEX-NEW MEXICO, INC.
By: /s/ J. REX VARDEMAN
---------------------------
J. REX VARDEMAN, Chairman of the Board
ATTEST:
By: /s/ JOE A. YLITALO
-------------------------
JOE A. YLITALO, Secretary
<PAGE> 1
EXHIBIT 10.22
EMPLOYEE PROFIT SHARING BONUS PLAN
OF
MAXTECH, INC.
(EFFECTIVE OCTOBER 1, 1997)
1. PURPOSE OF PLAN. The Employee Profit Sharing Bonus Plan is intended to
promote the growth and development of the Company by providing bonus
compensation as a reward to those employees who contribute by their ability,
industry, and longevity to the growth, development, and profitability of the
Company.
2. DEFINITIONS. For purposes of the Plan, the following terms shall have
the ascribed meanings unless otherwise clearly apparent from the context:
"Annual Operating Plan" (AOP) - shall mean the projected plans of
operations of the Company as approved by the Board of Directors for a designated
Fiscal Year.
"Board of Directors" - shall mean the Board of Directors of
Vertex Communications Corporation, the corporate parent of the Company, unless
otherwise clearly indicated.
"Bonus" - shall mean a cash distribution to be made to a
Participant for a Fiscal Year as determined in accordance with the provisions of
the Plan.
"Bonus Fund" - shall mean the targeted amount established each
Fiscal Year by the Board of Directors to fund the payment of the Bonuses for
such Fiscal Year hereunder.
"Bonus Share" - shall mean the share of the Bonus Fund allotted
to each Participant in accordance with the provisions of the Plan.
"Company" - shall mean Maxtech, Inc., a Subsidiary of Vertex
Communications Corporation.
"Compensation Committee" - shall mean the Compensation Committee
of the Board of Directors.
<PAGE> 2
"Employee" - shall mean any person in the regular full-time
employment of the Company as determined by the personnel policies and practices
of the Company for the entire Fiscal Year applicable to the Plan, except,
however, any such person who is an officer or director of the Company or a
participant pursuant to the Management Incentive Compensation Plan of the
Company for such Fiscal Year.
"Fiscal Year" - shall mean the taxable year of the Company ending
September 30.
"Participant" - shall mean any Employee who is eligible to
receive a Bonus during the Fiscal Year.
"Plan" - shall mean the Employee Profit Sharing Bonus Plan of the
Company effective as of October 1, 1996.
"Pretax Income" - shall mean for each Fiscal Year the net income
of the Company before federal and state taxes determined in accordance with
generally accepted accounting principles consistently applied and as approved by
the independent public accountants who have examined the financial accounts and
records of the Company for such Fiscal Year; provided, however, that such Pretax
Income determination shall be adjusted to include the effect of the amount of
any Bonus paid or to be paid to a Participant pursuant to the Plan.
"Projected Pretax Income" - shall mean for each Fiscal Year the
level of Pretax Income projected and approved by the Board of Directors to be
achieved by the Company for such Fiscal Year pursuant to the Annual Operating
Plan for such Fiscal Year.
3. ADMINISTRATION OF THE PLAN. The Plan shall be administered by the
Compensation Committee appointed by the Board of Directors. The Compensation
Committee shall consist of not less than two (2) members of the Board of
Directors. The Board of Directors may from time to time appoint members of the
Compensation Committee in substitution for or in addition to members previously
appointed and may fill vacancies, however caused, in the Compensation
<PAGE> 3
Committee. The Compensation Committee shall select one of its members as its
Chairman and shall hold its meetings at such times and places as it shall deem
advisable.
A majority of the members of the Compensation Committee shall
constitute a quorum. All action of the Compensation Committee shall be taken by
a majority of its members. Any action may be taken by written instrument signed
by a majority of the members, and any action so taken shall be deemed fully as
effective as if it had been taken by a vote of the majority of the members at
the meeting duly called and held. The Compensation Committee may appoint a
Secretary, shall keep minutes of its meetings, and shall make such rules and
regulations for the conduct of its business as it shall deem advisable.
The Compensation Committee shall have the sole authority and
power, subject to the express provisions and limitations of the Plan, to
construe the Plan and to adopt, prescribe, amend, and rescind rules and
regulations relating to the Plan, and to make all determinations necessary or
advisable for administering the Plan. No member of the Board of Directors or the
Compensation Committee shall be liable for any action or determination made in
good faith with respect to the Plan.
All determinations, decisions, and directions made or given by
the Board of Directors or the Compensation Committee under the Plan shall be
final and conclusive. The decision of the Board of Directors or the Compensation
Committee on any question concerning or involving the interpretation or
administration of the Plan shall be final and conclusive, and no provision of
the Plan shall be deemed to give any Employee, his/her legal representative or
assigns, any right to participate in the Plan, except to such extent, if any, as
the Compensation Committee may have determined or approved pursuant to the
provisions of the Plan.
4. PARTICIPATION IN THE PLAN. All Employees in the regular employ of the
Company as of the beginning of each Fiscal Year (October 1) are eligible to
participate in the Plan.
<PAGE> 4
5. DETERMINATION OF THE BONUS FUND. Prior to the commencement of each
Fiscal Year, the Board of Directors shall determine the Projected Pretax Income
of the Company for such Fiscal Year and the amount of the Bonus Share of each
Participant in and to the Bonus Fund for such Fiscal Year, subject to the terms
of the plan. Within thirty (30) days thereafter, the Compensation Committee
shall determine the Bonus Share of the Bonus Fund to be allocated to each
Participant for such Fiscal Year pursuant to the following procedures:
Step One:
The aggregate number of years of employment service of each
Participant with the Company shall be multiplied by the hourly
rate of compensation of each such Participant on October 1 of such
year.
Step Two:
The mathematical products thus determined in Step One above for all
Participants shall be aggregate in a total sum.
Step Three:
The quotient (expressed as a percentage) obtained by dividing the
amount determined in Step One above as to each Participant by the
aggregate amount determined in Step Two above shall constitute the
Bonus Share of each respective Participant in and to the Bonus Fund
for such Fiscal Year.
Step Four:
The amount of the Bonus Share of each Participant (expressed in
dollars) in and to the Bonus Fund for each Fiscal Year shall be
determined by multiplying the Bonus Fund for such Fiscal Year by the
quotient obtained in Step Three above as to such Participant.
<PAGE> 5
The Compensation Committee shall notify each Participant in the
Plan of his/her Bonus Share for each Fiscal Year as soon as practical after the
projected amount thereof has been determined in accordance with the provisions
of the Plan.
6. AWARD OF BONUS COMPENSATION. Within sixty (60) days after completion of
the Company's Fiscal Year, the Compensation Committee shall determine the amount
of the Bonus to be paid to each Participant for such Fiscal Year. The final
pre-tax or net income, as applicable, utilized to calculate the bonus share for
each participant shall be determined using the same method as for the Maxtech,
Inc. Management Incentive Compensation Plan.
7. FORFEITURE OF INCENTIVE COMPENSATION. A Participant shall be entitled to
and shall receive the full amount of his/her Bonus for a Fiscal Year, provided
such Participant remains in the full-time employ of the Company for such entire
Fiscal Year. A Participant whose employment is terminated for any reason shall
forfeit his/her participation in the Plan and shall not be entitled to any Bonus
for such Fiscal Year. Notwithstanding the preceding, in the event of the death,
retirement, permanent disability, or any extended absence of a Participant, the
Compensation Committee shall have the power and the authority to determine
whether a Bonus should be paid to such Participant for such Fiscal Year. The
determination of the Compensation Committee in the exercise of such power and
authority in its sole discretion shall be final and binding upon each
Participant and anyone claiming by or through such Participant.
8. AMENDMENT OR TERMINATION. The Board of Directors of the Company may,
from time to time, amend, modify, change, suspend, or terminate, in whole or in
part, any or all of the provisions of the Plan, except that:
(a) No amendment, modification, change, suspension, or
termination may affect any right of any Participant to receive
a Bonus made to him/her prior to the
<PAGE> 6
effective date of such amendment, modification, change,
suspension, or termination; and,
(b) No amendment, modification, or change may withdraw the
obligation and right of interpretation and administration
of the Plan from the Compensation Committee.
9. NO RIGHT TO EMPLOYMENT. Nothing in the Plan shall be deemed to give any
Employee or his/her legal representative or assigns, or any other person or
entity claiming under or though him/her, any contract or other right to
participate in the benefits of the Plan other than as expressly set forth
herein. Nothing in the Plan shall be construed as constituting a commitment,
guarantee, agreement, or understanding of any kind or nature that the Company
will continue to employ any individual (whether or not an Employee or a
Participant); nor shall the Plan affect in any way the right of the Company to
terminate the employment of any individual (whether or not an Employee or a
Participant) at any time.
10. INDEMNIFICATION OF COMPENSATION COMMITTEE. In addition to such other
rights of indemnification as they may have as members of the Board of Directors
or as members of the Compensation Committee, the members of the Compensation
Committee shall be indemnified by the Company against the reasonable expenses,
including attorneys' fees, actually and necessarily incurred in connection with
the defense of any action, suit, or proceedings, or in connection with any
appeal thereof, to which they or any of them may be party by reason of any
action taken or failure to act under or in connection with the Plan, and against
all amounts paid by them in settlement thereof (provided such settlement is
approved by independent legal counsel selected by the Company) or paid by them
in satisfaction of a judgment in any such action, suit, or proceedings, except
in relation to matters as to which it shall be adjudged in such
<PAGE> 7
action, suit, or proceedings that such Compensation Committee member is liable
for negligence or misconduct in the performance of his/her duties, provided that
within thirty (30) days after institution of any such action, suit, or
proceedings a Compensation Committee member shall in writing offer the Company
the opportunity, at its own expense, to pursue and defend the same.
11. EFFECTIVE DATE AND TERM. This Plan supersedes all prior employee profit
sharing bonus plans of the Company, and shall be effective commencing as of
October 1, 1997, and shall remain in effect until terminated by the Board of
Directors of the Company. Executed this 29th day of September, 1997.
MAXTECH, INC.
By: /s/ J. REX VARDEMAN
-------------------
J. REX VARDEMAN, Chairman of the Board
ATTEST:
By:/s/ JAMES D. CARTER
------------------------------
JAMES D. CARTER, Secretary
<PAGE> 1
EXHIBIT 10.23
EMPLOYEE PROFIT SHARING BONUS PLAN
OF
VERTEX-NEW MEXICO, INC.
1. PURPOSE OF PLAN. The Employee Profit Sharing Bonus Plan is intended to
promote the growth and development of the Company by providing bonus
compensation as a reward to those employees who contribute by their ability,
industry, and longevity to the growth, development, and profitability of the
Company.
2. DEFINITIONS. For purposes of the Plan, the following terms shall have
the ascribed meanings unless otherwise clearly apparent from the context:
"Annual Operating Plan" (AOP) - shall mean the projected plans of
operations of the Company as approved by the Board of Directors for a designated
Fiscal Year.
"Board of Directors" - shall mean the Board of Directors of
Vertex Communications Corporation, the indirect corporate parent of the Company,
unless otherwise clearly indicated.
"Bonus" - shall mean a cash distribution to be made to a
Participant for a Fiscal Year as determined in accordance with the provisions of
the Plan.
"Bonus Fund" - shall mean the targeted amount established each
Fiscal Year by the Board of Directors to fund the payment of the Bonuses for
such Fiscal Year hereunder.
"Bonus Share" - shall mean the share of the Bonus Fund allotted
to each Participant in accordance with the provisions of the Plan.
"Company" - shall mean Vertex-New Mexico, Inc., an indirect
Subsidiary of Vertex Communications Corporation.
"Compensation Committee" - shall mean the Compensation Committee
of the Board of Directors.
"Employee" - shall mean any person in the regular full-time
employment of the Company as determined by the personnel policies and practices
of the Company for the entire
<PAGE> 2
Fiscal Year applicable to the Plan, except, however, any such person who is an
officer or director of the Company or a participant pursuant to the Management
Incentive Compensation Plan of the Company for such Fiscal Year.
"Fiscal Year" - shall mean the taxable year of the Company
ending September 30.
"Participant" - shall mean any Employee who is eligible to
receive a Bonus during the Fiscal Year.
"Plan" - shall mean the Employee Profit Sharing Bonus Plan of
the Company.
"Pretax Income" - shall mean for each Fiscal Year the net income
of the Company before federal and state taxes determined in accordance with
generally accepted accounting principles consistently applied and as approved
by the independent public accountants who have examined the financial accounts
and records of the Company for such Fiscal Year; provided, however, that such
Pretax Income determination shall be adjusted to include the effect of the
amount of any Bonus paid or to be paid to a Participant pursuant to the Plan.
"Projected Pretax Income" - shall mean for each Fiscal Year the
level of Pretax Income projected and approved by the Board of Directors to be
achieved by the Company for such Fiscal Year pursuant to the Annual Operating
Plan for such Fiscal Year.
3. ADMINISTRATION OF THE PLAN. The Plan shall be administered by the
Compensation Committee appointed by the Board of Directors. The Compensation
Committee shall consist of not less than two (2) members of the Board of
Directors. The Board of Directors may from time to time appoint members of the
Compensation Committee in substitution for or in addition to members previously
appointed and may fill vacancies, however caused, in the Compensation Committee.
The Compensation Committee shall select one of its members as its Chairman and
shall hold its meetings at such times and places as it shall deem advisable.
<PAGE> 3
A majority of the members of the Compensation Committee shall
constitute a quorum. All action of the Compensation Committee shall be taken by
a majority of its members. Any action may be taken by written instrument signed
by a majority of the members, and any action so taken shall be deemed fully as
effective as if it had been taken by a vote of the majority of the members at
the meeting duly called and held. The Compensation Committee may appoint a
Secretary, shall keep minutes of its meetings, and shall make such rules and
regulations for the conduct of its business as it shall deem advisable.
The Compensation Committee shall have the sole authority and
power, subject to the express provisions and limitations of the Plan, to
construe the Plan and to adopt, prescribe, amend, and rescind rules and
regulations relating to the Plan, and to make all determinations necessary or
advisable for administering the Plan. No member of the Board of Directors or the
Compensation Committee shall be liable for any action or determination made in
good faith with respect to the Plan.
All determinations, decisions, and directions made or given by
the Board of Directors or the Compensation Committee under the Plan shall be
final and conclusive. The decision of the Board of Directors or the Compensation
Committee on any question concerning or involving the interpretation or
administration of the Plan shall be final and conclusive, and no provision of
the Plan shall be deemed to give any Employee, his/her legal representative or
assigns, any right to participate in the Plan, except to such extent, if any, as
the Compensation Committee may have determined or approved pursuant to the
provisions of the Plan.
4. PARTICIPATION IN THE PLAN. All Employees in the regular employ of the
Company as of the beginning of each Fiscal Year (October 1) are eligible to
participate in the Plan.
5. DETERMINATION OF THE BONUS FUND. Prior to the commencement of each
Fiscal Year, the Board of Directors shall determine the Projected Pretax Income
of the Company for
<PAGE> 4
such Fiscal Year and the amount of the Bonus Share of each Participant in and to
the Bonus Fund for such Fiscal Year, subject to the terms of the plan. Within
thirty (30) days thereafter, the Compensation Committee shall determine the
Bonus Share of the Bonus Fund to be allocated to each Participant for such
Fiscal Year pursuant to the following procedures:
Step One:
The aggregate number of years of employment service of each
Participant with the Company shall be multiplied by the hourly rate
of compensation of each such Participant on October 1 of such year.
Step Two:
The mathematical products thus determined in Step One above for all
Participants shall be aggregate in a total sum.
Step Three:
The quotient (expressed as a percentage) obtained by dividing the
amount determined in Step One above as to each Participant by the
aggregate amount determined in Step Two above shall constitute the
Bonus Share of each respective Participant in and to the Bonus Fund
for such Fiscal Year.
Step Four:
The amount of the Bonus Share of each Participant (expressed in
dollars) in and to the Bonus Fund for each Fiscal Year shall be
determined by multiplying the Bonus Fund for such Fiscal Year by the
quotient obtained in Step Three above as to such Participant.
The Compensation Committee shall notify each Participant in the
Plan of his/her Bonus Share for each Fiscal Year as soon as practical after the
projected amount thereof has been determined in accordance with the provisions
of the Plan.
<PAGE> 5
6. AWARD OF BONUS COMPENSATION. Within sixty (60) days after completion of
the Company's Fiscal Year, the Compensation Committee shall determine the amount
of the Bonus to be paid to each Participant for such Fiscal Year. The final
pre-tax or net income, as applicable, utilized to calculate the bonus share for
each participant shall be determined using the same method as for the Vertex-New
Mexico, Inc. Management Incentive Compensation Plan.
7. FORFEITURE OF INCENTIVE COMPENSATION. A Participant shall be entitled to
and shall receive the full amount of his/her Bonus for a Fiscal Year, provided
such Participant remains in the full-time employ of the Company for such entire
Fiscal Year. A Participant whose employment is terminated for any reason shall
forfeit his/her participation in the Plan and shall not be entitled to any Bonus
for such Fiscal Year. Notwithstanding the preceding, in the event of the death,
retirement, permanent disability, or any extended absence of a Participant, the
Compensation Committee shall have the power and the authority to determine
whether a Bonus should be paid to such Participant for such Fiscal Year. The
determination of the Compensation Committee in the exercise of such power and
authority in its sole discretion shall be final and binding upon each
Participant and anyone claiming by or through such Participant.
8. AMENDMENT OR TERMINATION. The Board of Directors of the Company may,
from time to time, amend, modify, change, suspend, or terminate, in whole or in
part, any or all of the provisions of the Plan, except that:
(a) No amendment, modification, change, suspension, or termination
may affect any right of any Participant to receive a Bonus made to
him/her prior to the effective date of such amendment, modification,
change, suspension, or termination; and,
<PAGE> 6
(b) No amendment, modification, or change may withdraw the obligation
and right of interpretation and administration of the Plan from the
Compensation Committee.
9. NO RIGHT TO EMPLOYMENT. Nothing in the Plan shall be deemed to give any
Employee or his/her legal representative or assigns, or any other person or
entity claiming under or though him/her, any contract or other right to
participate in the benefits of the Plan other than as expressly set forth
herein. Nothing in the Plan shall be construed as constituting a commitment,
guarantee, agreement, or understanding of any kind or nature that the Company
will continue to employ any individual (whether or not an Employee or a
Participant); nor shall the Plan affect in any way the right of the Company to
terminate the employment of any individual (whether or not an Employee or a
Participant) at any time.
10. INDEMNIFICATION OF COMPENSATION COMMITTEE. In addition to such other
rights of indemnification as they may have as members of the Board of Directors
or as members of the Compensation Committee, the members of the Compensation
Committee shall be indemnified by the Company against the reasonable expenses,
including attorneys' fees, actually and necessarily incurred in connection with
the defense of any action, suit, or proceedings, or in connection with any
appeal thereof, to which they or any of them may be party by reason of any
action taken or failure to act under or in connection with the Plan, and against
all amounts paid by them in settlement thereof (provided such settlement is
approved by independent legal counsel selected by the Company) or paid by them
in satisfaction of a judgment in any such action, suit, or proceedings, except
in relation to matters as to which it shall be adjudged in such action, suit, or
proceedings that such Compensation Committee member is liable for negligence or
misconduct in the performance of his/her duties, provided that within thirty
(30) days after
<PAGE> 7
institution of any such action, suit, or proceedings a Compensation Committee
member shall in writing offer the Company the opportunity, at its own expense,
to pursue and defend the same.
11. EFFECTIVE DATE AND TERM. This Plan commencing as of October 1, 1997,
shall remain in effect until terminated by the Board of Directors of the
Company. Executed this 17th day of September, 1997.
VERTEX-NEW MEXICO, INC.
By: /s/ J. REX VARDEMAN
-------------------------------------
J. REX VARDEMAN, Chairman of the Board
ATTEST:
By: /s/ JOE A. YLITALO
-------------------------
JOE A. YLITALO, Secretary
<PAGE> 1
EXHIBIT 10.24
LOAN AGREEMENT
June 11, 1997
Vertex Communications Corporation
2600 N. Longview Street
Kilgore, Texas 75662
Ladies and Gentlemen:
This Loan Agreement (the "Loan Agreement") will serve to set forth the terms
of a certain financing transaction by and between VERTEX COMMUNICATIONS
CORPORATION ("Borrower") and BANK ONE, TEXAS, NATIONAL ASSOCIATION ("Bank"):
1. CREDIT FACILITY. Subject to the terms and conditions set forth in this Loan
Agreement and the other agreements, instruments and documents evidencing,
securing, governing, guaranteeing and/or pertaining to the Loans, as
hereinafter defined (collectively, together with the Loan Agreement,
referred to hereinafter as the "Loan Documents"), Bank hereby agrees to
provide to Borrower the credit facility hereinbelow (the "Credit
Facility"):
a. Revolving Line of Credit. Subject to the terms and conditions set
forth herein, Bank agrees to lend to Borrower, on a revolving basis
from time to time during the period commencing on the date hereof and
continuing through and including 11:00 a.m. (Central Time) on June 11,
1999 ( the "Termination Date"), such amounts as Borrower may request
hereunder; provided, however, the total principal amount outstanding
at any time shall not exceed $15,000,000.00 less the amount of the
outstanding Letter of Credit Liabilities (hereinafter defined) (the
"Revolving Line of Credit"). Subject to the terms and conditions
hereof, Borrower may borrow, repay and reborrow hereunder. The sums
advanced under the Revolving Line of Credit shall be used for working
capital.
b. Letters of Credit. Subject to the terms and conditions set forth
herein, Bank agrees to issue one or more documentary or stand-by
letters of credit (collectively, the "Letters of Credit") for the
account of Borrower from time to time from the date hereof to and
including the Termination Date; provided, however, that the Bank's
outstanding commitments under all outstanding Letters of Credit (the
"Letter of Credit Liabilities") shall not at any time exceed
$5,000,000.00. All Letters of Credit shall have an expiration date no
more than two (2) years from date of issuance, must support a
transaction that is entered into in the ordinary course of business,
must otherwise be satisfactory in form and substance to Bank, and
shall be issued pursuant to such documents and instruments, including,
without limitation, Bank's standard application and agreement for
issuance of documentary and stand-by letters of credit, as then in
effect as Bank may require. No Letter of Credit shall require any
payment by Bank to the beneficiary thereunder pursuant to a drawing
prior to the third business day following presentment of a draft and
any related documents to Bank. Each Letter of Credit shall be issued
on at least three (3) business days prior notice from Borrower to Bank.
Each payment by Bank pursuant to a drawing under a Letter of Credit
must be repaid to Bank immediately by Borrower in accordance with the
terms of the subject Letter of Credit Application. Borrower shall pay
to Bank a letter of credit fee payable on the date each Letter of
Credit is issued in an amount equal to one percent (1%) per annum of
the stated amount of such Letter of Credit, for the stated term of
such Letter of Credit, based on a 360 day year and the actual number
of days elapsed.
<PAGE> 2
All advances under the Credit Facility and obligations of Borrower to Bank under
the Letters of Credit shall be collectively called the "Loan". Bank reserves the
right to require Borrower to give Bank not less than one (1) business day prior
notice of each requested advance under the Credit Facility, specifying (i) the
aggregate amount of such requested advance, (ii) the requested date of such
advance, and (iii) the purpose for such advance, with such advances to be
requested in a form satisfactory to Bank.
2. PROMISSORY NOTE. The Loan shall be evidenced by one or more promissory
notes (together with any renewals, extensions and increases thereof, the
"Note") duly executed by Borrower and payable to the order of Bank, in form
and substance acceptable to Bank. Interest on the Note shall accrue at the
rate set forth therein. The principal of and interest on the Note shall be
due and payable in accordance with the terms and conditions set forth in
the Note and in this Loan Agreement.
3. COLLATERAL. The Loan shall be unsecured.
4. GUARANTORS. As a condition precedent to the Bank's obligation to make the
Loan to Borrower, Borrower agrees to cause Gamma-f Corp., TIW Systems,
Inc., and Maxtech, Inc. (whether one or more, the "Guarantors") to each
execute and deliver to Bank contemporaneously herewith a guaranty
agreement, in form and substance satisfactory to Bank.
5. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and warrants,
and upon each request for an advance under the Credit Facility further
represents and warrants, to Bank as follows:
a. Existence. Borrower is a corporation duly organized, validly existing
and in good standing under the laws of the State of Texas and all other
states where it is doing business, and has all requisite power and
authority to execute and deliver the Loan Documents.
b. Binding Obligations. The execution, delivery, and performance of this
Loan Agreement and all of the other Loan Documents by Borrower have
been duly authorized by all necessary action by Borrower, and
constitute legal, valid and binding obligations of Borrower,
enforceable in accordance with their respective terms, except as
limited by bankruptcy, insolvency or similar laws of general
application relating to the enforcement of creditors' rights and except
to the extent specific remedies may generally be limited by equitable
principles.
c. No Consent. The execution, delivery and performance of this Loan
Agreement and the other Loan Documents, and the consummation of the
transactions contemplated hereby and thereby, do not (i) conflict with,
result in a violation of, or constitute a default under (A) any
provision of its articles or certificate of incorporation or bylaws, or
any agreement or other instrument binding upon Borrower, or (B) any
law, governmental regulation, court decree or order applicable to
Borrower, or (ii) require the consent, approval or authorization of any
third party.
d. Financial Condition. Each financial statement of Borrower supplied to
the Bank truly discloses and fairly presents Borrower's financial
condition as of the date of each such statement. There has been no
material adverse change in such financial condition or results of
operations of Borrower subsequent to the date of the most recent
financial statement supplied to the Bank.
e. Litigation. There are no actions, suits or proceedings, pending or,
to the knowledge of Borrower, threatened against or affecting Borrower
or the properties of Borrower, before any court or
<PAGE> 3
governmental department, commission or board, which, if determined
adversely to Borrower, would have a material adverse effect on the
financial condition, properties, or operations of Borrower.
f. Taxes; Governmental Charges. Borrower has filed all federal, state and
local tax reports and returns required by any law or regulation to be
filed by it and has either duly paid all taxes, duties and charges
indicated due on the basis of such returns and reports, or made
adequate provision for the payment thereof, and the assessment of any
material amount of additional taxes in excess of those paid and
reported is not reasonably expected.
6. CONDITIONS PRECEDENT TO ADVANCES. Bank's obligation to make any advance
under this Loan Agreement and the other Loan Documents shall be subject to
the conditions precedent that, as of the date of such advance and after
giving effect thereto (i) all representations and warranties made to Bank
in this Loan Agreement and the other Loan Documents shall be true and
correct, as of and as if made on such date, (ii) no material adverse
change in the financial condition of Borrower since the effective date of
the most recent financial statements furnished to Bank by Borrower shall
have occurred and be continuing, (iii) no event has occurred and is
continuing, or would result from the requested advance, which with notice
or lapse of time, or both, would constitute an Event of Default (as
hereinafter defined), and (iv) Bank has received all Loan Documents
appropriately executed by Borrower and all other proper parties.
7. AFFIRMATIVE COVENANTS. Until (i) the Note and all other obligations and
liabilities of Borrower under this Loan Agreement and the other Loan
Documents are fully paid and satisfied, and (ii) the Bank has no further
commitment to lend hereunder, Borrower agrees and covenants that it will,
unless Bank shall otherwise consent in writing:
a. Accounts and Records. Maintain its books and records in accordance
with generally accepted accounting principles.
b. Right of Inspection. Permit Bank to visit its properties and
installations and to examine, audit and make and take away copies or
reproductions of Borrower's books and records, at all reasonable times.
c. Right to Additional Information. Furnish Bank with such additional
information and statements, lists of assets and liabilities, tax
returns, and other reports with respect to Borrower's financial
condition and business operations as Bank may request from time to
time.
d. Compliance with Laws. Conduct its business in an orderly and efficient
manner consistent with good business practices, and perform and comply
with all statutes, rules, regulations and/or ordinances imposed by any
governmental unit upon Borrower its businesses, operations and
properties (including without limitation, all applicable environmental
statutes, rules, regulations and ordinances).
e. Taxes. Pay and discharge when due all of its indebtedness and
obligations, including without limitation, all assessments, taxes,
governmental charges, levies and liens, of every kind and nature,
imposed upon Borrower or its properties, income, or profits, prior to
the date on which penalties would attach, and all lawful claims that,
if unpaid, might become a lien or charge upon any of Borrower's
properties, income, or profits; provided, however, Borrower will not
be required to pay and discharge any such assessment, tax, charge,
levy, lien or claim so long as (i) the legality of the same shall be
contested in good faith by appropriate judicial, administrative or
other legal proceedings, and (ii) Borrower shall have established on
its books adequate reserves with respect to
<PAGE> 4
such contested assessment, tax, charge, levy, lien or claim in
accordance with generally accepted accounting principles, consistently
applied.
f. Insurance. Maintain insurance, including but not limited to, fire
insurance, comprehensive property damage, public liability, worker's
compensation, business interruption and other insurance deemed
necessary or otherwise required by Bank.
g. Notice of Indebtedness. Promptly inform Bank of the creation,
incurrence or assumption by Borrower of any actual or contingent
liabilities not permitted under this Loan Agreement.
h. Notice of Litigation. Promptly after the commencement thereof, notify
Bank of all actions, suits and proceedings before any court or any
governmental department, commission or board affecting Borrower or any
of its properties.
i. Notice of Material Adverse Change. Promptly inform Bank of (i) any and
all material adverse changes in Borrower's financial condition, and
(ii) all claims made against Borrower which could materially affect the
financial condition of Borrower.
j. Additional Documentation. Execute and deliver, or cause to be executed
and delivered, any and all other agreements, instruments or documents
which Bank may reasonably request in order to give effect to the
transactions contemplated under this Loan Agreement and the other Loan
Documents.
k. Unused Fee. Pay to Bank a fee, for the period commencing on the date of
this Agreement and ending on and including the maturity date of the
Note evidencing the Revolving Line of Credit, computed at a rate equal
to one-fourth of one percent (.25%) per annum, calculated on the daily
average unused portion of the Revolving Line of Credit, such fee being
payable quarterly in arrears on the last calendar day of each calendar
quarter, and on the maturity date of the Note evidencing the Revolving
Line of Credit.
8. NEGATIVE COVENANTS. Until (i) the Note and all other obligations and
liabilities of Borrower under this Loan Agreement and the other Loan
Documents are fully paid and satisfied, and (ii) the Bank has no further
commitment to lend hereunder, Borrower will not, without the prior written
consent of Bank:
a. Nature of Business. Make any material change in the nature of its
business as carried on as of the date hereof.
b. Liquidations, Mergers, Consolidations. Liquidate, merge or
consolidate with or into any other entity.
c. Sale of Assets. Sell, transfer or otherwise dispose of any of its
assets or properties, other than in the ordinary course of business.
d. Liens. Create or incur any lien or encumbrance on any of its assets,
other than (i) liens and security interests securing indebtedness owing
to Bank, (ii) liens for taxes, assessments or similar charges either
(1) not yet due or (2) being contested in good faith by appropriate
proceedings and for which Borrower has established adequate reserves,
(iii) liens and security interest existing as of the date hereof which
have been disclosed to and approved by the Bank in writing, and (iv)
purchase money liens as permitted in (iii) of subparagraph (e) below.
<PAGE> 5
e. Indebtedness. Create, incur or assume any indebtedness for borrowed
money or issue or assume any other note, debenture, bond or other
evidences of indebtedness, or guarantee any such indebtedness or such
evidences of indebtedness of others, other than (i) borrowings from
Bank, (ii) borrowings outstanding on the date hereof and disclosed in
writing to Bank, and (iii) purchase money indebtedness not to exceed in
principal balance at any time in excess of $500,000.00.
f. Transfer of Ownership. Permit the sale, pledge or other transfer of
any of the ownership interest in Borrower.
g. Loans. Make any loans to any person or entity.
h. Transactions with Affiliates. Enter into any transaction, including,
without limitation, the purchase, sale or exchange of property or the
rendering of any service, with any Affiliate (as hereinafter defined)
of Borrower, except in the ordinary course of and pursuant to the
reasonable requirements of Borrower's business and upon fair and
reasonable terms no less favorable to Borrower than would be obtained
in a comparable arm's-length transaction with a person or entity not an
Affiliate of Borrower. As used herein, the term "Affiliate" means any
individual or entity directly or indirectly controlling, controlled by,
or under common control with, another individual or entity.
9. FINANCIAL COVENANTS. Until (i) the Note and all other obligations and
liabilities of Borrower under this Loan Agreement and the other Loan
Documents are fully paid and satisfied, and (ii) the Bank has no further
commitment to lend hereunder, Borrower will maintain the following
financial covenants:
a. Current Ratio. Borrower will maintain, as of the last day of each
fiscal quarter, a ratio of (a) current assets (excluding prepaid
expenses), to (b) current liabilities including the unpaid balance of
the Revolving Line of Credit, of not less than 1.5 to 1.0.
b. Tangible Net Worth. Borrower will maintain, as of the last day of each
fiscal quarter, its Tangible Net Worth at not less than ninety percent
(90%) of its actual total net worth on the date Borrower acquires TIW
Systems, Inc.; provided however, that effective with the first quarter
of each fiscal year after the date of this Agreement, the required
minimum Tangible Net Worth shall be equal to the required Tangible Net
Worth as of the end of the preceding fiscal year plus 50% of Borrower's
reported net income for the preceding fiscal year plus 100% of the
amount of any equity issuance during the preceding fiscal year .
c. Debt/Cash Flow. Borrower will maintain, as of the last day of each
fiscal quarter, a ratio of (a) senior funded debt plus outstanding
standby Letters of Credit for the 12 month period ending with such
fiscal quarter, to (b) earnings before interest, depreciation, and
amortization, for such 12 month period, of not less than 3.0 to 1.0.
d. Fixed Charge Ratio. Borrower will maintain, as of the end of each
fiscal quarter, a ratio of (a) earnings before interest, depreciation,
and amortization, less internally funded capital expenditures, for the
12 month period ending with such fiscal quarter, to (b) interest
expense and current maturities of long-term debt, for such 12 month
period, of not less than 1.5 to 1.0.
As used herein, the term "Tangible Net Worth" means, as of any date, Borrower's
total assets excluding all intangible assets, less capitalized development costs
and total liabilities excluding any Subordinated Debt. As used herein, the term
"Subordinated Debt" means any indebtedness owing by Borrower which has been
subordinated by written agreement to all indebtedness now or hereafter owing by
Borrower to Lender, such
<PAGE> 6
agreement to be in form and substance acceptable to Lender. Unless otherwise
specified, all accounting and financial terms and covenants set forth above are
to be determined according to generally accepted accounting principles,
consistently applied.
10. REPORTING REQUIREMENTS. Until (i) the Note and all other obligations and
liabilities of Borrower under this Loan Agreement and the other Loan
Documents are fully paid and satisfied, and (ii) the Bank has no further
commitment to lend hereunder, Borrower will, unless Bank shall otherwise
consent in writing, furnish to Bank:
a. Interim Financial Statements. As soon as available, and in any event
within forty-five (45) days after the end of each quarter of each
fiscal year of Borrower, a balance sheet and income statement of
Borrower as of the end of such fiscal quarter, all in form and
substance and in reasonable detail satisfactory to Bank and duly
certified (subject to year-end review adjustments) by the President
and/or Chief Financial Officer of Borrower (i) as being true and
correct in all material aspects to the best of his or her knowledge and
(ii) as having been prepared in accordance with generally accepted
accounting principles, consistently applied.
b. Annual Financial Statements. As soon as available and in any event
within ninety (90) days after the end of each fiscal year of Borrower,
a balance sheet and income statement of Borrower as of the end of such
fiscal year, in each case audited by independent public accountants of
recognized standing acceptable to Bank.
c. Compliance Certificate/Jobs Status Report. Within forty-five (45) days
after the end of each quarter of each fiscal year, (i) a certificate
signed by President or Chief Financial Officer of Borrower stating that
Borrower is in full compliance with all of its obligations under this
Loan Agreement and all other Loan Documents and is not in default of
any term or provisions hereof or thereof, and demonstrating compliance
with all financial ratios and covenants set forth in this Loan
Agreement, and (ii) a jobs status report as of the end of such fiscal
quarter.
11. EVENTS OF DEFAULT. Each of the following shall constitute an "Event of
Default" under this Loan Agreement:
a. The failure of Borrower to pay when due any part of the principal of,
or interest on, the Note or any other indebtedness or obligations owing
to Bank by Borrower from time to time, and the continuation of such
condition for a period of five (5) days after written notice thereof by
Bank to Borrower.
b. The failure of Borrower or any Obligated Party (as defined below) to
timely and properly observe, keep or perform any covenant, agreement,
warranty or condition required herein or in any of the other Loan
Documents, and the continuation of such failure for a period of thirty
(30) days after written notice thereof by Bank to Borrower.
c. The occurrence of an event of default under any of the other Loan
Documents or under any other agreement now existing or hereafter
arising between Bank and Borrower.
d. Any representation contained herein or in any of the other Loan
Documents made by Borrower or any Obligated Party is false or
misleading in any material respect.
e. The occurrence of any event which permits the acceleration of the
maturity of any indebtedness owing by Borrower to any third party under
any agreement or understanding.
<PAGE> 7
f. If Borrower or any Obligated Party: (i) becomes insolvent, or makes a
transfer in fraud of creditors, or makes an assignment for the benefit
of creditors, or admits in writing its inability to pay its debts as
they become due; (ii) generally is not paying its debts as such debts
become due; (iii) has a receiver, trustee or custodian appointed for,
or take possession of, all or substantially all of the assets of such
party, either in a proceeding brought by such party or in a proceeding
brought against such party and such appointment is not discharged or
such possession is not terminated within sixty (60) days after the
effective date thereof or such party consents to or acquiesces in
such appointment or possession; (iv) files a petition for relief
under the United States Bankruptcy Code or any other present or
future federal or state insolvency, bankruptcy or similar laws (all
of the foregoing hereinafter collectively called "Applicable
Bankruptcy Law") or an involuntary petition for relief is filed
against such party under any Applicable Bankruptcy Law and such
involuntary petition is not dismissed within sixty (60) days after the
filing thereof, or an order for relief naming such party is entered
under any Applicable Bankruptcy Law, or any composition,
rearrangement, extension, reorganization or other relief of debtors
now or hereafter existing is requested or consented to by such party;
(v) fails to have discharged within a period of thirty (30) days any
attachment, sequestration or similar writ levied upon any property of
such party; or (vi) fails to pay within thirty (30) days any final
money judgment against such party.
Nothing contained in this Loan Agreement shall be construed to limit the events
of default enumerated in any of the other Loan Documents and all such events of
default shall be cumulative. The term "Obligated Party", as used herein, shall
mean any party other than Borrower who secures, guarantees and/or is otherwise
obligated to pay all or any portion of the indebtedness evidenced by the Notes.
12. REMEDIES. Upon the occurrence of any one or more of the foregoing Events
of Default, (a) the entire unpaid balance of principal of the Note,
together with all accrued but unpaid interest thereon, and all other
indebtedness owing to Bank by Borrower at such time shall, at the option
of Bank, become immediately due and payable without further notice,
demand, presentation, notice of dishonor, notice of intent to accelerate,
notice of acceleration, protest or notice of protest at any kind, all of
which are expressly waived by Borrower. All rights and remedies of Bank
set forth in this Loan Agreement and in any of the other Loan Doicuments
may also be exercised by Bank, at its option to be exercised in its sole
discretion, upon the occurrence of an Event of Default.
13. RIGHTS CUMULATIVE. All rights of Bank under the terms of this Loan
Agreement shall be cumulative of, and in addition to, the rights of Bank
under any and all other agreements between Borrower and Bank (including,
but not limited to, the other Loan Documents), and not in substitution or
diminution of any rights now or hereafter held by Bank under the terms of
any other agreement.
14. WAIVER AND AGREEMENT. Neither the failure nor any delay on the part of Bank
to exercise any right, power or privilege herein or under any of the other
Loan Documents shall operate as a waiver thereof, nor shall any single or
partial exercise of such right, power or privilege preclude any other or
further exercise thereof or the exercise of any other right, power or
privilege. No waiver of any provision in this Loan Agreement or in any of
the other Loan Documents and no departure by Borrower therefrom shall be
effective unless the same shall be in writing and signed by Bank, and then
shall be effective only in
<PAGE> 8
the specific instance and for the purpose for which given and to the extent
specified in such writing. No modification or amendment to this Loan
Agreement or to any of the other Loan Documents shall be valid or effective
unless the same is signed by the party against whom it is sought to be
enforced.
15. BENEFITS. This Loan Agreement shall be binding upon and inure to the
benefit of Bank and Borrower, and their respective successors and assigns,
provided, however, that Borrower may not, without the prior written consent
of Bank, assign any rights, powers, duties or obligations under this Loan
Agreement or any of the other Loan Documents.
16. NOTICES. All notices, requests, demands or other communications
required or permitted to be given pursuant to this Agreement shall be
in writing and given by (i) personal delivery, (ii) expedited
delivery service with proof of delivery, or (iii) United States mail,
postage prepaid, registered or certified mail, return receipt
requested, sent to the intended addressee at the address set forth on
the signature page hereof and shall be deemed to have been received
either, in the case of personal delivery, as of the time of personal
delivery, in the case of expedited delivery service, as of the date
of first attempted delivery at the address and in the manner provided
herein, or in the case of mail, upon deposit in a depository
receptacle under the care and custody of the United States Postal
Service. Either party shall have the right to change its address for
notice hereunder to any other location within the continental United
States by notice to the other party of such new address at least
thirty (30) days prior to the effective date of such new address.
17. CONSTRUCTION. This Loan Agreement and the other Loan Documents have been
executed and delivered in the State of Texas, shall be governed by and
construed in accordance with the laws of the State of Texas, and shall be
performable by the parties hereto in the county in Texas where the Bank's
address set forth on the signature page hereof is located.
18. INVALID PROVISIONS. If any provision of this Loan Agreement or any of the
other Loan Documents is held to be illegal, invalid or unenforceable under
present or future laws, such provision shall be fully severable and the
remaining provisions of this Loan Agreement or any of the other Loan
Documents shall remain in full force and effect and shall not be affected
by the illegal, invalid or unenforceable provision or by its severance.
19. EXPENSES. Borrower shall pay all costs and expenses (including, without
limitation, reasonable attorneys' fees) in connection with (i) any action
required in the course of administration of the indebtedness and
obligations evidenced by the Loan Documents, and (ii) any action in the
enforcement of Bank's rights upon the occurrence of Event of Default.
20. PARTICIPATION OF THE LOANS. Borrower agrees that Bank may, at its option,
sell interests in the Loans and its rights under this Loan Agreement to a
financial institution or institutions and, in connection with each such
sale, Bank may disclose any financial and other information available to
Bank concerning Borrower to each perspective purchaser.
21. ENTIRE AGREEMENT. This Loan Agreement (together with the other Loan
Documents) contains the entire agreement among the parties regarding the
subject matter hereof and supersedes all prior written and oral agreements
and understandings among the parties hereto regarding same.
22. CONFLICTS. The notice and cure provisions set forth in Subparagraphs 11
(a), (b), and (c) above shall be applicable to corresponding Events of
Default or Defaults under all other Loan Documents, and to the extent the
terms and provisions of any of such other Loan Documents are in conflict or
are inconsistent
<PAGE> 9
therewith, Subparagraphs 11 (a), (b), and (c) and this Paragraph 22 shall
control. In the event any term or provision hereof is inconsistent with or
conflicts with any provision of the other Loan Documents, the terms and
provisions contained in this Loan Agreement shall be controlling.
23. COUNTERPARTS. This Loan Agreement may be separately executed in any number
of counterparts, each of which shall be an original, but all of which,
taken together, shall be deemed to constitute one and the same instrument.
If the foregoing correctly sets forth our mutual agreement, please so
acknowledge by signing and returning this Loan Agreement to the undersigned.
Very truly yours,
BANK ONE, TEXAS, NATIONAL ASSOCIATION
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
Bank's Address:
1717 Main Street
Dallas, Texas 75201
Attn.: Paul Voorhies
ACCEPTED as of the date first written above.
BORROWER:
VERTEX COMMUNICATIONS CORPORATION
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
Borrower's Address:
2600 N. Longview Street
Kilgore, Texas 75662
<PAGE> 10
PROMISSORY NOTE
$15,000,000.00 June 11, 1997
FOR VALUE RECEIVED, on or before June 11, 1999 ("Maturity Date"), VERTEX
COMMUNICATONS CORPORATION ("Borrower") does hereby unconditionally promise to
pay to the order of BANK ONE, TEXAS, NATIONAL ASSOCIATION ("Bank"), at its
offices in Dallas County, Texas at 1717 Main Street, Dallas, Texas 75201, the
principal amount of FIFTEEN MILLION AND NO/100 DOLLARS ($15,000,000.00) ("Total
Principal Amount"), or such amount less than the Total Principal Amount which is
outstanding from time to time if the total amount outstanding under this
Promissory Note ("Note") is less than the Total Principal Amount, in lawful
money of the United States of America, together with interest on such portion of
the Total Principal Amount which has been drawn until paid at the rates per
annum provided below.
1. Definitions. For purposes of this Note, unless the context otherwise
requires, the following terms shall have the definitions assigned to such terms
as follows:
"Adjusted Base Rate" shall mean a rate per annum equal to the Base Rate.
"Adjusted LIBOR Rate" shall mean with respect to each Interest Period, on
any day thereof an amount equal to the sum of (i) one and one-half percent
(1.5%), plus, (ii) the quotient of (a) the LIBOR Rate with respect to such
Interest Period, divided by (b) the remainder of 1.0 less the Reserve
Requirement in effect on such day. Each determination by Bank of the Adjusted
LIBOR Rate shall, in the absence of manifest error, be conclusive and binding.
"Base Rate" shall mean the rate established from time to time by Bank as
its Base Rate of interest (which may not be the lowest, best or most favorable
rate of interest which Bank may charge on loans to its customers).
"Base Rate Balance" shall mean that portion of the principal balance of
this Note bearing interest at a rate based upon the Adjusted Base Rate.
"Business Day" shall mean any day other than a Saturday, Sunday or any
other day on which national banking associations are authorized to be closed.
"Consequential Loss" shall mean, with respect to Borrower's payment of all
or any portion of the then-outstanding principal amount of any LIBOR Balance on
a day other than the last day of the Interest Period related thereto, any loss,
cost or expense incurred by Bank in redepositing such principal amount,
including the sum of (i) the interest which, but for such payment, Bank would
have earned in respect of such principal amount so paid, for the remainder of
the Interest Period applicable to such sum, reduced, if Bank is able to
redeposit
<PAGE> 11
such principal amount so paid for the balance of such Interest Period, by the
interest earned by Bank as a result of so redepositing such principal amount
plus (ii) any expense or penalty incurred by Bank on redepositing such principal
amount.
"Contract Rate" shall mean a rate of interest based upon the Adjusted LIBOR
Rate or Adjusted Base Rate in effect at any time pursuant to an Interest Notice.
"Dollars" shall mean lawful currency of the United States of America.
"Event of Default" shall mean the (a) failure of Borrower to pay any
installment of principal of or interest on this Note to Bank when due, (b) the
occurrence of an event of default specified in any of the other Loan Documents,
or (c) the bankruptcy or insolvency of, the assignment for the benefit of
creditors by, or the appointment of a receiver for any of the property of, or
the liquidation, termination, dissolution or death or legal incapacity of, any
part liable for the payment of this Note, whether as maker, endorser, guarantor,
surety or otherwise.
"Excess Interest Amount" shall mean, on any date, the amount by which (i)
the amount of all interest which would have accrued prior to such date on the
principal of this Note, had the applicable Contract Rate at all times been in
effect without limitation by the Maximum Rate, exceeds (ii) the aggregate amount
of interest accrued on this Note on or prior to such date.
"Interest Notice" shall mean the notice given by Borrower to Bank of the
Interest Options selected hereunder. Each Interest Notice shall specify the
Interest Option selected, the amount of the unpaid principal balance of this
Note to bear interest at the rate selected and, if the Adjusted LIBOR Rate is
specified, the length of the applicable Interest Period. An Interest Notice may
be written or oral (if promptly confirmed thereafter in writing) and Bank is
hereby authorized and directed to honor all telephonic Interest Notices from any
person authorized to request advances hereunder.
"Interest Option" shall have the meaning assigned to such term in paragraph
6 hereof.
"Interest Payment Date" shall mean (i) in the case of the Base Rate
Balance, the first day of each month during the term of the Note and on the
Maturity Date, and (ii) in the case of any LIBOR Balance, the last day of the
corresponding Interest Period with respect to such LIBOR Balance and the
Maturity Date; provided, however, such interest shall also be due and payable,
on any LIBOR Balance whose corresponding Interest Period is 180 days, on the
91st day of such Interest Period.
"Interest Period" shall mean, with respect to any LIBOR Balance, a period
commencing: (i) on any date which, pursuant to an Interest Notice, the principal
amount of such LIBOR Balance begins to accrue interest at the Adjusted LIBOR
Rate, or (ii) the Business Day
<PAGE> 12
following the last day of the immediately preceding Interest Period in the case
of a rollover to a successive Interest Period and ending 30, 60, 90 or 180 days
thereafter as Borrower shall elect in accordance with the provisions hereof;
provided, that: (A) any Interest Period which would otherwise end on a day which
is not a LIBOR Business Day shall be extended to the succeeding LIBOR Business
Day and (B) any Interest Period which would otherwise end after the Maturity
Date shall end on the Maturity Date.
"LIBOR Balance" shall mean any principal balance of this Note which,
pursuant to an Interest Notice, bears interest at a rate based upon the Adjusted
LIBOR Rate for the Interest Period specified in such Interest Notice.
"LIBOR Business Day" shall mean a day on which dealings in Dollars are
carried out in the London interbank eurodollar market.
"LIBOR Rate" shall mean, with respect to each Interest Period, the rate of
interest per annum at which deposits in Dollars are offered by the major London
clearing banks, as reported by Knight-Ridder news service (or such other similar
news reporting service as Bank may subscribe to at the time such LIBOR Rate is
determined), in the London interbank Eurodollar market for a period of time
equal or comparable to such Interest Period and in an amount equal to or
comparable to the principal amount of the LIBOR Balance to which such Interest
Period relates. The LIBOR Rate for such Interest Period to which it relates
shall (i) be determined as of 11:00 a.m. (London, England time) two (2) LIBOR
Business Days prior to the first day of such Interest Period, or at such earlier
time as determined by Bank, and (ii) shall be rounded upward, if necessary, to
the nearest one-one hundredth of one.
"Loan Agreement" shall mean that certain Loan Agreement of even date
herewith by and between Bank and Borrower, as amended from time to time.
"Loan Documents" shall mean this Note, the Loan Agreement and all other
documents evidencing, securing, governing, guaranteeing and/or pertaining to
this Note.
"Maximum Rate" shall mean, with respect to the holder hereof, the maximum
nonusurious interest rate, if any, that at any time, or from time to time, may
be contracted for, taken, reserved, charged, or received on the indebtedness
evidenced by this Note under the laws which are presently in effect in the
United States and the State of Texas applicable to such holder and such
indebtedness or, to the extent permitted by law, under such applicable laws of
the United States and the State of Texas which may hereafter be in effect and
which allow a higher maximum nonusurious interest rate than applicable laws now
allow. To the extent that TEX. REV. CIV. STAT. ANN. art. 5069-1.04, as amended
(the "Act"), is relevant to any holder of this Note for the purposes of
determining the Maximum Rate, each such holder elects to determine such
applicable legal rate under the Act pursuant to the "indicated rate ceiling,"
from time to time in effect, as referred to and defined in article 1.04(a)(1) of
the Act;
<PAGE> 13
subject, however, to the limitations on such applicable ceiling referred to and
defined in article 1.04(b)(2) of the Act, and further subject to any right such
holder may have subsequently, under applicable law, to change the method of
determining the Maximum Rate. If no Maximum Rate is established by applicable
law, then the Maximum Rate shall be equal to eighteen percent (18%).
"Regulation D" shall mean Regulation D of the Board of Governors of the
Federal Reserve System from time to time in effect and shall include any
successor or other regulation relating to reserve requirements applicable to
member banks of the Federal Reserve System.
"Reserve Requirement" shall, on any day, mean that percentage (expressed as
a decimal fraction) which is in effect on such day, as provided by the Board of
Governors of the Federal Reserve System (or any successor governmental body) for
determining the reserve requirements (including without limitation, basic,
supplemental, marginal and emergency reserves) under Regulation D with respect
to "Eurocurrency liabilities" as currently defined in Regulation D, or under any
similar or successor regulation. For purposes of this definition, any LIBOR
Balances hereunder shall be deemed "Eurocurrency liabilities" under Regulation D
without benefit of or credit for prorations, exemptions or offsets under
Regulation D Bank's determination of the Reserve Requirement shall be
conclusive.
2. Payments of Interest and Principal. Interest on the unpaid principal
balance of this Note shall be due and payable on each Interest Payment Date as
it accrues and the entire unpaid principal balance of this Note, and all accrued
but unpaid interest thereon, shall be due and payable on the Maturity Date.
3. Rates of Interest. The unpaid principal of the Base Rate Balance shall
bear interest at a rate per annum which shall from day to day be equal to the
lesser of (i) the Adjusted Base Rate in effect from day to day, or (ii) the
Maximum Rate. The unpaid principal of each LIBOR Balance shall bear interest at
a rate per annum which shall from day to day be equal to the lesser of (i) the
Adjusted LIBOR Rate for the Interest Period in effect with respect to such LIBOR
Balance, or (ii) the Maximum Rate. Each change in the interest rate applicable
to a Base Rate Balance shall become effective without prior notice to Borrower
automatically as of the opening of business on the date of such change in the
Adjusted Base Rate. Interest on this Note shall be calculated on the basis of
the actual days elapsed in a year consisting of 360 days.
4. Interest Recapture. If on each Interest Payment Date or any other date
on which interest payments are required hereunder, Bank does not receive
interest on this Note computed at the Contract Rate because such Contract Rate
exceeds or has exceeded the Maximum Rate, then Borrower shall, upon the written
demand of Bank, pay to Bank in addition to the interest otherwise required to be
paid hereunder, on each Interest Payment Date thereafter, the Excess Interest
Amount (calculated as of such later Interest Payment Date);
<PAGE> 14
provided that in no event shall Borrower be required to pay, for any Interest
Period, interest at a rate exceeding the Maximum Rate effective during such
period.
5. Interest on Past Due Amounts. To the extent any interest is not paid on
or before the fifth day after it becomes due and payable, Bank may, at its
option, add such accrued but unpaid interest to the principal of this Note.
Notwithstanding anything herein to the contrary, upon an Event of Default or at
maturity, whether by acceleration or otherwise, all principal of this Note
shall, at the option of Bank, bear interest at the Maximum Rate until paid.
6. Interest Option. Subject to the provisions hereof, Borrower shall have
the option (an "Interest Option") of having designated portions of the unpaid
principal balance of this Note bear interest at a rate based upon the Adjusted
LIBOR Rate or Adjusted Base Rate as provided in paragraph 3 hereof; provided,
however, that the selection of the Adjusted LIBOR Rate for a particular Interest
Period shall not be for less than $100,000.00 of unpaid principal or an integral
multiple thereof. The Interest Option shall be exercised in the manner provided
below:
(i) At Time of Borrowing. Contemporaneously with each request for an
advance by Borrower under Paragraph 9 herein, Borrower shall give Bank an
Interest Notice indicating the initial Interest Option selected with
respect to the principal balance of such advance.
(ii) At Expiration of Interest Periods. Unless otherwise agreed to by
Bank, at least two (2) Business Days prior to the termination of any
Interest Period, Borrower shall give Bank an Interest Notice indicating the
Interest Option to be applicable to the corresponding LIBOR Balance upon
the expiration of such Interest Period. If the required Interest Notice
shall not have been timely received by Bank prior to the expiration of the
then-relevant Interest Period, Borrower shall be deemed to have selected a
rate based upon the Adjusted Base Rate to be applicable to such LIBOR
Balance upon the expiration of such Interest Period and to have given Bank
notice of such selection.
(iii) Conversion From Adjusted Base Rate. During any period in which
any portion of the principal hereof bears interest at a rate based upon the
Adjusted Base Rate, Borrower shall have the right, on any Business Day (the
"Conversion Date"), to convert all or a portion of such principal amount
from the Base Rate Balance to a LIBOR Balance by giving Bank an Interest
Notice of such selection at least two (2) Business Days prior to such
Conversion Date, or as otherwise agreed to by Bank.
An Interest Notice may be written or oral and Bank is hereby authorized and
directed to honor all telephonic Interest Notices hereunder. Borrower agrees to
indemnify and hold Bank harmless from any loss or liability incurred by Bank in
connection with honoring any
<PAGE> 15
telephonic or other oral Interest Notices. All written Interest Notices are
effective only upon receipt by Bank. Each Interest Notice shall be irrevocable
and binding upon Borrower.
7. Special Provisions For LIBOR Pricing.
a. Inadequacy of LIBOR Loan Pricing. If Bank determines that, by reason
of circumstances affecting the interbank eurodollar market generally, deposits
in Dollars (in the applicable amounts) are not being offered to United States
financial institutions in the interbank eurodollar market for such Interest
Period, or that the rate at which such Dollar deposits are being offered will
not adequately and fairly reflect the cost to Bank of making or maintaining a
LIBOR Balance for the applicable Interest Period, Bank shall forthwith give
notice thereof to Borrower, whereupon until Bank notifies Borrower that the
circumstances giving rise to such suspension no longer exist, (i) the right of
Borrower to select an Interest Option based upon the LIBOR Rate shall be
suspended, and (ii) Borrower shall be deemed to have converted each LIBOR
Balance to the Base Rate Balance in accordance with the provisions hereof on the
last day of the then-current Interest Period applicable to such LIBOR Balance.
b. Illegality. If the adoption of any applicable law, rule or
regulation, or any change therein, or any change in the interpretation or
administration thereof by any governmental authority, central bank or comparable
agency charged with the interpretation or administration thereof, or compliance
by Bank with any request or directive (whether or not having the force of law)
of any such authority, central bank or comparable agency shall make it unlawful
or impossible for Bank to make or maintain a LIBOR Balance, Bank shall so notify
Borrower. Upon receipt of such notice, Borrower shall be deemed to have
converted any LIBOR Balance to the Base Rate Balance, on either (i) the last day
of the then-current Interest Period applicable to such LIBOR Balance if Bank may
lawfully continue to maintain and fund such LIBOR Balance to such day, or (ii)
immediately, if Bank may not lawfully continue to maintain such LIBOR Balance to
such day.
8. Extension, Place and Application of Payments. Should the principal of,
or any interest on, this Note become due and payable on any day other than a
Business Day, the maturity thereof shall be extended to the next succeeding
Business Day, and interest shall be payable with respect to such extension. All
payments of principal of, and interest on, this Note shall be made in lawful
money of the United States of America in immediately available funds. Payments
made to Bank by Borrower hereunder shall be applied first to accrued but unpaid
interest and then to outstanding principal.
9. Advances. Subject to the terms of this Note and the Loan Agreement,
Borrower may request advances ("Advances") hereunder and make payments from time
to time during the term of this Note, provided that it is understood and agreed
that the aggregate principal amount outstanding from time to time hereunder
shall not exceed the sum of the Total
<PAGE> 16
Principal Amount. The unpaid balance of this Note shall increase and decrease
with each new Advance or payment hereunder as the case may be. This Note shall
not be deemed terminated or cancelled prior to the Maturity Date, although the
entire principal balance hereof may from time to time be paid in full. Subject
to the provisions of this Note and the Loan Agreement, Borrower may borrow,
repay and reborrow hereunder from the date hereof until the Maturity Date.
Subject to the provisions of Paragraph 6 herein, each Advance hereunder shall be
in an amount not less than $100,000.00 or an integral multiple thereof. If any
Advance request is received by Bank on or prior to 12:00 p.m. (Dallas, Texas
time) on funds designated to accrue interest at the Adjusted Base Rate, Bank
shall make available at Bank's office in Dallas, Texas not later than 2:00 p.m.
(Dallas, Texas time) on the day of such Advance request (or the date specified
in such request), the amount of such request in immediately available funds. If
any Advance request is received by Bank after 12:00 p.m. (Dallas, Texas time) on
funds designated to accrue interest at the Adjusted Base Rate, Bank shall make
available at Bank's office in Dallas, Texas not later than 2:00 p.m. (Dallas,
Texas time) on the Business Day after the day of such request (or a later date
if specified in such request), the amount of such request in immediately
available funds. Each request for an Advance on funds designated to accrue
interest at the Adjusted LIBOR Rate must be received by Bank not less than three
(3) Business Days prior to the date upon which the Advance requested is desired
by Borrower. Each request for an Advance hereunder must be accompanied by an
Interest Notice for the funds to be advanced thereunder; provided, however, if
an Interest Notice does not accompany an Advance request, Borrower shall be
deemed to have designated the Adjusted Base Rate. Each request for an Advance by
Borrower hereunder shall be irrevocable and binding on Borrower. An Advance
request may be written or oral and Bank is authorized and directed to honor all
telephonic requests for Advances from any person authorized to request Advances
hereunder. Borrower agrees to indemnify and hold Bank harmless from any loss or
liability incurred by Bank in connection with honoring any such telephonic or
other oral requests for Advances. All written Advance requests are effective
only upon receipt by Bank.
10. Loan Agreement. This Note is subject to the terms and provisions of the
Loan Agreement, which is incorporated herein by reference for all purposes. The
holder of this Note is entitled to the benefits provided in the Loan Agreement.
11. Prepayments; Consequential Loss. Any prepayment made hereunder shall be
made together with all interest accrued but unpaid on this Note through the date
of such prepayment. Contemporaneously with each prepayment of principal,
Borrower shall give Bank written or oral notice indicating whether such
prepayment is to be applied to the Base Rate Balance or a particular LIBOR
Balance. If such notice is not timely received by Bank, Borrower shall be deemed
to have selected to prepay the Base Rate Balance and, if any sums remain after
satisfying all of the Base Rate Balance, the remaining sums shall be applied to
any LIBOR Balance(s) that Bank determines in its sole discretion. Borrower
agrees to indemnify and hold Bank harmless from any loss or liability incurred
by Bank in connection with honoring telephonic or other oral notices indicating
how a prepayment is to be applied. If Borrower
<PAGE> 17
makes any payment of principal with respect to any LIBOR Balance on any day
prior to the last day of the Interest Period applicable to such LIBOR Balance,
Borrower shall reimburse Bank on demand the Consequential Loss incurred by Bank
as a result of the timing of such payment. A certificate of Bank setting forth
the basis for the determination of a Consequential Loss shall be delivered to
Borrower and shall, in the absence of manifest error, be conclusive and binding
as to such determination and amount.
12. Additional Costs. Borrower agrees to pay to Bank all Additional Costs
within ten (10) days of receipt by Borrower from Bank of a statement setting
forth the amount or amounts due and the basis for the determination from time to
time of such amount or amounts, which statement shall be conclusive and binding
upon Borrower absent manifest error. Failure on the part of Bank to demand
compensation for any Additional Costs in any Interest Period shall not
constitute a waiver of Bank's right to demand compensation for any Additional
Costs incurred during any such Interest Period or in any other subsequent or
prior Interest Period. The term "Additional Costs" shall mean such additional
amount or amounts as Bank shall reasonably determine will compensate Bank for
actual costs incurred by Bank in maintaining LIBOR Rates on the LIBOR Balances
or any portion thereof as a result of any change, after the date of this Note,
in applicable law, rule or regulation or in the interpretation or administration
thereof by, or the compliance by Bank with any request or directive from, any
domestic or foreign governmental authority charged with the interpretation or
administration thereof (whether or not having the force of law) or by any
domestic or foreign court changing the basis of taxation of payments to Bank of
the LIBOR Balances or interest on the LIBOR Balances or any portion thereof at
an Adjusted LIBOR Rate or any other fees or amounts payable under this Note or
the Loan Agreement (other than taxes imposed on all or any portion of the
overall net income of Bank by the State of Texas or the Federal government), or
imposing, modifying or applying any reserve, special deposit or similar
requirement against assets of, deposits with or for the account of, credit
extended by, or any other acquisition of funds for loans by Bank, or imposing on
Bank, as the case may be, or on the London interbank market any other condition
affecting this Note, the Loan Agreement or the LIBOR Balances so as to increase
the cost of Bank making or maintaining Adjustable LIBOR Rates with respect to
the LIBOR Balances or any portion thereof or to reduce the amount of any sum
received or receivable by Bank under this Note or the Loan Agreement (whether of
principal, interest or otherwise), by an amount deemed by Bank in good faith to
be material, but without duplication for Reserve Requirement.
13. Notices. Except as otherwise specified herein, all notices and requests
required or permitted hereunder shall be in writing and shall be deemed to have
been given when personally delivered or, if mailed, two Business Days after
deposited in a regularly maintained receptacle for the United States Postal
Service, postage prepaid, registered or certified, return receipt requested,
addressed to Borrower or Bank at the addresses as provided in the Loan
Agreement.
<PAGE> 18
14. Legal Fees. If this Note is placed in the hands of any attorney for
collection, or if it is collected through any legal proceeding at law or in
equity or in bankruptcy, receivership or other court proceedings, Borrower
agrees to pay all costs of collection including, but not limited to, court costs
and reasonable attorneys' fees.
15. Waivers. Borrower and each surety, endorser, guarantor and any other
party ever liable for payment of any sums of money payable on this Note, jointly
and severally waive presentment and demand for payment, protest, notice of
protest, intention to accelerate, acceleration and non-payment, or other notice
of default, and agree that their liability under this Note shall not be affected
by any renewal or extension in the time of payment hereof, or in any
indulgences, or by any release or change in any security for the payment of this
Note, and hereby consent to any and all renewals, extensions, indulgences,
releases or changes, regardless of the number of such renewals, extensions,
indulgences, releases or changes; provided, however, this Note may not be
amended or modified except by a written instrument signed by the Borrower and
the holder hereof. No waiver by Bank of any of its rights or remedies hereunder
or under any other document evidencing or securing this Note or otherwise shall
be considered a waiver of any other subsequent right or remedy of Bank; no delay
or omission in the exercise or enforcement by Bank of any rights or remedies
shall ever be construed as a waiver of any right or remedy of Bank; and no
exercise or enforcement of any such rights or remedies shall ever be held to
exhaust any right or remedy of Bank.
16. Remedies. Upon the occurrence of any Event of Default, the holder
hereof may, at its option, (i) declare the entire unpaid balance of principal
and accrued but unpaid interest on this Note to be immediately due and payable,
(ii) refuse to advance any additional amounts under this Note, (iii) foreclose
all liens securing payment hereof, (iv) pursue any and all other rights,
remedies and recourses available to the holder hereof, including but not limited
to, any such rights, remedies or recourses under the Loan Documents, at law or
in equity, or (v) pursue any combination of the foregoing.
17. Spreading. Any provision herein, or in any document securing this Note,
or any other document executed or delivered in connection herewith, or in any
other agreement or commitment, whether written or oral, expressed or implied, to
the contrary notwithstanding, neither Bank nor any holder hereof shall in any
event be entitled to receive or collect, nor shall or may amounts received
hereunder be credited, so that Bank or any holder hereof shall be paid, as
interest, a sum greater than the maximum amount permitted by applicable law to
be charged to the person, partnership, firm or corporation primarily obligated
to pay this Note at the time in question. If any construction of this Note or
any document securing this Note, or any and all other papers, agreements or
commitments, indicate a different right given to Bank or any holder hereof to
ask for, demand or receive any larger sum as interest, such is a mistake in
calculation or wording which this clause shall override and control, it being
the intention of the parties that this Note, and all other instruments securing
the payment of this Note or executed or delivered in connection herewith shall
in all things comply with the
<PAGE> 19
applicable law and proper adjustments shall automatically be made accordingly.
In the event that Bank or any holder hereof ever receives, collects or applies
as interest, any sum in excess of the Maximum Rate, if any, such excess amount
shall be applied to the reduction of the unpaid principal balance of this Note,
and if this Note is paid in full, any remaining excess shall be paid to
Borrower. In determining whether or not the interest paid or payable, under any
specific contingency, exceeds the Maximum Rate, if any, Borrower and Bank or any
holder hereof shall, to the maximum extent permitted under applicable law: (a)
characterize any nonprincipal payment as an expense or fee rather than as
interest, (b) exclude voluntary prepayments and the effects thereof, (c)
"spread" the total amount of interest throughout the entire term of this Note;
provided that if this Note is paid and performed in full prior to the end of the
full contemplated term hereof, and if the interest received for the actual
period of existence thereof exceeds the Maximum Rate, if any, Bank or any holder
hereof shall refund to Borrower the amount of such excess, or credit the amount
of such excess against the aggregate unpaid principal balance of all advances
made by the Bank or any holder hereof under this Note at the time in question.
18. Choice of Law. This Note is being executed and delivered, and is
intended to be performed in the State of Texas. Except to the extent that the
laws of the United States may apply to the terms hereof, the substantive laws of
the State of Texas shall govern the validity, construction, enforcement and
interpretation of this Note. In the event of a dispute involving this Note or
any other instruments executed in connection herewith, the undersigned
irrevocably agrees that venue for such dispute shall lie in any court of
competent jurisdiction in Dallas County, Texas.
VERTEX COMMUNICATIONS CORPORATION
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
<PAGE> 1
EXHIBIT 11
VERTEX COMMUNICATIONS CORPORATION AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER SHARE
(In thousands, except per share data)
<TABLE>
<CAPTION>
For the year ended September 30,
----------------------------------------
1997 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
PRIMARY
Weighted average number of shares
outstanding during the period 4,645 4,434 4,454
Assume exercise of warrants and
options at beginning of the
period or issue date 456 526 459
Shares assumed to be repurchased
under treasury stock method (253) (356) (332)
------ ------- ------
TOTAL 4,848 4,604 4,581
====== ======= ======
Net Income $7,175 $ 6,100 $ 5,195
====== ======= =======
PRIMARY NET INCOME PER SHARE $ 1.48 $ 1.32 $ 1.13
====== ======= =======
FULLY DILUTED
Weighted average number of shares
outstanding during the period 4,645 4,434 4,454
Assume exercise of warrants and
options at beginning of the
period or issue date 456 526 459
Shares assumed to be repurchased
under treasury stock method (223) (348) (283)
------ ------- -------
TOTAL 4,878 4,612 4,630
====== ======= =======
Net Income $7,175 $ 6,100 $ 5,195
====== ======= =======
FULLY DILUTED NET INCOME
PER SHARE $ 1.47 $ 1.32 $ 1.12
====== ======= =======
</TABLE>
<PAGE> 1
EXHIBIT 13
Selected Financial Data
Vertex Communications Corporation and Subsidiaries
<TABLE>
<CAPTION>
Year Ended September 30, 1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Sales $ 92,433 $ 77,525 $ 65,024 $ 56,549 $ 53,869
Costs and expenses 82,602 69,491 58,547 50,880 48,564
Income before income taxes 10,350 8,551 7,015 6,294 5,601
Net income 7,175 6,100 5,195 4,625 4,001
Earnings per share 1.47 1.32 1.12 .98 .94
- -------------------------------------------------------------------------------------------------------------------
Working capital $ 45,680 $ 39,484 $ 33,396 $ 36,035 $ 32,937
Long-term debt 988 875 1,312 -- --
Total assets 100,493 71,974 63,854 58,457 52,381
Total liabilities 27,003 16,500 14,168 11,272 10,060
Total shareholders' equity 73,490 55,474 49,686 47,185 42,321
- -------------------------------------------------------------------------------------------------------------------
Orders booked $ 122,702 $ 74,770 $ 79,132 $ 55,226 $ 58,476
Backlog of unfilled orders 71,650 41,381 44,136 30,028 31,351
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
No cash dividends have been declared or paid
<PAGE> 2
EXHIBIT 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
RESULTS OF OPERATIONS
The Company acquired TIW Systems, Inc. ("TIW"), headquartered in Santa Clara,
California, effective June 11, 1997. TIW is engaged in the design, manufacture,
and support of telecommunications equipment and systems used in satellite and
deep space communications, including receiving telemetry from, tracking,
commanding, and monitoring satellites. Total purchase consideration paid for TIW
was $7.9 million in cash, 574,349 shares of Vertex's common stock (fair value of
$10.5 million), and the Company incurred $.5 million of direct acquisition
costs. TIW's results of operations are included in the Company's consolidated
financial statements since the acquisition effective date.
The Company has for several years derived a major portion of its business, as
measured by sales volume, from international product sales. TIW's recent
business history has also followed a similar pattern. The Company expects a
large portion of future consolidated sales to continue to be generated
internationally because of its presence overseas, excellent reputation among
current and potential customers, and current trends within the
telecommunications industry.
FISCAL 1997 COMPARED TO FISCAL 1996
Fiscal 1997 was the ninth consecutive year of record high sales and net income.
Consolidated sales of $92.4 million increased by 19.2 percent as compared to
sales of $77.5 million in fiscal 1996. TIW's sales (since June 11, 1997)
accounted for approximately 75 percent of this sales increase and the balance of
the increase was due to increased product demand.
Cost of sales expressed as a percentage of sales declined from 73.4 percent in
fiscal 1996 to 71.1 percent in fiscal 1997. This cost reduction was largely
attributable to increased sales volume of higher margin solid state amplifiers
and standard product antennas.
Research and development expenditures were $3.8 million in fiscal 1997 compared
to $3.2 million in fiscal 1996, an increase of 17.3 percent due to inclusion of
TIW's operating results since the effective date of its acquisition.
Spending for marketing the Company's products of $5.1 million in fiscal 1997
increased by $.8 million or 19.2 percent from the prior year mainly due to the
addition of TIW's marketing spending of $.7 million.
General and administrative expenses of $8.0 million in fiscal 1997 increased by
$2.9 million or 55.9 percent over the prior year. The addition of TIW's general
and administrative expenses of $1.2 million and increased staffing levels were
the primary factors contributing to the increase of these expenses. Investment
income of $.7 million in fiscal 1997 remained essentially the same as the $.6
million earned in fiscal 1996. However, since the Company's cash available for
investment purposes declined significantly in the fourth quarter of fiscal 1997
due to the TIW acquisition, management expects that future investment income
will decline.
<PAGE> 3
EXHIBIT 13
The effective tax rate for fiscal 1997 of 30.7 percent was lower than the
prescribed statutory tax rates primarily due to increasing research credits, tax
incentives available from export shipments, and non-taxable investment income.
Net income in fiscal 1997 increased 17.6 percent to $7.2 million or $1.47 per
share compared to $6.1 million or $1.32 per share for fiscal 1996. The Company's
backlog of unfilled orders was a record $71.7 million at September 30, 1997,
compared to $41.4 million at the 1996 year end, of which a major portion is
scheduled for shipment in fiscal 1998.
FISCAL 1996 COMPARED TO FISCAL 1995
Consolidated sales of $77.5 million in 1996 increased by 19.2 percent over
1995's sales of $65.0 million. A large portion of this increase in sales can be
traced to revenues derived from GTE Telecom's 34-meter antenna project which was
begun in late 1995 and inclusion of Maxtech's revenues for the full year of
1996.
Cost of sales as a percentage of sales improved to 73.4 percent in 1996 compared
to 74.3 percent one year earlier. This cost reduction was mainly due to
production efficiency improvements realized at the Company's manufacturing
facilities at Kilgore, Texas.
Research and development costs increased by 48.6 percent to $3.2 million over
the 1995 level due primarily to the development work on the Company's 9.3-meter
antenna and new product design efforts in the small aperture antenna product
line. Marketing expenses of $4.2 million increased by $.7 million, primarily as
a result of the start-up of two new operating divisions. General and
administrative expenses increased by $.6 million or 13.1 percent over the 1995
spending level, reflecting the presence of the two new divisions.
The effective tax rate for fiscal 1996 of 28.7 percent was lower than the
prescribed statutory tax rates mainly due to the benefit received from export
revenues and the effect of nontaxable investment income.
Net income in 1996 was $6.1 million or $1.32 per share compared to $5.2 million
or $1.12 per share for the prior year. The Company's backlog of unfilled orders
was $41.4 million at September 30, 1996, compared to $44.1 million at the 1995
year end.
FACTORS THAT MAY AFFECT FUTURE RESULTS AND FINANCIAL CONDITION
General. The Company's future operating results and financial condition may be
affected by various trends and factors including general economic conditions,
rapid or unexpected technological changes, product demand and industry capacity,
product development, competition, market acceptance of new products,
manufacturing efficiencies, availability of certain raw materials, domestic and
foreign government regulations and spending, fluctuation in foreign exchange
rates, and rising costs for components or unavailability of components.
<PAGE> 4
EXHIBIT 13
In addition, the Company's future operating results and its size and financial
condition may be affected by the size and timing of individual orders booked
which may also cause fluctuations in quarterly operating results.
Due to the factors noted above, the Company's future earnings and stock price
may be subject to some fluctuation, particularly on a quarterly basis. Past
business trends should not be used to anticipate future trends and historical
performance should not be considered as a reliable indicator of future
performance. Additionally, any shortfall in revenue or earnings from the levels
anticipated by securities analysts could have an immediate and significant
effect on the trading price of the Company's common stock in any given period.
INFLATION. Generally, inflationary trends do not materially impact the Company's
operations. However, because the Company's sales contracts are usually
negotiated on a fixed-priced basis prior to actual purchase of certain raw
materials and purchased parts, rapid unforeseen price increases in any of these
items could adversely affect profit margins for short periods.
CURRENCY EXCHANGE RATES. The Company maintains a foreign sales office in
Singapore and operates a foreign subsidiary in Germany which are subject to the
effects of fluctuations in foreign currency exchange rates. Should the Singapore
dollar currency as related to the U.S. dollar turn materially unfavorable, the
Company's marketing expenses could increase accordingly.
The Company's operations located in Duisburg, Germany involve a complete
operating entity. Daily operations (sales, costs and expenses, and income taxes)
are conducted in its functional currency, the German mark. Should this currency
as related to the U.S. dollar change in a material adverse manner, consolidated
results of operations could be materially impacted. In addition, to the extent
taxable income is generated by the German operations, the consolidated effective
tax rate can be unfavorably impacted. The German statutory income tax rate is
approximately 50 percent compared to the present U.S. statutory income tax rate
of 34 percent on taxable income up to $10 million.
The Company has not experienced any material adverse effects over the past five
years from inflation or currency rate changes.
LIQUIDITY AND CAPITAL RESOURCES
The balance of cash and cash equivalents at September 30, 1997 of $5.4 million
decreased by $12.0 million from the end of fiscal 1996 primarily as a result of
cash expenditures related to the TIW acquisition and investment in capital asset
additions. However, these cash uses were partially mitigated by strong earnings
performance.
The Company established two separate bank credit lines in fiscal 1997: (1) in
December 1996, the Company borrowed 2 million German marks (approximately $1.1
million) from a German bank and in June 1997, revised the credit line to 2.5
million marks to be used for working capital purposes; and, (2) in June 1997,
the Company established an unsecured domestic revolving bank credit line of $15
million
<PAGE> 5
EXHIBIT 13
providing up to $10 million of working capital financing and $5 million for
issuance of stand-by letters of credit principally used in certain foreign sales
contracts. As of September 30, 1997, no borrowings were outstanding under the
$10 million credit line. Refer to Note 6 of Notes to Consolidated Financial
Statements for further information.
Operating activities over the past three years provided $17.4 million of cash
mainly due to net income of $18.5 million, the favorable effect of depreciation
and amortization, and higher accounts payable, accrued liabilities, and
customers' advances. These factors were partially offset by significant
increases in accounts receivable and inventories which were necessitated by
increased sales volume.
Investing activities during the past three years consumed $22.3 million of cash.
Total cash of $13.6 million was used to acquire TIW and Maxtech in 1997 and
1995, respectively. The Company also invested $8.7 million in capital asset
additions over the three-year period. The majority of these capital expenditures
were made at the Company's Kilgore, Texas facilities.
Cash was provided by financing activities of $1.1 million in fiscal 1997 by a
bank loan used to fund the working capital needs of the Company's German
subsidiary. The loan is being repaid in 24 equal monthly installments, with
accrued interest charged at 4.7 percent per annum. Cash of $1.2 million was also
provided during the past three years from the exercise of stock option awards.
In fiscal 1997, cash of $7.5 million was used to repay long-term debt comprised
of $7.1 million of debt assumed in the TIW acquisition and $.4 million of debt
repaid to the German bank. In fiscal 1997 and 1996, cash of $1.1 million was
used to satisfy the promissory notes incurred in the acquisition of Maxtech
(refer to Note 4 of Notes to Consolidated Financial Statements for further
information). The Company used $.4 million and $3.2 million to repurchase 26,600
shares and 252,500 shares of the Company's common stock in fiscal 1996 and 1995,
respectively.
Management believes that forecasted cash flows combined with the Company's
financial condition and available credit lines will be sufficient to fund
operations for the foreseeable future. The Company is not aware of any demands
which are likely to affect liquidity in an adverse manner.
<PAGE> 6
EXHIBIT 13
CONSOLIDATED INCOME STATEMENTS
Vertex Communications Corporation and Subsidiaries
<TABLE>
<CAPTION>
Year Ended September 30, 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------
(In thousands, except per share amounts)
<S> <C> <C> <C>
SALES $ 92,433 $ 77,525 $ 65,024
COSTS AND EXPENSES:
Cost of sales 65,785 56,911 48,287
Research and development 3,775 3,217 2,165
Marketing 5,050 4,236 3,560
General and administrative 7,992 5,127 4,535
- -------------------------------------------------------------------------------------------------------------------
82,602 69,491 58,547
- -------------------------------------------------------------------------------------------------------------------
Operating income 9,831 8,034 6,477
OTHER INCOME (EXPENSE):
Income from investments 686 632 633
Interest expense (167) (115) (95)
- -------------------------------------------------------------------------------------------------------------------
Income before income taxes 10,350 8,551 7,015
- -------------------------------------------------------------------------------------------------------------------
PROVISION FOR INCOME TAXES 3,175 2,451 1,820
- -------------------------------------------------------------------------------------------------------------------
NET INCOME $ 7,175 $ 6,100 $ 5,195
===================================================================================================================
EARNINGS PER SHARE $ 1.47 $ 1.32 $ 1.12
===================================================================================================================
AVERAGE SHARES AND EQUIVALENT
SHARES OUTSTANDING 4,878 4,612 4,630
===================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE> 7
EXHIBIT 13
CONSOLIDATED BALANCE SHEETS
Vertex Communications Corporation and Subsidiaries
<TABLE>
<CAPTION>
As of September 30, 1997 1996
- -------------------------------------------------------------------------------------------------------------------
(In thousands, except share amounts)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 5,407 $ 17,396
Accounts receivable, less allowance for doubtful
accounts of $1,254 and $268 35,977 21,136
Inventories 27,198 15,626
Income tax receivable 1,130 --
Deferred income taxes 784 --
- -------------------------------------------------------------------------------------------------------------------
70,496 54,158
- -------------------------------------------------------------------------------------------------------------------
Property and equipment:
Land 558 418
Buildings and improvements 8,554 7,235
Equipment 19,315 14,966
Construction in progress 804 328
Less: accumulated depreciation (13,004) (10,520)
- -------------------------------------------------------------------------------------------------------------------
16,227 12,427
- -------------------------------------------------------------------------------------------------------------------
Goodwill, net of accumulated amortization of $1,134 and $632 12,794 4,785
Other assets, less accumulated amortization of $975 and $912 976 604
- -------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 100,493 $ 71,974
===================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities:
Accounts payable $ 7,413 $ 4,615
Accrued liabilities 13,278 7,884
Customers' advances 3,139 1,737
Current portion of long-term debt 1,082 438
- -------------------------------------------------------------------------------------------------------------------
24,912 14,674
- -------------------------------------------------------------------------------------------------------------------
Long-term debt 988 875
Deferred income taxes 1,103 951
Commitments and contingencies (Note 12)
</TABLE>
<PAGE> 8
EXHIBIT 13
<TABLE>
<S> <C> <C>
Shareholders' equity:
Common stock, $.10 par value, 20,000,000 shares
authorized, 5,235,751 and 4,661,402 issued 524 466
Capital in excess of par value 35,107 24,806
Retained earnings 40,033 32,858
Treasury stock, at cost, 148,813 shares and 222,346 shares (1,828) (2,733)
Translation adjustment (346) 77
- -------------------------------------------------------------------------------------------------------------------
73,490 55,474
- -------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 100,493 $ 71,974
===================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE> 9
EXHIBIT 13
CONSOLIDATED STATEMENTS OF CASH FLOWS
Vertex Communications Corporation and Subsidiaries
<TABLE>
<CAPTION>
Year Ended September 30, 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 7,175 $ 6,100 $ 5,195
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 3,109 2,728 2,391
Changes in operating assets and liabilities,
net of acquisitions:
Accounts receivable (612) (4,841) 746
Inventories (4,888) (1,302) (3,404)
Other assets 750 (30) (224)
Accounts payable and accrued liabilities 682 2,039 (882)
Customers' advances 1,402 (278) 829
Income taxes, net (710) 1,008 458
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 6,908 5,424 5,109
- -------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (4,088) (2,149) (2,488)
Acquisitions, net of cash acquired (Note 4) (8,043) -- (5,524)
- -------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (12,131) (2,149) (8,012)
- -------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 1,137 -- --
Repayment of long-term debt (8,216) (437) --
Purchase of treasury stock -- (436) (3,186)
Proceeds from exercise of stock options 736 246 220
Other (370) (95) 126
- -------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (6,713) (722) (2,840)
- -------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash (53) (27) 86
Net increase (decrease) in cash and cash
equivalents (11,989) 2,526 (5,657)
</TABLE>
<PAGE> 10
EXHIBIT 13
<TABLE>
<S> <C> <C> <C>
Cash and cash equivalents at beginning
of year 17,396 14,870 20,527
- -------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 5,407 $ 17,396 $ 14,870
===================================================================================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 203 $ 35 $ --
Income taxes 3,787 1,443 1,174
===================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE> 11
EXHIBIT 13
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Vertex Communications Corporation and Subsidiaries
<TABLE>
<CAPTION>
Capital in
Common Excess of Retained Treasury Translation
Stock Par Value Earnings Stock Adjustment Total
- -------------------------------------------------------------------------------------------------------------------
(In thousands, except share amounts)
<S> <C> <C> <C> <C> <C> <C>
Balance at September 30,
1994 $ 466 $ 25,212 $ 21,563 $ (109) $ 53 $ 47,185
- -------------------------------------------------------------------------------------------------------------------
Exercise of stock options
(60,100 shares) -- (375) -- 595 -- 220
Purchase of treasury stock
(252,500 shares) -- -- -- (3,186) -- (3,186)
Tax benefit related to stock
options exercised by
employees -- 126 -- -- -- 126
Translation adjustment -- -- -- -- 146 146
Net income -- -- 5,195 -- -- 5,195
- -------------------------------------------------------------------------------------------------------------------
1995 $ 466 $ 24,963 $ 26,758 $ (2,700) $ 199 $ 49,686
- -------------------------------------------------------------------------------------------------------------------
Exercise of stock options
(34,400 shares) -- (157) -- 403 -- 246
Purchase of treasury stock
(26,600 shares) -- -- -- (436) -- (436)
Translation adjustment -- -- -- -- (122) (122)
Net income -- -- 6,100 -- -- 6,100
- -------------------------------------------------------------------------------------------------------------------
1996 $ 466 $ 24,806 $ 32,858 $ (2,733) $ 77 $ 55,474
- -------------------------------------------------------------------------------------------------------------------
Acquisition of TIW Systems,
Inc. (Note 4)
(574,349 shares) 58 10,470 -- -- -- 10,528
Exercise of stock options
(73,533 shares) -- (169) -- 905 -- 736
Translation adjustment -- -- -- -- (423) (423)
Net income -- -- 7,175 -- -- 7,175
- -------------------------------------------------------------------------------------------------------------------
1997 $ 524 $ 35,107 $ 40,033 $ (1,828) $ (346) $ 73,490
===================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE> 12
EXHIBIT 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Vertex Communications Corporation and Subsidiaries
September 30, 1997
The Company designs, manufactures, and markets an extensive line of products
principally used in the satellite communications industry.
1. SUMMARY OF ACCOUNTING PRACTICES
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries after elimination of
all significant intercompany transactions.
MANAGEMENT ESTIMATES. The preparation of the consolidated financial statements
in conformity with generally accepted accounting principles requires management
to make assumptions and estimates that affect certain reported amounts of
assets, liabilities, revenues, and expenses at the date of the consolidated
financial statements. Actual results could differ from those estimates. These
estimates mainly involve the reported amounts of accounts receivable and
inventory reserves, income tax provisions, expected costs to complete sales
contracts accounted for under the percentage of completion method, warranty
provisions, and useful lives of property and equipment.
RECOGNITION OF REVENUES, COSTS AND EXPENSES. Revenues from sales other than
long-term contracts are recognized when the earnings process has been completed.
The earnings process is considered complete upon product shipment or upon
completion and storage of the product, if shipment is delayed at the customer's
request and related payment has been received. Service revenues are recorded
when the services are rendered.
Sales contracts which extend beyond one year are accounted for using the
percentage of completion method. Under this method, revenues are recognized
based upon costs incurred compared to total costs expected. Continual revisions
of estimated total contract costs are made during the life of the contracts
based on the best information available and may result in current period
adjustments to contract revenues previously reported. Revenues include contract
costs and related profits. Amounts billed in excess of contract costs and
related profits are included in current liabilities and were $3,449,000 and
$764,000 at September 30, 1997 and 1996, respectively. Unbilled costs and
related profits included in accounts receivable at September 30, 1997 and 1996
were $14,696,000 and $2,870,000, respectively.
Sales recognized on long-term contracts and the related cost of sales were as
follows:
<TABLE>
<CAPTION>
(In thousands)
1997 1996 1995
-------------------------------------
<S> <C> <C> <C>
Sales $28,356 $ 14,099 $11,484
Cost of Sales 23,640 13,138 10,126
=====================================
</TABLE>
<PAGE> 13
EXHIBIT 13
RESEARCH AND DEVELOPMENT. Company-funded research and development expenditures
are expensed as incurred, including costs relating to patents or rights which
may result from such expenditures. Costs generated by research and development
work funded by customers are expensed as cost of sales in the period when the
related revenues are recorded. Revenues are recorded in the period in which the
customer-funded work is completed. The Company has no obligation to repay any
funds provided by customers regardless of the outcome of research and
development work.
CASH EQUIVALENTS. The Company considers cash equivalents to be liquid
investments with original maturities of three months or less.
INVENTORIES. Inventories are valued at the lower of cost or market and include
the cost of raw materials, labor, plant overhead, and purchased parts. Cost is
determined using the first-in, first-out method. The components of inventory
consisted of the following:
<TABLE>
<CAPTION>
(In thousands)
1997 1996
-----------------------
<S> <C> <C>
Raw materials $ 8,844 $ 5,854
Work-in-process 13,626 7,979
Finished goods 4,728 1,793
-----------------------
$ 27,198 $ 15,626
=======================
</TABLE>
PROPERTY AND EQUIPMENT. Property and equipment are stated at cost and are
depreciated over their estimated useful lives using the straight-line method.
The estimated useful lives of buildings are 25 years and equipment are 3 to 7
years. Expenditures for maintenance and repairs are charged to expense when
incurred; betterments and major renewals are capitalized.
GOODWILL. Goodwill represents the excess of purchase price over the fair market
value of net assets acquired. Goodwill is being amortized on a straight-line
basis over 15 years. The Company periodically reviews the carrying value of this
intangible asset and will make any necessary adjustment if the related facts and
circumstances suggest that its carrying value is impaired or is not recoverable.
NON-CASH TRANSACTIONS. As part of the acquisition of Maxtech, Inc. in fiscal
1995 and TIW Systems, Inc. in fiscal 1997, the Company assumed certain
liabilities as follows:
<TABLE>
<CAPTION>
(In thousands)
Maxtech, Inc. TIW Systems
--------------------------
<S> <C> <C>
Fair value of assets acquired $ 8,683 $ 34,153
Cash paid (5,524) (7,893)
Fair value of stock exchanged -- (10,528)
--------------------------
Liabilities assumed $ 3,159 $ 15,732
==========================
</TABLE>
<PAGE> 14
EXHIBIT 13
EARNINGS PER SHARE. Earnings per share have been computed based upon the
weighted average number of shares of common stock outstanding and the dilutive
common stock equivalents assumed outstanding.
CONCENTRATION OF CREDIT RISK. The Company sells its products to its customers
under various payment terms such as: cash in advance, irrevocable letter of
credit, and open account. These customers can generally be classified as
governmental agencies, communications concerns, or other commercial entities.
Management believes no significant credit risk exists as of September 30, 1997.
RECLASSIFICATIONS. Certain prior year amounts have been reclassified in order to
conform with the current year presentation.
STOCK-BASED COMPENSATION. Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation," requires certain disclosures for
stock-based compensation awards and permits companies to continue to follow the
intrinsic value method of accounting as prescribed by APB No. 25, "Accounting
for Stock Issued to Employees." Accordingly, the Company will continue to follow
APB No. 25 to account for stock-based compensation awards.
NEW ACCOUNTING STANDARD. In February 1997, effective for the Company's fiscal
1998 consolidated financial statements, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 128 (SFAS 128), "Earnings
Per Share." This new standard simplifies the method for computing earnings per
share ("EPS") whereby the Company will report basic EPS without the effect of
any outstanding potentially dilutive stock options and diluted EPS with the
effect of those outstanding stock options that are potentially dilutive. Had the
Company adopted the provisions of SFAS 128 beginning with the first quarter of
fiscal 1997, basic EPS for fiscal 1997 would have been $1.55 per share and
diluted EPS would have been $1.47 per share.
2. ACCRUED LIABILITIES
Accrued liabilities were comprised of the following:
<TABLE>
<CAPTION>
(In thousands)
1997 1996
-----------------------
<S> <C> <C>
Accrued compensation $ 3,606 $ 3,024
Income taxes payable 1,329 1,281
Warranty 1,052 530
Amounts billed in excess of costs 3,449 764
Employee benefit costs 705 533
Taxes other than income 684 590
Other 2,453 1,162
-----------------------
$ 13,278 $ 7,884
=======================
</TABLE>
<PAGE> 15
EXHIBIT 13
3. FOREIGN OPERATIONS
Financial information relating to the Company's foreign operations is shown
below:
<TABLE>
<CAPTION>
(In thousands)
1997 1996 1995
-------------------------------------------
<S> <C> <C> <C>
Sales to unaffiliated customers $ 5,881 $ 3,918 $ 3,724
Transfers between geographic areas 106 1,360 889
Operating income (loss) 91 (306) (263)
Identifiable assets 4,034 3,703 2,366
===========================================
</TABLE>
The Company translates the financial statements of its German subsidiary from
its functional currency, the German mark, into U.S. dollars in accordance with
the Financial Accounting Standards Board SFAS No. 52. Assets and liabilities are
translated at the exchange rate in effect at each fiscal year end, and sales and
expenses are translated at the weighted average exchange rate in effect for the
period reported upon. Any resulting gains or losses are recorded in
shareholders' equity and excluded from net income.
4. ACQUISITIONS
Effective June 11, 1997, the Company acquired all of the outstanding common
stock of TIW Systems, Inc. ("TIW"), a California corporation engaged in design
and manufacture of products principally used in the satellite communications
industry, for cash of $7.9 million, 574,349 shares of the Company's common
stock, and $500,000 of direct acquisition costs. The acquisition was accounted
for under the purchase method of accounting. The excess of purchase price over
the fair value of assets acquired of $8.5 million is being amortized over 15
years using the straight-line method. The purchase price was allocated on the
basis of the estimated fair value of the assets acquired and liabilities assumed
as follows:
<TABLE>
<CAPTION>
(In thousands)
--------------
<S> <C>
Assets Acquired
Fair value of tangible assets acquired $ 25,641
Goodwill 8,512
Purchase Consideration
Cash paid to selling shareholders (7,893)
Fair value of Vertex's stock exchanged (10,528)
--------
Liabilities assumed $ 15,732
========
</TABLE>
TIW's results of operations are included in the Company's consolidated financial
statements since the effective date of acquisition.
<PAGE> 16
EXHIBIT 13
The following unaudited pro forma information presents the consolidated results
of operations as if the effective date of the acquisition occurred on the
beginning of each of the periods presented after giving effect to certain
adjustments which include amortization of goodwill, reduction of investment
income, issuance of common stock, and the related tax effects.
<TABLE>
<CAPTION>
(In thousands, except
per share amounts)
1997 1996
-------------------------
<S> <C> <C>
Sales $ 115,563 $ 118,857
Net income 5,333 4,076
Earnings per share 1.01 .79
==========================
</TABLE>
On January 25, 1995 (effective January 1, 1995), the Company acquired all of the
outstanding common stock of Maxtech, Inc. for cash paid at closing of
$4,049,000; four-year unsecured promissory notes in the aggregate principal sum
of $1,750,000, payable to former shareholders; and direct acquisition costs
incurred of approximately $150,000. The Maxtech acquisition was accounted for
under the purchase method of accounting and, accordingly, the assets acquired
and liabilities assumed were recorded at their fair values on the acquisition
date. The excess purchase price over the assets acquired was approximately
$5,417,000.
In connection with the purchase of Maxtech, contingent consideration will be due
for an amount equal to 50 percent of the net pre-tax income above $3,500,000
that Maxtech earns for the cumulative period of three years and nine months
ending September 30, 1998, not to exceed $2,250,000. As of September 30, 1997,
no contingent consideration was accrued. The contingent consideration earned, if
any, will be recorded as additional goodwill and amortized over its remaining
life as discussed above.
Maxtech's results of operations have been included in the Company's consolidated
financial statements from the effective date of the acquisition.
Below are the unaudited pro forma results of operations as if Maxtech had been
acquired on October 1, 1994.
<TABLE>
<CAPTION>
(In thousands, except
per share amount)
1995
---------------------
<S> <C>
Sales $ 66,390
Net Income 5,004
Earnings Per Share 1.08
=============
</TABLE>
<PAGE> 17
EXHIBIT 13
5. STOCK-BASED COMPENSATION PLANS
Pursuant to the Company's stock option plans, options to purchase its common
stock were granted to certain officers, directors, and key employees. These
plans provide for granting of options at a price not less than fair market value
of the stock on the grant date. Options issued vest over a five-year period with
one-fifth of the options becoming exercisable one year after grant, on a
cumulative basis, and expire seven or ten years after grant. At September 30,
1997, 163,600 options remained available for grant under these plans.
At September 30, 1997, 1996, and 1995, options to purchase 217,766, 190,420, and
120,400 shares, respectively, were vested and could be exercised. The
outstanding stock options at September 30, 1997 had a weighted average remaining
contractual life of seven years with option prices ranging from $4.00 to $25.38
per share.
As of September 30, 1997, 1996, and 1995, the weighted average exercise price of
the exercisable options at those dates was $9.92, $10.10, and $8.51,
respectively.
A summary of activity in the Company's stock option plans is as follows:
<TABLE>
<CAPTION>
Weighted Average
Options Exercise Price
--------------------------------
<S> <C> <C>
Outstanding at 10/1/94 280,600 $ 7.50
Granted 324,000 12.06
Exercised (60,100) 3.66
Cancelled (7,000) 12.86
--------------------------------
Outstanding at 9/30/95 537,500 10.61
--------------------------------
Granted 50,000 15.25
Exercised (34,400) 7.14
Cancelled (22,600) 13.54
--------------------------------
Outstanding at 9/30/96 530,500 11.06
--------------------------------
Granted 35,000 19.79
Exercised (73,533) 10.02
Cancelled (28,200) 12.74
--------------------------------
Outstanding at 9/30/97 463,767 $ 12.10
================================
</TABLE>
As discussed in Note 1, the Company has adopted the disclosure only provisions
of Statement of Financial Accounting Standards No. 123 (SFAS 123) "Accounting
for Stock-Based Compensation." Under SFAS 123, the value of stock-based
compensation grants was calculated for the above discussed
<PAGE> 18
EXHIBIT 13
plans based on the fair value at grant date for awards made since October 1,
1995 by using the Black-Scholes option-pricing model with certain assumptions.
The weighted-average fair value of options granted under these plans in fiscal
1997 and 1996 was $7.50 and $5.78, respectively. The assumptions used in both
fiscal 1997 and 1996 were: dividend yield of 0 percent; expected lives of 4
years; expected volatility of 37.8 percent; and risk-free rate of return of 5.77
percent. Based upon the foregoing factors, had the computed fair value of the
options granted in fiscal 1997 and 1996 been amortized to expense, pro forma net
income for fiscal 1997 and 1996 would not have been materially different from
actual net income reported for such years.
6. LONG-TERM DEBT AND CREDIT LINES
In December 1996, the Company established a bank credit line through its German
subsidiary and borrowed 2 million German marks (approximately $1.1 million). The
debt is being repaid in 24 equal monthly installments, plus accrued interest
charged at 4.7 percent per annum. The credit line was subsequently increased to
2.5 million German marks.
In fiscal 1997, the Company established an unsecured revolving bank line of
credit for $15 million which includes a $5 million sub-limit for issuance of
stand-by letters of credit. The credit line matures in June 1999 and requires
the Company to maintain certain financial ratios. Principal advances bear
interest at LIBOR, plus 1.5 percent and unused credit line fees are .25 percent
annually. As of September 30, 1997, no principal advances were outstanding and
issued stand-by letters of credit totaled $272,000.
As part of the purchase price of Maxtech, Inc., the Company incurred four-year
unsecured promissory notes in the aggregate principal sum of $1,750,000.
Long-term debt as of September 30, 1997 and 1996 was as follows:
<TABLE>
<CAPTION>
1997 1996
------------------------------
<S> <C> <C>
Promissory notes payable to Maxtech-selling shareholders,
plus accrued interest at 7.92 percent $ 604,000 $ 1,313,000
Bank note payable in monthly
installments of $4,000, plus accrued
interest at 9.5 percent with balance
due November 2000 495,000 --
Bank installment loan, monthly
payments of $48,000 (83,000
German marks), plus accrued
interest 717,000 --
Capital lease obligations 254,000 --
------------------------------
2,070,000 1,313,000
Less current maturities 1,082,000 438,000
------------------------------
$ 988,000 $ 875,000
==============================
</TABLE>
<PAGE> 19
EXHIBIT 13
Long-term debt at September 30, 1997 had scheduled maturities as follows:
$1,082,000 in 1998; $578,000 in 1999; and $53,000 in 2000; and $357,000 in 2001.
7. INCOME TAXES
The Company utilizes the liability method of accounting for income taxes.
Deferred income taxes are a result of certain income and expense items
recognized in different periods for financial reporting and tax reporting
purposes.
The differences between the prescribed statutory income tax rates and the
Company's effective income tax rates were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------------------------------------------
<S> <C> <C> <C>
Federal statutory rate 34.0% 34.0% 34.0%
State income taxes, net of federal benefit 1.4 -- 2.1
Effect of nontaxable investment income (1.2) (1.6) (2.6)
Benefit from nontaxable FSC income (3.4) (3.5) (4.6)
Tax benefit from increased research activity (1.8) (.3) (1.9)
Foreign tax adjustment .4 (.4) (.6)
Other, net 1.3 .5 (.5)
------------------------------------------
30.7% 28.7% 25.9%
============================================
</TABLE>
Income (loss) before income taxes from foreign operations was $63,000,
($406,000), and ($400,000) in fiscal 1997, 1996, and 1995, respectively. Income
before income taxes from domestic operations was $10,287,000, $8,957,000, and
$7,415,000 in fiscal 1997, 1996, and 1995, respectively.
The provision for income taxes consists of the following significant components:
<TABLE>
<CAPTION>
(In thousands)
1997 1996 1995
----------------------------------------------
<S> <C> <C> <C>
Current:
Federal $3,066 $2,632 $1,661
Foreign 33 36 224
State 220 5 145
----------------------------------------------
Total Current 3,319 2,673 2,030
----------------------------------------------
Deferred:
Federal (116) 17 214
Foreign (28) (239) (424)
-----------------------------------------------
Total Deferred (144) (222) (210)
-----------------------------------------------
Total provision for income taxes $3,175 $2,451 $1,820
==============================================
</TABLE>
<PAGE> 20
EXHIBIT 13
The table below shows the components of deferred income taxes:
<TABLE>
<CAPTION>
(In thousands)
1997 1996 1995
----------------------------------------------
<S> <C> <C> <C>
Deferred tax assets:
Accrued liabilities and reserves $1,940 $ 1,073 $ 647
Other 293 309 29
----------------------------------------------
Deferred tax liabilities:
Property and equipment (896) (827) (782)
Revenue recognition differences (1,449) (1,433) (888)
Other (207) (124) (230)
-----------------------------------------------
Net deferred tax liability $ (319) $ (1,002) $ (1,224)
===============================================
</TABLE>
8. EMPLOYEE BENEFIT PLANS
The Company sponsors a defined contribution retirement plan which covers a
majority of its domestic employees. Contributions to the plan are discretionary
as determined by the Board of Directors. The Company's contributions to the plan
for fiscal years 1997, 1996, and 1995 were $290,000, $184,000, and $228,000,
respectively.
The Company has a profit-sharing plan and a money purchase pension plan which
were established in 1989 by TIW for the benefit of its eligible employees. The
profit-sharing plan allows for employees to contribute up to a maximum of 10
percent of compensation. Company contributions to this plan are discretionary as
determined by the Board of Directors and, from June 11, 1997 through September
30, 1997, were $55,000. Company contributions to the money purchase pension plan
are five percent of eligible employee compensation. The Company contributed
$107,000 to this plan from June 11, 1997 through September 30, 1997.
The Company has an employee stock ownership plan (ESOP) that was formed by TIW
in 1989 for the benefit of its eligible employees. No contributions were made to
the plan by the Company since the acquisition of TIW and the ESOP continues to
maintain assets belonging to those eligible employees in accordance with plan
guidelines. The Company is not required nor does it intend to make future
contributions to the ESOP.
The Company has certain cash incentive compensation plans which are based upon
actual results of operations compared to planned results. The Management
Incentive Compensation Plans' participants are key employees and officers, but
not outside directors. Compensation under these plans was $1,066,000,
$1,295,000, and $275,000 for fiscal 1997, 1996, and 1995, respectively. The
Employee Profit Sharing Bonus Plans' participants include a majority of the
Company's employees, except participants in a management incentive compensation
plan. Compensation under these plans was $238,000, $280,000, and $168,000 for
fiscal 1997, 1996, and 1995, respectively.
<PAGE> 21
EXHIBIT 13
9. RELATED PARTY TRANSACTIONS
A shareholder and member of the Board of Directors is a shareholder in a firm
retained by the Company for legal counsel. The Company paid fees to his firm
during the years ended September 30, 1997, 1996, and 1995 of $541,000, $121,000,
and $315,000, respectively.
10. SALES AND INDUSTRY SEGMENT INFORMATION
Sales to one customer were 16 percent of total sales in fiscal 1995. In fiscal
1996, sales to another customer accounted for 12 percent of total sales. No
single customer accounted for 10 percent or more of sales in fiscal 1997.
Export sales were 56 percent, 59 percent, and 64 percent in fiscal 1997, 1996,
and 1995, respectively, of total sales.
Sales in Western Europe were 14 percent, 19 percent, and 16 percent, of total
sales in fiscal 1997, 1996, and 1995, respectively. Sales in the Middle East
were 10 percent of total sales in fiscal 1996. Sales in Asian countries were 21
percent, 18 percent, and 28 percent of total sales in fiscal 1997, 1996, and
1995, respectively.
The Company operates primarily in a single industry segment, as a manufacturer
and supplier of microwave antennas and related products.
11. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
1997 Fiscal Quarters
First Second Third Fourth
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $ 19,680 $ 20,436 $ 23,266 $ 29,051
Gross Profit 5,391 5,934 6,626 8,697
Net Income 1,525 1,694 1,861 2,095
Earnings Per Share .33 .36 .38 .40
</TABLE>
<TABLE>
<CAPTION>
1996 Fiscal Quarters
First Second Third Fourth
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $ 18,964 $ 19,233 $ 19,109 $ 20,219
Gross Profit 4,981 5,315 5,112 5,206
Net Income 1,393 1,460 1,584 1,663
Earnings Per Share .30 .32 .34 .36
=============================================================
</TABLE>
<PAGE> 22
EXHIBIT 13
12. COMMITMENTS AND CONTINGENCIES
The Company rents certain equipment and facilities under operating leases. Rent
expense under these leases for fiscal 1997, 1996, and 1995 was $767,000
$641,000, and $380,000, respectively.
Certain items of equipment are subject to capital leases. As of September 30,
1997, $672,000 ($407,000 net) of such leased equipment was included in property
and equipment.
Below are the future payments due under these lease obligations and the amounts
of rental income due to be received under subleases as of September 30, 1997.
<TABLE>
<CAPTION>
Operating Capital
Fiscal Year Leases Leases
- ----------- ------------------------------
<S> <C> <C>
1998 $ 1,239,000 $ 184,000
1999 1,194,000 96,000
2000 1,228,000 3,000
2001 1,202,000 --
Thereafter 2,307,000 --
------------------------------
7,170,000 283,000
Less: Sublease income 192,000 --
Amount representing interest -- 29,000
------------------------------
$ 6,978,000 $ 254,000
==============================
</TABLE>
The Company indemnifies its directors and officers, but does not maintain
directors' and officers' liability insurance. No claims against directors or
officers have been asserted.
<PAGE> 23
EXHIBIT 13
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of Vertex Communications Corporation:
We have audited the accompanying consolidated balance sheets of Vertex
Communications Corporation (a Texas Corporation) and subsidiaries as of
September 30, 1997 and 1996, and the related consolidated statements of income,
cash flows, and shareholders' equity for each of the three years in the period
ended September 30, 1997. 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 Vertex Communications
Corporation and subsidiaries as of September 30, 1997 and 1996, and the results
of their operations and their cash flows for each of the three years in the
period ended September 30, 1997, in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
Dallas, Texas
October 24, 1997
<PAGE> 24
EXHIBIT 13
MARKET FOR COMMON STOCK
The Company's common stock is traded on The Nasdaq Stock Market (National Market
System) under the symbol VTEX. At October 31, 1997, there were approximately
1,400 holders of record of Vertex's common stock. The table below sets forth,
for the periods indicated, the high and low sales prices of the Company's common
stock, as reported by The Nasdaq Stock Market.
<TABLE>
<CAPTION>
Quarter Ended High Low Quarter Ended High Low
<S> <C> <C> <C> <C> <C>
September 30, 1997 $26 1/4 $24 1/8 September 30, 1996 $19 1/4 $16 3/4
June 30, 1997 27 1/4 20 7/8 June 29, 1996 19 15 1/4
March 28, 1997 23 1/2 19 3/4 March 29, 1996 18 1/2 15 1/2
December 27, 1996 18 3/4 16 1/4 December 29, 1995 17 3/4 14 3/4
</TABLE>
The Company has never declared nor paid a cash dividend on its common stock and
does not expect that dividends will be declared or paid in the foreseeable
future. The Company currently intends to retain all of its available funds for
the operation and expansion of its business.
<PAGE> 1
EXHIBIT 21
VERTEX COMMUNICATIONS CORPORATION AND SUBSIDIARIES
AS OF SEPTEMBER 30, 1997
Vertex Communications Foreign Sales Corporation
100% - Owned Subsidiary
Incorporated in the United States Virgin Islands
Gamma-f Corp.
100% - Owned Subsidiary
Incorporated in the State of Nevada
Vertex Antennentechnik GmbH
100% - Owned Subsidiary
Incorporated in the Federal Republic of Germany
Vertex International, Ltd.
100% - Owned Subsidiary
Incorporated in England
Maxtech, Inc.
100% - Owned Subsidiary
Incorporated in the State of Pennsylvania
TIW Systems, Inc.
100% - Owned Subsidiary
Incorporated in the State of Nevada
<PAGE> 1
EXHIBIT 23
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 Statement File No. 33-27012 on Form
S-8.
Arthur Andersen LLP
Dallas, Texas
December 19, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS FOR THE YEAR ENDED 9/30/97 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<CASH> 5,407
<SECURITIES> 0
<RECEIVABLES> 37,231
<ALLOWANCES> 1,254
<INVENTORY> 27,198
<CURRENT-ASSETS> 70,496
<PP&E> 29,231
<DEPRECIATION> 13,004
<TOTAL-ASSETS> 100,493
<CURRENT-LIABILITIES> 24,912
<BONDS> 0
0
0
<COMMON> 524
<OTHER-SE> 72,966
<TOTAL-LIABILITY-AND-EQUITY> 100,493
<SALES> 92,433
<TOTAL-REVENUES> 92,433
<CGS> 65,785
<TOTAL-COSTS> 65,785
<OTHER-EXPENSES> 16,817
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 167
<INCOME-PRETAX> 10,350
<INCOME-TAX> 3,175
<INCOME-CONTINUING> 7,175
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,175
<EPS-PRIMARY> 1.47
<EPS-DILUTED> 1.47
</TABLE>
