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________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-KSB
[x] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1998
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER: 0-28114
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PARAVANT INC.
(EXACT NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
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FLORIDA 59-2209179
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
1615A WEST NASA BOULEVARD, MELBOURNE, FL 32901
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
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ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE: (407) 727-3672
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
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COMMON STOCK, $.015 PAR VALUE
(TITLE OF CLASS)
REDEEMABLE WARRANTS TO PURCHASE COMMON STOCK
(TITLE OF CLASS)
------------------------
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 [ ]
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will 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-KSB
or any amendments to this Form 10-KSB. [x]
The issuer's revenues for its most recent fiscal year were $15,507,727.
The aggregate market value of voting stock held by non-affiliates of the
registrant on December 4, 1998 was approximately $25,455,057. On such date, the
closing price of the issuer's common stock was $2.47 per share. Solely for the
purposes of this calculation, shares beneficially owned by directors, executive
officers and stockholders of the issuer that beneficially own more than 10% of
the issuer's voting stock have been excluded, except such shares, if any, with
respect to which such directors and officers disclaim beneficial ownership. Such
exclusion should not be deemed a determination or admission by the issuer that
such individuals are, in fact, affiliates of the registrant.
The number of shares of the registrant's Common Stock, $.015 par value,
outstanding on December 4, 1998 was 12,293,928.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Company's Proxy Statement in connection with its Annual
Meeting scheduled to be held on March 4, 1999 are incorporated by reference in
Part III. The Company's Proxy Statement will be filed within 120 days after
September 30, 1998.
Transitional Small Business Disclosure Format (check one) Yes [ ] No [x]
________________________________________________________________________________
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PARAVANT INC.
ANNUAL REPORT ON FORM 10-KSB
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1998
TABLE OF CONTENTS
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PART I
Item 1. Description of Business................................................................... 3
Item 2. Description of Property................................................................... 16
Item 3. Legal Proceedings......................................................................... 17
Item 4. Submission of Matters to a Vote of Security Holders....................................... 17
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.................................. 19
Item 6. Management's Discussion and Analysis of Financial Condition and Results of Operation...... 19
Item 7. Financial Statements...................................................................... 23
Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...... 23
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section
16(a) of the Exchange Act............................................................... 24
Item 10. Executive Compensation.................................................................... 24
Item 11. Security Ownership of Certain Beneficial Owners and Management............................ 24
Item 12. Certain Relationships and Related Transactions............................................ 24
Item 13. Exhibits and Reports on Form 8-K.......................................................... 24
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Paravant Inc. (the 'Company' or 'Paravant') serves the defense industry
with a range of electronic products engineered to meet applications within
aircraft support, fire control and signal intelligence. Paravant also offers
extensive customization services to modify its standard products to the specific
needs of end users. The Company's products include tactical ruggedized
computers, signal processing computer systems and custom designed helicopter
subsystems. Its products have a reputation for high-level performance and
reliability in difficult circumstances. The Company's products are sold to U.S.
and foreign military establishments, government prime contractors and medical
equipment manufacturers.
HISTORY
In early 1983, the Company commenced its business operations and offered
only engineering services for computer applications. In this initial period,
Paravant modified computer hardware and other equipment and developed special
software applications for its customers. It also served as a value-added
reseller for a Japanese manufacturer of portable computers.
In the mid 1980's, the Company began developing its first rugged computer
under a special grant from the U.S. Department of Defense Small Business
Innovative Research Program. By 1987, Paravant was producing its RHC-88
hand-held computer and selling it to the U.S. Army and the electric utility
industry. Subsequently, the Company designed and produced other computer-related
products. During this time, the Company also began to design and build medical
devices for selected medical equipment manufacturers.
By late 1989, UES, Inc., under the control of Krishan K. Joshi (presently
the Company's Chairman), purchased a 51% equity interest in the Company through
its wholly owned subsidiary, UES Florida, Inc. Previously, Paravant and UES had
worked together on a joint development project. By mid 1990, four of its
original five founders had left Paravant's employ and sold all their equity
interest in it. Of this group, only Richard P. McNeight, its President, remains.
For a while after the acquisition of control of Paravant, UES and Mr. Joshi
played an active and substantial role in its day-to-day management and
operations. In the Fall of 1991, William R. Craven joined the Company and became
its Vice President of Marketing. Since that time, UES and Mr. Joshi have devoted
much less time and effort to the management of the Company's affairs.
The Company, which was incorporated under the laws of the State of Florida
in June 1982, consummated in June 1996 an initial public offering (the 'IPO') of
1,150,000 shares (before giving effect to the Stock Split (as defined below)) of
common stock, par value $.045 per share ('Common Stock'), and 1,610,000
redeemable warrants (before giving effect to the Warrant Split (as defined
below)), each to purchase one share of Common Stock (the 'Warrants').
On July 25, 1996, the Company effected a three-for-one stock split (the
'Stock Split'). In connection with the Stock Split, the Company amended its
Articles of Incorporation to decrease the par value of the Common Stock from
$.045 per share to $.015 per share. Also in connection with the Stock Split,
each Warrant to purchase one share of Common Stock at an exercise price of $6.00
per share was converted into three Warrants, each to purchase one share of
Common Stock at an exercise price of $2.00 per share. The redemption price of
the Warrants was reduced to $.0167 per Warrant (the 'Warrant Split'). Unless
otherwise noted, all references to the Common Stock and the Warrants contained
herein are after giving effect to the Stock Split and the Warrant Split.
In 1996 with a portion of the proceeds from the IPO, the Company began to
focus on providing the medical market with a line of programmers, which are used
to provide programming information to medical pumps, and related devices, which
have been surgically implanted into the human body. These inserted devices
perform a wide range of functions from monitoring of the heart to providing
medication and electric stimulation for pain management.
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OCTOBER 1998 ACQUISITION
Effective as of October 1, 1998 immediately following the period covered by
this Report, Paravant completed the acquisition (the 'EDL-STL Acquisition') of
two related electronic defense companies, Engineering Development Laboratories,
Incorporated ('EDL') and Signal Technology Laboratories, Inc., EDL's
majority-owned subsidiary ('STL' and together with EDL, 'EDL-STL') of Dayton,
Ohio. EDL provides the U.S. Special Forces with upgrades to its aircraft
including cockpit controls, flight controls and video recorders. EDL engineers
these upgrades as required and provides complete installation services when
requested. STL is a designer and producer of signal processing equipment used in
the signal intelligence community to process gathered signals. See 'MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION -- LIQUIDITY AND CAPITAL RESOURCES' for a more complete description of
EDL-STL and the acquisition transaction. Except as specifically set forth
therein, information with respect to Paravant set forth elsewhere in this Report
does not include information with respect to EDL-STL.
INDUSTRY BACKGROUND -- MILITARY MARKET
Traditionally, the U.S. Department of Defense ('DoD') has retained military
contractors to develop computer technology for specific missions that meet
extensive military specifications. This approach has often taken longer from
development through production, and tends to be much more expensive, than
similar technology available in the commercial sector. Unlike other scientific
areas, the rapid advances made in computer technology in the commercial market
have often exceeded and driven those developed specifically for the military.
Consequently, when the U.S. military has pursued the more costly and
time-consuming procurement procedures, its computers have still lagged behind
the comparable commercial technology in terms of capabilities.
Due to these factors, the DoD began in the mid 1980's to shift from its
over-dependence on computers meeting full military specifications ('Mil-Spec')
to acquiring commercially available computers that have been modified for
environmental and operational realities of the military applications in
question. While the U.S. military still procures Mil-Spec computers, this
transition to the more commercially oriented systems has resulted in its
realization of the desired benefits and savings.
Given the dismantling of the former Soviet Union and related budgetary
considerations, there has been a concerted effort on the part of U.S. Congress
from 1990 to 1998 to downsize the military, and U.S. military spending declined.
The Company believes that increases in spending on defense electronics will
occur during the next five years.
The downward trend in overall defense spending has been a positive
development for sales to the U.S. military in recent years of less than full
Mil-Spec militarized computers in general and rugged computers specifically.
This is the case because such computers have produced cost savings and certain
operational benefits in meeting the military's need for computing capabilities.
In one sense, they have been ascertained to be less expensive and, in some
cases, better performers than the full Mil-Spec computers. In another sense,
they have extended the longevity of older weapons and related systems while
enhancing their technological capabilities. In this manner, they have played a
role in facilitating the upgrading or retrofitting of existing weapons.
Moreover, they have caused the dissemination and utilization of computer
technology throughout the military structure, especially at the lower echelons.
This has resulted in greater tactical usage of such technology in the
battlefield.
Only a portion of militarized computers consist of ruggedized versions.
'Ruggedization' or 'rugged' or 'ruggedized computers' are terms used to describe
computers that are built to withstand certain environmental and operational
hazards with which standard commercial computers functioning indoors would not
typically have to contend. The ruggedization of the computer is an attempt to
protect or insulate it fully from such hazards or at least minimize their
adverse impact so that it functions to accomplish the task at hand or complete
the mission. From a strictly environmental point of view, these hazards are
usually weather-related or climatic in nature and can encompass temperature
extremes ranging from - 30 to +145 degrees Fahrenheit, as well as severe
moisture and humidity conditions and the infiltration by flying or wind-borne
debris, such as sand, dust or other particles. These adverse conditions occur
outdoors, particularly in deserts, jungles, and arctic regions or at sea.
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In the operational area, the hazards involve strong vibrations and shocks
that result from rapid ascents and descents, rough handling, transportation and
explosions as well as electric interference or internal thermal conditions. In
the former situations, the signals emitted by other electronic equipment may
interfere with and distort the proper functioning of computers. In addition, as
increasingly more computing power is inserted into small spaces and containers,
the heat generated by the computer itself may cause the processor to malfunction
or fail. These operational hazards are, in all likelihood, greater in outdoor
military settings than in normal outdoor applications.
Computers are ruggedized by the selection and mounting of certain
components, the design, configuration and fabrication of enclosures and
electronics and the application of special seals and coatings. Computer
components generally fall within three broad categories: Mil-Spec, industrial
and commercial. Mil-Spec components are at the far end of the continuum when it
comes to the degree of ruggedization. This category fulfills the highest
requirements for withstanding adverse factors. Mil-Spec and industrial parts for
computers tend to be of higher quality and composed of better materials than
commercial components. They are usually made on production lines using different
approaches than their commercial counterparts.
Consequently, components made for Mil-Spec and industrial usage tend to be
much more expensive than comparable commercial ones due to the raw materials and
methods employed in their manufacture. Mil-Spec components are even more costly
than similar industrial parts. In addition, because the production runs in
Mil-Spec and industrial applications rarely reach the volume levels of
commercial production, there are no or few economies of scale and related cost
reductions that is achievable.
Commercial components are lower in price initially and tend to cost even
less over time due to economies of scale and production efficiencies. Such
components, however, offer little protection from the adverse effects of harsh
environmental or operational conditions. Cost and pricing differences between
commercial and industrial/Mil-Spec items for both electric and mechanical
components are substantial. Industrial and Mil-Spec products may cost from three
to ten times more than commercial ones.
For most of its requirements, the U.S. Military takes the position that
Mil-Spec standards for computers are too expensive and excessive for the degree
of protection actually needed. Accordingly, if the equipment can survive and
operate satisfactorily under the same conditions that humans can, it will
usually be appropriate for its mission. Mil-Spec items are being gradually
phased out of military procurement programs.
The use of surface mount technology ('SMT') to attach components to the
computer boards enhances its durability and ruggedness over the older mounting
technology. In SMT, the components are glued to the board by means of a chemical
adhesion process and are then soldered instead of being inserted into holes in
the board and soldered. SMT is a more precise manufacturing technique and offers
better insulation against vibration and shock. See ' -- SUPPLY AND
MANUFACTURING'.
Parts' selections, board design and proper case and sealing materials can
reduce the ill effects of electronic-magnetic interference ('EMI') from other
equipment and internal thermal generation. The design and fabrication of the
computer encasement and keyboard with tougher materials, full closure and
special sealants also protect it against moisture, humidity, particles and
temperature extremes.
Typically, the companies that market and sell ruggedized computers are
repackagers having little or no input in the design of their electronics and the
selection and mounting of components on printed circuit boards. They usually
purchase the computer boards and sub-assemblies in an 'as is' condition from
commercial manufacturers. The major contribution of the repackagers to the
protection of the computer is a tougher box in which the computer is housed.
Because it is usually air breathing in nature, even this stronger covering fails
to shield the computer from the penetration of rain, snow, fog, dust or other
particles. In contrast, the Company uses industrial-type or highly selected
commercial components for most of its computers rather than strictly ordinary
commercial ones, as do many of its competitors. This selection allows it to
provide better quality and more rugged parts but at cheaper prices than full
Mil-Spec that tend to be much more costly. The Company also applies SMT to the
fabrication of most of its computer boards. In addition, Paravant designs such
boards, the computer's outer case, keyboards,
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subassemblies and other elements in order to maximize the ruggedness of its
products, to furnish customization of electronics and software and to give the
customer greater control over configuration and components. To address price
concerns by some customers, the Company has introduced a new rugged notebook
line of products, which combine Paravant's rugged outer case design and
expertise in sealing the unit with off-the-shelf commercial electronics products
provided by a third-party supplier.
Militarized computers, including rugged computers, are available in many
different types, sizes and configurations. They may also bridge or overlap
product categories in certain instances. One category of militarized computer is
a dedicated system computer. This type of processor is typically installed and
integrated into specific command and control systems, weapons or other
equipment. Rack-mounted computers are an example of this type of computer. They
are usually an integral part of such equipment, are not easily detached from it
and weigh in excess of 30 lbs. The equipment sits in large racks with specified
dimensions and can be installed within trailers or vehicles.
Another category involves transportable computers that are not fixed in
place and may be deployed in different applications. Typically, they are
stand-alone units and are characterized by desktop computers and workstations.
These computers weigh between 30 and 60 lbs. and require external power sources.
A third category of militarized computer is the portable computer, which
includes laptops and hand-helds, as well as the newer notebooks. Often carried
and used in the field, these computers are self-contained units that may be
employed in conjunction with other systems or on a stand-alone basis. They
usually operate on battery-power but, in certain cases, may be plugged into an
external power source. Such computers usually weigh less than 20 lbs.
A substantial portion of the market for militarized computers, including
rugged computers, covers the first two categories, namely -- dedicated systems
and transportable computers. The market for portables in the military area is
considerably smaller than either of the first two categories and only a portion
of that market is ruggedized.
In addition, many of the companies that sell portable computers also market
computers from more than one category as well as standard computer peripherals
such as printers, mass storage devices, communication terminals and displays.
INDUSTRY BACKGROUND -- MEDICAL
Since the market introduction of the implantable pacemaker, medical
practitioners have increasingly turned to implantable devices for a wide range
of applications including drug delivery devices, electroneurostimulators,
difibrillators, and ventricular assist devices ('VADS'). Increasingly, such
implantable devices may be reprogrammed externally via a telemetry link, to
enable the physician to alter the drug delivery rate or dispensing of
medication. The devices used for this are commonly called Programmers and are
part of the medical support equipment market. The Company believes that many
manufacturers of implantable devices would prefer to outsource the design and
production of these programmers, because the skills and resources do not
necessarily align with the core competencies of the Company -- the implant. The
Company has focused on the Programmer segment of the Medical Support Equipment
market, because the technical and operations needs of the market appear to match
the Company's strengths. These strengths include the ability to design and
manufacture highly specialized computing devices, meet tough design requirements
like EMI, strict adherence to specifications and regulations like FDA, strong
documentation and configuration control allowing the Company to strictly control
each component in the system and the system itself, high reliability system
performance and seamless field support.
The Company acts as a design and manufacturing subcontractor to the medical
device manufacturers, who typically prefer to do final assembly and test, and
assume liability for the product.
The Company began providing medical products in 1986 and by 1989 medical
products accounted for approximately 30% of its revenues. Due to a lack of
resources, the Company focused its efforts in 1991 on military markets. It
re-entered the medical market in early 1996, in anticipation of a successful IPO
in June of 1996. The Company had secured development contracts with four
implantable medical
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device manufacturers, including Medtronic, Inc. in the implantable categories of
drug pumps, neurostimulators, defibrillators, and VADS.
PRODUCTS
The Company currently offers its customers a line of rugged, portable
computers that includes two types of hand-held processors and four types of
laptops. In terms of performance, Paravant's portables have the computing power
of, and are compatible with, IBM PC's and are designed with an open architecture
configuration for maximum flexibility. All its portable computers possess
substantial memory capabilities for their size. The Company's software is based
on MS-Windows or MS-DOS operating systems.
Most of the Company's portable computers are battery-powered, contain
back-up power packs and have a longevity of 8 to 16 hours for its hand-held and
3 to 12 hours for its laptops. However, its computers are also designed to be
plugged into either AC (alternating current) or DC (direct current), external
power sources in vehicles or other systems.
All Paravant's computers have expansion capabilities with slots for
additional expansion boards and/or PCMCIA cards (credit card sized memory and
interface cards) and, for most of its laptops, optional removable hard drive
and/or floppy discs are available. The monitor or display aspects of the
Company's computers offer high-resolution, monochrome LCD (Liquid Crystal
Devices) selected specifically for sunlight visibility and wide temperature
ranges. The standard display also features, as optional, a white back-light or
secure back-light for use in low ambient light. In laptops, color displays are
offered if desired.
Like other elements of its computers, the Company's keyboards are arranged
for operational ease in hostile environments and under adverse conditions. In
its hand-held computers, the keyboard has tactile feedback keys and alphanumeric
keypads designed with wide spacing for glove-hand use by nontypists. As far as
its laptops are concerned, the keyboards are either of the membrane variety or
standard, full-travel keyboards, both featuring the regular QWERTY key
arrangement, generally used by typists, word processors and computer users. Each
laptop has a sealed mouse that serves as a pointer to move the cursor and select
functions. Although such a standard keyboard has been ruggedized to be
relatively water and dust-proof, the membrane type offers even greater
impermeability. It may be drenched or hosed with water and still function
adequately. As an option, membrane keypads are also available with back-lights
for use in darkness or low-light circumstances.
In size, Paravant's hand-held models are 9.4 and 10 by about 6.5 with
thickness' varying from 1.5 to 2.6 ; they weigh either 2.7 lbs. or 4.5 lbs. In
contrast, its laptops range in size from 14 to 17 by 7.5 to 10.5 with thickness'
varying from 3 to 7.25 . Weights of its laptop run from 12 lbs. to 23 lbs.
The Company's computers are designed to meet and exceed certain military
specifications for operation in harsh environments and for insulation from
electromagnetic interference. The reliability and performance of its products in
extreme environmental and operational situations relate directly to Paravant's
fundamental electrical and mechanical designs, its specification and selection
of proper components, its manufacturing techniques and the extensive testing
that it employs at various phases.
Like many of its competitors, the Company's computers are available with
standard serial and parallel communications capabilities. These capabilities
allow Paravant's computers to transmit and receive electronic signals and
messages to and from other electronic systems. Its standard communications
interfaces may be made operational in military, governmental and commercial
applications. However, unlike certain of its competitors, the Company also
offers specialized communication interfaces for military applications that meet
certain military specifications. These interfaces link up all the electronic
devices in one system so that they can exchange critical information necessary
for the performance and mission of that system. In addition, Paravant has
developed a tactical communication interface that connects different electronics
systems operating on the battlefield with one another. Communication with these
various interfaces can be achieved electronically, by radio or other means.
In the military area, typical applications of the Company's computers
entail aircraft and shipboard diagnostic, testing and maintenance systems,
controller and radar displays for missile systems,
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performance recorders in training exercises, mission loaders and verifiers of
data and field command control systems.
As of September 30, 1998, the following table represents a substantial
portion of the Company's current military business covering its three primary
applications (Maintenance & Support, Training, and Battlefield Communications),
the identity of its customer, the type of computer involved and the application
concerned:
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DESCRIPTION OF PROGRAM NAME OF CUSTOMER COMPUTER APPLICATION
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HAWK/AVENGER Air Defense Missile Systems...... Raytheon Laptop Portable Fire Controller
Phalanx Gun Integrated Maintenance System..... U. S. Navy Laptop Diagnostics and Repair Device
HARM Missile System........................... Raytheon -- Laptop Mission Loading and
Texas Instruments Electronic Diagnostics
F-16 Fighter and Mission Loading.............. Lockheed Martin Laptop Electronic Diagnostics Check
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In September 1996, Paravant was awarded a contract by Raytheon Company
under which Paravant will provide enhanced remote terminal units used as part of
an air defense command and control system, which Raytheon supplies to the U.S.
Army Missile Command in Huntsville, Alabama. Deliveries of the units began in
the fourth quarter of fiscal 1996 and will continue into fiscal 1999. In
addition, in October 1996, Paravant was awarded a contract to provide Sanders, a
Lockheed Martin company, with hardware elements for Enhanced Diagnostic Aid
('EDNA') systems for use by the U.S. Air Force on F-16 fighter aircraft.
Deliveries began in March 1997 and continued through fiscal 1998. The contract
is a continuation of a program started three years ago with Lockheed Fort Worth
under which EDNA systems were shipped to the U.S. Air Force for both the F-16
and B-2 aircraft programs and for selected military programs. In October 1997,
Sanders received a contract for EDNA systems to be used as part of the support
equipment package for the F-117A Stealth Fighter. It is expected that shipments
for both the F-117A and the F-16 aircraft programs will continue into 1999 and
2000. The EDNA system is used by Air Force maintenance personnel on the
flightline to quickly diagnose the condition of various sub-systems on the
aircraft and to program certain electronic devices. The compact EDNA system can
replace a large number of support boxes on the flightline and is considerably
less expensive to purchase and faster to use than current systems employed by
the Air Force.
In the medical area, the Company's products are custom platforms, which
include medical power supplies, custom interfaces to support customer's
telemetry hardware and protocols, a display, and various forms of input devices.
The product case can be a laptop, desktop or hand held, depending on the
customer need for portability and expansion. In all cases, the Paravant product
allows the medical practitioner to communicate with an inserted medical device
and adjust the function of an implanted device.
Upon completion of the EDL-STL Acquisition in October 1998, the Company
added signal processing equipment and aircraft support technology to their
family of products. In the signal processing area, the Company, through STL,
makes a standard line of digital signal processing equipment that is offered to
the signal intelligence community as standard commercial off the shelf items.
The electronic equipment is typically packaged in standard format industrial
racks. The Company works to continually upgrade the performance and capability
of its standard equipment line. The equipment can be used for a variety of
signal processing applications.
In the area of aircraft support, the Company, through the former EDL,
designs upgrades and improvements to helicopters and fixed wing aircraft used
primarily by the U.S. Special Forces. The Company offers a wide range of
upgrades to improve and update the aircraft. Past developments have included
re-lighting the aircraft flight controls to enable the use of night vision
goggles while operating the aircraft. Other products include an in-flight video
recorder based on commercial VHS technology that is significantly less expensive
than previous military versions of video recorders. The Company has
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also developed a highly cost-effective autopilot system that allows the pilot of
older helicopters to automatically hold altitude and position at low flight
levels.
CUSTOMIZATION
The Company provides its customers and end-users with engineering services
that modify or adjust its standard portable computers, software, communication
interfaces or signal processing systems to their specific needs and
requirements. Virtually all of the aircraft support business involves
customization of upgrades of older aircraft. Substantial portions of its product
sales to the military involve varying degrees of customization while each
medical customer's product is a uniquely custom product with some shared
components.
The range of engineering services furnished by Paravant includes special
rugged packaging design, miniaturization of electronics, development of
ultra-low power systems and improvements in communications capabilities. There
are many examples of specific situations where Paravant has rendered such
services, and the following modifications of its products are representative
only:
The development of special communication interface modules and cards to
permit the computer to communicate with aircraft or a weapon system.
The design of special connectors to computers to allow the use of the
customer's existing cable set-up contained in other equipment.
The expansion of environmental testing capabilities so that computers may
be made impervious to certain chemicals or wider temperature ranges in
accordance with program requirements.
The addition of a fail-safe mechanical switch to a weapon firing system.
The development of a custom communications card to enable the computer to
communicate with a medical customer's telemetry package, specialized input
switches or customized printer options.
With the acquisition of EDL-STL, the development of a low cost VHS
recorder for in-flight recording on helicopters.
In the early phase of a military program, Paravant is often called upon to
design, engineer and fabricate the prototype. Once this is successfully done, it
is generally in a better position to obtain the full production run for that
specific program. The Company also engages in system integration and post-sale
services to assist the customer in attaining operational status for the systems
or in correcting any problems.
Management believes that by providing engineering services, the Company
facilitates the marketing of Paravant's products especially since certain of its
competitors typically do not offer any customization of the electronics. In the
fiscal years ended September 30, 1998 and 1997, revenue from engineering
services represented approximately 1% of the Company's total sales. Management
anticipates, due to governmental budgetary constraints and the anticipated
continuing desire of DoD customers to procure commercial 'off-the-shelf'
products, a continued reduction in the number of programs pursuant to which
customization services will be funded. While engineering services represent a
very low percentage of total sales, the Company believes these efforts can lead
to significant production contracts. Management believes that such customization
services are of significant value to Paravant's customers and, accordingly,
intends to continue to offer such services on a reduced or no-charge basis,
where offering such services will provide production orders. The Company
expenses the associated costs as they are incurred.
NEW PRODUCTS
The Company has new products in development targeted to certain of its
historical customer base. The products can generally be said to be faster and
lower cost than existing products. The first is the RTS, a rugged touch screen
product designed to be used in the field and on the flightline as a maintenance
support device. The RTS utilizes the latest touch-screen technology, which has
been found to be much more reliable than past technology. The RTS will enable a
maintainer to take a large database out into the field or on the flightline in
electronic form (CD-ROM or DVD). The RTS features
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a large 12.1 touch-screen that is big enough to allow the maintainer to read
electrical diagrams on the display, and which can be read in sunlight. The RTS
will be involved in a series of technical demonstrations in fiscal 1999 and the
Company expects shipments to begin in fiscal 2000.
The Company also has an ongoing effort to upgrade the capability of its
digital signal processing systems to simultaneously process more signal input.
This enhanced capability is then made part of the standard equipment line. The
Company expects that this will be available for shipment in 1999.
Paravant has a new system in development, which can be used either in
portable mode or in vehicles. The new product, the RNB 550, utilizes a new (new
to Paravant) case fabrication methodology that will allow Paravant to reduce its
recurring prices while bringing its rugged, reliable performance to many
applications that previously could not afford Paravant solutions.
The Company has also designed two new medical programming devices. One
device is a highly portable handheld which allows support technicians, and in
some cases, the patients themselves, to more easily transport the device and
provide for real time monitoring of implant function. The second device is
intended to be used in a telemedicine application in which video images can be
transported from the patient location to the physician attending via
teleconference. The first device is being developed for a specific medical
implant maker while the second system has application within a number of medical
organizations.
SUPPLY AND MANUFACTURING
The Company designs and engineers substantially all its portable computers,
purchases their components from third parties and then tests and assembles the
final products. As part of this process, Paravant has the ability to either
design or purchase the printed circuit boards depending on the customers
performance needs and price point. The Company also fabricates the prototype of
such board, tests it, purchases all the necessary components for the board and
then provides them in kit form to specialized board fabricators for both pilot
and production runs.
This approach to outsourcing differs from that followed by most other
rugged computer manufacturers which, the Company believes, operate on a turn-key
basis with their board fabricators, who handle the design, testing and purchase
of all components themselves and then furnish the manufacturer with the
completed boards. In contrast, the Company's approach to board fabrication
allows it to maintain better control of the quality and delivery of such boards,
especially because it is designing the boards and selecting the parts. In
addition, its own personnel serve as on-site inspectors at the plants of the
board fabricators. Each of the fabricators employed by Paravant applies surface
mount technology in the fabrication of its printed circuit boards.
The Company anticipates that it will continue to outsource board
fabrication. Given the rapid changes in computer technology, Paravant is not
capable of keeping abreast of the costly purchase requirements for new
production equipment necessary in the precise placement of electronic components
on boards. Outsourcing allows the Company's products to receive the benefit of
the latest technological development at an acceptable cost. Once the boards are
completed, they are tested by the fabricator and, upon satisfactory completion
of such tests, are shipped to the Company. When delivered, Paravant further
tests the completed boards and other components and then assembles the
computers. Apart from the printed circuit boards, the components that Paravant
purchases from external sources include chassis, wire harnesses, computer chips,
keyboards, displays and metal cases.
With certain products, the Company has selected the commercial electronics
boards of other manufacturers. Certain components will be attached to the boards
in a more secure fashion and some wiring connectors will be replaced to improve
shock and vibration performance. The electronics will be packaged in a sealed
container designed by the Company and, where required, a solid state
miniaturized heat pump will be installed to enhance the operating range of the
commercial electronics.
The Company does not assemble its products on a continuous mass-production
basis. Instead, its products are usually assembled on a batch basis in which
products move irregularly from station to station. Tests are performed at
various stages of the process according to Paravant's standards or as requested
by specific customers. Further testing of products is generally accomplished at
the end of the
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assembly process. The Company's manufacture of products is usually done pursuant
to specific purchase orders.
Paravant utilizes modern equipment for the design, engineering, assembly
and testing of its products. In recent years, the Company has acquired
additional equipment to enhance its operating efficiency in such areas and to
increase its capacity in order to facilitate increased production, when and if
required, as well as to obtain better control of quality, inventory and order
processing.
Generally, Paravant is not a party to any formal written contract regarding
the deliveries of its hardware, supplies and components or their fabrication. It
usually purchases such items pursuant to written purchase orders of both
individual and blanket variety. Blanket purchase orders usually entail the
purchase of a larger amount of items at fixed prices for delivery and payment on
specific dates.
Except as set forth above, the Company relies on a few board fabricators of
different sizes and capabilities located within the same geographical area as
its headquarters. Certain components used in its computers are obtained from
sole sources, such as Distec, Xcel and Rhinehardt. Paravant has also licensed
its software from sole sources, including Microsoft, Phoenix Technology and
Magnavox. Paravant has occasionally experienced delays in deliveries of
components and may experience similar problems in the future. In an attempt to
minimize such problems, the Company has developed and keeps an inventory of
parts that are generally more difficult to obtain. However, any interruption,
suspension or termination of component deliveries from Paravant's suppliers
could have a material adverse effect on its business. Although management
believes that in nearly every case alternate sources of supply can be located,
inevitably a certain amount of time would be required to find substitutes.
During any such interruption in supplies, the Company may have to curtail the
production and sale of its computers for an indefinite period.
The Company's design, engineering and assembly facilities are located in
Melbourne, Florida and, subsequent to the acquisition of EDL and STL, also in
Dayton, Ohio. These facilities comply with certain U.S. military specifications
necessary for the manufacture and assembly of products supplied to it. In
addition, on March 27, 1998, the Company's Melbourne manufacturing and assembly
facilities were certified as being in compliance with the quality management and
assurance standards of ISO-9001, an international standard promulgated by the
International Organization of Standardization, a worldwide federation of
standards bodies from approximately 100 countries. These standards have been
adopted by the European Economic Community as their preferred quality standards
and, to some degree, by the U. S. Department of Defense and the U. S. Food and
Drug Administration (the 'FDA'). The Company believes that such certification
will enable it to increase its marketing opportunities in the domestic and
international military markets for ruggedized computers as well as in the
medical market for the Company's 'programmers,' although there can be no
assurance of such.
The Company has entered into licensing arrangements for certain hardware
and software elements contained in, or used in conjunction with, its computers.
These agreements are usually non-exclusive, provide for minimum fees and
royalties related to sales to be paid by the Company to the particular licenser,
run for a limited term and are subject to other terms, conditions and
restrictions.
Paravant receives its basic operating software system MS-DOS with various
Window versions from Microsoft, Inc. pursuant to such licensing arrangements. It
also obtains from Phoenix Technologies, Inc. its BIOS (Basic Input/Output
System) pursuant to a separate license agreement. Under either arrangement, the
Company may modify such software and occasionally alters the BIOS for special
situations. The termination, suspension or curtailment of these or other
licensing arrangements to which the Company is a party may have a material
adverse impact on its business and operations.
WARRANTY AND CUSTOMER SERVICE
The Company usually provides either 90-day or one-year warranties on all
its products covering both parts and labor although extended warranties may be
purchased by customers. At its option, Paravant repairs or replaces products
that are defective during the warranty period if the proper usage and preventive
maintenance procedures have been followed by its customers. Repairs that are
necessitated by misuse of such products or are required beyond the warranty
period are not covered by its normal warranty.
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In cases of defective products, the customer typically returns them to
Paravant's facility. Its service personnel then replace or repair the defective
items and ship them back to the customer. Generally, all servicing is done at
the Company's plant, and it charges its customers a fee for those service items
that are not covered by warranty. Except for its extended warranties, it does
not offer its customers any formal written service contracts.
Some personnel in its customer service area often answer technical
questions from customers and offer solutions to their specific applications
problems. In certain instances, other personnel receive and process orders for
product demonstrations, disseminate pricing information and accept purchase
orders for computers.
MARKETING AND SALES
The Company markets and sells its computer products through an internal
sales force and several of its officers, six manufacturers' representatives in
the United States and approximately 20 distributors abroad. Its foreign
distributors operate in nearly 30 countries, including England, France, Japan,
Australia and Germany. However, sales to foreign customers for the years ended
September 30, 1998 and 1997, were only 5% and 1% of total sales, respectively.
Paravant's relationship with its manufacturers' representatives is
generally governed by a written contract, terminable on 30 days' prior notice.
These contracts usually provide for exclusive territorial and product
representation and commissions of up to 8% of the net invoice price on standard
products. In some cases, commissions will decline from 8% to 1% on standard
products as sales rise above certain dollar levels. Commissions on non-standard
products and custom engineering are usually subject to negotiation between the
parties in accordance with the terms of the contract. However, they tend to
range from 1% to 8% in practice. The Company's manufacturers' representative
contracts are subject to certain other terms and conditions. Paravant's
manufacturers' representatives and distributors do not purchase for their own
account, but merely sell such computer products on Paravant's behalf. The loss
of certain of such representatives could have a material negative effect on
Paravant's business.
Sales of the Company's products or services to foreign distributors are
generally made pursuant to written contracts. Under such contracts, the
distributor is granted either an exclusive or non-exclusive territorial and
product representation as well as discounts based on the list price ranging from
15% to 35%, depending on the type or amount of products sold. In some cases,
there are minimum order requirements. Due to the custom nature of Paravant's
products, its foreign distributors generally do not keep its computers in their
inventory until specific orders are obtained. The term of these agreements
generally run from 1 to 3 years but are terminable on 60 days advance notice.
Payment is due in U.S. dollars within 30 days after delivery. These contracts
are subject to other terms and conditions. The Company has a primary distributor
for Asia and another primary distributor for Europe. No one international
distributor accounts for more than 5% of its total sales in any period referred
to above.
The Company promotes its computer products through the dissemination of
product literature, attendance and exhibition at trade shows, conduct of
seminars and the distribution of news releases on special developments to trade
magazines and newsletters to an extensive customer list. Paravant does little
advertising in trade periodicals. Management believes that, to date, most of the
Company's sales leads have been generated by trade shows and word-of-mouth
referrals. The Company intends to expand its sales and marketing efforts in all
of its markets as follows: (i) increase its presence at trade shows with larger
booths and more extensive exhibits; (ii) increase the number of trade shows in
which Company personnel attend and products are presented; (iii) hold additional
seminars at military bases and other prime locations; (iv) hire additional sales
personnel and consultants to gather leads and promote sales; (v) expand sales
and marketing activities in the medical markets; (vi) invest in research and
development in order to increase its product offering; and (vii) increase its
presence on the Internet web page.
The Company has entered into a cooperative marketing agreement with ITT
Industries' Aerospace/Communications Division ('ITT A/CD') in connection with
international sales of ITT's SINCGARS secure radio system. In selling the
SINCGARS radio to foreign countries, ITT will demonstrate to its customers a
selection of Paravant computers and display products as part of a fully
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configured system. Depending on customer preferences, the Paravant systems may
be sold directly by Paravant or through ITT A/CD, or the customer may opt to use
other computers. Paravant's computers are well suited to the task of
interoperation with ITT's SINCGARS radios because Paravant's computers are low
emitters of EMI (electro-magnetic interference) which can cause radio
interference and can reduce the operating range of a radio network. While
management believes that the marketing arrangement with ITT may be important in
the future, it is not presently material to the operations of the Company.
In the military market, the sales cycle for the Company's products usually
entails a number of complicated steps and can take from one year to five years.
The sales cycle in the non-military government and commercial markets are
generally not as complex or time consuming, but still may take as long as two
years. Sales to the military and government markets are greatly influenced by
special budgetary and spending factors pertinent to these organizations.
CUSTOMERS
The Company sells its products, directly or indirectly, to the U.S. and
foreign military establishments, large aerospace and military contractors
supplying these establishments, government agencies regulating environmental,
geologic and forestry matters, certain state departments of transportation,
forest products companies, and medical device manufacturers.
The principal customers of the Company are DoD contractors, which are
subject to federal budgetary constraints. For the fiscal years ended September
30, 1998 and September 30, 1997, Raytheon's Missile Systems Division accounted
for 51% and 46% of the Company's total sales, respectively. For those same
periods, Lockheed Martin, and U. S. Navy, accounted for 22% and 36%, and 11% and
4% of the Company's total sales, respectively. The loss of any of these
customers could have a material adverse impact on Paravant's business.
In recent years, there have been a number of consolidations of various
prime contractors serving the defense industry. To date, the Company has not
been adversely affected by any such consolidations and the Company does not
anticipate that consolidations of contractors will negatively impact the
Company, although there can be no assurance of such.
COMPETITION
The Company competes in the rugged portable computer business with a wide
variety of computer manufacturers and repackagers, many of which are larger,
better known and have more resources in finance, technology, manufacturing and
marketing. Paravant competes based on customization capabilities, price,
performance, delivery and quality. In many situations, the Company is the
highest priced bidder by a wide margin.
With respect to its hand-held business, the Company encounters competition
from Litton Data Systems, and Miltope in military applications; Husky Computer
Company in both military and non-military markets; and CMT, Micro Palm and DAP
in non-military applications. As far as its laptops are concerned, Paravant
faces competition from Dolch, Allied Signal, Miltope, Cyberchron and North
American Industries (CODAR) in the military and non-military areas. Certain
large manufacturers of commercial notebook computers such as Panasonic, Amrel
and IBM have introduced commercial notebooks that have been sealed and
ruggedized to some extent. Management believes that the Company's ability to
increase market penetration in the commercial sector, other than the medical
market, will be limited substantially by the entry of such manufacturers into
the ruggedized computer market. These companies are presently offering such
products at prices ranging from approximately one-third to one-half of the
Company's more rugged versions. In the medical systems business, the Company
encounters competition from customers' in-house engineering and a variety of
medical systems integrators.
With the acquisition of EDL-STL, the Company is now competing in new
markets. In the aircraft support business, the primary competition is from the
original aircraft manufacturer such as Sikorsky. Within the Signal Intelligence
business, competitors include the former E Systems Division of Raytheon and a
specialty division of TRW.
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Certain military procurement policies requiring purchases of computers for
the military under Indefinite Delivery, Indefinite Quantity ('IDIQ') contracts
could result in seriously restricting the Company's efforts to sell its
computers to the U.S. military. These IDIQ contracts encourage big purchases of
such computers amounting to many hundreds of millions of dollars. Such
procurement policies clearly favor large companies with resources of that
magnitude. Unless Paravant can form strategic alliances with larger military
contractors having large resources or qualify for certain exceptions to IDIQ
arrangements, it may suffer adverse material consequences in its continuing
quest for military business. For the last five years, the Company has made
military sales of its computers because they fall into product categories not
currently covered by IDIQ requirements.
In the military and government markets, the Company will often be engaged,
directly or indirectly, in the process of seeking competitive bid or negotiated
contracts with government departments and agencies. These government contracts
are subject to specific rules and regulations with which Paravant may have
difficulty complying. However, Paravant is occasionally one of only a few
companies whose products meet the required specifications designated by such
customers.
In most cases, Paravant tends to be the high priced bidder for military
bids. The reasons for this situation are numerous. The Company designs its
computers on an overall basis to assure their ruggedness and use in the worst
circumstances. Accordingly, it generally employs more expensive components than
its competitors. These generally more expensive components consist of industrial
or higher-level commercial type instead of ordinary commercially available
parts. The Company's computers are enclosed in sealed containers. Moreover,
Paravant makes extensive modifications and refinements of its computers for its
customers pursuant to their specifications and special needs. Consequently,
Paravant's products generally function at a higher level of performance and
reliability than its competitors.
For those applications in which harsh environmental and operational
conditions prevail, customers are sometimes willing to pay higher prices,
especially where few, if any, other companies offer similar devices. In those
less demanding circumstances, the Company's products sell at a severe
competitive disadvantage and often are not purchased because the applications do
not justify its higher prices. Since Paravant sells its computer products into
segments of the commercial market and has a history of resale pricing, under DoD
regulations such commercial pricing information may be utilized to support the
prices that it charges in the military marketplace.
BACKLOG
As of September 30, 1998, the Company's backlog was $9,929,339, as compared
with backlog of $15,242,745 as of September 30, 1997. Two customers accounted
for approximately 43% and 30% of such backlog as of September 30, 1998. As of
December 4, 1998, the Company's backlog including EDL-STL was approximately
$21,700,000, and the Company presently expects to manufacture and deliver
$20,400,000 of the products in backlog within the next 12 months. The remaining
$1,300,000 of products in backlog will be completed over the next 24 months.
Substantially all the Company's backlog figures are based on purchase
orders executed by the customer. All orders are subject to cancellation.
However, in that event, Paravant is generally entitled to reimbursement of its
cost and negotiated profits, provided that such contract would have been
profitable.
RESEARCH AND DEVELOPMENT
The markets served by the Company are characterized by rapid technological
advances, changes in customer requirements and frequent new product
introductions and enhancements. Paravant's business requires ongoing research
and development efforts. Its future success will depend in large measure on its
ability to enhance its current products, and develop and introduce new products
that keep pace with technological developments in response to evolving customer
requirements. The Company's research and development activities are primarily
accomplished on an in-house basis, sometimes supplemented by third party
subcontractors and consultants.
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The Company has continued to expand and enhance the Rugged NoteBook ('RNB')
product line. The Company is designing a new rugged notebook called the RNB 550.
This product is intended to fit between its laptops and its hand-held computers
in size, weight and price. Weighing approximately 15 lbs., it is expected to
have a full-size display and a sealed full travel keyboard similar to a laptop,
a Pentium processor and PC card expansion capabilities. The RNB 520 is fully
environmentally sealed and can be used in outdoor environments. The product
utilizes commercial electronics to reduce costs, but is expected to meet the
rigorous MIL-STD 810 and MIL-STD 461 requirements.
Management believes that there is a market for this type of ruggedized
computer in the military area. As part of a continuing effort to upgrade its
products, the Company has also completed development of a high-speed Pentium
processor board for its RLT product line. See 'MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS'.
As part of the development of the medical support equipment market,
significant investment was made in the development of the Medtronic medical
reprogramming device. The reprogrammer is designed to allow many of the case
parts to be used in other customers' programs. Much of the medical development
for the year ended September 30, 1998 and 1997 is being reimbursed by Medtronic.
Research and development expenses during the fiscal years ended September
30, 1998 and 1997 were $657,607 and $611,295, respectively, and represented 4.2%
and 4.6% of total sales, respectively. A substantial portion of such expenses
for those fiscal years were applied to the development of the new RNB product,
the RLT 535, the RLT Model D, a larger laptop capable of accepting both
full-size ISA and PC/104 miniaturized expansion boards, the new model RLT
keyboard, a fully sealed, full travel keyboard at lower cost and the development
of a Pentium based main board for the RLT product line.
INTELLECTUAL PROPERTY
Proprietary information and know-how are important to the Company's
commercial success. Paravant holds no patents or copyrights but has trademark
protection for the Paravant name and logo. There can be no assurance that others
will not either develop independently the same or similar information or obtain
and use proprietary information of the Company. However, the majority of
Paravant employees have signed confidentiality agreements regarding Paravant's
proprietary information, but no employees have signed non-competition agreements
other than Messrs. McNeight, Craven and Zimmerman and with the EDL-STL
Acquisition, Messrs. Stefanko, Clifford, Schooley, Torresani, Oberbeck and
Lambertson.
Management believes that its products do not infringe the proprietary
rights of third parties. There can be no assurance, however, that third parties
will not assert infringement claims against it in the future or be successful in
asserting such claims.
GOVERNMENT REGULATIONS AND CONTRACTS
Due to the nature of the products designed, manufactured and sold by
Paravant for military applications, it is subject to certain DoD regulations. In
addition, commercial enterprises engaged primarily in supplying equipment and
services, directly or indirectly, to the United States government are subject to
special risks. These risks include dependence on government appropriations,
termination without cause, contract renegotiations and competition for the
available DoD business. Paravant has no material direct DoD contracts, however,
that are subject to renegotiation in the foreseeable future and is not aware of
any proceeding to terminate material DoD contracts in which it may be indirectly
involved. In addition, many of the Company's contracts provide for the right to
audit its cost records and are subject to regulations providing for price
reductions if inaccurate cost information was submitted by Paravant.
Government contracts governing the Company's products are often subject to
termination, negotiation or modification in the event of changes in the
government's requirements or budgetary constraints. Products sold by Paravant
for government applications are primarily sold to companies acting as
contractors or subcontractors and not directly to government entities.
Agreements with such contractors or subcontractors generally are not conditioned
upon completion of the contract by the prime contractor. To the extent that such
contracts are so conditioned, a failure of completion may have
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a material adverse effect on the Company's business. Currently, it does not have
any contracts so conditioned. See ' -- COMPETITION'.
The contracts for sale of the Company's computers are generally
fixed-priced contracts, as to which the price is set in advance and generally
may not be varied. Such contracts require the Company to properly estimate its
costs and other factors prior to commitment in order to achieve profitability
and compliance. The Company's failure to do so may result in unreimbursable cost
overruns, late deliveries or other events of non-compliance.
Under certain circumstances, Paravant is also subject to certain U.S. State
Department and U.S. Department of Commerce requirements involving prior
clearance of foreign sales. Such export control laws and regulations either ban
the sale of certain equipment to specified countries or require U.S.
manufacturers and others to obtain necessary federal government approvals and
licenses prior to export. As a part of this process, the Company generally
requires its foreign distributors to provide documents that indicate that the
equipment is not being transferred to, or used by, unauthorized parties abroad.
The Company and its agents are also governed by the restrictions of the
Foreign Corrupt Practices Act of 1977, as amended ('FCPA'), which prohibits the
promise or payments of any money, remuneration or other items of value to
foreign government officials, public office holder, political parties and others
with regard to the obtaining or preserving commercial contracts or orders. These
restrictions may hamper the Company in its marketing efforts abroad.
Paravant's manufacturing operations are subject to various federal, state
and local laws, including those restricting or regulating the discharge of
materials into, or otherwise relating to the protection of, the environment. The
Company is not involved in any pending or threatened proceedings that would
require curtailment of, or otherwise restrict its operations because of such
regulations. Compliance with applicable environmental laws has not had a
material effect upon its capital expenditures, financial condition or results of
operations.
Management believes that although compliance with applicable federal laws
and regulations involves certain additional procedures by the Company that would
not otherwise be required, such compliance has not generally inhibited or
limited the Company's ability to enter into material contracts.
EMPLOYEES
As of December 4, 1998, the Company, including EDL-STL, had 153 full time
employees including its officers, of whom 60 were engaged in manufacturing and
repair services, 31 in administration and financial control, 50 in engineering
and research and development, and 12 in marketing and sales.
None of its employees is covered by a collective bargaining agreement or is
represented by a labor union. Paravant considers its relationship with its
employees to be satisfactory.
The design and manufacture of the Company's equipment requires substantial
technical capabilities in many disparate disciplines from mechanics and computer
science to electronics and mathematics. While management believes that the
capability and experience of its technical employees compares favorably with
other similar manufacturers, there can be no assurance that it can retain
existing employees or attract and hire the highly capable technical employees
necessary in the future on terms deemed favorable to it, if at all.
ITEM 2. DESCRIPTION OF PROPERTY
On September 1, 1996, the Company entered into a lease relating to
approximately 17,300 square feet of space located at 1615A W. Nasa Blvd., Suite
E, Melbourne, Florida 32901. This space is utilized by the Company as its
principal corporate headquarters and manufacturing plant. The lease for this
space expires December 31, 2001, and provides for rent payments of $9,855 per
month. This amount includes the Company's proportionate cost of utilities,
repairs, cleaning, taxes and insurance.
With the EDL-STL Acquisition on October 8, 1998, the Company acquired a
lease relating to approximately 15,550 square feet of space located at 4391
Dayton Xenia Road, Dayton, Ohio 45432. This space is utilized by the Company as
the manufacturing plant for its aircraft support and signal
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processing subsidiaries. The lease for this space expires upon completion of
11,083 square feet of additional office space currently under construction.
Construction is expected to be complete in April 1999 and a new five-year lease
will replace the current lease. The current lease provides for rent payments of
$16,595 per month and will be replaced with a lease providing for rent payments
of $24,497 per month for the first year, $26,495 per month in the second year,
$28,556 per month in the third year, $29,127 per month in the fourth year, and
$29,709 per month in the fifth year. The office space associated with both the
current and replacement lease is owned by UES, Inc., an affiliated company,
which is majority owned by Paravant's Chairman and CEO.
Management believes that its current facilities will meet its operational
needs for the foreseeable future. In the event that additional facilities are
needed to accommodate the continued growth in revenues and market share, it is
readily available in the immediate vicinity of the current locations.
ITEM 3. LEGAL PROCEEDINGS
In March 1996, the Company's former counsel, Cascone & Cole, rendered an
invoice to the Company in the amount of approximately $365,000 for legal fees
and expenses to which such counsel claimed to be entitled in connection with its
representation of the Company for both general corporate services and services
relating to the IPO. As the Company had made prior payments to such counsel of
$130,000, the net amount claimed to be due was approximately $235,000. The
Company has contested the invoice and accrued an estimate for the payment, if
any, of these fees. On March 27, 1996, Cascone & Cole filed an action in the
Supreme Court of the State of New York, County of New York, entitled Cascone &
Cole v. Paravant Computer Systems, Inc., Victor M. Wang, Duke & Company, Inc.,
Dean Petkanas and Eagle Group Incorporated (Index No. 96601634) against the
Company, the Underwriter and certain other defendants, alleging, among other
things, breach of contract, failure to pay attorneys fees, fraud, copyright
infringement and defamation by the Company in connection with the aforementioned
services, as well as claiming a finder's fee with respect to the Underwriter's
relationship with the Company. Plaintiff filed an amended complaint
increasing its claim for legal services from approximately $365,000 to
approximately $415,000, claiming there is a balance due of $280,882 for legal
services. Plaintiff also sought punitive damages of $1 million and costs.
The Company filed an answer denying the allegations made by plaintiff and
asserted defenses and counterclaims against the plaintiff seeking, among
other things, recovery of amounts paid to plaintiff as well as punitive damages
and court costs. On December 21, 1998, the parties agreed to a settlement
of this lawsuit whereby the Company will deliver to the plaintiff cash
approximating the amount which was accrued on September 30, 1998, and the
plaintiff will deliver to the Company a general release of liability. The
settlement is expected to become final following the filing with the court
of a stipulation of discontinuance with prejudice during the first week
of January, 1999.
On September 18, 1996, a former controller of Paravant filed an action in
the Circuit Court of the State of Florida, Brevard County, entitled, Christopher
R. Exley v. Paravant Computer Systems, Inc., Richard P. McNeight, William R.
Craven, UES of Florida, Inc. and Krishan K. Joshi (Case No. 96-15091 CA),
against the Company and certain of its officers, directors and principal
stockholders, alleging, among other things, retaliatory personnel actions by the
defendants. Plaintiff is seeking damages in the amount of approximately $1
million, plus fees and costs. Plaintiff alleges that he was improperly
terminated in December 1994 as a result of his refusal to account for certain
transactions in a specified manner. The Company has filed a motion to dismiss
the plaintiff's amended complaint. The Company will vigorously defend itself
in this matter. Management of the Company believes that the ultimate
resolution of this matter will not have a material adverse effect on the
Company.
The Company is not a party to or involved in any other pending legal
proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A special meeting of the shareholders of the Company ('Special Meeting')
was held on September 17, 1998. At the Special Meeting, the shareholders of the
Company voted to approve the acquisition of all of the capital stock of EDL and
substantially all of the business and assets of STL under the terms of the
Acquisition Agreement dated March 31, 1998, and finally amended August 6, 1998
between the Company, EDL, STL and the shareholders of EDL and STL (the
'Acquisition Agreement'). Of the shares represented at the meeting, 5,060,737
shares voted 'for' the acquisition, 45,224 shares voted 'against' the
acquisition and 47,000 shares 'abstained' from voting.
17
<PAGE>
<PAGE>
In addition, the shareholders of the Company voted to approve an amendment
to the Articles of Incorporation to change the name of the Company from Paravant
Computer Systems, Inc. to Paravant Inc. Of the shares represented at the
meeting, 8,090,428 shares voted 'for' the amendment, 15,699 shares voted
'against' the amendment and 28,504 shares 'abstained' from voting.
These items were the only matters voted upon at the Special Meeting.
18
<PAGE>
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) Market Information.
The shares of Common Stock of the Company commenced trading on the Nasdaq
Stock Market National Market under the symbol 'PVAT' on June 3, 1996. The range
of high and low reported closing sales prices for the Common Stock as reported
by Nasdaq for the last two years of trading were as follows:
<TABLE>
<CAPTION>
HIGH LOW
-------------- --------------
<S> <C> <C>
October 1, 1996 to December 31, 1996........................................ $8 $4 15/16
January 1, 1997 to March 31, 1997........................................... $7 3/8 $5
April 1, 1997 to June 30, 1997.............................................. $7 $3
July 1, 1997 to September 30, 1997.......................................... $6 5/8 $3
October 1, 1997 to December 31, 1997........................................ $5 3/32 $3 3/8
January 1, 1998 to March 31, 1998........................................... $4 $2 11/16
April 1, 1998 to June 30, 1998.............................................. $2 31/32 $1 5/8
July 1, 1998 to September 30, 1998.......................................... $3 $1 3/16
October 1, 1998 to December 4, 1998......................................... $2 15/32 $1 1/8
</TABLE>
The prices set forth above reflect inter dealer prices, without retail
mark-up, markdown or commission and may not necessarily represent actual
transactions.
(b) Holders.
On December 4, 1998, as reported by the Company's transfer agent, shares of
Common Stock were held by 106 persons, based on the number of record holders,
including several holders who are nominees for an undetermined number of
beneficial owners.
(c) Dividends.
The Company has not paid any dividends on its shares of Common Stock and
intends to follow a policy of retaining any earnings to finance the development
and growth of its business. Accordingly, it does not anticipate the payment of
cash dividends in the foreseeable future. However, the payment of dividends, if
any, rests within the discretion of the Board of Directors and will depend upon,
among other things, the Company's earnings, its capital requirements, its
overall financial condition and possible restrictions on the payment of
dividends included in the Company's credit agreement utilized for the Company's
acquisition of EDL-STL. See 'MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION -- LIQUIDITY AND CAPITAL RESOURCES'.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
The following discussion and analysis of the Company's results of
operations, liquidity and financial condition should be read in conjunction with
the Financial Statements of the Company and related notes thereto.
RESULTS OF OPERATIONS
FISCAL YEAR ENDED SEPTEMBER 30, 1998 VS. SEPTEMBER 30, 1997
Revenues for fiscal 1998 were $15,507,727, an increase of $2,298,186 or 17%
over 1997 revenues of $13,209,541. This increase is primarily due to Paravant's
strong backlog ($15,242,745 at September 30, 1997) and continued full scale
production deliveries to Raytheon in support of the U.S. Marine Corps AVENGER
Air Defense missile system upgrade and additional requirements of Lockheed
Martin's Enhanced Diagnostic Aid ('EDNA') systems for use by the U.S. Air
Force on F-16 Fighter Aircraft and the F-117A Stealth Fighter. In addition,
significant sales were made to the U. S. Navy of an integrated test and
maintenance system for the Phalanx Gun System.
19
<PAGE>
<PAGE>
Gross profit was $7,900,853 in 1998, or 51% of sales, compared to
$6,435,465 or 49% in 1997, a total increase of $1,465,388 or 23%. This increase
in gross profitability results primarily from the increased revenues discussed
above.
Selling and administrative expense of $5,798,850 in 1998, increased by
$1,169,728 or 25% from 1997 expense of $4,629,122. As a percentage of sales,
selling and administrative expense was 37% and 35% in 1998 and 1997,
respectively. The increased selling and administrative expense is due primarily
to increased sales commissions directly attributable to the increased sales
discussed earlier herein, on-going research and development projects.
Income from operations grew to $2,102,003 for 1998 from $1,806,343 in 1997,
an improvement of $295,660 or 16%. As a percentage of sales, income from
operations remained unchanged at 14% in 1998 and 1997. The improvement in income
from operations overall, resulted primarily from increased revenues and gross
profits, offset in part by increased selling and administrative expense as
discussed above.
Interest expense for 1998 was reduced by $81,308 or 80% to $19,954 compared
to $101,262 in 1997. As a percentage of sales, interest expense decreased to
less than 1% in 1998 from 1% in 1997. This decrease is due to a significant
decline in outstanding debt made possible by continued growth in revenues and
gross profits, offset in part by increased selling and administrative expense as
discussed above.
As a result, the Company's net income improved by 28% to $1,459,597 in 1998
when compared to $1,141,791 in 1997, an increase of $317,806 in total. Net
income as a percentage of sales was 9% in 1998 and 1997. The improvement in net
income overall, resulted primarily from increased revenues, gross profits and
reduced interest expense, offset in part by increased selling and administrative
expense as discussed above.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1998 the Company had a secured revolving credit
arrangement with National City Bank in Dayton, Ohio (the 'Bank') for a credit
line of up to $4,000,000 that was due on demand and bore interest at the prime
rate or the 30 or 60 day LIBOR rates plus 2.7% for secured borrowings under
prescribed levels and the prime rate plus 0.5% for other borrowings. Secured
borrowings were collateralized by accounts receivable, inventory and equipment.
As of September 30, 1998, there were no borrowings outstanding under this
arrangement.
On October 1, 1998, the Company replaced the $4,000,000 credit line with
floating rate financing in an amount up to $14,000,000 (the 'EDL-STL Acquisition
Financing') under a revolving line of credit with a maturity date of December
31, 2001, convertible thereafter to five year term debt. Pursuant to the loan
agreement, the rate of interest is to be determined at a rate equal to the
Bank's prime rate, the Federal Funds Rate or the LIBOR rate plus a margin which
ranges from 1.5% to 2% based on the debt to tangible net worth ratio at the
beginning of the applicable LIBOR rate contract period. The Company may elect
among the rates based upon conditions on the dates upon which funds are drawn.
The EDL-STL Acquisition Financing is secured by a first security interest in
accounts, contract rights, inventory, equipment and other security reasonably
requested by the lender. The loan agreement includes various loan covenants and
restrictions of a customary nature which, while the EDL-STL Acquisition
Financing is outstanding, may under certain circumstances, limit the ability of
the Company to pay cash dividends, undertake additional acquisitions, make
certain changes in the Company's management, or otherwise limit obligations
undertaken by, or operations of, the Company.
In addition, the Company has a secured term loan provided by the Bank
bearing interest at a rate adjusted monthly to prime plus 1.5% at September 30,
1998. Monthly principal payments of $9,167 are due through October 1998. All
borrowings thereunder are secured by a lien on accounts receivable, inventory
and equipment. As of September 30, 1998, there was $9,147 outstanding under this
arrangement with the Bank. The Company also has capital lease obligations of
$90,741 at September 30, 1998. These capital lease obligations bear interest
rates of 1.25% to 1.50% over the prime rate and are expected to be satisfied
within 3 years.
20
<PAGE>
<PAGE>
On April 22, 1997, the Company retired a note payable to the Bank in an
aggregate principal amount of $500,000, bearing interest at the prime rate,
which note was due and payable in March 1998.
In August 1995, the Company borrowed $400,000 pursuant to bridge notes
('Notes') from a group of private investors at an annual interest rate of 6%. In
addition, the Company sold to the same investors warrants to purchase 480,000
shares of Common Stock, exercisable until June 3, 2001 at an exercise price of
$2.00 per share. The Notes were paid in full on August 8, 1997.
The Company has, and continues to have, a dependence upon a few major
customers for a significant portion of its revenues. This dependence for
revenues has not been responsible for any unusual fluctuations in operating
results in the past, and management does not believe this concentration will
generate fluctuations in operating results in the future. However, the potential
impact of losing a major customer without securing offsetting and equivalent
orders could result in a significant negative impact to the operating results of
the Company. The gross margin contributions of the Company's major customers are
not generally different than those from its other customers as a whole.
The Company's operating cash flow was $2,049,678 and $3,473,740 for 1998
and 1997, respectively. The decrease in the Company's operating cash flow
results primarily from a $98,278 increase in accounts receivable in the current
year compared to a decrease in accounts receivable of $3,078,277 in the prior
year and a $301,201 decrease in inventory in the current year compared to a
$957,881 increase in inventory in the prior year. This decrease in cash flow
caused by changes in accounts receivable and inventory is offset by improved net
income as more fully described in Management's Discussion and Analysis of
Operations for the fiscal year ended September 30, 1998 and improved working
capital as more fully presented in the Statements of Cash Flows for the same
period.
Due to the Company's orders related to U.S. Department of Defense
procurements, the operations of the Company have been cyclical and generally
result in a significant increase in deliveries and revenues in the fourth
quarter of its fiscal year ending on September 30. Due to the Company's strong
backlog and increased revenues, this cycle is less significant in the current
fiscal year, resulting in less significant changes in accounts receivable and
inventory levels than the prior period. This change is evidenced by an increase
in first, second and third quarter revenues and operating cash flows, as well as
a decrease in fourth quarter revenues to 24% from 38% of total revenues for the
years ended September 30, 1998 and 1997, respectively.
As of September 30, 1998, management believes inventory balances are not in
excess of requirements for deliveries and normal minimum stocking levels.
Generally, accounts receivable at the end of each quarter are collected
within the following quarter. However, the Company's major customer, Raytheon,
has traditionally averaged approximately 80 to 100 days in satisfaction of
outstanding accounts receivable balances. This situation is improving through
negotiation with Raytheon, and Management believes that average outstanding
balances will be reduced to more traditional levels approximating 45 days, in
the future although there can be no assurance of such. The Company's total
outstanding accounts receivable balance of $4,181,193 at September 30, 1998 has
been subsequently reduced by approximately $3,749,404 in cash collections as of
December 4, 1998. The Company has provided a reserve for certain older balances
of $88,993. This reserve is believed to be sufficient to address any
uncollectible balances outstanding as of September 30, 1998.
On June 3, 1998, the Company entered into a loan agreement with an officer
and director of the Company. The note receivable of $215,684 bears interest at
the rate of interest then applicable for borrowings by the Company under the
Company's then existing line of credit or other primary lending arrangement with
its primary lender, with interest payable annually, and matures on June 3, 2003.
On July 2, 1998, the Company entered into a loan agreement with UES, Inc.
('UES'), an affiliate of the Company, which is controlled by the Company's
Chairman. The note receivable of $750,000 is due on December 31, 1998 and bears
interest at 7% payable monthly. The note is personally guaranteed by the
Company's Chairman.
As of September 30, 1998 and 1997, the Company's backlog was $9,929,339 and
$15,242,745, respectively, consisting of firm fixed price purchase orders. All
of these purchase orders are expected to generate profits within the Company's
historical levels. The Company believes that the completion of
21
<PAGE>
<PAGE>
the orders comprising its backlog, and any new orders which may be accepted by
the Company in the future, should not result in additional liquidity pressures
that cannot be addressed in a manner consistent with the Company's past
practices. The Company presently expects to manufacture and deliver $8,610,229
of the products in backlog within the next 12 months. The remaining $1,319,110
of products in backlog will be completed over the next 24 months.
The Company anticipates, based on its currently proposed plans and
assumptions relating to its operations, that the Company's existing working
capital and anticipated cash flows from the Company's operations, are expected
to be sufficient to satisfy the Company's cash requirements for at least twelve
months. As the Company continues to grow, additional bank borrowings, such as
the EDL-STL acquisition financing described below, other debt placements and
equity offerings may be considered, in part or in combination, as the situation
warrants. In addition, in the event the Company's plans change or its
assumptions change or prove to be inaccurate, or if projected cash flow
otherwise proves insufficient to fund operations, the Company might need to seek
other sources of financing to conduct its operations. There can be no assurance
that any such other sources of financing would be available when needed, on
commercially reasonable terms, or at all.
YEAR 2000 COMPLIANCE
The Company recognizes that year 2000 issues could result in system
failures or miscalculations causing disruptions of operations, including, among
others, a temporary inability to process transactions, send invoices or engage
in similar normal business activities.
The Company has been engaged in an evaluation of its year 2000 readiness
concerning various aspects of its business. Specifically, the Company has
focused on its information technology and non-information technology systems, as
well as its production processes and products. The Company has also attempted to
analyze year 2000 issues relating to third parties with whom the Company has a
business relationship. The current status of the Company's efforts is as
follows:
Information Technology Systems: The Company's accounting software provider
and operating system provider have advised the Company that such software
is year 2000 compliant.
Non-Information Technology Systems: Although the Company does not believe
that non-information technology systems are material to its business, the
Company has begun reviewing and testing such systems. The Company does not
believe that it will incur any material costs in connection with the
review and testing of such systems or to achieve compliance with year 2000
issues.
Products: The Company's products are date sensitive. The Company has
completed a review of its products and published a product list detailing
which products are not year 2000 compliant. For products that are not year
2000 compliant, the Company has published instructions to make those
products year 2000 compliant. In most cases, the instructions consist of
entering the correct date and time and rebooting the equipment. The
Company will conduct a second review of its hardware and software to
determine compliance with year 2000 issues during 1999 to determine the
effectiveness of this plan. Therefore, the Company does not believe it has
any material exposure with regard to its products as a result of the year
2000 issue.
Suppliers: Certain products purchased by the Company are obtained from a
limited group of suppliers. The Company surveyed such suppliers in 1998
regarding their year 2000 status. Absent widespread difficulties affecting
several major vendors, the Company does not anticipate that vendors' year
2000 issues would have a material adverse effect on the Company, because
the Company believes alternative sources of supply are available for all
required components.
The Company is not currently aware of the year 2000 readiness of certain
outside services companies. Any adverse effect caused by the failure of
these providers to be year 2000 compliant is not currently susceptible to
quantification.
Customers: Because the Company's customer base may change from year to
year, the Company is unable to predict the specific identity of its major
customers in the year 2000 and thereafter. Accordingly, the Company is
unable to make an inquiry as to whether the customers' computer driven
payment or purchasing processes are year 2000 compliant. A customer's year
2000 issues could cause a delay in receipt of purchase orders or in
payment. If year 2000 issues are
22
<PAGE>
<PAGE>
widespread among the Company's customers, the Company's sales and cash
flow could be materially affected. However, the Company has a plan in
place, through its contracts department, to mitigate the potential effects
of customers' year 2000 issues.
EDL-STL ACQUISITION
On October 8, 1998 the Company consummated the EDL-STL Acquisition,
effective October 1, 1998, acquiring all of the outstanding capital stock of EDL
and substantially all of the assets of STL, EDL's majority-owned subsidiary.
EDL-STL, which prior to the EDL-STL Acquisition were privately-held affiliated
companies, are engaged in the business of designing, developing and producing
equipment to meet U.S. and foreign government requirements. EDL, whose primary
customers include the U.S. Air force, U.S. Navy and U.S. Marines and allied
military forces specializes in designing, developing and producing avionics
equipment used to modify the airborne platforms employed by Special Operations
forces. STL, whose customers include several U.S. government agencies and
government prime contractors, designs and produces digital signal processing
hardware, digital switch matrices for signal routing purposes, and other
products for signal enhancement and modification. Pursuant to the Acquisition
Agreement, the Company paid an aggregate consideration consisting of (i) $8.7
million in cash, (ii) three-year $4.8 million notes bearing interest at the rate
of 8% and (iii) 3,950,000 shares of Common Stock. In addition, in connection
with the EDL-STL Acquisition a contingent cash earn-out will be payable by the
Company under specified circumstances over a period of up to five years based on
EDL-STL's future profits and, if paid, will be recorded as additional
compensation expense for the fiscal years ending September 30, 2000 to
September 30, 2003. The cash portion of the consideration paid by the Company in
connection with the EDL-STL Acquisition was financed under the EDL-STL
Acquisition Financing.
In connection with the EDL-STL Acquisition, the Board of Directors has
increased the size of the Board to eight members and has appointed as additional
members of the Board three former shareholders and directors of EDL and STL.
These directors include Edward W. Stefanko, President and Chief Executive
officer of EDL, C. Hyland Schooley, President of STL and James E. Clifford,
Executive Vice President and Chief Operating Officer of STL. Messrs. Stefanko,
Schooley and Clifford will continue to serve on the Company's Board of Directors
until the next annual meeting of the Company's shareholders and until their
respective successors are duly elected and qualified.
Mr. Clifford was a member of the Board of Directors from 1995 through
December 30, 1997. He resigned as a director to allow the negotiations for the
EDL-STL acquisition to be conducted at arm's length. Although the negotiations
began prior to Mr. Clifford's resignation, he was excused from any discussion of
the deal by the Board.
Consistent with the long range plans of the Board of Directors to further
diversify the business activities of the Company in the defense, communications
and related electronics industry, the board recommended a change in the name of
the Company from Paravant Computer Systems, Inc. to Paravant Inc. in order to
present a corporate identity which is not limited solely to the Company's
present core business. The proposal to change the name of the company was
approved at the Special Meeting. The name change was effective on November 1,
1998.
CAUTIONARY STATEMENT
This Report contains certain forward-looking statements. Actual results
could differ materially from those projected in the forward-looking statements
as a result of various factors, including but not limited to the budgetary and
appropriations policies of the Company's governmental customers, the competitive
environment for the Company's products and services, the timing of new orders
and the degree of market penetration of the Company's new products.
ITEM 7. FINANCIAL STATEMENTS
The financial statements of the Company filed with this Report are set
forth in a separate section commencing on page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
23
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<PAGE>
PART III
ITEM 9.DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT
See the section captioned 'Election of Directors' included in the Company's
Proxy Statement in connection with its Annual Meeting scheduled to be held on
March 4, 1999, which section is incorporated herein by reference.
ITEM 10. EXECUTIVE COMPENSATION
See the section captioned 'Executive Compensation' included in the
Company's Proxy Statement in connection with its Annual Meeting scheduled to be
held on March 4, 1999, which section is incorporated herein by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
See the sections captioned 'Principal Shareholders of the Company' and
'Compliance with Section 16(a) of the Securities Exchange Act' included in the
Company's Proxy Statement in connection with its Annual Meeting scheduled to be
held on March 4, 1999, which section is incorporated herein by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See the section captioned 'Certain Transactions' included in the Company's
Proxy Statement in connection with its Annual Meeting scheduled to be held on
March 4, 1999, which section is incorporated herein by reference.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits are filed as part of this Annual Report on Form
10-KSB.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------------------------------------------------------------------------------------------
<S> <C>
2.1 -- Acquisition Agreement by and among Paravant Computer Systems, Inc., Engineering Development
Laboratories, Incorporated, Signal Technology Laboratories, Inc. James E. Clifford, Edward W. Stefanko,
C. David Lambertson, C. Hyland Schooley, Peter Oberbeck and Leo S. Torresani (incorporated by reference
to Exhibit 2.1 to the Registrant's Current Report on Form 8-K dated October 8, 1998).
3(i) -- Amended and Restated Articles of Incorporation as filed with the Florida Department of State on
December 8, 1998.
3(ii) -- Amended and Restated By-laws (incorporated by reference to exhibit 3.2 of Form 10-QSB of the quarterly
period ended June 30, 1996).
4.1A -- Specimen Common Stock Certificate as amended November 1, 1998.
4.2A -- Specimen Warrant (incorporated by reference to Exhibit 4.2 to Amendment No. 4 to Registration Statement
on Form SB-2).
10.3B -- Incentive Stock Option Plan, as amended March 12, 1998 (incorporated by reference to Exhibit 10.3B to
the Registrant's Quarterly Report on Form 10-QSB for the quarterly period ended March 31, 1998).
10.14A -- Non-employee Directors' Stock Option Plan, as amended March 12, 1998 (incorporated by reference to
Exhibit 10.14A to the Registrant's Quarterly Report on Form 10-QSB for the quarterly period ended March
31, 1998).
10.32 -- Agreements Granting Special Stock Option between the Registrant and John P. Singleton dated as of June
18, 1998 (incorporated by reference to Exhibit 10.32 to the Registrant's Quarterly Report on Form 10-QSB
for the quarterly period ended June 30, 1998).
</TABLE>
24
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------------------------------------------------------------------------------------------
<S> <C>
10.33 -- Agreements clarifying Prior Grant of Stock Options between the Registrant and Michael F. Maguire dated
as of June 18, 1998 (incorporated by reference to Exhibit 10.33 to the Registrant's Quarterly Report on
Form 10-QSB for the quarterly period ended June 30, 1998).
10.34 -- Promissory Note to Registrant from Richard P. McNeight dated June 3, 1998 (incorporated by reference to
Exhibit 10.34 to the Registrant's Quarterly Report on Form 10-QSB for the quarterly period ended June 30,
1998).
10.35 -- Promissory Note to Registrant from UES Inc. dated July 2, 1998 (incorporated by reference to Exhibit
10.35 to the Registrant's Quarterly Report on Form 10-QSB for the quarterly period ended June 30, 1998).
The note is personally guaranteed by Krishan K. Joshi.
10.36 -- Credit Agreement by Registrant with National City Bank.
10.37 -- Commercial Note by Registrant with National City Bank.
10.38 -- Employment Agreement between Paravant Computer Systems, Inc. and Edward W. Stefanko dated October 1,
1998.
10.39 -- Employment Agreement between Paravant Computer Systems, Inc. and C. Hyland Schooley dated October 1,
1998.
10.40 -- Employment Agreement between Paravant Computer Systems, Inc. and James E. Clifford dated October 1,
1998.
10.41 -- Non-Competition Agreement between Paravant Computer Systems, Inc. and C. Hyland Schooley dated October
1, 1998.
10.42 -- Subordinated Note from Paravant Computer Systems, Inc. to Edward W. Stefanko dated October 1, 1998.
10.43 -- Subordinated Note from Paravant Computer Systems, Inc. to Hyland Schooley dated October 1, 1998.
10.44 -- Subordinated Note from Paravant Computer Systems, Inc. to James E. Clifford dated October 1, 1998.
10.45 -- Lease Agreement between Engineering Development Laboratories, Incorporated and UES, Incorporated, dated
November 26, 1996 (as amended).
10.46 -- Lease Agreement between Signal Technology Laboratories, Inc. and UES, Incorporated dated August 1, 1996
(as amended through October 1, 1997).
10.47 -- Mutual Commitment to Build and to Lease between Engineering Development Laboratories, Incorporated, UES,
Inc. and Beavercreek Enterprises dated June 5, 1998.
10.48 -- Mutual Commitment to Build and to Lease between Signal Technology Laboratories, Inc., UES, Inc. and
Beavercreek Enterprises dated June 5, 1998.
11 -- Statement re: computation of per share earnings (not required because the relevant computation can be
clearly determined from material contained in the financial statements).
21 -- Subsidiaries of Paravant Inc.
27 -- Financial Data Schedule.
</TABLE>
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the registrant during the quarter
ended September 30, 1998. However, Form 8-K, dated October 8, 1998, was filed on
October 21, 1998 reporting under Item 2 an Acquisition Agreement by and among
Paravant Computer Systems, Inc., Engineering Development Laboratories,
Incorporated, Signal Technology Laboratories, Inc., James E. Clifford, Edward W.
Stefanko, C. David Lambertson, C. Hyland Schooley, Peter Oberbeck and Leo S.
Torresani.
25
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<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
PARAVANT INC.
By: /s/ KRISHAN K. JOSHI
...................................
KRISHAN K. JOSHI,
CHAIRMAN OF THE BOARD AND CHIEF
EXECUTIVE OFFICER
December 15, 1998
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the Registrant and in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- ------------------------------------------ -------------------------------------------- -------------------
<S> <C> <C>
/s/ KRISHAN K. JOSHI Chairman, Chief Executive Offer December 15, 1998
......................................... and Director (Principal Executive Officer)
KRISHAN K. JOSHI
/s/ RICHARD P. MCNEIGHT President and Director December 15, 1998
.........................................
RICHARD P. MCNEIGHT
/s/ WILLIAM R. CRAVEN Vice President, Director December 15, 1998
......................................... and Secretary
WILLIAM R. CRAVEN
/s/ KEVIN J. BARTCZAK Vice President and Chief Financial December 15, 1998
......................................... Officer, Treasurer (Principal Financial
KEVIN J. BARTCZAK Officer and Principal Accounting Officer)
/s/ JAMES E. CLIFFORD Director December 15, 1998
.........................................
JAMES E. CLIFFORD
/s/ MICHAEL F. MAGUIRE Director December 15, 1998
.........................................
MICHAEL F. MAGUIRE
/s/ C. HYLAND SCHOOLEY Director December 15, 1998
.........................................
C. HYLAND SCHOOLEY
/s/ JOHN P. SINGLETON Director December 15, 1998
.........................................
JOHN P. SINGLETON
/s/ EDWARD W. STEFANKO Director December 15, 1998
.........................................
EDWARD W. STEFANKO
</TABLE>
26
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<PAGE>
PARAVANT INC.
FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997
(WITH INDEPENDENT AUDITORS' REPORT THEREON)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
------------
<S> <C>
Independent Auditors' Report.......................................................................... F-2
Financial Statements:
Balance Sheets................................................................................... F-3
Statements of Income............................................................................. F-4
Statements of Changes in Stockholders' Equity.................................................... F-5
Statements of Cash Flows......................................................................... F-6
Notes to Financial Statements......................................................................... F-7 - F-17
</TABLE>
F-1
<PAGE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors:
PARAVANT INC.:
We have audited the accompanying balance sheets of Paravant Inc. as of
September 30, 1998 and 1997, and the related statements of income, changes in
stockholders' equity and cash flows for the years then ended. 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 Paravant Inc. as of
September 30, 1998 and 1997, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
Orlando, Florida
November 16, 1998
(except Note 17, which is as of December 21, 1998)
F-2
<PAGE>
<PAGE>
PARAVANT INC.
BALANCE SHEETS
SEPTEMBER 30, 1998 AND 1997
<TABLE>
<CAPTION>
ASSETS 1998 1997
----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents..................................................... $ 1,187,788 $ 1,612,627
Accounts receivable, net...................................................... 4,181,193 4,082,915
Employee receivables and advances............................................. 49,255 28,121
Note receivable (note 16)..................................................... 750,000 --
Inventory, net (note 3)....................................................... 3,160,572 3,461,773
Prepaid expenses.............................................................. 70,300 97,585
Deferred income taxes (note 14)............................................... 482,620 465,177
----------- -----------
Total current assets..................................................... 9,881,728 9,748,198
----------- -----------
Property, plant and equipment, net (notes 4, 7, 8 and 9)........................... 1,239,179 914,439
Intangible assets, net (note 5).................................................... 63,875 64,875
Demonstration pool and custom molds, net (note 6).................................. 252,870 262,522
Employee note receivable (note 2).................................................. 215,684 --
Other assets (note 19)............................................................. 1,042,240 318,980
----------- -----------
Total assets............................................................. $12,695,576 $11,309,014
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt (note 8)................................. $ 9,147 $ 110,004
Current maturities of capital lease obligations (note 9)...................... 63,670 124,839
Accounts payable.............................................................. 380,696 595,367
Accrued commissions........................................................... 524,036 570,559
Accrued expenses.............................................................. 804,914 739,258
Accrued incentive compensation................................................ 354,806 262,286
Income taxes payable.......................................................... 88,414 498,955
----------- -----------
Total current liabilities................................................ 2,225,683 2,901,268
----------- -----------
Long-term debt, less current maturities (note 8)................................... -- 9,147
Capital lease obligations, less current maturities (note 9)........................ 27,071 71,352
Deferred income taxes (note 14).................................................... 207,067 117,734
----------- -----------
Total liabilities........................................................ 2,459,821 3,099,501
----------- -----------
Stockholders' equity:
Preferred stock, par value $.01 per share. Authorized 2,000,000 shares, none
issued....................................................................... -- --
Common stock, par value $.015 per share. Authorized 30,000,000 shares; issued
and outstanding 8,343,928 shares at September 30, 1998 and 7,993,652 shares
at September 30, 1997 (notes 10 and 11)...................................... 125,159 119,905
Additional paid-in capital (note 12).......................................... 5,628,649 5,067,258
Retained earnings............................................................. 4,481,947 3,022,350
----------- -----------
Total stockholders' equity............................................... 10,235,755 8,209,513
----------- -----------
Commitments and contingencies (notes 9 and 17)
Total liabilities and stockholders' equity............................... $12,695,576 $11,309,014
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
<PAGE>
PARAVANT INC.
STATEMENTS OF INCOME
YEARS ENDED SEPTEMBER 30, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Revenues (note 18)................................................................. $15,507,727 $13,209,541
Cost of revenues................................................................... 7,606,874 6,774,076
----------- -----------
Gross profit.................................................................. 7,900,853 6,435,465
Selling and administrative expense (note 13)....................................... 5,798,850 4,629,122
----------- -----------
Income from operations........................................................ 2,102,003 1,806,343
Other income (expense):
Interest expense.............................................................. (19,954) (101,262)
Interest income............................................................... 110,062 19,251
Miscellaneous income.......................................................... 17,524 11,688
----------- -----------
Income before income taxes............................................... 2,209,635 1,736,020
Income tax expense (note 14)....................................................... 750,038 594,229
----------- -----------
Net income............................................................... $ 1,459,597 $ 1,141,791
----------- -----------
----------- -----------
Basic earnings per share........................................................... $.18 $.14
==== ====
Diluted earnings per share......................................................... $.14 $.09
==== ====
Weighted average number of common shares outstanding............................... 8,174,111 7,979,293
----------- -----------
----------- -----------
Weighted average number of common shares and dilutive potential common shares
outstanding...................................................................... 10,451,408 12,260,992
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
<PAGE>
PARAVANT INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 1998 AND 1997
<TABLE>
<CAPTION>
COMMON STOCK
-------------------- ADDITIONAL TOTAL
NUMBER PAR PAID-IN RETAINED STOCKHOLDERS'
OF SHARES VALUE CAPITAL EARNINGS EQUITY
--------- -------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Balances, September 30, 1996.................................. 7,956,038 $119,341 $5,045,944 $1,880,559 $ 7,045,844
Exercise of common stock options (note 10).................... 37,614 564 21,314 -- 21,878
Net income.................................................... -- -- -- 1,141,791 1,141,791
--------- -------- ---------- ---------- -------------
Balances, September 30, 1997.................................. 7,993,652 119,905 5,067,258 3,022,350 8,209,513
Exercise of underwriter's warrants for additional redeemable
warrants (note 11).......................................... -- -- 14,881 -- 14,881
Exercise of warrants for shares (note 11)..................... 124,215 1,863 242,576 -- 244,439
Exercise of common stock options (note 10).................... 226,061 3,391 158,285 -- 161,676
Tax benefit of exercise of nonqualified stock options......... -- -- 549,091 -- 549,091
Registration costs related to stock options and warrants
(note 12)................................................... -- -- (403,442) -- (403,442)
Net income.................................................... -- -- -- 1,459,597 1,459,597
--------- -------- ---------- ---------- -------------
Balances, September 30, 1998.................................. 8,343,928 $125,159 $5,628,649 $4,481,947 $ 10,235,755
--------- -------- ---------- ---------- -------------
--------- -------- ---------- ---------- -------------
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
<PAGE>
PARAVANT INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income..................................................................... $ 1,459,597 $ 1,141,791
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization............................................. 444,995 348,233
Deferred income taxes..................................................... 71,890 (215,373)
Increase (decrease) in cash caused by changes in:
Accounts receivable.................................................. (98,278) 3,078,277
Employee receivables and advances.................................... (21,134) 45,381
Inventory............................................................ 301,201 (957,881)
Prepaid expenses..................................................... 27,285 43,606
Other assets......................................................... (171,410) (277,844)
Accounts payable..................................................... (214,671) (448,364)
Accrued commissions.................................................. (46,523) 121,308
Accrued expenses..................................................... 65,656 308,358
Accrued incentive compensation....................................... 92,520 122,286
Income taxes payable................................................. 138,550 163,962
----------- -----------
Net cash provided by operating activities....................... 2,049,678 3,473,740
----------- -----------
Cash flows from investing activities:
Acquisitions of property, plant and equipment.................................. (628,778) (443,066)
Acquisitions of intangible assets, demonstration pool and custom molds......... (103,290) (67,826)
Notes receivable............................................................... (965,684) --
Payment of acquisition costs................................................... (551,850) (25,000)
----------- -----------
Net cash used in investing activities........................... (2,249,602) (535,892)
----------- -----------
Cash flows from financing activities:
Net repayments on notes payable to bank........................................ -- (540,000)
Repayments on other notes payable.............................................. -- (100,000)
Repayments on long-term debt................................................... (110,004) (610,004)
Repayments on capital lease obligations........................................ (132,465) (162,164)
Proceeds from exercise of warrants............................................. 259,320 --
Proceeds from exercise of common stock options................................. 161,676 21,878
Payment of registration costs.................................................. (403,442) --
----------- -----------
Net cash used in financing activities........................... (224,915) (1,390,290)
----------- -----------
Net increase (decrease) in cash and cash equivalents............ (424,839) 1,547,558
Cash and cash equivalents at beginning of year...................................... 1,612,627 65,069
----------- -----------
Cash and cash equivalents at end of year............................................ $ 1,187,788 $ 1,612,627
----------- -----------
----------- -----------
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest.................................................................. $ 19,704 $ 103,270
----------- -----------
----------- -----------
Income taxes.............................................................. $ 539,598 $ 644,106
----------- -----------
----------- -----------
Supplemental disclosure of noncash investing and financing activities:
The Company entered into capital lease agreements for factory and office
equipment..................................................................... $ 27,015 $ 191,228
----------- -----------
----------- -----------
Supplemental disclosure of noncash financing activities:
The Company had a tax benefit from the exercise of nonqualified stock
options....................................................................... $ 549,091 $ --
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
<PAGE>
PARAVANT INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) BUSINESS
Paravant Inc. (the 'Company') is engaged in the design, development,
production and sales of computer and communication systems, specializing in
rugged, hand-held and laptop computer products with primarily military
applications. The Company has expanded into the medical market and now provides
a line of programmers which are used to provide programming information to
medical pumps and related devices. The principal customers of the Company are
United States Department of Defense contractors who are subject to federal
budgetary implications. The work is performed under general fixed price purchase
orders and on a general production basis.
(b) CASH AND CASH EQUIVALENTS
Cash and cash equivalents include all highly liquid debt instruments
purchased with a maturity of three months or less.
(c) ACCOUNTS RECEIVABLE
Management has provided an allowance for doubtful accounts receivable in
the amount of $88,993 and $141,497 as of September 30, 1998 and 1997,
respectively.
(d) INVENTORY
Inventory is stated at the lower of cost or market using the weighted
average cost method. The Company provides an obsolescence reserve for inventory
as it becomes unusable or obsolete.
(e) DEPRECIATION AND AMORTIZATION
The cost of property, plant and equipment is depreciated over the estimated
useful lives of the related assets ranging from 5 to 7 years using the
straight-line method. Intangible assets include exclusive rights to a printed
circuit board and certain software and are being amortized over the estimated
useful lives of the technology of five to ten years using the straight-line
method. Demonstration pool assets are being amortized over their estimated
useful lives of three years using the straight-line method. The Company also has
custom molds which are amortized over their estimated useful lives of ten years
using the straight-line method.
(f) REVENUE AND COST RECOGNITION
The Company recognizes revenues on product sales when the customer accepts
title, which typically occurs upon shipment. At September 30, 1998 and 1997, the
Company had product sales of $43,996 and $1,241,111, respectively, for which
title had been transferred to a customer although physical product remained on
Company premises at the convenience of the customer. The Company allows
customers to return products under warranty for up to one year for repair and
accrues a reserve for future warranty costs at the time of product sales. The
warranty reserve was $78,000 and $75,000 as of September 30, 1998 and 1997,
respectively.
(g) INCOME TAXES
The Company accounts for income taxes using the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
F-7
<PAGE>
<PAGE>
PARAVANT INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1998 AND 1997
(h) STOCK OPTION PLAN
Prior to October 1, 1996, the Company accounted for its stock option plan
in accordance with the provisions of Accounting Principles Board ('APB') Opinion
No. 25, 'Accounting for Stock Issued to Employees', and related interpretations.
As such, compensation expense would be recorded on the date of grant only if the
current market price of the underlying stock exceeded the exercise price. On
October 1, 1996, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 123, 'Accounting for Stock-Based Compensation', which permits
entities to recognize as expense over the vesting period the fair value of all
stock-based awards on the date of grant. Alternatively, SFAS No. 123 allows
entities to continue to apply the provisions of APB Opinion No. 25 and provide
pro forma net income and pro forma earnings per share disclosures for employee
stock option grants made in the first fiscal year beginning after December 15,
1994, and future years as if the fair-value-based method defined in SFAS No. 123
had been applied. The Company has elected to continue to apply the provisions of
APB Opinion No. 25 and provide the pro forma disclosures of SFAS No. 123.
(i) BASIC AND DILUTED EARNINGS PER SHARE
On December 31, 1997, the Company adopted the provisions of Statement of
Financial Accounting Standards (SFAS) No. 128, 'Earnings per Share'. SFAS No.
128 superseded APB Opinion No. 15, 'Earnings per Share', and specifies the
computation, presentation, and disclosure requirements for earnings per share
for entities with publicly held common stock or potential common stock. It also
requires that prior period earnings per share be restated to conform to the
requirements of SFAS No. 128.
Basic earnings per share for the years ended September 30, 1998 and 1997
has been computed by dividing net income by the weighted average number of
common shares outstanding. Diluted earnings per share for the years ended
September 30, 1998 and 1997 has been computed by dividing net income by the
weighted average number of common shares and dilutive potential common shares
outstanding.
A reconciliation of the weighted average number of shares outstanding used
in the computation of basic and diluted earnings per share is as follows:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Basic:
Weighted average number of common shares
outstanding...................................... 8,174,111 7,979,293
---------- ----------
---------- ----------
Diluted:
Weighted average number of common shares
outstanding...................................... 8,174,111 7,979,293
Dilutive stock options............................. 482,065 755,700
Dilutive warrants.................................. 1,795,232 3,525,999
---------- ----------
10,451,408 12,260,992
---------- ----------
---------- ----------
</TABLE>
Options to purchase 643,750 and 214,000 shares of common stock were
excluded from the calculation of diluted earnings per share for the years ended
September 30, 1998 and 1997, respectively, because their exercise prices
exceeded the average market price of common shares for the period.
(j) FINANCIAL INSTRUMENTS
The fair values of cash equivalents, accounts receivable, accounts payable
and accrued expenses approximate their carrying amounts due to the short
maturity of those instruments. The fair values of notes receivable, long-term
debt and capital lease obligations approximate their carrying amounts because
these financial instruments bear interest at borrowing rates currently available
to the Company for similar issues or leases with similar terms and maturities.
F-8
<PAGE>
<PAGE>
PARAVANT INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1998 AND 1997
(k) USE OF ESTIMATES
The presentation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(2) EMPLOYEE NOTE RECEIVABLE
The Company holds an unsecured note receivable of $215,684 from an officer
and director of the Company. The note was originated in June 1998, bears
interest at the prime rate currently available under the Company's existing line
of credit and matures in June 2003.
(3) INVENTORY
The following is a summary of inventory at September 30, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Raw materials........................................... $3,142,646 $2,149,401
Work in process......................................... 394,212 1,490,621
Finished goods.......................................... 52,714 263,516
---------- ----------
3,589,572 3,903,538
Reserve for obsolete inventory.......................... (429,000) (441,765)
---------- ----------
$3,160,572 $3,461,773
---------- ----------
---------- ----------
</TABLE>
(4) PROPERTY, PLANT AND EQUIPMENT
The following is a summary of property, plant and equipment at September
30, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Office equipment........................................ $1,050,343 $ 980,019
Factory equipment....................................... 776,841 596,412
Leasehold improvements.................................. 231,760 199,945
---------- ----------
Total cost.................................... 2,058,944 1,776,376
Less accumulated depreciation........................... (819,765) (861,937)
---------- ----------
$1,239,179 $ 914,439
---------- ----------
---------- ----------
</TABLE>
Depreciation and amortization expense on these assets amounted to $331,053
and $237,370 for the years ended September 30, 1998 and 1997, respectively.
(5) INTANGIBLE ASSETS
These assets consist of exclusive rights to a printed circuit board and
certain software. Cost and accumulated amortization of these assets at September
30, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Cost...................................................... $ 302,500 $ 272,500
Accumulated amortization.................................. (238,625) (207,625)
--------- ---------
$ 63,875 $ 64,875
--------- ---------
--------- ---------
</TABLE>
F-9
<PAGE>
<PAGE>
PARAVANT INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1998 AND 1997
Total amortization expense on these assets was $31,000 and $29,250 for the
years ended September 30, 1998 and 1997, respectively.
(6) DEMONSTRATION POOL AND CUSTOM MOLDS
These assets consist of equipment held in the demonstration pool and custom
molds. Cost and accumulated amortization of these assets at September 30, 1998
and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Cost...................................................... $ 480,403 $ 762,549
Accumulated amortization.................................. (227,533) (500,027)
--------- ---------
$ 252,870 $ 262,522
--------- ---------
--------- ---------
</TABLE>
Total amortization expense on these assets was $82,942 and $81,613 for the
years ended September 30, 1998 and 1997, respectively.
(7) NOTE PAYABLE TO BANK
The Company has a line of credit with a bank totaling $4,000,000 which is
due on demand and, at September 30, 1998, bears interest at the prime rate or
the 30 or 60 day LIBOR rate plus 2.70% for secured borrowings under prescribed
levels and the prime rate plus .50% for other borrowings. Secured borrowings are
collateralized by accounts receivable, inventory and equipment. There were no
borrowings outstanding under this credit agreement at September 30, 1998 and
1997. The credit agreement does not contain any material financial covenants.
(8) LONG-TERM DEBT
The following is a summary of long-term debt at September 30, 1998 and
1997:
<TABLE>
<CAPTION>
1998 1997
------- ---------
<S> <C> <C>
Note payable to bank bearing an initial interest rate of 7.25%,
interest rate adjusted monthly to 1.50% above the prime rate;
interest and principal due in sixty monthly installments including
principal of $9,167 per payment; final payment due October of 1998;
secured by accounts receivable, inventory and equipment............. $ 9,147 $ 119,151
Less current maturities............................................... (9,147) (110,004)
------- ---------
Long-term debt, less current maturities..................... $ -- $ 9,147
------- ---------
------- ---------
</TABLE>
(9) LEASES
The Company is obligated under various capital leases for office equipment
and building improvements. At September 30, 1998 and 1997, respectively,
property, plant and equipment included net capital lease assets of $256,347 and
$293,096.
The Company also has several noncancellable operating leases. Under these
arrangements, the Company leases its current office facilities at a rate of
$9,176 per month. In addition, the Company leases a residential unit from a
related partnership under a month-to-month lease at a rate of $1,000 per month.
The Company also leases automobiles and equipment with lease terms into June of
1999. Rent expense under operating lease agreements totaled $147,409 and
$185,306 for the years ended September 30, 1998 and 1997, respectively.
F-10
<PAGE>
<PAGE>
PARAVANT INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1998 AND 1997
The following is a schedule by years of future minimum lease payments under
capital and operating leases together with the present value of the net minimum
lease payments for capital lease obligations as of September 30, 1998:
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR ENDING SEPTEMBER 30, LEASES LEASES
- --------------------------------------------------------------------- --------- ---------
<S> <C> <C>
1999................................................................. $ 68,968 $ 149,916
2000................................................................. 22,741 139,940
2001................................................................. 6,132 121,510
2002................................................................. -- 7,210
--------- ---------
Total minimum lease payments............................... 97,481 418,576
---------
---------
Less amounts representing interest................................... (7,100)
---------
Present value of net minimum lease payments................ 90,741
Less current maturities.............................................. (63,670)
---------
Capital lease obligations............................................ $ 27,071
---------
---------
</TABLE>
(10) STOCK OPTIONS
On December 22, 1993, the Company granted options under a nonqualified
stock option plan ('nonqualified plan') to employees to purchase 74,799 shares
of the Company's common stock at an exercise price of $.24 per share. The terms
of these options provide that the options may be exercised during a period
beginning December 22, 1994 and ending six years from the date the options were
granted. The Company terminated the nonqualified plan on November 22, 1994.
On November 22, 1994, the Company granted options to a key officer to
purchase 182,977 shares of the Company's common stock at an exercise price of
$.72 per share. The terms of these options provided that the options were
exercisable through November 22, 2004. These options were exercised on April 28,
1998.
On November 22, 1994, the Company reserved 900,000 shares of common stock
for its qualified incentive stock option plan ('qualified plan'). On March 14,
1996, the Company increased the options reserved under the qualified plan from
900,000 to 1,455,000 and on March 12, 1998, the Company increased the options
reserved under the qualified plan from 1,455,000 to 2,955,000. The terms of
these options provide that the options are exercisable at 33% per year and
expire ten years after the date of grant. The qualified plan is administered by
the Company's Board of Directors or a committee thereof. The qualified plan
gives broad powers to the Board of Directors to administer and interpret the
Plan, including the authority to select the individuals to be granted options
and to prescribe the particular form and conditions of each option granted. All
options are granted at an exercise price equal to the fair market value or 110
percent of the fair market value of the Company's common stock on the date of
the grant. Awards may be granted pursuant to the qualified plan through November
22, 2004. The qualified plan may be terminated earlier by the Board of Directors
at its sole discretion.
On March 14, 1996, the Company reserved 45,000 shares under a plan to
benefit the nonemployee directors under terms similar to the qualified plan
('directors nonqualified plan'). On March 12, 1998, the Company increased the
options reserved under the directors nonqualified plan from 45,000 to 135,000.
The terms of these options provide that the options are exercisable on the date
of grant and expire ten years after the date of grant. The directors
nonqualified plan provides that each nonemployee director be granted options to
purchase 7,500 shares at the fair market value on the date of the director's
election to the Board and on the date of each of the Board's annual meetings
thereafter.
F-11
<PAGE>
<PAGE>
PARAVANT INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1998 AND 1997
On November 20, 1997, the Company granted options under its qualified plan
to employees to purchase 226,000 shares of the Company's common stock at an
exercise price of $4.25 per share which was the market price of the shares at
the date of issuance.
On November 20, 1997, the Company granted special options to the three
nonemployee directors (1997 special option plan) exercisable for ten years from
the date of issuance for the purchase of an aggregate of up to 24,000 shares at
an exercise price of $4.25 per share, the market price of the shares at the date
of issuance. Although not granted under the existing directors nonqualified
plan, the 1997 special option plan is subject to terms substantially similar to
those applicable to options granted under the directors nonqualified plan. The
1997 special options are evidenced by stock option agreements between the
Company and the subject directors.
On June 18, 1998, the Company granted special options to one nonemployee
director (1998 special option plan) exercisable for ten years from the date of
issuance for the purchase of 9,000 shares at an exercise price of $1.719 per
share, the market price of the shares at the date of issuance. Although not
granted under the existing directors' nonqualified plan, the 1998 special option
plan is subject to terms substantially similar to those applicable to options
granted under the directors nonqualified plan. The 1998 special options are
evidenced by a stock option agreement between the Company and the director.
At September 30, 1998, there were 1,530,042 and 78,000 additional shares
available for grant under the qualified plan and directors nonqualified plan,
respectively. Using the Black Scholes option-pricing model, the per share
weighted-average fair value of stock options granted during 1998 where exercise
price equals the market price of the stock on the grant date and exercise price
is greater than the market price of the stock on the grant date was $3.86 and
$4.68, respectively. The per share weighted-average fair value of stock options
granted during 1997 where exercise price equals the market price of the stock on
the grant date was $4.85.
The following weighted average assumptions were used:
<TABLE>
<CAPTION>
1998 1997
---------- ---------
<S> <C> <C>
Exercise price equal to market price on grant date
Expected risk-free interest rate............................. 5.75% 6.13%
Expected life................................................ 7.9 years 8.0 years
Expected volatility.......................................... 110.90% 122.72%
Expected dividend yield...................................... 0.00% 0.00%
Exercise price greater than market price on grant date
Expected risk-free interest rate............................. 5.78% --
Expected life................................................ 5.0 years --
Expected volatility.......................................... 110.00% --
Expected dividend yield...................................... 0.00% --
</TABLE>
The Company applies APB Opinion No. 25 in accounting for its option plans
and, accordingly, no compensation cost has been recognized in the financial
statements for stock options granted. Had the Company determined compensation
cost based on the fair value at the grant date for its stock options under SFAS
No. 123, the Company's net income and earnings per share would have been reduced
to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C> <C>
Net income As reported......................................... $1,459,597 $1,141,791
Pro forma........................................... 413,014 629,758
Basic earnings per As reported......................................... 0.18 0.14
share
Pro forma........................................... 0.05 0.08
</TABLE>
F-12
<PAGE>
<PAGE>
PARAVANT INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1998 AND 1997
Pro forma net income reflects only options granted in 1998, 1997 and 1996.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS No. 123 is not reflected in the pro forma net income amounts
presented above because compensation cost is reflected over the options' vesting
period of 3 years and compensation cost for options granted prior to October 1,
1995 is not considered.
Stock option activity during the periods indicated is as follows:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED-AVERAGE
SHARES EXERCISE PRICE
--------- ----------------
<S> <C> <C>
Outstanding at September 30, 1996........................................ 999,976 $ .98
Granted............................................................. 223,000 5.18
Exercised........................................................... (37,614) .60
Forfeited........................................................... (15,608) 3.16
---------
Outstanding at September 30, 1997........................................ 1,169,754 1.76
Granted............................................................. 461,500 4.13
Exercised........................................................... (226,061) .72
Forfeited........................................................... (18,650) 4.95
---------
Outstanding at September 30, 1998........................................ 1,386,543 2.68
---------
---------
</TABLE>
At September 30, 1998, the range of exercise prices and weighted-average
remaining contractual lives of outstanding options was $.24 to $.72 for 251,943
shares; $.73 to $.79 for 120,000 shares; $1.33 to $1.72 for 389,500 shares; and
$3.56 to $6.00 for 625,100 shares at 5.75 years, 1.15 years, 6.26 years and 7.61
years, respectively.
At September 30, 1998 and 1997, the number of options exercisable was
731,711 and 597,754, respectively, and the weighted-average exercise price of
those options was $1.60 and $.97, respectively.
(11) WARRANTS
In connection with the Company's initial public offering (IPO) of common
stock in June of 1996, the Company issued 4,830,000 warrants ('redeemable
warrants') exercisable for a period of five years commencing November 30, 1997
at an exercise price of $2.00 per share, subject to adjustment in certain
circumstances. The Company, at its option during the exercise period of the
warrants, may redeem the warrants, after November 30, 1997, upon notice of not
less than 30 days, at a price of $.0167 per warrant provided that the closing
sale price of the Company's common stock on the Nasdaq National Market has
exceeded $2.83 per share (subject to adjustment) for a period of 30 consecutive
trading days. During the year ended September 30, 1998, this condition was met
as the closing sale price of the Company's common stock exceeded $2.83 per share
from December 1, 1997 through March 26, 1998 and these warrants are callable. As
of September 30, 1998, 112,215 warrants have been exercised. In addition, in
connection with the IPO, the Company issued warrants to the underwriter to
purchase up to 300,000 shares of common stock at $2.00 per share and up to
420,000 warrants to purchase redeemable warrants at $.04 per warrant. The
underwriter's warrants are exercisable during the four-year period commencing
June 3, 1997. As of September 30, 1998, 12,000 underwriter's warrants have been
exercised and 372,018 underwriter's warrants to purchase warrants have been
exercised. Upon exercise, the underwriter's warrants to purchase warrants
increase the number of redeemable warrants outstanding.
In connection with the Company's bridge financing in August 1995, the
Company sold to a group of investors, warrants ('bridge warrants'), to purchase
480,000 shares of common stock, exercisable until June 3, 2001 at an exercise
price of $2.00 per share, subject to adjustment in certain circumstances. The
Company, at its option during the exercise period of the bridge warrants, may
redeem the bridge warrants at a price of $.0167 per bridge warrant provided that
the average of the closing bid prices of the Company's common stock on the
Nasdaq National Market has exceeded $2.00 for any consecutive
F-13
<PAGE>
<PAGE>
PARAVANT INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1998 AND 1997
20 trading days, and then only upon written notice of not less than 30 days,
given within 60 days of this period. As of September 30, 1998, no bridge
warrants have been exercised.
On April 15, 1998, the Company issued warrants to The Equity Group, Inc. to
purchase 45,000 unregistered shares of common stock. These warrants are
exercisable until April 14, 2003 at an exercise price of $2.75 per share,
subject to adjustment in certain circumstances. The Equity Group, Inc. is the
Company's financial public relations and investor relations consultant and the
warrants were issued in conjunction with the signing of a one year contract.
(12) REGISTRATION COSTS
The Company incurred $403,442 of registration costs related to the
registration of shares under its qualified, directors nonqualified, 1997 special
and 1998 special option plans and its redeemable warrants, underwriter warrants
and bridge warrants. These costs have been reflected as a reduction of
additional paid-in capital in the accompanying financial statements.
(13) RESEARCH AND DEVELOPMENT
Research and development costs are expensed when incurred and are included
in selling and administrative expense. The amounts charged to expense were
$657,607 and $611,295 for the years ended September 30, 1998 and 1997,
respectively.
(14) INCOME TAXES
The components of income tax expense (benefit) for the years ended
September 30, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
-------- --------- --------
<S> <C> <C> <C>
1998:
Federal............................................ $640,691 61,383 702,074
State.............................................. 37,457 10,507 47,964
-------- --------- --------
$678,148 71,890 750,038
-------- --------- --------
-------- --------- --------
1997:
Federal............................................ $683,579 (184,143) 499,436
State.............................................. 126,026 (31,230) 94,793
-------- --------- --------
$809,602 (215,373) 594,229
-------- --------- --------
-------- --------- --------
</TABLE>
Following is a reconciliation of the expected income tax expense computed
by applying the U.S. federal income tax rate of 34% to income before income
taxes and the actual income tax provision for the years ended September 30, 1998
and 1997:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Computed 'expected' tax expense....................................... $751,276 590,247
Increase (decrease) in income taxes resulting from:
State income taxes, net of federal income tax benefit............ 30,125 52,358
Nondeductible meals and entertainment expense.................... 3,250 7,200
Research and experimentation credit.............................. -- (31,951)
Other, net....................................................... (34,613) (23,625)
-------- --------
$750,038 594,229
-------- --------
-------- --------
</TABLE>
F-14
<PAGE>
<PAGE>
PARAVANT INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1998 AND 1997
Deferred income taxes as of September 30, 1998 and 1997 reflect the impact
of 'temporary differences' between amounts of assets and liabilities for
financial statement purposes and such amounts as measured by tax laws. The
temporary differences give rise to deferred tax assets and liabilities which are
summarized below as of September 30, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
--------- --------
<S> <C> <C>
Gross deferred tax liabilities:
Capitalized costs............................................... $(113,416) (36,392)
Accumulated depreciation........................................ (93,651) (81,342)
--------- --------
Total gross deferred tax liabilities....................... (207,067) (117,734)
--------- --------
Gross deferred tax assets:
Inventory....................................................... 287,993 255,166
Accounts receivable............................................. 33,488 53,245
Accrued warranty costs.......................................... 29,351 28,223
Accrued vacation and sick leave................................. 84,347 54,996
Accrued incentive compensation.................................. 39,149 26,341
Deferred revenue................................................ 8,292 8,292
Research credits................................................ -- 38,914
--------- --------
Total gross deferred tax assets............................ 482,620 465,177
--------- --------
Total net deferred tax assets.............................. $ 275,553 347,443
--------- --------
--------- --------
</TABLE>
A valuation allowance for deferred tax assets is provided when it is more
likely than not that some portion or all of the deferred tax assets will not be
realized. Realization is dependent upon the generation of future taxable income
or the reversal of deferred tax liabilities during the periods in which those
temporary differences become deductible. Management considers the scheduled
reversal of deferred tax liabilities, projected future taxable income and tax
planning strategies in making this assessment. As of September 30, 1998 and
1997, no valuation allowance has been recognized in the accompanying financial
statements for the deferred tax assets because the Company believes that
sufficient future taxable income will be generated to fully utilize the benefits
of these deductible amounts.
(15) RETIREMENT PLAN
The Company has a defined contribution retirement plan covering
substantially all employees who have completed 1,000 hours of service.
Retirement expense incurred was $80,558 and $53,597 for the years ended
September 30, 1998 and 1997, respectively.
(16) RELATED PARTY TRANSACTION
On July 2, 1998, the Company entered into a loan agreement with UES, Inc.
('UES'), an affiliate of the Company which is controlled by the Company's
chairman. The loan agreement, which expires on December 31, 1998, totals
$750,000, is due on demand and bears interest at 7%, payable monthly. The note
is personally guaranteed by the Company's chairman and is collateralized by
UES's shares of the Company in the amount of 1,448,775 common shares.
(17) CONTINGENCIES
In March 1996, the Company's former counsel rendered an invoice to the
Company totaling approximately $365,000 for legal fees and expenses representing
both general corporate services as well as services relating to the Company's
IPO. The Company contested the invoice and accrued an estimate for the
settlement, if any, of these fees. In March 1996, the Company's former counsel
filed an action
F-15
<PAGE>
<PAGE>
PARAVANT INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1998 AND 1997
against the Company, its current underwriter and certain other defendants,
alleging, among other things, breach of contract, failure to pay attorneys fees,
fraud, copyright infringement and defamation by the Company in connection with
the aforementioned services as well as claiming a finder's fee with respect to
the underwriter's relationship with the Company. In September 1997, the
plaintiff filed an amended complaint increasing his claim for legal services
from approximately $365,000 to approximately $415,000. The plaintiff also
sought punitive damages of $1,000,000 from the Company. On December 21, 1998,
the parties agreed to a settlement of this lawsuit whereby the Company
will deliver to the plaintiff cash approximating the amount which was
accrued on September 30, 1998, and the plaintiff will deliver to the
Company a general release of liability. The settlement is expected to become
final following the filing with the court of a stipulation of discontinuance
with prejudice during the first week of January 1999.
In September 1996, a former Company employee filed an action against the
Company and certain other defendants alleging retaliatory personnel actions
instituted by the defendants against the plaintiff. The Plaintiff is seeking
from the defendants an amount of $950,000 plus interest, related costs and
attorneys fees. The Company has filed a motion to dismiss the plaintiff's
amended complaint and intends to vigorously defend this lawsuit. Management,
after consultation with counsel, is of the opinion that the ultimate resolution
of this matter will not have a material adverse effect on future operations of
the Company. Management has not accrued any liability relating to the tortious
portion of this lawsuit as it believes the Company will prevail. In the event
a court finds in favor of the plaintiffs, additional costs will be incurred.
(18) CONCENTRATION OF CREDIT RISK
The Company has a high concentration of sales to a few customers who
accounted for 87% and 89% of revenues for the years ended September 30, 1998 and
1997, respectively. A summary of sales and accounts receivable to the customers
that exceed 10% of sales or accounts receivable as of or for the years ended
September 30, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
--------------------- ---------------------
SALES % TOTAL SALES % TOTAL
---------- ------- ---------- -------
<S> <C> <C> <C> <C>
Customer A............................................. $7,888,760 51% $6,094,617 46%
Customer B............................................. 3,368,953 22 4,684,013 36
Customer C............................................. 1,754,976 11 463,242 4%
Customer D............................................. 488,750 3 -- --
Customer E............................................. 54,691 -- 871,468 7
</TABLE>
<TABLE>
<CAPTION>
ACCOUNTS ACCOUNTS
RECEIVABLE % TOTAL RECEIVABLE % TOTAL
---------- ------- ---------- -------
<S> <C> <C> <C> <C>
Customer A............................................. $2,813,017 69% $1,556,040 37%
Customer B............................................. 33,126 1 1,663,296 39
Customer C............................................. 308,482 8 143,975 4%
Customer D............................................. 431,250 11 -- --
Customer E............................................. 44,728 1 657,596 16
</TABLE>
(19) SUBSEQUENT EVENTS
(a) STOCK OPTIONS GRANTED
On November 19, 1998, the Company granted options under its qualified plan
to employees to purchase 244,609 shares of the Company's common stock at an
exercise price of $1.938 per share which was the market price of the shares at
the date of issuance. In addition, the Company granted options under its
qualified plan to one employee to purchase 8,333 shares of the Company's common
stock at an exercise price of $2.132 per share which was 110% of the market
price of the shares at the date of issuance. The Company also granted 17,791 and
16,667 nonqualified options at exercise prices of $1.938 and $2.132,
respectively.
F-16
<PAGE>
<PAGE>
PARAVANT INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1998 AND 1997
(b) ACQUISITION
On March 31, 1998, the Company entered into an agreement ('Acquisition
Agreement') to buy the common stock of Engineering Development Laboratories,
Incorporated ('EDL') and substantially all of the business and operating assets
of Signal Technology Laboratories, Inc. ('STL' and together with EDL,
'EDL-STL'). On October 8, 1998, the Company, through its wholly owned
subsidiary, STL of Ohio ('New STL'), purchased substantially all of STL's
operating assets and all of the outstanding common stock of EDL. Certain assets
of STL were excluded from the sale, including certain cash, accounts receivable
and costs and estimated earnings in excess of billings on uncompleted contracts
on its active contracts. New STL simultaneously entered into an agreement to
subcontract the completion of all remaining contracts with STL. The subcontract
agreement provides for New STL to pay STL a management fee of 2% of subcontract
revenues.
In connection with this Acquisition Agreement, the Company simultaneously
entered into an agreement with its primary lender to enable the Company, EDL and
New STL to collectively borrow up to $14,000,000 at a variable rate of interest
tied to the prime rate, which at October 8, 1998, was 7.50%.
Under the terms of the Acquisition Agreement, the Company paid to the
shareholders of EDL-STL approximately $8.7 million in cash; an 8%, three year,
$4.8 million note; 3,950,000 shares of the Company's common stock; and a
contingent cash earn-out payable over five years based on New STL's future
profits. In addition, on November 19, 1998, the Company paid $180,298 to its
financial advisor for services rendered in association with the acquisition.
The following is a summary of certain combined financial information for
EDL-STL for the year ended September 30, 1998;
<TABLE>
<S> <C>
Total assets......................................................... $15,991,700
Total working capital................................................ 11,984,721
Total equity......................................................... 12,399,831
Total revenues....................................................... 35,744,176
</TABLE>
At September 30, 1998, the Company has capitalized approximately $577,000
in costs associated with this acquisition. These capitalized costs are included
in other assets in the accompanying financial statements.
F-17
<PAGE>
<PAGE>
PARAVANT INC.
Index to Exhibits with form 10-KSB dated December 23, 1998
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION OF EXHIBIT
- ------- -----------------------------------------------------------------------------------------------------------
<S> <C>
2.1 -- Acquisition Agreement by and among Paravant Computer Systems, Inc., Engineering Development
Laboratories, Incorporated, Signal Technology Laboratories, Inc. James E. Clifford, Edward W. Stefanko,
C. David Lambertson, C. Hyland Schooley, Peter Oberbeck and Leo S. Torresani (incorporated by reference
to Exhibit 2.1 to the Registrant's Current Report on Form 8-K dated October 8, 1998).
3(i) -- Amended and Restated Articles of Incorporation as filed with the Florida Department of State on
December 8, 1998.
3(ii) -- Amended and Restated By-laws (incorporated by reference to exhibit 3.2 of Form 10-QSB of the quarterly
period ended June 30, 1996).
4.1A -- Specimen Common Stock Certificate as amended November 1, 1998.
4.2A -- Specimen Warrant (incorporated by reference to Exhibit 4.2 to Amendment No. 4 to Registration Statement
on Form SB-2).
10.3B -- Incentive Stock Option Plan, as amended March 12, 1998 (incorporated by reference to Exhibit 10.3B to
the Registrant's Quarterly Report on Form 10-QSB for the quarterly period ended March 31, 1998).
10.14A -- Non-employee Directors' Stock Option Plan, as amended March 12, 1998 (incorporated by reference to
Exhibit 10.14A to the Registrant's Quarterly Report on Form 10-QSB for the quarterly period ended March
31, 1998).
10.32 -- Agreements Granting Special Stock Option between the Registrant and John P. Singleton dated as of June
18, 1998 (incorporated by reference to Exhibit 10.32 to the Registrant's Quarterly Report on Form 10-QSB
for the quarterly period ended June 30, 1998).
10.33 -- Agreements clarifying Prior Grant of Stock Options between the Registrant and Michael F. Maguire dated
as of June 18, 1998 (incorporated by reference to Exhibit 10.33 to the Registrant's Quarterly Report on
Form 10-QSB for the quarterly period ended June 30, 1998).
10.34 -- Promissory Note to Registrant from Richard P. McNeight dated June 3, 1998 (incorporated by reference to
Exhibit 10.34 to the Registrant's Quarterly Report on Form 10-QSB for the quarterly period ended June 30,
1998).
10.35 -- Promissory Note to Registrant from UES Inc. dated July 2, 1998 (incorporated by reference to Exhibit
10.35 to the Registrant's Quarterly Report on Form 10-QSB for the quarterly period ended June 30, 1998).
The note is personally guaranteed by Krishan K. Joshi.
10.36 -- Credit Agreement by Registrant with National City Bank.
10.37 -- Commercial Note by Registrant with National City Bank.
10.38 -- Employment Agreement between Paravant Computer Systems, Inc. and Edward W. Stefanko dated October 1,
1998.
10.39 -- Employment Agreement between Paravant Computer Systems, Inc. and C. Hyland Schooley dated October 1,
1998.
10.40 -- Employment Agreement between Paravant Computer Systems, Inc. and James E. Clifford dated October 1,
1998.
10.41 -- Non-Competition Agreement between Paravant Computer Systems, Inc. and C. Hyland Schooley dated October
1, 1998.
10.42 -- Subordinated Note from Paravant Computer Systems, Inc. to Edward W. Stefanko dated October 1, 1998.
10.43 -- Subordinated Note from Paravant Computer Systems, Inc. to Hyland Schooley dated October 1, 1998.
10.44 -- Subordinated Note from Paravant Computer Systems, Inc. to James E. Clifford dated October 1, 1998.
10.45 -- Lease Agreement between Engineering Development Laboratories, Incorporated and UES, Incorporated, dated
November 26, 1996 (as amended).
10.46 -- Lease Agreement between Signal Technology Laboratories, Inc. and UES, Incorporated dated August 1, 1996
(as amended through October 1, 1997).
10.47 -- Mutual Commitment to Build and to Lease between Engineering Development Laboratories, Incorporated, UES,
Inc. and Beavercreek Enterprises dated June 5, 1998.
10.48 -- Mutual Commitment to Build and to Lease between Signal Technology Laboratories, Inc., UES, Inc. and
Beavercreek Enterprises dated June 5, 1998.
11 -- Statement re: computation of per share earnings (not required because the relevant computation can be
clearly determined from material contained in the financial statements).
21 -- Subsidiaries of Paravant Inc.
27 -- Financial Data Schedule.
</TABLE>
<PAGE>
<PAGE>
EXHIBIT 3(i)
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
PARAVANT INC.
The Articles of Incorporation of PARAVANT INC. have been amended and
restated to read as follows:
ARTICLE I - NAME
The name of this corporation is PARAVANT INC.
ARTICLE II - NATURE OF BUSINESS
The corporation may engage in any activity or business permitted under
the laws of the United States and of this State, to include the transaction of
all lawful business for which corporations may be incorporated under Chapter
607, Florida Statutes.
ARTICLE III - CAPITAL STOCK
(i) The number of shares of Common Stock which this Corporation is
authorized to have issued at any time is 30,000,000 shares at a par value of
$.015 per share.
(ii) The number of shares of Preferred Stock which this Corporation is
authorized to have issued at any time is 2,000,000 shares at par value of $.01
per share. The Board of Directors of the Corporation is expressly authorized to
set by its own resolutions, preferences, conversion and other rights, voting
powers, restrictions, limitations as to dividends, qualifications, terms and
conditions of redemption and liquidation pertaining to such Preferred Stock.
ARTICLE IV - CURRENT REGISTERED AGENT AND ADDRESS
The name and address of the current registered agent are Richard P.
McNeight, 1615-A West NASA Blvd., Melbourne, Florida 32901.
<PAGE>
<PAGE>
CERTIFICATE TO
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF PARAVANT INC.
The undersigned, Richard P. McNeight, President of PARAVANT INC., a
Florida corporation (the "Corporation"), does hereby certify as follows:
1. In accordance with Sections 607.1002 and 607.1007 of the Florida
Statutes, the Board of Directors of the Corporation approved by
written consent dated November 24, 1998, the amendment and
restatement of the Corporation's Articles of Incorporation as
attached hereto. This amendment and restatement of the
Corporation's Articles of Incorporation does not contain an
amendment to the Articles of Incorporation requiring shareholder
approval.
2. The undersigned officer of the Corporation has been duly
authorized to submit these Amended and Restated Articles of
Incorporation of the Corporation to the Department of State of
Florida for filing in accordance with Section 607.1007, Florida
Statutes.
PARAVANT INC.
By:/s/ Richard P. McNeight
---------------------------------
Richard P. McNeight, President
2
<PAGE>
<PAGE>
COUNTERSIGNED AND REGISTERED
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
(Jersey City NJ) TRANSFER AGENT
AND REGISTRAR
BY
AUTHORIZED OFFICER
PARAVANT COMPUTER SYSTEMS, INC. [NAME CHANGED TO PARAVANT INC.]
INCORPORATED UNDER THE LAWS OF THE STATE OF FLORIDA
CUSIP 699376 10 9
SEE REVERSE FOR CERTAIN DEFINITIONS
THIS IS TO CERTIFY THAT
is the registered holder of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, PAR VALUE $.045 PER
SHARE, OF PARAVANT COMPUTER SYSTEMS, INC.
The shares evidenced by this Certificate are transferable only on the books
of the Corporation by the holder hereof, in person or by duly authorized
attorney or legal representative, upon surrender of this Certificate properly
endorsed. This Certificate and the shares represented hereby are subject to all
the provisions of the Articles of Incorporation and Bylaws of the Corporation
and any and all amendments thereto (copies of which are on file with the
Transfer Agent). The shares represented by this Certificate are not deposits or
accounts and are not federally insured or guaranteed.
This Certificate is not valid unless countersigned and registered by the
Transfer Agent and Registrar.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
executed by the facsimile signatures of its duly authorized officers and has
caused its facsimile seal to be affixed hereto.
DATED:
WILLIAM R. CRAVEN KRISHAN K. JOSHI
Secretary [SEAL] Chairman and Chief Executive Officer
<PAGE>
<PAGE>
PARAVANT COMPUTER SYSTEMS, INC.
THE CORPORATION WILL FURNISH TO EACH SHAREHOLDER UPON REQUEST AND WITHOUT
CHARGE, A FULL STATEMENT OF THE DESIGNATION, RELATIVE RIGHTS, PREFERENCES AND
LIMITATIONS OF THE SHARES OF EACH CLASS AUTHORIZED TO BE ISSUED AND, IF THE
CORPORATION IS AUTHORIZED TO ISSUE ANY CLASS OF PREFERRED SHARES IN SERIES, THE
DESIGNATION, RELATIVE RIGHTS, PREFERENCES AND LIMITATIONS OF EACH SUCH SERIES SO
FAR AS THE SAME HAVE BEEN FIXED AND THE AUTHORITY OF THE BOARD TO DESIGNATE AND
FIX THE RELATIVE RIGHTS, PREFERENCES AND LIMITATIONS OF OTHER SERIES.
--------------------------
KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT LOST, STOLEN OR
DESTROYED, THE CORPORATION MAY, IN ACCORDANCE WITH THE
CORPORATIION'S RESTATED AND AMENDED BY-LAWS, REQUIRE A BOND OF
INDEMNITY AS A CONDITION TO THE ISSUANCE OF A REPLACEMENT
CERTIFICATE.
The following abbreviations, when used in the inscription on the face of
this Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM-- as tenants in common UNIF GIFT MIN ACT--_____Custodian______
TEN ENT-- as tenants by the entireties (Cust) (Minor)
JT TEN-- as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as Act___________________________________
tenants in common (State)
Additional abbreviations may also be used though not in the above list.
For value received, ___________________________ hereby sell, assign and transfer
unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OR ASSIGNEE
[ ]
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------Shares
of the common stock evidenced by this Certificate, and do hereby irrevocably
constitute and appoint
- ----------------------------------------------------------------------, Attorney
to transfer the said shares on the books of the Corporation with full power of
substitution.
Dated____________________________
------------------------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGMENT MUST CORRESPOND WITH
THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE
IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT
OR ANY CHANGE WHATSOEVER.
Signature Guaranteed:
- ----------------------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS
AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE
MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17ad-15.
<PAGE>
<PAGE>
EXHIBIT 10.36
CREDIT AGREEMENT
between
PARAVANT COMPUTER SYSTEMS, INC.
and
NATIONAL CITY BANK
October 1, 1998
<PAGE>
<PAGE>
Table of Contents
<TABLE>
<S> <C>
1A. CROSS-REFERENCE............................................................1
1B. SUMMARY....................................................................1
2A. SUBJECT COMMITMENT.........................................................1
2A.01 AMOUNT...............................................................1
2A.02 TERM.................................................................1
2A.03 OPTIONAL REDUCTIONS..................................................1
2A.04 COMMITMENT FEE.......................................................1
2A.05 EXTENSION OF SUBJECT COMMITMENT......................................2
2B. SUBJECT LOANS..............................................................2
2B.01 SUBJECT NOTE.........................................................2
2B.02 CREDIT REQUESTS......................................................3
2B.03 CONDITION: NO DEFAULT................................................3
2B.04 CONDITION: PURPOSE...................................................3
2B.05 LOAN MIX.............................................................3
2B.06 AMOUNT...............................................................4
2B.07 CONTRACT PERIODS.....................................................4
2B.08 MATURITIES...........................................................4
2B.09 ROLLOVER.............................................................4
2B.10.1 INTEREST RR LOANS..................................................5
2B.10.2 INTEREST FFR LOANS.................................................5
2B.11 INTEREST: LIBOR LOANS................................................5
2B.12 DISBURSEMENT.........................................................6
2B.13 PREPAYMENTS..........................................................6
2B.14 LIBOR LOANS: UNAVAILABILITY..........................................6
2B.15 LIBOR LOANS: ILLEGALITY..............................................7
</TABLE>
<PAGE>
<PAGE>
Table of Contents
<TABLE>
<S> <C>
3A. INFORMATION................................................................7
3A.01 FINANCIAL STATEMENTS.................................................7
3A.02 NOTICE...............................................................9
3B. GENERAL FINANCIAL STANDARDS................................................9
3B.01 NET WORTH............................................................9
3B.02 CASH FLOW RATIO.....................................................10
3B.03 PRETAX INTEREST COVERAGE............................................10
3B.04 LEVERAGE............................................................10
3C. AFFIRMATIVE COVENANTS.....................................................10
3C.01 TAXES ..............................................................10
3C.02 FINANCIAL RECORDS...................................................11
3C.03 VISITATION..........................................................11
3C.04 INSURANCE...........................................................11
3C.05 CORPORATE EXISTENCE.................................................11
3C.06 COMPLIANCE WITH LAW.................................................11
3C.07 PROPERTIES..........................................................12
3D. NEGATIVE COVENANTS........................................................12
3D.01 EQUITY TRANSACTIONS.................................................12
3D.02 CREDIT EXTENSIONS...................................................13
3D.03 BORROWINGS .........................................................13
3D.04 LIENS, LEASES.......................................................14
3D.05 FIXED ASSETS........................................................15
3D.06 DIVIDENDS ..........................................................15
4A. CLOSING...................................................................15
4A.01 SUBJECT NOTE........................................................15
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4A.02 RESOLUTIONS/INCUMBENCY .............................................16
4A.03 LEGAL OPINION.......................................................16
4A.04 FINANCIAL STATEMENTS................................................16
4A.05 SECURITY AGREEMENTS.................................................16
4A.06 DOCUMENTATION FEE ..................................................16
4B. WARRANTIES................................................................16
4B.01 EXISTENCE ..........................................................16
4B.02 GOVERNMENTAL RESTRICTIONS...........................................16
4B.03 CORPORATE AUTHORITY.................................................17
4B.04 LITIGATION..........................................................17
4B.05 TAXES...............................................................17
4B.06 TITLE...............................................................17
4B.07 LAWFUL OPERATIONS...................................................17
4B.08 INSURANCE ..........................................................18
4B.09 FINANCIAL STATEMENTS................................................18
4B.10 DEFAULTS............................................................18
5A. EVENTS OF DEFAULT.........................................................18
5A.01 PAYMENTS ...........................................................18
5A.02 WARRANTIES .........................................................18
5A.03 COVENANTS WITHOUT GRACE.............................................19
5A.04 COVENANTS WITH GRACE................................................19
5A.05 CROSS-DEFAULT ......................................................19
5A.06 BORROWER'S SOLVENCY ................................................19
5B. EFFECTS OF DEFAULT........................................................19
5B.01 OPTIONAL DEFAULTS...................................................19
5B.02 AUTOMATIC DEFAULTS..................................................20
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5B.03 OFFSETS.............................................................20
6A. INDEMNITY: STAMP TAXES....................................................20
6B. INDEMNITY: GOVERNMENTAL COSTS/LIBOR LOANS.................................20
6C. INDEMNITY: FUNDING COSTS .................................................21
6D. CREDIT REQUESTS...........................................................21
6E. INDEMNITY: UNFRIENDLY TAKEOVERS ..........................................21
6F. INDEMNITY: CAPITAL REQUIREMENTS...........................................21
6G. INDEMNITY: COLLECTION COSTS...............................................22
6H. CERTIFICATE FOR INDEMNIFICATION...........................................22
7. BANK'S PURPOSE ...........................................................22
8. INTERPRETATION ...........................................................22
8.01 WAIVERS..............................................................22
8.02 CUMULATIVE PROVISIONS ...............................................22
8.03 BINDING EFFECT.......................................................23
8.04 SURVIVAL OF PROVISIONS...............................................23
8.05 IMMEDIATE U.S. FUNDS ................................................23
8.06 CAPTIONS.............................................................23
8.07 SUBSECTIONS..........................................................23
8.08 ILLEGALITY...........................................................23
8.09 OHIO LAW ............................................................23
8.10 INTEREST/FEE COMPUTATIONS............................................23
8.11 NOTICE...............................................................23
8.12 ACCOUNTING TERMS.....................................................24
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8.13 ENTIRE AGREEMENT ....................................................24
8.14 WAIVER OF JURY TRIAL.................................................24
8.15 LATE CHARGE, APPLICATION OF PAYMENTS.................................24
8.16 SHARING OF INFORMATION...............................................24
9. DEFINITIONS...............................................................24
Account Officer...........................................................25
Accumulated Funding Deficiency............................................25
Affiliate ................................................................25
Agreement.................................................................25
Bank .....................................................................25
Banking Day...............................................................25
Borrower..................................................................25
Company...................................................................25
Contract Period...........................................................25
Credit Request............................................................25
Debt .....................................................................25
Default under ERISA.......................................................26
Default Under This Agreement..............................................26
Distribution..............................................................26
Environmental Law.........................................................26
ERISA ....................................................................26
ERISA Regulator...........................................................26
Event of Default..........................................................26
Expiration Date...........................................................26
Federal Funds Rate........................................................27
FFR Loan..................................................................27
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Funded Indebtedness.......................................................27
GAAP......................................................................27
Guarantor.................................................................27
Insider ..................................................................27
Insolvency Action.........................................................28
LIBOR Pre-Margin Rate.....................................................28
LIBOR Loan................................................................28
Material..................................................................28
Most Recent 4A.04 Financial Statements....................................28
Net Income................................................................28
Net Worth.................................................................28
Pension Plan..............................................................28
Prime Rate................................................................29
Receivable ...............................................................29
Reference Rate............................................................29
Related Writing...........................................................29
Reportable Event..........................................................29
RR Loan...................................................................29
Subject Commitment........................................................29
Subject Indebtedness......................................................29
Subject Loan..............................................................29
Subject Note..............................................................29
Subordinated .............................................................29
Subsidiary ...............................................................30
Supplemental Schedule.....................................................30
Total Liabilities.........................................................30
Wholly-Owned..............................................................30
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plurals ..................................................................30
SIGNATURES AND ADDRESS........................................................30
EXHIBIT A: Supplemental Schedule (4B)
EXHIBIT B: Subject Note (2B.0 1; 4A.01)
EXHIBIT C: Extension Agreement (2A.05)
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CREDIT AGREEMENT
Agreement made as of October 1, 1998 by and between PARAVANT COMPUTER SYSTEMS,
INC. (Borrower) and NATIONAL CITY BANK (Bank):
1A. CROSS-REFERENCE -- Certain terms are defined in section 9.
1B. SUMMARY -- This Agreement sets forth the terms and conditions upon which the
Borrower may obtain Subject Loans on a revolving basis until the Expiration
Date. This Agreement also sets forth covenants and warranties made by the
parties to induce each other to enter into this Agreement and contains other
Material provisions.
2A. SUBJECT COMMITMENT -- The basic terms of the Subject Commitment and the
compensation therefore are as follows:
2A.01 AMOUNT -- The amount of the Subject Commitment is fourteen million
and no/100ths dollars ($14,000,000.00), but that amount may be reduced
from time to time pursuant to subsection 2A.03 and the Subject Commitment
may be terminated pursuant to section 5B.
2A.02 TERM -- The Subject Commitment shall commence as of the date of
this Agreement and shall remain in effect on a revolving basis until
December 31, 2001 (the Expiration Date) EXCEPT that a later Expiration
Date may be established from time to time pursuant to subsection 2A.05
and EXCEPT that the Subject Commitment shall end in any event upon any
earlier reduction thereof to zero pursuant to subsection 2A.03 or any
earlier termination pursuant to section 5B.
2A.03 OPTIONAL REDUCTIONS -- Borrower shall have the right, at all times
and without the payment of any premium, to permanently reduce the amount
of the Subject Commitment by giving Bank one Banking Day's prior written
notice of the amount of each such reduction and the effective date
thereof subject, however, to the following:
(a) No such reduction shall reduce the Subject Commitment to a
lesser aggregate amount than the sum of the aggregate unpaid
principal balance of the LIBOR Loans then outstanding plus the
aggregate unpaid principal balance of any LIBOR Loans to be
obtained pursuant to any unfulfilled Credit Request under
subsection 2B.02.
(b) Concurrently with each reduction Borrower shall prepay such
part, if any, of the principal of the Subject Loans then
outstanding as may be in excess of the amount of the Subject
Commitment as so reduced. Subsection 2B.13 and section 6C shall
apply to each such prepayment.
2A.04 COMMITMENT FEE -- Borrower agrees to pay Bank a commitment fee
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(a) based on the average daily difference between the amount of
the Subject Commitment from time to time in effect and the
aggregate unpaid principal balance of the Subject Loans then
outstanding,
(b) computed at the rate of one-eighth of one percent (1/8%) per
annum so long as the Subject Commitment remains in effect and
(c) payable in arrears on September 30, 1998 and
quarter-annually thereafter and at the end of the Subject
Commitment.
2A.05 EXTENSION OF SUBJECT COMMITMENT -- Whenever Borrower furnishes its
audited financial statements to Bank pursuant to clause (b) of subsection
3A.01, commencing with the year ending September 30, 1999, Borrower may
request that the Subject Commitment be extended one year to the February
I next following the Expiration Date then in effect. Bank agrees to give
consideration to each such request; but in no event shall Bank be
committed to extend the Subject Commitment, nor shall the Subject
Commitment be so extended, unless and until both Borrower and Bank shall
have executed and delivered an extension agreement substantially in the
form of Exhibit C with the blanks appropriately filled.
2B. SUBJECT LOANS -- Bank agrees that so long as the Subject Commitment remains
in effect Bank will, subject to the conditions of this Agreement, grant Borrower
such Subject Loans as Borrower may from time to time request. In addition, the
amount of any Subject Loans used by Borrower to finance the acquisition of
Engineering Development Laboratories, Incorporated and the acquisition of Signal
Technology Laboratories, Inc. which remains outstanding on October 1, 2001 may
be converted by Borrower into a five-year installment loan on terms and
conditions mutually acceptable to Borrower and Bank and the Subject Commitment
shall be reduced by the amount of any such conversion.
2B.01 SUBJECT NOTE -- The Subject Loans shall be evidenced at all times
by a Subject Note executed and delivered by Borrower, payable to the
order of Bank in a principal amount equal to the dollar amount of the
Subject Commitment as in effect at the execution and delivery of the
Subject Note and being in the form and substance of Exhibit B with the
blanks appropriately filled.
(a) Whenever Borrower shall obtain a Subject Loan, Bank shall
endorse an appropriate entry on the Subject Note or make an
appropriate entry in a loan account in Bank's books and records,
or both. Each entry shall be prima facie evidence of the data
entered; but such entries shall not be a condition to Borrower's
obligation to pay.
(b) No holder of any Subject Note shall transfer a Subject Note,
or seek a judgment or file a proof of claim based on a Subject
Note, without in each case first endorsing the Subject Note to
reflect the true amount owing thereon.
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2B.02 CREDIT REQUESTS -- Whenever Borrower desires to borrow pursuant to
this Agreement, Borrower shall give Bank an appropriate notice (a Credit
Request) with such information as Bank may reasonably request. The Credit
Request shall be irrevocable and shall (EXCEPT in the case of any
obtained at the execution and delivery of this Agreement) be given to
Bank not later than 12:00 noon Dayton time
(a) on the Banking Day the proceeds of any requested RR Loan or
FFR Loan is to be disbursed to Borrower and
(b) on the third (3rd) Banking Day prior to the Banking Day on
which the proceeds of any requested LIBOR Loan are to be
disbursed to Borrower.
Each Credit Request shall be made either in writing or by telephone,
PROVIDED that any telephone request shall be promptly confirmed in
writing and Borrower shall assume the risk of misunderstanding.
2B.03 CONDITION: NO DEFAULT -- Borrower shall not be entitled to obtain
any Subject Loan if
(a) any Default Under This Agreement shall then exist or would
thereupon begin to exist or
(b) any representation or warranty made in subsections 4B.01
through 4B.08 (both inclusive) shall have ceased to be true and
complete in any Material respect or
(c) there shall have occurred any Material adverse change in
Borrower's financial condition, properties or business since the
date of Borrower's Most Recent 4A.04 Financial Statements or in
its then most recent financial statements, if any, furnished to
Bank pursuant to subsection 3A.01.
Each Credit Request, both when made and when honored, shall of itself
constitute a continuing representation and warranty by Borrower that
Borrower is entitled to obtain, and Bank is obligated to make, the
requested Subject Loan.
2B.04 CONDITION: PURPOSE -- Borrower shall not use the proceeds of any
Subject Loan in any manner that would violate or be inconsistent with
Regulation U or X of the Board of Governors of the Federal Reserve
System; nor will it use any such proceeds for the purpose of financing
the acquisition of any corporation or other business entity if the
acquisition is publicly opposed by the latter's management and if Bank
deems that its participation in the financing would involve it in a
conflict of interest.
2B.05 LOAN MIX -- The Subject Loans at any one time outstanding may
consist of RR Loans, FFR Loans or LIBOR Loans or any combination thereof
as Borrower may from time to time duly elect.
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2B.06 AMOUNT -- No Subject Loan shall be made if, after giving effect
thereto, the aggregate unpaid principal balance of the Subject Loans
would exceed the amount of the Subject Commitment then in effect. Each
LIBOR Loan shall be in the principal sum of five hundred thousand dollars
($500,000) or any greater amount (subject to the aforesaid limitations)
that is a multiple of one hundred thousand dollars ($100,000).
2B.07 CONTRACT PERIODS -- Each LIBOR Loan shall have applicable thereto a
Contract Period to be duly elected by Borrower in the Credit Request
therefore. Each Contract Period shall begin on the date the loan proceeds
are to be disbursed and shall end on such date, not later than the
Expiration Date, as Borrower may select subject, however, to the
following:
The Contract Period for each LIBOR Loan shall end one month or
two or three months after the date of borrowing; PROVIDED, that
(1) if any such Contract Period otherwise would end on
a day that is not a Banking Day, it shall end instead
on the next following Banking Day unless that day falls
in another calendar month, in which latter case the
Contract Period shall end instead on the last Banking
Day of the next preceding calendar month, and
(2) if the Contract Period commences on a day for which
there is no numerical equivalent in the calendar month
in which the Contract Period is to end, it shall end on
the last Banking Day of that calendar month.
2B.08 MATURITIES -- The stated maturity of each RR Loan and each FFR Loan
shall be the Expiration Date. The stated maturity of each LIBOR Loan
shall be the last day of the Contract Period applicable thereto. In no
event, however, shall the stated maturity of any Subject Loan be later
than the Expiration Date.
2B.09 ROLLOVER -- If
(a) prior to the Expiration Date any LIBOR Loan shall not be
paid in full at the stated maturity thereof and
(b) Borrower shall have failed to duly give Bank a timely Credit
Request in respect thereof,
Borrower shall be deemed to have duly given Bank a timely Credit Request
to obtain (and Bank shall accordingly make) a RR Loan in a principal
amount equal to the unpaid principal of the LIBOR Loan then due, the
proceeds of which RR Loan shall be applied to the payment in full of the
LIBOR Loan then due; PROVIDED that no such RR Loan shall of itself
constitute a waiver of any then-existing Default Under This Agreement.
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2B.10.1 INTEREST: RR LOANS -- The principal of and overdue interest on
the RR Loans shall bear interest payable in arrears on the first day of
each month and at maturity and computed (in accordance with subsection
8.10)
(a) prior to maturity, at a fluctuating rate equal to the
Reference Rate from time to time in effect plus the applicable
RR margin (if any) and
(b) after maturity (whether occurring by lapse of time or by
acceleration), at a fluctuating rate equal to the Reference Rate
from time to time in effect plus the applicable RR margin (if
any) plus two percent (2%) per annum,
with each change in the Reference Rate automatically and
immediately changing the rate thereafter applicable to the RR
Loans; PROVIDED, that in no event shall the rate applicable to
the RR Loans after the maturity thereof be less than the rate
applicable thereto immediately after maturity. RR margin as used
in this subsection means zero percent (0.0%) per annum.
2B.10.2 INTEREST: FFR LOANS -- The principal of and overdue interest on
the FFR Loans shall bear interest payable in arrears on the first day of
each month and at maturity and computed (in accordance with subsection
8.10)
(a) prior to maturity, at a fluctuating rate equal to the
Federal Funds Rate from time to time in effect plus the
applicable FFR margin (if any) with each change in the Federal
Funds Rate automatically and immediately changing the rate
thereafter applicable to the FFR Loans. FFR margin as used in
this subsection means two percent (2.0%) per annum and
(b) after maturity (whether occurring by lapse of time or by
acceleration), each FFR Loan shall bear interest computed and
payable in the same manner as in the case of RR Loans EXCEPT
that in no event shall any FFR Loan bear interest after maturity
at a lesser rate than that applicable thereto immediately after
maturity.
2B.11 INTEREST: LIBOR LOANS -- The principal of and overdue interest on
each LIBOR Loan shall bear interest computed (in accordance with
subsection 8.10) and payable as follows:
(a) Prior to maturity, each LIBOR Loan shall bear interest at a
rate equal to
the LIBOR pre-margin rate in effect at the start of the
applicable Contract Period plus
the applicable LIBOR margin, namely, the amount shown in the
following table:
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Debt/Tangible Net Worth LIBOR Margin
Greater than or equal to 2.5:1 2.00%
Greater than or equal to 1.1:1.0 but less than 1.75%
Less than 1.1:1.0 1.50%
(b) After maturity (whether occurring by lapse of time or by
acceleration), each LIBOR Loan shall bear interest computed and
payable in the same manner as in the case of RR Loans EXCEPT
that in no event shall any LIBOR Loan bear interest after
maturity at a lesser rate than that applicable thereto
immediately after maturity.
(c) Interest on each LIBOR Loan shall be payable in arrears on
the last day of the Contract Period applicable thereto and at
maturity and, in the case of any Contract Period having a longer
term than every three (3) months after the first day of the
Contract Period.
2B.12 DISBURSEMENT -- Bank shall disburse the proceeds of each Subject
Loan to Borrower's general checking account with Bank in the absence of
written instructions from Borrower to the contrary.
2B. 13 PREPAYMENTS -- Borrower may from time to time prepay the principal
of the RR Loans in whole or in part and may from time to time prepay the
principal of any given series of LIBOR Loans in whole or in part, subject
to the following:
(a) Each prepayment of LIBOR Loans shall be applied solely to a
single LIBOR Loan, shall aggregate one million dollars
($1,000,000) or any multiple thereof or an amount equal to the
then aggregate unpaid principal balance thereof.
(b) Each prepayment of the RR Loans may be made without penalty
or premium. Any prepayment of any LIBOR Loans (regardless of the
reason for the prepayment) shall be subject to the payment of
any indemnity required by section 6C.
(c) No prepayment shall of itself reduce the Subject Commitment.
(d) Concurrently with each prepayment, Borrower shall prepay the
interest accrued on the prepaid principal.
2B.14 LIBOR LOANS: UNAVAILABILITY -- If at any time
(a) Bank shall determine that dollar deposits of the relevant
amount for the relevant Contract Period are not available in the
London interbank eurodollar
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market (in the case of a LIBOR Loan) for the purpose of funding
the LIBOR Loan in question, or
(b) Bank shall determine that circumstances affecting that
market make it impracticable for Bank to ascertain the rate or
rates applicable to such LIBOR Loans,
then and in each such case Bank shall, by written notice to Borrower,
suspend Borrower's right thereafter to obtain LIBOR Loans of the kind in
question, which suspension shall remain in effect until such time, if
any, as Bank may give written notice to Borrower that the condition
giving rise to the suspension no longer prevails.
2B.15 LIBOR LOANS: ILLEGALITY -- If any governmental authority shall
assert that it is unlawful for Bank to fund, make or maintain any LIBOR
Loans,
(a) Bank shall give Borrower prompt written notice thereof and
(b) Borrower shall promptly pay in full the principal of and
interest on the LIBOR Loan in question and make the
reimbursement, if any, required by section 6C.
3A. INFORMATION -- Borrower agrees that so long as the Subject Commitment
remains in effect and thereafter until the Subject Indebtedness shall have been
paid in full, Borrower will perform and observe each of the following:
3A.01 FINANCIAL STATEMENTS -- Borrower will furnish to Bank
(a) within forty-five (45) days after the end of each of the
first three quarter-annual periods of each of Borrower's fiscal
years, Borrower's balance sheet as at the end of the period and
its statements of cash flow, income and surplus reconciliation
for Borrower's current fiscal year to date, all prepared (but
unaudited) on a comparative basis with the prior year, in
accordance with GAAP (EXCEPT as disclosed therein) and in form
and detail satisfactory to Bank,
(b) as soon as available (and in any event within one hundred
twenty (120) days after the end of each of Borrower's fiscal
years), a complete copy of an annual audit report (including,
without limitation, all financial statements therein and notes
thereto) of Borrower for that year which shall be
(1) prepared on a comparative basis with the prior
year, in accordance with GAAP (EXCEPT as disclosed
therein) and in form and detail satisfactory to Bank,
(2) certified (without qualification as to GAAP) by
independent public accountants selected by Borrower and
satisfactory to Bank,
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(3) accompanied by a copy of any management report,
letter or similar writing furnished to Borrower by the
accountants in respect of Borrower's systems,
operations, financial condition or properties, and
(4) either (A) a written statement of the accountants
that in making the examination necessary for their
report or opinion they obtained no knowledge of the
occurrence of any Default Under This Agreement or (B)
if they know of any, their written disclosure of its
nature and status, PROVIDED, that the accountants shall
not be liable directly or indirectly to anyone for any
failure to obtain knowledge of any Default Under This
Agreement,
(c) concurrently with the delivery of any financial statement to
Bank pursuant to clause (a) or (b), a certificate by Borrower's
chief financial officer
(1) certifying that to the best of the officer's
knowledge and belief, (A) those financial statements
fairly present in all Material respects Borrower's
financial condition and the results of its operations
in accordance with GAAP subject, in the case of interim
financial statements, to routine year-end audit
adjustments and (B) no Default Under This Agreement
then exists or if any does, a brief description of the
default and Borrower's intentions in respect thereof,
and
(2) setting forth calculations indicating whether or
not Borrower is in compliance with the general
financial standards of section 3B,
(d) promptly when filed (in final form) or sent, a copy of
(1) each registration statement, Form 10-K annual
report, Form 10-Q quarterly report, Form 8-K current
report or similar document filed by Borrower with the
Securities and Exchange Commission (or any similar
federal agency having regulatory jurisdiction over
Borrower's securities) and
(2) each proxy statement, annual report, certificate,
notice or other document sent by Borrower to the
holders of any of its securities (or any trustee under
any indenture which secures any of its securities or
pursuant to which such securities are issued) and
(e) forthwith upon Bank's written request, such other
information in writing about Borrower's financial condition,
properties and operations and about Borrower's employee benefit
plans, if any, as Bank may from time to time reasonably request.
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3A.02 NOTICE -- Borrower will cause its chief financial officer, or in
his absence another officer designated by Borrower, to give Bank prompt
written notice whenever any officer of Borrower
(a) reasonably believes (or receives notice from any
governmental agency alleging) that any Reportable Event has
occurred in respect of any Pension Plan or that Borrower has
become in Material non-compliance with any law or governmental
order referred to in subsection 3C.06 if non-compliance
therewith would materially and adversely affect Borrower's
financial condition or its properties,
(b) receives from the Internal Revenue Service or any other
federal, state or local taxing authority any allegation of any
default by Borrower in the payment of any tax that is Material
in amount or notice of any assessment in respect thereof,
(c) learns there has been brought against Borrower before any
court, administrative agency or arbitrator any litigation or
proceeding which, if successful, might have a Material adverse
effect on Borrower,
(d) reasonably believes that any representation or warranty made
in subsections 4B.01 through 4B.08 (both inclusive) shall have
ceased in any Material respect to be true and complete or that
any Default Under This Agreement shall have occurred, or
(e) reasonably believes that there has occurred or begun to
exist any other event, condition or thing that likely may have a
Material, adverse effect on Borrower's financial condition,
operations or properties.
3B. GENERAL FINANCIAL STANDARDS -- Borrower agrees that so long as the Subject
Commitment remains in effect and thereafter until the Subject Indebtedness shall
have been paid in full, Borrower will observe each of the following:
3B.01 NET WORTH -- Borrower will not suffer or permit the sum of its Net
Worth plus its Insider Subordinated indebtedness, if any, at any time to
be less than the required minimum amount in effect at the time in
question. The required minimum amount shall be three million five hundred
thousand dollars ($3,500,000) EXCEPT that that amount shall be
permanently increased
(a) on September 30, 1998 and on each September 30 thereafter by
an amount equal to forty percent (40%) of Borrower's Net Income,
if any, after taxes, for the fiscal year then ending and
(b) upon each issuance or other sale by Borrower of any of its
capital stock or Insider Subordinated indebtedness by an amount
equal to the net proceeds (after costs and expenses) thereof.
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3B 02 CASH FLOW RATIO -- Borrower will not suffer or permit its cash flow
ratio at any time to fall below one hundred fifty percent (150%).
3B.03 PRETAX INTEREST COVERAGE -- Borrower will not, during any fiscal
year of Borrower (commencing with the present year), suffer or permit the
aggregate of
(a) its Net Income for that year plus
(b) its interest expense for that year plus
(c) its federal, state and local income taxes for that year
to be less than an amount equal to two (2.0) times its interest
expense for that year.
3B.04 LEVERAGE -- Borrower will not suffer or permit its Total
Liabilities (other than Insider Subordinated indebtedness, if any) at any
time to exceed an amount, for the relevant time period, equal to the
percentage of the sum of its Net Worth plus its Insider Subordinated
indebtedness, if any shown in the following table:
May 1, 1998 to September 30, 1998 5.0:
1.0
October 1, 1998 to September 30, 1999 3.0:
1.0
October 1, 1999 and thereafter 2.0:
1.0
3C. AFFIRMATIVE COVENANTS -- Borrower agrees that so long as the Subject
Commitment remains in effect and thereafter until the Subject Indebtedness shall
have been paid in full, Borrower will perform and observe each of the following:
3C.01 TAXES -- Borrower will pay in full
(a) prior in each case to the date when penalties for the
nonpayment thereof would attach, all taxes, assessments and
governmental charges and levies for which it may be or become
subject and
(b) prior in each case to the date the claim would become
delinquent for non-payment, all other lawful claims (whatever
their kind or nature) which, if unpaid, might become a lien or
charge upon its property;
PROVIDED, that no item need be paid so long as and to the extent that it
is contested in good faith and by timely and appropriate proceedings
which are effective to stay enforcement thereof.
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3C.02 FINANCIAL RECORDS -- Borrower will at all times keep true and
complete financial records in accordance with GAAP and, without limiting
the generality of the foregoing, make appropriate accruals to reserves
for estimated and contingent losses and liabilities.
3C.03 VISITATION -- Borrower will permit Bank at all reasonable times
(a) to visit and inspect Borrower's properties and examine its
records at Bank's expense and to make copies of and extracts
from such records and
(b) to consult with Borrower's directors, officers, employees,
accountants, actuaries, trustees and plan administrators in
respect of its financial condition, properties and operations
and the financial condition of its employee benefit plans, each
of which parties is hereby authorized to make such information
available to Bank to the same extent that it would be to
Borrower.
3C.04 INSURANCE -- Borrower will
(a) keep itself and all of its insurable properties insured at
all times to such extent, with such deductibles, by such
insurers and against such hazards and liabilities as is
generally and prudently done by like businesses, EXCEPT that if
a more specific standard is provided in any Related Writing, the
more specific standard shall prevail and
(b) forthwith upon Bank's written request, furnish to Bank such
information about Borrower's insurance as Bank may from time to
time reasonably request, which information shall be prepared in
form and detail reasonably satisfactory to Bank and certified by
an officer of Borrower.
3C.05 CORPORATE EXISTENCE -- Borrower will at all times maintain its
corporate existence, rights and franchises.
3C.06 COMPLIANCE WITH LAW -- Borrower will comply with all laws (whether
federal, state or local and whether statutory, administrative or judicial
or other) and with every lawful governmental order (whether
administrative or judicial) and will, without limiting the generality of
the foregoing,
(a) use and operate all of its facilities and properties in
Material compliance with all Environmental Laws and handle all
hazardous materials in Material compliance therewith; keep in
full effect each permit, approval, certification, license or
other authorization required by any environmental law for the
conduct of any Material portion of its business; and comply in
all other Material respects with all Environmental Laws;
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(b) make a full and timely payment of premiums required by ERISA
and perform and observe all such further and other requirements
of ERISA such that no Default under ERISA shall occur or begin
to exist and
(c) comply with all Material requirements of all occupational
health and safety laws;
PROVIDED, that this subsection shall not apply to any of the foregoing
(i) if and to the extent that the same shall be contested in
good faith by timely and appropriate proceedings which are
effective to stay enforcement thereof and against which
appropriate reserves shall have been established or
(ii) in any other case if non-compliance therewith would not
materially and adversely affect Borrower's financial condition,
properties or business.
3C.07 PROPERTIES -- Borrower will maintain all fixed assets necessary to
its continuing operations in good working order and condition, ordinary
wear and tear excepted.
3D. NEGATIVE COVENANTS -- Borrower agrees that so long as the Subject
Commitments remain in effect and thereafter until the Subject Indebtedness shall
have been paid in full, Borrower will observe, and will cause each Subsidiary to
observe, such of the following provisions as are on their respective parts to be
complied with, namely:
3D.01 EQUITY TRANSACTIONS -- Borrower will not
(a) be a party to any merger or consolidation,
(b) purchase or otherwise acquire all or substantially all of
the assets and business of any corporation or other business
enterprise,
(c) create, acquire or have any Subsidiary, or be or become a
party to any joint venture or partnership, or make or keep any
investment in any stocks or other equity securities of any kind
other than any investment fully disclosed in Borrower's Most
Recent 4A.04 Financial Statements or in the Supplemental
Schedule or
(d) lease as lessor, sell, sell-leaseback or otherwise transfer
(whether in one transaction or a series of transactions) all or
any substantial part of its fixed assets EXCEPT chattels that
shall have become obsolete or no longer useful in its present
business;
PROVIDED, that if no Default Under This Agreement shall then exist and if
none would thereupon begin to exist, this subsection shall not apply to
any transaction referred to in
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clause (a) or (b) if (1) after giving effect thereto, the nature of
Borrower's business shall not be materially different from that at the
date of this Agreement and (2) there shall have been executed and
delivered to Bank an assumption agreement (to be in form and substance
satisfactory to Bank) by the surviving corporation (if not Borrower) in
the case of any merger, by the resulting corporation in the case of any
consolidation and by the transferee (if not Borrower) in any transfer of
any kind of assets.
3D.02 CREDIT EXTENSIONS -- Borrower will not
(a) make or keep any investment in any notes, bonds or other
obligations of any kind for the payment of money or make or have
outstanding at any time any advance or loan to anyone or
(b) be or become a Guarantor of any kind;
PROVIDED, that this subsection shall not apply to
(i) any existing or future advance made to an officer or
employee of Borrower solely for the purpose of paying ordinary
and necessary business expenses of Borrower,
(ii) any existing or future investment in direct obligations of
the United States of America or any agency thereof, or in
certificates of deposit issued by Bank, or in any other
money-market investment if it carries the highest quality rating
of any nationally-recognized rating agency, PROVIDED, that no
such investment shall mature more than ninety (90) days after
the date when made,
(iii) any existing investment, advance, loan or Guaranty fully
disclosed in Borrower's Most Recent 4A.04 Financial Statements
or in the Supplemental Schedule,
(iv) any existing or future Guaranty of any direct or contingent
obligation owing to Bank or
(v) any endorsement of a check or other medium of payment for
deposit or collection, or any similar transaction in the normal
course of business.
3D.03 BORROWINGS -- Borrower will not create, assume or have outstanding
at any time any indebtedness for borrowed money or any Funded
Indebtedness of any kind; PROVIDED, that this subsection shall not apply
to
(i) the Subject Indebtedness or any other Debt owing to Bank,
(ii) any Subordinated indebtedness,
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(iii) any existing or future indebtedness secured by a purchase
money security interest permitted by subsection 3D.04 or
incurred under a lease permitted by subsection 3D.04 or
(iv) any existing indebtedness fully disclosed in Borrower's
Most Recent 4A.04 Financial Statements or in the Supplemental
Schedule or any renewal or extension thereof in whole or in
part.
3D.04 LIENS, LEASES -- Borrower will not
(a) lease any property as lessee or acquire or hold any property subject
to any land contract, inventory consignment or other title retention
contract,
(b) sell or otherwise transfer any Receivables, whether with or without
recourse or
(c) suffer or permit any property now owned or hereafter acquired by it
to be or become encumbered by any mortgage, security interest, lien or
financing statement;
PROVIDED, that this subsection shall not apply to
(i) any tax lien, or any lien securing workers' compensation or
unemployment insurance obligations, or any mechanic's, carrier's
or landlord's lien, or any lien arising under ERISA, or any
security interest arising under article four (bank deposits and
collections) or five (letters of credit) of the Uniform
Commercial Code, or any similar security interest or other lien,
EXCEPT that this clause (i) shall apply only to security
interests and other liens arising by operation of law (whether
statutory or common law) and in the ordinary course of business
and shall not apply to any security interest or other lien that
secures any indebtedness for borrowed money or any Guaranty
thereof or any obligation that is in Material default in any
manner (other than any default contested in good faith by timely
and appropriate proceedings effective to stay enforcement of the
security interest or other lien in question),
(ii) zoning or deed restrictions, public utility easements,
minor title irregularities and similar matters having no adverse
effect as a practical matter on the ownership or use of any of
the property in question,
(iii) any lien securing or given in lieu of surety, stay, appeal
or performance bonds, or securing performance of contracts or
bids (other than contracts for the payment of money borrowed),
or deposits required by law or governmental regulations or by
any court order, decree, judgment or rule or as a condition to
the transaction of business or the exercise of any right,
privilege or license, EXCEPT that this clause (iii) shall not
apply to any lien or deposit securing an obligation that is in
Material default in any manner (other than any default contested
in good
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faith by timely and appropriate proceedings effective to stay
enforcement of the security interest or other lien in question),
(iv) any mortgage, security interest or other lien securing only
Borrower's Debt to Bank,
(v) any mortgage, security interest or other lien (each, a
"purchase money security interest") which is created or assumed
in purchasing, constructing or improving any real property or
equipment or to which any such property is subject when
purchased, PROVIDED, that (A) the purchase money security
interest shall be confined to the aforesaid property, (B) the
indebtedness secured thereby does not exceed the total cost of
the purchase, construction or improvement and (C) any such
indebtedness, if repaid in whole or in part, cannot be
reborrowed,
(vi) any lease other than any capitalized lease (it being agreed
that a capitalized lease is a lien rather than a lease for the
purposes of this Agreement) so long as the aggregate annual
rentals of all such leases do not exceed two hundred fifty
thousand dollars ($250.000),
(vii) any mortgage, security interest or other lien which
(together with the indebtedness secured thereby) is fully
disclosed in Borrower's Most Recent 4A.04 Financial Statements
or in the Supplemental Schedule or
(viii) any financing statement perfecting a security interest
that would be permissible under this subsection.
3D.05 FIXED ASSETS -- Borrower will not invest (net after trade-ins, if
any) in fixed assets and leasehold improvements during any fiscal year
(commencing with the present year) more than two hundred fifty thousand
dollars ($250,000) plus its allowable obsolescence, amortization and
depreciation charges for that year.
3D.06 DIVIDENDS -- Borrower will not make or commit itself to make any
Distribution to its shareholders at any time if any Default Under This
Agreement shall then exist or would thereupon occur, nor will Borrower at
any time make any Distribution other than any dividend payable solely in
cash.
4A. CLOSING -- Prior to or at the execution and delivery of this Agreement
Borrower shall have complied or caused compliance with each of the following:
4A.01 SUBJECT NOTE -- Borrower shall have executed and delivered a
Subject Note to Bank in accordance with subsection 2B. ) 1.
4A.02 RESOLUTIONS/INCUMBENCY -- Borrower's secretary or assistant
secretary shall have certified to Bank (a) a copy of resolutions duly
adopted by Borrower's board of directors in respect of this Agreement and
(b) the names and true signatures of officers
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authorized to execute and deliver this Agreement and Related Writings on
behalf of Borrower.
4A.03 LEGAL OPINION -- Borrower's counsel shall have rendered to Bank
their written opinion in respect of the matters referred to in
subsections 4B.01, 4B.02, 4B.03 and 4B.04 and in respect of the
perfection of each mortgage, security interest or other lien referred to
in this section 4A, which opinion shall be in such form and substance
(and may be subject only to such qualifications and exceptions, if any)
as shall be satisfactory to Bank.
4A.04 FINANCIAL STATEMENTS -- Borrower shall have furnished to Bank at
least one true and complete copy of each of the following: Borrower's
annual audit report (including, without limitation, all financial
statements therein and notes thereto and the accompanying accountants'
certificate and management report) prepared as at September 30, 1997 and
annual audit reports for each of Borrower's two next preceding fiscal
years (each having been certified by Peat Marwick) and Borrower's
unaudited interim financial statements prepared as at March 31, 1998.
4A.05 SECURITY AGREEMENTS -- Borrower shall have executed and delivered
to Bank security agreements being in form and substance satisfactory to
Bank and granting Bank security interests in and to all of Borrower's
existing and future equipment and in all of Borrower's inventory and
Receivables as security for Borrower's Debt to Bank. Borrower shall have
joined with Bank in executing and filing such financing statements and
other documents and in making and doing such further and other acts and
things as Bank may deem necessary for the evidence, perfection or other
protection of Bank's security interests.
4A.06 DOCUMENTATION FEE -- Borrower shall pay Bank a documentation fee of
fifteen thousand dollars ($15,000).
4B. WARRANTIES -- Subject only to such additions and exceptions, if any, as may
be set forth in the Supplemental Schedule or in Borrower's Most Recent 4A.04
Financial Statements, Borrower represents and warrants as follows:
4B.01 EXISTENCE -- Borrower is a duly organized and validly existing
Florida corporation in good standing. Borrower is duly qualified to
transact business in each state or other jurisdiction in which it owns or
leases any real property or in which the nature of the business conducted
makes such qualification necessary or, if not so qualified, such failure
to qualify will have no Material adverse effect upon Borrower's financial
condition and its ability to transact business. Borrower has no
Subsidiaries.
4B.02 GOVERNMENTAL RESTRICTIONS -- No registration with or approval of
any governmental agency of any kind is required on the part of Borrower
for the due execution and delivery or for the enforceability of this
Agreement or any Related Writing other than the filing or recording of
documents with public officials, the noting of title
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certificates and similar acts and things related to the perfection of the
mortgages, security interests and other liens referred to in section 4A.
4B.03 CORPORATE AUTHORITY -- Borrower has requisite corporate power and
authority to enter into this Agreement and to obtain and secure the
Subject Loan in accordance with this Agreement. The officer executing and
delivering this Agreement on behalf of Borrower has been duly authorized
to do so and to execute and deliver a Subject Note and other Related
Writings in accordance with section 4A. Neither the execution and
delivery of this Agreement or any Related Writing by Borrower nor its
performance and observance of the respective provisions thereof will
violate any existing provision in its articles of incorporation,
regulations or by-laws or any applicable law or violate or otherwise
constitute a default under any contract or other obligation now existing
and binding upon it. Upon the execution and delivery thereof, this
Agreement and the aforesaid Related Writings will each become a valid and
binding obligation enforceable against Borrower according to their
respective tenors subject, however, to any applicable insolvency or
bankruptcy law of general applicability and general principles of equity.
4B.04 LITIGATION -- No litigation or proceeding is pending against
Borrower before any court, administrative agency or arbitrator which
might, if successful, have a Material adverse effect on Borrower.
4B.05 TAXES -- Borrower has filed all federal, state and local tax
returns which are required to be filed by it and paid all taxes due as
shown thereon (EXCEPT to the extent, if any, permitted by subsection
3C.01). The Internal Revenue Service has audited Borrower's tax returns
through the year ended September 30, 1992 and has not alleged any
Material default by Borrower in the payment of any tax Material in amount
or threatened to make any assessment in respect thereof which has not
been reflected in Borrower's Most Recent 4A.04 Financial Statements
4B.06 TITLE -- Borrower has good and marketable title to all assets
reflected in its Most Recent 4A.04 Financial Statements EXCEPT for
changes resulting from transactions in the ordinary course of business.
All such assets are clear of any mortgage, security interest or other
lien of any kind other than any permitted by subsection 3D.04
4B.07 LAWFUL OPERATIONS -- Borrower's operations have at all relevant
times been and continue to be in Material compliance with all
requirements imposed by law, whether federal, state or local, whether
statutory, regulatory or other, including (without limitation) ERISA, all
Environmental Laws, and occupational safety and health laws and all
zoning ordinances. Without limiting the generality of the foregoing,
(a) no condition exists at, on or under any facility or other
property now or previously owned by Borrower which would give
rise to any Material liability under any Environmental Law; and
Borrower has not received any notice from any governmental
agency, court or anyone else that it is a potentially
responsible party for the clean-up of any environmental waste
site, is in violation of any
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environmental permit or law or has been placed on any registry
of solid or hazardous waste disposal site;
(b) No Material Accumulated Funding Deficiency exists in respect
of any of Borrower's Pension Plans; and no Reportable Event has
occurred in respect of any such plan which is continuing and
which constitutes grounds either for termination of the plan or
for court appointment of a trustee for the administration
thereof.
4B 08 INSURANCE -- Borrower's insurance coverage complies with the
standards set forth in subsection 3C.04 and those set forth in the
Related Writings referred to in subsections 4A.05 and 4A.06.
4B.09 FINANCIAL STATEMENTS -- Each of the financial statements referred
to in subsection 4A.04 has been prepared in accordance with generally
accepted accounting principles applied on a basis consistent with those
used by Borrower during its then next preceding full fiscal year EXCEPT
to the extent, if any, specifically noted therein and fairly presents in
all Material respects (subject to routine year-end audit adjustments in
the case of the unaudited financial statements) it's financial condition
as of the date thereof (including a full disclosure of Material
contingent liabilities, if any) and the results of its operations, if
any, for the fiscal period then ending. There has been no Material
adverse change in Borrower's financial condition, properties or business
since the date of Borrower's Most Recent 4A.04 Financial Statements nor
any change in its accounting procedures since the end of Borrower's
latest full fiscal year covered by those statements.
4B.10 DEFAULTS -- No Default Under This Agreement exists, nor will any
exist immediately after the execution and delivery of this Agreement.
5A. EVENTS OF DEFAULT -- Each of the following shall constitute an Event of
Default hereunder:
5A.01 PAYMENTS -- If any principal included in the Subject Indebtedness
shall not be paid in full promptly when the same becomes payable; or if
any Subject Indebtedness (EXCEPT principal) or any of Borrower's other
Debt to Bank (EXCEPT any payable on demand) shall not be paid in full
promptly when the same becomes payable and shall remain unpaid for ten
(10) consecutive days thereafter; or if such of Borrower's Debt, if any,
to Bank, as may be payable on demand shall not be paid in full within ten
(10) days after any actual demand for payment.
5A.02 WARRANTIES -- If any representation, warranty or statement made in
this Agreement or in any Related Writing referred to in section 4A shall
be false or erroneous in any respect; or if any representation, warranty
or statement hereafter made by or on behalf of Borrower in any Related
Writing not referred to in section 4A shall be false or erroneous in any
Material respect.
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5A.03 COVENANTS WITHOUT GRACE -- If Borrower shall fail or omit to
perform or observe any provisions in subsections 3A.02 or 3B.03.
5A.04 COVENANTS WITH GRACE -- If anyone (other than Bank and its agents)
shall fail or omit to perform and observe any agreement (other than those
referred to in subsections 5A.01 or 5A.03) contained in this Agreement or
any Related Writing that is on its part to be complied with, and that
failure or omission shall not have been fully corrected within thirty
(30) days after the giving of written notice to Borrower by Bank that it
is to be remedied.
5A.05 CROSS-DEFAULT -- If any of Borrower's indebtedness for borrowed
money (regardless of maturity) or any of its Funded Indebtedness shall be
or become "in default" (as defined below) EXCEPT any if and only so long
as the aggregate unpaid principal balance of all such indebtedness in
default does not exceed one hundred fifty thousand dollars ($150,000) at
any one time outstanding. In this subsection, in default means that (a)
there shall have occurred (or shall exist) in respect of the indebtedness
in question (either as in effect at the date of this Agreement or as in
effect at the time in question) any event, condition or other thing which
constitutes, or which with the giving of notice or the lapse of any
applicable grace period or both would constitute, a default which
accelerates (or permits any creditor or creditors or representative or
creditors to accelerate) the maturity of any such indebtedness; or (b)
any such indebtedness (other than any payable on demand) shall not have
been paid in full at its stated maturity; or (c) any such indebtedness
payable on demand shall not have been paid in full within ten (10)
Banking Days after any actual demand for payment.
5A.06 BORROWER'S SOLVENCY -- If (a) Borrower shall discontinue
operations, or (b) Borrower shall commence any Insolvency Action of any
kind or admit (by answer, default or otherwise) the Material allegations
of, or consent to any relief requested in, any Insolvency Action of any
kind commenced against Borrower by its creditors or any thereof, or (c)
any creditor or creditors shall commence against Borrower any Insolvency
Action of any kind which shall remain in effect (neither dismissed nor
stayed) for thirty (30) consecutive days.
5B. EFFECTS OF DEFAULT -- Notwithstanding any contrary provision or inference in
this Agreement or in any Related Writing:
5B.01 OPTIONAL DEFAULTS -- If any Event of Default referred to in
subsection 5A.01 through 5A.05, both inclusive, shall occur and be
continuing, Bank shall have the right in its discretion, by giving
written notice to Borrower,
(a) to terminate the Subject Commitment (if not already expired or
reduced to zero pursuant to section 2A or terminated pursuant to this
section) and Bank shall have no obligation thereafter to grant any
Subject Loan to Borrower, and
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(b) to accelerate the maturity of all of Borrower's Debt to Bank
(other than Debt, if any, already due and payable), and all such
Debt shall thereupon become and thereafter be immediately due
and payable in full without any presentment or demand and
without any further or other notice of any kind, all of which
are hereby waived by Borrower.
5B.02 AUTOMATIC DEFAULTS -- If any Event of Default referred to in
subsection 5A.06 shall occur,
(a) the Subject Commitment shall automatically and immediately
terminate (if not already expired or reduced to zero pursuant to
section 2A or terminated pursuant to this section) and Bank
shall have no obligation thereafter to grant any Subject Loan to
Borrower, and
(b) all of Borrower's Debt to Bank (other than Debt, if any,
already due and payable) shall thereupon become and thereafter
be immediately due and payable in full, all without any
presentment, demand or notice of any kind. which are hereby
waived by Borrower.
5B.03 OFFSETS -- If there shall occur or exist any Default Under This
Agreement referred to in subsection 5A.06, then, so long as that Default
Under This Agreement exists, Bank shall have the right at any time to set
off against and to appropriate and apply toward the payment of the
Subject Indebtedness then owing to it, whether or not the same shall then
have matured, any and all deposit balances then owing by Bank to or for
the credit or account of Borrower, all without notice to or demand upon
Borrower, all such notices and demands being hereby expressly waived.
6A. INDEMNITY: STAMP TAXES -- Borrower will pay all stamp taxes and similar
taxes, if any, including interest and penalties, if any, payable in respect of
the issuance of the Subject Indebtedness.
6B. INDEMNITY: GOVERNMENTAL COSTS/LIBOR LOANS -- If
(a) there shall be introduced or changed any treaty, statute, regulation
or other law, or there shall be made any change in the interpretation or
administration thereof, or there shall be made any request from any
central bank or other lawful governmental authority, the effect of any of
which events shall be to (1) impose, modify or deem applicable any
reserve or special deposit requirements against assets held by or
deposits in or loans by any national banking association (whether or not
applicable to Bank) or by Bank or (2) subject Bank to any tax, duty, fee,
deduction or withholding or (3) change the basis of taxation of payments
due to Bank from Borrower (otherwise than by a change in taxation of
Bank's overall net income) or (4) impose on Bank any penalty in respect
of any LIBOR Loans and
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(b) in Bank's sole opinion any such event (1) increases (or, if the event
were applicable to Bank, would increase) the cost of making, funding or
maintaining any LIBOR Loan or (2) reduces the amount of any payment to be
made to Bank in respect of the principal or interest on any LIBOR Loan or
other payment under this Agreement,
then, upon Bank's demand, Borrower shall from time to time pay Bank an amount
equal to each such cost increase or reduced payment, as the case may be.
6C. INDEMNITY: FUNDING COSTS -- Borrower agrees to indemnify Bank against any
loss relating in any way to its funding of any LIBOR Loan paid before its stated
maturity (whether a prepayment or a payment following any acceleration of
maturity) and to pay Bank, as liquidated damages for any such loss, an amount
(discounted to the present value in accordance with standard financial practice
at a rate equal to the treasury yield) equal to interest computed on the
principal payment from the payment date to the respective stated maturities
thereof at a rate equal to the difference of the contract rate less the treasury
yield, all as determined by Bank in its reasonable discretion. Treasury yield
means the annual yield on direct obligations of the United States having a
principal amount and maturity similar to that of the principal being paid.
6D. CREDIT REQUESTS -- Whenever Borrower shall revoke any Credit Request for a
LIBOR Loan, or shall for any other reason fail to borrow pursuant thereto or
otherwise comply therewith, or shall fail to honor any prepayment notice, then,
in each case on any bank's demand, Borrower shall pay each bank such amount as
will compensate it for any loss, cost or expense incurred by it by reason of its
liquidation or reemployment of deposits or other funds.
6E. INDEMNITY: UNFRIENDLY TAKEOVERS -- Borrower agrees to indemnify Bank and
hold Bank harmless from and against any and all liabilities, losses, damages,
costs and expenses of any kind (including, without limitation, the reasonable
fees and disbursements of counsel in connection with any investigative,
administrative or judicial proceeding, whether or not Bank shall be designated a
party thereto) which may be incurred by Bank relating to or arising out of any
actual or proposed use of proceeds of the Subject Loans in connection with the
financing of an acquisition of any corporation or other business entity,
PROVIDED that Bank shall have no right to be indemnified hereunder for its own
gross negligence or willful misconduct as determined by a court of competent
jurisdiction.
6F. INDEMNITY: CAPITAL REQUIREMENTS -- If
(a) at any time any governmental authority shall require National City
Corporation or Bank, whether or not the requirement has the force of law,
to maintain, as support for the Subject Commitment, capital in a
specified minimum amount that either is not required or is greater than
that required at the date of this Agreement, whether the requirement is
implemented pursuant to the "risk-based capital guidelines" (published at
12 CFR 3 in respect of "national banking associations", 12 CFR 208 in
respect of "state member banks" and 12 CFR 225 in respect of "bank
holding companies") or otherwise, and
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(b) as a result thereof the rate of return on capital of National City
Corporation or Bank or both (taking into account their then policies as
to capital adequacy and assuming full utilization of their capital) shall
be directly or indirectly reduced by reason of any new or added capital
thereby allocable to the Subject Commitment,
then and in each such case Borrower shall, on Bank's demand, pay Bank as an
additional fee such amounts as will in Bank's reasonable opinion reimburse
National City Corporation and Bank for any such reduced rate of return.
6G. INDEMNITY: COLLECTION COSTS -- If any Event of Default shall occur and shall
be continuing, Borrower will pay Bank such further amounts, to the extent
permitted by law, as shall cover Bank's costs and expenses (including, without
limitation, the reasonable fees, interdepartmental charges and disbursements of
its counsel) incurred in collecting the Subject Indebtedness or in otherwise
enforcing its rights and remedies in respect thereof.
6H. CERTIFICATE FOR INDEMNIFICATION -- Each demand by Bank for payment pursuant
to section 6A, 6B, 6C, 6D, 6E, 6F or 6G shall be accompanied by a certificate
setting forth the reason for the payment, the amount to be paid, and the
computations and assumptions in determining the amount, which certificate shall
be presumed to be correct in the absence of manifest error. In determining the
amount of any such payment, Bank may use reasonable averaging and attribution
methods.
7. BANK'S PURPOSE -- Bank represents and warrants to Borrower that Bank is
familiar with the Securities Act of 1933 as amended and the rules and
regulations thereunder and is not entering into this Agreement with any
intention of violating that Act or any rule or regulation thereunder, it being
understood, however, that Bank shall at all times retain full control of the
disposition of its assets.
8. INTERPRETATION -- This Agreement and the Related Writings shall be governed
by the following provisions:
8.01 WAIVERS -- Bank may from time to time in its discretion grant
Borrower waivers and consents in respect of this Agreement or any Related
Writing or assent to amendments thereof, but no such waiver or consent
shall be binding upon Bank unless specifically granted by Bank in
writing, which writing shall be strictly construed. Without limiting the
generality of the foregoing, Borrower agrees that no course of dealing in
respect of, nor any omission or delay in the exercise of, any right,
power or privilege by Bank shall operate as a waiver thereof, nor shall
any single or partial exercise thereof preclude any further or other
exercise thereof or of any other, as each such right, power or privilege
may be exercised either independently or concurrently with others and as
often and in such order as Bank may deem expedient.
8.02 CUMULATIVE PROVISIONS -- Each right, power or privilege specified or
referred to in this Agreement or any Related Writing is in addition to
and not in limitation
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of any other rights, powers and privileges that Bank may otherwise have
or acquire by operation of law, by other contract or otherwise.
8.03 BINDING EFFECT -- The provisions of this Agreement and the Related
Writings shall bind and benefit Borrower and Bank and their respective
successors and assigns, including each subsequent holder, if any, of the
Subject Notes or any thereof; PROVIDED, that no person or entity other
than Borrower may obtain Subject Loans; and PROVIDED, further, that
neither any holder of any Subject Note or assignee of any Subject Loan,
whether in whole or in part, shall thereby become obligated thereafter to
grant Borrower any Subject Loan.
8.04 SURVIVAL OF PROVISIONS -- All representations and warranties made in
or pursuant to this Agreement or any Related Writing shall survive the
execution and delivery of this Agreement and the Subject Notes. The
provisions of sections 6A, 6B, 6C and 6D shall survive the payment of the
Subject Indebtedness.
8.05 IMMEDIATE U.S. FUNDS -- Any reference to money is a reference to
lawful money of the United States of America which, if in the form of
credits, shall be in immediately available funds.
8.06 CAPTIONS -- The several captions to different sections and
subsections of this Agreement are inserted for convenience only and shall
be ignored in interpreting the provisions thereof.
8.07 SUBSECTIONS -- Each reference to a section includes a reference to
all subsections thereof (i.e., those having the same character or
characters to the left of the decimal point) EXCEPT where the context
clearly does not so permit.
8.08 ILLEGALITY -- If any provision in this Agreement or any Related
Writing shall for any reason be or become illegal, void or unenforceable,
that illegality, voidness or unenforceability shall not affect any other
provision.
8.09 OHIO LAW -- This Agreement and the Related Writings and the
respective rights and obligations of the parties hereto shall be
construed in accordance with and governed by internal Ohio law.
8.10 INTEREST/FEE COMPUTATIONS -- All interest and all fees for any given
period shall accrue on the first day thereof but not on the last day
thereof and in each case shall be computed on the basis of a 360-day year
and the actual number of days elapsed. In no event shall interest accrue
at a higher rate than the maximum rate, if any, permitted by law.
8.11 NOTICE -- A notice to or request of Borrower shall be deemed to have
been given or made under this Agreement or any Related Writing either
upon the delivery of a writing to that effect (either in person or by
transmission of a telecopy) to an officer of
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Borrower or five (5) days after a writing to that effect shall have been
deposited in the United States mail and sent, with postage prepaid, by
registered or certified mail, properly addressed to Borrower (Attention:
chief financial officer). No other method of actually giving actual
notice to or making a request of Borrower is hereby precluded. Every
notice required to be given to Bank pursuant to this Agreement or any
Related Writing shall be delivered (either in person or by transmission
of a telecopy) to an Account Officer of Bank. A notice or request by mail
is properly addressed to a party when addressed to it at the address set
forth opposite its signature below or at such other address as that party
may furnish to each of the others in writing for that purpose. A telecopy
is transmitted to a party when transmitted to the telecopy number set
forth opposite that party's signature below (or at such other telecopy
number as that party may furnish to the other in writing for that
purpose).
8.12 ACCOUNTING TERMS -- Any accounting term used in this Agreement shall
have the meaning ascribed thereto by GAAP subject, however, to such
modification, if any, as may be provided by section 9 or elsewhere in
this Agreement.
8.13 ENTIRE AGREEMENT -- This Agreement and the Related Writings referred
to in or otherwise contemplated by this Agreement set forth the entire
agreement of the parties as to the transactions contemplated by this
Agreement.
8.14 WAIVER OF JURY TRIAL -- The parties acknowledge and agree that any
controversy that may arise under this Agreement and the Related Writings
would involve difficult and complex issues and therefore agree that any
law suit growing out of or incidental to any such controversy will be
tried in a court of competent jurisdiction by a judge sitting without a
jury.
8.15 LATE CHARGE; APPLICATION OF PAYMENTS -- If Borrower fails to pay any
amount due hereunder, or any fee in connection herewith, in full within
ten (10) days after its due date, Borrower will, in each case, incur and
shall pay a late charge equal to the greater of twenty dollars ($20.00)
or five percent (5%) of the unpaid amount. The payment of a late charge
will not cure or constitute a waiver of any Event of Default under this
Agreement. Except as otherwise agreed in writing, payments will be
applied first to accrued but unpaid interest and fees, in that order, on
an invoice by invoice basis in the order of their respective due dates,
until paid in full, then to late charges and then to principal.
8.16 SHARING OF INFORMATION -- Bank shall have the right to furnish to
its Affiliates, and to such other persons or entities as Bank shall deem
advisable for the conduct of its business, information concerning the
business, financial condition, and property of Borrower, the amount of
the Debt of Borrower, and the terms, conditions, and other provisions
applicable to the respective parts thereof.
9. DEFINITIONS -- As used in this Agreement and in the Related Writings, EXCEPT
where the context clearly requires otherwise,
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Account Officer means that officer who at the time in question is
designated by Bank as the officer having primary responsibility for
giving consideration to Borrower's requests for credit or, in that
officer's absence, that officer's immediate superior or any other officer
who reports directly to that superior officer;
Accumulated Funding Deficiency shall have the meaning ascribed thereto in
section 302(a)(2) of ERISA;
Affiliate means, when used with reference to any person or entity (the
subject), a person or entity that is in control of, under the control of,
or under common control with, the subject, the term control meaning the
possession, directly or indirectly, of the power to direct the management
or policies of a person or entity, whether through the ownership of
voting securities, by contract, or otherwise;
Agreement means this Agreement and includes each amendment, if any, to
this Agreement;
Bank means National City Bank, a national banking association
headquartered in Cleveland, Ohio;
Banking Day means (a) in the case of a LIBOR Loan, a day on which banks
in the London Interbank Market deal in United States dollar deposits and
on which banking institutions are generally open for domestic and
international business in Cleveland, Ohio and in New York City and (b) in
any other case, any day other than a Saturday or a Sunday or a public
holiday or other day on which banking institutions in Cleveland, Ohio,
are generally closed and do not conduct a general banking business;
Borrower means Paravant Computer Systems, Inc., a Florida corporation;
Company refers to Borrower or to a Subsidiary of Borrower, as the case
may be;
Contract Period is defined in subsection 2B.07;
Credit Request means a request made pursuant to subsection 2B.02;
Debt means, collectively, all liabilities of the party or parties in
question to Bank, whether owing by one such party alone or with one or
more others in a joint, several, or joint and several capacity, whether
now owing or hereafter arising, whether owing absolutely or contingently,
whether created by loan, overdraft, Guaranty of payment or other contract
or by quasi-contract or tort, statute or other operation of law or other,
and whether participated to or from Bank in whole or in part; and in the
case of Borrower includes, without limitation, the Subject Indebtedness;
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Default under ERISA means (a) the occurrence or existence of a Material
Accumulated Funding Deficiency in respect of any of the Companies'
respective Pension Plans, (b) any failure by the Companies to make a full
and timely payment of premiums required by ERISA for insurance against
any employer's liability in respect of any such plan, (c) any Material
breach of a fiduciary duty by any Company or trustee in respect of any
such plan or (d) the existence of any action for the forcible termination
of any such plan;
Default Under This Agreement means an event, condition or thing which
constitutes (or which with the lapse of any applicable grace period or
the giving of notice or both would constitute) an Event of Default
referred to in section 5A and which has not been appropriately waived in
writing in accordance with this Agreement or corrected to Bank's full
satisfaction;
Distribution means a payment made, liability incurred or other
consideration (other than any stock dividend or stock split payable
solely in capital stock of Borrower) given by any Company for the
purchase, acquisition, redemption or retirement of any capital stock of
Borrower or as a dividend, return of capital or other distribution in
respect of Borrower's capital stock; and Distribute means to make a
Distribution;
Environmental Law means the Comprehensive Environmental Response,
Compensation, and Liability Act (42 USC 9601 et seq.), the Hazardous
Material Transportation Act (49 USC 1801 et seq.), the Resource
Conservation and Recovery Act (42 USC 6901 et seq.), the Federal Water
Pollution Control Act (33 USC 1251 et seq.), the Toxic Substances Control
Act (15 USC 2601 et seq.) and the Occupational Safety and Health Act (29
USC 651 et seq.), as such laws have been or hereafter may be amended, and
any and all analogous future federal, or present or future state or
local, statutes and the regulations promulgated pursuant thereto;
ERISA means the Employee Retirement Income Security Act of 1974 (P.L.
93-406) as amended from time to time and in the event of any amendment
affecting any section thereof referred to in this Agreement, that
reference shall be a reference to that section as amended, supplemented,
replaced or otherwise modified;
ERISA Regulator means any governmental agency (such as the Department of
Labor, the Internal Revenue Service and the Pension Benefit Guaranty
Corporation) having any regulatory authority over any of the Companies'
Pension Plans;
Event of Default is defined in section 5A;
Expiration Date means the date referred to as such in subsection 2A.02,
EXCEPT that in the event of any extension pursuant to subsection 2A.05,
Expiration Date shall mean the latest date to which the Subject
Commitment shall have been so extended;
FDIC Assessment Rate means the gross annual assessment rate (rounded
upwards, if necessary, to the next higher 1/16 of 1%) actually incurred
to the Federal Deposit
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<PAGE>
Insurance Corporation (or any successor) by Bank for insurance on
deposits in United States dollars at Bank's main office;
Federal Funds Rate means a fluctuating interest rate per annum, as in
effect at the time in question, that is the rate determined by Bank to be
the opening Federal Funds Rate per annum paid or payable by it on the day
in question in its regional federal funds market for overnight borrowings
from other banking institutions;
FFR Loan means a Subject Loan maturing in the manner described in the
first sentence of subsection 2B.08 and bearing interest in accordance
with subsection 2B.10.2;
Funded Indebtedness means indebtedness of the person or entity in
question which matures or which (including each renewal or extension, if
any, in whole or in part) remains unpaid for more than twelve months
after the date originally incurred and includes, without limitation (a)
any indebtedness (regardless of its maturity) if it is renewable or
refundable in whole or in part solely at the option of that person or
entity (in the absence of default) to a date more than one year after the
date of determination, (b) any capitalized lease, (c) any Guaranty of
Funded Indebtedness owing by another person or entity and (d) any Funded
Indebtedness secured by a security interest, mortgage or other lien
encumbering any property owned or being acquired by the person or entity
in question even if the full faith and credit of that person or entity is
not pledged to the payment thereof; PROVIDED, that in the case of any
indebtedness payable in installments or evidenced by serial notes or
calling for sinking fund payments, those payments maturing within twelve
months after the date of determination shall be considered current
indebtedness rather than Funded Indebtedness for the purposes of section
3B but shall be considered Funded Indebtedness for all other purposes;
GAAP means generally accepted accounting principles applied in a manner
consistent with those used in Borrower's latest fiscal year-end financial
statements referred to in subsection 4A.04;
Guarantor means one who pledges his credit or property in any manner for
the payment or other performance of the indebtedness, contract or other
obligation of another and includes (without limitation) any guarantor
(whether of collection or payment), any obligor in respect of a standby
letter of credit or surety bond issued for the obligor's account, any
surety, any co-maker, any endorser, and anyone who agrees conditionally
or otherwise to make any loan, purchase or investment in order thereby to
enable another to prevent or correct a default of any kind; and Guaranty
means the obligation of a Guarantor;
Insider, as applied to Subordinated indebtedness, refers to Subordinated
indebtedness which at the time in question is owing to any person who is
a director or officer of Borrower or who is the record and beneficial
owner of ten percent (10%) or more of Borrower's capital stock or who is
a member of the immediate family of any such director, officer or
stockholder;
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Insolvency Action means either (a) a pleading of any kind filed by the
person, corporation or entity (an "insolvent") in question to seek relief
from the insolvent's creditors, or filed by the insolvent's creditors or
any thereof to seek relief of any kind against that insolvent, in any
court or other tribunal pursuant to any law (whether federal, state or
other) relating generally to the rights of creditors or the relief of
debtors or both, or (b) any other action of any kind commenced by an
insolvent or the insolvent's creditors or any thereof for the purpose of
marshalling the insolvent's assets and liabilities for the benefit of the
insolvent's creditors; and Insolvency Action includes (without
limitation) a petition commencing a case pursuant to any chapter of the
federal bankruptcy code, any application for the appointment of a
receiver, trustee, liquidator or custodian for the insolvent or any
substantial part of the insolvent's assets, and any assignment by an
insolvent for the general benefit of the insolvent's creditors;
LIBOR Pre-Margin Rate means the rate per annum (rounded upwards, if
necessary, to the next higher 1/16 of 1%), as determined by Bank which
equals the average rate per annum at which deposits in United States
dollars are offered for deposits of the maturity and amount in question,
at 11:00 A.M. London time (or as soon thereafter as practicable) two
Banking Days prior to the first day of the Contract Period in question,
to Bank by prime banking institutions in any Eurodollar market reasonably
selected by Bank;
LIBOR Loan means a Subject Loan having a Contract Period described in
clause (b) of subsection 2B.07 and bearing interest in accordance with
clause (b) of subsection 2B.11;
Material means Material as determined by Bank in the reasonable exercise
of its discretion;
Most Recent 4A.04 Financial Statements means Borrower's most recent
financial statements that are referred to in subsection 4A 04;
Net Income means Net Income as determined in accordance with GAAP, after
taxes and after extraordinary items, but without giving effect to any
gain resulting from any reappraisal or write-up of any asset;
Net Worth means the excess (as determined on a consolidated basis and in
accordance with GAAP) of the net book value (after deducting all
applicable valuation reserves and without consideration to any
reappraisal or write-up of assets) of the tangible assets (i.e., all
assets other than intangibles such as patents, costs of businesses over
net assets acquired, good will and treasury stock) of the corporation or
corporations in question over their Total Liabilities;
Pension Plan means a defined benefit plan (as defined in section 3(35) of
ERISA) of the Companies or any thereof and includes, without limitation,
any such plan that is a multi-employer plan (as defined in section 3(37)
of ERISA) applicable to any of the Companies' employees;
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Prime Rate means the fluctuating rate of interest which is publicly
announced from time to time by Bank at its principal place of business as
being its "prime rate" or "base rate" thereafter in effect, with each
change in the Prime Rate automatically, immediately and without notice
changing the fluctuating interest rate thereafter applicable hereunder,
it being agreed that the Prime Rate is not necessarily the lowest rate of
interest then available from Bank on fluctuating rate loans;
Receivable means a claim for money due or to become due, whether
classified as an account, instrument, chattel paper, general intangible,
incorporeal hereditament or otherwise, and any proceeds of the foregoing;
Reference Rate means, on any given date, either the Prime Rate in effect
for that day or a rate equal to one percent (1%) per annum plus the
Federal Funds Rate in effect for that day, whichever rate shall be the
higher for that day;
Related Writing means any note, mortgage, security agreement, other lien
instrument, financial statement, audit report, notice, legal opinion,
Credit Request, officer's certificate or other writing of any kind which
is delivered to the Bank and which is relevant in any manner to this
Agreement or any Related Writing and includes, without limitation, the
Subject Notes and the other writings referred to in sections 3A and 4A;
Reportable Event has the meaning ascribed thereto by ERISA;
RR Loan means a Subject Loan maturing in the manner described in the
first sentence of subsection 2B.08 and bearing interest in accordance
with subsection 2B. 10.1;
Subject Commitment means Bank's commitment to extend credit to Borrower
pursuant to sections 2A and 2B of this Agreement and upon the terms,
subject to the conditions of this Agreement and in accordance with the
other provisions of this Agreement;
Subject Indebtedness means, collectively, the principal of and interest
on the Subject Loans and all fees and other liabilities, if any, incurred
by Borrower to Bank pursuant to this Agreement or any Related Writing;
Subject Loan means a loan obtained by Borrower pursuant to this
Agreement;
Subject Note means a note executed and delivered by Borrower and being in
the form and substance of Exhibit B with the blanks appropriately filled;
Subordinated, as applied to any liability of Borrower, means a liability
which at the time in question is subordinated (by written instrument in
form and substance satisfactory to Bank) in favor of the prior payment in
full of Borrower's Debt to Bank;
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Subsidiary means a corporation or other business entity if shares
constituting a majority of its outstanding capital stock (or other form
of ownership) or constituting a majority of the voting power in any
election of directors (or shares constituting both majorities) are (or
upon the exercise of any outstanding warrants, options or other rights
would be) owned directly or indirectly at the time in question by the
corporation in question or another Subsidiary of that corporation or any
combination of the foregoing;
Supplemental Schedule means the schedule incorporated into this Agreement
as Exhibit A;
Total Liabilities means the aggregate (without duplication) of all
liabilities of the corporation or corporations in question and includes,
without limitation, (a) any indebtedness which is secured by any
mortgage, security interest or other lien on any of their property even
if the full faith and credit of none of them is pledged to the payment
thereof, (b) any indebtedness for borrowed money or Funded Indebtedness
of any kind if any such corporation or corporations is a Guarantor
thereof and (c) any Subordinated indebtedness; PROVIDED, that there shall
be excluded any liability under a reimbursement agreement relating to a
letter of credit issued to finance the importation or exportation of
goods;
Wholly-Owned, as applied to a Subsidiary, means that all of the
outstanding shares of stock and all of the outstanding warrants, options
and other rights to purchase stock, other than directors' qualifying
shares, are held of record and beneficially owned by Borrower;
the foregoing definitions shall be applicable to the respective plurals
of the foregoing defined terms.
<TABLE>
<S> <C>
Address: PARAVANT COMPUTER SYSTEMS, INC.
1615 West Nasa Boulevard Suite A
Melbourne, Florida 32901-2613 By: /s/ Richard P. McNeight
Telecopy: 407/725-0496 Title: President and COO
Address: NATIONAL CITY BANK
6 North Main Street
Dayton, Ohio 45412
Telecopy: By: /s/ Hunter D. Parker
Title: Vice President
</TABLE>
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EXHIBIT 10.37
NOTE
$14,000,000.00 Dayton, Ohio, October 1, 1998
FOR VALUE RECEIVED, the undersigned, PARAVANT COMPUTER SYSTEMS, INC. (Borrower),
a Florida corporation, promises to pay to the order of NATIONAL CITY BANK, at
the payee's main office in Dayton, Ohio, the principal sum of
FOURTEEN MILLION AND NO/lOOTHS DOLLARS
(or, if less, the aggregate unpaid principal balance from time to time shown on
the reverse side), together with interest computed thereon in accordance with
the Credit Agreement referred to below, which principal and interest is payable
in accordance with the provisions in the Credit Agreement.
This note is issued pursuant to in a certain Agreement (the "Credit Agreement")
made as of October 1, 1998 by and between the payee and Borrower. The Credit
Agreement contains definitions applicable to this note, provisions governing the
making of loans, the acceleration of the maturity thereof, rights of prepayment
and other provisions applicable to this note. Each endorsement, if any, on the
reverse side of this note (or any allonge thereto) shall be prima facie evidence
of the data so endorsed.
Address: PARAVANT COMPUTER SYSTEMS, INC.
1615 West Nasa Boulevard Suite A
Melbourne,Florida 32901-2613 By: /s/ Richard P. McNeight
Title: President and COO
<PAGE>
<PAGE>
EXHIBIT 10.38
EMPLOYMENT AGREEMENT
This Agreement is made and entered into as of October 1, 1998, by and between
Paravant Computer Systems, Inc., a Florida corporation (the "Company"), and
Edward W. Stefanko (the "Employee").
The parties hereto, in consideration of the premises and the mutual covenants
herein contained, hereby agree as follows:
1. Term of Employment. Subject to the terms and conditions hereinafter set
forth, the Company agrees to employ the Employee for a period of forty-two (42)
months. The Employee commits to be employed for a period commencing on the date
hereof and ending no earlier than December 31, 2000. Upon completion of forty
two (42) months of employment the Company and Employee may extend the term of
employment for an additional year by mutual agreement. Notwithstanding the
foregoing, the Employee shall be entitled to terminate his employment at any
time after the date hereof if: (i) the Employee recommends an individual
qualified to perform the Employee's job responsibilities (the "Qualified
Replacement") and (ii) the prior EDL and STL shareholders, who are currently
employees, first approve and then the Company approves of the Qualified
Replacement, said approval not to be unreasonably withheld. If such consent is
unreasonably withheld, then damages are limited to zero; however, the Employee
would be entitled to any Earn-Out ("Earn-Out") provided for in Section 1.3 of
the Acquisition Agreement dated as of March 31, 1998 between the Company,
Engineering Development Laboratories, Incorporated ("EDL"), Signal Technology
Laboratories, Inc. ("STL") and the shareholders of EDL and STL, including the
Employee, which should have been paid as performance bonus or additional
compensation.
2. Forfeiture of Earn-Out. If the Employee terminates his employment prior to
December 31, 2000 without the approval of the Company he will forfeit his share
of Earn-Out to be paid for any Earn- Out Period ending after the date on which
he terminates his employment. The Company is not entitled to any further damages
caused as a result of the Employee's termination of his employment. If the
employment of the Employee is terminated by death or disability, as defined in
paragraph 5, then he or his beneficiary is still entitled to his share of the
Earn-Out and his share of the Earn-Out is not subject to forfeiture.
3. Scope of Employment. During the term of employment, the Employee shall be
employed as the President and Chief Executive Officer (CEO) of Engineering
Development Laboratories, Incorporated, an Ohio corporation, and a subsidiary of
the Company headquartered in Dayton, Ohio. The Employee shall render such
services which are in accordance with his utmost abilities and shall use his
best efforts to promote the interests of the Company and its subsidiaries. The
Employee will not engage in any capacity or activity which is, or may be
considered contrary to the welfare, interest or benefit of the business now or
hereafter conducted by the Company and its subsidiaries. Employee's duties
and/or position may be modified by mutual agreement of the Company and the
Employee. The Company shall not relocate the Employee either temporarily or
permanently from Dayton, Ohio without Employee's consent during the term of this
Agreement.
4. Compensation and Benefits. (Attached)
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<PAGE>
5. Payments on Death or Disability. In the event that the Employee shall die or
become disabled while employed under this Agreement, the Company shall pay
twelve (12) months compensation at the monthly compensation rate, including all
benefits, then in effect for the Employee (the "Compensation") to his heir(s),
in the cause of his death, or to him or his guardian(s), in case of his
disability, (i) in a lump sum payment or (ii) in twelve equal monthly
installments, which lump sum or installment payment method shall be at the
discretion of the Employee or his or her heir(s) or guardian(s). In case of
disability, the twelve (12) month period would begin as of the date on which the
Employee's employment hereunder is terminated because of disability as
hereinafter provided. Employee's employment hereunder shall be terminated
because of disability if (a) the Employee shall become physically or mentally
incapable of properly performing his services to the Company as provided
hereunder, excluding infrequent and temporary absences due to ordinary
illnesses, (b) such incapacity shall exist or be reasonably expected to exist
for more than one hundred fifty (150) days in the aggregate during any twelve
(12) consecutive months covered hereunder, and (c) either the Employee or the
Company shall have given the other thirty (30) days written notice of his or its
intention to terminate the Employee's employment hereunder due to such
disability. For purposes of this Agreement, the Employee may provide the Company
with a written list of heirs in order of preference regarding death payment
benefits hereunder. The list may be altered and changed from time to time by the
Employee by giving written notice of such changes or new list thereof to the
Company as provided herein. In the event of death, if no list has been provided
by the Employee, then all compensation provided for in this paragraph 5 is
payable to the estate of the Employee.
6. Covenant Not to Compete. During the Term of Employment and for a period of
five (5) years thereafter, the Employee shall not (except on behalf of the
Company or a subsidiary of the Company while the Employee is employed by either
the Company or a subsidiary of the Company or otherwise in accordance with the
Company's written consent) engage, directly or indirectly, in any business which
competes in any manner within the United States of America (the "Geographic
Area"), with the Company's business of design, manufacture, repair and sale of
rugged and customized computer systems and medical computer assemblies or in any
other business of design, development, manufacturing, sales or service engaged
in or acquired by the Company or any subsidiary of the Company as of the date of
this Agreement or in which the Company employs the Employee during his
employment under this Agreement. For purposes of this Agreement, the Employee
will be deemed to be engaged in a business if he participates in such business,
directly or indirectly, as a stockholder, partner, owner, investor, principal or
agent, employee, officer, director, creditor, consultant, or otherwise in any
manner in such business. The Employee shall not, for purposes of this paragraph,
be deemed a stockholder if he holds less than five percent (5%) of the
outstanding shares of any publicly-owned corporation. In addition, the Employee
shall not at any time, during or after the termination of this Agreement, engage
in any business which uses as its name, in whole or in part, "Paravant Computer
Systems, Inc.", "PCS" or any other name then used by the Company or any of its
affiliates or subsidiaries.
7. Non-Disclosure. Except as may be required by law or on behalf of the Company
or a subsidiary of the Company while the Employee is employed by either the
Company or a subsidiary of the Company or otherwise in accordance with the
Company's written consent, the Employee will not at
2
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any time, directly or indirectly, disclose or furnish to any other person, firm
or corporation; (a) the methods of conducting the business of the Company or its
subsidiaries or affiliates; (b) a description of any of the methods of obtaining
business, or manufacturing or advertising products, or of obtaining customers
thereof; (c) any technology, design drawings, software, or other intellectual
property or property rights of the Company or its subsidiaries or affiliates
owned by the Company or any of its subsidiaries as of the date of this Agreement
or acquired by the Company or any of its subsidiaries during the Employee's
employment under this Agreement; or (d) any confidential information acquired by
him during the course of his employment by the Company, its predecessors,
subsidiaries or affiliates, including, without limitation, the generality of the
foregoing, the names of any new customers or prospective customers of, or any
person, firm or corporation, who or which have, or shall have, traded or dealt
with (whether such customers have been obtained by the Employee or otherwise)
the Company, its predecessors, subsidiaries or affiliates.
8. Intellectual Property. As between the Employee and the Company, all products,
designs, styles, processes, discoveries, materials, ideas, creations, inventions
and properties, whether or not furnished by the Employee, created, developed,
invented or used in connection with the Employee's employment with the Company
or any subsidiary of the Company or the business markets of the Company or any
subsidiary of the Company under this Agreement will be the sole and absolute
property of the Company and its subsidiaries for any and all purposes whatsoever
in perpetuity, whether or not conceived, discovered and/or developed during
regular working hours. The Employee will not have, and will not claim to have,
under this Agreement or otherwise, any right, title or interest of any kind or
nature whatsoever in or to any such products, processes, discoveries, material
ideas, creations, inventions and properties which are related to the Company's
business markets.
9. Arbitration. Any controversy arising out of or relating to this Agreement
shall be resolved by arbitration in the State of Ohio pursuant to the rules of
the American Arbitration Association then in effect. The decision of the
arbitrator(s) is binding on both the Company and the Employee.
10. Termination for Convenience. The Company may terminate Employee's employment
under this Agreement for convenience at any time. In the event of such
termination the Company shall make lump sum payments equal to the value of the
compensation (1 and 2 attached) and benefits (3 of attached as would have been
normally paid if the employment continued), including but not limited to
non-qualified deferred compensation and health insurance, for forty-two (42)
months less the amount which has previously been paid or used.
11. Termination for Cause. The Company may terminate this Employee's
employment under this Agreement for "cause" without any liability to the Company
other than to pay the compensation benefits provided for in this Agreement for
services rendered prior to the date of such termination. The following shall
constitute grounds for termination of the Employee for cause: (i) willful
or gross neglect by the Employee of his duties of employment under, or any
willful misconduct of the Employee in connection with the performance of his
duties under this Agreement; (ii) conviction of the Employee of any felony, or
of any lesser crime or offense materially and adversely affecting the property,
reputation or goodwill of the Company, any subsidiary of the Company or any
successor or assignee of the Company or any subsidiary of the Company; or
(iii) any material breach by the
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Employee of the terms of this Agreement.
12. Equitable Remedies and Remedies at Law. The parties recognize that, because
of the nature of the subject matter of this Agreement it would be impracticable
and extremely difficult to determine actual damages for a breach of certain of
the provisions of this Agreement, specifically those provisions of paragraphs 6
and 7. Accordingly, in the event of a violation or threatened violation or any
provisions of this Agreement, specifically including those provisions of
paragraphs 6 and 7, all legal and equitable remedies, including without
limitation, injunctive relief, both preliminary and permanent, shall be
available and the posting of a surety bond shall not be required in connection
therewith and money damages for any loss suffered as a consequence of violation
of such provisions shall also be available.
13. Severability. The invalidity or unenforceability of any term or provision of
this Agreement or the nonapplicability of any such term or provision to any
person or circumstances shall not impair or affect the remainder of this
Agreement, and the remaining terms and provisions hereof shall not be
invalidated, but shall remain in full force and effect and shall be construed as
if such invalid, unenforceable or nonapplicable provisions were omitted.
Further, if any of the covenants contained in paragraphs 6 or 7 of this
Agreement, or any part thereof, are held to be unenforceable because of the
duration of such provisions or the area covered thereby, or the scope of the
activities sought to be restricted, the parties hereto agree that the arbitrator
or court making such determination shall have the power to reform such
provisions of this Agreement to the maximum time, geographic limitations, or
time permitted by applicable law.
14. Governing Law. All of the provisions of this Agreement other than those set
forth in paragraphs 2, 6, and 7 shall be governed by, construed and enforced in
all respects in accordance with the laws of the State of Ohio. The provisions of
paragraphs 2, 6, and 7 shall be governed by, construed and enforced in all
respects in accordance with the laws of the State of Florida.
15. Captions. Titles or captions of paragraphs contained in this Agreement are
inserted only as a matter of convenience and for reference, and in no way
define, limit, extend or prescribe the scope of this Agreement or the intent of
any provision hereof.
16. Counterparts. This Agreement may be executed in counterparts, each of which
shall constitute one and the same Agreement.
17. Construction. The parties acknowledge that they have had the opportunity to
participate equally in the drafting of this Agreement and that in the event of a
dispute, no party shall be treated, for any purpose, as the author of this
Agreement or have any ambiguity resolved against such party on account thereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement, as of the
day and year first above written.
Paravant Computer Systems, Inc.
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<PAGE>
By: /s/ Krishan K. Joshi
-----------------------------
Krishan K. Joshi,
Chairman of the Board and CEO
/s/ Edward W. Stefanko
------------------------------
Edward W. Stefanko, Employee
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<PAGE>
COMPENSATION AND BENEFITS OF Edward W. Stefanko
POSITION: President and Chief Executive Officer (CEO) of EDL
1. An annual salary of $ 169,300
2. A non-qualified deferred compensation (funded) of 40 % of No. 1 $ 67,720
based on plan (attached).
3. Standard EDL/STL benefits package attached, modified as follows:
a. 2x (twice) All Employee Incentive Program payment percentage.
b. 16 hours of personal leave per payroll period.
c. Life insurance of $ 169,300.
d. Continuation of Health Care coverage for employee and spouse until
each is eligible for Medicare coverage under existing plan benefits and
at a cost no greater than current plan (see attached). This benefit
continues after retirement or separation. This provision will be
interpreted based upon laws and other benefits that were in effect as
of March 30, 1998.
Note: The plans referred to above as attached have been furnished to the
parties to the Acquisition Agreement.
6
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<PAGE>
EXHIBIT 10.39
EMPLOYMENT AGREEMENT
This Agreement is made and entered into as of October 1, 1998, by and between
Paravant Computer Systems, Inc., a Florida corporation (the "Company"), and C.
Hyland Schooley (the "Employee").
The parties hereto, in consideration of the premises and the mutual covenants
herein contained, hereby agree as follows:
1. Term of Employment. Subject to the terms and conditions hereinafter set
forth, the Company agrees to employ the Employee for a period of forty-two (42)
months. The Employee commits to be employed for a period commencing on the date
hereof and ending no earlier than December 31, 2000. Upon completion of forty
two (42) months of employment the Company and Employee may extend the term of
employment for an additional year by mutual agreement. Notwithstanding the
foregoing, the Employee shall be entitled to terminate his employment at any
time after the date hereof if: (i) the Employee recommends an individual
qualified to perform the Employee's job responsibilities (the "Qualified
Replacement") and (ii) the prior EDL and STL shareholders, who are currently
employees, first approve and then the Company approves of the Qualified
Replacement, said approval not to be unreasonably withheld. If such consent is
unreasonably withheld, then damages are limited to zero; however, the Employee
would be entitled to any Earn-Out ("Earn-Out") provided for in Section 1.3 of
the Acquisition Agreement dated as of March 31, 1998 between the Company,
Engineering Development Laboratories, Incorporated ("EDL"), Signal Technology
Laboratories, Inc. ("STL") and the shareholders of EDL and STL, including the
Employee, which should have been paid as performance bonus or additional
compensation.
2. Forfeiture of Earn-Out. If the Employee terminates his employment prior to
December 31, 2000 without the approval of the Company he will forfeit his share
of Earn-Out to be paid for any Earn- Out Period ending after the date on which
he terminates his employment. The Company is not entitled to any further damages
caused as a result of the Employee's termination of his employment. If the
employment of the Employee is terminated by death or disability, as defined in
paragraph 5, then he or his beneficiary is still entitled to his share of the
Earn-Out and his share of the Earn-Out is not subject to forfeiture.
3. Scope of Employment. During the term of employment, the Employee shall be
employed as the President of Signal Technology Laboratories, Inc., an Ohio
corporation, and a subsidiary of the Company headquartered in Dayton, Ohio. The
Employee shall render such services which are in accordance with his utmost
abilities and shall use his best efforts to promote the interests of the Company
and its subsidiaries. The Employee will not engage in any capacity or activity
which is, or may be considered contrary to the welfare, interest or benefit of
the business now or hereafter conducted by the Company and its subsidiaries.
Employee's duties and/or position may be modified by mutual agreement of the
Company and the Employee. The Company shall not relocate the Employee either
temporarily or permanently from Dayton, Ohio without Employee's consent during
the term of this Agreement.
<PAGE>
<PAGE>
4. Compensation and Benefits. (Attached)
5. Payments on Death or Disability. In the event that the Employee shall die or
become disabled while employed under this Agreement, the Company shall pay
twelve (12) months compensation at the monthly compensation rate, including all
benefits, then in effect for the Employee (the "Compensation") to his heir(s),
in the cause of his death, or to him or his guardian(s), in case of his
disability, (i) in a lump sum payment or (ii) in twelve equal monthly
installments, which lump sum or installment payment method shall be at the
discretion of the Employee or his or her heir(s) or guardian(s). In case of
disability, the twelve (12) month period would begin as of the date on which the
Employee's employment hereunder is terminated because of disability as
hereinafter provided. Employee's employment hereunder shall be terminated
because of disability if (a) the Employee shall become physically or mentally
incapable of properly performing his services to the Company as provided
hereunder, excluding infrequent and temporary absences due to ordinary
illnesses, (b) such incapacity shall exist or be reasonably expected to exist
for more than one hundred fifty (150) days in the aggregate during any twelve
(12) consecutive months covered hereunder, and (c) either the Employee or the
Company shall have given the other thirty (30) days written notice of his or its
intention to terminate the Employee's employment hereunder due to such
disability. For purposes of this Agreement, the Employee may provide the Company
with a written list of heirs in order of preference regarding death payment
benefits hereunder. The list may be altered and changed from time to time by the
Employee by giving written notice of such changes or new list thereof to the
Company as provided herein. In the event of death, if no list has been provided
by the Employee, then all compensation provided for in this paragraph 5 is
payable to the estate of the Employee.
6. Covenant Not to Compete. During the Term of Employment and for a period of
five (5) years thereafter, the Employee shall not (except on behalf of the
Company or a subsidiary of the Company while the Employee is employed by either
the Company or a subsidiary of the Company or otherwise in accordance with the
Company's written consent) engage, directly or indirectly, in any business which
competes in any manner within the United States of America (the "Geographic
Area"), with the Company's business of design, manufacture, repair and sale of
rugged and customized computer systems and medical computer assemblies or in any
other business of design, development, manufacturing, sales or service engaged
in or acquired by the Company or any subsidiary of the Company as of the date of
this Agreement or in which the Company employs the Employee during his
employment under this Agreement. For purposes of this Agreement, the Employee
will be deemed to be engaged in a business if he participates in such business,
directly or indirectly, as a stockholder, partner, owner, investor, principal or
agent, employee, officer, director, creditor, consultant, or otherwise in any
manner in such business. The Employee shall not, for purposes of this paragraph,
be deemed a stockholder if he holds less than five percent (5%) of the
outstanding shares of any publicly-owned corporation. In addition, the Employee
shall not at any time, during or after the termination of this Agreement, engage
in any business which uses as its name, in whole or in part, "Paravant Computer
Systems, Inc.", "PCS" or any other name then used by the Company or any of its
affiliates or subsidiaries.
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<PAGE>
7. Non-Disclosure. Except as may be required by law or on behalf of the Company
or a subsidiary of the Company while the Employee is employed by either the
Company or a subsidiary of the Company or otherwise in accordance with the
Company's written consent, the Employee will not at any time, directly or
indirectly, disclose or furnish to any other person, firm or corporation; (a)
the methods of conducting the business of the Company or its subsidiaries or
affiliates; (b) a description of any of the methods of obtaining business, or
manufacturing or advertising products, or of obtaining customers thereof; (c)
any technology, design drawings, software, or other intellectual property or
property rights of the Company or its subsidiaries or affiliates owned by the
Company or any of its subsidiaries as of the date of this Agreement or acquired
by the Company or any of its subsidiaries during the Employee's employment under
this Agreement; or (d) any confidential information acquired by him during the
course of his employment by the Company, its predecessors, subsidiaries or
affiliates, including, without limitation, the generality of the foregoing, the
names of any new customers or prospective customers of, or any person, firm or
corporation, who or which have, or shall have, traded or dealt with (whether
such customers have been obtained by the Employee or otherwise) the Company, its
predecessors, subsidiaries or affiliates.
8. Intellectual Property. As between the Employee and the Company, all products,
designs, styles, processes, discoveries, materials, ideas, creations, inventions
and properties, whether or not furnished by the Employee, created, developed,
invented or used in connection with the Employee's employment with the Company
or any subsidiary of the Company or the business markets of the Company or any
subsidiary of the Company under this Agreement will be the sole and absolute
property of the Company and its subsidiaries for any and all purposes whatsoever
in perpetuity, whether or not conceived, discovered and/or developed during
regular working hours. The Employee will not have, and will not claim to have,
under this Agreement or otherwise, any right, title or interest of any kind or
nature whatsoever in or to any such products, processes, discoveries, material
ideas, creations, inventions and properties which are related to the Company's
business markets.
9. Arbitration. Any controversy arising out of or relating to this Agreement
shall be resolved by arbitration in the State of Ohio pursuant to the rules of
the American Arbitration Association then in effect. The decision of the
arbitrator(s) is binding on both the Company and the Employee.
10. Termination for Convenience. The Company may terminate Employee's employment
under this Agreement for convenience at any time. In the event of such
termination the Company shall make lump sum payments equal to the value of the
compensation (1 and 2 attached) and benefits (3 of attached as would have been
normally paid if the employment continued), including but not limited to
non-qualified deferred compensation and health insurance, for forty-two (42)
months less the amount which has previously been paid or used.
11. Termination for Cause. The Company may terminate this Employee's employment
under this Agreement for "cause" without any liability to the Company other than
to pay the compensation benefits provided for in this Agreement for services
rendered prior to the date of such termination. The following shall constitute
grounds for termination of the Employee for cause: (i) willful or gross neglect
by the Employee of his duties of employment under, or any willful misconduct
of the
3
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<PAGE>
Employee in connection with the performance of his duties under this
Agreement; (ii) conviction of the Employee of any felony, or of any lesser
crime or offense materially and adversely affecting the property, reputation
or goodwill of the Company, any subsidiary of the Company or any successor or
assignee of the Company or any subsidiary of the Company; or (iii) any material
breach by the Employee of the terms of this Agreement.
12. Equitable Remedies and Remedies at Law. The parties recognize that, because
of the nature of the subject matter of this Agreement it would be impracticable
and extremely difficult to determine actual damages for a breach of certain of
the provisions of this Agreement, specifically those provisions of paragraphs 6
and 7. Accordingly, in the event of a violation or threatened violation or any
provisions of this Agreement, specifically including those provisions of
paragraphs 6 and 7, all legal and equitable remedies, including without
limitation, injunctive relief, both preliminary and permanent, shall be
available and the posting of a surety bond shall not be required in connection
therewith and money damages for any loss suffered as a consequence of violation
of such provisions shall also be available.
13. Severability. The invalidity or unenforceability of any term or provision of
this Agreement or the nonapplicability of any such term or provision to any
person or circumstances shall not impair or affect the remainder of this
Agreement, and the remaining terms and provisions hereof shall not be
invalidated, but shall remain in full force and effect and shall be construed as
if such invalid, unenforceable or nonapplicable provisions were omitted.
Further, if any of the covenants contained in paragraphs 6 or 7 of this
Agreement, or any part thereof, are held to be unenforceable because of the
duration of such provisions or the area covered thereby, or the scope of the
activities sought to be restricted, the parties hereto agree that the arbitrator
or court making such determination shall have the power to reform such
provisions of this Agreement to the maximum time, geographic limitations, or
time permitted by applicable law.
14. Governing Law. All of the provisions of this Agreement other than those set
forth in paragraphs 2, 6, and 7 shall be governed by, construed and enforced in
all respects in accordance with the laws of the State of Ohio. The provisions of
paragraphs 2, 6, and 7 shall be governed by, construed and enforced in all
respects in accordance with the laws of the State of Florida.
15. Captions. Titles or captions of paragraphs contained in this Agreement are
inserted only as a matter of convenience and for reference, and in no way
define, limit, extend or prescribe the scope of this Agreement or the intent of
any provision hereof.
16. Counterparts. This Agreement may be executed in counterparts, each of which
shall constitute one and the same Agreement.
17. Construction. The parties acknowledge that they have had the opportunity to
participate equally in the drafting of this Agreement and that in the event of a
dispute, no party shall be treated, for any purpose, as the author of this
Agreement or have any ambiguity resolved against such party on account thereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement, as of the
day and year
4
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<PAGE>
first above written.
Paravant Computer Systems, Inc.
By: /s/ Krishan K. Joshi
-----------------------------
Krishan K. Joshi,
Chairman of the Board and CEO
/s/ C. Hyland Schooley
-------------------------------
C. Hyland Schooley, Employee
5
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<PAGE>
COMPENSATION AND BENEFITS OF C. Hyland Schooley
POSITION: President of STL
1. An annual salary of $ 154,474
2. A non-qualified deferred compensation (funded) of 40 % of No.1 $61,789 based
on plan (attached).
3. Standard EDL/STL benefits package attached, modified as follows:
a. 2x (twice) All Employee Incentive Program payment percentage.
b. 7 hours of personal leave per payroll period.
c. Life insurance of $154,474
d. Continuation of Health Care coverage for employee and spouse until
each is eligible for Medicare coverage under existing plan benefits and
at a cost no greater than current plan (see attached). This benefit
continues after retirement or separation. This provision will be
interpreted based upon laws and other benefits that were in effect as
of March 30, 1998.
Note: The plans referred to above as attached have been furnished to the
parties to the Acquisition Agreement.
6
<PAGE>
<PAGE>
EXHIBIT 10.40
EMPLOYMENT AGREEMENT
This Agreement is made and entered into as of October 1, 1998, by and between
Paravant Computer Systems, Inc., a Florida corporation (the "Company"), and
James E. Clifford (the "Employee").
The parties hereto, in consideration of the premises and the mutual covenants
herein contained, hereby agree as follows:
1. Term of Employment. Subject to the terms and conditions hereinafter set
forth, the Company agrees to employ the Employee for a period of forty-two (42)
months. The Employee commits to be employed for a period commencing on the date
hereof and ending no earlier than December 31, 2000. Upon completion of forty
two (42) months of employment the Company and Employee may extend the term of
employment for an additional year by mutual agreement. Notwithstanding the
foregoing, the Employee shall be entitled to terminate his employment at any
time after the date hereof if: (i) the Employee recommends an individual
qualified to perform the Employee's job responsibilities (the "Qualified
Replacement") and (ii) the prior EDL and STL shareholders, who are currently
employees, first approve and then the Company approves of the Qualified
Replacement, said approval not to be unreasonably withheld. If such consent is
unreasonably withheld, then damages are limited to zero; however, the Employee
would be entitled to any Earn-Out ("Earn-Out") provided for in Section 1.3 of
the Acquisition Agreement dated as of March 31, 1998 between the Company,
Engineering Development Laboratories, Incorporated ("EDL"), Signal Technology
Laboratories, Inc. ("STL") and the shareholders of EDL and STL, including the
Employee, which should have been paid as performance bonus or additional
compensation.
2. Forfeiture of Earn-Out. If the Employee terminates his employment prior to
December 31,2000 without the approval of the Company he will forfeit his share
of Earn-Out to be paid for any Earn- Out Period ending after the date on which
he terminates his employment. The Company is not entitled to any further damages
caused as a result of the Employee's termination of his employment. If the
employment of the Employee is terminated by death or disability, as defined in
paragraph 5, then he or his beneficiary is still entitled to his share of the
Earn-Out and his share of the Earn-Out is not subject to forfeiture.
3. Scope of Employment. During the term of employment, the Employee shall be
employed as the Executive Vice President, Secretary/Treasurer and Chief
Operating Officer of Signal Technology Laboratories, Inc., an Ohio corporation,
and a subsidiary of the Company headquartered in Dayton, Ohio. The Employee
shall render such services which are in accordance with his utmost abilities and
shall use his best efforts to promote the interests of the Company and its
subsidiaries. The Employee will not engage in any capacity or activity which is,
or may be considered contrary to the welfare, interest or benefit of the
business now or hereafter conducted by the Company and its subsidiaries.
Employee's duties and/or position may be modified by mutual agreement of the
Company and the Employee. The Company shall not relocate the Employee either
temporarily or permanently from Dayton, Ohio without Employee's consent during
the term of this Agreement.
4. Compensation and Benefits. (Attached)
<PAGE>
<PAGE>
5. Payments on Death or Disability. In the event that the Employee shall die or
become disabled while employed under this Agreement, the Company shall pay
twelve (12) months compensation at the monthly compensation rate, including all
benefits, then in effect for the Employee (the "Compensation") to his heir(s),
in the cause of his death, or to him or his guardian(s), in case of his
disability, (i) in a lump sum payment or (ii) in twelve equal monthly
installments, which lump sum or installment payment method shall be at the
discretion of the Employee or his or her heir(s) or guardian(s). In case of
disability, the twelve (12) month period would begin as of the date on which the
Employee's employment hereunder is terminated because of disability as
hereinafter provided. Employee's employment hereunder shall be terminated
because of disability if (a) the Employee shall become physically or mentally
incapable of properly performing his services to the Company as provided
hereunder, excluding infrequent and temporary absences due to ordinary
illnesses, (b) such incapacity shall exist or be reasonably expected to exist
for more than one hundred fifty (150) days in the aggregate during any twelve
(12) consecutive months covered hereunder, and (c) either the Employee or the
Company shall have given the other thirty (30) days written notice of his or its
intention to terminate the Employee's employment hereunder due to such
disability. For purposes of this Agreement, the Employee may provide the Company
with a written list of heirs in order of preference regarding death payment
benefits hereunder. The list may be altered and changed from time to time by the
Employee by giving written notice of such changes or new list thereof to the
Company as provided herein. In the event of death, if no list has been provided
by the Employee, then all compensation provided for in this paragraph 5 is
payable to the estate of the Employee.
6. Covenant Not to Compete. During the Term of Employment and for a period of
five (5) years thereafter, the Employee shall not (except on behalf of the
Company or a subsidiary of the Company while the Employee is employed by either
the Company or a subsidiary of the Company or otherwise in accordance with the
Company's written consent) engage, directly or indirectly, in any business which
competes in any manner within the United States of America (the "Geographic
Area"), with the Company's business of design, manufacture, repair and sale of
rugged and customized computer systems and medical computer assemblies or in any
other business of design, development, manufacturing, sales or service engaged
in or acquired by the Company or any subsidiary of the Company as of the date of
this Agreement or in which the Company employs the Employee during his
employment under this Agreement. For purposes of this Agreement, the Employee
will be deemed to be engaged in a business if he participates in such business,
directly or indirectly, as a stockholder, partner, owner, investor, principal or
agent, employee, officer, director, creditor, consultant, or otherwise in any
manner in such business. The Employee shall not, for purposes of this paragraph,
be deemed a stockholder if he holds less than five percent (5%) of the
outstanding shares of any publicly-owned corporation. In addition, the Employee
shall not at any time, during or after the termination of this Agreement, engage
in any business which uses as its name, in whole or in part, "Paravant Computer
Systems, Inc.", "PCS" or any other name then used by the Company or any of its
affiliates or subsidiaries.
7. Non-Disclosure. Except as may be required by law or on behalf of the Company
or a subsidiary of the Company while the Employee is employed by either the
Company or a subsidiary of the
2
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<PAGE>
Company or otherwise in accordance with the Company's written consent, the
Employee will not at any time, directly or indirectly, disclose or furnish to
any other person, firm or corporation; (a) the methods of conducting the
business of the Company or its subsidiaries or affiliates; (b) a description of
any of the methods of obtaining business, or manufacturing or advertising
products, or of obtaining customers thereof; (c) any technology, design
drawings, software, or other intellectual property or property rights of the
Company or its subsidiaries or affiliates owned by the Company or any of its
subsidiaries as of the date of this Agreement or acquired by the Company or any
of its subsidiaries during the Employee's employment under this Agreement; or
(d) any confidential information acquired by him during the course of his
employment by the Company, its predecessors, subsidiaries or affiliates,
including, without limitation, the generality of the foregoing, the names of any
new customers or prospective customers of, or any person, firm or corporation,
who or which have, or shall have, traded or dealt with (whether such customers
have been obtained by the Employee or otherwise) the Company, its predecessors,
subsidiaries or affiliates.
8. Intellectual Property. As between the Employee and the Company, all products,
designs, styles, processes, discoveries, materials, ideas, creations, inventions
and properties, whether or not furnished by the Employee, created, developed,
invented or used in connection with the Employee's employment with the Company
or any subsidiary of the Company or the business markets of the Company or any
subsidiary of the Company under this Agreement will be the sole and absolute
property of the Company and its subsidiaries for any and all purposes whatsoever
in perpetuity, whether or not conceived, discovered and/or developed during
regular working hours. The Employee will not have, and will not claim to have,
under this Agreement or otherwise, any right, title or interest of any kind or
nature whatsoever in or to any such products, processes, discoveries, material
ideas, creations, inventions and properties which are related to the Company's
business markets.
9. Arbitration. Any controversy arising out of or relating to this Agreement
shall be resolved by arbitration in the State of Ohio pursuant to the rules of
the American Arbitration Association then in effect. The decision of the
arbitrator(s) is binding on both the Company and the Employee.
10. Termination for Convenience. The Company may terminate Employee's employment
under this Agreement for convenience at any time. In the event of such
termination the Company shall make lump sum payments equal to the value of the
compensation (1 and 2 attached) and benefits (3 of attached as would have been
normally paid if the employment continued), including but not limited to
non-qualified deferred compensation and health insurance, for forty-two (42)
months less the amount which has previously been paid or used.
11. Termination for Cause. The Company may terminate this Employee's employment
under this Agreement for "cause" without any liability to the Company other than
to pay the compensation benefits provided for in this Agreement for services
rendered prior to the date of such termination. The following shall constitute
grounds for termination of the Employee for cause: (i) willful or gross neglect
by the Employee of his duties of employment under, or any willful misconduct of
the Employee in connection with the performance of his duties under this
Agreement; (ii) conviction of the Employee of any felony, or of any lesser crime
or offense materially and adversely affecting the property, reputation or
goodwill of the Company, any subsidiary of the Company or any successor
3
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<PAGE>
or assignee of the Company or any subsidiary of the Company; or (iii) any
material breach by the Employee of the terms of this Agreement.
12. Equitable Remedies and Remedies at Law. The parties recognize that, because
of the nature of the subject matter of this Agreement it would be impracticable
and extremely difficult to determine actual damages for a breach of certain of
the provisions of this Agreement, specifically those provisions of paragraphs 6
and 7. Accordingly, in the event of a violation or threatened violation or any
provisions of this Agreement, specifically including those provisions of
paragraphs 6 and 7, all legal and equitable remedies, including without
limitation, injunctive relief, both preliminary and permanent, shall be
available and the posting of a surety bond shall not be required in connection
therewith and money damages for any loss suffered as a consequence of violation
of such provisions shall also be available.
13. Severability. The invalidity or unenforceability of any term or provision of
this Agreement or the nonapplicability of any such term or provision to any
person or circumstances shall not impair or affect the remainder of this
Agreement, and the remaining terms and provisions hereof shall not be
invalidated, but shall remain in full force and effect and shall be construed as
if such invalid, unenforceable or nonapplicable provisions were omitted.
Further, if any of the covenants contained in paragraphs 6 or 7 of this
Agreement, or any part thereof, are held to be unenforceable because of the
duration of such provisions or the area covered thereby, or the scope of the
activities sought to be restricted, the parties hereto agree that the arbitrator
or court making such determination shall have the power to reform such
provisions of this Agreement to the maximum time, geographic limitations, or
time permitted by applicable law.
14. Governing Law. All of the provisions of this Agreement other than those set
forth in paragraphs 2, 6, and 7 shall be governed by, construed and enforced in
all respects in accordance with the laws of the State of Ohio. The provisions of
paragraphs 2, 6, and 7 shall be governed by, construed and enforced in all
respects in accordance with the laws of the State of Florida.
15. Captions. Titles or captions of paragraphs contained in this Agreement are
inserted only as a matter of convenience and for reference, and in no way
define, limit, extend or prescribe the scope of this Agreement or the intent of
any provision hereof.
16. Counterparts. This Agreement may be executed in counterparts, each of which
shall constitute one and the same Agreement.
17. Construction. The parties acknowledge that they have had the opportunity to
participate equally in the drafting of this Agreement and that in the event of a
dispute, no party shall be treated, for any purpose, as the author of this
Agreement or have any ambiguity resolved against such party on account thereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement, as of the
day and year first above written.
Paravant Computer Systems, Inc.
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<PAGE>
By: /s/ Krishan K. Joshi
-----------------------------
Krishan K. Joshi,
Chairman of the Board and CEO
/s/ James E. Clifford
-----------------------------
James E. Clifford, Employee
5
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<PAGE>
COMPENSATION AND BENEFITS OF James E. Clifford
POSITION: Executive Vice President, Secretary/Treasurer & Chief Operating
Officer of STL
1. An annual salary of $ 169,300
2. A non-qualified deferred compensation (funded) of 40 % of No. 1 $67,720 based
on plan (attached).
3. Standard EDL/STL benefits package attached, modified as follows:
a. 2x (twice) All Employee Incentive Program payment percentage.
b. 16 hours of personal leave per payroll period.
c. Life insurance of $ 169,300.
d. Continuation of Health Care coverage for employee and spouse until
each is eligible for Medicare coverage under existing plan benefits and
at a cost no greater than current plan (see attached). This benefit
continues after retirement or separation. This provision will be
interpreted based upon laws and other benefits that were in effect as
of March 30, 1998.
Note: The plans referred to above as attached have been furnished to the
parties to the Acquisition Agreement.
6
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<PAGE>
EXHIBIT 10.41
NON-COMPETITION AGREEMENT
THIS NON-COMPETITION AGREEMENT (this "Agreement"), is made as of the
1st day of October, 1998, by and between PARAVANT COMPUTER SYSTEMS, INC., a
Florida corporation (hereinafter referred to as the "Purchaser"), and C. Hyland
Schooley (hereinafter referred to as the "Selling Shareholder").
W I T N E S S E T H:
WHEREAS, the Purchaser, ENGINEERING DEVELOPMENT LABORATORIES,
INCORPORATED, an Ohio corporation ("EDL"), SIGNAL TECHNOLOGY LABORATORIES, INC.,
an Ohio corporation ("STL"), and the Shareholders of both of EDL and STL,
including the Selling Shareholder are parties to an Acquisition Agreement dated
as of March 31, 1998 (the "Acquisition Agreement") providing for the acquisition
by the Purchaser from the EDL as shareholders of all of the EDL common stock,
the acquisition by the Purchaser, directly or indirectly through its wholly-
owned subsidiary NewSTL, from STL of the STL Purchased Assets and the
acquisition by the Purchaser of non-competition agreements from certain of the
shareholders of STL, including the Selling Shareholder;
WHEREAS, it is a condition precedent to the obligation of the Purchaser
to complete the Closing contemplated by the Purchase Agreement (the "Closing")
that the Purchaser shall have received this Agreement from the Selling
Shareholder;
WHEREAS, Selling Shareholder desires to induce the Purchaser to enter
into and complete the Closing and to consummate the transaction contemplated by
the Acquisition Agreement; and
WHEREAS, all capitalized terms used herein and not otherwise defined
shall have the meanings ascribed to them in the Acquisition Agreement.
NOW, THEREFORE, in consideration of the foregoing, Selling Shareholder
hereby agrees with the Purchaser as follows:
1. Recitals. The recitals set forth at the beginning of this Agreement
are true and correct and by this reference are incorporated by reference into
the body of this Agreement.
2. Representations and Warranties. Selling Shareholder does hereby
represent and warrant to the Purchaser:
(a) That the delivery of this Agreement to the Purchaser by
Selling Shareholder is ancillary to the main business purpose of the Acquisition
Agreement and is executed by Selling Shareholder to protect the legitimate
interests of the Purchaser with respect to its acquisition of EDL and the STL
Purchased Assets;
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(b) That the Non-competition Period (as hereinafter defined)
and the Geographic Area (as hereinafter defined), as described in Section 3 of
this Agreement, is appropriate and reasonable in all respects in light of the
nature of the business conducted by the Purchaser, EDL and NewSTL and the
legitimate need of the Purchaser to protect the investment by the Purchaser in
EDL and NewSTL following the acquisition; and
(c) That the execution and delivery of this Agreement, the
performance by Selling Shareholder of the covenants and agreements contained
herein, and the enforcement by the Purchaser of the provisions contained herein,
will cause no undue hardship on Selling Shareholder.
3. Non-competition. During the period commencing with the date of this
Agreement and continuing until fifteen (15) years thereafter, Selling
Shareholder agrees that, except on behalf of the Purchaser or a subsidiary of
the Purchaser while employed by the Purchaser or a subsidiary of the Purchaser,
and except to the extent set forth in Section 5 of this Agreement, he shall not
engage, directly or indirectly, in any business which competes in any manner
within the United States of America or its possessions or territories or
elsewhere throughout the world (the "Geographic Area") with the Purchaser's
business of design, manufacture, repair and sale of rugged and customized
computer systems and medical computer assemblies, EDL's business of the design,
development, modification and marketing of avionics equipment for use on or with
military airborne systems or the business of the design, development,
production, modification and marketing of digital signal processing equipment
for government intelligence and related applications, which was included in the
STL Purchased Assets. For purposes of this Agreement, the Selling Shareholder
will be deemed to be engaged in a business if he participates in such business,
directly or indirectly, as a stockholder, partner, owner, investor, principal or
agent, employee, officer, director, creditor, consultant, or otherwise in any
manner in such business.
4. Confidentiality of information, etc. Selling Shareholder shall not
divulge, communicate, use to the detriment of the Purchaser, or for the benefit
of any other business, firm, person, partnership or corporation, or otherwise
misuse, any "Confidential Information", data or trade secrets, including
secret processes, formulas or other technical data, production methods, customer
lists, or personnel or proprietary information, pertaining to the STL Purchased
Assets, the Purchaser, NewSTL or other subsidiaries of the Purchaser, or
their respective businesses. Selling Shareholder acknowledges that any
such information or data he may have acquired was either part of the STL
Purchased Assets which were conveyed to the Purchaser pursuant to the
Acquisition Agreement or was received in confidence and as a fiduciary of the
Purchaser or NewSTL. "Confidential Information" shall be defined as: trade
secrets, customer names, addresses, or particular desires or needs; the
market regions or territories; prices charged for services or products
and the methods and formulas related to pricing; information concerning
product development, manufacturing processes and research and development
projects; formulas, inventions and compilations of such information; information
concerning future product or market developments; financial information;
information regarding suppliers and costs for raw materials and other supplies;
financing programs; business plans; and information regarding personnel,
overhead, distribution and other expenses. The parties stipulate that
Confidential Information and all elements of it are important, material,
confidential and gravely affect the successful conduct of the business of the
Purchaser and NewSTL. Upon termination of his
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employment with the Purchaser and its subsidiaries for any reason and at any
other time the Purchaser or New STL may request, Selling Shareholder agrees to
deliver to the Purchaser, all memoranda, notes, plans, records, reports,
information and other documentation (and copies thereof), however recorded,
relating to the business of the Purchaser or NewSTL, or which contain
Confidential Information which he may possess or have under his control.
Confidential Information, data or trade secrets shall not include any
information which: (a) at the time of disclosure is within the public domain;
(b) after disclosure becomes a part of the public domain or generally known
within the industry through no fault, act or failure to act, error, effort or
breach of this Agreement by Selling Shareholder; (c) is known to the recipient
at the time of disclosure; (d) is subsequently discovered by Selling Shareholder
independently of any disclosure by the Purchaser, STL or NewSTL; (e) is required
by order, statute or regulation, of any governmental authority to be disclosed
to any federal or state agency, court or other body; or (f) is obtained from a
third party who has acquired a legal right to possess and disclose such
information.
5. Exceptions and Exclusions. With respect to the restrictions and
prohibitions set forth in Sections 3 and 4, such restrictions and prohibitions
shall not:
(a) Restrict or prohibit the Selling Shareholder from engaging
in the activities required, but only to the extent required, to permit STL to
enter into a new contract or accept a new order, to subcontract with NewSTL, or
to complete any backlog order in accordance with the provisions of Section 5.3.3
of the Acquisition Agreement; and
(b) Nothing herein contained shall be deemed to prevent or
limit the right of Selling Shareholder to own capital stock or other securities
of any corporation which are publicly owned or regularly traded in the
over-the-counter market or on any securities exchange; provided, however, such
investment does not exceed five percent 5% of the issuer's outstanding
securities of that class.
6. Equitable Remedies and Remedies at Law. The parties recognize that,
because of the nature of the subject matter of this Agreement, it would be
impracticable and extremely difficult to determine actual damages to the
Purchaser or NewSTL or in the event of a breach of this Agreement by Selling
Shareholder. Accordingly, if Selling Shareholder commits a breach, or threatens
to commit a breach of any of the provisions of this Agreement, the Purchaser or
NewSTL shall be entitled to all available legal and equitable remedies,
including without limitation, injunctive relief, both preliminary and permanent,
and none of such parties shall be required to post a surety bond in connection
therewith and each of such parties will also be entitled to money damages for
any loss suffered or to be suffered as a consequence of Selling Shareholder's
breach of this Agreement.
7. Severability. If any of the covenants contained in Section 3, or
any part thereof, are held to be unenforceable because of the duration of such
provisions or the area covered thereby, or ever be deemed to exceed the scope of
business, the undersigned agrees that the court making such determination shall
have the power to reform the provisions of this Agreement to the maximum scope,
time or geographic limitations permitted by applicable law.
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8. Reasonableness. The Purchaser and Selling Shareholder agree that the
covenants of Selling Shareholder set forth in this Agreement are appropriate and
reasonable when considered in light of the nature and extent of the business
acquired by the Purchaser as the STL Purchased Assets and the business conducted
by the Purchaser and the business to be conducted by NewSTL.
9. Exclusive Jurisdiction. The parties hereto intend to and hereby
confer jurisdiction to enforce the covenants contained in Section 3 upon the
courts of any state within the geographical scope of such covenants. In the
event that the courts of any one or more of such states shall hold such
covenants wholly unenforceable by reason of the breadth of their scope or
otherwise, it is the intention of the parties hereto that such determination not
bar or in any way affect the Purchaser's right to the relief provided above in
the courts or any other state within the geographical scope of such covenants as
to any subsequent breach, as to breaches of such covenants in such other
respective jurisdictions, the above covenants as they relate to each state
being, for this purpose, severable into diverse and independent covenants.
10. Governing Law. Except as otherwise provided in Section 9, this
Agreement shall be construed, and the legal relations between the parties hereto
determined, in accordance with the laws of the State of Florida applicable to
agreements made and to be performed entirely within the State of Florida,
without giving effect to its conflicts of laws provisions.
11. Attorneys' Fees. In the event any party hereto institutes
litigation to enforce its rights or remedies under this Agreement, the party
prevailing in such litigation shall be entitled to receive an award from the
non-prevailing party of the prevailing party's reasonable attorneys' fees and
costs incurred in connection with such litigation. The foregoing shall include
reasonable attorneys' fees and costs (including paralegals' fees) incurred at
trial, on any appeal and in any proceeding in bankruptcy. The agreement of the
parties represented by this Agreement is in addition to, and not in lieu of, any
other agreement or obligation of the parties contained in this Agreement or in
the Acquisition Agreement.
12. Enforcement. The covenants of Selling Shareholder under this
Agreement shall be independent of any other contractual relationship between the
Purchaser and Selling Shareholder. Consequently, the existence of any claim or
cause of action of Selling Shareholder against the Purchaser shall not
constitute a defense to the enforcement by the Purchaser of this Agreement.
13. Assignability and Parties in Interest. This Agreement shall inure
to the benefit of and be binding upon (i) the Purchaser and NewSTL and their
respective successors and assigns, including, but not limited to, any
corporation which may acquire all or substantially all of the assets and
business of the Purchaser or NewSTL and any corporation with and into which any
of the Purchaser or NewSTL may be consolidated or merged, or any corporation
that is the successor corporation of any of them in an exchange of stock; and
(ii) Selling Shareholder, his heirs, guardians and personal and legal
representatives. Selling Shareholder may not assign any of his rights or
delegate any of its obligations hereunder without the prior written consent of
the Purchaser. This Agreement shall inure
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to the benefit of the Purchaser and NewSTL, notwithstanding the fact that NewSTL
is not a party hereto. All references in this Agreement to the Purchaser shall
be deemed to include NewSTL.
14. Counterparts. This Agreement may be executed in any number of
counterparts and any party hereto may execute any such counterpart, each of
which when executed and delivered will be deemed to be an original and all of
which counterparts taken together will constitute but one and the same
instrument. The execution of this Agreement by any party hereto will not become
effective until counterparts hereof have been executed by all the parties
hereto.
15. Waiver. The failure of any party to insist upon strict performance
of any of the terms or conditions of this Agreement will not constitute a waiver
of any of its rights hereunder.
16. Complete Agreement. This Agreement contains the entire agreement
between the parties hereto with respect to the transactions contemplated herein
and the subject matter hereof and, except as provided herein, supersedes all
previous oral and written and all contemporaneous oral negotiations,
commitments, writings and understandings relating to the subject matter hereof.
17. Modifications, Amendments and Waivers. All modifications or
amendments to this Agreement shall be in writing and signed by both parties
hereto.
18. Interpretation. The headings contained in this Agreement are for
reference purposes only and will not affect in any way the meaning or
interpretation of this Agreement.
19. Gender, Number. Words of gender may be read as masculine, feminine,
or neuter, as required by context. Words of number may be read as singular or
plural, as required by context. All terms such as "herein," "hereby" or
"hereunder" refer to this Agreement as a whole.
(Signatures on following page.)
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(Signatures to Non-Competition Agreement.)
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first above written.
"Purchaser"
PARAVANT COMPUTER SYSTEMS, INC.
a Florida corporation
Attest: /s/ Kevin J. Bartczak By: /s/ Krishan K. Joshi
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Kevin J. Bartczak, Secretary
[Corporate Seal]
Signed, Sealed and Delivered in "Selling Shareholder"
the Presence of Two Subscribing
Witnesses:
/s/ Bryce W. Skinn /s/ C. Hyland Schooley
- ----------------------- -------------------------
Witness C. Hyland Schooley
/s/ Teresa A. Collingsworth
- --------------------------------
Witness
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EXHIBIT 10.42
SUBORDINATED NOTE
$1,079,333.34 October 1, 1998
FOR VALUE RECEIVED, PARAVANT COMPUTER SYSTEMS, INC., a Florida
corporation (the "Maker"), promises to pay to the order of EDWARD W. STEFANKO
(the "Payee"), in the manner hereinafter set forth, the principal sum of One
Million Seventy Nine Thousand Three Hundred Thirty Three and 34/100 Dollars
($1,079,333.34).
This Note is given as consideration for the purchase by the Maker from
the Payee of shares of common stock of Engineering Development Laboratories,
Incorporated, an Ohio corporation ("EDL") pursuant to that certain Acquisition
Agreement dated as of March 31, 1998 (the "Acquisition Agreement") between the
Maker, EDL, Signal Technology Laboratories, Inc., an Ohio corporation ("STL"),
the shareholders of EDL, including the Payee, and the shareholders of STL.
Payments to be made under this Note shall be made to the order of the Payee at
6020 S. Wheelock Road, West Milton, Ohio 45383, or at such other place as the
Payee may designate to the Maker in writing.
In addition to the aforementioned principal amount, the Maker shall pay
to the Payee interest on the unpaid principal amount from time to time
outstanding under this Note interest at the rate of eight percent (8%) per annum
determined on the basis of a three hundred and sixty five (365) day year.
This Note shall be payable in twelve (12) quarterly payments as follows:
(i) eleven (11) payments in the principal amount of Eighty Nine Thousand Nine
Hundred Forty Four and 44/100 Dollars ($89,944.44) together with accrued
interest on the unpaid principal amount and (ii) one payment in the principal
amount of Eighty Nine Thousand Nine Hundred Forty Four and 50/100 Dollars
($89,944.50) together with accrued interest on the unpaid principal amount. The
first such quarterly payment shall be due and payable on April 1, 1999 and
successive quarterly payments shall be due and payable on July 1, 1999, October
1, 1999 and January 1, 2000 and on each April 1, July 1, October 1 and January 1
thereafter until January 1, 2002, when the entire principal sum and all accrued
but unpaid interest, if not sooner paid as aforesaid, shall be due and payable
in full. In the event the Maker calls all or any of its outstanding warrants for
redemption, cancellation, exercise or conversion, the Maker will be required to
apply a portion of the proceeds therefrom to reduce the indebtedness this Note
as required, and subject to the limitations set forth in, the Acquisition
Agreement.
The Maker shall have the right to prepay this Note in whole or in part
at any time without penalty. The Maker shall also have the right to set-off
against any payment or payments due under this Note any amount or amounts due to
the Maker from the Payee as indemnification under the Acquisition Agreement or
as damages under the Covenant Not to Compete or the Non-Disclosure provisions,
paragraphs 6 and 7, respectively (but only such provisions), of the Employment
Agreement between the Payee and the Maker dated as of the date of this Note and
given as a
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condition of the Closing under the Acquisition Agreement. Any such prepayment or
set-off shall be applied first to accrued but unpaid interest, and then to the
principal sums next maturing hereunder.
All payments required hereby shall be made in lawful money of the United
States of America.
By acceptance of this Note the Payee has agreed that the right of the
holder of this Note to obtain payment from the Maker is subordinate to the
rights of National City Bank (the "Senior Creditor") in respect of any
indebtedness of the Maker for borrowed money payable to the Senior Creditor
("Senior Debt"). This Note shall not be subordinate to any other indebtedness of
the Maker.
Any failure of the Maker to make any payment required hereunder by not
later than ten (10) days after the same shall be due shall constitute an Event
of Default. Upon the occurrence of any Event of Default, the holder hereof shall
have the right, after written notice to the Maker of such Event of Default, and
the failure of the Maker to cure such Event of Default within thirty (30) days
after Maker's receipt of such notice, to declare a Default under this Note and
to accelerate all principal and interest due hereunder. Following the occurrence
of any Default, the holder hereof also shall have the right to exercise any
remedies that it may have hereunder. If it becomes necessary for the holder
hereof to enforce this Note, the Maker shall pay the holder any and all costs,
expenses and reasonable attorneys's and paralegals' fees and expenses incurred
by such holder in connection with such proceedings and any associated
administrative, appellate or bankruptcy proceedings. During any Default or any
period permitted for the curing of any Event of Default interest will continue
to accrue for the benefit of the Payee at the rate of eight percent (8%) per
annum determined as hereinbefore provided.
The Maker hereby waives presentment for payment, demand, protest, notice
of protest and notice of dishonor and expressly agrees to remain and continue
bound for the payment of the principal and interest provided for by the terms of
this Note, notwithstanding any extension or extensions of time of, or for the
payment of said principal or interest.
This Note shall be governed and construed in accordance with the laws of
the State of Florida. If any term or provision of this Note shall be held
invalid, illegal or unenforceable, the validity of all other terms and
provisions hereof shall in no way be affected thereby.
IN WITNESS WHEREOF, the Maker has caused this Note to be executed under
seal and delivered by its duly authorized officer as of the date first above
written.
"MAKER"
PARAVANT COMPUTER SYSTEMS, INC.
By: /s/ Krishan K. Joshi
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Krishan K. Joshi
Chairman of the Board
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EXHIBIT 10.43
SUBORDINATED NOTE
$781,000.00 October 1, 1998
FOR VALUE RECEIVED, PARAVANT COMPUTER SYSTEMS, INC., a Florida
corporation (the "Maker"), promises to pay to the order of HYLAND SCHOOLEY (the
"Payee"), in the manner hereinafter set forth, the principal sum of Seven
Hundred Eighty One Thousand Dollars ($781,000.00).
This Note is given as consideration by the Maker for the non-competition
agreement between the Payee and the Maker pursuant to that certain Acquisition
Agreement dated as of March 31, 1998 (the "Acquisition Agreement") between the
Maker, Engineering Development Laboratories, Incorporated, an Ohio corporation
("EDL"), Signal Technology Laboratories, Inc., an Ohio corporation ("STL") and
the shareholders of EDL and STL, including the Payee. Payments to be made under
this Note shall be made to the order of the Payee at 315 Shafor Boulevard,
Dayton, Ohio 45419, or at such other place as the Payee may designate to the
Maker in writing.
In addition to the aforementioned principal amount, the Maker shall pay
to the Payee interest on the unpaid principal amount from time to time
outstanding under this Note interest at the rate of eight percent (8%) per annum
determined on the basis of a three hundred and sixty five (365) day year.
This Note shall be payable in twelve (12) quarterly payments as follows:
(i) eleven (11) payments in the principal amount of Sixty Five Thousand Eighty
Three and 33/100 Dollars ($65,083.33) together with accrued interest on the
unpaid principal amount and (ii) one payment in the principal amount of Sixty
Five Thousand Eighty Three and 34/100 Dollars ($65,083.34) together with accrued
interest on the unpaid principal amount. The first such quarterly payment shall
be due and payable on April 1, 1999 and successive quarterly payments shall be
due and payable on July 1, 1999, October 1, 1999 and January 1, 2000 and on each
April 1, July 1, October 1 and January 1 thereafter until January 1, 2002, when
the entire principal sum and all accrued but unpaid interest, if not sooner paid
as aforesaid, shall be due and payable in full. In the event the Maker calls all
or any of its outstanding warrants for redemption, cancellation, exercise or
conversion, the Maker will be required to apply a portion of the proceeds
therefrom to reduce the indebtedness this Note as required, and subject to the
limitations set forth in, the Acquisition Agreement.
The Maker shall have the right to prepay this Note in whole or in part
at any time without penalty. The Maker shall also have the right to set-off
against any payment or payments due under this Note any amount or amounts due to
the Maker from the Payee as indemnification under the Acquisition Agreement or
as damages under the non-competition agreement or the employment agreement
between the Payee and the Maker dated as of the date of this Note and given as a
condition of the closing under the Acquisition Agreement. Any such prepayment or
set-off shall be applied first to accrued but unpaid interest, and then to the
principal sums next maturing hereunder.
All payments required hereby shall be made in lawful money of the United
States of America.
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By acceptance of this Note the Payee has agreed that the right of the
holder of this Note to obtain payment from the Maker is subordinate to the
rights of National City Bank (the "Senior Creditor") in respect of any
indebtedness of the Maker for borrowed money payable to the Senior Creditor
("Senior Debt"). This Note shall not be subordinate to any other indebtedness of
the Maker.
Any failure of the Maker to make any payment required hereunder by not
later than ten (10) days after the same shall be due shall constitute an Event
of Default. Upon the occurrence of any Event of Default, the holder hereof shall
have the right, after written notice to the Maker of such Event of Default, and
the failure of the Maker to cure such Event of Default within thirty (30) days
after Maker's receipt of such notice, to declare a Default under this Note and
to accelerate all principal and interest due hereunder. Following the occurrence
of any Default, the holder hereof also shall have the right to exercise any
remedies that it may have hereunder. If it becomes necessary for the holder
hereof to enforce this Note, the Maker shall pay the holder any and all costs,
expenses and reasonable attorneys's and paralegals' fees and expenses incurred
by such holder in connection with such proceedings and any associated
administrative, appellate or bankruptcy proceedings. During any Default or any
period permitted for the curing of any Event of Default interest will continue
to accrue for the benefit of the Payee at the rate of eight percent (8%) per
annum determined as hereinbefore provided.
The Maker hereby waives presentment for payment, demand, protest, notice
of protest and notice of dishonor and expressly agrees to remain and continue
bound for the payment of the principal and interest provided for by the terms of
this Note, notwithstanding any extension or extensions of time of, or for the
payment of said principal or interest.
This Note shall be governed and construed in accordance with the laws of
the State of Florida. If any term or provision of this Note shall be held
invalid, illegal or unenforceable, the validity of all other terms and
provisions hereof shall in no way be affected thereby.
IN WITNESS WHEREOF, the Maker has caused this Note to be executed under
seal and delivered by its duly authorized officer as of the date first above
written.
"MAKER"
PARAVANT COMPUTER SYSTEMS, INC.
By: /s/ Krishan K. Joshi
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Krishan K. Joshi
Chairman of the Board
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EXHIBIT 10.44
SUBORDINATED NOTE
$1,079,333.33 October 1, 1998
FOR VALUE RECEIVED, PARAVANT COMPUTER SYSTEMS, INC., a Florida
corporation (the "Maker"), promises to pay to the order of JAMES E. CLIFFORD
(the "Payee"), in the manner hereinafter set forth, the principal sum of One
Million Seventy Nine Thousand Three Hundred Thirty Three and 33/100 Dollars
($1,079,333.33).
This Note is given as consideration for the purchase by the Maker from
the Payee of shares of common stock of Engineering Development Laboratories,
Incorporated, an Ohio corporation ("EDL") pursuant to that certain Acquisition
Agreement dated as of March 31, 1998 (the "Acquisition Agreement") between the
Maker, EDL, Signal Technology Laboratories, Inc., an Ohio corporation ("STL"),
the shareholders of EDL, including the Payee, and the shareholders of STL.
Payments to be made under this Note shall be made to the order of the Payee at
2616 Lantz Road, Beavercreek, Ohio 45434, or at such other place as the Payee
may designate to the Maker in writing.
In addition to the aforementioned principal amount, the Maker shall pay
to the Payee interest on the unpaid principal amount from time to time
outstanding under this Note interest at the rate of eight percent (8%) per annum
determined on the basis of a three hundred and sixty five (365) day year.
This Note shall be payable in twelve (12) quarterly payments as follows:
(i) eleven (11) payments in the principal amount of Eighty Nine Thousand Nine
Hundred Forty Four and 44/100 Dollars ($89,944.44) together with accrued
interest on the unpaid principal amount and (ii) one payment in the principal
amount of Eighty Nine Thousand Nine Hundred Forty Four and 49/100 Dollars
($89,944.49) together with accrued interest on the unpaid principal amount. The
first such quarterly payment shall be due and payable on April 1, 1999 and
successive quarterly payments shall be due and payable on July 1, 1999 October
1, 1999, and January 1, 2000 and on each April 1, July 1, October 1 and January
1 thereafter until January 1, 2002, when the entire principal sum and all
accrued but unpaid interest, if not sooner paid as aforesaid, shall be due and
payable in full. In the event the Maker calls all or any of its outstanding
warrants for redemption, cancellation, exercise or conversion, the Maker will be
required to apply a portion of the proceeds therefrom to reduce the indebtedness
this Note as required, and subject to the limitations set forth in, the
Acquisition Agreement.
The Maker shall have the right to prepay this Note in whole or in part
at any time without penalty. The Maker shall also have the right to set-off
against any payment or payments due under this Note any amount or amounts due to
the Maker from the Payee as indemnification under the Acquisition Agreement or
as damages under the Covenant Not to Compete or the Non-Disclosure provisions,
paragraphs 6 and 7, respectively (but only such provisions), of the Employment
Agreement between the Payee and the Maker dated as of the date of this Note and
given as a
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condition of the Closing under the Acquisition Agreement. Any such prepayment or
set-off shall be applied first to accrued but unpaid interest, and then to the
principal sums next maturing hereunder.
All payments required hereby shall be made in lawful money of the United
States of America.
By acceptance of this Note the Payee has agreed that the right of the
holder of this Note to obtain payment from the Maker is subordinate to the
rights of National City Bank (the "Senior Creditor") in respect of any
indebtedness of the Maker for borrowed money payable to the Senior Creditor
("Senior Debt"). This Note shall not be subordinate to any other indebtedness of
the Maker.
Any failure of the Maker to make any payment required hereunder by not
later than ten (10) days after the same shall be due shall constitute an Event
of Default. Upon the occurrence of any Event of Default, the holder hereof shall
have the right, after written notice to the Maker of such Event of Default, and
the failure of the Maker to cure such Event of Default within thirty (30) days
after Maker's receipt of such notice, to declare a Default under this Note and
to accelerate all principal and interest due hereunder. Following the occurrence
of any Default, the holder hereof also shall have the right to exercise any
remedies that it may have hereunder. If it becomes necessary for the holder
hereof to enforce this Note, the Maker shall pay the holder any and all costs,
expenses and reasonable attorneys's and paralegals' fees and expenses incurred
by such holder in connection with such proceedings and any associated
administrative, appellate or bankruptcy proceedings. During any Default or any
period permitted for the curing of any Event of Default interest will continue
to accrue for the benefit of the Payee at the rate of eight percent (8%) per
annum determined as hereinbefore provided.
The Maker hereby waives presentment for payment, demand, protest, notice
of protest and notice of dishonor and expressly agrees to remain and continue
bound for the payment of the principal and interest provided for by the terms of
this Note, notwithstanding any extension or extensions of time of, or for the
payment of said principal or interest.
This Note shall be governed and construed in accordance with the laws of
the State of Florida. If any term or provision of this Note shall be held
invalid, illegal or unenforceable, the validity of all other terms and
provisions hereof shall in no way be affected thereby.
IN WITNESS WHEREOF, the Maker has caused this Note to be executed under
seal and delivered by its duly authorized officer as of the date first above
written.
"MAKER"
PARAVANT COMPUTER SYSTEMS, INC.
By: /s/ Krishan K. Joshi
--------------------------------
Krishan K. Joshi
Chairman of the Board
<PAGE>
<PAGE>
EXHIBIT 10.45
LEASE AGREEMENT
This Lease made as of the 26th day of November 1996, between UES,
Incorporated, 4401 Dayton-Xenia Road, Dayton, Ohio 45432-1894 (hereinafter
called the Lessor), and Engineering Development Labs, Inc. (hereinafter called
the Lessee).
WITNESSETH: That the Lessor does hereby demise and let unto the Lessee
the following described Premises, to wit:
Approximately 9,071 square feet of offices, storage, and light
electronic fabrication space in Lessor's Building 3 located at 4393 Dayton-Xenia
Road, Dayton, Ohio 45432. Additional office space in the same building may be
added during the term of the lease as described in Paragraph 3(d).
TO HAVE AND TO HOLD the same with the appurtenances, thereunto belonging
unto the said Lessee for and during the term of three (3) years beginning on the
1st day of December 1996 and ending on the 30th day of November 1999.
BASE MONTHLY RENT: Yielding and paying therefore, payable in monthly
installments, as follows:
twelve payments of nine thousand seven hundred eighty ($9,780)
due in advance on the fist day of each month commencing 1
December 1996 through 1 November 1997; twelve payments of ten
thousand ($10,000) due in advance on the first day of each month
commencing with 1 December 1997 through November 1998; twelve
payments of ten thousand two hundred and twenty-five ($10.225)
due in advance on the first day of each month commending with 1
December 1998 through 1 November 1999.
SECURITY DEPOSIT: No security deposit is required for this lease.
Previous security deposit of six thousand dollars ($6,000) is applied to
December 1996 Rent, making December 1996 rent $3,780.00.
COVENANTS OF LESSEE:
1. And said Lessee does hereby covenant and agree with said Lessor
<PAGE>
<PAGE>
that it will:
(a) pay said rent at the times and place in the manner
aforesaid;
(b) arrange for Lessee employees to have proper DoD security
clearances in conformance with UES facility security
procedures. All security activities will be coordinated
through the UES Security Officer. All Lessee visitors in
Building 3 will be subject to UES visitor control.
(c) conform to entry and exit procedures established by UES
and their building security contractor;
(d) use and occupy said premises in a careful and proper
manner;
(e) make no alterations, changes in interior design and
colors, or additions in or to said premises;
(f) by execution of this Lease accept and agree to abide by
the building and parking area rules and regulations;
(g) throughout the term of this lease and any renewal or
extension thereof, at its expense, keep the interior of
the demised premises and fixtures in good condition.
Lessor, at its sole discretion, shall repair all damage
or injury to the premises and fixtures resulting from the
carelessness, omission, neglect or other cause of Lessee,
it servants, employees, agents, visitors or licenses and
the cost thereof shall become collectible as additional
rent hereunder and shall be paid by Lessee within the 10
days after presentation of statement thereof. Lessee
shall not perform acts or carry on any practices which
may injure the building or the premises, to be a nuisance
or menace to other tenants in the building in which the
demised premises are a part;
(h) be responsible to comply with all EPA regulations
regarding the storage and disposal of hazardous materials
and chemicals and remove all such material at end of
lease;
(i) promptly surrender the demised premises at the end of the
term provided for above.
<PAGE>
<PAGE>
COVENANTS OF LESSOR:
2. And the Lessor on its part covenants and agrees with the Lessee that
it will:
(a) provide all utilities including heat, light, and
electrical power for use by the Lessee (telephone
equipment and service will not be provided by Lessor);
<PAGE>
<PAGE>
(b) provide UES dumpster for waste removal;
(c) maintain the demised premises in good repair and
tenantable condition during the continuance of this
Lease, expect in case of damage arising from the
negligence of the Lessee or its agents or employees;
(d) provide fire and hazard insurance for the leased offices
(but not including any furniture, equipment, or other
property of the lessee) and provide liability coverage
for the leased office space and premises, the lessee
employees and invited guests against injury or loss
caused by hazard or lessor neglect arising out of
occupancy of the leased facility;
(e) provide use of rest rooms, vending machines, lobby,
package receiving, electrical room for generator, limited
use of janitor's room, and conference areas on a
non-interference basis with scheduled UES activities (in
the case of conflicts in schedule conference facilities,
UES requirements will have priority but alternative
facilities will be provided);
(f) provide one unassigned parking space in the rear of
Building 3 for each 200 square feet of leased space and
Lessee visitor parking as available;
(g) provide receptionist and visitor control services in the
main Building 3 lobby;
(h) provide building modifications in accordance with Lessee
specifications to add interior doors and hardware for
ability to lock Lessee's space, to screen fabrication
area form hallway and design area, and to add up to four
offices at Lessee's request during the lease term;
(i) provide, subject to Lessee reimbursement for cost,
installation of additional electric circuits and outlets
and access to Lessor postage meter;
(j) provide up to one hundred fifty (150) square feet of
space for conformal coating and P.C. board cleaning in
Building 2.
MUTUAL COVENANTS
<PAGE>
<PAGE>
3. It is mutually agreed by and between the Lessor and the Lessee that:
(a) if Lessee shall pay rent as herein provided, and shall
keep, observe and perform all of the other covenants of
this Lease by it to be kept, performance and observed,
the Lessee shall and may, peaceably and quietly, have,
hold and enjoy the said premises for the term aforesaid;
(b) upon notice at least sixty (60) days prior to the
termination of the lease, Lessee may elect to extend the
lease for an additional two (2) years under the same
terms and conditions except the monthly payments may be
increased by up to four percent (4.0%) to cover any
increased in the cost of Lessor's rent payments,
utilities, maintenance, insurance, and taxes.
(c) upon seven (7) day written notice, the Lessor will
provide janitorial services for the leased space for an
increase in the monthly rent payments of five (5) cents
per square foot of rented space.
(d) upon sixty (60) day written notice, the Lessor will
provide similar additional non-contiguous office space in
the same building up to a total additional leased space
of two thousand five hundred (2,500) square feet
(calculated by adding this useable space and a 17 percent
uplift factor for common areas) at the rental rate
specified above;
(e) if requested additional rental space cannot be provided
by the Lessor within the required notice period, the
Lessee may terminate this lease without penalty;
(f) any notice, demand, request, or other instrument which
may be or are required to be given under this Lease shall
be delivered in Person or sent by United States Certified
Mail, postage prepaid, and shall be addressed (1) if to
the Lessor, at the address first hereinabove given or at
such other address as the Lessor may designate by written
notice, and
(2) if to the Lessee, attention:
Engineering Development Labs, Inc.
ATTN: Edward W. Stefanko
<PAGE>
<PAGE>
4391 Dayton-Xenia Road
Dayton, Ohio 45432
or any such other address as the Lessee shall designate
by written notice:
(g) this lease supersedes any previous lease between the two parties and
all obligations of either party under any previous lease are hereby canceled.
LESSOR: LESSEE:
UES, Inc. Engineering Development Labs, Inc.
/s/John R. Gruenwald /s/Edward W. Stefanko
John J. Gruenwald Edward W. Stefanko
Vice President, Finance Executive Vice President
<PAGE>
<PAGE>
ADDENDUM TO LEASE AGREEMENT
26 NOVEMBER 1996
This agreement serves as an addendum to the 26 November 1996 lease agreement
between UES, INC. and Engineering Development Labs, Inc. (EDL)
The lessee hereby increases its rental space comprising of offices at the UES
complex in Building 2, Room 13 and Building 3, Room 272. According to the terms
of the lease, the additional rent will be $300.00 per month. Total monthly rent
will be $10,080.00.
The term of the addendum will be 1 November 1997 through the 30th day November
1997. On 1st December 1997, you rent will increase to $10,300.00, in accordance
your original lease dated 26 November 1996. On 1st December 1998, in accordance
with your original lease, your rent will increase to $10,525.00. All payments
are to be made in advance of each month.
LESSOR: LESSEE:
UES, INC. ENGINEERING DEVELOPMENT LABS, INC.
- ------------------------ -----------------------------------
/s/John J. Gruenwald /s/Edward W. Stefanko
John J. Gruenwald Edward E. Stefanko
Vice President, Finance Executive Vice President
<PAGE>
<PAGE>
EXHIBIT 10.46
LEASE AGREEMENT
This Lease made as of the 1ST day of August 1996, between UES,
Incorporated, 4401 Dayton-Xenia Road, Dayton, Ohio 45432-1894 (hereinafter
called the Lessor), and Signal Technology Laboratories, Inc. (hereinafter called
the Lessee).
WITNESSETH: That the Lessor does hereby demise and let unto the Lessee
the following described Premises, to wit:
Approximately 5,500 square feet making up 20 offices in Lessor's
Building 3 located at 4393 Dayton-Xenia Road, Dayton, Ohio 45432. Additional
office space in the same building may be added during the term of the lease as
described in Paragraph 3(b).
TO HAVE AND TO HOLD the same with the appurtenances, thereunto belonging
unto the said Lessee for and during the term of three (3) years beginning on the
1st day of August 1996 and ending on the 31st day of July 1999.
BASE MONTHLY RENT: Yielding and paying therefore, payable in monthly
installments, as follows:
two payments of four thousand ($4,000) beginning on 1 August 1996
and 34 payments of five thousand five hundred ($5,500) month
starting on 1 October 1996 through 1 July 1999.
*Note: The 1 October 1996 date is a target date for completion of
changes and occupancy of new space. The rental increase from $4,000 to
$5,500 will take effect when lessee takes occupancy of the modified
offices.
LEASEHOLD IMPROVEMENTS AND RENT CREDIT:
The Lessee may make modifications to the leased space at its own
expense with approval of the lessor. The lessee will receive a rent credit of
$1,500 per month up to $15,000 (10 months) starting in October 1996 for the cost
of the modifications.
THREE YEAR OPTION:
The lessee, upon 60 day written notice prior to the expiration of
this lease, may extend the lease for an additional three year period. The
<PAGE>
<PAGE>
lessor, at its option, may increase the rental cost up to a maximum of 3% per
year for the three additional years.
SECURITY DEPOSIT: No security deposit is required under this lease.
COVENANTS OF LESSEE:
1. And said Lessee does hereby covenant and agree with said Lessor that
it will:
(a) pay said rent at the times and place in the manner aforesaid;
(b) arrange for Lessee employees to have proper DoD security
clearances in conformance with UES facility security procedures.
All security activities will be coordinated through the UES
Security Officer. All Lessee visitors in Building 3 will be
subject to UES visitor control;
(c) conform to entry and exit procedures established by UES and their
building security contractor;
(d) use and occupy said premises in a careful and proper manner;
(e) make no alterations, changes in interior design and colors, or
additions in or to said premises;
(f) by execution of this Lease accept and agree to abide by the
building and parking area rules and regulations;
(g) throughout the term of this lease and any renewal or extension
thereof, at its expense, keep the interior of the demised
premises and fixtures in good condition. Lessor, at its sole
discretion, shall repair all damage or injury to the premises and
fixtures resulting from the carelessness, omission, neglect or
other cause of Lessee, its servants, employees, agents, visitors
or licenses and the cost thereof shall become collectible as
additional rent hereunder and shall be paid by Lessee within the
10 days after presentation of statement thereof. Lessee shall not
perform acts or carry on any practices which may injure the
building or the premises, or be a nuisance or menace to other
tenants in the building in which the demised premises are a part;
<PAGE>
<PAGE>
(h) promptly surrender the demised premises at the end of the term
provided for above; and
COVENANTS OF LESSOR:
2. And the Lessor on its part covenants and agrees with the Lessee that
it will:
(a) provide all utilities including heat, light, and electrical power
for use by the Lessee (telephone equipment and service will not
be provided by Lessor);
(b) provide janitorial and waste removal services in the Lessee's
offices;
(c) maintain the demised premises in good repair and tenantable
condition during the continuance of this Lease, expect in case of
damage arising from the negligence of the Lessee or its agents or
employees;
(d) provide fire and hazard insurance for the leased offices (but not
including any furniture, equipment, or other property of the
lessee) and provide liability coverage for the leased office
space and premises, the lessee employees and invited guests
against injury or loss caused by hazard or lessor neglect arising
out of occupancy of the leased facility;
(e) provide use of rest rooms, vending machines, lobby, and
conference areas on a non-interference basis with scheduled UES
activities (in the case of conflicts in scheduling conference
facilities, UES requirements will have priority but alternate
facilities will be provided);
(f) provide one unassigned parking space in the rear of Building 3
for each 200 square feet of leased space and Lessee visitor
parking as available;
(g) provide receptionist and visitor control services in the main
Building 3 lobby;
MUTUAL COVENANTS
3. It is mutually agreed by and between the Lessor and the Lessee that:
<PAGE>
<PAGE>
(a) if Lessee shall pay the rent as herein provided, and shall keep,
observe and perform all of the other covenants of this Lease by
it to be kept, performed and observed, the Lessee shall and may,
peaceably and quietly, have, hold and enjoy the said premises for
the term aforesaid;
(b) upon sixty (60) day written notice from the Lessee, the Lessor
will provide up to 2,000 sq ft in Building 3 which will include
office numbers 142, 145, 153, 154, 156, 157, 158, 159 and 160 at
an additional cost of $1.20 per sq ft per month.
(c) if requested additional rental space cannot be provided by the
Lessor within the required notice period, the Lessee may
terminate this lease 90 days from the date of notice without
penalty;
(d) any notice, demand, request, or other instrument which may be or
are required to be given under this Lease shall be delivered in
Person or sent by United States Certified Mail, postage prepaid,
and shall be addressed (1) if to the Lessor, at the address first
hereinabove given or at such other address as the Lessor may
designate by written notice, and (2) if to the Lessee, attention:
Engineering Development Labs, Inc.
ATTN: Edward W. Stefanko
4391 Dayton-Xenia Rd
Dayton, OH 45432
or any such other address as the Lessee shall designate by
written notice;
(e) this lease supersedes any previous lease between the two parties
and all obligations of either party under any previous lease are
hereby canceled.
<PAGE>
<PAGE>
LESSOR: LESSEE:
UES, INC. SIGNAL TECHNOLOGY
LABORATORIES, INC.
- ------------------------ -----------------------
/s/John J. Gruenwald /s/Edward W. Stefanko
John J. Gruenwald Edward W. Stefanko
Vice President, Finance Secty/Treasurer
<PAGE>
<PAGE>
ADDENDUM TO LEASE AGREEMENT
1 October 1997
This agreement serves as an addendum to the 1 August 1996 lease agreement
between UES, INC., 4401 Dayton-Xenia Road, Dayton, OH 45432-1894 (hereinafter
called the Lessor), and Signal Technology Laboratories, Inc. (hereinafter called
the Lessee) is amended herewith.
WITNESSETH: That the Lessee desires to add one additional office, Room 160,
located in Building #3. This additional office will be at a cost of $150.00 per
month commencing with the November 1997 payment. The new monthly rate will be
$6220.00.
LESSOR: LESSEE:
UES, INC. SIGNAL TECHNOLOGY
LABORATORIES, INC.
- ---------------------------- ---------------------------
/s/John J. Gruenwald /s/Edward W. Stefanko
John J. Gruenwald Edward W. Stefanko
Vice President, Finance Executive Vice President
<PAGE>
<PAGE>
ADDENDUM TO LEASE AGREEMENT
1 October 1997
This agreement serves as an addendum to the 1 August 1996 lease agreement
between UES, INC., 4401 Dayton-Xenia Road, Dayton, OH 45432-1894 (hereinafter
called the Lessor), and Signal Technology Laboratories, Inc. (hereinafter called
the Lessee) is amended herewith.
WITNESSETH: That the Lessee desires to add two additional offices, Room 156 and
158, located in Building #3. This additional offices will be at a cost of
$300.00 per month commencing with the October 1997 payment. Along with this
increase in office space, an additional charge for air conditioning room 120 in
the amount of $120.00 per month will begin in October 1997. The new monthly rate
will be $6070.00.
LESSOR: LESSEE:
UES, INC. SIGNAL TECHNOLOGY
LABORATORIES, INC.
- --------------------------- ----------------------------
/s/John J. Gruenwald /s/Edward W. Stefanko
John J. Gruenwald Edward W. Stefanko
Vice President, Finance Executive Vice President
<PAGE>
<PAGE>
ADDENDUM TO LEASE AGREEMENT
1 July 1997
This agreement serves as an addendum to the 1 August 1996 lease agreement
between UES, INC., 4401 Dayton-Xenia Road, Dayton, OH 45432-1894 (hereinafter
called the Lessor), and Signal Technology Laboratories, Inc. (hereinafter called
the Lessee) is amended herewith.
WITNESSETH: That the Lessee desires to add one additional office, Room 154,
located in Building #3. This additional office space will be at a cost of
$150.00 per month commencing with the July 1997 payment. The new monthly rate
will be $5650.00.
LESSOR: LESSEE:
UES, INC. SIGNAL TECHNOLOGY
LABORATORIES, INC.
- ---------------------------- ----------------------------
/s/John J. Gruenwald /s/Edward W. Stefanko
John J. Gruenwald Edward W. Stefanko
Vice President, Finance Executive Vice President
<PAGE>
<PAGE>
EXHIBIT 10.47
MUTUAL COMMITMENT TO BUILD AND TO LEASE
This Mutual Commitment to Build and to Sub-Lease is executed this 5th
day of June, 1998, between Engineering Development Laboratories, Inc. (EDL), an
Ohio for profit corporation; UES, Inc. (UES), an Ohio for profit corporation;
and Beavercreek Enterprises (Beavercreek), an Ohio general partnership. The
parties covenants and agree as follows:
1. Beavercreek is the owner of certain premises located at 4401 Dayton-
Xenia Road, Beavercreek, Ohio.
2. UES leases said premises from Beavercreek, and sub-leases
approximately 9,350 square feet of said premises to EDL, identified
as a portion of Building No. 3.
3. EDL desires an additional approximately 4,000 square feet leased
space. Beavercreek agrees to construct certain additions to provide
said additional space, and UES agrees to lease said addition from
Beavercreek and to sub-lease 6,800 square feet to EDL.
4. To effectuate the foregoing, the following agreements are agreed to
and ratified:
a. Beavercreek will construct an addition of approximately 13,600
square feet to Building No. 3 for partial use by EDL (per agreed
to specifications of EDL and STL).
b. EDL will continue their current sub-lease with UES, and hereby
ratifies and confirms the existing sub-lease.
c. At the time EDL takes occupancy of the new addition, the present
lease by UES, and sub-lease by EDL, shall terminate and be
replaced by a new lease which shall include approximately 6,532
square feet of the present space, plus approximately 6,800 square
feet of the new addition, or 13,332 square feet in total.
d. The terms and conditions of the present lease and sub-lease shall
be incorporated in the new lease and sub-lease; if janitorial is
added the lease rate will be increased by $.50/sq. ft.
<PAGE>
<PAGE>
e. If the merger of Paravant, STL and EDL does not take place, EDL
will be committed to year one of the agreement. Year two and
following will be renegotiated.
The new lease will be for five years with an option for an additional
three years at a 2% escalation. The lease rate for the first five years is as
follows:
<TABLE>
<CAPTION>
Year $/Month
---- -------
<S> <C>
1 $10,938
2 $12,665
3 $14,449
4 $14,738
5 $15,032
</TABLE>
Engineering Development Laboratories, Inc.
(EDL)
--------------------------------------------
By /s/James Clifford
James Clifford, its President
UES, Inc.
--------------------------------------------
By /s/Krishan K. Joshi
Krishan K. Joshi, its President
Beavercreek Enterprises
--------------------------------------------
By /s/Krishan K. Joshi
Krishan K. Joshi, General Partner
<PAGE>
<PAGE>
EXHIBIT 10.48
MUTUAL COMMITMENT TO BUILD AND TO LEASE
This Mutual Commitment to Build and to Sub-Lease is executed this 5th
day of June, 1998, between Signal Technology Laboratories, Inc. (STL), an Ohio
for profit corporation; UES, Inc. (UES), an Ohio for profit corporation; and
Beavercreek Enterprises (Beavercreek), an Ohio general partnership. The parties
covenants and agree as follows:
1. Beavercreek is the owner of certain premises located at 4401
Dayton-Xenia Road, Beavercreek, Ohio.
2. UES leases said premises from Beavercreek, and sub-leases
approximately 6,200 square feet of said premises to STL, identified
as a portion of Building No. 3.
3. STL desires an additional approximately 7,100 square feet leased
space. Beavercreek agrees to construct certain additions to provide
said additional space, and UES agrees to lease said addition from
Beavercreek and to sub-lease 6,800 square feet to STL.
4. To effectuate the foregoing, the following agreements are agreed to
and ratified:
a. Beavercreek will construct an addition of approximately 13,600
square feet to Building No. 3 for partial use by STL (per agreed
to specifications of EDL and STL).
b. STL will continue their current sub-lease with UES, and hereby
ratifies and confirms the existing sub-lease.
c. At the time STL takes occupancy of the new addition, the present
lease by UES, and sub-lease by STL, shall terminate and be
replaced by a new lease which shall include approximately 6,501
square feet of the present space, plus approximately 6,800 square
feet of the new addition, or 13,301 square feet in total.
d. The terms and conditions of the present lease and sub-lease shall
be incorporated in the new lease and sub-lease.
The new lease will be for five years with an option for an additional
<PAGE>
<PAGE>
three years at a 2% escalation. The lease rate for the first five years is as
follows:
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Year $/Month
---- -------
<S> <C> <C>
1 $13,559
2 $13,830
3 $14,107
4 $14,389
5 $14,677
</TABLE>
Signal Technology Laboratories, Inc. (STL)
-------------------------------------------
By /s/C. Hyland Schooley
C. Hyland Schooley, its President
UES, Inc.
-------------------------------------------
By /s/Krishan K. Joshi
Krishan K. Joshi, its President
Beavercreek Enterprises
-------------------------------------------
By /s/Krishan K. Joshi
Krishan K. Joshi, General Partner
<PAGE>
<PAGE>
EXHIBIT 21
Paravant Inc.
Subsidiaries of Paravant Inc.
Engineering Development Laboratories, Incorporated
Software Technology Laboratories, Inc. of Ohio
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
BALANCE SHEETS AND STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY OF
PARAVANT INC. AS OF SEPTEMBER 30, 1998 AND THE RELATED STATEMENTS OF
OPERATIONS AND CASH FLOWS FOR THE YEARS ENDED SEPTEMBER 30, 1998 AND 1997
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> SEP-30-1998 SEP-30-1997
<PERIOD-START> OCT-1-1997 OCT-1-1996
<PERIOD-END> SEP-30-1998 SEP-30-1997
<CASH> 1,187,788 1,612,627
<SECURITIES> 0 0
<RECEIVABLES> 4,239,453 4,252,533
<ALLOWANCES> 88,993 141,497
<INVENTORY> 3,160,573 3,461,773
<CURRENT-ASSETS> 9,881,729 9,709,284
<PP&E> 2,058,944 1,776,376
<DEPRECIATION> 819,764 861,937
<TOTAL-ASSETS> 12,695,577 11,270,100
<CURRENT-LIABILITIES> 2,225,683 2,901,268
<BONDS> 0 9,147
<COMMON> 125,157 119,905
0 0
0 0
<OTHER-SE> 10,110,599 8,089,608
<TOTAL-LIABILITY-AND-EQUITY> 12,695,577 11,270,100
<SALES> 15,507,727 13,209,542
<TOTAL-REVENUES> 15,507,727 13,209,542
<CGS> 7,606,874 6,774,077
<TOTAL-COSTS> 7,606,874 6,774,077
<OTHER-EXPENSES> 5,776,312 4,531,857
<LOSS-PROVISION> 22,538 97,265
<INTEREST-EXPENSE> 19,954 101,262
<INCOME-PRETAX> 2,209,635 1,736,020
<INCOME-TAX> 750,038 594,229
<INCOME-CONTINUING> 1,459,597 1,141,791
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,459,597 1,141,791
<EPS-PRIMARY> 0.184 0.143
<EPS-DILUTED> 0.144 0.093
</TABLE>
