-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PQ8Ar0RlyGUX9V0ABcdBLccHbV3rlrQXTWsIJS9Y+DRaYW5GKhAh9nQr3vkBmSGr DBDZ+emfCXU2NEC4tQ3Hdw== 0000027116-01-500006.txt : 20010615 0000027116-01-500006.hdr.sgml : 20010615 ACCESSION NUMBER: 0000027116-01-500006 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010614 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DATRON SYSTEMS INC/DE CENTRAL INDEX KEY: 0000027116 STANDARD INDUSTRIAL CLASSIFICATION: RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT [3663] IRS NUMBER: 952582922 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-07445 FILM NUMBER: 1660353 BUSINESS ADDRESS: STREET 1: 3030 ENTERPRISE CT CITY: VISTA STATE: CA ZIP: 92083 BUSINESS PHONE: 7607345454 MAIL ADDRESS: STREET 1: 3030 ENTERPRISE CT. CITY: VISTA STATE: CA ZIP: 93083 10-K405 1 doc.txt FORM 10-K FOR PERIOD ENDED MARCH 31, 2001 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Commission File Ended March 31, 2001 Number 0-7445 DATRON SYSTEMS INCORPORATED (Exact name of registrant as specified in its charter) Delaware 95-2582922 (State of Incorporation) (I.R.S. Employer Ident. No.) 3030 Enterprise Court, Vista, California 92083-8347 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (760) 734-5454 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $0.01 (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No __. Indicate by check mark if disclosure of delinquent filings pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ( X ) The aggregate market value of the voting stock (which consists solely of shares of Common Stock) held by non-affiliates of the registrant as of June 12, 2001 was $31.8 million, based on the closing price on that date on the Nasdaq Stock Market. The number of shares outstanding of each of the registrant's classes of common stock as of June 12, 2001 was: Common Stock, par value $0.01 -- 2,748,287 shares. DOCUMENTS INCORPORATED BY REFERENCE 1. Certain portions of registrant's Annual Proxy Statement to be filed pursuant to Regulation 14A of the Securities Exchange Act of 1934, as amended, in connection with the Annual Meeting of Stockholders of the registrant to be held August 14, 2001 are incorporated by reference into Part III of this report. 2. Items contained in the above-referenced documents that are not specifically incorporated by reference are not included in this report. DATRON SYSTEMS INCORPORATED FORM 10-K FISCAL YEAR 2001 TABLE OF CONTENTS PART I 1 Item 1. Business 1 Item 2. Properties 7 Item 3. Legal Proceedings 7 Item 4. Submission of Matters to a Vote of Security Holders 8 PART II 9 Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 9 Item 6. Selected Financial Data 9 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 9 Item 8. Financial Statements and Supplementary Data 9 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 9 PART III 10 Item 10. Directors and Executive Officers of the Registrant 10 Item 11. Executive Compensation 10 Item 12. Security Ownership of Certain Beneficial Owners and Management 10 Item 13. Certain Relationships and Related Transactions 10 PART IV 11 Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 11 1 PART I Item 1. Business. Company Overview Datron Systems Incorporated and its wholly owned subsidiaries (the "Company") provide products and services for emerging satellite and radio communication markets. The Company is a leading supplier of tracking antenna products that can provide television, Internet and other broadband communication connections to the land, sea and air mobile markets. Major products include remote sensing satellite earth stations, satellite communication systems, mobile satellite television reception systems, and voice and data communication radios that are sold to worldwide commercial and governmental markets and to several United States Government customers, including the Department of Defense ("DoD"). The Company was founded in 1969 and became an independent publicly held corporation in 1985. The Company operates its business through two subsidiaries. In October 1985, the Company acquired its wholly owned subsidiary, Datron World Communications Inc., formerly known as Trans World Communications, Inc. ("DWC"). DWC conducts the Company's Communication Products business. In June 1990, the Company acquired its wholly owned subsidiary, Datron Advanced Technologies Inc., formerly known as Datron/Transco Inc. ("DAT"). DAT conducts the Company's Antenna and Imaging Systems business. Investment Considerations This report contains certain forward-looking statements that may be used in evaluating the opportunities and risks associated with future Company performance. However, actual results could differ materially from those described in the forward-looking statements due to, among other things, the following factors: Dependence on Sales to Foreign Customers; Worldwide Economic Downturns and Currency Devaluations Sales to foreign customers accounted for 58%, 55% and 55% of consolidated sales in fiscal 2001, 2000 and 1999, respectively. Sales of Communication Products have been even more highly concentrated with foreign customers: 96%, 89% and 93% in fiscal 2001, 2000 and 1999, respectively. Sales to foreign customers often involve risk because of political and economic uncertainties in many foreign countries, which can result in funding delays or inability of those customers to obtain financing for anticipated purchases of Company products. As a result, it is often more difficult to predict order bookings from foreign customers than it is from domestic customers. In addition, foreign political unrest, war, economic downturns and currency devaluations could have a significant negative impact on future Company sales and income. Reliance on Large Orders from a Small Number of Customers A substantial percentage of sales may be heavily concentrated with a small number of customers. Within the Communication Products business segment, two customers accounted for 36% and 29% of that segment's net sales in fiscal 2001. In fiscal 2000, two customers accounted for 44% and 11% of that segment's net sales. Although sales in the Antenna and Imaging Systems business segment have not been so heavily concentrated with one customer, it is common for a small number of customers to each account for approximately 5% to 15% of that segment's net sales each year. Because it is unusual to receive large orders from the same customer in successive years, it is necessary to find new customers each year to replace the previous year's sales. There can be no assurance that the Company will be able to do so in the future. In addition, reliance on large orders can result in financial performance varying widely from quarter-to-quarter, and also carries contract cancellation risk that can more adversely affect Company performance than it would if the Company depended on small orders from a large number of customers. 2 Timely Development and Customer Acceptance of New Products The Company's products are subject to obsolescence. To prevent this from occurring, the Company has an ongoing new product development program to keep the technologies employed in its products current and to introduce new products that meet changing market requirements. Lack of timely development of new technologies and new products, or lack of acceptance of new products by the Company's customers could have a negative impact on future sales and income. U.S. Government Export Restrictions Some of the Company's products are subject to export licensing approval by agencies of the U.S. Government. U.S. security concerns and human rights issues as well as foreign political instability or unrest can affect the licensing process. The requirement to obtain export licenses for Company products has prevented only one sale to date; however, it has on occasion delayed shipments of some products and in some cases has placed the Company at a competitive disadvantage. There can be no assurances that future shipments may not likewise be delayed or that U.S. security concerns or other regulatory issues may result in the denial of export licenses or the loss of sales opportunities for some Company products. Fixed Price Development Contracts The Company often accepts fixed-price contracts that require custom engineering, custom software or the development of new features and capabilities. Such contracts usually include the sale of standard products and components, but not always. Although engineering cost estimates are prepared as a basis for quoting such contracts, there can be no assurance the Company will be able to develop the required features, capabilities or software within established cost budgets. Should development costs exceed established budgets, as they occasionally have in the past, the result could have a material adverse effect on earnings. Consumer Products and Markets In November 1995, the Company introduced its first consumer product, a mobile direct broadcast satellite ("DBS") television reception system for recreational vehicles and buses. This product represents a departure from the Company's historical business that has focused on large contracts, relatively small numbers of deliverables and customers that are primarily government agencies or large corporations. Several additional DBS antenna products have subsequently been introduced, including a marine product line, antenna systems for large business jets and commercial jets, and a low-profile system intended for SUVs and van conversions. Selling a consumer product requires a different approach than selling the Company's traditional products. For its DBS products, the Company has established a factory direct-to-dealer distribution system and also sells directly to original equipment manufacturers and after- market distributors. These sales methods are currently effective, but there can be no assurance they will continue to be so in the future or that consumer demand for its DBS products will be as large as the Company anticipates. Changes in or Unavailability of Products and Services Offered by Satellite Service Providers All consumer products currently sold or under development by the Company operate with programming or data transmission services from satellite service providers or their related suppliers. The Company is not affiliated with any satellite service provider and is unable to control the content and availability of the products and services they offer. Although the Company has established good working relationships with many satellite service providers to ensure product compatibility, changes in or unavailability of products and services offered by the satellite service providers could have an adverse effect on the Company's business. There can be no assurances that such changes will not be made or that anticipated future services will be offered. 3 Competitors The Company has competitors for all the products it offers. The level of competition varies by product line and ranges from many competitors for its radio products to a few competitors for its tracking antenna products. The Company could be adversely affected by competitors' development of new or different products that may provide or be perceived as providing greater value than the Company's products. The Company may or may not be successful in developing competing products. Many of the Company's competitors and potential competitors have substantially greater resources than the Company and may be more successful in developing, producing and marketing their products. In such case, the Company may experience substantial competition, which could have a material adverse effect on the Company's business. Declining Sales for the U.S. Department of Defense In fiscal 1993, the Company restructured its operations in response to declining DoD spending. Sales for the DoD have declined from $40.8 million in fiscal 1992 to $9.0 million in fiscal 2001, primarily due to completion of long-term DoD contracts that have not been replaced with new orders. Although there are indications from the U.S. government that defense spending may increase in the near future, there can be no assurance that new DoD orders will be received or that the orders received will be sufficient to meet the Company's sales objectives. General The Company operates in two business segments: Antenna and Imaging Systems, whose business is conducted by DAT, and Communication Products, whose business is conducted by DWC. Antenna and Imaging Systems This business segment designs and manufactures satellite communication systems, subsystems and antennas that are sold worldwide to commercial and governmental customers, including the DoD. Its major product lines are (i) satellite tracking antenna systems used for telemetry, tracking and control, remote sensing and satellite communication purposes by government and commercial users, and (ii) mobile broadband communication systems for airlines, military transports and mobile land and marine DBS television users. Descriptions of the two major product lines follow: Satellite Tracking Antenna Systems. The Company is a supplier of satellite communication antenna systems and subsystems used to receive defense-related data and data transmitted through satellites of other government and commercial organizations. The stabilizing and automatic tracking capabilities of its antenna systems make them particularly well suited for use on ships, motor vehicles and other mobile platforms. Over the past two decades, the Company has been a prime contractor and a subcontractor for shipboard antenna systems used by the U.S. Navy. More recently, the Company has been developing airborne antenna systems for the U.S. Air Force. Telemetry, tracking and control systems monitor and control vehicles such as satellites, missiles and aircraft. They receive radio telemetry signals containing vehicle status information, engage in automatic tracking of the vehicle so contact is maintained and transmit command signals so vehicle control can be established and maintained. The remote sensing market is a subset of the broader earth observation market. It involves using several types of satellites containing optical and radar sensors in conjunction with ground antennas and data processing equipment to produce images. The images are in the form of hard copy and/or digital data that allow the user to study changes on the earth's surface or environment. Applications include locating minerals, updating maps, forecasting weather, monitoring crops, studying the environment, monitoring earth resources and gathering economic or military intelligence. The Company offers its customers complete remote sensing earth stations, including image processing capability. 4 The Company previously designed and manufactured broad bandwidth microwave antennas for the aerospace industry that are used on high performance aircraft, missiles and space launch vehicles. That product line was sold in the third quarter of fiscal 2001. Mobile Broadband Communication Systems. The Company is an industry leader in designing and marketing mobile broadband communication systems. In fiscal 1996, the Company introduced its first DBS antenna product that allows a recreational vehicle owner to receive DBS television from a parked vehicle at the touch of a button by automatically locating the satellite. During fiscal 1997, the Company introduced several additional DBS antenna products including systems for boats at anchor, boats underway, and RVs and buses on the open road. Also during fiscal 1997, the Company was first to demonstrate live DBS television on a commercial airliner, and in fiscal 1998, was first to obtain Federal Aviation Administration certification of an airborne DBS system designed for large business jets. In fiscal 2000, the Company licensed the manufacturing rights to its DBS-2100T tail-mounted antenna for business jets to Airshow Inc. and announced it intended to concentrate its airborne efforts on the commercial airline market. That decision resulted from the estimated $500 million size of that market and from, in the opinion of the Company, the superiority and cost effectiveness of the Company's patented Luneburg lens antenna. Customers and Marketing Sales of Antenna and Imaging Systems' products have historically been concentrated with the DoD, which accounted for 24% of this business segment's fiscal 2001 sales and 32% of its fiscal 2000 sales. Marketing and sales activities for its DoD customers and other non-defense governmental agencies are conducted by internal sales and engineering personnel. Most customers for the remote sensing business are foreign government space and communications agencies. Marketing and sales activities for those products are usually conducted through independent sales representatives in Europe, South America and Asia. Introduction of mobile DBS television systems required the establishment of new distribution methods to sell these consumer products. The Company's initial approach of using exclusive national distributors was not effective and the Company is now selling its DBS products direct to dealers and original equipment manufacturers, as well as through select distributors and agents. Company employees provide sales and marketing support and installation training for the dealers. In fiscal 2001, the Company was awarded development and study contracts by the two largest companies seeking to provide broadband communications to the airlines. These companies intended to supply real-time, high-speed Internet, video and other data to airline cabins and cockpits. One of these companies, Rockwell Collins, also placed an order with the Company for nine flight-test units. However, in April 2001, Rockwell Collins announced they no longer intended to participate in their In-Flight Network joint venture with News Corporation and issued the Company a stop-work order on the contract for nine flight-test units. The other offeror of broadband services to the airlines, Boeing, remains committed to the market through its Connection by BoeingSM service. The Company satisfactorily completed its study contract with Boeing and maintains an ongoing relationship with it. The Company remains committed to this market, although now believes it will take longer to develop than originally anticipated. Manufacturing, Assembly and Sources of Supply Products for the Company's Antenna and Imaging Systems business segment are designed, manufactured and assembled at facilities in Simi Valley, California. The Company purchases certain components and subsystems from subcontractors and vendors. Some of these items are standard off-the-shelf components and others are fabricated to Company specifications. The Company also fabricates electronic assemblies from purchased electronic components and circuit boards. 5 The Company is rarely dependent on a single source of supply for materials, parts or components. However, once a subcontractor is selected to provide components built to Company specifications, the Company is often dependent on that subcontractor. Failure of the subcontractor to perform could jeopardize the ability of the Company to meet its required delivery schedules. Communication Products This business segment designs, manufactures and distributes high frequency ("HF") radios and accessories for over-the- horizon radio communications and very high frequency ("VHF") radios and accessories for line-of-sight communications. The Company's HF radios operate in the frequency range of 1.6 to 30 megahertz, where radio waves generated from the transmitter reflect off the ionosphere back to the point of receipt on earth. The Company's VHF radio products, which operate in the frequency range of 30 to 88 megahertz, provide users high-quality transmission for line-of-sight communications. In addition to its standard radios, the Company offers frequency hopping and encryption options to its VHF product line and automatic link establishment options to its HF product line. Frequency hopping is a technique that prevents interruption or interception of radio signals by changing, at high speeds, the frequency at which they are transmitted. This technology utilizes synchronized mechanisms that ensure all radios in a network are synchronized and frequency hop at the same time. Automatic link establishment, when used in HF radio equipment, automatically determines the best available frequencies on which to communicate. The Company offers a wide range of accessory products to complement the HF and VHF product lines. These accessory products include antennas and antenna tuners, power sources, amplifiers, remote control systems, modems, data communications equipment and audio accessories. A substantial percentage of sales of Communication Products are often concentrated with a small number of customers. In fiscal 2001, two Asian customers accounted for 36% and 29% of this business segment's sales. In fiscal 2000, an African customer accounted for 44% of this business segment's sales and a European customer accounted for 11% of its sales. And, in fiscal 1999, another African customer accounted for 20% of this business segment's sales and an Asian customer accounted for 13% of its sales. Because it is unusual to receive large orders from the same customer in successive years, it is often necessary to find new customers each year to replace the previous year's sales. To minimize the impact fluctuating sales may have on the Company's operations, temporary employees are used when practical. In March 2001, the Company introduced its new GuardianTM family of radios intended to address the estimated $800 million federal public safety wireless network ("PSWN") market. This is a domestic market the Company has not previously served. It is being driven by a federal government mandate that requires all [non-military] VHF radios to comply with certain radio spectrum utilization and interoperability standards by 2005. Although initial reaction from potential customers to the Guardian radio has been positive, market acceptance of the radio is uncertain. Customers and Marketing Sales to foreign customers accounted for 96% of this business segment's fiscal 2001 sales and 89% of its fiscal 2000 sales. Most of its international customers are agencies of foreign governments that perform civil defense, paramilitary and military operations, and foreign governmental agencies that perform civilian tasks unrelated to military operations, such as civil aviation agencies, drug interdiction agencies, embassies and disaster relief organizations. Domestic customers are primarily various agencies of the United States Government, including the Drug Enforcement Administration and Department of State. The Company's products are sold in over 80 countries by a network of independent sales and service representatives, most of whom are non exclusive sales agents of the Company. These representatives provide both pre-sale and post-sale support. Many of them operate service facilities that offer both warranty and long-term maintenance of the Company's products. Sales are denominated in U.S. Dollars. 6 In addition to direct sales, the Company sometimes sells its radio products to international suppliers of complementary equipment. It also sometimes licenses the local manufacturing of its products to customers in certain countries. The latter practice is usually followed where local regulations discourage the importation of complete units. Manufacturing, Assembly and Sources of Supply Communication products are designed and manufactured at facilities in Vista, California. Company engineers work closely with manufacturing and marketing personnel to improve existing designs and to introduce new products that meet the ever changing demands of the marketplace. The Company purchases certain electronic components, circuit boards and fabricated metal parts, and painting and silk screening services. Other than when it licenses overseas manufacturing for a particular local market, the Company performs most other manufacturing functions necessary for the production of its products. The Company is rarely dependent on any single source of supply for the manufacture of its communication products. Although only one supplier may be used for certain parts, the Company believes that multiple sources are usually available. Backlog Order backlog at March 31 was as follows:
2001 2000 Antenna and Imaging Systems $14,249,000 $24,293,000 Communication Products 1,784,000 1,702,000 ----------- ----------- Total $16,033,000 $25,995,000
The 41% decrease in Antenna and Imaging Systems' backlog at March 31, 2001 compared with March 31, 2000 was primarily due to continued softness in the markets for antenna systems and remote sensing earth stations and to the absence of microwave product orders due to the sale of that product line in the third quarter of fiscal 2001. The Company has responded by cutting costs at this business segment; however, because of the low beginning backlog and softness in the remote sensing market that is expected to continue for at least two more quarters, the Company expects reduced performance in the first half of fiscal 2002. Communication Products' backlog at March 31, 2001 was 5% higher than at March 31, 2000 due to a stronger market for traditional radio products, which resulted in an 18% increase in bookings during fiscal 2001 compared with fiscal 2000. This segment's business has historically been driven by one or two large contracts each fiscal year. As a result, financial performance from quarter-to-quarter is often uneven. Because of a relatively low order backlog at March 31, 2001 compared with recent fiscal year sales, fiscal 2002 financial performance in this segment is expected to be driven by second half results, much as has been the case the previous two fiscal years. Also, the second half may be heavily influenced by market acceptance of the new Guardian radio for the federal PSWN market. Competition The Company competes in each of its business segments with several companies. Depending on the specific product, these companies may be similar in size to the Company or may be large diversified companies that at times may also be customers of the Company. The Company believes its major competitive advantages are the quality of its products, their cost effective designs, timeliness of delivery, ease of use and easy serviceability. 7 Patents, Trademarks, Copyrights and Licenses The Company has applied for several patents related to its mobile broadband products. However, the Company believes that patents are not generally a significant factor in the Company's business and that the success of the Company depends primarily on the technical competence and managerial and marketing ability of the Company's personnel. DATRON(r) and design, TRANSWORLD(r), I2S(r), PRI2SM(r), OPEN 2000(r,) DBS-2000(r), DBS-2100(r), DBS-2400(r), DBS-3000(r), DBS-4000(r), VI2STA(r) and CruiseTV(r) are registered trademarks of the Company. Guardian(Tm), DBS-5000(TM), GSC-NET(Tm), First In Motion(TM), Whisperdrive(T) and We Cover the Global Spectrum(TM) are trademarks of the Company by application for registration with the U.S. Patent and Trademark Office. The Company has obtained licenses for the VHF frequency hopping technology and for the automatic link establishment technology used in the Company's VHF and HF radio products, respectively. It has also obtained a license for certain technology used in its Guardian radio. Employees The Company employed approximately 305 employees at the end of fiscal 2001 compared with approximately 334 employees at the end of fiscal 2000. A decrease primarily in engineering and manufacturing personnel at the Antenna and Imaging Systems business segment was partially offset by an increase in engineering personnel at the Communication Products business segment. None of the Company's employees are covered by a collective bargaining agreement and the Company considers its employee relations to be good. Financial Information Additional financial information concerning segment, geographic and major customers is included in Note 9 of the Notes to Consolidated Financial Statements. See Part II, Item 8. Item 2. Properties. DWC leases approximately 70,000 square feet of office, engineering and manufacturing space in Vista, California. The lease commenced on March 26, 1999 and expires on April 30, 2009 and contains a renewal option of five years. DWC and the Company's corporate headquarters operate from that facility. The Company relocated from Escondido, California to Vista, California in April 1999. DAT owns through a subsidiary, Datron Resources Inc., a 110,000 square foot office, engineering and manufacturing building located on a nine-acre site in Simi Valley, California. DAT conducts operations from that facility. Information with respect to obligations for lease rentals is included in Note 8 of the Notes to Consolidated Financial Statements. See Part II, Item 8. The Company considers its properties to be suitable and adequate for its present needs. The facilities in Vista and Simi Valley are being fully utilized during a single shift with the exception of approximately 5,000 square feet of manufacturing space in the Vista facility, which is reserved for future growth. 8 Item 3. Legal Proceedings. The Company is not involved in any litigation that is expected to have a material effect on the Company's business or consolidated financial position. In August 1992, Trans World Communications, Inc. (Trans World), a wholly owned subsidiary of the Company and which was renamed Datron World Communications Inc. on March 31, 1995, was named as defendant in a lawsuit filed by ATACS Corporation (ATACS) and AIRTACS Corporation (AIRTACS) relating to a contract to provide radio communication shelters. ATACS and AIRTACS contend that Trans World entered into an agreement to team with them on the contract and then wrongfully failed to use them as subcontractors. They seek damages in excess of $2,000,000. In rulings on May 28, 1997 and September 3, 1997, the court found Trans World in breach of a teaming agreement and awarded ATACS and AIRTACS one dollar ($1.00) in damages. On September 8, 1998, the appeal court affirmed the district court's decision except as to the award of nominal damages, and remanded the matter to the district court for further hearing on damages. On June 14, 2000, the district court issued an order awarding ATACS and AIRTACS damages of $30,075 including prejudgment interest. On July 12, 2000, ATACS and AIRTACS appealed the district court's judgment to the U.S. Court of Appeals. The Company believes that final resolution of this matter will not materially affect the consolidated financial position of the Company or its results of operations. In December 2000, Datron World Communications Inc. (DWC), a wholly owned subsidiary of the Company, was named as defendant in a lawsuit filed by Jose Maria Santos Ramos, an individual, and Tecserve (Private) Limited trading as Vista Communications. In the lawsuit, plaintiffs allege that DWC breached a representative agreement and that plaintiffs are entitled to payment of a commission in the amount of $3,750,000 based on the alleged agreement. DWC denies that it breached the agreement and/or that it owes any commissions to plaintiffs. The Company believes that final resolution of this matter will not materially affect the consolidated financial position of the Company or its results of operations. Item 4. Submission of Matters to a Vote of Security Holders. None. Executive Officers of the Registrant David A. Derby, 59, has been President and Chief Executive Officer of the Company since May 1982, and Chairman of the Board since April 1998. William L. Stephan, 55, has been Vice President, Chief Financial Officer and Treasurer of the Company since November 1993. Executive officers are elected by and serve at the discretion of the Board of Directors. There are no family relationships among directors or executive officers of the Company. 9 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. Information required by Item 5 of Form 10-K is incorporated herein by reference from the information contained in the section captioned "Common Stock Activity" on the inside back cover of the Annual Report, that portion of which is attached hereto as Exhibit 13. Item 6. Selected Financial Data. Information required by Item 6 of Form 10-K is incorporated herein by reference from the information contained in the section captioned "Datron Systems Incorporated Selected Financial Data" on the inside front cover of the Annual Report, that portion of which is attached hereto as Exhibit 13. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. Information required by Item 7 of Form 10-K is incorporated herein by reference from the information contained in the section captioned "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 8 through 11 of the Annual Report, that portion of which is attached hereto as Exhibit 13. Item 7A. Quantitative and Qualitative Disclosures About Market Risk. The Company does not currently use derivative financial instruments for speculative purposes that expose the Company to market risk. The Company is exposed to cash flow and fair value risk due to changes in interest rates with respect to its long-term debt. At March 31, 2001, the Company had outstanding a promissory note to a life insurance company in the amount of $3,080,000 pursuant to a loan agreement under which the Company borrowed $3,300,000 on August 7, 1998. The note is secured by a deed of trust on the Company's Simi Valley facility and has a maturity date of September 1, 2008. Monthly payments are calculated on a 20-year amortization. Interest is payable at a rate of 6.76% per annum through September 1, 2003, at which date the interest rate becomes variable and tied to LIBOR, adjusting every quarter for the remainder of the term. On September 1, 2003, the Company may either prepay the note without penalty or accept the variable rate provisions as determined at that time. Item 8. Financial Statements and Supplementary Data. Information required by Item 8 of Form 10-K is incorporated herein by reference from the consolidated financial statements of the Company at March 31, 2001 and 2000 and for each of the three years in the period ended March 31, 2001 and the Independent Auditors' Report appearing on pages 12 through 24 of the Annual Report, that portion of which is attached hereto as Exhibit 13. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. During the two most recent fiscal years ended March 31, 2001, there has not been a change in accountants or a reported disagreement with accountants on any matter of accounting principles or practices or financial statement disclosure. 10 PART III Item 10. Directors and Executive Officers of the Registrant. Information required by Item 10 of Form 10-K with respect to directors is incorporated herein by reference from the information contained in the section captioned "Nomination and Election of Directors" in the Company's Notice of Annual Meeting of Stockholders to be Held Tuesday, August 14, 2001 at 11:00 A.M. and Proxy Statement ("Proxy Statement"), a copy of which is to be filed as Exhibit 22 within 120 days of the end of the Registrant's fiscal year. Information required by Item 10 of Form 10-K with respect to executive officers is set forth in Part I of this report under the section captioned "Executive Officers of the Registrant," pursuant to instruction 3 to paragraph (b) of Item 401 of Regulation S-K. Item 11. Executive Compensation. Information required by Item 11 of Form 10-K is incorporated herein by reference from the information contained in the section captioned "Executive Compensation" in the Proxy Statement, a copy of which is to be filed as Exhibit 22 within 120 days of the end of the Registrant's fiscal year. Item 12. Security Ownership of Certain Beneficial Owners and Management. Information required by Item 12 of Form 10-K is incorporated herein by reference from the information contained in the section captioned "Security Ownership of Certain Beneficial Owners and Management" in the Proxy Statement, a copy of which is to be filed as Exhibit 22 within 120 days of the end of the Registrant's fiscal year. Item 13. Certain Relationships and Related Transactions. Information required by Item 13 of Form 10-K is incorporated herein by reference from the information contained in the section captioned "Executive Compensation" in the Proxy Statement, a copy of which is to be filed as Exhibit 22 within 120 days of the end of the Registrant's fiscal year. PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. (a) The following documents are filed as part of this report: Page in 2001 Annual Report (1) Financial Statements: Consolidated Balance Sheets at March 31, 2001 and 2000 12 Consolidated Statements of Operations for the Years Ended March 31, 2001, 2000 and 1999 13 Consolidated Statements of Stockholders' Equity for the Years Ended March 31, 2001, 2000 and 1999 14 Consolidated Statements of Cash Flows for the Years Ended March 31, 2001, 2000 and 1999 15 Notes to Consolidated Financial Statements 16-23 Independent Auditors' Report 24 (2) Financial Statement Schedules: Page Independent Auditors' Report on Financial Statement Schedule S-1 Schedule II. Valuation and Qualifying Accounts S-2 All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted. (b) Reports on Form 8-K. On May 4, 2001, the Registrant filed a Form 8-K reporting that its chairman, president and chief executive officer, David A. Derby, had responded to the letter dated April 24, 2001 from Duncan Soukup, managing director of Acquisitor plc, previously made public by Acquisitor. (c) Exhibits. The following exhibits are filed as part of this report: Exhibit Number Description 3.1 Certificate of Incorporation.(1) 3.2 Amended and Restated Bylaws as of August 29, 2000.(16) 4.15 Stockholder Rights Agreement dated August 21, 1990.(4) 4.16 First Amendment to Stockholder Rights Agreement dated as of October 29, 1993.(5) 12 4.17 Second Amendment to Stockholder Rights Agreement dated February 23, 2000.(13) 4.18 Stockholder Rights Agreement dated as of September 5, 2000.(15) 10.5 1988 Key Employee Stock Purchase Plan.(2) 10.36 Amended and Restated 1985 Stock Option Plan.(3) 10.48 Agreement and Plan of Merger between Datron Telecommunications International Inc. and Trans World Communications, Inc. dated as of March 14, 1995.(6) 10.53 Datron Systems Incorporated Supplemental Executive Profit Sharing Plan (Effective as of April 1, 1994).(7) 10.58 Datron Systems Incorporated Employee Stock Purchase Plan (Adopted Effective July 1, 1997).(8) 10.61 Datron World Communications Inc. Lease Agreement dated as of February 13, 1998.(9) 10.65 Loan Agreement between Datron Resources Inc. and Jackson National Life Insurance Company dated August 7, 1998.(10) 10.66 Datron Systems Incorporated Profit Sharing and Savings Plan (Amended and Restated as of April 1, 1998).(10) 10.67 Credit Agreement between Datron World Communications Inc., Datron/Transco Inc. and Comerica Bank-California dated March 24, 1999.(11) 10.68 Borrower Agreement between Datron/Transco Inc. and Comerica Bank-California dated March 24, 1999.(11) 10.69 Guaranty of Datron Systems Incorporated of the indebtedness of Datron World Communications Inc. and Datron/Transco Inc. to Comerica Bank- California dated March 24, 1999.(11) 10.70 Severance Agreement between the Registrant and William L. Stephan.(11) 10.71 Amended and Restated 1995 Stock Option Plan.(12) 10.72 Amended and Restated Employment Agreement between the Registrant and David A. Derby.(12) 10.74 First Amendment to Credit Agreement between Datron World Communications Inc., Datron/Transco Inc. and Comerica Bank- California dated April 12, 2000.(14) 10.75 Borrower Agreement between Datron/Transco Inc. and Comerica Bank-California dated April 12, 2000.(14) 13 10.76 Amended and Restated Guaranty of Datron Systems Incorporated of the indebtedness of Datron World Communications Inc. and Datron/Transco Inc. to Comerica Bank-California dated April 12, 2000.(14) 10.77 Asset Purchase Agreement by and among Datron/Transco Inc., Datron Systems Incorporated and Nurad Technologies, Inc. dated as of November 3, 2000.(17) 10.78 Credit Agreement between Datron Systems Incorporated and U.S. Bank National Association dated May 23, 2001. 10.79 Security Agreement between U.S. Bank National Association and Datron Systems Incorporated dated May 23, 2001. 10.80 Security Agreement between U.S. Bank National Association and Datron Advanced Technologies Inc. dated May 23, 2001. 10.81 Security Agreement between U.S. Bank National Association and Datron World Communications Inc. dated May 23, 2001. 10.82 Continuing Guaranty between Datron Advanced Technologies Inc. and U.S. Bank National Association dated May 23, 2001. 10.83 Continuing Guaranty between Datron World Communications Inc. and U.S. Bank National Association dated May 23, 2001. 13 Certain portions of Registrant's Annual Report to Stockholders for the fiscal year ended March 31, 2001 containing information required by Part I and Part II of this report. 21 Subsidiaries. 22 Proxy Statement, Notice of Annual Meeting of Stockholders to be Held Tuesday, August 14, 2001 at 11:00 A.M. and Form of Proxy (to be deemed filed only to the extent required by the instructions to exhibits for reports on Form 10- K) to be filed within 120 days of the end of the Registrant's fiscal year. 23 Independent Auditors' Consent - Deloitte and Touche LLP. 24 Power of Attorney (on signature page 16). 99 Annual Report of the Datron Systems Incorporated Employee Stock Purchase Plan. _____________________ (1) Incorporated by this reference to the Exhibit bearing the same number filed with the Registration Statement on Form 8-B of the Registrant on November 13, 1987. (2) Incorporated by this reference to the Registration Statement on Form S-8 of the Registrant filed March 22, 1988. (3) Incorporated by this reference to the Registration Statement on Form S-8 of the Registrant filed April 16, 1993. 14 (4) Incorporated by this reference to Exhibit I to the Registrant's Registration Statement on Form 8-A filed November 5, 1990. (5) Incorporated by this reference to the Exhibit bearing the same number filed with the Registrant's Quarterly Report on Form 10-Q for the quarter ended December 31, 1993. (6) Incorporated by this reference to the Exhibit bearing the same number filed with the Registrant's Annual Report on Form 10-K for the fiscal year ended March 31, 1995. (7) Incorporated by this reference to the Exhibit bearing the same number filed with the Registrant's Annual Report on Form 10-K for the fiscal year ended March 31, 1996. (8) Incorporated by this reference to the Exhibit bearing the same number filed with the Registrant's Annual Report on Form 10-K for the fiscal year ended March 31, 1997. (9) Incorporated by this reference to the Exhibit bearing the same number filed with the Registrant's Annual Report on Form 10-K for the fiscal year ended March 31, 1998. (10) Incorporated by this reference to the Exhibit bearing the same number filed with the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998. (11) Incorporated by this reference to the Exhibit bearing the same number filed with the Registrant's Annual Report on Form 10-K for the fiscal year ended March 31, 1999. (12) Incorporated by this reference to the Exhibit bearing the same number filed with the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999. (13) Incorporated by this reference to Exhibit 10.73 filed with the Registrant's Report on Form 8-K dated February 23, 2000. (14) Incorporated by this reference to the Exhibit bearing the same number filed with the Registrant's Annual Report on Form 10-K for the fiscal year ended March 31, 2000. (15) Incorporated by this reference to Exhibit 4.1 filed with the Registrant's Report on Form 8-K dated August 30, 2000. (16) Incorporated by this reference to Exhibit 3(II) filed with the Registrant's Report on Form 8-K/A dated September 7, 2000. (17) Incorporated by this reference to the Exhibit bearing the same number filed with the Registrant's Quarterly Report on Form 10-Q for the quarter ended December 31, 2000. Supplemental Information Copies of the Registrant's Proxy Statement for the Annual Meeting of Stockholders to be held August 14, 2001 and copies of the form of proxy to be used for such Annual Meeting will be furnished to the Securities and Exchange Commission prior to the time they will be distributed to Stockholders. 15 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: June 13, 2001 DATRON SYSTEMS INCORPORATED By: DAVID A. DERBY DAVID A. DERBY Chairman of the Board, President, Chief Executive Officer and Director P0WER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below appoints David A. Derby and William L. Stephan, jointly and severally, as his true and lawful attorney-in-fact, each with full power of substitution and re-substitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact, jointly and severally, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact, jointly and severally, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated: Title Date Signature Chairman of the Board, President, Chief Executive By: /s/David A. Derby Officer and David A. Derby Director (Principal June 13,2001 Executive Officer) Vice President, Chief Financial By: /s/ William L. Stephan Officer (Principal William L. Stephan Financial and Accounting Officer) June 13, 2001 By /s/ Kent P. Ainsworth Director June 8, 2001 Kent P. Ainsworth By /s/ Richard W. Flatow Director June 11, 2001 Richard W. Flatow By /s/ Don M. Lyle Director June 8, 2001 Don M. Lyle By /s/ William A. Preston Director June 7, 2001 William A. Preston By /s/ Robert D. Sherer Director June 7, 2001 Robert D. Sherer INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULE To the Board of Directors Datron Systems Incorporated Vista, California We have audited the consolidated financial statements of Datron Systems Incorporated (the "Company") as of March 31, 2001 and 2000, and for each of the three years in the period ended March 31, 2001, and have issued our report thereon dated May 11, 2001; such financial statements and report are included in your 2001 Annual Report to Stockholders and are incorporated herein by reference. Our audits also included the financial statement schedule of the Company listed in Item 14(a)(2). This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as whole, presents fairly in all material respects the information set forth therein. DELOITTE & TOUCHE LLP San Diego, California May 11, 2001 S-1
DATRON SYSTEMS INCORPORATED SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED MARCH 31, 2001, 2000 AND 1999 Balance Balance at at Beginning End of Year Description of Year Additions Write-offs ____________________________________________________________________________ Year ended March 31, 1999 Allowance for doubtful accounts $190,000 $63,000 $66,000 $187,000 Allowance for inventory obsolescence 1,656,000 432,000 708,000 1,380,000 Allowance for warranties 933,000 810,000 890,000 853,000 ---------- ---------- ---------- ---------- $2,779,000 $1,305,000 $1,664,000 $2,420,000 Year ended March 31, 2000 Allowance for doubtful accounts $187,000 $(22,000) $56,000 $109,000 Allowance for inventory obsolescence 1,380,000 340,000 193,000 1,527,000 Allowance for warranties 853,000 1,233,000 1,001,000 1,085,000 ---------- ---------- ---------- ---------- $2,420,000 $1,551,000 $1,250,000 $2,721,000 Year ended March 31, 2001 Allowance for doubtful accounts $109,000 $20,000 $12,000 $117,000 Allowance for inventory obsolescence 1,527,000 417,000 279,000 1,665,000 Allowance for warranties 1,085,000 940,000 946,000 1,079,000 ---------- ---------- ---------- ---------- $2,721,000 $1,377,000 $1,237,000 $2,861,000
S-2 EX-10 2 ex1.txt EXHIBIT 10.78 CREDIT AGREEMENT CREDIT AGREEMENT THIS CREDIT AGREEMENT, dated as of May 23, 2001, is by and between DATRON SYSTEMS INCORPORATED, a Delaware corporation (the "Borrower") and U.S. BANK NATIONAL ASSOCIATION, a national banking association (the "Bank"). ARTICLE I DEFINITIONS Section 1.1 Defined Terms. In addition to the terms defined elsewhere in this Agreement, the terms defined in this Section 1.1 shall have the meanings ascribed to them in this Section 1.1 (and such meanings shall be equally applicable to both the singular and plural form of the terms defined, as the context may require). Definitions not specifically defined in this Agreement shall have the meanings attributed to such terms in the Uniform Commercial Code except for accounting terms used in this Agreement (including, without limitation, in Sections 6.17, 6.18, and 6.19 below) where the definitions commonly used by GAAP shall apply, as provided in Section 1.2 below. "Adjusted Quick Ratio": cash and/or cash equivalents, plus billed trade accounts receivable divided by the sum of Current Liabilities plus open and outstanding letters of credit existing as of the end of each fiscal quarter of Borrower. For the purposes of this calculation, any funded loans outstanding under the Commitment shall be considered a Current Liability despite the appropriate GAAP designation. "Agreement": This Credit Agreement, as it may be amended, modified, supplemented, restated or replaced from time to time. "Authorized Person": Any officer or other employee of Borrower listed on Exhibit A, as amended from time to time. "Business Day": Any day (other than a Saturday, Sunday or legal holiday in the State of California) on which national banks are permitted to be open in San Diego, California. "Capital Expenditure": Any amount debited to the fixed asset account on the consolidated balance sheet of the Borrower in respect of (a) the acquisition (including, without limitation, acquisition by entry into a Capitalized Lease), construction, improvement, replacement or betterment of land, buildings, machinery, equipment or of any other fixed assets or leaseholds, and (b) to the extent related to and not included in (a) above, materials, contract labor and direct labor (excluding expenditures properly chargeable to repairs or maintenance in accordance with GAAP). "Capitalized Lease": Any lease which is or should be capitalized on the books of the lessee in accordance with GAAP. "Cash Flow Available to Service Debt": As of the end of the most recently concluded fiscal quarter of the Borrower, net income before taxes and extraordinary items plus depreciation and amortization plus interest expense less cash taxes paid less an amount equal to twenty percent (20%) of Capital Expenditures for the immediately preceding four fiscal quarters of the Borrower including the one just ended. "Code": The Internal Revenue Code of 1986, as amended, or any successor statute, together with regulations thereunder. "Commitment": (i) $15,000,000.00, of which all $15,000,000.00 is available for Standby Letters of Credit, $1,000,000.00 is available for Commercial Letters of Credit and $5,000,000.00 is available for the principal amount of funded Loans; provided, however, that the sum of the aggregate of the principal amount of all Loans outstanding hereunder and the aggregate undrawn face amount of Letters of Credit issued and outstanding pursuant to this Agreement shall never exceed $15,000,000.00 and, (ii) as the context may require, the agreement of the Bank to make Loans and issue Letters of Credit to the Borrower subject to the terms and conditions of this Agreement. "Commitment Fees": Loan Fees and Letter of Credit Fees, or any of them. "Current Liabilities": As of the date of determination, the aggregate amount of all current liabilities of Borrower and its Subsidiaries, on a consolidated basis, that would, in accordance with GAAP, be classified on a balance sheet as current liabilities. "Default": Any event which, with the giving of notice to the Borrower or lapse of time, or both, would constitute an Event of Default. "ERISA": The Employee Retirement Income Security Act of 1974, as amended, and any successor statute, together with regulations thereunder. "ERISA Affiliate": Any trade or business (whether or not incorporated) that is a member of a group of which the Borrower is a member and which is treated as a single employer under Section 414 of the Code. "Event of Default": Any event described in Section 7.1. "Fixed Charge Coverage Ratio": As of the end of the most recently concluded fiscal quarter of Borrower, the ratio of: (i) Cash Flow Available to Service Debt; divided by (ii) the sum of aggregate current maturity of long term debt, as of the end of the most recently concluded fiscal quarter of Borrower, plus interest expense for the immediate preceding four fiscal quarters, including the one just ended. "Foreign Account Debtor": An account debtor of Borrower that does not have its principal place of business in the United States. "GAAP": Generally accepted accounting principals as in effect from time to time in the United States, consistently applied. "Guaranties": Guaranties in form and content satisfactory to Bank pursuant to which each Guarantor guaranties the Loans and the Letter of Credit Obligations. "Guarantor": Each Subsidiary other than Datron Resources Inc. "Indebtedness": Without duplication, all obligations, contingent or otherwise, which in accordance with GAAP should be classified upon the obligor's balance sheet as liabilities, but in any event including the following (whether or not they should be classified as liabilities upon such balance sheet): (a) obligations secured by any mortgage, pledge, security interest, lien, charge or other encumbrance existing on property owned or acquired subject thereto, whether or not the obligation secured thereby shall have been assumed and whether or not the obligation secured is the obligation of the owner or another party; (b) any obligation on account of deposits or advances; (c) any obligation for the deferred purchase price of any property or services, (d) any obligation as lessee under any Capitalized Lease; (e) all guaranties, endorsements and other contingent obligations in respect to Indebtedness of others; and (f) undertakings or agreements to reimburse or indemnify issuers of letters of credit. For all purposes of this Agreement, the Indebtedness of any Person shall include the Indebtedness of any partnership or joint venture in which such Person is a general partner or a joint venturer. "Investment": The acquisition, purchase, making or holding of any stock or other security, any loan, advance, contribution to capital, extension of credit (except for trade and customer accounts receivable for inventory sold or services rendered in the ordinary course of business and payable in accordance with customary trade terms), any acquisitions of real or personal property (other than real and personal property acquired in the ordinary course of business) and any purchase or commitment or option to purchase stock or other debt or equity securities of or any interest in another Person or any integral part of any business or the assets comprising such business or part thereof. "Letter of Credit": Any Standby Letter of Credit or Commercial Letter of Credit, as such terms are defined in Section 2.8. "Letter of Credit Agreements": Shall have the meaning set forth in Section 2.3. "Letter of Credit Fee": Any Standby Letter of Credit Fee or Commercial Letter of Credit Fee, as such terms are defined in Section 2.10 and Section 2.11, respectively. "Letter of Credit Obligations": The aggregate amount of all Letter of Credit Fees and of all possible drawings under all Letters of Credit plus all amounts drawn under any Letter of Credit and not reimbursed by the Borrower under the applicable Letter of Credit Agreement. "Lien": Any security interest, mortgage, pledge, lien, hypothecation, judgment lien or similar legal process, charge, encumbrance, title retention agreement or analogous instrument or device (including, without limitation, the interest of the lessors under Capitalized Leases and the interest of a vendor under any conditional sale or other title retention agreement). "Loan Documents": This Agreement, the Note, the Guaranties, the Security Agreements, each Letter of Credit Agreement and each other instrument, document, guaranty, security agreement, mortgage, or other agreement executed and delivered by the Borrower or any Guarantor or party granting security interests in connection with this Agreement, the Loans, any collateral for the Loans or any Letter of Credit. "Material Adverse Effect": Any material adverse effect, or the occurrence of any event or the existence of any condition that has or could reasonably be expected to have a material adverse effect on (a) the business or financial condition or performance of either the Borrower or of the Borrower and the Subsidiaries taken as a whole, (b) the ability of Borrower to repay any Loan when due or satisfy any repayment obligations under any Letter of Credit Agreement when due, (c) the validity or enforceability of any of the Loan Documents, any lien created or purported to be created by any of the Loan Documents or the required priority of any such lien, or (d) any material right or remedy of Bank under any of the Loan Documents. "PBGC": The Pension Benefit Guaranty Corporation, established pursuant to Subtitle A of Title IV of ERISA, and any successor thereto or to the functions thereof. "Person": Any natural person, corporation, partnership, joint venture, firm, association, trust, unincorporated organization, government or governmental agency or political subdivision or any other entity, whether acting in an individual, fiduciary or other capacity. "Plan": An employee benefit plan or other plan, maintained for employees of the Borrower or of any ERISA Affiliate, and subject to Title IV of ERISA or Section 412 of the Code. "Prime Rate": The rate of interest from time to time publicly announced by the Bank as its "prime rate." The Bank may lend to its customers at rates that are at, above or below the Prime Rate. For purposes of determining any interest rate which is based on the Prime Rate, such interest rate shall change on the effective date of any change in the Prime Rate. "Quarterly Loss": Any fiscal quarter period where the consolidated net income of the Borrower is zero (0) US Dollars ($0.00) or less. "Related Party": Any Person (other than a Subsidiary): (a) which directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, the Borrower, (b) which beneficially owns or holds 15% or more of the equity interest of the Borrower; or (c) 15% or more of the equity interest of which is beneficially owned or held by the Borrower or a Subsidiary. The term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise. "Reportable Event": A reportable event as defined in Section 4043 of ERISA and the regulations issued under such Section, with respect to a Plan, excluding, however, such events as to which the PBGC by regulation has waived the requirement of Section 4043(a) of ERISA that it be notified within 30 days of the occurrence of such event, provided that a failure to meet the minimum funding standard of Section 412 of the Code and Section 302 of ERISA shall be a reportable event regardless of the issuance of any such waivers in accordance with Section 412(d) of the Code. "Security Agreements ": Security agreements in form and content satisfactory to Bank pursuant to which Borrower and each Guarantor other than Datron Trans World Communications International Ltd. grants to Bank a security interest in all of its tangible and intangible personal property, whether now owned or hereafter existing or arising. "Subsidiary": Each of Datron Advanced Technologies Inc., a California corporation, Datron World Communications Inc., a California corporation, Datron Resources Inc., a California corporation ("Datron Resources"), Datron Trans World Communications International Ltd., a U.S. Virgin Islands corporation ("Datron Trans World"), and any person of which or in which the Borrower and its other Subsidiaries own directly or indirectly 100% or more of: (a) the combined voting power of all classes of stock having general voting power under ordinary circumstances to elect a majority of the board of directors of such Person, if it is a corporation, (b) the capital interest or profit interest of such Person, if it is a partnership, joint venture or similar entity, or (c) the beneficial interest of such Person, if it is a trust, association or other unincorporated organization. "Tangible Net Worth": As of any date of determination, the sum of the amounts set forth on the consolidated balance sheet of the Borrower as the sum of the common stocks, preferred stock, additional paid-in capital and retained earnings of the Borrower (excluding treasury stock), less the book value of all assets of the Borrower and its Subsidiaries that would be treated as intangibles under GAAP, including, without limitation, all such items as goodwill, trademarks, trade names, service marks, copyrights, patents, licenses, unamortized debt discount and unamortized deferred charges but excluding deferred tax assets. "Termination Date": The earliest of (a) August 1, 2002 or (b) the date on which the Commitment is terminated pursuant to Section 7.2 hereof. "Total Liabilities": As of the date of determination, the aggregate amount of all liabilities of Borrower and its Subsidiaries, on a consolidated basis, that would, in accordance with GAAP, be classified on a balance sheet as liabilities. Section 1.2 Accounting Terms and Calculations. Except as may be expressly provided to the contrary herein, all accounting terms used herein shall be interpreted and all accounting determinations hereunder (including, without limitation, determination of compliance with financial ratios and restrictions in Articles V and VI hereof) shall be made in accordance with GAAP consistently applied. Any reference to "consolidated" financial terms shall be deemed to refer to those financial terms as applied to the Borrower and its Subsidiaries in accordance with GAAP. Section 1.3 Computation of Time Periods. In this Agreement, in the computation of a period of time from a specified date to a later specified date, unless otherwise stated the word "from" means "from and including" and the word "to" or "until" each means "to but excluding." Section 1.4 Other Definitional Terms. The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. References to Sections, Exhibits, schedules and like references are to this Agreement unless otherwise expressly provided. ARTICLE II TERMS OF LENDING Section 2.1 The Commitment. Subject to the terms and conditions hereof and in reliance upon the warranties of the Borrower herein, the Bank agrees to make working capital advances as loans (each, a "Loan" and, collectively, the "Loans") to the Borrower and to issue Letters of Credit for the account of Borrower, from time to time from the date hereof until the Termination Date, during which period the Borrower may repay and reborrow Loans in accordance with the provisions hereof, provided that the aggregate unpaid principal amount of all outstanding Loans and the aggregate undrawn face amounts of all outstanding Letters of Credit shall at all times be subject to the maximum limits of the Commitment. Section 2.2 Amount of Loans and Letters of Credit. (a) Each request for a Loan or a Letter of Credit shall specify the date and the amount of such Loan or Letter of Credit which may be in any amount within the Commitment limits. (b) Bank is authorized to make the Loans and issue Letters of Credit under this Agreement based upon telephonic or other instructions received from anyone purporting to be an Authorized Person, or without instructions if pursuant to Section 2.6 below. Borrower agrees to establish and maintain an account with Bank for the purpose of receiving the proceeds of the Loans requested by Borrower and made by Bank hereunder. Unless otherwise agreed by Bank and Borrower, any Loan requested by Borrower and made by Bank hereunder shall be credited to Borrower's accounts with Bank. Bank shall maintain an account on its books in the name of Borrower (the "Loan Account") on which Borrower will be charged with all Loans and Letters of Credit Fees and reimbursement obligations, and any other payment obligations of Borrower. In accordance with Section 2.6 and 2.13, the Loan Account will be credited with all payments received by Bank from Borrower or for Borrower's account. Bank shall render statements regarding the Loan Account to Borrower, including principal, interest, fees, and including an itemization of all charges and expenses constituting Bank Expenses owing, and such statements shall be conclusively presumed to be correct and accurate and constitute an account stated between Borrower and Bank unless, within 30 days after receipt thereof by Borrower, Borrower shall deliver to Bank written objection thereto describing the error or errors contained in any such statements. Section 2.3 The Note and the Letters of Credit. The Loans shall be evidenced by a promissory note of the Borrower (the "Note"), substantially in the form of Exhibit B hereto, in the maximum amount of Loans available under the Commitment as originally in effect and dated as of the date of this Agreement. The Bank shall enter in its records the amount of each Loan and the payments made thereon and such records shall be deemed conclusive evidence of the subject matter thereof, absent manifest error. The Letters of Credit shall be documented with applications, agreements (including, without limitation, reimbursement agreements) and other documents deemed appropriate by the Bank (collectively, "Letter of Credit Agreements") for the issuance of such Letters of Credit. Section 2.4 Interest. (a) Except as provided in (b) below, the unpaid principal balance of each Loan shall bear interest at an annual rate equal to the Prime Rate. The interest rate hereunder will be adjusted each time that the Prime Rate changes. (b) Any amount of any Loan not paid when due, whether at the date scheduled therefor or earlier upon acceleration, shall bear interest until paid in full at a rate per annum equal to the sum of the Prime Rate plus three percent (3) %. (c) Interest under Section 2.4(a) shall be payable in arrears on the thirtieth (30th) day of each month, commencing on the first such day after the date of any Loan, upon any permitted prepayment (on the amount prepaid) and on the Termination Date. Interest under Section 2.4(b) shall be payable on demand. Section 2.5 Repayment of Principal and Letter of Credit Draws. Principal of the Loans, together with all accrued and unpaid interest thereon, shall be due and payable on the Termination Date. Amounts drawn on Standby Letters of Credit shall be reimbursed by Borrower immediately upon drawing and amounts drawn on Commercial Letters of Credit shall be paid when due, as more specifically provided in the applicable Letter of Credit Agreements. Section 2.6 Payment. Borrower hereby authorizes Bank to charge all principal and interest on Loans, and all Letter of Credit Obligations, to the Loan Account using Bank's auto-debit system. Whenever any payment to be made hereunder shall be stated to be due on a day which is not a Business Day, such payment shall be made on the next succeeding Business Day and such extension of time shall be included in the computation of any interest or fees. In the event that there are insufficient funds in the Loan Account for payment of such amounts, Borrower hereby authorizes Bank, at its option, without prior notice to Borrower, to charge all such amounts to Borrower as a Loan, which amounts thereafter shall accrue interest as a Loan. Any interest not paid when due shall be compounded and shall thereafter accrue interest at the rate then applicable to Loans. Section 2.7 Optional Prepayments. The Borrower may prepay the Loans, in whole or in part, at any time, without premium or penalty Section 2.8 Letters of Credit. The Bank shall issue standby letters of credit ("Standby Letters of Credit") as security for Borrower's reimbursement obligation under an existing standby letter of credit issued by Comerica Bank in the approximate face amount of $5,000,000.00 and as security for certain of Borrower's bid, performance and payment obligations incurred in connection with Borrower's projects, and the Bank shall issue commercial letters of credit ("Commercial Letters of Credit") to support Borrower's purchases of raw materials and components upon application of the Borrower, subject to (a) compliance by the Borrower with all conditions precedent set forth in Article III hereof, (b) entry by the Borrower into Letter of Credit Agreements deemed appropriate by the Bank for the issuance of such Letters of Credit, (c) payment by the Borrower of commissions, fees and interest as agreed upon between the Borrower and the Bank with respect to each such Letter of Credit, (d) satisfaction of the Bank with the form, substance and beneficiary of each such Letter of Credit, and (e) the absence of any statutory or regulatory change or directive affecting the issuance by the Bank of letters of credit. All Standby Letters of Credit shall have expiration dates not to exceed six (6) months after the Termination Date and terms not to exceed the greater of (i) eighteen (18) months or (ii) a period of time from the date of issuance thereof to six (6) months after the Termination Date. All Commercial Letters of Credit shall have a maximum term of ninety (90) days and tenor not to exceed sight. If any Letter of Credit shall be outstanding after the Termination Date, the Borrower shall deliver cash collateral in the face amount of such Letter of Credit, or other collateral satisfactory to Bank (which collateral may include a letter of credit in a form and issued by a bank satisfactory to Bank), to be held subject to Section 7.2.2 hereof. The aggregate undrawn face amount of the Letters of Credit shall be subject to the Commitment. Section 2.9 Loan Fees. The Borrower shall pay to the Bank the following loan fees (the "Loan Fees"): (a) a fee in the amount of $5,000.00 promptly upon the execution by both Borrower and Bank of this Agreement and (b) in the event that the Termination Date is extended pursuant to Section 2.15 hereof, an additional fee of $3,500.00 on the date that each one-year extension of the Termination Date as contemplated by such section is granted by Bank. Section 2.10 Standby Letter of Credit Fees. The Borrower shall pay to the Bank fees (each such fee, a "Standby Letter of Credit Fee") in connection with the issuance of Standby Letters of Credit as follows: (a) with respect to each Standby Letter of Credit with an undrawn face amount of $200,000.00 or more or with a term of 90 days or greater, Borrower shall pay a per annum fee of 1.125% calculated on the face amount of each such Standby Letter of Credit from the date of issuance thereof through the stated date of expiry, paid quarterly in advance with the first such payment made on the date of issuance of each such Standby Letter of Credit; and (b) with respect to each Standby Letter of Credit with an undrawn face amount of less than $200,000.00 or with a term of less than 90 days, Borrower shall pay an issuance fee of the greater of 1.125% of the face amount of each such Standby Letter of Credit and $400.00, paid in advance on the date of issuance of each such Standby Letter of Credit; and (c) with respect to all Standby Letters of Credit, Borrower shall pay amendment, cancellation and other administration fees in accordance with Bank's published rates. Each Standby Letter of Credit Fee shall be fully earned when due and payable and shall not be refundable under any circumstance. Section 2.11 Commercial Letter of Credit Fees. The Borrower shall pay to the Bank issuance, advising, amendment, payment, cancellation and other administration fees (each such fee, a "Commercial Letter of Credit Fee") in accordance with Bank's published rates. Each Commercial Letter of Credit Fee shall be fully earned when due and payable and shall not be refundable under any circumstance. Section 2.12 Computation. Interest and Commitment Fees shall be computed on the basis of actual days elapsed and a year of 360 days. Section 2.13 Payments to Loan Account. Amounts deposited by Borrower into the Loan Account shall be made in immediately available funds and received no later than 11:00 a.m., California time, for credit on that Business Day at the office of the Bank at 4180 La Jolla Village Drive, Suite 125, La Jolla, California 92037. Funds received on any day after such time shall be deemed to have been received on the next Business Day. Section 2.15 Extension. If the Borrower, by written notice given to the Bank at least 60 days but not more than 90 days prior to the date that is one year prior to the Termination Date, requests in writing that the Termination Date be extended for an additional period of one year and if the Bank, in its sole and absolute discretion and based on such review of the Borrower's financial performance and condition and such other factors as the Bank considers relevant (which may include, without limitation, future loan policies and other policies adopted by the Bank unrelated to the Borrower's financial condition), consents in writing to such extension, then the Termination Date shall be extended for an additional period, and the Borrower may repeat its request within the same time limit and if the Bank consents the Termination Date shall be further extended for an additional period, and so on from time to time. In the case of any such extension, the "Termination Date" shall be the last day of the period to which such extension has been granted. The Bank shall be under no obligation or commitment to extend the Termination Date, and no such obligation or commitment on the part of the Bank should be inferred from the provisions of this Section. ARTICLE III CONDITIONS PRECEDENT Section 3.1 Conditions of Initial Loan or Letter of Credit. The obligation of the Bank to make the initial Loan or issue the initial Letter of Credit hereunder shall be subject to the satisfaction of the conditions precedent, in addition to the applicable conditions precedent set forth in Section 3.2 below, that: there shall not have occurred (i) an event that could cause or have a Material Adverse Effect with respect to the financial condition of Borrower or any of its Subsidiaries or any material diminution in the value of the collateral to be subject to the Security Agreements, as determined by Bank in its sole discretion by comparing financial conditions and values shown on Borrower's financial statements dated December 31, 2000 or (ii) any discovery by Bank of information that Bank reasonably determines has a negative effect on the transactions contemplated by this Agreement; and the Bank shall have received all of the following, in form and substance satisfactory to the Bank, each duly executed and certified or dated the date of the initial Loan or initial Letter of Credit, as applicable, or such other date as is satisfactory to the Bank: (a) This Agreement, the Note and, if applicable, the Letter of Credit Agreements, executed by a duly authorized officer (or officers) of the Borrower. (b) Each Guaranty and each Security Agreement, executed by a duly authorized officer (or officers) of the Borrower or the applicable Guarantor, as appropriate. (c) A copy of the corporate resolution of the Borrower authorizing the execution, delivery and performance of the Loan Documents, certified by the Secretary or an Assistant Secretary of the Borrower and from each Guarantor, a copy of the corporate resolution of each such Guarantor authorizing the execution, delivery and performance of a Guaranty and a Security Agreement by such Guarantor, certified by the Secretary or an Assistant Secretary of such Guarantor . (d) An incumbency certificate showing the names and titles, and bearing the signatures of, the officers of the Borrower authorized to execute the Loan Documents and to request Loans or Letters of Credit hereunder, certified by the Secretary or an Assistant Secretary of the Borrower and from each Guarantor, an incumbency certificate showing the names and titles, and bearing the signatures of, the officers of the Guarantor authorized to execute a Guaranty and a Security Agreement. (e) A copy of the Articles or Certificate of Incorporation of the Borrower and of each Guarantor, with all amendments thereto, certified by the appropriate governmental official of the jurisdiction of its incorporation (which certified charter coduments have been obtained by Bank as of the date of this Agreement). (f) A Certificate of Good Standing for the Borrower and for each Guarantor in the jurisdiction of each such entity's incorporation, certified by the appropriate governmental officials (which certificates have been received by Bank as of the date of this Agreement). (i) An enforceable agreement by Datron Resources not to incur debt or pledge any of its assets to any Person without the prior written approval of Bank. (j) Borrower's projections (including a pro forma balance sheet, income statement, schedule of letter of credit utilization and statement of cash flows) for Borrower's fiscal year ending March 31, 2002 and Bank, in the exercise of its reasonable discretion, shall have determined that such projections are satisfactory. Section 3.2 Conditions Precedent to all Loans and Letters of Credit. The obligation of the Bank to make any Loan hereunder (including the initial Loan) or to issue any Letter of Credit (including the initial Letter of Credit) shall be subject to the satisfaction of the following conditions precedent: (a) Before and after giving effect to such Loan or such Letter of Credit, the representation and warranties contained in Article IV shall be true and correct, as though made on the date of such Loan. (b) Before and after giving effect to such Loan or such Letter of Credit, no Default or Event of Default shall have occurred and be continuing. (c) The Bank shall have received the Borrower's request for such Loan or such Letter of Credit as required by Section 2.2. ARTICLE IV REPRESENTATIONS AND WARRANTIES To induce the Bank to enter into this Agreement, to grant the Commitment, to make the Loans and issue the Letters of Credit hereunder, the Borrower represents and warrants to the Bank: Section 4.1 Organization, Standing, Etc. The Borrower and each of the Guarantors are corporations duly incorporated and validly existing and in good standing under the laws of the jurisdiction of their respective incorporation and have all requisite corporate power and authority to carry on their respective businesses as now conducted and to enter into and perform their obligations under the Loan Documents executed by them and (in the instance of the Borrower) to issue the Note. The Borrower and each of its Subsidiaries are duly qualified and in good standing as a foreign corporation in each jurisdiction in which the character of the properties owned, leased or operated by it or the business conducted by it makes such qualification necessary. Section 4.2 Authorization and Validity. The execution, delivery and performance by the Borrower and each of the Guarantors of the Loan Documents executed by them have been duly authorized by all necessary corporate action by the Borrower or Guarantors, and the Loan Documents constitute the legal, valid and binding obligations of the Borrower or Guarantor that executed them, enforceable against the Borrower in accordance with their respective terms, subject to limitations as to enforceability which might result from bankruptcy, insolvency, moratorium and other similar laws affecting creditors' rights generally and subject to limitations on the availability of equitable remedies. Section 4.3 No Conflict; No Default. The execution, delivery and performance by the Borrower and each Guarantor of the Loan Documents executed by them will not (a) violate any provision of any law, statute, rule or regulation or any order, writ, judgment, injunction, decree, determination or award of any court, governmental agency or arbitrator presently in effect having applicability to the Borrower or Guarantors, (b) violate or contravene any provisions of the Articles (or Certificate) of Incorporation or by-laws of the Borrower or Guarantors, or (c) result in a breach of or constitute a default under any indenture, loan or credit agreement or any other agreement, lease or instrument to which the Borrower or any Guarantor is a party or by which it or any of its properties may be bound or result in the creation of any Lien on any asset of the Borrower or any Subsidiary. Neither the Borrower nor any Subsidiary is in default under or in violation of any such law, statute, rule or regulation, order, writ, judgment, injunction, decree, determination or award or any such indenture, loan or credit agreement or other agreement, lease or instrument in any case in which the consequences of such default or violation could cause or have a Material Adverse Effect. No Default or Event of Default has occurred and is continuing. Section 4.4 Government Consent. No order, consent, approval, license, authorization or validation of, or filing, recording or registration with, or exemption by, any governmental or public body or authority is required on the part of the Borrower or any Guarantor to authorize, or is required in connection with the execution, delivery and performance of, or the legality, validity, binding effect or enforceability of, the Loan Documents. Section 4.5 Financial Statements and Condition. The Borrower's audited consolidated financial statements as at March 31, 2000 and its company-prepared consolidated financial statements as at December 31, 2000, as heretofore furnished to the Bank, have been prepared in accordance with GAAP on a consistent basis and fairly present the financial condition of the Borrower and its Subsidiaries as at such dates and the results of their operations and changes in financial position for the respective periods then ended. As of the dates of such financial statements, neither the Borrower nor any Subsidiary had any material obligation, contingent liability, liability for taxes or long-term lease obligation which is not reflected in such financial statements or in the notes thereto. Since December 31, 2000, no Material Adverse Effect has occurred. Section 4.6 Litigation and Contingent Liabilities. Except as described in Exhibit C, there are no actions, suits or proceedings pending or, to the knowledge of the Borrower, threatened against or affecting the Borrower or any Subsidiary or any of their properties before any court or arbitrator, or any governmental department, board, agency or other instrumentality which, if determined adversely to the Borrower or such Subsidiary, could constitute a Material Adverse Effect. Except as described in Exhibit D, neither the Borrower nor any Subsidiary has any contingent liabilities which are material to the Borrower and the Subsidiaries as a consolidated enterprise. Section 4.7 Compliance. The Borrower and its Subsidiaries are in material compliance with all statutes and governmental rules and regulations applicable to them. Section 4.8 Environmental, Health and Safety Laws. There does not exist any violation by the Borrower or any Subsidiary of any applicable federal, state or local law, rule or regulation or order of any government, governmental department, board, agency or other instrumentality relating to environmental, pollution, health or safety matters which will or threatens to impose a material liability on the Borrower or a Subsidiary or which would require a material expenditure by the Borrower or such Subsidiary to cure. Neither the Borrower nor any Subsidiary has received any notice to the effect that any part of its operations or properties is not in material compliance with any such law, rule, regulation or order or notice that it or its property is the subject of any governmental investigation evaluating whether any remedial action is needed to respond to any release of any toxic or hazardous waste or substance into the environment, the consequences of which non-compliance or remedial action could cause or have a Material Adverse Effect. Section 4.9 ERISA. Each Plan complies with all material applicable requirements of ERISA and the Code and with all material applicable rulings and regulations issued under the provisions of ERISA and the Code setting forth those requirements. No Reportable Event, other than a Reportable Event for which the reporting requirements have been waived by regulations of the PBGC, has occurred and is continuing with respect to any Plan. All of the minimum funding standards applicable to such Plans have been satisfied and there exists no event or condition which would permit the institution of proceedings to terminate any Plan under Section 4042 of ERISA. The current value of the Plans' benefits guaranteed under Title IV or ERISA does not exceed the current value of the Plans' assets allocable to such benefits. Section 4.10 Regulation U. The Borrower is not engaged in the business of extending credit for the purpose of purchasing or carrying margin stock (as defined in Regulation U of the Board of Governors of the Federal Reserve System) and no part of the proceeds of any Loan will be used to purchase or carry margin stock or for any other purpose which would violate any of the margin requirements of the Board of Governors of the Federal Reserve System. Section 4.11 Ownership of Property; Liens. Each of the Borrower and the Subsidiaries has good and marketable title to its real properties and good and sufficient title to its other properties, including all properties and assets referred to as owned by the Borrower and its Subsidiaries in the audited financial statement of the Borrower referred to in Section 4.5 (other than property disposed of since the date of such financial statement in the ordinary course of business). None of the properties, revenues or assets of the Borrower or any of its Subsidiaries is subject to a Lien, except for (a) Liens disclosed in the financial statements referred to in Section 4.5, (b) Liens listed on Exhibit E, or (c) Liens allowed under Section 6.12. Section 4.12 Taxes. Each of the Borrower and the Subsidiaries has filed all federal, state and local tax returns required to be filed and has paid or made provision for the payment of all taxes due and payable pursuant to such returns and pursuant to any assessments made against it or any of its property and all other taxes, fees and other charges imposed on it or any of its property by any governmental authority (other than taxes, fees or charges the amount or validity of which is currently being contested in good faith by appropriate proceedings and with respect to which reserves in accordance with GAAP have been provided on the books of the Borrower). No tax Liens have been filed and no material claims are being asserted with respect to any such taxes, fees or charges. The charges, accruals and reserves on the books of the Borrower in respect of taxes and other governmental charges are adequate. Section 4.13 Trademarks, Patents. Each of the Borrower and the Subsidiaries possesses or has the right to use all of the patents, trademarks, trade names, service marks and copyrights, and applications therefor, and all technology, know-how, processes, methods and designs used in or necessary for the conduct of its business, without known conflict with the rights of others. Section 4.14 Investment Company Act. Neither the Borrower nor any Subsidiary is an "investment company" or a company "controlled" by an investment company within the meaning of the Investment Company Act of 1940, as amended. Section 4.15 Public Utility Holding Company Act. Neither the Borrower nor any Subsidiary is a "holding company" or a "subsidiary company" of a holding company or an "affiliate" of a holding company or of a subsidiary company of a holding company within the meaning of the Public Utility Holding Company Act of 1935, as amended. Section 4.16 Subsidiaries. Exhibit F sets forth as of the date of this Agreement a list of all Subsidiaries and the number and percentage of the shares of each class of capital stock owned beneficially or of record by the Borrower or any Subsidiary therein, and the jurisdiction of incorporation of each Subsidiary. Section 4.17 Partnerships and Joint Ventures. Exhibit G sets forth as of the date of this Agreement a list of all partnerships or joint ventures in which the Borrower or any Subsidiary is a partner (limited or general) or joint venturer. ARTICLE V AFFIRMATIVE COVENANTS From the date of this Agreement and thereafter until the Commitment is terminated or expires and the Loans and the Letter of Credit Obligations and all other liabilities of the Borrower to the Bank hereunder and under the Note have been paid in full, unless the Bank shall otherwise expressly consent in writing, the Borrower will do, and will cause each Subsidiary (except in the instance of Section 5.1) to do, all of the following: Section 5.1 Financial Statements and Reports. Furnish to the Bank: (a) As soon as available and in any event within 90 days after the end of each fiscal year of the Borrower, a company- prepared annual audit report of the Borrower and its Subsidiaries prepared on a consolidating and consolidated basis and in conformity with GAAP, consisting of at least statements of income, cash flow, changes in financial position and stockholders' equity, and a consolidated balance sheet as at the end of such year, setting forth in each case in comparative form corresponding figures from the previous annual audit, certified without qualification by independent certified public accountants of recognized standing selected by the Borrower and acceptable to the Bank, together with any management letters, management reports or other supplementary comments or reports to the Borrower or its board of directors furnished by such accountants. (b) Together with the audited financial statements required under Section 5.1(a), a separate schedule containing the details of the consolidating financial statements used to prepare such company-prepared financial statements. (c) As soon as available and in any event within 30 days after the end of each month, a copy of the company-prepared consolidated and consolidating financial statement of the Borrower and its subsidiaries, signed by the Borrower's chief financial officer, consisting of statements of income for the Borrower and the Subsidiaries for such month and for the period from the beginning of such fiscal year to the end of such period, and a consolidating and consolidated balance sheet of the Borrower as at the end of such period. In addition, Borrower shall provide to Bank within 30 days after the end of each fiscal quarter statements of cash flow for (i) such fiscal quarter and (ii) the period beginning at the beginning of Borrower's fiscal year through the end of such quarter. (d) Together with the financial statements furnished by the Borrower under Sections 5.1(a) and 5.1(c), a Compliance Certificate signed by the chief financial officer of the Borrower in the form of Exhibit H attached hereto and incorporated herein by this reference, demonstrating in reasonable detail compliance (or noncompliance, as the case may be) with each of the financial ratios and restrictions contained in Article VI and stating that as at the date of each such financial statement there did not exist any Default or Event of Default or, if such Default or Event of Default existed, specifying the nature and period of existence thereof and what action the Borrower proposes to take with respect thereto. (e) Immediately upon becoming aware of any Default or Event of Default, a notice describing the nature thereof and what action the Borrower proposes to take with respect thereto. (f) Immediately upon becoming aware of the occurrence, with respect to any Plan, of any Reportable Event (other than a Reportable Event for which the reporting requirements have been waived by PBGC regulations) or any "prohibited transaction" (as defined in Section 4975 of the Code), a notice specifying the nature thereof and what action the Borrower proposes to take with respect thereto, and, when received, copies of any notice from PBGC of intention to terminate or have a trustee appointed for any Plan. (g) Promptly upon the mailing or filing thereof, copies of all financial statements, reports and proxy statements mailed to the Borrower's shareholders, and copies of all registration statements, periodic reports (Quarterly Reports on Form 10-Q and Annual Reports on Form 10-K) and other documents filed with the Securities and Exchange Commission (or any successor thereto) or any national securities exchange. (h) If requested by Bank, on a quarterly basis during the term of this Agreement, (i) a detailed aging of Borrower's accounts receivable and (ii) a summary aging, by vendor, of Borrower's accounts payable (i) on a quarterly basis during the term of this Agreement, the amount of open Foreign Accounts Receivable that are not supported by credit insurance or letters of credit. (j) Immediately upon becoming aware of the occurrence thereof, notice of the institution of any litigation, arbitration or governmental proceeding, or the rendering of a judgment or decision in such litigation or proceeding, which could cause or have a Material Adverse Effect, and the steps being taken by the Person(s) affected by such proceeding. (k) Immediately upon becoming aware of the occurrence thereof, notice of any violation as to any environmental matter by the Borrower or any Subsidiary and of the commencement of any judicial or administrative proceeding relating to health, safety or environmental matters (i) in which an adverse determination or result could result in the revocation of or have a material adverse effect on any operating permits, air emission permits, water discharge permits, hazardous waste permits or other permits held by the Borrower or any Subsidiary which are material to the operations of the Borrower or such Subsidiary, or (ii) which will or threatens to impose a material liability on the Borrower or such Subsidiary to any Person or which will require a material expenditure by the Borrower or such Subsidiary to cure any alleged problem or violation. (l) From time to time, such other information regarding the business, operation and financial condition of the Borrower and the Subsidiaries as the Bank may reasonably request. Section 5.2 Corporate Existence. Subject to Section 6.1 in the instance of a Subsidiary, maintain its corporate existence in good standing under the laws of its jurisdiction of incorporation and its qualification to transact business in each jurisdiction in which the character of the properties owned, leased or operated by it or the business conducted by it makes such qualification necessary. Section 5.3 Insurance. Maintain with financially sound and reputable insurance companies such insurance as may be required by law and such other insurance in such amounts and against such hazards as is customary in the case of reputable corporations engaged in the same or similar business and similarly situated. Section 5.4 Payment of Taxes and Claims. File all tax returns and reports which are required by law to be filed by it and pay before they become delinquent all taxes, assessments and governmental charges and levies imposed upon it or its property and all claims or demands of any kind (including, without limitation, those of suppliers, mechanics, carriers, warehouses, landlords and other like Persons) which, if unpaid, might result in the creation of a Lien upon its property; provided that the foregoing items need not be paid if they are being contested in good faith by appropriate proceedings, and as long as the Borrower's or such Subsidiary's title to its property is not materially adversely affected, its use of such property in the ordinary course of its business is not materially interfered with and adequate reserves with respect thereto have been set aside on the Borrower's or such Subsidiary's books in accordance with GAAP. Section 5.5 Inspection. Permit any Person designated by the Bank to visit and inspect any of its properties, corporate books and financial records, to examine and to make copies of its books of accounts and other financial records, and to discuss the affairs, finances and accounts of the Borrower and the Subsidiaries with, and to be advised as to the same by, its officers at such reasonable times and intervals as the Bank may designate. So long as no Event of Default exists, the expenses of the Bank for such visits, inspections and examinations shall be at the expense of the Bank, but any such visits, inspections, and examinations made while any Event of Default is continuing shall be at the expense of the Borrower. Section 5.6 Maintenance of Properties. Maintain its properties used or useful in the conduct of its business in good condition, repair and working order, and supplied with all necessary equipment, and make all necessary repairs, renewals, replacements, betterments and improvements thereto, all as may be necessary so that the business carried on in connection therewith may be properly and advantageously conducted at all times. Section 5.7 Books and Records. Keep adequate and proper records and books of account in which full and correct entries will be made of its dealings, business and affairs. Section 5.8 Compliance. Comply in all material respects with all laws, rules, regulations, orders, writs, judgments, injunctions, decrees or awards to which it may be subject. Section 5.9 ERISA. Maintain each Plan in compliance with all material applicable requirements of ERISA and of the Code and with all material applicable rulings and regulations issued under the provisions of ERISA and of the Code. Section 5.10 Environmental Matters. Observe and comply with all laws, rules, regulations and orders of any government or government agency relating to health, safety, pollution, hazardous materials or other environmental matters to the extent non-compliance could result in a material liability or otherwise cause or have a Material Adverse Effect. Section 5.11 Support for Foreign Account Debtors. Obtain security for all accounts receivable from each Foreign Account Debtor where the aggregate exposure to such account debtor is greater than $250,000.00 by obtaining foreign credit insurance or a letter of credit from a credit institution satisfactory to Bank in its sole discretion; provided, however, that Borrower need not obtain such security if (a) Bank specifically waives its right to require such security or (b) the Foreign Account Debtor is not the resident of an undeveloped or emerging country (as determined by Bank in its sole discretion) and has at least a three year relationship with Borrower with no derogatory payment history. Section 5.12 Banking Relationship. Borrower shall establish and maintain a full depository and cash management relationship with Bank within ninety (90) days after the execution of this Agreement by Borrower and Bank and Borrower hereby agrees that in the event Borrower fails to establish and maintain such relationships with Bank that (i) Bank may increase the rate of interest otherwise charged on all Loans by one percent (1%) and (ii) Bank may increase the per annum letter of credit fee otherwise charged on all Letters of Credit by one percent (1%). ARTICLE VI NEGATIVE COVENANTS From the date of this Agreement and thereafter until the Commitment is terminated or expires and the Loans and the Letter of Credit Obligations and all other liabilities of the Borrower to the Bank hereunder and under the Note have been paid in full, unless the Bank shall otherwise expressly consent in writing, the Borrower will not, and will not permit any Subsidiary to, do any of the following: Section 6.1 Merger. Merge or consolidate or enter into any analogous reorganization or transaction with any Person; provided, however, any wholly-owned Subsidiary may be merged with or liquidated into the Borrower (if the Borrower is the surviving corporation) or any other wholly- owned Subsidiary. Section 6.2 Sale of Assets. Sell, transfer, lease or otherwise convey all or any substantial part of its assets except for sales and leases of inventory in the ordinary course of business and except for sales or other transfers by a wholly-owned Subsidiary to the Borrower or another wholly-owned Subsidiary. Section 6.3 Purchase of Assets. Purchase or lease or otherwise acquire all or substantially all of the assets of any Person, except for purchases or other transfers by the Borrower or a wholly-owned Subsidiary from a wholly-owned Subsidiary. Section 6.4 Plans. Permit any condition to exist in connection with any Plan which might constitute grounds for the PBGC to institute proceedings to have such Plan terminated or a trustee appointed to administer such Plan, permit any Plan to terminate under any circumstances which would cause the lien provided for in Section 4068 of ERISA to attach to any property, revenue or asset of the Borrower or any Subsidiary. Section 6.5 Change in Nature of Business. Make any material change in the nature of the business of the Borrower or such Subsidiary, as carried on at the date hereof. Section 6.6 Subsidiaries, Partnerships, Joint Ventures and Ownership of Stock. Do any of the following: (a) form or acquire any corporation which would thereby become a Subsidiary; (b) form or enter into any partnership as a limited or general partner or into any joint venture; (c) permit any Subsidiary to purchase or otherwise acquire any shares of the stock of the Borrower; or (d) take any action, or permit any Subsidiary to take any action, which would result in a decrease in the Borrower's or any Subsidiary's ownership interest in any Subsidiary (including, without limitation, decrease in the percentage of the shares of any class of stock owned). Section 6.7 Other Agreements. Enter into any agreement, bond, note or other instrument with or for the benefit of any Person other than the Bank which would: (a) prohibit the Borrower or such Subsidiary from granting, or otherwise limit the ability of the Borrower or such Subsidiary to grant, to the Bank any Lien on any assets or properties of the Borrower or such Subsidiary (except for the real property owned by Datron Resources); or (b) be violated or breached by the Borrower's performance of its obligations under the Loan Documents. Section 6.8 Restricted Payments. Either: (a) purchase or redeem or otherwise acquire for value any shares of the Borrower's or any Subsidiary's stock (except for up to 5% of the Borrower's total outstanding stock), declare or pay any dividends thereon (other than stock dividends and dividends payable solely to the Borrower), make any distribution on, or payment on account of the purchase, redemption, defeasance or other acquisition or retirement for value of, any shares of the Borrower's or any Subsidiary's stock or set aside any funds for any such purpose (other than payment to, or on account of or for the benefit of, the Borrower only); or (b) directly or indirectly make any payment on, or redeem, repurchase, defease, or make any sinking fund payment on account of, or any other provision for, or otherwise pay, acquire or retire for value, any Indebtedness of the Borrower or any Subsidiary that is subordinated in right of payment to the Loans (whether pursuant to its terms or by operation of law), except for regularly-scheduled payments of interest and principal (which shall not include payments contingently required upon occurrence of a change of control or other event) that are not otherwise prohibited hereunder or under the document or agreement stating the terms of such subordination. Section 6.9 Capital Expenditures. Make Capital Expenditures in an amount exceeding $1,800,000.00 on a consolidated basis in any fiscal year, except for the purpose of expanding Borrower's business lines and subject to the approval of Bank, which may be granted or withheld in Bank's sole discretion. Section 6.10 Investments. Acquire for value, make, have or hold any Investments, except: (a) Investments outstanding on the date hereof (including, without limitation, investments in Subsidiaries on the date hereof) and listed on Exhibit I; (b) Travel advances to officers and employees in the ordinary course of business; (c) Investments in readily marketable direct obligations of the United States of America having maturities of one year or less from the date of acquisition; (d) Certificates of deposit or bankers' acceptances, each maturing within one year from the date of acquisition, issued by any commercial bank organized under the laws of the United States or any State thereof which has (i) combined capital, surplus and undivided profits of at least $100,000,000, and (ii) a credit rating with respect to its unsecured indebtedness from a nationally recognized rating service that is satisfactory to the Bank; (e) Commercial paper maturing within 270 days from the date of issuance and with a Moody's P-1 or Standard & Poor's A-1 rating; (f) Repurchase agreements relating to securities issued or guaranteed as to principal and interest by the United States of America; (g) extensions of credit in the nature of accounts receivable or notes receivable arising from the sale of goods and services in the ordinary course of business; and (h) share of stock, obligations or other securities received in settlement of claims arising in the ordinary course of business. Section 6.11 Indebtedness. Incur, create, issue, assume or suffer to exist any Indebtedness, except: (a) Indebtedness under this Agreement; (b) Current Liabilities incurred in the ordinary course of business; (c) Indebtedness in the approximate amount of $3,000,000 owed by Datron Resources to Jackson National Life Insurance Company existing on the date of this Agreement and which is secured by a mortgage and related liens, and other indebtedness as may be disclosed on Exhibit J hereto; (d) Indebtedness that has been subordinated to Bank's rights under this Agreement to the satisfaction of Bank, indebtedness from Guarantors to Borrower or from Borrower to Guarantors, indebtedness consented to by Bank and indebtedness secured by Liens permitted under Section 6.12 hereof; and (e) Indebtedness consisting of endorsements for collection, deposit or negotiation and warranties of products or services, in each case incurred in the ordinary course of business. Section 6.12 Liens. Create, incur, assume or suffer to exist any Lien with respect to any property, revenues or assets now owned or hereafter arising or acquired, except: (a) Liens in connection with the acquisition of property after the date hereof by way of purchase money mortgage, conditional sale or other title retention agreement, Capitalized Lease or other deferred payment contract, and attaching only to the property being acquired if the Indebtedness secured thereby does not exceed 100% (including, without limitation, in the case of a Capitalized Lease) of the fair market value of such property at the time of acquisition thereof nor $1,800,000.00 in the aggregate for the Borrower and all Subsidiaries at any one time outstanding; (b) Liens existing on the date of this Agreement and disclosed on Exhibit E hereto; (c) Deposits or pledges to secure payment of workers' compensation, unemployment insurance, old age pensions or other social security obligations, in the ordinary course of business of the Borrower or a Subsidiary; (d) Liens for taxes, fees, assessments and governmental charges not delinquent or to the extent that payments therefor shall not at the time be required to be made in accordance with the provisions of Section 5.4; (e) Liens of carriers, warehousemen, mechanics and materialmen, and other like Liens arising in the ordinary course of business, for sums not due or to the extent that payment therefor shall not at the time be required to be made in accordance with the provisions of Section 5.4; and (f) Deposits to secure the performance of bids, trade contracts, leases, statutory obligations and other obligations of a like nature incurred in the ordinary course of business. Section 6.13 Contingent Liabilities. Either: (i) endorse, guarantee, contingently agree to purchase or to provide funds for the payment of, or otherwise become contingently liable upon, any obligation of any other Person, except by the endorsement of negotiable instruments for deposit or collection (or similar transactions) in the ordinary course of business, or (ii) agree to maintain the net worth or working capital of, or provide funds to satisfy any other financial test applicable to, any other Person. Section 6.14 Unconditional Purchase Obligations. Enter into or be a party to any contract for the purchase or lease of materials, supplies or other property or services if such contract requires that payment be made by it regardless of whether or not delivery is ever made of such materials, supplies or other property or services. Section 6.15 Transactions with Related Parties. Enter into or be a party to any transaction or arrangement, including, without limitation, the purchase, sale lease or exchange of property or the rendering of any service, with any Related Party, except in the ordinary course of and pursuant to the reasonable requirements of the Borrower's or the applicable Subsidiary's business and upon fair and reasonable terms no less favorable to the Borrower or such Subsidiary than would obtain in a comparable arm's- length transaction with a Person not a Related Party. Section 6.16 Use of Proceeds. Permit any proceeds of the Loans to be used, either directly or indirectly, for the purpose, whether immediate, incidental or ultimate, of "purchasing or carrying any margin stock" within the meaning of Regulation U of the Federal Reserve Board, as amended from time to time, and furnish to the Bank, upon its request, a statement in conformity with the requirements of Federal Reserve Form U-1 referred to in Regulation U. Section 6.17 Financial Ratios. Failure to maintain the following financial ratio tests, as measured as of the end of each fiscal quarter of Borrower, based on the Borrower's company prepared consolidated financial statements, and at the end of each fiscal year end of Borrower, based on the consolidated fiscal year end CPA audited financial statements: (a) Minimum Adjusted Quick Ratio. An Adjusted Quick Ratio of not less than .65:1.00. (b) Maximum Total Liabilities plus Letters of Credit to Consolidated Tangible Net Worth. A ratio of its Total Liabilities plus un-drawn face amount of letters of credit outstanding as of the date the ratio is being tested to Tangible Net Worth of not more than 2.00:1:00. (c) Minimum Fixed Charge Coverage Ratio. A Fixed Charge Coverage Ratio not less than 2.00:1.00. Section 6.18 Two Consecutive Quarterly Losses. Permit the occurrence of two consecutive fiscal quarters for which a Net Loss is posted by the Borrower except for the period beginning on April 1, 2001 and ending on September 30, 2001, for which two consecutive fiscal quarter Net Loss periods can occur, so long as, the combined year-to-date Net Income as of September 30, 2001 is greater than a minus $600,000.00. Section 6.19 Operating and Net Income. Permit the occurrence, as of the end of each fiscal year period, of net income before giving effect to after tax gains from the sale of assets outside of the normal course of business of zero US Dollars ($0.00) or less. ARTICLE VII EVENTS OF DEFAULT AND REMEDIES Section 7.1 Events of Default. The occurrence of any one or more of the following events shall constitute an Event of Default: (a) The Borrower shall fail to make when due, whether by acceleration or otherwise, any payment of principal of or interest on the Note or any fee or other amount required to be made to the Bank pursuant to the Loan Documents and such failure to make a payment shall continue for five (5) calendar days after notice thereof to the Borrower by the Bank; (b) Any representation or warranty made or deemed to have been made by or on behalf of the Borrower or any Subsidiary in the Loan Documents or by or on behalf of the Borrower or any Subsidiary in any certificate, statement, report or other writing furnished by or on behalf of the Borrower to the Bank pursuant to the Loan documents shall prove to have been false or misleading in any material respect on the date as of which the facts set forth are stated or certified or deemed to have been stated or certified; (c) The Borrower shall fail to comply with Section 5.2 hereof or any Section of Article VI hereof; (d) The Borrower shall fail to comply with any agreement, covenant, condition, provision or term contained in the Loan Documents (and such failure shall not constitute an Event of Default under any of the other provisions of this Section 7.1) and such failure to comply shall continue for ten (10) calendar days after notice thereof to the Borrower by the Bank; (e) The Borrower or any Subsidiary shall become insolvent or shall generally not pay its debts as they mature or shall apply for, shall consent to, or shall acquiesce in the appointment of a custodian, trustee or receiver of the Borrower or such Subsidiary or for a substantial part of the property thereof or, in the absence of such application, consent or acquiescence, a custodian, trustee or receiver shall be appointed for the Borrower or a Subsidiary or for a substantial part of the property thereof and shall not be discharged within 45 days; (f) Any bankruptcy, reorganization, debt arrangement or other proceedings under any bankruptcy or insolvency law shall be instituted by or against the Borrower or a Subsidiary, and, if instituted against the Borrower or a Subsidiary, shall have been consented to or acquiesced in by the Borrower or such Subsidiary, or shall remain undismissed for 45 days, or an order for relief shall have been entered against the Borrower or such Subsidiary, or the Borrower or any Subsidiary shall take any corporate action to approve institution of, or acquiescence in, such a proceeding; (g) Any dissolution or liquidation proceeding shall be instituted by or against the Borrower or a Subsidiary and, if instituted against the Borrower or such Subsidiary, shall be consented to or acquiesced in by the Borrower or such Subsidiary or shall remain for 45 days undismissed, or the Borrower or any Subsidiary shall take any corporate action to approve institution of, or acquiescence in, such a proceeding; (h) A judgment or judgments for the payment of money in excess of the sum of $50,000.00 in the aggregate shall be rendered against the Borrower or a Subsidiary and the Borrower or such Subsidiary shall not discharge the same or provide for its discharge in accordance with its terms, or procure a stay of execution thereof, prior to any execution on such judgments by such judgment creditor, within 30 days from the date of entry thereof, and within said period of 30 days, or such longer period during which execution of such judgment shall be stayed, appeal therefrom and cause the execution thereof to be stayed during such appeal; (i) The institution by the Borrower or any ERISA Affiliate of steps to terminate any Plan if in order to effectuate such termination, (i) the Borrower or any ERISA Affiliate would be required to make a contribution to such Plan or would incur a liability or obligation to such Plan, and (ii) immediately after giving effect to the payment or satisfaction of such contribution, liability or obligation (if made or undertaken by the Borrower or any Subsidiary) a Default or Event of Default would exist and be continuing or in order to effectuate such termination, the Borrower or any ERISA Affiliate would be required to make a contribution to such Plan,, or the institution by the PBGC of steps to terminate any Plan; (j) The maturity of any Indebtedness of the Borrower (other than Indebtedness under this Agreement) or a Subsidiary shall be accelerated, or the Borrower or a Subsidiary shall fail to pay any such Indebtedness when due or, in the case of such Indebtedness payable on demand, when demanded, or any event shall occur or condition shall exist and shall continue for more than the period of grace, if any, applicable thereto and shall have the effect of causing, or permitting (any required notice having been given and grace period having expired) the holder of any such Indebtedness or any trustee or other Person acting on behalf of such holder to cause, such Indebtedness to become due prior to its stated maturity or to realize upon any collateral given as security therefor; or (k) The Bank shall have determined in good faith (which determination shall be conclusive) that the prospect of payment or performance by the Borrower of any of its obligations to the Bank, hereunder or under any other instrument, document or agreement, is materially impaired. (l) Any Person, or group of Persons acting in concert, shall have acquired more than 25% of the shares of voting stock and such Person or group of Persons (or other Persons to whom such Persons or group of Persons may transfer such shares without the approval of Lender), shall have maintained control of such percentage of the voting shares for ninety (90) days or more. Section 7.2 Remedies. Section 7.2.1 Generally. If (a) any Event of Default described in Sections 7.1(e), (f) or (g) shall occur with respect to the Borrower, the Commitment shall automatically terminate and the outstanding unpaid principal balance of the Note, the accrued interest thereon and all other obligations of the Borrower to the Bank under the Loan Documents shall automatically become immediately due and payable; or (b) any other Event of Default shall occur and be continuing, then the Bank may take any or all of the following actions: (i) declare the Commitment terminated, whereupon the Commitment shall terminate, (ii) declare the outstanding unpaid principal balance of the Note, the accrued and unpaid interest thereon and all other obligations of the Borrower to the Bank under the Loan Documents to be forthwith due and payable, whereupon the Note, all accrued and unpaid interest thereon and all such obligations shall immediately become due and payable, in each case without demand or notice of any kind, all of which are hereby expressly waived, anything in this Agreement or in the Note to the contrary notwithstanding, (iii) exercise all rights and remedies under any other instrument, document or agreement between the Borrower and the Bank, and (iv) enforce all rights and remedies under any applicable law. Section 7.2.2 Letters of Credit. In addition to the remedies described in the Section immediately preceding this Section, if any Event of Default described in Section 7.1(e), (f) or (g) shall have occurred, or if any other Event of Default shall have occurred and the Bank shall have declared that the principal balance of the Note is due and payable, the Borrower shall pay to the Bank an amount equal to all the Letter of Credit Obligations. Such payment shall be in cash, other immediately available funds or in the form of other collateral acceptable to the Bank (including, without limitation, letters of credit in form and from banks acceptable to Bank) and shall be pledged to the Bank (or in the case of letters of credit, shall be for the benefit of Bank and with such presentment conditions as are acceptable to Bank). Such collateral shall be held by the Bank until the outstanding Letters of Credit are terminated without payment or are paid and Letter of Credit Obligations with respect thereto are payable. In the event the Borrower defaults in the payment of any Letter of Credit Obligations, the proceeds of the collateral held by Bank shall be applied to the payment thereof. The Borrower acknowledges and agrees that the Bank would not have an adequate remedy at law for failure by the Borrower to pay immediately to the Bank the amount provided under this Section, and that the Bank shall have the right to require the Borrower to perform specifically such undertaking whether or not any of the Letter of Credit Obligations are due and payable. Upon the failure of the Borrower to make any payment required under this Section, the Bank may proceed to use all remedies available at law or equity to enforce the obligation of the Borrower to pay or reimburse the Bank. The balance of any payment due under this Section shall bear interest payable on demand until paid in full at a per annum rate equal to the Prime Rate plus 3.00%. ARTICLE VIII MISCELLANEOUS Section 8.1 Waiver and Amendment. No failure on the part of the Bank or the holder of the Note to exercise and no delay in exercising any power or right hereunder or under any other Loan Document shall operate as a waiver thereof; nor shall any single or partial exercise of any power or right preclude any other or further exercise thereof or the exercise of any other power or right. The remedies herein and in any other instrument, document or agreement delivered or to be delivered to the Bank hereunder or in connection herewith are cumulative and not exclusive of any remedies provided by law. No notice to or demand on the Borrower not required hereunder or under the Note shall in any event entitle the Borrower to any other or further notice or demand in similar or other circumstances or constitute a waiver of the right of the Bank or the holder of the Note to any other or further action in any circumstances without notice or demand. No amendment, modification or waiver of any provision of the Loan Documents or consent to any departure by the Borrower therefrom shall be effective unless the same shall be in writing and signed by the Bank, and then such amendment, modifications, waiver or consent shall be effective only in the specific instances and for the specific purpose for which given. Section 8.2 Expenses and Indemnities. Whether or not any Loan is made hereunder, the Borrower agrees to reimburse the Bank upon demand for all reasonable expenses paid or incurred by the Bank (including filing and recording costs and fees and expenses of legal counsel, who may be employees of the Bank) in connection with the preparation, review, execution, delivery, amendment, modification, interpretation, collection and enforcement of the Loan Documents. The Borrower agrees to pay, and save the Bank harmless from all liability for, any stamp or other taxes which may be payable with respect to the execution or delivery of the Loan Documents. The Borrower agrees to indemnify and hold the Bank harmless from any loss or expense which may arise or be created by the acceptance of telephonic or other instructions for making Loans or disbursing the proceeds thereof, except that Borrower shall not indemnify Bank for Bank's own gross negligence. The obligations of the Borrower under this Section 8.2 shall survive any termination of this Agreement. Section 8.3 Notices. Except when telephonic notice is expressly authorized by this Agreement, any notice or other communication to any party in connection with this Agreement shall be in writing and shall be sent by manual delivery, telegram, telex, facsimile transmission, overnight courier or United States mail (postage prepaid) addressed to such party at the address specified on the signature page hereof, or at such other address as such party shall have specified to the other party hereto in writing. All periods of notice shall be measured from the date of delivery thereof if manually delivered, from the date of sending thereof if sent by telegram, telex or facsimile transmission, from the first Business Day after the date of sending if sent by overnight courier, or from four days after the date of mailing if mailed; provided, however, that any notice to the Bank under Article II hereof shall be deemed to have been given only when received by the Bank. Section 8.4 Successors. This Agreement shall be binding upon the Borrower and the Bank and their respective successors and assigns, and shall inure to the benefit of the Borrower and the Bank and the successors and assigns of the Bank. The Borrower shall not assign its rights or duties hereunder without the written consent of the Bank. Section 8.5 Participations and Information. The Bank may sell participation interests in any or all of the Loans and in all or any portion of the Commitment to any Person. The Bank may furnish any information concerning the Borrower in the possession of the Bank from time to time to participants and prospective participants and may furnish information in response to credit inquiries consistent with general banking practice. Section 8.6 Severability. Any provision of the Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or affecting the validity or enforceability of such provision in any other jurisdiction. Section 8.7 Captions. The captions or headings herein and any table of contents hereto are for convenience only and in no way define, limit or describe the scope or intent of any provision of this Agreement. Section 8.8 Entire Agreement. This Agreement, the Note, the Security Agreements executed by Borrower and the Guarantors, the Guaranties and any of the Letter of Credit Agreements in existence at the time of the execution of this Agreement, embody the entire agreement and understanding between the Borrower and the Bank with respect to the subject matter hereof and thereof. This Agreement supersedes all prior agreements and understandings relating to the subject matter hereof. Section 8.9 Counterparts. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument, and either of the parties hereto may execute this Agreement by signing any such counterpart. Section 8.10 Governing Law. THE VALIDITY, CONSTRUCTION AND ENFORCEABILITY OF THIS AGREEMENT AND THE NOTE SHALL BE GOVERNED BY THE INTERNAL LAWS OF THE STATE OF CALIFORNIA, WITHOUT GIVING EFFECT TO CONFLICT OF LAWS PRINCIPLES THEREOF, BUT GIVING EFFECT TO FEDERAL LAWS OF THE UNITED STATES APPLICABLE TO NATIONAL BANKS. Section 8.11 Consent to Jurisdiction. AT THE OPTION OF THE BANK, THIS AGREEMENT AND THE NOTE MAY BE ENFORCED IN ANY FEDERAL COURT OR CALIFORNIA STATE COURT SITTING IN LOS ANGELES COUNTY, CALIFORNIA; AND THE BORROWER CONSENTS TO THE JURISDICTION AND VENUE OF ANY SUCH COURT AND WAIVES ANY ARGUMENT THAT VENUE IN SUCH FORUMS IS NOT CONVENIENT. IN THE EVENT THE BORROWER COMMENCES ANY ACTION IN ANOTHER JURISDICTION OR VENUE UNDER ANY TORT OR CONTRACT THEORY ARISING DIRECTLY OR INDIRECTLY FROM THE RELATIONSHIP CREATED BY THIS AGREEMENT, THE BANK AT ITS OPTION SHALL BE ENTITLED TO HAVE THE CASE TRANSFERRED TO ONE OF THE JURISDICTIONS AND VENUES ABOVE-DESCRIBED, OR IF SUCH TRANSFER CANNOT BE ACCOMPLISHED UNDER APPLICABLE LAW, TO HAVE SUCH CASE DISMISSED WITHOUT PREJUDICE. Section 8.12 Waiver of Jury Trial. THE BORROWER AND THE BANK EACH WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS (a) UNDER THIS AGREEMENT OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR (b) ARISING FROM ANY BANKING RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT, AND AGREE THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above. DATRON SYSTEMS INCORPORATED By: DAVID A. DERBY DAVID A. DERBY, President By: WILLIAM L. STEPHAN WILLIAM L. STEPHAN, Chief Financial Officer Datron Systems, Incorporated 3030 Enterprise Court Vista , CA 92083 Attention: William L. Stephan, Chief Financial Officer U.S. BANK NATIONAL ASSOCIATION By: CORY BRAZAS CORY BRAZAS, Sr. Vice President By: WILLIAM A. BURZYNSKI WILLIAM A. BURZYNSKI, Vice President U.S. Bank 4180 La Jolla Village Drive, Suite 125 La Jolla, CA 92037 Attention: William Burzynski, Vice President EX-10 3 ex2.txt EXHIBIT 10.79 SECURITY AGREEMENT SECURITY AGREEMENT - Borrower THIS SECURITY AGREEMENT (this "Agreement"), dated as of May 23, 2001, is entered into between U.S. BANK NATIONAL ASSOCIATION (the "Bank") and DATRON SYSTEMS INCORPORATED (the "Borrower"). W I T N E S S E T H: WHEREAS, the Borrower has requested, or may concurrently or hereafter request, loans, advances or other extensions of credit (whether by issuing letters of credit, creating bankers' acceptances or otherwise) from the Bank; NOW, THEREFORE, for and in consideration of loans, advances or other extensions of credit under the Credit Agreement and any other loan, advance or extensions of credit made or to be made to the Borrower by the Bank, and for other good and valuable consideration, the parties hereto agree as follows: Section 1 Definitions and Interpretation Section 1.1 Definitions. In addition to the terms defined elsewhere in this Agreement, the following terms shall have the meanings indicated for purposes of this Agreement (such meanings being applicable to both the singular and plural forms): "Agreement" shall mean this Security Agreement, as it may be amended, modified, supplemented, assigned, restated or replaced from time to time. "Collateral" shall mean all property or rights in which a security interest is granted hereunder. "Credit Document" shall mean the Credit Agreement by and between the Borrower and the Bank and any promissory note or notes issued from time to time thereunder, and any other promissory note, agreement, evidence of indebtedness, guaranty, application, instrument or document (including each agreement or application for issuance of any letter of credit or creation of any bankers' acceptance) relating to any obligation of the Borrower to the Bank, whether heretofore or hereafter issued, made or entered by the Borrower, and whether evidencing a present or future obligation or an obligation payable under any circumstance, whether now or hereafter due, direct or indirect, absolute or contingent. "Default" shall mean: (a) the occurrence of any "Event of Default" or similar occurrence under any Credit Document , including the occurrence of any Event of Default as defined in the Credit Agreement; (b) nonpayment, when due or demanded (if under a demand instrument) of any amount of the Liabilities, or any amount payable to the Bank by any Obligor; (c) failure to perform any agreement of any Obligor hereunder or under any Credit Document and such failure shall continue beyond any grace period expressly applicable thereto; (d) any representation made, or deemed to be made, by any Obligor hereunder or under any Credit Document is untrue or incorrect in any material respect when made or deemed to be made; or (e) during any time that the Credit Agreement shall not have remained in force and effect, the occurrence of any of the foregoing events or, in addition, any of the foregoing: (i) any event shall occur that results in the acceleration of any indebtedness or material monetary obligation of any Obligor or enables the holders of such indebtedness or obligation (or agent or trustee) to accelerate such indebtedness or obligation; (ii) any Obligor becomes insolvent or generally fails to pay, or admits in writing its inability to pay, its debts as they mature or applies for or consents to appointment of a trustee or other custodian for its properties or makes a general assignment for the benefit of creditors or any bankruptcy, reorganization, debt arrangement or other proceeding under any bankruptcy or insolvency law, or dissolution or liquidation proceeding, is instituted by or against any Obligor; or (iii) the Bank shall have determined in good faith (which determination shall be conclusive) that an event has occurred that could cause or have a Material Adverse Effect (as defined in the Credit Agreement). "Liabilities" shall mean all obligations of the Borrower under the Credit Agreement and under any promissory note or notes issued thereunder and under any Credit Document, and under this Agreement, and all other obligations of the Borrower to the Bank, its successors and assigns, howsoever created, arising or evidenced, whether direct or indirect, absolute or contingent, or now or hereafter existing, or due or to become due. "Non-Goods Collateral" shall mean all Collateral other than Inventory and Equipment. "Obligor" shall mean the Borrower, any general partner (if a partnership) in the Borrower, joint venturer (if a joint venture) in the Borrower, and any guarantor, surety, accommodation party or other party primarily or secondarily liable on any of the Liabilities. Section 1.2 Terms defined in Uniform Commercial Code. "Account", "Account Debtor", "Chattel Paper", "Document", "Equipment", "Fixtures", "General Intangibles", "Instrument", "Inventory", and "Proceeds" shall have the meanings set forth in the California Uniform Commercial Code, provided, that if any additional goods, property or rights shall be included in such terms under Section 2 hereof, such terms shall be construed to include such additional goods, property or rights. Section 1.3 Interpretation. A reference to a Section, Exhibit or Schedule is, unless otherwise stated, a reference to a section hereof, or an exhibit or schedule hereto, as the case may be. Section captions used in this Agreement are for convenience only, and shall not affect the construction of this Agreement. The word "including" shall, in each instance, be deemed to mean "including but not limited to". Section 2 Grant of Security Interest Section 2 Grant of Security Interest. As security for the payment of all Liabilities, the Borrower hereby assigns to the Bank, and grants to the Bank a continuing security interest in, the following, whether now owned or hereafter arising or acquired: (a) Accounts, including all other rights and interests (including all liens and security interests) that the Borrower may at any time have by law or agreement against any Account Debtor or other obligor obligated to make any such payment or against any of the property of such Account Debtor or other obligor; (b) Equipment, including all accessories, parts and other property at any time affixed thereto or used in connection therewith and all substitutions and replacements thereof; (c) Inventory, including goods that are returned, repossessed, stopped in transit or which otherwise come into the possession of the Borrower; and (d) General Intangibles, including inventions, designs, patents, patent applications, design patents, design patent applications, trademarks, trademark applications, trade names, trade secrets, goodwill, copyrights, registrations, licenses, franchises, customer lists, tax refund claims, rights to indemnification and rights under warranties; (e) Chattel Paper, Instruments and Documents; (f) goods, instruments, documents or chattel paper that are in the possession or control of, or in transit to, the Bank or any agent or bailee for the Bank for any reason and all interest on, dividends and distributions and other rights in connection with such property, and any and all balances, credits, deposits (general or special, time or demand, provisional or final), accounts or moneys of or in the name of the Borrower now or hereafter with the Bank; (g) books, correspondence, credit files, records, invoices, manuals, service records and programs, other papers and documents, computer records, runs, software, systems, procedures, disks, tapes and other storage media relating to any of the Collateral, including any of the foregoing in the possession or control of any service, consultant, or outside vendor; (h) Proceeds, including all policies, claims to payment under, and proceeds of any and all insurance policies payable to the Borrower, or on behalf of the Borrower's property, whether or not such policies are issued to or owned by the Borrower and whether or not the Bank is named as loss payee or additional insured, including any credit insurance. Section 3 Representations and Warranties The Borrower represents and warrants to the Bank that: Section 3.1 Power and Authority; Valid and Binding Obligation. The Borrower is a corporation duly incorporated and in good standing under the laws of its state of incorporation and duly qualified to do business in each jurisdiction where such qualification is necessary. The execution and delivery of this Agreement, and the performance by the Borrower of its obligations hereunder are within the Borrower's corporate powers and have been duly authorized by all necessary corporate action. This Agreement is the Borrower's legal, valid and binding obligation, enforceable in accordance with its terms, the making and performance of which do not and will not contravene or conflict with the Borrower's charter or by-laws or violate or constitute a default under any law, any presently existing requirement or restriction imposed by judicial, arbitral or other governmental instrumentality or any agreement, instrument or indenture by which the Borrower or its property is bound. Section 3.2 Owner, No Other Financing Statements. The Borrower is and will be the lawful owner of all Collateral, free of all liens and claims whatsoever, other than the security interest hereunder, and those shown on Schedule A. No financing statement (other than any which may have been filed on behalf of the Bank) covering any of the Collateral is on file in any public office, except those listed on Schedule A. Section 3.3 Names, Offices and Locations. The Borrower does business solely under its own name and the trade names and styles, if any, set forth on Schedule B (which includes any name used within the past 5 years). Any such trade names and styles are used only in the locations listed on Schedule B. Except as noted on such Schedule, no trade names or styles or other similar marks owned by the Borrower are registered with any governmental unit. The Borrower's chief place of business and chief executive office and the office where it keeps its books and records concerning the Accounts and General Intangibles, and the originals of all Chattel Paper, Instruments and Documents, are located at its address set forth on the signature page hereof. Section 3.4 Locations of Equipment and Inventory. All of the Equipment and Inventory existing on the date of the Agreement is located at the places specified in Schedule C. The Borrower will immediately notify the Bank of any additional state in which any item of Equipment or Inventory is hereafter located. Section 3.5 Inventory. All Inventory has been produced in compliance with all requirements of the Fair Labor Standards Act. Section 4 Sale and Collection Section 4.1 Sale in Ordinary Course. Until such time as the Bank shall notify the Borrower of the revocation of such authority or until the occurrence of a Default, the Borrower may, in the ordinary course of its business, sell, lease, or consume (if raw materials) Inventory and furnish Inventory under contracts of service. Section 4.2 Collection of Non-Goods Collateral. Until such time as the Bank shall notify the Borrower of the revocation of such authority, the Borrower will endeavor to collect, as and when due, all amounts due with respect to any of the Non-Goods Collateral, and shall take any action in connection with such collection as the Bank may reasonably request. Section 4.3 Refunds. The Borrower may grant, in the ordinary course of its business, any refund or allowance to any Account Debtor to which it may be lawfully entitled, and may accept, in connection therewith, the return of goods, the sale or lease of which shall have given rise to Accounts. Section 4.4 Collection by the Bank. The Bank may, but shall not be obligated to, at any time, upon the occurrence of any Default (a) notify any parties obligated on any of the Non-Goods Collateral to make payment directly to the Bank, (b) enforce collection of any of the Non-Goods Collateral by suit or otherwise, and (c) surrender, release, exchange, compromise, extend or renew all or any part of the Non-Goods Collateral. Following the occurrence of any Default, the Borrower will, at its own expense, notify all parties obligated on any of the Non-Goods Collateral to make all payments thereunder directly to the Bank. Section 4.5 Transmittal of Items to the Bank. The Borrower will (except as the Bank may otherwise consent in writing) following the occurrence of a Default, upon receipt, transmit and deliver to the Bank, in the form received, all cash, checks, drafts, and any other form of payment (properly endorsed, where required, so that such items may be collected by the Bank) received as proceeds of any of the Collateral. The Bank is authorized to endorse, in the name of the Borrower, any item received by the Bank constituting a proceed of any of the Collateral. Except as the Bank may otherwise consent in writing, any such items received by the Borrower will not be commingled with any other of its funds or property, but will be held separate and apart from its own funds or property and upon express trust for the Bank until delivered to the Bank. Section 4.6 Collection Account. All items or amounts which are received by the Bank as proceeds of the Collateral shall be deposited to the credit of a deposit account of the Borrower with the Bank, securing the Liabilities. The Borrower shall have no right to make withdrawals from such account. The Bank may, from time to time, in its discretion (a) apply collected balances therein to the Liabilities, whether or not then due, in such order of application as it shall determine, and (b) release all or any of such balance to the Borrower. Section 5 Agreements of Borrower The Borrower agrees that, unless otherwise agreed in writing by the Bank, it will: Section 5.1 Schedules and Reports. Furnish to the Bank, in form and detail satisfactory to the Bank: (a) written notice of any event causing loss, material damage or depreciation in value of any of the Collateral, describing, and specifying the amount of, such loss, damage or depreciation; and (b) from time to time, as the Bank may request, such additional schedules, certificates and reports concerning the Collateral, including the Account Debtors obligated thereon, as the Bank may request. Section 5.2 Inspection. Permit the Bank and its agents or its designees, from time to time, to inspect and evaluate the Collateral, and to inspect, audit and make copies of all books and records constituting or otherwise concerning the Collateral, and will, upon request of the Bank, deliver to the Bank all of such records which pertain to the Collateral and all Account Debtors. In the event any such inspection is made following the occurrence of a Default, the Borrower will reimburse the Bank upon demand for all reasonable costs and expenses incurred by the Bank, its agents or its designees in the course of such inspection and evaluation. Section 5.3 Financing Statements and Filing. Upon request of the Bank, execute such financing statements and other documents (and pay the cost of recording the same in all offices requested by the Bank) and do such other acts as the Bank may from time to time request to establish and maintain a valid perfected security interest in the Collateral, including depositing with the Bank any certificate of title issued on any of the Equipment and noting thereon the Bank's security interest. The Borrower agrees that any carbon, photographic or other reproduction of this Agreement or of any such financing statement shall be sufficient for filing as a financing statement. Section 5.4 Locations and Notices. Maintain and keep (a) all Inventory and Equipment at the locations shown on Schedule C (and give reasonable written notice to the Bank of the change of location of any Equipment that causes more than $250,000 of Inventory and Equipment to be in any jurisdiction other than a State listed on such Schedule); (b) except as delivered to the Bank from time to time, all Chattel Paper, Instruments and Documents, and all records included as Collateral or otherwise concerning the Collateral, at the address shown on the signature page and not duplicate any records regarding any Non-Goods Collateral at any other address; and (c) the location of its chief office at the address shown on the signature page. Section 5.5 Names. Not do business under any other name other than those shown on Schedule B. Section 5.6 Notation on Records. Upon the occurrence of a Default , stamp on its records concerning the Collateral a notation, in form satisfactory to the Bank, of the security interest of the Bank hereunder, and mark conspicuously each Document, Chattel Paper, Instrument or contract included in the Collateral with a legend, in form and substance satisfactory to the Bank, indicating that such Document, Chattel Paper, Instrument or contract is subject to the security interest of the Bank. Section 5.7 Delivery of Collateral. Upon the occurrence of a Default and the request of the Bank, deliver to the Bank all Documents, Instruments and Chattel Paper, duly endorsed to be payable to the Bank, or accompanied by duly executed instruments of transfer or assignment in form and substance satisfactory to the Bank, with full recourse to the Borrower. Section 5.8 Transfer, Sale or Security Interest. Except as expressly authorized under Section 4.1 hereof (subject to the limits therein), not sell, lease, transfer, consume, assign or otherwise dispose of, or create or permit to exist any lien on or security interest (other than the Bank's security interest) in, any Collateral. Section 5.9 Maintenance. Keep all Equipment and Fixtures in first class order and repair, excepting any damage or destruction which is fully covered by insurance payable to the Bank. Section 5.10 Insurance. Keep all Inventory, Equipment and Fixtures insured against loss, damage, theft and other risks, with amounts and insurance companies, and under policies, satisfactory to the Bank, which policies shall provide that loss thereunder shall be payable to the Bank as its interest may appear (and the Bank may apply any proceeds of such insurance which may be received by it toward payment of Liabilities, whether or not due, in such order of application as the Bank may determine), and such policies or certificates thereof shall, if the Bank so requests, be deposited with the Bank. Section 5.11 Payment of Taxes, etc. Pay, when due, all taxes, assessments, governmental charges and other similar charges levied against any of the Collateral, except and so long as the Borrower is contesting such taxes, assessments or charges in good faith and, by appropriate proceedings and the Borrower has set aside on its books such reserves or other appropriate provisions therefor as may be required by generally accepted accounting principles, and so long as no enforcement action is being taken that would interfere with the Borrower's use of such Collateral or the enforcement of the Bank's rights hereunder. Section 5.12 Waivers. Upon the occurrence of a Default and the request of the Bank, obtain and deliver to the Bank waivers in form and substance satisfactory to the Bank of any claim to any Collateral by any landlord or mortgagee of any property where Equipment or Inventory is located. Section 5.13 Inventory. Comply with all requirements of the Fair Labor Standards Act in producing Inventory. Section 6 Bank's Duties and Power of Attorney Section 6.1 Bank's Performance of Agreements and Reimbursement. Upon the occurrence of a Default, the Bank may at its option, perform any agreement of the Borrower hereunder which the Borrower shall fail to perform and take any other action which the Bank deems necessary for the maintenance or preservation of the Collateral or its interest therein, and the Borrower shall reimburse the Bank for all expenses of the Bank in connection with the foregoing, together with interest thereon at the highest rate of interest borne by any of the Liabilities at such time from the date incurred until reimbursed by the Borrower. Section 6.2 Power of Attorney. Effective upon the occurrence of a Default, the Borrower hereby irrevocably appoints the Bank as the Borrower's attorney-in-fact, with full authority in the place and stead of the Borrower and in the name of the Borrower, the Bank or otherwise, from time to time in the Bank's discretion, to take any action and to execute any instrument which the Bank may deem advisable to accomplish the purposes of Section 6.1 and to exercise any right and remedy upon the occurrence of a Default. The Borrower hereby ratifies all that such attorney shall lawfully do or cause to be done by virtue hereof. This power of attorney is irrevocable and is coupled with an interest. Section 6.3 No Liability on Collateral; Indemnity. The rights and powers of the Bank hereunder are conferred solely to protect its interest in the Collateral and shall not impose any duty upon it to exercise any such rights or powers. The Bank does not in any way assume any of the Borrower's obligations under, or with respect to, the Collateral. The Borrower shall remain liable with respect to the Collateral to the same extent as if this Agreement had not been executed. The Borrower agrees to indemnify and hold harmless the Bank against any and all liabilities, claims, damages, actions, proceedings, losses or other obligations arising in connection with or on account of any of the Collateral except for such liabilities, claims, damages, actions, proceedings, losses or obligations as are proven to have been caused by the gross negligence or willful misconduct of Bank.. Section 6.4 Care of Collateral. Except for the safe custody of any Collateral in its possession, the Bank shall have no duty as to any Collateral or as to the taking of any steps to preserve rights against any other party. The Bank shall be deemed to have exercised reasonable care in the custody and preservation of any Collateral in its possession if such Collateral is accorded treatment substantially equal to that which the Bank accords its own property, or is accorded treatment complying with any provision of any other document setting forth a standard of care for such Collateral. Section 7 Default and Remedies Whenever a Default shall be existing: Section 7.1 Liabilities Due and Payable. All of the Liabilities may, at the option of the Bank, and without demand or notice of any kind, be declared, and thereupon immediately shall become, due and payable. Section 7.2. Deposits, etc. The Bank may, from time to time, without demand or notice of any kind, appropriate and apply toward the payment of such of the Liabilities, and in such order of application, as the Bank may from time to time elect, any and all balances, credits, deposits (general or special, time or demand, provisional or final), accounts or moneys of or in the name of the Borrower then or thereafter with the Bank. Section 7.3 Assembly of Collateral. Upon demand of the Bank, the Borrower shall assemble, at its expense, all Collateral at a convenient place acceptable to the Bank. Section 7.4 Use and Sale of Collateral. The Bank may, to the fullest extent permitted by applicable law, upon reasonable notice, (a) enter upon any premises where any of the Collateral may be located and take possession of and remove such Collateral; (b) use or license, on an exclusive or non-exclusive basis, any General Intangibles throughout the world for such term or terms, on such conditions, and in such manner, as the Bank shall in its sole discretion determine, without compensation to the Borrower; (c) sell any or all of the Collateral, free of all rights and claims of the Borrower therein and thereto; and (d) bid for and purchase any or all of such Collateral at any such sale. Section 7.5 Additional Provisions on Sale. Any sale of Collateral may be in one or more parcels at public or private sales, at any of the Bank's offices or elsewhere, for cash, on credit, or for future delivery, an upon such other terms as the Bank may reasonably believe are commercially reasonable. The Bank shall not be obligated to make any sale of Collateral regardless of notice of sales having been given, and the Bank may adjourn any public or private sale from time to time by announcement made at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. Section 7.6 Waiver by Borrower. The Borrower hereby expressly waives, to the extent permitted by applicable law, any and all notices, advertisements, hearings or process of law in connection with the exercise by the Bank of any of its rights and remedies upon Default. Any notification of intended disposition of any of the Collateral required by law shall be deemed reasonably and properly given if given at least ten days before such disposition. Section 7.7 Proceeds of Collateral. Any proceeds of any disposition by the Bank of any of the Collateral may be applied by the Bank to the payment of expenses in connection with the Collateral, including reasonable attorneys, fees and legal expenses, and any balance of such proceeds may be applied by the Bank toward the payment of such of the Liabilities, and in such order of application, as the Bank may from time to time elect. Section 7.8 Recourse to Collateral; Remedies not Exclusive. The Bank may resort to the Collateral for payment of any of the Liabilities, whether or not the Bank shall have resorted to any other property securing the Liabilities or shall have proceeded against any Obligor. The Bank's exercise of rights hereunder shall not prevent the Bank's exercise of any other rights it may have upon the occurrence of a Default under any other Credit Documents or otherwise, and one exercise of rights hereunder shall not prevent any subsequent exercise of rights of the Bank hereunder, under any Credit Documents or otherwise. Section 7.9 Other Rights. The Bank may exercise from time to time any other rights and remedies available to it under any Credit Document and under all applicable law. Section 8 General Provisions Section 8.1 Reimbursement of Expenses. Upon the occurrence of a Default, the Borrower shall reimburse the Bank upon demand for all costs and expenses, including reasonable fees of attorneys for the Bank (who may be employees of the Bank) and legal expenses, incurred by the Bank in seeking to collect or enforce any rights under the Collateral and its rights hereunder and in seeking to collect each Credit Document and the Liabilities, including expenses of any repairs to any realty or other property to which any of the Equipment may be affixed or be a part. Section 8.2 Notices. Any notice or other communication to any party in connection with this Agreement shall be in writing and shall be sent by manual delivery, facsimile transmission, overnight courier or United States mail (postage prepaid) addressed to such party at the address specified on the signature page hereof, or at such other address as such party shall have specified to the other party hereto in writing. All periods of notice shall be measured from the date of delivery thereof if manually delivered, from the date of sending thereof if sent by facsimile transmission, from the first Business Day after the date of sending if sent by overnight courier, or from four days after the date of mailing if mailed. Section 8.3 Waivers and Amendments. No failure or delay on the part of the Bank in the exercise of any power, right or remedy, and no course of dealing between the Borrower and the Bank, shall operate as a waiver of such power, right or remedy, nor shall any single or partial exercise of any power, right or remedy preclude other or further exercise thereof or the exercise of any other power, right or remedy. No notice to or demand on the Borrower not required hereunder shall in any event entitle the Borrower to any other or further notice or demand in similar or other circumstances or constitute a waiver of the right of the Bank to any other or further action in any circumstances without notice or demand. No amendment, modification or waiver of, or consent with respect to, any provision of this Agreement shall in any event be effective unless the same shall be in writing and signed and delivered by the Bank. Any waiver of any provision of this Agreement, and any consent to any departure by the Borrower from the terms of any provision of this Agreement, shall be effective only in the specific instance and for the specific purpose for which given. Section 8.4 Remedies Cumulative. The remedies provided for herein are cumulative and not exclusive of any remedies which may be available to the Bank at law or in equity. Section 8.5 Termination of Agreement. Unless sooner terminated by the Bank, this Agreement shall terminate when all of the Credit Documents shall have expired or been terminated and all Liabilities shall have been paid in full. This Agreement shall continue notwithstanding that there may be, from time to time, no outstanding loans or extensions of credit from the Bank to the Borrower. Any return of Collateral upon termination of this Agreement and any instruments of transfer or termination shall be at the expense of the Borrower and shall be without warranty by, or recourse against, the Bank. Section 8.6 Successors and Assigns. This Agreement shall be binding upon the Borrower, its successors and assigns (and, if an individual, the Borrower's heirs, estate and personal representatives), and shall inure to the benefit of, and be enforceable by, the Bank and its successors, transferees, and assigns. Without limiting the generality of the foregoing, the Bank may assign or otherwise transfer all or any portion of the Liabilities to any other person or entity and may similarly transfer all or any portion of its rights under this Agreement to such person or entity. Section 8.7 Choice of Law. This Agreement has been delivered at San Diego, California, and shall be construed in accordance with and governed by the laws of the State of California. Section 8.8 Severance. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity without invalidating the remainder of such provision or the remaining provisions of this Agreement. Section 8.9 Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. Section 8.10 Consent to Jurisdiction. AT THE OPTION OF THE BANK, THIS AGREEMENT MAY BE ENFORCED IN ANY FEDERAL COURT OR CALIFORNIA STATE COURT SITTING IN LOS ANGELES COUNTY, CALIFORNIA; AND THE BORROWER CONSENTS TO THE JURISDICTION AND VENUE OF ANY SUCH COURT AND WAIVES ANY ARGUMENT THAT VENUE IN SUCH FORUMS IS NOT CONVENIENT. IN THE EVENT THE BORROWER COMMENCES ANY ACTION IN ANOTHER JURISDICTION OR VENUE ARISING DIRECTLY OR INDIRECTLY FROM THE RELATIONSHIP CREATED BY THIS AGREEMENT, THE BANK AT ITS OPTION SHALL BE ENTITLED TO HAVE THE CASE TRANSFERRED TO ONE OF THE JURISDICTIONS AND VENUES ABOVE-DESCRIBED, OR IF SUCH TRANSFER CANNOT BE ACCOMPLISHED UNDER APPLICABLE LAW, TO HAVE SUCH CASE DISMISSED WITHOUT PREJUDICE. Section 8.11 Waiver of Jury Trial. THE BORROWER AND THE BANK EACH WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AGREEMENT OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH AND AGREE THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT A JURY. Section 8.12 Conflict between Documents. In the event that any provision of this Agreement conflicts with a provision of the Credit Agreement, the provision of the Credit Agreement shall govern. IN WITNESS WHEREOF, this Agreement has been duly executed as of the day and year first above written. DATRON SYSTEMS INCORPORATED By: DAVOD A. DERBY DAVID A. DERBY, President By: WILLIAM L. STEPHAN WILLIAM L. STEPHAN, Chief Financial Officer Datron Systems Incorporated 3030 Enterprise Court Vista , CA 92083 Attention: William L. Stephan, Chief Financial Officer U.S. BANK NATIONAL ASSOCIATION By: CORY BRAZAS CORY BRAZAS, Sr. Vice President By: WILLIAM A. BURZYNSKI WILLIAM A. BURZYNSKI, Vice President U.S. Bank National Association 4180 La Jolla Village Drive, Suite 125 La Jolla , CA 92037 Attention: William Burzynski, Vice President SCHEDULE A TO SECURITY AGREEMENT BETWEEN DATRON SYSTEMS INCORPORATED AND U.S. BANK NATIONAL ASSOCIATION Other Security Interests: UCC File No. State Secured Party 9928560639 CA Toyota Motor Credit Corporation SCHEDULE B TO SECURITY AGREEMENT BETWEEN DATRON SYSTEMS INCORPORATED AND U.S. BANK NATIONAL ASSOCIATION Trade Names: None. SCHEDULE C TO SECURITY AGREEMENT BETWEEN DATRON SYSTEMS INCORPORATED AND U.S. BANK NATIONAL ASSOCIATION Locations at which Equipment and Inventory is kept: Location Type of Equipment or Inventory Vista, California Office furniture and equipment Van Nuys, California Used car EX-10 4 ex3.txt EXHIBIT 10.80 SECURITY AGREEMENT SECURITY AGREEMENT - Guarantor THIS SECURITY AGREEMENT (this "Agreement"), dated as of May 23, 2001, is entered into between U.S. BANK NATIONAL ASSOCIATION (the "Bank") and DATRON ADVANCED TECHNOLOGIES INC. (the "Guarantor"). W I T N E S S E T H: WHEREAS, the Guarantor's parent corporation, Datron Systems Incorporated (the "Borrower"), has requested, or may concurrently or hereafter request, loans, advances or other extensions of credit (whether by issuing letters of credit, creating bankers' acceptances or otherwise) from the Bank, Guarantor has provided to the Bank a Continuing Guaranty (the "Guaranty") dated of even date herewith and Guarantor has agreed to secure its obligations under the Guaranty pursuant to this Agreement; NOW, THEREFORE, for and in consideration of loans, advances or other extensions of credit under the Credit Agreement and any other loan, advance or extensions of credit made or to be made to the Borrower by the Bank, and for other good and valuable consideration, the parties hereto agree as follows: Section 1 Definitions and Interpretation Section 1.1 Definitions. In addition to the terms defined elsewhere in this Agreement, the following terms shall have the meanings indicated for purposes of this Agreement (such meanings being applicable to both the singular and plural forms): "Agreement" shall mean this Security Agreement, as it may be amended, modified, supplemented, assigned, restated or replaced from time to time. "Collateral" shall mean all property or rights in which a security interest is granted hereunder. "Credit Document" shall mean the Credit Agreement by and between the Borrower and the Bank and any promissory note or notes issued from time to time thereunder, and any other promissory note, agreement, evidence of indebtedness, guaranty, application, instrument or document (including each agreement or application for issuance of any letter of credit or creation of any bankers' acceptance) relating to any obligation of the Borrower to the Bank, whether heretofore or hereafter issued, made or entered by the Borrower, and whether evidencing a present or future obligation or an obligation payable under any circumstance, whether now or hereafter due, direct or indirect, absolute or contingent. "Default" shall mean: (a) the occurrence of any "Event of Default" or similar occurrence under any Credit Document , including the occurrence of any Event of Default as defined in the Credit Agreement or the Guaranty; (b) nonpayment, when due or demanded (if under a demand instrument) of any amount of the Liabilities, or any amount payable to the Bank by any Obligor; (c) failure to perform any agreement of any Obligor hereunder or under any Credit Document and such failure shall continue beyond any grace period expressly applicable thereto; (d) any representation made, or deemed to be made, by any Obligor hereunder or under any Credit Document is untrue or incorrect in any material respect when made or deemed to be made; or (e) during any time that the Credit Agreement shall not have remained in force and effect, the occurrence of any of the foregoing events or, in addition, any of the foregoing: (i) any event shall occur that results in the acceleration of any indebtedness or material monetary obligation of any Obligor or enables the holders of such indebtedness or obligation (or agent or trustee) to accelerate such indebtedness or obligation; (ii) any Obligor becomes insolvent or generally fails to pay, or admits in writing its inability to pay, its debts as they mature or applies for or consents to appointment of a trustee or other custodian for its properties or makes a general assignment for the benefit of creditors or any bankruptcy, reorganization, debt arrangement or other proceeding under any bankruptcy or insolvency law, or dissolution or liquidation proceeding, is instituted by or against any Obligor; or (iii) the Bank shall have determined in good faith (which determination shall be conclusive) that an event has occurred that could cause or have a Material Adverse Effect (as defined in the Credit Agreement). "Liabilities" shall mean all obligations of the Guarantor under the Guaranty and any other Credit Document, and under this Agreement, and all other obligations of the Guarantor to the Bank, its successors and assigns, howsoever created, arising or evidenced, whether direct or indirect, absolute or contingent, or now or hereafter existing, or due or to become due. "Non-Goods Collateral" shall mean all Collateral other than Inventory, and Equipment. "Obligor" shall mean the Guarantor, or any general partner (if a partnership) in the Guarantor, joint venturer (if a joint venture) in the Guarantor and any other guarantor, surety, accommodation party or other party primarily or secondarily liable on any of the Liabilities. Section 1.2 Terms defined in Uniform Commercial Code. "Account", "Account Debtor", "Chattel Paper", "Document", "Equipment", "Fixtures", "General Intangibles", "Instrument", "Inventory", and "Proceeds" shall have the meanings set forth in the California Uniform Commercial Code, provided, that if any additional goods, property or rights shall be included in such terms under Section 2 hereof, such terms shall be construed to include such additional goods, property or rights. Section 1.3 Interpretation. A reference to a Section, Exhibit or Schedule is, unless otherwise stated, a reference to a section hereof, or an exhibit or schedule hereto, as the case may be. Section captions used in this Agreement are for convenience only, and shall not affect the construction of this Agreement. The word "including" shall, in each instance, be deemed to mean "including but not limited to". Section 2 Grant of Security Interest Section 2 Grant of Security Interest. As security for the payment of all Liabilities, the Guarantor hereby assigns to the Bank, and grants to the Bank a continuing security interest in, the following, whether now owned or hereafter arising or acquired: (a) Accounts, including all other rights and interests (including all liens and security interests) that the Guarantor may at any time have by law or agreement against any Account Debtor or other obligor obligated to make any such payment or against any of the property of such Account Debtor or other obligor; (b) Equipment, including all accessories, parts and other property at any time affixed thereto or used in connection therewith and all substitutions and replacements thereof; (c) Inventory, including goods that are returned, repossessed, stopped in transit or which otherwise come into the possession of the Guarantor; and (d) General Intangibles, including inventions, designs, patents, patent applications, design patents, design patent applications, trademarks, trademark applications, trade names, trade secrets, goodwill, copyrights, registrations, licenses, franchises, customer lists, tax refund claims, rights to indemnification and rights under warranties; (e) Chattel Paper, Instruments and Documents; (f) goods, instruments, documents or chattel paper that are in the possession or control of, or in transit to, the Bank or any agent or bailee for the Bank for any reason and all interest on, dividends and distributions and other rights in connection with such property, and any and all balances, credits, deposits (general or special, time or demand, provisional or final), accounts or moneys of or in the name of the Guarantor now or hereafter with the Bank; (g) books, correspondence, credit files, records, invoices, manuals, service records and programs, other papers and documents, computer records, runs, software, systems, procedures, disks, tapes and other storage media relating to any of the Collateral, including any of the foregoing in the possession or control of any service, consultant, or outside vendor; (h) Proceeds, including all policies, claims to payment under, and proceeds of any and all insurance policies payable to the Guarantor, or on behalf of the Guarantor's property, whether or not such policies are issued to or owned by the Guarantor and whether or not the Bank is named as loss payee or additional insured, including any credit insurance. Section 3 Representations and Warranties The Guarantor represents and warrants to the Bank that: Section 3.1 Power and Authority; Valid and Binding Obligation. The Guarantor is a corporation duly incorporated and in good standing under the laws of its state of incorporation and duly qualified to do business in each jurisdiction where such qualification is necessary. The execution and delivery of this Agreement, and the performance by the Guarantor of its obligations hereunder are within the Guarantor's corporate powers and have been duly authorized by all necessary corporate action. This Agreement is the Guarantor's legal, valid and binding obligation, enforceable in accordance with its terms, the making and performance of which do not and will not contravene or conflict with the Guarantor's charter or by-laws or violate or constitute a default under any law, any presently existing requirement or restriction imposed by judicial, arbitral or other governmental instrumentality or any agreement, instrument or indenture by which the Guarantor or its property is bound. Section 3.2 Owner, No Other Financing Statements. The Guarantor is and will be the lawful owner of all Collateral, free of all liens and claims whatsoever, other than the security interest hereunder, and those shown on Schedule A. No financing statement (other than any which may have been filed on behalf of the Bank) covering any of the Collateral is on file in any public office, except those listed on Schedule A. Section 3.3 Names, Offices and Locations. The Guarantor does business solely under its own name and the trade names and styles, if any, set forth on Schedule B (which includes any name used within the past 5 years). Any such trade names and styles are used only in the locations listed on Schedule B. Except as noted on such Schedule, no trade names or styles or other similar marks owned by the Guarantor are registered with any governmental unit. The Guarantor's chief place of business and chief executive office and the office where it keeps its books and records concerning the Accounts and General Intangibles, and the originals of all Chattel Paper, Instruments and Documents, are located at its address set forth on the signature page hereof. Section 3.4 Locations of Equipment and Inventory. All of the Equipment and Inventory existing on the date of the Agreement is located at the places specified in Schedule C. The Guarantor will immediately notify the Bank of any additional state in which any item of Equipment or Inventory is hereafter located. Section 3.5 Inventory. All Inventory has been produced in compliance with all requirements of the Fair Labor Standards Act. Section 4 Sale and Collection Section 4.1 Sale in Ordinary Course. Until such time as the Bank shall notify the Guarantor of the revocation of such authority or until the occurrence of a Default, the Guarantor may, in the ordinary course of its business, sell, lease, or consume (if raw materials) Inventory and furnish Inventory under contracts of service. Section 4.2 Collection of Non-Goods Collateral. Until such time as the Bank shall notify the Guarantor of the revocation of such authority, the Guarantor will endeavor to collect, as and when due, all amounts due with respect to any of the Non-Goods Collateral, and shall take any action in connection with such collection as the Bank may reasonably request. Section 4.3 Refunds. The Guarantor may grant, in the ordinary course of its business, any refund or allowance to any Account Debtor to which it may be lawfully entitled, and may accept, in connection therewith, the return of goods, the sale or lease of which shall have given rise to Accounts. Section 4.4 Collection by the Bank. The Bank may, but shall not be obligated to, at any time, upon the occurrence of any Default (a) notify any parties obligated on any of the Non-Goods Collateral to make payment directly to the Bank, (b) enforce collection of any of the Non-Goods Collateral by suit or otherwise, and (c) surrender, release, exchange, compromise, extend or renew all or any part of the Non-Goods Collateral. Following the occurrence of any Default, the Guarantor will, at its own expense, notify all parties obligated on any of the Non-Goods Collateral to make all payments thereunder directly to the Bank. Section 4.5 Transmittal of Items to the Bank. The Guarantor will (except as the Bank may otherwise consent in writing) following the occurrence of a Default, upon receipt, transmit and deliver to the Bank, in the form received, all cash, checks, drafts, and any other form of payment (properly endorsed, where required, so that such items may be collected by the Bank) received as proceeds of any of the Collateral. The Bank is authorized to endorse, in the name of the Guarantor, any item received by the Bank constituting a proceed of any of the Collateral. Except as the Bank may otherwise consent in writing, any such items received by the Guarantor will not be commingled with any other of its funds or property, but will be held separate and apart from its own funds or property and upon express trust for the Bank until delivered to the Bank. Section 4.6 Collection Account. All items or amounts which are received by the Bank as proceeds of the Collateral shall be deposited to the credit of a deposit account of the Guarantor with the Bank, securing the Liabilities. The Guarantor shall have no right to make withdrawals from such account. The Bank may, from time to time, in its discretion (a) apply collected balances therein to the Liabilities, whether or not then due, in such order of application as it shall determine, and (b) release all or any of such balance to the Guarantor. Section 5 Agreements of Guarantor The Guarantor agrees that, unless otherwise agreed in writing by the Bank, it will: Section 5.1 Schedules and Reports. Furnish to the Bank, in form and detail satisfactory to the Bank: (a) written notice of any event causing loss, material damage or depreciation in value of any of the Collateral, describing, and specifying the amount of, such loss, damage or depreciation; and (b) from time to time, as the Bank may request, such additional schedules, certificates and reports concerning the Collateral, including the Account Debtors obligated thereon, as the Bank may request. Section 5.2 Inspection. Permit the Bank and its agents or its designees, from time to time, to inspect and evaluate the Collateral, and to inspect, audit and make copies of all books and records constituting or otherwise concerning the Collateral, and will, upon request of the Bank, deliver to the Bank all of such records which pertain to the Collateral and all Account Debtors. In the event any such inspection is made following the occurrence of a Default, the Guarantor will reimburse the Bank upon demand for all reasonable costs and expenses incurred by the Bank, its agents or its designees in the course of such inspection and evaluation. Section 5.3 Financing Statements and Filing. Upon request of the Bank, execute such financing statements and other documents (and pay the cost of recording the same in all offices requested by the Bank) and do such other acts as the Bank may from time to time request to establish and maintain a valid perfected security interest in the Collateral, including depositing with the Bank any certificate of title issued on any of the Equipment and noting thereon the Bank's security interest. The Guarantor agrees that any carbon, photographic or other reproduction of this Agreement or of any such financing statement shall be sufficient for filing as a financing statement. Section 5.4 Locations and Notices. Maintain and keep (a) all Inventory and Equipment at the locations shown on Schedule C and give reasonable written notice to the Bank of the change of location of any Equipment that causes more than $250,000 of Inventory and Equipment to be in any jurisdiction other than locations listed on such Schedule; (b) except as delivered to the Bank from time to time, all Chattel Paper, Instruments and Documents, and all records included as Collateral or otherwise concerning the Collateral, at the address shown on the signature page and not duplicate any records regarding any Non-Goods Collateral at any other address; and (c) the location of its chief office at the address shown on the signature page. Section 5.5 Names. Not do business under any other name other than those shown on Schedule B. Section 5.6 Notation on Records. Upon the occurrence of a Default, stamp on its records concerning the Collateral a notation, in form satisfactory to the Bank, of the security interest of the Bank hereunder, and mark conspicuously each Document, Chattel Paper, Instrument or contract included in the Collateral with a legend, in form and substance satisfactory to the Bank, indicating that such Document, Chattel Paper, Instrument or contract is subject to the security interest of the Bank. Section 5.7 Delivery of Collateral. Upon the occurrence of a Default and the request of the Bank, deliver to the Bank all Documents, Instruments and Chattel Paper, duly endorsed to be payable to the Bank, or accompanied by duly executed instruments of transfer or assignment in form and substance satisfactory to the Bank, with full recourse to the Guarantor. Section 5.8 Transfer, Sale or Security Interest. Except as expressly authorized under Section 4.1 hereof (subject to the limits therein), not sell, lease, transfer, consume, assign or otherwise dispose of, or create or permit to exist any lien on or security interest (other than the Bank's security interest) in, any Collateral. Section 5.9 Maintenance. Keep all Equipment and Fixtures in first class order and repair, excepting any damage or destruction which is fully covered by insurance payable to the Bank. Section 5.10 Insurance. Keep all Inventory, Equipment and Fixtures insured against loss, damage, theft and other risks, with amounts and insurance companies, and under policies, satisfactory to the Bank, which policies shall provide that loss thereunder shall be payable to the Bank as its interest may appear (and the Bank may apply any proceeds of such insurance which may be received by it toward payment of Liabilities, whether or not due, in such order of application as the Bank may determine), and such policies or certificates thereof shall, if the Bank so requests, be deposited with the Bank. Section 5.11 Payment of Taxes, etc. Pay, when due, all taxes, assessments, governmental charges and other similar charges levied against any of the Collateral, except and so long as the Guarantor is contesting such taxes, assessments or charges in good faith and, by appropriate proceedings and the Guarantor has set aside on its books such reserves or other appropriate provisions therefor as may be required by generally accepted accounting principles, and so long as no enforcement action is being taken that would interfere with the Guarantor's use of such Collateral or the enforcement of the Bank's rights hereunder. Section 5.12 Waivers. Upon the occurrence of a Default and the request of the Bank, obtain and deliver to the Bank waivers in form and substance satisfactory to the Bank of any claim to any Collateral by any landlord or mortgagee of any property where Equipment or Inventory is located. Section 5.13 Inventory. Comply with all requirements of the Fair Labor Standards Act in producing Inventory. Section 6 Bank's Duties and Power of Attorney Section 6.1 Bank's Performance of Agreements and Reimbursement. Upon the occurrence of a Default, the Bank may, at its option, perform any agreement of the Guarantor hereunder which the Guarantor shall fail to perform and take any other action which the Bank deems necessary for the maintenance or preservation of the Collateral or its interest therein, and the Guarantor shall reimburse the Bank for all expenses of the Bank in connection with the foregoing, together with interest thereon at the highest rate of interest borne by any of the Liabilities at such time from the date incurred until reimbursed by the Guarantor. Section 6.2 Power of Attorney. Effective upon the occurrence of a Default, the Guarantor hereby irrevocably appoints the Bank as the Guarantor's attorney-in-fact, with full authority in the place and stead of the Guarantor and in the name of the Guarantor, the Bank or otherwise, from time to time in the Bank's discretion, to take any action and to execute any instrument which the Bank may deem advisable to accomplish the purposes of Section 6.1 and to exercise any right and remedy upon the occurrence of a Default. The Guarantor hereby ratifies all that such attorney shall lawfully do or cause to be done by virtue hereof. This power of attorney is irrevocable and is coupled with an interest. Section 6.3 No Liability on Collateral; Indemnity. The rights and powers of the Bank hereunder are conferred solely to protect its interest in the Collateral and shall not impose any duty upon it to exercise any such rights or powers. The Bank does not in any way assume any of the Guarantor's obligations under, or with respect to, the Collateral. The Guarantor shall remain liable with respect to the Collateral to the same extent as if this Agreement had not been executed. The Guarantor agrees to indemnify and hold harmless the Bank against any and all liabilities, claims, damages, actions, proceedings, losses or other obligations arising in connection with or on account of any of the Collateral except for such liabilities, claims, damages, actions, proceedings, losses or obligations as are proven to have been caused by the gross negligence or willful misconduct of Bank. Section 6.4 Care of Collateral. Except for the safe custody of any Collateral in its possession, the Bank shall have no duty as to any Collateral or as to the taking of any steps to preserve rights against any other party. The Bank shall be deemed to have exercised reasonable care in the custody and preservation of any Collateral in its possession if such Collateral is accorded treatment substantially equal to that which the Bank accords its own property, or is accorded treatment complying with any provision of any other document setting forth a standard of care for such Collateral. Section 7 Default and Remedies Whenever a Default shall be existing: Section 7.1 Liabilities Due and Payable. All of the Liabilities may, at the option of the Bank, and without demand or notice of any kind, be declared, and thereupon immediately shall become, due and payable. Section 7.2. Deposits, etc. The Bank may, from time to time, without demand or notice of any kind, appropriate and apply toward the payment of such of the Liabilities, and in such order of application, as the Bank may from time to time elect, any and all balances, credits, deposits (general or special, time or demand, provisional or final), accounts or moneys of or in the name of the Guarantor then or thereafter with the Bank. Section 7.3 Assembly of Collateral. Upon demand of the Bank, the Guarantor shall assemble, at its expense, all Collateral at a convenient place acceptable to the Bank. Section 7.4 Use and Sale of Collateral. The Bank may, to the fullest extent permitted by applicable law, upon reasonable notice, (a) enter upon any premises where any of the Collateral may be located and take possession of and remove such Collateral; (b) use or license, on an exclusive or non-exclusive basis, any General Intangibles throughout the world for such term or terms, on such conditions, and in such manner, as the Bank shall in its sole discretion determine, without compensation to the Guarantor; (c) sell any or all of the Collateral, free of all rights and claims of the Guarantor therein and thereto; and (d) bid for and purchase any or all of such Collateral at any such sale. Section 7.5 Additional Provisions on Sale. Any sale of Collateral may be in one or more parcels at public or private sales, at any of the Bank's offices or elsewhere, for cash, on credit, or for future delivery, an upon such other terms as the Bank may reasonably believe are commercially reasonable. The Bank shall not be obligated to make any sale of Collateral regardless of notice of sales having been given, and the Bank may adjourn any public or private sale from time to time by announcement made at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. Section 7.6 Waiver by Guarantor. The Guarantor hereby expressly waives, to the extent permitted by applicable law, any and all notices, advertisements, hearings or process of law in connection with the exercise by the Bank of any of its rights and remedies upon Default. Any notification of intended disposition of any of the Collateral required by law shall be deemed reasonably and properly given if given at least five days before such disposition. Section 7.7 Proceeds of Collateral. Any proceeds of any disposition by the Bank of any of the Collateral may be applied by the Bank to the payment of expenses in connection with the Collateral, including reasonable attorneys, fees and legal expenses, and any balance of such proceeds may be applied by the Bank toward the payment of such of the Liabilities, and in such order of application, as the Bank may from time to time elect. Section 7.8 Recourse to Collateral; Remedies not Exclusive. The Bank may resort to the Collateral for payment of any of the Liabilities, whether or not the Bank shall have resorted to any other property securing the Liabilities or shall have proceeded against any Obligor. The Bank's exercise of rights hereunder shall not prevent the Bank's exercise of any other rights it may have upon the occurrence of a Default under any other Credit Documents or otherwise, and one exercise of rights hereunder shall not prevent any subsequent exercise of rights of the Bank hereunder, under any Credit Documents or otherwise. Section 7.9 Other Rights. The Bank may exercise from time to time any other rights and remedies available to it under any Credit Document and under all applicable law. Section 8 Additional Waivers Guarantor waives all rights and remedies that Guarantor may have as a guarantor or surety under the provisions of Title 13, commencing with Section 2787, of the California Civil Code, or any other provision of law. In this regard, Guarantor waives (a) the right to require the Bank to proceed against the Borrower, or any other person liable for the indebtedness of the Borrower to the Bank, to proceed against or exhaust any Collateral or other security securing such indebtedness, or to pursue any other remedy in the Bank's power; (b) any defense arising by any reason, including any election of remedies, any disability, or the cessation from any cause whatsoever of the liability of the Borrower or any other person liable for such indebtedness; and (c) any right of subrogation for such indebtedness. Without limiting the generality of the foregoing, Guarantor waives all rights and defenses arising out of an election of remedies by the creditor, even though that election of remedies, such as non- judicial foreclosure with respect to security for a guaranteed obligation, has destroyed Guarantor's rights of subrogation and reimbursement against the principal by the operation of Section 580d of the California Code of Civil Procedure or otherwise. For purposes of the waiver just given, the "creditor" referred to therein is the Bank, and the "principal" is the Borrower. Guarantor authorizes the Bank, from time to time, and without notice to the Guarantor to (x) renew, compromise, extend, accelerate or otherwise change the time for payment or, otherwise alter the terms of the Borrower's indebtedness and other obligations, or (y) to grant or extend new indebtedness to the Borrower, which indebtedness shall automatically be secured by this Agreement. Guarantor assumes the responsibility for being, at all times, informed of the financial condition of the Borrower and any other person liable for indebtedness of the Borrower to the Bank, and of all other circumstances bearing upon the risk of non-payment of such indebtedness, which diligent inquiry would reveal, and agrees that the Bank shall have no duty to advise the Guarantor of information known to the Bank regarding such condition or circumstances. Section 9 General Provisions Section 9.1 Reimbursement of Expenses. Upon the occurrence of a Default, the Guarantor shall reimburse the Bank upon demand for all costs and expenses, including reasonable fees of attorneys for the Bank (who may be employees of the Bank) and legal expenses, incurred by the Bank in seeking to collect or enforce any rights under the Collateral and its rights hereunder and, in case of Default, in seeking to collect each Credit Document and the Liabilities, including expenses of any repairs to any realty or other property to which any of the Equipment or Fixtures may be affixed or be a part. Section 9.2 Notices. Any notice or other communication to any party in connection with this Agreement shall be in writing and shall be sent by manual delivery, facsimile transmission, overnight courier or United States mail (postage prepaid) addressed to such party at the address specified on the signature page hereof, or at such other address as such party shall have specified to the other party hereto in writing. All periods of notice shall be measured from the date of delivery thereof if manually delivered, from the date of sending thereof if sent by facsimile transmission, from the first Business Day after the date of sending if sent by overnight courier, or from four days after the date of mailing if mailed. Section 9.3 Waivers and Amendments. No failure or delay on the part of the Bank in the exercise of any power, right or remedy, and no course of dealing between the Guarantor and the Bank, shall operate as a waiver of such power, right or remedy, nor shall any single or partial exercise of any power, right or remedy preclude other or further exercise thereof or the exercise of any other power, right or remedy. No notice to or demand on the Guarantor not required hereunder shall in any event entitle the Guarantor to any other or further notice or demand in similar or other circumstances or constitute a waiver of the right of the Bank to any other or further action in any circumstances without notice or demand. No amendment, modification or waiver of, or consent with respect to, any provision of this Agreement shall in any event be effective unless the same shall be in writing and signed and delivered by the Bank. Any waiver of any provision of this Agreement, and any consent to any departure by the Guarantor from the terms of any provision of this Agreement, shall be effective only in the specific instance and for the specific purpose for which given. Section 9.4 Remedies Cumulative. The remedies provided for herein are cumulative and not exclusive of any remedies which may be available to the Bank at law or in equity. Section 9.5 Termination of Agreement. Unless sooner terminated by the Bank, this Agreement shall terminate when all of the Credit Documents shall have expired or been terminated and all Liabilities shall have been paid in full. This Agreement shall continue notwithstanding that there may be, from time to time, no outstanding loans or extensions of credit from the Bank to the Guarantor. Any return of Collateral upon termination of this Agreement and any instruments of transfer or termination shall be at the expense of the Guarantor and shall be without warranty by, or recourse against, the Bank. Section 9.6 Successors and Assigns. This Agreement shall be binding upon the Guarantor, its successors and assigns (and, if an individual, the Guarantor's heirs, estate and personal representatives), and shall inure to the benefit of, and be enforceable by, the Bank and its successors, transferees, and assigns. Without limiting the generality of the foregoing, the Bank may assign or otherwise transfer all or any portion of the Liabilities to any other person or entity and may similarly transfer all or any portion of its rights under this Agreement to such person or entity. Section 9.7 Choice of Law. This Agreement has been delivered at San Diego, California, and shall be construed in accordance with and governed by the laws of the State of California. Section 9.8 Severance. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity without invalidating the remainder of such provision or the remaining provisions of this Agreement. Section 9.9 Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. Section 9.10 Consent to Jurisdiction. AT THE OPTION OF THE BANK, THIS AGREEMENT MAY BE ENFORCED IN ANY FEDERAL COURT OR CALIFORNIA STATE COURT SITTING IN LOS ANGELES COUNTY, CALIFORNIA; AND THE GUARANTOR CONSENTS TO THE JURISDICTION AND VENUE OF ANY SUCH COURT AND WAIVES ANY ARGUMENT THAT VENUE IN SUCH FORUMS IS NOT CONVENIENT. IN THE EVENT THE GUARANTOR COMMENCES ANY ACTION IN ANOTHER JURISDICTION OR VENUE ARISING DIRECTLY OR INDIRECTLY FROM THE RELATIONSHIP CREATED BY THIS AGREEMENT, THE BANK AT ITS OPTION SHALL BE ENTITLED TO HAVE THE CASE TRANSFERRED TO ONE OF THE JURISDICTIONS AND VENUES ABOVE-DESCRIBED, OR IF SUCH TRANSFER CANNOT BE ACCOMPLISHED UNDER APPLICABLE LAW, TO HAVE SUCH CASE DISMISSED WITHOUT PREJUDICE. Section 9.11 Waiver of Jury Trial. THE GUARANTOR AND THE BANK EACH WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AGREEMENT OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH AND AGREE THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT A JURY. Section 9.12 Conflict between Documents. In the event that any provision of this Agreement conflicts with a provision of the Credit Agreement, the provision of the Credit Agreement shall govern. IN WITNESS WHEREOF, this Agreement has been duly executed as of the day and year first above written. DATRON ADVANCED TECHNOLOGIES INC. By: DAVID A. DERBY DAVID A. DERBY, Chairman By: WILLIAM L. STEPHAN WILLIAM L. STEPHAN, Treasurer Datron Advanced Technologies Inc. c/o Datron Systems Incorporated 3030 Enterprise Court Vista , CA 92083 Attention: William L. Stephan, Chief Financial Officer U.S. BANK NATIONAL ASSOCIATION By: CORY BRAZAS CORY BRAZAS, Sr. Vice President By: WILLIAM BURZYNSKI WILLIAM BURZYNSKI, Vice President U.S. Bank National Association 4180 La Jolla Village Drive, Suite 125 La Jolla , CA 92037 Attention: William Burzynski, Vice President SCHEDULE A TO SECURITY AGREEMENT BETWEEN DATRON ADVANCED TECHNOLOGIES INC. AND U.S. BANK NATIONAL ASSOCIATION Other Security Interests: None except for filings under the former legal name of Datron/Transco Inc. as disclosed below: Datron/Transco Inc. UCC Filing No. State Secured Party 9716160143 CA OCE' - USA 9719260928 CA Toyota Motor Credit Corp. 199836560151 CA Mita Financial SCHEDULE B TO SECURITY AGREEMENT BETWEEN DATRON ADVANCED TECHNOLOGIES INC. AND U.S. BANK NATIONAL ASSOCIATION Trade Names: Datron/Transco Locations Used: Worldwide SCHEDULE C TO SECURITY AGREEMENT BETWEEN DATRON ADVANCED TECHNOLOGIES INC. AND U.S. BANK NATIONAL ASSOCIATION Locations at which Equipment and Inventory is kept: Location Type of Equipment or Inventory Simi Valley, California Office furniture and equipment; Inventory Continental United States DBS demo vans Worldwide Exhibition equipment; installation tools EX-10 5 ex4.txt EXHIBIT 10.81 SECURITY AGREEMENT SECURITY AGREEMENT - Guarantor THIS SECURITY AGREEMENT (this "Agreement"), dated as of May 23, 2001, is entered into between U.S. BANK NATIONAL ASSOCIATION (the "Bank") and DATRON WORLD COMMUNICATIONS INC. (the "Guarantor"). W I T N E S S E T H: WHEREAS, the Guarantor's parent corporation, Datron Systems Incorporated (the "Borrower"), has requested, or may concurrently or hereafter request, loans, advances or other extensions of credit (whether by issuing letters of credit, creating bankers' acceptances or otherwise) from the Bank, Guarantor has provided to the Bank a Continuing Guaranty (the "Guaranty") dated of even date herewith and Guarantor has agreed to secure its obligations under the Guaranty pursuant to this Agreement; NOW, THEREFORE, for and in consideration of loans, advances or other extensions of credit under the Credit Agreement and any other loan, advance or extensions of credit made or to be made to the Borrower by the Bank, and for other good and valuable consideration, the parties hereto agree as follows: Section 1 Definitions and Interpretation Section 1.1 Definitions. In addition to the terms defined elsewhere in this Agreement, the following terms shall have the meanings indicated for purposes of this Agreement (such meanings being applicable to both the singular and plural forms): "Agreement" shall mean this Security Agreement, as it may be amended, modified, supplemented, assigned, restated or replaced from time to time. "Collateral" shall mean all property or rights in which a security interest is granted hereunder. "Credit Document" shall mean the Credit Agreement by and between the Borrower and the Bank and any promissory note or notes issued from time to time thereunder, and any other promissory note, agreement, evidence of indebtedness, guaranty, application, instrument or document (including each agreement or application for issuance of any letter of credit or creation of any bankers' acceptance) relating to any obligation of the Borrower to the Bank, whether heretofore or hereafter issued, made or entered by the Borrower, and whether evidencing a present or future obligation or an obligation payable under any circumstance, whether now or hereafter due, direct or indirect, absolute or contingent. "Default" shall mean: (a) the occurrence of any "Event of Default" or similar occurrence under any Credit Document , including the occurrence of any Event of Default as defined in the Credit Agreement or the Guaranty; (b) nonpayment, when due or demanded (if under a demand instrument) of any amount of the Liabilities, or any amount payable to the Bank by any Obligor; (c) failure to perform any agreement of any Obligor hereunder or under any Credit Document and such failure shall continue beyond any grace period expressly applicable thereto; (d) any representation made, or deemed to be made, by any Obligor hereunder or under any Credit Document is untrue or incorrect in any material respect when made or deemed to be made; or (e) during any time that the Credit Agreement shall not have remained in force and effect, the occurrence of any of the foregoing events or, in addition, any of the foregoing: (i) any event shall occur that results in the acceleration of any indebtedness or material monetary obligation of any Obligor or enables the holders of such indebtedness or obligation (or agent or trustee) to accelerate such indebtedness or obligation; (ii) any Obligor becomes insolvent or generally fails to pay, or admits in writing its inability to pay, its debts as they mature or applies for or consents to appointment of a trustee or other custodian for its properties or makes a general assignment for the benefit of creditors or any bankruptcy, reorganization, debt arrangement or other proceeding under any bankruptcy or insolvency law, or dissolution or liquidation proceeding, is instituted by or against any Obligor; or (iii) the Bank shall have determined in good faith (which determination shall be conclusive) that an event has occurred that could cause or have a Material Adverse Effect (as defined in the Credit Agreement). "Liabilities" shall mean all obligations of the Guarantor under the Guaranty and any other Credit Document, and under this Agreement, and all other obligations of the Guarantor to the Bank, its successors and assigns, howsoever created, arising or evidenced, whether direct or indirect, absolute or contingent, or now or hereafter existing, or due or to become due. "Non-Goods Collateral" shall mean all Collateral other than Inventory, and Equipment. "Obligor" shall mean the Guarantor, or any general partner (if a partnership) in the Guarantor, joint venturer (if a joint venture) in the Guarantor and any other guarantor, surety, accommodation party or other party primarily or secondarily liable on any of the Liabilities. Section 1.2 Terms defined in Uniform Commercial Code. "Account", "Account Debtor", "Chattel Paper", "Document", "Equipment", "Fixtures", "General Intangibles", "Instrument", "Inventory", and "Proceeds" shall have the meanings set forth in the California Uniform Commercial Code, provided, that if any additional goods, property or rights shall be included in such terms under Section 2 hereof, such terms shall be construed to include such additional goods, property or rights. Section 1.3 Interpretation. A reference to a Section, Exhibit or Schedule is, unless otherwise stated, a reference to a section hereof, or an exhibit or schedule hereto, as the case may be. Section captions used in this Agreement are for convenience only, and shall not affect the construction of this Agreement. The word "including" shall, in each instance, be deemed to mean "including but not limited to". Section 2 Grant of Security Interest Section 2 Grant of Security Interest. As security for the payment of all Liabilities, the Guarantor hereby assigns to the Bank, and grants to the Bank a continuing security interest in, the following, whether now owned or hereafter arising or acquired: (a) Accounts, including all other rights and interests (including all liens and security interests) that the Guarantor may at any time have by law or agreement against any Account Debtor or other obligor obligated to make any such payment or against any of the property of such Account Debtor or other obligor; (b) Equipment, including all accessories, parts and other property at any time affixed thereto or used in connection therewith and all substitutions and replacements thereof; (c) Inventory, including goods that are returned, repossessed, stopped in transit or which otherwise come into the possession of the Guarantor; and (d) General Intangibles, including inventions, designs, patents, patent applications, design patents, design patent applications, trademarks, trademark applications, trade names, trade secrets, goodwill, copyrights, registrations, licenses, franchises, customer lists, tax refund claims, rights to indemnification and rights under warranties; (e) Chattel Paper, Instruments and Documents; (f) goods, instruments, documents or chattel paper that are in the possession or control of, or in transit to, the Bank or any agent or bailee for the Bank for any reason and all interest on, dividends and distributions and other rights in connection with such property, and any and all balances, credits, deposits (general or special, time or demand, provisional or final), accounts or moneys of or in the name of the Guarantor now or hereafter with the Bank; (g) books, correspondence, credit files, records, invoices, manuals, service records and programs, other papers and documents, computer records, runs, software, systems, procedures, disks, tapes and other storage media relating to any of the Collateral, including any of the foregoing in the possession or control of any service, consultant, or outside vendor; (h) Proceeds, including all policies, claims to payment under, and proceeds of any and all insurance policies payable to the Guarantor, or on behalf of the Guarantor's property, whether or not such policies are issued to or owned by the Guarantor and whether or not the Bank is named as loss payee or additional insured, including any credit insurance. Section 3 Representations and Warranties The Guarantor represents and warrants to the Bank that: Section 3.1 Power and Authority; Valid and Binding Obligation. The Guarantor is a corporation duly incorporated and in good standing under the laws of its state of incorporation and duly qualified to do business in each jurisdiction where such qualification is necessary. The execution and delivery of this Agreement, and the performance by the Guarantor of its obligations hereunder are within the Guarantor's corporate powers and have been duly authorized by all necessary corporate action. This Agreement is the Guarantor's legal, valid and binding obligation, enforceable in accordance with its terms, the making and performance of which do not and will not contravene or conflict with the Guarantor's charter or by-laws or violate or constitute a default under any law, any presently existing requirement or restriction imposed by judicial, arbitral or other governmental instrumentality or any agreement, instrument or indenture by which the Guarantor or its property is bound. Section 3.2 Owner, No Other Financing Statements. The Guarantor is and will be the lawful owner of all Collateral, free of all liens and claims whatsoever, other than the security interest hereunder, and those shown on Schedule A. No financing statement (other than any which may have been filed on behalf of the Bank) covering any of the Collateral is on file in any public office, except those listed on Schedule A. Section 3.3 Names, Offices and Locations. The Guarantor does business solely under its own name and the trade names and styles, if any, set forth on Schedule B (which includes any name used within the past 5 years). Any such trade names and styles are used only in the locations listed on Schedule B. Except as noted on such Schedule, no trade names or styles or other similar marks owned by the Guarantor are registered with any governmental unit. The Guarantor's chief place of business and chief executive office and the office where it keeps its books and records concerning the Accounts and General Intangibles, and the originals of all Chattel Paper, Instruments and Documents, are located at its address set forth on the signature page hereof. Section 3.4 Locations of Equipment and Inventory. All of the Equipment and Inventory existing on the date of the Agreement is located at the places specified in Schedule C. The Guarantor will immediately notify the Bank of any additional state in which any item of Equipment or Inventory is hereafter located. Section 3.5 Inventory. All Inventory has been produced in compliance with all requirements of the Fair Labor Standards Act. Section 4 Sale and Collection Section 4.1 Sale in Ordinary Course. Until such time as the Bank shall notify the Guarantor of the revocation of such authority or until the occurrence of a Default, the Guarantor may, in the ordinary course of its business, sell, lease, or consume (if raw materials) Inventory and furnish Inventory under contracts of service. Section 4.2 Collection of Non-Goods Collateral. Until such time as the Bank shall notify the Guarantor of the revocation of such authority, the Guarantor will endeavor to collect, as and when due, all amounts due with respect to any of the Non-Goods Collateral, and shall take any action in connection with such collection as the Bank may reasonably request. Section 4.3 Refunds. The Guarantor may grant, in the ordinary course of its business, any refund or allowance to any Account Debtor to which it may be lawfully entitled, and may accept, in connection therewith, the return of goods, the sale or lease of which shall have given rise to Accounts. Section 4.4 Collection by the Bank. The Bank may, but shall not be obligated to, at any time, upon the occurrence of any Default (a) notify any parties obligated on any of the Non-Goods Collateral to make payment directly to the Bank, (b) enforce collection of any of the Non-Goods Collateral by suit or otherwise, and (c) surrender, release, exchange, compromise, extend or renew all or any part of the Non-Goods Collateral. Following the occurrence of any Default, the Guarantor will, at its own expense, notify all parties obligated on any of the Non-Goods Collateral to make all payments thereunder directly to the Bank. Section 4.5 Transmittal of Items to the Bank. The Guarantor will (except as the Bank may otherwise consent in writing) following the occurrence of a Default, upon receipt, transmit and deliver to the Bank, in the form received, all cash, checks, drafts, and any other form of payment (properly endorsed, where required, so that such items may be collected by the Bank) received as proceeds of any of the Collateral. The Bank is authorized to endorse, in the name of the Guarantor, any item received by the Bank constituting a proceed of any of the Collateral. Except as the Bank may otherwise consent in writing, any such items received by the Guarantor will not be commingled with any other of its funds or property, but will be held separate and apart from its own funds or property and upon express trust for the Bank until delivered to the Bank. Section 4.6 Collection Account. All items or amounts which are received by the Bank as proceeds of the Collateral shall be deposited to the credit of a deposit account of the Guarantor with the Bank, securing the Liabilities. The Guarantor shall have no right to make withdrawals from such account. The Bank may, from time to time, in its discretion (a) apply collected balances therein to the Liabilities, whether or not then due, in such order of application as it shall determine, and (b) release all or any of such balance to the Guarantor. Section 5 Agreements of Guarantor The Guarantor agrees that, unless otherwise agreed in writing by the Bank, it will: Section 5.1 Schedules and Reports. Furnish to the Bank, in form and detail satisfactory to the Bank: (a) written notice of any event causing loss, material damage or depreciation in value of any of the Collateral, describing, and specifying the amount of, such loss, damage or depreciation; and (b) from time to time, as the Bank may request, such additional schedules, certificates and reports concerning the Collateral, including the Account Debtors obligated thereon, as the Bank may request. Section 5.2 Inspection. Permit the Bank and its agents or its designees, from time to time, to inspect and evaluate the Collateral, and to inspect, audit and make copies of all books and records constituting or otherwise concerning the Collateral, and will, upon request of the Bank, deliver to the Bank all of such records which pertain to the Collateral and all Account Debtors. In the event any such inspection is made following the occurrence of a Default, the Guarantor will reimburse the Bank upon demand for all reasonable costs and expenses incurred by the Bank, its agents or its designees in the course of such inspection and evaluation. Section 5.3 Financing Statements and Filing. Upon request of the Bank, execute such financing statements and other documents (and pay the cost of recording the same in all offices requested by the Bank) and do such other acts as the Bank may from time to time request to establish and maintain a valid perfected security interest in the Collateral, including depositing with the Bank any certificate of title issued on any of the Equipment and noting thereon the Bank's security interest. The Guarantor agrees that any carbon, photographic or other reproduction of this Agreement or of any such financing statement shall be sufficient for filing as a financing statement. Section 5.4 Locations and Notices. Maintain and keep (a) all Inventory and Equipment at the locations shown on Schedule C and give reasonable written notice to the Bank of the change of location of any Equipment that causes more than $250,000 of Inventory and Equipment to be in any jurisdiction other than locations listed on such Schedule; (b) except as delivered to the Bank from time to time, all Chattel Paper, Instruments and Documents, and all records included as Collateral or otherwise concerning the Collateral, at the address shown on the signature page and not duplicate any records regarding any Non-Goods Collateral at any other address; and (c) the location of its chief office at the address shown on the signature page. Section 5.5 Names. Not do business under any other name other than those shown on Schedule B. Section 5.6 Notation on Records. Upon the occurrence of a Default, stamp on its records concerning the Collateral a notation, in form satisfactory to the Bank, of the security interest of the Bank hereunder, and mark conspicuously each Document, Chattel Paper, Instrument or contract included in the Collateral with a legend, in form and substance satisfactory to the Bank, indicating that such Document, Chattel Paper, Instrument or contract is subject to the security interest of the Bank. Section 5.7 Delivery of Collateral. Upon the occurrence of a Default and the request of the Bank, deliver to the Bank all Documents, Instruments and Chattel Paper, duly endorsed to be payable to the Bank, or accompanied by duly executed instruments of transfer or assignment in form and substance satisfactory to the Bank, with full recourse to the Guarantor. Section 5.8 Transfer, Sale or Security Interest. Except as expressly authorized under Section 4.1 hereof (subject to the limits therein), not sell, lease, transfer, consume, assign or otherwise dispose of, or create or permit to exist any lien on or security interest (other than the Bank's security interest) in, any Collateral. Section 5.9 Maintenance. Keep all Equipment and Fixtures in first class order and repair, excepting any damage or destruction which is fully covered by insurance payable to the Bank. Section 5.10 Insurance. Keep all Inventory, Equipment and Fixtures insured against loss, damage, theft and other risks, with amounts and insurance companies, and under policies, satisfactory to the Bank, which policies shall provide that loss thereunder shall be payable to the Bank as its interest may appear (and the Bank may apply any proceeds of such insurance which may be received by it toward payment of Liabilities, whether or not due, in such order of application as the Bank may determine), and such policies or certificates thereof shall, if the Bank so requests, be deposited with the Bank. Section 5.11 Payment of Taxes, etc. Pay, when due, all taxes, assessments, governmental charges and other similar charges levied against any of the Collateral, except and so long as the Guarantor is contesting such taxes, assessments or charges in good faith and, by appropriate proceedings and the Guarantor has set aside on its books such reserves or other appropriate provisions therefor as may be required by generally accepted accounting principles, and so long as no enforcement action is being taken that would interfere with the Guarantor's use of such Collateral or the enforcement of the Bank's rights hereunder. Section 5.12 Waivers. Upon the occurrence of a Default and the request of the Bank, obtain and deliver to the Bank waivers in form and substance satisfactory to the Bank of any claim to any Collateral by any landlord or mortgagee of any property where Equipment or Inventory is located. Section 5.13 Inventory. Comply with all requirements of the Fair Labor Standards Act in producing Inventory. Section 6 Bank's Duties and Power of Attorney Section 6.1 Bank's Performance of Agreements and Reimbursement. Upon the occurrence of a Default, the Bank may, at its option, perform any agreement of the Guarantor hereunder which the Guarantor shall fail to perform and take any other action which the Bank deems necessary for the maintenance or preservation of the Collateral or its interest therein, and the Guarantor shall reimburse the Bank for all expenses of the Bank in connection with the foregoing, together with interest thereon at the highest rate of interest borne by any of the Liabilities at such time from the date incurred until reimbursed by the Guarantor. Section 6.2 Power of Attorney. Effective upon the occurrence of a Default, the Guarantor hereby irrevocably appoints the Bank as the Guarantor's attorney-in-fact, with full authority in the place and stead of the Guarantor and in the name of the Guarantor, the Bank or otherwise, from time to time in the Bank's discretion, to take any action and to execute any instrument which the Bank may deem advisable to accomplish the purposes of Section 6.1 and to exercise any right and remedy upon the occurrence of a Default. The Guarantor hereby ratifies all that such attorney shall lawfully do or cause to be done by virtue hereof. This power of attorney is irrevocable and is coupled with an interest. Section 6.3 No Liability on Collateral; Indemnity. The rights and powers of the Bank hereunder are conferred solely to protect its interest in the Collateral and shall not impose any duty upon it to exercise any such rights or powers. The Bank does not in any way assume any of the Guarantor's obligations under, or with respect to, the Collateral. The Guarantor shall remain liable with respect to the Collateral to the same extent as if this Agreement had not been executed. The Guarantor agrees to indemnify and hold harmless the Bank against any and all liabilities, claims, damages, actions, proceedings, losses or other obligations arising in connection with or on account of any of the Collateral except for such liabilities, claims, damages, actions, proceedings, losses or obligations as are proven to have been caused by the gross negligence or willful misconduct of Bank. Section 6.4 Care of Collateral. Except for the safe custody of any Collateral in its possession, the Bank shall have no duty as to any Collateral or as to the taking of any steps to preserve rights against any other party. The Bank shall be deemed to have exercised reasonable care in the custody and preservation of any Collateral in its possession if such Collateral is accorded treatment substantially equal to that which the Bank accords its own property, or is accorded treatment complying with any provision of any other document setting forth a standard of care for such Collateral. Section 7 Default and Remedies Whenever a Default shall be existing: Section 7.1 Liabilities Due and Payable. All of the Liabilities may, at the option of the Bank, and without demand or notice of any kind, be declared, and thereupon immediately shall become, due and payable. Section 7.2. Deposits, etc. The Bank may, from time to time, without demand or notice of any kind, appropriate and apply toward the payment of such of the Liabilities, and in such order of application, as the Bank may from time to time elect, any and all balances, credits, deposits (general or special, time or demand, provisional or final), accounts or moneys of or in the name of the Guarantor then or thereafter with the Bank. Section 7.3 Assembly of Collateral. Upon demand of the Bank, the Guarantor shall assemble, at its expense, all Collateral at a convenient place acceptable to the Bank. Section 7.4 Use and Sale of Collateral. The Bank may, to the fullest extent permitted by applicable law, upon reasonable notice, (a) enter upon any premises where any of the Collateral may be located and take possession of and remove such Collateral; (b) use or license, on an exclusive or non-exclusive basis, any General Intangibles throughout the world for such term or terms, on such conditions, and in such manner, as the Bank shall in its sole discretion determine, without compensation to the Guarantor; (c) sell any or all of the Collateral, free of all rights and claims of the Guarantor therein and thereto; and (d) bid for and purchase any or all of such Collateral at any such sale. Section 7.5 Additional Provisions on Sale. Any sale of Collateral may be in one or more parcels at public or private sales, at any of the Bank's offices or elsewhere, for cash, on credit, or for future delivery, an upon such other terms as the Bank may reasonably believe are commercially reasonable. The Bank shall not be obligated to make any sale of Collateral regardless of notice of sales having been given, and the Bank may adjourn any public or private sale from time to time by announcement made at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. Section 7.6 Waiver by Guarantor. The Guarantor hereby expressly waives, to the extent permitted by applicable law, any and all notices, advertisements, hearings or process of law in connection with the exercise by the Bank of any of its rights and remedies upon Default. Any notification of intended disposition of any of the Collateral required by law shall be deemed reasonably and properly given if given at least five days before such disposition. Section 7.7 Proceeds of Collateral. Any proceeds of any disposition by the Bank of any of the Collateral may be applied by the Bank to the payment of expenses in connection with the Collateral, including reasonable attorneys, fees and legal expenses, and any balance of such proceeds may be applied by the Bank toward the payment of such of the Liabilities, and in such order of application, as the Bank may from time to time elect. Section 7.8 Recourse to Collateral; Remedies not Exclusive. The Bank may resort to the Collateral for payment of any of the Liabilities, whether or not the Bank shall have resorted to any other property securing the Liabilities or shall have proceeded against any Obligor. The Bank's exercise of rights hereunder shall not prevent the Bank's exercise of any other rights it may have upon the occurrence of a Default under any other Credit Documents or otherwise, and one exercise of rights hereunder shall not prevent any subsequent exercise of rights of the Bank hereunder, under any Credit Documents or otherwise. Section 7.9 Other Rights. The Bank may exercise from time to time any other rights and remedies available to it under any Credit Document and under all applicable law. Section 8 Additional Waivers Guarantor waives all rights and remedies that Guarantor may have as a guarantor or surety under the provisions of Title 13, commencing with Section 2787, of the California Civil Code, or any other provision of law. In this regard, Guarantor waives (a) the right to require the Bank to proceed against the Borrower, or any other person liable for the indebtedness of the Borrower to the Bank, to proceed against or exhaust any Collateral or other security securing such indebtedness, or to pursue any other remedy in the Bank's power; (b) any defense arising by any reason, including any election of remedies, any disability, or the cessation from any cause whatsoever of the liability of the Borrower or any other person liable for such indebtedness; and (c) any right of subrogation for such indebtedness. Without limiting the generality of the foregoing, Guarantor waives all rights and defenses arising out of an election of remedies by the creditor, even though that election of remedies, such as non- judicial foreclosure with respect to security for a guaranteed obligation, has destroyed Guarantor's rights of subrogation and reimbursement against the principal by the operation of Section 580d of the California Code of Civil Procedure or otherwise. For purposes of the waiver just given, the "creditor" referred to therein is the Bank, and the "principal" is the Borrower. Guarantor authorizes the Bank, from time to time, and without notice to the Guarantor to (x) renew, compromise, extend, accelerate or otherwise change the time for payment or, otherwise alter the terms of the Borrower's indebtedness and other obligations, or (y) to grant or extend new indebtedness to the Borrower, which indebtedness shall automatically be secured by this Agreement. Guarantor assumes the responsibility for being, at all times, informed of the financial condition of the Borrower and any other person liable for indebtedness of the Borrower to the Bank, and of all other circumstances bearing upon the risk of non-payment of such indebtedness, which diligent inquiry would reveal, and agrees that the Bank shall have no duty to advise the Guarantor of information known to the Bank regarding such condition or circumstances. Section 9 General Provisions Section 9.1 Reimbursement of Expenses. Upon the occurrence of a Default, the Guarantor shall reimburse the Bank upon demand for all costs and expenses, including reasonable fees of attorneys for the Bank (who may be employees of the Bank) and legal expenses, incurred by the Bank in seeking to collect or enforce any rights under the Collateral and its rights hereunder and, in case of Default, in seeking to collect each Credit Document and the Liabilities, including expenses of any repairs to any realty or other property to which any of the Equipment or Fixtures may be affixed or be a part. Section 9.2 Notices. Any notice or other communication to any party in connection with this Agreement shall be in writing and shall be sent by manual delivery, facsimile transmission, overnight courier or United States mail (postage prepaid) addressed to such party at the address specified on the signature page hereof, or at such other address as such party shall have specified to the other party hereto in writing. All periods of notice shall be measured from the date of delivery thereof if manually delivered, from the date of sending thereof if sent by facsimile transmission, from the first Business Day after the date of sending if sent by overnight courier, or from four days after the date of mailing if mailed. Section 9.3 Waivers and Amendments. No failure or delay on the part of the Bank in the exercise of any power, right or remedy, and no course of dealing between the Guarantor and the Bank, shall operate as a waiver of such power, right or remedy, nor shall any single or partial exercise of any power, right or remedy preclude other or further exercise thereof or the exercise of any other power, right or remedy. No notice to or demand on the Guarantor not required hereunder shall in any event entitle the Guarantor to any other or further notice or demand in similar or other circumstances or constitute a waiver of the right of the Bank to any other or further action in any circumstances without notice or demand. No amendment, modification or waiver of, or consent with respect to, any provision of this Agreement shall in any event be effective unless the same shall be in writing and signed and delivered by the Bank. Any waiver of any provision of this Agreement, and any consent to any departure by the Guarantor from the terms of any provision of this Agreement, shall be effective only in the specific instance and for the specific purpose for which given. Section 9.4 Remedies Cumulative. The remedies provided for herein are cumulative and not exclusive of any remedies which may be available to the Bank at law or in equity. Section 9.5 Termination of Agreement. Unless sooner terminated by the Bank, this Agreement shall terminate when all of the Credit Documents shall have expired or been terminated and all Liabilities shall have been paid in full. This Agreement shall continue notwithstanding that there may be, from time to time, no outstanding loans or extensions of credit from the Bank to the Guarantor. Any return of Collateral upon termination of this Agreement and any instruments of transfer or termination shall be at the expense of the Guarantor and shall be without warranty by, or recourse against, the Bank. Section 9.6 Successors and Assigns. This Agreement shall be binding upon the Guarantor, its successors and assigns (and, if an individual, the Guarantor's heirs, estate and personal representatives), and shall inure to the benefit of, and be enforceable by, the Bank and its successors, transferees, and assigns. Without limiting the generality of the foregoing, the Bank may assign or otherwise transfer all or any portion of the Liabilities to any other person or entity and may similarly transfer all or any portion of its rights under this Agreement to such person or entity. Section 9.7 Choice of Law. This Agreement has been delivered at San Diego, California, and shall be construed in accordance with and governed by the laws of the State of California. Section 9.8 Severance. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity without invalidating the remainder of such provision or the remaining provisions of this Agreement. Section 9.9 Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. Section 9.10 Consent to Jurisdiction. AT THE OPTION OF THE BANK, THIS AGREEMENT MAY BE ENFORCED IN ANY FEDERAL COURT OR CALIFORNIA STATE COURT SITTING IN LOS ANGELES COUNTY, CALIFORNIA; AND THE GUARANTOR CONSENTS TO THE JURISDICTION AND VENUE OF ANY SUCH COURT AND WAIVES ANY ARGUMENT THAT VENUE IN SUCH FORUMS IS NOT CONVENIENT. IN THE EVENT THE GUARANTOR COMMENCES ANY ACTION IN ANOTHER JURISDICTION OR VENUE ARISING DIRECTLY OR INDIRECTLY FROM THE RELATIONSHIP CREATED BY THIS AGREEMENT, THE BANK AT ITS OPTION SHALL BE ENTITLED TO HAVE THE CASE TRANSFERRED TO ONE OF THE JURISDICTIONS AND VENUES ABOVE-DESCRIBED, OR IF SUCH TRANSFER CANNOT BE ACCOMPLISHED UNDER APPLICABLE LAW, TO HAVE SUCH CASE DISMISSED WITHOUT PREJUDICE. Section 9.11 Waiver of Jury Trial. THE GUARANTOR AND THE BANK EACH WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AGREEMENT OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH AND AGREE THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT A JURY. Section 9.12 Conflict between Documents. In the event that any provision of this Agreement conflicts with a provision of the Credit Agreement, the provision of the Credit Agreement shall govern. IN WITNESS WHEREOF, this Agreement has been duly executed as of the day and year first above written. DATRON WORLD COMMUNICATIONS INC. By: DAVID A. DERBY DAVID A. DERBY, Chairman By: WILLIAM L. STEPHAN WILLIAM L. STEPHAN, Treasurer Datron World Communications Inc. c/o Datron Systems Incorporated 3030 Enterprise Court Vista , CA 92083 Attention: William L. Stephan, Chief Financial Officer U.S. BANK NATIONAL ASSOCIATION By: CORY BRAZAS CORY BRAZAS, Sr. Vice President By: WILLIAM BURZYNKI WILLIAM A. BURZYNSKI, Vice President U.S. Bank National Association 4180 La Jolla Village Drive, Suite 125 La Jolla , CA 92037 Attention: William Burzynski, Vice President SCHEDULE A TO SECURITY AGREEMENT BETWEEN DATRON WORLD COMMUNICATIONS INC. AND U.S. BANK NATIONAL ASSOCIATION Other Security Interests: None. SCHEDULE B TO SECURITY AGREEMENT BETWEEN DATRON WORLD COMMUNICATIONS INC. AND U.S. BANK NATIONAL ASSOCIATION Trade Names: Trans World Communications; Transworld Locations Used: Worldwide SCHEDULE C TO SECURITY AGREEMENT BETWEEN DATRON WORLD COMMUNICATIONS INC. AND U.S. BANK NATIONAL ASSOCIATION Locations at which Equipment and Inventory is kept: Location Type of Equipment or Inventory Vista, California Office furniture and equipment; Inventory Worldwide Exhibition equipment; installation Tools; demo inventory EX-10 6 ex5.txt EXHIBIT 10.82 SECURITY AGREEMENT CONTINUING GUARANTY For valuable consideration, the undersigned, Datron Advanced Technologies Inc. ("Guarantor"), unconditionally guarantees and promises to pay .U. S. Bank National Association, a national banking association ("Bank"), or order, on demand, in lawful money of the United States, any and all Indebtedness of Datron Systems Incorporated ("Borrower"), to Bank. The word "Indebtedness" is used herein in its most comprehensive sense and includes debts, obligations and liabilities of Borrower to Bank currently existing or now or hereafter made, incurred or created, whether voluntary or involuntary and however arising, whether due or not due, absolute or contingent, liquidated or unliquidated, determined or undetermined, and whether Borrower may be liable individually or jointly with others, or whether recovery upon such indebtedness may be or become barred by any statute of limitations or otherwise unenforceable. The liability of Guarantor is unlimited and includes all Indebtedness and all costs and expenses incurred in enforcing or collecting this Guaranty or the Indebtedness. This is a continuing guaranty relating to any Indebtedness, including but not limited to that arising under successive transactions, which shall continue the Indebtedness or create new Indebtedness after satisfaction, payment or reduction of previous Indebtedness. The amount of Guarantor's liability hereunder and under any other agreement now or at any time hereafter in force between Guarantor and Bank, including any other guaranty executed by Guarantor relating to any Indebtedness, shall be cumulative and not alternative. This Guaranty shall not apply to any new Indebtedness created after actual receipt by Bank of written notice from Guarantor revoking this Guaranty as to future transactions. Any payment by Guarantor shall not reduce Guarantor's maximum obligation hereunder, unless written notice to that effect has been actually received by Bank at or prior to the time of such payment. This is a continuing guaranty and Guarantor agrees that it shall remain in full force unless and until Guarantor delivers to Bank written notice that it has been revoked as to credit granted or Indebtedness incurred subsequent to the effective time of revocation as herein provided. Delivery of such notice shall not affect any of Guarantor's obligations hereunder with respect to Indebtedness created or extended prior to the effective date of such revocation nor shall it affect any of the obligations of any other guarantor for the credit granted to or Indebtedness incurred by Borrower. The obligations hereunder are independent of the obligations of Borrower, and a separate action or actions may be brought and prose- cuted against Guarantor whether action is brought against Borrower or whether Borrower is joined in any such action or actions; and Guarantor waives the benefit of any statute of limitations affecting Guarantor's liability hereunder or the enforcement thereof. Either before or after revocation hereof, Guarantor authorizes Bank, without notice or demand and without affecting Guarantor's liability hereunder, from time to time, to (a) renew, compromise, extend, accelerate or otherwise change any of the terms of the Indebtedness or any part thereof, including changing the rate of interest thereon or the time for payment thereof; (b) take and hold security for the payment of this Guaranty or the Indebtedness, and exchange, enforce, waive and release any such security; (c) apply such security and direct the order or manner of sale or other disposition thereof as Bank in its discretion may determine; (d) apply payments received from Borrower or Guarantor, or any of them, to the Indebtedness in such order as Bank may determine in its sole discretion; and (e) release or substitute any Person liable on the Indebtedness, any other guarantor of the Indebtedness, or any other Person providing support for the Indebtedness to Bank, this Guaranty, or any other guaranty. As used in this Guaranty, "Person" means any individual or entity. Guarantor waives any right to require Bank to (a) proceed against Borrower, Guarantor or any other guarantor; (b) proceed against or exhaust any security or other support for the Indebtedness granted by Borrower, Guarantor, or any other guarantor or Person; or (c) pursue any other remedy in Bank's power whatsoever. Guarantor waives any defense arising by reason of (i) any disability or other defense of Borrower; (ii) the cessation from any cause whatsoever of the liability of Borrower for the Indebtedness for any reason other than payment in full and final satisfaction; or (iii) the non- perfection of any security or support for the Indebtedness, this Guaranty, or any other guaranty of the Indebtedness. Guarantor shall have no right of subrogation to and waives any right to enforce any remedy which Bank now has or may hereafter have against Borrower, and waives any benefit of, any right to participate in, and any right to direct the application of any security for the Indebtedness, this Guaranty or any other guaranty of the Indebted- ness, now or hereafter held by Bank, whether any of the foregoing rights arise in equity, at law or by contract. Without limiting the generality of the foregoing, Guarantor waives all rights and defenses arising out of an election of remedies by the creditor, even though that election of remedies, such as non-judicial foreclosure with respect to security for a guaranteed obligation, has destroyed Guarantor's rights of subrogation and reimbursement against the principal by the operation of Section 580d of the California Code of Civil Procedure or otherwise. For purposes of the waiver just given, the "creditor" referred to therein is Bank, and the "principal" is the Borrower. Guarantor waives all presentments, demands for performance, notices of nonperformance, or other defaults, protests, notices of protest, notices of dishonor, and notices of acceptance of this Guaranty and of the existence, creation, or incurring of new or additional Indebtedness. Guarantor assumes the responsibility for being and keeping itself informed of the financial condition of Borrower and of all other circumstances bearing upon the risk of nonpayment of the Indebtedness which diligent inquiry would reveal, and agrees that Bank shall have no duty to advise Guarantor of information known to Bank regarding such condition or circumstances. Without limiting any waiver of rights of subrogation contained herein, any indebtedness of Borrower now or hereafter held by Guar- antor is hereby subordinated to the Indebtedness; and such indebtedness of Borrower to Guarantor, if Bank so requests, shall be collected, enforced and received by Guarantor as trustee for Bank and paid over to Bank on account of the Indebtedness, but without reducing or affecting in any manner the liability of Guarantor under the other provisions of this Guaranty. Bank shall have rights of setoff against and bankers' liens upon all monies, securities and other properties of Guarantor to the extent provided by law. This Guaranty shall continue to be effective or be reinstated, as the case may be, if at any time any payment of any Indebtedness by Borrower or any other guarantor is avoided as a preference, or on any other grounds provided by law, or must otherwise be returned by Bank as a result of an order for relief being entered with respect to Borrower or any other guarantor under the United States Bankruptcy Code, or as a result of Borrower's or any other guarantor's assignment for the benefit of creditors. Borrower and Bank have entered into a certain Credit Agreement (the "Credit Agreement") of even date herewith. Borrower makes certain representations and warranties and covenants (including, without limitation, the representations and warranties in Article IV of the Credit Agreement and the covenants in Articles V and VI of the Credit Agreement) pertaining to Guarantor and certain other of the subsidiaries of Borrower. To the extent such representations and warranties and covenants of Borrower in the Credit Agreement pertain to Guarantor, Guarantor hereby makes such representations and warranties and covenants on its own behalf and incorporates such representations and warranties and covenants herein by this reference, as if fully set forth herein. Where Borrower is a corporation or partnership, it is not necessary for Bank to inquire into the powers of Borrower or the officers, directors, partners or agents acting or purporting to act on its behalf, and any Indebtedness made or created in reliance upon the professed exercise of such powers shall be guaranteed hereunder. Guarantor has entered into this Guaranty with the understanding that Bank may rely upon it to the exclusion of any other guaranties. Bank has not, nor has Borrower represented that there are or may be other guarantors. Nothing in this Guaranty, however, shall bind Bank to seek other guarantors, separate and apart from the undersigned. Guarantor understands that Bank may already have, or concurrently herewith may have obtained or hereafter may obtain other guarantors (one or more, several or joint) of the Indebted- ness. Such guarantors, heretofore, herewith, or hereafter obtained, shall in no way affect Guarantor's complete liability hereunder for the full amount of the Indebtedness. Nothing herein shall require Bank to sue all of the guarantors severally or together or to sue more than one or to prorate the above liability among the guarantors or any of them. Guarantor agrees that Bank may, in its sole and uncontrolled discretion, sue any one or more of the guarantors for all of the Indebtedness; and within its sole and uncontrolled discretion Bank may take judgment against any one of the guarantors for all of the Indebtedness, plus interest, costs and attorneys' fees, or, within its sole discretion, Bank may prorate such judgment between or among one or more of the guarantors. Guarantor agrees to pay reasonable attorneys' fees and all other costs and expenses which may be incurred by Bank (or allocable to Bank's in-house counsel) in the enforcement of this Guaranty, or the collection of any Indebtedness of Borrower to Bank, irrespective of whether suit is filed, or in the renewal, extension or restructure of any Indebtedness, irrespective of whether such renewal, extension or restructure is consummated. When there is more than one Borrower named herein, or when this Guaranty is executed by more than one Guarantor, the word "Borrower" and the word "Guarantor," respectively, shall mean all and any one or more of them and each promise and obligation set forth herein shall be joint and several. This Guaranty shall benefit Bank, its successors and assigns, and shall bind Guarantor's successors and assigns. This Guaranty is assignable by Bank with respect to all or any portion of the Indebtedness and obligations guaranteed hereunder, and when so assigned Guarantor shall be liable to the assignees under this Guaranty without in any manner affecting Guarantor's liability here- under with respect to any Indebtedness or obligations retained by Bank. If any term, provision, covenant or condition of this Guaranty is held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the provisions shall remain in full force and effect and shall in no way be affected, impaired or invalidated. This Guaranty shall be governed by and construed in accordance with the laws of the State of California. AT THE OPTION OF THE BANK, THIS GUARANTY MAY BE ENFORCED IN ANY FEDERAL COURT OR CALIFORNIA STATE COURT SITTING IN LOS ANGELES COUNTY, CALIFORNIA; AND THE GUARANTOR CONSENTS TO THE JURISDICTION AND VENUE OF ANY SUCH COURT AND WAIVES ANY ARGUMENT THAT VENUE IN SUCH FORUMS IS NOT CONVENIENT. IN THE EVENT THE GUARANTOR COMMENCES ANY ACTION IN ANOTHER JURISDICTION OR VENUE ARISING DIRECTLY OR INDIRECTLY FROM THE RELATIONSHIP CREATED BY THIS AGREEMENT, THE BANK AT ITS OPTION SHALL BE ENTITLED TO HAVE THE CASE TRANSFERRED TO ONE OF THE JURISDICTIONS AND VENUES ABOVE- DESCRIBED, OR IF SUCH TRANSFER CANNOT BE ACCOMPLISHED UNDER APPLICABLE LAW, TO HAVE SUCH CASE DISMISSED WITHOUT PREJUDICE Any notice to Bank required hereunder shall not be effective against Bank unless it is given in writing, and actually received by Bank, to the attention of "Manager" at each address where the Indebtedness is payable, with a copy to: U.S. National Bank, 4180 La Jolla Village Drive, La Jolla, California 92037, Attention: William Burzynski. This Guaranty is intended by Guarantor and Bank as the final expression of Guarantor's obligations and liabilities to Bank described herein and is intended as a complete statement of their agreement concerning the subject matter hereof. This Guaranty may be amended only by a writing signed by Guarantor and agreed to by Bank. This Continuing Guaranty is executed by Guarantor this __ day of May, 2001. "Guarantor" Datron Advanced Technologies Inc. By: DAVID A. DERBY DAVID A. DERBY, Chairman By: WILLIAM L. STEPHAN WILLIAM L. STEPHAN, Treasurer (S.S. or Tax I.D. No. 77-0253402) EX-10 7 ex6.txt EXHIBIT 10.83 CONTINUING GUARANTY CONTINUING GUARANTY For valuable consideration, the undersigned, Datron World Communications Inc. ("Guarantor"), unconditionally guarantees and promises to pay .U. S. Bank National Association, a national banking association ("Bank"), or order, on demand, in lawful money of the United States, any and all Indebtedness of Datron Systems Incorporated ("Borrower"), to Bank. The word "Indebtedness" is used herein in its most comprehensive sense and includes debts, obligations and liabilities of Borrower to Bank currently existing or now or hereafter made, incurred or created, whether voluntary or involuntary and however arising, whether due or not due, absolute or contingent, liquidated or unliquidated, determined or undetermined, and whether Borrower may be liable individually or jointly with others, or whether recovery upon such indebtedness may be or become barred by any statute of limitations or otherwise unenforceable. The liability of Guarantor is unlimited and includes all Indebtedness and all costs and expenses incurred in enforcing or collecting this Guaranty or the Indebtedness. This is a continuing guaranty relating to any Indebtedness, including but not limited to that arising under successive transactions, which shall continue the Indebtedness or create new Indebtedness after satisfaction, payment or reduction of previous Indebtedness. The amount of Guarantor's liability hereunder and under any other agreement now or at any time hereafter in force between Guarantor and Bank, including any other guaranty executed by Guarantor relating to any Indebtedness, shall be cumulative and not alternative. This Guaranty shall not apply to any new Indebtedness created after actual receipt by Bank of written notice from Guarantor revoking this Guaranty as to future transactions. Any payment by Guarantor shall not reduce Guarantor's maximum obligation hereunder, unless written notice to that effect has been actually received by Bank at or prior to the time of such payment. This is a continuing guaranty and Guarantor agrees that it shall remain in full force unless and until Guarantor delivers to Bank written notice that it has been revoked as to credit granted or Indebtedness incurred subsequent to the effective time of revocation as herein provided. Delivery of such notice shall not affect any of Guarantor's obligations hereunder with respect to Indebtedness created or extended prior to the effective date of such revocation nor shall it affect any of the obligations of any other guarantor for the credit granted to or Indebtedness incurred by Borrower. The obligations hereunder are independent of the obligations of Borrower, and a separate action or actions may be brought and prose- cuted against Guarantor whether action is brought against Borrower or whether Borrower is joined in any such action or actions; and Guarantor waives the benefit of any statute of limitations affecting Guarantor's liability hereunder or the enforcement thereof. Either before or after revocation hereof, Guarantor authorizes Bank, without notice or demand and without affecting Guarantor's liability hereunder, from time to time, to (a) renew, compromise, extend, accelerate or otherwise change any of the terms of the Indebtedness or any part thereof, including changing the rate of interest thereon or the time for payment thereof; (b) take and hold security for the payment of this Guaranty or the Indebtedness, and exchange, enforce, waive and release any such security; (c) apply such security and direct the order or manner of sale or other disposition thereof as Bank in its discretion may determine; (d) apply payments received from Borrower or Guarantor, or any of them, to the Indebtedness in such order as Bank may determine in its sole discretion; and (e) release or substitute any Person liable on the Indebtedness, any other guarantor of the Indebtedness, or any other Person providing support for the Indebtedness to Bank, this Guaranty, or any other guaranty. As used in this Guaranty, "Person" means any individual or entity. Guarantor waives any right to require Bank to (a) proceed against Borrower, Guarantor or any other guarantor; (b) proceed against or exhaust any security or other support for the Indebtedness granted by Borrower, Guarantor, or any other guarantor or Person; or (c) pursue any other remedy in Bank's power whatsoever. Guarantor waives any defense arising by reason of (i) any disability or other defense of Borrower; (ii) the cessation from any cause whatsoever of the liability of Borrower for the Indebtedness for any reason other than payment in full and final satisfaction; or (iii) the non- perfection of any security or support for the Indebtedness, this Guaranty, or any other guaranty of the Indebtedness. Guarantor shall have no right of subrogation to and waives any right to enforce any remedy which Bank now has or may hereafter have against Borrower, and waives any benefit of, any right to participate in, and any right to direct the application of any security for the Indebtedness, this Guaranty or any other guaranty of the Indebted- ness, now or hereafter held by Bank, whether any of the foregoing rights arise in equity, at law or by contract. Without limiting the generality of the foregoing, Guarantor waives all rights and defenses arising out of an election of remedies by the creditor, even though that election of remedies, such as non-judicial foreclosure with respect to security for a guaranteed obligation, has destroyed Guarantor's rights of subrogation and reimbursement against the principal by the operation of Section 580d of the California Code of Civil Procedure or otherwise. For purposes of the waiver just given, the "creditor" referred to therein is Bank, and the "principal" is the Borrower. Guarantor waives all presentments, demands for performance, notices of nonperformance, or other defaults, protests, notices of protest, notices of dishonor, and notices of acceptance of this Guaranty and of the existence, creation, or incurring of new or additional Indebtedness. Guarantor assumes the responsibility for being and keeping itself informed of the financial condition of Borrower and of all other circumstances bearing upon the risk of nonpayment of the Indebtedness which diligent inquiry would reveal, and agrees that Bank shall have no duty to advise Guarantor of information known to Bank regarding such condition or circumstances. Without limiting any waiver of rights of subrogation contained herein, any indebtedness of Borrower now or hereafter held by Guar- antor is hereby subordinated to the Indebtedness; and such indebtedness of Borrower to Guarantor, if Bank so requests, shall be collected, enforced and received by Guarantor as trustee for Bank and paid over to Bank on account of the Indebtedness, but without reducing or affecting in any manner the liability of Guarantor under the other provisions of this Guaranty. Bank shall have rights of setoff against and bankers' liens upon all monies, securities and other properties of Guarantor to the extent provided by law. This Guaranty shall continue to be effective or be reinstated, as the case may be, if at any time any payment of any Indebtedness by Borrower or any other guarantor is avoided as a preference, or on any other grounds provided by law, or must otherwise be returned by Bank as a result of an order for relief being entered with respect to Borrower or any other guarantor under the United States Bankruptcy Code, or as a result of Borrower's or any other guarantor's assignment for the benefit of creditors. Borrower and Bank have entered into a certain Credit Agreement (the "Credit Agreement") of even date herewith. Borrower makes certain representations and warranties and covenants (including, without limitation, the representations and warranties in Article IV of the Credit Agreement and the covenants in Articles V and VI of the Credit Agreement) pertaining to Guarantor and certain other of the subsidiaries of Borrower. To the extent such representations and warranties and covenants of Borrower in the Credit Agreement pertain to Guarantor, Guarantor hereby makes such representations and warranties and covenants on its own behalf and incorporates such representations and warranties and covenants herein by this reference, as if fully set forth herein. Where Borrower is a corporation or partnership, it is not necessary for Bank to inquire into the powers of Borrower or the officers, directors, partners or agents acting or purporting to act on its behalf, and any Indebtedness made or created in reliance upon the professed exercise of such powers shall be guaranteed hereunder. Guarantor has entered into this Guaranty with the understanding that Bank may rely upon it to the exclusion of any other guaranties. Bank has not, nor has Borrower represented that there are or may be other guarantors. Nothing in this Guaranty, however, shall bind Bank to seek other guarantors, separate and apart from the undersigned. Guarantor understands that Bank may already have, or concurrently herewith may have obtained or hereafter may obtain other guarantors (one or more, several or joint) of the Indebted- ness. Such guarantors, heretofore, herewith, or hereafter obtained, shall in no way affect Guarantor's complete liability hereunder for the full amount of the Indebtedness. Nothing herein shall require Bank to sue all of the guarantors severally or together or to sue more than one or to prorate the above liability among the guarantors or any of them. Guarantor agrees that Bank may, in its sole and uncontrolled discretion, sue any one or more of the guarantors for all of the Indebtedness; and within its sole and uncontrolled discretion Bank may take judgment against any one of the guarantors for all of the Indebtedness, plus interest, costs and attorneys' fees, or, within its sole discretion, Bank may prorate such judgment between or among one or more of the guarantors. Guarantor agrees to pay reasonable attorneys' fees and all other costs and expenses which may be incurred by Bank (or allocable to Bank's in-house counsel) in the enforcement of this Guaranty, or the collection of any Indebtedness of Borrower to Bank, irrespective of whether suit is filed, or in the renewal, extension or restructure of any Indebtedness, irrespective of whether such renewal, extension or restructure is consummated. When there is more than one Borrower named herein, or when this Guaranty is executed by more than one Guarantor, the word "Borrower" and the word "Guarantor," respectively, shall mean all and any one or more of them and each promise and obligation set forth herein shall be joint and several. This Guaranty shall benefit Bank, its successors and assigns, and shall bind Guarantor's successors and assigns. This Guaranty is assignable by Bank with respect to all or any portion of the Indebtedness and obligations guaranteed hereunder, and when so assigned Guarantor shall be liable to the assignees under this Guaranty without in any manner affecting Guarantor's liability here- under with respect to any Indebtedness or obligations retained by Bank. If any term, provision, covenant or condition of this Guaranty is held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the provisions shall remain in full force and effect and shall in no way be affected, impaired or invalidated. This Guaranty shall be governed by and construed in accordance with the laws of the State of California. AT THE OPTION OF THE BANK, THIS GUARANTY MAY BE ENFORCED IN ANY FEDERAL COURT OR CALIFORNIA STATE COURT SITTING IN LOS ANGELES COUNTY, CALIFORNIA; AND THE GUARANTOR CONSENTS TO THE JURISDICTION AND VENUE OF ANY SUCH COURT AND WAIVES ANY ARGUMENT THAT VENUE IN SUCH FORUMS IS NOT CONVENIENT. IN THE EVENT THE GUARANTOR COMMENCES ANY ACTION IN ANOTHER JURISDICTION OR VENUE ARISING DIRECTLY OR INDIRECTLY FROM THE RELATIONSHIP CREATED BY THIS AGREEMENT, THE BANK AT ITS OPTION SHALL BE ENTITLED TO HAVE THE CASE TRANSFERRED TO ONE OF THE JURISDICTIONS AND VENUES ABOVE- DESCRIBED, OR IF SUCH TRANSFER CANNOT BE ACCOMPLISHED UNDER APPLICABLE LAW, TO HAVE SUCH CASE DISMISSED WITHOUT PREJUDICE Any notice to Bank required hereunder shall not be effective against Bank unless it is given in writing, and actually received by Bank, to the attention of "Manager" at each address where the Indebtedness is payable, with a copy to: U.S. National Bank, 4180 La Jolla Village Drive, La Jolla, California 92037, Attention: William Burzynski. This Guaranty is intended by Guarantor and Bank as the final expression of Guarantor's obligations and liabilities to Bank described herein and is intended as a complete statement of their agreement concerning the subject matter hereof. This Guaranty may be amended only by a writing signed by Guarantor and agreed to by Bank. This Continuing Guaranty is executed by Guarantor this __ day of May, 2001. "Guarantor" Datron World Communications Inc. By: DAVID A. DERBY DAVID A. DERBY, Chairman By: WILLIAM L. STEPHAN WILLIAM L. STEPHAN, Treasurer (S.S. or Tax I.D. No. 77-0124277) EX-13 8 ex7.txt EXHIBIT 13 EXHIBIT 13 CERTAIN PORTIONS OF REGISTRANT'S ANNUAL REPORT TO STOCKHOLDERS FOR THE FISCAL YEAR ENDED MARCH 31, 2001 CONTAINING INFORMATION REQUIRED BY PART I AND PART II OF THIS REPORT Information required by Part II, Item 5: Market for Registrant's Common Equity and Related Stockholder Matters. This information is contained in the section captioned "Common Stock Activity" on the inside back cover of the Annual Report. Common Stock Activity The common stock of Datron Systems Incorporated is traded on the Nasdaq Stock Market under the symbol DTSI. The following table sets forth the high and low closing sales prices for the two most recent fiscal years as reported by Nasdaq:
Fiscal Year 2001 Quarter Ended High Low ------- ------- June 30, 2000 $13.750 $ 8.625 September 30, 2000 $15.750 $ 9.563 December 31, 2000 $13.250 $10.625 March 31, 2001 $14.625 $10.750 Fiscal Year 2000 Quarter Ended High Low ------- ------ June 30, 1999 $ 7.750 $5.50 September 30, 1999 $ 7.750 $5.438 December 31, 1999 $ 9.750 $5.313 March 31, 2000 $19.125 $7.813
On March 31, 2001, there were approximately 2,600 stockholders of the Company's common stock. The Company has never paid a cash dividend on its common stock and does not anticipate doing so in the foreseeable future. Information required by Part II, Item 6: Selected Financial Data. This information is contained in the section captioned "Datron Systems Incorporated Selected Financial Data" on the inside front cover of the Annual Report. DATRON SYSTEMS INCORPORATED SELECTED FINANCIAL DATA
Fiscal Years Ended March 31, --------------------------------------------------------------- 2001 2000 1999 1998 1997 ----------- ----------- ----------- ----------- ----------- Statements of Operations Net sales $62,262,000 $61,887,000 $59,084,000 $54,628,000 $53,269,000 Net income (loss) 2,957,000 2,504,000 1,702,000 (3,163,000) 268,000 Earnings (loss) per share - basic $1.08 $0.93 $0.63 $(1.18) $0.10 - diluted $1.06 $0.92 $0.63 $(1.18) $0.10 Balance Sheets Working capital $27,278,000 $23,929,000 $20,307,000 $20,354,000 $24,756,000 Total assets 57,269,000 54,397,000 48,167,000 51,284,000 56,476,000 Long-term debt 3,080,000 3,170,000 3,254,000 5,600,000 8,900,000 Total liabilities 19,783,000 20,281,000 16,772,000 21,679,000 23,868,000 Stockholders equity 37,486,000 34,116,000 31,395,000 29,605,000 32,608,000 Book value per share $13.64 $12.58 $11.65 $11.05 $12.26
[FN] See Note 2 of Notes to Consolidated Financial Statements for an explanation of the determination of shares used in computing earnings (loss) per share. No dividends were declared or paid during the years presented. Information required by Part II, Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations. This information is contained on pages 8 through 11 of the Annual Report. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Datron Systems Incorporated and its wholly owned subsidiaries (the "Company") provide products and services that address the needs of emerging satellite and radio communication markets. It reports operations in two business segments: Antenna and Imaging Systems, and Communication Products. The Antenna and Imaging Systems business segment designs and manufactures satellite communication systems, subsystems and antennas that are sold worldwide to commercial and governmental customers, including the U.S. Department of Defense. Its major product lines are (i) satellite tracking antenna systems used for remote sensing, telemetry, tracking and control ("TT&C") and satellite communication purposes by government and commercial users, and (ii) mobile broadband communication systems for airlines, military transports and mobile land and marine direct broadcast satellite ("DBS") television users. Fiscal 2001 sales for this segment were $36,930,000, a 7% decrease from fiscal 2000 sales of $39,756,000. Product line sales for this segment in fiscal 2001 and 2000 were as follows:
2001 2000 ----------- ----------- Antenna Systems $26,243,000 71% $31,155,000 78% Mobile Broadband 10,687,000 29% 8,601,000 22% ----------- ----------- Total $36,930,000 100% $39,756,000 100% =========== ===========
During fiscal 2000, sale of a remote sensing system to an Asian customer accounted for 13% of this segment's sales and 8% of consolidated sales. The Communication Products business segment designs, manufactures and distributes voice and data communication radios for worldwide military and civilian purposes. At the end of fiscal 2001, it introduced a new radio targeting the federal public safety wireless network ("PSWN") market, a market it has not previously served. Fiscal 2001 sales for this segment were $25,332,000, a 14% increase from fiscal 2000 sales of $22,131,000. Foreign customers accounted for 96% of this segment's fiscal 2001 sales and 89% of fiscal 2000 sales. During fiscal 2001, sales of radio products to two Asian customers accounted for 36% and 29% of this segment's sales and collectively 26% of consolidated sales. During fiscal 2000, sales of radio products to an African customer accounted for 44% of this segment's sales and 16% of consolidated sales. Consolidated sales for fiscal 2001 were $62,262,000, up slightly from fiscal 2000 consolidated sales of $61,887,000. The relatively flat sales were due to higher sales of radio communication products, offset by lower sales of antenna systems products. Net income for fiscal 2001 was $2,957,000, or $1.06 per diluted share, compared with net income in fiscal 2000 of $2,504,000, or $0.92 per diluted share. The increase in net income was primarily due to a $2,801,000 pre-tax gain (approximately $1,685,000, or $0.60 per diluted share after-tax) on the sale of the Company's microwave products line in the third quarter. Net income in fiscal 2000 included a $1,050,000 pre-tax license fee (approximately $632,000, or $0.23 per diluted share after- tax) received for manufacturing rights to the Company's DBS- 2100 antenna for business jets. This Management's Discussion and Analysis of Financial Condition and Results of Operations contains "forward- looking statements" as defined in the Private Securities Litigation Reform Act of 1995. A variety of factors could cause the Company's actual results to differ from the anticipated results expressed in such forward-looking statements. These include, among others, uncertainties stemming from the dependence of the Company on foreign sales and on large orders from a relatively small number of customers, risks relating to the decline in the Company's traditional defense business and the Company's efforts to develop and market consumer products, lack of timely development or customer acceptance of new products, changes in or unavailability of products and services offered by satellite service providers and their related suppliers, worldwide economic downturns and currency devaluations, restrictions that may be imposed by the U.S. government on the export of Company products, and the impact of competition. For more information, please review the Company's periodic reports under the Securities Exchange Act of 1934, including without limitation the Investment Considerations set forth in the Company's Annual Report on Form 10-K. The consolidated financial statements and notes thereto that appear on pages 12 through 23 should be read in conjunction with the following review. RESULTS OF OPERATIONS Operating results for the last three fiscal years are presented for each of the Company's two business segments (in thousands):
ANTENNA AND IMAGING SYSTEMS Years Ended March 31, 2001 2000 1999 ------- ------- ------- Net sales $36,930 $39,756 $39,084 ======= ======= ======= Percent of consolidated net sales 59% 64% 66% Gross profit $9,299 $11,219 $11,315 Operating expenses before corporate expenses 8,656 8,455 8,182 Gain on sale of product line (2,801) --- --- ------ ------ ------ Operating income $3,444 $2,763 $3,133 ====== ====== ====== Percent of consolidated operating income before corporate expenses 59% 61% 73% ====== ====== ======
Sales of Antenna and Imaging Systems decreased $2,826,000, or 7%, in fiscal 2001 compared with fiscal 2000 sales. The decrease was primarily due to lower sales of remote sensing satellite earth stations and the absence of microwave product sales during the last five months of the fiscal year due to the sale of that product line in November 2000. The decrease was partially offset by higher sales of mobile broadband communication systems. Sales of Antenna and Imaging Systems increased $672,000, or 2%, in fiscal 2000 compared with fiscal 1999 sales. The increase was due to higher sales of tracking antenna systems for military and commercial customers and higher sales of DBS antenna products, partially offset by lower sales of remote sensing satellite earth stations. Remote sensing is currently an especially difficult market with fewer contracts being awarded and increased competition for the remaining business, as several service providers have suffered launch failures and delays. The Company has responded by cutting costs at this business segment; however, softness in the remote sensing market is expected to continue for at least two more quarters, which is likely to result in reduced performance for the Company during the first half of fiscal 2002. Gross profit percentage on Antenna and Imaging Systems' sales was 25.2% in fiscal 2001 compared with 28.2% in fiscal 2000 and 29.0% in fiscal 1999. The decrease in fiscal 2001 from fiscal 2000 was primarily due to a less favorable product mix and lower unit sales prices. The decrease in fiscal 2000 from fiscal 1999 was primarily due to a less favorable product mix in the fourth quarter and lower unit sales prices for DBS products resulting from new competition. Operating income percentage on sales of Antenna and Imaging Systems' products was 9.3% in fiscal 2001 compared with 6.9% in fiscal 2000 and 8.0% in fiscal 1999. The increase in fiscal 2001 from fiscal 2000 was primarily due to the gain on sale of the microwave products line, partially offset by lower gross profits and higher administrative expenses. The decrease in fiscal 2000 from fiscal 1999 was primarily due to lower gross profits and higher new product development expenses, partially offset by lower selling expenses.
COMMUNICATION PRODUCTS Years Ended March 31, 2001 2000 1999 ------- ------- ------- Net sales $25,332 $22,131 $20,000 ======= ======= ======= Percent of consolidated net sales 41% 36% 34% ======= ======= ======= Gross profit $8,611 $7,832 $7,445 Operating expenses before corporate expenses 6,218 6,031 6,308 ------- ------- ------ Operating income $2,393 $1,801 $1,137 ======= ======= ====== Percent of consolidated operating income before corporate expenses 41% 39% 27% ======= ======= ======
Sales of Communication Products increased $3,201,000, or 14%, in fiscal 2001 compared with fiscal 2000 sales. The increase was due to higher order bookings of traditional radio products. Sales of radio products to two Asian customers accounted for $9,060,000 and $7,389,000, or collectively 65% of this segment's fiscal 2001 sales. Sales of Communication Products increased $2,131,000, or 11%, in fiscal 2000 compared with fiscal 1999 sales. The increase was due to higher order bookings in fiscal 2000, approximately half of which were received in the fourth quarter. Sales of radio products to an African customer accounted for $9,657,000, or 44% of this segment's fiscal 2000 sales. One customer will often account for a large percentage of this segment's annual sales, but it is unusual to have large sales from the same customer in successive years. International customers accounted for 96%, 89% and 93% of this segment's sales in fiscal 2001, 2000 and 1999, respectively. Orders from this international customer base are subject to economic and political instability and often are delayed. Additionally, in fiscal 2002 the Company will enter the federal PSWN market with its new GuardianTM radio. This is a new domestic market for the Company and market acceptance of the Guardian radio is uncertain. Company performance in fiscal 2002 will depend, in part, on successfully obtaining new international orders and market acceptance of the Guardian radio. Gross profit percentage on Communication Products' sales was 34.0% in fiscal 2001 compared with 35.4% in fiscal 2000 and 37.2% in fiscal 1999. The decrease in fiscal 2001 from fiscal 2000 was primarily due to a less favorable product mix. The decrease in fiscal 2000 from fiscal 1999 was primarily due to higher labor costs. Operating income percentage on sales of Communication Products was 9.4% in fiscal 2001 compared with 8.1% of sales in fiscal 2000 and 5.7% of sales in fiscal 1999. The increase in fiscal 2001 compared with fiscal 2000 was primarily due to lower selling, administrative and R&D expenses as a percentage of sales, partially offset by lower gross margins. The increase in fiscal 2000 compared with fiscal 1999 was primarily due to lower selling and administrative expenses as a percentage of sales, partially offset by lower gross margins. Consolidated expenses Selling, general and administrative ("SG&A") expenses were $12,567,000 in fiscal 2001 compared with $12,100,000 in fiscal 2000 and $12,610,000 in fiscal 1999. Fiscal 2001 SG&A expenses increased 4% from fiscal 2000 SG&A expenses primarily due to higher administrative expenses at the Antenna and Imaging Systems business segment and at the corporate office. Fiscal 2000 SG&A expenses decreased 4% from fiscal 1999 SG&A expenses primarily due to lower selling expenses at both business segments, partially offset by higher administrative expenses at the Antenna and Imaging Systems business segment and higher expenses at the corporate office. Research and development ("R&D") expenses were $3,993,000 in fiscal 2001 compared with $3,960,000 in fiscal 2000 and $3,269,000 in fiscal 1999. Fiscal 2001 R&D expenses increased slightly over fiscal 2000 expenses as higher spending on development programs for new radio products was offset by lower spending on development programs to improve mobile DBS products. Fiscal 2000 R&D expenses increased 21% over fiscal 1999 expenses primarily due to higher spending on development programs to improve mobile DBS products and to improve core tracking antenna technologies. Interest expense was $212,000 in fiscal 2001 compared with $217,000 in fiscal 2000 and $326,000 in fiscal 1999. The fiscal 2001 and 2000 interest amounts represented payments on long-term debt. There were no borrowings against the Company's revolving line of credit during those two fiscal years. The 33% decrease in interest expense in fiscal 2000 compared with fiscal 1999 was due to the absence of borrowings against the Company's revolving line of credit in fiscal 2000. See Note 5 to the Consolidated Financial Statements. Interest income in fiscal 2001 was $405,000 compared with $194,000 in fiscal 2000 and $231,000 in fiscal 1999. The 109% increase in fiscal 2001 was the result of higher average cash balances. Fiscal 2001 and 2000 interest income resulted from short term investments of excess cash. Fiscal 1999 interest income included collection of interest on a past due account and income from short term investments of excess cash. Other income in fiscal 2000 of $1,129,000 was primarily due to the payment received for licensing the manufacturing rights to the Company's DBS-2100 antenna for business jets. The effective income tax provision rates for fiscal 2001, 2000 and 1999 were 32.9%, 38.9% and 39.9%, respectively. The provision rate in fiscal 2001 was lower than the rate in fiscal 2000 primarily because of a larger R&D tax credit in fiscal 2001. The provision rate in fiscal 2000 was lower than the rate in fiscal 1999 primarily due to the ability to use the R&D tax credit in fiscal 2000.
Order backlog at March 31 2001 2000 ----------- ----------- Antenna and Imaging Systems $14,249,000 $24,293,000 Communication Products 1,784,000 1,702,000 ----------- ----------- Total $16,033,000 $25,995,000 =========== ===========
The 41% decrease in Antenna and Imaging Systems' backlog at March 31, 2001 compared with March 31, 2000 was primarily due to continued softness in the markets for antenna systems and remote sensing earth stations and to the absence of microwave product orders due to the sale of that product line in the third quarter of fiscal 2001. As mentioned above, the Company has responded by cutting costs at this business segment; however, because of the low beginning backlog and softness in the remote sensing market that is expected to continue for at least two more quarters, the Company expects reduced performance in the first half of fiscal 2002. Communication Products' backlog at March 31, 2001 was 5% higher than at March 31, 2000 due to a stronger market for traditional radio products, which resulted in an 18% increase in bookings during fiscal 2001 compared with fiscal 2000. This segment's business has historically been driven by one or two large contracts each fiscal year. As a result, financial performance from quarter-to-quarter is often uneven. Because of a relatively low order backlog at March 31, 2001 compared with recent fiscal year sales, fiscal 2002 financial performance in this segment is expected to be driven by second half results, much as has been the case the previous two fiscal years. Also, the second half may be heavily influenced by market acceptance of the new Guardian radio for the federal PSWN market. LIQUIDITY AND CAPITAL RESOURCES At March 31, 2001, working capital was $27,278,000 compared with $23,929,000 at March 31, 2000, an increase of $3,349,000 or 14%. Significant changes affecting working capital during fiscal 2001 were as follows: accounts receivable increased $6,994,000 due to strong fourth quarter sales; gain on sale of product line was $2,801,000; accounts payable and accrued expenses decreased $964,000 primarily due to lower commission accruals; and customer advances increased $521,000. The Company had cash at March 31, 2001 of $8,380,000 compared with $12,183,000 at March 31, 2000, a decrease of 31%. At March 31, 2001, the Company had no borrowings against its revolving line of credit. Capital expenditures were $1,266,000 in fiscal 2001, a 2% decrease compared with fiscal 2000 capital expenditures of $1,289,000. Capital expenditures in fiscal 2002 are expected to be higher than fiscal 2001 expenditures due to anticipated tooling requirements for new products. At March 31, 2001, the Company had a $13,000,000 revolving line of credit with its bank. The line may be used for the issuance of letters of credit and for direct working capital advances, of which $2,000,000 is restricted to working capital and letters of credit required to finance non- military international business. That portion of the line of credit expired on April 1, 2001. The remaining $11,000,000 facility expires on April 1, 2002. In May 2001, the Company entered into a $15,000,000 revolving line of credit with a new bank, replacing the line of credit described above. The line of credit may be used for the issuance of standby letters of credit up to $15,000,000 and working capital advances up to $5,000,000 provided total credit extended does not exceed $15,000,000. The line of credit expires on August 2, 2002 and is not subject to a borrowing base formula. The Company believes its existing working capital, anticipated future cash flows from operations and available credit with its bank are sufficient to finance presently planned capital and working capital requirements. The Company has never paid a cash dividend on its common stock and does not anticipate doing so in the foreseeable future. Inflation and changing prices have not had a significant impact on the Company's historical operations. Information required by Part II, Item 8: Financial Statements and Supplementary Data. This information is contained on pages 12 through 24 of the Annual Report.
DATRON SYSTEMS INCORPORATED CONSOLIDATED BALANCE SHEETS March 31, ---------------------- 2001 2000 ---------- ----------- ASSETS Current assets: Cash and cash equivalents $8,380,000 $12,183,000 Accounts receivable, net 19,652,000 12,658,000 Inventories 11,495,000 11,626,000 Deferred income taxes 2,426,000 2,603,000 Prepaid expenses and other current assets 493,000 343,000 ---------- ---------- Total current assets 42,446,000 39,413,000 Property, plant and equipment, net 9,004,000 9,427,000 Goodwill, net 5,032,000 5,237,000 Other assets 787,000 320,000 ----------- ----------- Total assets $57,269,000 $54,397,000 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $4,835,000 $2,921,000 Accrued expenses 6,754,000 9,632,000 Customer advances 1,929,000 1,408,000 Income taxes payable 1,554,000 1,433,000 Current portion of long- term debt 96,000 90,000 ---------- ---------- Total current liabilities 15,168,000 15,484,000 Long-term debt 2,984,000 3,080,000 Deferred income taxes 1,481,000 1,614,000 Deferred rent 150,000 103,000 ---------- ---------- Total liabilities 19,783,000 20,281,000 ---------- ---------- Commitments and contingencies -- Note 8 Stockholders' equity: Preferred stock -- par value $0.01; authorized 2,000,000 shares, none issued or outstanding --- --- Common stock -- par value $0.01; authorized 10,000,000 shares, 3,116,292 and 3,098,943 shares issued in 2001 and 2000, respectively 31,000 31,000 Additional paid-in capital 11,114,000 10,904,000 Retained earnings 28,417,000 25,460,000 Treasury stock, at cost; 368,005 and 387,303 shares in 2001 and 2000, respectively (2,076,000) (2,115,000) Stock option plan and stock purchase plan notes receivable --- (164,000) ---------- ---------- Total stockholders' equity 37,486,000 34,116,000 ---------- ---------- Total liabilities and and stockholders' equity $57,269,000 $54,397,000 =========== =========== See notes to consolidated financial statements
DATRON SYSTEMS INCORPORATED CONSOLIDATED STATEMENTS OF OPERATIONS Years Ended March 31, 2001 2000 1999 ----------- ----------- ----------- Net sales $62,262,000 $61,887,000 $59,084,000 Cost of sales 44,352,000 42,836,000 40,324,000 Gross profit 17,910,000 19,051,000 18,760,000 Selling, general and administrative 12,567,000 12,100,000 12,610,000 Research and development 3,993,000 3,960,000 3,269,000 Gain on sale of product line (2,801,000) --- --- --------- --------- --------- Operating income 4,151,000 2,991,000 2,881,000 Interest expense (212,000) (217,000) (326,000) Interest income 405,000 194,000 231,000 Other income 64,000 1,129,000 47,000 --------- --------- -------- Income before income taxes 4,408,000 4,097,000 2,833,000 Income taxes 1,451,000 1,593,000 1,131,000 --------- --------- --------- Net income $2,957,000 $2,504,000 $1,702,000 ========= ========= ========= Earnings per common share -- basic $1.08 $0.93 $0.63 ========= ========= ========= Weighted average number of common shares outstanding 2,735,000 2,703,000 2,688,000 ========= ========= ========= Earnings per common share -- diluted $1.06 $0.92 $0.63 ========= ========= ========= Weighted average number of common and common equivalent shares outstanding 2,792,000 2,727,000 2,688,000 ========= ========= ========= See notes to consolidated financial statements.
DATRON SYSTEMS INCORPORATED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Stock Option Plan & Stock Common Stock Additional Purchase Par Paid-In Retained Treasury Plan Notes Shares Value Capital Earnings Stock Receivable Total --------- ------- ----------- ---------- ---------- --------- ----------- Balance at April 1, 1998 2,679,284 $31,000 $10,670,000 $21,254,000 ($2,106,000) ($244,000) $29,605,000 Stock issued under employee stock purchase plan and tax benefits 14,469 --- 75,000 --- --- --- 75,000 Stock option compensation --- --- 13,000 --- --- --- 13,000 Net income --- --- --- 1,702,000 --- --- 1,702,000 --------- ------ ---------- ---------- ---------- -------- ---------- Balance at March 31, 1999 2,693,753 31,000 10,758,000 22,956,000 (2,106,000) (244,000) 31,395,000 Stock issued under employee stock purchase plan 14,411 --- 79,000 --- --- --- 79,000 Treasury stock received for note payment (5,334) --- --- --- (80,000) 80,000 --- Stock options exercised for treasury stock and tax benefits 8,810 --- 45,000 --- 71,000 --- 116,000 Stock option compensation --- --- 22,000 --- --- --- 22,000 Net income --- --- --- 2,504,000 --- --- 2,504,000 --------- ------ ---------- ---------- --------- ------- ---------- Balance at March 31, 2000 2,711,640 31,000 10,904,000 25,460,000 (2,115,000) (164,000) 34,116,000 Stock issued under employee stock purchase plan 17,349 --- 134,000 --- --- --- 134,000 Treasury stock received for note payment and stock option exercise (23,287) --- --- --- (306,000) 164,000 (142,000) Stock options exercised for treasury stock and tax benefits 42,585 --- 65,000 --- 345,000 --- 410,000 Stock option compensation --- --- 11,000 --- --- --- 11,000 Net income --- --- --- 2,957,000 --- --- 2,957,000 --------- ------- ----------- ----------- ---------- ------- ----------- Balance at March 31, 2001 2,748,287 $31,000 $11,114,000 $28,417,000 ($2,076,000) --- $37,486,000 ========= ======= =========== =========== ========== ====== =========== See notes to consolidated financial statements.
DATRON SYSTEMS INCORPORATED CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended March 31, ------------------------------------- 2001 2000 1999 ----------- ---------- ---------- Cash Flows from Operating Activities Net income $2,957,000 $2,504,000 $1,702,000 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 1,851,000 1,924,000 2,301,000 Gain on sale of product line (2,801,000) --- --- Changes in operating assets and liabilities: Accounts receivable (7,270,000) (1,691,000) 4,520,000 Inventories (419,000) 264,000 2,158,000 Deferred income taxes 44,000 257,000 342,000 Prepaid expenses and other assets (620,000) 397,000 6,000 Accounts payable and accrued expenses (1,218,000) 2,663,000 (2,787,000) Customer advances 521,000 (186,000) 629,000 Income taxes payable 121,000 1,151,000 79,000 Restructuring reserve --- --- (320,000) Deferred rent 47,000 103,000 --- Other 40,000 40,000 13,000 ---------- --------- ---------- Net cash provided by (used in) operating activities (6,747,000) 7,426,000 8,643,000 ---------- --------- ---------- Cash Flows from Investing Activities Additions to property, plant and equipment (1,266,000) (1,289,000) (1,535,000) Proceeds from sales of property, plant and equipment 17,000 387,000 77,000 Proceeds from sale of product line 3,881,000 --- --- --------- ---------- ---------- Net cash provided by (used in) investing activities 2,632,000 (902,000) (1,458,000) --------- --------- ---------- Cash Flows from Financing Activities Proceeds from long-term debt --- --- 3,300,000 Repayments of long-term debt (90,000) (84,000) (46,000) Decrease in revolving credit facility --- --- (5,600,000) Stock options exercised and tax benefits 268,000 116,000 1,000 Issuance of common stock 134,000 79,000 74,000 --------- -------- ---------- Net cash provided by (used in) financing activities 312,000 111,000 (2,271,000) --------- -------- ---------- Increase (decrease) in cash and cash equivalents (3,803,000) 6,635,000 4,914,000 Cash and cash equivalents at beginning of year 12,183,000 5,548,000 634,000 ---------- --------- --------- Cash and cash equivalents at end of year $8,380,000 $12,183,000 $5,548,000 ========== =========== ========= Supplemental Cash Flow Information Interest paid $212,000 $217,000 $327,000 Income tax paid (refunds received) $1,216,000 ($355,000) $596,000 See notes to consolidated financial statements.
DATRON SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. NATURE OF OPERATIONS Datron Systems Incorporated and its wholly owned subsidiaries (the "Company") provide products and services addressing the needs of emerging satellite and radio communication markets. The Company reports operations in two business segments: Antenna and Imaging Systems, which operates from facilities in Simi Valley, California, and Communication Products, which operates from facilities in Vista, California. The Antenna and Imaging Systems business segment designs and manufactures two primary product lines: (i) satellite tracking antenna systems used for remote sensing, TT&C (telemetry, tracking and control) and satellite communication purposes by government and commercial users, and (ii) mobile broadband communication systems for airlines, military transports, and mobile land and marine direct broadcast satellite ("DBS") TV users. The Communication Products business segment designs, manufactures and distributes voice and data communication radios and accessories for worldwide military and commercial purposes. The Company's products are sold worldwide through a network of Company salespersons and independent dealers and sales representatives. NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The consolidated financial statements include the accounts of the Company. All significant intercompany accounts and transactions have been eliminated in consolidation. Certain reclassifications have been made to prior year amounts to conform to the presentation for fiscal 2001. Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and contingent assets and liabilities at the date of the financial statements. These estimates and assumptions also affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash Equivalents Cash equivalents consist of highly liquid investments purchased with maturities of three months or less and which are readily convertible into cash. Inventories Inventories are carried at the lower of cost (first-in, first-out) or market (determined on the basis of estimated realizable value). Property, Plant and Equipment Property, plant and equipment are carried at cost. Depreciation is provided using the straight-line method over the estimated useful lives of the assets. Useful lives range from two to ten years for machinery and equipment and furniture and fixtures, and from seven to forty years for buildings and building improvements. Leasehold improvements are amortized over the related lease term. Goodwill Goodwill represents the excess of the cost of purchased businesses over the fair value of their net assets at date of acquisition and is being amortized on a straight-line basis over 38 years. Accumulated amortization of goodwill was $2,669,000 at March 31, 2001 and $2,464,000 at March 31, 2000. Treasury Stock Repurchased shares of the Company's common stock are included in treasury stock at cost. Shares issued from treasury stock for exercise of stock options are issued at cost on a first-in, first-out basis. Revenue Recognition Revenue from product sales is recognized at the time of shipment, except in the case of certain fixed-price contracts requiring substantial performance over several periods prior to commencement of deliveries, which are accounted for under the percentage-of-completion (cost-to- cost) method of accounting. Expected profits or losses on these contracts are based on the Company's estimates of total sales value and cost at completion. These estimates are reviewed and revised periodically throughout the lives of the contracts, and adjustments resulting from such revisions are recorded in the periods in which revisions are made. Losses on contracts are recorded in full as they are identified. Accounts receivable include unbilled costs and accrued profits related to contracts accounted for under the percentage-of-completion method of accounting. There are no material amounts of contract holdbacks or claims subject to uncertainty of realization. Substantially all amounts are expected to be collected within one year. Funds received from customers in advance of contract work are classified as current liabilities. Foreign Sales All foreign sales are denominated in U.S. Dollars. Income Taxes The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes." This statement requires that deferred income taxes be reported in the Company's financial statements utilizing the asset and liability method. Under this method, deferred income taxes are determined based on enacted tax rates applied to the differences between the financial statement and tax bases of assets and liabilities. Earnings Per Share Basic earnings per share ("EPS") is calculated based on the weighted average number of shares outstanding during the year. Diluted EPS is calculated based on the weighted average number of shares outstanding during the year plus equivalent shares issuable under the Company's stock option plans when such amounts are dilutive. Options to purchase 82,000 shares of common stock at prices ranging from $12.75 - - $15.73 were not included in the computation of diluted EPS at March 31, 2001 because the effect of such options would be anti-dilutive. Such options expire at various dates from November 10, 2005 to January 30, 2011. At March 31, 2000 and 1999, options to purchase 87,000 shares and 311,000 shares, respectively, of common stock at exercise prices ranging from $12.75 - $15.73 and $6.50 - $15.73, respectively, were not included in the computation of diluted EPS because the effect of such options would be anti- dilutive. Stock-Based Compensation As permitted by SFAS No. 123, "Accounting for Stock-Based Compensation," the Company accounts for costs of stock-based compensation in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and, accordingly, discloses the pro forma effect on net income (loss) and related per share amounts using the fair value-based method to account for its stock-based compensation (see Note 7). Recent Accounting Pronouncements In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement requires all derivatives to be recorded on the balance sheet at fair value and established accounting standards for hedging activities. In June 1999, the FASB issued SFAS No. 137, which amended SFAS No. 133 by deferring its effective date one year to fiscal years beginning after June 15, 2000. In June 2000, the FASB issued SFAS No. 138, which amended certain accounting and reporting standards of SFAS No. 133. The Company adopted SFAS No. 133 as of April 1, 2001. The adoption of SFAS 133 did not have a material affect on the Company's financial position, results of operations or cash flows. NOTE 3. GAIN ON SALE OF PRODUCT LINE In November 2000, the Company sold its microwave products line, part of the Antenna and Imaging Systems business segment, to Nurad Technologies, Inc. for $3,881,000 cash. A gain on the sale of $2,801,000 was recorded in the third quarter of fiscal 2001. NOTE 4. BALANCE SHEET INFORMATION
Accounts receivable at March 31: 2001 2000 ----------- ---------- Billed $15,484,000 $9,108,000 Unbilled 4,285,000 3,659,000 ----------- ---------- Subtotal $19,769,000 12,767,000 Allowance for doubtful accounts (117,000) (109,000) ----------- ---------- Total $19,652,000 $12,658,000 =========== ========== Inventories at March 31: 2001 2000 ---------- ---------- Raw materials $7,714,000 $7,587,000 Work-in-process 2,395,000 2,233,000 Finished goods 1,386,000 1,806,000 ----------- ----------- Total $11,495,000 $11,626,000 ========== ==========
Inventories are presented net of allowances for obsolescence of $1,665,000 and $1,527,000 at March 31, 2001 and 2000, respectively.
Property, plant and equipment at March 31: 2001 2000 ---------- ---------- Land and buildings $9,052,000 $8,901,000 Machinery and equipment 15,400,000 15,298,000 Furniture and office equipment 1,552,000 1,548,000 Leasehold improvements 751,000 726,000 Construction-in-process 57,000 --- ---------- ---------- Subtotal 26,812,000 26,473,000 Accumulated depreciation and amortization (17,808,000) (17,046,000) ---------- ---------- Total $9,004,000 $9,427,000 ========== ========== Accrued expenses at March 31: 2001 2000 ---------- ---------- Salaries and employee benefits $2,825,000 $2,911,000 Commission and service fees 2,103,000 4,540,000 Warranty allowance 1,079,000 1,085,000 Royalties 190,000 257,000 Other 557,000 839,000 ---------- ---------- Total $6,754,000 $9,632,000 ========== ==========
NOTE 5. LONG-TERM DEBT At March 31, 2001, the Company had a committed $13,000,000 revolving line of credit with its bank. The line may be used for the issuance of letters of credit and for direct working capital advances, of which $2,000,000 is restricted to working capital and letters of credit required to finance non-military international business. That portion of the line of credit expired on April 1, 2001 and was subject to a borrowing base formula. The remaining $11,000,000 credit facility expires on April 1, 2002. Interest is payable on borrowings under the line of credit at the bank's prime rate plus 0.50%. At March 31, 2001, the bank's prime rate was 8.0%. The line of credit is secured by assets of the Company and contains certain financial covenants with which the Company is in compliance. At March 31, 2001, there were no borrowings under the line and the bank had issued letters of credit against the line totaling $3,871,000. In May 2001, the Company entered into a $15,000,000 revolving line of credit with a new bank, replacing the line of credit described above. The line may be used for the issuance of standby letters of credit up to $15,000,000 and working capital advances up to $5,000,000 provided total credit extended does not exceed $15,000,000. The line of credit expires August 2, 2002 and is not subject to a borrowing base formula. Interest is payable on borrowings under the line of credit at the bank's prime rate, which at March 31, 2001 was 8.0%. The line of credit is secured by assets of the Company and contains certain financial covenants with which the Company is in compliance. On August 7, 1998, the Company issued a promissory note to a life insurance company in the amount of $3,300,000 pursuant to a loan agreement under which the Company borrowed the same amount. The note is secured by a deed of trust on the Company's Simi Valley facility and has a maturity date of September 1, 2008. Monthly payments are calculated on a 20- year amortization. Interest is payable at a rate of 6.76% per annum through September 1, 2003, at which date the interest rate becomes variable and tied to LIBOR, adjusting every quarter for the remainder of the term. On September 1, 2003, the Company may either prepay the note without penalty or accept the variable rate provisions as determined at that time. At March 31, long-term debt was as follows:
2001 2000 6.76% note payable due September 1, 2008 $3,080,000 $3,170,000 Less current portion (96,000) (90,000) ---------- ---------- Long-term debt $2,984,000 $3,080,000
Aggregate principal payments for each of the years ending March 31 are as follows:
Year Principal Payments 2002 $96,000 2003 103,000 2004 110,000 2005 118,000 2006 126,000 Thereafter 2,527,000 Total $3,080,000
The Company believes the carrying amount of its outstanding long-term debt at March 31, 2001 and 2000 is a reasonable estimate of its fair value. This was determined based on a review of borrowing rates available to the Company at March 31, 2001 and 2000 for loans with similar terms and maturities. NOTE 6. INCOME TAXES
The Company's deferred income tax assets and liabilities at March 31 are as follows: 2001 2000 Deferred income tax assets: Contract loss and other allowances $1,590,000 $1,801,000 Accrued employee benefits 467,000 503,000 Amortization of intangibles 179,000 200,000 Deferred rent 65,000 --- Other 125,000 99,000 Total 2,426,000 2,603,000 Deferred income tax liabilities: Depreciation (1,356,000) (1,479,000) State taxes (125,000) (135,000) Total (1,481,000) (1,614,000) Net deferred income tax asset $ 945,000 $ 989,000
As of March 31, 2001, the Company had no federal or California net operating loss carryforwards or credit carryforwards. The provision for income taxes for the years ended March 31 is as follows:
2001 2000 1999 Federal: Current $1,238,000 $1,233,000 $746,000 Deferred 12,000 50,000 139,000 State: Current 169,000 103,000 43,000 Deferred 32,000 207,000 203,000 Total $1,451,00 $1,593,000 $1,131,000
The provision for income taxes differs from the federal statutory tax rate for the years ended March 31 due to the following:
2001 2000 1999 Expected tax at statutory rate $1,499,000 $1,393,000 $963,000 State tax, net of federal effect 133,000 205,000 163,000 Research & Development credit (160,000) (36,000) --- Foreign Sales Corporation earnings (141,000) (132,000) (104,000) Goodwill amortization 70,000 70,000 70,000 Other differences 50,000 93,000 39,000 Total $1,451,000 $1,593,000 $1,131,000
NOTE 7. EMPLOYEE INCENTIVE PLANS In May 1985, the Company adopted the 1985 Stock Option Plan (1985 Plan). Under the 1985 Plan, as amended, 500,000 shares of common stock may be issued upon the exercise of options granted to employees of the Company at not less than the fair market value on the date of grant and to directors of the Company at not less than 85% of the fair market value on the date of grant. Options become exercisable ratably over three years and expire ten years from the date of grant. The 1985 Plan expired in May 1995. During the fiscal year ended March 31, 2000, a promissory note in the amount of $80,000 that had been issued in connection with the exercise of an option granted pursuant to the 1985 Plan was paid in full by the maker. In February 1995, the Company adopted the 1995 Stock Option Plan (1995 Plan), authorizing the issuance of 206,700 option shares of which 61,073 were available under the 1985 Plan at the time of its expiration. In August 1999, the 1995 Plan was amended to increase by 200,000 the number of shares available for grant and to require all options be granted at fair market value. Other terms of issuance and exercise of options granted under the 1995 Plan are similar to those under the 1985 Plan. The Company has adopted the disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based Compensation." Had compensation expense for the Company's two fixed stock option plans (the 1985 Plan and 1995 Plan) been determined consistent with the provisions of SFAS No. 123 based on the fair value at date of grant for awards made subsequent to March 31, 1995, and assumed forfeiture rates of 19%, 17% and 21%, respectively, net income and earnings per share would have been reduced to the pro forma amounts indicated below:
2001 2000 1999 Net income As reported $2,957,000 $2,504,000 $1,702,000 Pro forma $2,315,000 $2,071,000 $1,460,000 Earnings per common share--basic As reported $1.08 $0.93 $0.63 Pro forma $0.85 $0.77 $0.54 Earnings per common share--diluted As reported $1.06 $0.92 $0.63 Pro forma $0.83 $0.76 $0.54
The weighted-average fair value of options granted under the two stock option plans with exercise prices equal to market price during fiscal years 2001, 2000 and 1999 is estimated at $7.24, $7.04 and $2.87, respectively, and the weighted- average exercise prices for those options was $12.15, $12.32 and $6.54, respectively. The weighted-average fair value of options granted under the two stock option plans with exercise prices at less than market price during fiscal years 2001, 2000 and 1999 is estimated at zero, $3.58 and zero, respectively, and the weighted-average exercise prices for those options was zero, $5.10 and zero, respectively. These estimates were determined by using the Black-Scholes option-pricing model with the following weighted-average assumptions for grants awarded in fiscal years 2001, 2000 and 1999, respectively: dividend yield of 0%, 0% and 0%; expected volatility of 64%, 59% and 41%; risk-free rate of return of 6.13%, 6.15% and 5.31%; and expected lives of 5 years, 5 years and 5 years. A change in these assumptions could result in a significant change to the indicated fair value amounts. A summary of the status of the Company's two fixed stock option plans as of March 31, 2001, 2000 and 1999 and activity during the years then ended is as follows:
2001 2000 1999 ------------------ ---------------- ---------------- Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price Outstanding at beginning of year 379,690 $ 9.41 311,130 $ 9.32 319,960 $ 9.96 Granted 134,000 $12.15 124,500 $10.00 53,000 $6.54 Canceled (33,725) $10.63 (47,130) $10.24 (61,830) $10.22 Exercised (42,585) $ 8.00 (8,810) $10.14 --- --- Outstanding at end of year 437,380 $10.08 379,690 $9.41 311,130 $9.32 Options exercisable year 228,880 $ 9.60 186,190 $9.61 173,667 $10.35
Stock option compensation expense related to options granted at less than fair value on date of grant pursuant to the 1995 Plan was $11,000, $22,000 and $13,000 in fiscal years 2001, 2000 and 1999, respectively. Information about fixed stock options outstanding at March 31, 2001 is as follows:
Options Outstanding Options Exercisable ----------------------------------------------- ------------------------------ Weighted-Ave Ave. Range of Number Remaining Weighted-Ave. Number Weighted-Ave Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price > $5.10 - $7.23 87,210 7.7 years $ 6.03 43,210 $ 6.23 $8.13 - $9.50 111,170 5.7 years $ 8.71 111,170 $ 8.71 $10.00 - $12.75 159,500 8.2 years $11.31 40,500 $11.51 $13.50 - $15.73 79,500 8.2 years $13.99 34,000 $14.48 $5.10 - $15.73 437,380 7.5 years $10.08 228,880 $ 9.60
At March 31, 2001, 65,455 shares were available for grant under the 1995 Plan. In March 1988, the Company adopted the 1988 Key Employee Stock Purchase Plan (Purchase Plan). Under terms of the Purchase Plan, 75,000 shares of common stock may be made available for purchase at fair market value to key employees as determined by the board of directors. During the fiscal year ended March 31, 2001, a promissory note in the amount of $164,000 that had been issued pursuant to the Purchase Plan was paid in full by the maker. The Company has a non-contributory qualified profit sharing plan. Employees are eligible to participate on April 1 following their date of employment and benefits vest over seven years. Annual contributions are determined by the board of directors. Such amounts were $171,000, $195,000 and $151,000 for the fiscal years ended March 31, 2001, 2000 and 1999, respectively. In November 1995, the Company adopted the Supplemental Executive Profit Sharing Plan, effective as of April 1, 1994. The plan is a deferred compensation plan intended to provide certain executive employees with additional funds for their retirement. Terms of participation and vesting of benefits are similar to those of the qualified profit sharing plan. Eligibility for participation and annual contributions are determined by the board of directors. Contributions for the fiscal years ended March 31, 2001, 2000 and 1999 were $5,000, $9,000 and $14,000, respectively. In August 1997, the Company adopted the Employee Stock Purchase Plan, effective as of July 1, 1997. Employees are eligible to participate in the plan if they have been employed a minimum of five months and work at least 20 hours per week. Eligible employees may use funds from accumulated payroll deductions to purchase shares of Company common stock at the end of six-month offering periods. They may contribute up to 10% of gross earnings toward such purchases, not to exceed $12,500 per offering period, and may purchase a maximum of 1,000 shares per offering period. The purchase price for the shares is 85% of the lesser of the fair market value of the common stock at the beginning of the offering period or at the end of the offering period. Shares purchased must be held for a minimum of three months before they can be sold. A total of 200,000 shares has been authorized for issuance under the Employee Stock Purchase Plan. Common stock issued under the Employee Stock Purchase Plan is summarized as follows:
2000 1999 1998 ------------------- -------------------- ----------------- Offering Shares Purchase Shares Purchase Shares Purchase Period Ended Issued Price Issued Price Issued Price June 30 7,938 $7.12 7,713 $4.68 6,648 $5.74 December 31 9,411 $8.23 6,698 $6.22 7,821 $4.62 Total 17,349 14,411 14,469
NOTE 8. COMMITMENTS AND CONTINGENCIES The Company leases certain production and office facilities and certain equipment under noncancelable operating leases. In March 1998, the Company signed a ten-year lease for a production and office facility located in Vista, California. That lease commenced March 26, 1999. Future minimum operating lease obligations for each of the years ending March 31 are as follows:
Total Lease Year Obligation 2002 $ 657,000 2003 648,000 2004 625,000 2005 585,000 2006 599,000 Thereafter 1,949,000 Total $5,063,000
Total rent expense under noncancelable operating leases was $772,000, $793,000 and $624,000 for the fiscal years ended March 31, 2001, 2000 and 1999, respectively. Additional rent payments in the amount of $175,000 were charged to a restructuring reserve during the fiscal year ended March 31, 1999. In the normal course of business, the Company is subject to claims and litigation that may be raised by governmental agencies in connection with U.S. government contracts, U.S. government export control regulations and other regulatory issues, and civil claims by private parties. In connection with a Defense Contract Audit Agency (DCAA) audit of a $9.6 million U.S. Navy contract completed in 1989, DCAA has submitted a report to the Contracting Officer alleging deficiencies in the information provided to the Navy at the time the contract was negotiated and recommending a reduction in the contract value. During the second fiscal quarter ended September 30, 2000, the Company reached a settlement with the Contracting Officer and refunded a portion of the contract value plus accrued interest using amounts previously reserved. Resolution of this matter did not have a material effect on the consolidated financial position of the Company or its results of operations. In August 1992, Trans World Communications, Inc. (Trans World), a wholly owned subsidiary of the Company and which was renamed Datron World Communications Inc. on March 31, 1995, was named as defendant in a lawsuit filed by ATACS Corporation (ATACS) and AIRTACS Corporation (AIRTACS) relating to a contract to provide radio communication shelters. ATACS and AIRTACS contend that Trans World entered into an agreement to team with them on the contract and then wrongfully failed to use them as subcontractors. They seek damages in excess of $2,000,000. In rulings on May 28, 1997 and September 3, 1997, the court found Trans World in breach of a teaming agreement and awarded ATACS and AIRTACS one dollar ($1.00) in damages. On September 8, 1998, the appeal court affirmed the district court's decision except as to the award of nominal damages, and remanded the matter to the district court for further hearing on damages. On June 14, 2000, the district court issued an order awarding ATACS and AIRTACS damages of $30,075 including prejudgment interest. On July 12, 2000, ATACS and AIRTACS appealed the district court's judgment to the U.S. Court of Appeals. The Company believes that final resolution of this matter will not materially affect the consolidated financial position of the Company or its results of operations. In December 2000, Datron World Communications Inc. (DWC), a wholly owned subsidiary of the Company, was named as defendant in a lawsuit filed by Jose Maria Santos Ramos, an individual, and Tecserve (Private) Limited trading as Vista Communications (Plaintiffs). In the lawsuit, Plaintiffs allege that DWC breached a representative agreement and that Plaintiffs are entitled to payment of a commission in the amount of $3,750,000 based on the alleged agreement. DWC denies that it breached the agreement and/or that it owes any commissions to Plaintiffs. The Company believes that final resolution of this matter will not materially affect the consolidated financial position of the Company or its results of operations. NOTE 9. SEGMENT AND GEOGRAPHIC INFORMATION The Company operates in two business segments: Antenna and Imaging Systems, and Communication Products. See Note 1. Management evaluates performance and allocates resources by focusing on operating income as the principal measurement of segment performance. Operating income is before net interest expense, other income (expense) and income taxes. Accounting policies of the two segments are the same as those described in Note 2, Summary of Significant Accounting Policies. The following table contains certain segment, geographic and customer information about the Company. There were no intersegment sales during the periods presented. All assets of the Company are located in the United States.
2001 2000 1999 Net sales: Antenna and Imaging Systems $36,930,000 $39,756,000 $39,084,000 Communication Products 25,332,000 22,131,000 20,000,000 Consolidated net sales $62,262,000 $61,887,000 $59,084,000 Operating income: Antenna and Imaging Systems $3,444,000 $2,763,000 $3,133,000 Communication Products 2,393,000 1,801,000 1,137,000 General corporate expenses (1,686,000) (1,573,000) (1,389,000) Consolidated operating income 4,151,000 2,991,000 2,881,000 Interest income (expense), net 193,000 (23,000) (95,000) Other income 64,000 1,129,000 47,000 Income before income taxes $4,408,000 $4,097,000 $2,833,000 Identifiable assets: Antenna and Imaging Systems $19,736,000 $18,848,000 $19,146,000 Communication Products 24,656,000 19,068,000 18,579,000 Corporate 12,877,000 16,481,000 10,442,000 Consolidated total $57,269,000 $54,397,000 $48,167,000 Capital expenditures: Antenna and Imaging Systems $777,000 $ 788,000 $ 404,000 Communication Products 483,000 486,000 1,046,000 Corporate 6,000 15,000 85,000 Consolidated total $1,266,000 $1,289,000 $1,535,000 Depreciation and amortization: Antenna and Imaging Systems $ 768,000 $ 836,000 $1,226,000 Communication Products 1,061,000 1,069,000 1,060,000 Corporate 22,000 19,000 15,000 Consolidated total $1,851,000 $1,924,000 $2,301,000 Net sales by customer location: Asia $22,921,000 $10,867,000 $ 9,009,000 Europe 6,409,000 9,132,000 11,841,000 Africa 3,603,000 12,287,000 6,620,000 South America 2,493,000 1,100,000 4,405,000 Other 421,000 452,000 488,000 Subtotal foreign net sales 35,847,000 33,838,000 32,363,000 U.S. 26,415,000 28,049,000 26,721,000 Consolidated net sales $62,262,000 $61,887,000 $59,084,000 Sales for U.S. Department of Defense: Antenna and Imaging Systems $8,875,000 $12,670,000 $11,105,000 Communication Products 113,000 670,000 713,000 Consolidated total $8,988,000 $13,340,000 $11,818,000
For the fiscal year ended March 31, 2001, two customers accounted for 36% and 29% of Communication Products' net sales. For the fiscal year ended March 31, 2000, two customers accounted for 13% and 11% of Antenna and Imaging Systems' net sales and two customers accounted for 44% and 11% of Communication Products' net sales. For the fiscal year ended March 31, 1999, two customers accounted for 14% and 13% of Antenna and Imaging Systems' net sales and one customer accounted for 20% of Communication Products' net sales. NOTE 10. QUARTERLY FINANCIAL DATA - Unaudited (in thousands, except per-share data)
Fiscal Year 2001 Net Gross Net Earnings (Loss) Per Sales Profit Income(Loss) Share - Diluted First Quarter $13,354 $ 3,408 ($327) ($0.12) Second Quarter 14,616 4,722 373 0.13 Third Quarter 13,070 3,401 1,369 0.49 Fourth Quarter 21,222 6,379 1,542 0.55 Fiscal Year $62,262 $17,910 $2,957 $1.06
First quarter results reflect a net loss due to low sales of Communication Products. Sales of Communication Products were higher in the second and third quarters due to an $8 million radio order booked in the first quarter, but were partially offset by lower sales of Antenna and Imaging Systems products primarily due to lower sales of remote sensing satellite earth stations. The improvement in net income in the third quarter resulted from a $2,801,000 pre-tax gain (approximately $1,685,000, or $0.60 per diluted share after-tax) on the sale of the Company's microwave products line. Excluding the one-time gain, the Company would have recorded a net loss for the third quarter of approximately $316,000, or $0.11 per diluted share. Sales and gross profits were significantly higher in the fourth quarter primarily due to a $7 million radio order received in the third quarter, most of which was shipped in the fourth quarter. The higher Communication Product sales in the fourth quarter were partially offset by lower sales of Antenna and Imaging Systems products due to lower order bookings resulting from fewer contract awards and aggressive competition.
Fiscal Year 2000 Net Gross Net Earnings (Loss) Per Sales Profit Income(Loss) Share - Diluted First Quarter $13,523 $ 3,885 $ 52 $0.02 Second Quarter 14,130 3,718 603 0.22 Third Quarter 12,729 3,457 (291) (0.11) Fourth Quarter 21,505 7,991 2,140 0.77 Fiscal Year $61,887 $19,051 $2,504 $0.92
Results for the first three quarters reflect low gross profits primarily due to low sales of Communication Products and lower gross margins on mobile DBS antenna products. Gross profits improved significantly in the fourth quarter due to receipt and shipment of a $9 million international radio order that had experienced several delays. Net income (loss) for the first three quarters reflects the low gross profits on the low sales and a 64% increase in new product development expenses for the nine months compared with the same nine-month period in fiscal 1999. The increase in net income in the second quarter resulted primarily from the licensing of manufacturing rights to the Company's airborne DBS-2100 antenna for business jets. The increase in net income in the fourth quarter was due to increased gross profits on the much higher sales. The total of quarterly earnings (loss) per share-diluted for fiscal years 2001 and 2000 does not equal the fiscal year earnings per share-diluted because the calculation for each period is based on the weighted average number of common and common equivalent shares outstanding for each period. INDEPENDENT AUDITORS' REPORT To the Board of Directors Datron Systems Incorporated Vista, California We have audited the accompanying consolidated balance sheets of Datron Systems Incorporated and its subsidiaries as of March 31, 2001 and 2000, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended March 31, 2001. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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, such consolidated financial statements present fairly, in all material respects, the financial position of Datron Systems Incorporated and its subsidiaries as of March 31, 2001 and 2000 and the results of their operations and their cash flows for each of the three years in the period ended March 31, 2001 in conformity with accounting principles generally accepted in the United States of America. DELOITTE & TOUCHE LLP San Diego, California May 11, 2001 EX-21 9 ex8.txt EXHIBIT 21 SUBSIDIARIES DATRON SYSTEMS INCORPORATED SUBSIDIARIES MARCH 31, 2001 Percentage of Jurisdiction Voting Securities in which Owned by Parent Incorporated Datron World Communications Inc. 100% California Datron Advanced Technologies Inc. 100% California Datron Resources Inc. (a wholly owned subsidiary of Datron/Transco Inc.) 100% California Datron/Trans World Communications Int'l Ltd. (a Foreign Sales Corporation) 100% U.S. Virgin Islands EX-22 10 ex9.txt EXHIBIT 22 Exhibit 22 Proxy Statement, Notice of Annual Meeting of Stockholders to be Held Tuesday, August 14, 2001 at 11:00 a.m. and Form of Proxy (to be deemed filed only to the extent required by the instructions to exhibits for reports on Form 10-K) to be filed within 120 days of the end of the Registrant's fiscal year. EX-23 11 ex10.txt EXHIBIT 23 INDEPENDENT AUDITOR'S CONSENT INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement Numbers 2-99763, 33-16985, 33-20785 and 333-37902 of Datron Systems Incorporated on Form S-8 of our reports dated May 11, 2001 and June 8, 2001 appearing in the Annual Report on Form 10-K of Datron Systems Incorporated for the year ended March 31, 2001. DELOITTE & TOUCHE LLP San Diego, California June 13, 2001 EX-24 12 x11.txt POWER OF ATTORNEY EXHIBIT 24 POWER OF ATTORNEY (ON SIGNATURE PAGE 16) EX-99 13 espp.txt ANNUAL REPORT OF ESPP ANNUAL REPORT For the fiscal year ended March 31, 2001 DATRON SYSTEMS INCORPORATED EMPLOYEE STOCK PURCHASE PLAN (Full title of the plan) Datron Systems Incorporated 3030 Enterprise Court, Vista, California 92083-8347 (Name of issuer of the securities held pursuant to the plan and the address of its principal executive office) DATRON SYSTEMS INCORPORATED EMPLOYEE STOCK PURCHASE PLAN Index To Financial Statements Page Independent Auditors' Report F-2 Financial Statements: Statements of Assets Available for Benefits F-3 Statements of Changes in Assets Available for Benefits F-4 Notes to Financial Statements F-5 Schedules: None All schedules are omitted because they are not applicable or the required information is shown in the Financial Statements or the notes thereto. F-1 INDEPENDENT AUDITORS' REPORT Datron Systems Incorporated Employee Stock Purchase Plan We have audited the accompanying statements of assets available for benefits of Datron Systems Incorporated Employee Stock Purchase Plan (the "Plan") as of March 31, 2001 and 2000 and the related statements of changes in assets available for benefits for each of the three years in the period ended March 31, 2001. These financial statements are the responsibility of the Plan's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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, such financial statements present fairly, in all material respects, the assets available for benefits of the Plan as of March 31, 2001 and 2000, and the changes in assets available for benefits for each of the three years in the period ended March 31, 2001, in conformity with accounting principles generally accepted in the United States of America. DELOITTE & TOUCHE LLP San Diego, California June 8, 2001 F-2 DATRON SYSTEMS INCORPORATED EMPLOYEE STOCK PURCHASE PLAN
STATEMENTS OF ASSETS AVAILABLE FOR BENEFITS March 31, March 31, 2001 2000 Cash $38,897 $26,938 Participant contributions receivable 1,104 414 Assets available for benefits $40,001 $27,352
See accompanying notes to financial statements. F-3
DATRON SYSTEMS INCORPORATED EMPLOYEE STOCK PURCHASE PLAN STATEMENTS OF CHANGES IN ASSETS AVAILABLE FOR BENEFITS Years Ended March 31, 2001 2000 1999 Participant contributions $156,187 $88,600 $84,161 Benefits paid (134,006) (77,694) (74,294) Cash disbursements to employees withdrawing from the plan (9,532) (4,044) (16,909) Net increase (decrease) $12,649 $6,862 $(7,042) Assets available for benefits: Beginning of year 27,352 20,490 27,532 End of year $40,001 $27,352 $20,490
See accompanying notes to financial statements. F-4 DATRON SYSTEMS INCORPORATED EMPLOYEE STOCK PURCHASE PLAN NOTES TO FINANCIAL STATEMENTS Note 1. Plan Description In August 1997, the stockholders of Datron Systems Incorporated (the "Company") adopted, effective July 1, 1997, the Datron Systems Incorporated Employee Stock Purchase Plan (the "Plan") under Section 423 of the Internal Revenue Code. The Plan is intended to provide eligible employees with the opportunity to acquire an equity interest in the Company through the acquisition of stock purchase rights. Employees are eligible to participate in the Plan if they have been employed a minimum of five months and work at least 20 hours per week. Eligible employees may use funds from accumulated payroll deductions to purchase shares of Company common stock at the end of six-month offering periods. They may contribute up to 10% of gross earnings toward such purchases, not to exceed $12,500 per offering period, and may purchase a maximum of 1,000 shares per offering period. The purchase price for the shares is 85% of the lesser of the fair market value of the common stock at the beginning of the offering period or at the end of the offering period. Shares purchased must be held for a minimum of three months before they can be sold. A total of 200,000 shares has been authorized for issuance under the Plan. Common stock issued under the Plan is summarized as follows:
2000 1999 1998 ------------------ ------------------ ----------------- Offering Shares Purchase Shares Purchase Shares Purchase Period Ended Issued Price Issued Price Issued Price June 30 7,938 $7.12 7,713 $4.68 6,648 $5.74 December 31 9,411 $8.23 6,698 $6.22 7,821 $4.62 Total 17,349 14,411 14,469
Note 2. Summary of Significant Accounting Policies Basis of Accounting The Plan's financial statements are prepared on the accrual basis of accounting. F-5 Administrative Expenses of the Plan All expenses incurred in the administration of the Plan are paid by the Company. Contributions Contributions to the Plan are made on a weekly basis as compensation is paid to participants. Income Taxes The Plan was established under Section 423 of the Internal Revenue Code and is, therefore, exempt from income taxes. F-6 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Compensation Committee of the Datron Systems Incorporated Employee Stock Purchase Plan has duly caused this annual report to be signed by the undersigned thereunto duly authorized. DATRON SYSTEMS INCORPORATED EMPLOYEE STOCK PURCHASE PLAN By: /s/ William L. Stephan Date: June 13, 2001 William L. Stephan Datron Systems Incorporated Employee Stock Purchase Plan Compensation Committee F-7 F-7 -----END PRIVACY-ENHANCED MESSAGE-----