-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, s1oaPGbLx5cauP+S9DbXir6Z82mIaYt5nkYGKUsS+2NGHqrzqhcqWF02s72/c6r6 dB1CLu6bfG2VzInRCqNjIg== 0000057201-95-000003.txt : 199507030000057201-95-000003.hdr.sgml : 19950703 ACCESSION NUMBER: 0000057201-95-000003 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19950401 FILED AS OF DATE: 19950630 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: DIANA CORP CENTRAL INDEX KEY: 0000057201 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-GROCERIES & RELATED PRODUCTS [5140] IRS NUMBER: 362448698 STATE OF INCORPORATION: DE FISCAL YEAR END: 0403 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-05486 FILM NUMBER: 95551297 BUSINESS ADDRESS: STREET 1: 8200 W BROWN DEER ROAD CITY: MILWAUKEE STATE: WI ZIP: 53223-1706 BUSINESS PHONE: 4143550037 FORMER COMPANY: FORMER CONFORMED NAME: FH INDUSTRIES CORP DATE OF NAME CHANGE: 19850814 FORMER COMPANY: FORMER CONFORMED NAME: SCOT LAD FOODS INC DATE OF NAME CHANGE: 19841202 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended April 1, 1995 or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to Commission file Number 1-5486 THE DIANA CORPORATION (Exact name of registrant as specified in its charter) Delaware 36-2448698 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 8200 W. Brown Deer Road, Suite 200, Milwaukee, Wisconsin 53223 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (414) 355-0037 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered Common Stock, $1.00 Par Value New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: NONE 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. X Yes ___ No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.[ ] At June 15, 1995, the aggregate market value of the voting stock of the registrant held by stockholders who were not affiliates of the registrant was $17,127,000. At June 15, 1995, the registrant had issued and outstanding an aggregate of 3,914,837 shares of its Common Stock. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's definitive proxy statement to be filed within 120 days after the end of the fiscal year covered by this report are incorporated by reference into Part III hereof. PART I ITEM 1. BUSINESS (A) GENERAL DEVELOPMENT OF BUSINESS The Diana Corporation ("Diana" or the "Company"), was incorporated in 1961 under the laws of the State of Delaware. In fiscal 1995, the Company's principal businesses were the distribution of telecommunications equipment through its subsidiary, C&L Communications, Inc. ("C&L"), the wholesale distribution of meat and seafood through its subsidiary, Atlanta Provision Co., Inc. ("APC") and managing its holdings of short-term investments and marketable securities. The Company owns 100% of C&L and 81.25% of Entree Corporation ("Entree") which owns 100% of APC. (B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS The net sales and operating earnings (loss) of each industry segment and the identifiable assets attributable to each industry segment for the years ended April 1, 1995, April 2, 1994 and April 3, 1993 are set forth in Note 12 to the Consolidated Financial Statements, which is incorporated herein by reference. (C) NARRATIVE DESCRIPTION OF BUSINESS WHOLESALE DISTRIBUTION OF TELECOMMUNICATIONS EQUIPMENT C&L operates nationwide with the administrative headquarters and the distribution center located in San Antonio, Texas. C&L is a leading U.S. distributor of call controllers and products used in digital networks for integrated voice and data communication systems. A call controller is a management control product that combines simplified access to an alternative carrier network and validation/reporting of individual telephone activity. The primary digital network products distributed by C&L are channel banks. A channel bank, or multiplexor, is an electronic device which controls the flow of data across a network. C&L's customers are comprised of long distance carriers, interconnect companies, value added resellers, networking companies, systems integrators, independent telephone companies, and some large end users. The long distance carrier portion of the customer base includes virtually all significant U.S. long distance companies. No single customer accounted for more than 10% of consolidated net sales for the year ended April 1, 1995. C&L sales people have either a technical background, or knowledge of the products' technical applications to allow for added services for C&L's customers. Therefore, C&L operates as a value-added distributor, providing technical support and training to its customers for call controllers and digital network products. 1 The Company's primary product suppliers are Mitel Corporation ("Mitel"), which supplies call controllers, and Newbridge Networks, Inc. ("Newbridge"), which supplies channel banks and other networking products. For the year ended April 1, 1995, these two companies supplied approximately 85% of C&L's inventory purchases. Although C&L distributes call controllers manufactured by Teltronics, Inc. and channel banks and networking products made by other manufacturers other than Newbridge, the loss of either Mitel or Newbridge would have a negative impact on C&L's operations. C&L has no manufacturing operations. Mitel is an international manufacturer of call controllers and other sophisticated business telecommunications equipment. C&L has been an authorized distributor of Mitel call controllers since early 1985, and C&L's management believes that its relationship with Mitel is satisfactory. Newbridge is a leading international manufacturer of digital network communications systems. In 1992, Newbridge acknowledged C&L as being the largest of their authorized U.S. distributors, a distinction which it still holds at April 1, 1995. In fiscal 1995, C&L began to distribute products on a limited basis into Mexico. The products distributed into Mexico are primarily manufactured by Newbridge. C&L's competition comes from several different sources. In call controllers, the competition can be classified as (1) other Mitel distributors, (2) reconditioned call controller distributors and (3) direct sales by manufacturers of call controllers. In the digital market, the competition comes from (1) other telecommunications distributors and (2) manufacturers of digital products who sell direct. C&L competes by offering high quality products at competitive prices while providing technical assistance to its customers. C&L believes that most of its competitors do not offer C&L's level of technical assistance. WHOLESALE DISTRIBUTION OF MEAT AND SEAFOOD APC distributes primarily beef, pork, poultry, and seafood in the southeastern region of the United States. APC sells primarily to retail food outlets, meat wholesalers, food service enterprises and restaurants. It owns and operates a warehouse facility in Atlanta, Georgia from which it delivers these products to its customers. No single customer accounted for more than 10% of consolidated net sales for the year ended April 1, 1995. The products purchased for distribution are supplied by food manufacturers and processors, the two largest of which accounted for approximately 41% of total purchases. APC does not have contracts with any suppliers. Wholesale meat and seafood distribution in the geographic area in which APC operates is highly competitive. APC competes with both national and local food wholesalers and processors, many of which have greater financial resources and sales volume. Competition is based primarily on price, service and quality of product. OTHER In December 1994, Sattel Communications Company ("Satcom"), a general partnership, was formed. The general partners, Diana and Sattel Technologies, Inc. ("Sattel") each have a 50% ownership interest in the partnership. Satcom is the exclusive U.S. distributor of public telecommunications switching and transmission systems manufactured by Sattel, a privately held manufacturer of advanced telecommunications equipment for 2 the public switched telephone network ("PSTN"). Satcom, through manufacturers representatives, is pursuing national and international opportunities for the various Sattel product lines. In addition to distributing the existing Sattel product line, Satcom is developing new products, one of which is a PSTN data delivery system called DataNet. DataNet is a proprietary system which combines the reliability of the public switched telephone network with a proprietary delivery system. DataNet provides reduced dial-up data transportation costs, eliminates modems at the service provider's premises, improves security at the network level through authorization and billing by ANI, is transparent to dial-up data customers and provides all-digital transmission from the point of entry to the service provider's platform for improved error-corrected data throughput. Satcom recently completed development of DataNet. It is currently being introduced to a select group of large dial-up data users and will be introduced to the general public in the near future. (D) RESEARCH AND DEVELOPMENT The registrant had no significant research and development activities during the last three fiscal years. (E) ENVIRONMENTAL PROTECTION Compliance with federal, state and local regulations relating to environmental protection do not have a material effect upon capital expenditures, operating results or the competitive position of the Company. (F) EMPLOYEES OF REGISTRANT At April 1, 1995, Diana had 321 employees, of whom 44 were within the wholesale telecommunications equipment distribution segment, 269 were within the wholesale food distribution segment, and 8 performed corporate functions. In the wholesale food distribution segment, 201 employees are truck drivers and warehousemen, some of which are covered by a collective bargaining agreement which expires in May 1997. No work stoppage occurred in fiscal 1995. The Company believes that it generally has good relationships with all its employees. ITEM 2. PROPERTIES Diana's corporate offices are located in a leased 5,000 square foot office located in Milwaukee. The Company owns vacant parcels of land in Eldridge, Iowa. C&L leases 8,000 square feet of warehouse space and 9,000 square feet of office space in San Antonio, Texas. Substantially all of C&L's assets are pledged as collateral under its Loan and Security Agreement (see Note 3 to the Consolidated Financial Statements which is hereby incorporated by reference). APC owns a 91,000 square foot building in Atlanta, Georgia which contains its office and warehouse space. APC owns or leases trucks used in its distribution activities and various warehouse equipment used in its warehouse operations. Substantially all of APC's assets are pledged as collateral under its Loan and Security Agreement (see Note 3 to the Consolidated Financial Statements which is hereby incorporated by reference). 3 ITEM 3. LEGAL PROCEEDINGS There are no material legal proceedings. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted to a vote of security holders during the fourth quarter of fiscal 1995. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Stock is traded on the New York Stock Exchange under the symbol DNA. The table below sets forth by quarter the high and low sales prices of the Company's Common Stock on the New York Stock Exchange Composite Tape for the last two fiscal years. Fiscal Fiscal 1995 1994 Quarter High Low Quarter High Low First 13 3/4 7 First 7 4 1/2 Second 9 3/8 6 1/2 Second 7 1/8 4 Third 8 5 5/8 Third 7 3/4 5 7/8 Fourth 6 1/4 4 Fourth 15 3/8 6 3/4 At June 5, 1995, the Company had 1,835 shareholders of record. There were no cash dividends declared during the last two fiscal years. The Company has no plans to pay cash dividends in the foreseeable future. The payment of cash dividends by the Company is restricted by the Company's Subordinated Debentures which provide that the consolidated tangible net- worth of the Company cannot be reduced to less than an amount equal to the aggregate principal amount of the Subordinated Debentures, or $1,254,000. 4 ITEM 6. SELECTED FINANCIAL DATA THE DIANA CORPORATION SELECTED FINANCIAL DATA (In Thousands, Except Per Share Amounts)
April 1, April 2, April 3, March 28, March 30, 1995 1994 1993 1992 1991 (3) (2) -------- -------- -------- --------- --------- Net sales $250,386 $243,641 $222,254 $161,607 $185,245 ======= ======= ======= ======= ======= Earnings (loss) from continuing operations.... $ (720) $ 3,457 $ 1,857 $ (1,013) $ (2,519) Loss from discontinued operations............... --- --- --- --- (8,687) Extraordinary items....... --- (266) 1,318 --- 16,937 Accounting change......... --- 262 --- --- --- ------- ------- ------- ------- ------- Net earnings (loss)....... $ (720) $ 3,453 $ 3,175 $ (1,013) $ 5,731 ======= ======= ======= ======= ======= Earnings (loss) per common share: Primary Continuing operations... $ (.19) $ .93 $ .51 $ (.27) $ (.61) Discontinued operations. --- --- --- --- (2.10) Extraordinary items..... --- (.07) .36 --- 4.09 Accounting change....... --- .07 --- --- --- ------- ------- ------- ------- ------- Net earnings (loss)... $ (.19) $ .93 $ .87 $ (.27) $ 1.38 Fully diluted Continuing operations... $ (.19) $ .89 $ .51 $ (.27) $ (.61) Discontinued operations. --- --- --- --- (2.10) Extraordinary items..... --- (.07) .36 --- 4.09 Accounting change....... --- .07 --- --- --- ------- ------- ------- ------- ------- Net earnings (loss)... $ (.19) $ .89 $ .87 $ (.27) $ 1.38 Cash dividends per common share................... $ --- $ --- $ --- $ --- $ --- ======= ======= ======= ======= ======= At period end: Total assets............. $ 45,327 $ 54,043 $ 46,072 $ 40,536 $ 34,644 Long-term debt (1)....... 10,110 14,111 12,350 3,409 1,640 Working capital.......... 19,489 26,207 22,490 18,942 21,917 Shareholders' equity..... 19,729 18,852 15,492 12,326 13,959 (1) Includes current portion of long-term debt. (2) The fourth quarter of fiscal 1992 contains the results of C&L, which was acquired in December 1991. (3) Fiscal 1993 contains 53 weeks. All other years contain 52 weeks.
5 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations - Fiscal Year Ended April 1, 1995 versus April 2, 1994 The following is a summary of sales for fiscal 1995 and 1994, including sales by significant product line for APC: 1995 1994 (In Thousands) C&L $ 35,245 $ 28,308 Beef 107,055 116,557 Pork 42,700 40,770 Other 65,386 58,006 ------- ------- APC Total 215,141 215,333 ------- ------- $250,386 $243,641 ======= ======= For the fiscal year ended April 1, 1995, net sales increased $6,745,000 or 2.8% over fiscal 1994. C&L's net sales increased $6,937,000 or 24.5% over fiscal 1994. C&L's sales increase is due primarily to increased sales of call controllers (see discussion in the following paragraph) and products used in digital networks for integrated voice and data communications systems. APC's net sales decreased $192,000 or .1% over fiscal 1994 net sales. APC's overall volume (based on tonnage) during this period increased by 1.8%. The average sales price per pound decreased from $1.22 per pound in fiscal 1994 to $1.20 per pound in fiscal 1995. The decrease in average sales price per pound is attributable to sales price decreases in beef and pork because of excess product availability in these markets as well as changes in the mix of product sold. The decrease in beef sales is primarily attributable to reduced average sales price per pound and to a lesser extent decreased volume. During the second quarter of fiscal 1995 C&L completed the sale of call controllers pursuant to a purchase commitment made by a customer in fiscal 1994. This order resulted in call controller sales of $3,648,000 in fiscal 1995. Sales attributable to this order significantly impacted the increase in C&L's year-to-date call controller sales and total year-to-date sales over the prior year results. During the fourth quarter of fiscal 1995, C&L's sales were 10% below fourth quarter fiscal 1994 sales. This decrease in sales is primarily attributable to lower call controller sales. The fourth quarter of fiscal 1994 included sales under the purchase commitment referred to above. In addition, the market for call controllers has been negatively impacted by a continuing consolidation of long distance carriers and continuing growth of equal access resulting in a reduction of demand for the product. The components of other income (loss) and non-operating income are disclosed in Note 7 to the Consolidated Financial Statements. The decrease in other income (loss) is attributable to lower interest income from marketable securities and losses incurred on the disposition of marketable securities. The increase in interest rates during fiscal 1995 adversely impacted Diana's marketable securities which prior to the end of the second quarter of fiscal 1995 consisted primarily of investments in corporate debt obligations. 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations - (Cont.) Consequently, Diana's corporate office has reduced its investment in these securities resulting in reduced interest income and losses on investments that were sold. In addition, during fiscal year 1994, Diana recorded $747,000 of interest income resulting from the refund of federal income taxes of $400,000 (shown separately as an income tax credit) paid in a prior year. In fiscal 1995 gross profit increased $287,000 or 2.6% over fiscal 1994. On a consolidated basis, gross profit as a percentage of net sales was 4.5% in fiscal 1995 unchanged from fiscal 1994. C&L's gross profit percentage was 19.5% in fiscal 1995 as compared to 20.7% in fiscal 1994. The decrease in C&L's gross profit percentage is due to a lower gross profit percentage achieved on the large call controller sale discussed above and to an increasingly competitive market for products used in digital networks for integrated voice and data communications systems. APC's gross profit percentage was 2% in fiscal 1995 as compared to 2.3% in fiscal 1994. APC's fiscal 1995 gross profit and gross profit percentage decreased from fiscal 1994 primarily due to increased transportation and warehouse costs and inventory losses due to inefficiencies in APC's warehouse and transportation operations (see discussion below) partially offset by lower product costs. For the fiscal year ended April 1, 1995, selling and administrative expenses increased $1,157,000 or 12.6% over fiscal 1994. Selling and administrative expenses have increased primarily because of increased selling and advertising expenses incurred by C&L to penetrate new and existing markets. C&L incurred additional expenses to add non-domestic customers with an initial emphasis in Mexico. Selling and administrative expenses as a percentage of net sales was 4.1% in fiscal 1995 as compared to 3.8% in fiscal 1994. For the fiscal year ended April 1, 1995, interest expense decreased $93,000 or 7.8% over fiscal 1994. The decrease is primarily attributable to a reduction in short term borrowings by Diana's corporate office. Short term borrowings were eliminated during the second quarter of fiscal 1995 because of the reduction of marketable securities discussed above. As further discussed in Note 11 to the Consolidated Financial Statements, the decrease in minority interest is attributable to the Company's acquisition of the remaining 20% of C&L's common stock from its minority shareholders. In fiscal 1995, APC continued to incur inefficiencies in its warehouse and transportation operations which began in fiscal 1994. APC incurred increased warehouse and transportation payroll expenses and inventory losses resulting from a continuation of the operating inefficiencies. Consequently, APC made management changes and implemented new procedures in an attempt to improve its warehouse and transportation operations. Furthermore, during the latter part of fiscal 1995's third quarter, APC obtained a significant, new customer. APC services the Southeastern region of this national warehouse club. This new customer will generate a significant amount of volume at margins that are lower than APC's average historical margins. Initially, the addition of this new business increased the operational inefficiencies discussed above which management believes is the primary reason for the loss of $749,000 incurred in the fourth quarter of fiscal 1995. After the 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations - (Cont.) resolution of these operational inefficiencies, APC should be able to service this customer at a lower average cost than its other customers because of efficiencies that should result from shipping large volumes of product. Due to the addition of this new customer and the limits on APC's ability to efficiently service certain customers, APC is reviewing and evaluating the service requirements and profitability of these customers to identify less profitable business that can be discontinued. Results of Operations - Fiscal Year Ended April 2, 1994 versus April 3, 1993 The following is a summary of sales for fiscal 1994 and 1993, including sales by significant product line for APC: 1994 1993 (In Thousands) C&L $ 28,308 $ 21,517 Beef 116,557 120,454 Pork 40,770 31,617 Other 58,006 48,666 ------- ------- APC Total 215,333 200,737 ------- ------- $243,641 $222,254 ======= ======= For the fiscal year ended April 2, 1994, net sales increased $21,387,000 or 9.6% over fiscal 1993. C&L's net sales increased $6,791,000 or 31.6% over fiscal 1993. C&L's sales increase is due primarily to increased sales of products used in digital networks for integrated voice and data communications systems and other digital products recently added to C&L's product line. C&L had smaller increases in call controller sales than its digital products because of reduced sales in the first and second quarter of fiscal 1994. The market for call controllers has been negatively impacted by a continuing consolidation of long distance carriers and continuing growth of equal access resulting in a reduction of demand for the product. C&L has mitigated this trend through the addition of call controller business by acquiring Hollis. APC's net sales increased $14,596,000 or 7.3% over fiscal 1993. APC's overall volume (based on tonnage) during this period increased by 5.2%. The average sales price per pound increased from $1.20 per pound in fiscal 1993 to $1.22 per pound in fiscal 1994. This increase is primarily due to a modest sales price increase in all product lines and to a lesser extent a change in the mix of the product. In fiscal 1994 gross profit increased $1,956,000 or 21.9% over fiscal 1993. On a consolidated basis, gross profit as a percentage of net sales was 4.5% in fiscal 1994 as compared to 4% in fiscal 1993. The increase in the gross profit percentage is primarily attributable to an increase of C&L's higher gross profit sales as a percentage of total sales (11.6% in fiscal 1994 compared to 9.7% in fiscal 1993). C&L's gross profit percentage was 20.7% in fiscal 1994 as compared to 20.5% in fiscal 1993. C&L's gross profit percentage increased because of increased gross profit margins on products used in digital networks for integrated voice and data communications systems. APC's gross profit percentage was 2.3% in fiscal 1994 which was unchanged from fiscal 1993. 8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations - (Cont.) For the fiscal year ended April 2, 1994, selling and administrative expenses increased $723,000 or 8.6% over fiscal 1993. The primary reasons for this increase are due to increased selling expenses by C&L to penetrate new and existing markets and increased expenses related to the acquisition of Hollis. Selling and administrative expenses as a percentage of net sales was 3.8% in fiscal 1994 which was unchanged from fiscal 1993. For the fiscal year ended April 2, 1994, interest expense increased $453,000 or 61.4% over fiscal 1993. The primary reasons for this increase are due to increased borrowings by APC under its revolving line of credit and increased margin borrowings by Diana's corporate office used to purchase marketable securities. In the first and second quarter of fiscal 1993, Diana provided APC with its working capital funds which resulted in no interest expense being recorded on a consolidated basis. The components of other income and non-operating income are disclosed in Note 7 to the Consolidated Financial Statements. Diana's corporate office generated increased investment income in fiscal 1994 as compared to fiscal 1993. A portion of the increased investment in marketable securities was funded by increased margin borrowings discussed above. In addition, in fiscal 1994 other income included interest income of $747,000 resulting from the refund of federal income taxes of $400,000 (shown separately as an income tax credit) paid in a prior year. The extraordinary items of $266,000 for fiscal 1994 are discussed in Note 10 to the Consolidated Financial Statements. APC began to incur inefficiencies in its warehouse and transportation operations in the third quarter of fiscal 1994, partially attributable to increased volume. These inefficiencies resulted primarily in increased payroll expenses which exceeded prior years and budgeted amounts in fiscal 1994. These increased expenses adversely impacted APC's fourth quarter results. As a result, APC incurred a loss of $71,000 during the fourth quarter of fiscal 1994 after reporting profitable results of operations during the first three quarters of fiscal 1994. Liquidity and Capital Resources The Company recorded cash flow from operating activities of $6,717,000 as compared to cash used by operating activities of $308,000 in fiscal 1994. Cash outflow from the loss of $720,000 in fiscal 1995 was more than offset by a net decrease in working capital items, primarily inventory and accounts payable. Inventory decreased by $3,204,000 or 20.7% from fiscal 1994 due to better management of inventory through a reduction in inventory levels and increased inventory turnover. At the end of fiscal 1994, APC increased its pork inventories in anticipation of price increases and C&L increased its inventories because of a purchase commitment from a customer. Accounts payable increased by $718,000 or 6.2% from fiscal 1994 which is primarily due to longer payment terms obtained by APC from vendors providing product that is sold to the significant new customer (previously discussed) as compared to payment terms from APC's primary existing vendors. 9 The Company's investments in marketable securities decreased $5,043,000 in fiscal 1995. This decrease is primarily attributable to losses of $1,227,000 incurred on the sales of marketable securities, the elimination of short-term borrowings incurred to purchase marketable securities on margin and the settlement payments in the Ossmann Suit. As more fully discussed in Note 10 to the Consolidated Financial Statements, in March 1994 the Ossmann Suit was settled. In fiscal 1995, pursuant to the settlement, total payments of $3,417,000 were made by the defendants in the litigation of which $2,822,000 was made by the Company. In fiscal 1995, the Company had $599,000 of capital expenditures. C&L's and APC's Loan and Security Agreements include covenants that restrict capital expenditures. In fiscal 1996, C&L's and APC's capital expenditures will be limited to an aggregate of $900,000 because of covenants in their Loan and Security Agreements that restrict capital expenditures. C&L's credit facility provides a revolving line of credit of up to $6,000,000 with interest at the prime rate plus .25% (9.25%) through December 1995. At April 1, 1995, C&L borrowed $2,562,000 and had available unused borrowing capacity of $3,011,000. APC's credit facility provides a revolving line of credit of up to $9,500,000 with interest at the prime rate plus 2% (11%) through November 1997. A $2 million letter of credit facility is included within the total credit facility. At April 1, 1995, APC borrowed $4,241,000 and had letters of credit of $1,500,000 issued on its behalf. At April 1, 1995, APC had available unused borrowing capacity of $3,009,000. In June 1995, APC and its lender entered into a waiver and amendment agreement relating to the Loan and Security Agreement in order to avoid violating certain financial covenants in fiscal 1995 and 1996. Accounting Pronouncements Effective April 2, 1994, the Company adopted the provisions of SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities". The effect as of April 2, 1994 of adopting SFAS No. 115 increased net earnings by $412,000, or $.11 per fully diluted share. Effective April 4, 1993, the Company adopted the liability method of accounting for income taxes in accordance with SFAS No. 109, "Accounting for Income Taxes". The cumulative effect as of April 4, 1993 of adopting SFAS No. 109 increased net earnings for fiscal 1994 by $262,000. Impact of Inflation Inflation has not had a significant impact on net sales or earnings (loss) before extraordinary items or accounting change for the three most recent fiscal years. 10 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA THE DIANA CORPORATION AND SUBSIDIARIES PAGE Report of Ernst & Young LLP, Independent Auditors............... 12 Consolidated Balance Sheets..................................... 13 Consolidated Statements of Operations........................... 14 Consolidated Statements of Changes in Shareholders' Equity...... 15 Consolidated Statements of Cash Flows........................... 16 Notes to Consolidated Financial Statements...................... 17 11 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS Board of Directors and Shareholders The Diana Corporation We have audited the accompanying consolidated balance sheets of The Diana Corporation and subsidiaries (the Company) as of April 1, 1995 and April 2, 1994, and the related consolidated statements of operations, changes in shareholders' equity and cash flows for each of the three years in the period ended April 1, 1995. Our audits also included the financial statement schedules listed in the Index at Item 14(a). These financial statements and schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of The Diana Corporation and subsidiaries at April 1, 1995 and April 2, 1994, and the consolidated results of its operations and its cash flows for each of the three years in the period ended April 1, 1995, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. As discussed in Note 8 to the consolidated financial statements, the Company changed its method of accounting for income taxes, effective April 4, 1993. Milwaukee, Wisconsin ERNST & YOUNG LLP June 2, 1995, except for Note 3 as to which the date is June 28, 1995 12 THE DIANA CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in Thousands)
April 1, April 2, 1995 1994 -------- -------- ASSETS (NOTE 3) Current assets Cash and cash equivalents............................ $ 2,440 $ 1,661 Restricted short-term investment..................... 300 630 Marketable securities................................ 6,211 11,254 Receivables, less allowance for doubtful accounts of $600 and $517.................. 14,785 15,310 Inventories.......................................... 12,237 15,441 Other current assets................................. 390 336 ------ ------ Total current assets............................... 36,363 44,632 Property and equipment Land................................................. 357 357 Building and improvements............................ 4,400 4,154 Fixtures and equipment............................... 3,298 3,315 ------ ------ 8,055 7,826 Less accumulated depreciation........................ (4,252) (3,945) ------ ------ 3,803 3,881 Goodwill, net.......................................... 2,846 2,710 Covenants not to compete, net.......................... 1,291 1,663 Other assets........................................... 1,024 1,157 ------ ------ $45,327 $54,043 ====== ====== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Short-term borrowings................................ $ --- $ 2,144 Accounts payable..................................... 12,355 11,637 Accrued liabilities.................................. 1,390 1,072 Current portion of long-term debt.................... 3,129 3,572 ------ ------ Total current liabilities...................... 16,874 18,425 Long-term debt......................................... 6,981 10,539 Net liabilities of unconsolidated subsidiary........... 698 3,615 Other liabilities ..................................... 1,045 977 Minority interest...................................... --- 1,635 Commitments and contingencies (Note 4)................. Shareholders' equity Preferred stock - $.01 par value. Authorized 5,000,000 shares; none issued............ --- --- Common stock - $1 par value. Authorized 15,000,000 shares; issued 4,810,353 and 4,637,530 shares....... 4,810 4,638 Additional paid-in capital........................... 48,548 46,241 Accumulated deficit.................................. (28,178) (25,449) Unrealized loss on marketable securities............. (713) (412) Treasury stock at cost............................... (4,738) (6,166) ------ ------ Total shareholders' equity..................... 19,729 18,852 ------ ------ $45,327 $54,043 ====== ======
See notes to consolidated financial statements. 13 THE DIANA CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In Thousands, Except Per Share Amounts)
Fiscal Year Ended April 1, April 2, April 3, 1995 1994 1993 -------- -------- -------- Net sales.............................. $250,386 $243,641 $222,254 Other income (loss).................... (417) 2,697 1,471 ------- ------- ------- 249,969 246,338 223,725 Cost of sales.......................... 239,198 232,740 213,309 Selling and administrative expenses.... 10,314 9,157 8,434 ------- ------- ------- Operating earnings..................... 457 4,441 1,982 Interest expense....................... (1,098) (1,191) (738) Non-operating income................... 34 --- 718 Income tax credit...................... --- 400 --- Equity in earnings (loss) of unconsolidated subsidiaries.......... (69) 97 69 Minority interest...................... (44) (290) (174) ------- ------- ------- Earnings (loss) before extraordinary items and accounting change.......... (720) 3,457 1,857 Extraordinary items.................... --- (266) 1,318 ------- ------- ------- Earnings (loss) before accounting change............................... (720) 3,191 3,175 Cumulative effect of accounting change. --- 262 --- ------- ------- ------- Net earnings (loss).................... $ (720) $ 3,453 $ 3,175 ======= ======= ======= Earnings (loss) per common share: Primary Before extraordinary items.......... $ (.19) $ .93 $ .51 Extraordinary items................. --- (.07) .36 Accounting change................... --- .07 --- ------- ------- ------- Net earnings (loss)................. $ (.19) $ .93 $ .87 ======= ======= ======= Fully diluted Before extraordinary items.......... $ (.19) $ .89 $ .51 Extraordinary items................. --- (.07) .36 Accounting change................... --- .07 --- ------- ------- ------- Net earnings (loss)................. $ (.19) $ .89 $ .87 ======= ======= ======= Weighted average number of common shares outstanding Primary............................. 3,832 3,727 3,629 ======= ======= ======= Fully diluted....................... 3,832 3,861 3,629 ======= ======= =======
See notes to consolidated financial statements. 14 THE DIANA CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Dollars in Thousands)
Common Stock Additional Unrealized Loss Treasury Stock Total Number of Par Paid in Accumulated on Marketable Number of Shareholders' Shares Value Capital Deficit Securities Shares Cost Equity Balance at March 28, 1992 4,637,530 $ 4,638 $ 45,786 $ (30,993) $ --- 1,339,667 $(7,105) $ 12,326 Net earnings --- --- --- 3,175 --- --- --- 3,175 Purchase of treasury stock --- --- --- --- --- 5,000 (9) (9) --------- ----- ------ -------- -------- --------- ----- ------ Balance at April 3, 1993 4,637,530 4,638 45,786 (27,818) --- 1,344,667 (7,114) 15,492 Net earnings --- --- --- 3,453 --- --- --- 3,453 5% stock dividend --- --- 214 (1,084) --- (163,889) 866 (4) Exercise of stock options --- --- (47) --- --- (15,500) 82 35 Unrealized loss on marketable securities --- --- --- --- (412) --- --- (412) Other --- --- 288 --- --- --- --- 288 --------- ----- ------ ------- ------ --------- ------ ------ Balance at April 2, 1994 4,637,530 4,638 46,241 (25,449) (412) 1,165,278 (6,166) 18,852 Net loss --- --- --- (720) --- --- --- (720) 5% stock dividend 172,823 172 1,830 (2,009) --- --- --- (7) Exercise of stock options --- --- (14) --- --- (4,500) 24 10 Change in unrealized loss on marketable securities --- --- --- --- (301) --- --- (301) Acquisition of minority interest --- --- 491 --- --- (265,262) 1,404 1,895 --------- ----- ----- ------ --- ------- ----- ------ Balance at April 1, 1995 4,810,353 $ 4,810 $ 48,548 $ (28,178) $ (713) 895,516 $ (4,738) $ 19,729 ========= ===== ====== ======= ======= ======= ====== =======
See notes to consolidated financial statements. 15 THE DIANA CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands)
Fiscal Year Ended April 1, April 2, April 3, 1995 1994 1993 -------- -------- -------- Operating activities Earnings (loss) before extraordinary items and accounting change.......... $ (720) $ 3,457 $ 1,857 Adjustments to reconcile earnings (loss) to net cash provided (used) by operating activities: Loss (gain) on sale of marketable securities.............. 1,227 (479) (285) Depreciation and amortization....... 1,154 1,098 852 Provision for losses on accounts receivable......................... 313 153 406 Non-operating income................ --- --- (625) Equity in loss (earnings) of unconsolidated subsidiaries........ 69 (97) (69) Minority interest................... 44 290 174 Payments of net liabilities of unconsolidated subsidiary.......... (95) (361) (63) Other............................... 311 (14) (320) Changes in current assets and liabilities........................ 4,414 (4,355) (2,838) ------ ------ ------ Net cash provided (used) by operating activities............................ 6,717 (308) (911) Investing activities Additions to property and equipment... (599) (555) (251) Acquisitions, net of cash acquired.... --- (1,983) (163) Purchases of marketable securities.... (5,647) (20,218) (15,982) Sales of marketable securities........ 9,276 21,031 6,895 Collection of notes receivable........ 194 252 268 Other................................. (195) --- --- ------ ------ ------ Net cash provided (used) by investing activities............................ 3,029 (1,473) (9,233) Financing activities Changes in short-term borrowings...... (2,144) (640) 2,784 Payments on long-term debt............ (4,001) (390) (330) Proceeds from long-term debt.......... --- 1,830 6,476 Payments toward bond settlements...... (2,822) (178) (1,081) Purchase of treasury stock............ --- --- (9) ------ ------ ------ Net cash provided (used) by financing activities............................ (8,967) 622 7,840 ------ ------ ------ Increase (decrease) in cash and cash equivalents........................... 779 (1,159) (2,304) Cash and cash equivalents at the beginning of the year................. 1,661 2,820 5,124 ------ ------ ------ Cash and cash equivalents at the end of the year.............................. $ 2,440 $ 1,661 $ 2,820 ====== ====== ======
See notes to consolidated financial statements. 16 THE DIANA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS APRIL 1, 1995 NOTE 1 - Summary of Significant Accounting Policies Fiscal Year The Company's fiscal year ends on the Saturday closest to March 31. There were 53 weeks in fiscal 1993 and 52 weeks in all other years presented. Basis of Presentation The consolidated group (hereafter referred to as the "Company") included the following companies during the past three years. The following describes each entity in the consolidated group and its current status: The Diana Corporation ("Diana") Diana and its wholly-owned subsidiaries are included in the consolidated group for all three fiscal years. Entree Corporation ("Entree") Entree and its wholly-owned subsidiary, Atlanta Provision Company, Inc. ("APC"), are included in the consolidated group for all three fiscal years. Diana owns 81.25% of Entree. C&L Communications, Inc. ("C&L") C&L is included in the consolidated group for all three fiscal years. Effective June 1994, Diana increased its ownership interest in C&L from 80% to 100% (see Note 11). Investments in 20%-50% owned subsidiaries in which management has the ability to exercise significant influence are accounted for using the equity method of accounting (see Note 9). Accounts and transactions between members of the consolidated group are eliminated in the consolidated financial statements. Cash Equivalents and Restricted Short-term Investments The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Short-term investments are valued at cost which approximates market. Certain short-term investments are pledged to third parties and are therefore restricted and not considered cash equivalents for purposes of financial reporting. 17 NOTE 1 - Summary of Significant Accounting Policies (Continued) Marketable Securities The Company accounts for marketable securities in accordance with Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities", as of April 2, 1994. Prior to April 2, 1994, the Company accounted for marketable securities under SFAS No. 12, "Accounting for Certain Marketable Securities". Under SFAS No. 115, management determines the appropriate classification of debt securities at the time of purchase and reevaluates such designation as of each balance sheet date. Debt securities are classified as held-to- maturity when the Company has the positive intent and ability to hold the securities to maturity. Held-to-maturity securities are stated at amortized cost, adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization is included in other income (loss). Marketable equity securities and debt securities not classified as held-to-maturity are classified as available-for-sale. Available-for-sale securities are carried at fair value, with the unrealized gains and losses reported in a separate component of shareholders' equity. The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization is included in other income (loss). Realized gains and losses, interest income and dividends are included in other income (loss). For purposes of determining the gain or loss on a sale, the cost of securities sold is determined using the average cost of all shares of each such security held at the dates of sale. Inventories Inventories, consisting of finished product, are stated at the lower of cost or market. Items are removed from inventory based on the specific identification method or the average cost method. Property and Equipment Property and equipment are stated at cost. Provisions for depreciation are computed on the straight-line method for financial reporting purposes over 3 to 10 years for equipment and 5 to 25 years for building and improvements. Goodwill Goodwill is amortized on a straight-line basis over a forty year period. Accumulated amortization was $388,000 and $309,000 at April 1, 1995 and April 2, 1994, respectively. Goodwill is reviewed for impairment whenever events or circumstances provide evidence that suggest that the carrying amount of the asset may not be recoverable. Impairment is determined by using identifiable cash flows over the remaining amortization period. 18 NOTE 1 - Summary of Significant Accounting Policies (Continued) Covenants Not to Compete Covenants not to compete are amortized on a straight-line basis over the non-compete periods of five to seven years. Accumulated amortization was $1,210,000 and $838,000 at April 1, 1995 and April 2, 1994, respectively. Revenue Recognition The Company recognizes revenue when product is shipped. Income Taxes The Company accounts for income taxes using the liability method in accordance with SFAS No. 109, "Accounting for Income Taxes", in 1995 and 1994, and the liability method in accordance with SFAS No. 96, "Accounting for Income Taxes", in 1993. Earnings (Loss) Per Common Share Primary and fully diluted per share amounts are determined by dividing earnings (loss) by the weighted average number of shares of common stock and materially dilutive common stock equivalents (stock options) outstanding. Concentrations of Credit Risk Trade accounts receivable are the only financial instruments which potentially subject the Company to significant concentrations of credit risk. APC distributes meat and seafood primarily to retail food outlets, meat wholesalers, food service enterprises and restaurants. APC performs periodic credit evaluations of its customers' financial condition and generally does not require collateral. C&L distributes telecommunications equipment nationwide primarily to long-distance carriers, systems integrators and interconnect companies. C&L performs periodic credit evaluations of its customers' financial condition and generally does not require collateral, however, C&L attempts to obtain a purchase money security interest in product sold to small to medium sized customers. At April 1, 1995, APC and C&L had no significant concentrations of credit risk. Reclassifications Certain reclassifications have been made to the 1994 and 1993 financial statements to conform with the 1995 presentation. 19 NOTE 2 - Marketable Securities Effective April 2, 1994, the Company adopted the provisions of SFAS No. 115. In accordance with SFAS No. 115, prior period financial statements have not been restated to reflect the change in accounting principle. The effect as of April 2, 1994 of adopting SFAS No. 115 increased net earnings by $412,000 or $.11 per fully diluted share. The following is a summary of available-for-sale and held-to-maturity marketable securities:
Available-for-Sale Marketable Securities April 1, 1995 ----------------------------------------- Gross Gross Estimated Unrealized Unrealized Fair Cost Gains Losses Value (In Thousands) U.S. corporate securities $ 1,156 $ 21 $ 58 $ 1,119 Other debt securities --- --- --- --- ------ --- --- ------ Total debt securities 1,156 21 58 1,119 Equity securities 1,604 --- 676 928 ------ --- --- ------ $ 2,760 $ 21 $ 734 $ 2,047 ====== === ==== ======
Held-to-Maturity Marketable Securities April 1, 1995 -------------------------------------- Gross Gross Estimated Unrealized Unrealized Fair Cost Gains Losses Value (In Thousands) U.S. treasury security $ 4,164 $--- $ --- $ 4,164 ====== === ==== ======
Available-for-Sale Marketable Securities April 2, 1994 ---------------------------------------- Gross Gross Estimated Unrealized Unrealized Fair Cost Gains Losses Value (In Thousands) U.S. corporate securities $ 8,976 $ 23 $ 375 $ 8,624 Other debt securities 2,181 --- --- 2,181 ------ --- ---- ------ Total debt securities 11,157 23 375 10,805 Equity securities 509 --- 60 449 $11,666 $ 23 $ 435 $11,254 ====== === ==== ======
20 NOTE 2 - Marketable Securities (Continued) The gross realized gains on sales of available-for-sale securities totaled $14,000, $592,000 and $313,000 in fiscal 1995, 1994 and 1993, respectively, and the gross realized losses totaled $1,241,000, $113,000 and $28,000 in fiscal 1995, 1994 and 1993, respectively. The net adjustment to unrealized losses on available-for-sale securities included as a separate component of shareholders' equity totaled $713,000 and $412,000 at April 1, 1995 and April 2, 1994, respectively. The Company considers its marketable securities to be primarily a resource for potential acquisitions. Pending such uses, the Company invests its marketable securities for the purpose of generating additional income and/or capital appreciation. The Company does not limit its potential investments of marketable securities based on level of risk or investment concentration. Expected maturities of marketable securities will differ from contractual maturities because the issuers of the securities may have the right to prepay obligations without prepayment penalties. The amortized cost and estimated fair value of marketable securities at April 1, 1995, by contractual maturity, are shown below: Available-for-Sale Securities ----------------------------- Estimated Cost Fair Value (In Thousands) Due after five years $ 1,156 $ 1,119 Equity securities 1,604 928 ------ ------ $ 2,760 $ 2,047 ====== ====== Held-to-Maturity Securities --------------------------- Estimated Cost Fair Value (In Thousands) Due in one year or less $ 4,164 $ 4,164 ====== ====== 21 NOTE 3 - Long-Term Debt Long-term debt consists of the following:
April 1, April 2, Note Company Due Date 1995 1994 (In Thousands) Debentures and interest A Diana January 2002 $ 2,240 $ 2,381 Note payable Diana --- 120 Notes payable B APC October 1996 158 306 Mortgage notes C APC August 2006 875 924 Line of credit D APC November 1997 4,241 6,622 Line of credit E C&L December 1995 2,562 3,705 Other obligations F C&L October 1996 34 53 ------ ------ 10,110 14,111 Less current portion (3,129) (3,572) ------ ------ $ 6,981 $10,539 ====== ======
A. Principal of $1,254,000 and capitalized interest of $986,000. Interest at 11.25%. The debentures are unsecured (see Note 10). B. Interest at 9.5% and 11%. The notes are collateralized by trailers and equipment. C. Interest at 7% and 8.25%. The mortgage notes are collateralized by land and building with a carrying value of $2,618,000 as of April 1, 1995. D. APC has a Loan and Security Agreement ("Agreement") with a lender (amended effective June 28, 1995) providing a revolving line of credit through November 1997 of up to $9,500,000 with interest at the prime rate plus 2% (prime was 9% at April 1, 1995). A $2 million letter of credit facility with fees of 2% is included within the total credit facility. At April 1, 1995, APC borrowed $4,241,000 and had letters of credit of $1,500,000 issued on its behalf by the lender. Management estimates that the minimum level of borrowings that will be outstanding during fiscal 1996 will be approximately $4,000,000 and has classified $241,000 of the line of credit outstanding as a current liability at April 1, 1995. 22 Note 3 - Long-Term Debt (Continued) Borrowings under the Agreement are restricted based on defined percentages of eligible accounts receivable and inventories. The amount available under the Agreement at April 1, 1995 was $3,009,000. APC pays a fee of 1/2% on the average unused line of credit. Substantially all assets of APC are pledged as collateral under the Agreement. The Agreement provides for the maintenance of certain financial ratios and restricts APC in a number of areas, including, but not limited to, declaration of dividends, mergers and acquisitions, transactions with affiliates, capital expenditures and additional indebtedness. E. C&L has a Loan and Security Agreement ("Loan Agreement") with a lender providing a revolving line of credit through December 23, 1995 of up to $6,000,000, with interest at the prime rate plus .25%. Borrowings under the Loan Agreement are restricted based on defined percentages of eligible accounts receivable and inventories. The amount available under the Loan Agreement at April 1, 1995, was $3,011,000. Substantially all assets of C&L are pledged as collateral under the Loan Agreement. The Loan Agreement provides for the maintenance of certain financial ratios and restricts C&L in a number of areas, including, but not limited to, declaration of dividends, payment of salaries to officers, mergers and acquisitions, transactions with affiliates, capital expenditures and additional indebtedness. F. Interest at 3.9%. The obligation is collateralized by equipment. Approximate annual amounts payable by Diana and its subsidiaries on long-term debt for the next five fiscal years are as follows (in thousands): 1996 .................... $ 3,129 1997 .................... 247 1998 .................... 4,192 1999 .................... 195 2000 .................... 200 23 NOTE 4 - Commitments and Contingencies Diana subleases its corporate office space under a noncancelable operating lease. APC leases tractors and trailers used in its distribution activities under operating leases with terms ranging from five to eight years. APC also leases various equipment used in its warehouse operations under operating leases with terms generally not exceeding one year. C&L leases its building and certain vehicles and equipment under operating leases. Total rental expense (including contingent rentals based on miles driven) under operating leases in fiscal 1995, 1994 and 1993 was $1,870,000, $1,929,000 and $1,907,000, respectively. Future minimum payments (excluding contingent rentals) under noncancelable operating leases with initial terms of one year or more for fiscal years subsequent to April 1, 1995 are as follows (in thousands): 1996 $ 1,037 1997 693 1998 483 1999 369 2000 213 Thereafter 139 In connection with the sale of substantially all of the assets of Diana's wholesale food business, the buyer assumed certain indebtedness of Diana, which terminates in 1998, for which Diana remains primarily liable. Such indebtedness aggregated approximately $469,000 at April 1, 1995. The buyer has pledged a letter of credit for the benefit of the trustee of the indebtedness as collateral for this indebtedness. C&L participates in an equipment leasing arrangement. C&L is subject to a future subscription obligation relating to the equipment lease for approximately $495,000 at April 1, 1995, if income from the underlying lease is insufficient to fund future operations of the arrangement. The lease for equipment expires in January 1999. The sellers have indemnified the Company with respect to any future subscription obligations. In the opinion of management, all of the matters discussed above will be resolved without a material adverse impact on the Company's consolidated financial position. 24 NOTE 5 - Stock Options In fiscal 1986, the Company's Board of Directors adopted The Diana Corporation 1986 Nonqualified Stock Option Plan (the "Plan"), which permits the Company to grant nonqualified stock options to key employees and directors of the Company and its subsidiaries. The Plan is limited to 771,750 common shares. The Plan is administered by the Company's Board of Directors, which is authorized, among other things, to determine which persons receive options under the Plan, the number of shares for which an option may be granted, and the exercise price and expiration date for each option. Options granted under the Plan may not be exercised after eleven years from the date of grant, and no options may be granted after December 10, 1997. The exercise price will not be less than the fair market value of the Company's common stock on the date of grant, although the Board has discretion to set the exercise price at any amount that it may establish from time to time. Transactions for fiscal 1995, 1994 and 1993 are as follows:
1995 1994 1993 ---- ---- ---- Options outstanding at beginning of year 544,264 533,110 528,110 Changes during year: 5% stock dividend 27,212 26,654 --- Granted --- --- 5,000 Exercised (4,500) (15,500) --- ------ ------- ------- Net increase 22,712 11,154 5,000 ------ ------- ------- Options outstanding at end of year 566,976 544,264 533,110 ======= ======= ======= Options exercisable 566,976 544,264 533,110 Option price range $2.15- $2.26- $2.38- $6.12 $6.43 $6.75
NOTE 6 - Employee Benefit Plans APC contributes to a multiemployer defined benefit pension plan pursuant to the terms of a collective bargaining agreement. Amounts contributed to this plan by APC were $34,000, $39,000 and $36,000, for fiscal years 1995, 1994 and 1993, respectively. In fiscal 1995, C&L established a 401(k) plan which covers all employees. APC has a 401(k) plan which covers non-union employees. There were no contributions under these plans for any years presented. 25 NOTE 7 - Other Income (Loss) and Non-Operating Income Other income (loss) consists of the following for the last three years:
1995 1994 1993 (In Thousands) Interest income........................... $ 570 $2,132 $ 901 Net gains (losses) on sales of marketable securities (See Note 2)................. (1,227) 479 285 Other..................................... 240 86 285 ----- ----- ----- $ (417) $2,697 $1,471 ===== ===== =====
Non-operating income consists of the following for the last three years:
1995 1994 1993 (In Thousands) Gain on settlements of lawsuits $ 34 $ --- $ --- Gain from extinguishment of certain net liabilities of unconsolidated subsidiary --- --- 625 Refund of certain expenses of a subsidiary --- --- 93 ----- ----- ----- $ 34 $ --- $ 718 ===== ===== =====
NOTE 8 - Income Taxes Effective April 4, 1993, the Company adopted the liability method of accounting for income taxes in accordance with SFAS No. 109. The cumulative effect as of April 4, 1993 of adopting SFAS No. 109 increased net earnings for fiscal 1994 by $262,000. A reconciliation of the income tax provision and the amount computed by applying the statutory federal income tax rate (34%) to earnings (loss) before extraordinary items, accounting change, minority interest and income tax credit is as follows:
Fiscal Year Ended April 1, April 2, April 3, 1995 1994 1993 (In Thousands) Expense (credit) at statutory rate......... $ (230) $ 1,138 $ 691 Settlements of liabilities of unconsolidated subsidiary................ (36) (1,357) (1,773) Reversal of liabilities of unconsolidated subsidiary............................... --- (71) (212) Tax effect of net operating loss not recognized............................... 198 180 1,214 Other, net................................. 68 110 80 ------ ------ ------ Income tax provision....................... $ --- $ --- $ --- ====== ====== ====== In fiscal 1994, the Company recorded an income tax credit of $400,000 resulting from the refund of federal income taxes paid in a prior year. 26 NOTE 8 - Income Taxes (Continued) Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and income tax purposes. Components of the Company's deferred tax assets and liabilities are as follows:
April 1, April 2, 1995 1994 (In Thousands) Deferred tax assets: Federal net operating loss carryforwards $ 6,809 $ 7,274 Federal capital loss carryforward 417 --- State net operating loss carryforwards 2,247 2,175 Capitalized interest on Diana debentures 394 451 Deferred compensation 530 437 Allowance for doubtful accounts 225 197 Covenants not to compete 227 157 General business credit carryforwards 145 145 Unrealized loss on marketable securities 242 140 All other 219 227 ------- ------- Total deferred tax assets 11,455 11,203 Valuation allowance for deferred tax assets (10,279) (10,039) ------- ------- Net deferred tax assets 1,176 1,164 Deferred tax liabilities: Building and improvements basis difference 523 552 Tax over book depreciation 263 245 All other 390 367 ------- ------- Total deferred tax liabilities 1,176 1,164 ------- ------- Net deferred taxes $ --- $ --- ======= =======
The Company has approximately $20,025,000 in net operating loss carryforwards for federal income tax purposes expiring in the years 2005 to 2010. NOTE 9 - Equity in Earnings (Loss) of Unconsolidated Subsidiaries Diana owns a 50% interest in a partnership that holds promissory notes, secured by inventory and equipment, due over a five year period ending November 1995 with interest at 12%. APC has a 50% ownership interest in Fieldstone Meats of Alabama, Inc. ("Fieldstone"), a company which produces cured hams and bacon. Diana also owns a 50% interest in Sattel Communications Company, a partnership which was formed to develop and market telecommunications products. At April 1, 1995 and April 2, 1994, the carrying value of the Company's investment in these unconsolidated subsidiaries was $557,000 and $604,000, respectively, and is included within other assets. 27 NOTE 9 - Equity in Earnings (Loss) of Unconsolidated Subsidiaries (Continued) The Company's equity in the earnings (loss) of unconsolidated subsidiaries for the last three fiscal years are as follows:
1995 1994 1993 (In Thousands) Partnership $ 28 $ 49 $ 63 Fieldstone (35) 48 6 Sattel Communications (62) --- --- ---- ---- ---- $ (69) $ 97 $ 69 ==== ==== ====
NOTE 10 - Extraordinary Items Carl and Dorothy Ossmann, Mary Leach, Wilmer and Florence Tiede, and Rosemary and Ray Ward V. The Diana Corporation, Donald E. Runge and Richard Y. Fisher (the "Ossmann Suit"), and First Trust National Association and Norwest Bank Minnesota V. Farm House Foods Corporation and The Diana Corporation (the "First Trust Suit"). In March 1994, the remaining parties to the Ossmann Suit and the First Trust Suit entered into an Amended Memorandum of Understanding (the "Settlement") providing for settlement of the matter. In fiscal 1995, the defendants made total payments of $3,237,000 to the trustees pursuant to the Settlement as full and complete payment of all amounts due, including principal and accrued interest with a carrying value of $3,391,000 and trustee fees and costs. In addition, a payment of $180,000 was made to the attorneys of the class pursuant to the Settlement. The Company accounted for the Settlement in accordance with SFAS No. 76, "Extinguishment of Debt" and recorded an extraordinary loss, including the direct costs of settlement, of $266,000 in fiscal 1994. In fiscal 1993, the Company recorded an aggregate extraordinary gain of $1,318,000 as a result of a settlement in May 1992 in the Ossmann Suit and a cash offer completed in January 1993. The May 1992 settlement, among other things, provided for Diana to issue debentures (see Note 3) to holders of Farm House Foods Corporation ("Farm House") bonds who participated in the settlement in May 1992 and who properly filed a proof of claim. Diana debentures with principal and interest totaling $2,661,000 were issued to settle $3,190,000 of Farm House bonds and $660,000 of accrued interest. The Company accounted for the May 1992 settlement in accordance with SFAS No. 15. In January 1993, the Company completed an offer to purchase Farm House bonds for cash from certain bondholders that declined to participate in the May 1992 settlement. The Company purchased $1,300,000 of Farm House bonds (principal and accrued interest) for a cash payment of $526,000. The Company accounted for the cash offer in accordance with SFAS No. 76. The amounts included in extraordinary items are not net of taxes due to the existence of net operating loss carryforwards (see Note 8). 28 NOTE 11 - Related Party Transactions Certain of the Company's non-employee directors provide services to the Company and/or its subsidiaries for which they are compensated. Amounts accrued or paid to all directors for these services during fiscal 1995, 1994 and 1993 are $367,000, $329,000 and $278,000, respectively. Included in other assets is a receivable of $358,000 from the sellers of C&L. Pursuant to the Stock Purchase Agreement executed in connection with the acquisition of C&L, the sellers are to reimburse the Company for any of the Company's net operating losses used to offset taxable income generated by certain investments owned by C&L. As of April 1, 1995, the receivable represents 34% of the initial excess of the financial reporting basis over the income tax basis of such investments, less amounts collected for use of net operating losses in fiscal 1993 through 1995. The sellers are currently employed as officers by C&L. C&L leases its building and certain vehicles from certain officers of C&L. Total rent expense on such leases was $144,000, $141,000 and $158,000 for the years ended April 1, 1995, April 2, 1994 and April 3, 1993, respectively. Effective June 1994, the Company acquired the remaining 20% of C&L's common stock from its minority shareholders in exchange for 265,262 shares (adjusted for the 5% stock dividend paid in July 1994) of the Company's common stock. The pro forma results of operations assuming that this transaction had occurred on April 4, 1993 are as follows:
Fiscal Years Ended April 1, April 2, 1995 1994 (In Thousands, Except Per Share Amounts) Earnings (loss) before extraordinary items and accounting change $ (676) $3,747 ===== ===== Fully diluted earnings (loss) per share before extraordinary items and accounting change $ (.17) $ .91 ===== =====
This pro forma information does not purport to be indicative of the results that actually would have been obtained if the combined operations had been conducted during the periods presented and is not intended to be a projection of future results. 29 NOTE 12 - Business Segment Information The Company's principal business is the wholesale distribution of meat and seafood and telecommunications equipment. The Company's wholesale meat and seafood distribution operations are principally conducted in the southeastern United States and the wholesale telecommunications distribution operations are conducted throughout the United States. There are no material foreign sales and no sales to a single customer totaling more than 10% of consolidated sales.
Fiscal Years Ended April 1, April 2, April 3, 1995 1994 1993 (In Thousands) Net sales: Meat and seafood................. $215,141 $215,333 $200,737 Telecommunications equipment..... 35,245 28,308 21,517 Corporate........................ --- --- --- ------- ------- ------- $250,386 $243,641 $222,254 ======= ======= ======= Operating earnings (loss): Meat and seafood................. $ 234 $ 1,013 $ 587 Telecommunications equipment..... 2,734 2,549 1,778 Corporate........................ (2,511) 879 (383) ------- ------- ------- $ 457 $ 4,441 $ 1,982 ======= ======= ======= Depreciation and amortization: Meat and seafood................. $ 605 $ 551 $ 420 Telecommunications equipment..... 524 496 412 Corporate........................ 25 51 20 ------- ------- ------- $ 1,154 $ 1,098 $ 852 ======= ======= ======= Capital expenditures: Meat and seafood................. $ 474 $ 655 $ 277 Telecommunications equipment..... 113 217 103 Corporate........................ 12 3 5 ------- ------- ------- $ 599 $ 875 $ 385 ======= ======= ======= Identifiable assets: Meat and seafood................. $ 20,569 $ 21,329 $ 17,956 Telecommunications equipment..... 16,720 18,109 12,798 Corporate........................ 8,038 14,605 15,318 ------- ------- ------- $ 45,327 $ 54,043 $ 46,072 ======= ======= =======
30 NOTE 13 - STATEMENT OF CASH FLOWS Supplemental cash flow information is as follows for the last three fiscal years:
1995 1994 1993 (In Thousands) Change in current assets and liabilities: Restricted short-term investments $ 330 $ --- $ 1,457 Receivables......................... 189 (3,797) (1,196) Inventories......................... 3,204 (4,760) 601 Other current assets................ (162) (218) (61) Accounts payable.................... 718 4,287 (3,280) Other current liabilities........... 135 133 (359) ------ ------ ------ $ 4,414 $(4,355) $(2,838) ====== ====== ====== Supplemental information: Interest paid......................... $ 1,001 $ 1,090 $ 556 Non-cash transactions: Purchase of minority interest with common stock......................... 1,895 --- --- Reduction of net liabilities of unconsolidated subsidiary............ --- 655 --- Purchase of property and equipment financed by seller................... --- 320 134 Record obligation for Diana debentures and capitalized interest............. --- --- 2,660
NOTE 14 - Quarterly Results of Operations (Unaudited) Fiscal Year Ended April 1, 1995:
12 Weeks 12 Weeks 12 Weeks 16 Weeks Ended Ended Ended Ended April 1, January 7, October 15, July 23, 1995 1995 1994 1994 (In Thousands, Except Per Share Amounts) Net sales....................... $64,223 $55,159 $56,255 $74,749 Cost of sales................... 62,218 52,274 53,059 71,647 Earnings (loss) before extra- ordinary items and accounting change......................... (749) 392 424 (787) Earnings (loss) per common share (.19) .10 .10 (.22)
31 NOTE 14 - Quarterly Results of Operations (Unaudited) - (Continued) Fiscal Year Ended April 2, 1994:
12 Weeks 12 Weeks 12 Weeks 16 Weeks Ended Ended Ended Ended April 2, January 8, October 16, July 24, 1994 1994 1993 1993 (In Thousands, Except Per Share Amounts) Net sales....................... $58,809 $56,695 $55,318 $72,819 Cost of sales................... 55,980 54,034 52,513 70,213 Earnings (loss) before extra- ordinary items and accounting change......................... 1,876 1,746 819 (984) Earnings (loss) per common share .48 .48 .23 (.27)
During the fourth quarter of fiscal 1994, the Company recorded non- operating income of $1,500,000 due to the reversal of a provision of $1,500,000 recorded in the first quarter of fiscal 1994 related to the litigation discussed in Note 10. The first quarter of fiscal 1994 was restated to reflect the cumulative effect as of April 4, 1993 of adopting SFAS No. 109 (see Note 8). For the sixteen weeks ended July 24, 1993, loss before extraordinary items and cumulative effect of accounting change was increased by $12,000, or $.00 per share, and net loss was reduced by $250,000, or $.07 per share. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None 32 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information concerning directors is incorporated by reference from the Election of Directors and Principal Shareholders sections of the Company's definitive proxy statement for the annual meeting of shareholders on August 17, 1995. Information regarding the executive officers, which is not a part of the Company's definitive proxy statement, is set forth below: Name Age Position Richard Y. Fisher 62 Chairman of the Board Donald E. Runge 57 President, effective April 2, 1995 Sydney B. Lilly 66 Senior Vice President, effective April 2, 1995 R. Scott Miswald 39 Vice President, Treasurer and Controller Keith R. Steffel 34 Secretary The following information is furnished with respect to each executive officer who is not also a Director of the Company: R. Scott Miswald, a Certified Public Accountant, became Vice President of the Company in June 1992, Controller of the Company in July 1985 and Treasurer in December 1989; Chief Accounting Officer of Entree since November 1990, Secretary and Treasurer since April 1991. Keith R. Steffel, a Certified Public Accountant, became Secretary in June 1992 and was Assistant Secretary from December 1989 to June 1992. Mr. Steffel has been employed by the Company as Assistant Controller since January 1986. ITEM 11. EXECUTIVE COMPENSATION Incorporated by reference from the Executive Compensation section of the Company's definitive proxy statement for the annual meeting of shareholders on August 17, 1995 [excluding the portions thereof specified in Regulation S-K 402(a) (8)]. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Incorporated by reference from the Principal Shareholders section of the Company's definitive proxy statement for the annual meeting of shareholders on August 17, 1995. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Incorporated by reference from the Compensation Committee Interlocks and Insider Participation section of the Company's definitive proxy statement for the annual meeting of shareholders on August 17, 1995. 33 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K Form 10-K (a) Financial Statements and Financial Statement Schedules Page Number The following consolidated financial statements of The Diana Corporation and its subsidiaries are included in Item 8: Report of Ernst & Young LLP, Independent Auditors 12 Consolidated Balance Sheets - April 1, 1995 and April 2, 1994 13 Consolidated Statements of Operations - Fiscal Years Ended April 1, 1995, April 2, 1994 and April 3, 1993 14 Consolidated Statements of Changes in Shareholders' Equity - Fiscal Years Ended April 1, 1995, April 2, 1994 and April 3, 1993 15 Consolidated Statements of Cash Flows - Fiscal Years Ended April 1, 1995, April 2, 1994 and April 3, 1993 16 Notes to Consolidated Financial Statements 17 The following consolidated financial statement schedules of The Diana Corporation are included in Item 14(d): Schedule I - Condensed Financial Information of Registrant 37 Schedule II - Valuation and Qualifying Accounts 41 All other schedules are omitted because the required information is not present or is not present in amounts sufficient to require submission of the schedules or because the information required is included in the consolidated financial statements or the notes thereto. (b) Reports on Form 8-K: No reports on Form 8-K were filed during the last quarter of fiscal 1995. 34 (c) Exhibits Exhibit Number Description 3.1 Restated Certificate of Incorporation, as amended September 1, 1992 (incorporated herein by reference to Exhibit 3.1 of Registrant's Form 10-K for the year ended April 3, 1993). 3.2 By-Laws of Registrant, as amended (April 2, 1991) (incorporated herein by reference to Exhibit 3.2 of the Registrant's Form 10-K for the year ended March 30, 1991). 4.1 Loan and Security Agreement between Sanwa Business Credit Corporation and C&L Communications, Inc. dated December 23, 1991 (incorporated herein by reference to Exhibit 10.12 of Registrant's Form 10-K for year ended March 28, 1992). 4.2 Amendment to Loan and Security Agreement and Waiver between Sanwa Business Credit Corporation and C&L Communications, Inc. dated June 25, 1993 (incorporated herein by reference to Exhibit 4.1 of Registrant's Form 10-Q for the period ended July 24, 1993). 4.3 Amendment to Loan and Security Agreement between C&L Communications, Inc. and Sanwa Business Credit Corporation dated November 23, 1993 (incorporated herein by reference to Exhibit 4.2 of Registrant's Form 10-Q for the period ended October 16, 1993). 4.4 Amendment to Loan and Security Agreement between C&L Communications, Inc. and Sanwa Business Credit dated August 15, 1994 (incorporated herein by reference to Exhibit 4.1 of Registrant's Form 10-Q for the period ended July 23, 1994). 4.5 Loan and Security Agreement between Barclays Business Credit, Inc. and Atlanta Provision Company, Inc. dated November 24, 1992 (incorporated herein by reference to Exhibit 10.10 of the Registrant's Form 10-Q for the 40 weeks ended January 2, 1993). 4.6 Amendment to Loan and Security Agreement between Atlanta Provision Company, Inc. and Barclays Business Credit, Inc. dated June 25, 1993 (incorporated herein by reference to Exhibit 4.2 of Registrant's Form 10-Q for the period ended July 24, 1993). 4.7 Amendment to Loan and Security Agreement between Atlanta Provision Company, Inc. and Barclays Business Credit, Inc. dated September 9, 1993 (incorporated herein by reference to Exhibit 4.1 of Registrant's Form 10-Q for the period ended October 16, 1993). 4.8 Amendment to Loan and Security Agreement between Atlanta Provision Company, Inc. and Barclays Business Credit, Inc. dated June 1, 1994 (incorporated herein by reference to Exhibit 4.8 of Registrant's Form 10-K for the year ended April 2, 1994). 4.9 Amendment to Loan and Security Agreement between Atlanta Provision Company, Inc. and Shawmut Capital Corporation (successor to Barclays Business Credit, Inc.) dated June 28, 1995. 35 Exhibit Number Description 4.10 Certain other long-term debt as described in Note 3 of Notes to Consolidated Financial Statements. The Registrant agrees to furnish to the Commission, upon request, copies of any instruments defining the rights of holders of any such long-term debt. 10.1 Employment Arrangement between Richard Y. Fisher and the Registrant effective April 4, 1993 and ending April 1, 1995 (incorporated herein by reference to Exhibit 10.12 of Registrant's Form 10-K for the year ended April 3, 1993).* 10.2 Amended and Restated Employment Agreement between Richard Y. Fisher and The Diana Corporation dated April 2, 1995.* 10.3 Employment Agreement between Donald E. Runge and Farm House Foods Corporation dated October 16, 1987, which was guaranteed by the Registrant on September 29, 1988 (incorporated herein by reference to Exhibit 10.14 of Registrant's Form 10-K for the year ended April 3, 1993).* 10.4 Employment Agreement between Donald E. Runge and The Diana Corporation dated April 2, 1995.* 10.5 Employment Agreement between Sydney B. Lilly and The Diana Corporation dated April 2, 1995.* 10.6 Consulting Agreement dated December 23, 1991 and ending December 23, 1996 between C&L Acquisition Corporation and Jack E. Donnelly (incorporated herein by reference to Exhibit 10.11 of Registrant's Form 10-K for the year ended April 3, 1993).* 10.7 Amendment to Consulting Agreement between C&L Acquisition Corporation and Jack E. Donnelly dated March 7, 1995.* 10.8 1986 Nonqualified Stock Option Plan of Registrant as amended (incorporated herein by reference to Exhibit 10.13 of Registrant' s Form 10-K for the year ended April 3, 1993).* 10.9 1993 Nonqualified Stock Option Plan of Entree Corporation (incorporated herein by reference to Exhibit 10.12 of Registrant's Form 10-K for the year ended April 2, 1994).* 10.10 Agreement dated May 13, 1992 between Atlanta Provision Company, Inc. and the United Food & Commercial Worker's District Union #442 (incorporated herein by reference to Exhibit 10.15 of Registrant's Form 10-K for the year ended March 28, 1992). 11 Computation of Earnings Per Share 22 Subsidiaries of Registrant 23 Consent of Independent Auditors 27 Financial Data Schedule ___________________________________________________________________________ * Represents a management contract or compensatory plan, contract or arrangement in which a director or named executive officer of the Company participated. 36 THE DIANA CORPORATION AND SUBSIDIARIES SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT CONDENSED BALANCE SHEETS (In Thousands)
April 1, April 2, 1995 1994 ASSETS Current assets: Restricted short-term investment................. $ 300 $ --- Receivables...................................... 67 1,441 Other current assets............................. 22 16 ------ ------ Total current assets........................... 389 1,457 Equipment (net).................................... 16 13 Investments in and advances to unconsolidated subsidiary........................................ 23,789 24,903 ------ ------ $24,194 $26,373 ====== ====== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accrued liabilities.............................. $ 682 $ 529 Current portion of long-term debt................ 141 261 ------ ------ Total current liabilities...................... 823 790 Long-term debt..................................... 2,099 2,240 Other liabilities.................................. 845 876 Net liabilities of unconsolidated subsidiary....... 698 3,615 Shareholders' equity: Common stock..................................... 4,810 4,638 Additional paid-in capital....................... 48,548 46,241 Accumulated deficit.............................. (28,178) (25,449) Unrealized loss on marketable securities......... (713) (412) Treasury stock................................... (4,738) (6,166) ------ ------ Total shareholders' equity..................... 19,729 18,852 ------ ------ $24,194 $26,373 ====== ======
See notes to condensed financial statements and notes to consolidated financial statements. 37 THE DIANA CORPORATION AND SUBSIDIARIES SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED) STATEMENTS OF OPERATIONS (In Thousands, Except Per Share Amounts)
Fiscal Year Ended April 1, April 2, April 3, 1995 1994 1993 Other income.......................... $ 47 $ 755 $ 31 Selling and administrative expenses... (1,621) (1,388) (1,258) Interest expense...................... (112) (119) (124) Non-operating income.................. 199 208 625 Income tax credit..................... --- 400 --- Equity in earnings of unconsolidated subsidiary............ 767 3,601 2,583 ------ ------ ------ Earnings (loss) before extraordinary items and accounting change.......... (720) 3,457 1,857 Extraordinary items................... --- (266) 1,318 ------ ------ ------ Earnings (loss) before accounting change............................... (720) 3,191 3,175 Cumulative effect of accounting change --- 262 --- ------ ------ ------ Net earnings (loss)................... $ (720) $ 3,453 $ 3,175 ====== ====== ====== Earnings (loss) per common share: Primary Before extraordinary items......... $ (.19) $ .93 $ .51 Extraordinary items................ --- (.07) .36 Accounting change.................. --- .07 --- ------ ------ ------ Net earnings (loss)................ $ (.19) $ .93 $ .87 ====== ====== ====== Fully diluted Before extraordinary items......... $ (.19) $ .89 $ .51 Extraordinary items................ --- (.07) .36 Accounting change.................. --- .07 --- ------ ------ ------ Net earnings (loss)................ $ (.19) $ .89 $ .87 ====== ====== ====== Weighted average number of common shares outstanding Primary............................ 3,832 3,727 3,629 ====== ====== ====== Fully diluted...................... 3,832 3,861 3,629 ====== ====== ======
See notes to condensed financial statements and notes to consolidated financial statements. 38 THE DIANA CORPORATION AND SUBSIDIARIES SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED) STATEMENTS OF CASH FLOWS (In Thousands)
Fiscal Year Ended April 1, April 2, April 3, 1995 1994 1993 Operating activities Earnings (loss) before extraordinary items and accounting change..................... $ (720) $ 3,457 $ 1,857 Adjustments to reconcile earnings (loss) to net cash used by operating activities: Depreciation & amortization.............. 8 10 13 Equity in earnings of unconsolidated subsidiary.............................. (767) (3,601) (2,583) Non-operating income..................... --- (208) (625) Changes in operating assets and liabilities: Restricted short-term investment....... (300) --- (660) Receivables............................ 1,374 (1,370) (20) Payments of net liabilities of unconsolidated subsidiary............. (95) (361) (63) Other.................................. 119 184 (573) ------ ------ ------ Net cash used by operating activities....... (381) (1,889) (2,654) Investing activities Additions to equipment.................... (11) (3) (5) Changes in investments in and advances to unconsolidated subsidiary................ 3,475 2,318 4,023 ------ ------ ------ Net cash provided by investing activities... 3,464 2,315 4,018 Financing activities Payments on long-term debt................. (261) (261) (261) Purchases of treasury stock................ --- --- (9) Payments toward bond settlements........... (2,822) (178) (1,081) ------ ------ ------ Net cash used by financing activities....... (3,083) (439) (1,351) ------ ------ ------ Increase (decrease) in cash................. --- (13) 13 Cash at the beginning of the year........... --- 13 --- ------ ------ ------ Cash at the end of the year................. $ --- $ --- $ 13 ====== ====== ====== Supplemental information: Interest paid.............................. $ 11 $ 17 $ 25 Non-cash transactions: Purchase of minority interest with common stock..................................... 1,895 --- --- Reduction of net liabilities of unconsolidated subsidiary................. --- 655 ---
See notes to condensed financial statements and notes to consolidated financial statements. 39 THE DIANA CORPORATION AND SUBSIDIARIES SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED) NOTES TO CONDENSED FINANCIAL STATEMENTS NOTE 1 - LONG-TERM OBLIGATIONS Approximate annual amounts due on long-term obligations for the five years subsequent to April 1, 1995 are: 1996 $ 141,000 1997 141,000 1998 141,000 1999 141,000 2000 141,000 NOTE 2 - COMMITMENTS AND CONTINGENCIES Diana leases its corporate office space under a noncancelable lease with a rental commitment of $30,000 in fiscal 1996. Diana has guaranteed obligations of an unconsolidated subsidiary not to exceed $1,050,000 of which $255,000 was outstanding at April 1, 1995. 40 THE DIANA CORPORATION AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Fiscal Year Ended April 1, April 2, April 3, 1995 1994 1993 (In Thousands) Valuation accounts deducted in balance sheet from assets to which they apply: Allowance for doubtful accounts: Balance at beginning of period...... $ 517 $ 784 $ 739 Additions - Charged to costs and expenses..... 313 153 406 Reductions - Accounts written off, net of recoveries....................... (230) (420) (361) ----- ----- ----- Balance at end of period............ $ 600 $ 517 $ 784 ===== ===== ===== Allowance for unrealized losses on inventory: Balance at beginning of period...... $ 106 $ 345 $ 193 Additions - Charged to costs and expenses...... 273 123 206 Reductions - Amounts written off on sale of inventories....................... (190) (362) (54) ===== ===== ===== Balance at end of period............ $ 189 $ 106 $ 345 ===== ===== ===== Allowance for net unrealized losses on current marketable securities: Balance at beginning of period...... $ 412 $ --- $ --- Addition-charge against shareholders' equity............... 301 412 --- ----- ----- ----- Balance at end of period............ $ 713 $ 412 $ --- ===== ===== =====
41 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 this 29th day of June, 1995. THE DIANA CORPORATION By /s/ Richard Y. Fisher Richard Y. Fisher, Chairman of the Board Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Signature Title Date /s/ Richard Y. Fisher Chairman of the Board Richard Y. Fisher (Principal Executive Officer) /s/ Donald E. Runge President and Director Donald E. Runge /s/ Sydney B. Lilly Senior Vice President and June 29, 1995 Sydney B. Lilly Director /s/ R. Scott Miswald Vice President, Treasurer and R. Scott Miswald Controller (Principal Financial and Accounting Officer) /s/ Edward J. Bailey Director Edward J. Bailey Director Donald D. Barr /s/ Jack E. Donnelly Director Jack E. Donnelly /s/ Jay M. Lieberman Director Jay M. Lieberman 42 EX-4.9 2 WAIVER AND FOURTH AMENDMENT TO LOAN AND SECURITY AGREEMENT June 28, 1995 Atlanta Provision Company, Inc. 1400 West Marietta Street, N.W. Atlanta, Georgia 30318 Attention: G. Michael Coggins Ladies and Gentlemen: Reference is made to that certain Loan and Security Agreement dated as of November 24, 1992, between Atlanta Provision Company, Inc. ("Borrower") and Shawmut Capital Corporation (successor in interest to Barclays Business Credit, Inc. ("Len- der"), as amended to date (the "Loan Agreement"). Unless otherwise defined herein, all capitalized terms used herein shall have the same meanings provided for such terms in the Loan Agreement. Borrower has informed Lender that Events of Default have occurred under the Loan Agreement because of Borrower's failure to satisfy certain financial covenants set forth therein (the "Existing Defaults"). Borrower has requested that Lender (i) waive the Existing Defaults and (ii) amend certain provisions of the Loan Agreement, and Lender has agreed to such requests on the terms and conditions set forth herein. 1. Waiver. Lender hereby waives the Events of Default arising solely from the following: a. the failure of Borrower to comply with the $350,000 limitation of Capital Expenditures for fiscal year 1995 as required under subsection 9.2(l) of the Loan Agreement; Atlanta Provision Company, Inc. June 28, 1995 Page 2 b. the failure of Borrower to achieve Consolidated Adjusted Tangible Net Worth of $4,500,000 for the period ended March 4, 1995 and $5,000,000 for the period ended April 1, 1995 as required pursuant to subsection 9.3(a) of the Loan Agreement; c. the failure of Borrower to achieve Consolidated Net Earnings From Operations of $568,000 for fiscal year 1995 as required under subsection 9.3(b) of the Loan Agreement; and d. the failure of Borrower to achieve Net Cash Flow of $500,000 for the periods ending February 4, 1995, March 4, 1995 and April 1, 1995 as required under subsection 9.3(c) of the Loan Agreement. The foregoing waivers are limited to the Events of Default specified herein and shall not constitute a waiver of any other existing or future Default or Event of Default or of any rights that Lender may have under the Loan Agreement or applicable law with respect thereto, all of which rights Lender hereby expressly reserves. 2. Amendments. The Loan Agreement is hereby amended as follows: a. Section 1.1(j) of the Loan Agreement (Defined Terms - - Bank) is deleted in its entirety and a new definition is substituted therefor, as follows: "Bank- Shawmut Bank Connecticut, N.A." b. Section 3.3 of the Loan Agreement (Term of Agree- ment) is amended to extend the Original Term (as therein defined) to five (5) years from the date of the Loan Agreement, through and including November 23, 1997. c. Section 3.4 of the Loan Agreement (Termination) is amended to add language to the end of the first sentence thereof, as follows: "; and one percent (1%) of the highest of the Average Monthly Loan Balances outstanding pursuant to Section 2.1 during the Original Term if termination occurs during the fifth twelve (12) month period of the Original Term (November 24, 1996 through November 23, 1997)." Atlanta Provision Company, Inc. June 28, 1995 Page 3 d. Section 9.2(l) of the Loan Agreements amended and restated in its entirety, as follows: "(l) Capital Expenditures. Make Capital Expen- ditures (including without limitation by way of capital- ized leases) which, in the aggregate, as to Borrower and its Subsidiaries, exceed (i) $550,000 during fiscal year 1996, (ii) $500,000 during fiscal year 1997 and (iii) $300,000 during the period from March 31, 1997 through November 23, 1997." e. Section 9.2(x) of the Loan Agreement (Leases) is amended to add language to the end of the first sentence thereof, as follows: "for the fiscal year 1995 and One Million Nine Hundred Thousand Dollars ($1,900,000) for each fiscal year thereafter." f. Section 9.3(a) of the Loan Agreement (Minimum Adjusted Tangible Net Worth) is amended and restated in its entirety, as follows: "(a) Minimum Adjusted Tangible Net Worth. Maintain at all times Consolidated Adjusted Tangible Net Worth of not less than the amount shown below for the period corresponding thereto: Period Amount April 1, 1995 through $4,000,000 March 29, 1996 March 30, 1996 through $4,500,000 March 28, 1997 March 29, 1997 and thereafter $5,000,000" g. Section 9.3(b) of the Loan Agreement (Profitability) is amended and restated in its entirety, as follows: "(b) Profitability. Achieve Consolidated Adjusted Net Earnings From Operations of not less than $400,000 for fiscal year 1996 and $500,000 for each fiscal year thereafter." h. Section 9.3(c) of the Loan Agreement (Net Cash Flow) is amended and restated in its entirety, as follows: Atlanta Provision Company, Inc. June 28, 1995 Page 4 "(c) Net Cash Flow. Achieve a Net Cash Flow on a rolling thirteen (13) period basis (measured at the end of each four (4) week period commencing April 2, 1995) of (i) not in excess of negative One Hundred Thousand Dollars (-$125,000) for the periods ending April 29, 1995 through July 22, 1995, (ii) not less than Zero Dollars ($0) for the periods ending August 19, 1995 through October 14, 1995, (iii) not less than One Hundred Thousand Dollars ($100,000) for the periods ending November 11, 1995 through January 6, 1996 and (iv) not less than Five Hundred Thousand Dollars ($500,000) for all periods thereafter." i. Section 12.10 of the Loan Agreement (Notice) is hereby amended to delete the address for Lender in its entirety and a new address is substituted therefor as follows: "If to Lender: Shawmut Capital Corporation 20800 Swenson Drive Suite 350 Waukesha, Wisconsin 53182 Attention: Robert J. Lund" 3. Effectiveness. This Waiver and Fourth Amendment to Loan and Security Agreement shall be effective when duly executed by both parties and delivered to Lender, together with a duly executed Notice of Extension and Second Amendment to Junior Deed to Secure Debt and Security Agreement in the form attached hereto as Exhibit A. Except as expressly amended hereby, the Loan Agreement shall remain in full force and effect as executed. Atlanta Provision Company, Inc. June 28, 1995 Page 5 4. Counterparts. This Waiver and Fourth Amendment to Loan and Security Agreement may be executed in counterparts all of which, taken together, shall constitute but one instrument. Very truly yours, SHAWMUT CAPITAL CORPORATION By /s/ Robert J. Lund Vice President Acknowledged and agreed to this 28th day of June, 1995 ATLANTA PROVISION COMPANY, INC. By /s/ R. Scott Miswald Its Secretary NOTICE OF EXTENSION AND SECOND AMENDMENT TO JUNIOR DEED TO SECURE DEBT AND SECURITY AGREEMENT THIS NOTICE OF EXTENSION AND SECOND AMENDMENT TO JUNIOR DEED TO SECURE DEBT AND SECURITY AGREEMENT is dated as of June 28, 1995 and is by and between Atlanta Provision Company, Inc., a Georgia corporation ("Grantor"), and Shawmut Capital Corporation (successor in interest to Barclays Business Credit, Inc.) ("Lender"). RECITALS A. Lender has made a revolving loan to Grantor and extended other financial accommodations to Grantor in an aggregate principal amount not to exceed $9,500,000.00, with final payment thereof being due on or before November 23, 1996. Said loan and other financial accommodations were made pursuant to a certain Loan and Security Agreement dated as of November 23, 1992, as amended (the "Loan Agreement"). Said revolving loan and other financial accommodations are secured by a certain Junior Deed to Secure Debt and Security Agreement dated as of November 23, 1992 and recorded in Deed Book 16005, Page 027, Fulton County, Georgia Records (the "Deed to Secure Debt"), as amended by a certain Notice of Extension and First Amendment to Junior Deed to Secure Debt and Security Agreement dated as of June 1, 1994 and recorded in Deed Book 18401, Page 297, Fulton County, Georgia Records. A legal description of the real estate encumbered by the Deed to Secure Debt is attached hereto as Exhibit A. B. Lender and Grantor are entering into a certain Waiver and Fourth Amendment, under Loan and Security Agreement (the "Amendment") amending the terms of the Loan Agreement. Among other things, the maturity date of said revolving loan and other financial accommodations is being extended to November 23, 1997. AGREEMENTS 1. All references to the "Loan Agreement" in the Deed to Secure Debt are hereby modified to refer to the Loan Agreement, as amended by the Amendment, and as otherwise now or hereafter amended from time to time. 2. All references to "November 23, 1996" in the Deed to Secure Debt are hereby modified to refer to November 23, 1997. 3. Except as expressly modified hereby, the Deed to Secure Debt shall remain in full force and effect as originally executed. The execution and delivery hereof shall not constitute a novation of the lien or security title of the Deed to Secure Debt, which instrument shall retain its priority as originally filed for record. IN WITNESS WHEREOF, Grantor and Lender have executed this instrument under seal by and through their duly authorized representatives as of the day and year first above written. GRANTOR: ATLANTA PROVISION COMPANY, ATTEST: INC., a Georgia corporation R. Scott Miswald By /s/ Robert J. Zeman Its Secretary Its CFO Signed, sealed and delivered in the presence of: Cheryl Krajci Unofficial Witness Scott Martin Notary Public My Commission Expires: 06/28/98 (SEAL) (Signatures continued on next page) LENDER: ATTEST: SHAWMUT CAPITAL CORPORATION _______________________________ By_____________________________ Its____________________________ Its__________________________ Signed, sealed and delivered in the presence of: _______________________________ Unofficial Witness _______________________________ Notary Public My Commission Expires: _______________________________ (SEAL) THIS INSTRUMENT PREPARED BY AND AFTER RECORDING RETURN TO: Kimberly Slotky Reich, Esq. Goldberg, Kohn, Bell, Black, Rosenbloom & Moritz, Ltd. 55 East Monroe Street Suite 3700 Chicago, Illinois 60603 EX-10.2 3 Amended and Restated Employment Agreement This Agreement is entered into this 2nd day of April, 1995, by and between THE DIANA CORPORATION, a Delaware corporation (the "Company"), and RICHARD Y. FISHER ("Employee"). WHEREAS, Employee has served the Company in an executive capacity since January 1985 pursuant to previously existing written and oral agreements; WHEREAS, the Company recognizes that the Employee's experience has been and is expected to continue to be of great value to the Company; WHEREAS, the Company wishes this Agreement to be an incentive for the Employee to continue to expend such effort on behalf of the Company secure in the knowledge that he will be compensated for his efforts and his accomplishments both during the Term and after the Term has expired; WHEREAS, the Employee is willing to commit the performance of his services for the Company upon the terms and conditions herein set forth; WHEREAS, the Company and Employee desire to amend, restate and extend their existing employment arrangement; NOW THEREFORE, in consideration of the mutual covenants contained herein, the Company hereby agrees to employ the Employee and the Employee hereby agrees to accept such employment upon the following terms and conditions: 1. Term. The term of Employee's employment (the "Term") under this Agreement shall commence as of the date hereof and continue until March 31, 1997, provided, however, that at the end of such term or any extension thereof as provided herein, the Term shall be automatically extended for an additional fiscal year of the Company unless either party shall give written notice to the other not less than ninety (90) days prior to the beginning of such fiscal year that the Term shall not be so extended. The word "Term" as used herein includes any extensions thereof. 2. Duties and Responsibilities. During the Term the Employee is engaged and shall perform such duties and responsibilities for the Company as may be assigned to him by the Company's Board of Directors and which are reasonably consistent with the duties of Chairman previously performed by Employee. Employee's employment shall be within 25 miles of Milwaukee, Wisconsin. The Employee may involve himself in private investments and activities which do not significantly conflict with his duties under this Agreement and may serve as a director of such companies on whose board he elects to serve providing said directorships do not significantly conflict with his obligations as an Employee, officer or director hereunder. After the Term, neither the Company nor the Employee shall have any further obligations hereunder except in the case of the Company for its duties under Section 4(a), Section 6, Section 12(h) and 12(i). 3. Compensation During the Term. The Company agrees to pay to the Employee during the Term a guaranteed minimum annual salary at a rate of $210,000. The guaranteed minimum salary hereunder shall be payable at intervals not less often than bi-weekly and subject to usual payroll deductions. During the Term, the Employee shall not be discriminated against with respect to any other Company bonus plans or with respect to medical, hospital and life insurance programs, pension program, and other similar welfare benefit programs from time to time, in each case, made available to the Company's officers as a class. The Company shall provide Employee six (6) week's paid vacation each year of the Term. During the Term, the Company will pay the annual dues, but not the initiation or other admission or purchase fee, relating to membership in an athletic or such other similar social club of his choice. In addition, nothing herein shall in any way cancel, reduce or otherwise affect the Employee's rights to any stock options granted to him in the past or in the future by the Board of Directors of the Company. During the Term, the Company shall provide the Employee with office space, secretarial assistance and other facilities, as may be required in the proper performance of his duties and responsibilities and shall reimburse him for expenses reasonably incurred by him the performance of his duties. 4. Deferred Compensation and Certain Other Benefits. (a) Deferred Compensation earned by Employee for services rendered prior to the date hereof and through March 30, 1995 (fiscal 1995) shall be payable in the fiscal years and in the amounts shown below. The right of Employee to receive these deferred compensation payments bi-weekly is absolute and is in no way dependent upon his continued employment with the Company under this Agreement, and appears in this section 4(a) to evidence the Company's existing liability to Employee for services rendered prior to this Agreement. Fiscal Year Amount 1996 $220,000 1997 $220,000 1998 $220,000 1999 $233,035 2000 $220,000 (b) Bonus payments, if any, shall be paid as set forth hereafter. Employee's bonus shall be the greater of: (i) 1/3 of 1% of the "Purchase Price" of each Acquisition made by the Company or an Affiliate of the Company, plus, 1/3 of 1% of the Sale Price of each divestiture made by the Company or Affiliates of the Company, or (ii) (ROI less Base Rate) x Investment x 10%. In the case of bonus due under (ii) above, payment shall be made within 90 days following each fiscal year of the Term in respect of such fiscal year. In the case of Purchases, bonus payments made under (i) above are due at Closing. In the case of Sales, bonus payments under (i) above are due at the time the Company or its Affiliates receive payment in the form of cash or marketable securities. In measuring (i) against (ii) above the amount actually received by Employee under (i) during each fiscal year shall be used in determining whether (i) exceeds (ii). Additionally, Employee shall be entitled to receive bonus payments under (i) above in the case of contracts for purchases or sales executed prior to the expiration of this Agreement, but closed subsequent to expiration of this Agreement or payments for Sales received subsequent to expiration, as though the contract was ongoing but not measured against (ii) after expiration. Definitions: "Annual Profits" are the Company's EBIT earnings. "Investment" equals the Company's total shareholders' equity at the start of the Bonus period plus the average interest bearing debt of the Company during the prior year. "ROI" is a percentage determined by dividing Annual Profit by Investment. "Treasury Rate" is the yield on the thirty (30) year U.S. Government Treasury Bond as reported in the Wall Street Journal on the first day of the applicable fiscal year. "Base Rate" 150% of Treasury Rate. "Purchase Price" shall be the total consideration paid by the Company or any of its Affiliates for the purchase of a business (whether stock or assets). Total consideration shall be the Purchase Price plus Non-Competition payments as set forth in the Purchase Agreement. "Sale Price" shall be the total consideration paid to the Company or any of its Affiliates for the sale of a business (whether stock or assets). Total consideration shall be the Sale Price plus Non-Competition payments as set forth in the Purchase Agreement, and shall include but not be limited to, cash, stock, bonds or other securities. "Affiliate" of the Company is a person that directly or indirectly though one or more intermediaries, controls, or is controlled by, or is under common control with, such Company. 5. Board of Directors Employee shall during the Term of this contract serve on the Board of Directors of the Company at no additional charge. 6. Medical Payments During and after this Agreement, the Company shall pay all medical expenses, including but not limited to, medical, dental, hospital, optometrical, nursing, nursing home, and drugs for the Employee and his spouse for the remainder of each of their lives provided that insofar as the spouse is concerned, such benefit is applicable only during the marriage and after the death of the Employee providing they are married at the time of Employee's death. 7. Termination By Company. (a) Disability. During the Term in the event that Employee shall, because of physical or mental incapacity, be unable substantially to perform his duties for a period of at least three (3) successive months and at the end of such period a physician selected by the Company certifies that it appears unlikely that Employee will be able to substantially perform his duties for an indefinite additional period of time because of such physical or mental incapacity, the Company shall have the right to terminate the active employment of Employee and end the Term according to the provision stated herein; provided, however, that in the event that Employee shall not agree with the certification of disability made by the physician selected by the Company, to which the Employee will make himself available for and submit to such examination as and when requested, Employee may select his own physician who shall make a determination as to Employee's disability; in the event that the physician so selected by Employee shall disagree with the physician selected by the Company, the two physicians shall, within thirty (30) days, select a third physician whose determination shall be conclusive and binding on all parties hereto. Notwithstanding anything herein to the contrary, the Company may terminate the active employment of Employee and end the Term at any time after Employee shall have been absent from his employment for whatever cause, for a continuous period of more than four (4) months. In the event of any such termination pursuant to this paragraph 7(a), the Company shall continue to pay to the Employee, through the end of the fiscal year in which the Term ends, a salary on a semi-monthly basis at a rate equal to three-quarters of the guaranteed minimum annual salary in effect on the date of such termination. Employee shall also be entitled to a bonus equal to three-quarters of the bonus pursuant to paragraph 4(b) in respect of the year of termination. (b) Death. In the event of the death of the Employee, the Term shall end and the Company shall make, until the end of the fiscal year in which the death occurred, semi-monthly payments at a rate equal to three-quarters of the guaranteed minimum annual salary in effect on the date of death. Employee shall also be entitled to a bonus equal to three-quarters of the bonus pursuant to paragraph 4 in respect of the year of death. The payments to be made under this Section 7(b) shall not be reduced by reason of any insurance proceeds payable directly to the Employee's beneficiaries or estate pursuant to insurance carried or provided by the Company, and shall be made to such beneficiary as the Employee may designate for that purpose in written notice given to the Secretary of the Company prior to his death, or if the Employee has not so designated, then to the personal representative of his estate. 8. Termination By Employee. (a) Termination If Position Changes. In the event that at any time during the Term, Employee, without his written consent, does not hold the position set forth in Section 2 and have the duties and responsibilities that would normally be expected thereunder, Employee may terminate his employment with the Company hereunder by giving to the Secretary of the Company written notice of such termination within six (6) months after his right to terminate arises. (b) Termination By Employee Due To Change In Control Of Company and Other Related Matters. During the Term the Employee may further terminate his employment hereunder for the following Good Reason, which shall mean (A) a change in control of the Company (as defined below), (B) any removal of the Employee from or any failure to re-elect the Employee as a Director without his written consent thereto, or (C) failure of the Company to obtain an agreement by and between the Company and any successor to the Company, as contemplated herein, for said successor's assumption of the Company's obligations to perform this Agreement. For purposes of this Agreement, a "change in control of the Company" shall be deemed to occur if (a) any "Person" (as such term is used in Section 13(d) and 14(d)(2) of the Securities Exchange Act of 1934), other than Employee, Sydney B. Lilly, Donald E. Runge, Richard Y. Fisher, or any of their respective spouses, lineal descendants, personal representatives, estates, or trusts primarily for the benefit of any of the foregoing, is or becomes the beneficial owner, directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding voting securities of the Company; or (b) during any period of two consecutive years during the term of this Agreement, or any lesser period, individuals who at the beginning of such period constitute the Board of Directors of the Company cease for any reason to constitute at least a majority thereof unless such change is expressly approved by Employee. In the event of such termination under 8(a) or 8(b) above, the Term shall end and the Company shall pay to the Employee, in a lump sum and within thirty (30) days of such termination, an amount equal to the aggregate balance (based on the guaranteed minimum annual salary in effect at the time of such termination) which would have been payable to the Employee during the remaining portion of the fiscal year in which the Term ended. Upon termination, under Section 7(a), 7(b), 8(a) or 8(b) of this Agreement, the benefits provided for in Sections 4(a), 6, 12(h) and 12(i) hereof shall continue to be provided to Employee or his spouse in accordance therewith. The Company shall also pay Employee the bonus in paragraph 4(b) in respect of the entire year of the year of termination. Notwithstanding anything to the contrary contained herein, any payments made to Employee pursuant to Section 8(a) or Section 8(b) hereof (the "Accelerated Payment") shall not exceed one dollar ($1.00) less than the amount that would cause any part of the Accelerated Payment to be nondeductible under Section 280G of the Internal Revenue Code. The balance of any payments due to Employee pursuant to Section 8(a) or 8(b) (after payment of the Accelerated Payment), if any, shall be paid to Employee in the same amounts (diminished pro rata by the effect of the Accelerated Payment), on the same schedule and otherwise on the same terms as are provided in this Agreement. The Employee shall not be required to mitigate the amount of any payments provided for in this Section by seeking other employment or otherwise, and no payments required pursuant to this Agreement shall be reduced as a result of any other income of Employee, and any amounts due hereunder shall be absolute. The Company shall maintain in full force and effect, for the continued benefit of the Employee for the full Term of this Agreement, all employee benefit plans and programs in which the Employee was entitled to participate immediately prior to the date of termination provided, that if the Employee's continued participation in any such plan or program is barred by reason of the operation of law, the Employee shall be entitled to receive an amount equal to the annual contributions, payments, credits or allocations made by the Company to him, to his account or on his behalf under such plans and programs from which his continued participation is barred. 9. Successors. The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, by agreement in form and substance satisfactory to the Employee, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Employee to compensation from the Company in the same amount and on the same terms as he would be entitled to hereunder. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which executes and delivers the agreement provided for in this Section 9 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. 10. Notices. Any notice required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been given when delivered personally or deposited in the U.S. Mail in a registered, postage prepaid envelope addressed, if to the Employee at his address set forth below, and if to the Company, c/o Secretary, at the principal executive office of the Company, or to such other addresses as either party shall designate by written notice to the other. 11. Assignment. The Employee may not assign his rights or obligations hereunder. The rights and obligations of the Company hereunder shall inure to the benefit of and shall be binding upon its respective successors and assigns. 12. Miscellaneous. (a) This Agreement shall be subject to and governed by the laws of the State of Wisconsin. (b) The Company agrees to reimburse the Employee for all costs and expenses incurred by him (including the reasonable fees for his counsel) in enforcing any of his rights under this Agreement, including the fees of any arbitrator. (c) Failure to insist upon strict compliance with any provisions hereof shall not be deemed a waiver of such provisions or any other provision hereof. (d) This Agreement constitutes and expresses the whole Agreement of parties hereto in reference to any employment of Employee by the Company, and in reference to any of the matters or things herein provided for, or hereinbefore discussed or mentioned in reference to such employment, all promises, representations and understandings relative thereto herein merged. This Agreement may not be modified except by each of an agreement in written executed by the parties hereto. (e) The invalidity or unenforceability of any provision hereof shall not affect the validity or enforceability of any other provisions. (f) Any controversy or claim which shall arise between the parties herein arising out of or relating to this Agreement, or the breach thereof, may be settled by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association at the election of either party hereto. All such arbitration proceedings shall be had in the City of Milwaukee, State of Wisconsin. In the event of such arbitration, judgment upon the award rendered by the arbitrator, may be entered in any court having jurisdiction thereof. (g) The Company shall not be permitted to withhold any payments due hereunder when such payments are due and any such amounts due hereunder may not be withheld as set-off from any obligations claimed against the Employee. In the event of any dispute hereunder, all sums due hereunder shall be paid by the Company in the amount and manner, and at the time or times, provided for herein, subject to expedient resolution of such disputes between the parties, and shall not be withheld pending such resolution. Time is of the essence with respect to any and all payments due hereunder. (h) Nothing herein contained shall reduce or otherwise affect any benefits previously earned and due to Employee at any time hereafter under prior employment contracts with the Company. (i) Employee shall have the right to purchase the furniture in his personal office at book value at the termination of his employment. (j) This Agreement supercedes and replaces the Agreement ratified by the Company's Board of Directors on March 7, 1995. IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. THE DIANA CORPORATION By: R. Scott Miswald Vice President and Treasurer EMPLOYEE Richard Y. Fisher EX-10.4 4 Employment Agreement This Agreement is entered into this 2nd day of April, 1995, by and between THE DIANA CORPORATION, a Delaware corporation (the "Company"), and DONALD E. RUNGE ("Employee"). WHEREAS, the Company recognizes that the Employee's experience is expected to be of great value to the Company; WHEREAS, the Company wishes this Agreement to be an incentive for the Employee to expend such effort on behalf of the Company secure in the knowledge that he will be compensated for his efforts and his accomplishments; WHEREAS, Employee has his principal residence outside the state of Wisconsin at the commencement of the Term, intends to maintain such residence during the Term and intends to return to such residence at the conclusion of the Term; WHEREAS, the Employee is willing to commit the performance of his services for the Company upon the terms and conditions herein set forth; NOW THEREFORE, in consideration of the mutual covenants contained herein, the Company hereby agrees to employ the Employee and the Employee hereby agrees to accept such employment upon the following terms and conditions: 1. Term. The term of Employee's employment (the "Term") under this Agreement shall commence as of the date hereof and continue until March 31, 1997, provided, however, that at the end of such term or any extension thereof as provided herein, the Term shall be automatically extended for an additional fiscal year of the Company unless either party shall give written notice to the other not less than ninety (90) days prior to the beginning of such fiscal year that the Term shall not be so extended. The word "Term" as used herein includes any extensions thereof. 2. Duties and Responsibilities. During the Term the Employee is engaged and shall perform such duties and responsibilities for the Company as may be assigned to him by the Company's Board of Directors and which are reasonably consistent with the duties of President performed during the first three (3) months of the Term.. The Employee may involve himself in private investments and activities which do not significantly conflict with his duties under this Agreement and may serve as a director of such companies on whose board he elects to serve providing said directorships do not significantly conflict with his obligations as an Employee, officer or director hereunder. After the Term, neither the Company nor the Employee shall have any further obligations hereunder except in the case of the Company, for its duties under Section 6 or Section 12(h). 3. Compensation During the Term. The Company agrees to pay to the Employee during the Term a guaranteed minimum annual salary at a rate of $210,000. The guaranteed minimum salary hereunder shall be payable at intervals not less often than bi-weekly and subject to usual payroll deductions. During the Term, the Employee shall not be discriminated against with respect to any other Company bonus plans or with respect to medical, hospital and life insurance programs, pension program, and other similar welfare benefit programs from time to time, in each case, made available to the Company's officers as a class. The Company shall provide Employee six (6) week's paid vacation each year of the Term. During the Term, the Company will pay the annual dues, but not the initiation or other admission or purchase fee, relating to membership in an athletic or such other similar social club of his choice. In addition, nothing herein shall in any way affect the Employee's rights to any stock options granted to him in the past or in the future by the Board of Directors of the Company. During the Term, the Company shall provide the Employee with office space, secretarial assistance and other facilities, as may be required in the proper performance of his duties and responsibilities and shall reimburse him for expenses reasonably incurred by him the performance of his duties. The Company shall pay all reasonable moving expenses of employee to and from Milwaukee, Wisconsin at the commencement and conclusion of the Term respectively. 4. Bonus. Bonus payments, if any, shall be paid as set forth hereafter. Employee's bonus shall be the greater of: (a) 1/3 of 1% of the "Purchase Price" of each Acquisition made by the Company or an Affiliate of the Company, plus, 1/3 of 1% of the Sale Price of each divestiture made by the Company or Affiliates of the Company, or (b) (ROI less Base Rate) x Investment x 10%. In the case of bonus due under (b) above, payment shall be made within 90 days following each fiscal year of the Term in respect of such fiscal year. In the case of Purchases, bonus payments made under (a) above are due at Closing. In the case of Sales, bonus payments under (a) above are due at the time the Company or its Affiliates receive payment in the form of cash or marketable securities. In measuring (a) against (b) above the amount actually received by Employee under (a) during each fiscal year shall be used in determining whether (a) exceeds (b). Additionally, Employee shall be entitled to receive bonus payments under (a) above in the case of contracts for purchases or sales executed prior to the expiration of this Agreement, but closed subsequent to expiration of this Agreement or payments for Sales received subsequent to expiration, as though the contract was ongoing but not measured against (b) after expiration. Definitions: "Annual Profits" are the Company's EBIT earnings. "Investment" equals the Company's total shareholders' equity at the start of the Bonus period plus the average interest bearing debt of the Company during the prior year. "ROI" is a percentage determined by dividing Annual Profit by Investment. "Treasury Rate" is the yield on the thirty (30) year U.S. Government Treasury Bond as reported in the Wall Street Journal on the first day of the applicable fiscal year. "Base Rate" 150% of Treasury Rate. "Purchase Price" shall be the total consideration paid by the Company or any of its Affiliates for the purchase of a business (whether stock or assets). Total consideration shall be the Purchase Price plus Non-Competition payments as set forth in the Purchase Agreement. "Sale Price" shall be the total consideration paid to the Company or any of its Affiliates for the sale of a business (whether stock or assets). Total consideration shall be the Sale Price plus Non-Competition payments as set forth in the Purchase Agreement, and shall include but not be limited to, cash, stock, bonds or other securities. "Affiliate" of the Company is a person that directly or indirectly though one or more intermediaries, controls, or is controlled by, or is under common control with, such Company. 5. Board of Directors Employee shall during the Term of this contract serve on the Board of Directors of the Company at no additional charge. 6. Medical Payments Pursuant to an earlier Employment Agreement with Employee, Company committed, among other things, to pay all medical expenses, including but not limited to, medical, dental, hospital, optometrical, nursing, nursing home, and drugs for the Employee and his spouse for the remainder of each of their lives. All such benefits previously earned by Employee shall remain in full force and effect. 7. Termination By Company. (a) Disability. During the Term in the event that Employee shall, because of physical or mental incapacity, be unable substantially to perform his duties for a period of at least three (3) successive months and at the end of such period a physician selected by the Company certifies that it appears unlikely that Employee will be able to substantially perform his duties for an indefinite additional period of time because of such physical or mental incapacity, the Company shall have the right to terminate the active employment of Employee and end the Term according to the provision stated herein; provided, however, that in the event that Employee shall not agree with the certification of disability made by the physician selected by the Company, to which the Employee will make himself available for and submit to such examination as and when requested, Employee may select his own physician who shall make a determination as to Employee's disability; in the event that the physician so selected by Employee shall disagree with the physician selected by the Company, the two physicians shall, within thirty (30) days, select a third physician whose determination shall be conclusive and binding on all parties hereto. Notwithstanding anything herein to the contrary, the Company may terminate the active employment of Employee and end the Term at any time after Employee shall have been absent from his employment for whatever cause, for a continuous period of more than four (4) months. In the event of any such termination pursuant to this paragraph 7(a), the Company shall continue to pay to the Employee, through the end of the fiscal year in which the Term ends, a salary on a semi-monthly basis at a rate equal to three-quarters of the guaranteed minimum annual salary in effect on the date of such termination. Employee shall also be entitled to a bonus equal to three-quarters of the bonus pursuant to paragraph 4 in respect of the year of termination. (b) Death. In the event of the death of the Employee, the Term shall end and the Company shall make, until the end of the fiscal year in which the death occurred, semi-monthly payments at a rate equal to three-quarters of the guaranteed minimum annual salary in effect on the date of death. Employee shall also be entitled to a bonus equal to three-quarters of the bonus pursuant to paragraph 4 in respect of the year of death. The payments to be made under this Section 7(b) shall not be reduced by reason of any insurance proceeds payable directly to the Employee's beneficiaries or estate pursuant to insurance carried or provided by the Company, and shall be made to such beneficiary as the Employee may designate for that purpose in written notice given to the Secretary of the Company prior to his death, or if the Employee has not so designated, then to the personal representative of his estate. 8. Termination By Employee. (a) Termination If Position Changes. In the event that at any time during the Term, Employee, without his written consent, does not hold the position set forth in Section 2 and have the duties and responsibilities that would normally be expected thereunder, Employee may terminate his employment with the Company hereunder by giving to the Secretary of the Company written notice of such termination within six (6) months after his right to terminate arises. (b) Termination By Employee Due To Change In Control Of Company and Other Related Matters. During the Term the Employee may further terminate his employment hereunder for the following Good Reason, which shall mean (A) a change in control of the Company (as defined below), (B) any removal of the Employee from or any failure to re-elect the Employee as a Director, without his written consent thereto, or (C) failure of the Company to obtain an agreement by and between the Company and any successor to the Company, as contemplated herein, for said successor's assumption of the Company's obligations to perform this Agreement. For purposes of this Agreement, a "change in control of the Company" shall be deemed to occur if (a) any "Person" (as such term is used in Section 13(d) and 14(d)(2) of the Securities Exchange Act of 1934), other than Employee, Donald Runge, Sydney B. Lilly, Richard Y. Fisher, or any of their respective spouses, lineal descendants, personal representatives, estates, or trusts primarily for the benefit of any of the foregoing, is or becomes the beneficial owner, directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding voting securities of the Company; or (b) during any period of two consecutive years during the term of this Agreement, or any lesser period, individuals who at the beginning of such period constitute the Board of Directors of the Company cease for any reason to constitute at least a majority thereof unless such change is expressly approved by Employee. In the event of such termination under 8(a) or 8(b) above, the Term shall end and the Company shall pay to the Employee, in a lump sum and within thirty (30) days of such termination, an amount equal to the aggregate balance (based on the guaranteed minimum annual salary in effect at the time of such termination) which would have been payable to the Employee during the remaining portion of the fiscal year in which the Term ended. Upon termination, under Section 7(a), 7(b), 8(a) or 8(b) of this Agreement, the benefits provided for in Sections 6 and 12(h) hereof shall continue to be provided to Employee or his spouse in accordance therewith. The Company shall also pay Employee the bonus in paragraph 4 in respect of the entire year of the year of termination. Notwithstanding anything to the contrary contained herein, any payments made to Employee pursuant to Section 8(a) or Section 8(b) hereof (the "Accelerated Payment") shall not exceed one dollar ($1.00) less than the amount that would cause any part of the Accelerated Payment to be nondeductible under Section 280G of the Internal Revenue Code. The balance of any payments due to Employee pursuant to Section 8(a) or 8(b) (after payment of the Accelerated Payment), if any, shall be paid to Employee in the same amounts (diminished pro rata by the effect of the Accelerated Payment), on the same schedule and otherwise on the same terms as are provided in this Agreement. The Employee shall not be required to mitigate the amount of any payments provided for in this Section by seeking other employment or otherwise, and no payments required pursuant to this Agreement shall be reduced as a result of any other income of Employee, and any amounts due hereunder shall be absolute. The Company shall maintain in full force and effect, for the continued benefit of the Employee for the full Term of this Agreement, all employee benefit plans and programs in which the Employee was entitled to participate immediately prior to the date of termination provided, that if the Employee's continued participation in any such plan or program is barred by reason of the operation of law, the Employee shall be entitled to receive an amount equal to the annual contributions, payments, credits or allocations made by the Company to him, to his account or on his behalf under such plans and programs from which his continued participation is barred. 9. Successors. The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, by agreement in form and substance satisfactory to the Employee, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Employee to compensation from the Company in the same amount and on the same terms as he would be entitled to hereunder. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which executes and delivers the agreement provided for in this Section 9 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. 10. Notices. Any notice required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been given when delivered personally or deposited in the U.S. Mail in a registered, postage prepaid envelope addressed, if to the Employee at his address set forth below, and if to the Company, c/o Secretary, at the principal executive office of the Company, or to such other addresses as either party shall designate by written notice to the other. 11. Assignment. The Employee may not assign his rights or obligations hereunder. The rights and obligations of the Company hereunder shall inure to the benefit of and shall be binding upon its respective successors and assigns. 12. Miscellaneous. (a) This Agreement shall be subject to and governed by the laws of the State of Wisconsin. (b) The Company agrees to reimburse the Employee for all costs and expenses incurred by him (including the reasonable fees for his counsel) in enforcing any of his rights under this Agreement, including the fees of any arbitrator. (c) Failure to insist upon strict compliance with any provisions hereof shall not be deemed a waiver of such provisions or any other provision hereof. (d) This Agreement may not be modified except by each of an agreement in written executed by the parties hereto. (e) The invalidity or unenforceability of any provision hereof shall not affect the validity or enforceability of any other provisions. (f) Any controversy or claim which shall arise between the parties herein arising out of or relating to this Agreement, or the breach thereof, may be settled by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association at the election of either party hereto. All such arbitration proceedings shall be had in the City of Milwaukee, State of Wisconsin. In the event of such arbitration, judgment upon the award rendered by the arbitrator, may be entered in any court having jurisdiction thereof. (g) The Company shall not be permitted to withhold any payments due hereunder when such payments are due and any such amounts due hereunder may not be withheld as set-off from any obligations claimed against the Employee. In the event of any dispute hereunder, all sums due hereunder shall not be withheld pending such resolution. Time is of the essence with respect to any and all payments due hereunder. (h) Nothing herein contained shall reduce or otherwise affect any benefits previously earned and due to Employee at any time hereafter under prior employment contracts with the Company. IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. THE DIANA CORPORATION By: R. Scott Miswald Vice President and Treasurer Richard Y. Fisher Chairman EMPLOYEE Donald E. Runge EX-10.5 5 Employment Agreement This Agreement is entered into this 2nd day of April, 1995, by and between THE DIANA CORPORATION, a Delaware corporation (the "Company"), and SYDNEY B. LILLY ("Employee"). WHEREAS, the Company recognizes that the Employee's experience is expected to be of great value to the Company; WHEREAS, the Company wishes this Agreement to be an incentive for the Employee to expend such effort on behalf of the Company secure in the knowledge that he will be compensated for his efforts and his accomplishments; WHEREAS, Employee has his principal residence outside the state ofWisconsin at the commencement of the Term, intends to maintain such residence during the Term and intends to return to such residence at the conclusion of the Term; WHEREAS, the Employee is willing to commit the performance of his services for the Company upon the terms and conditions herein set forth; NOW THEREFORE, in consideration of the mutual covenants contained herein, the Company hereby agrees to employ the Employee and the Employee hereby agrees to accept such employment upon the following terms and conditions: 1. Term. The term of Employee's employment (the "Term") under this Agreement shall commence as of the date hereof and continue until March 31, 1997, provided, however, that at the end of such term or any extension thereof as provided herein, the Term shall be automatically extended for an additional fiscal year of the Company unless either party shall give written notice to the other not less than ninety (90) days prior to the beginning of such fiscal year that the Term shall not be so extended. The word "Term" as used herein includes any extensions thereof. 2. Duties and Responsibilities. During the Term the Employee is engaged and shall perform such duties and responsibilities for the Company as may be assigned to him by the Company's Board of Directors and which are reasonably consistent with the duties of Senior Vice President performed during the first three (3) months of the Term. The Employee may involve himself in private investments and activities which do not significantly conflict with his duties under this Agreement and may serve as a director of such companies on whose board he elects to serve providing said directorships do not significantly conflict with his obligations as an Employee, officer or director hereunder. After the Term, neither the Company nor the Employee shall have any further obligations hereunder except in the case of the Company for its duties under Section 3 or Section 6. 3. Compensation During the Term. The Company agrees to pay to the Employee during the Term a guaranteed minimum annual salary at a rate of $210,000. In addition, Employee shall be granted options to purchase up to 75,000 shares of Common Stock at $6.50 per share, which will expire on March 31, 2000. The guaranteed minimum salary hereunder shall be payable at intervals not less often than bi-weekly and subject to usual payroll deductions. During the Term, the Employee shall not be discriminated against with respect to any other Company bonus plans or with respect to medical, hospital and life insurance programs, pension program, and other similar welfare benefit programs from time to time, in each case, made available to the Company's officers as a class. The Company shall provide Employee six (6) week's paid vacation each year of the Term. During the Term, the Company will pay the annual dues, but not the initiation or other admission or purchase fee, relating to membership in an athletic or such other similar social club of his choice. In addition, nothing herein shall in any way affect the Employee's rights to any stock options granted to him in the past or in the future by the Board of Directors of the Company. During the Term, the Company shall provide the Employee with office space, secretarial assistance and other facilities, as may be required in the proper performance of his duties and responsibilities and shall reimburse him for expenses reasonably incurred by him the performance of his duties. The Company shall pay all reasonable moving expenses of employee to and from Milwaukee, Wisconsin at the commencement and conclusion of the Term respectively. 4. Bonus. Bonus payments, if any, shall be paid as set forth hereafter. Employee's bonus shall be the greater of: (a) 1/3 of 1% of the "Purchase Price" of each Acquisition made by the Company or an Affiliate of the Company, plus, 1/3 of 1% of the Sale Price of each divestiture made by the Company or Affiliates of the Company, or (b) (ROI less Base Rate) x Investment x 10%. In the case of bonus due under (b) above, payment shall be made within 90 days following each fiscal year of the Term in respect of such fiscal year. In the case of Purchases, bonus payments made under (a) above are due at Closing. In the case of Sales, bonus payments under (a) above are due at the time the Company or its Affiliates receive payment in the form of cash or marketable securities. In measuring (a) against (b) above the amount actually received by Employee under (a) during each fiscal year shall be used in determining whether (a) exceeds (b). Additionally, Employee shall be entitled to receive bonus payments under (a) above in the case of contracts for purchases or sales executed prior to the expiration of this Agreement, but closed subsequent to expiration of this Agreement or payments for Sales received subsequent to expiration, as though the contract was ongoing but not measured against (b) after expiration. Definitions: "Annual Profits" are the Company's EBIT earnings. "Investment" equals the Company's total shareholders' equity at the start of the Bonus period plus the average interest bearing debt of the Company during the prior year. "ROI" is a percentage determined by dividing Annual Profit by Investment. "Treasury Rate" is the yield on the thirty (30) year U.S. Government Treasury Bond as reported in the Wall Street Journal on the first day of the applicable fiscal year. "Base Rate" 150% of Treasury Rate. "Purchase Price" shall be the total consideration paid by the Company or any of its Affiliates for the purchase of a business (whether stock or assets). Total consideration shall be the Purchase Price plus Non-Competition payments as set forth in the Purchase Agreement. "Sale Price" shall be the total consideration paid to the Company or any of its Affiliates for the sale of a business (whether stock or assets). Total consideration shall be the Sale Price plus Non-Competition payments as set forth in the Purchase Agreement, and shall include but not be limited to, cash, stock, bonds or other securities. "Affiliate" of the Company is a person that directly or indirectly though one or more intermediaries, controls, or is controlled by, or is under common control with, such Company. 5. Board of Directors Employee shall during the Term of this contract serve on the Board of Directors of the Company at no additional charge. 6. Medical Payments During the Term of this contract, the Company shall pay all medical expenses, including but not limited to, medical, dental, hospital, optometrical, nursing, nursing home, and drugs for the Employee. For a period of five (5) years after date hereof, the Company shall pay all medical expenses, including but not limited to, medical, dental, hospital, optometrical, nursing, nursing home and drugs for Diane Lilly, spouse of Employee. 7. Termination By Company. (a) Disability. During the Term in the event that Employee shall, because of physical or mental incapacity, be unable substantially to perform his duties for a period of at least three (3) successive months and at the end of such period a physician selected by the Company certifies that it appears unlikely that Employee will be able to substantially perform his duties for an indefinite additional period of time because of such physical or mental incapacity, the Company shall have the right to terminate the active employment of Employee and end the Term according to the provision stated herein; provided, however, that in the event that Employee shall not agree with the certification of disability made by the physician selected by the Company, to which the Employee will make himself available for and submit to such examination as and when requested, Employee may select his own physician who shall make a determination as to Employee's disability; in the event that the physician so selected by Employee shall disagree with the physician selected by the Company, the two physicians shall, within thirty (30) days, select a third physician whose determination shall be conclusive and binding on all parties hereto. Notwithstanding anything herein to the contrary, the Company may terminate the active employment of Employee and end the Term at any time after Employee shall have been absent from his employment for whatever cause, for a continuous period of more than four (4) months. In the event of any such termination pursuant to this paragraph 7(a), the Company shall continue to pay to the Employee, through the end of the fiscal year in which the Term ends, a salary on a semi-monthly basis at a rate equal to three-quarters of the guaranteed minimum annual salary in effect on the date of such termination. Employee shall also be entitled to a bonus equal to three-quarters of the bonus pursuant to paragraph 4 in respect of the year of termination. (b) Death. In the event of the death of the Employee, the Term shall end and the Company shall make, until the end of the fiscal year in which the death occurred, semi-monthly payments at a rate equal to three-quarters of the guaranteed minimum annual salary in effect on the date of death. Employee shall also be entitled to a bonus equal to three-quarters of the bonus pursuant to paragraph 4 in respect of the year of death. The payments to be made under this Section 7(b) shall not be reduced by reason of any insurance proceeds payable directly to the Employee's beneficiaries or estate pursuant to insurance carried or provided by the Company, and shall be made to such beneficiary as the Employee may designate for that purpose in written notice given to the Secretary of the Company prior to his death, or if the Employee has not so designated, then to the personal representative of his estate. 8. Termination By Employee. (a) Termination If Position Changes. In the event that at any time during the Term, Employee, without his written consent, does not hold the position set forth in Section 2 and have the duties and responsibilities that would normally be expected thereunder, Employee may terminate his employment with the Company hereunder by giving to the Secretary of the Company written notice of such termination within six (6) months after his right to terminate arises. (b) Termination By Employee Due To Change In Control Of Company and Other Related Matters. During the Term the Employee may further terminate his employment hereunder for the following Good Reason, which shall mean (A) a change in control of the Company (as defined below), (B) any removal of the Employee from or any failure to re-elect the Employee as a Director without his written consent thereto, or (C) failure of the Company to obtain an agreement by and between the Company and any successor to the Company, as contemplated herein, for said successor's assumption of the Company's obligations to perform this Agreement. For purposes of this Agreement, a "change in control of the Company" shall be deemed to occur if (a) any "Person" (as such term is used in Section 13(d) and 14(d)(2) of the Securities Exchange Act of 1934), other than Employee, Sydney B. Lilly, Donald E. Runge, Richard Y. Fisher, or any of their respective spouses, lineal descendants, personal representatives, estates, or trusts primarily for the benefit of any of the foregoing, is or becomes the beneficial owner, directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding voting securities of the Company; or (b) during any period of two consecutive years during the term of this Agreement, or any lesser period, individuals who at the beginning of such period constitute the Board of Directors of the Company cease for any reason to constitute at least a majority thereof unless such change is expressly approved by Employee. In the event of such termination under 8(a) or 8(b) above, the Term shall end and the Company shall pay to the Employee, in a lump sum and within thirty (30) days of such termination, an amount equal to the aggregate balance (based on the guaranteed minimum annual salary in effect at the time of such termination) which would have been payable to the Employee during the remaining portion of the fiscal year in which the Term ended. Upon termination, the benefits provided for in Section 6 hereof shall continue to be provided to Employee or his spouse in accordance therewith. The Company shall also pay Employee the bonus in paragraph 4 in respect of the entire year of the year of termination. Notwithstanding anything to the contrary contained herein, any payments made to Employee pursuant to Section 8(a) or Section 8(b) hereof (the "Accelerated Payment") shall not exceed one dollar ($1.00) less than the amount that would cause any part of the Accelerated Payment to be nondeductible under Section 280G of the Internal Revenue Code. The balance of any payments due to Employee pursuant to Section 8(a) or 8(b) (after payment of the Accelerated Payment), if any, shall be paid to Employee in the same amounts (diminished pro rata by the effect of the Accelerated Payment), on the same schedule and otherwise on the same terms as are provided in this Agreement. The Employee shall not be required to mitigate the amount of any payments provided for in this Section by seeking other employment or otherwise, and no payments required pursuant to this Agreement shall be reduced as a result of any other income of Employee, and any amounts due hereunder shall be absolute. The Company shall maintain in full force and effect, for the continued benefit of the Employee for the full Term of this Agreement, all employee benefit plans and programs in which the Employee was entitled to participate immediately prior to the date of termination provided, that if the Employee's continued participation in any such plan or program is barred by reason of the operation of law, the Employee shall be entitled to receive an amount equal to the annual contributions, payments, credits or allocations made by the Company to him, to his account or on his behalf under such plans and programs from which his continued participation is barred. 9. Successors. The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, by agreement in form and substance satisfactory to the Employee, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Employee to compensation from the Company in the same amount and on the same terms as he would be entitled to hereunder. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which executes and delivers the agreement provided for in this Section 9 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. 10. Notices. Any notice required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been given when delivered personally or deposited in the U.S. Mail in a registered, postage prepaid envelope addressed, if to the Employee at his address set forth below, and if to the Company, c/o Secretary, at the principal executive office of the Company, or to such other addresses as either party shall designate by written notice to the other. 11. Assignment. The Employee may not assign his rights or obligations hereunder. The rights and obligations of the Company hereunder shall inure to the benefit of and shall be binding upon its respective successors and assigns. 12. Miscellaneous. (a) This Agreement shall be subject to and governed by the laws of the State of Wisconsin. (b) The Company agrees to reimburse the Employee for all costs and expenses incurred by him (including the reasonable fees for his counsel) in enforcing any of his rights under this Agreement, including the fees of any arbitrator. (c) Failure to insist upon strict compliance with any provisions hereof shall not be deemed a waiver of such provisions or any other provision hereof. (d) This Agreement constitutes and expresses the whole Agreement of parties hereto in reference to any employment of Employee by the Company, and in reference to any of the matters or things herein provided for, or hereinbefore discussed or mentioned in reference to such employment, all promises, representations and understandings relative thereto herein merged. This Agreement may not be modified except by each of an agreement in written executed by the parties hereto. (e) The invalidity or unenforceability of any provision hereof shall not affect the validity or enforceability of any other provisions. (f) Any controversy or claim which shall arise between the parties herein arising out of or relating to this Agreement, or the breach thereof, may be settled by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association at the election of either party hereto. All such arbitration proceedings shall be had in the City of Milwaukee, State of Wisconsin. In the event of such arbitration, judgment upon the award rendered by the arbitrator, may be entered in any court having jurisdiction thereof. (g) The Company shall not be permitted to withhold any payments due hereunder when such payments are due and any such amounts due hereunder may not be withheld as set-off from any obligations claimed against the Employee. In the event of any dispute hereunder, all sums due hereunder shall not be withheld pending such resolution. Time is of the essence with respect to any and all payments due hereunder. IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. THE DIANA CORPORATION By: R. Scott Miswald Vice President and Treasurer Richard Y. Fisher Chairman EMPLOYEE Sydney B. Lilly EX-10.7 6 AMENDMENT TO CONSULTING AGREEMENT This agreement entered into this 7th day of March 1995 by and between C&L Acquisition Corporation, a Texas Corporation ("C&LA") a wholly owned subsidiary of The Diana Corporation, a Delaware Corporation and Jack E. Donnelly, a resident of the State of Arizona ("Donnelly"). WITNESSETH: WHEREAS the parties entered into a Consulting Agreement on the 23rd day of December 1991, and, WHEREAS the parties desire to amend said Consulting Agreement as hereinafter provided, NOW THEREFORE, in consideration of the mutual covenants herein contained, the parties hereby agree as follows: A. Paragraph Al of the Consulting Agreement is hereby amended to read as follows: "Employ Donnelly as a consultant until the conclusion of C&LA's fiscal year ended 1997; provided however that Donnelly shall upon four (4) months prior written notice have the option of extending this Consulting Agreement through fiscal year 1998." B. Paragraph A2 of the Consulting Agreement is hereby amended to read as follows: "Pay Donnelly the sum of $325,000 which shall accrue at the rate of $75,000 per year during each of the first three (3) years and $50,000 per year during each of the last two (2) years. In the event that Donnelly exercises his option contained in Paragraph 1 hereof, to extend this agreement by one (1) year, C&LA shall pay Donnelly an additional $50,000." C. Paragraph A4(b) shall be amended by adding at the end of paragraph A4(b) the following: "The aforegoing notwithstanding, in the event that Donnelly exercises his option to extend the term of his Consulting Agreement through fiscal year 1998, the EARNINGS for the purpose of calculating the incentive under this paragraph shall be average Earnings for fiscal 1997 and 1998." "In the event of Donnelly's death prior to the expiration of this Consulting Agreement, the Earnings for the last full year for which Donnelly consulted shall be used in calculating the incentive, if any, due Donnelly and said monies due to Donnelly, if any, shall be paid to his estate." Paragraph A4(b) shall be further amended with regard to the second last sentence beginning with the word "Earnings" to read as follows: "Earnings" for the purpose of this paragraph are the net pretax profits of C&L plus acquisition costs, if any, charged during said fiscal year, excluding management fees." D. Paragraph C1(d) shall be amended to read as follows: "(d) at the expiration of the Consulting Agreement." E. Paragraph C shall be amended to add thereto paragraph 4 which shall read as follows: "C&LA's President shall have the discretion to approve loans to Donnelly, which shall be due at the expiration of this Consulting Agreement, at the then prevailing prime interest rate. Cumulative loans balances shall not exceed 25 % of the estimated incentive payment which may become due to Donnelly." F. All other provisions of the Consulting Agreement shall remain in full force and effect. IN WITNESS WHEREOF the parties have executed this agreement of the day and year first above written. C&L ACQUISITION CORPORATION By Richard Y . Fisher/President Jack E. Donnelly EX-11 7 EXHIBIT 11 THE DIANA CORPORATION AND SUBSIDIARIES COMPUTATION OF EARNINGS (LOSS) PER SHARE
Fiscal Year Ended April 1, April 2, April 3, 1995 1994 1993 (In Thousands, Except Per Share Data) Primary Average shares outstanding............. 3,832 3,631 3,629 Net effect of dilutive stock options - based on the treasury stock method using average market price............ --- 96 --- ------ ------ ------ Total.................................. 3,832 3,727 3,629 ====== ====== ====== Net earnings (loss).................... $ (720) $ 3,453 $ 3,175 ====== ====== ====== Per share amount....................... $ (.19) $ .93 $ .87 ====== ====== ====== Fully diluted Average shares outstanding............. 3,832 3,631 3,629 Net effect of dilutive stock options- based on the treasury stock method using the greater of average market price or year end market price........ --- 230 --- ------ ------ ------ Total.................................. 3,832 3,861 3,629 ====== ====== ====== Net earnings (loss).................... $ (720) $ 3,453 $ 3,175 ====== ====== ====== Per share amount....................... $ (.19) $ .89 $ .87 ====== ====== ======
EX-21 8 EXHIBIT 21 THE DIANA CORPORATION AND SUBSIDIARIES SUBSIDIARIES OF THE REGISTRANT All significant subsidiaries of the Registrant have been listed. Indentations indicate indirectly owned subsidiaries which are directly owned by the named subsidiary. State of Subsidiaries of the Registrant Incorporation D.O.N. Incorporated............................................. Nevada Entree Corporation (an 81.25% owned subsidiary)............... Delaware Atlanta Provision Company, Inc.............................. Georgia C&L Communications, Inc....................................... Texas D.O.N. Communications Corporation............................. Nevada EX-23 9 EXHIBIT 23 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statement (Form S-8) pertaining to The Diana Corporation 1986 Nonqualified Stock Option Plan and the Registration Statement (Form S-3) of The Diana Corporation and in the related Prospectus of our report dated June 2, 1995, except for Note 3 as to which the date is June 28, 1995, with respect to the consolidated financial statements and schedules of The Diana Corporation included in the Annual Report (Form 10-K) for the fiscal year ended April 1, 1995. Milwaukee, Wisconsin ERNST & YOUNG LLP June 28, 1995 EX-27 10
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS OF THE DIANA CORPORATION AS OF AND FOR THE 52 WEEKS ENDED APRIL 1, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS 1,000 12-MOS APR-1-1995 APR-3-1994 APR-1-1995 2740 6211 15385 (600) 12237 36363 8055 (4252) 45327 16874 6981 4810 0 0 20370 45327 250386 249969 239198 239198 10314 0 1098 (720) 0 (720) 0 0 0 (720) (.19) (.19)
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