10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended	Commission File
December 31, 2001	Number 0-11685

RADYNE COMSTREAM INC.

(Exact name of Registrant as specified in its charter)

Delaware	11-2569467
(State or other jurisdiction	(I.R.S. Employer
of incorporation or organization)	Identification No.)

3138 East Elwood Street, Phoenix, Arizona	85034
(Address of Principal Executive Offices)	(Zip Code)

Registrant’s telephone number including area code: (602) 437-9620

Securities Registered Under Section 12(b) of the Exchange Act: None

Securities Registered Under Section 12(g) of the Exchange Act:

Common Stock, $.001 Par Value
Common Stock Purchase Warrants

         Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes 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.

         The aggregate market value of the voting stock held by non-affiliates of the registrant was approximately $25 million based on the closing price of $4.82 per share of common stock as reported on the Nasdaq Stock Market on March 22, 2002. For purposes of this determination, shares of common stock held by each officer and director and by each person who owns 5% or more of the outstanding common stock have been excluded in that such persons may be deemed to be affiliates of the registrant. This determination of affiliate status is not necessarily a conclusive determination for other purposes. The number of outstanding shares of the registrant’s common stock as of the close of business were 15,119,490.

DOCUMENTS INCORPORATED BY REFERENCE

         Items 10, 11, 12, and 13 of Part III incorporate information by reference from the definitive proxy statement for the registrant’s Annual Meeting of Stockholders to be held on May 22, 2002.

TABLE OF CONTENTS

PART I
	ITEM 1.     BUSINESS
	ITEM 2.     PROPERTIES
	ITEM 3.     LEGAL PROCEEDINGS
	ITEM 4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
PART II
	ITEM 5.     MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
	ITEM 6.     SELECTED FINANCIAL DATA
	ITEM 7.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	ITEM 7A.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
	ITEM 8.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Independent Auditors’ Report
	Consolidated Balance Sheets
	Consolidated Statements of Operations
Consolidated Statements of Stockholders’ Equity and Comprehensive Income
	Consolidated Statements of Cash Flows
	Notes to Consolidated Financial Statements
	ITEM 9.     CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
PART III
	ITEM 10.     DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
	ITEM 11.     DIRECTOR AND EXECUTIVE COMPENSATION
	ITEM 12.     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
	ITEM 13.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
PART IV
	ITEM 14.     EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
EXHIBIT
SIGNATURES
EX-10.6
EX-21.1
EX-23.1
EX-99.1

PART I

DISCLOSURE CONCERNING FORWARD-LOOKING STATEMENTS

         This Annual Report on Form 10-K, includes statements that constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Reform Act”) and Radyne ComStream claims the protection of the safe-harbor for forward-looking statements contained in the Reform Act. These forward-looking statements are often characterized by the terms “may,” “believes,” “projects,” “expects,” or “anticipates,” and do not reflect historical facts. Specific forward-looking statements contained in this Annual Report on Form 10-K in the Notes to Consolidated Financial Statements and under the captions “Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” include, but are not limited to: (i) growth in demand for satellite system ground-based equipment and satellite-delivered communications services, (ii) continued global deregulation and privatization of telecommunications carriers, (iii) worldwide demand for Internet over Satellite connectivity and communications services in general, (iv) an increase in total foreign sales, and (v) an increase in market share and (vi) sufficient cash reserves and cash from operations to fund planned future operations and capital requirements through the end of 2002.

         Forward-looking statements involve risks, uncertainties and other factors which may cause actual results, performance or achievements of Radyne ComStream to be materially different from those expressed or implied by such forward-looking statements. Factors that could affect Radyne ComStream’s results and cause them to materially differ from those contained in the forward-looking statements include:

• loss of, and failure to replace, any significant customers;

• timing and success of new product introductions;

• product developments, introductions and pricing of competitors;

• timing of substantial customer orders;

• availability of qualified personnel;

• the impact of local political and economic conditions and foreign exchange fluctuations on international sales;

• performance of suppliers and subcontractors;

• market demand and industry and general economic or business conditions;

• availability, cost and terms of capital;

• the “Risk Factors” set forth in Exhibit 99.1, which is attached hereto and incorporated by reference into this Annual Report on Form 10-K; and

• Other factors that Radyne ComStream is currently unable to identify or quantify, but may exist in the future.

         In addition, the foregoing factors may affect generally Radyne ComStream’s business, results of operations and financial position.

         Forward-looking statements speak only as of the date the statement was made. Radyne ComStream does not undertake and specifically declines any obligation to update any forward-looking statements.

ITEM 1.     BUSINESS

Overview

         We design, manufacture, install and sell equipment used in the ground-based portion of satellite communication systems to receive, and transmit data, video, audio and Internet over satellite communications links. We also design, manufacture, and sell equipment used in cable television systems. Our products are used in applications for telephone, data, video and audio broadcast communications, private and corporate data networks, Internet applications, and digital television for cable and network broadcast. We serve customers in over 80 countries, including customers in the television broadcast industry, international telecommunications companies, Internet service providers, private communications networks, network and cable television and the United States government.

         Our products have been utilized in major communication systems worldwide, including the following:

• The world’s highest capacity domestic, digital satellite telephone network — PT Telkom, Indonesia.

• Italy’s first digital telephone/data network — Telespacio, Italian Railways.

• Colombia’s first alternate telecommunications network — Americatel.

• Supplied HDTV Encoders and IRDs for Major Korean Broadcasters

• Earth stations for the first international satellite links in China, India, Pakistan, Brazil, Haiti and Zambia.

• One of the world’s largest private satellite broadcast network — Reuters.

• International Cablecasting Technologies — utilizing 40,000 digital audio broadcast receivers.

• Supply of Ground equipment for delivery of IP over Satellite to major satellite bandwidth providers.

• First major Internet over Satellite network with 300 terminals deployed in the Dominican Republic for a distance learning application.

• Major private audio network in Mexico and Central America for a department store chain which transmits music, advertising and product announcements to all its store locations.

• Supply of major control room equipment plus engineering, installation and training at new customer service center for PanAmSat Corporation.

• Broadband satellite modems and frequency converters to provide telephone and Internet connectivity for VSNL, the largest international telecommunications provider in India.

• High-Speed DVB Modulators for Hughes Direct to PC network.

• High Definition Television encoders and IRDs for major international sporting events (2002 winter Olympics through NBC, 2002 World Cup through Korea Telecom and various programming through ESPN-Star in Singapore)

• First Internet broadcast network in the Republic of Myanmar.

• Major expansion of US Government Satellite Communications Network.

Industry Overview

         Satellite technology has been established as a key element in the worldwide infrastructure of communications systems. Satellites enable high-speed communications service where there is no suitable alternative available. Unlike the cost of land-based

networks, such as microwave and fiber cable, the cost to provide services via satellite does not increase with the distance between sending and receiving stations. Satellite networks can be rapidly installed, upgraded, and reconfigured as compared with land-based networks, which require rights-of-way and are expensive and time consuming to install and upgrade. The three principal categories of satellite communications service applications are fixed satellite services, mobile satellite services, and direct broadcast services.

         Fixed Satellite Services. Fixed satellite services provide point-to-point and point-to-multipoint satellite communication of voice, data, and video between fixed ground-based earth stations. The introduction of high-power satellites has created additional growth within the fixed satellite services segment by enabling the use of smaller, less costly earth stations for applications such as corporate data networks, Intranet access, and rural telephony.

         Mobile Satellite Services. Mobile satellite services operate between fixed earth stations and mobile user earth stations, or terminals. These services provide mobile voice and data transmission capability on land, sea, and air. New mobile satellite services are being developed to bring more extensive coverage and circuit reliability for mobile telephone and data services to under-served populations throughout the world.

         Direct Broadcast Services. Direct broadcast satellite services provide a direct transmission link from high-power satellites to customers over a wide geographic area. This includes direct-to-home television services, direct broadcast data services, and Internet access.

         Satellite communication systems that are used to provide these services consist of two elements: satellites (the “space segment”) and ground-based transmission and reception systems (the “ground segment”). The space segment consists of a single satellite or a constellation of satellites in earth orbit, which typically provide continuous communications coverage over a wide geographic area. These satellites typically contain multiple transponders, each of which is capable of simultaneously receiving and transmitting one or more signals to or from multiple users. The satellite ground segment consists principally of one or more earth stations. An earth station is an integrated system consisting of antennae, radio signal transmitting and receiving equipment, a satellite modem, a frequency controller, and voice, data, and video network interface equipment. Earth stations provide a communications link to the end user either directly or through land-based networks.

         We have participated principally in the ground segment products, systems, and networks portion of the market. A Merrill Lynch Study, “Global Satellite Marketplace 2000,” estimated the global market for satellite ground equipment and integration services was $30 billion in 2000, of which our management estimates $1 billion was for the type of equipment and systems we develop, manufacture, and market.

Industry Growth

         We believe that demand for satellite system ground-based equipment has been and will continue to be driven by, among other things, the growth of satellite-delivered communications services such as the fixed, mobile, and direct broadcast services described above. We believe that future demand for satellite communications services will be driven principally by the following major factors:

• Continued global deregulation and privatization of government-monopolized telecommunications carriers, which will stimulate growth in the communications industry in general.

• Worldwide demand for Internet over Satellite connectivity. Approximately 80% of the World Wide Web sites reside in North America and high-speed access to the web will continue to be a major issue over the next 3-5 years.

• Worldwide demand for communications services in general, including data communications services, high-speed digital television/HDTV and corporate Intranets.

• The relative cost-effectiveness of satellite communications for many applications, such as digital television delivery.

• Technological advancements that broaden applications for and increase the capacity in satellite networks.

• Lack of global terrestrial infrastructure to support increased demand for Broadband and Internet applications and services.

• U.S. Federal Communications Commission mandate for Television Broadcasters to adopt DTV standards by 2006.

         Deregulation and Privatization. Many developing countries that had previously not committed significant resources to or placed a high priority on developing and upgrading their communications systems are now doing so, primarily through deregulation and privatization. A significant number of these countries do not have the resources, or have large geographic areas or terrain that make it difficult, to install extensive land-based networks on a cost-effective basis. This provides an opportunity for satellite communications services systems to meet the requirement for communications services in these countries.

         Worldwide Demand for Communications Services. Factors contributing to the demand for communications services include worldwide economic development and the increasing globalization of commerce. Businesses have a need for higher bandwidth services to communicate with their customers and employees around the world and are increasingly reliant upon Internet and multimedia applications. We expect demand for these kinds of higher bandwidth services to grow in both developed and developing countries.

         Cost-Effectiveness of Satellite Communications. The relative cost-effectiveness of satellite communications services is a major factor driving the growth of satellite communications services in areas with rapidly growing telecommunications infrastructures. Large geographic areas, where population concentrations are separated by significant distances, require a technology whose cost and speed of implementation is relatively insensitive to distance. Unlike the cost of land-based networks, the cost to provide services via satellite does not increase with the distance between sending and receiving stations.

         Technological Advances. Technological advances continue to increase the capacity of a single satellite and reduce the overall cost of a system and the service it delivers. This increases the number of potential end-users for the services and expands the available market. We believe that recent technological developments such as bandwidth on demand, digital television compression technology, and signal processing methods will continue to stimulate the demand for the use of satellite communication services.

Market Opportunities

         Satellite communication systems provide a number of advantages over land-based networks for a variety of applications. We have identified several key markets and customer groups that we believe provide opportunities to sell our products.

International and Rural Telephony

         Satellite communication systems enjoy advantages in international telecommunications markets for several reasons:

• It is not cost-effective to utilize land-based networks in many areas of the world, especially developing countries where modern communications capabilities are just beginning to develop.

• All areas within a satellite beam receive the same level of service, making it highly attractive in rough terrain or underdeveloped regions.

• Satellites can be deployed much more rapidly to offer international services.

         We believe there are certain communication requirements that can be reasonably satisfied only with satellite systems. For example, satellite communications offer a cost-effective solution that can be installed relatively quickly to provide communications services in remote or sparsely populated areas, in rugged or in mountainous terrain, or in nations composed of many islands, a geographical feature which is relatively common in the Pacific region.

         The potential to reach areas of low subscriber density without costly construction of land-based networks makes satellite communication systems a viable solution for rural telephony systems. Rural telephony can be described as an intra-country telecommunications network linking many remote locations, such as small villages or islands. These networks allow villages to communicate with each other and with the world. In a typical rural telephony system, a small village might install a satellite earth station in a central location such as the local post office. Residents then use this convenient location to communicate throughout the country and the world.

Private Networks

         As businesses and other organizations expand into regions of the world where the telecommunications infrastructure is inadequate for land-based networks, the need for alternative communications connections among multiple facilities becomes evident. A private network is a dedicated communications and/or data transmission network. Such a network may link employees of a multiple-location business with co-workers located throughout the world. Users can consolidate multiple-applications over a single satellite network and receive the same quality of service at a lower over-all cost. We believe the satellite communications industry is poised to gain a foothold in this market by offering reliable high-speed connectivity. Satellite systems can bypass the complexity of land-based networks, multiple carriers, and varying price and billing schedules.

Information and Radio Broadcasts

         Satellites are an ideal transmission medium for broadcast services, as a single satellite has the ability to communicate with ground locations spread across up to one-third of the surface of the earth. Financial news providers, merchandise retailers, and others use satellite systems to provide financial data and other audio and video transmissions for a variety of applications, such as news wire services and supermarket in-store radio.

Television Video Distribution

         Compressed digital video is a recently developed technology that provides significant new market opportunities for the satellite communications industry. The development of digital compression technology allows the transmission of television signals via satellite in a smaller bandwidth than is currently possible through alternative technologies. This advance in communications technology is enabling a wider application of satellite solutions for television and video broadcast services, including the following:

• Satellites provide television broadcasters with an efficient and economical method to distribute their programming to cable service providers and direct broadcast satellite operators.

• Compressed video encoding and decoding make satellites available for less demanding video transmissions, including business teleconferencing, private business networks, and telemedicine.

• The economics of compressed video allow the use of satellite transmission for long-distance teaching applications.

• Digital cinema distribution is emerging as a viable alternative to the physical distribution of feature length films.

• There is an emerging market to provide data and video directly to the personal computer via satellite.

Internet Communications

         The Internet is evolving into a global medium, allowing millions of individuals throughout the world to communicate, share information, and engage in electronic commerce. Growth in this sector is expected to be driven by the large and growing number of personal computers installed in homes and offices, the declining prices of personal computers, improvements in network infrastructure, the availability of faster and cheaper Internet access, and the increasing familiarity with and acceptance of the Internet by businesses and consumers. Internet usage also is expected to continue to grow rapidly due to unique characteristics that differentiate it from traditional media, such as real-time access to interactive content, real-time communication capabilities, and the absence of geographic or temporal limitations.

         We expect satellite communications to continue to offer a cost-effective augmentation capability for Internet service providers, particularly in markets where land-based networks are unlikely to be either cost-effective or abundant, such as rural areas. Additionally, satellite broadcast architecture provides an attractive alternative for Internet service providers, which presently are dealing with the bottlenecks associated with rapid and uneven Internet growth. Satellite systems can relieve congestion by providing a low-cost means of selectively distributing content to sites closer to end-users. Today, only 1,000 Websites represent over 80% of the most frequently accessed content on the Internet. These Web pages can be transmitted via satellite at regular intervals to designated server destinations and then stored in servers for local users to access. This cached content reduces the need to retrieve the most popular data from the source, thus reducing delays and congestion on the Internet. Likewise, we expect Internet multicasting to serve as a solution for the distribution of large applications, such as database updates.

Government and Military

         The United States government provides a significant market opportunity for satellite equipment manufacturers as the defense budget shrinks and government policies encourage the use of commercial off-the-shelf components whenever feasible. This provides us with the opportunity to configure our standard products for a customer that is sizable and likely to provide consistent business.

Strategy

         Our business goals are to expand our market share in our ground-based satellite systems business and improve profitability. We expect to achieve these goals through the following strategies:

         Target Providers of Fixed, Mobile, and Direct Broadcast Communications Services Worldwide. We plan to target developing markets that we believe will account for a significant portion of the demand for satellite-based systems. These markets typically lack terrestrial infrastructure adequate to support demand for domestic and international communications services. We plan to target providers of rural telephony services and Internet service providers in developing markets because we believe they will rely extensively upon satellite communication solutions. In developed countries, we plan to target emerging satellite communications service providers such as those offering direct broadcast applications.

         Exploit New Applications for Our Existing Satellite Technology. We plan to adapt existing products for use in the Internet broadband, cable television, and television news gathering markets, which utilize digital receivers and transmission equipment using many of the same modulation, coding, interface, and protocol technologies as the satellite business. We have adapted some of our products for the television distribution market, including satellite modems that we converted for use in cable television systems.

         Develop New Products to Exploit New Market Opportunities. We plan to use our international sales force and our research and development capabilities to identify new market opportunities and develop new products to exploit these opportunities. We intend to develop new products to penetrate and increase our presence in the markets for Internet communications, rural telephony for developing markets, high-speed satellite communications, government data equipment, cable television distribution, and private networks for businesses and governments.

         Provide High-Margin Customized Products to Niche Markets. We design our products so we can adapt them to differing specifications with minimal engineering. We plan to design and produce customized products for niche markets, particularly military and government markets, which require customized technology.

         Pursue Strategic Acquisitions. We intend to pursue strategic acquisitions of competitive or complementary companies in order to gain market share, increase our revenues, expand our product lines, improve our sales force and increase our profitability.

Products and Services

         We offer the following product families:

• Satellite modems and earth stations.

• Internet via Satellite terminal equipment

• Frequency converters.

• Data, audio, and video broadcast equipment.

• Digital video broadcast (DVB) and high-speed modems.

• Cable and microwave modems.

• Standard and High Definition digital Television (HDTV) encoders and IRDs (Integrated Receivers / Decoders).

• Digital TV ATM and network interface adapters

         We offer the following services:

• Design, integration and installation of turnkey communication systems.

Satellite Modems and Earth Stations

We produce satellite modems that are sold individually and earth stations that are a bundled solution built around our satellite modems. Satellite modems transform user information, such as data, video or audio, into a signal that can be further processed for transmission via satellite. We produce several varieties of satellite modems, which operate at different speeds using a variety of modulation techniques.

We’ve recently introduced a major addition to our satellite modem line, the Turbo forward error correction codec. The turbo product provides customers with greatly improved satellite and bandwidth performance, which directly translates to space segment cost savings. This product also affords our installed base of customers (in excess of 10,000 modems) the opportunity to improve their performance at a significant operational cost saving.

Our earth stations commonly consist of several components, including a satellite modem, a frequency converter, a transceiver, a transmitter, and an antenna. Earth stations serve as an essential link in transmitting signals to, and receiving signals from, satellites. Our earth stations enable users to program power levels and operating parameters in order to compensate for low signal levels, extreme weather conditions, and other variables. We design and manufacture our earth stations using components that we manufacture as well as components that we obtain from other manufacturers.

Our Star Network Management System augments these product offerings. The Star Network Management System, which consists of a Windows NT® point and click system, is used to remotely monitor and maintain the functioning of an entire network of modems, earth stations, and ancillary equipment. This can be done from a single location, thereby eliminating the

need to travel to each remote location. This system provides local and remote modem management, control of the equipment connected to the modems and earth stations, collection of network status and alarm information, remote channel monitoring, and dial-up control.

Frequency Converters

We currently market two varieties of converters used to transmit signals to satellites and three converters used to receive signals relayed from satellites. We also produce a redundancy control unit, which will switch a satellite system to stand-by equipment in the event of a malfunction in a satellite modem or converter. Such redundancy is a critical element for many of our customers, such as rural or international telephony networks, that strive to provide uninterrupted satellite communications services to their customers.

Each satellite is configured to receive or transmit a particular radio wave pattern, otherwise called a frequency band, which is typically different from the frequency of the satellite modem. Frequency converters are used to alter the input/output of a satellite modem into a wave pattern that can be interpreted by the particular satellite being used in the satellite system to relay communication signals.

Data, Audio and Video Broadcast Equipment

Our digital audio distribution products provide radio networks, service providers, and merchandise retailers with a satellite distribution system for the broadcast of in-store advertising and background music. Our data distribution products deliver real-time, high-value data and digital video broadcast services. To date, the primary customers for our data distribution products have been participants in the financial industry. For example, our IntelliCast Digital Data Broadcast Receiver is used by customers, such as Reuters, to distribute financial information, up-to-date news stories or image files of weather information and database updates from a central location to many remote outlets. Recently the Ministry of Radio & Television in the Republic of Myanmar has also adopted our IntelliCast Digital Data Broadcast Receiver as the standard for their distance learning network.

Our MediaCast Satellite PC/Receiver card allows personal computers to request information over a telephone link and then receive a digital video broadcast of a wide range of data, audio, and video information directly from a satellite. This speeds the reception of information, particularly in regions with underdeveloped telephony, and is often used by Internet service providers.

Two-way Internet Satellite Terminal Equipment

Our IPSat Internet Satellite Terminal is designed as a fully integrated modular system capable of receive only, transmit only or full duplex satellite connectivity to the Internet anywhere in the world. Utilizing the IPSat’s modularity and integrated routing capabilities end users can take advantage of hybrid configurations in situations where terrestrial return resources such as telephone, cable or other “upstream” technologies are available to be used in conjunction with satellite broadcasting. Where such return resources are not available, or too expensive, the IPSat system can support the return channel over satellite. The IPSat can offer the most flexible, cost efficient performance for high-speed satellite downloads from the World Wide Web for ISP’s, Corporations, Educational Institutions and Government Agencies.

Digital Video Broadcast (DVB) and High-Speed Modems

Our DVB modems facilitate the transmission of high-quality video images among multiple locations via satellite. These modems utilize digital compression technology that allows users to transmit television signals in a smaller bandwidth than is possible using older technology, thereby making television transmission by satellite more economical. Video compression allows for the transmission by satellite of a much higher number of channels than was previously the case, thus producing a significant new market for our products. Satellites are often used in industries where live, high-quality video images are essential, such as direct television broadcasts.

Our high-speed digital modems transmit a greater volume of data than standard satellite modems. Our modems are used in large satellite system connections that transmit significant amounts of data at high speeds. Internet service providers and

government agencies are principal customers for our high-speed and digital high-speed products.

Cable and Microwave Modems

Our cable modems are used primarily in the distribution of digital video for use by cable television distributors and in high-definition television. The design of our cable modems allows for the transmission of digital video on terrestrial, broadband cable and enables system operators to manage and control the available bandwidth. Our microwave modems transmit over microwave frequencies and usually feature high-speed and multidata-rate capabilities that provide a complete point-to-multipoint communication link that facilitates microwave link upgrades. For example, television stations use our microwave modems to transmit audio and video over a microwave link to and from digital news gathering trucks.

Standard and High Definition digital TV encoders

We offer a complete product line of Standard and High Definition TV encoders for professional applications. Our encoders are used throughout the world to provide distribution, contribution and broadcast services. Encoders are used in satellite, cable and terrestrial applications. The majority of US broadcasters rely on our encoders to provide news gathering and direct to home service. Our encoders are recognized for their outstanding picture quality, ease of use and rugged design.

Digital TV Integrated Receivers / Decoders

Our integrated receiver/decoders complement the encoder products enabling us to provide complete system solutions. Receivers and decoders support DVB and ATSC standards for use in both domestic and international markets. One of our receiver/decoders, the TDR6 has been adopted by ABC and NBC as a standard. The modular TDR6 is unique, in that it supports both standard definition and high definition TV.

Digital TV ATM and Network Interface Adapters

There is an increasing demand to transport TV terrestrially via common and private carriers. Terrestrial transport of video introduces technical requirements relating to interface types, stability and jitter. Interface adapters allow encoders and decoders to operate in circuit-switched and ATM networks. Our products are widely accepted for these applications. For example, the TUI10 Universal Interface Adapter has been certified by AT&T and is an industry standard.

Design, Integration and Installation of Turnkey Communications Systems

At our Armer Communications Engineering facility in Chandler, Arizona, we design, integrate and test turnkey communications systems ranging from small VSAT installations to Intelsat standard stations. We deliver products and services from initial engineering and system development to final testing and after sales support. Our ability to deliver a full compliment of equipment and services to our customers is a benefit to our customers who desire a one-stop solution to their needs.

Research and Development

         We conduct an active and ongoing research and development program that focuses on advancing technology, developing improved design and manufacturing processes, and improving the overall quality of the products we provide. Our goal is to provide our customers with new solutions that address their needs. Our research and development personnel concentrate on technology for the satellite and microwave communications, telecommunications, and cable television industries. Our future growth depends on increasing the market share of our new products, adapting our existing products/technologies to new applications, and introducing new communications products that will find market acceptance and benefit from our established international distribution channels. Accordingly, we are actively applying our communications technology expertise to improving the performance of our existing products and developing new products to serve existing and new markets.

         We work closely with our customers and potential customers to assess their needs in order to facilitate our design and development of new products. We believe that this approach minimizes our development risk and improves the potential for market acceptance of our product introductions. Additionally, we use information obtained from our customers and our technological expertise to develop custom-designed products for our customers’ special applications.

         Research and development expenses amounted to $10.8 million for the year ended December 31, 2001, $9.3 million for the year ended December 31, 2000 and $9.1 million for the year ended December 31, 1999. A number of new products were either launched or reached an advanced stage of development during these periods.

         We intend to use a significant portion of our cash flows from earnings to fund our research into products for Internet over Satellite links, High Definition Television (HDTV) and other new telecommunications products. We also plan to target our research and development activities at digital audio, video, and data products. However, there is no assurance that we will continue to have access to sufficient capital to fund the necessary research and development or that such efforts, even if adequately funded, will prove successful.

Sales and Marketing

         We sell our products through an international sales force with sales and/or service offices in San Diego, Phoenix, Boca Raton, Beijing, Singapore, London, Amsterdam, and Jakarta. Our direct sales force consists of 14 individuals supported by systems and applications engineers. We focus direct sales activities on expanding our international sales by identifying emerging markets and establishing new customer accounts. Additionally, we directly target certain major accounts that may provide entry into new markets or lead to subsequent distribution arrangements. International representatives, distributors and systems integrators sell our products, supported by our sales and marketing personnel.

         We participate in approximately six trade shows each year. We also generate new sales leads through advertising in trade magazines, direct mail, and our Web site (www.RadyneComStream.com) (reference to our Web site is intended to be an inactive textual reference).

         We maintain a customer service and support staff that primarily supports customers and distributors and is responsible for after-sale support and installation supervision. In certain instances, we use third-party companies to install and maintain our products at our customers’ sites.

Customers

         Our customers generally include national and international telecommunications providers, digital television users, including broadcast and cable networks, Internet service providers, financial information providers, systems integrators, and the U.S. government.

         During the years ended December 31, 2001 and 1999, no single customer represented more than 10% of our net sales. For the year ended December 31, 2000 one customer represented 12.4% of our net sales. Because of the nature of our business, we anticipate that any customers that represent 10% or more of our total revenue will vary from period to period depending upon the placement of significant orders by a particular customer or customers in any given year.

         Our sales in principal foreign markets for the periods indicated consisted of the following percentages of total sales.

	Year ended			Year ended			Year ended
Region	12-31-01			12-31-00			12-31-99
Asia		20	%		25	%		25	%
Africa/Middle East		3	%		2	%		4	%
Latin America		7	%		3	%		4	%
Europe		15	%		13	%		21	%
Canada		1	%		1	%		2	%
Total Foreign Sales		46	%		44	%		56	%

         The one customer who accounted for 12.4% of our total sales, in 2000, was classified as a domestic customer. However, the products purchased by the customer were used to complete Internet over satellite circuits from the U.S. to foreign (principally Latin American) countries. Likewise, we believe that as much as 60% of our domestic sales are ultimately destined for foreign use.

         We believe that foreign sales will continue to make up the bulk of our total sales in subsequent periods. We consider our ability to continue to sell our products in developing markets to be important to our future growth. We may not, however, succeed in our efforts to cultivate such markets.

Competition

         We have a number of major competitors in the satellite communications field. These include large companies, such as Hughes Network Systems, NEC, and Comtech EFData Corp., all of which have significantly larger and more diversified operations and greater financial, marketing, human and other resources than we possess. We estimate that our major competitors, in the principal markets in which we compete, have the following market shares as compared to our market share:

	Market Segment
	Satellite Modems &
Principle Companies Within	Small Earth			Broadband
Addressable Market Segment	Stations			IP VSAT			Datacasting			Digital TV			Integration
Comtech EFData		20	%		*			*			*			*
Paradise Datacom (Intelek)		15	%		*			*			*			*
Gilat		10	%		20	%		15	%		*			*
HNS		*			30	%		5	%		*			*
ViaSat		5	%		20	%		15	%		*			*
IDC		*			*			25	%		*			*
Tandberg TV		*			*			*			40	%		*
Scopus		*			*			*			10	%		*
Wegener		*			*			*			10	%		*
IDB		*			*			*			*			20	%
Globecomm Systems		5	%		*			*			*			20	%
Vertex RSI		5	%		*			*			*			20	%
Radyne ComStream		20	%		5	%		5	%		10	%		5	%

* Competitor does not participate in product category or comprises less than 5% of the total market.

         We do not believe that any other single competitor has a greater than 10% market share for any of these product classes. However, the foregoing market share figures represent estimates based on the limited information available to us, and we cannot assure you that it is accurate.

         We compete by concentrating our sales efforts in the international market and emphasizing our product features, quality and after-sales service. We believe that the quality, performance, and capabilities of our products, our ability to customize certain

network functions, and the relatively lower overall cost of our products as compared to the cost of the competing products generally offered by our major competitors represent major factors in our ability to compete. However, our major competitors have the resources to develop products with features and functions that are competitive with or superior to our products. Competition from current competitors or future entrants in the markets in which we compete could cause us to lose orders or customers or could force us to lower the prices we charge for our products.

         We believe we are well positioned to capitalize on the demand for satellite ground segment systems and that our future success in this market will be based upon our ability to leverage our competitive advantages, which include the following:

• An experienced management group, which has extensive technological and engineering expertise and excellent customer relationships. The members of our management team have an average of over 20 years of experience in the satellite communications industry.

• Our expansive line of well-known, well-respected, off-the-shelf, state-of-the-art equipment that enables us to meet our customers’ requirements.

• Our ability to custom design products for our customers’ special applications and to provide a one-stop shopping option to our customers.

• Our ability to meet the complex satellite ground communications systems requirements of our customers in diverse political, economic, and regulatory environments in various locations around the world.

• Our worldwide sales and service organization with the expertise to successfully conduct business internationally through sales and service offices staffed by our employees in most of our major markets throughout the world, including in Beijing, Singapore, London, Jakarta, and Amsterdam.

Manufacturing

         We assemble and test certain products at our Phoenix, Arizona and San Diego, California facilities using subsystems and circuit boards that we obtain from subcontractors. We obtain the remainder of our products, completely assembled and tested, from subcontractors. Although we believe that we maintain adequate stock to reduce the procurement lead-time for certain components, our products use a number of specialized chips and customized components or subassemblies produced by a limited number of suppliers. In the event that such suppliers were unable or unwilling to fulfill our requirements, we could experience an interruption in production until we develop an alternative supply source. We maintain an inventory of certain chips and components and subassemblies to limit the potential for such an interruption. We believe that there are a number of companies capable of providing replacements for the types of chips and customized components and subassemblies used in our products.

         During 1999 and 2000, our Phoenix and San Diego facilities were awarded ISO 9001 certification, the international quality control standard for research and development, marketing, sales, manufacturing, and distribution processes. subsequently, we have continued to improve our processes and methods of operations, consistent with our goals and the certification requirements. This certification will assist in increasing the acceptance of our products in foreign markets.

Intellectual Property

         We rely on our proprietary technology and intellectual property to maintain our competitive position. We protect a significant portion of our proprietary technology as trade secrets by relying on confidentiality agreements with our employees and some of our suppliers. We also control access to and distribution of confidential information concerning our proprietary information.

         We also have patents which protect certain of our proprietary technology. We have been cautious in seeking to obtain patent protection for our products, since patents often provide only narrow protection that may not prevent competitors from developing products that function in a manner similar to those covered by our patents. In addition, some of the foreign countries

in which we sell our products do not provide the same level of protection to intellectual property as the laws of the United States provide. We will continue to seek patent protection for our proprietary technology in those cases where we think it can be obtained and will provide us with a competitive advantage.

Employees

         As of December 31, 2001, we had 259 full-time employees, including four executive officers, 154 in engineering and manufacturing, 47 in sales and marketing, 27 in installation and customer service and 31 in administration. These figures include employees who are based outside the United States. A union does not represent our employees in their collective bargaining with us. We believe that our relationships with our employees are satisfactory.

ITEM 2.     PROPERTIES

         We currently have 76,000 square feet available in Phoenix, 16,000 square feet in Chandler and 66,000 square feet available for our San Diego facility. The lease for our Phoenix facility expires in July 2008 and we have an option to renew for two consecutive terms of five years each. The lease for our Chandler facility expires in October 2008 and we have an option to renew for five years. The lease for our San Diego facility expires in March 2005 and we have an option to renew for two consecutive terms of five years each. We also lease facilities for our regional sales and service offices in Boca Raton, Beijing, Singapore, London, Jakarta, and Amsterdam. We believe that our facilities are adequate to meet current and reasonably anticipated needs in the immediate future.

ITEM 3.     LEGAL PROCEEDINGS

         From time to time, we are party to certain legal proceedings incidental to the conduct of our business. We believe that the outcome of pending legal proceedings will not, either individually or in the aggregate, have a material adverse effect on our business, financial position, results of operations, cash flows or liquidity.

ITEM 4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         No matters were submitted to a vote of securities holders during the three months ended December 31, 2001.

PART II

ITEM 5.     MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market for Common Stock

         Our common stock was traded on the OTC Bulletin Board under the symbol “RADN” as of December 31, 1999. As a result of our public offering, which became effective February 7, 2000, our common stock and warrants now trade on the Nasdaq National Market under the symbols “RADN” and “RADNW,” respectively. The following table sets forth the range of high and low trading prices as reported by the OTC Bulletin Board and Nasdaq National Market for the periods indicated.

		High $	Low $
1999:
	First Quarter	4.25	2.25
	Second Quarter	3.75	2.50
	Third Quarter	3.56	2.25
	Fourth Quarter	8.50	2.75
2000:
	First Quarter	35.00	6.50
	Second Quarter	23.38	11.13
	Third Quarter	17.56	7.81
	Fourth Quarter	10.13	3.91
2001:
	First Quarter	8.63	4.88
	Second Quarter	7.36	4.44
	Third Quarter	6.17	3.60
	Fourth Quarter	6.10	3.54

Holders of Record

         As of March 22, 2002, we had approximately 400 holders of record of our common stock. We estimate that there are more than 4,600 beneficial owners of our common stock.

Dividends

         We have not paid dividends on our common stock since inception and we do not intend to pay any dividends to our stockholders in the foreseeable future. We currently intend to reinvest earnings, if any, in the development and expansion of our business. The declaration of dividends in the future will be at the election of our Board of Directors and will depend upon our earnings, capital requirements and financial position, general economic conditions and other pertinent factors.

Sale of Unregistered Securities

         During the fourth quarter of 2001, we did not issue any equity securities that were not registered under the Securities Act of 1933, as amended.

ITEM 6.     SELECTED FINANCIAL DATA

         The following selected statement of operations data for the years ended December 31, 2001, 2000, 1999, 1998, and 1997, and the selected balance sheet data at those dates, are derived from our consolidated financial statements and notes thereto audited by our independent auditors, KPMG LLP (in the case of the years ended December 31, 2001, 2000, 1999 and 1998) and Deloitte & Touche LLP (in the case of the year ended December 31, 1997). Per share data and shares outstanding reflect an adjustment for the effects of the 1-for-5 reverse split of our common stock, which became effective on January 9, 1997. The following data is not necessarily indicative of results of future operations and should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and notes thereto included elsewhere in this 10-K Annual Report.

STATEMENT OF OPERATIONS DATA:

		Years Ended December 31,
		(in thousands except share data)
		2001			2000			1999			1998			1997
Net sales		$	68,471		$	70,107		$	55,840		$	21,112		$	13,447
Cost of sales			39,559			38,280			29,971			15,808			8,022
Gross profit			28,912			31,827			25,869			5,304			5,425
Selling, general and administrative expense			15,307			13,573			12,355			5,531			4,242
Research and development expense			10,812			9,317			9,127			4,296			2,262
Stock option compensation expense			—			—			350			1,566			—
In-process research and development expense			—			—			—			3,909			—
Restructuring costs			—			—			—			3,100			—
Asset impairment charges(1)			—			—			—			263			—
Total operating expenses			26,119			22,890			21,832			18,665			6,504
Earnings (loss) from operations			2,793			8,937			4,037			(13,361	)		(1,079	)
Interest expense			54			492			1,910			1,199			677
Interest income			(523	)		(1,076	)		(76	)		(23	)		—
Earnings (loss) before income taxes and extraordinary item			3,262			9,522			2,203			(14,537	)		(1,756	)
Income taxes			1,326			(2,919	)		85			—			—
Earnings (loss) before extraordinary item			1,936			12,441			2,118			(14,537	)		(1,756	)
Extraordinary item			—			—			188			—			—
Net earnings (loss)		$	1,936		$	12,441		$	2,306		$	(14,537	)	$	(1,756	)
Basic earnings (loss) per share:
	Earnings (loss) before extraordinary item	$	0.13		$	0.89		$	0.30		$	(2.45	)	$	(0.35	)
	Extraordinary item		0.00			0.00			0.02			0.00			0.00
	Net earnings (loss)	$	0.13		$	0.89		$	0.32		$	(2.45	)	$	(0.35	)
Diluted earnings (loss) per share:
	Earnings (loss) before extraordinary item	$	0.13		$	0.81		$	0.28		$	(2.45	)	$	(0.35	)
	Extraordinary item		0.00			0.00			0.02			0.00			0.00
	Net earnings (loss)	$	0.13		$	0.81		$	0.30		$	(2.45	)	$	(0.35	)
Weighted average shares used in computation
Basic			14,943,516			13,972,078			7,111,777			5,931,346			5,012,664
Diluted			15,411,568			15,426,297			7,571,425			5,931,346			5,012,664
EBITDA (2)		$	6,367		$	11,164		$	6,948		$	(12,297	)	$	(625	)
BALANCE SHEET DATA:
Cash and cash equivalents		$	7,211		$	16,245		$	2,948		$	225		$	570
Working capital (deficit)			35,959			33,858			(2,555	)		(8,804	)		(1,655	)
Total assets			53,241			51,844			28,236			29,191			10,232
Long-term liabilities			684			769			760			16,862			4,649
Total liabilities			7,893			10,030			23,909			44,428			11,382
Stockholders’ equity (deficiency)			45,347			41,814			4,327			(15,237	)		(1,150	)

Notes:

(1)	Consists of the writedown of designs and drawings in light of the introduction of replacement products.
(2)	EBITDA is earnings before interest, taxes, depreciation and amortization, a measure not defined by generally accepted accounting principles.

ITEM 7.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

         We design, manufacture, install and sell equipment used in the ground-based portion of satellite communication systems to receive, and transmit data, video, audio and Internet over satellite communications links. We also design, manufacture, and sell equipment used in cable television systems. Our products are used in applications for telephone, data, video and audio broadcast communications, private and corporate data networks, Internet applications, and digital television for cable and network broadcast. We serve customers in over 80 countries, including customers in the television broadcast industry, international telecommunications companies, Internet service providers, private communications networks, network and cable television and the United States government.

         On December 8, 2000, we completed the acquisition of all of the outstanding shares of common stock of Armer Communications Engineering Services, Inc. (“Armer”) for an aggregate purchase price of $1.9 million. This purchase price consisted of $1.2 million in cash and 130,680 shares of our common stock. The fair value of the stock was determined based on the average market price of the stock over a reasonable period of time before and after the terms of the acquisition were agreed to and announced. Armer specializes in innovative solutions for the integration and installation of turnkey satellite communications systems. This acquisition was recorded in accordance with the “purchase method” of accounting and, accordingly, the purchase price has been allocated to the assets purchased and the liabilities assumed based upon the estimated fair values at the date of acquisition. The excess of the purchase price over the fair values of the net assets acquired was approximately $1.9 million and has been recorded as goodwill, which is being amortized on a straight-line basis over twelve years. The results of operations of the acquired operations have been included in the accompanying statements of operations from the acquisition date.

         On April 18, 2001, we completed the acquisition of all of the assets of Tiernan Communications, Inc. for an aggregate purchase price of $4.0 million. We manufacture the Tiernan products, which are used in the television broadcast industry. The acquisition has been recorded in accordance with the “purchase method” of accounting and, accordingly, the purchase price has been allocated to the assets purchased and the liabilities assumed based upon the estimated fair value at the date of acquisition. The excess of the purchase price over the fair value of the net assets acquired was approximately $1.4 million and has been recorded as goodwill, which is being amortized on a straight-line basis over seven years.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

         The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make a number of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Such estimates and assumptions affect the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, we evaluate our estimates, including those related to bad debts, inventories, intangible assets, income taxes, warranty obligations, and contingencies based upon historical experience and various other assumptions, factors, and circumstances. We believe that our estimates and assumptions are reasonable in the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions and future conditions.

         We believe the following critical accounting policies affect our more significant judgements and estimates used in the preparation of our consolidated financial statements:

• Revenue Recognition. We recognize revenues for orders of products to be shipped as we ship the products and transfer ownership to our customers. We maintain allowances for sales returns.

• Allowance for Doubtful Accounts. We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. If the financial condition of our customers were to

	deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.
•	Long-Lived Assets. We estimate the useful lives of our property and equipment, goodwill and other identifiable intangibles. We may experience losses if these assets suffered impairment due to the useful lives ultimately being shorter than they were originally estimated or if the carrying value of the long-lived assets are not recoverable from our operations.
•	Warranties. We provide for the estimated cost of product warranties at the time revenue is recognized. While we engage in extensive product quality programs and processes, including actively monitoring and evaluating the quality of our vendors, our warranty obligation is affected by product failure rates and material usage and service delivery costs incurred in correcting any product failures. Should actual product failure rates, material usage or service delivery costs differ from our estimates, revisions to the estimated warranty liability would be required.
•	Inventories. We write down our inventory for estimated obsolescence or the inability to market its inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required.
•	Deferred Taxes. We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. While we have considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance, in the event we were to determine that we would be able to realize our deferred tax assets in the future in excess of our net recorded amount, an adjustment to the deferred tax asset would increase income in the period such determination was made. Likewise, should we determine that we would not be able to realize all or part of our deferred tax asset in the future, an adjustment to the deferred tax asset would be charged to income in the period such determination was made.

         RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 2001 COMPARED TO THE YEAR ENDED DECEMBER 31, 2000

         Our net sales decreased 2% to $68.5 million during the year ended December 31, 2001 from $70.1 million during the year ended December 31, 2000. This decrease is primarily attributable to the economic slowdown over the last year and was offset by sales of products from the Tiernan and Armer acquisitions. The products attributable to these acquisitions accounted for approximately $18.0 million of sales during the current year compared to approximately $2.0 million of sales for the prior year. We experience normal margins on the Tiernan products and lower margins on the Armer products.

         Our cost of sales as a percentage of net sales increased by 3% to 58% during the year ended December 31, 2001 from 55% for the year ended December 31, 2000. The change in costs as a percent of sales is primarily due to changes in the mix of products shipped, namely, the typically lower margins on the Armer products and higher unabsorbed overhead from our core businesses due to the lower sales during the current year.

         Selling, general and administrative costs increased to $15.3 million, or 22% of sales, during the year ended December 31, 2001 from $13.6 million, or 19% of sales, for the year ended December 31, 2000. The increase in expenses during the year is primarily attributed to the additional expenses associated with the Armer and Tiernan product lines, which were approximately $1.5 million and $2.0 million respectively.

         Research and development expenditures increased to $10.8 million, or 16% of sales, during the year ended December 31, 2001 from $9.3 million, or 13% of sales, during the year ended December 31, 2000. In addition to our continued commitment to invest in our future through technological advances and our efforts to improve our older product lines for manufacturability and lower costs, the increase in research and development expenses reflects added efforts for our Tiernan product lines and a significant effort to develop the IPSat related product lines. Our research and development personnel concentrate on technology for the satellite and microwave communications, telecommunications, and cable television industries, as well as the newly acquired Tiernan product lines, which target the digital television broadcast industry. We have reorganized to reduce research and development costs for the ensuing year by reducing personnel dedicated to the IPSat product lines as we believe we are nearing completion of the development phase of this product.

         As a result of the decrease in our gross profit and our higher operating costs as a percentage of sales, 38% in 2001 compared to 33% in 2000, we recorded earnings from operations of $2.8 million during 2001 compared to $8.9 million in 2000.

         Interest expense decreased to $54,000 in 2001, or 0.1% of sales, from $492,000 in 2000, or .7% of sales, due to the payoff of our credit line during the prior year.

         Interest income decreased to $523,000 in 2001 from $1.1 million in 2000. The decrease is due to the reduced cash levels in 2001 compared to 2000. As discussed below, cash decreased primarily as a result of the acquisition in Tiernan in April 2001.

         We recorded an income tax expense in 2001 of $1.3 million compared to an income benefit in 2000 of $2.9 million. The benefit recorded in the prior year was primarily due to a one-time tax benefit of $4.3 million in the third quarter of 2000 resulting from the reduction of the valuation allowance pertaining to our net operating loss carryforward.

         Based on all of the above, we recorded net earnings of $1.9 million, or $0.13 per diluted weighted average share outstanding, during 2001 as compared to $12.4 million, or $0.81 per diluted weighted average share outstanding, during 2000.

         New orders booked (bookings) decreased 9% to $65.6 million for the year ended December 31, 2001 from $72.1 million for the year ended December 31, 2000. This decrease is primarily due to the economic slowdown over the prior year. Our backlog of orders to be shipped, which are unshipped orders from the prior period plus new orders booked less orders shipped during the period, was $14.9 million as of December 31, 2001, a decrease of 13% from the $17.0 million in backlog as of December 31, 2000. This reduction is a direct result of the lower bookings compared to sales during the current period. Our Backlog consists of firm orders as evidenced by written contracts and/or purchase orders from customers.

         RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 2000 COMPARED TO THE YEAR ENDED DECEMBER 31, 1999

         Our net sales increased 26% to $70.1 million during the year ended December 31, 2000 from $55.8 million during the year ended December 31, 1999. This increase is primarily attributable to our introduction of a number of new products into our traditional markets, which resulted in an increase in market share.

         Our cost of sales as a percentage of net sales increased to 54.6% during the year ended December 31, 2000 from 53.7% for the year ended December 31, 1999. The change in costs as a percent of sales is primarily due to changes in the mix of products shipped.

         Selling, general and administrative costs increased to $13.6 million, or 19% of sales, during the year ended December 31, 2000 from $12.4 million, or 22% of sales, for the year ended December 31, 1999. The increase in expenses during the year is primarily attributed to an increase in commissions and other selling expenses due to the increase in sales compared to the prior year and an increased focus on our marketing strategies. The decrease of SG&A expenses in terms of percentage of sales is primarily due to our ability to increase sales at a faster rate than expenses. Research and development expenditures increased to $9.3 million, or 13% of sales, during the year ended December 31, 2000 from $9.1 million, or 16% of sales, during the year ended December 31, 1999. The increase in expense reflects our continued commitment to invest in our future through technological advances and our efforts to improve our older product lines for manufacturability and lower costs. Our research and development personnel concentrate on technology for the satellite and microwave communications, telecommunications, and cable television industries. It is anticipated that we will continue to experience high research and development expenses as we position ourselves, through the introduction of new products, to gain market share.

         As a result of the increase in our gross profit and our lower operating costs as a percentage of sales, 33% in 2000 compared to 39% in 1999, we recorded earnings from operations of $8.9 million during 2000 compared to $4.0 million in 1999.

         Interest expense decreased to $492,000, or 0.7% of sales, in 2000 from $1.9 million, or 3.4% of sales, in 1999 due to the payoff of our credit line during the current year.

         Interest income increased to $1.1 million, or 1.5% of sales, in 2000 from $76,000, or 0.1% of sales, in 1999. The increase is due to the increase in our overall cash levels in 2000 compared to 1999. As discussed below, cash increased

primarily as a result of a public offering in February 2000.

         We recorded a net income tax benefit in 2000 of $2.9 million primarily due to a one-time tax benefit of $4.3 million in the third quarter resulting from the reduction of the valuation allowance pertaining to our net operating loss carryforward.

         Based on all of the above, we recorded net earnings of $12.4 million, or $0.81 per diluted weighted average share outstanding, during 2000 as compared to $2.3 million, or $0.30 per diluted weighted average share outstanding, during 1999.

         Our new orders booked (bookings) increased 15% to $72.1 million for the year ended December 31, 2000 from $62.5 million for the year ended December 31, 1999. This increase is primarily due to the introduction of new products into the market place and an increased market share in the Internet over satellite industry, in addition to increased demand for our core products. Our backlog of orders to be shipped, which are unshipped orders from the prior period plus new orders booked less orders shipped during the period, was $17.0 million as of December 31, 2000, an increase of 17% over the $14.5 million in backlog as of December 31, 1999. Our backlog consists of firm orders as evidenced by written contracts and/or purchase orders from customers.

LIQUIDITY AND CAPITAL RESOURCES

         We had working capital of $36.0 million at December 31, 2001, which represents an increase in our working capital of $2.1 million from our working capital of $33.9 million at December 31, 2000. Our working capital increased primarily as a result of an increase in accounts receivable and inventory of $3.8 million and $6.5 million, respectively, and an increase in accounts payable of $0.2 million, a decrease in deferred tax assets of $1.3 million and a decrease in customer deposits of $0.6 million. The increases were offset by a decrease in cash of $9.0 million. See the discussion below of events related to this activity.

         Net cash used in operating activities was $3.7 million for the year ended December 31, 2001 compared to cash provided by operating activities of $5.9 million for the year ended December 31, 2000. The change is primarily due to a decrease in net earnings of $12.4 million to $1.9 million for the year ended December 31, 2001. In addition, inventories increased by $5.1 million in 2001 compared to $2.9 million in the prior period primarily as a result of increases in IPSat related hardware and inventory attributable to the Tiernan product lines. Accounts receivable increased by $2.9 million during the year ended December 31, 2001 compared to an increase of $2.1 million in the year ended December 31, 2000 as a result of our high volume of sales during the final month of the fourth quarter of 2001. Accounts payable and accrued expenses decreased by $1.5 million compared to $1.8 million in the prior year. These changes are due to the timing of vendor payments. We recorded a reduction in the deferred taxes payable due to current year earnings compared to a net tax benefit of $2.9 million recorded in the year ended December 31, 2000 as a result of the reduction of the valuation allowance pertaining to our net operating loss carryforward in that year. Net cash used in operating activities was $3.7 million compared to cash provided by operating activities of $5.9 million and $2.6 million during the years ended December 31, 2000 and 1999, respectively.

         Cash used in investing activities was $6.0 million for the year ended December 31, 2001 compared to $2.8 million and $279,000 for the years ended December 31, 2000 and 1999, respectively. The increase in cash used in investing activities is primarily due to assets, net of cash, acquired from Tiernan Communications in the amount of $4.0 million. In addition, we had current year additions to fixed assets of $2.1 million compared to $1.2 million during 2000.

         We derived net cash from financing activities of $773,000, $10.2 million and $408,000 during the years ended December 31, 2001, 2000, and 1999, respectively. During the year ended December 31, 2001, net cash from financing activities was generated primarily through the exercise of stock options and stock purchased through our Employee Stock Purchase Plan which provided proceeds of $310,000 and $463,000 respectively. During the year ended December 31, 2000, net cash from financing activities was generated primarily through a public offering, which generated cash of $16.3 million, net of offering costs. The exercise of warrants, which were issued in connection with the public offering, provided additional proceeds of $5.4 million. These proceeds were partially offset by payments made on our line of credit of $12.3 million. During the year ended December 31, 1999, net cash from financing activities was composed primarily of $17.2 million from proceeds obtained through the sale of common stock and $4.9 million from line of credit borrowings, offset by $15.6 million in repayments of loans from affiliates and $6.0 million in repayments of other notes.

         In addition, we have secured a committed line of credit with a bank in the amount of $10.0 million. As of December 31, 2001, there was no outstanding balance on the line of credit.

         Our future debt and lease obligations are summarized by year as follows (in thousands):

		Debt		Minimum Lease		Total Cash
		Maturities		Commitments		Obligations
2002		$	—		2,122		2,122
2003			—		2,127		2,127
2004			—		2,122		2,122
2005			—		1,291		1,291
2006			—		1,063		1,063
Thereafter			—		1,879		1,879
	Total	$	—		10,604		10,604

         We believe that cash and cash equivalents on hand, anticipated future cash receipts, and borrowings available under our credit facility will be sufficient to meet our obligations as they become due for the next twelve months. However, a decrease in our sales or demand for our products or services would likely affect our working capital amounts. As part of our business strategy, we occasionally evaluate potential acquisitions of businesses, products and technologies. Accordingly, a portion of our available cash may be used at any time for the acquisition of complementary products or businesses. These potential transactions may require substantial capital resources, which, in turn, may require us to seek additional debt or equity financing. There are no assurances that we will be able to consummate any of these transactions. For more detailed information, see our Risk Factors contained in Exhibit 99.1 to our Annual Report on Form 10-K filed with the Securities and Exchange Commission.

IMPACT OF INFLATION

         We do not believe that inflation has had a material impact on revenues or expenses during the last five fiscal periods reported on herein.

ACCOUNTING MATTERS

         In July, 2001, the Financial Accounting Standards Board (FASB) issued Statement No. 141, Business Combinations, and Statement No. 142, Goodwill and Other Intangible Assets. Statement 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. Statement 141 also specifies criteria intangible assets acquired in a purchase method business combination must meet to be recognized and reported apart from goodwill, noting that any purchase price allocable to an assembled workforce may not be accounted for separately. Statement 142 will require that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually with the provisions of Statement 142. Statement 142 will also require that intangible assets with definite useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with FASB No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of.

         Any goodwill and any intangible asset determined to have an indefinite useful life that are acquired in a purchase business combination completed after June 30, 2001 will not be amortized, but will continue to be evaluated for impairment in accordance with the appropriate pre-Statement 142 accounting literature. Goodwill and intangible assets acquired in business combinations completed before July 1, 2001 sill continue to be amortized prior to the adoption of Statement 142.

         Statement 141 requires, upon adoption of Statement 142, that we evaluate our existing intangible assets and goodwill that were acquired in a prior purchase business combination, and to make any necessary reclassifications in order to conform

with the new criteria in Statement 141 for recognition apart from goodwill. Upon adoption of Statement 142, we will be required to reassess the useful lives and residual values of all intangible assets acquired in purchase business combinations, and make any necessary amortization period adjustments by the end of the first interim period after adoption. In addition, to the extent an intangible asset is identified as having an indefinite useful life, we will be required to test the intangible asset for impairment in accordance with the provisions of Statement 142 within the first interim period. Any impairment loss will be measured as of the date of adoption and recognized as the cumulative effect of a change in accounting principle in the first interim period.

         In connection with the transitional goodwill impairment evaluation, Statement 142 will require us to perform an assessment of whether there is an indication that goodwill is impaired as of the date of adoption. Any transitional impairment loss will be recognized as the cumulative effect of a change in accounting principle in our statement of operations.

         As of the date of adoption, we expect to have unamortized goodwill of approximately $4.2 million, all of which will be subject to the transition provisions of Statements 141 and 142. Amortization expense related to goodwill was approximately $449,000 for the year ended December 31, 2001. We are evaluating these recently issued accounting standards. However, due to their complexity we are unable to determine the ultimate impact on our consolidated financial statements at this time.

         On October 3, 2001, the FASB issued Statement No, 144, Accounting for the Impairment or Disposal of Long-Lived Assets, which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. While Statement No. 144 supercedes Statement 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, it retains many of the fundamental provisions of that Statement.

         Statement No. 144 also supercedes the accounting and reporting provisions of APB Opinion No. 30, Reporting the Results of operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions, for the disposal of a segment of a business. However, it retains the requirement in opinion No. 30 to report separately discontinued operations and extends that reporting to a component of an entity that either has been disposed of (by sale, abandonment, or in a distribution to owners) or is classified as held for sale. By broadening the presentation of discontinued operations to include more disposal transactions, the FASB has enhanced management’s ability to provide information that helps financial statement users to assess the effects of a disposal transaction on the ongoing operations of an entity. Statement No, 144 is effective for fiscal years beginning after December 15, 2001. At the current time, management does not believe that the adoption of this statement on January 1, 2002 will have a material impact on the Company’s financial position, results of operations or liquidity.

ITEM 7A.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         We are exposed to market risk on our financial instruments from changes in interest rates. We do not use financial instruments for trading purposes or to manage interest rate risk. The Company does not have any derivative financial instruments. As of December 31, 2001, a 1% change in interest rates would, over a year’s period, have a potential pretax impact of $72,000 on our interest earnings, which is immaterial to our consolidated financial statements.

ITEM 8.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     Our consolidated financial statements as of December 31, 2001 and 2000 and for each of the years in the three-year period ended December 31, 2001, together with related notes and the report of KPMG LLP, independent auditors, are on the following pages. Other required financial information is more fully described in Item 14.

Independent Auditors’ Report

The Board of Directors and Stockholders
Radyne ComStream Inc.:

We have audited the accompanying consolidated balance sheets of Radyne ComStream Inc. and subsidiaries (the Company) (a majority-owned subsidiary of Singapore Technologies Pte Ltd) as of December 31, 2001 and 2000, and the related consolidated statements of operations, stockholders’ equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2001. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States of America.

/s/ KPMG LLP

Phoenix, Arizona
February 21, 2002

RADYNE COMSTREAM INC.

Consolidated Balance Sheets

			December 31,
			2001			2000
Assets
Current assets:
	Cash and cash equivalents		$	7,210,937			16,244,591
	Accounts receivable – trade, net of allowance for doubtful Accounts of $1,172,523 and $1,014,813, respectively			14,785,039			11,019,149
	Inventories, net			17,825,073			11,330,565
	Prepaid expenses and other assets			795,396			670,726
	Deferred tax assets			2,552,549			3,854,418
		Total current assets		43,168,994			43,119,449
Property and equipment, net				4,356,587			3,288,867
Other assets:
	Purchased technology, net of accumulated amortization of $1,305,000 and $905,000 at December 31, 2001 and 2000, respectively			1,195,000			1,595,000
	Goodwill, net of accumulated amortization of $892,044 and $442,478 at December 31, 2001 and 2000, respectively			4,204,986			3,299,536
	Deposits and other intangibles			314,933			540,693
		Total other assets		5,714,919			5,435,229
			$	53,240,500			51,843,545
Liabilities and Stockholders’ Equity
Current liabilities:
	Current installments of obligations under capital leases		$	77,385			78,056
	Accounts payable, trade			2,472,486			2,225,363
	Accrued expenses			3,979,084			5,485,061
	Taxes payable			78,900			280,000
	Customer advance payments			601,836			1,192,235
		Total current liabilities		7,209,691			9,260,715
Deferred rent				145,582			178,190
Obligations under capital leases, excluding current installments				36,195			85,712
Accrued stock option compensation				501,809			505,413
		Total liabilities		7,893,277			10,030,030
Stockholders’ equity:
	Common stock; $.001 par value – authorized, 20,000,000 shares; issued and outstanding, 15,020,676 and 14,822,820 shares at December 31, 2001 and 2000, respectively			15,021			14,823
	Additional paid-in capital			50,022,868			49,249,999
	Deferred compensation			—			(844,032	)
	Accumulated deficit			(4,671,746	)		(6,607,275	)
	Foreign currency translation adjustment			(18,920	)		—
		Total stockholders’ equity		45,347,223			41,813,515
Commitments, contingent liabilities and subsequent events (note 7, 8, 9, 11, 13, 15, 17 and 18)
			$	53,240,500			51,843,545

See accompanying notes to consolidated financial statements.

RADYNE COMSTREAM INC.

Consolidated Statements of Operations

			Years ended December 31,
			2001			2000			1999
Net sales			$	68,470,929			70,107,080			55,839,792
Cost of sales				39,558,792			38,279,830			29,970,560
		Gross profit		28,912,137			31,827,250			25,869,232
Operating expenses:
	Selling, general and administrative			15,307,442			13,573,460			12,355,188
	Research and development			10,811,459			9,316,633			9,126,545
	Stock option compensation expense			—			—			350,000
		Total operating expenses		26,118,901			22,890,093			21,831,733
Earnings from operations				2,793,236			8,937,157			4,037,499
Other (income) expense:
	Interest expense			54,186			491,717			1,910,422
	Other			(522,527	)		(1,076,432	)		(76,045	)
Earnings before income taxes and extraordinary item				3,261,577			9,521,872			2,203,122
Income taxes (benefit)				1,326,048			(2,918,735	)		85,000
Earnings before extraordinary item				1,935,529			12,440,607			2,118,122
Extraordinary item				—			—			188,182
		Net earnings	$	1,935,529			12,440,607			2,306,304
Basic net earnings per share:
	Earnings before extraordinary item		$	0.13			0.89			0.30
	Extraordinary item			—			—			0.02
		Net earnings	$	0.13			0.89			0.32
Diluted net earnings per share:
	Earnings before extraordinary item		$	0.13			0.81			0.28
	Extraordinary item			—			—			0.02
		Net earnings	$	0.13			0.81			0.30
Weighted average number of common shares outstanding — basic				14,943,516			13,972,078			7,111,777
Weighted average number of common shares outstanding — diluted				15,411,568			15,426,297			7,571,425

See accompanying notes to consolidated financial statements.

RADYNE COMSTREAM INC.

Consolidated Statements of Stockholders’ Equity and Comprehensive Income
Years ended December 31, 2001, 2000 and 1999

		Common stock				Additional								Foreign
						paid-in		Deferred			Accumulated			Exchange
		Shares		Amount		capital		compensation			Deficit			Rate Effect			Total
Balances, January 1, 1999			5,931,346		5,931		6,111,335		—			(21,354,186	)		—			(15,236,920	)
Issuance of common stock for cash			4,520,264		4,520		16,424,759		—			—			—			16,429,279
Exercise of stock options			287,772		288		743,866		—			—			—			744,154
Tax benefit of stock option exercises			—		—		84,095		—			—			—			84,095
Net earnings			—		—		—		—			2,306,304			—			2,306,304
Balances, December 31, 1999			10,739,382		10,739		23,364,055		—			(19,047,882	)		—			4,326,912
Issuance of common stock for cash			2,828,220		2,828		16,729,599		—			—			—			16,732,427
Exercise of stock options			338,755		339		1,071,509		—			—			—			1,071,848
Exercise of stock warrants			616,463		617		5,393,434		—			—			—			5,394,051
Tax benefit of stock option exercises			—		—		1,044,000		—			—			—			1,044,000
Common stock issued in acquisition			300,000		300		1,647,402		—			—			—			1,647,702
Deferred compensation			—		—		—		(920,762	)		—			—			(920,762	)
Amortization of deferred compensation			—		—		—		76,730			—			—			76,730
Net earnings			—		—		—		—			12,440,607			—			12,440,607
Balances, December 31, 2000			14,822,820		14,823		49,249,999		(844,032	)		(6,607,275	)		—			41,813,515
Exercise of stock options			84,850		85		309,621		—			—			—			309,706
Issuance of common stock through Employee Stock Purchase Plan			113,006		113		463,248		—			—			—			463,361
Deferred compensation			—		—		—		844,032			—			—			844,032
	Comprehensive income:
Effects of exchange rate changes on cash and cash equivalents			—		—		—		—			—			(18,920	)		(18,920	)
Net earnings			—		—		—		—			1,935,529			—			1,935,529
	Comprehensive income																	1,916,609
Balances, December 31, 2001			15,020,676		15,021		50,022,868		—			(4,671,746	)		(18,920	)		45,347,223

See accompanying notes to consolidated financial statements.

RADYNE COMSTREAM INC.

Consolidated Statements of Cash Flows

					Years ended December 31,
					2001			2000			1999
Cash flows from operating activities:
	Net earnings				$	1,935,529			12,440,607			2,306,304
	Adjustments to reconcile net earnings to net cash provided by (used in) operating activities:
		Forgiveness of interest				—			—			(188,182	)
		Loss on disposal of assets				—			30,306			—
		Deferred income taxes				1,301,869			(2,810,418	)		—
		Depreciation and amortization				3,575,253			2,330,894			2,835,024
		Increase (decrease) in cash resulting from changes in:
			Accounts receivable			(2,861,062	)		(2,096,621	)		(142,421	)
			Prepaid expenses and other current assets			(153,806	)		258,350			(338,915	)
			Inventories			(5,107,508	)		(2,874,353	)		1,041,366
			Deposits and other			—			176,870			15,410
			Accounts payable, trade			247,123			(1,915,151	)		286,550
			Accounts payable, affiliate			—			—			(8,150	)
			Accrued expenses			(1,763,885	)		135,229			(2,853,265	)
			Customer advance payments			(625,399	)		647,017			—
			Taxes payable			(201,100	)		(404,382	)		70,010
			Deferred rent			(32,608	)		178,190			—
			Accrued stock option compensation			(3,604	)		(190,020	)		(460,044	)
				Net cash provided by (used in) operating activities		(3,689,198	)		5,906,518			2,563,687
Cash flows from investing activities:
	Capital expenditures					(2,050,472	)		(1,227,811	)		(279,048	)
	Proceeds from disposal of assets					1,720			200			—
	Investment in non-compete agreement					—			(500,000	)		—
	Acquisition, net of cash acquired					(3,999,663	)		(1,092,453	)		—
				Net cash used in investing activities		(6,048,415	)		(2,820,064	)		(279,048	)
Cash flows from financing activities:
	Net borrowings from notes payable under line of credit					—			(12,920,000	)		4,920,000
	Payment on note payable					—			—			(5,962,561	)
	Payments on note payable to affiliate					—			—			(15,618,272	)
	Net proceeds from sale of common stock					—			16,340,453			16,429,279
	Net proceeds from sale of common stock to employees					463,361			391,974			—
	Exercise of stock options					309,706			1,071,848			744,154
	Exercise of stock warrants					—			5,394,051			—
	Principal payments on capital lease obligations					(50,188	)		(67,849	)		(104,535	)
				Net cash provided by financing activities		772,879			10,210,477			408,065
Net increase (decrease) in cash						(9,014,734	)		13,296,931			2,692,704
Effects of exchange rate changes on cash and cash equivalents						(18,920	)		—			—
Cash and cash equivalents, beginning of year						16,244,591			2,947,660			254,956
Cash and cash equivalents, end of year					$	7,210,937			16,244,591			2,947,660
Supplemental disclosures of cash flow information:
	Cash paid for interest				$	54,186			810,847			2,090,298
	Cash paid for taxes				$	201,100			475,036			22,000
Supplemental schedule of noncash investing and financing activities:
	Negotiated write-down of note payable				$	—			—			515,940
	Acquisitions through issuance of stock and assumption of liabilities				$	—			1,384,786			—
	Deferred compensation				$	—			920,762			—
	Tax benefit of stock option exercise				$	—			1,044,000			84,095

See accompanying notes to consolidated financial statements.

RADYNE COMSTREAM INC.

Notes to Consolidated Financial Statements

December 31, 2001, 2000 and 1999

(1)	Organization and Acquisition
	Radyne ComStream Inc. (the Company) has locations in Phoenix, Arizona and San Diego, California. The Company designs, manufactures, and sells products, systems and software used for the transmission and reception of data over satellite and cable communication networks.
	ComStream operates primarily in North America in the satellite communications industry. ComStream designs, markets and manufacturers satellite interactive modems and earth stations. Additionally, ComStream manufactures and markets full-transponder satellite digital audio receivers for music providers and has designed and developed a PC broadband satellite receiver card which is an Internet and high-speed data networking product.
	Radyne Corp., a Delaware corporation, (Radyne) was incorporated on November 25, 1980. On August 12, 1996, Radyne became a subsidiary of Singapore Technologies Pte Ltd (STPL), through its wholly-owned subsidiary, Stetsys US, Inc. (ST). In March 1999, Radyne changed its name to Radyne ComStream Inc. During 2000, the Company changed its state of incorporation from New York to Delaware and changed the par value of its common stock from $.002 to $.001. This change has been reflected in the consolidated statements of stockholders’ equity.
	Description of Acquisitions
	On April 18, 2001, Tiernan Radyne ComStream Inc. (“TRC”), a wholly owned subsidiary of the Company, obtained all of the assets of Tiernan Communications, Inc. (“TCI”) through a private foreclosure sale relating to a secured note TRC had purchased for $4.0 million in cash. Product lines acquired include standard digital TV encoders, high definition TV encoders, and ATM video network adapters as well as integrated receiver/decoders. TRC offered employment to most of the employees of TCI. The acquisition was recorded in accordance with the “purchase method” of accounting and, accordingly, the purchase price has been allocated to the assets purchased and certain liabilities assumed based upon the estimated fair values at the date of acquisition. The excess of the purchase price over the fair values of the net assets acquired was approximately $1,355,000 and has been recorded as goodwill, which is being amortized on a straight-line basis over seven years.

RADYNE COMSTREAM INC.

Notes to Consolidated Financial Statements

December 31, 2001, 2000 and 1999

The following summary, prepared on a pro forma basis, combines the consolidated results of operations (unaudited) as if the acquisition had taken place on January 1, 2000. Such pro forma amounts are not necessarily indicative of what the actual results of operations might have been if the acquisition had been effective on January 1, 2000 (in thousands, except per share amounts):

	Year ended
	December 31, 2001		December 31, 2000
Net sales	$	71,259		82,925
Other income, net	$	523		169
Total revenues	$	71,782		83,094
Net earnings (loss)	$	137		(1,808	)
Basic earnings (loss) per share	$	0.01		(0.13	)
Diluted earnings (loss) per share	$	0.01		(0.13	)

Effective December 1, 2000, the Company completed the acquisition of all of the outstanding shares of common stock of Armer Communications Engineering Services, Inc. (“Armer”) for an aggregate purchase price of $1,926,940 million consisting of $1,200,000 million in cash and 130,680 shares of common stock of the Company. The fair value of the stock was determined based on the average market price of the stock over a reasonable period of time before and after the terms of the acquisition were agreed to and announced. Armer specializes in the integration and installation of ground segment equipment and networks for a wide range of satellite-based telecommunications systems and applications. This acquisition has been recorded in accordance with the “purchase method” of accounting and, accordingly, the purchase price has been allocated to the assets purchased and the liabilities assumed based upon the estimated fair values at the date of acquisition. The excess of the purchase price over the fair values of the net assets acquired was approximately $1,943,892 and has been recorded as goodwill, which is being amortized on a straight-line basis over twelve years. The results of operations of the acquired operations have been included in the accompanying statements of operations from the acquisition date.

Certain Armer stockholders were issued 169,320 shares of restricted common stock. These shares are subject to immediate forfeiture in the event the holder terminates employment with Armer or Radyne within one year from the effective date of the merger. The Company recorded deferred compensation of $920,762 which was based upon the fair value of the stock at the date of issuance. Amortization of deferred compensation amounted to $844,032 in 2001 and $77,730 in 2000.

Concurrent with the close of this transaction, six key employees of Armer entered into two-year non-disclosure and non-compete agreements with the Company. The cost of these agreements was $500,000, and is being amortized using the straight-line method over the term of the agreements. As of December 31, 2001, $270,833 of these costs has been amortized.

The following summary, prepared on a pro forma basis, combines the consolidated results of operations (unaudited) as if the acquisition had taken place on January 1, 2000. Such pro forma amounts are not necessarily indicative of what the actual results of operations might have been if the acquisition had been

RADYNE COMSTREAM INC.

Notes to Consolidated Financial Statements

December 31, 2001, 2000 and 1999

effective on January 1, 1999 (in thousands, except per share amounts):

	Years ended December 31,
	2000		1999
Net sales	$	72,893		60,549
Other income	$	1,076		76
Total revenues	$	73,969		60,625
Net earnings	$	10,841		1,023
Basic earnings per share	$	.78		.14
Diluted earnings per share	$	.70		.14

(2) Summary of Significant Accounting Policies

(a)	Use of Estimates
	The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make a number of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Such estimates and assumptions affect the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, we evaluate our estimates and assumptions based upon historical experience and various other factors and circumstances. We believe that our estimates and assumptions are reasonable in the circumstances; however, actual results may differ from these estimates under different future conditions.
	The Company believes the following critical accounting policies affect its more significant judgements and estimates used in the preparation of its consolidated financial statements. The Company recognizes revenues for orders of products to be shipped as we ship the products. The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. If the financial condition of the Company’s customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. The Company estimates the useful lives of its property and equipment, goodwill and other identifiable intangibles. The Company may experience losses if these assets suffered impairment due to the useful lives ultimately being shorter than they were originally estimated or if their carrying value is not recoverable from operations. The Company provides for the estimated cost of product warranties at the time revenue is recognized. While the Company engages in extensive product quality programs and processes, including actively monitoring and evaluating the quality of its vendors, the Company’s warranty obligation is affected by product failure rates and material usage and service delivery costs incurred in correcting any product failures. Should actual product failure rates, material usage or service delivery costs differ from the Company’s estimates, revisions to the estimated warranty liability would be required. The Company writes down its inventory for estimated obsolescence or the inability to market its inventory equal to

RADYNE COMSTREAM INC.

Notes to Consolidated Financial Statements

December 31, 2001, 2000 and 1999

	the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required. The Company records a valuation allowance to reduce its deferred tax assets to the amount that is more likely than not to be realized. While the Company has considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance, in the event the Company were to determine that it would be able to realize its deferred tax assets in the future in excess of its net recorded amount, an adjustment to the deferred tax asset would increase income in the period such determination was made. Likewise, should the Company determine that it would not be able to realize all or part of its deferred tax asset in the future, an adjustment tot he deferred tax asset would be charged to income in the period such determination was made.
(b)	Principles of Consolidation
	The consolidated financial statements include the accounts of the Company and its subsidiaries. Significant intercompany accounts and transactions have been eliminated in the consolidation.
(c)	Cash Equivalents
	The Company considers all money market accounts with a maturity of 90 days or less to be cash equivalents.
(d)	Revenue Recognition
	The Company recognizes revenue upon transfer of ownership and shipment of product on short-term orders and customer contracts.
(e)	Accounts Receivable
	The Company maintains allowances for doubtful accounts for estimating losses resulting from the inability of its customers to make required payments. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.
(f)	Inventories
	Inventories, consisting of satellite modems and related products, are valued at the lower of cost (first-in, first-out) or market. The Company writes down its inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based on assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required.
(g)	Property and Equipment
	Property and equipment are stated at cost. Equipment held under capital leases is stated at the present value of future minimum lease payments. Expenditures for repairs and maintenance are charged to operations as incurred, and improvements, which extend the useful lives of the assets, are capitalized. Depreciation and amortization of machinery and equipment are computed using the straight-line method over an estimated useful life of three to ten years. Equipment held under capital leases and leasehold improvements are amortized on a straight-line basis over the shorter of the lease

RADYNE COMSTREAM INC.

Notes to Consolidated Financial Statements

December 31, 2001, 2000 and 1999

	term or estimated useful lives of the assets.
(h)	Intangible Assets
	Intangible assets consist of goodwill, which represents the excess of purchase price over fair value of net assets acquired, is amortized on a straight-line basis over seven to twelve years. Intangible assets also consist of covenants not to compete which are being amortized on a straight-line basis over the contractual term of the covenants of two years.
(i)	Purchased Technology
	In connection with the acquisition of ComStream in 1998, value was assigned to purchased technology. Purchased technology is being amortized on a straight-line basis over the expected period to be benefited of 6.25 years.
(j)	Impairment of Long-Lived Assets
	The Company reviews long-lived assets and certain identifiable intangibles for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amounts of the assets exceed the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. The Company did not recognize an impairment of long-lived assets for the years ended December 31, 2001, 2000 and 1999.
(k)	Warranty Costs
	The Company provides limited warranties on certain of its products and systems for periods generally not exceeding two years. The Company accrues estimated warranty costs for potential product liability and warranty claims based on the Company’s claim experience. Such costs are accrued as cost of sales at the time revenue is recognized. While the Company engages in extensive product quality programs and processes, including actively monitoring and evaluating the quality of its vendors, the Company’s warranty obligation is affected by product failure rates and material usage and service delivery costs incurred in correcting a product failure. Should actual product failure rates, material usage or service delivery costs differ from the Company’s estimates, revisions to the estimated warranty accrued liability would be required.
(l)	Research and Development
	The cost of research and development is charged to expense as incurred.
(m)	Income Taxes
	The Company accounts for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the future consequences attributed to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Differences between income for financial and tax reporting purposes arise primarily from amortization of certain intangible assets and accruals for warranty reserves and compensated absences. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected

RADYNE COMSTREAM INC.

Notes to Consolidated Financial Statements

December 31, 2001, 2000 and 1999

	to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
(n)	Concentration of Credit Risk
	Financial instruments, which potentially subject the Company to concentrations of credit risk, are principally accounts receivable. The Company maintains ongoing credit evaluations of its customers and generally does not require collateral. The Company provides reserves for potential credit losses and such losses have not exceeded management’s expectations.
	Periodically during the year, the Company maintains cash in financial institutions in excess of the amounts insured by the federal government.
(o)	Net Earnings Per Share
	Basic earnings per share is computed by dividing earnings available to stockholders by the weighted-average number of shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or contracts to issue common stock were exercised or converted to stock or resulted in the issuance of stock that then shared in the earnings of the Company.
(p)	Fair Value of Financial Instruments
	The fair value of accounts receivable, accounts payable, and accrued expenses approximates the carrying value due to the short-term nature of these instruments.

RADYNE COMSTREAM INC.

Notes to Consolidated Financial Statements

December 31, 2001, 2000 and 1999

(q)	Employee Stock Options
	The Company has elected to follow Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25) and related interpretations in accounting for its employee stock options and to adopt the “disclosure only” alternative treatment under Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (SFAS 123). SFAS 123 requires the use of fair-value option valuation models that were not developed for use in valuing employee stock options. Under SFAS No. 123, deferred compensation is recorded for the excess of the fair value of the stock on the date of the option grant, over the exercise price of the option. The deferred compensation is amortized over the vesting period of the option.
(r)	Segment Reporting
	The Company has only one operating business segment, the sale of equipment for satellite and cable communications networks.
(s)	Reclassifications
	Certain reclassifications have been made to the prior years’ consolidated financial statement amounts to conform to the current year presentation.
(t)	New Accounting Pronouncements
	In July, 2001, the Financial Accounting Standards Board (FASB) issued Statement No. 141, Business Combinations, and Statement No. 142, Goodwill and Other Intangible Assets. Statement 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. Statement 141 also specifies criteria intangible assets acquired in a purchase method business combination must meet to be recognized and reported apart from goodwill, noting that any purchase price allocable to an assembled workforce may not be accounted for separately. Statement 142 will require that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually with the provisions of Statement 142. Statement 142 will also require that intangible assets with definite useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with FASB No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of.
	Any goodwill and any intangible asset determined to have an indefinite useful life that are acquired in a purchase business combination completed after June 30, 2001 will not be amortized, but will continue to be evaluated for impairment in accordance with the appropriate pre-Statement 142 accounting literature. Goodwill and intangible assets acquired in business combinations completed before July 1, 2001 sill continue to be amortized prior to the adoption of Statement 142.
	Statement 141 requires, upon adoption of Statement 142, that we evaluate our existing intangible assets and goodwill that were acquired in a prior purchase business combination, and to make any necessary reclassifications in order to conform with the new criteria in Statement 141 for recognition apart from goodwill. Upon adoption of Statement 142, we will be required to reassess the useful lives and residual values of all intangible assets acquired in purchase business combinations, and make any necessary amortization period adjustments by the end of the first interim period after adoption. In addition, to the extent an intangible asset is identified as having an indefinite useful life, we will be required to test the intangible asset for impairment in accordance with the provisions of

RADYNE COMSTREAM INC.

Notes to Consolidated Financial Statements

December 31, 2001, 2000 and 1999

Statement 142 within the first interim period. Any impairment loss will be measured as of the date of adoption and recognized as the cumulative effect of a change in accounting principle in the first interim period.

In connection with the transitional goodwill impairment evaluation, Statement 142 will require us to perform an assessment of whether there is an indication that goodwill is impaired as of the date of adoption. Any transitional impairment loss will be recognized as the cumulative effect of a change in accounting principle in our statement of operations.

As of the date of adoption, we expect to have unamortized goodwill of approximately $4.2 million, all of which will be subject to the transition provisions of Statements 141 and 142. Amortization expense related to goodwill was approximately $449,000 for the year ended December 31, 2001. We are evaluating these recently issued accounting standards. However, due to their complexity we are unable to determine the ultimate impact on our consolidated financial statements at this time.

On October 3, 2001, the FASB issued Statement No, 144, Accounting for the Impairment or Disposal of Long-Lived Assets, which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. While Statement No. 144 supercedes Statement 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, it retains many of the fundamental provisions of that Statement.

Statement No. 144 also supercedes the accounting and reporting provisions of APB Opinion No. 30, Reporting the Results of operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions, for the disposal of a segment of a business. However, it retains the requirement in opinion No. 30 to report separately discontinued operations and extends that reporting to a component of an entity that either has been disposed of (by sale, abandonment, or in a distribution to owners) or is classified as held for sale. By broadening the presentation of discontinued operations to include more disposal transactions, the FASB has enhanced management’s ability to provide information that helps financial statement users to assess the effects of a disposal transaction on the ongoing operations of an entity. Statement No, 144 is effective for fiscal years beginning after December 15, 2001. At the current time, management does not believe that the adoption of this statement on January 1, 2002 will have a material impact on the Company’s financial position, results of operations or liquidity.

(3)	Inventories
	Inventories at December 31 consist of the following:

	2001		2000
Raw materials and components	$	11,163,147		5,999,173
Work-in-process		4,228,708		3,959,419
Finished goods		2,433,218		1,371,973
		17,825,073		11,330,565

(4)	Property and Equipment
	Property and equipment at December 31 consist of the following:

RADYNE COMSTREAM INC.

Notes to Consolidated Financial Statements

December 31, 2001, 2000 and 1999

	2001			2000
Machinery and equipment	$	5,473,370			3,265,723
Furniture and fixtures		3,659,236			2,587,068
Leasehold improvements		786,648			713,301
Computers and software		747,087			1,365,077
		10,666,341			7,931,169
Less accumulated depreciation and amortization		(6,309,754	)		(4,642,302	)
Property and equipment, net	$	4,356,587			3,288,867

RADYNE COMSTREAM INC.

Notes to Consolidated Financial Statements

December 31, 2001, 2000 and 1999

(5)	Accrued Expenses
	Accrued expenses at December 31 consist of the following:

	2001		2000
Wages, vacation and related payroll taxes	$	1,299,951		1,100,503
Professional fees		243,224		544,416
Warranty reserve		1,255,670		1,622,644
Other		1,180,239		2,217,498
Total accrued expenses	$	3,979,084		5,485,061

(6)	Line of Credit
	The Company has a committed line of credit arrangement with Wells Fargo HSBC Trade Bank (“The Trade Bank”) in the amount of $10,000,000. In addition, the Company has an uncommitted line of another $10,000,000 with The Trade Bank. The Company pays The Trade Bank a facility fee of .25% for the committed portion of the arrangement. The Company had no borrowings against the line of credit at December 31, 2001 or 2000.
(7)	Obligations Under Capital Leases
	The Company leases machinery and equipment under capital leases. The cost and accumulated depreciation of the equipment was $328,984 and $158,624, respectively, at December 31, 2001 and $294,382 and $155,020, respectively, at December 31, 2000, and is included in property and equipment in the accompanying consolidated balance sheets and is being amortized over the estimated useful lives of the machinery and equipment.

RADYNE COMSTREAM INC.

Notes to Consolidated Financial Statements

December 31, 2001, 2000 and 1999

Payments on capital lease obligations due after December 31, 2001 are as follows:

2002	$	89,253
2003		21,297
2004		15,328
2005		5,501
2006		—
Total minimum lease payments		131,379
Less amount representing interest at rates of 2.26% to 12.96%		17,799
Present value of minimum lease payments		113,580
Less current installments		77,385
Capital lease obligations due after one year	$	36,195

(8)	Commitments
	Rent expense was $1,801,765, $1,883,743 and $1,790,248 for the years ended December 31, 2001, 2000 and 1999, respectively. Future minimum rentals under leases after December 31, 2001 are as follows:

2002	$	2,112,145
2003		2,126,614
2004		2,122,114
2005		1,290,856
2006		1,063,202
Thereafter		1,878,971
Total commitments	$	10,603,902

The Company currently subleases a portion of its Phoenix facility to the University of Phoenix Online. Rent expense was offset by $251,009 for the year ended December 31, 2001 for rent payments received through this sublease. Future minimum rentals under leases after December 31, 2001 are also offset by $267,098, $275,151, $283,204, $291,257, and $299,311, for the years ended December 31, 2002, 2003, 2004, 2005, and 2006 respectively, and by $255,018 thereafter. This sublease agreement expires in 2007.

RADYNE COMSTREAM INC.

Notes to Consolidated Financial Statements

December 31, 2001, 2000 and 1999

	The Company generally has commitments with certain suppliers and subcontract manufacturers to supply certain components and estimates its non-cancelable obligations to be approximately $6,986,000 at December 31, 2001.
(9)	Income Taxes
	Income tax expense (benefit) amounted to $1,326,048, ($2,918,735) and $85,000 for the years ended December 31, 2001, 2000 and 1999, respectively. The actual tax expense (benefit) for these periods differs from the “expected” tax expense for those periods as follows:

		Years ended December 31,
		2001			2000			1999
Computed “expected” tax expense		$	1,108,936			3,237,436			749,061
State tax expense			357,554			476,094			190,158
Change in valuation allowance			—			(7,790,223	)		(1,080,360	)
Stock option exercises			—			1,044,000			—
Extra territorial income exclusion			(269,739	)		—			—
Research and development credits			(70,000	)		—			—
Other adjustments			—			113,958			226,141
	Total	$	1,326,048			(2,918,735	)		85,000

Components of income tax expense (benefit) for 2001 and 2000 follows:

				Current			Deferred			Total
2001:
	Federal			$	9,605			774,695			784,300
	State				14,574			527,174			541,748
			Total	$	24,179			1,301,869			1,326,048
2000:
	Federal			$	(273,278	)		(2,295,202	)		(2,568,480	)
	State				26,550			(376,805	)		(350,255	)
		Total		$	(246,728	)		2,672,007			2,918,735

Current federal income tax totaled $ 85,000 for the year ended December 31, 1999.

Deferred tax assets at December 31 consisted of the following:

RADYNE COMSTREAM INC.

Notes to Consolidated Financial Statements

December 31, 2001, 2000 and 1999

		2001			2000
Deferred tax assets:
	Cumulative tax effect of net operating loss carryforwards	$	4,351,385			6,634,448
	Tax credits		351,258			165,444
	Temporary differences		3,866,705			3,071,325
	Valuation allowance		(6,016,799	)		(6,016,799	)
		$	2,552,549			3,854,418

	The net change in the total valuation allowance for the years ended December 31, 2001 and 2000 was $ zero and a decrease of $7,790,223, respectively. At December 31, 2001, the Company has net operating loss carryforwards of approximately $15,764,000 expiring in various years through 2021, and federal tax credit of $351,000 for utilization against taxable income/taxes payable of future periods, if any. Management believes that its ability to utilize certain of its net operating loss and tax credit carryforwards to offset future taxable income within the carryforward periods under existing tax laws and regulations is more likely than not. During the quarter ended September 2000, the Company evaluated the likelihood that it would utilize a portion of its net operating loss carryforwards. The Company reduced the valuation allowance relating to net operating loss carryforwards it expected to utilize creating a tax benefit of $4.332 million for the quarter ended September 30, 2000. A 100 percent valuation allowance had been recorded against the net deferred tax assets as of December 31, 1999.
(10)	Significant Customers and Foreign and Domestic Sales
	During 2001 and 1999, no customers represented greater than 10% of net sales. During 2000, one customer represented 12.4% of net sales.
	Our sales in principal foreign and domestic markets as a percentage of total sales for the years ended December 31, 2001, 2000 and 1999 follow:

	Years ended December 31,
	2001			2000			1999
Asia		20	%		25	%		25	%
Africa/Middle East		3			2			4
Latin America		7			3			4
Europe		15			13			21
Canada		1			1			2
Total foreign		46			44			56
Domestic		54			56			44
		100	%		100	%		100	%
Foreign assets	$	388,000			372,000			333,000

	The Company has two primary product lines: 1) satellite modems and earthstations, and 2) broadcast products. The sales of satellite modems and earthstations accounted for approximately 73% of 2001, 63.5% of 2000 and 54% of 1999 net sales, respectively.
(11)	Stockholders’ Equity
	In February 2000, the Company completed an offering of 2,400,000 units, each consisting of one share of common stock and one five-year common stock purchase warrant, plus an additional 360,000 units sold pursuant to the underwriters’ over-allotment option, for a total of approximately $16,340,000 cash, net of

RADYNE COMSTREAM INC.

Notes to Consolidated Financial Statements

December 31, 2001, 2000 and 1999

	issuance costs. Each warrant is exercisable to purchase one share of common stock at a price of $8.75, subject to adjustment in certain circumstances, at any time after the warrants are issued until February 7, 2005. Commencing February 7, 2001, the Company may redeem the warrants for $0.01 per warrant upon no less than 30 days or more than 60 days notice mailed within five days after the closing sales price of the common stock has equaled or exceeded $10.9375 for each of 20 consecutive trading days.
	In December 1999, the Company completed a rights offering of 4,520,264 shares of common stock to existing shareholders for a total of approximately $16,429,000, net of issuance costs. The Company used $15,618,272 of the proceeds from the partial exercise by ST to pay the total amount of debt owed to ST.
	The Compensation Committee and the Board of Directors resolved to permit senior management to borrow funds from the Company for the purpose of exercising stock options. In October and November 1999, the chief executive officer, chief technology officer, and chief financial officer borrowed $200,000, $100,000 and $50,000, respectively, for the purpose of exercising stock options. The Company recorded the $350,000 in forgivable loans made as compensation expense in 1999.
(12)	Earnings Per Share
	A summary of the reconciliation from basic earnings per share to diluted earnings per share follows:

			Years ended December 31,
			2001		2000		1999
Earnings available to common stockholders			$	1,935,529		12,440,607		2,306,304
Basic EPS-weighted average shares outstanding				14,943,516		13,972,078		7,111,777
Basic earnings per share:
	Earnings before extraordinary item		$	0.13		0.89		0.30
	Extraordinary item			—		—		0.02
		Net earnings	$	0.13		0.89		0.32
Basic EPS-weighted average shares outstanding				14,943,516		13,972,078		7,111,777
Effect of dilutive securities				468,052		1,454,219		459,648
Dilutive EPS-weighted average shares outstanding				15,411,568		15,426,297		7,571,425
Diluted earnings per share:
	Earnings before extraordinary item		$	0.13		0.81		0.28
	Extraordinary item			—		—		0.02
		Net earnings	$	0.13		0.81		0.30
Stock options not included in diluted EPS since antidilutive				1,692,527		1,452,997		—
Stock warrants not included in diluted EPS since antidilutive				1,183,166		781,675		—

RADYNE COMSTREAM INC.

Notes to Consolidated Financial Statements

December 31, 2001, 2000 and 1999

(13)	Employee Benefit Plan
	We have a qualified contributory 401(k) plan that covers all employees who have attained the age of 18 and are employed at the enrollment date. We provided contributions of $319,457, $340,659 and $228,788, respectively, for the years ended December 31, 2001, 2000 and 1999. Each participant may elect to contribute up to 15% of his or her gross compensation up to the maximum amount allowed by the Internal Revenue Service. During the year ended December 31, 1999, we matched up to 1% of the employee’s salary. During the years ended December 31, 2001 and 2000, we matched 50% of each employee contribution to the plan up to a maximum annual match of $2,000.
(14)	Stock Options
	In June 2000, the Board of Directors adopted the 2000 Long-Term Incentive Stock Options Plan (the 2000 Plan), which was approved by the stockholders on June 29, 2000. The 2000 Plan provided for the grant of options to employees of the Company to purchase 2,500,000 shares of common stock. The option price per share under the 2000 Plan may not be less than the fair market value of the stock (110 percent of the fair market value for an optionee who is a 10 percent stockholder) on the day the option is granted. At December 31, 2001, the Company had 2,382,461 options outstanding in this plan.
	In November 1996, the Board of Directors adopted the 1996 Incentive Stock Option Plan (the Plan), which was approved by the stockholders on January 8, 1997. The Plan provided for the grant of options to employees of the Company to purchase up to 1,282,042 shares of common stock. The option price per share under the Plan may not be less than the fair market value of the stock (110 percent of the fair market value for an optionee who is a 10 percent stockholder) on the day the option is granted. In November 1998, the Plan was amended to increase the options available by 900,000, providing a total of 2,182,042 options available to purchase shares of common stock. At December 31, 2001, the Company had 1,187,241 options outstanding in this plan.
	At December 31, 2001, the Company had a total of 3,569,702 options outstanding at exercise prices ranging from $2.50 to $14.625 per share. Of the total options, the Company had 286,689 options outstanding at an exercise price of $2.50 per share that carry the right to a cash bonus of $1.719 per purchased share, payable upon exercise. The stock option compensation accrual related to the bonus is $501,809 and $505,413 at December 31, 2001 and 2000, respectively.
	The Company applies APB Opinion 25 in accounting for its Plan. Had the Company determined compensation cost based on the fair value at the grant date for its stock options under SFAS No. 123, the Company’s net earnings (loss) and earnings (loss) per share would have been reduced (increased) to the pro forma amounts indicated below:

		December 31,
		2001			2000		1999
Net earnings (loss)	As reported	$	1,935,529			12,440,607		2,306,304
	Pro forma (unaudited)		(4,229,052	)		5,679,549		1,482,399
Earnings (loss) per share -	As reported		0.13			0.89		0.32
basic	Pro forma (unaudited)		(0.28	)		0.41		0.21
Earnings (loss) per share -	As Reported		0.13			0.81		0.30
Diluted	Pro forma (unaudited)		(0.27	)		0.37		0.20

RADYNE COMSTREAM INC.

Notes to Consolidated Financial Statements

December 31, 2001, 2000 and 1999

The full impact of calculating compensation cost for stock options under SFAS No. 123 is not reflected in the pro forma net earnings (loss) amounts presented above because compensation cost is reflected (increased) over the options’ vesting period of three years.

The fair value of options granted under the Plan was estimated on the date of grant with vesting periods ranging from one to three years using the Black-Scholes option-pricing model with the following weighted average assumptions used: no dividend yield, expected volatility of 100 percent – 184 percent, risk free interest rate of 5.27 percent – 6 percent, and expected lives of five years. In addition, the Company anticipates that approximately 5% of exercisable shares will be forfeited in each year. The per share weighted average fair value of stock options granted under the Plan for the periods ended December 31, 2001, 2000 and 1999 were $6.53, $10.65 and $3.02, respectively, using the Black-Scholes option-pricing model and the assumptions listed above.

RADYNE COMSTREAM INC.

Notes to Consolidated Financial Statements

December 31, 2001, 2000 and 1999

A summary of the aforementioned stock plan activity follows:

				Weighted
				Average Price
	Number			Per Share
Balance, December 31, 1998		1,205,957		$	2.68
Granted		857,000			3.60
Forfeited		(239,979	)		3.45
Exercised		(287,772	)		2.54
Balance, December 31, 1999		1,535,206			3.09
Granted		1,626,465			12.27
Forfeited		(138,900	)		6.58
Exercised		(344,505	)		3.16
Balance, December 31, 2000		2,678,266			8.48
Granted		1,411,100			6.60
Forfeited		(429,814	)		9.61
Exercised		(89,850	)		4.23
Balance, December 31, 2001		3,569,702		$	7.71

A summary of stock options granted at December 31, 2001 follows:

	Options Outstanding					Options Exercisable
			Weighted-	Weighted-				Weighted-
	Number		Average	Average		Number		Average
Range of	Outstanding at		Remaining	Exercise		Exercisable at		Exercise
Exercise Prices	12/31/01		Contractual Life	Price		12/31/01		Price
$2.50 to 3.125		613,291	0 years	$	2.72		613,291	$	2.72
$3.00 to 4.1875		375,260	1 years		3.54		271,885		3.53
$5.031 to 14.625		1,316,250	2 years		12.31		785,922		12.69
$4.25 to 7.406		1,264,901	3 years		6.57		390,468		6.67
		3,569,702		$	7.71		2,061,566	$	7.38

(15)

Employee Stock Purchase Plan

On June 15, 1999, our shareholders adopted the 1999 Employee Stock Purchase Plan (the Purchase Plan), as a means of rewarding and retaining existing employees. The purchase plan allows employees, including officers and directors who are employees, to purchase shares of our common stock at semi-annual intervals through periodic payroll deductions. The purchase price per share, in general will be 85% of the lower of the fair market value of the common stock on the participant’s entry date into the offering period or 85% of the fair market value on the semi-annual purchase date. The Board of Directors or a committee of two or more directors, none of whom will be officers or employees, have full authority to administer all aspects of the Purchase Plan. As of December 31, 2001, 875,772 shares are authorized for issuance under the plan while 762,766 shares remain unissued as of December 31, 2001.

RADYNE COMSTREAM INC.

Notes to Consolidated Financial Statements

December 31, 2001, 2000 and 1999

(16)	Related Party Transactions
	Sales to Agilis Communication Technologies Pte Ltd (Agilis), an affiliate of ST, amounted to $244,022, $352,048 and $200,000 for the years ended December 31, 2001, 2000 and 1999, respectively.
	Interest expense on notes payable to affiliates was $765,914 for the year ended December 31, 1999.
(17)	Contingencies
	The Company is involved in litigation and claims arising in the normal course of operations. In the opinion of management based on consultation with legal counsel, losses, if any, from this litigation are covered by insurance or are immaterial; therefore, no provision has been made in the accompanying consolidated financial statements for losses, if any, that might result from the ultimate outcome of these matters.
(18)	Supplemental Financial Information
	A summary of additions and deductions related to the allowance for doubtful accounts and inventory obsolescence reserve for the years ended December 31, 2001, 2000 and 1999 follows:

			Balance at				Charged				Balance
			Beginning				to Other				at End of
			of Year		Additions		Accounts		Deductions		Year
Allowances for doubtful receivables:
	Years ended December 31:
		2001	$	1,014,813		339,037		—		181,327		1,172,523
		2000	$	791,746		293,033		—		69,966		1,014,813
		1999	$	632,815		175,000		—		16,069		791,746

RADYNE COMSTREAM INC.

Notes to Consolidated Financial Statements

December 31, 2001, 2000 and 1999

(19)	Quarterly Financial Data – Unaudited
	A summary of the quarterly data for the years ended December 31, 2001 and 2000 follows (in thousands):

		First		Second		Third		Fourth
		Quarter		Quarter		Quarter		Quarter		Total
2001:
	Total revenues	$	15,999		16,465		16,958		19,049		68,471
	Gross profit	$	6,611		7,715		7,206		7,380		28,912
	Operating expenses	$	5,535		7,228		6,591		6,765		26,119
	Earnings from operations	$	1,076		487		615		615		2,793
	Net earnings	$	856		293		428		359		1,936
	Basic earnings per share	$	0.06		0.02		0.03		0.03		0.13
	Diluted earnings per share	$	0.06		0.02		0.03		0.03		0.13
2000:
	Total revenues	$	16,752		17,921		17,334		18,100		70,107
	Gross profit	$	7,381		8,388		7,832		8,226		31,827
	Operating expenses	$	6,333		5,982		5,621		4,954		22,890
	Earnings from operations	$	1,461		2,442		2,211		2,823		8,937
	Net earnings (loss)	$	1,392		2,486		6,565		1,998		12,441
	Basic earnings (loss) per share	$	.11		.17		.45		.16		.89
	Diluted earnings (loss) per share	$	.10		.15		.41		.14		.81

ITEM 9.     CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

         Not Applicable.

PART III

ITEM 10.     DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES

         Information regarding directors and executive officers of the Company is set forth under the captions “Election of Directors” and “Executive Officers and Compensation” in the Company’s Proxy Statement relating to its 2002 Annual Meeting of Stockholders (the “2002 Proxy Statement”) incorporated by reference into this Form 10-K, which has been filed with the Commission within 120 days after the end of the Company’s fiscal year ended December 31, 2001. The “Compensation Committee Report on Executive Compensation,” The Report of the Audit Committee” and the “Stock Price Performance Graph” contained in the 2002 Proxy Statement are not incorporated by reference in this Form 10-K.

ITEM 11.     DIRECTOR AND EXECUTIVE COMPENSATION

         Information regarding director and executive compensation is set forth under the captions “Election of Directors” and “Executive Officers and Compensation” in the 2002 Proxy Statement, which information is incorporated in this Form 10-K by reference. The “Compensation Committee Report on Executive Compensation,” “The Report of the Audit Committee” and the “Stock Price Performance Graph” contained in the 2001 Proxy Statement are not incorporated by reference in this Form 10-K.

ITEM 12.     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         Information regarding security ownership of certain beneficial owners and management is set forth under the caption “Security Ownership of Principal Stockholders and Management” in the 2002 Proxy Statement, which information is incorporated in this Form 10-K by reference.

ITEM 13.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         Information regarding certain relationships and related transactions of management is set forth under the caption “Certain Relationships and Related Transactions” in the 2002 Proxy Statement, which information is incorporated in this Form 10-K by reference.

PART IV

ITEM 14.     EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

         (a)  (1) The following consolidated financial statements of Radyne ComStream Inc. and subsidiaries are included in Part II, Item 8:

         Independent Auditors’ Reports
         Consolidated Balance Sheets as of December 31, 2001 and 2000
         Consolidated Statements of Operations for the Years Ended December 31, 2001, 2000 and 1999
         Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2001, 2000 and 1999
         Consolidated Statements of Cash Flows for the Years Ended December 31, 2001, 2000 and 1999
         Notes to Consolidated Financial Statements

         (a)  (2) All financial statement schedules have been omitted because they are not applicable, not required, or the information has been disclosed in the consolidated financial statements or notes thereto or otherwise in this Form 10-K report.

         (a)  (3) The following exhibits are included in this Form 10-K report:

EXHIBIT

NO.
3.1 (1)	Restated Certificate of Incorporation
3.2 (2)	By-Laws, as amended and restated
10.1(a)(3)	1996 Incentive Stock Option Plan
10.1(b)(4)	Amendment to 1996 Incentive Stock Option Plan
10.2 (5)	1999 Employee Stock Purchase Plan
10.3 (6)	2000 Long-Term Incentive Plan
10.4(a)(7)	Lease between ADI Communication Partners, L.P. and ComStream dated April 23, 1997
10.4(b)(7)	First Amendment to lease between ADI Communication Partners L.P. and ComStream dated July 16, 1997
10.4(c)(7)	Second Amendment to Lease between Kilroy Realty, L.P. and ComStream dated November 18, 1998
10.5(8)	Lease for facility in Phoenix, Arizona
10.6*	Credit Agreement by and between the Registrant and Wells Fargo HSBC Trade Bank, N.A.
21.1*	Subsidiaries of the Registrant
23.1*	Consent of KPMG LLP
99.1*	Cautionary Statement Regarding Forward-Looking Statements and Risk Factors

*	filed herewith
(1)	Incorporated by reference from exhibit 3.1 to Registrant’s description of capital stock on Form 8-A12G, filed on July 13, 2000.
(2)	Incorporated by reference from exhibit 3.2 to Registrant’s description of capital stock on Form 8-A12G, filed on July 13, 2000.
(3)	Incorporated by reference from Registrant’s Registration Statement on Form S-8, dated and declared effective on March 12, 1997 (File No. 333-23159).
(4)	Incorporated by reference from Registrant’s Registration Statement on Form S-8, dated and declared effective on November 18, 1998 (File No. 333-67469).
(5)	Incorporated by reference from Registrant’s Registration Statement on Form S-8, dated and declared effective on November 5, 1999 (File No. 333-90383).
(6)	Incorporated by reference from Registrant’s Registration Statement on Form S-8, dated and declared effective on July 19, 2000 (File No. 333-41704)

(7)	Incorporated by reference from Registrant’s Registration Statement on Form S-2, filed January 11, 1999 (File No. 333-70403).
(8)	Incorporated by reference from Registrant’s Annual Report on Form 10-K for the year ended December 31, 1997.

(b) Registrant did not file any reports on Form 8-K during the period of October 1 through December 31, 2001

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.

	RADYNE COMSTREAM INC.
By:	/s/ Robert C. Fitting
	Robert C. Fitting, Chief Executive Officer

Dated: April 1, 2002

KNOW ALL THESE PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Robert C. Fitting, his attorney-in-fact, with full power of substitution, for him in any and all capacities, to sign any and all amendments to this Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorney-in-fact or his substitute, may do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Name	Title	Date
/s/ Lim Ming Seong Lim Ming Seong	Chairman of the Board of Directors		April 1, 2002
/s/ Robert C. Fitting Robert C. Fitting	Chief Executive Officer and Director		April 1, 2002
/s/ Brian J. Duggan Brian J. Duggan	Chief Operations Officer and President		April 1, 2002
/s/ Garry D. Kline Garry D. Kline	Vice President, Finance (Principal Financial and Accounting Officer)		April 1, 2002
/s/ C.J. Waylan C.J. Waylan	Director		April 1, 2002
/s/ Lee Yip Loi Lee Yip Loi	Director		April 1, 2001
/s/ Dennis Elliott Dennis Elliott	Director		April 1, 2002
/s/ Tang Kum Chuen Tang Kum Chuen	Director		April 1, 2002

EXHIBIT INDEX

NO.
3.1 (1)	Restated Certificate of Incorporation
3.2 (2)	By-Laws, as amended and restated
10.1(a)(3)	1996 Incentive Stock Option Plan
10.1(b)(4)	Amendment to 1996 Incentive Stock Option Plan
10.2 (5)	1999 Employee Stock Purchase Plan
10.3 (6)	2000 Long-Term Incentive Plan
10.4(a)(7)	Lease between ADI Communication Partners, L.P. and ComStream dated April 23, 1997
10.4(b)(7)	First Amendment to lease between ADI Communication Partners L.P. and ComStream dated July 16, 1997
10.4(c)(7)	Second Amendment to Lease between Kilroy Realty, L.P. and ComStream dated November 18, 1998
10.5(8)	Lease for facility in Phoenix, Arizona
10.6*	Credit Agreement by and between the Registrant and Wells Fargo HSBC Trade Bank, N.A.
21.1*	Subsidiaries of the Registrant
23.1*	Consent of KPMG LLP
99.1*	Cautionary Statement Regarding Forward-Looking Statements and Risk Factors

*	filed herewith
(1)	Incorporated by reference from exhibit 3.1 to Registrant’s description of capital stock on Form 8-A12G, filed on July 13, 2000.
(2)	Incorporated by reference from exhibit 3.2 to Registrant’s description of capital stock on Form 8-A12G, filed on July 13, 2000.
(3)	Incorporated by reference from Registrant’s Registration Statement on Form S-8, dated and declared effective on March 12, 1997 (File No. 333-23159).
(4)	Incorporated by reference from Registrant’s Registration Statement on Form S-8, dated and declared effective on November 18, 1998 (File No. 333-67469).
(5)	Incorporated by reference from Registrant’s Registration Statement on Form S-8, dated and declared effective on November 5, 1999 (File No. 333-90383).
(6)	Incorporated by reference from Registrant’s Registration Statement on Form S-8, dated and declared effective on July 19, 2000 (File No. 333-41704)
(7)	Incorporated by reference from Registrant’s Registration Statement on Form S-2, filed January 11, 1999 (File No. 333-70403).
(8)	Incorporated by reference from Registrant’s Annual Report on Form 10-K for the year ended December 31, 1997.

EX-10.6 3 p66289ex10-6.txt EX-10.6 EXHIBIT 10.6 CREDIT AGREEMENT by and between RADYNE COMSTREAM INC., A DELAWARE CORPORATION and WELLS FARGO HSBC TRADE BANK, N.A. Dated as of ________________________, 200__ Exhibit A - Addendum to Credit Agreement Exhibit B - Revolving Credit Facility Supplement Exhibit C - Collateral/Credit Support Document Exhibit D - Borrowing Base Certificate WELLS FARGO HSBC TRADE BANK CREDIT AGREEMENT - -------------------------------------------------------------------------------- RADYNE COMSTREAM INC., A DELAWARE CORPORATION ("Borrower"), organized under the laws of the State of Delaware whose chief executive office is located at the address specified after its signature to this Agreement ("Borrower's Address") and WELLS FARGO HSBC TRADE BANK, N.A. ("Trade Bank"), whose address is specified after its signature to this Agreement, have entered into this CREDIT AGREEMENT as of ________________________, 200__ ("Effective Date"). All references to this "Agreement" include those covenants included in the Addendum to Agreement ("Addendum") attached as Exhibit A hereto. I. CREDIT FACILITY 1.1 THE FACILITY. Subject to the terms and conditions of this Agreement, Trade Bank will make available to Borrower a Revolving Credit Facility ("Facility") for which a Facility Supplement ("Supplement") is attached as Exhibit B hereto. Additional terms for the Facility (and each subfacility thereof ("Subfacility")) are set forth in the Supplement. The Facility will be available from the Closing Date up to and until December 31, 2001 ("Facility Termination Date"). Collateral and credit support required the Facility is set forth in Exhibit C hereto. Definitions for those capitalized terms not otherwise defined are contained in Article 8 below. 1.2 CREDIT EXTENSION LIMIT. The aggregate outstanding amount of all Credit Extensions may at no time exceed the lessor of (a) Ten Million Dollars ($10,000,000.00) or (b) the Borrowing Base in effect from time to time ("Overall Credit Limit"). The aggregate outstanding amount of all Credit Extensions outstanding at any time under Revolving Credit Facility may not exceed that amount specified as the "Credit Limit" in the Supplement for the Facility, and the aggregate outstanding amount of all Credit Extensions outstanding at any time under each Subfacility (or any subcategory thereof) may not exceed that amount specified as the "Credit Sublimit" in the Supplement for the Facility. An amount equal to 100% of each unfunded Credit Extension shall be used in calculating the outstanding amount of Credit Extensions under this Agreement. The Subfacility(s) of the Revolving Credit Facility are as follows: (a) Sight Commercial Letters of Credit (b) Usance Commercial Letters of Credit including: (1) Acceptances (c) Standby Letters of Credit 1.3 OVERADVANCE. All Credit Extensions made hereunder shall be added to and deemed part of the Obligations when made. If, at any time and for any reason, the aggregate outstanding amount of all Credit Extensions made pursuant to this Agreement exceeds the dollar limitation in Section 1.2 or the Borrowing Base, then Borrower shall immediately pay to Trade Bank on demand, in cash, the amount of such excess. 1.4 REPAYMENT; INTEREST AND FEES. Each funded Credit Extension shall be repaid by Borrower, and shall bear interest from the date of disbursement at those per annum rates and such interest shall be paid, at the times specified in the Supplement, Note or Facility Document. Borrower agrees to pay to Trade Bank with respect to (a) the Revolving Credit Facility, interest at a per annum rate equal to (i) the Prime Rate minus 0.25% as specified in the Note, or (ii) Wells Fargo's LIBOR Rate plus a percentage as specified in the Note, and (b) the Subfacilities, the fees specified in the Supplement as well as those fees specified in the relevant Facility Document(s). Interest and fees will be calculated on the basis of a 360 day year, actual days elapsed. Any overdue payments of principal (and interest to the extent permitted by law) shall bear interest at a per annum floating rate equal to the Prime Rate plus 5.0%. 1.5 PREPAYMENTS. Credit Extensions under any Facility may only be prepaid in accordance with the terms of the Supplement. At the time of any prepayment (including, but not limited to, any prepayment which is a result of the occurrence of an Event of Default and an acceleration of the Obligations) Borrower will pay to Trade Bank all interest accrued on the amount so prepaid to the date of such prepayment and all costs, expenses and fees specified in the Loan Documents. Page 1 II. REPRESENTATIONS AND WARRANTIES Borrower represents and warrants to Trade Bank that the following representations and warranties are true and correct: 2.1 LEGAL STATUS. Borrower is duly organized and existing and in good standing under the laws of the jurisdiction indicated in this Agreement, and is qualified or licensed to do business in all jurisdictions in which such qualification or licensing is required and in which the failure to so qualify or to be so licensed could have a material adverse affect on Borrower. 2.2 AUTHORIZATION AND VALIDITY. The execution, delivery and performance of this Agreement, and all other Loan Documents to which Borrower is a party, have been duly and validly authorized, executed and delivered by Borrower and constitute legal, valid and binding agreements of Borrower, and are enforceable against Borrower in accordance with their respective terms. 2.3 BORROWER'S NAME. The name of Borrower set forth at the end of this Agreement is its correct name. If Borrower is conducting business under a fictitious business name, Borrower is in compliance with all laws relating to the conduct of such business under such name. 2.4 FINANCIAL CONDITION AND STATEMENTS. All financial statements of Borrower delivered to Trade Bank have been prepared in conformity with GAAP, and completely and accurately reflect the financial condition of Borrower (and any consolidated Subsidiaries) at the times and for the periods stated in such financial statements. Neither Borrower nor any Subsidiary has any material contingent liability not reflected in the aforesaid financial statement. Since the date of the financial statements delivered to Trade Bank for the last fiscal period of Borrower to end before the Effective Date, there has been no material adverse change in the financial condition, business or prospects of Borrower. Borrower is solvent. 2.5 LITIGATION. Except as disclosed in writing to Trade Bank prior to the Effective Date, there is no action, claim, suit, litigation, proceeding or investigation pending or (to best of Borrower's knowledge) threatened by or against or affecting Borrower or any Subsidiary in any court or before any governmental authority, administrator or agency which may result in (a) any material adverse change in the financial condition or business of Borrower's, or (b) any material impairment of the ability of Borrower to carry on its business in substantially the same manner as it is now being conducted. 2.6 NO VIOLATION. The execution, delivery, and performance by Borrower of each of the Loan Documents do not violate any provision of any law or regulation, or contravene any provision of the Articles of Incorporation or By-Laws of Borrower, or result in a breach of or constitute a default under any contract, obligation, indenture, or other instrument to which Borrower is a party or by which Borrower may be bound. 2.7 INCOME TAX RETURNS. Borrower has no knowledge of any pending assessments or adjustments of its income tax payable with respect to any year. 2.8 NO SUBORDINATION. There is no agreement, indenture, contract, or instrument to which Borrower is a party or by which Borrower may be bound that requires the subordination in right of payment of any of Borrower's obligations subject to this Agreement to any other obligation of Borrower. 2.9 ERISA. Borrower is in compliance in all material respects with all applicable provisions of the Employee Retirement Income Security Act of 1974, as amended or recodified from time to time ("ERISA"); Borrower has not violated any provision of any defined employee pension benefit plan (as defined in ERISA) maintained or contributed to by Borrower (each, a "Plan"); no Reportable Event, as defined in ERISA, has occurred and is continuing with respect to any Plan initiated by Borrower; Borrower has met its minimum funding requirements under ERISA with respect to each Plan; and each Plan will be able to fulfill its benefit obligations as they come due in accordance with the Plan documents and under GAAP. 2.10 OTHER OBLIGATIONS. Except as disclosed in writing to Trade Bank prior to the Effective Date, neither Borrower nor any Subsidiary are in default of any obligation for borrowed money, any purchase money obligation or any material lease, commitment, contract, instrument or obligation. Page 2 2.11 NO DEFAULTS. No Event of Default, and event which with the giving of notice or the passage of time or both would constitute an Event of Default, has occurred and is continuing. 2.12 INFORMATION PROVIDED TO TRADE BANK. The information provided to the Trade Bank concerning Borrower's business is true and correct. 2.13 ENVIRONMENTAL MATTERS. Except as disclosed by Borrower to Trade Bank in writing prior to the Effective Date, Borrower (as well as any Subsidiary) is each in compliance in all material respects with all applicable Federal or state environmental, hazardous waste, health and safety statutes, and any rules or regulations adopted pursuant thereto, which govern or affect any Borrower's or any Subsidiary's operations and/or properties, including without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, the Superfund Amendments and Reauthorization Act of 1986, the Federal Resource Conservation and Recovery Act of 1976, the Federal Toxic Substances Control Act and the California Health and Safety Code, as any of the same may be amended, modified or supplemented from time to time. None of the operations of Borrower or of any Subsidiary is the subject of any Federal or state investigation evaluating whether any remedial action involving a material expenditure is needed to respond to a release of any toxic or hazardous waste or substance into the environment. III. CONDITIONS TO EXTENDING FACILITIES 3.1 CONDITIONS TO INITIAL CREDIT EXTENSION. The obligation of Trade Bank to make the first Credit Extension is subject to the fulfillment to Trade Bank's satisfaction of the following conditions: (a) APPROVAL OF TRADE BANK COUNSEL. All legal matters relating to making the Facility available to Borrower must be satisfactory to counsel for Trade Bank. (b) DOCUMENTATION. Trade Bank must have received, in form and substance satisfactory to Trade Bank, the following documents and instruments duly executed and in full force and effect: (1) a corporate borrowing resolution and incumbency certificate if Borrower is a corporation, a partnership or joint venture borrowing certificate if Borrower is a partnership or joint venture, and a limited liability company borrowing certificate if Borrower is a limited liability company; (2) the Facility Documents for the Facility, including, but not limited to, note(s) ("Notes") for the Revolving Credit Facility, Trade Bank's standard Continuing Commercial Letter of Credit Agreement or Continuing Standby Letter of Credit Agreement for any letter of credit Facility; (3) those guarantees, security agreements, deeds of trust, subordination agreements, intercreditor agreements, factoring agreements, tax service contracts, and other Collateral Documents required by Trade Bank to evidence the collateral/credit support specified in the Supplement; (4) if an audit or inspection of any books, records or property is specified in the Supplement for the Facility, an audit or inspection report from Wells Fargo or another auditor or inspector acceptable to Trade Bank reflecting values and property conditions satisfactory to Trade Bank; and (5) if insurance is required in the Addendum, the insurance policies specified in the Addendum (or other satisfactory proof thereof) from insurers acceptable to Trade Bank. 3.2 CONDITIONS TO MAKING EACH CREDIT EXTENSION. The obligation of Trade Bank to make each Credit Extension is subject to the fulfillment to Trade Bank's satisfaction of the following conditions: (a) REPRESENTATIONS AND WARRANTIES. The representations and warranties contained in this Agreement, the Facility Documents and the Collateral Documents will be true and correct on and Page 3 as of the date of the Credit Extension with the same effect as though such representations and warranties had been made on and as of such date; (b) DOCUMENTATION. Trade Bank must have received, in form and substance satisfactory to Trade Bank, the following documents and instruments duly executed and in full force and effect: (1) if the Credit Extension is the issuance of a Commercial Letter of Credit, Trade Bank's standard Application For Commercial Letter of Credit or standard Application and Agreement For Commercial Letter of Credit; (2) if the Credit Extension is the issuance of a Standby Letter of Credit, Trade Bank's standard Application For Standby Letter of Credit or standard Application and Agreement For Standby Letter of Credit; (3) if a Borrowing Base Certificate is required for the Credit Extension, a Borrowing Base Certificate demonstrating compliance with the requirements for such Credit Extension. (c) FEES. Trade Bank must have received any fees required by the Loan Documents to be paid at the time such Credit Extension is made. IV. AFFIRMATIVE COVENANTS Borrower covenants that so long as Trade Bank remains committed to make Credit Extensions to Borrower, and until payment of all Obligations and Credit Extensions, Borrower will comply with each of the following covenants: (For purposes of this Article IV, and Article V below, reference to "Borrower" may also extend to Borrower's subsidiaries, if so specified in the Addendum.) 4.1 PUNCTUAL PAYMENTS. Punctually pay all principal, interest, fees and other Obligations due under this Agreement or under any Loan Document at the time and place and in the manner specified herein or therein. 4.2 NOTIFICATION TO TRADE BANK. Promptly, but in no event more than 5 calendar days after the occurrence of each such event, provide written notice in reasonable detail of each of the following: (a) OCCURRENCE OF A DEFAULT. The occurrence of any Event of Default or any event which with the giving of notice or the passage of time or both would constitute an Event of Default; (b) BORROWER'S TRADE NAMES; PLACE OF BUSINESS. Any change of Borrower's (or any Subsidiary's) name, trade name or place of business, or chief executive officer; (c) LITIGATION. Any action, claim, proceeding, litigation or investigation threatened or instituted by or against or affecting Borrower (or any Subsidiary) in any court or before any government authority, administrator or agency which may materially and adversely affect Borrower's (or any Subsidiary's) financial condition or business or Borrower's ability to carry on its business in substantially the same manner as it is now being conducted; (d) UNINSURED OR PARTIALLY UNINSURED LOSS. Any uninsured or partially uninsured loss through liability or property damage or through fire, theft or any other cause affecting Borrower's (or any Subsidiary's) property in excess of the aggregate amount required hereunder; (e) REPORTS MADE TO INSURANCE COMPANIES. Copies of all material reports made to insurance companies; and (f) ERISA. The occurrence and nature of any Reportable Event or Prohibited Transaction, each as defined in ERISA, or any funding deficiency with respect to any Plan. Page 4 4.3 BOOKS AND RECORDS. Maintain at Borrower's address books and records in accordance with GAAP, and permit any representative of Trade Bank, at any reasonable time, to inspect, audit and examine such books and records, to make copies of them, and to inspect the properties of Borrower. 4.4 TAX RETURNS AND PAYMENTS. Timely file all tax returns and reports required by foreign, federal, state and local law, and timely pay all foreign, federal, state and local taxes, assessments, deposits and contributions owed by Borrower. Borrower may, however, defer payment of any contested taxes, provided that Borrower (i) in good faith contests Borrower's obligation to pay the taxes by appropriate proceedings promptly instituted and diligently conducted, (ii) notifies Trade Bank in writing of the commencement of, and any material development in, the proceedings, (iii) posts bonds or takes any other steps required to keep the contested taxes from becoming a lien upon any of the Collateral, and (iv) makes provision, to Trade Bank's satisfaction, for eventual payment of such taxes in the event Borrower is obligated to make such payment. 4.5 COMPLIANCE WITH LAWS. Comply in all material respects with the provisions of all foreign, federal, state and local laws and regulations relating to Borrower, including, but not limited to, those relating to Borrower's ownership of real or personal property, the conduct and licensing of Borrower's business, and health and environmental matters. 4.6 TAXES AND OTHER LIABILITIES. Pay and discharge when due any and all indebtedness, obligations, assessments and taxes, both real and personal, including without limitation federal and state income taxes and state and local property taxes and assessments, except (a) such as Borrower may in good faith contest or as to which a bona fide dispute may arise, and (b) for which Borrower has made provision, to Trade Bank's satisfaction, for eventual payment thereof in the event that Borrower is obligated to make such payment. 4.7 INSURANCE. Maintain and keep in force insurance of the types and in amounts customarily carried in lines of business similar to that of Borrower, including, but not limited to, fire, extended coverage, public liability, flood, property damage and workers' compensation, with all such insurance to be in amounts satisfactory to Trade Bank and to be carried with companies approved by Trade Bank before such companies are retained, and deliver to Trade Bank from time to time at Trade Bank's request schedules setting forth all insurance then in effect. All insurance policies shall name Trade Bank as an additional loss payee, and shall contain a lenders loss payee endorsement in form reasonably acceptable to Trade Bank. (Upon receipt of the proceeds of any such insurance, Trade Bank shall apply such proceeds in reduction of the outstanding funded Credit Extensions and shall hold any remaining proceeds as collateral for the outstanding unfunded Credit Extensions, as Trade Bank shall determine in its sole discretion, except that, provided no Event of Default has occurred, Trade Bank shall release to Borrower insurance proceeds with respect to equipment totaling less than $100,000, which shall be utilized by Borrower for the replacement of the equipment with respect to which the insurance proceeds were paid, if Trade Bank receives reasonable assurance that the insurance proceeds so released will be so used.) If Borrower fails to provide or pay for any insurance, Trade Bank may, but is not obligated to, obtain the insurance at Borrower's expense. 4.8 FURTHER ASSURANCES. At Trade Bank's request and in form and substance satisfactory to Trade Bank, execute all documents and take all such actions at Borrower's expense as Trade Bank may deem reasonably necessary or useful to perfect and maintain Trade Bank's perfected security interest in the Collateral and in order to fully consummate all of the transactions contemplated by the Loan Documents. V. NEGATIVE COVENANTS Borrower covenants that so long as Trade Bank remains committed to make any Credit Extensions to Borrower and until all Obligations and Credit Extensions have been paid, Borrower will not: 5.1 MERGE OR CONSOLIDATION, TRANSFER OF ASSETS. Merge into or consolidate with any other entity; make any substantial change in the nature of Borrower's business as conducted as of the date hereof; acquire all or substantially all of the assets of any other entity; nor sell, lease, transfer or otherwise dispose of all or a substantial or material portion of Borrower's assets except in the ordinary course of its business. 5.2 USE OF PROCEEDS. Borrower will not use the proceeds of any Credit Extension except for the purposes, if any, specified for such Credit Extension in the Supplement covering the Facility under which such Credit Extension is made. Page 5 5.3 LIENS. Mortgage, pledge, grant or permit to exist a security interest in, or lien upon, all or any portion of Borrower's assets now owned or hereafter acquired, except any of the foregoing in favor of Trade Bank or which is existing as of, and disclosed to Trade Bank in writing prior to, the date hereof. 5.4 ACQUISITIONS OF ASSETS. Borrower will not acquire any assets or enter into any other transaction outside the ordinary course of Borrower's business IF THE TOTAL AMOUNT SPENT ON ACQUIRING SUCH ASSETS OR IN CONNECTION WITH SUCH OTHER TRANSACTION EXCEEDS AN AGGREGATE AMOUNT OF $10,000,000. 5.5 LOANS AND INVESTMENTS. Borrower will not make any loans or advances to, or investments in, any person or entity except for accounts receivable created in the ordinary course of Borrower's business, EXCEPT FOR LOANS, ADVANCES, OR INVESTMENTS IN ANY AFFILIATE OF BORROWER WHICH DO NOT TO EXCEED $10,000,000 IN THE AGGREGATE. 5.6 INDEBTEDNESS FOR BORROWED MONEY. Borrower will not incur any indebtedness for borrowed money, except to Trade Bank and except for indebtedness subordinated to the Obligations by an instrument or agreement in form acceptable to Trade Bank, AND EXCEPT FOR INDEBTEDNESS FOR BORROWED MONEY TO SINGAPORE TECHNOLOGY PTD. LTD., PARENT OF BORROWER, WHICH DOES NOT EXCEED $10,000,000 IN THE AGGREGATE. 5.7 GUARANTEES. Borrower will not guarantee or otherwise become liable with respect to the obligations of any other person or entity, except for endorsement of instruments for deposit into Borrower's account in the ordinary course of Borrower's business. 5.8 INVESTMENTS IN, OR ACQUISITIONS OF, SUBSIDIARIES. Borrower will not make any investments in, or form or acquire, any subsidiaries. 5.9 CAPITAL EXPENDITURES. Borrower shall not make any capital expenditures in any fiscal year in an aggregate amount in excess of $1,500,000. VI. EVENTS OF DEFAULT AND REMEDIES 6.1 EVENTS OF DEFAULT. The occurrence of any of the following shall constitute an "Event of Default": (a) FAILURE TO MAKE PAYMENTS WHEN DUE. Borrower's failure to pay principal, interest, fees or other amounts when due under any Loan Document. (b) FAILURE TO PERFORM OBLIGATIONS. Any failure by Borrower to comply with any covenant or obligation in this Agreement or in any Loan Document (other than those referred to in subsection (a)above), and such default shall continue for a period of twenty calendar days from the earlier of (i) Borrower's failure to notify Trade Bank of such Event of Default pursuant to Section 4.2(a) above, or (ii) Trade Bank's notice to Borrower of such Event of Default. (c) UNTRUE OR MISLEADING WARRANTY OR STATEMENT. Any warranty, representation, financial statement, report or certificate made or delivered by Borrower under any Loan Document is untrue or misleading in any material respect when made or delivered. (d) DEFAULTS UNDER OTHER LOAN DOCUMENTS. Any "Event of Default" occurs under any other Loan Document; any Guaranty is no longer in full force and effect (or any claim thereof made by Guarantor) or any failure of a Guarantor to comply with the provisions thereof; or any breach of the provisions of any Subordination Agreement or Intercreditor Agreement by any party other than the Trade Bank. (e) DEFAULTS UNDER OTHER AGREEMENTS OR INSTRUMENTS. Any default in the payment or performance of any obligation, or the occurrence of any event of default, under the terms of any other agreement or instrument pursuant to which Borrower, any Subsidiary or any Guarantor or general partner of Borrower has incurred any debt or other material liability to any person or entity. Page 6 (f) CONCEALING OR TRANSFERRING PROPERTY. Borrower conceals, removes or transfers any part of its property with intent to hinder, delay or defraud its creditors, or makes or suffers any transfer of any of its property which may be fraudulent under any bankruptcy, fraudulent conveyance or similar law. (g) JUDGMENTS AND LEVIES AGAINST BORROWER. The filing of a notice of judgment lien against Borrower, or the recording of any abstract of judgment against Borrower, in any county in which Borrower has an interest in real property, or the service of a notice of levy and/or of a writ of attachment or execution, or other like process, against the assets of Borrower, or the entry of a judgment against Borrower. (h) EVENT OR CONDITION IMPAIRING PAYMENT OR PERFORMANCE. Any event occurs or condition arises which Trade Bank in good faith believes impairs or is substantially likely to impair the prospect of payment or performance by Borrower of the Obligations, including, but not limited to any material adverse change in Borrower's financial condition, business or prospects. (i) VOLUNTARY INSOLVENCY. Borrower, any Subsidiary or any Guarantor (i) becomes insolvent, (ii) suffers or consents to or applies for the appointment of a receiver, trustee, custodian or liquidator of itself or any of its property, (iii) generally fails to pay its debts as they become due, (iv) makes a general assignment for the benefit of creditors, or (v) files a voluntary petition in bankruptcy, or seeks reorganization, in order to effect a plan or other arrangement with creditors or any other relief under the Bankruptcy Reform Act, Title 11 of the United States Code, as amended or recodified from time to time ("Bankruptcy Code"), or under any state or Federal law granting relief to debtors, whether now or hereafter in effect. (j) INVOLUNTARY INSOLVENCY. Any involuntary petition or proceeding pursuant to the Bankruptcy Code or any other applicable state or federal law relating to bankruptcy, reorganization or other relief for debtors is filed or commenced against Borrower, any Subsidiary or Guarantor, or an order for relief is entered against it by any court of competent jurisdiction under the Bankruptcy Code or any other applicable state or federal law relating to bankruptcy, reorganization or other relief for debtors. (k) CHANGE IN OWNERSHIP. ANY CHANGE WHICH REDUCES THE THIRTY PERCENT (30%) OWNERSHIP OF BORROWER BY ITS PARENT, SINGAPORE TECHNOLOGY PTD. LTD.; or any change of general partner of Borrower or any Guarantor which the Trade Bank determines, in its sole discretion, may adversely affect the creditworthiness of Borrower or credit support for the Obligations. 6.2 REMEDIES. Upon the occurrence of any Event of Default, or at any time thereafter, Trade Bank, at its option, and without notice or demand of any kind (all of which are hereby expressly waived by Borrower), may do any one or more of the following: (a) terminate Trade Bank's obligation to make Credit Extensions or to make available to Borrower the Facility or other financial accommodations; (b) accelerate and declare all or any part of the Obligations to be immediately due, payable, and performable, notwithstanding any deferred or installment payments allowed by any instrument evidencing or relating to any Credit Extension; and/or (c) exercise all its rights, powers and remedies available under the Loan Documents, or accorded by law, including, but not limited to, the right to resort to any or all Collateral or other security for any of the Obligations and to exercise any or all of the rights of a beneficiary or secured party pursuant to applicable law. Notwithstanding the provisions in the foregoing sentence, if any Event of Default set out in subsections (i) and (j) of Section 6.1 above shall occur, then all the remedies specified in the preceding sentence shall automatically take effect without notice or demand of any kind (all of which are hereby expressly waived by Borrower) with respect to any and all Obligations. All rights, powers and remedies of Trade Bank may be exercised at any time by Trade Bank and from time to time after the occurrence of an Event of Default, are cumulative and not exclusive, and shall be in addition to any other rights, powers or remedies provided by law or equity. VII. GENERAL PROVISIONS 7.1 NOTICES. All notices to be given under this Agreement shall be in writing and shall be given personally or by regular first-class mail, by certified mail return receipt requested, by a private delivery service which obtains a signed Page 7 receipt, or by facsimile transmission addressed to Trade Bank or Borrower at the address indicated after their signature to this Agreement, or at any other address designated in writing by one party to the other party. Trade Bank is hereby authorized by Borrower to act on such instructions or notices sent by facsimile transmission or telecommunications device which Trade Bank believes come from Borrower. All notices shall be deemed to have been given upon delivery, in the case of notices personally delivered or delivered by private delivery service, upon the expiration of 3 calendar days following the deposit of the notices in the United States mail, in the case of notices deposited in the United States mail with postage prepaid, or upon receipt, in the case of notices sent by facsimile transmission. 7.2 WAIVERS. No delay or failure of Trade Bank in exercising any right, power or remedy under any of the Loan Documents shall affect or operate as a waiver of such right, power or remedy; nor shall any single or partial exercise of any such right, power or remedy preclude, waive or otherwise affect any other or further exercise thereof or the exercise of any other right, power or remedy. Any waiver, consent or approval by Trade Bank under any of the Loan Documents must be in writing and shall be effective only to the extent set out in such writing. 7.3 BENEFIT OF AGREEMENT. The provisions of the Loan Documents shall be binding upon and inure to the benefit of the respective successors, assigns, heirs, executors, administrators, beneficiaries and legal representatives of Borrower and Trade Bank; provided, however, that Borrower may not assign or transfer any of its rights under any Loan Document without the prior written consent of Trade Bank, and any prohibited assignment shall be void. No consent by Trade Bank to any assignment shall release Borrower from its liability for the Obligations unless such release is specifically given by Trade Bank to Borrower in writing. Trade Bank reserves the right to sell, assign, transfer, negotiate or grant participations in all or any part of, or any interest in, Trade Bank's rights and benefits under each of the Loan Documents. In connection therewith, Trade Bank may disclose any information relating to the Facility, Borrower or its business, or any Guarantor or its business. 7.4 JOINT AND SEVERAL LIABILITY. If Borrower consists of more than one person or entity, the liability of each of them shall be joint and several, and the compromise of any claim with, or the release of, any one such Borrower shall not constitute a compromise with, or a release of, any other such Borrower. 7.5 NO THIRD PARTY BENEFICIARIES. This Agreement is made and entered into for the sole protection and benefit of Borrower and Trade Bank and their respective permitted successors and assigns, and no other person or entity shall be a third party beneficiary of, or have any direct or indirect cause of action or claim in connection with, any of the Loan Documents to which it is not a party. 7.6 GOVERNING LAW AND JURISDICTION. This Agreement shall, unless provided differently in any Loan Document, be governed by, and be construed in accordance with, the internal laws of the State of California, except to the extent Trade Bank has greater rights or remedies under federal law whether as a national bank or otherwise. Borrower and Trade Bank (a) agree that all actions and proceedings relating directly or indirectly to this Agreement shall be litigated in courts located within California; (b) consent to the jurisdiction of any such court and consent to service of process in any such action or proceeding by personal delivery or any other method permitted by law; and (c) waive any and all rights Borrower may have to object to the jurisdiction of any such court or to transfer or change the venue of any such action or proceeding. 7.7 MUTUAL WAIVER OF JURY TRIAL. Borrower and Trade Bank each hereby waive the right to trial by jury in any action or proceeding based upon, arising out of, or in any way relating to, (a) any Loan Document, (b) any other present or future agreement, instrument or document between Trade Bank and Borrower, or (c) any conduct, act or omission of Trade Bank or Borrower or any of their directors, officers, employees, agents, attorneys or any other persons or entities affiliated with Trade Bank or Borrower, which waiver will apply in all of the mentioned cases whether the case is a contract or tort case or any other case. Borrower represents and warrants that no officer, representative or agent of Trade Bank has represented, expressly or otherwise, that Trade Bank would not seek to enforce this waiver of jury trial. 7.8 SEVERABILITY. Should any provision of any Loan Document be prohibited by, or invalid under applicable law, or held by any court of competent jurisdiction to be void or unenforceable, such defect shall not affect, the validity of the other provisions of the Loan Documents. 7.9 ENTIRE AGREEMENT; AMENDMENTS. This Agreement and the other Loan Documents are the final, entire and complete agreement between Borrower and Trade Bank concerning the Credit Extensions and the Facility; supersede all prior and contemporaneous negotiations and oral representations and agreements. There are no oral Page 8 understandings, representations or agreements between the parties concerning the Credit Extensions or the Facility which are not set forth in the Loan Documents. This Agreement and the Supplement may not be waived, amended or superseded except in a writing executed by Borrower and Trade Bank. 7.10 COLLECTION OF PAYMENTS. Unless otherwise specified in any Loan Document, other than this Agreement or any Note, all principal, interest and any fees due to Trade Bank by Borrower under this Agreement, the Addendum, any Supplement, any Facility Document, any Collateral Document or any Note, will be paid by Trade Bank having Wells Fargo debit any of Borrower's accounts with Wells Fargo and forwarding such amount debited to Trade Bank, without presentment, protest, demand for reimbursement or payment, notice of dishonor or any other notice whatsoever, all of which are hereby expressly waived by Borrower. Such debit will be made at the time principal, interest or any fee is due to Trade Bank pursuant to this Agreement, the Addendum, any Supplement, any Facility Document, any Collateral Document or any Note. 7.11 COSTS, EXPENSES AND ATTORNEYS' FEES. Borrower will reimburse Trade Bank for all costs and expenses, including, but not limited to, reasonable attorneys' fees and expenses (which counsel may be Trade Bank or Wells Fargo employees), expended or incurred by Trade Bank in the preparation and negotiation of this Agreement, the Notes, the Collateral Documents, the Addendum, and the Facility Documents, in amending this Agreement, the Collateral Documents, the Notes, the Addendum, or the Facility Documents, in collecting any sum which becomes due Trade Bank on the Notes, under this Agreement, the Collateral Documents, the Addendum, the Supplement, or any of the Facility Documents, in the protection, perfection, preservation and enforcement of any and all rights of Trade Bank in connection with this Agreement, the Notes, any of the Collateral Documents, the Supplement, any of the Addendum, or any of the Facility Documents, including, without limitation, the fees and costs incurred in any out-of-court work out or a bankruptcy or reorganization proceeding. VIII. DEFINITIONS 8.1 "ACCOUNTS RECEIVABLE" means all presently existing and hereafter arising "Rights to Payment" (as that term is defined in the "Continuing Security Agreement - Rights to Payment and Inventory" executed by Borrower in favor of Trade Bank) which arise from the sale, lease or other disposition of Inventory, or from performance of contracts for service, manufacture, construction or repair, together with all goods returned by Borrower's customers in connection with any of the foregoing. 8.2 "AGREEMENT" means this Agreement and the Addendum attached hereto, as corrected or modified from time to time by Trade Bank and Borrower. 8.3 "BANKING DAY" means each day except Saturday, Sunday and a day specified as a holiday by federal or California statute. 8.4 "BORROWING BASE" means an amount equal to eighty percent (80%) of Borrower's Eligible Accounts Receivable. All of the foregoing shall be determined by Trade Bank upon receipt and review of all collateral reports required hereunder and such other documents and collateral information as Trade Bank may from time to time require. Borrower acknowledges that as said Borrowing Base was established by Trade Bank with the understanding that, among other items, the aggregate of all returns, rebates, discounts, credits, and allowances for the immediately preceding three (3) months at all times shall be less than five percent (5%) of Borrower's gross sales for said period. If such dilution of Borrower's accounts for the immediately preceding three (3) months at any time exceeds five percent (5%) of Borrower's gross sales for said period, or if there at any time exists any other matters, events, conditions or contingencies which Trade Bank reasonably believes may affect payment of any portion of Borrower's accounts, Trade Bank, in its sole discretion, may reduce the foregoing advance rate against Borrower's Eligible Accounts Receivable to a percentage appropriate to reflect such additional dilution and/or establish reserves against Borrower's Eligible Accounts Receivable. 8.5 "CLOSING DATE" means the date on which the first Credit Extension is made. 8.6 "COLLATERAL" means all property securing the Obligations. 8.7 "COLLATERAL DOCUMENTS" means those security agreement(s), deed(s) of trust, guarantee(s), subordination agreement(s), intercreditor agreement(s), and other credit support documents and instruments required by Page 9 the Trade Bank to effect the collateral and credit support requirements set forth in the Supplement with respect to the Facility. 8.8 "CREDIT" means any discount, allowance, credit, rebate, or adjustment granted by Borrower with respect to an Account Receivable. 8.9 "CREDIT EXTENSION" means each extension of credit under the Facility (whether funded or unfunded), including, but not limited to, (a) the issuance of sight or usance commercial letters of credit or commercial letters of credit supported by back-up letters of credit, (b) the issuance of standby letters of credit, (c) the issuance of shipping guarantees, (d) the making of revolving credit working capital loans, (e) the making of loans against imports for letters of credit, (f) the making of clean import loans outside letters of credit, (g) the making of advances against export orders, (h) the making of advances against export letters of credit, (i) the making of advances against outgoing collections, (j) the making of term loans, and (k) the entry into foreign exchange contracts. 8.10 "CREDIT LIMIT" means, with respect to the any Facility, the amount specified under the column labeled "Credit Limit" in the Supplement for that related Facility. 8.11 "CREDIT SUBLIMIT" means, with respect to any Subfacility, the amount specified after the name of that Subfacility under the column labeled "Credit Sublimit" in the Supplement for the related Facility. 8.12 "DOLLARS" and "$" means United States dollars. 8.13 "ELIGIBLE ACCOUNTS RECEIVABLE" means those Accounts Receivable which have been created in the ordinary course of Borrower's business, including THOSE ACCOUNTS RECEIVABLE BACKED BY A LETTER OF CREDIT SATISFACTORY TO TRADE BANK, OR FCIA INSURED, OR EXIMBANK OR CEFO INSURED, IN A MANNER AND AMOUNT SATISFACTORY TO TRADE BANK; and upon which Borrower's right to receive payment is absolute and not contingent upon the fulfillment of any conditions whatsoever, and shall not include: (a) any account which is past due ninety (90) days after the invoice date with respect to Accounts Receivable with payment terms of net thirty (30) or net sixty (60) calendar days from invoice date; and thirty (30) days after the due date with respect to Accounts Receivable with payment terms of net ninety (90) calendar days from invoice date; (b) any account for which there are any right of setoff, defense or discount (except regular discounts allowed in the ordinary course of business to promote prompt payment) or for which any defense or counterclaim has been asserted; (c) any account which represents an obligation of any state or municipal government or of the United States government or any political subdivision thereof; (d) any account which represents an obligation of an account debtor located in a foreign country; (e) any account which arises from the sale or lease to or performance of services for, or represents an obligation of, an employee, affiliate, partner, parent or subsidiary of Borrower. (f) that portion of any account which represents interim or progress billings or retention rights on the part of the account debtor; (g) any account which represents an obligation of any account debtor when twenty percent (20%) or more of Borrower's accounts from such account debtor is not eligible pursuant to (a) above; (h) that portion of any account from an account debtor which represents the amount by which Borrower's total accounts receivable from said account debtor exceeds twenty-five percent (25%) of Borrower's total accounts receivable; Page 10 (i) any account deemed ineligible by Trade Bank when Trade Bank, in its sole discretion, deems the creditworthiness or financial condition of the account debtor, or the industry in which the account debtor is engaged, to be unsatisfactory. 8.14 "FACILITY DOCUMENTS" means, with respect to the Facility, those documents specified in the Supplement for the Facility, and any other documents customarily required by Trade Bank for said Facility. 8.15 "GAAP" means generally accepted accounting principles, which are applicable to the circumstances, as of the date of determination, set out in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and in the statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession. 8.16 "INVENTORY" has the meaning assigned to such term in the "Continuing Security Agreement - Rights to Payment and Inventory" executed by Borrower in favor of Trade Bank. 8.17 "LOAN DOCUMENTS" means this Agreement, the Addendum, the Supplement, the Facility Documents and the Collateral Documents. 8.18 "NOTE" has the meaning specified in Section 3.1(b)(2) above. 8.19 "OBLIGATIONS" means (a) the obligation of Borrower to pay principal, interest and fees on all funded Credit Extensions and fees on all unfunded Credit Extensions, and (b) the obligation of Borrower to pay and perform when due all other indebtedness, liabilities, obligations and covenants required under the Loan Documents. 8.20 "PERSON" means and includes natural persons, corporations, limited partnerships, general partnerships, joint stock companies, joint ventures, associations, companies, trusts, banks, trust companies, land trusts, business trusts or other organizations, whether or not legal entities, and governments and agencies and political subdivisions thereof. 8.21 "PRIME RATE" means the rate most recently announced by Wells Fargo at its principal office in San Francisco, California as its "Prime Rate", with the understanding that the Prime Rate is one of Wells Fargo's base rates and serves as the basis upon which effective rates of interest are calculated for those loans making reference thereto, and is evidenced by the recording thereof after its announcement in such internal publication or publications as Wells Fargo may designate. Any change in an interest rate resulting from a change in the Prime Rate shall become effective as of 12:01 a.m. of the Banking Day on which each change in the Prime Rate is announced by Wells Fargo. 8.22 "SUBSIDIARY" means (i) any corporation at least the majority of whose securities having ordinary voting power for the election of directors (other than securities having such power only by reason of the happening of a contingency) are at the time owned by Borrower and/or one or more Subsidiaries, and (ii) any joint venture or partnership in which Borrower and/or one or more Subsidiaries has a majority interest. 8.23 "WELLS FARGO" means Wells Fargo Bank, N.A. IX. ARBITRATION 9.1 ARBITRATION. The parties hereto agree, upon demand by any party, to submit to binding arbitration all claims, disputes and controversies between or among them (and their respective employees, officers, directors, attorneys, and other agents), whether in tort, contract or otherwise arising out of or relating to in any way (i) the loan and related loan and security documents which are the subject of this Agreement and its negotiation, execution, collateralization, administration, repayment, modification, extension, substitution, formation, inducement, enforcement, default or termination; or (ii) requests for additional credit. 9.2 GOVERNING RULES. Any arbitration proceeding will (i) proceed in a location in California selected by the American Arbitration Association ("AAA"); (ii) be governed by the Federal Arbitration Act (Title 9 of the United States Code), notwithstanding any conflicting choice of law provision in any of the documents between the parties; and (iii) be conducted by the AAA, or such other administrator as the parties shall mutually agree upon, in accordance with the AAA's Page 11 commercial dispute resolution procedures, unless the claim or counterclaim is at least $1,000,000.00 exclusive of claimed interest, arbitration fees and costs in which case the arbitration shall be conducted in accordance with the AAA's optional procedures for large, complex commercial disputes (the commercial dispute resolution procedures or the optional procedures for large, complex commercial disputes to be referred to, as applicable, as the "Rules"). If there is any inconsistency between the terms hereof and the Rules, the terms and procedures set forth herein shall control. Any party who fails or refuses to submit to arbitration following a demand by any other party shall bear all costs and expenses incurred by such other party in compelling arbitration of any dispute. Nothing contained herein shall be deemed to be a waiver by any party that is a bank of the protections afforded to it under 12 U.S.C. Section 91 or any similar applicable state law. 9.3 NO WAIVER OF PROVISIONAL REMEDIES, SELF-HELP AND FORECLOSURE. The arbitration requirement does not limit the right of any party to (i) foreclose against real or personal property collateral; (ii) exercise self-help remedies relating to collateral or proceeds of collateral such as setoff or repossession; or (iii) obtain provisional or ancillary remedies such as replevin, injunctive relief, attachment or the appointment of a receiver, before during or after the pendency of any arbitration proceeding. This exclusion does not constitute a waiver of the right or obligation of any party to submit any dispute to arbitration or reference hereunder, including those arising from the exercise of the actions detailed in sections (i), (ii) and (iii) of this paragraph. 9.4 ARBITRATOR QUALIFICATIONS AND POWERS. Any arbitration proceeding in which the amount in controversy is $5,000,000.00 or less will be decided by a single arbitrator selected according to the Rules, and who shall not render an award of greater than $5,000,000.00. Any dispute in which the amount in controversy exceeds $5,000,000.00 shall be decided by majority vote of a panel of three arbitrators; provided however, that all three arbitrators must actively participate in all hearings and deliberations. The arbitrator will be a neutral attorney licensed in the State of California or a neutral retired judge of the state or federal judiciary of California, in either case with a minimum of ten years experience in the substantive law applicable to the subject matter of the dispute to be arbitrated. The arbitrator will determine whether or not an issue is arbitratable and will give effect to the statutes of limitation in determining any claim. In any arbitration proceeding the arbitrator will decide (by documents only or with a hearing at the arbitrator's discretion) any pre-hearing motions which are similar to motions to dismiss for failure to state a claim or motions for summary adjudication. The arbitrator shall resolve all disputes in accordance with the substantive law of California and may grant any remedy or relief that a court of such state could order or grant within the scope hereof and such ancillary relief as is necessary to make effective any award. The arbitrator shall also have the power to award recovery of all costs and fees, to impose sanctions and to take such other action as the arbitrator deems necessary to the same extent a judge could pursuant to the Federal Rules of Civil Procedure, the California Rules of Civil Procedure or other applicable law. Judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction. The institution and maintenance of an action for judicial relief or pursuit of a provisional or ancillary remedy shall not constitute a waiver of the right of any party, including the plaintiff, to submit the controversy or claim to arbitration if any other party contests such action for judicial relief. 9.5 DISCOVERY. In any arbitration proceeding discovery will be permitted in accordance with the Rules. All discovery shall be expressly limited to matters directly relevant to the dispute being arbitrated and must be completed no later than 20 days before the hearing date and within 180 days of the filing of the dispute with the AAA. Any requests for an extension of the discovery periods, or any discovery disputes, will be subject to final determination by the arbitrator upon a showing that the request for discovery is essential for the party's presentation and that no alternative means for obtaining information is available. 9.6 CLASS PROCEEDINGS AND CONSOLIDATIONS. The resolution of any dispute arising pursuant to the terms of this Agreement shall be determined by a separate arbitration proceeding and such dispute shall not be consolidated with other disputes or included in any class proceeding. 9.7 PAYMENT OF ARBITRATION COSTS AND FEES. The arbitrator shall award all costs and expenses of the arbitration proceeding. 9.8 REAL PROPERTY COLLATERAL; JUDICIAL REFERENCE. Notwithstanding anything herein to the contrary, no dispute shall be submitted to arbitration if the dispute concerns indebtedness secured directly or indirectly, in whole or in part, by any real property unless (i) the holder of the mortgage, lien or security interest specifically elects in writing to proceed with the arbitration, or (ii) all parties to the arbitration waive any rights or benefits that might accrue to them by virtue of the single action rule statute of California, thereby agreeing that all indebtedness and obligations of the parties, and all mortgages, liens and security interests securing such indebtedness and obligations, shall remain fully valid and Page 12 enforceable. If any such dispute is not submitted to arbitration, the dispute shall be referred to a referee in accordance with California Code of Civil Procedure Section 638 et seq., and this general reference agreement is intended to be specifically enforceable in accordance with said Section 638. A referee with the qualifications required herein for arbitrators shall be selected pursuant to the AAA's selection procedures. Judgment upon the decision rendered by a referee shall be entered in the court in which such proceeding was commenced in accordance with California Code of Civil Procedure Sections 644 and 645. 9.9 MISCELLANEOUS. To the maximum extent practicable, the AAA, the arbitrators and the parties shall take all action required to conclude any arbitration proceeding within 180 days of the filing of the dispute with the AAA. No arbitrator or other party to an arbitration proceeding may disclose the existence, content or results thereof, except for disclosures of information by a party required in the ordinary course of its business or by applicable law or regulation. If more than one agreement for arbitration by or between the parties potentially applies to a dispute, the arbitration provision most directly related to the documents between the parties or the subject matter of the dispute shall control. This Agreement may be amended or modified only in writing signed by each party hereto. If any provision of this Agreement shall be held to be prohibited by or invalid under applicable law such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or any remaining provisions of this Agreement. This arbitration provision shall survive termination, amendment or expiration of any of the documents or any relationship between the parties. Borrower and Trade Bank have caused this Agreement to be executed by their duly authorized officers or representatives on the date first written above. "BORROWER" "LENDER" RADYNE COMSTREAM INC. WELLS FARGO HSBC TRADE BANK, NATIONAL ASSOCIATION By: _________________________________ By: _______________________________ GARRY KLINE, Chief Financial Don Byers Officer, Treasurer, and Secretary Title: Vice President Borrower's Address: Lender's Address: 3138 East Elwood Street 1445 Ross Avenue Phoenix, Arizona 85034 Dallas, Texas 75202 Page 13 EXHIBIT A WELLS FARGO HSBC TRADE BANK ADDENDUM TO CREDIT AGREEMENT - -------------------------------------------------------------------------------- THIS ADDENDUM IS ATTACHED TO THE CREDIT AGREEMENT ("CREDIT AGREEMENT") BETWEEN WELLS FARGO HSBC TRADE BANK AND THE FOLLOWING BORROWER: NAME OF BORROWER: RADYNE COMSTREAM INC. ADDITIONAL AFFIRMATIVE COVENANTS The following covenants are part of Article IV of the Credit Agreement: REPORTS. Borrower will furnish the following information or deliver the following reports to Trade Bank at the times indicated below: - - ANNUAL FINANCIAL STATEMENTS. Not later than one hundred five (105) calendar days after and as of the end of each of Borrower's fiscal years, an annual financial statement of Borrower prepared by a certified public accountant acceptable to Trade Bank and prepared in accordance with GAAP, to include balance sheet, income statement, statement of cash flow, and source and application of funds statement. - - QUARTERLY FINANCIAL STATEMENTS. Not later than forty-five (45) calendar days after and as of the end of each of Borrower's fiscal quarters, a financial statement of Borrower prepared by Borrower, to include balance sheet and income statement. CERTIFICATE OF ACCURACY AND NO EVENT OF DEFAULT. At the time each financial statement of Borrower required above is delivered to Trade Bank, a certificate of the president or chief financial officer of Borrower that said financial statements are accurate and that there exists no Event of Default under the Agreement nor any condition, act or event which with the giving of notice or the passage of time or both would constitute an Event of Default. - - BORROWING BASE CERTIFICATE. Not later than twenty (20) calendar days after and as of the end of each month, a borrowing base certificate. - - ACCOUNTS RECEIVABLE AGED LISTING. Not later than twenty (20) calendar days after and as of each month end, an aged listing of accounts receivable, including both factored and unfactored accounts. - - ACCOUNTS PAYABLE AGED LISTING. Not later than twenty (20) calendar days after and as of each month end, an aged listing of accounts payable. - - ACCOUNT DEBTORS LIST. Not later than twenty (20) calendar days after and as of each second and fourth fiscal quarter, a list of the names, addresses and phone numbers of all Borrower's account debtors and an aged listing of their balances. - - INSURANCE: Borrower will maintain in full force and effect insurance coverage on all Borrower's property, including, but not limited to, the following types of insurance coverage: policies of fire insurance marine cargo insurance business personal property insurance All the insurance referred to in the preceding sentence must be in form, substance and amounts, and issued by companies, satisfactory to Trade Bank, and cover risks required by Trade Bank and contain loss payable endorsements in favor of Trade Bank. Page 1 of 1 FINANCIAL COVENANTS. Borrower will maintain the following (if Borrower has any Subsidiaries which must be consolidated under GAAP, the following applies to borrower and the consolidated Subsidiaries): - - TANGIBLE NET WORTH. Not at any time less than $20,000,000. ("TANGIBLE NET WORTH" means the aggregate of total shareholders' equity determined in accordance with GAAP plus indebtedness which is subordinated to the Obligations to Trade Bank under a subordination agreement in form and substance acceptable to Trade Bank or by subordination language acceptable to Trade Bank in the instrument evidencing such indebtedness less (i) all assets which would be classified as intangible assets under GAAP, including, but not limited to, goodwill, licenses, patents, trademarks, trade names, copyrights, capitalized software and organizational costs, licenses and franchises, and (ii) assets which Trade Bank determines in its business judgment would not be available or would be of relatively small value in a liquidation of Borrower's business, including, but not limited to, prepaid expenses, loans to officers or affiliates and other items). - - TOTAL LIABILITIES DIVIDED BY TANGIBLE NET WORTH. Not at any time greater than 1.0 to 1.0. ("Tangible Net Worth" has the meaning given to it above, and "Total Liabilities" excludes indebtedness which is subordinated to the Obligations to Trade Bank under a subordination agreement in form and substance acceptable to Trade Bank or by subordination language acceptable to Trade Bank in the instrument evidencing such indebtedness.) - - QUICK ASSET RATIO. Not at any time less than 1.0 to 1.0 up to and including December 31, 2000 and 1.25 to 1.0 from and after January 1, 2001. ["QUICK ASSET RATIO" means "Quick Assets" divided by total current liabilities, and "QUICK ASSETS" means cash on hand or on deposit in banks, readily marketable securities issued by the United States, readily marketable commercial paper rated "A-1" by Standard & Poor's Corporation (or a similar rating by a similar rating organization), certificates of deposit and banker's acceptances, and accounts receivable (net of allowance for doubtful accounts).] - - PRE-TAX PROFIT. Not less than $1.00 on a quarterly basis (determined as of each fiscal quarter end) based on the sum of the results of two consecutive quarters consisting of the present quarter and the preceding quarter. - - EBITDA COVERAGE RATIO. Not less than 2.5 to 1.0 as of each fiscal year end. ("EBITDA" means net profit before tax plus interest expense (net of capitalized interest expense), depreciation expense and amortization expense and "EBITDA COVERAGE RATIO" means EBITDA divided by the aggregate of total interest expense plus the prior period current maturity of long-term debt and the prior period current maturity of subordinated debt.) BY SIGNING HERE BORROWER AGREES TO THE DESIGNATED PROVISIONS IN THIS ADDENDUM: -------------------------------------- (SIGNATURE) Page 2 of 2 EXHIBIT B WELLS FARGO HSBC TRADE BANK REVOLVING CREDIT FACILITY SUPPLEMENT - -------------------------------------------------------------------------------- THIS SUPPLEMENT IS AN INTEGRAL PART OF THE CREDIT AGREEMENT BETWEEN WELLS FARGO HSBC TRADE BANK AND THE FOLLOWING BORROWER: NAME OF BORROWER: RADYNE COMSTREAM INC. CREDIT LIMIT FOR THIS REVOLVING CREDIT LOAN FACILITY AND SUBLIMITS: Credit Limit: $10,000,000 (subject to dollar limitations in Section 1.2 of Agreement) CREDIT SUBLIMITS: Subject to the Revolving Credit Facility Credit Limit, the Credit Sublimit for each Subfacility specified below refers to the aggregate amount which may be outstanding at any one time under each such Subfacility. - - Sight Commercial Letters of Credit $10,000,000 - - Usance Commercial Letters of Credit $10,000,000 (a) Acceptances $10,000,000 - - Standby Letters of Credit $500,000 FACILITY DESCRIPTION: Trade Bank will make the Revolving Credit Facility available to Borrower for the specific purposes set forth below. Subject to the credit sublimits specified above, the Revolving Credit Facility may be supported by (i) a standby letter of credit in favor of Trade Bank, (ii) a guarantee or (iii) accounts receivable, inventory or other collateral. Revolving Credit Loans cannot be used to repay outstanding Revolving Credit Loans or Term Loans that have matured. FACILITY DOCUMENTS: - - REVOLVING CREDIT LOANS NOTE: The term and prepayment conditions of the Loans under Revolving Credit Facility are set forth in Revolving Credit Loans Note. INTEREST RATES: - - LOANS UNDER REVOLVING CREDIT FACILITY: All outstanding Loans under Revolving Credit Facility will bear interest at the following rate: PRIME RATE: The Prime Rate minus 0.25% per annum (as defined in the Revolving Credit Loans Note). LIBOR: As defined in the Revolving Credit Loans Note. INTEREST PAYMENT DATES: Interest on all outstanding Loans under Revolving Credit Facility will be paid at least once each month on the first day of the month. FEES: - - FACILITIES FEE: Borrower will pay the following Facilities Fee to Trade Bank before this Facility is made available to Borrower: $25,000. - - SIGHT COMMERCIAL CREDITS AND USANCE COMMERCIAL CREDITS: Issuance Fees/Fees For Increasing Credit Amounts or Extending Expiration Dates: (Minimum $200) 1/8 of 1% of the face amount of each Sight Commercial Credit or Usance Commercial Credit and of any increase in such amount. Payable: At the time each Sight Commercial Credit or Usance Commercial Credit is issued or increased and at the time the expiration date of any Sight Commercial Credit or Usance Commercial Credit is extended. Page 1 of 4 Amendment Fees: (Minimum $50) $50 for each amendment, unless the amendment is an increase in the Sight Commercial Credit or Usance Commercial Credit amount or an extension of the expiration date, in which case the Issuance Fee above will substitute for any Amendment Fee. Payable: At the time each amendment is issued. Negotiation/Payment/Examination Fees: (Minimum $100) $100 for each negotiation under each Sight Commercial Credit or Usance Commercial Credit. Payable: At the time any draft or other documents are negotiated, paid or examined. Acceptance Fees: (Minimum $75) 2.0% on the face amount of each draft accepted under each Usance Commercial Credit. Payable: At the time each draft is accepted. - - STANDBY CREDITS: Commission Fees/Fees For Increasing Credit Amounts or Extending Expiration Dates: (Minimum $375) 1.0% of the amount of each Standby Credit and of any increase in such amount. Payable: At the time each Standby Credit is issued or increased and at the time the expiration date of any Standby Credit is extended. Amendment Fees: (Minimum $130) $130 for each amendment, unless the amendment is an increase in the Standby Credit amount or an extension of the expiration date, in which case the Commission Fee above will substitute for any Amendment Fee. Payable: At the time each amendment is issued. Negotiation/Payment/Examination Fees: (Minimum $250) 1/4% of the face amount of each drawing under each Standby Credit. Payable: At the time any draft or other documents are negotiated, paid or examined. COLLATERAL: See Exhibit C - Collateral/Credit Support Document. SUBFACILITIES DESCRIPTION, PURPOSE, DOCUMENTS, TERM, AND PREPAYMENTS: - - SIGHT COMMERCIAL CREDITS: Description And Purpose: Trade Bank will issue sight commercial letters of credit (each a "Sight Commercial Credit") for the account of Borrower for the purpose or purposes stated below. Subject to the credit sublimits specified above, these Sight Commercial Credits will be transferable or not transferable and have the goods related to them consigned to or not consigned to, or controlled by or not controlled by, Trade Bank. The Sight Commercial Credit Sublimit specified above refers to the aggregate undrawn amount of all Sight Commercial Credits which may be at any one time outstanding under this Facility together with the aggregate amount of all drafts drawn under such Sight Commercial Credits which have not been reimbursed as provided below at such time. This Subfacility may only be used for the following purpose: To finance the importation of pre-assembled satellite communications systems and components for the assembly of satellite communication systems. Documents: Before the first Sight Commercial Credit is issued: Trade Bank's standard form Continuing Commercial Letter of Credit Agreement; Before each Sight Commercial Credit is issued: Trade Bank's standard form Application For Commercial Letter of Credit; Page 2 of 4 Before each Sight Commercial Credit is amended: Trade Bank's standard form Application For Amendment To Letter of Credit; Term: No Sight Commercial Credit may expire more than one hundred eighty (180) calendar days after the date it is issued. - - USANCE COMMERCIAL CREDITS: Description And Purpose: Trade Bank will issue usance commercial letters of credit (each a "Usance Commercial Credit") for the account of Borrower and create bankers' acceptances from drafts drawn under these Usance Commercial Credits ("Acceptances") and, if indicated above, incur deferred payment obligations from drawings under Usance Commercial Credits. Subject to the credit sublimits specified above, these Usance Commercial Credits will be transferable or not transferable and have the goods related to them consigned to or not consigned to, or controlled by or not controlled by, Trade Bank. The Usance Commercial Credit Sublimit specified above refers to the aggregate undrawn amount of all Usance Commercial Credits together with the aggregate amount of all Acceptances and deferred payment obligations which may be outstanding at any one time under each subcategory of the Usance Commercial Credit Sublimit. This Subfacility may only be used for the following purpose: To finance the importation of pre-assembled satellite communications systems and components for the assembly of satellite communication systems. Documents: Before the first Usance Commercial Credit is issued: Trade Bank's standard form Continuing Commercial Letter of Credit Agreement; Before each Usance Commercial Credit is issued: Trade Bank's standard form Application For Commercial Letter of Credit; Before each Usance Commercial Credit is amended: Trade Bank's standard form Application For Amendment To Letter of Credit; Term: No Usance Commercial Credit may expire more than one hundred eighty (180) calendar days after the date it is issued. No usance draft may have a term of more than one hundred eighty (180) calendar days. - - STANDBY CREDITS: Description And Purpose: Trade Bank will issue standby letters of credit (each a "Standby Credit") for the account of Borrower the purpose or purposes stated below. Subject to the credit sublimits specified above, these Standby Credits will be issued to support Borrower's open account trade terms, bid and performance bonds, industrial revenue bonds, worker's compensation obligations, or the moving of Borrower as a new customer from another bank to Trade Bank. The Standby Credit Sublimit specified above refers to the aggregate undrawn amount of all Standby Credits which may be at any one time outstanding under this Subfacility together with the aggregate amount of all drafts drawn under such Standby Credits which have not been reimbursed as provided below at such time. This Subfacility may only be used for the following purpose: To provide support for warranties and performance bonds for the benefit of Borrower's customers. Documents: Before the first Standby Credit is issued: Trade Bank's standard form Continuing Standby Letter of Credit Agreement. Before each Standby Credit is issued: Trade Bank's standard form Application For Standby Letter of Credit. Before each Standby Credit is amended: Trade Bank's standard form Application For Amendment To Letter of Credit. Page 3 of 4 Term: No Standby Credit will expire more than three hundred sixty (360) calendar days after the date it is issued. Standby Credits will be available by sight drafts only. REIMBURSEMENTS FOR SIGHT COMMERCIAL CREDITS, USANCE COMMERCIAL CREDITS, ACCEPTANCES AND STANDBY CREDITS: The amount of each (i) drawing paid by Trade Bank under a Sight Commercial Credit or Standby Credit and (ii) accepted drawing paid at its maturity by Trade Bank under a Usance Commercial Credit will be reimbursed to Trade Bank as follows: by Trade Bank having Wells Fargo Bank debit any of Borrower's accounts with Wells Fargo Bank and forwarding such amount debited to Trade Bank; or immediately on demand of Trade Bank; or by treating such amount drawn as an advance to Borrower under Borrower's Revolving Credit Facility. DEFAULT INTEREST RATE ON UNREIMBURSED SIGHT COMMERCIAL CREDITS, ACCEPTANCES AND STANDBY CREDITS: Default interest will accrue at a per annum rate equal to the Prime Rate plus five percent (5.0%) ("Default Interest Rate") and be paid at least once each month as follows: All drawings (i) under Sight Commercial Credits and (ii) under Standby Credits, not reimbursed on the day they are paid by Trade Bank, will bear interest at the Default Interest Rate from the date they are paid to the date such payment is fully reimbursed. All acceptances created under Usance Commercial Credits not reimbursed on the day they mature will bear interest at the Default Interest Rate from the date they mature to the date such reimbursement is made in full. BY INITIALING HERE BORROWER AGREES TO ALL THE TERMS OF THIS SUPPLEMENT: --------- Page 4 of 4 EX-21.1 4 p66289ex21-1.txt EX-21.1 EXHIBIT 21.1 List of Subsidiaries --------------------

Name Place of Incorporation --------- ----------------------- ComStream Corporation Delaware ComStream UK Limited England and Wales ComStream Israel Ltd. Israel Armer Communications Engineering Services, Inc. Delaware Tiernan Radyne ComStream Inc. Delaware

EX-23.1 5 p66289ex23-1.txt EX-23.1 EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT The Board of Directors Radyne ComStream Inc.: We consent to the incorporation by reference in the registration statements of Radyne ComStream Inc. on Form S-8 (File No. 333-23159) filed as of March 12, 1997, Form S-8 (File No. 333-67469) filed as of November 19, 1998 and amended as of May 5, 1999, Form S-8 (File No. 333-90383) filed as of November 5, 1999 and Form S-8 (file No. 333-41704) filed as of July 19, 2000, of our report dated February 21, 2002, on the consolidated balance sheets of Radyne ComStream Inc. as of December 31, 2001 and 2000 and the related consolidated statements of operations, stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 2001, which report appears in the December 31, 2001 annual report on Form 10-K of Radyne ComStream Inc. /s/ KPMG LLP Phoenix, Arizona March 29, 2002 EX-99.1 6 p66289ex99-1.txt EX-99.1 EXHIBIT 99.1 CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS AND RISK FACTORS In passing the Private Securities Litigation Reform Act of 1995 (the "Reform Act"), Congress encouraged public companies to make "forward-looking statements" by creating a safe harbor to protect companies from securities law liability in connection with forward-looking statements. Radyne ComStream intends to qualify both its written and oral forward-looking statements for protection under the Reform Act and any other similar safe harbor provisions. "Forward-looking statements" are defined by the Reform Act. Generally, forward-looking statements include expressed expectations of future events and the assumptions on which the expressed expectations are based. The words "believe," "expect," "anticipate," "intends," "forecast," "project," and similar expressions identify forward-looking statements. This Annual Report on Form 10-K for the year ended December 31, 2001 contains forward-looking statements that involve risks and uncertainties. Such statements may include, but are not limited to: (i) continued growth in demand for satellite system ground-based equipment and satellite-delivered communications services, (ii) continued global deregulation and privatization of telecommunications carriers, (iii) continued growth in worldwide demand for Internet over Satellite connectivity and communications serves in general, (iv) an increase in total foreign sales, and (v) sufficient cash reserves and cash from operations to fund planned future operations and capital requirements through the end of 2001. Such forward-looking statements are within the meaning of that term in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All forward-looking statements are inherently uncertain as they are based on various expectations and assumptions concerning future events and they are subject to numerous known and unknown risks and uncertainties that could cause actual events or result to differ materially from those projected. Due to those and other uncertainties and risks, the investment community is urged not to place undue reliance on written or oral forward-looking statements of Radyne ComStream. Radyne ComStream undertakes no obligation to update or revise this Cautionary Statement Regarding Forward-Looking Statements to reflect future developments. In addition, Radyne ComStream undertakes no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events, or changes to future operating results over time. Radyne ComStream provided the following risk factor disclosure in connection with its continuing effort to qualify its written and oral forward-looking statements under the safe harbor protection of the Reform Act and any other similar safe harbor provisions. Important factors currently known to management that could cause actual results to differ materially from those in forward-looking statements include the disclosures contained in the Company's Annual Report on Form 10-K to which this statement is appended as an exhibit and also include the following: RISK FACTORS You should carefully consider the following risks before you decide to buy our securities. If any of the following risks actually occur, our business, financial condition or results of operations would likely suffer. As a result, the trading price of our securities could decline, and you may lose all or part of the money you paid to buy our securities. We Have A History Of Operating Losses, Only Recently Became Profitable, And Could Suffer Further Losses In The Future. As a result of operating losses prior to 1999, we had an accumulated deficit of $4.7 million at December 31, 2001. Although we have been profitable over the past three years our earnings in fiscal 2001 deteriorated significantly compared to the prior year. Furthermore, there can be no assurance that we will remain profitable in the future. Future losses or reductions in our profitability would adversely affect our stock price. Our Quarterly Operating Results Have Fluctuated Significantly In The Past, And We Anticipate That They Could Do So In The Future, Which Could Adversely Affect Our Stock Price. We may continue to experience significant quarter to quarter fluctuations in our operating results, which may result in volatility in the price of our common stock. These fluctuating operating results derive from a variety of factors, including the following: - timing of the initiation and completion of our purchase orders; - demand for our products; - introduction of new or enhanced products by us or our competitors; - growth of demand for Internet-based products and services in developing countries; - timing of significant marketing programs we may implement; - extent and timing of hiring additional personnel; - competitive conditions in our industry; and - general economic conditions in the United States and abroad. The factors described above are difficult to forecast and could harm our business, financial condition and results of operations. Furthermore, 2001 was a challenging year for the telecommunication and Internet industries, thereby resulting in longer sales cycles and delays in the purchase decision-making process of existing and potential customers of our products and services. Accordingly, we may have difficulty in accurately forecasting our revenues for any future quarter. We Depend On International Sales, Which Could Cause Our Sales Levels To Be Volatile. We are dependent on sales to customers outside the United States. We expect that international sales will continue to account for a significant portion of our revenues for the foreseeable future. For example, sales to our foreign customers were approximately 56% of our net sales for the year ended December 31, 1999, 44% for the year ended December 31, 2000 and 46% for the year ended December 31, 2001. Additionally, we estimate that approximately 60% of our domestic sales are eventually exported. Moreover, the growth in the use of satellites for Internet traffic in recent years has been centered on connecting Internet service providers, or ISPs, with Internet servers. U.S. based ISPs rarely use satellites to provide point-to-point infrastructure for the Internet. Accordingly, we expect that our sales to the Internet Service Provider market will be primarily to customers located outside the United States. As a result of our dependence on foreign markets, the occurrence of any negative international political, economic or geographic events could result in significant revenue shortfalls. These shortfalls could cause our business, financial condition and results of operations to be harmed. Some of the risks of doing business internationally include: - changing regulatory requirements; - fluctuations in the exchange rate for the United States dollar; - the availability of export licenses; - political and economic instability; - difficulties in staffing and managing foreign operations, tariffs and other trade barriers; - changes in diplomatic and trade relationships; - complex foreign laws and treaties; - acts of terrorism; and - difficulty of collecting foreign account receivables. In addition, we are subject to the Foreign Corrupt Practices Act, which prohibits us from making payments to government officials and others in order to influence the granting of contracts we may be seeking. Our non-U.S. competitors are not subject to this law and this may give them a competitive advantage over us. Fluctuations in the Valuations of Foreign Currencies Could Decrease the Purchasing Power of our Foreign Customers, Reduce Sales and Decrease our Earnings. Our foreign sales are denominated in United States dollars. As a result, any decrease in the value of foreign currencies relative to the United States dollar may materially adversely affect the demand for our products by increasing their costs in the currency of those countries. For example, the value or the Euro and the Argentina Peso have deteriorated against the Dollar over the last 2 years and these markets have experienced decreased bookings and adversely affected our results of operations in 2001. We Depend On Developing Markets And Their Uncertain Growth Potential Could Result In A Reduction In Revenues And Even Losses. We believe a substantial portion of the growth in demand for our products will depend upon customers in developing countries. We cannot provide assurance that such increases in demand will occur or that prospective customers will accept our products. The degree to which we are able to penetrate potential markets in developing countries will be affected to a large extent by the speed with which other competing elements of the communications infrastructure, such as other satellite-delivered solutions, telephone lines, television cable, and land-based solutions, are installed in these developing countries. The Sales And Implementation Cycles for our Products are Long And Have Recently Increased, and We May Incur Substantial, Non-Recoverable Expenses or Devote Significant Resources To Sales That May Not Occur When Anticipated, If At All. A customer's decision to purchase our products involves a significant commitment of its resources and a lengthy evaluation and product qualification process. After a customer decides to purchase our products, the timing of their deployment and implementation depends on a variety of factors specific to each customer. Further, prospective customers may delay purchasing our products in order to evaluate new technologies and develop and implement new wireless systems. Throughout the sales cycle, we spend considerable resources educating and providing information to prospective customers regarding the use and benefits of our products. Our sales cycle for new customers is lengthy, typically from four to five months, which is an increase from the two to three months we experienced in the past couple of years. The Recent Downturn In The Rapidly Evolving Telecommunications And Internet Industries Could Harm Our Business. Our success depends upon the continued growth of the telecommunications industry, particularly with regard to the Internet. The rapid growth and evolution in the global telecommunications and Internet industries and the need for high-speed or enhanced telecommunications products has been slowed by recent economic conditions in the United States and elsewhere. The potential growth in these areas is unpredictable. We cannot provide assurance that the deregulation, privatization and economic globalization of the worldwide telecommunications market that has resulted in historical demand for technologies and services will resume in a manner favorable to us or our business strategies. Competition In Our Industry Is Intense And Can Lead To Reduced Sales And Market Share. The markets for ground segment systems are highly competitive. We have a number of major competitors in the satellite communications equipment field. These include large companies, such as Hughes Network Systems, Inc., NEC, and Comtech Telecommunications Corp., which have significantly larger and more diversified operations and greater financial, marketing, personnel and other resources than we possess. As a result, these competitors may develop and expand their products more quickly, adapt more quickly to new or emerging technologies and changes in customer requirements, take advantage of acquisition and other opportunities more readily, and devote greater resources to the marketing and sale of their products than we can. Competition from current competitors or future entrants in the markets in which we compete could cause us to lose orders or customers or could force us to lower the prices we charge for our products, all of which would have a material adverse impact on our business, financial condition, and results of operations. Our Products May Become Obsolete Due To Rapid Technological Change. The telecommunications industry, including the ground-based satellite communications systems business, is characterized by rapid and continuous technological change. Future technological advances in the telecommunications industry may result in the introduction of new products or services that compete with our products or render them obsolete. Our success depends in part on our ability to respond quickly to technological changes through the improvement of our current products and the development of new products. Accordingly, we believe that we will need to allocate a substantial amount of capital to research and development activities in the future. We may not generate cash flow from operations or have access to outside financing in amounts that are sufficient to adequately fund the development of new products. Even if we are able to obtain the required funding to develop new products, we cannot assure you that we will be able to develop products that we will be able to sell successfully. Our inability to improve our existing products and develop new products could have a material adverse effect on our business, financial condition, and results of operations. Our Research And Development Efforts Are Costly And The Results Are Uncertain, Which May Reduce Our Profitability And Could Result In Losses. Our continued growth depends on penetrating new markets, adapting existing satellite communications products to new applications, and introducing new communications products that achieve market acceptance and benefit from our established international distribution channels. Accordingly, we are actively applying our communications expertise to design and develop new hardware and software products and enhance existing products. These efforts are costly. We expended $10.8 million, or 16% of our net sales, in fiscal 2001 on research and development activities. This was an increase from the prior year in which we spent $9.3 million, or 13% of our net sales for the year. Additionally, our research and development program may not produce successful results, which would have a material adverse effect on our business, financial condition, and results of operations. Continued Growth Through Acquisition Could Prove Unsuccessful And Strain Our Personnel And Systems And Divert Our Resources. We have pursued, and will continue to pursue, growth opportunities through internal development and acquisition of complementary businesses, products and technologies. Our operations have expanded significantly as a result of our acquisitions of ComStream, Armer, and Tiernan. We are unable to predict whether or when any other prospective acquisition will be completed. However, in order to pursue successfully the opportunities presented by the ground segment and emerging satellite-delivered communications and Internet/intranet-infrastructure markets, we will be required to continue to expand our operations. This expansion could entail various risks, including the following: - difficulty of assimilating the operations and personnel of acquired businesses or products due to unforeseen circumstances; - the necessity to attract, train, motivate, and manage a significantly larger number of employees; - the use of a disproportionate amount of our management's attention or our resources; - substantial cash expenditures, potentially dilutive issuances of equity securities, the incurrence of additional debt and contingent liabilities, and amortization expenses related to goodwill and other intangible assets; - potential disruption of our ongoing business; - our inability, once integrated, to achieve comparable levels of revenues, profitability or productivity as our existing business or otherwise perform as expected; and - our potential inability to obtain the desired financial and strategic benefits from the acquisition or investment. Moreover, we cannot assure you that we will be able to successfully identify suitable acquisition candidates, complete acquisitions, or expand into new markets. The occurrence of any of the risks described above or any failure to manage further growth in an efficient manner and at a pace consistent with our business could have a material adverse effect on our growth and our business, financial condition, and results of operations. Our Competitive Position Relies Heavily On Our Proprietary Technology And Intellectual Property. We rely on our proprietary technology and intellectual property to maintain our competitive position. Unauthorized parties could attempt to copy aspects of our technologies or to obtain information that we regard as proprietary. We may not be able to police unauthorized use of our intellectual property. Our failure to protect our proprietary technology and intellectual property could adversely affect our competitive position. We generally rely on confidentiality agreements with our employees and some of our suppliers to protect our proprietary technology. We also control access to and distribution of confidential information concerning our proprietary technology. We cannot guarantee that the other parties to these agreements will not disclose or misappropriate the confidential information concerning our proprietary technology, which could have a material adverse effect on our business. We rely on patents to protect certain of our proprietary technology. Patents, however, often provide only narrow protection that may not prevent competitors from developing products that function in a manner similar to those covered by our patents. In addition, some foreign countries in which we sell our products do not provide the same level of protection to intellectual property as the laws of the United States provide. We cannot assure you that any patents we currently own or control, or that we may acquire in the future, will prevent our competitors from independently developing products that are substantially similar or superior to ours. We may find it necessary to take legal action in the future to enforce or protect our intellectual property rights. Litigation can be very expensive and can distract our management's time and attention, which could adversely affect our business. In addition, we may not be able to obtain a favorable outcome in any intellectual property litigation. Our Products Could Infringe On The Intellectual Property Of Others. Third parties may in the future assert that our technology violates their intellectual property rights. As a result of such claims, we could be required to enter into licensing arrangements or develop non-infringing products, which could be prohibitively expensive or could divert a significant amount of resources from other aspects of our business. We may find it necessary to take legal action in the future to defend against claims that our products or technologies infringe the rights of third parties. Litigation can be very expensive and can distract our management's time and attention, which could adversely affect our business. In addition, we may not be able to obtain a favorable outcome in any intellectual property litigation. We Depend Upon Certain Suppliers And Subcontractors, The Loss Of Which Could Cause An Interruption In The Production Of Our Products. We rely on subcontractors to assemble and test some of our products. Additionally, our products use a number of specialized chips and customized components or subassemblies produced by a limited number of suppliers. We maintain limited inventories of these products and do not have long-term supply contracts with our vendors. In the event our subcontractors or suppliers are unable or unwilling to fulfill our requirements, we could experience an interruption in product availability until we are able to secure alternative sources of supplies. We are also subject to price increases by suppliers that could increase the cost of our products or require us to develop alternative suppliers, which could interrupt our business. It may not be possible to obtain alternative sources at a reasonable cost. Supply interruptions could cause us to lose orders or customers, which would result in a material adverse impact on our business, financial condition, and results of operations. The Ownership Interest Of Our Controlling Shareholder May Make Our Stock Less Attractive To Investors And Potential Acquirers. Stetsys Pte Ltd, or ST, owns a majority of our outstanding common stock. ST will, therefore, continue to have the ability to elect all of our directors and to control the outcome of all issues submitted to a vote of our stockholders. It also would be impossible for a third party to acquire us without the consent or participation of ST. Our Outstanding Options And Warrants May Dilute Our Stockholders' Interests And Could Hinder Us From Obtaining Additional Financing. We grant options and warrants to purchase shares of common stock to employees, directors and others with business relationships with us. To the extent that outstanding options and warrants are exercised, our stockholders' interests will be diluted. Also, we may not be able to obtain additional equity capital on acceptable terms, because the holders of the outstanding options and warrants will likely exercise them at a time when we may be able to obtain such capital on better terms than those under the options and warrants. Our Redemption Of Redeemable Warrants May Have An Adverse Effect On The Holders Of The Warrants. We have the right to redeem all, but not less than all, of the redeemable warrants under certain conditions. Redemption of the redeemable warrants could encourage holders to exercise them and pay the exercise price at a time when it may be disadvantageous for the holders to do so, to sell the redeemable warrants at the current market price when they might otherwise wish to hold the redeemable warrants or to accept the redemption price, which may be substantially less than the market value of the redeemable warrants at the time of redemption. The holders of the redeemable warrants will automatically forfeit their rights to purchase the shares of common stock issuable upon exercise of those warrants unless the warrants are exercised before they are redeemed. The holders of redeemable warrants will not possess any rights as stockholders unless and until the redeemable warrants are exercised. Stock Prices Of Technology Companies Have Declined Precipitously And The Trading Price Of Our Common Stock And Redeemable Warrants Is Likely To Be Volatile, Which Could Result In Substantial Losses To Investors. The trading price of our common stock and redeemable warrants have fallen over the past couple of years and could continue to be volatile in response to factors including the following, some of which are beyond our control: - decreased demand in the Internet-services sector; - variations in our operating results; - announcements of technological innovations or new services by us or our competitors; - changes in expectations of our future financial performance, including financial estimates by securities analysts and investors; - changes in operating and stock price performance of other technology companies similar to us; - conditions or trends in the technology industry; - additions or departures of key personnel; and - future sales of our common stock. Domestic and international stock markets often experience significant price and volume fluctuations. These fluctuations, as well as general economic and political conditions unrelated to our performance, may adversely affect the price of our common stock and redeemable warrants. The Large Number Of Shares Eligible For Future Sale May Adversely Affect The Market Price Of Our Common Stock. A large number of our issued and outstanding shares of common stock are eligible for future sale. The sale, or availability for sale, of a substantial number of shares of common stock in the public market could materially adversely affect the market price of our common stock and could impair our ability to raise additional capital through the sale of our equity securities. Nasdaq Could Delist Our Common Stock Or Redeemable Warrants, Which Could Make It More Difficult For You To Sell Or Obtain Quotations As To The Price Of Our Common Stock Or Redeemable Warrants. We are currently in compliance with Nasdaq's continued listing requirements. However, if our stockholder's equity falls below $10 million, the price of our common stock or redeemable warrants falls below $3, or if we are not otherwise able to demonstrate to Nasdaq our ability to comply with its other listing standards, our shares of common stock or redeemable warrants might be delisted. If we cannot satisfy Nasdaq's continued listing criteria in the future, Nasdaq could delist our common stock or redeemable warrants. In the event of delisting, trading, if any, would be conducted only in the over-the-counter market in the so-called "pink sheets" or the NASD's Electronic Bulletin Board. As a result, an investor would likely find it more difficult to sell or obtain quotations as to the price of our common stock or redeemable warrants. A delisting could also subject our common stock to the rules of the Securities and Exchange Commission relating to "penny stocks." These rules require broker-dealers to make special suitability determinations for purchasers other than established customers and certain institutional investors, and to receive the purchasers' prior written consent for a purchase transaction prior to sale. Consequently, these penny-stock rules may adversely affect the ability of broker-dealers to sell our common stock and may adversely affect an investor's ability to purchase or sell shares quickly or inexpensively. This lack of liquidity also could make it more difficult for us to raise capital in the future We Have Provisions In Our Certificate Of Incorporation That Substantially Eliminate The Personal Liability Of Members Of Our Board Of Directors For Violations Of Their Fiduciary Duty Of Care As A Director And That Allow Us To Indemnify Our Officers And Directors. This Could Make It Very Difficult For You To Bring Any Legal Actions Against Our Directors For Such Violations Or Could Require Us To Pay Any Amounts Incurred By Our Directors In Any Such Actions. Pursuant to our certificate of incorporation, members of our Board of Directors will have no liability for violations of their fiduciary duty of care as a director, except in limited circumstances. This means that you may be unable to prevail in a legal action against our directors even if you believe they have breached their fiduciary duty of care. In addition, our certificate of incorporation allows us to indemnify our directors from and against any and all expenses or liabilities arising from or in connection with their serving in such capacities with us. This means that if you were able to enforce an action against our directors or officers, in all likelihood we would be required to pay any expenses they incurred in defending the lawsuit and any judgment or settlement they otherwise would be required to pay. The Loss Of The Services Of Certain Members Of Our Senior Management Or The Inability To Attract Or Retain Additional Technical Personnel Could Impair Our Ability To Conduct And Expand Our Business. Our future performance depends significantly on Robert C. Fitting, our Chief Executive Officer, and Steve Eymann, our Executive Vice President and Chief Technical Officer. The loss of either of these key employees would adversely affect our operations. Mr. Fitting is 65 years old and we may eventually need to effect an appropriate transition to a new Chief Executive Officer. Any such transition may disrupt our business, customers and employees. Our continued ability to attract and retain highly skilled personnel also is critical to the operation and expansion of our business. The market for skilled engineers and other technical personnel is extremely competitive, and recruitment and retention costs are high. Although we have been able to attract and retain the personnel necessary to operate our business, we may not be able to do so in the future, particularly as we continue to expand our business into Internet-related products and other markets. The failure to attract and retain personnel with the necessary skills when needed could materially and adversely affect our business and expansion plans. Since Some Members Of Our Board Of Directors Are Not Residents Of The United States And Certain Of Our Assets Are Located Outside Of The United States, You May Not Be Able To Enforce Any U.S. Judgment For Claims You May Bring Against Such Directors Or Assets. Two members of our board of directors are residents of Singapore, and an immaterial portion of our assets and a substantial portion of the assets of these directors are located outside the United States. As a result, it may be more difficult for you to enforce a lawsuit within the United States against these non-U.S. residents than if they were residents of the United States. Also, it may be more difficult for you to enforce any judgment obtained in the United States against our assets or the assets of our non-U.S. resident directors located outside the United States than if these assets were located within the United States. We cannot assure you that foreign courts would enforce liabilities predicated on U.S. federal securities laws in original actions commenced in such foreign jurisdiction or judgments of U.S. courts obtained in actions based upon the civil liability provisions of U.S. federal securities laws. Anti-Takeover Effect Of Delaware Law And Our Charter. Under the Delaware general Corporation Law, which we are subject to, it will be more difficult for a third party to take control of the Company and may limit the price some investors are willing to pay for shares of our common stock. Furthermore, our certificate of incorporation authorizes the issuance of up to 10,000,000 shares of preferred stock without a vote or other stockholder approval. Terrorist Attacks and Threats or Actual War May Negatively Impact All Aspects of Our Operations, Revenues, Costs and Stock Price. Recent terrorist attacks in the United States, as well as future events occurring in response or connection to them, including, without limitation, future terrorist attacks against United States targets, rumors or threats of war, actual conflicts involving the United States or its allies or military or trade disruptions impacting our domestic or foreign suppliers of merchandise, may impact our operations, including, among other things, causing delays or losses in the delivery of wafer supplies to us and decreased sales of our products. More generally, any of these events could cause consumer confidence and spending to decrease or result in increased volatility in the United States and worldwide financial markets and economy. They also could result in economic recession in the United States or abroad. Any of these occurrences could have a significant impact on our operating results, revenues and costs. 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EX-10.6

                                                                    EXHIBIT 10.6


                                CREDIT AGREEMENT

                                 by and between


                  RADYNE COMSTREAM INC., A DELAWARE CORPORATION

                                       and

                        WELLS FARGO HSBC TRADE BANK, N.A.



                                   Dated as of

                         ________________________, 200__

                    Exhibit A - Addendum to Credit Agreement
                Exhibit B - Revolving Credit Facility Supplement
                 Exhibit C - Collateral/Credit Support Document
                     Exhibit D - Borrowing Base Certificate


WELLS FARGO HSBC TRADE BANK                                     CREDIT AGREEMENT
- --------------------------------------------------------------------------------


RADYNE COMSTREAM INC., A DELAWARE CORPORATION ("Borrower"), organized under the
laws of the State of Delaware whose chief executive office is located at the
address specified after its signature to this Agreement ("Borrower's Address")
and WELLS FARGO HSBC TRADE BANK, N.A. ("Trade Bank"), whose address is specified
after its signature to this Agreement, have entered into this CREDIT AGREEMENT
as of ________________________, 200__ ("Effective Date"). All references to this
"Agreement" include those covenants included in the Addendum to Agreement
("Addendum") attached as Exhibit A hereto.

                               I. CREDIT FACILITY

      1.1   THE FACILITY. Subject to the terms and conditions of this Agreement,
Trade Bank will make available to Borrower a Revolving Credit Facility
("Facility") for which a Facility Supplement ("Supplement") is attached as
Exhibit B hereto. Additional terms for the Facility (and each subfacility
thereof ("Subfacility")) are set forth in the Supplement. The Facility will be
available from the Closing Date up to and until December 31, 2001 ("Facility
Termination Date"). Collateral and credit support required the Facility is set
forth in Exhibit C hereto. Definitions for those capitalized terms not otherwise
defined are contained in Article 8 below.

      1.2   CREDIT EXTENSION LIMIT. The aggregate outstanding amount of all
Credit Extensions may at no time exceed the lessor of (a) Ten Million Dollars
($10,000,000.00) or (b) the Borrowing Base in effect from time to time ("Overall
Credit Limit"). The aggregate outstanding amount of all Credit Extensions
outstanding at any time under Revolving Credit Facility may not exceed that
amount specified as the "Credit Limit" in the Supplement for the Facility, and
the aggregate outstanding amount of all Credit Extensions outstanding at any
time under each Subfacility (or any subcategory thereof) may not exceed that
amount specified as the "Credit Sublimit" in the Supplement for the Facility. An
amount equal to 100% of each unfunded Credit Extension shall be used in
calculating the outstanding amount of Credit Extensions under this Agreement.

The Subfacility(s) of the Revolving Credit Facility are as follows:

            (a)   Sight Commercial Letters of Credit

            (b)   Usance Commercial Letters of Credit including:

                  (1)   Acceptances

            (c)   Standby Letters of Credit

      1.3   OVERADVANCE. All Credit Extensions made hereunder shall be added to
and deemed part of the Obligations when made. If, at any time and for any
reason, the aggregate outstanding amount of all Credit Extensions made pursuant
to this Agreement exceeds the dollar limitation in Section 1.2 or the Borrowing
Base, then Borrower shall immediately pay to Trade Bank on demand, in cash, the
amount of such excess.

      1.4   REPAYMENT; INTEREST AND FEES. Each funded Credit Extension shall be
repaid by Borrower, and shall bear interest from the date of disbursement at
those per annum rates and such interest shall be paid, at the times specified in
the Supplement, Note or Facility Document. Borrower agrees to pay to Trade Bank
with respect to (a) the Revolving Credit Facility, interest at a per annum rate
equal to (i) the Prime Rate minus 0.25% as specified in the Note, or (ii) Wells
Fargo's LIBOR Rate plus a percentage as specified in the Note, and (b) the
Subfacilities, the fees specified in the Supplement as well as those fees
specified in the relevant Facility Document(s). Interest and fees will be
calculated on the basis of a 360 day year, actual days elapsed. Any overdue
payments of principal (and interest to the extent permitted by law) shall bear
interest at a per annum floating rate equal to the Prime Rate plus 5.0%.

      1.5   PREPAYMENTS. Credit Extensions under any Facility may only be
prepaid in accordance with the terms of the Supplement. At the time of any
prepayment (including, but not limited to, any prepayment which is a result of
the occurrence of an Event of Default and an acceleration of the Obligations)
Borrower will pay to Trade Bank all interest accrued on the amount so prepaid to
the date of such prepayment and all costs, expenses and fees specified in the
Loan Documents.

                                     Page 1

                       II. REPRESENTATIONS AND WARRANTIES

      Borrower represents and warrants to Trade Bank that the following
representations and warranties are true and correct:

      2.1   LEGAL STATUS. Borrower is duly organized and existing and in good
standing under the laws of the jurisdiction indicated in this Agreement, and is
qualified or licensed to do business in all jurisdictions in which such
qualification or licensing is required and in which the failure to so qualify or
to be so licensed could have a material adverse affect on Borrower.

      2.2   AUTHORIZATION AND VALIDITY. The execution, delivery and performance
of this Agreement, and all other Loan Documents to which Borrower is a party,
have been duly and validly authorized, executed and delivered by Borrower and
constitute legal, valid and binding agreements of Borrower, and are enforceable
against Borrower in accordance with their respective terms.

      2.3   BORROWER'S NAME. The name of Borrower set forth at the end of this
Agreement is its correct name. If Borrower is conducting business under a
fictitious business name, Borrower is in compliance with all laws relating to
the conduct of such business under such name.

      2.4   FINANCIAL CONDITION AND STATEMENTS. All financial statements of
Borrower delivered to Trade Bank have been prepared in conformity with GAAP, and
completely and accurately reflect the financial condition of Borrower (and any
consolidated Subsidiaries) at the times and for the periods stated in such
financial statements. Neither Borrower nor any Subsidiary has any material
contingent liability not reflected in the aforesaid financial statement. Since
the date of the financial statements delivered to Trade Bank for the last fiscal
period of Borrower to end before the Effective Date, there has been no material
adverse change in the financial condition, business or prospects of Borrower.
Borrower is solvent.

      2.5   LITIGATION. Except as disclosed in writing to Trade Bank prior to
the Effective Date, there is no action, claim, suit, litigation, proceeding or
investigation pending or (to best of Borrower's knowledge) threatened by or
against or affecting Borrower or any Subsidiary in any court or before any
governmental authority, administrator or agency which may result in (a) any
material adverse change in the financial condition or business of Borrower's, or
(b) any material impairment of the ability of Borrower to carry on its business
in substantially the same manner as it is now being conducted.

      2.6   NO VIOLATION. The execution, delivery, and performance by Borrower
of each of the Loan Documents do not violate any provision of any law or
regulation, or contravene any provision of the Articles of Incorporation or
By-Laws of Borrower, or result in a breach of or constitute a default under any
contract, obligation, indenture, or other instrument to which Borrower is a
party or by which Borrower may be bound.

      2.7   INCOME TAX RETURNS. Borrower has no knowledge of any pending
assessments or adjustments of its income tax payable with respect to any year.

      2.8   NO SUBORDINATION. There is no agreement, indenture, contract, or
instrument to which Borrower is a party or by which Borrower may be bound that
requires the subordination in right of payment of any of Borrower's obligations
subject to this Agreement to any other obligation of Borrower.

      2.9   ERISA. Borrower is in compliance in all material respects with all
applicable provisions of the Employee Retirement Income Security Act of 1974, as
amended or recodified from time to time ("ERISA"); Borrower has not violated any
provision of any defined employee pension benefit plan (as defined in ERISA)
maintained or contributed to by Borrower (each, a "Plan"); no Reportable Event,
as defined in ERISA, has occurred and is continuing with respect to any Plan
initiated by Borrower; Borrower has met its minimum funding requirements under
ERISA with respect to each Plan; and each Plan will be able to fulfill its
benefit obligations as they come due in accordance with the Plan documents and
under GAAP.

      2.10  OTHER OBLIGATIONS. Except as disclosed in writing to Trade Bank
prior to the Effective Date, neither Borrower nor any Subsidiary are in default
of any obligation for borrowed money, any purchase money obligation or any
material lease, commitment, contract, instrument or obligation.

                                     Page 2

      2.11  NO DEFAULTS. No Event of Default, and event which with the giving of
notice or the passage of time or both would constitute an Event of Default, has
occurred and is continuing.

      2.12  INFORMATION PROVIDED TO TRADE BANK. The information provided to the
Trade Bank concerning Borrower's business is true and correct.

      2.13  ENVIRONMENTAL MATTERS. Except as disclosed by Borrower to Trade Bank
in writing prior to the Effective Date, Borrower (as well as any Subsidiary) is
each in compliance in all material respects with all applicable Federal or state
environmental, hazardous waste, health and safety statutes, and any rules or
regulations adopted pursuant thereto, which govern or affect any Borrower's or
any Subsidiary's operations and/or properties, including without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act of 1980,
the Superfund Amendments and Reauthorization Act of 1986, the Federal Resource
Conservation and Recovery Act of 1976, the Federal Toxic Substances Control Act
and the California Health and Safety Code, as any of the same may be amended,
modified or supplemented from time to time. None of the operations of Borrower
or of any Subsidiary is the subject of any Federal or state investigation
evaluating whether any remedial action involving a material expenditure is
needed to respond to a release of any toxic or hazardous waste or substance into
the environment.

                     III. CONDITIONS TO EXTENDING FACILITIES

      3.1   CONDITIONS TO INITIAL CREDIT EXTENSION. The obligation of Trade Bank
to make the first Credit Extension is subject to the fulfillment to Trade Bank's
satisfaction of the following conditions:

            (a)   APPROVAL OF TRADE BANK COUNSEL. All legal matters relating to
                  making the Facility available to Borrower must be satisfactory
                  to counsel for Trade Bank.

            (b)   DOCUMENTATION. Trade Bank must have received, in form and
                  substance satisfactory to Trade Bank, the following documents
                  and instruments duly executed and in full force and effect:

                  (1)   a corporate borrowing resolution and incumbency
                        certificate if Borrower is a corporation, a partnership
                        or joint venture borrowing certificate if Borrower is a
                        partnership or joint venture, and a limited liability
                        company borrowing certificate if Borrower is a limited
                        liability company;

                  (2)   the Facility Documents for the Facility, including, but
                        not limited to, note(s) ("Notes") for the Revolving
                        Credit Facility, Trade Bank's standard Continuing
                        Commercial Letter of Credit Agreement or Continuing
                        Standby Letter of Credit Agreement for any letter of
                        credit Facility;

                  (3)   those guarantees, security agreements, deeds of trust,
                        subordination agreements, intercreditor agreements,
                        factoring agreements, tax service contracts, and other
                        Collateral Documents required by Trade Bank to evidence
                        the collateral/credit support specified in the
                        Supplement;

                  (4)   if an audit or inspection of any books, records or
                        property is specified in the Supplement for the
                        Facility, an audit or inspection report from Wells Fargo
                        or another auditor or inspector acceptable to Trade Bank
                        reflecting values and property conditions satisfactory
                        to Trade Bank; and

                  (5)   if insurance is required in the Addendum, the insurance
                        policies specified in the Addendum (or other
                        satisfactory proof thereof) from insurers acceptable to
                        Trade Bank.

      3.2   CONDITIONS TO MAKING EACH CREDIT EXTENSION. The obligation of Trade
Bank to make each Credit Extension is subject to the fulfillment to Trade Bank's
satisfaction of the following conditions:

            (a)   REPRESENTATIONS AND WARRANTIES. The representations and
                  warranties contained in this Agreement, the Facility Documents
                  and the Collateral Documents will be true and correct on and


                                     Page 3

                  as of the date of the Credit Extension with the same effect as
                  though such representations and warranties had been made on
                  and as of such date;

            (b)   DOCUMENTATION. Trade Bank must have received, in form and
                  substance satisfactory to Trade Bank, the following documents
                  and instruments duly executed and in full force and effect:

                  (1)   if the Credit Extension is the issuance of a Commercial
                        Letter of Credit, Trade Bank's standard Application For
                        Commercial Letter of Credit or standard Application and
                        Agreement For Commercial Letter of Credit;

                  (2)   if the Credit Extension is the issuance of a Standby
                        Letter of Credit, Trade Bank's standard Application For
                        Standby Letter of Credit or standard Application and
                        Agreement For Standby Letter of Credit;

                  (3)   if a Borrowing Base Certificate is required for the
                        Credit Extension, a Borrowing Base Certificate
                        demonstrating compliance with the requirements for such
                        Credit Extension.

            (c)   FEES. Trade Bank must have received any fees required by the
                  Loan Documents to be paid at the time such Credit Extension is
                  made.


                            IV. AFFIRMATIVE COVENANTS

      Borrower covenants that so long as Trade Bank remains committed to make
Credit Extensions to Borrower, and until payment of all Obligations and Credit
Extensions, Borrower will comply with each of the following covenants: (For
purposes of this Article IV, and Article V below, reference to "Borrower" may
also extend to Borrower's subsidiaries, if so specified in the Addendum.)

      4.1   PUNCTUAL PAYMENTS. Punctually pay all principal, interest, fees and
other Obligations due under this Agreement or under any Loan Document at the
time and place and in the manner specified herein or therein.

      4.2   NOTIFICATION TO TRADE BANK. Promptly, but in no event more than 5
calendar days after the occurrence of each such event, provide written notice in
reasonable detail of each of the following:

            (a)   OCCURRENCE OF A DEFAULT. The occurrence of any Event of
                  Default or any event which with the giving of notice or the
                  passage of time or both would constitute an Event of Default;

            (b)   BORROWER'S TRADE NAMES; PLACE OF BUSINESS. Any change of
                  Borrower's (or any Subsidiary's) name, trade name or place of
                  business, or chief executive officer;

            (c)   LITIGATION. Any action, claim, proceeding, litigation or
                  investigation threatened or instituted by or against or
                  affecting Borrower (or any Subsidiary) in any court or before
                  any government authority, administrator or agency which may
                  materially and adversely affect Borrower's (or any
                  Subsidiary's) financial condition or business or Borrower's
                  ability to carry on its business in substantially the same
                  manner as it is now being conducted;

            (d)   UNINSURED OR PARTIALLY UNINSURED LOSS. Any uninsured or
                  partially uninsured loss through liability or property damage
                  or through fire, theft or any other cause affecting Borrower's
                  (or any Subsidiary's) property in excess of the aggregate
                  amount required hereunder;

            (e)   REPORTS MADE TO INSURANCE COMPANIES. Copies of all material
                  reports made to insurance companies; and

            (f)   ERISA. The occurrence and nature of any Reportable Event or
                  Prohibited Transaction, each as defined in ERISA, or any
                  funding deficiency with respect to any Plan.




                                     Page 4

      4.3   BOOKS AND RECORDS. Maintain at Borrower's address books and records
in accordance with GAAP, and permit any representative of Trade Bank, at any
reasonable time, to inspect, audit and examine such books and records, to make
copies of them, and to inspect the properties of Borrower.

      4.4   TAX RETURNS AND PAYMENTS. Timely file all tax returns and reports
required by foreign, federal, state and local law, and timely pay all foreign,
federal, state and local taxes, assessments, deposits and contributions owed by
Borrower. Borrower may, however, defer payment of any contested taxes, provided
that Borrower (i) in good faith contests Borrower's obligation to pay the taxes
by appropriate proceedings promptly instituted and diligently conducted, (ii)
notifies Trade Bank in writing of the commencement of, and any material
development in, the proceedings, (iii) posts bonds or takes any other steps
required to keep the contested taxes from becoming a lien upon any of the
Collateral, and (iv) makes provision, to Trade Bank's satisfaction, for eventual
payment of such taxes in the event Borrower is obligated to make such payment.

      4.5   COMPLIANCE WITH LAWS. Comply in all material respects with the
provisions of all foreign, federal, state and local laws and regulations
relating to Borrower, including, but not limited to, those relating to
Borrower's ownership of real or personal property, the conduct and licensing of
Borrower's business, and health and environmental matters.

      4.6   TAXES AND OTHER LIABILITIES. Pay and discharge when due any and all
indebtedness, obligations, assessments and taxes, both real and personal,
including without limitation federal and state income taxes and state and local
property taxes and assessments, except (a) such as Borrower may in good faith
contest or as to which a bona fide dispute may arise, and (b) for which Borrower
has made provision, to Trade Bank's satisfaction, for eventual payment thereof
in the event that Borrower is obligated to make such payment.

      4.7   INSURANCE. Maintain and keep in force insurance of the types and in
amounts customarily carried in lines of business similar to that of Borrower,
including, but not limited to, fire, extended coverage, public liability, flood,
property damage and workers' compensation, with all such insurance to be in
amounts satisfactory to Trade Bank and to be carried with companies approved by
Trade Bank before such companies are retained, and deliver to Trade Bank from
time to time at Trade Bank's request schedules setting forth all insurance then
in effect. All insurance policies shall name Trade Bank as an additional loss
payee, and shall contain a lenders loss payee endorsement in form reasonably
acceptable to Trade Bank. (Upon receipt of the proceeds of any such insurance,
Trade Bank shall apply such proceeds in reduction of the outstanding funded
Credit Extensions and shall hold any remaining proceeds as collateral for the
outstanding unfunded Credit Extensions, as Trade Bank shall determine in its
sole discretion, except that, provided no Event of Default has occurred, Trade
Bank shall release to Borrower insurance proceeds with respect to equipment
totaling less than $100,000, which shall be utilized by Borrower for the
replacement of the equipment with respect to which the insurance proceeds were
paid, if Trade Bank receives reasonable assurance that the insurance proceeds so
released will be so used.) If Borrower fails to provide or pay for any
insurance, Trade Bank may, but is not obligated to, obtain the insurance at
Borrower's expense.

      4.8   FURTHER ASSURANCES. At Trade Bank's request and in form and
substance satisfactory to Trade Bank, execute all documents and take all such
actions at Borrower's expense as Trade Bank may deem reasonably necessary or
useful to perfect and maintain Trade Bank's perfected security interest in the
Collateral and in order to fully consummate all of the transactions contemplated
by the Loan Documents.

                              V. NEGATIVE COVENANTS

      Borrower covenants that so long as Trade Bank remains committed to make
any Credit Extensions to Borrower and until all Obligations and Credit
Extensions have been paid, Borrower will not:

      5.1   MERGE OR CONSOLIDATION, TRANSFER OF ASSETS. Merge into or
consolidate with any other entity; make any substantial change in the nature of
Borrower's business as conducted as of the date hereof; acquire all or
substantially all of the assets of any other entity; nor sell, lease, transfer
or otherwise dispose of all or a substantial or material portion of Borrower's
assets except in the ordinary course of its business.

      5.2   USE OF PROCEEDS. Borrower will not use the proceeds of any Credit
Extension except for the purposes, if any, specified for such Credit Extension
in the Supplement covering the Facility under which such Credit Extension is
made.


                                     Page 5

      5.3   LIENS. Mortgage, pledge, grant or permit to exist a security
interest in, or lien upon, all or any portion of Borrower's assets now owned or
hereafter acquired, except any of the foregoing in favor of Trade Bank or which
is existing as of, and disclosed to Trade Bank in writing prior to, the date
hereof.

      5.4   ACQUISITIONS OF ASSETS. Borrower will not acquire any assets or
enter into any other transaction outside the ordinary course of Borrower's
business IF THE TOTAL AMOUNT SPENT ON ACQUIRING SUCH ASSETS OR IN CONNECTION
WITH SUCH OTHER TRANSACTION EXCEEDS AN AGGREGATE AMOUNT OF $10,000,000.

      5.5   LOANS AND INVESTMENTS. Borrower will not make any loans or advances
to, or investments in, any person or entity except for accounts receivable
created in the ordinary course of Borrower's business, EXCEPT FOR LOANS,
ADVANCES, OR INVESTMENTS IN ANY AFFILIATE OF BORROWER WHICH DO NOT TO EXCEED
$10,000,000 IN THE AGGREGATE.

      5.6   INDEBTEDNESS FOR BORROWED MONEY. Borrower will not incur any
indebtedness for borrowed money, except to Trade Bank and except for
indebtedness subordinated to the Obligations by an instrument or agreement in
form acceptable to Trade Bank, AND EXCEPT FOR INDEBTEDNESS FOR BORROWED MONEY TO
SINGAPORE TECHNOLOGY PTD. LTD., PARENT OF BORROWER, WHICH DOES NOT EXCEED
$10,000,000 IN THE AGGREGATE.

      5.7   GUARANTEES. Borrower will not guarantee or otherwise become liable
with respect to the obligations of any other person or entity, except for
endorsement of instruments for deposit into Borrower's account in the ordinary
course of Borrower's business.

      5.8   INVESTMENTS IN, OR ACQUISITIONS OF, SUBSIDIARIES. Borrower will not
make any investments in, or form or acquire, any subsidiaries.

      5.9   CAPITAL EXPENDITURES. Borrower shall not make any capital
expenditures in any fiscal year in an aggregate amount in excess of $1,500,000.


                       VI. EVENTS OF DEFAULT AND REMEDIES

      6.1   EVENTS OF DEFAULT. The occurrence of any of the following shall
constitute an "Event of Default":

            (a)   FAILURE TO MAKE PAYMENTS WHEN DUE. Borrower's failure to pay
                  principal, interest, fees or other amounts when due under any
                  Loan Document.

            (b)   FAILURE TO PERFORM OBLIGATIONS. Any failure by Borrower to
                  comply with any covenant or obligation in this Agreement or in
                  any Loan Document (other than those referred to in subsection
                  (a)above), and such default shall continue for a period of
                  twenty calendar days from the earlier of (i) Borrower's
                  failure to notify Trade Bank of such Event of Default pursuant
                  to Section 4.2(a) above, or (ii) Trade Bank's notice to
                  Borrower of such Event of Default.

            (c)   UNTRUE OR MISLEADING WARRANTY OR STATEMENT. Any warranty,
                  representation, financial statement, report or certificate
                  made or delivered by Borrower under any Loan Document is
                  untrue or misleading in any material respect when made or
                  delivered.

            (d)   DEFAULTS UNDER OTHER LOAN DOCUMENTS. Any "Event of Default"
                  occurs under any other Loan Document; any Guaranty is no
                  longer in full force and effect (or any claim thereof made by
                  Guarantor) or any failure of a Guarantor to comply with the
                  provisions thereof; or any breach of the provisions of any
                  Subordination Agreement or Intercreditor Agreement by any
                  party other than the Trade Bank.

            (e)   DEFAULTS UNDER OTHER AGREEMENTS OR INSTRUMENTS. Any default in
                  the payment or performance of any obligation, or the
                  occurrence of any event of default, under the terms of any
                  other agreement or instrument pursuant to which Borrower, any
                  Subsidiary or any Guarantor or general partner of Borrower has
                  incurred any debt or other material liability to any person or
                  entity.

                                     Page 6

            (f)   CONCEALING OR TRANSFERRING PROPERTY. Borrower conceals,
                  removes or transfers any part of its property with intent to
                  hinder, delay or defraud its creditors, or makes or suffers
                  any transfer of any of its property which may be fraudulent
                  under any bankruptcy, fraudulent conveyance or similar law.

            (g)   JUDGMENTS AND LEVIES AGAINST BORROWER. The filing of a notice
                  of judgment lien against Borrower, or the recording of any
                  abstract of judgment against Borrower, in any county in which
                  Borrower has an interest in real property, or the service of a
                  notice of levy and/or of a writ of attachment or execution, or
                  other like process, against the assets of Borrower, or the
                  entry of a judgment against Borrower.

            (h)   EVENT OR CONDITION IMPAIRING PAYMENT OR PERFORMANCE. Any event
                  occurs or condition arises which Trade Bank in good faith
                  believes impairs or is substantially likely to impair the
                  prospect of payment or performance by Borrower of the
                  Obligations, including, but not limited to any material
                  adverse change in Borrower's financial condition, business or
                  prospects.

            (i)   VOLUNTARY INSOLVENCY. Borrower, any Subsidiary or any
                  Guarantor (i) becomes insolvent, (ii) suffers or consents to
                  or applies for the appointment of a receiver, trustee,
                  custodian or liquidator of itself or any of its property,
                  (iii) generally fails to pay its debts as they become due,
                  (iv) makes a general assignment for the benefit of creditors,
                  or (v) files a voluntary petition in bankruptcy, or seeks
                  reorganization, in order to effect a plan or other arrangement
                  with creditors or any other relief under the Bankruptcy Reform
                  Act, Title 11 of the United States Code, as amended or
                  recodified from time to time ("Bankruptcy Code"), or under any
                  state or Federal law granting relief to debtors, whether now
                  or hereafter in effect.

            (j)   INVOLUNTARY INSOLVENCY. Any involuntary petition or proceeding
                  pursuant to the Bankruptcy Code or any other applicable state
                  or federal law relating to bankruptcy, reorganization or other
                  relief for debtors is filed or commenced against Borrower, any
                  Subsidiary or Guarantor, or an order for relief is entered
                  against it by any court of competent jurisdiction under the
                  Bankruptcy Code or any other applicable state or federal law
                  relating to bankruptcy, reorganization or other relief for
                  debtors.

            (k)   CHANGE IN OWNERSHIP. ANY CHANGE WHICH REDUCES THE THIRTY
                  PERCENT (30%) OWNERSHIP OF BORROWER BY ITS PARENT, SINGAPORE
                  TECHNOLOGY PTD. LTD.; or any change of general partner of
                  Borrower or any Guarantor which the Trade Bank determines, in
                  its sole discretion, may adversely affect the creditworthiness
                  of Borrower or credit support for the Obligations.

      6.2   REMEDIES. Upon the occurrence of any Event of Default, or at any
time thereafter, Trade Bank, at its option, and without notice or demand of any
kind (all of which are hereby expressly waived by Borrower), may do any one or
more of the following: (a) terminate Trade Bank's obligation to make Credit
Extensions or to make available to Borrower the Facility or other financial
accommodations; (b) accelerate and declare all or any part of the Obligations to
be immediately due, payable, and performable, notwithstanding any deferred or
installment payments allowed by any instrument evidencing or relating to any
Credit Extension; and/or (c) exercise all its rights, powers and remedies
available under the Loan Documents, or accorded by law, including, but not
limited to, the right to resort to any or all Collateral or other security for
any of the Obligations and to exercise any or all of the rights of a beneficiary
or secured party pursuant to applicable law. Notwithstanding the provisions in
the foregoing sentence, if any Event of Default set out in subsections (i) and
(j) of Section 6.1 above shall occur, then all the remedies specified in the
preceding sentence shall automatically take effect without notice or demand of
any kind (all of which are hereby expressly waived by Borrower) with respect to
any and all Obligations. All rights, powers and remedies of Trade Bank may be
exercised at any time by Trade Bank and from time to time after the occurrence
of an Event of Default, are cumulative and not exclusive, and shall be in
addition to any other rights, powers or remedies provided by law or equity.

                             VII. GENERAL PROVISIONS

      7.1   NOTICES. All notices to be given under this Agreement shall be in
writing and shall be given personally or by regular first-class mail, by
certified mail return receipt requested, by a private delivery service which
obtains a signed


                                     Page 7

receipt, or by facsimile transmission addressed to Trade Bank or Borrower at the
address indicated after their signature to this Agreement, or at any other
address designated in writing by one party to the other party. Trade Bank is
hereby authorized by Borrower to act on such instructions or notices sent by
facsimile transmission or telecommunications device which Trade Bank believes
come from Borrower. All notices shall be deemed to have been given upon
delivery, in the case of notices personally delivered or delivered by private
delivery service, upon the expiration of 3 calendar days following the deposit
of the notices in the United States mail, in the case of notices deposited in
the United States mail with postage prepaid, or upon receipt, in the case of
notices sent by facsimile transmission.

      7.2   WAIVERS. No delay or failure of Trade Bank in exercising any right,
power or remedy under any of the Loan Documents shall affect or operate as a
waiver of such right, power or remedy; nor shall any single or partial exercise
of any such right, power or remedy preclude, waive or otherwise affect any other
or further exercise thereof or the exercise of any other right, power or remedy.
Any waiver, consent or approval by Trade Bank under any of the Loan Documents
must be in writing and shall be effective only to the extent set out in such
writing.

      7.3   BENEFIT OF AGREEMENT. The provisions of the Loan Documents shall be
binding upon and inure to the benefit of the respective successors, assigns,
heirs, executors, administrators, beneficiaries and legal representatives of
Borrower and Trade Bank; provided, however, that Borrower may not assign or
transfer any of its rights under any Loan Document without the prior written
consent of Trade Bank, and any prohibited assignment shall be void. No consent
by Trade Bank to any assignment shall release Borrower from its liability for
the Obligations unless such release is specifically given by Trade Bank to
Borrower in writing. Trade Bank reserves the right to sell, assign, transfer,
negotiate or grant participations in all or any part of, or any interest in,
Trade Bank's rights and benefits under each of the Loan Documents. In connection
therewith, Trade Bank may disclose any information relating to the Facility,
Borrower or its business, or any Guarantor or its business.

      7.4   JOINT AND SEVERAL LIABILITY. If Borrower consists of more than one
person or entity, the liability of each of them shall be joint and several, and
the compromise of any claim with, or the release of, any one such Borrower shall
not constitute a compromise with, or a release of, any other such Borrower.

      7.5   NO THIRD PARTY BENEFICIARIES. This Agreement is made and entered
into for the sole protection and benefit of Borrower and Trade Bank and their
respective permitted successors and assigns, and no other person or entity shall
be a third party beneficiary of, or have any direct or indirect cause of action
or claim in connection with, any of the Loan Documents to which it is not a
party.

      7.6   GOVERNING LAW AND JURISDICTION. This Agreement shall, unless
provided differently in any Loan Document, be governed by, and be construed in
accordance with, the internal laws of the State of California, except to the
extent Trade Bank has greater rights or remedies under federal law whether as a
national bank or otherwise. Borrower and Trade Bank (a) agree that all actions
and proceedings relating directly or indirectly to this Agreement shall be
litigated in courts located within California; (b) consent to the jurisdiction
of any such court and consent to service of process in any such action or
proceeding by personal delivery or any other method permitted by law; and (c)
waive any and all rights Borrower may have to object to the jurisdiction of any
such court or to transfer or change the venue of any such action or proceeding.

      7.7   MUTUAL WAIVER OF JURY TRIAL. Borrower and Trade Bank each hereby
waive the right to trial by jury in any action or proceeding based upon, arising
out of, or in any way relating to, (a) any Loan Document, (b) any other present
or future agreement, instrument or document between Trade Bank and Borrower, or
(c) any conduct, act or omission of Trade Bank or Borrower or any of their
directors, officers, employees, agents, attorneys or any other persons or
entities affiliated with Trade Bank or Borrower, which waiver will apply in all
of the mentioned cases whether the case is a contract or tort case or any other
case. Borrower represents and warrants that no officer, representative or agent
of Trade Bank has represented, expressly or otherwise, that Trade Bank would not
seek to enforce this waiver of jury trial.

      7.8   SEVERABILITY. Should any provision of any Loan Document be
prohibited by, or invalid under applicable law, or held by any court of
competent jurisdiction to be void or unenforceable, such defect shall not
affect, the validity of the other provisions of the Loan Documents.

      7.9   ENTIRE AGREEMENT; AMENDMENTS. This Agreement and the other Loan
Documents are the final, entire and complete agreement between Borrower and
Trade Bank concerning the Credit Extensions and the Facility; supersede all
prior and contemporaneous negotiations and oral representations and agreements.
There are no oral


                                     Page 8

understandings, representations or agreements between the parties concerning the
Credit Extensions or the Facility which are not set forth in the Loan Documents.
This Agreement and the Supplement may not be waived, amended or superseded
except in a writing executed by Borrower and Trade Bank.

      7.10  COLLECTION OF PAYMENTS. Unless otherwise specified in any Loan
Document, other than this Agreement or any Note, all principal, interest and any
fees due to Trade Bank by Borrower under this Agreement, the Addendum, any
Supplement, any Facility Document, any Collateral Document or any Note, will be
paid by Trade Bank having Wells Fargo debit any of Borrower's accounts with
Wells Fargo and forwarding such amount debited to Trade Bank, without
presentment, protest, demand for reimbursement or payment, notice of dishonor or
any other notice whatsoever, all of which are hereby expressly waived by
Borrower. Such debit will be made at the time principal, interest or any fee is
due to Trade Bank pursuant to this Agreement, the Addendum, any Supplement, any
Facility Document, any Collateral Document or any Note.

      7.11  COSTS, EXPENSES AND ATTORNEYS' FEES. Borrower will reimburse Trade
Bank for all costs and expenses, including, but not limited to, reasonable
attorneys' fees and expenses (which counsel may be Trade Bank or Wells Fargo
employees), expended or incurred by Trade Bank in the preparation and
negotiation of this Agreement, the Notes, the Collateral Documents, the
Addendum, and the Facility Documents, in amending this Agreement, the Collateral
Documents, the Notes, the Addendum, or the Facility Documents, in collecting any
sum which becomes due Trade Bank on the Notes, under this Agreement, the
Collateral Documents, the Addendum, the Supplement, or any of the Facility
Documents, in the protection, perfection, preservation and enforcement of any
and all rights of Trade Bank in connection with this Agreement, the Notes, any
of the Collateral Documents, the Supplement, any of the Addendum, or any of the
Facility Documents, including, without limitation, the fees and costs incurred
in any out-of-court work out or a bankruptcy or reorganization proceeding.

                                VIII. DEFINITIONS

      8.1   "ACCOUNTS RECEIVABLE" means all presently existing and hereafter
arising "Rights to Payment" (as that term is defined in the "Continuing Security
Agreement - Rights to Payment and Inventory" executed by Borrower in favor of
Trade Bank) which arise from the sale, lease or other disposition of Inventory,
or from performance of contracts for service, manufacture, construction or
repair, together with all goods returned by Borrower's customers in connection
with any of the foregoing.

      8.2   "AGREEMENT" means this Agreement and the Addendum attached hereto,
as corrected or modified from time to time by Trade Bank and Borrower.

      8.3   "BANKING DAY" means each day except Saturday, Sunday and a day
specified as a holiday by federal or California statute.

      8.4   "BORROWING BASE" means an amount equal to eighty percent (80%) of
Borrower's Eligible Accounts Receivable. All of the foregoing shall be
determined by Trade Bank upon receipt and review of all collateral reports
required hereunder and such other documents and collateral information as Trade
Bank may from time to time require. Borrower acknowledges that as said Borrowing
Base was established by Trade Bank with the understanding that, among other
items, the aggregate of all returns, rebates, discounts, credits, and allowances
for the immediately preceding three (3) months at all times shall be less than
five percent (5%) of Borrower's gross sales for said period. If such dilution of
Borrower's accounts for the immediately preceding three (3) months at any time
exceeds five percent (5%) of Borrower's gross sales for said period, or if there
at any time exists any other matters, events, conditions or contingencies which
Trade Bank reasonably believes may affect payment of any portion of Borrower's
accounts, Trade Bank, in its sole discretion, may reduce the foregoing advance
rate against Borrower's Eligible Accounts Receivable to a percentage appropriate
to reflect such additional dilution and/or establish reserves against Borrower's
Eligible Accounts Receivable.

      8.5   "CLOSING DATE" means the date on which the first Credit Extension is
made.

      8.6   "COLLATERAL" means all property securing the Obligations.

      8.7   "COLLATERAL DOCUMENTS" means those security agreement(s), deed(s) of
trust, guarantee(s), subordination agreement(s), intercreditor agreement(s), and
other credit support documents and instruments required by



                                     Page 9

the Trade Bank to effect the collateral and credit support requirements set
forth in the Supplement with respect to the Facility.

      8.8   "CREDIT" means any discount, allowance, credit, rebate, or
adjustment granted by Borrower with respect to an Account Receivable.

      8.9   "CREDIT EXTENSION" means each extension of credit under the Facility
(whether funded or unfunded), including, but not limited to, (a) the issuance of
sight or usance commercial letters of credit or commercial letters of credit
supported by back-up letters of credit, (b) the issuance of standby letters of
credit, (c) the issuance of shipping guarantees, (d) the making of revolving
credit working capital loans, (e) the making of loans against imports for
letters of credit, (f) the making of clean import loans outside letters of
credit, (g) the making of advances against export orders, (h) the making of
advances against export letters of credit, (i) the making of advances against
outgoing collections, (j) the making of term loans, and (k) the entry into
foreign exchange contracts.

      8.10  "CREDIT LIMIT" means, with respect to the any Facility, the amount
specified under the column labeled "Credit Limit" in the Supplement for that
related Facility.

      8.11  "CREDIT SUBLIMIT" means, with respect to any Subfacility, the amount
specified after the name of that Subfacility under the column labeled "Credit
Sublimit" in the Supplement for the related Facility.

      8.12  "DOLLARS" and "$" means United States dollars.

      8.13  "ELIGIBLE ACCOUNTS RECEIVABLE" means those Accounts Receivable which
have been created in the ordinary course of Borrower's business, including THOSE
ACCOUNTS RECEIVABLE BACKED BY A LETTER OF CREDIT SATISFACTORY TO TRADE BANK, OR
FCIA INSURED, OR EXIMBANK OR CEFO INSURED, IN A MANNER AND AMOUNT SATISFACTORY
TO TRADE BANK; and upon which Borrower's right to receive payment is absolute
and not contingent upon the fulfillment of any conditions whatsoever, and shall
not include:

            (a)   any account which is past due ninety (90) days after the
                  invoice date with respect to Accounts Receivable with payment
                  terms of net thirty (30) or net sixty (60) calendar days from
                  invoice date; and thirty (30) days after the due date with
                  respect to Accounts Receivable with payment terms of net
                  ninety (90) calendar days from invoice date;

            (b)   any account for which there are any right of setoff, defense
                  or discount (except regular discounts allowed in the ordinary
                  course of business to promote prompt payment) or for which any
                  defense or counterclaim has been asserted;

            (c)   any account which represents an obligation of any state or
                  municipal government or of the United States government or any
                  political subdivision thereof;

            (d)   any account which represents an obligation of an account
                  debtor located in a foreign country;

            (e)   any account which arises from the sale or lease to or
                  performance of services for, or represents an obligation of,
                  an employee, affiliate, partner, parent or subsidiary of
                  Borrower.

            (f)   that portion of any account which represents interim or
                  progress billings or retention rights on the part of the
                  account debtor;

            (g)   any account which represents an obligation of any account
                  debtor when twenty percent (20%) or more of Borrower's
                  accounts from such account debtor is not eligible pursuant to
                  (a) above;

            (h)   that portion of any account from an account debtor which
                  represents the amount by which Borrower's total accounts
                  receivable from said account debtor exceeds twenty-five
                  percent (25%) of Borrower's total accounts receivable;





                                     Page 10

            (i)   any account deemed ineligible by Trade Bank when Trade Bank,
                  in its sole discretion, deems the creditworthiness or
                  financial condition of the account debtor, or the industry in
                  which the account debtor is engaged, to be unsatisfactory.

      8.14  "FACILITY DOCUMENTS" means, with respect to the Facility, those
documents specified in the Supplement for the Facility, and any other documents
customarily required by Trade Bank for said Facility.

      8.15  "GAAP" means generally accepted accounting principles, which are
applicable to the circumstances, as of the date of determination, set out in the
opinions and pronouncements of the Accounting Principles Board and the American
Institute of Certified Public Accountants and in the statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as may be approved by a significant segment of
the accounting profession.

      8.16  "INVENTORY" has the meaning assigned to such term in the "Continuing
Security Agreement - Rights to Payment and Inventory" executed by Borrower in
favor of Trade Bank.

      8.17  "LOAN DOCUMENTS" means this Agreement, the Addendum, the Supplement,
the Facility Documents and the Collateral Documents.

      8.18  "NOTE" has the meaning specified in Section 3.1(b)(2) above.

      8.19  "OBLIGATIONS" means (a) the obligation of Borrower to pay principal,
interest and fees on all funded Credit Extensions and fees on all unfunded
Credit Extensions, and (b) the obligation of Borrower to pay and perform when
due all other indebtedness, liabilities, obligations and covenants required
under the Loan Documents.

      8.20  "PERSON" means and includes natural persons, corporations, limited
partnerships, general partnerships, joint stock companies, joint ventures,
associations, companies, trusts, banks, trust companies, land trusts, business
trusts or other organizations, whether or not legal entities, and governments
and agencies and political subdivisions thereof.

      8.21  "PRIME RATE" means the rate most recently announced by Wells Fargo
at its principal office in San Francisco, California as its "Prime Rate", with
the understanding that the Prime Rate is one of Wells Fargo's base rates and
serves as the basis upon which effective rates of interest are calculated for
those loans making reference thereto, and is evidenced by the recording thereof
after its announcement in such internal publication or publications as Wells
Fargo may designate. Any change in an interest rate resulting from a change in
the Prime Rate shall become effective as of 12:01 a.m. of the Banking Day on
which each change in the Prime Rate is announced by Wells Fargo.

      8.22  "SUBSIDIARY" means (i) any corporation at least the majority of
whose securities having ordinary voting power for the election of directors
(other than securities having such power only by reason of the happening of a
contingency) are at the time owned by Borrower and/or one or more Subsidiaries,
and (ii) any joint venture or partnership in which Borrower and/or one or more
Subsidiaries has a majority interest.

      8.23  "WELLS FARGO" means Wells Fargo Bank, N.A.


                                 IX. ARBITRATION

      9.1   ARBITRATION. The parties hereto agree, upon demand by any party, to
submit to binding arbitration all claims, disputes and controversies between or
among them (and their respective employees, officers, directors, attorneys, and
other agents), whether in tort, contract or otherwise arising out of or relating
to in any way (i) the loan and related loan and security documents which are the
subject of this Agreement and its negotiation, execution, collateralization,
administration, repayment, modification, extension, substitution, formation,
inducement, enforcement, default or termination; or (ii) requests for additional
credit.

      9.2   GOVERNING RULES. Any arbitration proceeding will (i) proceed in a
location in California selected by the American Arbitration Association ("AAA");
(ii) be governed by the Federal Arbitration Act (Title 9 of the United States
Code), notwithstanding any conflicting choice of law provision in any of the
documents between the parties; and (iii) be conducted by the AAA, or such other
administrator as the parties shall mutually agree upon, in accordance with the
AAA's

                                     Page 11

commercial dispute resolution procedures, unless the claim or counterclaim is at
least $1,000,000.00 exclusive of claimed interest, arbitration fees and costs in
which case the arbitration shall be conducted in accordance with the AAA's
optional procedures for large, complex commercial disputes (the commercial
dispute resolution procedures or the optional procedures for large, complex
commercial disputes to be referred to, as applicable, as the "Rules"). If there
is any inconsistency between the terms hereof and the Rules, the terms and
procedures set forth herein shall control. Any party who fails or refuses to
submit to arbitration following a demand by any other party shall bear all costs
and expenses incurred by such other party in compelling arbitration of any
dispute. Nothing contained herein shall be deemed to be a waiver by any party
that is a bank of the protections afforded to it under 12 U.S.C. Section 91 or
any similar applicable state law.

      9.3   NO WAIVER OF PROVISIONAL REMEDIES, SELF-HELP AND FORECLOSURE. The
arbitration requirement does not limit the right of any party to (i) foreclose
against real or personal property collateral; (ii) exercise self-help remedies
relating to collateral or proceeds of collateral such as setoff or repossession;
or (iii) obtain provisional or ancillary remedies such as replevin, injunctive
relief, attachment or the appointment of a receiver, before during or after the
pendency of any arbitration proceeding. This exclusion does not constitute a
waiver of the right or obligation of any party to submit any dispute to
arbitration or reference hereunder, including those arising from the exercise of
the actions detailed in sections (i), (ii) and (iii) of this paragraph.

      9.4   ARBITRATOR QUALIFICATIONS AND POWERS. Any arbitration proceeding in
which the amount in controversy is $5,000,000.00 or less will be decided by a
single arbitrator selected according to the Rules, and who shall not render an
award of greater than $5,000,000.00. Any dispute in which the amount in
controversy exceeds $5,000,000.00 shall be decided by majority vote of a panel
of three arbitrators; provided however, that all three arbitrators must actively
participate in all hearings and deliberations. The arbitrator will be a neutral
attorney licensed in the State of California or a neutral retired judge of the
state or federal judiciary of California, in either case with a minimum of ten
years experience in the substantive law applicable to the subject matter of the
dispute to be arbitrated. The arbitrator will determine whether or not an issue
is arbitratable and will give effect to the statutes of limitation in
determining any claim. In any arbitration proceeding the arbitrator will decide
(by documents only or with a hearing at the arbitrator's discretion) any
pre-hearing motions which are similar to motions to dismiss for failure to state
a claim or motions for summary adjudication. The arbitrator shall resolve all
disputes in accordance with the substantive law of California and may grant any
remedy or relief that a court of such state could order or grant within the
scope hereof and such ancillary relief as is necessary to make effective any
award. The arbitrator shall also have the power to award recovery of all costs
and fees, to impose sanctions and to take such other action as the arbitrator
deems necessary to the same extent a judge could pursuant to the Federal Rules
of Civil Procedure, the California Rules of Civil Procedure or other applicable
law. Judgment upon the award rendered by the arbitrator may be entered in any
court having jurisdiction. The institution and maintenance of an action for
judicial relief or pursuit of a provisional or ancillary remedy shall not
constitute a waiver of the right of any party, including the plaintiff, to
submit the controversy or claim to arbitration if any other party contests such
action for judicial relief.

      9.5   DISCOVERY. In any arbitration proceeding discovery will be permitted
in accordance with the Rules. All discovery shall be expressly limited to
matters directly relevant to the dispute being arbitrated and must be completed
no later than 20 days before the hearing date and within 180 days of the filing
of the dispute with the AAA. Any requests for an extension of the discovery
periods, or any discovery disputes, will be subject to final determination by
the arbitrator upon a showing that the request for discovery is essential for
the party's presentation and that no alternative means for obtaining information
is available.

      9.6   CLASS PROCEEDINGS AND CONSOLIDATIONS. The resolution of any dispute
arising pursuant to the terms of this Agreement shall be determined by a
separate arbitration proceeding and such dispute shall not be consolidated with
other disputes or included in any class proceeding.

      9.7   PAYMENT OF ARBITRATION COSTS AND FEES. The arbitrator shall award
all costs and expenses of the arbitration proceeding.

      9.8   REAL PROPERTY COLLATERAL; JUDICIAL REFERENCE. Notwithstanding
anything herein to the contrary, no dispute shall be submitted to arbitration if
the dispute concerns indebtedness secured directly or indirectly, in whole or in
part, by any real property unless (i) the holder of the mortgage, lien or
security interest specifically elects in writing to proceed with the
arbitration, or (ii) all parties to the arbitration waive any rights or benefits
that might accrue to them by virtue of the single action rule statute of
California, thereby agreeing that all indebtedness and obligations of the
parties, and all mortgages, liens and security interests securing such
indebtedness and obligations, shall remain fully valid and

                                     Page 12

enforceable. If any such dispute is not submitted to arbitration, the dispute
shall be referred to a referee in accordance with California Code of Civil
Procedure Section 638 et seq., and this general reference agreement is intended
to be specifically enforceable in accordance with said Section 638. A referee
with the qualifications required herein for arbitrators shall be selected
pursuant to the AAA's selection procedures. Judgment upon the decision rendered
by a referee shall be entered in the court in which such proceeding was
commenced in accordance with California Code of Civil Procedure Sections 644 and
645.

      9.9   MISCELLANEOUS. To the maximum extent practicable, the AAA, the
arbitrators and the parties shall take all action required to conclude any
arbitration proceeding within 180 days of the filing of the dispute with the
AAA. No arbitrator or other party to an arbitration proceeding may disclose the
existence, content or results thereof, except for disclosures of information by
a party required in the ordinary course of its business or by applicable law or
regulation. If more than one agreement for arbitration by or between the parties
potentially applies to a dispute, the arbitration provision most directly
related to the documents between the parties or the subject matter of the
dispute shall control. This Agreement may be amended or modified only in writing
signed by each party hereto. If any provision of this Agreement shall be held to
be prohibited by or invalid under applicable law such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or any remaining provisions of this
Agreement. This arbitration provision shall survive termination, amendment or
expiration of any of the documents or any relationship between the parties.

      Borrower and Trade Bank have caused this Agreement to be executed by their
duly authorized officers or representatives on the date first written above.

               "BORROWER"                                "LENDER"

RADYNE COMSTREAM INC.                      WELLS FARGO HSBC TRADE BANK,
                                           NATIONAL ASSOCIATION

By: _________________________________      By: _______________________________
    GARRY KLINE, Chief Financial               Don Byers
    Officer, Treasurer, and Secretary          Title: Vice President



Borrower's Address:                        Lender's Address:
3138 East Elwood Street                    1445 Ross Avenue
Phoenix, Arizona  85034                    Dallas, Texas  75202





                                     Page 13

                                                                       EXHIBIT A
WELLS FARGO HSBC TRADE BANK                         ADDENDUM TO CREDIT AGREEMENT
- --------------------------------------------------------------------------------


THIS ADDENDUM IS ATTACHED TO THE CREDIT AGREEMENT ("CREDIT AGREEMENT") BETWEEN
WELLS FARGO HSBC TRADE BANK AND THE FOLLOWING BORROWER:

NAME OF BORROWER: RADYNE COMSTREAM INC.


                        ADDITIONAL AFFIRMATIVE COVENANTS

The following covenants are part of Article IV of the Credit Agreement:

REPORTS. Borrower will furnish the following information or deliver the
following reports to Trade Bank at the times indicated below:

- -   ANNUAL FINANCIAL STATEMENTS. Not later than one hundred five (105) calendar
    days after and as of the end of each of Borrower's fiscal years, an annual
    financial statement of Borrower prepared by a certified public accountant
    acceptable to Trade Bank and prepared in accordance with GAAP, to include
    balance sheet, income statement, statement of cash flow, and source and
    application of funds statement.

- -   QUARTERLY FINANCIAL STATEMENTS. Not later than forty-five (45) calendar days
    after and as of the end of each of Borrower's fiscal quarters, a financial
    statement of Borrower prepared by Borrower, to include balance sheet and
    income statement.

      CERTIFICATE OF ACCURACY AND NO EVENT OF DEFAULT. At the time each
      financial statement of Borrower required above is delivered to Trade Bank,
      a certificate of the president or chief financial officer of Borrower that
      said financial statements are accurate and that there exists no Event of
      Default under the Agreement nor any condition, act or event which with the
      giving of notice or the passage of time or both would constitute an Event
      of Default.

- -   BORROWING BASE CERTIFICATE. Not later than twenty (20) calendar days after
    and as of the end of each month, a borrowing base certificate.

- -   ACCOUNTS RECEIVABLE AGED LISTING.
      Not later than twenty (20) calendar days after and as of each month end,
      an aged listing of accounts receivable, including both factored and
      unfactored accounts.

- -   ACCOUNTS PAYABLE AGED LISTING. Not later than twenty (20) calendar days
    after and as of each month end, an aged listing of accounts payable.

- -   ACCOUNT DEBTORS LIST. Not later than twenty (20) calendar days after and as
    of each second and fourth fiscal quarter, a list of the names, addresses and
    phone numbers of all Borrower's account debtors and an aged listing of their
    balances.

- -   INSURANCE: Borrower will maintain in full force and effect insurance
    coverage on all Borrower's property, including, but not limited to, the
    following types of insurance coverage:

      policies of fire insurance
      marine cargo insurance
      business personal property insurance

    All the insurance referred to in the preceding sentence must be in form,
    substance and amounts, and issued by companies, satisfactory to Trade
    Bank, and cover risks required by Trade Bank and contain loss payable
    endorsements in favor of Trade Bank.


                                   Page 1 of 1

FINANCIAL COVENANTS. Borrower will maintain the following (if Borrower has any
Subsidiaries which must be consolidated under GAAP, the following applies to
borrower and the consolidated Subsidiaries):

- -   TANGIBLE NET WORTH. Not at any time less than $20,000,000. ("TANGIBLE NET
    WORTH" means the aggregate of total shareholders' equity determined in
    accordance with GAAP plus indebtedness which is subordinated to the
    Obligations to Trade Bank under a subordination agreement in form and
    substance acceptable to Trade Bank or by subordination language acceptable
    to Trade Bank in the instrument evidencing such indebtedness less (i) all
    assets which would be classified as intangible assets under GAAP, including,
    but not limited to, goodwill, licenses, patents, trademarks, trade names,
    copyrights, capitalized software and organizational costs, licenses and
    franchises, and (ii) assets which Trade Bank determines in its business
    judgment would not be available or would be of relatively small value in a
    liquidation of Borrower's business, including, but not limited to, prepaid
    expenses, loans to officers or affiliates and other items).

- -   TOTAL LIABILITIES DIVIDED BY TANGIBLE NET WORTH. Not at any time greater
    than 1.0 to 1.0. ("Tangible Net Worth" has the meaning given to it above,
    and "Total Liabilities" excludes indebtedness which is subordinated to the
    Obligations to Trade Bank under a subordination agreement in form and
    substance acceptable to Trade Bank or by subordination language acceptable
    to Trade Bank in the instrument evidencing such indebtedness.)

- -   QUICK ASSET RATIO. Not at any time less than 1.0 to 1.0 up to and including
    December 31, 2000 and 1.25 to 1.0 from and after January 1, 2001. ["QUICK
    ASSET RATIO" means "Quick Assets" divided by total current liabilities, and
    "QUICK ASSETS" means cash on hand or on deposit in banks, readily marketable
    securities issued by the United States, readily marketable commercial paper
    rated "A-1" by Standard & Poor's Corporation (or a similar rating by a
    similar rating organization), certificates of deposit and banker's
    acceptances, and accounts receivable (net of allowance for doubtful
    accounts).]

- -   PRE-TAX PROFIT. Not less than $1.00 on a quarterly basis (determined as of
    each fiscal quarter end) based on the sum of the results of two consecutive
    quarters consisting of the present quarter and the preceding quarter.

- -   EBITDA COVERAGE RATIO. Not less than 2.5 to 1.0 as of each fiscal year end.
    ("EBITDA" means net profit before tax plus interest expense (net of
    capitalized interest expense), depreciation expense and amortization expense
    and "EBITDA COVERAGE RATIO" means EBITDA divided by the aggregate of total
    interest expense plus the prior period current maturity of long-term debt
    and the prior period current maturity of subordinated debt.)

BY SIGNING HERE BORROWER AGREES TO THE DESIGNATED PROVISIONS IN THIS ADDENDUM:



                                         --------------------------------------
                                                      (SIGNATURE)







                                   Page 2 of 2

                                                                       EXHIBIT B
WELLS FARGO HSBC TRADE BANK                 REVOLVING CREDIT FACILITY SUPPLEMENT
- --------------------------------------------------------------------------------


THIS SUPPLEMENT IS AN INTEGRAL PART OF THE CREDIT AGREEMENT BETWEEN WELLS FARGO
HSBC TRADE BANK AND THE FOLLOWING BORROWER:

NAME OF BORROWER: RADYNE COMSTREAM INC.

CREDIT LIMIT FOR THIS REVOLVING CREDIT LOAN FACILITY AND SUBLIMITS: Credit
Limit: $10,000,000 (subject to dollar limitations in Section 1.2 of Agreement)

CREDIT SUBLIMITS: Subject to the Revolving Credit Facility Credit Limit, the
Credit Sublimit for each Subfacility specified below refers to the aggregate
amount which may be outstanding at any one time under each such Subfacility.

                                                             
- -   Sight Commercial Letters of Credit                          $10,000,000
- -   Usance Commercial Letters of Credit                         $10,000,000
      (a)   Acceptances                                         $10,000,000
- -   Standby Letters of Credit                                      $500,000



FACILITY DESCRIPTION: Trade Bank will make the Revolving Credit Facility
available to Borrower for the specific purposes set forth below. Subject to the
credit sublimits specified above, the Revolving Credit Facility may be supported
by (i) a standby letter of credit in favor of Trade Bank, (ii) a guarantee or
(iii) accounts receivable, inventory or other collateral. Revolving Credit Loans
cannot be used to repay outstanding Revolving Credit Loans or Term Loans that
have matured.

FACILITY DOCUMENTS:

- -   REVOLVING CREDIT LOANS NOTE: The term and prepayment conditions of the Loans
    under Revolving Credit Facility are set forth in Revolving Credit Loans
    Note.

INTEREST RATES:

- -   LOANS UNDER REVOLVING CREDIT FACILITY: All outstanding Loans under Revolving
    Credit Facility will bear interest at the following rate:

      PRIME RATE: The Prime Rate minus 0.25% per annum (as defined in the
      Revolving Credit Loans Note).

      LIBOR: As defined in the Revolving Credit Loans Note.

      INTEREST PAYMENT DATES: Interest on all outstanding Loans under Revolving
      Credit Facility will be paid at least once each month on the first day of
      the month.

FEES:

- -   FACILITIES FEE: Borrower will pay the following Facilities Fee to Trade Bank
    before this Facility is made available to Borrower: $25,000.

- -   SIGHT COMMERCIAL CREDITS AND USANCE COMMERCIAL CREDITS:

      Issuance Fees/Fees For Increasing Credit Amounts or Extending Expiration
      Dates: (Minimum $200)
      1/8 of 1% of the face amount of each Sight Commercial Credit or Usance
      Commercial Credit and of any increase in such amount.

      Payable: At the time each Sight Commercial Credit or Usance Commercial
      Credit is issued or increased and at the time the expiration date of any
      Sight Commercial Credit or Usance Commercial Credit is extended.



                                   Page 1 of 4

      Amendment Fees: (Minimum $50)
      $50 for each amendment, unless the amendment is an increase in the Sight
      Commercial Credit or Usance Commercial Credit amount or an extension of
      the expiration date, in which case the Issuance Fee above will substitute
      for any Amendment Fee.
      Payable: At the time each amendment is issued.

      Negotiation/Payment/Examination Fees: (Minimum $100)
      $100 for each negotiation under each Sight Commercial Credit or Usance
      Commercial Credit.
      Payable: At the time any draft or other documents are negotiated, paid or
      examined.

      Acceptance Fees: (Minimum $75)
      2.0% on the face amount of each draft accepted under each Usance
      Commercial Credit.
      Payable: At the time each draft is accepted.

- -   STANDBY CREDITS:

      Commission Fees/Fees For Increasing Credit Amounts or Extending Expiration
      Dates: (Minimum $375)
      1.0% of the amount of each Standby Credit and of any increase in such
      amount.
      Payable: At the time each Standby Credit is issued or increased and at the
      time the expiration date of any Standby Credit is extended.

      Amendment Fees: (Minimum $130)
      $130 for each amendment, unless the amendment is an increase in the
      Standby Credit amount or an extension of the expiration date, in which
      case the Commission Fee above will substitute for any Amendment Fee.
      Payable: At the time each amendment is issued.

      Negotiation/Payment/Examination Fees: (Minimum $250)
      1/4% of the face amount of each drawing under each Standby Credit.
      Payable: At the time any draft or other documents are negotiated, paid or
      examined.


COLLATERAL: See Exhibit C - Collateral/Credit Support Document.


SUBFACILITIES DESCRIPTION, PURPOSE, DOCUMENTS, TERM, AND PREPAYMENTS:

- -   SIGHT COMMERCIAL CREDITS:

      Description And Purpose: Trade Bank will issue sight commercial letters of
      credit (each a "Sight Commercial Credit") for the account of Borrower for
      the purpose or purposes stated below. Subject to the credit sublimits
      specified above, these Sight Commercial Credits will be transferable or
      not transferable and have the goods related to them consigned to or not
      consigned to, or controlled by or not controlled by, Trade Bank. The Sight
      Commercial Credit Sublimit specified above refers to the aggregate undrawn
      amount of all Sight Commercial Credits which may be at any one time
      outstanding under this Facility together with the aggregate amount of all
      drafts drawn under such Sight Commercial Credits which have not been
      reimbursed as provided below at such time.

      This Subfacility may only be used for the following purpose: To finance
      the importation of pre-assembled satellite communications systems and
      components for the assembly of satellite communication systems.

      Documents:
         Before the first Sight Commercial Credit is issued:
            Trade Bank's standard form Continuing Commercial Letter of Credit
            Agreement;

         Before each Sight Commercial Credit is issued:
            Trade Bank's standard form Application For Commercial Letter of
            Credit;



                                   Page 2 of 4

         Before each Sight Commercial Credit is amended:
            Trade Bank's standard form Application For Amendment To Letter of
            Credit;

      Term: No Sight Commercial Credit may expire more than one hundred eighty
      (180) calendar days after the date it is issued.

- -   USANCE COMMERCIAL CREDITS:

      Description And Purpose: Trade Bank will issue usance commercial letters
      of credit (each a "Usance Commercial Credit") for the account of Borrower
      and create bankers' acceptances from drafts drawn under these Usance
      Commercial Credits ("Acceptances") and, if indicated above, incur deferred
      payment obligations from drawings under Usance Commercial Credits. Subject
      to the credit sublimits specified above, these Usance Commercial Credits
      will be transferable or not transferable and have the goods related to
      them consigned to or not consigned to, or controlled by or not controlled
      by, Trade Bank. The Usance Commercial Credit Sublimit specified above
      refers to the aggregate undrawn amount of all Usance Commercial Credits
      together with the aggregate amount of all Acceptances and deferred payment
      obligations which may be outstanding at any one time under each
      subcategory of the Usance Commercial Credit Sublimit.

      This Subfacility may only be used for the following purpose: To finance
      the importation of pre-assembled satellite communications systems and
      components for the assembly of satellite communication systems.

      Documents:
         Before the first Usance Commercial Credit is issued:
            Trade Bank's standard form Continuing Commercial Letter of Credit
            Agreement;

         Before each Usance Commercial Credit is issued:
            Trade Bank's standard form Application For Commercial Letter of
            Credit;

         Before each Usance Commercial Credit is amended:
            Trade Bank's standard form Application For Amendment To Letter of
            Credit;

      Term: No Usance Commercial Credit may expire more than one hundred eighty
      (180) calendar days after the date it is issued.
         No usance draft may have a term of more than one hundred eighty (180)
         calendar days.

- -   STANDBY CREDITS:

      Description And Purpose: Trade Bank will issue standby letters of credit
      (each a "Standby Credit") for the account of Borrower the purpose or
      purposes stated below. Subject to the credit sublimits specified above,
      these Standby Credits will be issued to support Borrower's open account
      trade terms, bid and performance bonds, industrial revenue bonds, worker's
      compensation obligations, or the moving of Borrower as a new customer from
      another bank to Trade Bank. The Standby Credit Sublimit specified above
      refers to the aggregate undrawn amount of all Standby Credits which may be
      at any one time outstanding under this Subfacility together with the
      aggregate amount of all drafts drawn under such Standby Credits which have
      not been reimbursed as provided below at such time.

      This Subfacility may only be used for the following purpose: To provide
      support for warranties and performance bonds for the benefit of Borrower's
      customers.

      Documents:
         Before the first Standby Credit is issued:
            Trade Bank's standard form Continuing Standby Letter of Credit
            Agreement.

         Before each Standby Credit is issued:
            Trade Bank's standard form Application For Standby Letter of Credit.

         Before each Standby Credit is amended:
            Trade Bank's standard form Application For Amendment To Letter of
            Credit.

                                   Page 3 of 4

      Term: No Standby Credit will expire more than three hundred sixty (360)
      calendar days after the date it is issued. Standby Credits will be
      available by sight drafts only.

REIMBURSEMENTS FOR SIGHT COMMERCIAL CREDITS, USANCE COMMERCIAL CREDITS,
ACCEPTANCES AND STANDBY CREDITS:

      The amount of each (i) drawing paid by Trade Bank under a Sight Commercial
      Credit or Standby Credit and (ii) accepted drawing paid at its maturity by
      Trade Bank under a Usance Commercial Credit will be reimbursed to Trade
      Bank as follows:

         by Trade Bank having Wells Fargo Bank debit any of Borrower's accounts
         with Wells Fargo Bank and forwarding such amount debited to Trade Bank;
         or

         immediately on demand of Trade Bank; or

         by treating such amount drawn as an advance to Borrower under
         Borrower's Revolving Credit Facility.

DEFAULT INTEREST RATE ON UNREIMBURSED SIGHT COMMERCIAL CREDITS, ACCEPTANCES AND
STANDBY CREDITS:

      Default interest will accrue at a per annum rate equal to the Prime Rate
      plus five percent (5.0%) ("Default Interest Rate") and be paid at least
      once each month as follows:

         All drawings (i) under Sight Commercial Credits and (ii) under Standby
         Credits, not reimbursed on the day they are paid by Trade Bank, will
         bear interest at the Default Interest Rate from the date they are paid
         to the date such payment is fully reimbursed.

         All acceptances created under Usance Commercial Credits not reimbursed
         on the day they mature will bear interest at the Default Interest Rate
         from the date they mature to the date such reimbursement is made in
         full.

BY INITIALING HERE BORROWER AGREES TO ALL THE TERMS OF THIS SUPPLEMENT:
                                                                       ---------






                                   Page 4 of 4

EX-21.1

                                                                    EXHIBIT 21.1


                              List of Subsidiaries
                              --------------------



         Name                                       Place of Incorporation
         ---------                                  -----------------------
                                                 
         ComStream Corporation                      Delaware

         ComStream UK Limited                       England and Wales

         ComStream Israel Ltd.                      Israel

         Armer Communications Engineering
         Services, Inc.                             Delaware

         Tiernan Radyne ComStream Inc.              Delaware

EX-23.1

                                                                    EXHIBIT 23.1

                          INDEPENDENT AUDITORS' CONSENT

The Board of Directors
Radyne ComStream Inc.:

We consent to the incorporation by reference in the registration statements of
Radyne ComStream Inc. on Form S-8 (File No. 333-23159) filed as of March 12,
1997, Form S-8 (File No. 333-67469) filed as of November 19, 1998 and amended as
of May 5, 1999, Form S-8 (File No. 333-90383) filed as of November 5, 1999 and
Form S-8 (file No. 333-41704) filed as of July 19, 2000, of our report dated
February 21, 2002, on the consolidated balance sheets of Radyne ComStream Inc.
as of December 31, 2001 and 2000 and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the years in the
three-year period ended December 31, 2001, which report appears in the December
31, 2001 annual report on Form 10-K of Radyne ComStream Inc.

/s/ KPMG LLP

Phoenix, Arizona
March 29, 2002

EX-99.1

                                                                    EXHIBIT 99.1

   CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS AND RISK FACTORS

      In passing the Private Securities Litigation Reform Act of 1995 (the
"Reform Act"), Congress encouraged public companies to make "forward-looking
statements" by creating a safe harbor to protect companies from securities law
liability in connection with forward-looking statements. Radyne ComStream
intends to qualify both its written and oral forward-looking statements for
protection under the Reform Act and any other similar safe harbor provisions.

      "Forward-looking statements" are defined by the Reform Act. Generally,
forward-looking statements include expressed expectations of future events and
the assumptions on which the expressed expectations are based. The words
"believe," "expect," "anticipate," "intends," "forecast," "project," and similar
expressions identify forward-looking statements. This Annual Report on Form 10-K
for the year ended December 31, 2001 contains forward-looking statements that
involve risks and uncertainties. Such statements may include, but are not
limited to: (i) continued growth in demand for satellite system ground-based
equipment and satellite-delivered communications services, (ii) continued global
deregulation and privatization of telecommunications carriers, (iii) continued
growth in worldwide demand for Internet over Satellite connectivity and
communications serves in general, (iv) an increase in total foreign sales, and
(v) sufficient cash reserves and cash from operations to fund planned future
operations and capital requirements through the end of 2001. Such
forward-looking statements are within the meaning of that term in Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. All forward-looking statements are inherently
uncertain as they are based on various expectations and assumptions concerning
future events and they are subject to numerous known and unknown risks and
uncertainties that could cause actual events or result to differ materially from
those projected. Due to those and other uncertainties and risks, the investment
community is urged not to place undue reliance on written or oral
forward-looking statements of Radyne ComStream. Radyne ComStream undertakes no
obligation to update or revise this Cautionary Statement Regarding
Forward-Looking Statements to reflect future developments. In addition, Radyne
ComStream undertakes no obligation to update or revise forward-looking
statements to reflect changed assumptions, the occurrence of unanticipated
events, or changes to future operating results over time.

      Radyne ComStream provided the following risk factor disclosure in
connection with its continuing effort to qualify its written and oral
forward-looking statements under the safe harbor protection of the Reform Act
and any other similar safe harbor provisions. Important factors currently known
to management that could cause actual results to differ materially from those in
forward-looking statements include the disclosures contained in the Company's
Annual Report on Form 10-K to which this statement is appended as an exhibit and
also include the following:

RISK FACTORS

      You should carefully consider the following risks before you decide to buy
our securities. If any of the following risks actually occur, our business,
financial condition or results of operations would likely suffer. As a result,
the trading price of our securities could decline, and you may lose all or part
of the money you paid to buy our securities.

We Have A History Of Operating Losses, Only Recently Became Profitable, And
Could Suffer Further Losses In The Future.

      As a result of operating losses prior to 1999, we had an accumulated
deficit of $4.7 million at December 31, 2001. Although we have been profitable
over the past three years our earnings in fiscal 2001 deteriorated significantly
compared to the prior year. Furthermore, there can be no assurance that we will
remain profitable in the future. Future losses or reductions in our
profitability would adversely affect our stock price.

Our Quarterly Operating Results Have Fluctuated Significantly In The Past, And
We Anticipate That They Could Do So In The Future, Which Could Adversely Affect
Our Stock Price.

      We may continue to experience significant quarter to quarter fluctuations
in our operating results, which may result in volatility in the price of our
common stock. These fluctuating operating results derive from a variety of
factors, including the following:

      -  timing of the initiation and completion of our purchase orders;
      -  demand for our products;
      -  introduction of new or enhanced products by us or our competitors;
      -  growth of demand for Internet-based products and services in developing
         countries;
      -  timing of significant marketing programs we may implement;
      -  extent and timing of hiring additional personnel;
      -  competitive conditions in our industry; and
      -  general economic conditions in the United States and abroad.

      The factors described above are difficult to forecast and could harm our
business, financial condition and results of operations. Furthermore, 2001 was a
challenging year for the telecommunication and Internet industries, thereby
resulting in longer sales cycles and delays in the purchase decision-making
process of existing and potential customers of our products and services.
Accordingly, we may have difficulty in accurately forecasting our revenues for
any future quarter.

We Depend On International Sales, Which Could Cause Our Sales Levels To Be
Volatile.

      We are dependent on sales to customers outside the United States. We
expect that international sales will continue to account for a significant
portion of our revenues for the foreseeable future. For example, sales to our
foreign customers were approximately 56% of our net sales for the year ended
December 31, 1999, 44% for the year ended December 31, 2000 and 46% for the year
ended December 31, 2001. Additionally, we estimate that approximately 60% of our
domestic sales are eventually exported. Moreover, the growth in the use of
satellites for Internet traffic in recent years has been centered on connecting
Internet service providers, or ISPs, with Internet servers. U.S. based ISPs
rarely use satellites to provide point-to-point infrastructure for the Internet.
Accordingly, we expect that our sales to the Internet Service Provider market
will be primarily to customers located outside the United States. As a result of
our dependence on foreign markets, the occurrence of any negative international
political, economic or geographic events could result in significant revenue
shortfalls. These shortfalls could cause our business, financial condition and
results of operations to be harmed. Some of the risks of doing business
internationally include:

      -  changing regulatory requirements;
      -  fluctuations in the exchange rate for the United States dollar;
      -  the availability of export licenses;
      -  political and economic instability;
      -  difficulties in staffing and managing foreign operations, tariffs and
         other trade barriers;
      -  changes in diplomatic and trade relationships;
      -  complex foreign laws and treaties;
      -  acts of terrorism; and
      -  difficulty of collecting foreign account receivables.

      In addition, we are subject to the Foreign Corrupt Practices Act, which
prohibits us from making payments to government officials and others in order to
influence the granting of contracts we may be seeking. Our non-U.S. competitors
are not subject to this law and this may give them a competitive advantage over
us.

Fluctuations in the Valuations of Foreign Currencies Could Decrease the
Purchasing Power of our Foreign Customers, Reduce Sales and Decrease our
Earnings.

      Our foreign sales are denominated in United States dollars. As a result,
any decrease in the value of foreign currencies relative to the United States
dollar may materially adversely affect the demand for our products by increasing


their costs in the currency of those countries. For example, the value or the
Euro and the Argentina Peso have deteriorated against the Dollar over the last 2
years and these markets have experienced decreased bookings and adversely
affected our results of operations in 2001.

We Depend On Developing Markets And Their Uncertain Growth Potential Could
Result In A Reduction In Revenues And Even Losses.

      We believe a substantial portion of the growth in demand for our products
will depend upon customers in developing countries. We cannot provide assurance
that such increases in demand will occur or that prospective customers will
accept our products. The degree to which we are able to penetrate potential
markets in developing countries will be affected to a large extent by the speed
with which other competing elements of the communications infrastructure, such
as other satellite-delivered solutions, telephone lines, television cable, and
land-based solutions, are installed in these developing countries.

The Sales And Implementation Cycles for our Products are Long And Have Recently
Increased, and We May Incur Substantial, Non-Recoverable Expenses or Devote
Significant Resources To Sales That May Not Occur When Anticipated, If At All.

      A customer's decision to purchase our products involves a significant
commitment of its resources and a lengthy evaluation and product qualification
process. After a customer decides to purchase our products, the timing of their
deployment and implementation depends on a variety of factors specific to each
customer. Further, prospective customers may delay purchasing our products in
order to evaluate new technologies and develop and implement new wireless
systems. Throughout the sales cycle, we spend considerable resources educating
and providing information to prospective customers regarding the use and
benefits of our products. Our sales cycle for new customers is lengthy,
typically from four to five months, which is an increase from the two to three
months we experienced in the past couple of years.

The Recent Downturn In The Rapidly Evolving Telecommunications And Internet
Industries Could Harm Our Business.

      Our success depends upon the continued growth of the telecommunications
industry, particularly with regard to the Internet. The rapid growth and
evolution in the global telecommunications and Internet industries and the need
for high-speed or enhanced telecommunications products has been slowed by recent
economic conditions in the United States and elsewhere. The potential growth in
these areas is unpredictable. We cannot provide assurance that the deregulation,
privatization and economic globalization of the worldwide telecommunications
market that has resulted in historical demand for technologies and services will
resume in a manner favorable to us or our business strategies.

Competition In Our Industry Is Intense And Can Lead To Reduced Sales And Market
Share.

      The markets for ground segment systems are highly competitive. We have a
number of major competitors in the satellite communications equipment field.
These include large companies, such as Hughes Network Systems, Inc., NEC, and
Comtech Telecommunications Corp., which have significantly larger and more
diversified operations and greater financial, marketing, personnel and other
resources than we possess. As a result, these competitors may develop and expand
their products more quickly, adapt more quickly to new or emerging technologies
and changes in customer requirements, take advantage of acquisition and other
opportunities more readily, and devote greater resources to the marketing and
sale of their products than we can.

      Competition from current competitors or future entrants in the markets in
which we compete could cause us to lose orders or customers or could force us to
lower the prices we charge for our products, all of which would have a material
adverse impact on our business, financial condition, and results of operations.

Our Products May Become Obsolete Due To Rapid Technological Change.

      The telecommunications industry, including the ground-based satellite
communications systems business, is characterized by rapid and continuous
technological change. Future technological advances in the telecommunications
industry may result in the introduction of new products or services that compete
with our products or render them obsolete. Our success depends in part on our
ability to respond quickly to technological changes through the improvement of
our current products and the development of new products. Accordingly, we
believe that we will need to allocate a substantial amount of capital to
research and development activities in the future. We may not generate cash flow
from operations or have access to outside financing in amounts that are
sufficient to adequately fund the development of new products. Even if we are
able to obtain the required funding to develop new products, we cannot assure
you that we will be able to develop products that we will be able to sell
successfully. Our inability to improve our existing products and develop new
products could have a material adverse effect on our business, financial
condition, and results of operations.

Our Research And Development Efforts Are Costly And The Results Are Uncertain,
Which May Reduce Our Profitability And Could Result In Losses.

      Our continued growth depends on penetrating new markets, adapting existing
satellite communications products to new applications, and introducing new
communications products that achieve market acceptance and benefit from our
established international distribution channels. Accordingly, we are actively
applying our communications expertise to design and develop new hardware and
software products and enhance existing products. These efforts are costly. We
expended $10.8 million, or 16% of our net sales, in fiscal 2001 on research and
development activities. This was an increase from the prior year in which we
spent $9.3 million, or 13% of our net sales for the year. Additionally, our
research and development program may not produce successful results, which would
have a material adverse effect on our business, financial condition, and results
of operations.

Continued Growth Through Acquisition Could Prove Unsuccessful And Strain Our
Personnel And Systems And Divert Our Resources.

      We have pursued, and will continue to pursue, growth opportunities through
internal development and acquisition of complementary businesses, products and
technologies. Our operations have expanded significantly as a result of our
acquisitions of ComStream, Armer, and Tiernan. We are unable to predict whether
or when any other prospective acquisition will be completed. However, in order
to pursue successfully the opportunities presented by the ground segment and
emerging satellite-delivered communications and Internet/intranet-infrastructure
markets, we will be required to continue to expand our operations. This
expansion could entail various risks, including the following:

      -  difficulty of assimilating the operations and personnel of acquired
         businesses or products due to unforeseen circumstances;

      -  the necessity to attract, train, motivate, and manage a significantly
         larger number of employees;

      -  the use of a disproportionate amount of our management's attention or
         our resources;

      -  substantial cash expenditures, potentially dilutive issuances of equity
         securities, the incurrence of additional debt and contingent
         liabilities, and amortization expenses related to goodwill and other
         intangible assets;

      -  potential disruption of our ongoing business;

      -  our inability, once integrated, to achieve comparable levels of
         revenues, profitability or productivity as our existing business or
         otherwise perform as expected; and

      -  our potential inability to obtain the desired financial and strategic
         benefits from the acquisition or investment.

      Moreover, we cannot assure you that we will be able to successfully
identify suitable acquisition candidates, complete acquisitions, or expand into
new markets. The occurrence of any of the risks described above or any failure
to manage further growth in an efficient manner and at a pace consistent with
our business could have a material adverse effect on our growth and our
business, financial condition, and results of operations.

Our Competitive Position Relies Heavily On Our Proprietary Technology And
Intellectual Property.

      We rely on our proprietary technology and intellectual property to
maintain our competitive position. Unauthorized parties could attempt to copy
aspects of our technologies or to obtain information that we regard as
proprietary. We may not be able to police unauthorized use of our intellectual
property. Our failure to protect our proprietary technology and intellectual
property could adversely affect our competitive position.

      We generally rely on confidentiality agreements with our employees and
some of our suppliers to protect our proprietary technology. We also control
access to and distribution of confidential information concerning our
proprietary technology. We cannot guarantee that the other parties to these
agreements will not disclose or misappropriate the confidential information
concerning our proprietary technology, which could have a material adverse
effect on our business.

      We rely on patents to protect certain of our proprietary technology.
Patents, however, often provide only narrow protection that may not prevent
competitors from developing products that function in a manner similar to those
covered by our patents. In addition, some foreign countries in which we sell our
products do not provide the same level of protection to intellectual property as
the laws of the United States provide. We cannot assure you that any patents we
currently own or control, or that we may acquire in the future, will prevent our
competitors from independently developing products that are substantially
similar or superior to ours.

      We may find it necessary to take legal action in the future to enforce or
protect our intellectual property rights. Litigation can be very expensive and
can distract our management's time and attention, which could adversely affect
our business. In addition, we may not be able to obtain a favorable outcome in
any intellectual property litigation.

Our Products Could Infringe On The Intellectual Property Of Others.

      Third parties may in the future assert that our technology violates their
intellectual property rights. As a result of such claims, we could be required
to enter into licensing arrangements or develop non-infringing products, which
could be prohibitively expensive or could divert a significant amount of
resources from other aspects of our business.

      We may find it necessary to take legal action in the future to defend
against claims that our products or technologies infringe the rights of third
parties. Litigation can be very expensive and can distract our management's time
and attention, which could adversely affect our business. In addition, we may
not be able to obtain a favorable outcome in any intellectual property
litigation.

We Depend Upon Certain Suppliers And Subcontractors, The Loss Of Which Could
Cause An Interruption In The Production Of Our Products.

      We rely on subcontractors to assemble and test some of our products.
Additionally, our products use a number of specialized chips and customized
components or subassemblies produced by a limited number of suppliers. We
maintain limited inventories of these products and do not have long-term supply
contracts with our vendors. In the event our subcontractors or suppliers are
unable or unwilling to fulfill our requirements, we could experience an
interruption in product availability until we are able to secure alternative
sources of supplies. We are also subject to price increases by suppliers that
could increase the cost of our products or require us to develop alternative
suppliers, which could interrupt our business. It may not be possible to obtain
alternative sources at a reasonable cost. Supply interruptions could cause us to
lose orders or customers, which would result in a material adverse impact on our
business, financial condition, and

results of operations.

The Ownership Interest Of Our Controlling Shareholder May Make Our Stock Less
Attractive To Investors And Potential Acquirers.

      Stetsys Pte Ltd, or ST, owns a majority of our outstanding common stock.
ST will, therefore, continue to have the ability to elect all of our directors
and to control the outcome of all issues submitted to a vote of our
stockholders. It also would be impossible for a third party to acquire us
without the consent or participation of ST.

Our Outstanding Options And Warrants May Dilute Our Stockholders' Interests And
Could Hinder Us From Obtaining Additional Financing.

      We grant options and warrants to purchase shares of common stock to
employees, directors and others with business relationships with us. To the
extent that outstanding options and warrants are exercised, our stockholders'
interests will be diluted. Also, we may not be able to obtain additional equity
capital on acceptable terms, because the holders of the outstanding options and
warrants will likely exercise them at a time when we may be able to obtain such
capital on better terms than those under the options and warrants.

Our Redemption Of Redeemable Warrants May Have An Adverse Effect On The Holders
Of The Warrants.

      We have the right to redeem all, but not less than all, of the redeemable
warrants under certain conditions. Redemption of the redeemable warrants could
encourage holders to exercise them and pay the exercise price at a time when it
may be disadvantageous for the holders to do so, to sell the redeemable warrants
at the current market price when they might otherwise wish to hold the
redeemable warrants or to accept the redemption price, which may be
substantially less than the market value of the redeemable warrants at the time
of redemption. The holders of the redeemable warrants will automatically forfeit
their rights to purchase the shares of common stock issuable upon exercise of
those warrants unless the warrants are exercised before they are redeemed. The
holders of redeemable warrants will not possess any rights as stockholders
unless and until the redeemable warrants are exercised.

Stock Prices Of Technology Companies Have Declined Precipitously And The Trading
Price Of Our Common Stock And Redeemable Warrants Is Likely To Be Volatile,
Which Could Result In Substantial Losses To Investors.

      The trading price of our common stock and redeemable warrants have fallen
over the past couple of years and could continue to be volatile in response to
factors including the following, some of which are beyond our control:

      -  decreased demand in the Internet-services sector;
      -  variations in our operating results;
      -  announcements of technological innovations or new services by us or our
         competitors;
      -  changes in expectations of our future financial performance, including
         financial estimates by securities analysts and investors;
      -  changes in operating and stock price performance of other technology
         companies similar to us;
      -  conditions or trends in the technology industry;
      -  additions or departures of key personnel; and
      -  future sales of our common stock.

      Domestic and international stock markets often experience significant
price and volume fluctuations. These fluctuations, as well as general economic
and political conditions unrelated to our performance, may adversely affect the
price of our common stock and redeemable warrants.

The Large Number Of Shares Eligible For Future Sale May Adversely Affect The
Market Price Of Our Common Stock.

      A large number of our issued and outstanding shares of common stock are
eligible for future sale. The sale, or

availability for sale, of a substantial number of shares of common stock in the
public market could materially adversely affect the market price of our common
stock and could impair our ability to raise additional capital through the sale
of our equity securities.

Nasdaq Could Delist Our Common Stock Or Redeemable Warrants, Which Could Make It
More Difficult For You To Sell Or Obtain Quotations As To The Price Of Our
Common Stock Or Redeemable Warrants.

      We are currently in compliance with Nasdaq's continued listing
requirements. However, if our stockholder's equity falls below $10 million, the
price of our common stock or redeemable warrants falls below $3, or if we are
not otherwise able to demonstrate to Nasdaq our ability to comply with its other
listing standards, our shares of common stock or redeemable warrants might be
delisted.

      If we cannot satisfy Nasdaq's continued listing criteria in the future,
Nasdaq could delist our common stock or redeemable warrants. In the event of
delisting, trading, if any, would be conducted only in the over-the-counter
market in the so-called "pink sheets" or the NASD's Electronic Bulletin Board.
As a result, an investor would likely find it more difficult to sell or obtain
quotations as to the price of our common stock or redeemable warrants.

      A delisting could also subject our common stock to the rules of the
Securities and Exchange Commission relating to "penny stocks." These rules
require broker-dealers to make special suitability determinations for purchasers
other than established customers and certain institutional investors, and to
receive the purchasers' prior written consent for a purchase transaction prior
to sale. Consequently, these penny-stock rules may adversely affect the ability
of broker-dealers to sell our common stock and may adversely affect an
investor's ability to purchase or sell shares quickly or inexpensively. This
lack of liquidity also could make it more difficult for us to raise capital in
the future

We Have Provisions In Our Certificate Of Incorporation That Substantially
Eliminate The Personal Liability Of Members Of Our Board Of Directors For
Violations Of Their Fiduciary Duty Of Care As A Director And That Allow Us To
Indemnify Our Officers And Directors. This Could Make It Very Difficult For You
To Bring Any Legal Actions Against Our Directors For Such Violations Or Could
Require Us To Pay Any Amounts Incurred By Our Directors In Any Such Actions.

      Pursuant to our certificate of incorporation, members of our Board of
Directors will have no liability for violations of their fiduciary duty of care
as a director, except in limited circumstances. This means that you may be
unable to prevail in a legal action against our directors even if you believe
they have breached their fiduciary duty of care. In addition, our certificate of
incorporation allows us to indemnify our directors from and against any and all
expenses or liabilities arising from or in connection with their serving in such
capacities with us. This means that if you were able to enforce an action
against our directors or officers, in all likelihood we would be required to pay
any expenses they incurred in defending the lawsuit and any judgment or
settlement they otherwise would be required to pay.

The Loss Of The Services Of Certain Members Of Our Senior Management Or The
Inability To Attract Or Retain Additional Technical Personnel Could Impair Our
Ability To Conduct And Expand Our Business.

      Our future performance depends significantly on Robert C. Fitting, our
Chief Executive Officer, and Steve Eymann, our Executive Vice President and
Chief Technical Officer. The loss of either of these key employees would
adversely affect our operations. Mr. Fitting is 65 years old and we may
eventually need to effect an appropriate transition to a new Chief Executive
Officer. Any such transition may disrupt our business, customers and employees.

      Our continued ability to attract and retain highly skilled personnel also
is critical to the operation and expansion of our business. The market for
skilled engineers and other technical personnel is extremely competitive, and
recruitment and retention costs are high. Although we have been able to attract
and retain the personnel necessary to operate our business, we may not be able
to do so in the future, particularly as we continue to expand our business into

Internet-related products and other markets. The failure to attract and retain
personnel with the necessary skills when needed could materially and adversely
affect our business and expansion plans.

Since Some Members Of Our Board Of Directors Are Not Residents Of The United
States And Certain Of Our Assets Are Located Outside Of The United States, You
May Not Be Able To Enforce Any U.S. Judgment For Claims You May Bring Against
Such Directors Or Assets.

      Two members of our board of directors are residents of Singapore, and an
immaterial portion of our assets and a substantial portion of the assets of
these directors are located outside the United States. As a result, it may be
more difficult for you to enforce a lawsuit within the United States against
these non-U.S. residents than if they were residents of the United States. Also,
it may be more difficult for you to enforce any judgment obtained in the United
States against our assets or the assets of our non-U.S. resident directors
located outside the United States than if these assets were located within the
United States. We cannot assure you that foreign courts would enforce
liabilities predicated on U.S. federal securities laws in original actions
commenced in such foreign jurisdiction or judgments of U.S. courts obtained in
actions based upon the civil liability provisions of U.S. federal securities
laws.

Anti-Takeover Effect Of Delaware Law And Our Charter.

      Under the Delaware general Corporation Law, which we are subject to, it
will be more difficult for a third party to take control of the Company and may
limit the price some investors are willing to pay for shares of our common
stock. Furthermore, our certificate of incorporation authorizes the issuance of
up to 10,000,000 shares of preferred stock without a vote or other stockholder
approval.

Terrorist Attacks and Threats or Actual War May Negatively Impact All Aspects of
Our Operations, Revenues, Costs and Stock Price.

      Recent terrorist attacks in the United States, as well as future events
occurring in response or connection to them, including, without limitation,
future terrorist attacks against United States targets, rumors or threats of
war, actual conflicts involving the United States or its allies or military or
trade disruptions impacting our domestic or foreign suppliers of merchandise,
may impact our operations, including, among other things, causing delays or
losses in the delivery of wafer supplies to us and decreased sales of our
products. More generally, any of these events could cause consumer confidence
and spending to decrease or result in increased volatility in the United States
and worldwide financial markets and economy. They also could result in economic
recession in the United States or abroad. Any of these occurrences could have a
significant impact on our operating results, revenues and costs.