10-Q

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the three month period ended March 31, 2002.

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 0-11685

RADYNE COMSTREAM INC.

(Exact name of registrant as specified in its charter)

DELAWARE
(State or other jurisdiction of incorporation or organization)

11-2569467
(IRS EMPLOYER IDENTIFICATION NO.)

3138 East Elwood Street, Phoenix, AZ 85034
(Address of principal executive offices)

602-437-9620
(Registrant’s Telephone number)

Indicate by check mark whether the registrant (1) 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 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

         The registrant had 15,134,805 shares of its common stock, par value $.001, outstanding as of March 31, 2002.

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TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION
	ITEM 1
		Condensed Consolidated Balance Sheets as of March 31, 2002 and December 31, 2001
		Condensed Consolidated Statements of Operations for the three months ended March 31, 2002 and 2001
		Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2002 and 2001
		Notes to Condensed Consolidated Financial Statements
	Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3 — Quantitative and Qualitative Disclosures About Market Risk
PART II — OTHER INFORMATION
	Item 6 — Exhibits and Reports on Form 8-K
SIGNATURES
EXHIBIT INDEX
EX-10.1
EX-10.2
EX-10.3

PART I – FINANCIAL INFORMATION

RADYNE COMSTREAM INC.
CONDENSED CONSOLIDATED BALANCE SHEETS

ITEM 1

			March 31, 2002			December 31, 2001
			Unaudited			Audited
Assets
Current assets:
	Cash & cash equivalents		$	7,117,520		$	7,210,937
	Accounts receivable — trade, net of allowance for doubtful accounts			14,444,447			14,785,039
	Inventories, net			19,055,746			17,825,073
	Prepaid expenses			762,946			795,396
	Deferred tax assets			2,536,562			2,552,549
		Total current assets		43,917,221			43,168,994
Property and equipment, net				4,402,822			4,356,587
Other assets:
	Purchased technology, net of accumulation			1,095,000			1,195,000
	Goodwill			4,204,986			4,204,986
	Non-compete covenants, net of accumulated amortization			166,671			229,171
	Deposits and other			76,203			85,762
		Total other assets		5,542,860			5,714,919
			$	53,862,903		$	53,240,500
Liabilities and Stockholders’ Equity
Current liabilities:
	Lines of credit		$	21,578		$	—
	Current installments of obligations under capital leases			58,981			77,385
	Accounts payable, trade			3,180,979			2,472,486
	Accrued expenses			3,478,649			3,979,084
	Customer advance payments			971,942			601,836
	Taxes payable			—			78,900
		Total current liabilities		7,712,129			7,209,691
Deferred rent				114,477			145,582
Obligations under capital leases, excluding current installments				36,772			36,195
Accrued stock option compensation				496,602			501,809
		Total liabilities		8,359,980			7,893,277
Stockholders’ equity:
	Preferred Stock, $.001 par value, 10,000,000 shares authorized; shares issued and outstanding: 0 at March 31, 2002 and December 31, 2001			—			—
	Common Stock, $.001 par value, 50,000,000 shares authorized; Shares issued and outstanding: 15,134,805 at March 31, 2002 and 15,020,676 at December 31, 2001			15,135			15,021
	Additional paid-in capital			50,482,541			50,022,868
	Accumulated deficit			(4,975,833	)		(4,671,746	)
	Foreign currency translation adjustment			(18,920	)		(18,920	)
		Total stockholders’ equity		45,502,923			45,347,223
			$	53,862,903		$	53,240,500

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Radyne ComStream Inc.

Condensed Consolidated Statements of Operations
(Unaudited)

			Three Months Ended
			March 31, 2002			March 31, 2001
Net sales			$	15,193,637		$	15,998,637
Cost of sales				9,124,971			9,388,073
		Gross profit		6,068,666			6,610,564
Operating expenses:
	Selling, general and administrative			3,578,666			3,324,949
	Research and development			2,819,060			2,209,723
		Total operating expenses		6,397,726			5,534,672
Earnings (loss) from operations				(329,060	)		1,075,892
Other income/expense:
	Interest expense			13,307			7,575
	Other income			38,280			247,408
Earnings (loss) before income taxes				(304,087	)		1,315,725
Income taxes				—			460,137
Net earnings (loss)			$	(304,087	)	$	855,588
Basic net earnings (loss) per share			$	(0.02	)	$	0.06
Diluted net earnings (loss) per share			$	(0.02	)	$	0.06
Weighted average number of common shares — basic				15,093,103			14,884,732
Weighted average number of common shares — diluted				15,093,103			15,501,639

         The accompanying notes are an integral part of these condensed consolidated financial statements.

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RADYNE COMSTREAM INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

				Three Months Ended
				March 31, 2002			March 31, 2001
Cash flows from operating activities:
	Net earnings (loss)			$	(304,087	)	$	855,588
	Adjustments to reconcile net earnings (loss) to cash flows provided by (used in) operating activities:
			Depreciation and amortization		600,723			855,627
			Increase (decrease) in cash resulting from changes in:
			Accounts receivable		340,592			(70,128	)
			Inventories		(1,230,673	)		(2,295,109	)
			Prepaid expenses		32,450			(25,408	)
			Deposits and other		9,559			2,108
			Deferred tax assets		15,987			306,299
			Accounts payable, trade		708,493			642,151
			Accrued expenses		(494,435	)		(1,248,880	)
			Customer advance payments		370,106			(416,755	)
			Taxes payable		(78,900	)		(1,100	)
			Deferred rent		(31,105	)		(12,116	)
			Accrued stock option compensation		(5,207	)		(3,604	)
			Net cash used in operating activities		(74,597	)		(1,411,327	)
Cash flows from investing activities:
	Capital expenditures				(482,358	)		(429,347	)
			Net cash used in investing activities		(482,358	)		(429,347	)
Cash flows from financing activities:
	Proceeds from line of credit				21,578			—
	Net proceeds from sale of common stock through employee stock purchase plan				243,184			252,517
	Net proceeds from exercise of stock options and warrants				216,603			34,407
	Principal payments on capital lease obligations				(17,827	)		(4,141	)
			Net cash provided by financing activities		463,538			282,783
		Effects of exchange rate changes on cash and cash equivalents			—			(18,920	)
Net increase (decrease) in cash					(93,417	)		(1,576,811	)
Cash and cash equivalents, beginning of year					7,210,937			16,244,591
Cash and cash equivalents, end of period				$	7,117,520		$	14,667,780
Supplemental disclosure of cash flow information:
	Cash paid for interest			$	13,307		$	7,575
	Cash paid for taxes			$	—		$	1,100

The accompanying notes are an integral part of these condensed consolidated financial statements.

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RADYNE COMSTREAM INC.

Notes to Condensed Consolidated Financial Statements

(Information for March 31, 2002 and March 31, 2001 is unaudited)

1     Organization and Acquisition

         Radyne ComStream Inc. (the Company) is incorporated in Delaware and has operations in Phoenix and Chandler, Arizona and in San Diego, California. The Company designs, manufactures, sells, integrates and installs products, systems and software used for the transmission and reception of data over satellite, microwave and cable communication networks.

         ComStream Holdings, Inc. (ComStream), a major subsidiary acquired in 1998, 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.

         Armer Communications Engineering Services, Inc. (“Armer”), acquired in 2000, specializes in the integration and installation of ground segment equipment and networks for a wide range of satellite-based telecommunications systems and applications.

         Description of Acquisitions

         On April 19, 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 $3.9 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.

2     Summary of Significant Accounting Policies

(a) Basis of Presentation

         The interim unaudited condensed consolidated financial statements furnished reflect all adjustments which are, in the opinion of management, necessary for a fair presentation of financial position as of March 31, 2002 and the results of operations and cash flows for the three months ended March 31, 2002 and 2001. Such adjustments are of a normal recurring nature. This information should be read in conjunction with the consolidated financial statements included in the Company’s Form 10-K for the year ended December 31, 2001.

         The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year.

(b) Use of Estimates

         The preparation of 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

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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, the Company evaluates the estimates and assumptions based upon historical experience and various other factors and circumstances. The Company believes that the estimates and assumptions are reasonable in the circumstances; however, actual results could differ from these estimates under different future conditions.

(c) Principles of Consolidation

         The condensed consolidated financial statements include the accounts of the Radyne Comstream Inc. and its subsidiaries. Significant intercompany accounts and transactions have been eliminated in the consolidation.

(d) Cash Equivalents

         All money market accounts with a maturity of 90 days or less are considered cash equivalents.

(e) Revenue Recognition

         The Company recognizes revenue upon transfer of title and shipment of product.

(f) Inventories

         Inventories, consisting of satellite modems and related products, are valued at the lower of cost (first-in, first-out) or market.

(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 term or estimated useful lives of the assets.

(h) Intangible Assets

         Goodwill, which represents the excess of purchase price over fair value of net assets acquired in the ComStream acquisition, was amortized on a straight-line basis over ten years through December 31, 2001. Goodwill acquired as a result of the purchase of Armer was amortized on a straight-line basis over 12 years through December 31, 2001. Covenants not to compete 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, 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

         Management 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.

(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 claim experience. Such costs are accrued as cost of sales at the time revenue is recognized.

(l) Research and Development

         The cost of research and development is charged to expense as incurred.

(m) Income Taxes

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         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 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 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 our customers and generally does not require collateral. The Company provides reserves for potential credit losses and such losses have not exceeded management’s expectations.

(o) Net Earnings (Loss) Per Share

         Basic earnings (loss) per share is computed by dividing earnings available to common stockholders by the weighted-average number of common 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 common stock or resulted in the issuance of common 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.

(q) Employee Stock Options

         Management 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 design, manufacture, sale and installation of equipment for satellite, microwave and cable communications networks.

(s) 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 requires 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 also requires 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 are not amortized, but continues 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 continued to be amortized through December 31, 2001.

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         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 were 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 are 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 requires us to perform an assessment of whether there is an indication that goodwill is impaired as of the date of adoption. SFAS No. 142 also requires us to complete a transitional goodwill impairment test on or before June 30, 2002. We are in the process of completing this analysis. Any transitional impairment loss will be recognized as the cumulative effect of a change in accounting principle in our statement of operations.

         As of December 31, 2001, we 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 and $81,000 for the first quarter of 2001.

         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. We adopted this statement on January 1, 2002. There was no material impact on the Company’s financial position, results of operations or liquidity as a result of this adoption.

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3     Inventories

	March 31, 2002		December 31, 2001
Inventories consist of the following:
Raw materials and components	$	13,590,401	$	11,163,147
Work in process		3,647,092		4,228,708
Finished goods		1,818,253		2,433,218
Total	$	19,055,746	$	17,825,073

4     Property and Equipment

	March 31, 2002			December 31, 2001
Property and equipment consist of the following:
Machinery and equipment	$	5,553,459		$	5,473,370
Furniture and fixtures		3,988,598			3,659,236
Leasehold improvements		805,721			786,648
Computers and software		800,922			747,087
		11,148,700			10,666,341
Less accumulated depreciation & amortization		(6,745,878	)		(6,309,754	)
Total	$	4,402,822		$	4,356,587

5     Accrued Expenses

	March 31, 2002		December 31, 2001
Accrued expenses consist of the following:
Wages and related payroll taxes	$	990,317	$	1,299,951
Professional fees		170,887		243,224
Warranty reserve		1,199,162		1,255,670
Other		1,118,283		1,180,239
Total	$	3,478,649	$	3,979,084

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6     Earnings (Loss) Per Share

         A summary of the reconciliation from basic earnings (loss) per share to diluted earnings per share follows:

	Quarter ended
	March 31,
	2002			2001
Earnings (loss) available to common stockholders	$	(304,087	)	$	855,588
Basic EPS-weighted average shares outstanding		15,093,103			14,884,732
Basic earnings (loss) per share	$	(.02	)	$	0.06
Basic EPS-weighted average shares outstanding		15,093,103			14,884,732
Effect of dilutive securities		—			616,907
Dilutive EPS-weighted average shares outstanding		15,093,103			15,501,639
Diluted earnings (loss) per share	$	(.02	)	$	0.06
Stock options not included in diluted EPS since antidilutive		1,560,462			1,335,777

7     Concentrations of Risk

         For the three months ended March 31, 2002 one customer accounted for 11% of the Company’s revenues. Outstanding receivables from this customer were $1,643,953. For the three months ended March 31, 2001 one customer accounted for 16.9% of the Company’s revenues. Outstanding receivables from this customer were $2,186,000. The above customers are not the same from 2001 and 2002.

Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations

         This information should be read in conjunction with the condensed consolidated financial statements and the notes thereto included in Item 1 of Part I of this Quarterly Report and the audited consolidated financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended December 31, 2001 contained in the Company’s 2001 Annual Report on Form 10-K.

         Except for the historical information contained herein, the following discussion includes statements that constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Reform Act”) and we claim 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 the following discussion include, but are not limited to: (i) the anticipated reversal of declining bookings and backlog; (ii) continuing market share gains; (iii) expected reduction in research and development expenses as a result of reduction in workforce; (iv) anticipated increases in the levels of business; (v) expansion of current product lines to address new markets and customer requirements; (vi) anticipated increases in sales volume resulting in corresponding decreases in inventory; and (vii) the belief that existing cash and cash from operations will be sufficient to meet future operational needs and capital requirements.

         Forward-looking statements involve risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from those expressed or implied by such forward-looking statements. Factors that could affect our 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;

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• 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;

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

• availability, cost and terms of capital;

• our level of success in effectuating its strategic plan;

• our ability to successfully integrate acquisitions;

• adequacy of our inventory, receivables and other reserves;

• the “Risk Factors” set forth in Exhibit 99.1 of our 2001 Annual Report on Form 10-K, filed with the Securities and Exchange Commission on April 1, 2002;

• other factors that we are currently unable to identify or quantify, but may arise or become known in the future.

         In addition, the foregoing factors may affect generally our business, results of operations and financial position.

         Forward-looking statements speak only as of the date the statement was made. We do not undertake and specifically decline any obligation to update any forward-looking statements.

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.

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• Long-Lived Assets. We estimate the useful lives of our property and equipment and 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 is 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

         Results of operations for the three month period ended March 31, 2002 compared to the three month period ended March 31, 2001, were as follows:

         Net sales decreased 5% to $15.2 million during the period ended March 31, 2002 from $16.0 million during the period ended March 31, 2001 due to several factors. As a result of a downturn in current market conditions in the telecommunications industry, we have experienced a decline in the backlog of orders to be shipped during the current quarter compared to the first quarter of 2001. While we have realized success in introducing our new product lines into the market, bookings for our existing core product lines have decreased as the industry attempts to reduce capital expenditures. We anticipate a reversal in this trend as the supply of equipment in the field is reduced and market conditions improve. Because bookings for our new product lines did not immediately translate into sales, our legacy products continued to represent a majority of our total revenue. Although our overall backlog decreased, our marketing and business development teams continue to penetrate new markets and gain access to new customers in the markets where we already have a presence. We believe we continue to gain market share despite the current economic downturn.

         Cost of sales as a percentage of net sales increased to 60% during the three month period ended March 31, 2002 from 59% during the three month period ended March 31, 2001. This increase is primarily due to the decrease in sales compared to the prior period, which resulted in an increase in overhead costs as a percentage of total costs, because of underutilization and lower absorption of fixed costs. In addition, a larger portion of our business is related to the integration and installation of equipment, which typically has lower margins than we achieve from the sale of equipment.

         Selling, general and administrative costs increased 8% to $3.6 million (24% of sales) during the three month period ended March 31, 2002 from $3.3 million (21% of sales) during the three month period ended March 31, 2001. General and administrative expenses related to the Tiernan product lines, which were acquired in the second quarter of 2001, is the primary reason for the increase in selling, general and administrative costs between the respective periods and was offset by $81,000 of goodwill amortization that was not recorded in the first quarter of 2002.

12

         Research and development expenditures increased 28% to $2.8 million (19% of sales) during the three month period ended March 31, 2002 from $2.2 million (14% of sales) during the three month period ended March 31, 2001. These expenditures fluctuate from period to period depending on the staging of on-going projects. Also, the expenses for the three month period ended March 31, 2002 include research projects related to the Tiernan product lines, which were acquired during the second quarter of 2001. We expect these expenses to reduce in the near term as a result of the reduction in our workforce during the three month period ended March 31, 2002. However, we may rehire some of the affected personnel if the economy improves and our sales increase as a result of such improvement.

         Net interest income (interest income less interest expense) decreased to $25,000 in the three month period ended March 31, 2002 from $239,000 in the three month period ended March 31, 2001. This was mainly the result of our lower cash levels and lower interest rates during the period ended March 31, 2002 compared to the three month period ended March 31, 2001.

         New-orders-booked (Bookings) increased by 5% to $12.5 million for the three month period ended March 31, 2002 from $11.9 million during the three month period ended March 31, 2001. The increase in Bookings is primarily due to the acquisition of the Tiernan product lines and offset by decreases in our core product lines due to the above-mentioned downturn in market conditions.

         Backlog (the level of unfilled-orders-to-ship) decreased 6% to $12.2 million at March 31, 2002 from $13.0 million at March 31, 2001 as a result of the low volume of bookings.

Liquidity and Capital Resources

         Working capital was $36.2 million at March 31, 2002, an increase in working capital of $246,000 (0.7%) from $36.0 million at December 31, 2001. This increase is primarily attributed to an increase in current assets of approximately $748,000 during the first three months of the current period and offset by an increase in current liabilities of $502,000. The increase in current assets was due to greater inventory, which, in turn, resulted from the lower sales volumes.

         Net cash used in operating activities was $75,000 for the three month period ended March 31, 2002, as compared to cash used of $1.4 million in the three months ended March 31, 2001. This decrease in cash used is primarily attributed to the decrease in cash used for increases in inventories of $1.2 million in the current period compared to an increase in inventories of $2.2 million in the first quarter of 2001. Other factors included cash provided by a reduction in accounts receivables of $341,000 compared to cash used for an increase in accounts receivables of $70,000 in the year earlier period; cash used in the reduction of accrued expenses during the current period compared to cash used of $1.2 million in the year earlier period; and cash provided by an increase in trade accounts payables of $708,000 during the three months ended March 31, 2002 compared to cash provided of $642,000 during the three months ended March 31, 2001.

         Cash used in investing activities consisted of additions to property and equipment of $482,000 during the three month period ended March 31, 2002, as compared to additions of $429,000 during the three month period ended March 31, 2001.

         Net cash provided by financing activities increased to $464,000 from $283,000 for the three month periods ended March 31, 2002 and March 31, 2001, respectively. Cash provided by financing activities primarily consisted of proceeds received from the exercise of employee stock options and the Company’s employee stock purchase plan, which provided proceeds of $217,000 and $243,000, respectively during the three month period ended March 31, 2002, compared to proceeds provided of $34,000 and $253,000, respectively during the period ended March 31, 2001.

         As a result of the foregoing, our cash balances decreased by $93,000 during the three month period ended March 31, 2002, compared to a decrease in cash balances of $1.6 million during the three month period ended March 31, 2001.

         In addition, we have secured a committed line of credit with a bank in the amount of $10.0 million. As of March 31, 2002, there was a $21,578 outstanding balance on this line of credit.

13

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

				Minimum Lease		Total Cash
		Debt 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.

Item 3 — 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. As of March 31, 2002, a 1% change in interest rates would, over a year’s period, have a potential pretax impact of $100,000, which is immaterial to our consolidated financial statements.

PART II — OTHER INFORMATION

Item 6 — Exhibits and Reports on Form 8-K

(a) Exhibit Description

3.1(1)	Certificate of Incorporation
3.2(2)	Bylaws
10.1(3)	Change of Control Agreement, dated as of March 20, 2002, by and between the Registrant and Robert C. Fitting.
10.2(3)	Change of Control Agreement, dated as of March 20, 2002, by and between the Registrant and Steven Eymann.
10.3(3)	Change of Control Agreement, dated as of March 20, 2002, by and between the Registrant and Brian Duggan.

(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)	Filed herewith.

(b) Registrant did not file any reports on Form 8-K during the three month period ended March 31, 2002.

Items 1,2,3,4, and 5 are not applicable and have been omitted.

14

SIGNATURES

In accordance with the requirements of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated: May 15, 2002	RADYNE COMSTREAM INC.
	By:	/s/ Garry D. Kline
		Garry D. Kline Vice President, Finance (Chief Financial Officer and Accounting Officer)

15

EXHIBIT INDEX

(a) Exhibit Description

3.1(1)	Certificate of Incorporation
3.2(2)	Bylaws
10.1(3)	Change of Control Agreement, dated as of March 20, 2002, by and between the Registrant and Robert C. Fitting.
10.2(3)	Change of Control Agreement, dated as of March 20, 2002, by and between the Registrant and Steven Eymann.
10.3(3)	Change of Control Agreement, dated as of March 20, 2002, by and between the Registrant and Brian Duggan.

(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)	Filed herewith.

16 EX-10.1 3 p66573ex10-1.txt EX-10.1 EXHIBIT 10.1 March 20, 2002 Robert C. Fitting Chief Executive Officer 3138 East Elwood Street Phoenix, AZ 85034 Re: Your Change in Control Agreement Dear Bob: Upon execution by you, this letter will constitute your Change in Control Agreement ("Agreement") with Radyne ComStream Corp., (the "Company"). 1. Term. This Agreement will become effective March 14, 2002 and will terminate when you terminate your employment with the Company. 2. Termination in Connection with a Change in Control. In the event of a Change of Control (as defined in the Company's Long-Term Incentive Plan, a copy of which definition is attached), you will be entitled to receive the following: (a) Immediately prior to the effective date of a Change of Control, all stock options granted to you and not otherwise vested shall vest and become exercisable by you for a minimum of 90 days (or, if longer, the term of the options thereof) so that you may participate in the Change of Control transaction to the fullest extent feasible, provided, however, that if the acceleration of your options would cause a charge to the Company's earnings, then at the Company's option it may offer you a consulting position for the term of your options during which your options would continue to vest; (b) Upon any termination of your employment after a Change of Control, for a period of eighteen months from the date of your termination, the Company will pay for the COBRA benefits due you; (c) Upon a Change in Control, you shall be paid in a lump sum an amount equal to three times your current salary from the Company; (d) To the extent that the benefits provided to you upon a Change in Control would exceed the amount deductible pursuant to Section 280G of the Internal Revenue Code (or any successor law), or the rules and regulations thereunder, and thereby result in an excise tax payable by you, then at least 30 days prior to the due date of any such tax, the Company shall pay you an amount equal the tax (together with any tax on such payment). 3. Covenant Not to Compete. (a) For a period of 1 year from any termination of your employment, (or, if later, upon conclusion of your service as a consultant), you shall not, directly or indirectly, for your own benefit or for, with or through any other individual, firm, corporation, partnership or other entity, whether acting in an individual, fiduciary or other capacity, own, manage, operate, control, advise, invest in (except as a 1% or less shareholder of a public company), loan money to, or participate or assist in the ownership, management, operation or control of or be associated as a director, officer, employee, partner, consultant, advisor, creditor, agent, independent contractor or otherwise with, or acquiesce in the use of your name by, any business enterprise that is in direct competition with the Company or any subsidiary within the United States of America or any other country that the Company conducts business at the time of your termination. (b) In addition to the foregoing, at all times during the period of your employment and for 1 year after any termination thereof (or, if later, upon conclusion of your services as a consultant), you will not, directly or indirectly (as described above), for your benefit or for, with or through any business, hire, employ, solicit, or otherwise encourage or entice any of the Company's (or subsidiary's) employees or consultants to leave or terminate their employment with the Company. (c) You and the Company consider the restrictions contained in subparagraphs (a) and (b) above to be reasonable for the purpose of preserving the Company's proprietary rights and interests. If a court makes a final judicial determination that any such restrictions are unreasonable or otherwise unenforceable against you, you and the Company hereby authorize such court to amend this Agreement so as to produce the broadest, legally enforceable agreement, and for this purpose the restrictions on time period, geographical area and scope of activities set forth in subparagraphs (a) and (b) above are divisible; if the court refuses to do so, you and the Company hereto agree to modify the provisions held to be unenforceable to preserve each party's anticipated benefits thereunder to the maximum extent legal. (d) You acknowledge and agree that the Company's remedies at law for breach or threatened breach of any of the provisions of this Paragraph would be inadequate. Therefore, you agree that in the event of a breach or threatened breach by you of the provisions in this Paragraph, the Company shall be entitled to, in addition to its remedies at law and without posting any bond, equitable relief in the form of specific performance, a temporary restraining order, a temporary or permanent injunction, or any other equitable remedy that may then be available. 4. Personal Rights and Obligations. This Agreement and all rights and obligations hereunder are personal and shall not be assignable by either you or the Company except as provided in this subparagraph, and any purported assignment in violation thereof shall be null and void. Any person, firm or corporation succeeding to the business of the Company by merger, consolidation, purchase of assets or otherwise, shall assume by contract or operation of law the obligations of the Company hereunder and in such a case 2 you shall continue to honor this Agreement with such business substituted for the Company as the employer. 5. Notices. Any notice, election or communication to be given under this Agreement shall be in writing and delivered in person or deposited, certified or registered, in the United States mail, postage prepaid, addressed as follows: If to the Company: Radyne ComStream Corp. 3138 East Elwood Street Phoenix, Arizona 85034 Attn: Chief Executive Officer If to you: Robert C. Fitting c/o Radyne ComStream Corp. 3138 East Elwood Street Phoenix, AZ 85034 or to such other addresses as the Company or you may from time to time designate by notice hereunder. Notices will be effective upon delivery in person or upon receipt of any facsimile or e-mail, or at midnight on the fourth business day after the date of mailing, if mailed. 6. Entire Agreement. Except for any confidentiality agreement, option grants or Company plans or policies, to which you are subject, this Agreement constitutes and embodies the full and complete understanding and agreement of the Company and you with respect to your employment by the Company and supersedes all prior understandings or agreements whether oral or in writing. This Agreement may be amended only by a writing signed by you and the Company. This Agreement may be executed in any number of counterparts, each of which will be considered a duplicate original. 7. Binding Nature of Agreement. This Agreement shall be binding upon and inure to the benefit of the Company and its successors and assigns and shall be binding upon you, your heirs and legal representatives. 8. Arbitration. Any controversy relating to this Agreement or relating to the breach hereof shall be settled by arbitration conducted in Phoenix, Arizona in accordance with the Commercial Arbitration Rules of the American Arbitration Association then in effect. The award rendered by the arbitrator(s) shall be final and judgment upon the award rendered by the arbitrator(s) may be entered upon it in any court having jurisdiction thereof. The arbitrator(s) shall possess the powers to issue mandatory orders and restraining orders in connection with such arbitration. The expenses of the arbitration shall be borne by the losing party unless otherwise allocated by the arbitrator(s). This agreement to arbitrate shall be specifically enforceable under the prevailing arbitration law. During the continuance of any arbitration proceedings, the parties shall continue to perform their respective obligations under this Agreement. Nothing in this Agreement shall preclude the Company or any affiliate or successor from seeking equitable relief, including injunction or specific performance, in any court having jurisdiction, in 3 connection with the non-compete provisions herein and any obligations of confidentiality. 9. Governing Law. This Agreement shall be governed by and interpreted in accordance with the laws of the State of Arizona. 10. Withholding and Release. You acknowledge and agree that payments made to you hereunder may be subject to taxes and withholding. You further acknowledge and agree that payment of any of the benefits to be provided to you under this Agreement following any termination of your employment is subject to: (a) your compliance with your agreements hereunder, including in particular the non-competition provisions of Paragraph 3, (b) any reasonable and lawful policies or procedures of the Company relating to employee severances; and (c) the execution and delivery by you of a release reasonably satisfactory to the Company of any and all claims that you may have against the Company or related persons, except for (i) the continuing obligations provided herein, and (ii) for any continuing obligations of indemnification due you as an officer or director (or a former officer or director). Very truly yours, ------------------------ Ming Seong Lim Chairman of the Board ACCEPTED: - ------------------------------ Robert C. Fitting Date: ------------------------- 4 DEFINITIONS "Cause" means in the event that you, in the reasonable judgment of the Board: (1) materially breach this Agreement; (2) fail to follow any reasonable and lawful direction of the Board of Directions of the Company or materially violate any reasonable rule or regulation established by the Company from time to time regarding conduct of its business; (3) engage in any act of dishonesty with respect to the Company; (4) engage in criminal conduct (whether related to or not related to your employment); or (5) fail to perform your duties satisfactorily. "Change of Control" means any of the following: (1) any merger of the Company in which the Company is not the continuing or surviving entity, or pursuant to which Stock would be converted into cash, securities, or other property other than a merger of the Company in which the holders of the Company's Stock immediately prior to the merger have the same proportionate ownership of beneficial interest of common stock or other voting securities of the surviving entity immediately after the merger; (2) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of assets or earning power aggregating more than 50% of the assets or earning power of the Company and its subsidiaries (taken as a whole), other than pursuant to a sale-leaseback, structured finance or other form of financing transaction; (3) the shareholders of the Company approve any plan or proposal for liquidation or dissolution of the Company; (4) any person (as such term is used in Section 13(d) and 14(d)(2) of the Exchange Act), other than any current shareholder of the Company or affiliate thereof or any employee benefit plan of the Company or any subsidiary of the Company or any entity holding shares of capital stock of the Company for or pursuant to the terms of any such employee benefit plan in its role as an agent or trustee for such plan, shall become the beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) of 50% or more of the Company's outstanding Stock; or (5) during any two-year period, individuals who at the beginning of such period do not constitute a majority of the Board at the end of that period, excluding any new director approved by a vote of at least two-thirds of the directors who were directors at the beginning of the period. 5 EX-10.2 4 p66573ex10-2.txt EX-10.2 EXHIBIT 10.2 March 20, 2002 Steve Eymann Executive Vice President, Chief Technical Officer 11810 S. Warpaint Drive Phoenix, AZ 85044 Re: Your Change in Control Agreement Dear Steve: Upon execution by you, this letter will constitute your Change in Control Agreement ("Agreement") with Radyne ComStream Corp., (the "Company"). 1. Term. This Agreement will become effective March 14, 2002 and will terminate when you terminate your employment with the Company. 2. Termination in Connection with a Change in Control. In the event of a Change of Control (as defined in the Company's Long-Term Incentive Plan, a copy of which definition is attached), you will be entitled to receive the following: (a) Immediately prior to the effective date of a Change of Control, all stock options granted to you and not otherwise vested shall vest and become exercisable by you for a minimum of 90 days (or, if longer, the term thereof) so that you may participate in the Change of Control transaction to the fullest extent feasible, provided, however, that if the acceleration of your options would cause a charge to the Company's earnings, then at the Company's option it may offer you a consulting position for the term of your options during which your options would continue to vest; (b) Upon any termination of your employment after a Change of Control, for a period of eighteen months from the date of your termination, the Company will pay for the COBRA benefits due you; (c) If you are terminated without Cause (as defined in the attachment), or you resign for Good Reason (as set forth in the attachment) within the first year following the Change in Control, upon such event you shall be paid in a lump sum an amount equal to two times your current salary from the Company; (d) If you are terminated without Cause, or you resign for Good Reason (as set forth in the attachment) within the second year following the Change in Control, upon such event you shall be paid in a lump sum an amount equal to one times your current salary; (e) Upon a Change in Control, funds sufficient to satisfy your Change of Control payments in (c) or (d) above shall be deposited into a trust account maintained by a major financial institution and shall be paid to you upon your written notice to the Trustee to the effect that you have been terminated without Cause or you have resigned for Good Reason. The Company shall not have the ability to prevent such payment from the trust upon your notice, but shall have the right to dispute your termination as provided in Section 8 below, and pursue all other available remedies; (f) To the extent that the benefits provided to you upon a Change in Control would exceed the amount deductible pursuant to Section 280G of the Internal Revenue Code (or any successor law), or the rules and regulations thereunder, then the amount of benefits payable to you will be limited to the maximum amount permitted under Section 280G, with the benefits that are reduced to be selected by you. 3. Covenant Not to Compete. (a) For a period of 1 year from any termination of your employment, (or, if later, upon conclusion of your service as a consultant), you shall not, directly or indirectly, for your own benefit or for, with or through any other individual, firm, corporation, partnership or other entity, whether acting in an individual, fiduciary or other capacity, own, manage, operate, control, advise, invest in (except as a 1% or less shareholder of a public company), loan money to, or participate or assist in the ownership, management, operation or control of or be associated as a director, officer, employee, partner, consultant, advisor, creditor, agent, independent contractor or otherwise with, or acquiesce in the use of your name by, any business enterprise that is in direct competition with the Company or any subsidiary within the United States of America or any other country that the Company conducts business at the time of your termination. (b) In addition to the foregoing, at all times during the period of your employment and for 1 year after any termination thereof (or, if later, upon conclusion of your services as a consultant), you will not, directly or indirectly (as described above), for your benefit or for, with or through any business, hire, employ, solicit, or otherwise encourage or entice any of the Company's (or subsidiary's) employees or consultants to leave or terminate their employment with the Company. (c) You and the Company consider the restrictions contained in subparagraphs (a) and (b) above to be reasonable for the purpose of preserving the Company's proprietary rights and interests. If a court makes a final judicial determination that any such restrictions are unreasonable or otherwise unenforceable against you, you and the Company hereby authorize such court to amend this Agreement so as to produce the broadest, legally enforceable agreement, and for this purpose the restrictions on time period, geographical area and scope of activities set forth in subparagraphs (a) and (b) above are divisible; if the court refuses to do so, you and the Company hereto agree to modify the provisions held to be unenforceable to preserve each party's anticipated benefits thereunder to the maximum extent legal. 2 (d) You acknowledge and agree that the Company's remedies at law for breach or threatened breach of any of the provisions of this Paragraph would be inadequate. Therefore, you agree that in the event of a breach or threatened breach by you of the provisions in this Paragraph, the Company shall be entitled to, in addition to its remedies at law and without posting any bond, equitable relief in the form of specific performance, a temporary restraining order, a temporary or permanent injunction, or any other equitable remedy that may then be available. 4. Personal Rights and Obligations. This Agreement and all rights and obligations hereunder are personal and shall not be assignable by either you or the Company except as provided in this subparagraph, and any purported assignment in violation thereof shall be null and void. Any person, firm or corporation succeeding to the business of the Company by merger, consolidation, purchase of assets or otherwise, shall assume by contract or operation of law the obligations of the Company hereunder and in such a case you shall continue to honor this Agreement with such business substituted for the Company as the employer. 5. Notices. Any notice, election or communication to be given under this Agreement shall be in writing and delivered in person or deposited, certified or registered, in the United States mail, postage prepaid, addressed as follows: If to the Company: Radyne ComStream Corp. 3138 East Elwood Street Phoenix, Arizona 85034 Attn: Chief Executive Officer If to you: Steve Eymann 11810 S. Warpaint Drive Phoenix, AZ 85044 or to such other addresses as the Company or you may from time to time designate by notice hereunder. Notices will be effective upon delivery in person or upon receipt of any facsimile or e-mail, or at midnight on the fourth business day after the date of mailing, if mailed. 6. Entire Agreement. Except for any confidentiality agreement, option grants or Company plans or policies, to which you are subject, this Agreement constitutes and embodies the full and complete understanding and agreement of the Company and you with respect to your employment by the Company and supersedes all prior understandings or agreements whether oral or in writing. This Agreement may be amended only by a writing signed by you and the Company. This Agreement may be executed in any number of counterparts, each of which will be considered a duplicate original. 7. Binding Nature of Agreement. This Agreement shall be binding upon and inure to the benefit of the Company and its successors and assigns and shall be binding upon you, your heirs and legal representatives. 3 8. Arbitration. Any controversy relating to this Agreement or relating to the breach hereof shall be settled by arbitration conducted in Phoenix, Arizona in accordance with the Commercial Arbitration Rules of the American Arbitration Association then in effect. The award rendered by the arbitrator(s) shall be final and judgment upon the award rendered by the arbitrator(s) may be entered upon it in any court having jurisdiction thereof. The arbitrator(s) shall possess the powers to issue mandatory orders and restraining orders in connection with such arbitration. The expenses of the arbitration shall be borne by the losing party unless otherwise allocated by the arbitrator(s). This agreement to arbitrate shall be specifically enforceable under the prevailing arbitration law. During the continuance of any arbitration proceedings, the parties shall continue to perform their respective obligations under this Agreement. Nothing in this Agreement shall preclude the Company or any affiliate or successor from seeking equitable relief, including injunction or specific performance, in any court having jurisdiction, in connection with the non-compete provisions herein and any obligations of confidentiality. 9. Governing Law. This Agreement shall be governed by and interpreted in accordance with the laws of the State of Arizona. 10. Withholding and Release. You acknowledge and agree that payments made to you hereunder may be subject to taxes and withholding. You further acknowledge and agree that payment of any of the benefits to be provided to you under this Agreement following any termination of your employment is subject to: (a) your compliance with your agreements hereunder, including in particular the non-competition provisions of Paragraph 3, (b) any reasonable and lawful policies or procedures of the Company relating to employee severances; and (c) the execution and delivery by you of a release reasonably satisfactory to the Company of any and all claims that you may have against the Company or related persons, except for (i) the continuing obligations provided herein, and (ii) for any continuing obligations of indemnification due you as an officer or director (or a former officer or director). Very truly yours, --------------------------- Robert C. Fitting Chief Executive Officer ACCEPTED: - ------------------------------ Steve Eymann Date: ------------------------- 4 DEFINITIONS "Cause" means in the event that you, in the reasonable judgment of the Board: (1) materially breach this Agreement; (2) fail to follow any reasonable and lawful direction of the Board of Directions of the Company or materially violate any reasonable rule or regulation established by the Company from time to time regarding conduct of its business; (3) engage in any act of dishonesty with respect to the Company; (4) engage in criminal conduct (whether related to or not related to your employment); or (5) fail to perform your duties satisfactorily. "Change of Control" means any of the following: (1) any merger of the Company in which the Company is not the continuing or surviving entity, or pursuant to which Stock would be converted into cash, securities, or other property other than a merger of the Company in which the holders of the Company's Stock immediately prior to the merger have the same proportionate ownership of beneficial interest of common stock or other voting securities of the surviving entity immediately after the merger; (2) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of assets or earning power aggregating more than 50% of the assets or earning power of the Company and its subsidiaries (taken as a whole), other than pursuant to a sale-leaseback, structured finance or other form of financing transaction; (3) the shareholders of the Company approve any plan or proposal for liquidation or dissolution of the Company; (4) any person (as such term is used in Section 13(d) and 14(d)(2) of the Exchange Act), other than any current shareholder of the Company or affiliate thereof or any employee benefit plan of the Company or any subsidiary of the Company or any entity holding shares of capital stock of the Company for or pursuant to the terms of any such employee benefit plan in its role as an agent or trustee for such plan, shall become the beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) of 50% or more of the Company's outstanding Stock; or (5) during any two-year period, individuals who at the beginning of such period do not constitute a majority of the Board at the end of that period, excluding any new director approved by a vote of at least two-thirds of the directors who were directors at the beginning of the period. 5 "Good Reason" means, without your consent: (1) you suffer a reduction in position or a material change in your functions, duties or responsibilities; (2) your annual salary is reduced by the Company or there is a material reduction in your current benefits (other than a reduction in benefits as part of overall reduction applicable to all or substantially all other officers arising out of deteriorating economic conditions effecting the Company); or (3) you are required to reside other than in Maricopa County, Arizona. 6 EX-10.3 5 p66573ex10-3.txt EX-10.3 EXHIBIT 10.3 March 20, 2002 Brian Duggan President, Chief Operating Officer 6204 N. 30th Place Phoenix, AZ 85016 Re: Your Change in Control Agreement Dear Brian: Upon execution by you, this letter will constitute your Change in Control Agreement ("Agreement") with Radyne ComStream Corp., (the "Company"). 1. Term. This Agreement will become effective March 14, 2002 and will terminate when you terminate your employment with the Company. 2. Termination in Connection with a Change in Control. In the event of a Change of Control (as defined in the Company's Long-Term Incentive Plan, a copy of which definition is attached), you will be entitled to receive the following: (a) Immediately prior to the effective date of a Change of Control, all stock options granted to you and not otherwise vested shall vest and become exercisable by you for a minimum of 90 days (or, if longer, the term thereof) so that you may participate in the Change of Control transaction to the fullest extent feasible, provided, however, that if the acceleration of your options would cause a charge to the Company's earnings, then at the Company's option it may offer you a consulting position for the term of your options during which your options would continue to vest; (b) Upon any termination of your employment after a Change of Control, for a period of eighteen months from the date of your termination, the Company will pay for the COBRA benefits due you; (c) If you are terminated without Cause (as defined in the attachment), or you resign for Good Reason (as set forth in the attachment) within the first year following the Change in Control, upon such event you shall be paid in a lump sum an amount equal to two times your current salary from the Company; (d) If you are terminated without Cause, or you resign for Good Reason (as set forth in the attachment) within the second year following the Change in Control, upon such event you shall be paid in a lump sum an amount equal to one times your current salary; (e) Upon a Change in Control, funds sufficient to satisfy your Change of Control payments in (c) or (d) above shall be deposited into a trust account maintained by a major financial institution and shall be paid to you upon your written notice to the Trustee to the effect that you have been terminated without Cause or you have resigned for Good Reason. The Company shall not have the ability to prevent such payment from the trust upon your notice, but shall have the right to dispute your termination as provided in Section 8 below, and pursue all other available remedies; (f) To the extent that the benefits provided to you upon a Change in Control would exceed the amount deductible pursuant to Section 280G of the Internal Revenue Code (or any successor law), or the rules and regulations thereunder, then the amount of benefits payable to you will be limited to the maximum amount permitted under Section 280G, with the benefits that are reduced to be selected by you. 3. Covenant Not to Compete. (a) For a period of 1 year from any termination of your employment, (or, if later, upon conclusion of your service as a consultant), you shall not, directly or indirectly, for your own benefit or for, with or through any other individual, firm, corporation, partnership or other entity, whether acting in an individual, fiduciary or other capacity, own, manage, operate, control, advise, invest in (except as a 1% or less shareholder of a public company), loan money to, or participate or assist in the ownership, management, operation or control of or be associated as a director, officer, employee, partner, consultant, advisor, creditor, agent, independent contractor or otherwise with, or acquiesce in the use of your name by, any business enterprise that is in direct competition with the Company or any subsidiary within the United States of America or any other country that the Company conducts business at the time of your termination. (b) In addition to the foregoing, at all times during the period of your employment and for 1 year after any termination thereof (or, if later, upon conclusion of your services as a consultant), you will not, directly or indirectly (as described above), for your benefit or for, with or through any business, hire, employ, solicit, or otherwise encourage or entice any of the Company's (or subsidiary's) employees or consultants to leave or terminate their employment with the Company. (c) You and the Company consider the restrictions contained in subparagraphs (a) and (b) above to be reasonable for the purpose of preserving the Company's proprietary rights and interests. If a court makes a final judicial determination that any such restrictions are unreasonable or otherwise unenforceable against you, you and the Company hereby authorize such court to amend this Agreement so as to produce the broadest, legally enforceable agreement, and for this purpose the restrictions on time period, geographical area and scope of activities set forth in subparagraphs (a) and (b) above are divisible; if the court refuses to do so, you and the Company hereto agree to modify the provisions held to be unenforceable to preserve each party's anticipated benefits thereunder to the maximum extent legal. 2 (d) You acknowledge and agree that the Company's remedies at law for breach or threatened breach of any of the provisions of this Paragraph would be inadequate. Therefore, you agree that in the event of a breach or threatened breach by you of the provisions in this Paragraph, the Company shall be entitled to, in addition to its remedies at law and without posting any bond, equitable relief in the form of specific performance, a temporary restraining order, a temporary or permanent injunction, or any other equitable remedy that may then be available. 4. Personal Rights and Obligations. This Agreement and all rights and obligations hereunder are personal and shall not be assignable by either you or the Company except as provided in this subparagraph, and any purported assignment in violation thereof shall be null and void. Any person, firm or corporation succeeding to the business of the Company by merger, consolidation, purchase of assets or otherwise, shall assume by contract or operation of law the obligations of the Company hereunder and in such a case you shall continue to honor this Agreement with such business substituted for the Company as the employer. 5. Notices. Any notice, election or communication to be given under this Agreement shall be in writing and delivered in person or deposited, certified or registered, in the United States mail, postage prepaid, addressed as follows: If to the Company: Radyne ComStream Corp. 3138 East Elwood Street Phoenix, Arizona 85034 Attn: Chief Executive Officer If to you: Brian Duggan 6204 N. 30th Place Phoenix, AZ 85016 or to such other addresses as the Company or you may from time to time designate by notice hereunder. Notices will be effective upon delivery in person or upon receipt of any facsimile or e-mail, or at midnight on the fourth business day after the date of mailing, if mailed. 6. Entire Agreement. Except for any confidentiality agreement, option grants or Company plans or policies, to which you are subject, this Agreement constitutes and embodies the full and complete understanding and agreement of the Company and you with respect to your employment by the Company and supersedes all prior understandings or agreements whether oral or in writing. This Agreement may be amended only by a writing signed by you and the Company. This Agreement may be executed in any number of counterparts, each of which will be considered a duplicate original. 7. Binding Nature of Agreement. This Agreement shall be binding upon and inure to the benefit of the Company and its successors and assigns and shall be binding upon you, your heirs and legal representatives. 3 8. Arbitration. Any controversy relating to this Agreement or relating to the breach hereof shall be settled by arbitration conducted in Phoenix, Arizona in accordance with the Commercial Arbitration Rules of the American Arbitration Association then in effect. The award rendered by the arbitrator(s) shall be final and judgment upon the award rendered by the arbitrator(s) may be entered upon it in any court having jurisdiction thereof. The arbitrator(s) shall possess the powers to issue mandatory orders and restraining orders in connection with such arbitration. The expenses of the arbitration shall be borne by the losing party unless otherwise allocated by the arbitrator(s). This agreement to arbitrate shall be specifically enforceable under the prevailing arbitration law. During the continuance of any arbitration proceedings, the parties shall continue to perform their respective obligations under this Agreement. Nothing in this Agreement shall preclude the Company or any affiliate or successor from seeking equitable relief, including injunction or specific performance, in any court having jurisdiction, in connection with the non-compete provisions herein and any obligations of confidentiality. 9. Governing Law. This Agreement shall be governed by and interpreted in accordance with the laws of the State of Arizona. 10. Withholding and Release. You acknowledge and agree that payments made to you hereunder may be subject to taxes and withholding. You further acknowledge and agree that payment of any of the benefits to be provided to you under this Agreement following any termination of your employment is subject to: (a) your compliance with your agreements hereunder, including in particular the non-competition provisions of Paragraph 3, (b) any reasonable and lawful policies or procedures of the Company relating to employee severances; and (c) the execution and delivery by you of a release reasonably satisfactory to the Company of any and all claims that you may have against the Company or related persons, except for (i) the continuing obligations provided herein, and (ii) for any continuing obligations of indemnification due you as an officer or director (or a former officer or director). Very truly yours, -------------------------- Robert C. Fitting Chief Executive Officer ACCEPTED: - --------------------------------- Brian Duggan Date: ---------------------------- 4 DEFINITIONS "Cause" means in the event that you, in the reasonable judgment of the Board: (1) materially breach this Agreement; (2) fail to follow any reasonable and lawful direction of the Board of Directions of the Company or materially violate any reasonable rule or regulation established by the Company from time to time regarding conduct of its business; (3) engage in any act of dishonesty with respect to the Company; (4) engage in criminal conduct (whether related to or not related to your employment); or (5) fail to perform your duties satisfactorily. "Change of Control" means any of the following: (1) any merger of the Company in which the Company is not the continuing or surviving entity, or pursuant to which Stock would be converted into cash, securities, or other property other than a merger of the Company in which the holders of the Company's Stock immediately prior to the merger have the same proportionate ownership of beneficial interest of common stock or other voting securities of the surviving entity immediately after the merger; (2) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of assets or earning power aggregating more than 50% of the assets or earning power of the Company and its subsidiaries (taken as a whole), other than pursuant to a sale-leaseback, structured finance or other form of financing transaction; (3) the shareholders of the Company approve any plan or proposal for liquidation or dissolution of the Company; (4) any person (as such term is used in Section 13(d) and 14(d)(2) of the Exchange Act), other than any current shareholder of the Company or affiliate thereof or any employee benefit plan of the Company or any subsidiary of the Company or any entity holding shares of capital stock of the Company for or pursuant to the terms of any such employee benefit plan in its role as an agent or trustee for such plan, shall become the beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) of 50% or more of the Company's outstanding Stock; or (5) during any two-year period, individuals who at the beginning of such period do not constitute a majority of the Board at the end of that period, excluding any new director approved by a vote of at least two-thirds of the directors who were directors at the beginning of the period. 5 "Good Reason" means, without your consent: (1) you suffer a reduction in position or a material change in your functions, duties or responsibilities; (2) your annual salary is reduced by the Company or there is a material reduction in your current benefits (other than a reduction in benefits as part of overall reduction applicable to all or substantially all other officers arising out of deteriorating economic conditions effecting the Company); or (3) you are required to reside other than in Maricopa County, Arizona, or San Diego County, California. 6 GRAPHIC 6 p66573xbox.gif GRAPHIC begin 644 p66573xbox.gif M1TE&.#EA#``,`/?^``````$!`0("`@,#`P0$!`4%!08&!@<'!P@("`D)"0H* M"@L+"PP,#`T-#0X.#@\/#Q`0$!$1$1(2$A,3$Q04%!45%186%A<7%Q@8&!D9 M&1H:&AL;&QP<'!T='1X>'A\?'R`@("$A(2(B(B,C(R0D)"4E)28F)B7IZ>GM[>WQ\?'U]?7Y^?G]_?X"`@(&!@8*" M@H.#@X2$A(6%A8:&AH>'AXB(B(F)B8J*BHN+BXR,C(V-C8Z.CH^/CY"0D)&1 MD9*2DI.3DY24E)65E9:6EI>7EYB8F)F9F9J:FIN;FYRGI^?GZ"@ MH*&AH:*BHJ.CHZ2DI*6EI::FIJ>GIZBHJ*FIJ:JJJJNKJZRLK*VMK:ZNKJ^O MK["PL+&QL;*RLK.SL[2TM+6UM;:VMK>WM[BXN+FYN;JZNKN[N[R\O+V]O;Z^ MOK^_O\#`P,'!P<+"PL/#P\3$Q,7%Q<;&QL?'Q\C(R,G)RWM_?W^#@X.'AX>+BXN/CX^3DY.7EY>;FYN?GY^CHZ.GIZ>KJZNOK MZ^SL[.WM[>[N[N_O[_#P\/'Q\?+R\O/S\_3T]/7U]?;V]O?W]_CX^/GY^?KZ M^OO[^_S\_/W]_?[^_O___R'Y!`$``/X`+``````,``P`!PA>`/]%8T:PH,%_ M&0`H7,@0(3UF_R)&C*8N`T)P"O1(1"4@F$6+UB@0^H=*P2V$*/]94\!$P$F4 J%B/^`1!%XL>('#-EC'BSY,F0(S]& GRAPHIC 7 p66573box.gif GRAPHIC begin 644 p66573box.gif M1TE&.#EA#``,`/?^``````$!`0("`@,#`P0$!`4%!08&!@<'!P@("`D)"0H* M"@L+"PP,#`T-#0X.#@\/#Q`0$!$1$1(2$A,3$Q04%!45%186%A<7%Q@8&!D9 M&1H:&AL;&QP<'!T='1X>'A\?'R`@("$A(2(B(B,C(R0D)"4E)28F)B7IZ>GM[>WQ\?'U]?7Y^?G]_?X"`@(&!@8*" M@H.#@X2$A(6%A8:&AH>'AXB(B(F)B8J*BHN+BXR,C(V-C8Z.CH^/CY"0D)&1 MD9*2DI.3DY24E)65E9:6EI>7EYB8F)F9F9J:FIN;FYRGI^?GZ"@ MH*&AH:*BHJ.CHZ2DI*6EI::FIJ>GIZBHJ*FIJ:JJJJNKJZRLK*VMK:ZNKJ^O MK["PL+&QL;*RLK.SL[2TM+6UM;:VMK>WM[BXN+FYN;JZNKN[N[R\O+V]O;Z^ MOK^_O\#`P,'!P<+"PL/#P\3$Q,7%Q<;&QL?'Q\C(R,G)RWM_?W^#@X.'AX>+BXN/CX^3DY.7EY>;FYN?GY^CHZ.GIZ>KJZNOK MZ^SL[.WM[>[N[N_O[_#P\/'Q\?+R\O/S\_3T]/7U]?;V]O?W]_CX^/GY^?KZ M^OO[^_S\_/W]_?[^_O___R'Y!`$``/X`+``````,``P`!P@Z`/\)'$APX)L? M"!,J_/<#F;B'$!\:8"BNX,`#%"T*Q/BCHD:.'BV"U/AOY,>,)SN2Y&C@@,N7 &+@$$!``[ ` end -----END PRIVACY-ENHANCED MESSAGE-----

EX-10.1

                                                                    EXHIBIT 10.1


                                 March 20, 2002

Robert C. Fitting
Chief Executive Officer
3138 East Elwood Street
Phoenix, AZ  85034

         Re:      Your Change in Control Agreement

Dear Bob:

         Upon execution by you, this letter will constitute your Change in
Control Agreement ("Agreement") with Radyne ComStream Corp., (the "Company").

1.       Term. This Agreement will become effective March 14, 2002 and will
         terminate when you terminate your employment with the Company.

2.       Termination in Connection with a Change in Control. In the event of a
         Change of Control (as defined in the Company's Long-Term Incentive
         Plan, a copy of which definition is attached), you will be entitled to
         receive the following:

         (a)      Immediately prior to the effective date of a Change of
                  Control, all stock options granted to you and not otherwise
                  vested shall vest and become exercisable by you for a minimum
                  of 90 days (or, if longer, the term of the options thereof) so
                  that you may participate in the Change of Control transaction
                  to the fullest extent feasible, provided, however, that if the
                  acceleration of your options would cause a charge to the
                  Company's earnings, then at the Company's option it may offer
                  you a consulting position for the term of your options during
                  which your options would continue to vest;

         (b)      Upon any termination of your employment after a Change of
                  Control, for a period of eighteen months from the date of your
                  termination, the Company will pay for the COBRA benefits due
                  you;

         (c)      Upon a Change in Control, you shall be paid in a lump sum an
                  amount equal to three times your current salary from the
                  Company;

         (d)      To the extent that the benefits provided to you upon a Change
                  in Control would exceed the amount deductible pursuant to
                  Section 280G of the Internal Revenue Code (or any successor
                  law), or the rules and regulations thereunder, and thereby
                  result in an excise tax payable by you, then at least 30 days
                  prior to the due date of any such tax, the Company shall pay
                  you an amount equal the tax (together with any tax on such
                  payment).

3.       Covenant Not to Compete.

         (a)      For a period of 1 year from any termination of your
         employment, (or, if later, upon conclusion of your service as a
         consultant), you shall not, directly or indirectly, for your own
         benefit or for, with or through any other individual, firm,
         corporation, partnership or other entity, whether acting in an
         individual, fiduciary or other capacity, own, manage, operate, control,
         advise, invest in (except as a 1% or less shareholder of a public
         company), loan money to, or participate or assist in the ownership,
         management, operation or control of or be associated as a director,
         officer, employee, partner, consultant, advisor, creditor, agent,
         independent contractor or otherwise with, or acquiesce in the use of
         your name by, any business enterprise that is in direct competition
         with the Company or any subsidiary within the United States of America
         or any other country that the Company conducts business at the time of
         your termination.

         (b)      In addition to the foregoing, at all times during the period
         of your employment and for 1 year after any termination thereof (or, if
         later, upon conclusion of your services as a consultant), you will not,
         directly or indirectly (as described above), for your benefit or for,
         with or through any business, hire, employ, solicit, or otherwise
         encourage or entice any of the Company's (or subsidiary's) employees or
         consultants to leave or terminate their employment with the Company.

         (c)      You and the Company consider the restrictions contained in
         subparagraphs (a) and (b) above to be reasonable for the purpose of
         preserving the Company's proprietary rights and interests. If a court
         makes a final judicial determination that any such restrictions are
         unreasonable or otherwise unenforceable against you, you and the
         Company hereby authorize such court to amend this Agreement so as to
         produce the broadest, legally enforceable agreement, and for this
         purpose the restrictions on time period, geographical area and scope of
         activities set forth in subparagraphs (a) and (b) above are divisible;
         if the court refuses to do so, you and the Company hereto agree to
         modify the provisions held to be unenforceable to preserve each party's
         anticipated benefits thereunder to the maximum extent legal.

         (d)      You acknowledge and agree that the Company's remedies at law
         for breach or threatened breach of any of the provisions of this
         Paragraph would be inadequate. Therefore, you agree that in the event
         of a breach or threatened breach by you of the provisions in this
         Paragraph, the Company shall be entitled to, in addition to its
         remedies at law and without posting any bond, equitable relief in the
         form of specific performance, a temporary restraining order, a
         temporary or permanent injunction, or any other equitable remedy that
         may then be available.

4.       Personal Rights and Obligations. This Agreement and all rights and
         obligations hereunder are personal and shall not be assignable by
         either you or the Company except as provided in this subparagraph, and
         any purported assignment in violation thereof shall be null and void.
         Any person, firm or corporation succeeding to the business of the
         Company by merger, consolidation, purchase of assets or otherwise,
         shall assume by contract or operation of law the obligations of the
         Company hereunder and in such a case


                                       2

         you shall continue to honor this Agreement with such business
         substituted for the Company as the employer.

5.       Notices. Any notice, election or communication to be given under this
         Agreement shall be in writing and delivered in person or deposited,
         certified or registered, in the United States mail, postage prepaid,
         addressed as follows:

         If to the Company:         Radyne ComStream Corp.
                                    3138 East Elwood Street
                                    Phoenix, Arizona 85034
                                    Attn:  Chief Executive Officer

         If to you:                 Robert C. Fitting
                                    c/o Radyne ComStream Corp.
                                    3138 East Elwood Street
                                    Phoenix, AZ  85034

         or to such other addresses as the Company or you may from time to time
         designate by notice hereunder. Notices will be effective upon delivery
         in person or upon receipt of any facsimile or e-mail, or at midnight on
         the fourth business day after the date of mailing, if mailed.

6.       Entire Agreement. Except for any confidentiality agreement, option
         grants or Company plans or policies, to which you are subject, this
         Agreement constitutes and embodies the full and complete understanding
         and agreement of the Company and you with respect to your employment by
         the Company and supersedes all prior understandings or agreements
         whether oral or in writing. This Agreement may be amended only by a
         writing signed by you and the Company. This Agreement may be executed
         in any number of counterparts, each of which will be considered a
         duplicate original.

7.       Binding Nature of Agreement. This Agreement shall be binding upon and
         inure to the benefit of the Company and its successors and assigns and
         shall be binding upon you, your heirs and legal representatives.

8.       Arbitration. Any controversy relating to this Agreement or relating to
         the breach hereof shall be settled by arbitration conducted in Phoenix,
         Arizona in accordance with the Commercial Arbitration Rules of the
         American Arbitration Association then in effect. The award rendered by
         the arbitrator(s) shall be final and judgment upon the award rendered
         by the arbitrator(s) may be entered upon it in any court having
         jurisdiction thereof. The arbitrator(s) shall possess the powers to
         issue mandatory orders and restraining orders in connection with such
         arbitration. The expenses of the arbitration shall be borne by the
         losing party unless otherwise allocated by the arbitrator(s). This
         agreement to arbitrate shall be specifically enforceable under the
         prevailing arbitration law. During the continuance of any arbitration
         proceedings, the parties shall continue to perform their respective
         obligations under this Agreement. Nothing in this Agreement shall
         preclude the Company or any affiliate or successor from seeking
         equitable relief, including injunction or specific performance, in any
         court having jurisdiction, in


                                       3

         connection with the non-compete provisions herein and any obligations
         of confidentiality.

9.       Governing Law. This Agreement shall be governed by and interpreted in
         accordance with the laws of the State of Arizona.

10.      Withholding and Release. You acknowledge and agree that payments made
         to you hereunder may be subject to taxes and withholding. You further
         acknowledge and agree that payment of any of the benefits to be
         provided to you under this Agreement following any termination of your
         employment is subject to:

         (a)      your compliance with your agreements hereunder, including in
         particular the non-competition provisions of Paragraph 3,

         (b)      any reasonable and lawful policies or procedures of the
         Company relating to employee severances; and

         (c)      the execution and delivery by you of a release reasonably
         satisfactory to the Company of any and all claims that you may have
         against the Company or related persons, except for (i) the continuing
         obligations provided herein, and (ii) for any continuing obligations of
         indemnification due you as an officer or director (or a former officer
         or director).

                                             Very truly yours,




                                             ------------------------
                                             Ming Seong Lim
                                             Chairman of the Board

ACCEPTED:

- ------------------------------
Robert C. Fitting

Date:
     -------------------------


                                       4

                                   DEFINITIONS

"Cause" means in the event that you, in the reasonable judgment of the Board:

         (1)      materially breach this Agreement;

         (2)      fail to follow any reasonable and lawful direction of the
Board of Directions of the Company or materially violate any reasonable rule or
regulation established by the Company from time to time regarding conduct of its
business;

         (3)      engage in any act of dishonesty with respect to the Company;

         (4)      engage in criminal conduct (whether related to or not related
to your employment); or

         (5)      fail to perform your duties satisfactorily.

"Change of Control" means any of the following:

         (1)      any merger of the Company in which the Company is not the
continuing or surviving entity, or pursuant to which Stock would be converted
into cash, securities, or other property other than a merger of the Company in
which the holders of the Company's Stock immediately prior to the merger have
the same proportionate ownership of beneficial interest of common stock or other
voting securities of the surviving entity immediately after the merger;

         (2)      any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of assets or earning power
aggregating more than 50% of the assets or earning power of the Company and its
subsidiaries (taken as a whole), other than pursuant to a sale-leaseback,
structured finance or other form of financing transaction;

         (3)      the shareholders of the Company approve any plan or proposal
for liquidation or dissolution of the Company;

         (4)      any person (as such term is used in Section 13(d) and 14(d)(2)
of the Exchange Act), other than any current shareholder of the Company or
affiliate thereof or any employee benefit plan of the Company or any subsidiary
of the Company or any entity holding shares of capital stock of the Company for
or pursuant to the terms of any such employee benefit plan in its role as an
agent or trustee for such plan, shall become the beneficial owner (within the
meaning of Rule 13d-3 under the Exchange Act) of 50% or more of the Company's
outstanding Stock; or

         (5)      during any two-year period, individuals who at the beginning
of such period do not constitute a majority of the Board at the end of that
period, excluding any new director approved by a vote of at least two-thirds of
the directors who were directors at the beginning of the period.


                                       5

EX-10.2

                                                                    EXHIBIT 10.2

                                 March 20, 2002

Steve Eymann
Executive Vice President, Chief Technical Officer
11810 S. Warpaint Drive
Phoenix, AZ  85044


         Re:      Your Change in Control Agreement

Dear Steve:

         Upon execution by you, this letter will constitute your Change in
Control Agreement ("Agreement") with Radyne ComStream Corp., (the "Company").

1.       Term. This Agreement will become effective March 14, 2002 and will
         terminate when you terminate your employment with the Company.

2.       Termination in Connection with a Change in Control. In the event of a
         Change of Control (as defined in the Company's Long-Term Incentive
         Plan, a copy of which definition is attached), you will be entitled to
         receive the following:

         (a)      Immediately prior to the effective date of a Change of
                  Control, all stock options granted to you and not otherwise
                  vested shall vest and become exercisable by you for a minimum
                  of 90 days (or, if longer, the term thereof) so that you may
                  participate in the Change of Control transaction to the
                  fullest extent feasible, provided, however, that if the
                  acceleration of your options would cause a charge to the
                  Company's earnings, then at the Company's option it may offer
                  you a consulting position for the term of your options during
                  which your options would continue to vest;

         (b)      Upon any termination of your employment after a Change of
                  Control, for a period of eighteen months from the date of your
                  termination, the Company will pay for the COBRA benefits due
                  you;

         (c)      If you are terminated without Cause (as defined in the
                  attachment), or you resign for Good Reason (as set forth in
                  the attachment) within the first year following the Change in
                  Control, upon such event you shall be paid in a lump sum an
                  amount equal to two times your current salary from the
                  Company;

         (d)      If you are terminated without Cause, or you resign for Good
                  Reason (as set forth in the attachment) within the second year
                  following the Change in Control, upon such event you shall be
                  paid in a lump sum an amount equal to one times your current
                  salary;

         (e)      Upon a Change in Control, funds sufficient to satisfy your
                  Change of Control payments in (c) or (d) above shall be
                  deposited into a trust account maintained by a major financial
                  institution and shall be paid to you upon your written notice
                  to the Trustee to the effect that you have been terminated
                  without Cause or you have resigned for Good Reason. The
                  Company shall not have the ability to prevent such payment
                  from the trust upon your notice, but shall have the right to
                  dispute your termination as provided in Section 8 below, and
                  pursue all other available remedies;

         (f)      To the extent that the benefits provided to you upon a Change
                  in Control would exceed the amount deductible pursuant to
                  Section 280G of the Internal Revenue Code (or any successor
                  law), or the rules and regulations thereunder, then the amount
                  of benefits payable to you will be limited to the maximum
                  amount permitted under Section 280G, with the benefits that
                  are reduced to be selected by you.

3.       Covenant Not to Compete.

         (a)      For a period of 1 year from any termination of your
         employment, (or, if later, upon conclusion of your service as a
         consultant), you shall not, directly or indirectly, for your own
         benefit or for, with or through any other individual, firm,
         corporation, partnership or other entity, whether acting in an
         individual, fiduciary or other capacity, own, manage, operate, control,
         advise, invest in (except as a 1% or less shareholder of a public
         company), loan money to, or participate or assist in the ownership,
         management, operation or control of or be associated as a director,
         officer, employee, partner, consultant, advisor, creditor, agent,
         independent contractor or otherwise with, or acquiesce in the use of
         your name by, any business enterprise that is in direct competition
         with the Company or any subsidiary within the United States of America
         or any other country that the Company conducts business at the time of
         your termination.

         (b)      In addition to the foregoing, at all times during the period
         of your employment and for 1 year after any termination thereof (or, if
         later, upon conclusion of your services as a consultant), you will not,
         directly or indirectly (as described above), for your benefit or for,
         with or through any business, hire, employ, solicit, or otherwise
         encourage or entice any of the Company's (or subsidiary's) employees or
         consultants to leave or terminate their employment with the Company.

         (c)      You and the Company consider the restrictions contained in
         subparagraphs (a) and (b) above to be reasonable for the purpose of
         preserving the Company's proprietary rights and interests. If a court
         makes a final judicial determination that any such restrictions are
         unreasonable or otherwise unenforceable against you, you and the
         Company hereby authorize such court to amend this Agreement so as to
         produce the broadest, legally enforceable agreement, and for this
         purpose the restrictions on time period, geographical area and scope of
         activities set forth in subparagraphs (a) and (b) above are divisible;
         if the court refuses to do so, you and the Company hereto agree to
         modify the provisions held to be unenforceable to preserve each party's
         anticipated benefits thereunder to the maximum extent legal.


                                       2

         (d)      You acknowledge and agree that the Company's remedies at law
         for breach or threatened breach of any of the provisions of this
         Paragraph would be inadequate. Therefore, you agree that in the event
         of a breach or threatened breach by you of the provisions in this
         Paragraph, the Company shall be entitled to, in addition to its
         remedies at law and without posting any bond, equitable relief in the
         form of specific performance, a temporary restraining order, a
         temporary or permanent injunction, or any other equitable remedy that
         may then be available.

4.       Personal Rights and Obligations. This Agreement and all rights and
         obligations hereunder are personal and shall not be assignable by
         either you or the Company except as provided in this subparagraph, and
         any purported assignment in violation thereof shall be null and void.
         Any person, firm or corporation succeeding to the business of the
         Company by merger, consolidation, purchase of assets or otherwise,
         shall assume by contract or operation of law the obligations of the
         Company hereunder and in such a case you shall continue to honor this
         Agreement with such business substituted for the Company as the
         employer.

5.       Notices. Any notice, election or communication to be given under this
         Agreement shall be in writing and delivered in person or deposited,
         certified or registered, in the United States mail, postage prepaid,
         addressed as follows:

         If to the Company:         Radyne ComStream Corp.
                                    3138 East Elwood Street
                                    Phoenix, Arizona 85034
                                    Attn:  Chief Executive Officer

         If to you:                 Steve Eymann
                                    11810 S. Warpaint Drive
                                    Phoenix, AZ  85044

         or to such other addresses as the Company or you may from time to time
         designate by notice hereunder. Notices will be effective upon delivery
         in person or upon receipt of any facsimile or e-mail, or at midnight on
         the fourth business day after the date of mailing, if mailed.

6.       Entire Agreement. Except for any confidentiality agreement, option
         grants or Company plans or policies, to which you are subject, this
         Agreement constitutes and embodies the full and complete understanding
         and agreement of the Company and you with respect to your employment by
         the Company and supersedes all prior understandings or agreements
         whether oral or in writing. This Agreement may be amended only by a
         writing signed by you and the Company. This Agreement may be executed
         in any number of counterparts, each of which will be considered a
         duplicate original.

7.       Binding Nature of Agreement. This Agreement shall be binding upon and
         inure to the benefit of the Company and its successors and assigns and
         shall be binding upon you, your heirs and legal representatives.


                                       3

8.       Arbitration. Any controversy relating to this Agreement or relating to
         the breach hereof shall be settled by arbitration conducted in Phoenix,
         Arizona in accordance with the Commercial Arbitration Rules of the
         American Arbitration Association then in effect. The award rendered by
         the arbitrator(s) shall be final and judgment upon the award rendered
         by the arbitrator(s) may be entered upon it in any court having
         jurisdiction thereof. The arbitrator(s) shall possess the powers to
         issue mandatory orders and restraining orders in connection with such
         arbitration. The expenses of the arbitration shall be borne by the
         losing party unless otherwise allocated by the arbitrator(s). This
         agreement to arbitrate shall be specifically enforceable under the
         prevailing arbitration law. During the continuance of any arbitration
         proceedings, the parties shall continue to perform their respective
         obligations under this Agreement. Nothing in this Agreement shall
         preclude the Company or any affiliate or successor from seeking
         equitable relief, including injunction or specific performance, in any
         court having jurisdiction, in connection with the non-compete
         provisions herein and any obligations of confidentiality.

9.       Governing Law. This Agreement shall be governed by and interpreted in
         accordance with the laws of the State of Arizona.

10.      Withholding and Release. You acknowledge and agree that payments made
         to you hereunder may be subject to taxes and withholding. You further
         acknowledge and agree that payment of any of the benefits to be
         provided to you under this Agreement following any termination of your
         employment is subject to:

         (a)      your compliance with your agreements hereunder, including in
         particular the non-competition provisions of Paragraph 3,

         (b)      any reasonable and lawful policies or procedures of the
         Company relating to employee severances; and

         (c)      the execution and delivery by you of a release reasonably
         satisfactory to the Company of any and all claims that you may have
         against the Company or related persons, except for (i) the continuing
         obligations provided herein, and (ii) for any continuing obligations of
         indemnification due you as an officer or director (or a former officer
         or director).

                                           Very truly yours,


                                           ---------------------------
                                           Robert C. Fitting
                                           Chief Executive Officer

ACCEPTED:

- ------------------------------
Steve Eymann

Date:
     -------------------------


                                       4

                                   DEFINITIONS

"Cause" means in the event that you, in the reasonable judgment of the Board:

         (1)      materially breach this Agreement;

         (2)      fail to follow any reasonable and lawful direction of the
Board of Directions of the Company or materially violate any reasonable rule or
regulation established by the Company from time to time regarding conduct of its
business;

         (3)      engage in any act of dishonesty with respect to the Company;

         (4)      engage in criminal conduct (whether related to or not related
to your employment); or

         (5)      fail to perform your duties satisfactorily.

"Change of Control" means any of the following:

         (1)      any merger of the Company in which the Company is not the
continuing or surviving entity, or pursuant to which Stock would be converted
into cash, securities, or other property other than a merger of the Company in
which the holders of the Company's Stock immediately prior to the merger have
the same proportionate ownership of beneficial interest of common stock or other
voting securities of the surviving entity immediately after the merger;

         (2)      any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of assets or earning power
aggregating more than 50% of the assets or earning power of the Company and its
subsidiaries (taken as a whole), other than pursuant to a sale-leaseback,
structured finance or other form of financing transaction;

         (3)      the shareholders of the Company approve any plan or proposal
for liquidation or dissolution of the Company;

         (4)      any person (as such term is used in Section 13(d) and 14(d)(2)
of the Exchange Act), other than any current shareholder of the Company or
affiliate thereof or any employee benefit plan of the Company or any subsidiary
of the Company or any entity holding shares of capital stock of the Company for
or pursuant to the terms of any such employee benefit plan in its role as an
agent or trustee for such plan, shall become the beneficial owner (within the
meaning of Rule 13d-3 under the Exchange Act) of 50% or more of the Company's
outstanding Stock; or

         (5)      during any two-year period, individuals who at the beginning
of such period do not constitute a majority of the Board at the end of that
period, excluding any new director approved by a vote of at least two-thirds of
the directors who were directors at the beginning of the period.


                                       5

"Good Reason" means, without your consent:

         (1)      you suffer a reduction in position or a material change in
your functions, duties or responsibilities;

         (2)      your annual salary is reduced by the Company or there is a
material reduction in your current benefits (other than a reduction in benefits
as part of overall reduction applicable to all or substantially all other
officers arising out of deteriorating economic conditions effecting the
Company); or

         (3)      you are required to reside other than in Maricopa County,
Arizona.


                                       6

EX-10.3

                                                                    EXHIBIT 10.3


                                 March 20, 2002

Brian Duggan
President, Chief Operating Officer
6204 N. 30th Place
Phoenix, AZ  85016


         Re:      Your Change in Control Agreement

Dear Brian:

         Upon execution by you, this letter will constitute your Change in
Control Agreement ("Agreement") with Radyne ComStream Corp., (the "Company").

1.       Term. This Agreement will become effective March 14, 2002 and will
         terminate when you terminate your employment with the Company.

2.       Termination in Connection with a Change in Control. In the event of a
         Change of Control (as defined in the Company's Long-Term Incentive
         Plan, a copy of which definition is attached), you will be entitled to
         receive the following:

         (a)      Immediately prior to the effective date of a Change of
                  Control, all stock options granted to you and not otherwise
                  vested shall vest and become exercisable by you for a minimum
                  of 90 days (or, if longer, the term thereof) so that you may
                  participate in the Change of Control transaction to the
                  fullest extent feasible, provided, however, that if the
                  acceleration of your options would cause a charge to the
                  Company's earnings, then at the Company's option it may offer
                  you a consulting position for the term of your options during
                  which your options would continue to vest;

         (b)      Upon any termination of your employment after a Change of
                  Control, for a period of eighteen months from the date of your
                  termination, the Company will pay for the COBRA benefits due
                  you;

         (c)      If you are terminated without Cause (as defined in the
                  attachment), or you resign for Good Reason (as set forth in
                  the attachment) within the first year following the Change in
                  Control, upon such event you shall be paid in a lump sum an
                  amount equal to two times your current salary from the
                  Company;

         (d)      If you are terminated without Cause, or you resign for Good
                  Reason (as set forth in the attachment) within the second year
                  following the Change in Control, upon such event you shall be
                  paid in a lump sum an amount equal to one times your current
                  salary;

         (e)      Upon a Change in Control, funds sufficient to satisfy your
                  Change of Control payments in (c) or (d) above shall be
                  deposited into a trust account maintained by a major financial
                  institution and shall be paid to you upon your written notice
                  to the Trustee to the effect that you have been terminated
                  without Cause or you have resigned for Good Reason. The
                  Company shall not have the ability to prevent such payment
                  from the trust upon your notice, but shall have the right to
                  dispute your termination as provided in Section 8 below, and
                  pursue all other available remedies;

         (f)      To the extent that the benefits provided to you upon a Change
                  in Control would exceed the amount deductible pursuant to
                  Section 280G of the Internal Revenue Code (or any successor
                  law), or the rules and regulations thereunder, then the amount
                  of benefits payable to you will be limited to the maximum
                  amount permitted under Section 280G, with the benefits that
                  are reduced to be selected by you.

3.       Covenant Not to Compete.

         (a)      For a period of 1 year from any termination of your
         employment, (or, if later, upon conclusion of your service as a
         consultant), you shall not, directly or indirectly, for your own
         benefit or for, with or through any other individual, firm,
         corporation, partnership or other entity, whether acting in an
         individual, fiduciary or other capacity, own, manage, operate, control,
         advise, invest in (except as a 1% or less shareholder of a public
         company), loan money to, or participate or assist in the ownership,
         management, operation or control of or be associated as a director,
         officer, employee, partner, consultant, advisor, creditor, agent,
         independent contractor or otherwise with, or acquiesce in the use of
         your name by, any business enterprise that is in direct competition
         with the Company or any subsidiary within the United States of America
         or any other country that the Company conducts business at the time of
         your termination.

         (b)      In addition to the foregoing, at all times during the period
         of your employment and for 1 year after any termination thereof (or, if
         later, upon conclusion of your services as a consultant), you will not,
         directly or indirectly (as described above), for your benefit or for,
         with or through any business, hire, employ, solicit, or otherwise
         encourage or entice any of the Company's (or subsidiary's) employees or
         consultants to leave or terminate their employment with the Company.

         (c)      You and the Company consider the restrictions contained in
         subparagraphs (a) and (b) above to be reasonable for the purpose of
         preserving the Company's proprietary rights and interests. If a court
         makes a final judicial determination that any such restrictions are
         unreasonable or otherwise unenforceable against you, you and the
         Company hereby authorize such court to amend this Agreement so as to
         produce the broadest, legally enforceable agreement, and for this
         purpose the restrictions on time period, geographical area and scope of
         activities set forth in subparagraphs (a) and (b) above are divisible;
         if the court refuses to do so, you and the Company hereto agree to
         modify the provisions held to be unenforceable to preserve each party's
         anticipated benefits thereunder to the maximum extent legal.


                                       2

         (d)      You acknowledge and agree that the Company's remedies at law
         for breach or threatened breach of any of the provisions of this
         Paragraph would be inadequate. Therefore, you agree that in the event
         of a breach or threatened breach by you of the provisions in this
         Paragraph, the Company shall be entitled to, in addition to its
         remedies at law and without posting any bond, equitable relief in the
         form of specific performance, a temporary restraining order, a
         temporary or permanent injunction, or any other equitable remedy that
         may then be available.

4.       Personal Rights and Obligations. This Agreement and all rights and
         obligations hereunder are personal and shall not be assignable by
         either you or the Company except as provided in this subparagraph, and
         any purported assignment in violation thereof shall be null and void.
         Any person, firm or corporation succeeding to the business of the
         Company by merger, consolidation, purchase of assets or otherwise,
         shall assume by contract or operation of law the obligations of the
         Company hereunder and in such a case you shall continue to honor this
         Agreement with such business substituted for the Company as the
         employer.

5.       Notices. Any notice, election or communication to be given under this
         Agreement shall be in writing and delivered in person or deposited,
         certified or registered, in the United States mail, postage prepaid,
         addressed as follows:

         If to the Company:         Radyne ComStream Corp.
                                    3138 East Elwood Street
                                    Phoenix, Arizona 85034
                                    Attn:  Chief Executive Officer

         If to you:                 Brian Duggan
                                    6204 N. 30th Place
                                    Phoenix, AZ  85016

         or to such other addresses as the Company or you may from time to time
         designate by notice hereunder. Notices will be effective upon delivery
         in person or upon receipt of any facsimile or e-mail, or at midnight on
         the fourth business day after the date of mailing, if mailed.

6.       Entire Agreement. Except for any confidentiality agreement, option
         grants or Company plans or policies, to which you are subject, this
         Agreement constitutes and embodies the full and complete understanding
         and agreement of the Company and you with respect to your employment by
         the Company and supersedes all prior understandings or agreements
         whether oral or in writing. This Agreement may be amended only by a
         writing signed by you and the Company. This Agreement may be executed
         in any number of counterparts, each of which will be considered a
         duplicate original.

7.       Binding Nature of Agreement. This Agreement shall be binding upon and
         inure to the benefit of the Company and its successors and assigns and
         shall be binding upon you, your heirs and legal representatives.


                                       3

8.       Arbitration. Any controversy relating to this Agreement or relating to
         the breach hereof shall be settled by arbitration conducted in Phoenix,
         Arizona in accordance with the Commercial Arbitration Rules of the
         American Arbitration Association then in effect. The award rendered by
         the arbitrator(s) shall be final and judgment upon the award rendered
         by the arbitrator(s) may be entered upon it in any court having
         jurisdiction thereof. The arbitrator(s) shall possess the powers to
         issue mandatory orders and restraining orders in connection with such
         arbitration. The expenses of the arbitration shall be borne by the
         losing party unless otherwise allocated by the arbitrator(s). This
         agreement to arbitrate shall be specifically enforceable under the
         prevailing arbitration law. During the continuance of any arbitration
         proceedings, the parties shall continue to perform their respective
         obligations under this Agreement. Nothing in this Agreement shall
         preclude the Company or any affiliate or successor from seeking
         equitable relief, including injunction or specific performance, in any
         court having jurisdiction, in connection with the non-compete
         provisions herein and any obligations of confidentiality.

9.       Governing Law. This Agreement shall be governed by and interpreted in
         accordance with the laws of the State of Arizona.

10.      Withholding and Release. You acknowledge and agree that payments made
         to you hereunder may be subject to taxes and withholding. You further
         acknowledge and agree that payment of any of the benefits to be
         provided to you under this Agreement following any termination of your
         employment is subject to:

         (a)      your compliance with your agreements hereunder, including in
         particular the non-competition provisions of Paragraph 3,

         (b)      any reasonable and lawful policies or procedures of the
         Company relating to employee severances; and

         (c)      the execution and delivery by you of a release reasonably
         satisfactory to the Company of any and all claims that you may have
         against the Company or related persons, except for (i) the continuing
         obligations provided herein, and (ii) for any continuing obligations of
         indemnification due you as an officer or director (or a former officer
         or director).

                                           Very truly yours,


                                           --------------------------
                                           Robert C. Fitting
                                           Chief Executive Officer

ACCEPTED:

- ---------------------------------
Brian Duggan

Date:
     ----------------------------


                                       4

                                   DEFINITIONS

"Cause" means in the event that you, in the reasonable judgment of the Board:

         (1)      materially breach this Agreement;

         (2)      fail to follow any reasonable and lawful direction of the
Board of Directions of the Company or materially violate any reasonable rule or
regulation established by the Company from time to time regarding conduct of its
business;

         (3)      engage in any act of dishonesty with respect to the Company;

         (4)      engage in criminal conduct (whether related to or not related
to your employment); or

         (5)      fail to perform your duties satisfactorily.

"Change of Control" means any of the following:

         (1)      any merger of the Company in which the Company is not the
continuing or surviving entity, or pursuant to which Stock would be converted
into cash, securities, or other property other than a merger of the Company in
which the holders of the Company's Stock immediately prior to the merger have
the same proportionate ownership of beneficial interest of common stock or other
voting securities of the surviving entity immediately after the merger;

         (2)      any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of assets or earning power
aggregating more than 50% of the assets or earning power of the Company and its
subsidiaries (taken as a whole), other than pursuant to a sale-leaseback,
structured finance or other form of financing transaction;

         (3)      the shareholders of the Company approve any plan or proposal
for liquidation or dissolution of the Company;

         (4)      any person (as such term is used in Section 13(d) and 14(d)(2)
of the Exchange Act), other than any current shareholder of the Company or
affiliate thereof or any employee benefit plan of the Company or any subsidiary
of the Company or any entity holding shares of capital stock of the Company for
or pursuant to the terms of any such employee benefit plan in its role as an
agent or trustee for such plan, shall become the beneficial owner (within the
meaning of Rule 13d-3 under the Exchange Act) of 50% or more of the Company's
outstanding Stock; or

         (5)      during any two-year period, individuals who at the beginning
of such period do not constitute a majority of the Board at the end of that
period, excluding any new director approved by a vote of at least two-thirds of
the directors who were directors at the beginning of the period.


                                       5

"Good Reason" means, without your consent:

         (1)      you suffer a reduction in position or a material change in
your functions, duties or responsibilities;

         (2)      your annual salary is reduced by the Company or there is a
material reduction in your current benefits (other than a reduction in benefits
as part of overall reduction applicable to all or substantially all other
officers arising out of deteriorating economic conditions effecting the
Company); or

         (3)      you are required to reside other than in Maricopa County,
Arizona, or San Diego County, California.


                                       6