10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

þ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2003

Or

o Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission File Number 0-11685

Radyne ComStream Inc.

(Exact name of Registrant as specified in its charter)

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

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

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

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes þ No o

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934.   Yes o No þ

     The number of shares of the registrant’s common stock, which were outstanding as of the close of business on August 1, 2003, was 15,441,799.

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TABLE OF CONTENTS

Part I FINANCIAL INFORMATION
	Item 1. 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
	Item 4. Controls and Procedures
Part II OTHER INFORMATION
	Item 6. Exhibits and Reports On Form 8-K
SIGNATURES
EXHIBIT INDEX
EX-10.1
EX-31.1
EX-31.2
EX-32

Part I
FINANCIAL INFORMATION

Item 1. Financial Statements.

Radyne ComStream Inc.
Condensed Consolidated Balance Sheets

			June 30, 2003			Dec. 31, 2002
			Unaudited
Assets
Current assets:
	Cash and cash equivalents		$	20,627,679		$	16,229,558
	Accounts receivable - trade, net of allowance for doubtful accounts of $505,877, and $338,904, respectively			9,674,386			10,517,340
	Inventories			8,703,856			10,654,601
	Prepaid expenses and other assets			316,821			567,352
	Deferred tax assets			2,552,549			2,552,549
		Total current assets		41,875,291			40,521,400
Property and equipment, net				2,959,174			3,692,842
Deposits and other intangibles				176,716			192,530
			$	45,011,181		$	44,406,772
Liabilities and Stockholders’ Equity
Current liabilities:
	Current installments of obligations under capital leases		$	19,316		$	37,808
	Accounts payable, trade			2,254,616			1,880,207
	Accrued expenses			3,900,798			3,899,676
	Customer advance payments			877,924			707,398
		Total current liabilities		7,052,654			6,525,089
Deferred rent				42,319			72,264
Obligations under capital leases, excluding current installments				10,610			19,861
Accrued stock option compensation				501,073			501,073
		Total liabilities		7,606,656			7,118,287
Commitments and contingent liabilities
Stockholders’ equity:
	Common stock; $.001 par value - authorized, 50,000,000 shares			15,408			15,309
	Additional paid-in capital			51,090,450			50,921,603
	Accumulated deficit			(13,701,333	)		(13,625,485	)
	Accumulated other comprehensive loss			—			(22,942	)
		Total stockholders’ equity		37,404,525			37,288,485
			$	45,011,181		$	44,406,772

See Notes to Unaudited Condensed Consolidated Financial Statements

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Radyne ComStream Inc.
Condensed Consolidated Statements of Operations
Unaudited

			Three Months Ended						Six Months Ended
			June 30,						June 30,
			2003			2002			2003			2002
Net sales			$	14,791,878		$	15,908,902		$	25,671,780		$	31,102,539
Cost of sales				8,160,339			12,354,897			15,374,376			21,479,868
		Gross profit		6,631,539			3,554,005			10,297,404			9,622,671
Operating expenses:
	Selling, general and administrative			3,701,856			3,698,545			7,153,253			7,277,211
	Research and development			1,611,928			2,000,696			3,328,899			4,819,756
		Total operating expenses		5,313,784			5,699,241			10,482,152			12,096,967
Earnings (loss) from operations				1,317,755			(2,145,236	)		(184,748	)		(2,474,296	)
Other (income) expense:
	Interest expense			9,275			8,179			17,587			21,486
	Interest and other income			(63,830	)		(248,163	)		(126,487	)		(286,443	)
Earnings (loss) before income taxes and cumulative effect of change in accounting principle				1,372,310			(1,905,252	)		(75,848	)		(2,209,339	)
Income taxes (benefit)				—			—			—			—
Net earnings (loss) before cumulative effect of change in accounting principle				1,372,310			(1,905,252	)		(75,848	)		(2,209,339	)
Cumulative effect of change in accounting principle				—			—			—			(4,281,205	)
Net earnings (loss)			$	1,372,310		$	(1,905,252	)	$	(75,848	)	$	(6,490,544	)
Earnings (loss) per share:
		Basic	$	0.09		$	(0.13	)	$	(0.00	)	$	(0.43	)
		Diluted	$	0.09		$	(0.13	)	$	(0.00	)	$	(0.43	)
Weighted average common shares outstanding:
		Basic		15,310,185			15,156,357			15,309,512			15,125,359
		Diluted		15,310,185			15,156,357			15,309,512			15,125,359

See Notes to Unaudited Condensed Consolidated Financial Statements

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Radyne ComStream Inc.
Condensed Consolidated Statements of Cash Flows
Unaudited

					Six Months Ended June 30,
					2003			2002
Cash flows from operating activities:
	Net earnings (loss)				$	(75,848	)	$	(6,490,544	)
	Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities:
			Cumulative effect of change in accounting principle			—			4,281,205
			Depreciation and amortization			965,965			1,252,439
			Increase (decrease) in cash resulting from changes in:
				Accounts receivable, net		842,954			3,409,109
				Inventories		1,950,745			3,139,392
				Prepaid expenses and other current assets		250,531			227,897
				Deferred tax asset		—			10,562
				Deposits and other intangibles		13,714			6,504
				Accounts payable, trade		374,409			(955,832	)
				Accrued expenses		1,122			(631,514	)
				Taxes payable		—			(78,900	)
				Customer advance payments		170,526			409,767
				Deferred rent		(29,945	)		(44,827	)
				Accrued stock option compensation		—			(736	)
		Net cash provided by (used in) operating activities				4,464,173			4,534,522
Cash flows from investing activities:
	Capital expenditures					(230,197	)		(1,506,078	)
	Acquisition, net of cash acquired					—			(76,214	)
		Net cash used in investing activities				(230,197	)		(1,582,297	)
Cash flows from financing activities:
	Net proceeds from sales of common stock to employees					168,946			444,189
	Exercise of stock options					—			306,923
	Principal payments on capital lease obligations					(27,743	)		(39,710	)
		Net cash provided by (used in) financing activities				141,203			711,402
Net increase (decrease) in cash and cash equivalents						4,375,179			3,663,627
	Effects of exchange rate changes on cash and cash equivalents					22,942			—
Cash and cash equivalents, beginning of year						16,229,558			7,210,937
Cash and cash equivalents, end of quarter					$	20,627,679		$	10,874,564
Supplemental disclosures of cash flow information:
				Cash paid for interest	$	17,587		$	21,486
				Cash paid for taxes	$	—		$	—

See Notes to Unaudited Condensed Consolidated Financial Statements

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Radyne ComStream Inc.
Notes to Condensed Consolidated Financial Statements
(Information for June 30, 2003 and 2002 is Unaudited)

(1)  Unaudited Interim Condensed Consolidated Financial Statements

In the opinion of management, the accompanying unaudited interim condensed consolidated financial statements contain all adjustments necessary, all of which are of a normal recurring nature, to present fairly the Company’s financial position, results of operations and cash flows. For further information, refer to the consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2002. The results of operations for the six months ended June 30, 2003 are not necessarily indicative of the results to be expected for the full year.

(2)  Goodwill and Other Intangible Assets

The Company adopted Statement of Financial Accounting Standards No. 142 (“SFAS 142”), “Goodwill and Other Intangible Assets” on January 1, 2002, the first day of fiscal 2002. Therefore, the amortization of goodwill was suspended effective on that date. The Company also performed its transitional impairment analysis of goodwill as of January 1, 2002, as required by SFAS 142. This analysis yielded an impairment charge of $4.3 million, recorded in fourth quarter 2002 to be effective January 1, 2002 as a cumulative effect of change in accounting principle. The Company had no remaining goodwill on its balance sheet as of December 31, 2002.

(3) Stock-Based Compensation

The Company follows the intrinsic value-based method prescribed by Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations to account for its stock-based compensation plans. Under this method, compensation expense is recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. SFAS No. 123, “Accounting for Stock-Based Compensation,” established accounting and disclosure requirements using a fair value-based method of accounting for stock-based employee compensation plans. As allowed by SFAS No. 123, the Company has elected to continue to apply the intrinsic value-based method of accounting described above, and has adopted the disclosure requirements of SFAS No. 123. Accordingly, the Company does not recognize compensation expense for any of its stock-based plans because it does not issue options at exercise prices below the market value at date of grant. Had compensation cost for the Company’s stock-based plans been determined consistent with SFAS No. 123, its net earnings (loss) and earnings (loss) per share would have been reduced to the pro forma amounts indicated below:

		Three Months Ended June 30,					Six Months Ended June 30,
		2003		2002			2003			2002
Net earnings (loss)
	As reported	$	1,372,310	$	(1,905,052	)	$	(75,848	)	$	(6,490,544	)
	Pro forma	$	799,914	$	(2,918,761	)	$	(1,220,639	)	$	(8,523,962	)
Earnings (loss) per share -
	Basic - As reported	$	0.09	$	(0.13	)	$	(0.00	)	$	(0.43	)
	Basic - Pro forma	$	0.05	$	(0.19	)	$	(0.08	)	$	(0.56	)
	Diluted - As Reported	$	0.09	$	(0.13	)	$	(0.00	)	$	(0.43	)
	Diluted - Pro forma	$	0.05	$	(0.19	)	$	(0.08	)	$	(0.56	)

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The fair value of options granted was estimated on the date of grant with vesting periods ranging from one to three years using the Black-Scholes option-pricing model with the following weighted average assumptions used: no dividend yield, expected volatility of 80 percent - 184 percent, risk free interest rate of 1.5 percent - 6 percent and expected lives of five - nine years. In addition, the Company anticipates that approximately 5% of exercisable shares will be forfeited in each year. The per share weighted average fair value of stock options granted for the three-months ended June 30, 2002 was $3.48 using the Black-Scholes option-pricing model and the assumptions listed above. No stock options were granted for the three months ended June 30, 2003.

The pro forma data listed above was calculated by retroactively considering the impact of cancellations of stock options by employees effective January 22, 2003. For a full explanation of the cancelled options, please refer to the section below titled “Non-Executive Employee Stock Option Exchange Offer”.

Non-Executive Employee Stock Option Exchange Offer

On December 23, 2002, the Company offered to exchange certain “out of the money” non-executive employee stock options. As a result of the volatility in the stock market reflecting the current economic climate, many employees held stock options with an exercise price that significantly exceeded the market price of the Company’s common stock. Because the Company believed that these options were not providing the appropriate level of performance incentives, it offered a voluntary option exchange program allowing eligible employees to cancel their current stock options with exercise prices ranging between $6.00 and $8.25 and between $14.00 and $14.63 per share in exchange for a lesser amount of new options that will be granted no earlier than six months and one day after the options are accepted for exchange and canceled by the Company. The participating employees were to receive an amount of new options in accordance with the following exchange ratio schedule, subject to adjustments for any future stock splits, dividends and similar events:

Exercise Price Range	Exchange Ratio
$  6.00 — $  8.25	0.67 shares covered by a new option for every 1 share covered by a cancelled option
$14.00 — $14.63	0.40 shares covered by a new option for every 1 share covered by a cancelled option

Executive officers, directors, and non-employees were not eligible for this offer. Additionally, employees who received options within six months and a day of the commencement of the exchange offer were not permitted to participate. The offer expired on January 22, 2003. The Company accepted for exchange, options to purchase an aggregate of approximately 999,615 shares of the Company’s common stock, representing approximately 89% of the shares subject to options that were eligible to be exchanged under the offer. On July 23, 2003, the Company granted, in accordance with the Non-Executive Employee Stock Option Exchange Offer, new options to purchase 496,429 shares of common stock.

(4)  Inventories

	June 30, 2003		Dec. 31, 2002
Inventories consist of the following at:
Raw materials and components	$	6,260,571	$	8,012,011
Work-in-process		2,097,841		1,836,969
Finished goods		345,444		805,621
	$	8,703,856	$	10,654,601

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(5)  Property and Equipment

Property and equipment consist of the following at:	June 30, 2003			Dec. 31, 2002
Machinery and equipment	$	6,021,804		$	5,889,176
Furniture and fixtures		3,977,939			4,009,972
Leasehold improvements		644,630			678,567
Demonstration units		623,962			586,378
Computers and software		902,103			889,319
		12,170,438			12,053,412
Less accumulated depreciation and amortization		(9,211,264	)		(8,360,570	)
	$	2,959,174		$	3,692,842

(6)  Accrued Expenses

Accrued expenses consist of the following at:	June 30, 2003		Dec. 31, 2002
Wages, vacation and related payroll taxes	$	1,363,307	$	966,223
Professional fees		383,016		212,855
Warranty reserve		878,866		968,818
Restructuring costs		477,175		644,960
Other		798,435		1,106,820
	$	3,900,798	$	3,899,676

Changes to restructuring related liabilities for the six months ended June 30, 2003 were as follows:

		Accrued Lease
		Exit Costs
Balance, December 31, 2002		$	644,960
	Accrual for new activities		—
	Cash payments		(167,785	)
Balance, June 30, 2003		$	477,175

Lease exit costs will be paid over the lease term expiring in February 2005.

(7)  Earnings (Loss) Per Share

The effects of the Company’s stock options and common stock warrants are excluded from the computation of earnings (loss) per share in each period present below as the effects were antidilutive. The effects were antidilutive for the three-month period ended June 30, 2003 because the exercise price of the Company’s outstanding potentially dilutive securities was greater than their average market price during the period. The effects were antidilutive for the three-month period ended June 30, 2002 and for the six-month periods ended June 30, 2003 and 2002 because the Company reported net losses. A description and amount of potentially dilutive securities excluded from the diluted earnings per share computation is as follows:

Potentially Dilutive Securities:			Three Months Ended June 30,				Six Months Ended June 30,
		2003		2002		2003		2002
Stock options with exercise price:
	greater than the average market price		2,384,907		2,754,423		2,258,907		2,346,260
	less than the average market price (“in the money”)		—		867,812		126,000		1,275,975
Common stock warrants with $8.75 exercise price			2,143,537		2,143,537		2,143,537		2,143,537

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(8)  Concentrations of Risk

For the three months ended June 30, 2003, one customer accounted for 11% of the Company’s net sales. Outstanding receivables from this customer were $1.37 million, or 14% of accounts receivable at June 30, 2003. For the three months ended June 30, 2002, our largest customer accounted for less than 8% of the Company’s net sales. The largest customer for the current period was not the same as the largest customer for the prior period.

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

     For a description of the Company’s significant accounting policies and an understanding of the significant factors that influenced the Company’s performance during the second quarters and six months ended June 30, 2003 and 2002, this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (“MD&A”) should be read in conjunction with the Consolidated Financial Statements, including the related notes, appearing in Item 1 of this Report as well as the Company’s Annual Report on Form 10-K for the year ended December 31, 2002.

Forward-Looking Statements

     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 Radyne ComStream claims the protection of the safe-harbor for forward-looking statements contained in the Reform Act. These forward-looking statements are often characterized by the terms “may,” “believes,” “projects,” “expects,” or “anticipates,” and do not reflect historical facts. Specific forward-looking statements contained in the following discussion include, but are not limited to, (i) management’s belief that its ability to utilize certain of its net operating loss and tax credit carryforwards to offset future taxable income within the carryforward periods under existing tax laws and regulations is more likely than not and (ii) 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;

• 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 our strategic plan;

• our ability to successfully integrate acquisitions;

• adequacy of our inventory, receivables and other reserves;

• other factors to which this report refers or to which our 2002 Annual Report on Form 10-K refers.

• other factors that the Company is 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. Radyne ComStream does not undertake and specifically declines any obligation to update any forward-looking statements.

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Company Overview

     Radyne ComStream Inc. (the “Company”) designs, manufactures, integrates, installs and sells products, systems and software used in the ground-based portion of satellite communication systems to receive, and transmit data, video, audio and Internet over satellite, microwave and cable communications networks. The Company’s products are used in applications for telephone, data, video and audio broadcast communications, private and corporate data networks, Internet applications, and digital television for cable and network broadcast. Through its network of international offices and service centers, it serves customers in over 80 countries, including customers in the television broadcast industry, international telecommunications companies, Internet service providers, private communications networks, network and cable television and the United States government.

     The Company has one operating business segment, the sale, integration and installation of equipment for satellite, microwave and cable communications and television networks.

Results of Operations

     Sales. Net sales of $14.8 million for second quarter 2003 were down 7% compared to second quarter 2002 net sales of $15.9 million. Net sales for the six months ended June 30, 2003 were $25.7 million, down 17% compared to net sales of $31.1 million for the same period in 2002. The sales decreases in 2003 are due to continued poor economic conditions, declines in corporate capital spending and the severe downturn in the telecommunications equipment market over the past two years.

     Gross Profit Margins. Second quarter 2003 gross profits were $6.6 million, 87% greater than the same quarter of 2002 due primarily to a shift in the sales mix to new, lower cost products introduced during the quarter and other higher profit margin products as well as cost reductions and a prior period inventory writedown discussed below. Gross profit margins increased to 45% of net sales for second quarter 2003 compared to 22% for second quarter 2002, and to 40% for the six months ended June 30, 2003 compared to 31% for the same period in 2002. Gross profits for the second quarter and the first six months of 2003 benefited from cost reductions and other operating changes implemented to improve profitability at lower sales levels during the current downturn in the economy and telecom industry, which resulted in lower operating overhead compared to the same periods in 2002. The second quarter and first half of 2002 were also negatively impacted by $1.1 million in inventory write-downs related to discontinued product lines and other charges.

     Operating Expenses. Total operating expenses were down 7% and 13% for the three-month and six-month periods ended June 30, 2003, respectively, compared to the same periods in 2002. These expense decreases are the result of management’s continued cost control efforts, and for the six-month period, staff reductions at the end of first quarter 2002. The Company’s headcount was reduced from 259 employees at the beginning 2002 to 205 employees at the end of 2002. Selling, general and administrative expenses for the second quarter and first half of 2003 were in line with the same periods in 2002, despite approximately $385,000 in costs related to the abandoned tender offer for Wegener Corporation that were expensed during second quarter 2003. The Company reduced research and development expenses by 19% and 31% for the second quarter and first half of 2003, respectively, compared to the same periods of 2002 by reducing engineering staff and focusing on projects with the highest return on investment.

     Income Taxes. At December 31, 2002, the Company had net operating loss carryforwards of approximately $20,195,000 expiring in various years through 2022, and federal tax credit of $351,000 for utilization against taxable income/taxes payable, if any, of future periods. Management believes that its ability to utilize certain of its net operating loss and tax credit carryforwards to offset future taxable income within the carryforward periods under existing tax laws and regulations is more likely than not. However, due to the net losses incurred in 2002 and the first six months of 2003, and the priority in which net operating loss carryforwards are utilized, the Company provided a 100% valuation allowance against the net deferred tax assets arising in 2002 and 2003, and therefore the Company incurred no income tax expense in either period. To the extent that it continues to experience profitable operations, the Company will evaluate the need for the valuation allowance against its deferred tax assets in future periods.

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     Net Income. Net income was $1.4 million, or $0.09 per share on a diluted basis, for the second quarter ended June 30, 2003, compared to a net loss of $1.9 million, or $0.13 per share, for the second quarter of 2002, due to higher gross margins, lower operating expenses and other factors described in the preceding sections of this MD&A. The strong second quarter 2003 earnings almost offset first quarter losses resulting in near breakeven earnings for the first six months of 2003 compared to a net loss of $6.5 million, or $0.43 per share, for the first six months of 2002. In addition to the charges described above, results for the first half of 2002 include an impairment charge of $4.3 million, or $0.28 per share, related to the adoption of SFAS 142 recorded in fourth quarter 2002 to be effective January 1, 2002 as a cumulative effect of a change in accounting principle.

Liquidity and Capital Resources

     Cash Flow

     Cash and cash equivalents increased $4.4 million during the first half of 2003, to $20.6 million at June 30, 2003 from $16.2 million at December 31, 2002. Net cash provided by operating activities for the first six months of 2003 was $4.5 million, generated mostly by reductions in working capital, excluding cash and cash equivalents, which dropped to $14.2 million at June 30, 2003 from $17.8 million at December 31, 2002. The primary source of this cash flow was a $2.0 million decrease in inventories and a $0.8 million decrease in accounts receivable since the beginning of 2003 due to lower sales for the first half of 2003.

     Capital Structure

     There were no significant changes in the Company’s capital structure during the first six months of 2003. The Company had no long-term debt at June 30, 2003 or December 31, 2002. Stockholders’ equity was $37.4 million at June 30, 2003.

     For a description of the Company’s Contractual Obligations and Commitments for the next five years and thereafter, see Item 7 in the Company’s Annual Report on Form 10-K. For a description of the Company’s Obligations Under Capital Leases and Commitments for the next five years and thereafter, see Item 8, Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K. There are no material changes to this information.

     Capital expenditures of $230,197 for first six months of 2003 were funded through cash provided by operating activities. The Company does not have any material commitments for capital expenditures during the next twelve months.

     Liquidity Analysis

     The Company maintained a credit agreement with a bank that included a line-of-credit of up to $10 million that it allowed to expire on June 1, 2003. The Company is working with this bank and other prospective lenders to establish a new credit facility to provide durable liquidity for the future. The Company believes that cash and cash equivalents on hand and anticipated future cash flow will be sufficient to meet its obligations as they become due during the next twelve months. However, a significant decrease in its sales would likely affect its working capital amounts and could result in the need for external credit sources.

     On April 21, 2003, the Company announced an all-cash tender offer for all of the outstanding common stock of Wegener Corporation. On June 19, 2003, the Company announced that it would allow the tender offer to expire and would cease efforts to acquire Wegener at this time.

     As part of its business strategy, the Company occasionally evaluates potential acquisitions of businesses, products and technologies. These potential transactions may require substantial capital resources, which, in turn, may require the Company to seek additional debt or equity financing. There are no assurances that the Company will be able to consummate any of these transactions or that it will have the liquidity available to consummate the transactions it desires. For more detailed information, see the Company’s Risk Factors contained in Exhibit 99.1 to the its Annual Report on Form 10-K.

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Recently Issued Accounting Pronouncements

     In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (EITF) Issue 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity. The provisions of this Statement are effective for exit or disposal activities that are initiated after December 31, 2002, with early application encouraged. The adoption of SFAS No. 146 did not have a material effect on the Company’s consolidated financial statements.

     In November 2002, the FASB issued Interpretation No. 45 (FIN 45), Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness to Others, an interpretation of FASB Statements No. 5, 57 and 107 and a rescission of FASB Interpretation No. 34. This Interpretation elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under guarantees issued. The Interpretation also clarifies that a guarantor is required to recognize, at inception of a guarantee, a liability for the fair value of the obligation undertaken. Adoption of FIN 45 did not have a material effect on the Company’s consolidated financial statements.

     In November 2002, the Emerging Issues Task Force (“EITF”) reached a consensus on Issue No. 00-21, “Revenue Arrangements with Multiple Deliverables.” EITF Issue No. 00-21 provides guidance on how to account for arrangements that involve the delivery or performance of multiple products, services and/or rights to use assets. The provisions of EITF Issue No. 00-21 will apply to revenue arrangements entered into in fiscal periods beginning after June 15, 2003. The provisions of EITF Issue No. 00-21 are not expected to have a material effect on the Company’s consolidated financial statements.

     In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure, an amendment of FASB Statement No. 123. This Statement amends FASB Statement No. 123, Accounting for Stock-Based Compensation, to provide alternative methods of transition for a voluntary change to the fair value method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of Statement No. 123 to require prominent disclosures in both annual and interim financial statements. Certain of the disclosure modifications are required for fiscal years ending after December 15, 2002 and are included in the notes to these condensed consolidated financial statements.

     In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities, an interpretation of ARB No. 51. This Interpretation addresses the consolidation by business enterprises of variable interest entities as defined in the Interpretation. The Interpretation applies immediately to variable interests in variable interest entities created after January 31, 2003, and to variable interests in variable interest entities obtained after January 31, 2003. For a public entity with a variable interest in a variable interest entity created before February 1, 2003, the Interpretation is applied to the enterprise no later than the beginning of the first interim or annual reporting period beginning after June 15, 2003. The Company has not had any interests in variable interest entities, therefore, application of this Interpretation did not have a material effect on the Company’s consolidated financial statements.

     In April 2003, the FASB issued Statement of Financial Accounting Standards No. 149 (“SFAS 149”), Amendment of Statement 133 on Derivative Instruments and Hedging Activities, which amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts. SFAS 149 will be effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. The provisions of SFAS 149 are to be applied prospectively and is not expected to have a material effect on the Company’s consolidated financial statements.

On May 15, 2003, the Financial Accounting Standards Board issued Statement No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity. The Statement requires issuers to classify as liabilities (or assets in some circumstance) three classes of freestanding financial instruments that embody obligations for the issuer. Generally, the Statement is effective for financial instruments entered into or modified after May 31, 2003 and is otherwise effective at the beginning of the first interim period beginning after June 15, 2003. The Company adopted the provisions of the Statement on July 1, 2003. The application of this statement did not have a material effect on the Company’s consolidated financial statements.

12

Item 3. Quantitative and Qualitative Disclosures About Market Risk

     The Company is exposed to market risk on its financial instruments from changes in interest rates. It does not use financial instruments for trading purposes or to manage interest rate risk. The Company does not have any derivative financial instruments. As of June 30, 2003, a reduction in interest rates of 1% would, over a year’s period, have a potential pretax impact of $200,000 on our interest earnings.

Item 4. Controls and Procedures

     The Company’s management, including its Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of the end of the period covered by this quarterly report (the “Evaluation Date”). Based on such evaluation, the Company’s management has concluded that, as of the Evaluation Date, the Company’s disclosure controls and procedures are effective such that material information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified by the Securities and Exchange Commission’s rules and forms relating to the Company. The Company’s management has also concluded that the Company’s disclosure controls and procedures are designed to accumulate and communicate the information required to be disclosed by Radyne ComStream to the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. No significant changes were made in the Company’s internal controls or in other factors that could significantly affect these controls subsequent to the Evaluation Date.

Part II
OTHER INFORMATION

Items 1-5 are not applicable and have been omitted.

Item 6. Exhibits and Reports On Form 8-K

(a)	(3) See Exhibit Index
(b)	The Registrant filed the following Current Reports on Form 8-K during the three-month period covered by this report and ending June 30, 2003:

• On May 8, 2003, the Company filed a Current Report on Form 8-K attaching a press release concerning the Company’s earnings and results of operations for the Company’s first fiscal quarter ended March 31, 2003.

13

SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

RADYNE COMSTREAM INC.
By:	/s/ Richard P. Johnson
	Richard P. Johnson, Vice President and Chief Financial Officer
	(Principal Financial Officer)

Dated: August 13, 2003

14

EXHIBIT INDEX

Exhibit No.	Exhibit
10.1	Change of Control Agreement, dated as of June 18, 2003, by and between Registrant and Richard P. Johnson
31.1	Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32	Certification of Principal Executive Officer and Principal Financial Officer Pursuant to Section 1350 of Chapter 63 of Title18 of the United States Code

15 EX-10.1 3 p68141exv10w1.txt EX-10.1 EXHIBIT 10.1 ROBERT C. FITTING Chief Executive Officer [RADYNE COMSTREAM LOGO] June 18, 2003 HAND DELIVERED Mr. Richard P. Johnson [Address] Re: Change in Control Agreement Dear Rich: 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 June 18, 2003 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 twenty-four (24) months 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; Richard P. Johnson - Change in Control Agreement (continued) (d) 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; (e) 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 to 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 Page 2 of 7 Richard P. Johnson - Change in Control Agreement (continued) 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 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: Richard P. Johnson [Address] 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 Page 3 of 7 Richard P. Johnson - Change in Control Agreement (continued) 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 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, Page 4 of 7 Richard P. Johnson - Change in Control Agreement (continued) ________________________________________ Robert C. Fitting Chief Executive Officer ACCEPTED: _______________________________ Richard P. Johnson Date: _________________________ Page 5 of 7 Richard P. Johnson - Change in Control Agreement (continued) 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 Page 6 of 7 Richard P. Johnson - Change in Control Agreement (continued) 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. "Good Reason" means, without your consent: (1) 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. Page 7 of 7 EX-31.1 4 p68141exv31w1.htm EX-31.1

Exhibit 31.1

I, Robert C. Fitting, certify that:

1.     I have reviewed this report on Form 10-Q of Radyne ComStream Inc.;

2.     Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.     Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.     The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

               a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

               b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

               c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.     The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control of financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

               a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

               b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 13, 2003

/s/ Robert C. Fitting

Robert C. Fitting, Chief Executive Officer
(Principal Executive Officer)

EX-31.2 5 p68141exv31w2.htm EX-31.2

Exhibit 31.2

I, Richard P. Johnson, certify that:

1.     I have reviewed this report on Form 10-Q of Radyne ComStream Inc.;

2.     Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.     Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.     The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

               a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

               b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

               c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.     The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control of financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

               a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

               b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 13, 2003

/s/ Richard P. Johnson

Richard P. Johnson, Chief Financial Officer
(Principal Financial Officer)

EX-32 6 p68141exv32.htm EX-32

Exhibit 32

CERTIFICATION OF THE
CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

          I, Robert C. Fitting, the CEO of Radyne ComStream Inc., certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Radyne ComStream Inc. on Form 10-Q for the second quarter ended June 30, 2003 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents in all material respects the financial condition and results of operations of Radyne ComStream Inc.

Dated: August 13, 2003

/s/ Robert C. Fitting

Robert C. Fitting

Chief Executive Officer

          I, Richard P. Johnson, the CFO of Radyne ComStream Inc., certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Radyne ComStream Inc. on Form 10-Q for the second quarter ended June 30, 2003 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents in all material respects the financial condition and results of operations of Radyne ComStream Inc.

Dated: August 13, 2003

/s/ Richard P. Johnson

Richard P. Johnson

Chief Financial Officer

-----END PRIVACY-ENHANCED MESSAGE-----

EX-10.1

                                                                    EXHIBIT 10.1

ROBERT C. FITTING
Chief Executive Officer

                                               [RADYNE COMSTREAM LOGO]

June 18, 2003



HAND DELIVERED

Mr. Richard P. Johnson
[Address]


            Re:   Change in Control Agreement

Dear Rich:

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 June 18, 2003 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 twenty-four (24) months
                  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;



Richard P. Johnson - Change in Control Agreement (continued)


         (d)      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;

         (e)      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 to 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


                                   Page 2 of 7


Richard P. Johnson - Change in Control Agreement (continued)


                  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 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:              Richard P. Johnson
                                 [Address]

         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


                                   Page 3 of 7


Richard P. Johnson - Change in Control Agreement (continued)


         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 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,


                                   Page 4 of 7



Richard P. Johnson - Change in Control Agreement (continued)


                                    ________________________________________
                                    Robert C. Fitting
                                    Chief Executive Officer

ACCEPTED:

_______________________________
Richard P. Johnson

Date: _________________________


                                  Page 5 of 7



Richard P. Johnson - Change in Control Agreement (continued)


                                   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


                                  Page 6 of 7



Richard P. Johnson - Change in Control Agreement (continued)


                  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.

"Good Reason" means, without your consent:

         (1)      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.


                                  Page 7 of 7

EX-31.1

exv31w1

EX-31.2

exv31w2

EX-32

exv32