10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

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

For the fiscal year ended December 31, 2004
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

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

Securities Registered Under Section 12(g) of the Exchange Act:
Common Stock, $.001 Par Value

     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 R No £

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. £

     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 R No £

     The aggregate market value of the common stock held by non-affiliates of the registrant was approximately $108 million computed by reference to the closing price of the stock on the Nasdaq National Market on June 30, 2004, the last trading day of the registrant’s most recently completed second fiscal quarter. For purposes of this determination, shares of common stock held by each officer and director and by each person who owns 5% or more of the outstanding common stock have been excluded in that such persons may be deemed to be affiliates of the registrant. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

     The number shares of the registrant’s common stock, which were outstanding as of the close of business on March 8, 2005 was 16,623,221.

DOCUMENTS INCORPORATED BY REFERENCE

     Items 10, 11, 12, 13 and 14 of Part III incorporate information by reference from the definitive proxy statement for the registrant’s Annual Meeting of Stockholders to be held on June 8, 2005 at 2 p.m. in the Phoenix office.

TABLE OF CONTENTS

Part I
	Item 1. Business
	Item 2. Properties
	Item 3. Legal Proceedings
	Item 4. Submission of Matters to a Vote of Security Holders
PART II
	Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
	Item 6. Selected Financial Data
	Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 7A. Quantitative and Qualitative Disclosures About Market Risk
	Item 8. Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm
	Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
	Item 9A. Controls and Procedures
	Item 9B. Other Information
PART III
	Item 10. Directors and Executive Officers of the Registrant
	Item 11. Director and Executive Compensation
	Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
	Item 13. Certain Relationships and Related Transactions
	Item 14. Principal Accounting Fees and Services
PART IV
	Item 15. Exhibits and Financial Statement Schedules
SIGNATURES
EXHIBIT INDEX
EX-10.11
EX-10.12
EX-21.1
EX-23.1
EX-31.1
EX-31.2
EX-32.1
EX-99.1

Disclosure Concerning Forward-Looking Statements

     This Annual Report on Form 10-K, includes statements that constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Reform Act”) and Radyne ComStream claims the protection of the safe-harbor for forward-looking statements contained in the Reform Act. These forward-looking statements are often characterized by the terms “may,” “believes,” “projects,” “expects,” or “anticipates,” and do not reflect historical facts. Specific forward-looking statements contained in the following discussion include, but are not limited to, (i) continued growth in demand for satellite system ground-based equipment and satellite-delivered communications services, (ii) continued global deregulation and privatization of telecommunications carriers, (iii) continued growth in worldwide demand for Internet over Satellite connectivity and communications serves in general, (iv) expectations for continued growth and improvement in gross margin associated with product introductions, (v) our ability to complete the Xicom acquisition and integrate the operations, products and personnel of Xicom with the Company, (vi) an increase in total foreign sales, and (vii) sufficient cash reserves and cash from operations to fund planned future operations and capital requirements through the end of 2005.

     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:

•   availability of future taxable income to be able to realize the deferred tax assets;

•   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;

•   the effects that acts of international terrorism may have on our ability to ship products abroad;

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

•   other factors that 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 Radyne ComStream’s business, results of operations and financial position.

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

2

Part I

Item 1. Business

Overview

     Radyne ComStream (the Company) designs, manufactures, integrates, installs and sells capital equipment used in the ground-based portion of satellite communication systems and cable communications networks to receive and transmit data, telephone, television, video and telephone-over-Internet. Our products are used in applications for telephone, data, video and audio broadcast communications, private and corporate data networks, Internet applications, and digital television for cable and network broadcast. We design, manufacture, integrate, install and sell capital equipment used for upgrading existing analog point-to-point microwave radios to handle digital signals. We design, manufacture, integrate, install and sell capital equipment for High Definition Television (HDTV) and other digital encoding and transmission. The Company is headquartered in Phoenix, Arizona and has manufacturing facilities in Phoenix and in San Diego, California. Additionally, the Company has sales offices in Boca Raton, Florida, Singapore, Beijing, Jakarta, London and Amsterdam. The Company also contracts with representatives that provide sales and/or service centers in Rio de Janeiro and Bangalore.

     Through our network of international sales and service offices, agents and sales representatives, we serve customers in over 90 countries, including customers in the television broadcast industry, international telecommunications companies, Internet service providers, private communications networks, network and cable television and the United States government.

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

•   HDTV Encoders and Decoders for a Major American Television Network for use during their coverage of the National Basketball Association.

•   Satellite modems used as the backbone for major new US Department of Defense communications systems

•   Complete satellite and microwave television network for Alabama Public Television.

•   Supplied complete satellite backhaul systems for a GSM mobile phone provider in China.

•   Satellite modems for the US Department of Defense in support of their domestic and international communications needs.

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

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

•   High-Speed DVB Modulators for Hughes Direct to PC Network and Hughes DirecTV.

•   Selected by PanAmSat, Intelsat and ChinaSat for the deployment of IP over satellite solutions.

•   Major expansion of U.S. Government Satellite Monitoring Network.

     On March 3, 2005, Radyne ComStream announced its intention to acquire Xicom Technology Inc (Xicom). Xicom is a leading provider of satellite and microwave power amplifiers and other RF products. The combination of Xicom’s amplifier products and RF technologies with Radyne’s line of satellite modems and other satellite communications equipment will make the Company a full line supplier of satellite electronic systems. The acquisition brings an increased customer base for both companies’ products as well as the potential of offering complete system solutions.

     Xicom’s Solid State Power Amplifiers (SSPAs), Traveling Wave Tube Amplifiers (TWTAs), and Klystron Power Amplifiers (KPAs) are used in commercial and military satellite communications terminals throughout the world. Xicom High Power Amplifiers (HPAs) provide power levels vital to satellite communications in fixed, SNG, flyaway, mobile, shipboard, and airborne platforms. Xicom will operate as a subsidiary of Radyne from its current facilities.

3

Industry Overview

     Satellite technology has been established as a key element in the worldwide infrastructure of communications systems. Satellites enable communications service where there is no suitable alternative available or to supplement existing inadequate service. Unlike the cost of land-based networks, such as microwave and fiber cable, the cost to provide services via satellite does not increase with the distance between sending and receiving stations. Satellite networks can be rapidly installed, upgraded, and reconfigured as compared with land-based networks, which require rights-of-way and are expensive and time consuming to install and upgrade.

     The three principal categories of satellite communications service applications are fixed satellite services, mobile satellite services, and direct broadcast services.

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

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

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

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

     Digital Encoding of TV Signals. Digital encoding of TV signals through the use of our encoders converts analog standard and high-definition television (SDTV & HDTV) signals from cameras or other sources to digital to preserve the quality eternally and to compress the signals so they can be transmitted over much smaller bandwidths.

     Conversion of Existing Analog Point-to-point Radios. Conversion of existing analog point-to-point radios can be converted to handle digital signals for digital TV, telephone, and Internet backhaul through the use of our microwave modems.

Industry Growth

     We believe that demand for satellite system ground-based equipment has been and will continue to be driven by:

•   Worldwide demand for Internet over Satellite connectivity. A large number of the World Wide Web sites reside in North America and high-speed access to the web from abroad will continue to be a major emphasis.

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

4

•   The cost-effectiveness of satellite communications for many applications, such as digital television delivery, distance learning and IP over satellite.

•   Technological advancements and capital equipment upgrades that broaden applications and increase the capacity in satellite networks.

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

•   There are thousands of analog point-to-point microwave radios in operation that are candidates for upgrade to digital to handle digital TV, telephone, and Internet traffic.

     We expect that digital television encoding and decoding product demand will be driven by the following factors:

•   Continued demand from end-consumers for additional HDTV content for increasingly-affordable HD television sets.

•   Requests from TV distributors (e.g., cable systems and direct satellite broadcasters) to provide additional HDTV channels in order to attract new customers.

•   Ongoing efforts by broadcasters to meet Federal Communication Commission (FCC) mandates to convert existing analog signals to digital.

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

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

     Because of current concerns with international terrorism, the militaries of many countries have increased requirements for communications as their forces are spread around the world in such places as Afghanistan and Iraq. The U.S. Government’s needs, such as maintaining communications with embassies, and the U.S. military’s worldwide Command and Control requirements, continue to drive more demand for satellite communications.

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

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

Market Opportunities

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

International and Rural Telephony

5

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

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

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

•   Satellite earth stations can be deployed much more rapidly to offer international services for third world countries and, additionally, for military deployment.

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

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

Private Networks

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

Information and Radio Broadcasts

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

Television Video Distribution

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

•   Increased compression allows broadcasters to increase their channel offering with existing allocated spectrum

•   New HDTV content provides new opportunities for additional network and local programming choices along with related revenue opportunities

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

6

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

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

•   Digital cinema distribution is a viable alternative to the physical distribution of feature length films and special media events.

•   Television is distributed to affiliate stations from broadcasters through the use of point-to-point analog microwave radios that are candidates for upgrade with our microwave modem equipment. This option provides a solution at a much lower cost than replacing the analog radio with a digital radio.

Internet Communications

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

     We expect satellite communications to continue to offer a cost-effective augmentation capability for Internet service providers, particularly in markets where land-based networks are unlikely to be either cost-effective or abundant, such as rural areas.

Government and Military

     Satellites allow the military to have instant secure communications when deploying rapidly to troubled parts of the world and further support the infrastructure necessary for military tactical deployments.

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

Strategy

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

     Capitalize On Our Existing Technology Leadership. We believe that the global satellite communications services and equipment market and the digital television market present a number of attractive opportunities to apply our advanced technologies and capabilities. We plan to develop new products and enhance existing products by leveraging our technology to capture a share of these growth opportunities.

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

     Develop New Products to Exploit New Market Opportunities. We plan to use our international sales force and our research and development capabilities to identify new market opportunities and develop new products to exploit these opportunities. We intend to develop new products to penetrate and increase our presence in the markets for digital television, Internet communications, rural

7

telephony for developing markets, high-speed satellite communications, government data equipment, cable television distribution, and private networks for businesses and governments.

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

     Continued Emphasis on Operational Efficiency and Financial Performance. We have historically maintained a strong emphasis on operation efficiency and financial performance. We believe that continued focus on our operational efficiencies is essential to future financial success while continuing to grow our business. As part of this continued emphasis, we plan to devote significant time and resources to key components of our business, such as our manufacturing processes, design systems and customer relationships.

     Pursue Strategic Acquisitions. We intend to pursue strategic acquisitions of competitive or complementary companies in order to gain market share, increase our revenues, expand our product lines, improve our sales force and increase our profitability. The Xicom acquisition should enable us to achieve all of these objectives.

Products and Services

     We offer the following product families:

•   Satellite modems and earth stations.

•   Digital Standard Definition Television (SDTV) and High Definition Television (HDTV) encoders

•   Internet via satellite terminal equipment

•   Frequency converters.

•   Data, audio, and video broadcast equipment.

•   Cable and microwave modems.

•   If the Xicom acquisition is completed, we will also offer a complete line of power amplifiers.

     We offer the following services:

•   Design, integration and installation of turnkey communication systems.

Satellite Modems and Earth Stations

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

During 2003, we introduced a major addition to our satellite modem line, the Turbo Forward Error Correction Code. The turbo product provides customers with greatly improved satellite and bandwidth performance, which directly translates to space segment cost savings. This product also affords our large, worldwide installed base of customers the opportunity to improve their performance at a significant operational cost saving.

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

8

Standard and High Definition Digital TV Encoders

We offer a complete product line of SDTV and HDTV encoders for professional applications. This year we introduced a new SDTV encoder (SE-4000) and HDTV encoder (HE-4000). Both models featured the latest in MPEG-2 video encoding capability and audio compression. The HE-4000 features a monitor screen on its faceplate — the first encoder ever to do so — which enables the technician to monitor actual unit performance in real time. Our encoders are used throughout the world to provide distribution, contribution and broadcast services. Encoders are used in satellite, cable and terrestrial applications. Many U.S. broadcasters rely on our encoders to provide news gathering and direct to home service. Our encoders are recognized for their outstanding picture quality, ease of use and rugged design.

Two-way Internet Satellite Terminal Equipment

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

Frequency Converters

We currently market a variety of converters used to transmit and receive signals over satellites in the commercial satellite frequency ranges of C-Band, Ka-Band, and Ku-Band. We also produce a redundancy control unit, which will switch a satellite system to stand-by equipment in the event of a malfunction in a satellite modem or converter. Such redundancy is a critical element for many of our customers, such as rural or international telephony networks, that strive to provide uninterrupted satellite communications services to their customers. Each satellite is configured to receive or transmit a particular radio wave pattern, otherwise called a frequency band, which is typically different from the frequency of the satellite modem. Frequency converters are used to alter the input/output of a satellite modem into a wave pattern that can be interpreted by the particular satellite being used in the satellite system to relay communication signals.

Data, Audio and Video Broadcast Equipment

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

Cable and Microwave Modems

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

Power Amplifiers

Xicom’s Solid State Power Amplifiers (SSPAs), Traveling Wave Tube Amplifiers (TWTAs), and Klystron Power Amplifiers (KPAs) are used in commercial and military satellite communications terminals throughout the world. Xicom High Power Amplifiers (HPAs) provide power levels vital to satellite communications in fixed, SNG, flyaway, mobile, shipboard, and airborne platforms.

9

Design, Integration and Installation of Turnkey Communications Systems

Our Armer subsidiary designs, integrates and tests turnkey communications systems ranging from small VSAT installations to Intelsat standard stations. We deliver products and services from initial engineering and system development to final testing. In addition, we sell support services to existing and new customers. Our ability to deliver a full compliment of equipment and services to our customers is a benefit to our customers who desire a one-stop solution to their needs.

Research and Development

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

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

     Research and development expenses amounted to $5.3 million for the year ended December 31, 2004, $6.3 million for the year ended December 31, 2003 and $8.7 million for the year ended December 31, 2002. A number of new products were either launched or reached an advanced stage of development during these periods.

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

Sales and Marketing

     We sell our products through an international sales force with sales and/or service offices in Phoenix, San Diego, Boca Raton, Singapore, Beijing, Jakarta, London and Amsterdam. Our direct sales force consists of 18 individuals supported by systems and applications engineers. We focus direct sales activities on expanding our international sales by identifying emerging markets and establishing new customer accounts. Additionally, we directly target certain major accounts that may provide entry into new markets or lead to subsequent distribution arrangements. International representatives, agents and systems integrators sell our products, supported by our sales and marketing personnel.

     We participate in approximately five to seven trade shows each year. We also generate new sales leads through advertising in trade magazines, direct mail, and our website.

     We maintain a warranty department that also includes customer service and support staff that support customers and agents and provide installation supervision, if needed. In certain instances, we use third-party companies to install and maintain our products at customer sites.

Customers

     Our customers generally include national and international telecommunications providers (including radio and television stations), digital television users (including broadcast and cable networks), Internet service providers, financial information providers, systems integrators, banks and other corporate entities and the U.S. government.

10

     During the years ended December 31, 2004, 2003 and 2002, no single customer represented more than 10% of our net sales. Because of the nature of our business, we anticipate that any customer who could potentially represent 10% or more of our total revenue will vary from period to period depending upon the placement of significant orders by a particular customer or customers in any given year.

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

	Years ended December 31,
Region	2004			2003			2002
Asia		21	%		21	%		27	%
Africa/Middle East		10	%		8	%		5	%
Latin America		2	%		2	%		3	%
Europe		13	%		16	%		11	%
Canada		1	%		1	%		1	%
Total Foreign Sales		47	%		48	%		47	%

     In addition to the above sales, we believe that 30% to 50% of our domestic sales are for products which ultimately are installed in foreign countries. We believe that foreign sales will continue to make up a major portion of our total sales in subsequent periods. We consider our ability to continue to sell our products in developing markets to be important to our future growth. We may not, however, succeed in our efforts to cultivate such markets.

Competition

     We have major competitors in the satellite communications field. These include large companies, such as Comtech EFData Corp. and Viasat both of which have significantly larger and more diversified operations and greater financial, marketing, human and other resources than we possess. We compete with a similar situation in our broadcast video products. Our principal competitors include Tandberg Television and Harmonic, Inc. Again, both companies are larger and command greater financial resources than we do.

     We compete by concentrating our sales efforts in the international market and emphasizing our product features, quality and service. We believe that the quality, performance, and capabilities of our products, our ability to customize certain network functions, and the relatively lower overall cost of our products as compared to cost of the competing products generally offered by our major competitors represent major factors in our ability to compete. However, our major competitors have the resources to develop products with features and functions that are competitive with or superior to our products. Competition from current competitors or future entrants in the markets in which we compete could cause us to lose orders or customers or could force us to lower the prices we charge for our products.

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

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

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

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

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

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

Manufacturing

     We assemble and test certain products at our Phoenix, Arizona and San Diego, California facilities using subsystems and circuit boards acquired from subcontractors. We obtain the remainder of our products, completely assembled and tested, from subcontractors.

11

Although we believe that we maintain adequate stock to minimize the procurement lead-time for certain components, our products use a number of specialized components or subassemblies produced by a limited number of suppliers. In the event that such suppliers were unable or unwilling to fulfill our requirements, we could experience interruptions in production while we develop alternative procurement sources. We maintain an inventory of certain chips, components and subassemblies to limit the exposure for such an interruption. We believe that there are a number of alternative suppliers capable of providing replacements for the types of chips, customized components and subassemblies used in production.

     During 1999 and 2000, our Phoenix and San Diego facilities were awarded ISO 9001 certification, the international quality control standard for research and development, marketing, sales, manufacturing, and distribution processes. Subsequently, we have continued to improve our processes and methods of operations, consistent with our goals and the certification requirements. This certification assists in increasing the acceptance of our products. As of December 31, 2004 the Company’s ISO 9001 certifications remain in effect.

Intellectual Property

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

     We also have patents, which protect certain of our proprietary technology. We have been cautious in seeking to obtain patent protection for our products, since patents often provide only narrow protection that may not prevent competitors from developing products that function in a manner similar to those covered by our patents. In addition, some of the foreign countries in which we sell our products do not provide the same level of protection to intellectual property as the laws of the United States. We will continue to seek patent protection for our proprietary technology in those cases where we think it can be obtained and will provide us with a competitive advantage.

Employees

     As of December 31, 2004, we had 173 full-time employees, including 5 executive officers, 83 manufacturing and operations personnel, 40 research and development and 45 selling, general and administration personnel. These figures include employees who are based outside the United States. Our employees are not represented by a labor union. We believe that our relationships with our employees are satisfactory and in good standing.

Available Information

     Our website is http://www.radn.com. We make available, free of charge through links on our website, our annual, quarterly, and current reports, and any amendments to those reports as soon as practicable after electronically filing the reports with the Securities and Exchange Commission (the “Commission”). Any materials we file with the Commission may be read and copied at the Commission’s Public Reference Room at 450 Fifth Street N.W., Washington, D.C. 20549. Information concerning the operation of the Commission’s Public Reference Room may be obtained by calling the Commission at 1-800-SEC-0330. The Commission also maintains a website at http://www.sec.gov at which you can view and download copies of reports, proxy and information statements and other information filed electronically through the Electronic Data Gathering, Analysis and Retrieval (EDGAR) system. Information contained on our website is not a part of this report.

Item 2. Properties

     We currently occupy approximately 40,000 square feet of building space in Phoenix, Arizona, and 26,000 square feet in our San Diego, California facility. In addition we lease 16,000 square feet in Chandler, Arizona. The lease for our Phoenix facility expires in July 2008 and has an option to renew for two consecutive terms of five years each. The lease for our Chandler facility expires in October 2008 and has an option for a five year renewal. The lease for our San Diego facility expires in June 2010 and has an option to renew for two consecutive terms of five years each. We also lease facilities for our regional sales and service offices in Beijing, Singapore, London, Jakarta and Amsterdam. We believe that our facilities are adequate to meet current and reasonably anticipated needs in the immediate future.

Item 3. Legal Proceedings

12

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

Item 4. Submission of Matters to a Vote of Security Holders

     Not applicable.

13

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market for Common Stock

     Our common stock is quoted on the Nasdaq National Market under the symbol “RADN”. The following table sets forth the range of high and low trading prices for our common stock as reported by the Nasdaq National Market for the periods indicated.

	High		Low
2003:
First Quarter	$	2.78	$	2.14
Second Quarter		2.45		1.95
Third Quarter		4.44		2.10
Fourth Quarter		8.50		4.12
2004:
First Quarter	$	12.90	$	7.18
Second Quarter		10.34		7.77
Third Quarter		7.95		6.53
Fourth Quarter		7.90		7.03

Holders of Record

     As of February 22, 2005, we had approximately 300 holders of record of our common stock. We estimate that we have another 5,400 holders of our common stock in street name.

Dividends

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

Unregistered Sales of Equity Securities and Use of Proceeds

     On February 19, 2004, Stetsys Pte. Ltd. and Stetsys US, Inc. entered into definitive purchase agreements to sell their unregistered shares of common stock in the Company, an aggregate of 9,676,800 shares, to approximately 40 institutional investors in a private transaction. The purchase price of the common stock was $9.25 per share. The shares sold in the transaction were subject to securities law restrictions on their subsequent resale. However, the Company subsequently registered the shares for resale. The Company did not receive any proceeds from this transaction.

Warrants

     After December 31, 2004 but prior to the expiration date of February 7, 2005, 310,571 of our redeemable common stock purchase warrants were exercised. We received proceeds of $2,717,000 related to the exercises and have issued 310,571 shares of our common stock to the former holders of the redeemable warrants. The remaining 1,832,966 unexercised warrants expired on February 7, 2005.

14

Issuer Purchases of Equity Securities

     On June 4, 2004, the Board of Directors authorized management to purchase up to $10 million of the Company’s outstanding common stock. As of December 31, 2004, the Company has purchased 402,600 shares under the program at a total cost of $2,791,000. This program expires on June 3, 2005 and was the only repurchase program outstanding at December 31, 2004. The following chart provides detailed information on the program:

							Maximum number (or
					Total number of		approximate dollar
					shares purchased as		value) of shares that
	Total number		Average		part of a publicly		may yet be purchased
	of shares		price paid		announced plan or		under the plan or
Period	purchased		per share		program		program
July 1-31, 2004		—				—	$	10,000,000
August 1-31, 2004		341,100	$	6.89		341,100	$	7,650,000
September 1-30, 2004		—				—	$	7,650,000
		341,100	$	6.89		341,100
Beginning dollar value available to repurchase shares as of October 1, 2004							$	7,650,000
October 1-31, 2004		—				—	$	7,650,000
November 1-30, 2004		61,500	$	7.18		61,500	$	7,209,000
December 1-31, 2004		—				—	$	7,209,000
		61,500	$	7.18		61,500
Total 2004 Purchases		402,600	$	6.93		402,600

Equity Compensation Plans

     See Part III, Item 12.

15

Item 6. Selected Financial Data

     The following selected consolidated statement of operations data for the years ended December 31, 2004, 2003, 2002, 2001 and 2000, and the selected consolidated balance sheet data at those dates, are derived from our consolidated financial statements and notes thereto audited by an independent registered public accounting firm, KPMG LLP. The following data is not necessarily indicative of results of future operations and should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and notes thereto included elsewhere in this 10-K Annual Report.

	Years Ended December 31,
	(in thousands, except per share data)
	2004			2003			2002			2001			2000
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net sales	$	56,578		$	57,991		$	57,662		$	68,471		$	70,107
Cost of sales		26,435			31,640			38,041			39,559			38,280
Inventory write-down		—			—			431			—			—
Gross profit		30,143			26,351			19,190			28,912			31,827
Selling, general and administrative		15,420			13,559			13,471			15,307			13,573
Research and development		5,330			6,294			8,665			10,812			9,317
Asset impairment charge(1)		—			—			995			—			—
Restructuring charge		—			—			1,102			—			—
Total operating expenses		20,750			19,853			24,233			26,119			22,890
Earnings (loss) from operations		9,393			6,498			(5,043	)		2,793			8,937
Interest expense		29			28			62			54			492
Interest and other income		(492	)		(254	)		(236	)		(523	)		(1,077	)
Earnings (loss) before income taxes and cumulative effect of change in accounting principle		9,856			6,724			(4,869	)		3,262			9,522
Income taxes (benefit)		(3,644	)		2,599			(196	)		1,326			(2,919	)
Earnings (loss) before cumulative effect of change in accounting principle		13,500			4,125			(4,673	)		1,936			12,441
Cumulative effect of change in accounting principle		—			—			4,281			—			—
Net earnings (loss)	$	13,500		$	4,125		$	(8,954	)	$	1,936		$	12,441
Earnings (loss) per share:
Basic	$	0.83		$	0.27		$	(0.59	)	$	0.13		$	0.89
Diluted	$	0.79		$	0.26		$	(0.59	)	$	0.13		$	0.81
Weighted average number of common shares outstanding
Basic		16,357			15,488			15,180			14,944			13,972
Diluted		17,136			15,718			15,180			15,412			15,426

	December 31,
	(in thousands)
	2004		2003		2002		2001		2000
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents	$	39,300	$	30,130	$	16,230	$	7,211	$	16,245
Working capital		53,432		41,642		34,252		36,187		34,037
Total assets		65,416		50,609		44,407		53,241		51,844
Long-term obligations		430		475		849		912		948
Total liabilities		7,222		6,991		7,118		7,893		10,030
Stockholders’ equity		58,194		43,618		37,288		45,347		41,814

Notes: (1) Consists of the write down of purchased technologies related to the 1998 ComStream acquisition in 2002.

16

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

     We design, manufacture, integrate, install and sell 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. Our products are used in applications for telephone, data, video and audio broadcast communications, private and corporate data networks, Internet applications, and digital television for cable and network broadcast. Through our network of international offices and service centers, we serve customers in over 90 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.

     We reported revenues of $56.6 million, $58.0 million and $57.7 million for the years ended December 31, 2004, 2003 and 2002, respectively. The decline in revenues is due, in part, to the Company’s decision to withdraw from bidding on service business jobs and focus on our higher margin products. In addition, our customers’ trend had been to reduce capital expenditures to the most urgent needs. We believe the urgency for these companies to begin expending funds for new capital equipment will increase in the near term as older products fail and as newer product technologies improve the operating efficiencies of the users, saving them money over use of their older technologies. We also believe that continued demand for capital equipment in the HDTV industry will drive demand for the Company’s products.

     We have recently introduced new products with the latest technologies that can help our customers reduce their operational costs while increasing their capacity to deliver services. The products have lowered cost of manufacture compared to the products that they replace which results in increased gross margins.

     On March 3, 2005, Radyne ComStream announced its intention to acquire Xicom Technology Inc. Xicom is a leading provider of satellite and microwave power amplifiers and other RF products. The combination of Xicom’s amplifier products and RF technologies with Radyne’s line of satellite modems and other satellite communications equipment would make the Company a full line supplier of satellite electronic systems. The acquisition brings an increased customer base for both companies’ products as well as the potential of offering complete system solutions. We believe that there is additional opportunity to create new products based on the combined technology of Radyne ComStream’s existing products and Xicom’s offering. Further, this acquisition, if completed should result in greater sales relative to fixed costs which should, in turn, increase the Company’s operating leverage or profitability.

     During the third quarter of 2002, we implemented a restructuring plan to reduce costs and address the economic slowdown and negative industry conditions. This plan included the reduction in force of approximately 10% of our workforce in the manufacturing, research and development and sales departments, the abandonment of certain non-performing and under-performing product lines and a provision for the excess space created at the San Diego facility as a result of these cost cutting measures. This effort resulted in a charge to our operating expenses of approximately $1.5 million; of which $431,000 was charged to cost of sales and the balance was charged to restructuring charge. This amount included $170,000 in severance costs. During the year ended December 31, 2002, we paid all charges except for $645,000 in lease exit costs. During the years ended December 31, 2004 and 2003, $340,000 and $238,000 in lease exit costs were paid and the remaining $67,000 was paid in January and February 2005.

     At December 31, 2004, our workforce consisted of 173 full time employees, which is reduced from 183 and 205 at December 31, 2003 and 2002.

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 the Company’s 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 consolidated financial statements. Such estimates and assumptions also 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, income taxes, warranty obligations, and contingencies based upon historical results, anticipated future events 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 conditions.

17

Management believes the Company’s most critical accounting policies and estimates used in the preparation of its consolidated financial statements relate to:

•   Revenue Recognition. Revenues from product sales are recognized upon the actual shipment of product and transfer of the risk of ownership from us, or our contract manufacturers, to our customers in accordance with SEC Staff Bulletins No. 104 Revenue Recognition and No. 101, Revenue Recognition in Financial Statements,” as amended. We do not sell through distributors and we do not use consignment resellers as a method of selling our products. Revenue from services principally consists of sales related to services for installation and integration of satellite earth stations and video and microwave hub stations and are recognized at the time the services are performed. We consider products and services as separate units of accounting under EITF 00-21, Revenue Arrangements with Multiple Deliverables. Revenue is allocated to the separate units of accounting based on their relative fair values.

•   Valuation of Receivables. We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. Bad debt reserves are recorded based upon historic default averages as well as through the creation of reserves established for specific customers deemed marginal in their ability to pay based upon factors known at that time. In general, if the financial condition of a customer was to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

•   Valuation and Impairment of Intangible Assets. In assessing our goodwill and other intangible assets for impairment in accordance with Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets, (SFAS 142) we are required to make significant assumptions about the future cash flows, overall performance, identity and allocation and valuation of the assets including goodwill and other intangibles of our reporting units. Market prices are not readily available for certain businesses, unique physical assets, and most intangible assets to be evaluated in goodwill impairment tests. Therefore, we estimate fair values using estimating techniques and assumptions that are matters of judgment. Our transitional impairment analysis of goodwill as of January 1, 2002, as required by SFAS 142, yielded an impairment charge of $4.3 million, recorded in 2002 as a cumulative effect of change in accounting principle. We have no remaining goodwill on our balance sheet as of December 31, 2004 and 2003. Assuming it is completed, we anticipate that the Xicom acquisition will result in goodwill. In that event, we will apply the provisions of SFAS 142.

•   Warranty Liability. We provide limited warranties on certain of our products and systems for periods generally not exceeding two years. Estimated warranty costs for potential product liability and warranty claims based on our claim experience are accrued as cost of sales 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 liability is affected by product failure rates and material usage and service delivery costs incurred in correcting product failures. Should actual product failure rates, material usage or service delivery costs differ from the Company’s present estimates, additional warranty liabilities may be required.

•   Valuation of Inventories. Inventories, consisting of satellite modems and related products, are valued at the lower of cost (first-in, first-out) or market. Our inventories include high-technology components and systems sold into rapidly changing and competitive markets, whereby such inventories may be subject to technological obsolescence. We evaluate inventories for excess, obsolescence or other factors that may render inventories unmarketable at normal margins. Write-downs are recorded so that inventories reflect the approximate net realizable value. Assumptions about future demand, market conditions and decisions to discontinue certain product lines can impact the decision to write down inventories. If assumptions about future demand change or actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required. In any case, actual amounts could be different from those estimated.

•   Accounting for Income Taxes. Management judgment is required in determining the provision for income taxes, deferred tax assets and liabilities and the valuation allowance recorded against net deferred tax assets. The carrying value of our net operating loss carry-forwards is dependent upon our ability to generate sufficient future taxable income to utilize the recorded value. In addition, we consider historic levels of income, expectations and risk associated with estimates of future taxable income and ongoing prudent and feasible tax planning strategies in assessing a tax valuation allowance. Should we determine that we are not able to realize all or part of our deferred tax assets in the future, a valuation allowance is recorded against the deferred tax assets with a corresponding charge to income in the period such determination is made. Likewise, should we determine that we would be able to realize deferred tax assets in the future in excess of our net recorded amount, an adjustment

18

to the valuation allowance for deferred tax assets would result in an income tax benefit in the period such determination was made.

Results of Operations

Sales:

     Net sales generally consist of sales of products, net of returns and allowances. Our sales have come predominantly from satellite modems, video signal encoders, point-to-point modems, Internet over satellite systems and systems integrations and installations. The following tables summarize the year-over-year comparison of our revenue for the periods indicated:

2004 vs. 2003

			Years ended December 31,
			(in thousands)
	2004		2003		Change			%
Sales	$	56,578	$	57,991	$	(1,413	)		(2%)

     For the year 2004, sales decreased $1.4 million, or 2% from the prior year 2003. This decrease was primarily due to a reduction in sales from our systems integrations and installation service which accounted for a decrease of $1.7 million in sales from 2003 to 2004. The decision was made due to the very competitive nature of this portion of the market and the relative low benefit we believe we received for being in the business. This resulted in lower sales, but higher margins, as we concentrated on delivery of our core products and development of new higher margin products. Based on orders received during the last quarter, management believes that continued growth in shipments of these newly introduced products will result in recovery of sales in the future.

2003 vs. 2002

			Years ended December 31,
			(in thousands)
	2003		2002		Change		%
Sales	$	57,991	$	57,662	$	329		1%

     Our net sales increased 1% to $58.0 million during the year ended December 31, 2003 from $57.7 million during the year ended December 31, 2002. This increase is primarily attributable to improved market conditions for our core products (and offset by a reduction of sales in our systems integration and installation products) and strengthening of the economy as a whole during the last half of the year ended December 31, 2003 compared to the same period in 2002. While revenues did not increase dramatically from year to year, the first three months of 2003 was depressed, in terms of sales, resulting in our lowest volume of quarterly sales in four years. Sales during the last three quarters of the year continuously improved and, in total, the last nine-months of the year increased by 10% over the prior year’s last nine months.

Cost of sales:

     Cost of sales generally consists of costs associated with components, outsourced manufacturing and in-house labor associated with assembly, testing, packaging, shipping and quality assurance, depreciation of manufacturing equipment and indirect manufacturing costs. Gross profit is the difference between net sales and cost of sales. Gross margin is gross profit stated as a percentage of net sales. The following tables summarize the year-over-year comparison of our cost of sales, gross profit and gross margin for the periods indicated:

2004 vs. 2003

			Years ended December 31,
			(in thousands)
	2004		2003		Change			%
Cost of Sales	$	26,435	$	31,640	$	(5,205	)		(16%)
Gross Profit	$	30,143	$	26,351	$	3,792			14%
Gross Margin %		53		45		8			18%

19

     During 2004, gross profit was $30.1 million, a 14% increase from 2003 due primarily to a change in our product and service mix in 2004 as compared to 2003. These lower costs resulted from the previously mentioned decision to withdraw from bidding on installation and integration jobs and low margin products during the second quarter of 2004 and to concentrate on our core products, which produce higher margins and the introduction of new products with reduced costs to manufacture. Gross margins increased to 53% of net sales for 2004 compared to 45% in 2003. Gross margins for the year benefited from a larger portion of our total sales being made up of our new higher margin products as compared to 2003, primarily from our new satellite modems that replaced the sales of our lower margin system integration services. Management believes that the Company may not be able to continue to increase gross margins in the future due to increased competition and larger customer orders.

2003 vs. 2002

			Years ended December 31,
			(in thousands)
	2003		2002		Change			%
Cost of Sales	$	31,640	$	38,041	$	(6,401	)		(17%)
Gross Profit		26,351		19,190		7,161			37%
Gross Margin %		45		33		12			37%

     During 2003, gross profit was $26.4 million, a 37% increase from 2002 primarily due to a change in our product and services mix. Our service and installation business, which provides lower gross margins relative to certain products such as satellite modems, decreased to 8% of sales for the year ended December 31, 2003 from 12% in the prior year. Sales from services typically produce margins in the 20% to 30% range compared to the satellite modem products that produce margins in the 45% to 55% range. Our newest products enable us to sell software upgrades over a satellite link or via email. These upgrades are made through the use of a CDRom or PCM-CIA card that can be installed into the product after the initial sale. These upgrades can increase our sales by up to 100% of the hardware sales price without significant increases in costs. This should help sustain improved margins during the years to come, especially after we have an established base of product deployed in the field.

Selling, General, and Administrative Costs:

     Sales and marketing expenses consist of salaries, commissions for marketing and support personnel, and travel. Executives and administrative expenses consist primarily of salaries and other personnel-related expenses of our finance, human resources, information systems, and other administrative personnel as well as facilities, professional fees, depreciation and amortization and related expenses. The following tables summarize the year-over-year comparison of our selling, general and administrative expenses for the periods indicated:

2004 vs. 2003

			Years ended December 31,
			(in thousands)
	2004		2003		Change		%
Selling, general & administrative	$	15,420	$	13,559	$	1,861		14%

     Selling, general and administrative expenses, for 2004, were 14% higher than the same period in 2003, due mainly to the following increases: management incentive plan — $1.1 million, professional fees related to compliance with the provisions of the Sarbanes-Oxley Act of 2002, Section 404 (SOX 404) compliance — $664,000, and commissions — $548,000. These increases were partially offset by a reduction in costs as follows: acquisition costs — $385,000, a reduction in personnel — $352,000, and amortization expense — $216,000. Except for sales commissions and performance-based management incentives, most of our selling, general and administrative expenses are fixed and do not change when sales fluctuate. Like other public companies, our expenses related to ongoing compliance with SOX 404 are uncertain.

2003 vs. 2002

			Years ended December 31,
			(in thousands)
	2003		2002		Change		%
Selling, general & administrative	$	13,559	$	13,471	$	88		1%

20

     Selling, general and administrative costs increased to $13.6 million, or 23% of net sales, during the year ended December 31, 2003 from $13.5 million, or 23% of sales, for the year ended December 31, 2002. Expenses attributable to our aborted tender offer for Wegener Corporation amounted to approximately $385,000 during the second quarter of the year. Before these expenses, selling, general and administrative costs decreased slightly from the prior year.

Research and Development:

     Research and development expenses consist primarily of salaries and personnel-related costs, development material and other product development expense. The following tables summarize the year-over-year comparison of our research and development expenses for the periods indicated:

2004 vs. 2003

	Years ended December 31,
	(in thousands)
	2004		2003		Change			%
Research & development	$	5,330	$	6,294	$	(964	)		(15%)

     Research and development expenses decreased 15% in 2004. The decrease was due to a reduction of personnel and reduced overhead expenses. We remain committed to invest in our future through technological advances and efforts to improve our older product lines for improve manufacturability and lower costs. Our research and development personnel concentrate on technology for the satellite and microwave communications, telecommunications, and cable television industries, as well as the Tiernan product lines, which target the digital television broadcast industry. We expect that research and development expenses will increase in the coming year as the Company expands the development and introduction of new products.

2003 vs. 2002

	Years Ended December 31,
	(in thousands)
	2003		2002		Change			%
Research & development	$	6,294	$	8,665	$	(2,371	)		(27%)

     Research and development expenses decreased to $6.3 million, or 11% of net sales during the year ended December 31, 2003 from $8.7 million, or 15% of net sales, during the year ended December 31, 2002. Research and development costs decreased during the year ended December 31, 2003 by approximately $2.4 million, as we benefited from the cost savings initiatives put into place in 2002.

Interest Expense:

     Interest expense was $29,000 and $28,000 for the years ended December 31, 2004 and 2003 respectively as compared to $62,000 for the year ended December 31, 2002. The reduction in interest expense is due to lower capitalized lease obligations in 2004 and 2003 as compared to 2002.

Interest and Other Income:

     Other income increased to $492,000 in the year ended December 31, 2004 from $254,000 in the year ended December 31, 2003 and $236,000 during the year ended December 31, 2002. Other income is comprised primarily of interest income, which increased as a result of higher average interest rates during 2004 as compared to 2003 and 2002. In addition, we maintained a higher average cash balance during 2004 and 2003 as compared to 2002. We keep our cash in money market accounts and short term AAA rated investments maturing in seven to twenty-eight day increments. We expect that interest income will decline in the coming year as the Company uses available cash to pursue the Xicom and other acquisitions, repurchase stock and invest in other business opportunities. See “Liquidity and Capital Resources” below.

Income Taxes (Benefit):

     We recorded an income tax benefit during the year ended December 31, 2004 of $3.6 million compared to income tax expense of $2.6 million in the year ended December 31, 2003. We recorded an income tax benefit of $196,000 in 2002 due to a tax refund. During the year ended December 31, 2004, the Company reduced the valuation allowance related to the deferred tax assets by $7,337,000 based on management's belief that it is more likely than not the deferred tax assets will be realized through the generation of future taxable income. Of this net reduction in the valuation allowance, approximately $7,030,000 was recorded as a reduction of income tax expense, approximately $772,000 was recorded as an increase to additional paid-in capital and approximately $465,000 was recorded as an increase in deferred tax assets. In addition to the $772,000 increase in additional paid-in capital for the release of the valuation allowance related to the tax benefits of stock option exercises in prior years, additional paid-in capital was increased for the tax benefit of stock option exercises during the year ended December 31, 2004 in the amount of approximately $1,063,000 for a total increase of approximately $1,835,000. As of December 31, 2004, the Company has total deferred tax assets of $8,209,000 with a corresponding valuation allowance of $2,546,000. The valuation allowance applies to the deferred tax assets related to net operating loss carryforwards which management believes are limited as to utilization under Internal Revenue Service Code Section 382. The company generated taxable income in each of the four quarters of 2004, the last three quarters of 2003 and projects future taxable income to be able to use the net deferred tax assets. Management believes that past profitable performance and the forecast of future profits supports the recognition of the deferred tax assets and the reduction of the valuation allowance.

21

     Ultimate realization of any or all of the deferred tax assets is not assured due to significant uncertainties associated with estimates of future taxable income during the carryforward periods and is subject to change depending on the tax laws in effect in the years in which the carryforwards are used. Management will continue to evaluate the recoverability of the deferred tax assets and will adjust the valuation allowance recorded against the deferred tax assets accordingly.

Net Earnings:

     Net earnings are the result of reducing gross profit by operating expenses, interest expense, income taxes and increasing for other interest income and income tax benefits. The following tables summarize our net earnings and the earnings available to each fully diluted share of our common stock:

2004 vs. 2003

	Years ended December 31,
	(in thousands)
	2004		2003		Change		%
Net earnings	$	13,500	$	4,125	$	9,375		227%
Earnings per diluted share	$	0.79	$	0.26	$	0.53		203%

     Net earnings were $13.5 million, or $0.79 per share on a fully diluted basis, for the year ended December 31, 2004, compared to earnings of $4.1 million, or $0.26 per share on a fully diluted basis, for the year ended 2003. Net earnings were higher in part due to the $3.6 million tax benefit we received in 2004 (versus a $2.6 million tax expense in 2003) and the $3.8 million increase in gross profit as discussed above. These factors were partially offset by an increase in selling, general and administrative expense, also discussed above. Going forward, the Company does not expect to maintain this level of profitability due to the one-time nature of the tax benefit we recognized in 2004.

2003 vs. 2002

	Years ended December 31,
	(in thousands)
	2003		2002			Change		%
Net earnings (loss)	$	4,125	$	(8,954	)	$	13,079		n/a
Earnings per diluted share	$	0.26	$	(0.59	)	$	0.85		n/a

     Net earnings were $4.1 million, or $0.26 per share on a diluted basis, for the year ended December 31, 2003, compared to a loss of $(9.0) million, or $(0.59) per share on a diluted basis, for the year ended 2002. The increase in net earnings is primarily due to the increase in gross profit and reduction in operating expenses as discussed above.

Bookings and Backlog:

     Bookings consist of orders taken while backlog is the total of these orders not yet shipped at the end of the period. The following tables summarize our Bookings (orders taken) and Backlog (orders to be shipped in future periods).

	Years ended December 31,
	(in thousands)
	2004		2003		Change		%
Bookings	$	57,871	$	51,900	$	5,971		12%
Ending Backlog	$	9,585	$	8,000	$	1,585		20%

22

     During 2004, bookings increased 12% compared to 2003. This increase was mostly a result of higher fourth quarter bookings of $20.8 million compared to $15.6 million in 2003. The increase in backlog is due to the higher fourth quarter bookings, much of which remained in backlog at the end of the year. Our backlog consists of orders evidenced by written contracts and/or purchase orders from customers with fixed pricing and delivery dates. We charge cancellation charges for orders that cancel and the net difference between the backlog amount and the cancellation charge is recorded as a negative booking. There is no guarantee that cancellation charges will ultimately be paid to us. Although the Company’s backlog increased at year due to record orders in the fourth quarter, we believe that the trend towards increased receiving and shipping orders in the same quarter will continue as customers continue to order our products on an “as needed” basis and we offer improved delivery times.

	Years ended December 31,
	(in thousands)
	2003		2002		Change			%
Bookings	$	51,900	$	56,000	$	(4,100	)		(7%)
Ending Backlog	$	8,000	$	13,400	$	(5,400	)		(40%)

     New orders booked decreased 7% to $51.9 million for the year ended December 31, 2003 from $56.0 million for the year ended December 31, 2002. We believe this trend was due to the reluctance of our customers to place long term capital equipment orders in the aftermath of the economic downturn of the last few years. Our backlog was $8.0 million as of December 31, 2003 a decrease of 40% from the $13.4 million in backlog as of December 31, 2002. We believe that this reduction was a result of our customers’ desires to reduce their inventory levels, shorten cycle times for filling orders and to keep their capital equipment orders to a minimum.

Liquidity and Capital Resources

     The Company had cash and cash equivalents totaling $39.3 million at December 31, 2004 compared to $30.1 million at December 31, 2003, an increase of $9.2 million. The primary factors in the increase were cash provided by operations of $10.6 million, the issuance of common stock through the exercise of stock options of $1.6 million and the sale of common stock to employees of $460,000. These were partially offset by the repurchase of the Company’s common stock for $2.8 million and capital expenditures of $822,000. Working capital increased 28% to $53.4 million at December 31, 2004 from $41.6 million at December 31, 2003.

Operating Activities:

     During 2004, net cash provided by operating activities was $10.6 million as compared to $12.1 million for 2003. Net cash provided by operating activities for 2004 resulted primarily from $13.5 million of net earnings, depreciation and amortization of $1.2 million, a tax benefit on stock option exercises of $1.8 million and an increase of $1.6 million in accrued expenses. These were partially offset by increases in deferred tax assets of $5.7 million and increases in asset accounts of $1.0 million (including accounts receivable, inventory and prepaid expenses and other current assets). Cash was further reduced by a decrease in customer advance payments of $728,000 and a decrease in accounts payable $615,000.

     During 2003, net cash provided by operating activities was $12.1 million. Net cash provided by operating activities resulted primarily from $4.1 million of net earnings, deferred income taxes of $2.6 million, a decrease in inventories of $2.9 million and depreciation and amortization of $1.9 million. These were partially offset by decreases in accrued expenses of $387,000 and accrued stock option compensation of $296,000.

     During 2002, net cash provided by operating activities was $9.7 million. Net cash provided by operating activities resulted primarily from a decrease of $7.2 million in inventories, a change in accounting principle of $4.3 million, a decrease in accounts receivable of $3.8 million, and $2.5 million of depreciation and amortization. These were partially offset by a loss of $9.0 million, a decrease in accounts payable of $592,000 and an increase in other assets of $115,000.

Investing Activities:

     Investing activities included capital expenditures of $822,000, $521,000 and $1,471,000 for the years ended December 31, 2004, 2003 and 2002. These were funded through cash provided by operating activities. The Company received $148,000, $121,000 and $14,000 for the years ended December 31, 2004, 2003 and 2002 for proceeds from disposal of assets. Although, the Company does not have any material commitments for capital expenditures planned during the next twelve months, the Company has entered into a definitive agreement to acquire Xicom Technology Inc. which will require investment of $46 million of cash and $2.0 million of

23

stock. This cash amount includes approximately $39 million as part of the purchase consideration and approximately $5 million to retire existing Xicom debt.

Financing Activities:

     During 2004, net cash used in financing activities was $773,000, while net cash was provided by financing activities of $2.1 million and $825,000 for years ended December 31, 2003 and 2002. During 2004, the Company used $2.8 million of cash to repurchase shares of its common stock. Cash generated by financing activities included the issuance of common stock through the exercise of stock options of $1.6 million, $1.9 million and $306,000 in the years ended December 31, 2004, 2003 and 2002. The sale of common stock to employees provided cash of $460,000, $316,000 and $592,000 for years ended December 31, 2004, 2003 and 2002. Principal payments on capital lease obligations amounted to $14,000, $38,000 and $73,000 for the years ended December 31, 2004, 2003, and 2002. The Company had no long-term debt outstanding at December 31, 2004, 2003 or 2002. Stockholders’ equity was $58.2 million, $43.6 million and $37.3 million for the years ended December 31, 2004, 2003 and 2002.

     We received proceeds of $2,717,000 related to the exercises of 310,571 of our redeemable common stock purchase warrants between December 31, 2004 and the expiration date of February 7, 2005. The remaining 1,832,966 unexercised warrants expired on February 7, 2005.

     The Company maintains a credit arrangement with a bank for up to $9 million, based upon 80% of eligible accounts receivable, as defined. The amount of credit available to us under the credit agreement at December 31, 2004 was approximately $7 million. We paid approximately $35,000 for a facility fee and bank costs for a two year commitment on the arrangement, whether or not any amounts are actually drawn on the line of credit. At December 31, 2004 and 2003, we had no borrowings against the line of credit. The credit agreement expires on May 1, 2006 and limits or prohibits mergers, consolidations, acquisitions, transfers of assets, liens, loans and investments in other entities and limits the use of proceeds, acquisitions of assets, indebtedness and capital expenditures without the bank’s consent. To be eligible to draw funds under the line of credit, the credit agreement requires us to maintain specific levels of tangible net worth, earnings and other ratios. We were in compliance with all covenants at December 31, 2004. The credit agreement specifies an interest rate between LIBOR plus 150 basis points and prime rate minus 50 basis points depending on terms and other conditions.

     We are currently negotiating changes to our credit arrangement to facilitate the Xicom acquisition. We anticipate that these negotiations will result in an larger credit facility with terms and conditions similar to those described above. In addition, we anticipate that we will draw $5 million to finance the Xicom acquisition at the time of acquisition close.

     We believe that cash and cash equivalents on hand and anticipated future cash receipts 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 this report.

Contractual Obligations and Commitments

     We had the following contractual obligations and commitments outstanding as of December 31, 2004:

	Payments due by period
Contractual Obligations and Commitments			Less than						More than
(in thousands)	Total		1 year		1-3 years		3-5 years		5 years
Operating leases	$	5,704	$	1,364	$	2,686	$	1,455	$	199
Purchase obligations	$	5,029		5,029		—		—		—
Other long-term liabilities		146		—		146		—		—
Total	$	10,879	$	6,393	$	2,832	$	1,455	$	199

Impact of Inflation

     We do not believe that inflation has had a material impact on revenues or expenses during the last five fiscal periods reported on herein. We do not expect that inflation will materially affect our business within the next year.

Recent Accounting Pronouncements

24

     In November 2004, the FASB issued Statement No. 151, Inventory Costs (SFAS 151). SFAS 151 requires that abnormal amounts of idle facility expense, freight, handling costs, and spoilage, be charged to expense in the period they are incurred rather than capitalized as a component of inventory costs. SFAS 151 is effective for inventory costs incurred in fiscal periods beginning after June 15, 2005. The adoption of this standard may result in higher expenses in periods where production levels are lower than normal ranges of production. We currently believe that the adoption of SFAS 151 will not have a material impact on our consolidated financial statements.

     In December 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 123R, Share-Based Payment (SFAS 123R). SFAS 123R is a revision of SFAS 123 and supersedes APB 25. Among other items, SFAS 123R eliminates the use of APB 25 and the intrinsic value method of accounting, and requires companies to recognize the cost of employee services received in exchange for awards of equity instruments, based on the grant date fair value of those awards, in the financial statements. The effective date of SFAS 123R is the first reporting period beginning after June 15, 2005, which is third quarter 2005 for calendar year companies, although early adoption is allowed. SFAS 123R permits companies to adopt its requirements using either a “modified prospective” method, or a “modified retrospective” method. Under the “modified prospective” method, compensation cost is recognized in the financial statements beginning with the effective date, based on the requirements of SFAS 123R for all share-based payments granted after that date, and based on the requirements of SFAS 123 for all unvested awards granted prior to the effective date of SFAS 123R. Under the “modified retrospective” method, the requirements are the same as under the “modified prospective” method, but also permits entities to restate financial statements of previous periods based on pro forma disclosures made in accordance with SFAS 123.

The Company currently utilizes a standard option-pricing model (i.e., Black-Scholes) to measure the fair value of stock options granted to employees. While SFAS 123R permits entities to continue to use such a model, the standard also permits the use of a “lattice” model. The Company has not yet determined which model it will use to measure the fair value of employee stock options upon the adoption of SFAS 123R.

SFAS 123R also requires that the benefits associated with the tax deductions in excess of recognized compensation cost be reported as a financing cash flow, rather than as an operating cash flow as required under current literature. This requirement will reduce net operating cash flows and increase net financing cash flows in periods after the effective date. These future amounts cannot be estimated, because they depend on, among other things, when employees exercise stock options.

The Company currently expects to adopt SFAS 123R effective July 1, 2005; however, the Company has not yet determined which of the aforementioned adoption methods it will use. Subject to a complete review of the requirements of SFAS 123R, based on stock options granted to employees through December 31, 2004, and stock options expected to be granted during 2005, the Company expects that the adoption of SFAS 123R on July 1, 2005, will reduce both third quarter 2005 and fourth quarter 2005 net earnings and net earnings per share.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

     We are exposed to certain market risks in the ordinary course of our business. These risks include changes in interest rates, introduction of competitive products, our ability to satisfy our customer’s technological requirements and the availability of raw materials from our vendors. In addition, our international operations are subject to risks related to differing economic conditions, changes in political climate, differing tax structures and other regulations and restrictions.

     We are exposed to market risk on our financial instruments from changes in interest rates. As of December 31, 2004, a change in interest rates of 10% over a year’s period would not have a material impact on our interest earnings. We do not use financial instruments for trading purposes or to manage interest rate risk. The Company does not have any derivative financial instruments.

Item 8. Financial Statements and Supplementary Data

     Our consolidated financial statements as of December 31, 2004 and 2003 and for each of the years in the three-year period ended December 31, 2004, together with related notes and the report of KPMG LLP, an independent registered public accounting firm, are on the following pages. Other required financial information is more fully described in Part IV, Item 15 below.

25

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders
Radyne ComStream Inc.:

We have audited the accompanying consolidated balance sheets of Radyne ComStream Inc. and subsidiaries (the Company) as of December 31, 2004 and 2003, and the related consolidated statements of operations, stockholders’ equity and comprehensive income (loss), and cash flows for each of the years in the three-year period ended December 31, 2004. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2004 and 2003, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2004, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company’s internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 11, 2005 expressed an unqualified opinion on management’s assessment of, and the effective operation of, internal control over financial reporting.

/s/ KPMG LLP

Phoenix, Arizona
March 11, 2005

26

Radyne ComStream Inc.
Consolidated Balance Sheets
December 31, 2004 and 2003
(in thousands, except share data)

	December 31,
	2004		2003
Assets
Current assets:
Cash and cash equivalents	$	39,300	$	30,130
Accounts receivable — trade, net of allowance for doubtful accounts of $350, and $489, respectively		9,728		9,780
Inventories		8,132		7,766
Deferred tax assets		2,218		—
Prepaid expenses and other assets		846		482
Total current assets		60,224		48,158
Deferred tax assets, net		3,445		—
Property and equipment, net		1,593		2,269
Other assets		154		182
	$	65,416	$	50,609
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	1,566	$	2,181
Accrued expenses		4,835		3,273
Income taxes payable		242		185
Customer advance payments		149		877
Total current liabilities		6,792		6,516
Long-term obligations		284		270
Accrued stock option compensation		146		205
Total liabilities		7,222		6,991
Commitments, contingent liabilities and subsequent events (notes 7, 12, 16 and 18)
Stockholders’ equity:		—		—
Common stock; $.001 par value — authorized, 50,000,000 shares; issued and outstanding, 16,232,999 and 16,130,913 shares at December 31, 2004 and 2003, respectively		16		16
Additional paid-in capital		54,414		53,102
Retained earnings (accumulated deficit)		3,764		(9,500	)
Total stockholders’ equity		58,194		43,618
	$	65,416	$	50,609

See accompanying notes to consolidated financial statements.

27

Radyne ComStream Inc.
Consolidated Statements of Operations
For the Years Ended December 31, 2004, 2003 and 2002
(in thousands, except per share data)

	Years ended December 31,
	2004			2003			2002
Net sales	$	56,578		$	57,991		$	57,662
Cost of sales		26,435			31,640			38,041
Inventory write down		—			—			431
Gross profit		30,143			26,351			19,190
Operating expenses:
Selling, general and administrative		15,420			13,559			13,471
Research and development		5,330			6,294			8,665
Asset impairment charge		—			—			995
Restructuring charge		—			—			1,102
Total operating expenses		20,750			19,853			24,233
Earnings (loss) from operations		9,393			6,498			(5,043	)
Other (income) expense:
Interest expense		29			28			62
Interest and other income		(492	)		(254	)		(236	)
Earnings (loss) before income taxes and cumulative effect of change in accounting principle		9,856			6,724			(4,869	)
Income taxes (benefit)		(3,644	)		2,599			(196	)
Earnings (loss) before cumulative effect of change in accounting principle		13,500			4,125			(4,673	)
Cumulative effect of change in accounting principle		—			—			4,281
Net earnings (loss)	$	13,500		$	4,125		$	(8,954	)
Earnings (loss) per share:
Basic	$	0.83		$	0.27		$	(0.59	)
Diluted	$	0.79		$	0.26		$	(0.59	)
Weighted average number of common shares outstanding:
Basic		16,357			15,488			15,180
Diluted		17,136			15,718			15,180

See accompanying notes to consolidated financial statements.

28

Radyne ComStream Inc.
Consolidated Statements of Stockholders’ Equity and Comprehensive Income (Loss)
Years ended December 31, 2004, 2003 and 2002
(in thousands)

						Additional			Retained earnings			Accumulated
	Common stock					Paid-in			(accumulated			other comprehensive
	Shares			Amount		capital			deficit)			income (loss)			Total
Balances, December 31, 2001		15,021		$	15	$	50,022		$	(4,671	)	$	(19	)	$	45,347
Exercise of stock options		88			—		307			—			—			307
Issuance of common stock through Employee Stock Purchase Plan		200			—		592			—			—			592
Comprehensive income (loss):
Foreign translation adjustment		—			—		—			—			(4	)		(4	)
Net earnings (loss)		—			—		—			(8,954	)		—			(8,954	)
Comprehensive income (loss)																(8,958	)
Balances, December 31, 2002		15,309			15		50,921			(13,625	)		(23	)		37,288
Exercise of stock options		642			1		1,865			—			—			1,866
Issuance of common stock through Employee Stock Purchase Plan		180			—		316			—			—			316
Comprehensive income:
Foreign translation adjustment		—			—		—			—			23			23
Net earnings		—			—		—			4,125			—			4,125
Comprehensive income																4,148
Balances, December 31, 2003		16,131			16		53,102			(9,500	)		—			43,618
Exercise of stock options		435			—		1,572			—			—			1,572
Issuance of common stock through Employee Stock Purchase Plan		70			—		460			—			—			460
Common stock repurchased		(403	)		—		(2,555	)		(236	)		—			(2,791	)
Tax benefit related to stock options		—			—		1,835			—			—			1,835
Net earnings		—			—		—			13,500			—			13,500
Balances, December 31, 2004		16,233		$	16	$	54,414		$	3,764		$	—		$	58,194

See accompanying notes to consolidated financial statements.

29

Radyne ComStream Inc.
Consolidated Statements of Cash Flows
For the Years Ended December 31, 2004, 2003 and 2002
(in thousands)

	Years ended December 31,
	2004			2003			2002
Cash flows from operating activities:
Net earnings (loss)	$	13,500		$	4,125		$	(8,954	)
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities:
Asset impairment charge		135			—			995
Cumulative effect of change in accounting principle		—			—			4,281
Provision for bad debt		318			398			434
Deferred income taxes		(5,663	)		2,553			—
Gain on disposal of assets		(23	)		(21	)		—
Depreciation and amortization		1,246			1,853			2,501
Tax benefit from disqualifying dispositions		1,835			—			—
Increase (decrease) in cash resulting from changes in:
Accounts receivable		(266	)		339			3,833
Inventories		(366	)		2,889			7,170
Prepaid expenses and other current assets		(364	)		85			228
Other assets		20			2			(115	)
Accounts payable		(615	)		300			(592	)
Accrued expenses		1,571			(387	)		(79	)
Income taxes payable		57			185			(79	)
Customer advance payments		(728	)		170			106
Long-term obligations		19			(61	)		(73	)
Accrued stock option compensation		(59	)		(296	)		(1	)
Net cash provided by operating activities		10,617			12,134			9,655
Cash flows from investing activities:
Capital expenditures		(822	)		(521	)		(1,471	)
Proceeds from sales of property and equipment		148			121			14
Net cash used in investing activities		(674	)		(400	)		(1,457	)
Cash flows from financing activities:
Repurchase of common stock		(2,791	)		—			—
Net proceeds from sale of common stock to employees		460			316			592
Exercise of stock options		1,572			1,866			306
Principal payments on capital lease obligations		(14	)		(38	)		(73	)
Net cash (used in) provided by financing activities		(773	)		2,144			825
Net increase in cash and cash equivalents		9,170			13,878			9,023
Effects of exchange rate changes on cash and cash equivalents		—			23			(4	)
Cash and cash equivalents, beginning of year		30,130			16,229			7,210
Cash and cash equivalents, end of year	$	39,300		$	30,130		$	16,229
Supplemental disclosures of cash flow information:
Cash paid for interest	$	29		$	28		$	61
Cash paid for taxes	$	125		$	—		$	—
Supplemental schedule of non-cash investing and financing activities:
Acquisition of equipment through capital lease	$	—		$	—		$	19

See accompanying notes to consolidated financial statements.

30

Radyne ComStream Inc.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2004, 2003 and 2002

(1) Organization and Acquisition

Radyne Corp., a Delaware corporation, (Radyne) was incorporated on November 25, 1980. On August 12, 1996, Radyne became a subsidiary of Singapore Technologies Pte Ltd (STPL), through its wholly-owned subsidiary, Stetsys US, Inc. (ST). In March 1999, Radyne changed its name to Radyne ComStream Inc. (the Company). During 2000, the Company changed its state of incorporation from New York to Delaware and changed the par value of its common stock from $.002 to $.001. STPL beneficially owned 9,676,800 shares of the Company’s common stock at December 31, 2003. These shares represented 60% of the Company’s voting shares outstanding as of December 31, 2003. On February 19, 2004 STPL sold all 9,676,800 shares in a private transaction (see Note 10).

The Company is headquartered in Phoenix, Arizona and has manufacturing facilities in Phoenix and in San Diego, California. Additionally, the Company has sales offices in Boca Raton, Florida, Singapore, Beijing, Jakarta, London and Amsterdam. The Company also contracts with representatives that provide sales and/or service centers in Rio de Janeiro and Bangalore. The Company designs, manufactures, and sells products, systems and software used for the transmission and reception of data, voice, internet protocol and video over satellite, microwave and cable communication networks.

The Company operates primarily in North America in the satellite communications industry. The Phoenix facility designs and manufactures satellite and point-to-point modems and allied equipment. The San Diego facility designs and manufactures audio and video encoders, satellite modems and Internet over satellite hardware. The Company sells and distributes its products under the Radyne ComStream, ComStream and Tiernan brands.

(2) Summary of Significant Accounting Policies

(a) Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make a number of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Such estimates and assumptions affect the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, the Company evaluates its estimates and assumptions based upon historical experience and various other factors and circumstances. The Company believes that its estimates and assumptions are reasonable in the circumstances; however, actual results may differ from these estimates under different future conditions.

(b) Principles of Consolidation

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

(c) Cash Equivalents

The Company considers all money market accounts and short term AAA investments with original maturities of 90 days or less to be cash equivalents.

(d) Accounts Receivable

Accounts receivable consist of trade receivables from customers. The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of the Company’s customers to make required payments. The allowance is assessed on a regular basis by management and is based upon management’s periodic review of the collectibility of the receivables with respect to historical experience. If

31

the financial condition of the Company’s customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

(e) Revenue Recognition

The Company recognizes revenue when products have been shipped to the customer, an agreement with the customer has been executed, transfer of title and acceptance has occurred, pricing is fixed and collectibility is probable. Revenue from services is recognized when the related services have been performed. We consider products and services as separate units of accounting under EITF 00-21, Revenue Arrangements with Multiple Deliverables. Revenue is allocated to the separate units of accounting based on their relative fair values.

(f) Inventories

Inventories, consisting of satellite modems and related products, are valued at the lower of cost (first-in, first-out) or market. The Company writes down its inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based on assumptions about future demand and market conditions.

(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 is computed using the straight-line method over the estimated useful lives as follows: machinery and equipment three to seven years; furniture and fixtures two to seven years; demonstration units two to three years and computers and software three to fine 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 represents the excess of costs over fair value of assets of businesses acquired. The Company adopted Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (SFAS 142) as of January 1, 2002. Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but instead tested for impairment at least annually in accordance with the provisions of SFAS 142. SFAS 142 also requires that intangible assets with estimable useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with Statement of Financial Accounting Standards No. 144, Accounting for Impairment or Disposal of Long-Lived Assets (SFAS 144).

Our transitional impairment analysis of goodwill as of January 1, 2002, as required by SFAS 142, yielded an impairment charge of $4.3 million, recorded in 2002 as a cumulative effect of change in accounting principle. We have no remaining goodwill on our balance sheet as of December 31, 2004 and 2003.

(i) Purchased Technology

In connection with the acquisition of ComStream in 1998, value was assigned to purchased technology. Purchased technology was amortized on a straight-line basis over the expected period to be benefited of 6.25 years. Purchased technology of $995,000 was written-off during 2002 because the Company discontinued use of the technology.

(j) Impairment of Long-Lived Assets

The Company reviews long-lived assets and certain identifiable intangibles for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amounts of the assets exceed the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

32

(k) Warranty Costs

The Company provides limited warranties on certain of its products and systems for periods generally not exceeding two years. Estimated warranty costs for potential product liability and warranty claims based on the Company’s claim experience are accrued as cost of sales at the time revenue is recognized. While the Company engages in extensive product quality programs and processes, including actively monitoring and evaluating the quality of its vendors, the Company’s warranty liability is affected by product failure rates and material usage and service delivery costs incurred in correcting product failures. Should actual product failure rates, material usage or service delivery costs differ from the Company’s estimates, revisions to the estimated warranty liability would be required.

(l) Research and Development

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

(m) Income Taxes

The Company accounts for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the future consequences attributed to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Differences between income for financial and tax reporting purposes arise primarily from amortization of certain intangible assets and accruals for warranty reserves and compensated absences. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected 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.

The Company evaluates the recoverability of the deferred tax assets and records a valuation allowance to reduce its deferred tax assets to an amount for which realization is more likely than not. Should we determine that we are not able to realize all or part of our deferred tax assets in the future, a valuation allowance is recorded against the deferred tax assets with a corresponding charge to income in the period such determination is made. Likewise, should we determine that we would be able to realize deferred tax assets in the future in excess of our net recorded amount, an adjustment to the valuation allowance for deferred tax assets would result in an income tax benefit in the period such determination was made.

(n) Concentration of Credit Risk

Financial instruments, which potentially subject the Company to concentrations of credit risk, are principally accounts receivable. The Company maintains ongoing credit evaluations of its customers and generally does not require collateral.

The Company maintains allowances for doubtful accounts for the estimated losses resulting from the inability of its customers to make required payments and such losses have not exceeded management’s expectations. If the financial condition of the Company’s customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

Periodically during the year, the Company maintains cash in financial institutions in excess of the amounts insured by the federal government.

(o) Net Earnings (Loss) Per Share

Basic earnings (loss) per share is computed by dividing earnings available to stockholders by the weighted-average number of shares outstanding for the period. Diluted earnings (loss) per share reflects the potential dilution that could occur if securities or contracts to issue common stock were exercised or converted to stock or resulted in the issuance of stock that then shared in the earnings of the Company.

33

(p) Fair Value of Financial Instruments

The fair value of accounts receivable and accounts payable approximates the carrying value due to the short-term nature of these instruments.

(q) Employee Stock Options

The Company has elected to follow Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25) and related interpretations in accounting for its employee stock options and to adopt the “disclosure only” alternative treatment under Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (SFAS 123). Under SFAS 123, deferred compensation is recorded for the fair value of the stock on the date of the option grant. The deferred compensation is amortized over the vesting period of the option.

The Company applies APB 25 in accounting for its employee stock options. Had the Company determined compensation cost based on the fair value at the grant date for its stock options under SFAS 123, the Company’s net earnings (loss) and net earnings (loss) per share would have been reduced to the pro forma amounts indicated below:

	For the Year Ended December 31,
	(in thousands)
	2004		2003		2002
Net earnings (loss):
As reported	$	13,500	$	4,125	$	(8,954	)
Fair value of stock options		1,508		726		5,183
Pro forma	$	11,992	$	3,399	$	(14,137	)
Earnings (loss) per share:
Basic — as reported	$	0.83	$	0.27	$	(0.59	)
Basic — pro forma	$	0.73	$	0.22	$	(0.93	)
Diluted — as reported	$	0.79	$	0.26	$	(0.59	)
Diluted — pro forma	$	0.70	$	0.22	$	(0.93	)

The fair value of options granted under the stock option plans 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 49 percent — 95 percent, risk free interest rate of 3.00 percent – 4.25 percent, and expected lives of five — seven years. The per share weighted average fair value of stock options granted under the Plan for the years ended December 31, 2004, 2003 and 2002 were $4.75, $1.65 and $3.16 respectively, using the Black-Scholes option-pricing model and the assumptions listed above.

In December 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 123R, Share-Based Payment (SFAS 123R). SFAS 123R is a revision of SFAS 123 and supersedes APB 25. Among other items, SFAS 123R eliminates the use of APB 25 and the intrinsic value method of accounting, and requires companies to recognize the cost of employee services received in exchange for awards of equity instruments, based on the grant date fair value of those awards, in the financial statements. The effective date of SFAS 123R is the first reporting period beginning after June 15, 2005, which is third quarter 2005 for calendar year companies, although early adoption is allowed. SFAS 123R permits companies to adopt its requirements using either a “modified prospective” method, or a “modified retrospective” method. Under the “modified prospective” method, compensation cost is recognized in the financial statements beginning with the effective date, based on the requirements of SFAS 123R for all share-based payments granted after that date, and based on the requirements of SFAS 123 for all unvested awards granted prior to the effective date of SFAS 123R. Under the “modified retrospective” method, the requirements are the same as under the “modified prospective” method, but also permits entities to restate financial statements of previous periods based on pro forma disclosures made in accordance with SFAS 123.

The Company currently utilizes a standard option-pricing model (i.e., Black-Scholes) to measure the fair value of stock options granted to employees. While SFAS 123R permits entities to continue to use such a model, the

34

standard also permits the use of a “lattice” model. The Company has not yet determined which model it will use to measure the fair value of employee stock options upon the adoption of SFAS 123R.

SFAS 123R also requires that the benefits associated with the tax deductions in excess of recognized compensation cost be reported as a financing cash flow, rather than as an operating cash flow as required under current literature. This requirement will reduce net operating cash flows and increase net financing cash flows in periods after the effective date. These future amounts cannot be estimated, because they depend on, among other things, when employees exercise stock options.

The Company currently expects to adopt SFAS 123R effective July 1, 2005; however, the Company has not yet determined which of the aforementioned adoption methods it will use. Subject to a complete review of the requirements of SFAS 123R, based on stock options granted to employees through December 31, 2004, and stock options expected to be granted during 2005, the Company expects that the adoption of SFAS 123R on July 1, 2005, will reduce both third quarter 2005 and fourth quarter 2005 net earnings and net earnings per share.

(r) Segment Reporting

The Company has utilized the management approach as defined by Statement of Financial Accounting Standards No. 131 Disclosures about Segments of an Enterprise and Related Information (SFAS 131) to determine if the Company has reportable operating segments. Based on this evaluation, the Company has determined that it has only one operating business segment, the sale, integration and installation of equipment for satellite, microwave and cable communications and television networks.

(s) Reclassifications

Certain reclassifications have been made to the prior years consolidated financial statements to conform to the current year presentation.

(3) Inventories

	December 31,
	2004		2003
	(in thousands)
Inventories consist of the following:
Raw materials and components	$	5,659	$	6,261
Work-in-process		1,501		1,137
Finished goods		972		368
	$	8,132	$	7,766

(4) Property and Equipment

	December 31,
	2004			2003
	(in thousands)
Property and equipment consist of the following:
Machinery and equipment	$	4,498		$	6,020
Furniture and fixtures		1,463			4,053
Leasehold improvements		491			645
Demonstration units		1,113			674
Computers and software		795			923
		8,360			12,315
Less accumulated depreciation and amortization		(6,767	)		(10,046	)
	$	1,593		$	2,269

35

(5) Accrued Expenses

Accrued expenses consist of the following:
	December 31,
	2004		2003
	(in thousands)
Wages, vacation and related payroll taxes	$	2,351	$	1,025
Professional fees		354		220
Warranty reserve		955		857
Restructuring costs		67		407
Commissions		489		386
Deferred rent		265		181
Other		354		197
	$	4,835	$	3,273

The following summarizes changes to restructuring related liabilities for the year ended December 31, 2004 and 2003:

	Accrued Lease
	Exit Costs
Balance, December 31, 2002	$	645
Cash payments		(238	)
Balance, December 31, 2003	$	407
Cash payments		(340	)
Balance, December 31, 2004	$	67

During the third quarter of 2002, the Company implemented a restructuring plan to reduce costs and address the economic slowdown and negative industry conditions. This plan included the reduction in force of approximately 10% of its workforce in the manufacturing, research and development and sales departments, the abandonment of certain non-performing and under-performing product lines and a provision for the excess space created at the San Diego facility as a result of these cost cutting measures. This effort resulted in a charge to the Company’s operating expenses of approximately $1.5 million; of which $431,000 was charged to cost of sales and the balance was charged to restructuring charge. This amount included $170,000 in severance costs. During the year ended December 31, 2002, the Company paid all charges except for $645,000 in lease exit costs. During the years ended December 31, 2004 and 2003, $340,000 and $238,000 in lease exit costs were paid and the remaining $67,000 was paid in January and February 2005.

(6) Line of Credit

The Company maintains a credit arrangement with a bank for up to $9 million, based upon 80% of eligible accounts receivable, as defined. The amount of credit available to us under the credit agreement at December 31, 2004 was approximately $7 million. We paid approximately $35,000 for a facility fee and bank costs for a two year commitment on the arrangement, whether or not any amounts are actually drawn on the line of credit. At December 31, 2004 and 2003, we had no borrowings against the line of credit. The credit agreement expires on May 1, 2006 and limits or prohibits mergers, consolidations, acquisitions, transfers of assets, liens, loans and investments in other entities and limits the use of proceeds, acquisitions of assets, indebtedness and capital expenditures without the bank’s consent. To be eligible to draw funds under the line of credit, the credit agreement requires us to maintain specific levels of tangible net worth, earnings and other ratios. We were in compliance with all covenants at December 31, 2004. The credit agreement specifies an interest rate between LIBOR plus 150 basis points and prime rate minus 50 basis points depending on terms and other conditions.

36

(7) Commitments

Amounts paid under rental agreements were $1,856,000, $1,860,000, and $1,779,000 for the years ended December 31, 2004, 2003 and 2002, respectively. Future minimum rentals under leases after December 31, 2004 are as follows:

2005	$	1,364
2006		1,316
2007		1,370
2008		1,128
2009		327
Thereafter		199
Total commitments	$	5,704

The Company currently subleases a portion of its Phoenix facility to the University of Phoenix Online. Rent expense was offset by $283,000, $275,000 and $267,000 for the years ended December 31, 2004, 2003 and 2002 for rent payments received through this sublease. Future minimum rentals under leases after December 31, 2004 have not been reduced by minimum sublease rentals of $291,000, $299,000 and $255,000 for the years ended December 31, 2005, 2006 and 2007, respectively. This sublease agreement expires in 2007.

As part of the Armer acquisition, we leased facilities in Chandler, Arizona consisting of 16,000 square feet costing approximately $16,000 per month and expiring in 2008. The Armer operations were consolidated into our Phoenix facility in 2004 and we are currently seeking to vacate those premises with the assumption of the lease by a sub-tenant.

The Company generally has commitments with certain suppliers and subcontract manufacturers to supply certain components and estimates its non-cancelable obligations for these commitments to be approximately $5,029,000 at December 31, 2004, which is anticipated to be paid in 2005.

(8) Income Taxes

Income tax expense (benefit) amounted to $(3,644,000), $2,599,000, and $(196,000) for the years ended December 31, 2004, 2003 and 2002, respectively. The actual tax expense (benefit) for these periods differs from the Federal statutory tax expense for those periods as follows:

	Years ended December 31,
	2004			2003			2002
	(in thousands)
Computed Federal statutory tax expense	$	3,351		$	2,286		$	(1,655	)
State tax expense (benefit)		(335	)		207			(27	)
Change in federal valuation allowance		(6,396	)		1,282			1,466
Extra territorial income exclusion		(456	)		(1,128	)		—
Other adjustments		192			(48	)		20
Total	$	(3,644	)	$	2,599		$	(196	)

37

Components of income tax expense (benefit) for 2004, 2003 and 2002 follow:

	Current			Deferred			Total
	(in thousands)
2004:
Federal	$	1,942		$	(5,080	)	$	(3,138	)
State		77			(583	)		(506	)
Total	$	2,019		$	(5,663	)	$	(3,644	)
2003:
Federal	$	(10	)	$	2,296		$	2,286
State		56			257			313
Total	$	46		$	2,553		$	2,599
2002:
Federal	$	(156	)	$	—		$	(156	)
State		(40	)		—			(40	)
Total	$	(196	)	$	—		$	(196	)

	2004			2003
	(in thousands)
Deferred tax assets consisted of the following at December 31:
Cumulative tax effect of net operating loss carryforwards	$	6,037		$	6,966
Tax credits		502			389
Reserves and accruals		1,113			1,584
Depreciation		(4	)		319
Amortization of goodwill and intangibles		561			625
Valuation allowance		(2,546	)		(9,883	)
	$	5,663		$	—

During the year ended December 31, 2004, the Company reduced the valuation allowance related to the deferred tax assets to record such asset at the amount management believes is more likely than not to be realized through the generation of future taxable income. The net change in the total valuation allowance for the years ended December 31, 2004 and 2003 was approximately $7,337,000 and $1,301,000, respectively. Of the decrease in the valuation allowance during the year ended December 31, 2004 approximately $7,030,000 was recorded as a reduction of income tax expense, approximately $772,000 was recorded as an increase to additional paid-in capital and approximately $465,000 was recorded as an increase in deferred tax assets. In addition to the approximate $772,000 increase in additional paid-in capital for the release of the valuation allowance related to the tax benefits of stock option exercises in prior years, additional paid-in capital was increased for the tax benefit of stock option exercises during the year ended December 31, 2004 in the amount of approximately $1,063,000 for a total increase of approximately $1,835,000. At December 31, 2004, the Company has net operating loss carryforwards of approximately $16,807,000 expiring in various years from 2018 through 2022, and federal alternative minimum tax credits of approximately $449,000 which do not expire, and state credits of approximately $53,000 which expire in 2008. These net operating losses and federal and state tax credits are available for utilization against taxable income/taxes payable of future periods, if any.

As of December 31, 2004, the Company has total net deferred tax assets of $8,209,000 with a corresponding valuation allowance of $2,546,000. The valuation allowance relates to net operating loss carryforwards which management believes are limited as to utilization under Internal Revenue Service Code Section 382. The Company generated taxable income in each of the four quarters of 2004, the last three quarters of 2003 and projects future taxable income to be sufficient to utilize the net deferred tax assets. Management believes that past profitable performance and the forecast of future profits supports the recognition of the deferred tax assets and the reduction of the valuation allowance.

Ultimate realization of any or all of the deferred tax assets is not assured due to significant uncertainties associated with estimates of future taxable income during the carryforward periods and is subject to change depending on the tax laws in effect in the years in which the carryforwards are used. Management will continue to evaluate the recoverability of the deferred tax assets and will adjust the valuation allowance recorded against the deferred tax assets accordingly.

The Company has representative sales offices in foreign countries, some of which the United States does not have tax treaties with. This could potentially subject the Company to taxation in those countries. While management believes the Company does not have any tax liability in these jurisdictions, the Company has accrued for potential tax exposure in the event we could be deemed subject to taxation and may not prevail in an audit by these taxing authorities. Such potential tax exposure and related accrued liabilities are not material to the Company’s consolidated financial statements.

38

(9) Significant Customers and Foreign and Domestic Sales

No customer represented greater than 10% of net sales during any of the years ended December 31, 2004, 2003 or 2002.

The Company’s sales in principal foreign and domestic markets as a percentage of total sales for the years ended December 31, 2004, 2003 and 2002 follow:

	Years ended December 31,
	2004			2003			2002
Asia		21	%		21	%		27	%
Africa/Middle East		10	%		8	%		5	%
Latin America		2	%		2	%		3	%
Europe		13	%		16	%		11	%
Canada		1	%		1	%		1	%
Total Foreign sales		47	%		48	%		47	%
Domestic		53	%		52	%		53	%
		100	%		100	%		100	%
Foreign assets	$	—		$	—		$	319,000

In 2003, the Company transferred all of the assets of the ComStream UK Ltd. entity to the San Diego operating facility. Prior to 2003, the Company maintained the subsidiary entity under the registration of the United Kingdom. In 2003, it was decided that the original reasons to establish the legal entity in the UK no longer existed. Therefore, effective January 1, 2003 the legal entity was dissolved. The Company maintains a sales office in the UK which is a branch of Radyne ComStream Inc.

(10) Stockholders’ Equity

On June 4, 2004, the Board of Directors authorized management to purchase up to $10 million of the Company’s outstanding common stock. As of December 31, 2004, the Company has purchased 402,600 shares under the program at a total cost of $2,791,000 which has been recorded as a reduction to additional paid-in capital of $2,555,000 and a reduction to retained earnings of $236,000. This program expires on June 3, 2005 and was the only repurchase program outstanding at December 31, 2004.

On February 19, 2004, Stetsys Pte. Ltd. and Stetsys US, Inc. entered into definitive purchase agreements to sell their shares of common stock in the Company, an aggregate of 9,676,800 shares, to approximately 40 institutional investors in a private transaction. The purchase price of the common stock was $9.25 per share. The shares sold in the transaction will be subject to securities law restrictions on their subsequent resale. However, the Company has registered the shares for resale. The Company has not received any proceeds from this transaction.

In February 2000, the Company completed an offering of 2,400,000 units, each consisting of one share of common stock and one five-year common stock purchase warrant, plus an additional 360,000 units sold pursuant to the underwriters’ over-allotment option, for a total of approximately $16,340,000 cash, net of issuance costs. Each warrant was exercisable to purchase one share of common stock at a price of $8.75, subject to adjustment in certain circumstances, at any time after the warrants were issued until February 7, 2005. Commencing February 7, 2001, the Company could redeem the warrants for $0.01 per warrant upon no less than 30 days or more than 60 days notice mailed within five days after the closing sales price of the common stock has equaled or exceeded $10.9375 for each of 20 consecutive trading days (see Note 18).

The Company has the authority to issue ten million shares of preferred stock, par value $0.001 per share. At December 31, 2004 and 2003 no preferred shares were issued or outstanding.

(11) Earnings (Loss) Per Share

39

A reconciliation of the numerators and the denominators of the basic and diluted per share computations and a description and amount of potentially dilutive securities follow:

	Years Ended December 31,
	2004		2003		2002
	(in thousands, except per share amounts)
Numerator:
Net earnings (loss)	$	13,500	$	4,125	$	(8,954	)
Denominator:
Weighted average common shares for basic earnings per share		16,357		15,488		15,180
Net effect of dilutive stock options and warrants		779		230		—
Weighted average common shares for diluted earnings per share		17,136		15,718		15,180
Basic earnings (loss) per share:
Net earnings (loss) per basic share	$	0.83	$	0.27	$	(0.59	)
Diluted earnings (loss) per share:
Net earnings (loss) per diluted share	$	0.79	$	0.26	$	(0.59	)
Options and warrants excluded from earnings (loss) per share due to anti-dilution:
Stock options with exercise price greater than the average market price		485		1,648		3,322
Common stock warrants with $8.75 exercise price		2,144		2,144		2,144

(12) Employee Benefit Plan

The Company has a qualified contributory 401(k) plan that covers all employees who have attained the age of 18 and are employed at the enrollment date. The Company provided contributions of $194,000, $184,000 and $267,000 respectively, for the years ended December 31, 2004, 2003 and 2002. Each participant may elect to contribute any portion of his or her gross compensation up to the maximum amount allowed by the Internal Revenue Service. During the years ended December 31, 2004, 2003 and 2002, the Company matched 50% of each employee contribution to the plan up to a maximum annual match of $2,000.

(13) Stock Options

In June 2000, the Board of Directors adopted the 2000 Long-Term Incentive Stock Options Plan (the 2000 Plan), which was approved by the stockholders on June 29, 2000. The 2000 Plan provided for the grant of options to employees of the Company to purchase 2,500,000 shares of common stock. In May 2002, the shareholders approved an amendment to the plan that increased the shares available for issuance under the plan by 1,500,000 to 4,000,000 shares. The option price per share under the 2000 Plan may not be less than the fair market value of the stock (110 percent of the fair market value for an optionee who is a 10 percent stockholder) on the day the option is granted. At December 31, 2004, the Company had 2,186,739 options outstanding under this plan and 1,179,888 options available for future issuance.

In November 1996, the Board of Directors adopted the 1996 Incentive Stock Option Plan (the Plan), which was approved by the stockholders on January 8, 1997. The Plan provided for the grant of options to employees of the Company to purchase up to 1,282,042 shares of common stock, of which 110,100 shares were used for a stock rights offering to employees in 1997. The option price per share under the Plan may not be less than the fair market value of the stock (110 percent of the fair market value for an optionee who is a 10 percent stockholder) on the day the option is granted. In November 1998, the Plan was amended to increase the options available by 900,000, providing a total of 2,071,942 options available to purchase shares of common stock. At December 31, 2004, the Company had 436,823 options outstanding under this plan and 392,094 options available for future issuance.

At December 31, 2004, the Company had a total of 2,623,562 options outstanding at exercise prices ranging from $2.25 to $14.63 per share. Of the total options, the Company had 84,636 options outstanding at an exercise price of $2.50 per share that carry the right to a cash bonus of $1.719 per purchased share, payable upon exercise. The stock option compensation accrual related to the bonus is $146,000 and $205,000 at December 31, 2004 and 2003, respectively. A summary of the aforementioned stock plan activity follows:

40

				Weighted
				Average
				Price Per
	Number			Share
Balance, December 31, 2001		3,569,702		$	7.71
Granted		432,000			4.27
Forfeited		(605,291	)		8.17
Exercised		(88,364	)		3.45
Balance, December 31, 2002		3,308,047		$	7.29
Granted		1,167,429			3.61
Cancelled		(999,615	)		9.90
Forfeited		(230,304	)		4.21
Exercised		(642,101	)		2.92
Balance, December 31, 2003		2,603,456		$	5.99
Granted		495,450			7.16
Forfeited		(40,788	)		5.19
Exercised		(434,556	)	$	3.64
Balance, December 31, 2004		2,623,562		$	6.62

A summary of stock options outstanding at December 31, 2004 follows:

	Options Outstanding					Options Exercisable
			Weighted-
			Average	Weighted-				Weighted-
	Number		Remaining	Average		Number		Average
Range of Exercise Prices	Outstanding		Contractual Life	Exercise Price		Exercisable		Exercise Price
$2.25 to $3.50		484,474	5.1 years	$	2.66		470,599	$	2.67
$3.51 to $4.75		292,512	6.7 years		4.14		229,387		4.11
$4.76 to $6.25		657,384	8.4 years		5.39		406,892		5.50
$6.26 to $7.50		697,072	8.1 years		6.77		436,641		6.83
$7.51 to $8.75		7,000	7.5 years		8.10		4,750		8.19
$8.76 to $10.00		95,750	9.4 years		9.12		23,750		9.12
$10.01 to $14.63		389,370	5.5 years		14.55		389,370		14.55
		2,623,562	7.1 years	$	6.62		1,961,389	$	6.80

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 would be granted no earlier than six months and one day after the options were 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,

41

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. Subject to the terms and conditions of the offer, the Company granted new options to purchase 496,429 shares of common stock on July 23, 2003 at an exercise price of $2.26.

(14) Employee Stock Purchase Plan

On June 15, 1999, the Company’s shareholders adopted the 1999 Employee Stock Purchase Plan (the Purchase Plan), as a means of rewarding and retaining existing employees. The purchase plan allows employees, including officers and directors who are employees, to purchase shares of the Company’s common stock at semi-annual intervals through periodic payroll deductions. The purchase price per share, in general will be 85% of the lower of the fair market value of the common stock on the participant’s entry date into the offering period or 85% of the fair market value on the semi-annual purchase date. The Board of Directors or a committee of two or more directors, none of whom will be officers or employees, have full authority to administer all aspects of the Purchase Plan. There were 1,000,000 shares authorized for issuance under the plan. As of December 31, 2004, 369,412 shares remain unissued under the plan.

(15) Related Party Transactions

Sales to Agilis Communication Technologies Pte Ltd (Agilis), an affiliate of ST, amounted to $20,000, $0 and $97,000 for the years ended December 31, 2004, 2003 and 2002, respectively.

(16) Contingencies

The Company is involved in litigation and claims arising in the normal course of operations. In the opinion of management based on consultation with legal counsel, losses, if any, from this litigation are covered by insurance or are immaterial; therefore, no provision has been made in the accompanying consolidated financial statements for losses, if any, which might result from the ultimate outcome of these matters.

(17) Supplemental Financial Information

A summary of additions and deductions related to the allowance for doubtful accounts for the years ended December 31, 2004, 2003 and 2002 follows:

	Balance at						Balance at
	Beginning						End of
	of Year		Additions		Deductions		Year
			(in thousands)
Years ended December 31:
2004	$	489		318		457	$	350
2003	$	339		398		248	$	489
2002	$	1,173		434		1,268	$	339

(18) Subsequent Events

After December 31, 2004 but prior to the expiration date of February 7, 2005, 310,571 of the Company’s redeemable warrants were exercised. The Company received proceeds of $2,717,000 related to the exercises and have issued 310,571 shares of our common stock to the former holders of the redeemable warrants. The remaining 1,832,966 unexercised warrants expired on February 7, 2005.

On March 3, 2005, the Company announced that it intended to acquire Xicom Technology, Inc for approximately $41 million of cash and stock. The transaction has been approved by the Board of Directors of both companies and is expected to close during the second quarter of 2005. Closing is subject to completion of a satisfactory pre-closing audit, receipt and approval of complete disclosure schedules, and customary closing conditions.

On March 3, 2005, the Board of Directors approved the Management Incentive Plan for 2005. Under the plan, officers and certain other key employees of the Company will be paid a bonus if the Company achieves specified before-tax profit performance objectives during 2005. Bonuses will not be paid if the Company’s

42

before-tax profitability fails to achieve specified levels. The Management Incentive Plan calls for the payments at a higher rate for amounts in excess of budgeted objectives.

(19) Quarterly Financial Data — Unaudited

A summary of the quarterly data for the years ended December 31, 2004 and 2003 follows:

	First			Second		Third		Fourth
	Quarter			Quarter		Quarter		Quarter		Total
				(in thousands, except per share amounts)
2004:
Total revenues	$	15,073		$	12,020	$	12,707	$	16,778	$	56,578
Gross profit		7,980			6,049		6,574		9,540		30,143
Operating expenses		4,705			4,720		4,934		6,391		20,750
Earnings from operations		3,274			1,329		1,640		3,150		9,393
Net earnings		3,135			1,323		6,065		2,977		13,500
Basic earnings per share (1)		0.19			0.08		0.37		0.18		0.83
Diluted earnings per share (1)		0.18			0.08		0.36		0.18		0.79
2003:
Total revenues	$	10,880		$	14,792	$	15,791	$	16,528	$	57,991
Gross profit		3,666			6,632		7,135		8,918		26,351
Operating expenses		5,168			5,313		4,532		4,840		19,853
Earnings (loss) from operations		(1,503	)		1,318		2,605		4,078		6,498
Net earnings (loss)		(1,448	)		1,372		1,624		2,577		4,125
Basic earnings (loss) per share		(0.09	)		0.09		0.11		0.16		0.27
Diluted earnings (loss) per share		(0.09	)		0.09		0.10		0.16		0.26

(1) Earnings per share are computed independently for each of the quarters presented. Therefore, the sum of the quarterly earnings per share does not equal the total computed for the year due to stock transactions that occurred.

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

None

Item 9A. Controls and Procedures

Based on their evaluation as of December 31, 2004, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 as amended) were sufficiently effective to ensure that the information required to be disclosed by us in this Annual Report on Form 10-K was recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and instructions for Form 10-K. There were no significant changes in our internal controls over financial reporting during our most recently completed quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting, or there factors that could significantly affect these controls subsequent to the date of their evaluation, and there were no corrective actions taken with regard to significant deficiencies or material weaknesses in our controls.

Management’s Annual Report on Internal Control over Financial Reporting

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined by rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company’s internal control over financial reporting includes those policies and procedures that:

i.   pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of the assets of the Company;

43

ii.	provide reasonable assurance that the transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with the authorizations of management and directors of the Company; and
iii.	provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect of the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2004. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework.

Based on our assessment of those criteria, management believes that the Company maintained effective internal control over financial reporting as of December 31, 2004.

KPMG LLP, the independent registered public accounting firm that audited the consolidated financial statements of the Company included in this Annual Report on Form 10-K, has issued a report on management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2004. The report is included below.

44

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders
Radyne ComStream Inc.:

We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control over Financial Reporting, that Radyne ComStream Inc. (the Company) maintained effective internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management’s assessment that the Company maintained effective internal control over financial reporting as of December 31, 2004 is fairly stated, in all material respects, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2004, based on COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of the Company and subsidiaries as of December 31, 2004 and 2003, and the related consolidated statements of operations, stockholders’ equity and comprehensive income (loss), and cash flows for each of the years in the three-year period ended December 31, 2004, and our report dated March 11, 2005 expressed an unqualified opinion on those consolidated financial statements.

/s/ KPMG LLP

Phoenix, Arizona
March 11, 2005

Item 9B. Other Information

None

45

PART III

Item 10. Directors and Executive Officers of the Registrant

Information regarding directors and executive officers of the Company is set forth under the captions “Board of Directors” and “Executive Officers and Compensation” in the Company’s Proxy Statement relating to its 2005 Annual Meeting of Stockholders (the “2005 Proxy Statement”), which will be filed with the Commission within 120 days after the end of the Company’s fiscal year ended December 31, 2004, and such information is incorporated by reference in this Form 10-K. The “Compensation Committee Report on Executive Compensation,” The Report of the Audit Committee” and the “Stock Price Performance Graph” contained in the 2005 Proxy Statement are not incorporated by reference in this Form 10-K.

The Company has adopted a code of ethics that applies to all directors, officers and employees of the Company, including the Chief Executive Officer, Chief Financial Officer, Chief Operating Officer and Chief Technical Officer. A copy of the Company’s Code of Ethics will be mailed, at no charge, upon request submitted to Linda Dyvig, Investor Relations, Radyne ComStream Inc, 3138 East Elwood St., Phoenix, Arizona 85034. If the Company makes any amendment to, or grants any waivers of, a provision of the code of ethics that applies to its principal executive officer, principal financial officer, principal accounting officer or controller where such amendment or waiver is required to be disclosed under applicable SEC rules, the Company intends to disclose such amendment or waiver and the reasons therefore on its Internet website at www.radn.com.

Item 11. Director and Executive Compensation

Information regarding director and executive compensation is set forth under the captions “Election of Directors” and “Executive Officers and Compensation” in the 2005 Proxy Statement, which information is incorporated in this Form 10-K by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Information regarding security ownership of certain beneficial owners and management is set forth under the caption “Security Ownership of Principal Stockholders and Management” in the 2005 Proxy Statement, which information is incorporated in this Form 10-K by reference.

46

Disclosure with Respect to the Company’s Equity Compensation Plans
as of December 31, 2004

The Company maintains the 1996 Employee Incentive Stock Option Plan (the “1996 Plan”), the 2000 Long-Term Incentive Plan (the “2000 Plan”) and the 1999 Employee Stock Purchase Plan (the “ESPP”), pursuant to which it may grant equity awards to eligible persons.

The following table gives information about equity awards under the Company’s 1996 Plan, the 2000 Plan and the ESPP.

					Number of
					securities
					remaining available
	Number of				for future issuance
	securities to be				under equity
	issued upon		Weighted-average		compensation plans
	exercise of		exercise price of		(excluding
	outstanding		outstanding		securities
	options, warrants		options, warrants		reflected in column
Plan category	and rights		and rights		(a))
	(a)		(b)		(c)
Equity compensation plans approved by security holders [1]		2,623,562	$	6.62		1,941,394	[2]
Equity compensation plans not approved by security holders	None			N/A	None
Total		2,623,562	$	6.62		1,941,394

1	Of the total options outstanding, 436,823 and 2,186,739 have been granted under the 1996 Plan and the 2000 Plan, respectively.
2	Of these shares, 369,412 remain available for purchase under the ESPP.

47

Item 13. Certain Relationships and Related Transactions

     Information regarding certain relationships and related transactions of management is set forth under the caption “Certain Relationships and Related Transactions” in the 2005 Proxy Statement, which information is incorporated in this Form 10-K by reference.

Item 14. Principal Accounting Fees and Services

     Information regarding the Company’s principal accounting fees and services is set forth under the caption “Principal Accounting Fees and Services” in the 2005 Proxy Statement, which information is incorporated in this Form 10-K by reference.

PART IV

Item 15. Exhibits and Financial Statement Schedules

(a)     (1) Financial Statements:

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

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets as of December 31, 2004 and 2003

Consolidated Statements of Operations for the Years Ended December 31, 2004, 2003 and 2002

Consolidated Statements of Stockholders’ Equity and Comprehensive Income (Loss) for the Years Ended December 31, 2004, 2003 and 2002

Consolidated Statements of Cash Flows for the Years Ended December 31, 2004, 2003 and 2002

Notes to Consolidated Financial Statements

          (2) Financial Statement Schedules:

     There are no financial statement schedules filed as part of this annual report, since the required information is included in the consolidated financial statements, including the notes thereto, or the circumstances requiring inclusion of such schedules are not present.

          (3) Exhibits:

     See Exhibit Index

48

SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

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

By:	/s/ Malcolm C. Persen
	Malcolm C. Persen, Vice President, Secretary and Chief Financial Officer
	(Principal Financial Officer)

Dated: March 11, 2005

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

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

Name	Title	Date
/s/ C.J. Waylan C.J. Waylan	Chairman of the Board of Directors	March 11, 2005
/s/ Robert C. Fitting Robert C. Fitting	Chief Executive Officer and Director	March 11, 2005
/s/ Malcolm C. Persen Malcolm C. Persen	Vice President, Secretary and Chief Financial Officer (Principal Financial Officer)	March 11, 2005
/s/ Lee Yip Loi Lee Yip Loi	Director	March 11, 2005
/s/ Dennis Elliott Dennis Elliott	Director	March 11, 2005
/s/ Michael A. Smith Michael A. Smith	Director	March 11, 2005

49

EXHIBIT INDEX

Exhibit No.	Exhibit
3.1 (1)	Restated Certificate of Incorporation
3.2 (2)	By-Laws, as amended and restated
10.1(a) (3)	***1996 Incentive Stock Option Plan
10.1(b) (4)	***Amendment to 1996 Incentive Stock Option Plan
10.2 (5)	***1999 Employee Stock Purchase Plan
10.3(a) (6)	***2000 Long-Term Incentive Plan
10.3(b) (7)	***Amendment to 2000 Long-Term Incentive Plan
10.4(a) (8)	Lease between ADI Communication Partners, L.P. and ComStream dated April 23, 1997
10.4(b) (8)	First Amendment to lease between ADI Communication Partners L.P. and ComStream dated July 16, 1997
10.4(c) (8)	Second Amendment to Lease between Kilroy Realty, L.P. and ComStream dated November 18, 1998
10.5 (9)	Lease for facility in Phoenix, Arizona
10.6 (10)	Credit Agreement by and between the Registrant and Wells Fargo HSBC Trade Bank, N.A.
10.7 (11)	***Change of Control Agreement, dated as of March 20, 2002, by and between Registrant and Robert C. Fitting
10.8 (12)	***Change of Control Agreement, dated as of March 20, 2002, by and between Registrant and Steven Eymann
10.9(13)	***Change of Control Agreement, dated as of March 20, 2002, by and between Registrant and Brian Duggan
10.10(14)	***Employment Agreement, dated as of November 1, 2003 by and between Registrant and Robert C. Fitting
10.10 (15)	***Change of Control Agreement, dated May 13, 2004, by and between Registrant and Malcolm C. Persen
10.11*	***Employment Agreement by and between Registrant and Malcolm C. Persen dated as of March 9, 2005
10.12*	Agreement and Plan of Merger, dated March 2, 2005, by and among Radyne ComStream Inc., Xicom Acquisition Inc., Xicom Technology Inc., the Xicom Shareholders (as defined therein) and Walt Wood, solely in his capacity as the Shareholders’ Representative.†
21.1*	Subsidiaries of the Registrant
23.1*	Consent of KPMG LLP
24.1*	Power of Attorney (see signature page)
31.1*	Certification of the Principal Executive Officer Pursuant to Rule 13-14(a) Under the Securities Exchange Act of 1934
31.2*	Certification of the Principal Financial Officer pursuant to Rule 13-14(a) Under the Securities Exchange Act of 1934
32.1**	Certification of 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
99.1*	Cautionary Statement Regarding Forward-Looking Statements and Risk Factors

*	Filed herewith.
**	Furnished herewith.
***	Indicates management compensatory contract, plan or arrangement.
†	Certain Confidential Information contained in this Exhibit was omitted by means of redacting a portion of the text and replacing it with an asterisk. This Exhibit has been filed separately with the Secretary of the Securities and Exchange Commission without the redaction pursuant to Confidential Treatment Request under Rule 24b-2 of the Securities Exchange Act of 1934.
(1)	Incorporated by reference from exhibit 3.1 to Registrant’s description of capital stock on Form 8-A12G, filed on July 13, 2000.
(2)	Incorporated by reference from exhibit 3.2 to Registrant’s description of capital stock on Form 8-A12G, filed on July 13, 2000.

(3)	Incorporated by reference to Exhibit 4.1 to Registrant’s Registration Statement on Form S-8, dated and declared effective on March 12, 1997 (File No. 333-23159).
(4)	Incorporated by reference to Exhibit 4.1 to Registrant’s Registration Statement on Form S-8, dated and declared effective on November 18, 1998 (File No. 333-67469).
(5)	Incorporated by reference to Exhibit 4.1 to Registrant’s Registration Statement on Form S-8, dated and declared effective on November 5, 1999 (File No. 333-90383).
(6)	Incorporated by reference to Exhibit 4.1 to Registrant’s Registration Statement on Form S-8, dated and declared effective on July 19, 2000 (File No. 333-41704)
(7)	Incorporated by reference to Exhibit 4.1 to Registrant’s Registration Statement on Form S-8, dated and declared effective on May 29, 2002 (File No. 333-89316).
(8)	Incorporated by reference from Registrant’s Registration Statement on Form S-2, filed January 11, 1999 (File No. 333-70403).
(9)	Incorporated by reference to Exhibit 10.3 to Registrant’s Annual Report on Form 10-K for the year ended December 31, 1997, as filed with the SEC on March 27, 1998 (File No. 000-11685).
(10)	Incorporated by reference to Exhibit 10.6 to Registrant’s Annual Report on Form 10-K for the year ended December 31, 2001, as filed with the SEC on April 1, 2002 (File No. 000-11685).
(11)	Incorporated by reference to Exhibit 10.1 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2002, as filed with the SEC on May 15, 2002 (File No. 000-11685).
(12)	Incorporated by reference to Exhibit 10.2 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2002, as filed with the SEC on May 15, 2002 (File No. 000-11685).
(13)	Incorporated by reference to Exhibit 10.3 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2002, as filed with the SEC on May 15, 2002 (File No. 000-11685).
(14)	Incorporated by reference to Exhibit 10.1 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2003, as filed with the SEC on November 14, 2003 (File No. 000-11685).
(15)	Incorporated by reference to Exhibit 10.1 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004 as filed with the SEC on August 11, 2004 (File No. 000-11685).

EX-10.11

                                                                   Exhibit 10.11

                              EMPLOYMENT AGREEMENT

      This EMPLOYMENT AGREEMENT (the "AGREEMENT") is effective as of March 15,
2004 by and between RADYNE COMSTREAM INC., a Delaware corporation (the
"COMPANY") and Malcolm Persen, an individual ("EXECUTIVE").

                                    RECITALS

      WHEREAS, Executive is currently the Chief Financial Officer of the
Company;

      WHEREAS, the Company desires to retain the services of Executive, and
Executive desires to provide services to the Company, in accordance with the
terms, conditions and provisions of this Agreement;

      NOW THEREFORE, in consideration of the covenants and mutual agreements set
forth herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and in reliance upon the
representations, covenants and mutual agreements contained herein, the Company
and Executive agree as follows:

      1. EMPLOYMENT. Subject to the terms and conditions of this Agreement, the
Company agrees to employ Executive as Chief Financial Officer of the Company,
and Executive agrees to diligently perform the duties associated with such
positions. Executive will report directly to the Chief Executive Officer.
Executive will devote substantially all of his business time, attention and
energies to the business of the Company and will comply with the charters,
policies and guidelines established by the Company from time to time applicable
to its directors and senior management executives.

      2. TERM. Executive will be employed under this Agreement until March 14,
2008, unless Executive's employment is terminated earlier pursuant to Section 7.
The Agreement will renew for additional periods by mutual agreement of the
Company and the Executive.

      3. SALARY. The Company will pay Executive a base salary at the annual rate
of $210,000 per year commencing March 15, 2005. The Executive's base salary may
be raised, but not lowered, without Executive's consent.

      4. Incentive Compensation.

      A. Bonus. Executive will be entitled to incentive compensation based on
the achievement of certain performance targets pursuant to the Management
Incentive Plan (MIP).

      5. EXECUTIVE BENEFITS. During the term of this Agreement, Executive will
be entitled to reimbursement of reasonable and customary business expenses. The
Company will provide to Executive such fringe benefits and other Executive
benefits as are regularly provided by the Company to its senior management;
provided, however, that nothing herein shall preclude the Company from amending
or terminating any employee or general executive benefit plans or programs. In
addition, the Company shall provide the Executive with the benefits set forth on
Exhibit B, which benefits may not be terminated or reduced during the term
hereof.

      6. TERMINATION.

      A. Voluntary Resignation by Executive or Termination Without Cause.

      If Executive voluntarily terminates his employment with the Company for
Good Reason, or the Company terminates Executive without Cause, then (i) the
Company will be obligated to continue to pay Executive salary for two years
following termination; (ii) any Bonus due Executive for the year of termination
shall be paid subject to Executive's compliance with this Agreement, including
Sections 8 and 9 as provided therein; (iii) the Company shall reimburse
Executive for COBRA premiums for the period that the Company is required to
offer COBRA coverage as a matter of law; and (iv) any options granted on or
after the date hereof shall vest in full, and remain in effect as provided in
the applicable plan or agreement.

      B. Termination upon Death or Disability. If Executive's employment is
terminated as a result of Executive's death or Disability, then the Company will
be obligated to pay to Executive, his heirs or personal representative, (i)
Executive's then current salary through the Date of Termination, (ii) a pro
rated amount of Executive's bonus for the year , (iii) Executive's COBRA
premiums for the period that the Company is required to offer COBRA coverage as
a matter of law, and (iv) the Executive's options granted on or after the date
herein shall accelerate and become vested without further action and, to the
extent permitted under the plan's governing documents, Executive or his


                                     - 2 -

heirs or personal representative shall have a period of one year from the Date
of Termination to exercise such options.

      C. Voluntary Termination (Without Good Reason) or Termination for Cause by
the Company.

            (1) If the Executive resigns without Good Reason, or if the Company
      discharges Executive for Cause, then the Company will be obligated to pay
      Executive's base salary through the date of termination. No bonus shall be
      payable. Options shall terminate as provided in the applicable plan or
      agreement.

            (2) Upon voluntary termination without Good Reason by Executive, or
      a termination for Cause by the Company, the provisions of Section 8
      (Restrictive Covenant) shall automatically become applicable for the
      one-year period set forth therein, without any further payment due
      Executive. Executive acknowledges and agrees that the compensation herein,
      including the signing bonus, is adequate consideration for such covenants.

      D. Definitions. For purposes of this Agreement:

            (1) "CAUSE" shall have the meaning ascribed to it in the Change of
      Control Agreement (the "Change of Control Agreement") of Executive dated
      May 13, 2004,

            (2) "DISABILITY" shall mean a disability that results in Executive
      being medically unable to fulfill his duties under this Agreement for six
      consecutive months, and

            (3) "GOOD REASON" shall include the following circumstances: (a) if
      the Company assigns you duties that are materially inconsistent with, or
      constitute a material reduction of powers or functions associated with,
      your position, duties, or responsibilities with the Company, or a material
      adverse change in your titles, authority, or reporting responsibilities,
      or in conditions of your employment, (b) if your base salary is reduced or
      the potential incentive compensation (or bonus) to which you may become
      entitled to at any level of performance by you or the Company is reduced,
      (c) if the Company fails to cause any successor to expressly assume and
      agree to be bound by the terms of this Agreement, (d) any termination by
      the Company of your employment for grounds other than for "Cause," or


                                     - 3 -

      (e) if you are required to relocate to an employment location that is more
      than fifty (50) miles from Phoenix, Arizona.

      7. RESTRICTIVE COVENANT. In consideration of Executive's employment,
Executive agrees to the restrictive covenants set forth in Section 3 of his
Change in Control Agreement, which are incorporated herein.

      8. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION.

      A. It is understood that in the course of Executive's employment with
Company, Executive will become acquainted with Company Confidential Information
(as defined below). Executive recognizes that Company Confidential Information
has been developed or acquired at great expense, is proprietary to the Company,
and is and shall remain the exclusive property of the Company. Accordingly,
Executive agrees that he will not, disclose to others, copy, make any use of, or
remove from Company's premises any Company Confidential Information, except as
Executive's duties may specifically require, without the express written consent
of the Board of Directors of the Company, during Executive's employment with the
Company and thereafter until such time as Company Confidential Information
becomes generally known, or readily ascertainable by proper means by persons
unrelated to the Company.

      B. Upon any termination of employment, Executive shall promptly deliver to
the Company the originals and all copies of any and all materials, documents,
notes, manuals, or lists containing or embodying Company Confidential
Information, or relating directly or indirectly to the business of the Company,
in the possession or control of Executive.

      C. "COMPANY CONFIDENTIAL INFORMATION" shall mean confidential, proprietary
information or trade secrets of Company and its subsidiaries and affiliates
including without limitation the following: (1) customer lists and customer
information as compiled by Company; (2) Company's internal practices and
procedures; (3) internal Company financial information; (4) supply of materials
information, including sources and costs, designs, information on land and lot
inventories, and current and prospective projects; (5) strategic planning,
manufacturing, engineering, purchasing, finance, marketing, promotion,
distribution, and selling activities; (6) all other information which is treated
by Company as confidential, include all information having


                                     - 4 -

independent economic value to Company that is not generally known to, and not
readily ascertainable by proper means by, persons who can obtain economic value
from its disclosure or use. Notwithstanding the foregoing provisions, the
following shall not be considered "Company Confidential Information": (i) the
general skills of the Executive as an experienced entrepreneur and senior
management level employee; (ii) information generally known by senior management
executives within the industry in which the Company operates; (iii) persons,
entities, contacts or relationships of Executive that are also generally known
in the industry; and (iv) information which becomes available on a
non-confidential basis from a source other than Executive which source is not
prohibited from disclosing such confidential information by legal, contractual
or other obligation.

      D. Executive hereby agrees that the periods of time provided for in
Sections 8 and 9 and other provisions and restrictions set forth herein are
reasonable and necessary to protect the Company and its successors and assigns
in the use and employment of the goodwill of the business conducted by
Executive. Executive further agrees that damages cannot compensate the Company
in the event of a violation of Section 8 or 9 and that, if such violation should
occur, injunctive relief shall be essential for the protection of the Company
and its successors and assigns. Accordingly, Executive hereby covenants and
agrees that, in the event any of the provisions of Section 8 or 9 shall be
violated or breached, the Company shall be entitled to obtain injunctive relief
against the party or parties violating such covenants, without bond but upon due
notice, in addition to such further or other relief as may be available at
equity or law. Obtainment of such an injunction by the Company shall not be
considered an election of remedies or a waiver of any right to assert any other
remedies which the Company has at law or in equity. No waiver of any breach or
violation hereof shall be implied from forbearance or failure by the Company to
take action thereof. The prevailing party in any litigation, arbitration or
similar dispute resolution proceeding to enforce this provision will recover any
and all reasonable costs and expenses, including attorneys' fees.

      E. For purposes of Sections 8 and 9, the term "COMPANY" includes Radyne
ComStream Inc. and its subsidiaries and affiliates. For purposes hereunder, an
affiliate shall be deemed to be any corporation or other business entity in
which the Company or its subsidiaries owns a controlling interest.


                                     - 5 -

      9. SEVERABILITY. If any provision of this Agreement is held to be illegal,
invalid, or unenforceable under any applicable law, then such provision will be
deemed to be modified to the extent necessary to render it legal, valid and
enforceable, and if no such modification will make the provision legal, valid
and enforceable, then this Agreement will be construed as if not containing the
provision held to be invalid, and the rights and obligations of the parties will
be construed and enforced accordingly.

      10. ASSIGNMENT BY COMPANY. Nothing in this Agreement shall preclude the
Company from consolidating or merging into or with, or transferring all or
substantially all of its assets to, another corporation or entity that assumes
this Agreement and all obligations and undertakings hereunder. Upon such
consolidation, merger or transfer of assets and assumption, the term "COMPANY"
as used herein shall mean such other corporation or entity, as appropriate, and
this Agreement shall continue in full force and effect.

      11. ENTIRE AGREEMENT. This Agreement, the Change of Control Agreement of
Executive, and any agreements concerning stock options or other benefits, embody
the complete agreement of the parties hereto with respect to the subject matter
hereof and supersede any prior written, or prior or contemporaneous oral,
understandings or agreements between the parties that may have related in any
way to the subject matter hereof. This Agreement may be amended only in writing
executed by the Company and Executive. Notwithstanding the foregoing, nothing in
this Agreement is intended to affect any previous agreements pertaining to the
grant of options to the Executive, including without limitation, provisions in
Executive's prior Change of Control Agreement, providing for acceleration upon a
change-in-control.

      12. GOVERNING LAW. This Agreement and all questions relating to its
validity, interpretation, performance and enforcement, shall be governed by and
construed in accordance with the internal laws, and not the law of conflicts, of
the State of Arizona.

      13. NOTICE. Any notice required or permitted under this Agreement must be
in writing and will be deemed to have been given when delivered personally or by
overnight courier service or three days after being sent by mail, postage
prepaid, at the address indicated below or to such changed address as such
person may subsequently give such notice of:


                                     - 6 -

            if to Parent or Company:    Radyne ComStream
                                        3138 E. Elwood
                                        Phoenix, AZ 85034 8501
                                        Attention: Chief Executive Officer

            with a copy to:             Snell & Wilmer L.L.P.
                                        One Arizona Center
                                        400 E. Van Buren Street
                                        Phoenix, Arizona 85004-0001
                                        Phone: (602) 382-6252
                                        Fax:  (602) 382-6070
                                        Attn:  Steven D. Pidgeon, Esq.

            if to Executive:            Malcolm Persen
                                        5014 E Desert Park Lane
                                        Paradise Valley, Arizona  85253
                                        Phone:  (480) 951-8340

      14. ARBITRATION. Any dispute, controversy, or claim, whether contractual
or non-contractual, between the parties hereto arising directly or indirectly
out of or connected with this Agreement, relating to the breach or alleged
breach of any representation, warranty, agreement, or covenant under this
Agreement, unless mutually settled by the parties hereto, shall be resolved by
binding arbitration in accordance with the Employment Arbitration Rules of the
American Arbitration Association (the "AAA"). Any arbitration shall be conducted
by arbitrators approved by the AAA and mutually acceptable to Company and
Executive. All such disputes, controversies, or claims shall be conducted by a
single arbitrator, unless the dispute involves more than $50,000 in the
aggregate in which case the arbitration shall be conducted by a panel of three
arbitrators. If the parties hereto are unable to agree on the arbitrator(s),
then the AAA shall select the arbitrator(s). The resolution of the dispute by
the arbitrator(s) shall be final, binding, nonappealable, and fully enforceable
by a court of competent jurisdiction under the Federal Arbitration Act. The
arbitrator(s) shall award damages to the prevailing party. The arbitration award
shall be in writing and shall include a statement of the reasons for the award.
The arbitration shall be held in the Phoenix metropolitan area. The
arbitrator(s) shall award reasonable attorneys' fees and costs to the prevailing
party.

      15. WITHHOLDING; RELEASE; NO DUPLICATION OF BENEFITS. All of Executive's
compensation under this Agreement will be subject to deduction and withholding
authorized or required by applicable law. The Company's obligation to make any
post-termination payments


                                     - 7 -

hereunder (other than salary payments and expense reimbursements through a date
of termination), shall be subject to receipt by the Company from Executive of a
mutually agreeable release, and compliance by Executive with the covenants set
forth in Sections 8 and 9 hereof. If there is any conflict between the
provisions of the Change in Control Agreement and this Agreement, such conflict
shall be resolved so as to provide the greater benefit to Executive. However, in
order to avoid duplication of any monetary benefits, any payments or benefits
due hereunder will be reduced by any payments or benefits provided under the
Change in Control Agreement.

      16. SUCCESSORS AND ASSIGNS. This Agreement is solely for the benefit of
the parties and their respective successors, assigns, heirs and legatees.
Nothing herein shall be construed to provide any right to any other entity or
individual.

      17. LEGAL COUNSEL. Executive recognizes that Snell & Wilmer LLP is counsel
to the Company and has been advised to seek his own counsel to assist him with
this Agreement.


                                     - 8 -

      IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the date first above written.


                           RADYNE COMSTREAM INC., a Delaware
                           corporation

                           By:    /s/ R. C. Fitting          Date: March 9, 2005
                                  -----------------
                           Name:  R C Fitting
                           Title: CEO


                           By:    /s/ Malcolm Persen         Date: March 9, 2005
                                  ------------------
                           Name:  Malcolm Persen
                           Title: CFO


                                     - 9 -

EX-10.12

Exhibit 10.12

EXECUTION COPY

AGREEMENT AND PLAN OF MERGER

by and among

RADYNE COMSTREAM INC., a Delaware corporation,

XICOM ACQUISITION INC.,
a California corporation,

XICOM TECHNOLOGY INC.,
a California corporation,

THE XICOM SHAREHOLDERS SIGNATORY HERETO,

and

WALTER C. WOOD, solely in his capacity as the Shareholders’ Representative

Dated as of March 2, 2005

MERGER AGREEMENT

     This MERGER AGREEMENT (the “Agreement”) is made as of March 2, 2005 (to be effective in accordance with Section 1.8) by and among Radyne ComStream Inc., a Delaware corporation (“Radyne”); Xicom Acquisition Inc., a California corporation wholly owned by Radyne (“Merger Sub”); Xicom Technology Inc., a California corporation (“Xicom”); Walter C. Wood and Ronald J. Sterns (collectively, the “Shareholders”); the additional shareholders of Xicom listed on Appendix I hereto for purposes of Section 1.12 and Article 4 only (collectively with the Shareholders, the “Xicom Shareholders”); and Walter C. Wood, solely in his capacity as the Shareholders’ Representative (as defined in Section 1.12).

RECITALS

     A. Radyne wishes to acquire all of the capital stock of Xicom from the Xicom Shareholders.

     B. Radyne has caused the formation of Merger Sub for the purpose of accomplishing a triangular merger with Xicom.

     C. The parties have determined that it is in their respective best interests to merge Merger Sub with and into Xicom (the “Merger”) and to undertake such other actions described herein, all on the terms and subject to the conditions set forth in this Agreement.

     D. The Board of Directors of Xicom has (i) determined that the Merger is fair to, and in the best interests of, Xicom and the Xicom Shareholders; (ii) unanimously approved and adopted this Agreement, the Merger, and the other transactions contemplated by this Agreement; and (iii) determined to unanimously recommend that the Xicom Shareholders approve and adopt this Agreement and the Merger. The Shareholders have executed this Agreement and this Agreement and the Merger will be submitted for approval by the other Xicom Shareholders.

     E. The Boards of Directors of each of Radyne and Merger Sub have (i) determined that the Merger is consistent with and in furtherance of the long-term business strategy of Radyne and fair to, and in the best interests of, Radyne, Merger Sub and their respective stockholders, and (ii) approved and adopted this Agreement, the Merger, and the other transactions contemplated by this Agreement.

STATEMENT OF AGREEMENT

     NOW, THEREFORE, for good and valuable consideration, the sufficiency and receipt of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows:

ARTICLE 1

THE MERGER

     In connection with the Merger, the respective boards of directors of Radyne, Merger Sub and Xicom have, by resolutions duly adopted, approved the following provisions of this Article 1 as the agreement and plan of merger required by the applicable provisions of the California Corporations Code (“California Law”):

     1.1 The Merger. At the Effective Time (as defined in Section 1.3), in accordance with this Agreement and California Law, Merger Sub shall be merged with and into Xicom, the separate existence of Merger Sub (except as such existence may be continued by operation of law) shall cease, and Xicom shall continue as the surviving corporation under the corporate name

2

it possesses immediately prior to the Effective Time. Xicom, in its capacity as the corporation surviving the Merger, sometimes is referred to herein as the “Surviving Corporation.”

     1.2 Effect of the Merger. The Surviving Corporation shall possess all the rights, privileges, immunities and franchises, of a public as well as of a private nature, of each of Merger Sub and Xicom (collectively, the “Constituent Corporations”); all property, real, personal and mixed, and all accounts payable arising in the ordinary course of business and accrued expenses due on whatever account, and all debts, liabilities and duties due to each of the Constituent Corporations shall be transferred to and vested in the Surviving Corporation without further act or deed; and the Surviving Corporation shall be responsible and liable for all liabilities and obligations of each of the Constituent Corporations, in each case in accordance with California Law, but subject, as between the parties, to the provisions below.

     1.3 Consummation of the Merger. As soon as is practicable after the satisfaction or waiver of the conditions set forth in Article 7, and in no event later than five business days after such satisfaction or waiver, the parties hereto will cause an agreement of merger (the “Agreement of Merger”), along with certificates of approval of the Agreement of Merger, to be filed with the Secretary of State of the State of California in accordance with California Law. The Merger shall be effective at such time as the Agreement of Merger is duly filed. The date and time when the Merger shall become effective is referred to as the “Effective Time.”

     1.4 Articles of Incorporation and Bylaws; Directors and Officers. The Articles of Incorporation of the Surviving Corporation, as in effect immediately prior to the Effective Time, shall be amended and restated to read the same as the Articles of Incorporation of Merger Sub as in effect immediately prior to the Effective Time, except that Section 1 of the amended and restated Articles of Incorporation of the Surviving Corporation, instead of reading the same as Section 1 of the Articles of Incorporation of Merger Sub, shall read as follows: “The name of this corporation is Xicom Technology Inc.” The Bylaws of Xicom as the Surviving Corporation shall be amended to read the same as the Bylaws of Merger Sub as in effect immediately prior to the Effective Time, except that all references to Merger Sub in the Bylaws of the Surviving Corporation shall be changed to refer to Xicom Technology Inc. The directors of Merger Sub holding office immediately prior to the Effective Time shall be the directors of the Surviving Corporation immediately after the Effective Time, together with Walter C. Wood. The officers of Xicom holding office immediately prior to the Effective Time shall be the officers (holding the same offices as they held with Xicom) of the Surviving Corporation immediately after the Effective Time, except that Robert C. Fitting shall become the Chairman of the Board of the Surviving Corporation and Malcolm C. Persen shall become the Secretary of the Surviving Corporation.

     1.5 Conversion of Securities. At the Effective Time, by virtue of the Merger and without any action on the part of Merger Sub, Xicom or the holders of any of the following securities:

          (a) Each share of common stock, no par value per share, of Xicom (the “Xicom Common Stock”) issued and outstanding immediately prior to the Effective Time shall automatically be canceled and extinguished and converted into and become a right to receive an

3

amount equal to the Merger Consideration divided by the number of shares of Xicom Common Stock outstanding as of the Effective Time.

The “Merger Consideration,” in the aggregate, means (i) $39,028,700 in cash (the “Cash Consideration”), subject to adjustment as set forth in Section 1.6, plus (ii) the number of shares of Radyne Common Stock equal to (A) $2,000,000 divided by (B) the Share Closing Price (the “Merger Shares”).

The “Share Closing Price” shall be equal to the average reported closing price for Radyne Common Stock on the Nasdaq National Market as reflected in the Western Edition of the Wall Street Journal starting 20 trading days prior to and ending on the date of this Agreement.

          (b) The Merger Shares shall be adjusted to reflect fully the effect of any stock split, reverse split, stock dividend (including any dividend or distribution of securities convertible into Radyne Common Stock), reorganization, recapitalization or other like change with respect to Radyne Common Stock occurring after the date hereof and prior to the Effective Time.

          (c) No fraction of a share of Radyne Common Stock will be issued, but in lieu thereof each holder of shares of Xicom Common Stock who would otherwise be entitled to a fraction of a share of Radyne Common Stock (after aggregating all fractional shares of Radyne Common Stock to be received by such holder) shall receive from Radyne an amount of cash (rounded to the nearest whole cent) equal to the product of (i) such fraction, multiplied by (ii) the Share Closing Price.

          (d) Each share of Xicom Common Stock issued and outstanding immediately prior to the Effective Time and held in the treasury of Xicom shall automatically be canceled and extinguished and no payment shall be made with respect thereto.

          (e) Each share of common stock, par value $.001 per share, of Merger Sub issued and outstanding immediately prior to the Effective Time shall automatically be converted into and become one validly issued, fully paid and nonassessable share of common stock, par value $.001 per share, of the Surviving Corporation.

     1.6 Adjustments to the Merger Consideration.

          (a) The Merger Consideration shall be increased or decreased by the sum of the following:

               (i) Increased or decreased, as the case may be, by the amount by which the net working capital (total current assets less total current liabilities) less long term debt (“Net Working Capital”) reflected on the Final Closing Balance Sheet (defined below) is greater or less than $5,701,855, as calculated consistent with the calculations reflected in the Computation of Net Working Capital attached hereto as Appendix II;

               (ii) Decreased by the amount of any bonus payments and related payroll taxes to be paid to employees of Xicom as set forth on Schedule 1.6(a)(ii); and

4

               (iii) Decreased by the amount of costs and expenses incurred by Xicom or the Xicom Shareholders in connection with the preparation of this Agreement and the Merger, but only to the extent that such amounts are accounted for in the Final Closing Balance Sheet (without duplication).

          (b) Any adjustment shall be made to the Cash Consideration.

          (c) For the purpose of making an initial determination of Net Working Capital, Xicom will deliver to Radyne by April 11, 2005, a balance sheet as of April 2, 2005, prepared on a basis consistent with the October Balance Sheet (as defined in Section 3.5), and in accordance with generally accepted accounting principles (“GAAP”) (the “Preliminary Closing Balance Sheet”).

          (d) Within 75 days from the date the Preliminary Closing Balance Sheet is delivered to Radyne (subject to extension as provided in Section 5.1(i)), Radyne will deliver to Xicom a balance sheet reflecting its determination of actual balances for Xicom as of April 2, 2005, prepared on a basis consistent with the October Balance Sheet and the Preliminary Closing Balance Sheet, in accordance with GAAP and SEC Regulation S-X, and audited or reviewed (at Radyne’s election) by Radyne’s independent public accounting firm (the “Final Closing Balance Sheet”), together with a calculation of Net Working Capital and the final Merger Consideration.

          (e) The Final Closing Balance Sheet will become final and binding on the parties, absent fraud, mistake or concealment, unless within five business days following delivery thereof to Xicom, Xicom notifies Radyne in writing that Xicom objects to it. If Xicom does not object to the Final Closing Balance Sheet, the parties shall promptly (within five business days) consummate the Merger.

          (f) If Xicom does object to the Final Closing Balance Sheet, and the difference between (i) the Net Working Capital disclosed on the Final Balance Sheet and (ii) the Net Working Capital set forth on the Preliminary Closing Balance Sheet, is an amount that is less than or equal to $500,000, then the parties shall consummate the Merger within five business days, and the amount in dispute shall be subject to arbitration in the manner set forth in Section 1.6(h) below.

          (g) If Xicom does object to the Final Closing Balance Sheet, and the difference between (i) the Net Working Capital disclosed on the Final Balance Sheet and (ii) the Net Working Capital set forth on the Preliminary Closing Balance Sheet, is an amount that is greater than $500,000, then (A) the parties may mutually agree to consummate the Merger within five business days, and the amount in dispute shall be subject to arbitration in the manner set forth in Section 1.6(h) below, or (B) either party may, by written notice within five business days of the delivery of the Final Closing Balance Sheet, terminate this Agreement, in which event the cost of the audit thereof shall be borne by Xicom (and all other expenses incurred by Xicom in accordance with Section 6.1).

          (h) Any dispute under this Section 1.6 shall be submitted to an independent accounting firm of national reputation mutually acceptable to the Shareholders’ Representative and Radyne (other than the firm then currently serving as auditors for Radyne or Xicom) (the

5

“Independent Accountant”). If the Shareholders’ Representative and Radyne are unable to agree on the Independent Accountant, then, within 45 days following the delivery of the Final Closing Balance Sheet to the Shareholders’ Representative, the Shareholders’ Representative and Radyne shall request the American Arbitration Association (“AAA”) to appoint the Independent Accountant. The determination of the Independent Accountant will be final and binding on all parties, and judgment on the determination may be enforced in any court having jurisdiction. If the results of the arbitration indicate that the amount of Net Working Capital set forth in the Final Closing Balance Sheet was understated by the greater of $100,000 or 10% of the difference between Net Working Capital disclosed in the Final Closing Balance Sheet and the amount determined by the Independent Accountant, then the expenses of such arbitration shall be paid entirely by Raydne. If the results of the arbitration indicate that the amount of Net Working Capital set forth in the Preliminary Closing Balance Sheet was overstated by the greater of $100,000 or 10% of the difference between Net Working Capital disclosed in the Preliminary Closing Balance Sheet and the amount determined by the Independent Accountant, then the expenses of such arbitration shall be paid entirely by the Shareholders. In all other cases, the expenses of the arbitration shall be shared by the parties, and each will bear its own attorneys fees and costs. Upon determination of the Final Closing Balance Sheet pursuant to this Section 1.6, Radyne will pay the Xicom Shareholders any additional payment required by Section 1.5(a) or, if payment is due to Radyne pursuant hereto, Radyne and the Shareholders’ Representative will instruct the escrow agent pursuant to the Escrow Agreement (as defined in Section 1.7) to release such funds to Radyne.

     1.7 Escrow.

          (a) At Closing, Radyne, the Shareholders, the Shareholders’ Representative and an escrow agent, to be chosen by mutual agreement of the Radyne and the Shareholders’ Representative, shall enter into an escrow agreement in substantially the form attached hereto as Exhibit A (the “Escrow Agreement”). The escrow agent will hold [ * ] (the “Escrow Amount”) in escrow (the “Escrow Fund”) as security to cover potential losses or other claims for which Radyne is entitled to indemnification or recovery pursuant to Article 8, and for adjustments to the Merger Consideration in accordance with Section 1.6 above. Subject to any claims made by Radyne, the Escrow Amount will be released to the Xicom Shareholders on the second anniversary of the Closing.

          (b) The parties hereto hereby acknowledge and agree that the Escrow Amount is intended to be treated as an installment obligation for purposes of Section 453 of the Code and, unless required by applicable law, no party shall take any action or filing position inconsistent with such characterization. The parties hereto further agree that, subject to any future Treasury Regulations or other changes in the law, pursuant to Proposed Treasury Regulation Section 1.468B-8, for tax reporting purposes, all items of income, deduction and credit relating to the Escrow Amount or any portion thereof in any tax year shall be reported as allocated to Radyne with respect to all periods on or prior to the date that the distribution of the Escrow Amount (or portion thereof) is determined, and with respect to all periods thereafter to Radyne and the Xicom Shareholders in accordance with their respective interests in the

*   Confidential information on this page has been omitted and filed separately with the Securities Exchange Commission pursuant to a Confidential Treatment Request.

6

distribution in accordance with Proposed Treasury Regulation Section 1.468B-8. Any portion of the Escrow Amount paid to the Xicom Shareholders shall be included as a payment of the purchase consideration for tax purposes (to the extent not treated as imputed interest).

     1.8 Effectiveness and Closing.

          (a) The parties acknowledge that Xicom has not delivered complete disclosure schedules, as contemplated in Article 3, nor has Radyne interviewed employees or third parties (such as customers, suppliers, dealers, sales representatives, lenders and lessors). Xicom agrees that (i) within five business days of the date hereof (the “Due Diligence Delivery Date”), it will provide complete disclosure schedules, together with all underlying documentation or information to Radyne and (ii) it will provide access to its employees and third parties for the purpose of Radyne completing interviews thereof.

          (b) This Agreement will become effective only if Radyne provides the notice set forth in subsection (c) below (the “Effectiveness Notice”), which it must deliver, if at all, within five business days of the Due Diligence Delivery Date.

          (c) If issued, the Effectiveness Notice shall provide as follows:

“To:   Walter C. Wood, CEO of Xicom Technology Inc.
From: Robert C. Fitting, CEO of Radyne ComStream Inc.

     By signing below, Radyne confirms that it has completed its review of the disclosure schedules provided by Xicom to Radyne and Merger Sub, and the underlying documentation and information set forth on such disclosure schedules, as contemplated in that certain Agreement and Plan of Merger dated March 2, 2005, without prejudice to our other right thereunder.

Dated: __________, 2005

Robert C. Fitting”

The parties agree that the purpose of the above notice is merely to define the date of the effectiveness of this Agreement and that Radyne’s provision of such notice in no way alters, modifies or diminishes the representations, warranties, covenants or agreements of Xicom or the Xicom Shareholders and the conditions to Radyne’s obligation to close contained in this Agreement and the agreements delivered hereunder.

          (d) If the Effectiveness Notice is not provided within the time set forth in subsection (b) above, or if Radyne determines not pursue this transaction and provides written notice to this effect to Xicom within such period, then this Agreement shall terminate, as provided in Article 9, and each party shall bear their own expenses in accordance with Section 6.1.

          (e) The closing (the “Closing”) of the transactions contemplated by this Agreement shall occur as soon as each of the conditions to Closing contained in Article 7 are

7

fulfilled or waived at the offices of Snell & Wilmer L.L.P., One Arizona Center, Phoenix, Arizona 85004, or at such other place or at such other time as the parties may mutually agree upon. The Closing shall take place on the same date as the Effective Time.

     1.9 Intentionally omitted.

     1.10 Delivery of Certificates; Payment of the Cash Consideration; Delivery of Escrow Amount. At the Closing, Radyne shall (i) instruct its transfer agent to issue a stock certificate or certificates representing the Merger Shares to each Xicom Shareholder entitled thereto pursuant to Section 1.5(a); (ii) instruct its transfer agent to provide the Cash Consideration that each Xicom Shareholder is entitled to pursuant to Section 1.5(a), and any payment of cash in lieu of fractional shares pursuant to Section 1.5(c) (less any amounts required to be withheld from such cash under foreign, federal, state or local laws) only against receipt for cancellation of such Xicom Shareholder’s certificate or certificates representing shares of Xicom Common Stock or an affidavit acceptable to Radyne from such Xicom Shareholder; and (iii) deliver the Escrow Amount to the escrow agent pursuant to the terms of the Escrow Agreement.

     1.11 Taking of Necessary Action; Further Action. Radyne and Merger Sub, on the one hand, and Xicom and the Shareholders, on the other hand, shall use all reasonable efforts to take all such actions (including without limitation actions to cause the satisfaction of the conditions of the other to effect the Merger) as may be necessary or appropriate in order to effectuate the Merger as promptly as possible. If, at any time after the Effective Time, any further action is necessary or desirable to carry out the purposes of this Agreement and to vest the Surviving Corporation with full possession of all the rights, privileges, immunities and franchises of the Constituent Corporations, or fully subject the Surviving Corporation to all debts and obligations of the Constituent Corporations, the officers and directors of the Surviving Corporation are fully authorized in the name of the Constituent Corporations or otherwise to take, and shall take, all such actions.

     1.12 Shareholders’ Representative.

          (a) The Xicom Shareholders hereby irrevocably constitute and appoint Walter C. Wood (the “Representative” or the “Shareholders’ Representative”) to act as their true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution for him and in his name, place and stead, in any and all capacities, to execute any and all agreements and documents required or contemplated by this Agreement, including any amendments or waivers hereto, on behalf of the Xicom Shareholders, and to deal with all claims under this Agreement, including any claims for indemnification, and settlements in respect thereto and to notify, negotiate and resolve any and all issues concerning the Final Closing Balance Sheet with Radyne. If, for any reason, Mr. Wood is incapacitated or unable to act, Ronald J. Sterns is hereby appointed as his successor to act as the Representative. Radyne shall be entitled to send all notices to, and to rely upon all consents and approvals given, and all other actions taken by the incumbent Representative until such time as Radyne receives actual notice of such Representative’s death or incapacity. Radyne shall be entitled to rely upon the response of the Representative in all matters pertaining to the subject matter hereof, including, without limitation, any consent or approval provided or contemplated hereunder to be given by or on behalf of, or obtained from, the Xicom Shareholders. Notice to or service upon the

8

Representative shall be deemed to constitute good and sufficient notice or service upon all of the Xicom Shareholders for all matters, including without limitation, all notices of or demands for legal processes.

          (b) The following represents an agreement solely among the Xicom Shareholders and the Shareholders’ Representative, and none of Radyne, Merger Sub or Xicom is a party hereto: Neither the Shareholders’ Representative nor any of its directors, officers, agents or employees, if any, shall be liable to any person for any error of judgment, or any action taken, suffered or omitted to be taken under this Agreement or the Escrow Agreement, except in the case of its gross negligence, bad faith or willful misconduct. The Shareholders’ Representative may consult with legal counsel, independent public accountants and other experts selected by it. The Shareholders’ Representative shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement or the Escrow Agreement. As to any matters not expressly provided for in this Agreement or the Escrow Agreement, the Shareholders’ Representative shall not exercise any discretion or take any action. Each Xicom Shareholder shall indemnify and hold harmless and reimburse the Shareholders’ Representative from and against such Xicom Shareholder’s ratable share of any and all liabilities, losses, damages, claims, costs or expenses suffered or incurred by the Shareholders’ Representative arising out of or resulting from any action taken or omitted to be taken by the Shareholders’ Representative under this Agreement or the Escrow Agreement, other than such liabilities, losses, damages, claims, costs or expenses arising out of or resulting from the Shareholders’ Representative’s gross negligence, bad faith or willful misconduct.

ARTICLE 2

REPRESENTATIONS AND WARRANTIES OF RADYNE AND MERGER SUB

     Radyne and Merger Sub hereby represent and warrant to Xicom and the Shareholders that, as of the date hereof, and again at the Effective Time:

     2.1 Organization and Qualification. Each of Radyne and Merger Sub is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, and has the requisite corporate power and authority to own and operate its properties and to carry on its business as now conducted in every jurisdiction where the failure to do so would cause a Radyne Material Adverse Change. The term “Radyne Material Adverse Change” as used in this Agreement means any change in or effect on the business that is materially adverse to the business, operations, condition (financial or otherwise), customer, employee, supplier or franchise relations, assets (tangible or intangible), liabilities or results of operations taken as a whole, except for any such changes or effects principally resulting from or principally arising in connection with (i) any occurrence or condition affecting Radyne’s industry generally; (ii) any changes in general economic conditions; or (iii) the effect of the public announcement or pendency of the transactions contemplated by this Agreement on customers, suppliers, advertisers, employees or revenues of Radyne.

     2.2 Authority Relative to This Agreement. Each of Radyne and Merger Sub has the requisite corporate power and authority to enter into this Agreement and to carry out its obligations hereunder. The execution and delivery of this Agreement by Radyne and Merger

9

Sub and the consummation by Radyne and Merger Sub of the transactions contemplated hereby have been duly authorized by Radyne and Merger Sub, and no other corporate proceedings on the part of Radyne or Merger Sub are necessary to authorize this Agreement and such transactions. This Agreement has been duly executed and delivered by Radyne and Merger Sub and constitutes a valid and binding obligation of each, enforceable in accordance with its terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, reorganization or other similar laws relating to the enforcement of creditors’ rights generally and by general principles of equity. Neither Radyne nor Merger Sub is subject to, or obligated under, any provision of (a) its Certificate of Incorporation or its Bylaws; (b) any agreement, arrangement or understanding; (c) any license, franchise or permit; or (d) any law, regulation, order, judgment or decree, that would be breached, or violated, or in respect of which a right of termination or acceleration would arise or any encumbrance on any of its or any of its subsidiaries’ assets would be created, by its execution, delivery and performance of this Agreement and the consummation by it of the transactions contemplated hereby.

     2.3 Validity of Stock. The Merger Shares shall, when issued: (i) be duly authorized, validly issued, fully paid and nonassessable, and (ii) free of liens and encumbrances created by any person or entity other than the Xicom Shareholders, except for restrictions on transfer under applicable federal securities laws, including Rule 144 promulgated under the Securities Act of 1933 (the “Securities Act”).

     2.4 Governmental Consents. No consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, any federal, state or local governmental authority on the part of Radyne or Merger Sub is required in connection with the consummation of the transactions contemplated by this Agreement, except the filing of the Agreement of Merger under California Law and filings to be made pursuant to Nasdaq National Market rules and federal and state securities laws, all of which shall be timely made.

     2.5 SEC Documents. Since January 1, 2004, Radyne has filed with the Securities and Exchange Commission (the “SEC”) and made publicly available various Reports on Form 8-K, 10-Q and 10-K and a definitive proxy statement for its 2004 Annual Meeting of Stockholders (such documents, as amended, the “Radyne SEC Documents”). As of their respective dates, the Radyne SEC Documents complied in all material respects with the requirements of the Securities Act, the Securities Exchange Act of 1934 (the “Exchange Act”), and the rules and regulations of the SEC applicable thereto, and none of Radyne SEC Documents contained, at the time they were filed, any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.

     2.6 Nasdaq National Market. The Radyne Common Stock is listed on the Nasdaq National Market. Neither Radyne, nor Merger Sub has knowledge of any events, facts or circumstances currently in existence which will result in a delisting of the Radyne Common Stock from the Nasdaq National Market.

     2.7 Financial Statements. The financial statements included in the Radyne SEC Documents complied as to form in all material respects with the published rules and regulations of the SEC with respect thereto, were prepared in accordance with GAAP and fairly and

10

accurately present in all material respects in accordance with applicable requirements of GAAP the consolidated financial position of Radyne and its consolidated subsidiaries as of their respective dates and the consolidated results of operations and the consolidated cash flows of Radyne and its consolidated subsidiaries for the periods presented therein (except as may be indicated in the notes thereto or, in the case of unaudited statements, as permitted by Rule 10-01 of SEC Regulation S-X and subject, in the case of unaudited statements, to normal recurring adjustments, none of which were or are expected, individually or in the aggregate, to be material in amount, and except as may be disclosed in any filing made by Radyne with the SEC prior to the Effective Time).

     2.8 Sufficient Funds. Radyne has available sufficient funds to pay the Cash Consideration and sufficient authorized but unissued shares of Radyne Common Stock to issue the Merger Shares.

ARTICLE 3

REPRESENTATIONS AND WARRANTIES OF XICOM

     Xicom, hereby represents and warrants to Radyne and Merger Sub that the statements contained in this Article 3 are true and correct except as set forth in the disclosure schedules delivered by Xicom to Radyne and Merger Sub concurrently with the execution of this Agreement (or within five business days of the date of execution of this Agreement as contemplated under Section 1.8), as of the date hereof and again at the Effective Time (with representations “to Xicom’s Knowledge” meaning to the knowledge of Xicom, and Walter C. Wood and Ronald J. Sterns, solely in their capacity as officers of Xicom):

     3.1 Organization and Qualification. Xicom is a corporation duly organized, validly existing and in good standing under the laws of the State of California, and has the requisite corporate power and authority to own and operate its properties and to carry on its business as now conducted, except where the failure to be so organized, existing or in good standing or to have such corporate power and authority have not had, individually or in the aggregate, a Xicom Material Adverse Change. Xicom is duly qualified to do business in every jurisdiction where the failure to do so would cause a Xicom Material Adverse Change. The copies of Xicom’s Articles of Incorporation and Bylaws which have been furnished by Xicom to Radyne prior to the date of this Agreement reflect all amendments made thereto and are correct and complete. The term “Xicom Material Adverse Change” as used in this Agreement means any change in or effect on the business that is materially adverse to the business, operations, condition (financial or otherwise), customer, employee, supplier or franchise relations, assets (tangible or intangible), liabilities or results of operations taken as a whole, except for any such changes or effects principally resulting from or principally arising in connection with (i) any occurrence or condition affecting Xicom’s industry generally; (ii) any changes in general economic conditions; (iii) the effect of the public announcement or pendency of the transactions contemplated by this Agreement on customers, suppliers, advertisers, employees or revenues of Xicom; or (iv) matters specifically identified on the disclosure schedules provided by Xicom to Radyne.

     3.2 Authority Relative to this Agreement. Xicom has the requisite corporate power and authority to enter into this Agreement and to carry out its obligations hereunder. The

11

execution and delivery of this Agreement by Xicom and the consummation by Xicom of the transactions contemplated hereby have been duly authorized by the board of directors of Xicom and have been duly approved by the Xicom Shareholders, and no other corporate proceedings on the part of Xicom are necessary to authorize this Agreement and such transactions. This Agreement has been duly executed and delivered by Xicom and, assuming the due authorization, execution and delivery by Raydne and Merger Sub, constitutes a valid and binding obligation of Xicom, enforceable in accordance with its terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, reorganization or other similar laws relating to the enforcement of creditors’ rights generally and by general principles of equity. Xicom is not subject to, or obligated under, any provision of (a) its Articles of Incorporation or Bylaws; (b) any material agreement, arrangement or understanding; (c) any license, franchise or permit; or (d) any law, regulation, order, judgment or decree, that would be breached or violated, or in respect of which a right of termination or acceleration would arise or any encumbrance on any of its assets would be created, by its execution, delivery and performance of this Agreement and the consummation by it of the transactions contemplated hereby.

     3.3 Capitalization and Voting Rights.

          (a) The authorized capital stock of Xicom consists of 20,000,000 shares of Xicom Common Stock of which 10,060,000 will be issued and outstanding immediately prior to Effective Time.

          (b) As of the Effective Time, the shares of Xicom Common Stock will be owned of record by the Xicom Shareholders, to Xicom’s Knowledge free and clear of all liens, encumbrances and security interests, in the amounts as set forth on Schedule 3.3(b).

          (c) As of the Effective Time, the outstanding shares of Xicom Common Stock will have been duly and validly authorized and issued, fully paid and nonassessable, and issued in accordance with the registration or qualification provisions of the Securities Act and any relevant state securities laws, or pursuant to valid exemptions therefrom.

          (d) There are no shares of preferred stock of Xicom authorized, issued or outstanding. There are no outstanding options, warrants, rights (including conversion or preemptive rights) or agreements for the purchase or acquisition from Xicom of any shares of its capital stock. Xicom is not a party or subject to any agreement or understanding and, to Xicom’s Knowledge, there is no agreement or understanding between any persons or entities, that affect or relate to the voting or giving of written consents with respect to any security of Xicom.

     3.4 Governmental Consents. No consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, any federal, state or local governmental authority on the part of Xicom is required in connection with the consummation of the transactions contemplated by this Agreement, except the filing of the Agreement of Merger under California Law.

     3.5 Balance Sheet and Financial Statements. Xicom has provided Radyne with an audited balance sheet of Xicom (the “October Balance Sheet”), dated as of October 3, 2004 (the “Balance Sheet Date”), and statements of profit and loss, and cash flows for the periods then

12

ended (together, the “Financial Statements”). The Financial Statements were prepared in accordance with GAAP and present fairly in all material respects the information purported to be presented therein, subject to normal year-end accounting adjustments and the absence of footnote disclosure. Except as set forth in the October Balance Sheet, Xicom has no liabilities or obligations (whether accrued, absolute, contingent, unliquidated, known, unknown or otherwise), other than (i) liabilities incurred in the ordinary course of business, and (ii) obligations under contracts and commitments incurred in the ordinary course of business, which, in the case of both subsection (i) and (ii), individually or in the aggregate, are not material to the financial condition or operating results of Xicom.

     3.6 No Xicom Material Adverse Changes. Except as set forth on Schedule 3.6, since the Balance Sheet Date, there has not been a Xicom Material Adverse Change in the business, assets or prospects of Xicom. Without limiting the foregoing, since the Balance Sheet Date there has not been:

          (a) any change in the assets, liabilities, financial condition, operating results or prospects of Xicom from that reflected in the October Balance Sheet, except changes in the ordinary course of business that have not been, in the aggregate, materially adverse;

          (b) any damage, destruction or loss, whether or not covered by insurance, materially and adversely affecting the assets, properties, financial condition, operating results or business of Xicom;

          (c) any waiver by Xicom of a material right or of a material debt owed to it;

          (d) any satisfaction or discharge of any lien, claim, or encumbrance in favor of Xicom, except in the ordinary course of business and not material in amount or scope;

          (e) any termination of or amendment to a material contract or arrangement by which Xicom or any of its assets or properties is bound;

          (f) any change in any compensation arrangement or agreement with any employee, except changes made in the ordinary course of business and not material in amount or scope;

          (g) any sale, assignment or transfer of any patents, trademarks, copyrights, trade secrets or other intangible assets other than nonexclusive licenses under its standard license terms in the ordinary course of business;

          (h) any resignation or termination of employment of any key employee or officer of Xicom; or, to Xicom’s Knowledge, any impending resignation or termination of employment of any key employee or officer;

          (i) any loss of, material change in relationship with, or order cancellation by, any major customer of Xicom;

          (j) any borrowing, or any mortgage, pledge, security interest, or lien with respect to any material property or asset, except liens for taxes not yet due or payable;

13

          (k) any sale or transfer of intangible assets or properties, except for inventory in the ordinary course of business;

          (l) any loans or guarantees made by Xicom to or for the benefit of any person or entity, including its employees, officers or directors, any members of their immediate families, or any business in which any of them have an interest, other than travel and other advances to employees made in the ordinary course of its business;

          (m) any declaration, setting aside or payment or other distribution in respect of any of Xicom’s capital stock, or any direct or indirect redemption, purchase or other acquisition of any of such stock by Xicom;

          (n) any agreement or commitment by Xicom to do any of the things described in this Section 3.6; or

          (o) any other event or condition of any character that might be reasonably expected at the time of such event or condition to cause a Xicom Material Adverse Change.

     3.7 Litigation. Except as set forth on Schedule 3.7, there are no actions, suits, proceedings, orders or investigations pending, or to Xicom’s Knowledge, threatened against Xicom, at law or in equity, or before or by any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign (a “Legal Proceeding”), and, to Xicom’s Knowledge, no event has occurred, and no claim, dispute or other condition or circumstance exists, that could be reasonably expected to give rise to or serve as a basis of the commencement of any Legal Proceeding.

     3.8 Subsidiaries. Schedule 3.8 sets forth the name of any entity of which a majority of the outstanding voting securities or other voting equity interests are owned, directly or indirectly, by Xicom (each a “Subsidiary”), and, with respect to each Subsidiary, the jurisdiction in which it is incorporated or organized, the jurisdictions, if any, in which it is qualified to do business, the number of shares of its authorized capital stock, the number and class of shares thereof duly issued and outstanding, the names of all stockholders or other equity owners and the number of shares of stock owned by each stockholder or the amount of equity owned by each equity owner. Each Subsidiary is a duly organized and validly existing corporation or other entity in good standing under the laws of the jurisdiction of its incorporation or organization and is duly qualified or authorized to do business as a foreign corporation or entity and is in good standing under the laws of each jurisdiction in which the conduct of its business or the ownership of its properties requires such qualification or authorization. Each Subsidiary has all requisite corporate or entity power and authority to own its properties and carry on its business as presently conducted. The outstanding shares of capital stock or equity interests of each Subsidiary are validly issued, fully paid and non-assessable, and all such shares or other equity interests represented as being owned by Xicom are owned by it free and clear of any and all encumbrances or liens. No shares of capital stock are held by any Subsidiary as treasury stock. There is no existing option, warrant, call, right or contract to which any Subsidiary is a party requiring, and there are no convertible securities of any Subsidiary outstanding which upon conversion would require, the issuance of any shares of capital stock or other equity interests of

14

any Subsidiary or other securities convertible into shares of capital stock or other equity interests of any Subsidiary.

     3.9 Patents and Trademarks. To Xicom’s Knowledge, Xicom has sufficient ownership or rights to all patents, trademarks, service marks, trade names, copyrights, trade secrets, information, proprietary rights and processes necessary for its business as now conducted (the “Intellectual Property”), without any conflict with or infringement of the rights of others. Except as set forth in Schedule 3.9, Xicom has not licensed its Intellectual Property to any third party (except for nonexclusive licenses under its standard license terms in the ordinary course), nor has it licensed or purchased any Intellectual Property from any third party under any arrangement requiring continuing royalty, license or other payments exceeding $50,000. Xicom has taken commercially reasonable action necessary to protect its Intellectual Property. To Xicom’s Knowledge, Xicom has not violated the Intellectual Property of any other person or entity, and has not received any written communication alleging such violation. To Xicom’s Knowledge, its employees are not obligated under any contract (including licenses, covenants or commitments of any nature), or subject to any judgment, decree or order of any court or administrative agency, that would interfere with their duties to Xicom or that would conflict with Xicom’s business as now conducted. Each employee and officer of Xicom has executed a non-disclosure agreement in substantially the form provided to Radyne. To Xicom’s Knowledge, no employees or officers are in violation thereof.

     3.10 Compliance with Charter Documents and Instruments. Xicom is not in violation or default of any provision of its Articles of Incorporation or Bylaws, and is not in violation or default of, in each case, in any material respect, (i) any instrument, judgment, order, writ, or decree to which it is a party or by which it is bound or (ii) any provision of any federal or state statute, rule or regulation applicable to Xicom.

     3.11 Agreements; Action.

          (a) Except as set forth on Schedules 3.8, 3.9, 3.14, or 3.19, or Schedule 3.11, there are no agreements, understandings, instruments, contracts, proposed transactions, judgments, orders, writs or decrees to which Xicom is a party or by which it is bound that may involve (i) customer or supplier obligations of, or payments to, Xicom in excess of $200,000; (ii) leases of realty or buildings; (iii) leases of personal property, plant or equipment representing an obligation of Xicom exceeding $25,000 in any given year; (iv) credit agreements or other borrowings, and any guarantees, mortgages or security interests; (v) material dealer or sales representative agreements; (vi) restrictions on the development, manufacture or distribution of Xicom’s products or services; (vii) indemnification by Xicom with respect to infringements of proprietary rights or otherwise, other than customer intellectual property indemnifications provided to Xicom’s customers in its standard license agreement in the ordinary course of business; or (viii) other material agreements, including obligations and commitments, in excess of $500,000. True and correct copies of all scheduled agreements and commitments, written or oral, have been provided to Radyne, together with all amendments thereto. For purposes of analyzing dollar thresholds, agreements or commitments with a third party (contingent or fixed) shall be aggregated with those of any affiliate or subsidiary of such party.

15

          (b) Xicom is not a party to any sales contracts or purchase orders that will produce an operating loss. Xicom is not in material default, and, to Xicom’s Knowledge, no circumstances exist that could result in such default, under any of such contracts, agreements or instruments, nor, to Xicom’s Knowledge, is any other party to any of such contracts, agreements or instruments in material default.

     3.12 Related Party Transactions. Except as set forth on Schedule 3.12, no employee, officer, or director of Xicom or member of his or her immediate family is indebted to Xicom, nor is Xicom indebted (or committed to make loans or extend or guarantee credit) to any of them. To Xicom’s Knowledge, none of such persons, directly or indirectly (including through any ownership interest in any entity), competes against or does business with Xicom (except that employees, officers, or directors of Xicom and members of their immediate families may own up to one percent (1%) of the stock in each publicly traded company that may compete with Xicom). No member of the immediate family of any officer or director of Xicom, is directly or indirectly, interested in any material contract with Xicom.

     3.13 Permits. Xicom has all governmental franchises, permits, licenses, and any similar authority necessary for the conduct of its business as now being conducted by it, the lack of which could cause a Xicom Material Adverse Change. Xicom is not in default in any material respect under any of such franchises, permits, licenses, or other authority.

     3.14 Employee Benefit Plans.

          (a) Employee Benefit Plans. Except as set forth on Schedule 3.14, Xicom does not have, has not maintained and has no liability with respect to, (a) any Employee Benefit Plan (defined below) intended to qualify under Sections 401(a) or 403(a) of the Code; (b) any multi-employer plan, as defined in Section 3(37) of the Employee Retirement Income Security Act of 1974 (“ERISA”); or (c) any employee pension benefit plan, as defined in Section 3(2) of ERISA. Schedule 3.14 contains a list setting forth each employee benefit plan or arrangement of Xicom including, but not limited to, employee welfare benefit plans, deferred compensation plans, stock option plans, bonus plans, stock purchase plans, hospitalization, disability and other insurance plans, severance or termination pay plans and policies, whether or not described in Section 3(3) of ERISA, in which employees, their spouses or dependents, of Xicom participate (“Employee Benefit Plans”) (true and accurate copies of which, together with the most recent annual reports on Form 5500, copies of the latest determination letters and summary plan descriptions with respect thereto, if applicable, were furnished to Radyne). With respect to each Employee Benefit Plan (i) each has been administered in compliance in all material respects with its terms and with all applicable laws, including, but not limited to, ERISA and the Code, and each Employee Benefit Plan intended to qualify under Sections 401(a) or 403(a) of the Code has received a favorable determination letter from the Internal Revenue Service; (ii) no actions, suits, claims (other than benefit claims in the ordinary course of business) or disputes are pending, or, to Xicom’s Knowledge, threatened; (iii) no audits, inquiries, reviews, proceedings, claims, or demands are pending with any governmental or regulatory agency; (iv) there are no facts which could give rise to any liability in the event of any such investigation, claim, action, suit, audit, review, or other proceeding; (v) all material reports, returns, and similar documents required to be filed with any governmental agency or distributed to any plan participant have been duly or timely filed or distributed; and (vi) to Xicom’s Knowledge, no “prohibited transaction” or breach

16

of fiduciary duty has occurred within the meaning of the applicable provisions of ERISA or the Code.

          (b) Welfare Plans. (i) Xicom is not obligated under any employee welfare benefit plan as described in Section (3)(1) of ERISA (“Welfare Plan”) to provide medical or death benefits with respect to any employee or former employee of Xicom or its predecessors after termination of employment, except as required by the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”) and any other applicable statute; (ii) Xicom has complied with the notice and continuation coverage requirements of Section 4980B of the Code and the regulations thereunder with respect to each Welfare Plan that is, or was during any taxable year for which the statute of limitations on the assessment of federal income taxes remains, open, by consent or otherwise, a group health plan within the meaning of Section 5000(b)(1) of the Code; (iii) there are no reserves, assets, surplus or prepaid premiums under any Welfare Plan that is an Employee Benefit Plan; and (iv) Xicom has complied in all material respects with all applicable HIPAA portability and privacy rules. The consummation of the transactions contemplated by this Agreement will not entitle any individual to severance pay, and will not accelerate the time of payment or vesting, or increase the amount of compensation, due to any individual.

          (c) Other Liabilities. (i) None of the Employee Benefit Plans obligates Xicom to pay separation, severance, termination or similar benefits solely as a result of any transaction contemplated by this Agreement or solely as a result of a “change of control” (as such term is defined in Section 280G of the Code); (ii) all required or discretionary (in accordance with historical practices) payments, premiums, contributions, reimbursements or accruals for all periods ending prior to or as of the Effective Time shall have been made or properly accrued on the Preliminary and Final Closing Balance Sheets; and (iii) none of the Employee Benefit Plans has any unfunded liabilities that are not reflected on the October Balance Sheet or the books and records of Xicom.

     3.15 Taxes.

          (a) Xicom has timely filed all Tax Returns required to be filed and such Tax Returns are true and correct in all material respects. Xicom has paid, or will pay prior to the date due, all Taxes incurred as of the Balance Sheet Date. Since the Balance Sheet Date, Xicom has not, and will not incur any Taxes other than in the ordinary course of business, and Xicom will timely pay or make adequate provisions in the Preliminary and Final Closing Balance Sheets for all Taxes with respect to its business, properties and operations through and including the dates thereof. Xicom will accrue on its books and records, or timely pay, as appropriate, any Taxes relating to the period up to and including the Effective Time.

          (b) Xicom has not requested or been granted an extension of the time for filing any Tax Return with respect to Taxes payable by or attributable to Xicom.

          (c) Intentionally omitted.

          (d) Xicom has not elected pursuant to the Code to be treated as an S corporation pursuant to Section 1362(a) of the Code.

17

          (e) There is no tax deficiency assessed or, to Xicom’s Knowledge, proposed against Xicom and Xicom has not executed any waiver of any statute of limitations on the assessment or collection of any tax or governmental charge, nor have any of Xicom’s Tax Returns ever been audited by governmental authorities nor, to Xicom’s Knowledge, are any such audits proposed.

          (f) Xicom has withheld or collected from each payment made to each of its employees, independent contractor, creditor, shareholder or other person or entity, the amount of all Taxes required to be withheld or collected therefrom, and has paid such amounts to the proper tax authorities.

          (g) No written claim has ever been made by an authority in a jurisdiction where Xicom does not file tax returns that Xicom is or may be subject to taxation by that jurisdiction.

          (h) There are no liens for taxes (other than taxes not yet due and payable) upon any assets of Xicom. Xicom is not a United States real property holding corporation within the meaning of Section 897(c)(2) of the Code during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code.

          (i) Xicom has disclosed on its tax returns all positions taken therein that could give rise to a substantial understatement of federal income tax within the meaning of Sections 6662 or 6662A of the Code (or similar provision of state, local, or foreign law).

          (j) Schedule 3.15(j) sets forth the following information with respect to Xicom as of the most recent practicable date: (i) the basis of Xicom in its assets; (ii) the amount of any net operating loss, net capital loss, unused investment or other credit, unused foreign tax, or excess charitable contribution allocable to Xicom; and (iii) the amount of any deferred gain or loss allocable to Xicom arising out of any intercompany transaction. Xicom makes no representation regarding whether any of Xicom’s carryforwards are limited under Sections 382, 383 or 384 of the Code.

          (k) Xicom is not a party to or bound by any tax allocation or sharing agreement.

          (l) Xicom (i) is not a member of an affiliated group filing a consolidated federal income tax return (other than a group consisting solely of Xicom and its Subsidiaries), and (ii) does not have any liability for the taxes of any person or entity (other than for Xicom or any of its Subsidiaries) under Treas. Reg. Section 1.1502-6 (or similar provision of state, local, or foreign law), as a transferee or successor, by contract, or otherwise.

          (m) Xicom has not distributed stock of another person or entity, or has had its stock distributed by another person or entity, in a transaction that was purported or intended to be governed in whole or in part by Sections 355 or 361 of the Code.

          (n) Xicom has not received a written ruling from any taxing authority, nor entered into any closing agreement pursuant to Section 7121 of the Code (or similar provision of state, local or foreign law).

18

          (o) Xicom is not a party to any agreement, contract, arrangement or plan that has resulted or could result, separately or in the aggregate, in the payment of (i) any “excess parachute payment” within the meaning of Section 280G of the Code (or any corresponding provision of state, local or foreign Tax law), and (ii) any amount that will not be fully deductible as a result of Section 162(m) of the Code (or any corresponding provision of state, local or foreign Tax law).

          (p) For the purpose of this Agreement:

               (i) “Tax Return” means any return (including any information return), report, statement, schedule, notice, form, declaration, claim for refund or other document or information filed with or submitted to, or required to be filed with or submitted to, any governmental authority in connection with the determination, assessment, collection or payment of any Tax or in connection with the administration, implementation or enforcement of or compliance with any applicable law relating to any Tax.

               (ii) “Tax” means any income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, property, environmental, windfall profit, customs, vehicle, airplane, boat, vessel or other title or registration, capital stock, franchise, employees’ income withholding, foreign or domestic withholding, social security, unemployment, disability, real property, personal property, sales, use, transfer, value added, alternative, add-on minimum and other tax, fee, assessment, levy, tariff, charge or duty of any kind whatsoever and any interest, penalty, addition or additional amount thereon imposed, assessed or collected by or under the authority of any governmental authority or payable under any tax-sharing agreement or any other contract.

     3.16 Labor Agreements and Actions; Employee Compensation. Xicom is not bound by or subject to (and none of its assets or properties is bound by or subject to) any contract, commitment or arrangement with any labor union, and no labor union has requested or, to Xicom’s Knowledge, has sought to represent any of the employees, representatives or agents of Xicom. There is no strike or other labor dispute involving Xicom pending, or to Xicom’s Knowledge, threatened, that could cause a Xicom Material Adverse Change, nor is Xicom aware of any labor organization activity involving its employees. Xicom is not aware that any officer or key employee, or that any group of key employees, intends to terminate their employment with Xicom, nor does Xicom have a present intention to terminate the employment of any of the foregoing. The employment of each officer and employee of Xicom is terminable at the will of Xicom. Xicom has complied in all material respects with all applicable state and federal equal employment opportunity and other laws related to employment. Except as set forth on Schedule 3.16, Xicom is not a party to or bound by any employment contract, deferred compensation agreement, or other employee compensation agreement.

     3.17 Environmental. To Xicom’s Knowledge, Xicom is not in material violation of any law or legal requirement relating to the environment. To Xicom’s Knowledge, no material expenditures are or will be required in order to comply with any such law or legal requirement. No Hazardous Materials (defined below) are used or have been used, stored, or disposed of by Xicom or, to Xicom’s Knowledge, by any other person or entity on any property owned, leased or used by Xicom, except in material compliance with applicable law or legal requirements.

19

“Hazardous Material” shall include: (a) any petroleum, waste oil, crude oil, asbestos, urea formaldehyde or polychlorinated biphenyl; (b) any waste, gas or other substance or material that is explosive or radioactive; (c) any “hazardous substance,” or “toxic chemical” as designated, listed or defined (whether expressly or by reference) in any statute, regulation or other legal requirement (including CERCLA (the Comprehensive Environmental Response, Compensation and Liability Act) and any other so-called “superfund” or “superlien” law and the respective regulations promulgated thereunder); (d) any other substance or material (regardless of physical form) or form of energy that is subject to any legal requirement which regulates or establishes standards of conduct in connection with, or which otherwise relates to, the protection of human health, plant life, animal life, natural resources, property or the enjoyment of life or property from the presence in the environment of any solid, liquid, gas, odor, noise or form of energy; and (e) any compound, mixture, solution, product or other substance or material that contains any substance or material referred to in clause “(a)”, “(b)”, “(c)” or “(d)” above.

     3.18 Title to Property and Assets.

          (a) Xicom owns good and marketable title to its properties and assets reflected on the October Balance Sheet or acquired since the date thereof, free and clear of all liens and encumbrances, except for (i) liens for current taxes not yet due and payable and assets disposed of since the October Balance Sheet in the ordinary course of business, and (ii) liens and encumbrances that secure debt reflected on the October Balance Sheet.

          (b) (i) Xicom does not own any real estate; (ii) the properties subject to the real property leases set forth on Schedule 3.18 constitute all of the real estate used or occupied by Xicom (the “Xicom Real Estate”); and (iii) the Xicom Real Estate has access, sufficient for the conduct of Xicom’s business, to public roads and to all utilities, including electricity, sanitary and storm sewer, potable water, natural gas and other utilities, used in the business of Xicom.

          (c) The real property leases described on Schedule 3.18 are in full force and effect, and Xicom has a valid and existing leasehold interest under each such lease for the term set forth therein. Xicom has delivered to Radyne complete and accurate copies of each of the leases and none of such leases has been modified in any respect, except to the extent that such modifications are disclosed by the copies delivered to Radyne. Xicom is not in material default, and, to Xicom’s Knowledge, no circumstances exist that could result in such material default, under any of such leases, nor, to Xicom’s Knowledge, is any other party to any of such leases in default.

          (d) All of the buildings, material machinery, material equipment and other tangible assets necessary for the conduct of Xicom’s business are in good condition and repair, ordinary wear and tear excepted, and are usable in the ordinary course of business. Xicom owns, or leases under valid leases, all such buildings, such machinery, such equipment and other tangible assets necessary for the conduct of its business. Xicom has delivered to Radyne complete and accurate copies of all equipment leases. None of such equipment leases has been modified in any respect, except to the extent that such modifications are disclosed by the copies delivered to Radyne. Xicom is not in material default, and no circumstances exist that could result in such default, under any of such equipment leases, nor, to Xicom’s Knowledge, is any other party to any of such equipment leases in default.

20

          (e) Xicom is not in material violation of any applicable zoning ordinance or other law, regulation or requirement relating to the operation of any properties used in the operation of its business, and has not received any written notice of any such violation, or of the existence of any condemnation proceeding with respect to any properties owned or leased by Xicom.

     3.19 Insurance. Xicom has in full force and effect the fire and casualty insurance policies set forth on Schedule 3.19, with extended coverage, sufficient in amount (subject to reasonable deductibles) to allow it to replace any of its covered properties that might be damaged or destroyed. Xicom has in full force and effect product liability and errors and omissions insurance set forth on Schedule 3.19 in amounts customary for companies similarly situated.

     3.20 Disclosure. Neither this Agreement nor any of the exhibits hereto contains any untrue statement of a material fact or omits a material fact necessary to make the statements contained herein or therein, in light of the circumstances in which they were made, not misleading, and there is no fact which has not been disclosed to Radyne that causes, or could reasonably be anticipated to cause, a Xicom Material Adverse Change.

ARTICLE 4

REPRESENTATIONS AND WARRANTIES OF
THE XICOM SHAREHOLDERS

     Each Xicom Shareholder, severally and jointly, represents and warrants to Radyne and Merger Sub only with respect to itself and its own circumstances as of the date hereof and again at the Effective Time, the following:

     4.1 Authority. Each Xicom Shareholder has the power and authority to enter into this Agreement and to carry out its obligations hereunder. This Agreement has been duly executed by the Xicom Shareholder and constitutes a valid and binding obligation of the Xicom Shareholder, enforceable in accordance with its terms, including under any laws requiring spousal consent, except as the enforceability thereof may be limited by bankruptcy, insolvency, reorganization or other similar laws relating to the enforcement of creditors’ rights generally and by general principles of equity. Each Xicom Shareholder is not subject to, or obligated under, any agreement, arrangement or understanding, or any law, regulation, order, judgment or decree, that would be breached or violated, or in respect of which a right of termination or acceleration would arise or any encumbrance on any of its assets would be created, by its execution, delivery and performance of this Agreement and the consummation by it of the transactions contemplated hereby. No authorization, consent or approval of, or filing with, any public body, court or authority is necessary on the part of the Xicom Shareholder for the consummation by it of the transactions contemplated by this Agreement.

     4.2 Security Ownership. Each Xicom Shareholder represents that it is the legal and beneficial owner of the number of shares of Xicom Common Stock set forth opposite its name on Schedule 3.3(b), free and clear of all restrictions, liens and encumbrances, other than restrictions under federal and state securities laws.

21

     4.3 Purchase Entirely for Own Account. The Merger Shares to be received by each respective Xicom Shareholder will be acquired for investment for the Xicom Shareholder’s own account, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof, and the Xicom Shareholder has no present intention of selling, granting any participation in, or otherwise distributing the same. Each Xicom Shareholder is not a party to any contract, undertaking, agreement or arrangement with any person or entity to sell, transfer or grant participations in the Merger Shares.

     4.4 Disclosure of Information. Each Xicom Shareholder acknowledges that he/she/it has been provided with or has had access to the Radyne SEC Documents. Each Xicom Shareholder believes it has received all the information it considers necessary or appropriate for deciding whether to purchase the Merger Shares. Each Xicom Shareholder further represents that it has had an opportunity to ask questions and receive answers from Radyne regarding the business, properties, prospects and financial condition of Radyne.

     4.5 Investment Experience; Advisors. Each Xicom Shareholder represents that he/she/it can bear the economic risk of its investment and has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of owning the Merger Shares. Each Xicom Shareholder represents that he/she/it has had an opportunity to consult with tax and legal counsel with respect to the terms of this Agreement and specifically with respect to the allocation of consideration and any tax consequences to such shareholder that may occur in connection with this Agreement. Each Xicom Shareholder acknowledges and agrees that Radyne is not making any representations in this Agreement and has not otherwise made any representations with respect to any tax consequences that may occur in connection with this Agreement.

     4.6 Restricted Securities. Each Xicom Shareholder understands that the Merger Shares it is acquiring are characterized as “restricted securities” under the federal securities laws inasmuch as it is being acquired from Radyne in a transaction not involving a public offering, and that under such laws and applicable regulations such securities may be resold without registration under the Securities Act only in certain limited circumstances. In this connection, each Xicom Shareholder represents that the Xicom Shareholder is familiar with SEC Rule 144, as presently in effect, and understands the resale limitations imposed thereby and by the Securities Act.

     4.7 Legends. Each Xicom Shareholder understands that the certificates evidencing the Merger Shares will bear the following legend:

“These securities have not been registered under the Securities Act of 1933, as amended. They may not be sold, offered for sale, pledged or hypothecated in the absence of a registration statement in effect with respect to the securities under such Act or an opinion of counsel reasonably satisfactory to Radyne that such registration is not required or unless sold pursuant to Rule 144 of such Act.”

22

ARTICLE 5

CONDUCT OF BUSINESS PENDING THE MERGER

     5.1 Conduct of Business Pending the Merger. Xicom covenants and agrees that, prior to the Effective Time, unless Radyne otherwise agrees in writing or as otherwise expressly contemplated or permitted by this Agreement:

          (a) The businesses of Xicom shall be conducted in the ordinary course, on an arm’s length basis and in accordance in all material respects with all applicable laws, rules and regulations and past custom and practice; Xicom shall maintain its facilities in good operating condition, ordinary wear and tear excepted; and Xicom shall use its reasonable best efforts to preserve intact its business organization and goodwill, keep available the services of its officers and employees as a group and maintain satisfactory relationships with suppliers, distributors, customers and others having business relationships with it;

          (b) Xicom shall not, directly or indirectly, do or permit to occur any of the following: (i) issue, sell, pledge, dispose of or encumber (A) any additional shares of, or any options, warrants, conversion privileges or rights of any kind to acquire any shares of, any of its capital stock, or (B) any of its assets, except in the ordinary course of business; (ii) amend or propose to amend its Articles of Incorporation or Bylaws; (iii) split, combine or reclassify any outstanding shares of Xicom Common Stock, or declare, set aside or pay any dividend or other distribution payable in cash, stock, property or otherwise with respect to shares of Xicom Common Stock; (iv) redeem, purchase or acquire or offer to acquire any shares of Xicom Common Stock or other securities of Xicom; (v) acquire (by merger, exchange, consolidation, acquisition of stock or assets or otherwise) any corporation, partnership, joint venture or other business organization or division or material assets thereof; (vi) incur any indebtedness for borrowed money or issue any debt securities, except the borrowing of working capital in the ordinary course of business and consistent with past practice, or grant any mortgages, liens or security interests; (vii) make any investments other than short-term United States Treasury obligations or short-term certificates of deposit of a commercial bank or trust company; or (viii) enter into or propose to enter into, or modify or propose to modify, any agreement, arrangement or understanding with respect to any of the matters set forth in this Section 5.1(b);

          (c) Xicom shall not, directly or indirectly, enter into or modify any contract, agreement or understanding, written or oral, fixed or contingent, individually or in the aggregate as to any third party and its affiliates or subsidiaries as a group, that involves consideration or performance of Xicom of a value exceeding $100,000 or a term exceeding one year;

          (d) Except as required by law, rule or regulation and except for an amendment to the employment agreement for Gary Gianatasio to eliminate any equity right he may have in Xicom, Xicom shall not (i) enter into or modify any employment, severance or similar agreements or arrangements with, or grant any bonuses, salary increases, severance or termination pay to, any officers or directors or consultants or (ii) other than as set forth on Schedule 1.6 and the amendment to the employment agreement for Gary Gianatasio, take any action with respect to the grant of any bonuses, salary increases, severance or termination pay or with respect to any increase of benefits payable in effect on the date hereof;

23

          (e) Other than as set forth on Schedule 1.6 and the amendment to the employment agreement for Gary Gianatasio, Xicom shall not adopt or amend any bonus, profit sharing, compensation, stock option, pension, retirement, deferred compensation, employment or other employee benefit plan, trust, fund or group arrangement for the benefit or welfare of any employees or any bonus, profit sharing, compensation, stock option, pension, retirement, deferred compensation, employment or other employee benefit plan, agreement, trust, fund or arrangements for the benefit or welfare of any director;

          (f) Neither Xicom nor any Shareholder, officer, director, employee, agent or representative thereof shall, for a period expiring on the earlier of (i) the termination of this Agreement pursuant to the terms of Article 9 herein or (ii) May 31, 2005, solicit, negotiate, consider or encourage the possible sale to any other person or entity of all or any portion of the business or of the assets of Xicom, whether by merger, sale of stock, sale, license or lease of assets, or otherwise; nor shall they provide any confidential information to any person or entity. Xicom will promptly notify Radyne if any of them is approached by any person or entity interested in acquiring or investing in Xicom, and will provide Radyne with the name of the person and the details of such inquiry or proposal;

          (g) Neither Xicom nor any Shareholder shall take any action that would render, or that reasonably may be expected to render, any representation or warranty made by it in this Agreement untrue at, or at any time prior to, the Effective Time. Xicom and each Shareholder agree to promptly notify Radyne (i) of any emergency or other change in the normal course of Xicom’s business or of any governmental or third party complaints, investigations or hearings (or communications indicating that the same may be contemplated); (ii) the occurrence or failure to occur of any event, which occurrence or failure would be likely to cause any representation or warranty on Xicom’s or any Shareholder’s part contained in this Agreement to be untrue or inaccurate in any material respect at, or at any time prior to, the Effective Time; and (iii) any material failure of Xicom or any Shareholder to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder; and

          (h) Without the consent of Radyne, which consent shall not be unreasonably withheld, Xicom shall not make or change any election, change an annual accounting period, adopt or change any accounting method, file any amended Tax Return, enter into any closing agreement, settle any Tax claim or assessment relating to Xicom, surrender any right to claim a refund of Taxes, consent to any extension or waiver of the limitation period applicable to any Tax claim or assessment relating to Xicom, or take any other similar action relating to the filing of any Tax Return or the payment of any Tax, if such election, adoption, change, amendment, agreement, settlement, surrender, consent or other action would have the effect of increasing the Tax liability of Xicom for any period ending after the Effective Time or decreasing any Tax attribute of Xicom existing on the Effective Time.

          (i) Xicom shall take all steps necessary to facilitate the preparation by Radyne of (i) the audited or reviewed Final Closing Balance Sheet of Xicom under Section 1.6(d), and (ii) an unqualified opinion of the independent auditors of Radyne that the financial statements referred to and the Final Closing Balance Sheet are in accordance with GAAP and SEC Regulation S-X. Radyne shall instruct its independent auditors to complete their audit no later than 75 days after the date hereof; provided, however, that the 75 day period as to the Final

24

Closing Balance Sheet shall be extended to the extent the inability of the auditors to complete the audit relates to the records or acts of Xicom or the Xicom Shareholders, including, without limitation, a lack of or the incompleteness of records or cooperation.

ARTICLE 6

ADDITIONAL AGREEMENTS

     6.1 Expenses. Each party to this Agreement shall bear their own expenses in connection with this Agreement and the transactions contemplated herein; provided, however, that the expenses of Xicom or the Xicom Shareholders shall be handled in accordance with Section 1.6(a)(iii) if the Merger is consummated. Notwithstanding the foregoing, in the event that Xicom or the Shareholders (or their representatives) violate Section 5.1(f) and they agree to sell Xicom or its assets, or a controlling interest therein, within nine months thereof, then Xicom and the Shareholders, jointly and severally, agree to pay Radyne an amount equal to all of the expenses incurred by Radyne and Merger Sub in connection with the preparation and negotiation of this Agreement and any other matters otherwise related to the transactions contemplated herein, including but not limited to all fees and expenses of accountants and attorneys, up to a maximum of $200,000. Nothing herein shall be deemed to limit the right or remedy of a party in the event of a willful breach of this Agreement by the other party.

     6.2 Taxes. The Shareholders shall be responsible for any sales, transfer or other similar taxes incurred by them or Xicom arising out of the Merger.

     6.3 Confidentiality. Each party agrees to honor the existing confidentiality agreement between them.

     6.4 Access to Information. From the date of this Agreement to the earlier of the termination of this Agreement or the Effective Time, Xicom shall: (i) provide to Radyne (and its officers, directors, employees, accountants, consultants, legal counsel, advisors, agents and other representatives (collectively, “Representatives”)) reasonable access to, upon prior notice and during normal business hours, the directors, officers, employees, agents, suppliers, properties, offices and other facilities of Xicom and the Subsidiaries and to the books and records thereof and (ii) furnish promptly such information concerning the business, properties, contracts, assets, liabilities, personnel and other aspects of Xicom and the Subsidiaries as Radyne or its Representatives may reasonably request.

ARTICLE 7

CONDITIONS

     7.1 Conditions to Obligations of Each Party To Effect the Merger. The respective obligations of each party to effect the Merger shall be subject to the fulfillment or waiver at or prior to the Effective Time of the following conditions:

          (a) there shall not be pending by or before any court or other governmental body an order or injunction restraining or prohibiting the transactions contemplated hereby; and

25

          (b) no party hereto shall have terminated this Agreement as permitted herein.

     7.2 Additional Conditions to Obligation of Xicom and the Shareholders. The obligation of Xicom and the Shareholders to effect the Merger is also subject to the fulfillment or waiver at or prior to the Effective Time of the following conditions:

          (a) the representations and warranties of Radyne and Merger Sub set forth in Article 2 that are qualified by materiality shall be true and correct and the representations and warranties of Radyne and Merger Sub that are not so qualified shall be true and correct in all material respects on and as of the Effective Time with the same force and effect as if made on and as of the Effective Time, and each of Radyne and Merger Sub shall in all material respects have performed each obligation and agreement and complied with each covenant to be performed and complied with by it hereunder at or prior to the Effective Time;

          (b) Radyne shall have furnished to Xicom a certificate in which Radyne and Merger Sub shall certify that the conditions set forth in Section 7.2(a) have been fulfilled or waived;

          (c) Radyne shall have furnished to Xicom (i) a copy of the text of the resolutions by which the corporate action on the part of Radyne and Merger Sub necessary to approve this Agreement, the Merger and the issuance of the Merger Shares were taken, and (ii) certificates executed on behalf of Radyne certifying, in each case, that such copy is a true, correct and complete copy of such resolutions and that such resolutions were duly adopted and have not been amended or rescinded; and

          (d) Radyne shall have made arrangements to pay each Xicom Shareholder by check or wire transfer the amount of the Cash Consideration, and any payment of cash in lieu of fractional shares pursuant to Section 1.5(c) (less any amounts required to be withheld from such cash under foreign, federal, state or local laws), and shall have instructed its transfer agent to issue certificates for the Merger Shares to which the Xicom Shareholders are entitled pursuant to Section 1.5(a) hereof, in each case against receipt for cancellation of such Xicom Shareholder’s certificate or certificates representing shares of Xicom Common Stock.

     7.3 Additional Conditions to Obligations of Radyne and Merger Sub. The obligations of Radyne and Merger Sub to effect the Merger are also subject to the fulfillment or waiver at or prior to the Effective Time of the following conditions:

          (a) the representations and warranties of Xicom and the Xicom Shareholders set forth in Articles 3 and 4 respectively that are qualified by materiality shall be true and correct and the representations and warranties of Xicom and the Xicom Shareholders that are not so qualified shall be true and correct in all material respects on and as of the Effective Time with the same force and effect as if made on and as of the Effective Time, and each of Xicom and the Xicom Shareholders shall in all material respects have performed each obligation and agreement and complied with each covenant to be performed and complied with by it or them hereunder at or prior to the Effective Time;

          (b) Xicom shall have furnished to Radyne a certificate in which Xicom shall certify that the conditions set forth in Section 7.3(a) have been fulfilled or waived;

26

          (c) Xicom shall have furnished to Radyne (i) a copy of the text of the resolutions by which the board of directors of Xicom and the Xicom Shareholders, if applicable, approved this Agreement (including, without limitation, the plan of merger contained herein) and the Merger; (ii) a certified copy of Xicom’s Articles of Incorporation and Bylaws; and (iii) a certificate executed on behalf of Xicom by its corporate secretary certifying to Radyne that such resolutions are true, correct and complete, were duly adopted and have not been amended or rescinded, and that prior to the Effective Time, the Articles of Incorporation and Bylaws of Xicom have not been amended or rescinded;

          (d) Xicom and each of the Shareholders shall have obtained each consent and approval necessary in order that the Merger and the transactions contemplated herein not constitute a breach or violation of, or result in a right of termination or acceleration or any encumbrance on any of Xicom’s assets pursuant to the provisions of, any agreement, arrangement or understanding, judgment, decree or order, law, rule or regulation, or license, franchise or permit;

          (e) Between the date hereof and the Effective Time, (i) there shall have been no Xicom Material Adverse Change, and (ii) Xicom and the Shareholders’ Representative shall have delivered to Radyne a certificate, dated as of the Effective Time to the foregoing effect;

          (f) Walter C. Wood and Ronald J. Sterns shall have each executed and delivered to Radyne a non-disclosure and non-compete agreement in the form attached as Exhibit B, and Walter C. Wood and Gary Gianatasio shall have executed and delivered to Radyne an employment agreement in a form to be mutually agreed upon the parties;

          (g) Radyne shall have received an opinion letter from Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP, on behalf of Xicom and the Shareholders, in the forms reasonably satisfactory to the parties;

          (h) The Xicom Shareholders shall have approved this Agreement and the Merger and none shall have asserted any appraisal or dissenters’ rights, and each shall have executed a counterpart signature page to become party to this Agreement;

          (i) Radyne shall have provided to Xicom the written notice as contemplated under Section 1.8;

          (j) The Final Closing Balance Sheet shall have been prepared and accepted by the parties, except as otherwise permitted under Section 1.6; and

          (k) All corporate and other proceedings in connection with the transactions contemplated at the Closing and all documents incident thereto shall be reasonably satisfactory in form and substance to Radyne’s counsel, and Radyne and its counsel shall have received all such counterpart original and certified or other copies of such documents as they may reasonably request.

27

ARTICLE 8

INDEMNITIES

     8.1 Survival of Representations and Warranties. All representations and warranties made by Radyne, Merger Sub, Xicom and the Xicom Shareholders in this Agreement shall survive for [ * ] from the date of this Agreement and no claim for any breach thereof may be made unless notice thereof is given to the other party prior to such date; provided, however, that the limitations on survival shall not apply to any breach of this Agreement constituting fraud or intentional misrepresentation or omission. The parties agree that reliance shall not be an element of any claim for misrepresentation or indemnification under this Agreement.

     8.2 Shareholders Agreement to Indemnify.

          (a) Subject to the limitations in this Article 8, the Shareholders, jointly and severally, agree to indemnify and hold harmless Radyne and Merger Sub and their respective directors, officers, employees and agents from and against all proceedings, judgments, decrees, demands, claims, actions, losses, damages, liabilities, costs and expenses, including, without limitation, reasonable attorneys’ fees and costs (collectively referred to as “Losses”) asserted against or incurred by Radyne, Merger Sub or their respective directors, officers, employees or agents resulting from (i) a breach of any covenant, agreement, representation or warranty of Xicom or the Xicom Shareholders contained in this Agreement or the exhibits or schedules hereto; (ii) any lawsuit, open tax matter, employee dispute or other similar contingency disclosed on a schedule (or that should have been disclosed on a schedule or in the Financial Statements) in excess of litigation, tax or related reserves; or (iii) any claim based on the respective equity ownership of the Xicom Shareholders or the allocation of the consideration set forth in this Agreement; provided, however, that any liability of a Shareholder for such Shareholder’s breach of his non-disclosure and non-compete agreement delivered under Section 7.3(f) shall be several and not joint.

          (b) For purposes of assessing indemnification for any breach of warranty, representation, covenant or agreement, any materiality (including any “Material Adverse Change”) or knowledge qualifiers shall be eliminated, except knowledge qualifiers with respect to “threatened” matters.

          (c) The Shareholders will not be obligated to indemnify Radyne or its directors, officers, employees or agents for any Loss except to the extent that such Loss, alone or when aggregated with all other Losses, exceeds [ * ] (the “Indemnity Basket”), unless such Loss results from the matters referenced in subsections (a)(ii) or (a)(iii) above, in which case the Shareholders will be responsible for all Losses.

          (d) Further, the Shareholders shall not be obligated to indemnify Radyne and its directors, officers, employees and agents to the extent that any Loss, alone or when

*      Confidential information on this page has been omitted and filed separately with the Securities Exchange Commission pursuant to a Confidential Treatment Request.

28

aggregated with all other Losses, exceeds [ * ] (the “Indemnity Ceiling”), and Radyne’s sole remedy for damages (except as provided in subsection (e) below) shall be limited to [ * ].

          (e) The Indemnity Basket, the Indemnity Ceiling and the limitation on seeking damages solely from [ * ] will not apply under this Section 8.2 in the event any Loss is based on the fraud or intentional misrepresentation or omission of Xicom or any of the Xicom Shareholders.

     8.3 Radyne and Merger Sub’s Agreement to Indemnify. Subject to the limitations in this Article 8, Radyne and Merger Sub hereby agree to indemnify and hold harmless the Xicom Shareholders and their agents from and against all Losses asserted against or incurred by the Xicom Shareholders or their agents resulting from a breach of any covenant, agreement, representation or warranty of Radyne or Merger Sub contained in this Agreement or the exhibits hereto. Radyne will not be obligated to indemnify the Xicom Shareholders or any of their agents for any Loss except to the extent that such Loss, alone or when aggregated with other Losses, exceeds the Indemnity Basket. Further, Radyne shall not be obligated to indemnify the Xicom Shareholders or any of their agents to the extent that any Loss, alone or when aggregated with other Losses, exceeds the Indemnity Ceiling. Neither the Indemnity Basket nor the Indemnity Ceiling will apply under this Section 8.3 in the event any Loss is based on the fraud or intentional misrepresentation or omission of Radyne or Merger Sub. Xicom and the Xicom Shareholders agree that any claim for indemnification against Radyne or Merger Sub under this Article 8 shall be made solely through the Shareholder’s Representative, and that any and all actions with respect to the rights of the Xicom Shareholders under this Article 8 and the Escrow Agreement shall be exercised solely through the Shareholder’s Representative.

     8.4 Notice of Claim. Any party who has a claim which would give rise to liability pursuant to this Article 8 shall give prompt notice to all other parties of such claim, together with a reasonable description thereof; provided, that Radyne and Merger Sub shall provide such notice only to the Shareholders’ Representative. With respect to any claim by a third party which is covered by the indemnifications contained hereunder, the party obligated to indemnify shall be afforded the opportunity, at its expense, to defend or settle such claim if, within 10 days of notice thereof, it acknowledges in writing its indemnification obligation hereunder, utilizes counsel reasonably satisfactory to the indemnified party, commences such defense promptly and pursues such defense with diligence; provided, however, that such indemnifying party shall secure the consent of the indemnified party to any settlement, which consent shall not be unreasonably withheld, unless the amount of the settlement (together with other settlements) is below the Indemnity Basket. If an indemnified party defends any claim hereunder, such party shall use reasonable efforts in such defense to mitigate Losses arising thereunder, and shall not settle any claim without the consent of the indemnifying party, which shall not be unreasonably withheld; provided, that any consent by the Shareholders’ Representative shall constitute adequate consent on behalf of any Xicom Shareholder under this Section 8.4. Notwithstanding the foregoing, (i) if a claim seeks relief other than the payment of monetary damages; (ii) if the subject matter of a claim relates to the ongoing business of the indemnified party (including with

*    Confidential information on this page has been omitted and filed separately with the Securities Exchange Commission pursuant to a Confidential Treatment Request.

29

out limitation, any relationship with continuing suppliers, customers or other persons or entities with whom the indemnified party does business), which claim, if decided against the indemnified party, could materially adversely affect the ongoing business or reputation of the indemnified party or its relationship to such other party; or (iii) the indemnified party may not be fully indemnified with respect to such claim, then, in each such case, the indemnified party alone shall be entitled to contest, defend and settle such claim in the first instance and, if the indemnified party does not contest, defend or settle such claim, the indemnifying party shall then have the right to contest and defend such claim, but not settle such claim without the consent of the indemnified party, which consent will not be unreasonably withheld.

     8.5 Satisfaction of Obligations. If an indemnifying party becomes obligated to indemnify another party with respect to any claim for indemnification hereunder and the amount of liability with respect thereto shall have been finally determined, the indemnified party, and in the event the indemnified party is a Xicom Shareholder, the Shareholders’ Representative, shall deliver a notice to the indemnifying party and the escrow agent demanding payment pursuant to the Escrow Agreement. Additional provisions regarding the procedures for indemnification are as set forth in the Escrow Agreement.

     8.6 Exclusive Remedy. The rights and remedies provided for in this Agreement shall be exclusive and no other rights and remedies that may exist at law may be asserted against any party; provided, however, that the foregoing will not limit the right of Radyne or Merger Sub to pursue equitable remedies, including equitable remedies related to the enforcement of any non-compete agreement described under Section 7.3(f), nor in the case of fraud or intentional misrepresentation or omission.

ARTICLE 9

TERMINATION, AMENDMENT AND WAIVER

     9.1 Termination. This Agreement may be terminated at any time prior to the Effective Time:

          (a) by mutual consent of a duly authorized officer of Radyne and Xicom and the Shareholders’ Representative;

          (b) by Radyne or Merger Sub, on the one hand, or Xicom, on the other hand, if the other party breaches any of its material representations, warranties or covenants contained herein and, if such breach is curable, is not cured within 15 business days after notice thereof;

          (c) by Radyne or Merger Sub, on the one hand, or Xicom, on the other hand, if obligations to close the transactions contemplated by this Agreement shall become incapable of satisfaction;

          (d) by Radyne or Merger Sub, on the one hand, or Xicom, on the other hand, if the Merger shall not have been consummated by May 31, 2005 or such later date as may be agreed upon by Radyne, Merger Sub and the Shareholders’ Representative; provided, however, that the right to terminate this Agreement under this Section 9(d) shall not be available to any

30

party whose failure to fulfill any obligation under this Agreement has been the cause of, or resulted in, the failure of the Effective time to occur on or before May 31, 2005; or

          (e) as provided in Sections 1.6 or 1.8.

     9.2 Effect of Termination. In the event of termination of this Agreement as provided in Section 9.1, this Agreement shall become void and there shall be no liability or further obligation hereunder on the part of the parties or their respective securityholders, officers or directors, except as set forth in Sections 1.6, 1.8, 6.1 and 6.3, and except for liability arising from a willful breach of this Agreement.

     9.3 Amendment. This Agreement may not be amended except by an instrument in writing approved by Radyne, Merger Sub and Xicom.

     9.4 Waiver. At any time prior to the Effective Time, Radyne or Merger Sub may extend the time for the performance of any of the obligations or other acts of any other party hereto and Xicom may extend the time for performance of any of the obligations of Radyne or Merger Sub. In addition, Radyne and Merger Sub, on the one hand, and Xicom, on the other hand, may waive compliance with any of the agreements of any other party or with any conditions to its own obligations, in each case only to the extent such obligations, agreements and conditions are intended for its benefit.

ARTICLE 10

TAX MATTERS

     The following provisions shall govern the allocation of responsibility as between Radyne and the Shareholders for certain tax matters following the Effective Time:

     10.1 Responsibility for Filing Tax Returns. Radyne shall prepare or cause to be prepared and file or cause to be filed all Tax Returns for Xicom that are required to be filed after the Effective Time.

     10.2 Cooperation on Tax Matters. Radyne, Xicom and the Shareholders (through the Shareholders’ Representative) shall cooperate fully, as and to the extent reasonably requested by the other party, in connection with the filing of Tax Returns pursuant to this Article 10 and any audit, litigation or other proceeding with respect to Taxes. Such cooperation shall include the retention and (upon the other party’s request) the provision of records and information that are reasonably relevant to any such audit, litigation or other proceeding and making employees available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder.

     10.3 Control of Tax Proceedings. If any claim, suit or proceeding shall be made by any taxing authority that could give rise to an additional payment of Taxes, the party responsible for the payment of such Taxes shall control all proceedings arising in connection with such claim, suit or proceeding; provided, however, that if the subject matter of a claim, suit or proceeding relates to the ongoing business of Xicom (including without limitation, its

31

employees, suppliers, customers or other persons or entities with whom Xicom does business), which claim, suit or proceeding, if decided against the Xicom, could materially adversely affect the ongoing business or reputation of Xicom or its relationship with such party after the Effective Time, then Radyne or Xicom, at their election, shall be entitled to contest, defend and settle such claim, suit or proceeding. For purposes of the foregoing, the Shareholders’ Representative shall be deemed the party responsible for any Taxes the payment of which would result in a claim against [*].

ARTICLE 11

GENERAL PROVISIONS

     11.1 Public Statements. Except as required by applicable law, rule or regulation, including of the Nasdaq National Market, prior to the Effective Time, no party shall make any public announcement or statement with respect to the Merger, this Agreement or any related transaction without the approval of the other parties, which approval will not be unreasonably withheld. Each party agrees to consult with the other parties prior to issuing any such public announcement or statement.

     11.2 Notices. All notices and other communications hereunder shall be in writing and shall be sufficiently given if made by hand delivery, by facsimile, by recognized overnight courier service, or by registered or certified mail (postage prepaid and return receipt requested) to the parties at the following addresses (or at such other address for a party as shall be specified by it by like notice):

If to Radyne or Merger Sub:	Radyne ComStream Inc.
	3138 E. Elwood Street
	Phoenix, Arizona 85034
	FAX: (602) 437-4811
	Attn.: Robert C. Fitting
With a copy to:	Snell & Wilmer L.L.P.
	One Arizona Center
	Phoenix, Arizona 85004
	FAX: (602) 382-6070
	Attn.: Steven D. Pidgeon
If to Xicom or the Shareholders or the Xicom Shareholders (via the Shareholders’ Representative):	Xicom Technology Inc. 3550 Basset Street Santa Clara, California 95054 FAX: (408) 213-3106 Attn.: Walter C. Wood

*    Confidential information on this page has been omitted and filed separately with the Securities Exchange Commission pursuant to a Confidential Treatment Request.

32

With a copy to:	Gunderson Dettmer Stough Villeneuve
	Franklin & Hachigian, LLP
	155 Constitution Drive
	Menlo Park, California 94025
	FAX: (650) 321-2800
	Attn: Bennett L. Yee, Esq.

     All such notices and other communications shall be deemed to have been duly given: when delivered by hand, if personally delivered; three business days after being deposited in the mail, postage prepaid, if delivered by mail; the next business day, if by recognized overnight courier service; and when receipt acknowledged, if faxed; provided, however, notice to a party’s attorney shall not constitute notice to such party.

     11.3 Dispute Resolution. Except as provided in Section 1.6(h), all claims, disputes and other matters in controversy (herein called a “Dispute”) arising directly or indirectly out of or related to this Agreement, or the breach thereof, whether contractual or noncontractual, and whether during the term or after the termination of this Agreement, will be resolved exclusively according to the procedures set forth in this Section 11.3.

          (a) Negotiation. The parties will attempt to settle Disputes arising out of or relating to this Agreement, or the breach thereof, by a meeting of two designated representatives of each party within five days after a request by either of the parties to the other party asking for the same.

          (b) Mediation. If such Dispute cannot be settled at such meeting, either party within five days of such meeting may give a written notice (a “Dispute Notice”) to the other party setting forth the nature of the Dispute. The parties will attempt in good faith to resolve the Dispute by mediation in Phoenix, Arizona under the Commercial Mediation Rules of AAA in effect on the date of the Dispute Notice. The parties will select a person who will act as the mediator under this subsection (b) within 60 days of the date of this Agreement. If the Dispute has not been resolved by mediation as provided above within 30 days after delivery of the Dispute Notice, then the Dispute will be determined by arbitration in accordance with the provisions of subsection (c) below.

          (c) Arbitration. Any Dispute that is not settled through mediation as provided in subsection (b) above will be resolved by arbitration in Phoenix, Arizona, governed by the Federal Arbitration Act, 9 U.S.C. § 1 et seq., and administered by the AAA under its Commercial Arbitration Rules in effect on the date of the Dispute Notice, as modified by the provisions of this subsection (c), by a single arbitrator. The arbitrator selected, in order to be eligible to serve, will be a lawyer with at least 15 years experience specializing in business matters. In the event the parties cannot agree on a mutually acceptable single arbitrator from the list submitted by the AAA, AAA will appoint the arbitrator who will meet the foregoing criteria. The arbitrator will base the award on applicable law and judicial precedent and, unless both parties agree otherwise, will include in such award the findings of fact and conclusions of law upon which the award is based. Judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction thereof.

33

          (d) Notwithstanding the foregoing or anything in this Agreement to the contrary:

               (i) Upon the application by either party to a court for an order confirming, modifying or vacating the award, the court will have the power to review whether, as a matter of law based on the findings of fact determined by the arbitrator, the award should be confirmed, modified or vacated in order to correct any errors of law made by the arbitrator. In order to effectuate such judicial review limited to issues of law, the parties agree (and will stipulate to the court) that the findings of fact made by the arbitrator will be final and binding on the parties and will serve as the facts to be submitted to and relied on by the court in determining the extent to which the award should be confirmed, modified or vacated; and

               (ii) Either party will have the right to apply to any court for an order to specifically enforce their rights under this Agreement and the other agreements contemplated by this Agreement, including but not limited to a party’s obligation to close the transaction and the confidentiality provisions contained in this Agreement.

          (e) Costs and Attorneys’ Fees. If either party fails to proceed with mediation or arbitration as provided herein or unsuccessfully seeks to stay such mediation or arbitration, or fails to comply with any arbitration award, or is unsuccessful in vacating or modifying the award pursuant to a petition or application for judicial review, the other party will be entitled to be awarded costs, including reasonable attorneys’ fees, paid or incurred by such other party in successfully compelling such arbitration or defending against the attempt to stay, vacate or modify such arbitration award and/or successfully defending or enforcing the award.

          (f) Tolling of Statute of Limitations. All applicable statutes of limitations and defenses based upon the passage of time will be tolled while the procedures specified in this Section 11.3 are pending. The parties will take such action, if any, required to effectuate such tolling.

     11.4 Interpretation. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. References to Sections and Articles refer to sections and articles of this Agreement unless otherwise stated. Words such as “herein,” “hereinafter,” “hereof,” “hereto,” “hereby” and “hereunder,” and words of like import, unless the context requires otherwise, refer to this Agreement (including the exhibits and attachments hereto). As used in this Agreement, the masculine, feminine and neuter genders shall be deemed to include the others if the context requires. The term “Agreement” means collectively this Agreement and the agreements, certificates and other documents delivered hereunder. For purposes of this Agreement, “Xicom” means Xicom and its Subsidiaries, where appropriate (including, without limitation, Section 3.15).

     11.5 Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated and the parties shall negotiate in

34

good faith to modify this Agreement to preserve each party’s anticipated benefits under this Agreement.

     11.6 Miscellaneous. This Agreement (together with all other documents and instruments referred to herein): (a) constitutes the entire agreement, and supersedes all other prior agreements, representations, warranties and undertakings, both written and oral, among the parties, with respect to the subject matter hereof; (b) is not intended to confer upon any other person any rights or remedies hereunder; (c) shall not be assigned by operation of law or otherwise, except that Radyne and Merger Sub may assign all or any portion of their rights under this Agreement to any wholly-owned subsidiary, but no such assignment shall relieve Radyne and Merger Sub of their obligations hereunder, and except that this Agreement may be assigned by operation of law to any corporation with or into which Radyne may be merged or otherwise sold, including through a sale of assets or stock; and (d) shall be governed in all respects, including validity, interpretation and effect, by the internal laws of the State of Arizona, without giving effect to the principles of conflict of laws thereof. This Agreement may be executed in two or more counterparts (including counterpart signature pages to be executed by the Xicom Shareholders referenced in Section 7.3(h)), which together shall constitute a single agreement.

[SIGNATURE PAGES FOLLOW]

35

MERGER AGREEMENT

SIGNATURE PAGES

          IN WITNESS WHEREOF, the parties have caused this Agreement to be executed on the date first written above.

RADYNE COMSTREAM INC., a Delaware
corporation
 

By:  

Name: Robert C. Fitting 

Title: Chief Executive Officer 

XICOM ACQUISITION INC., a California
corporation
 

By:  

Name: Robert C. Fitting 

Title: President and Chief Executive Officer 

XICOM TECHNOLOGY INC., a California
corporation
 

By:  

Name: Walter C. Wood 

Title: Chief Executive Officer 

THE SHAREHOLDERS:
By:
	Walter C. Wood

By:
	Ronald J. Sterns

By:
	Judith R. Sterns

WALTER C. WOOD, solely in his capacity as the Shareholders’ Representative
By:
	Walter C. Wood

36

APPENDIX I

Additional Xicom Shareholders

Kevin Sterns

Oralee Murillo

Jennifer Rivers

Jonathan Sterns

Stephen Ludvik

Stephen C. McIntyre

Bruce McLeod

Raul Ochoa

Wilson Sonsini Investment WS96B

Jack L. Hancock

Ailsa E. Ludvik

Gregory M. Ludvik

George Vendelin

Algis Joudikis

APPENDIX II

Computation of Net Working Capital

[Attached]

EX-21.1

Exhibit 21.1

List of Subsidiaries

Name	Place of Incorporation
ComStream Corporation	Delaware
Armer Communications Engineering Services, Inc	Delaware
Tiernan Radyne ComStream Inc.	Delaware
WC Acquisition Corp.	Delaware
Xicom Acquisition Inc.	California

EX-23.1

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

The Board of Directors
Radyne ComStream Inc.:

We consent to the incorporation by reference in the registration statements of Radyne ComStream Inc. on Form S-8 (File No. 333-23159) filed as of March 12, 1997, Form S-8 (File No. 333-67469) filed as of November 18, 1998 and amended as of May 5, 1999, Form S-8 (File No. 333-90383) filed as of November 5, 1999, Form S-8 (File No. 333-41704) filed as of July 19, 2000, and Form S-8 (File No. 333-89316) filed as of May 29, 2002, of our reports dated March 11, 2005, with respect to the consolidated balance sheets of Radyne ComStream Inc. and subsidiaries as of December 31, 2004 and 2003, and the related consolidated statements of operations, stockholders’ equity and comprehensive income (loss), and cash flows for each of the years in the three-year period ended December 31, 2004, management’s assessment of the effectiveness of internal control over financial reporting and the effectiveness of internal control over financial reporting, which reports appear in the December 31, 2004 annual report on Form 10-K of Radyne ComStream Inc.

/s/ KPMG LLP

Phoenix, Arizona
March 11, 2005

EX-31.1

Exhibit 31.1

Certification

I, Robert C. Fitting, certify that:

1.	I have reviewed this annual report on Form 10-K 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 operation 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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 know to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	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
d)	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 (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is 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 over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

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: March 11, 2005

/s/ Robert C. Fitting

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

EX-31.2

Exhibit 31.2

Certification

I, Malcolm C. Persen, certify that:

1.   I have reviewed this annual report on Form 10-K 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 operation 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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 know to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	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
d)	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 (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is 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 over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

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: March 11, 2005

/s/ Malcolm C. Persen

Malcolm C. Persen, Chief Financial Officer
(Principal Financial Officer)

EX-32.1

Exhibit 32.1

RADYNE COMSTREAM INC.

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

In connection with the Annual Report of Radyne ComStream Inc. (the “Company”) on Form 10-K for the year ended December 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of his knowledge:

(1)	The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)	The information contained in the Report fairly presents, in all material respects, the consolidated financial condition and results of operations of the Company.

/s/ Robert C. Fitting

Robert C. Fitting

Chief Executive Officer

March 11, 2005

/s/ Malcolm C. Persen

Malcolm C. Persen

Chief Financial Officer

March 11, 2005

EX-99.1

EXHIBIT 99.1

CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING STATEMENTS AND RISK FACTORS

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

     “Forward-looking statements” are defined by the Reform Act. Generally, forward-looking statements include expressed expectations of future events and the assumptions on which the expressed expectations are based. The words “may”, “believes”, “projects”, “expects” or “anticipates” and similar expressions identify forward-looking statements. This Annual Report on Form 10-K for the year ended December 31, 2004 contains forward-looking statements that involve risks and uncertainties. Such forward-looking statements are within the meaning of that term in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All forward-looking statements are inherently uncertain as they are based on various expectations and assumptions concerning future events and they are subject to numerous known and unknown risks and uncertainties that could cause actual events or result to differ materially from those projected. Due to those and other uncertainties and risks, the investment community is urged not to place undue reliance on written or oral forward-looking statements of the Company. We undertake no obligation to update or revise this Cautionary Statement Regarding Forward-Looking Statements to reflect future developments. In addition, we undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events, or changes to future operating results over time.

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

RISK FACTORS

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

We Have A History Of Inconsistent Operating Results, And Could Suffer Losses In The Future.

     As a result of operating losses from time to time in prior years, we had an accumulated deficit of $9.5 million at December 31, 2003. While the Company regained profitability during 2003 and continued to be profitable in 2004, we accomplished it through aggressive cost cutting more than through increased sales. There are no assurances that the cost cutting measures instituted during the 2002 and 2003 fiscal years will be effective in the years to come and the Company’s forecasts rely heavily on increased revenues (of which there are no assurances) to predict future profitability. A failure to achieve either lower costs or higher sales would affect our profitability and could result in losses.

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

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

•   timing of the initiation and completion of our purchase orders;

•   demand for our products;

•   introduction of new or enhanced products by us or our competitors;

•   growth of demand for Internet-based products and services in developing countries;

•   timing of significant marketing programs we may implement;

•   extent and timing of hiring additional personnel;

•   competitive conditions in our industry; and

•   general economic conditions in the United States and abroad.

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

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

     We are dependent on sales to customers outside the United States. We expect that international sales will continue to account for a significant portion of our revenues for the foreseeable future. For example, sales to our foreign customers were approximately 47% for the year ended December 31, 2004, 48% for the year ended December 31, 2003 and 47% for the year ended December 31, 2002. Additionally, we estimate that approximately 60% of our domestic sales are eventually exported. Moreover, the growth in the use of satellites for Internet traffic in recent years has been centered on connecting Internet service providers, or ISPs, with Internet servers. U.S. based ISPs rarely use satellites to provide point-to-point infrastructure for the Internet. Accordingly, we expect that our sales to the Internet Service Provider market will be primarily to customers located outside the United States. As a result of our dependence on foreign markets, the occurrence of any negative international political, economic or geographic events could result in significant revenue shortfalls. These shortfalls could cause our business, financial condition and results of operations to be harmed. Some of the risks of doing business internationally include:

•   changing regulatory requirements;

•   fluctuations in the exchange rate for the United States dollar;

•   the availability of export licenses;

•   political and economic instability;

•   difficulties in staffing and managing foreign operations, tariffs and other trade barriers;

•   changes in diplomatic and trade relationships;

•   complex foreign laws and treaties;

•   acts of terrorism; and

•   difficulty of collecting foreign account receivables.

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

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

     Our foreign sales are denominated in United States dollars. As a result, any decrease in the value of foreign currencies relative to the United States dollar may materially adversely affect the demand for our products by increasing their costs in the currency of those countries. For example, the value of the Mexican Peso, Venezuelan Bolivar and the Brazilian Real have deteriorated against the Dollar over the last three years and these markets have experienced decreased bookings and adversely affected our results of operations in 2004 and 2003.

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

     We believe a substantial portion of the growth in demand for our products will depend upon customers in developing countries. We cannot provide assurance that such increases in demand will occur or that prospective customers will accept our products. The degree to which we are able to penetrate potential markets in developing countries will be affected to a large extent by the speed with which other competing elements of the communications

infrastructure, such as other satellite-delivered solutions, telephone lines, television cable, and land-based solutions, are installed in these developing countries.

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

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

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

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

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

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

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

Our Products May Become Obsolete Due To Rapid Technological Change.

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

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

     Our continued growth depends on penetrating new markets, adapting existing satellite communications products to new applications, and introducing new communications products that achieve market acceptance and benefit from our established international distribution channels. Accordingly, we are actively applying our communications expertise to design and develop new hardware and software products and enhance existing products. These efforts are costly. We expended $5.3 million, or 9% of our net sales, in fiscal 2004 on research and development activities. This was a decrease from the prior year in which we spent $6.3 million, or 11% of our net sales for the year. Additionally, our research and development program may not produce successful results, which would have a material adverse effect on our business, financial condition, and results of operations.

The Xicom Acquisition May Not Be Completed.

     Under the terms of the definitive agreement, closing is subject to completion of a satisfactory pre-closing audit, receipt and approval of complete disclosure schedules, and customary closing conditions. If the pre-closing audit results in differences of certain net working capital values in excess of $500 thousand relative to those values as included in Xicom’s most recent annual financial statements as previously provided to the Company, either party potentially has the right to walk away from the transaction. Further, there is no assurance that either party will complete the transaction or that expected financing will be available to the Company. The definitive agreement is filed herewith as Exhibit 10.12.

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

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

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

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

•   the use of a disproportionate amount of our management’s attention or our resources;

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

•   potential disruption of our ongoing business;

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

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

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

Our Ability To Use Our Net Operating Loss Carryforwards May Be Limited By The Ownership Change Caused By The Sale Of All Of The Shares Of Our Common Stock Held By Our Majority Stockholders.

     We have net operating loss carryforwards that expire between the years 2018 and 2022. As a result of the recent sale by Stetsys Pte Ltd. and Stetsys US, Inc. of all of the shares of our common stock held by each company, we will experience an ownership change as defined by Section 382 of the U.S. Internal Revenue Code of 1986, as amended. Because of the ownership change, we will be limited in our ability to use the net operating losses from before the date of the ownership change to offset items of taxable income realized after that date. The annual limitation may also result in the expiration of net operating losses before utilization. In addition, any

future ownership change could further limit the availability of our net operating loss carryforwards to offset tax liabilities and may be viewed negatively by a prospective buyer of the stock.

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

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

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

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

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

Our Products Could Infringe On The Intellectual Property Of Others.

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

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

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

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

Stock Prices Of Technology Companies Are Volatile, Which Could Result In Substantial Losses To Investors.

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

•   decreased demand in the Internet-services sector;

•   variations in our operating results;

•   announcements of technological innovations or new services by us or our competitors;

•   changes in expectations of our future financial performance, including financial estimates by securities analysts and investors;

•   changes in operating and stock price performance of other technology companies similar to us;

•   conditions or trends in the technology industry;

•   additions or departures of key personnel; and

•   future sales of our common stock.

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

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

     A large number of our issued and outstanding shares of common stock are eligible for future sale. The sale, or availability for sale, of a substantial number of shares of common stock in the public market could materially adversely affect the market price of our common stock and could impair our ability to raise additional capital through the sale of our equity securities.

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

     We are currently in compliance with Nasdaq’s continued listing requirements. However, if we cannot satisfy Nasdaq’s continued listing criteria in the future, Nasdaq could delist our common stock. In the event of delisting, trading, if any, would be conducted only in the over-the-counter market in the so-called “pink sheets” or the NASD’s Electronic Bulletin Board. As a result, an investor would likely find it more difficult to sell or obtain quotations as to the price of our common stock.

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

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

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

     Our future performance depends significantly on Robert C. Fitting, our Chief Executive Officer, and Steve Eymann, our Executive Vice President and Chief Technical Officer. The loss of either of these key employees would adversely affect our operations. Mr. Fitting is 70 years old and we may eventually need to effect an appropriate transition to a new Chief Executive Officer. Any such transition may disrupt our business, customers and employees.

     Our continued ability to attract and retain highly skilled personnel also is critical to the operation and expansion of our business. The market for skilled engineers and other technical personnel is extremely competitive, and recruitment and retention costs are high. Although we have been able to attract and retain the personnel

necessary to operate our business, we may not be able to do so in the future, particularly as we continue to expand our business into Internet-related products and other markets. The failure to attract and retain personnel with the necessary skills when needed could materially and adversely affect our business and expansion plans.

Anti-Takeover Effect Of Delaware Law And Our Charter.

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

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

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