-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IoplF/rzVvsRr0RLonc1yBynzJjdO8aocLEWjaP064f8jZ/bkhqBwnF0hvTFkI2B VO1VpKJG8qb/KX4fypInLQ== 0000752692-99-000001.txt : 19990402 0000752692-99-000001.hdr.sgml : 19990402 ACCESSION NUMBER: 0000752692-99-000001 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MILTOPE GROUP INC CENTRAL INDEX KEY: 0000752692 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER PERIPHERAL EQUIPMENT, NEC [3577] IRS NUMBER: 112354135 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-13433 FILM NUMBER: 99581619 BUSINESS ADDRESS: STREET 1: 500 RICHARDSON RD S CITY: HOPE HULL STATE: AL ZIP: 36043 BUSINESS PHONE: 3342848665 MAIL ADDRESS: STREET 1: 500 RICHARDSON ROAD SOUTH CITY: HOPE HULL STATE: AL ZIP: 36043 10-K 1 FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1998 Commission File Number 0-13433 MILTOPE GROUP INC. - ------------------------------------------------------------------------------ (Exact name of registrant as specified in its charter) DELAWARE 11-2693062 - --------------------------------------------- ------------------- (State or other jurisdiction of incorporation (I.R.S. Employer or organization) Identification No.) 500 Richardson Road South, Hope Hull, Alabama 36043 - --------------------------------------------- ------------------ (Address of principal executive offices) (Zip Code) Registrant's telephone number including area code: (334) 284-8665 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Shares, par value $.01 each ---------------------------------- (Title of class) 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 X 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 the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the voting stock of the registrant held by non-affiliates (which excludes voting shares held by officers and directors of the registrant) was $2,823,382 as of February 19, 1999. Indicate the number of shares outstanding of each of the registrant's classes of common stock: Common Shares with a par value of $.01 each: 5,871,523 as of February 19, 1999. Documents Incorporated by Reference: The definitive Proxy Statement for the Annual Meeting of Stockholders to be held June 10, 1999, to be filed with the Commission not later than 120 days after the close of the Registrant's fiscal year, has been incorporated by reference for Part III, Items 10, 11, 12 and 13, to this annual report on Form 10-K. ITEM 1. BUSINESS -------- General - ------- Miltope Group Inc. (the "Company"), a Delaware corporation incorporated in March 1984, is the parent company of Miltope Corporation, an Alabama corporation ("Miltope"), and Miltope Business Products, Inc., a New York corporation ("MBP"). Miltope was originally incorporated as a New York corporation in 1975 to acquire the assets and business of the Military Equipment Division of Potter Instrument Company, Inc. and until June 1984 was a wholly owned subsidiary of Stonebrook Group Inc. (formerly Stenbeck Reassurance Co. Inc.) ("SGI"). In June 1984, all of the outstanding stock of the Company was issued to SGI in exchange for all of the outstanding stock of Miltope. SGI is a privately held corporation which, since 1975, has supported the formation and funding of companies engaged in the development and manufacture of electronic hardware for defense and communications applications and in communications services. In January 1985, shareholders of the Company (including SGI) sold 700,000 shares of the Company's Common Stock in an initial public offering. In November 1985, the Company sold an additional 1,000,000 shares of its Common Stock to the public. As of December 30, 1994, Miltope merged with and into a newly formed Alabama corporation, which succeeded to all of the New York corporation's assets and liabilities. On January 1, 1995, Innova International Corporation, a Delaware corporation ("IIC"), acquired 62.8% of the outstanding shares of Common Stock of the Company pursuant to certain share exchange transactions with SGI, which at such time was a holder of 55.6% of the outstanding shares of common stock of the Company, and Stuvik AB, a Swedish corporation and, at such time, a holder of approximately 7.2% of the outstanding shares of Company common stock. IIC provides, through its operating subsidiaries, integrated network products and services. IIC is a subsidiary of Great Universal Incorporated, a Delaware corporation which is engaged in integrated network services, teleservices and television and media. Miltope is engaged in the design, development, manufacture and testing of computers and computer peripheral equipment for military, rugged and other specialized applications requiring reliable operations in severe land, sea and airborne environments for both military and commercial customers. Miltope's product lines include a broad range of computer printers, disk memory products, transportable microcomputers and electronically erasable programmable read only memory ("EEPROM") together with subsystems incorporating these products. Miltope also delivers components for cabin management and in flight entertainment systems, public access Internet terminals, and a complete line of rugged SUN and Hewlett-Packard RISC workstations and related peripherals. In September 1994, the Company relocated its headquarters from Melville, New York to Montgomery, Alabama. On January 12, 1995, the Company completed a $6,100,000 industrial revenue bond offering by the Alabama State Industrial Development Authority ("SIDA"), the proceeds of which were used to improve, equip and furnish the new Montgomery facility and to pay the $3,375,000 principal amount of bank indebtedness which was used in part in the acquisition of such facility. On January 1, 1996, the Company consolidated the operations of MBP and Miltope Corporation. The Company's two industry segments are maintained through product line accountability. Segment Information - ------------------- The Company's business is divided into two industry segments, consisting of the manufacture of militarized and rugged equipment primarily for military applications conducted by the "Military/Rugged" segment, and the manufacture and distribution of commercial products conducted by the "Commercial" segment (formerly MBP). Financial information regarding the Company's industry segments is included in Note 10 to the Notes to Consolidated Financial Statements located in Item 8 of this Form 10-K. Description of Business - ----------------------- Military/Rugged - General - ------------------------- The military/rugged segment is engaged in the design, development, manufacture and testing of computer and computer peripheral equipment for military, rugged and other specialized applications requiring reliable operations in severe land, sea and airborne environments for military customers. Military/rugged product lines include a broad range of computer printers, disk memory products, hand held and transportable microcomputers, and EEPROM solid state memories, together with subsystems incorporating these products. In 1988, the Company introduced a complete line of rugged Hewlett Packard Company computers and related peripherals. The equipment is being used for the United States Army's Tactical Command and Control System/Common Hardware Software Program ("ATCCS/CHS") under a contract awarded to the Company in August 1988, as well as to other customers for related applications. During 1995, the Company introduced a new family of rugged computer products consisting of hand held Intel based computers and portable SUN and Hewlett-Packard RISC workstations and related peripherals. These new products are reconfigurable and scaleable for specific applications and employ commercial "off the shelf" technology. The hand held Intel based computers are being used for the United States Army's Soldiers' Portable On-system Repair Tools ("SPORT") under a contract awarded to the Company in June 1996, as well as by other customers for related applications. The portable SUN and Hewlett- Packard RISC workstations comprise the Transportable RISC Computer ("TRC") 2000 product line and are being used for a variety of military and commercial applications. Substantially all of the military/rugged segment sales consist of militarized and rugged products. "Militarized" equipment is designed and built, with respect to each component and the whole, to conform to stringent United States Department of Defense ("DOD") specifications developed for severe land, sea and airborne operating environments. These specifications define equipment operating parameters including atmosphere, temperature and humidity conditions, permitted levels of shock and vibration, susceptibility to electro-magnetic interference ("EMI"), EMI emission levels, and detection and hardening for nuclear survivability. "Rugged" equipment is designed and manufactured to less demanding specifications and may include commercially available devices which are suitably modified for these applications. Production of equipment conforming to these DOD specifications has required the development over the years by the Company of proprietary electronic and electro-mechanical designs and engineering techniques and specialized manufacturing and testing methods. By these means, the Company has developed a broad range of proprietary components which meet these specifications and are otherwise unavailable in the commercial market. To support its engineering, manufacturing and testing activities, the Company has extensive manufacturing equipment, clean rooms and reliability and environmental testing facilities as well as a multi-function computer aided design ("CAD") system and an EMI test lab. Military/rugged products are sold for use in a broad range of military programs for the United States Air Force, Army, Navy and Marine Corps, for NATO, for the Australian, British, Canadian, French, German, Israeli, Italian, Spanish and Norwegian armed forces and for the armed forces of other countries. Miltope's militarized and rugged computers and peripheral products are compatible with most standard military computers and are sold to the DOD and many prime DOD systems contractors and integrators, including Amtech Corporation, Bath Iron Works, Boeing Aerospace, EDS, Raytheon E-Systems Inc., Northrop Grumman Corporation, GTE Corp., Government Technology Services, Inc. (GTSI), General Dynamics, Hughes Defense Communications, Lockheed Martin, ManTech Test Systems, Inc., Marconi Radar Control Systems Limited, McDonnell Douglas Corp., Motorola Inc., Loral Federal Systems, Teledyne Controls, CAE Inc., and ITT Defense Systems. Miltope believes that it has captured a major portion of the market for militarized printers and disk memory products. In addition, Miltope is recognized as a leading supplier of rugged computers and related equipment. A key element of Miltope's strategy has been to develop and deliver a broad range of high reliability peripheral components and systems on a cost effective and timely basis. The breadth of Miltope's product offerings enables system integrators to avoid the risks normally encountered when procuring peripherals from multiple suppliers and to achieve significant price advantages. Miltope's ability to meet the diverse requirements of its customers has resulted in substantial recurring business. Also, as defense budgets have been reduced, an emphasis on commercially adaptable electronics and the requirement for smaller, less expensive and more portable systems has occurred. Miltope believes its new product family of rugged, reconfigurable portable and handheld computing devices will serve this growing market niche well as evidenced by the DOD's award to Miltope of the SPORT Program in June 1996 and the award of the TETS (Third Echelon Test Set) program in October 1997. Miltope has been performing under a nine year DOD contract which ran until August 1998 in connection with the ATCCS/CHS Program. The purpose of the ATCCS/CHS Program is to integrate most of the aspects of land combat through the common automation of mission command and control areas. As of February 19, 1999, Miltope has been issued cumulative firm orders valued at approximately $290,000,000 since the inception of this contract. In addition, the Company has received orders for ATCCS/CHS equipment for other defense contractors and foreign governments. In June 1996, Miltope was awarded a five year DOD contract for Soldiers' Portable On-system Repair Tools (SPORT). SPORT will enhance the U.S. Army's capability to diagnose and repair weapon systems and electronically display technical manuals. Production deliveries under this contract began in September, 1997. The contract has an estimated value of approximately $81,000,000 over a five year period. There can be no assurances this estimate of purchase requirements will be achieved. As of February 19, 1999, Miltope has been issued firm orders valued at approximately $23,000,000 under this contract. In addition, the Company has received orders for SPORT equipment for other defense contractors. In July 1997, Miltope was awarded additional orders of approximately $3,300,000 from the U.S. Navy for the manufacture and delivery of SuperBobcat computers. These computers are rugged, powerful workstations designed and used to support naval aircraft in gathering signal intelligence for threat identification. As of February 19, 1999, Miltope has received firm orders of approximately $7,900,000 from this customer since the inception of the program in June of 1996. In October 1997, the Company was selected to supply its Prowler computer to fulfill a contract awarded by ManTech Test Systems, Inc. The Prowler is a rugged, portable, Intel based computer developed and manufactured by Miltope. The unit will serve as the instrument controller for the U.S. Marines' Third Echelon Test Set ("TETS") program. TETS will provide the Marines with a portable test capability to screen, test and diagnose electronic and electromechanical equipment in the field. The estimated contract value is $9,500,000 over a five year period. There can be no assurances this estimate of purchase requirements will be achieved. As of February 19, 1999, Miltope has received firm orders of approximately $1,000,000 since 1997. In November 1998, the Company was selected to deliver its TIC-2000 computer and other peripherals to the Electronic Systems Center at Hanscom Air Force Base. The TIC-2000 is a newly developed rugged, portable Intel based workstation which will be integrated into the United States Air Force's Military Satellite Communication. The estimated value of the contract is $2,000,000 over a two year period. There can be no assurances this estimate of purchase requirements will be achieved. As of February 19, 1999, Miltope has received firm orders of approximately $1,400,000. In November 1998, the Company was selected by Phoenix Group Inc. to manufacture the Condor APPLIQUE' rugged computer for TRW. This computer will be used in the United States Army's Force XXI Battle Command, Brigade and Below Program. This program will be the principal digital command and control system for the Army at the brigade level and below and will provide enhanced situational awareness across the battle space. The estimated value of the contract is $2,800,000 over a two year period. There can be no assurances this estimate of purchase requirements will be achieved. As of February 19, 1999, Miltope has received firm orders of approximately $2,800,000. Commercial - General - -------------------- The commercial segment develops, manufactures and markets commercial products primarily for transportation, telecommunications and in-field maintenance markets. Its products are airborne printers, airline ticket and boarding pass printers, rugged public access Internet terminals, mass storage devices, and derivatives of rugged hand held Intel based computers and portable RISC workstations originally developed for military applications. This segment's business represented approximately 45% of the Company's 1998 revenues, approximately 48% of the Company's 1997 revenues and approximately 33% of the Company's 1996 revenues. Miltope's airborne printer products are sold to a broad base of airframe manufacturers and commercial airline companies worldwide for use in flight deck and cabin workstation information systems. During 1998, customers for the airborne printer line of products included Boeing, B/E Aerospace, Continental Airlines, Delta Airlines, KLM, Matsushita Avionics Systems, Teledyne Controls, SAAB, American Airlines, Itochu Embraer, United Airlines, EL AL and AMR Eagle, Inc.. Miltope has received firm orders during 1998 of approximately $8,300,000 for airborne printer products. During 1997, Miltope received firm orders from an affiliate, 3C Communications International, S.A., a Luxembourg based telecommunications company, amounting to approximately $8,100,000, for the manufacture and delivery of rugged Internet terminals for commercial use in Europe. These terminals are designated for installation in hotels, transportation centers, restaurants, etc. to provide Internet access for the traveling public. As of February 19, 1999, Miltope has received cumulative firm orders of approximately $11,800,000 from this customer since July 1996. In December 1996, Miltope was awarded a contract for the manufacture of rugged hard drives for use in Sony Trans Com Inc.'s Audio Video on Demand In-Flight Entertainment System ("P@ssport TM") to be sold to airline customers around the world. The estimated contract value is $10,200,000 over a five year period. The contract value is based on the customer's best estimate of purchase requirements during the contract period. There can be no assurances this estimate of purchase requirements will be achieved. As of February 19, 1999, Miltope has received firm orders of approximately $200,000 from this customer for this product. In October 1997, Miltope was awarded an additional contract from Sony Trans Com, Inc., for an estimated value of $6,000,000 over a five year period to develop and manufacture computer units for the P@VEST Family of Programmable In Flight Entertainment Systems. The Miltope developed computer unit will provide an interactive capability to Sony Trans Com, Inc.'s in-flight audio/video, passenger entertainment and information systems. The contract value is based on the customer's best estimate of purchase requirements during the contract period. There can be no assurances this estimate of purchase requirements will be achieved. As of February 19, 1999, Miltope has received firm orders of approximately $200,000 from this customer for this product. In December 1997, Miltope entered into a strategic agreement with Honeywell, Inc. Business and Commuter Aviation Systems, to provide Maintenance Access Terminals ("MAT") for use in business jets and commuter aircraft around the world as an option on Honeywell's integrated avionics systems. As of February 19, 1999, Miltope has received firm orders of approximately $1,500,000 for this product from this customer. Sales and Significant Customers - ------------------------------- Sales in 1998 attributable to the military industry segment were approximately as follows: 74% from large DOD programs (each accounting for 5% or more of annual sales), 6% from smaller programs and sales of standard items in Miltope's catalogue, 9% from sales to foreign governments and defense contractors and 11% from spare parts sales. Sales to any one large DOD program have varied substantially from year to year due to product cycles and DOD requirements. In 1998, sales to the DOD accounted for 50% of net sales of the Company. No other customer accounted for more than 10% of net sales. The Company has experienced large fluctuations from year to year in the percentage of sales represented by particular customers due to product cycles and customer requirements. The Company believes its customers and the industry are moving to shorter lead times due to compressed technology cycles and changes in procurement strategies. Sales in 1998 attributable to the commercial industry segment amounted to approximately 45% of the Company's total net sales. During 1997 and 1998, the Company recorded sales of $10,640,000 and $261,000, respectively, to 3C Communications International, S.A., an entity affiliated through certain common ownership. Government Contracts - -------------------- Miltope's business is subject to various statutes, regulations and provisions governing defense contracts including the Truth in Negotiations Act, which provides for the examination by the U.S. government of cost records to determine whether accurate pricing information was disclosed in connection with government contracts. Contracts with the U.S. government as well as with U.S. government prime contractors are typically at a fixed price with a delivery cycle of 4 to 12 months, with contracts under any particular program being subject to further funding and negotiation. Miltope's defense contracts contain customary provisions permitting termination at any time at the convenience of the customer and providing for payment for work-in-progress should the contract be canceled. Backlog - ------- Backlog for both the military and commercial industry segments at December 31, 1998 was $21,991,000, a 54% increase from the $14,302,000 backlog at December 31, 1997. Backlog includes only customer signed delivery orders from current contracts and funded portions of multi-year contracts. The Company believes that substantially all of the backlog will be recognized as revenue by December 31, 1999. The Company also believes that a substantial part of new delivery orders and contract fundings received in 1999 will be recognized as revenue in the same year due to shorter lead times. Backlog for the commercial industry segment was approximately 31% of the total backlog at December 31, 1998 and approximately 28% of the total backlog at December 1997. Backlog does not include unfunded portions of multi-year contracts. Unfunded portions of multi-year contracts totaled $86,995,000 and $100,000,000 at December 31, 1998 and 1997, respectively. Competition - ----------- Both of the Company's industry segments face intense competition in markets for certain of their products. Competition comes from independent producers as well as prime contractors. Some of these competitors have greater resources than the Company. Competition is based on such factors as price, technological capability, quality, reliability and timely delivery. The Company's competitive position in its industry segments has been based upon the experience of its technical personnel in their respective specialized fields of computer and peripheral product design; its broad range of products; its ability to design and manufacture its products to meet customers' specifications; its specialized manufacturing and testing facilities; its long association with many of its customers and its managerial and marketing expertise in dealing with commercial customers, prime contractors and the DOD. The Company believes that once a particular supplier's computer and/or peripheral products have been selected for incorporation in a military or commercial program, further competition by other vendors during the life cycle of that program is limited. Engineering, Research and Development - ------------------------------------- The Company believes that success within the industry depends in large part upon its ability to develop and apply new technology to modify, enhance and expand its existing line of proprietary products. The funding of these activities is primarily internal through Company sponsored research and development. Product development activities are generally the result of the need to respond to the anticipated requirements of future programs, the introduction of new technology which can be used to enhance product performance and direct requests by customers and the DOD. In certain cases the Company has licensed technology from commercial manufacturers for subsequent militarization and ruggedization. Management believes approximately 3% to 5% of net sales for engineering, research and development expenditures should adequately support the Company's business. Engineering, research and development expenditures in 1996, 1997 and 1998 were approximately $1,600,000, $1,700,000 and $1,900,000, respectively. Miltope's funded research and development efforts for its military/rugged segment include projects to enhance its mass storage devices, printers, computer workstations and portable/hand held computers. Miltope's funded research efforts for its commercial segment include projects to enhance its airline in-flight cabin management and entertainment products, airborne printers, mass storage devices and public access Internet terminals for commercial markets. Employees - --------- At December 31, 1998, the Company employed 185 full-time personnel. None of the Company's employees are represented by a labor union and the Company has experienced no work stoppages. The Company believes that relations with its employees are excellent. Export Sales - ------------ The Company recorded foreign sales in its military/rugged industry segment of approximately $4,532,000, $1,111,000 and $221,000 in 1996, 1997 and 1998, respectively. The Company recorded foreign sales in its commercial industry segment of approximately $1,350,000, $11,657,000 and $847,000 in 1996, 1997 and 1998, respectively. Source of Supply - ---------------- The Company utilized multiple suppliers for most materials and components. In order to minimize the risk of delay in delivering finished systems, components are sometimes procured according to the projected need for such components under annual purchasing agreements. Miscellaneous - ------------- Neither of the Company's two industry segments is subject to seasonal business fluctuations. ITEM 2. PROPERTIES ---------- The Company owns a 90,000 square foot building located on 25 acres in Hope Hull (Montgomery), Alabama. In addition, the Company owns a 60,000 square foot assembly and test facility in Troy, Alabama and a 25,000 square foot clean room, assembly and test facility in Springfield, Vermont. The Company leases a 9,175 square foot facility in Boulder, Colorado. The Company also leases various sales offices in the United States. The Company owns substantially all of the machinery and equipment used in these facilities. The Company believes that these facilities are well maintained and are adequate to meet its needs in the foreseeable future. ITEM 3. LEGAL PROCEEDINGS ----------------- The Company, from time to time, is a party to pending or threatened legal proceedings and arbitration in the ordinary course of business. Based upon information currently available, and in light of legal and other defenses available to the Company, management does not consider liability from any threatened or pending litigation to be material. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS --------------------------------------------------- During the fourth quarter of the fiscal year covered by this Report, no matters were submitted to a vote of security holders through the solicitation of proxies or otherwise. Calendar Year 1997 High Low ------------------ ------ ------ First Quarter $3-7/8 $2-3/4 Second Quarter 4 2-3/4 Third Quarter 4-3/4 3-1/8 Fourth Quarter 4-1/4 3 Calendar Year 1998 First Quarter $3-4/9 $3 Second Quarter 3-1/2 2-3/8 Third Quarter 2-5/8 1-1/3 Fourth Quarter 1-7/8 7/8 Holders of Common Stock - ----------------------- As of February 19, 1999, there were approximately 1,379 shareholders of record and beneficial owners of the Company's Common Stock. Dividend Policy - --------------- No dividends were paid in 1997 or 1998. The Company does not presently anticipate paying cash dividends on its Common Stock. However, the Board of Directors of the Company will review this policy from time to time in light of its earnings, capital requirements and financial condition and other relevant factors, including applicable debt agreement limitations. The Company's bank loan agreement permits the Company to pay annual dividends of up to 50% of the prior year's net income. ITEM 6. SELECTED FINANCIAL DATA ----------------------- The following is a summary of selected consolidated financial data of the Company for the five years ended December 31, 1998 which should be read in conjunction with the consolidated financial statements of the Company and the notes thereto: (All amounts in thousands, except per share data) Year Ended December 31, ------------------------------------------------------------- 1994 1995 1996 1997 1998 --------- --------- --------- --------- --------- Income Statement Data: - ---------------------- Net sales $ 75,569 $ 65,708 $ 45,513 $ 40,372 $ 26,444 Gross profit 5,680 13,372 11,077 9,803 4,921 Income (loss) before income taxes (18,885) (984) 1,770 1,211 (4,297) Net income (loss) (15,460) (984) 2,170 3,271 (3,021) Basic and diluted net income (loss) per share (2.65) (.17) .37 .56 (.51) Cash dividends per share - - - - - Weighted average shares outstanding 5,834 5,853 5,867 5,870 5,872 Balance Sheet Data: - ------------------- Working capital $ 19,398 $ 18,896 $ 17,999 $ 19,652 $ 20,039 Total assets 53,162 41,440 36,332 38,449 38,938 Long-term debt 17,551 16,953 11,340 11,251 15,035 Stockholders' equity 17,230 15,913 17,858 21,140 18,119
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ------------------------------------------------------------ Business Environment - -------------------- The following discussion includes certain forward looking statements which are affected by important factors including, but not limited to, actions of competitors, termination of contracts at the convenience of the United States government, customer funding variations in connection with multi-year contracts and follow-on options that could cause actual results to differ materially from forward looking statements. The Company's military/rugged business segment provides specialized computers and related peripheral equipment to the United States and foreign military defense departments. Equipment in this segment takes two primary forms. The first of these is fully militarized products, usually designed especially for a particular mission area with demanding environmental and quality requirements. The second of these is rugged products, usually based on a commercial baseline product, but adapted by the Company to meet environmental and quality specifications that exceed the requirements for commercial products. This entire segment has been impacted in recent years by reduced government spending and defense appropriations. The militarized product area has been especially subject to defense budget cuts. The military continues to reduce funding for the development and limited production quantities of highly customized systems and products. The long design cycle for these programs creates an intangible cost in the form of rapid technological obsolescence. Some military programs that would have sought militarized equipment some years ago have modified the requirements to reflect a need for rugged or commercial products. This trend has tended to benefit sales of the Company's rugged product line. Even in the rugged product area, however, defense cuts have taken a toll. Competition in this area has become more keen in recent years, as many government contractors pursue fewer military programs. Through its commercial segment, the Company develops, manufactures and markets commercial products primarily for transportation, telecommunications and in-field maintenance markets. Its products are airborne printers, in-flight cabin management and entertainment products, airline ticket and boarding pass printers, rugged public access Internet terminals, mass storage devices, and derivatives of rugged hand held Intel based computers and portable RISC workstations originally developed for military applications. Sales in the commercial segment decreased by 39% in 1998 primarily due to decreased sales of rugged public access Internet terminals. Results of Operations - --------------------- The Company reported a net loss of approximately $3,000,000 in 1998 compared to net income of approximately $3,300,000 in 1997 and approximately $2,200,000 in 1996. The basic and diluted net loss per share was $.51 in 1998 compared to basic and diluted net income per share of $.56 in 1997 and $.37 in 1996. Sales for 1998 totaled approximately $26,400,000, a decrease of approximately $14,000,000, or 34.7%, from 1997. This change was attributable to a reduction in military sales of approximately $6,200,000 and a decrease in commercial sales of approximately $7,700,000. Sales in 1997 totaled approximately $40,400,000, a decrease of approximately $5,100,000, or 11.3% from 1996. This change was attributable to a reduction in military sales of approximately $9,700,000 partially offset by an increase in commercial sales of approximately $4,600,000. Gross profit, as a percent of sales, was 18.6% in 1998, 24.3% in 1997 and 24.3% in 1996. The decrease in 1998 from 1997 was primarily attributable to lower sales volume and a less favorable product mix. Selling, general and administrative expenses, as a percentage of sales, was 24.7% in 1998, 15.2% in 1997 and 14.5% in 1996. The increase in 1998 as a percentage of sales was attributable to lower sales volume and increased expenses related to employee severance and restructure costs incurred as a result of streamlining actions taken to improve the Company's long term competitiveness. The increases in 1996 and 1997 were principally due to a continued emphasis on increased marketing and business development efforts. Engineering, research and development expenses, as a percentage of sales, was 7.1% in 1998, 4.2% in 1997 and 3.6% in 1996. The increase in 1998 as a percent of sales was primarily attributable to lower sales volume, increased expenses related to employee severance and restructure costs and increased amounts of research and development for in-flight entertainment and cabin workstation products. The increase in 1997 was attributable to an increased amount of research and development related to new products. Liquidity and Capital Resources - ------------------------------- Working capital at December 31, 1998 totaled approximately $20,000,000, an increase of approximately $400,000 from December 31, 1997. Accounts receivable decreased approximately $3,200,000 as a result of decreased sales. Inventories increased approximately $3,200,000 primarily as a result of the SPORT contract and increases in airborne cabin management systems inventory. Deferred income taxes increased approximately $500,000 as a result of the current year tax benefit accrual. Accounts payable increased approximately $30,000 reflecting increased payment terms. Accrued expenses decreased approximately $300,000 as a result of decreased employee related accrued liabilities. The Company entered into a revolving credit facility in July 1994 for an amount not to exceed $15,000,000 and is subject to extension for additional one year periods. In September 1997, it was extended for an additional one year period expiring May 31, 1999. The Company may borrow against this credit facility based on eligible collateral. As of December 31, 1998, the Company had approximately $850,000 of additional borrowing capacity under this facility. Cash provided by (used in) operating activities was approximately $(3,600,000) in 1998, approximately $1,300,000 in 1997 and approximately $5,400,000 in 1996. The decrease in cash used in operating activities in 1998 as compared to 1997 is primarily the result of the net loss and increases in inventories and other assets and decreases in accounts payable and accrued expenses partially offset by a decrease in accounts receivable. The decrease in cash provided by operating activities in 1997 compared to 1996 is primarily the result of increases in inventories and other assets and decreases in accounts payable and accrued expenses partially offset by an increase in net income and a decrease in accounts receivable. Other assets increased due to the reduction in the deferred tax asset valuation allowance. In April 1994, the Company purchased a new headquarters facility and related capital equipment located in Montgomery, Alabama. The purchase was financed through a bank term loan and the proceeds of the offering of taxable revenue bonds (the "Bonds") by the Alabama State Industrial Development Authority which was completed January 12, 1995 (the "SIDA Offering"). Repayment of the Bonds is secured by an irrevocable letter of credit issued by Regions Bank in an amount up to $5,700,000 which in turn is secured by a mortgage on the Montgomery and Troy, Alabama facilities and a security interest in the equipment located at such facilities. The Company has net operating loss carryforwards for Federal income tax purposes of approximately $5,900,000, $1,200,000 and $2,600,000 which will expire in 2009, 2010 and 2018, respectively, if not utilized. In prior years, the Company recorded a deferred tax asset valuation allowance for net operating loss carryforwards of which realization was uncertain. During 1996 and 1997, the Company reduced the valuation allowance by $1,057,000 and $2,524,000, respectively. The reductions in the valuation allowance were attributable to the award of significant multi-year government and commercial contracts during 1996 and 1997, and the result of improved cost controls. During 1998, the Company implemented additional cost improvements related to its manufacturing processes. Based on these initiatives, the significant increase in backlog over 1997 and the extended carryforward period allowed under current tax law, management of the Company is of the opinion that a valuation allowance is not needed as of December 31, 1998 and the net deferred tax assets as of each year end reflects the net amount that is more likely than not to be realized. The valuation allowance can be adjusted in future periods as the probability of realization of the net deferred income tax asset changes. The Company believes that its working capital and capital requirement needs for its current lines of business and new product development will be met by its cash flow from operations and existing bank loan arrangements. Effects of Inflation - -------------------- Inflation has not had a significant impact on the Company's results of operations. Year 2000 Compliance - -------------------- As has been widely publicized, many computer and digital storage systems express dates using only the last two digits of the year and will thus require remediation or replacement to accommodate the year 2000 and beyond in order to avoid malfunction and resulting widespread business disruption. The Company has underway a Year 2000 project that identifies the programs and infrastructure that could be affected by Year 2000 issues and has implemented a plan to resolve those problems identified, on a timely basis. The plan requires a considerable amount of internal resources devoted by the Company to resolve the pertinent issues. Additionally, the Company may have to recruit and retain external resources to assist with the actual implementation, testing and monitoring of the plan. As of December 31, 1998, the Company does not expect the ongoing resource cost of the Year 2000 project to have a material adverse effect on the Company's financial condition and results of operations for fiscal years beginning after December 31, 1998. The Company currently estimates the total cost of its Year 2000 project will not exceed $250,000 over the life of the project. Costs associated with employees working on the Year 2000 project will be expensed as incurred. Hardware and software purchases related to this project will be capitalized where appropriate. The Company does not anticipate additional significant costs as a result of the Year 2000 issue. The Year 2000 project includes all management information systems which support ongoing business functions, other systems with computer based controls such as telecommunications, building environmental and security management and all suppliers and customers with which the Company maintains a material business relationship. Management of the Company believes it has an effective program in place that will resolve the Year 2000 issues affecting it and that this program is progressing normally and will be completed on a timely basis. Despite management's beliefs and the Company's progress made on the Year 2000 issues as of December 31, 1998, it is not possible to anticipate all possible future outcomes, especially when third parties are involved. In the event certain third parties are not able to resolve their own Year 2000 issues, there could be circumstances in which the Company would be unable to receive customer orders, manufacture, test and ship products, invoice customers or collect payments from those customers. As part of its Year 2000 project, the Company will solicit written assurances from its customers and suppliers that each will be prepared for the Year 2000 issue. The Company will perform periodic audits and tests of third party systems throughout the life of the project for Year 2000 compliance. However, there can be no certainty of total compliance from any or all of the third parties the Company deals with on a daily basis. The Company has not yet seen the need for any widespread contingency plans to be developed for the Year 2000 issue, but this will be monitored continuously as the Company gains more information about the compliance programs of its suppliers and customers. Additionally, some risks of the Year 2000 issues are beyond the control of the Company and its suppliers and customers. The Company does not believe it can develop a contingency plan that will totally shield the Company from an economic ripple effect throughout the entire economy should others fail to resolve their own Year 2000 problems. The costs of the Company's Year 2000 project and the timeliness of the completion of the project are based on management's best estimates, and reflect assumptions regarding the availability and cost of personnel trained in this area, the compliance plans of third parties and other uncertainties. However, due to the complexity and pervasiveness of the Year 2000 issue and in particular the uncertainty of third party compliance programs, there can be no assurances given that these estimates will be achieved, and actual results could differ materially from those anticipated. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ---------------------------------------------------------- Market risk is the risk of loss arising from adverse changes in market prices and interest rates. The Company is exposed to interest risk inherent in its financial instruments. The Company is not currently subject to foreign currency or commodity price risk. The Company manages its exposure to these market risks through its regular operating and financing activities. The Company has a revolving credit loan and an Industrial Development Authority Bond Issue that are exposed to changes in interest rates during the course of their maturity. Both debt instruments bear interest at current market rates and thus approximates fair market value. The Company manages its interest rate risk by (a) periodically retiring and issuing debt and (b) periodically fixing the interest rate on the London Inter Bank Offered Rate (LIBOR) portion of its revolving credit loan for 30 to 60 days in order to minimize interest rate swings. A 10% increase in interest rates would affect the Company's variable debt obligations and could potentially reduce future earnings by a maximum of approximately $115,000. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ------------------------------------------- See Table of Contents to Consolidated Financial Statements on Page F-1. ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE ---------------------------------------------------- During the twenty-four months prior to the date of the financial statements contained herein, no Form 8-K reporting a change of accountants any matter of accounting principles or practices or financial statement disclosure. PART III -------- The information called for by Part III (Items 10, 11, 12 and 13) of this Report is hereby incorporated by reference from the Company's definitive Proxy Statement to be filed pursuant to Regulation 14A under the Securities Exchange Act of 1934 in connection with the election of directors at the 1999 Annual Meeting of Stockholders of the Company, which definitive Proxy Statement will be filed with the Securities and Exchange Commission not later than 120 days after the end of the Company's fiscal year ended December 31, 1998. PART IV ------- ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K ---------------------------------------------------------------- (a) The following documents are filed as part of this Report Page ---- 1. Consolidated Financial Statements: Table of Contents to Consolidated Financial Statements F-1 Independent Auditors' Report F-2 Consolidated Balance Sheets as of December 31, 1997 and 1998 F-3 Consolidated Statements of Operations for the Years Ended December 31, 1996, 1997 and 1998 F-4 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1996, 1997 and 1998 F-5 Consolidated Statements of Cash Flows for the Years Ended December 31, 1996, 1997 and 1998 F-6 Notes to Consolidated Financial Statements F-7 Independent Auditors' Consent F-20 2. All schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes thereto. 3. Exhibits 19 Exhibit Page Number Description of Exhibit Number - -------- ---------------------- ------ 3(a) Certificate of Incorporation of the Registrant, as amended to date [Incorporated by reference to Exhibit 3(a) to the Registrant's Registration Statement on Form S-1 filed with the Commission on September 6, 1984 (Registration No. 2-93134)] 3(b) By-laws of the Registrant, as currently in effect [Incorporated by reference to Exhibit 3(b) to the Registrant's Form 10-K filed with the Commission on March 31, 1987 (File No. 0-13433)]. 3(c) Specimen share certificate for the Common Stock of the Registrant [Incorporated by reference to Exhibit 4(b) to Amendment No. 1 to the Registrant's Registration Statement on Form S-1 filed with the Commission on January 8, 1985 (Registration No. 2-93134)]. 10(a)(A) 1985 Key Employee Stock Option Plan adopted by the Board of Directors of the Registrant on July 1, 1985 [Incorporated by reference to Exhibit 10(a) to the Registrant's Registration Statement on Form S-1 filed with the Commission on October 22, 1985 (Registration No. 33-1042)]. 10(a)(B) Form of 1985 Key Employee Stock Option Agreement, dated as of July 1, 1985, between the Registrant and certain key employees of the Registrant [Incorporated by reference to Exhibit 10(b) to the Registrant's Registration Statement on Form S-1 filed with the Commission on October 22, 1985 (Registration No. 33-1042)]. 10(b)(A) Incentive Stock Option Plan adopted by the Board of Directors of the Registrant on June 1, 1984 and approved by Stonebrook Group Inc. (formerly Stenbeck Reassurance Co. Inc.) on June 1, 1984, as amended by the Board of Directors of the Registrant on May 6, 1985 [Incorporated by reference to Exhibit 10(c) to the Registrant's Registration Statement on form S-1 filed with the Commission on October 22, 1985 (Registration No. 33-1042)]. Exhibit Page Number Description of Exhibit Number - ------- ---------------------- ------ 10(b)(B) Form of Incentive Stock Option Agreement, dated as of June 1, 1984, between the Registrant and certain key employees of the Registrant [Incorporated by reference to Exhibit 10(e) to the Registrant's Registration Statement on Form S-1 filed with the Commission on October 22, 1985 (Registration No. 33-1042)]. 10(c)(A) Management Stock Option Plan adopted by the Board of Directors of the Registrant on June 1, 1984 and approved by Stonebrook Group Inc. on June 1, 1984, as amended by the Board of Directors of the Registrant on May 6, 1985 [Incorporated by reference to Exhibit 10(f) to the Registrant's Registration Statement on Form S-1 filed with the Commission on October 22, 1985 (Registration No. 33-1042)]. 10(c)(B) Form of Management Stock Option Agreement, dated as of June 1, 1984, between the Registrant and certain management employees of the Registrant [Incorporated by reference to Exhibit 10(d) to the Registrant's Registration Statement on Form S-1 filed with the Commission on September 6, 1984 (Registration No. 2-93134)]. 10(d) Miltope Corporation Cash Bonus Plan, as amended, effective January 1, 1984 [Incorporated by reference to Exhibit 10(e) to the Registrant's Registration Statement on Form S-1 filed with the Commission on September 6 , 1984 (Registration No. 2-93134)]. 10(f)(A) 1995 Stock Option and Performance Award Plan adopted by the Board of Directors of the Registrant on April 11, 1995 and approved by the stockholders of the Registrant on June 5, 1995 [Incorporated by reference to Exhibit 4(a)(1) to the Registrant's Registration Statement on Form S-8 filed with the Commission on December 21, 1995 (File No. 33-65233)]. Exhibit Page Number Description of Exhibit Number - ------- ---------------------- ------ 10(f)(B) Form of Non-Qualified Stock Option Agreement under the 1995 Stock Option and Performance Award Plan [Incorporated by reference to Exhibit 4(a)(2) to the Registrant's Registration Statement on Form S-8 filed with the Commission on December 21, 1995 (File No. 33-65233)]. 10(f)(C) Form of Incentive Stock Option Agreement under the 1995 Stock Option and Performance Award Plan [Incorporated by reference to Exhibit 4(a)(3) to the Registrant's Registration Statement on Form S-8 filed with the Commission on December 21, 1995 (File No. 33-65233)]. 10(g)(A) Real Estate Sales Contract, dated July 18, 1984, between the City of Troy, Alabama and Miltope Corporation [Incorporated by reference to Exhibit 10(o) to the Registrant's Registration Statement on Form S-1 filed with the Commission on September 6, 1984 (Registration No. 2-93134)]. 10(g)(B) Lease Agreement, dated November 1, 1985, between the Industrial Development Board of the City of Troy, Alabama and Miltope Corporation [Incorporated by reference to Exhibit 10(s)(B) to the Registrant's Form 10-K filed with the Commission on March 31, 1986 (File No. 0-13433)]. 10(h) Agreement of Sale, dated July 15, 1994, between Miltope Corporation and Marc Beige, with respect to the sale of 1770 Walt Whitman Road, Melville, New York [Incorporated by reference to Exhibit 10(l) to the Registrant's Form 10-K filed with the Commission on March 31, 1995 (File No. 0-13433)]. 10(i) Agreement of Lease, dated as of August 10, 1994, between Melville Associates, L.P. and Miltope Corporation [Incorporated by reference to Exhibit 10(m) to the Registrant's Form 10-K filed with the Commission on March 31, 1995 (File No. 0-13433)]. Exhibit Page Number Description of Exhibit Number - ------- ---------------------- ------ 10(j) Purchase and Sale Agreement, dated April 19, 1994, between Collier Management Group, Inc. and Miltope Corporation, with respect to 500 Richardson Road South, Hope Hull, Alabama [Incorporated by reference to Exhibit 10(n) to the Registrant's Form 10-K filed with the Commission on March 31, 1995 (File No. 0-13433)]. 10(k)(A)(1) Loan Agreement, dated July 27, 1994, among First Alabama Bank, as lender, and Miltope Corporation and Miltope Business Products, Inc., as borrowers [Incorporated by reference to Exhibit 10(o)(A)(1) to the Registrant's Form 10-K filed with the Commission on March 31, 1995 (File No. 0-13433)]. 10(k)(A)(2) Amendment to Loan Agreement, dated as of October 3, 1994, among First Alabama Bank, Miltope Corporation and Miltope Business Products, Inc. [Incorporated by reference to Exhibit 10(o)(A)(2) to the Registrant's Form 10-K filed with the Commission on March 31, 1995 (File No. 0-13433)]. 10(k)(A)(3) Amendment to Loan Agreement and Related Documents, dated February 3, 1995, among First Alabama Bank, Miltope Corporation and Miltope Business Products, Inc. [Incorporated by reference to Exhibit 10(o)(A)(3) to the Registrant's Form 10-K filed with the Commission on March 31, 1995 (File No. 0-13433)]. 10(k)(A)(4) Amendments to Loan Agreement and Related Documents, dated February 6, 1997, among Regions Bank (formerly First Alabama Bank), Miltope Corporation and Miltope Business Products, Inc. [Incorporated by reference to Exhibit 10(k)(A)(4) to the Registrant's Form 10-K filed with the Commission on March 26, 1997 (File No. 0-13433)]. Exhibit Page Number Description of Exhibit Number - ------- ---------------------- ------ 10(k)(A)(5) Amendments to Loan Agreement and Related Documents, dated December 1, 1997, among Regions Bank (formerly First Alabama Bank), Miltope Corporation and Miltope Business Products, Inc. [Incorporated by reference to Exhibit 10(K)(A)(5) to the Registrant's Form 10-K filed with the Commission on March 23, 1998 (File No. 0-13433)]. 10(k)(B) Guaranty Agreement, dated July 27, 1994, by the Registrant to First Alabama Bank [Incorporated by reference to Exhibit 10(o)(B) to the Registrant's Form 10-K filed with the Commission on March 31, 1995 (File No. 0-13433)]. 10(k)(C) Security Agreement, dated July 27, 1994, among Miltope Corporation, Miltope Business Products, Inc. and First Alabama Bank [Incorporated by reference to Exhibit 10(o)(C) to the Registrant's Form 10-K filed with the Commission on March 31, 1995 (File No. 0-13433)]. 10(l)(A) Term Loan Agreement, dated October 13, 1994, between First Alabama Bank, as lender, and Miltope Corporation, as borrower [Incorporated by reference to Exhibit 10(p)(A) to the Registrant's Form 10-K filed with the Commission on March 31, 1995 (File No. 0-13433)]. 10(l)(B) Real Estate Mortgage and Security Agreement, dated October 13, 1994, by Miltope Corporation in favor of First Alabama Bank [Incorporated by reference to Exhibit 10(p)(B) to the Registrant's Form 10-K filed with the Commission on March 31, 1995 (File No. 0-13433)]. 10(m)(A) Loan Agreement, dated January 1, 1995, between the State Industrial Development Authority and Miltope Corporation [Incorporated by reference to Exhibit 10(q)(A) to the Registrant's Form 10-K filed with the Commission on March 31, 1995 (File No. 0-13433)]. Exhibit Page Number Description of Exhibit Number - ------- ---------------------- ------ 10(m)(B) Credit Agreement, dated January 1, 1995, between Miltope Corporation and First Alabama Bank [Incorporated by reference to Exhibit 10(q)(B)to the Registrant's Form 10-K filed with the Commission on March 31, 1995 (File No. 0-13433)]. 10(m)(C) Guaranty Agreement, dated January 1, 1995, by the Registrant to First Alabama Bank [Incorporated by reference to Exhibit 10(o)(C) to the Registrant's Form 10-K filed with the Commission on March 31, 1995 (File No. 0-13433)]. 10(m)(D) Bond Purchase Agreement, dated January 11, 1995, among Miltope Corporation, the State Industrial Development Authority and Merchant Capital, L.L.C. [Incorporated by reference to Exhibit 10(q)(D) to the Registrant's Form 10-K filed with the Commission on March 31, 1995 (File No. 0-13433)]. 10(m)(E) Re-marketing Agreement, dated January 1, 1995, among Miltope Corporation, the State Industrial Development Authority and Merchant Capital, L.L.C. [Incorporated by reference to Exhibit 10(q)(E) to the Registrant's Form 10-K filed with the Commission on March 31, 1995 (File No. 0-13433)]. 10(m)(F) Real Estate Mortgage and Security Agreement, dated as of January 1, 1995, from Miltope Corporation in favor of First Alabama Bank [Incorporated by reference to Exhibit 10(q)(F) to the Registrant's Form 10-K filed with the Commission on March 31, 1995 (File No. 0-13433)]. 10(q)(A) Stock Option Agreement, dated as of June 25, 1993, between the Registrant and William L. Dickinson. [Incorporated by reference to Exhibit 10(q) to the Registrant's Form 10-K filed with the Commission on March 31, 1994 (File No. 0-13433)]. Exhibit Page Number Description of Exhibit Number - ------- ---------------------- ------ 10(q)(B) Stock Option Agreement, dated as of June 3, 1994, between the Registrant and William L. Dickinson [Incorporated by reference to Exhibit 10(u)(B) to the Registrant's Form 10-K filed with the Commission on March 31, 1995 (File No. 0-13433)]. 10(q)(C) Stock Option Agreement, dated as of June 5, 1995, between the Registrant and William L. Dickinson. [Incorporated by reference to Exhibit 10(r)(C) to the Registrant's Form 10-K filed with the Commission on March 29, 1996 (File No. 0-13433)]. 10(q)(D) Stock Option Agreement, dated as of June 11, 1996, between the Registrant and William L. Dickinson. [Incorporated by reference to Exhibit 10(q)(D) to the Registrant's Form 10-K filed with the Commission on March 26,1997 (File No. 0-13433)]. 10(q)(E) Stock Option Agreement, dated as of September 11, 1997, between the Registrant and William L. Dickinson. [Incorporated by reference to Exhibit 10(q)(E) to the Registrants Form 10-K filed with the Commission on March 23, 1998 (File No. 0-13411)] *10(q)(F) Stock Option Agreement, dated September 17, 1998, between the Registrant and William L.Dickinson. 10(r)(A) Stock Option Agreement, dated as of September 7, 1988, between the Registrant and Alvin E. Nashman [Incorporated by reference to Exhibit 10(t)(D) to the Registrant's Form 10-K filed with the Commission on March 31, 1989 (File No. 0-13433)]. 10(r)(B) Stock Option Agreement, dated as of March 30, 1990, between the Registrant and Alvin E. Nashman [Incorporated by reference to Exhibit 10(t)(B) to the Registrant's Form 10-K filed with the Commission on March 27, 1991 (File No. 0-13433)]. - ----------------- * Filed herewith Exhibit Page Number Description of Exhibit Number - ------- ---------------------- ------ 10(r)(C) Stock Option Agreement, dated as of June 14, 1990, between the Registrant and Alvin E. Nashman [Incorporated by reference to Exhibit 10(t)(B) to the Registrant's Form 10-K filed with the Commission on March 27, 1991 (File No. 0-13433)]. 10(r)(D) Stock Option Agreement, dated as of June 13, 1991, between the Registrant and Alvin E. Nashman [Incorporated by reference to Exhibit 10(r)(D) to the Registrant's Form 10-K filed with the Commission on March 27, 1992 (File No. 0-13433)]. 10(r)(E) Stock Option Agreement, dated as of June 8, 1992, between the Registrant and Alvin E. Nashman [Incorporated by reference to Exhibit 10(r)(E) to the Registrant's Form 10-K filed with the Commission on March 25, 1993 (File No. 0-13433)]. 10(r)(F) Stock Option Agreement, dated as of June 25, 1993, between the Registrant and Alvin E. Nashman. [Incorporated by reference to Exhibit 10(r)(F) to the Registrant's Form 10-K filed with the Commission on March 31, 1994 (File No. 0-13443)]. 10(r)(G) Stock Option Agreement, dated as of June 3, 1994, between the Registrant and Alvin E. Nashman [Incorporated by reference to Exhibit 10(w)(G) to the Registrant's Form 10-K filed with the Commission on March 31, 1995 (File No. 0-13433)]. 10(r)(H) Stock Option Agreement, dated as of June 5, 1995, between the Registrant and Alvin E. Nashman. [Incorporated by reference to Exhibit 10(s)(H) to the Registrant's Form 10-K filed with the Commission on March 29, 1996 (File No. 0-13433)]. 10(r)(I) Stock Option Agreement, dated as of June 11, 1996, between the Registrant and Alvin E. Nashman. [Incorporated by reference to Exhibit 10(r)(I) to the Registrant's Form 10-K filed with the Commission on March 26, 1997 (File No. 0-13433)]. Exhibit Page Number Description of Exhibit Number - ------- ---------------------- ------ 10(r)(J) Stock Option Agreement, dated as of September 11, 1997, between the Registrant and Alvin E. Nashman. [Incorporated by reference to Exhibit 10(r)(J) to the Registrant's Form 10-K filed with the Commission on March 23, 1998 (File No. 0-13433)]. 10(s) Stock Option Agreement, dated as of August 7, 1995, between the Registrant and George K. Webster. [Incorporated by reference to Exhibit 10(t) to the Registrant's Form 10-K filed with the Commission on March 29, 1996 (File No. 0-13433)]. 10(t)(A) Stock Option Agreement, dated as of November 8, 1995, between the Registrant and James E. Matthews. [Incorporated by reference to Exhibit 10(u) to the Registrant's Form 10-K filed with the Commission on March 29, 1996 (File No. 0-13433)]. *10(t)(B) Stock Option Agreement, dated February 4, 1998, between the Registrant and James E. Matthews. *10(t)(C) Stock Option Agreement, dated August 19, 1998, between the Registrant and James E. Matthews. *10(u) Stock Option Agreement, dated September 17, 1998, between the Registrant and Jerry Tuttle. 10(w)(A) Asset Purchase Agreement, dated as of December 23, 1992, between Miltope Business Products, Inc. and Mag-Tek, Inc. [Incorporated by reference to Exhibit 10(x)(A) to the Registrant's Form 10-K filed with the Commission on March 25, 1993 (File No. 0-13433)]. 10(w)(B) Guaranty of the Registrant, dated as of December 23, 1992, pursuant to Asset Purchase Agreement, dated as of December 23, 1992, between Miltope Business Products, Inc. and Mag-Tek, Inc. [Incorporated by reference to Exhibit 10(x)(B) to the Registrant's Form 10-K filed with the Commission on March 25, 1993 (File No. 0-13433)]. - --------------- *Filed herewith Exhibit Page Number Description of Exhibit Number - ------- ---------------------- ------ 10(w)(C) Supply Agreement, dated as of January 5, 1993, between Miltope Business Products, Inc. and Mag-Tek, Inc. [Incorporated by reference to Exhibit 10(x)(C) to the Registrant's Form 10-K filed with the Commission on March 25, 1993 (File No. 0-13433)]. 10(w)(D) Escrow Agreement, dated as of January 5, 1993, among Miltope Business Products, Inc., Mag-Tek, Inc. and First Interstate Bank of California, as Escrow Agent [Incorporated by reference to Exhibit 10(x)(D) to the Registrant's Form 10-K filed with the Commission on March 25, 1993 (File No. 0-13433)]. 10(w)(E) Marketing Agreement, dated as of January 5, 1993, between Miltope Business Products, Inc. and Mag-Tek, Inc. [Incorporated by reference to Exhibit 10(x)(E) to the Registrant's Form 10-K filed with the Commission on March 25, 1993 (File No. 0-13433)]. 10(w)(F) Noncompetition Agreement, dated as of January 5, 1993, between Miltope Business Products, Inc. and Mag-Tek, Inc. [Incorporated by reference to Exhibit 10(x)(F) to the Registrant's Form 10-K filed with the Commission on March 25, 1993 (File No. 0-13433)]. 10(y) Renegotiation Agreement, dated August 23, 1996, between the Registrant and Mag-Tek, Inc. [Incorporated by reference to Exhibit 10(y) to the Registrant's Form 10-K filed with the Commission on March 26, 1997 (File No. 0-13433)]. 18 Letter regarding change in accounting principle, dated May 13, 1994 [Incorporated by reference to Exhibit 18 to the Registrant's Form 10-Q filed with the Commission on May 16, 1994 (File No. 0-13433)]. *21 Subsidiaries of the Registrant. - --------------- *Filed herewith Exhibit Page Number Description of Exhibit Number - ------- ---------------------- ------ *23 Independent Auditors' Consent, dated March 30, 1999, to the incorporation by reference in Registration Statements No. 2-97977, No. 33-8245, No. 33-78744 and No. 33-65233 on Form S-8 and No. 33-33752 on Form S-3 of their report dated February 19, 1999 (March 9, 1999 as to the waiver letter described in Note 5) appearing in this Annual Report on Form 10-K for the year ended December 31, 1998. *27 Financial Data Schedule - --------------- *Filed herewith MILTOPE GROUP INC. AND SUBSIDIARIES ----------------------------------- TABLE OF CONTENTS TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------------------ Page ---- Independent Auditors' Report F-2 Consolidated Balance Sheets as of December 31, 1997 and 1998 F-3 Consolidated Statements of Operations for the Years Ended December 31, 1996, 1997 and 1998 F-4 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1996, 1997 and 1998 F-5 Consolidated Statements of Cash Flows for the Years Ended December 31, 1996, 1997 and 1998 F-6 Notes to Consolidated Financial Statements F-7 All supplemental schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes thereto. F-1 INDEPENDENT AUDITORS' REPORT To the Stockholders and Board of Directors of Miltope Group Inc.: We have audited the accompanying consolidated balance sheets of Miltope Group Inc. and its subsidiaries as of December 31, 1997 and 1998, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Miltope Group Inc. and subsidiaries at December 31, 1997 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998 in conformity with generally accepted accounting principles. /s/ Deloitte & Touche LLP - ------------------------------------ Birmingham, Alabama February 19, 1999 (March 9, 1999 as to the waiver letter described in Note 5) F-2 MILTOPE GROUP INC. AND SUBSIDIARIES - ----------------------------------- CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1997 AND 1998 - --------------------------------------------------------------------------- ASSETS 1997 1998 - ------ ----------- ----------- CURRENT ASSETS: Cash $ 443,000 $ 57,000 Accounts receivable 9,977,000 6,792,000 Inventories 14,703,000 17,867,000 Deferred income taxes 345,000 829,000 Other current assets 242,000 278,000 ----------- ----------- Total current assets 25,710,000 25,823,000 PROPERTY AND EQUIPMENT - at cost: ----------- ----------- Machinery and equipment 7,177,000 7,689,000 Furniture and fixtures 1,561,000 1,594,000 Land, buildings and improvements 8,021,000 8,101,000 ----------- ----------- Total property and equipment 16,759,000 17,384,000 Less accumulated depreciation 7,101,000 8,549,000 ----------- ----------- Property and equipment - net 9,658,000 8,835,000 ----------- ----------- DEFERRED INCOME TAXES 2,240,000 3,335,000 OTHER ASSETS 841,000 945,000 ----------- ----------- TOTAL $38,449,000 $38,938,000 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 4,437,000 $ 4,462,000 Accrued expenses 1,351,000 1,012,000 Current maturities of long-term debt 270,000 310,000 ----------- ----------- Total current liabilities 6,058,000 5,784,000 LONG-TERM DEBT 11,251,000 15,035,000 ----------- ----------- Total liabilities 17,309,000 20,819,000 ----------- ----------- COMMITMENTS AND CONTINGENCIES (Note 9) STOCKHOLDERS' EQUITY: Common stock - $.01 par value; 20,000,000 shares authorized; 6,811,112 shares outstanding at December 31, 1997 and 1998 68,000 68,000 Capital-in-excess of par value 20,264,000 20,264,000 Retained earnings 15,054,000 12,033,000 ----------- ----------- 35,386,000 32,365,000 Less treasury stock 14,246,000 14,246,000 ----------- ----------- Total stockholders' equity 21,140,000 18,119,000 ----------- ----------- TOTAL $38,449,000 $38,938,000 =========== =========== See notes to consolidated financial statements.
F-3 MILTOPE GROUP INC. AND SUBSIDIARIES - ----------------------------------- CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998 - --------------------------------------------------------------------------------- 1996 1997 1998 ----------- ----------- ----------- NET SALES $45,513,000 $40,372,000 $26,444,000 ----------- ----------- ----------- COSTS AND EXPENSES: Cost of sales 34,436,000 30,569,000 21,523,000 Selling, general and administrative 6,601,000 6,137,000 6,532,000 Engineering, research and development 1,630,000 1,705,000 1,884,000 ----------- ----------- ----------- Total 42,667,000 38,411,000 29,939,000 ----------- ----------- ----------- INCOME (LOSS) FROM OPERATIONS 2,846,000 1,961,000 (3,495,000) INTEREST EXPENSE - net 1,076,000 750,000 802,000 ----------- ----------- ----------- INCOME (LOSS) BEFORE INCOME TAXES 1,770,000 1,211,000 (4,297,000) INCOME TAX BENEFIT (400,000) (2,060,000) (1,276,000) ----------- ----------- ----------- NET INCOME (LOSS) $ 2,170,000 $ 3,271,000 $(3,021,000) =========== =========== =========== BASIC AND DILUTED NET INCOME (LOSS) PER SHARE $.37 $.56 $(.51) ==== ==== ===== WEIGHTED AVERAGE SHARES OUTSTANDING 5,867,148 5,870,083 5,871,523 =========== =========== ===========
See notes to consolidated financial statements. F-4 MILTOPE GROUP INC. AND SUBSIDIARIES - ----------------------------------- CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998 - --------------------------------------------------------------------------------- Unrealized Common Stock Appreciation Treasury Stock ------------ Capital-in- on Investment -------------- Par Excess of Retained Available Shares Value Par Value Earnings for Sale Shares Cost --------- ------- ----------- ----------- ------------- ------- ----------- Balance, January 1, 1996 6,806,737 $68,000 $20,253,000 $ 9,613,000 $ 225,000 939,589 $14,246,000 Change in unrealized appreciation on investment available for sale - - - - (225,000) - - Net income - - - 2,170,000 - - - --------- ------- ----------- ----------- ---------- ------- ----------- Balance, December 31, 1996 6,806,737 68,000 20,253,000 11,783,000 - 939,589 14,246,000 Exercise of Stock Options 4,375 - 11,000 - - - - Net income - - - 3,271,000 - - - --------- ------ ---------- ---------- ---------- ------- ----------- Balance, December 31, 1997 6,811,112 68,000 20,264,000 15,054,000 - 939,589 14,246,000 Net loss - - - (3,021,000) - - - Balance, December 31, 1998 6,811,112 $68,000 20,264,000 $ 12,033,000 $ - 939,589 $14,246,000 ========= ======= ========== ============ ========= ======= ===========
See notes to consolidated financial statements. F-5 MILTOPE GROUP INC. AND SUBSIDIARIES - ----------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998 - --------------------------------------------------------------------------------- 1996 1997 1998 OPERATING ACTIVITIES: ---------- ---------- ------------ Net income (loss) $2,170,000 $3,271,000 $(3,021,000) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 1,737,000 1,670,000 1,506,000 Provision for slow-moving and obsolete inventories 879,000 485,000 1,050,000 Provision for doubtful accounts receivable 201,000 95,000 5,000 Provision for asset impairment - 432,000 - Gain on sale of investment available for sale (522,000) (566,000) - (Gain) loss on sale of fixed assets 33,000 - (4,000) Deferred income taxes (465,000) (2,120,000) (1,579,000) Change in operating assets and liabilities provided (used) cash: Accounts receivable (674,000) 819,000 3,180,000 Inventories 1,717,000 (1,497,000) (4,214,000) Other current assets 59,000 (45,000) (36,000) Other assets 1,287,000 (146,000) (127,000) Accounts payable and accrued expenses (1,022,000) (1,106,000) (314,000) ----------- ----------- ----------- Net cash provided by (used in) operating activities 5,400,000 1,292,000 (3,554,000) ----------- ----------- ----------- INVESTING ACTIVITIES: Purchases of property and equipment (625,000) (1,725,000) (704,000) Proceeds from sale of property and equipment 4,000 - 48,000 Proceeds from sale of investment available for sale 524,000 798,000 - ----------- ----------- ----------- Net cash used in investing activities (97,000) (927,000) (656,000) ----------- ----------- ----------- FINANCING ACTIVITIES: Proceeds from (payments of) revolving credit loan - net (4,305,000) 179,000 4,090,000 Payments of other long-term debt (1,171,000) (240,000) (266,000) Exercise of stock options - 11,000 - ----------- ---------- ----------- Net cash provided by (used in) financing activities (5,476,000) (50,000) 3,824,000 ----------- ---------- ----------- NET INCREASE (DECREASE) IN CASH (173,000) 315,000 (386,000) CASH, BEGINNING OF YEAR 301,000 128,000 443,000 ----------- ---------- ----------- CASH, END OF YEAR $ 128,000 $ 443,000 $ 57,000 =========== ========== =========== SUPPLEMENTAL DISCLOSURE: Payments made for: Income taxes $ - $ 76,000 $ 67,000 =========== ========== =========== Interest $ 1,279,000 $ 821,000 $ 789,000 =========== ========== =========== SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES: Reduction of liability associated with acquisition $ 425,000 $ - $ - =========== ========== =========== Change in unrealized appreciation on investment available for sale $ (225,000) $ - $ - =========== ========== ===========
See notes to consolidated financial statements. F-6 MILTOPE GROUP INC. AND SUBSIDIARIES - ----------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998 - ------------------------------------------------------------------------------- 1. SUMMARY OF SIGNIFICANT ACCOUNTING AND FINANCIAL REPORTING POLICIES ---------------------------------- Principles of Consolidation - The consolidated financial statements include the accounts of Miltope Group Inc. and its wholly-owned subsidiaries, Miltope Corporation ("Miltope"), Miltope Business Products, Inc. ("MBP") and Miltope's wholly-owned subsidiary, International Miltope, Ltd., a Foreign Sales Corporation ("FSC"). These companies are collectively referred to as the "Company". All material inter-company transactions have been eliminated. Nature of Operations - The Company through its two industry segments, military/rugged and commercial, is engaged in the development of computers and peripheral equipment for rugged and other specialized applications for military and commercial customers, domestic and international. Accounting Estimates - The Company's consolidated financial statements are prepared in conformity with generally accepted accounting principles which requires management to make 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 and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Fair Value of Financial Instruments - The carrying value of the Company's accounts receivable, accounts payable and accrued expenses approximates fair value because of the short-term maturity of those instruments. Additional information regarding the fair value of other financial instruments is disclosed in Note 5. Investment Available for Sale - Gains and losses on the disposition of the investment available for sale are computed under the specific identification method. Unrealized gains and losses, net of tax, related to the investment available for sale are reported as a separate component of stockholders' equity. Depreciation and Amortization - Depreciation of machinery, equipment, furniture and fixtures is computed on the straight-line method over the estimated useful lives of the related assets ranging from 3 to 10 years. Depreciation of buildings and improvements is computed on the straight-line method over an estimated useful life of 30 years. Amortization of leasehold improvements is computed on the straight-line method over the lesser of the estimated useful life of the improvement or the remaining term of the lease. Intangible Assets - Intangible assets include a noncompete agreement and purchased technology with an aggregate carrying value of $301,000 and $0 at December 31, 1996 and 1997, respectively, which were being amortized over a six to seven-year period on a straight-line basis. In 1997, the Company recognized an impairment in the recoverability of these intangible assets as described in Note 4. F-7 Revenue Recognition - Sales and related cost of sales are generally recognized as deliveries are made. All significant multi-year contracts are accounted for under the percentage-of-completion method of accounting. The amount of revenue recognized is the portion of total contract price that the cost expended to date bears to the anticipated total cost, based on current estimates of costs at completion. The contract price includes all amounts currently under contract, including approved contract changes and claims that can be reasonably estimated and realization is probable. Estimated losses on contracts are recorded in the period they are identified. Revisions in profit estimates are reflected in the period in which the facts that require revision are known. Engineering, Research and Development - Engineering, research and development expenditures not made in connection with sales contracts are charged to expense as incurred. Income Taxes - The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the Company's consolidated financial statements or tax returns. Deferred tax assets and liabilities are determined based on the differences between the financial accounting and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse (see Note 6). Net Income (Loss) Per Share - Basic and diluted earnings per share are computed by dividing net income (loss) by the weighted average common shares outstanding (basic EPS) or weighted average common shares outstanding assuming dilution (diluted EPS). Based on this computation, there is no difference between basic and diluted net income (loss) per share. Recent Accounting Pronouncements - In June 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) 130, Reporting Comprehensive Income. This statement is now effective, but currently has no impact on the Company. In June 1998, FASB issued SFAS 133, Accounting for Derivative Instruments and Hedging Activities. SFAS 133 is required to be adopted for years beginning after June 15, 1999. The Company is currently evaluating SFAS 133 and has not yet determined its impact on the Company's consolidated financial statements. Reclassifications - Certain prior years amounts have been reclassified to conform with the 1998 presentation. 2. ACCOUNTS RECEIVABLE ------------------- Accounts receivable consist of the following: 1997 1998 ----------- ----------- Amounts receivable from the United States Government $ 3,856,000 $ 2,849,000 Amounts receivable from other customers 6,188,000 3,974,000 Allowance for doubtful accounts (67,000) (31,000) ----------- ----------- Total $ 9,977,000 $ 6,792,000 =========== ===========
F-8 3. INVENTORIES ----------- Inventories consist of the following: 1997 1998 ----------- ----------- Purchased parts and subassemblies $10,019,000 $12,874,000 Work-in-process 4,684,000 4,993,000 ----------- ----------- Total $14,703,000 $17,867,000 =========== ===========
Inventories, other than inventoried costs related to long-term contracts, are stated at the lower of cost (principally first-in, first-out) or market. Inventoried costs related to long-term contracts (included in purchased parts and subassemblies and work- in-progress) are stated at actual costs, including engineering and manufacturing overheads, contract specific tooling, and other related non-recurring costs incurred to date, reduced by amounts identified with revenue recognized on units delivered or progress completed. Inventoried costs related to long-term contracts are reduced by charging any amounts in excess of estimated realizable value to cost of sales. Inventories include amounts relating to contracts and programs having production cycles longer than one year and a portion thereof will not be realized within one year. Inventories include an allowance for slow-moving and obsolete items of $3,599,000, $1,242,000 and $1,383,000 at December 31, 1996, 1997 and 1998, respectively. 4. OTHER ASSETS ------------ The Company owned an investment in M-Systems Flash Disk Pioneers, Ltd. ("M-Systems"), a company based in Israel. During 1996 and 1997, the Company sold 92,014 and 153,242 shares of M-Systems stock at a gain of $522,000 and $566,000, respectively. Interest income recognized on certain loans to an affiliated company was $37,000 during 1996 and is reflected as a reduction of interest expense in the accompanying consolidated statements of operations. During 1996, all loans to the related entity were repaid to the Company. In 1993, the Company acquired certain assets of Mag-Tek, Inc., a manufacturer of magnetic stripe products. The consideration included aggregate discounted minimum royalty payments of approximately $1,100,000. In August 1996, the Company and Mag-Tek, Inc. entered into an agreement to terminate the minimum royalty payment provisions of the related asset purchase contract. In connection with this agreement, the remaining long-term debt of $425,000 was written off and intangible assets were reduced by the same amount. In 1997, the Company recognized a $432,000 impairment in the value of all remaining Mag-Tek, Inc. assets including inventory, equipment and intangible assets. F-9 5. LONG-TERM DEBT -------------- Long-term debt consists of the following: 1997 1998 ----------- ----------- Revolving credit loan $ 6,181,000 $10,271,000 Industrial Development Authority Revenue Bonds 5,340,000 5,074,000 ----------- ----------- Total 11,521,000 15,345,000 Less current maturities 270,000 310,000 ----------- ----------- Total $11,251,000 $15,035,000 =========== ===========
A $15,000,000 revolving credit agreement, at the Company's option, bears interest at the bank's reference rate (8.5% and 7.75% at December 31, 1997 and 1998, respectively), or at a rate equaling the London Inter Bank Offered Rate (5.81% and 5.31% at December 31, 1997 and 1998, respectively) plus 2.0%. If for any day the total amount advanced, regardless of the interest rate option, exceeds $10 million, an additional .25% is added to the interest rate. The revolving credit facility is scheduled to mature on May 31, 1999, at which time, if not renewed, the outstanding amount would be converted into a term loan payable in twelve equal quarterly installments beginning August 31, 2000. The bank may extend the revolving credit agreement for successive one year periods. The Company's accounts receivable, contract rights and inventories are pledged as collateral to the agreement. Principal payments for the Industrial Development Authority Revenue Bonds (the "Bonds") range between $310,000 and $670,000 from December, 1999 through December, 2009. Repayment of the Bonds is secured by an irrevocable letter of credit issued by Regions Bank in an amount up to $5,700,000 which in turn is secured by a mortgage on the Montgomery and Troy, Alabama facilities and a security interest in the equipment located at such facilities. Letter of credit commitment fees paid during 1997 and 1998 were $71,000 and $64,000, respectively. Property and equipment with a carrying value of $7,888,000 and $7,281,000 at December 31, 1997 and 1998, respectively, are pledged as collateral. The agreement with the Industrial Development Authority bears interest at a variable market rate which ranged from 5.22% to 5.81% during 1998, and was 6.00% and 5.62% at December 31, 1997 and 1998, respectively. The credit agreements referenced above include various provisions requiring the maintenance of certain financial ratios and limitations on (i) transactions with affiliates, (ii) other debt and guarantees, (iii) investment in, and advances to, other entities, and (iv) payment of dividends. On December 31, 1997, there were no violations of credit agreement provisions. The Company's bank loan agreement permits the Company to pay annual dividends of up to 50% of the prior year's net income. At December 31, 1998, the Company was in default of certain financial ratio requirements related to minimum net worth and cash flows that are measured annually. A letter dated March 9, 1999 was obtained from the bank waiving the violations. F-10 The aggregate maturities of current and long-term debt subsequent to December 31, 1998, are as follows: Year Ending December 31, ------------------------ 1999 $ 310,000 2000 2,057,000 2001 3,804,000 2002 3,844,000 2003 2,166,000 Thereafter 3,164,000 ----------- Total $15,345,000 ===========
The fair value of long-term debt approximated the carrying value as of December 31, 1997 and 1998, as all instruments are at variable interest rates. 6. INCOME TAXES ------------ The provision (benefit) for income taxes consists of the following: 1996 1997 1998 Current: --------- ----------- ----------- Federal $ 65,000 $ 9,000 $ 303,000 State - 51,000 - Deferred (465,000) (2,120,000) (1,579,000) --------- ----------- ----------- Total $(400,000) $(2,060,000) $(1,276,000) ========= =========== ===========
F-11 The deferred tax assets and liabilities at December 31, 1997 and 1998 are comprised of the following: 1997 ------------------------------------------ Deferred Deferred Tax Current: Tax Assets Liabilities Total ---------- ----------- ---------- Inventories $ 243,000 $ - $ 243,000 Non-deductible accruals 102,000 - 102,000 ---------- ----------- ---------- Total current 345,000 - 345,000 ---------- ----------- ---------- Long-term: Intangible assets 3,000 - 3,000 Net operating loss carryforward 2,415,000 - 2,415,000 Alternative minimum tax credit carryforward 235,000 - 235,000 Accelerated depreciation - (413,000) (413,000) ---------- ----------- ---------- Total long-term 2,653,000 (413,000) 2,240,000 ---------- ----------- ---------- Net $2,998,000 $ (413,000) $2,585,000 ========== =========== ==========
1998 ------------------------------------------- Deferred Deferred Tax Current: Tax Assets Liabilities Total ---------- ----------- ---------- Inventories $ 722,000 $ - $ 722,000 Non-deductible accruals 107,000 - 107,000 ---------- ----------- ---------- Total current 829,000 - 829,000 ---------- ----------- ---------- Long-term: Intangible assets 3,000 - 3,000 Net operating loss carryforward 3,422,000 - 3,422,000 Alternative minimum tax credit carryforward 240,000 - 240,000 Accelerated depreciation - (330,000) (330,000) ---------- ----------- ---------- Total long-term 3,665,000 (330,000) 3,335,000 ---------- ----------- ---------- Net $4,494,000 $ (330,000) $4,164,000 ========== =========== ==========
F-12 At December 31, 1996, a valuation allowance of $2,524,000 had been established against the net deferred income tax assets. During 1996 and 1997, the Company reduced the valuation allowance by $1,057,000 and $2,524,000, respectively. The reduction in the valuation allowance was attributable to the award of significant multi-year government and commercial contracts during 1996 and 1997 and the result of improved cost controls. During 1998, the Company implemented additional cost improvements related to its manufacturing processes. Based on these initiatives, the significant increase in backlog over 1997 and the extended carryforward period allowed under current tax law, management of the Company is of the opinion that a valuation allowance is not needed as of December 31, 1998 and the net deferred tax assets as of each year end reflects the net amount that is more likely than not to be realized. During 1997, the Company utilized approximately $1,127,000 of net operating loss carryforwards to offset income tax expense. The Company has net operating loss carryforwards for federal income tax purposes at December 31, 1998 of approximately $5,900,000, $1,200,000 and $2,600,000, which will expire in 2009, 2010 and 2018, respectively, if not utilized. The Company also has approximately $240,000 of alternative minimum tax credit carryforwards available to offset future federal income taxes. The Company's benefit for income taxes differs from the amount computed using the federal statutory tax rate as a result of the following items: 1996 1997 1998 ----------- ----------- ----------- Amount at federal statutory rate $ 602,000 $ 412,000 $(1,461,000) Increases (reductions) due to: State taxes - net of federal income tax benefit 47,000 38,000 (119,000) Change in valuation allowance (1,057,000) (2,524,000) - Adjustment to estimated income tax accruals - - 207,000 Other 8,000 14,000 97,000 ----------- ----------- ----------- Total $ (400,000) $(2,060,000) $(1,276,000) =========== =========== ===========
7. EMPLOYEE BENEFIT PLANS ---------------------- Savings Plan - The Company has a profit-sharing/401(k) retirement plan (the "Plan") which covers substantially all employees. Company contributions are discretionary and are determined annually based on profits. The Plan allows for an employee pay conversion feature whereby each eligible employee may contribute up to 15% of their total pay. The Company's provision pursuant to the Plan amounted to $35,000 and $91,000 in 1996 and 1997, respectively. The Company made no contributions for 1998. F-13 Performance Based Bonus Plan - The Company has a bonus plan that provides for additional compensation to certain executive officers. The bonus is payable upon the attainment of certain financial targets that are approved by the Board of Directors, and is calculated as a specified percentage of the officer's current base salary. The Company's bonus provision for 1996 and 1997 was $261,000 and $132,000, respectively. No bonus provision was made for 1998. 8. STOCK OPTIONS ------------- The Company has an Incentive Stock Option Plan ("ISO"), a Management Stock Option Plan ("MSO") and a Key Employee Stock Option Plan ("KSO"). The ISO, MSO and KSO Plans expired in 1994 and 1995. In addition, on April 11, 1995, the Company adopted the 1995 Stock Option and Performance Award Plan ("SOPA") which was approved by the Company's stockholders on June 5, 1995. Under the ISO, MSO, KSO and SOPA plans, 376,780, 187,700, 150,000 and 500,000 shares of common stock, respectively, were reserved for issuance under options to be granted for periods not to exceed ten years at an exercise price not less than the fair market value of the shares at the date of grant, then are exercisable at a cumulative rate of 25% in each of the first four years subsequent to the applicable grant. Under a separate plan, certain of the Company's outside directors have been granted options to purchase shares of common stock at exercise prices of 85% of the fair market value of such shares at date of grant. Such options are exercisable at any time during the term of ten years as long as the recipient is a director or within one year after termination of service. A summary of the Company's stock options as of December 31, 1996, 1997 and 1998 and changes during the year ended on those dates is presented below: 1996 1997 1998 ------------------------------ ------------------------------ ------------------------------ Weighted Weighted Weighted Weighted Average Weighted Average Weighted Average Options Average Fair Value Options Average Fair Value Options Average Fair Value for Exercise at Grant for Exercise at Grant for Exercise at Grant Shares Price Date Shares Price Date Shares Price Date ------------------------------ ------------------------------ ------------------------------ Outstanding at beginning of year 280,085 $3.87 283,479 $3.57 285,717 $3.57 Granted Price = fair value 42,500 $2.86 $1.99 18,600 $3.71 $2.60 83,000 $2.93 $1.99 Price < fair value 6,722 $4.46 $4.09 9,118 $3.29 $2.82 23,528 $1.28 $1.05 Exercised - (4,375) $2.48 - Canceled (45,828) $4.88 (21,105) $3.94 (95,000) $3.73 ------- ------- ------- Outstanding at end of year 283,479 $3.57 285,717 $3.56 297,245 $3.14 ======= ===== ======= ===== ======= ====== Options exercisable at December 31: ------------------- Director options 65,979 $3.64 74,117 $3.44 97,645 $2.92 Employee options 62,250 $4.33 105,500 $3.93 77,150 $3.61 ------- ------- ------- Total 128,229 $3.97 179,617 $3.73 174,795 $3.22 ======= ===== ======= ===== ======= =====
F-14 The following table summarizes information about stock options outstanding at December 31, 1998: Options Outstanding Options Exercisable ----------------------------------------------- ---------------------------- Weighted Average Weighted Weighted Number Remaining Average Number Average Outstanding Contractual Life Exercise Price Outstanding Exercise Price ----------------------------------------------- ---------------------------- Range of Exercise Prices ------------------------ $2.38 - $4.46 275,845 7.45 $3.12 153,395 $2.87 $5.50 - $6.80 21,400 3.69 $5.82 21,400 $5.77 ------- ------- 297,245 7.18 $3.56 174,795 $3.22 ======= ==== ===== ======= =====
The Company applied Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations in accounting for its employee and director plans. Compensation expense related to these plans under this methodology is insignificant. Had compensation cost been determined based on the fair value at the grant date for awards under these plans consistent with the methodology prescribed under SFAS No. 123, Accounting for Stock-Based Compensation (SFAS 123), the Company's net income (loss) and basic and diluted net income (loss) per share would approximate the pro forma amounts below. 1996 1997 1998 ---------- ----------- ----------- Net income (loss): As reported $2,170,000 $(3,021,000) $ 3,271,000 Pro forma $2,058,000 $ 3,173,000 $(3,102,000) Basic and diluted net income (loss) per share: As reported $ 0.37 $ 0.56 $ (0.51) Pro forma $ 0.35 $ 0.54 $ (0.53)
Because the SFAS 123 method of accounting has not been applied to options granted prior to January 1, 1995, the resulting pro forma compensation cost may not be representative of that to be expected in future years. For purposes of SFAS 123, the weighted average fair value of the options granted during 1996, 1997 and 1998 is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions: 1996 1997 1998 ------ ------ ------ Expected life (years) 10.0 10.0 10.0 Risk-free interest rate 6.31% 5.74% 5.87% Dividend rate 0% 0% 0% Expected volatility 60.00% 52.30% 49.96%
F-15 9. COMMITMENTS AND CONTINGENCIES ----------------------------- Leasing Arrangements - The Company is obligated under several non- cancelable operating leases covering land, office facilities and equipment. The corporate headquarters resides upon land under a lease which provides for minimum rentals through 2086. Minimum rentals are subject to increases based on the annual consumer price index. Future minimum lease payments under all operating leases with an initial or remaining non-cancelable lease term of more than one year at December 31, 1998 are as follows: Year Ending December 31, ------------------------ 1999 $ 320,000 2000 239,000 2001 171,000 2002 152,000 2003 116,000 Thereafter 2,706,000 ---------- Total $3,704,000 ==========
Aggregate rental expense under operating leases amounted to $376,000, $237,000 and $282,000 in 1996, 1997 and 1998, respectively. The Company leases office space at its Hope Hull facility to tenants on a year-to-year basis, as well as under a multi-year lease with entities affiliated through certain common ownership, where future minimum lease receipts at December 31, 1998 are as follows: Year Ending December 31, ------------------------ 1999 $ 158,000 2000 114,000 2001 32,000 ---------- Total $ 304,000 ==========
Aggregate rental income under operating leases amounted to $219,000 and $162,000 in 1997 and 1998, respectively. Litigation - The Company, from time to time, is a party to pending or threatened legal proceedings and arbitration in the ordinary course of business. Based upon information currently available, and in light of legal and other defenses available to the Company, management does not consider liability from any threatened or pending litigation to be material. Claims - From time to time the Company has certain of its contracts that may be subject to final negotiation or modification with the customer in the ordinary course of business. Although the ultimate outcome of these negotiations or modifications is unknown at December 31, 1998, the Company believes that additional costs evolving from these negotiations will not be material. F-16 10. SEGMENT INFORMATION ------------------- On December 31, 1998, the Company adopted SFAS 131, Disclosure about Segments of an Enterprise and Related Information. SFAS 131 established standards for reporting information about segments in annual financial statements and requires selected information about segments in interim financial reports issued to stockholders. It also established standards for related disclosures about products and services, and geographic areas. Segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision-maker in deciding how to allocate resources and in assessing performance. Under this standard, the Company's reportable segments are organized around its two main products and services segments, Military/Rugged and Commercial. Through its military/rugged segment, the Company is engaged in the design, manufacture and testing of computer and computer peripheral equipment for military and other specialized applications requiring reliable operations in severe land, sea and airborne environments. These products are generally sold by the Company's business development group through the federal government bid process. The Company's commercial segment designs, develops, manufactures and markets commercial computer related products primarily for transportation, telecommunications and in-field maintenance markets. These products are sold through an established network of marketing representatives and Company employed sales people to a broad base of customers both international and domestic. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company's determination of segment operating profit (loss) does not reflect other income (expense) or income taxes. General 1996 Military/Rugged Commercial Eliminations Corporate Consolidated ---- --------------- ------------ ------------ --------- ------------ Net sales from external customer $ 30,618,000 $ 14,895,000 $ - $ 45,513,000 ============ ============ ============ ============ Segment operating profit (loss) $ 1,088,000 $ 1,643,000 $ 115,000 $ 2,846,000 ============ ============ ============ ============ Identifiable assets $ 25,126,000 $ 9,169,000 $ - $ 2,037,000 $ 36,332,000 ============ ============ =========== =========== ============ Capital expenditures $ 420,000 $ 205,000 $ 625,000 ============ ============ ============ Depreciation and amortization $ 1 ,086,000 $ 651,000 $ 1,737,000 ============ ============ ============ General 1997 Military/Rugged Commercial Eliminations Corporate Consolidated ---- --------------- ------------- ------------ ----------- ------------ Net sales from external customers $ 20,853,000 $ 19,519,000 $ - $ 40,372,000 ============ ============ ============ ============ Segment operating profit (loss) $ 412,000 $ 1,549,000 $ - $ 1,961,000 ============ ============ ============ ============ Identifiable assets $ 22,037,000 $ 12,301,000 $ - $ 4,111,000 $ 38,449,000 ============ ============ ============ =========== ============ Capital expenditures $ 891,000 $ 834,000 $ 1,725,000 ============ ============ ============ Depreciation and amortization $ 1,052,000 $ 618,000 $ 1,670,000 ============ ============ ============
F-17 General 1998 Military/Rugged Commercial Eliminations Corporate Consolidated ---- --------------- ------------ ------------ ----------- ------------ Net sales from external customers $ 14,605,000 $ 11,839,000 $ - $ 26,444,000 ============ ============ ============ ============ Segment operating profit (loss) $ (3,435,000) $ (60,000) $ - $ (3,495,000) ============ ============ ============ ============ Identifiable assets $ 25,178,000 $ 8,317,000 $ - $ 5,443,000 $ 38,938,000 ============ ============ ============ =========== ============ Capital expenditures $ 389,000 $ 315,000 $ 704,000 ============ ============ ============ Depreciation and amortization $ 958,000 $ 548,000 $ 1,506,000 ============ ============ ============
In 1996, 1997 and 1998, foreign sales accounted for 15%, 5% and 2% respectively, of the military/rugged segment net sales and 9%, 60% and 7%, respectively, of the commercial segment net sales. During 1996, 1997 and 1998, the United States Government accounted for 54%, 39% and 51% of consolidated net sales of the Company, respectively. 11. UNAUDITED QUARTERLY FINANCIAL DATA ---------------------------------- Summarized unaudited quarterly financial data for the years ended December 31, 1997 and 1998 is as follows: Thirteen Weeks Ended ------------------------------------------------------------ March 30, June 29, September 28, December 31, 1997 1997 1997 1997 ----------- ------------ ------------- ------------ Net Sales $ 9,042,000 $ 11,992,000 $ 8,326,000 $ 11,012,000 =========== ============ =========== ============ Gross Profit $ 2,182,000 $ 2,658,000 $ 2,165,000 $ 2,798,000 =========== ============ =========== ============ Net Income $ 174,000 $ 642,000 $ 705,000 $ 1,750,000 Basic and diluted net income =========== ============ =========== ============ per share $.03 $.11 $.12 $.30 ==== ==== ==== ====
Thirteen Weeks Ended March 29, June 28, September 27, December 31, 1998 1998 1998 1998 ----------- ----------- ------------ ------------ Net Sales $ 7,444,000 $ 5,939,000 $ 5,409,000 $ 7,652,000 =========== =========== =========== =========== Gross Profit $ 1,938,000 $ 1,056,000 $ 725,000 $ 1,202,000 =========== =========== =========== =========== Net Loss $ (45,000) $(1,251,000) $ (903,000) $ (822,000) =========== =========== =========== =========== Basic and diluted net loss per share $(.01) $(.21) $ (.15) $(.14) ===== ===== ==== =====
F-18 12. RELATED PARTY TRANSACTIONS -------------------------- During 1996, 1997, and 1998, the Company recorded sales of $1,140,000, $10,640,000 and $2,186,000, respectively, to entities which are affiliated through certain common ownership. At December 31, 1997 and 1998, accounts receivable on such sales were $2,910,000 and $1,079,000, respectively. F-19 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statements No. 2-97977, No. 33-8245, No. 33-78744 and No. 33-65233 of Miltope Group Inc. on Forms S-8 and No. 33-33752 of Miltope Group Inc. on Form S-3 of our report dated February 19, 1999 (March 9, 1999 as to the waiver letter described in Note 5) appearing in this Annual Report on Form 10-K of Miltope Group Inc. for the year ended December 31, 1998. /s/ Deloitte & Touche LLP - ------------------------------- Birmingham, Alabama March 30, 1999 F-20 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. MILTOPE GROUP INC. March 31, 1999 /s/ Thomas R. Dickinson ------------------------------------- Thomas R. Dickinson President and Chief Executive Officer 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. March 31, 1999 /s/ Thomas R. Dickinson ------------------------------------- Thomas R. Dickinson President and Chief Executive Officer (Principal Executive Officer) March 31, 1999 /s/ Teddy G. Allen ------------------------------------- Teddy G. Allen Chairman of the Board of Directors March 31, 1999 ------------------------------------- Jan H. Stenbeck Director March 31, 1999 /s/ William Mustard ------------------------------------- William Mustard Director March 31, 1999 /s/ Teri Spencer ------------------------------------- Teri Spencer Director March 31, 1999 /s/ Franklin Miller ------------------------------------- Franklin Miller Director March 31, 1999 /s/ William L. Dickinson ------------------------------------- William L. Dickinson Director March 31, 1999 /s/ Jerry O. Tuttle ------------------------------------- Jerry O. Tuttle Director EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AUDITED CONDENSED CONSOLIDATED BALANCE SHEETS, STATEMENTS OF OPERATIONS AND STATEMENTS OF CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 12-MOS DEC-31-1998 DEC-31-1998 57,000 0 6,792,000 0 17,867,000 25,823,000 17,384,000 8,549,000 38,938,000 5,784,000 0 0 0 68,000 18,051,000 38,938,000 26,444,000 26,444,000 21,523,000 29,939,000 0 0 802,000 (4,297,000) 0 (3,021,000) 0 0 0 (3,021,000) (.51) (.51)
EX-1 3 STOCK OPTION AGREEMENT AGREEMENT made as of this 17th day of September 1998 between MILTOPE GROUP INC., a Delaware corporation (the "Company"), and WILLIAM L. DICKINSON residing at 2350 Woodley Road, Montgomery, Alabama 36111 (the "Director"). WHEREAS, the Company desires, in connection with the service of the Director on the Board of Directors of the Company, to provide the Director with an opportunity to acquire Common Stock, par value $.01 per share (the "Common Stock"), of the Company on favorable terms; NOW, THEREFORE, in consideration of the premises, the mutual covenants herein set forth and other good and valuable consideration, the Company and the Director hereby agree as follows: 1. Confirmation of Grant of Option. Pursuant to a determination by the Board of Directors of the Company made as of September 17, 1998 (the "Date of Grant"), the Company hereby confirms that the Director has been granted effective September 17, 1998 as a matter of separate inducement and agreement, and in addition to and not in lieu of salary or other compensation for services to be rendered by the Director, the right to purchase (the "Option") 11,764 shares of Common Stock, $.01 par value, of the Company (the "Shares"), subject to adjustment as provided in Section 7 hereof. 2. Purchase Price. The purchase price per share of the Shares will be $1.275 per share, subject to adjustment as provided in Section 7 hereof. 3. Exercise of Option. The Option may be exercised at any time during its term pursuant to the provisions of Sections 9 and 14 hereof. Except as provided in Section 6 hereof, the Option can only be exercised while the Director is a member of the Board of Directors of the Company or within one (1) year after the termination of the Director's services as a director of the Company. 4. Term of Option. The term of the Option shall be a period of ten (10) years from the Date of Grant, subject to earlier termination or cancellation as provided in this Agreement. The Option may not be exercised after the expiration of its term. The holder of the option will not have any rights to dividends or any other rights of a stockholder with respect to any share subject to the Option until it has been issued to him (as evidenced by the appropriate entry on the books of a duly authorized transfer agent of the Company). The date of issuance shall not be earlier than the Closing Date, as defined in Section 9 hereof. 5. Non-transferability of option. The Option is not transferable otherwise than by will or by the laws of descent and distribution and the Option may be exercised during the lifetime of the Director only by him. More particularly, but without limiting the generality of the foregoing, the Option may not be assigned, transferred or otherwise disposed of, or pledged or hypothecated in any way (voluntarily or involuntarily), and is not subject to execution, attachment or other process. Any assignment, transfer, pledge, hypothecation or other disposition of the Option attempted contrary to the provisions of this Agreement, or any levy of execution, attachment or other process attempted upon the Option, will be null and void and without effect. Any attempt to make any such assignment, transfer, pledge, hypothecation or other disposition of the Option or any attempt to make any such levy of execution, attachment or other process will cause the Option to terminate immediately upon the happening of any such event if the Board of Directors of the Company, at any time, should, in its sole discretion, so elect, by written notice to the Director or to the person then entitled to exercise the Option; provided, however, that any such termination of the Option under the foregoing provisions of this Section 5 will not prejudice any rights or remedies which the Company or any subsidiary thereof may have under this Agreement or otherwise. 6. Exercise Upon Death. If the Director dies while still a member of the Board of Directors of the Company or within one (1) year after the Director's service as a director of the Company has terminated, the Option may be exercised to the extent the Director would have been entitled under Section 3 hereof to exercise the Option on the day next preceding the date of his death, by the estate of the deceased Director, or by any person who acquired the right to exercise the Option by bequest or inheritance or by reason of the death of the Director, at any time within six (6) months after his death, at the end of which period the Option shall terminate. Such period shall in no event extend the date of exercise of the Option beyond the term thereof as provided in Section 4. 7. Adjustments. In the event of a stock dividend, stock split, share combination, exchange of shares, recapitalization, merger, consolidation, acquisition or disposition of property or shares, reorganization, liquidation or other similar changes or transactions of or by the Company, the Board of Directors of the Company will make (or will undertake to have the Board of Directors of any corporation which merges with, or acquires the stock or assets of, the Company make) an adjustment of the number or class of shares then covered by the Option, or of the purchase price per share of the Shares, or both, as it in its sole discretion deems appropriate to give proper effect to the event. 8. Registration. The Company may register or qualify the Shares for sale pursuant to the Securities Act of 1933, as amended (the "Securities Act"), at any time prior to or after the exercise in whole or in part of the Option. 9. Method of Exercise of Option. The Option is exercisable by notice and payment to the Company in accordance with the procedure prescribed herein. Each such notice will: (a) State the election to exercise the Option and the number of shares in respect of which it is being exercised; (b) Contain a representation and agreement as to investment intent, if required by counsel to the Company with respect to such Shares, in form satisfactory to counsel for the Company; and (c) Be signed by the person entitled to exercise the Option and, if the Option is being exercised by any person other than the Director, be accompanied by proof, satisfactory to counsel for the Company, of the right of that person to exercise the Option. Upon receipt of such notice, the Company will specify, by written notice to the person exercising the Option, a date and time (the "Closing Date") and place for payment of the full purchase price of such Shares. The Closing Date will be not more than fifteen days from the date the notice of exercise is received by the Company unless another date is agreed upon by the Company and the person exercising the Option or is required upon advice of counsel for the Company in order to meet the requirements of Section 10 hereof. Payment of the purchase price will be made at the place specified by the Company on or before the Closing Date by delivering to the Company a certified or bank cashier's check payable to the order of the Company. The Option will be deemed to have been exercised with respect to any particular shares of Common Stock if, and only if, the preceding provisions of this Section 9 and the provisions of Section 10 hereof shall have been complied with, in which event the Option will be deemed to have been exercised on the Closing Date. Anything in this Agreement to the contrary notwithstanding, any notice of exercise given pursuant to the provisions of this Section 9 will be void and of no effect if all the preceding provisions of this Section 9 and the provisions of Section 10 have not been complied with. The certificate(s) for shares of Common Stock as to which the Option shall be exercised will be registered in the name of the person exercising the Option (or, if the Option is exercised by the Director and if the Director so requests in the notice exercising the Option, will be registered in the name of the Director and another person jointly, with right of survivorship) and will be delivered on the Closing Date to the person exercising the Option at the place specified for the closing, but only upon compliance with all of the provisions of this Agreement. If the Director fails to accept delivery of and pay for all or any part of the number of shares specified in the notice upon tender or delivery thereof on the Closing Date, his right to exercise the Option with respect to those undelivered shares may be terminated in the sole discretion of the Board of Directors of the Company. The Option may be exercised only with respect to full shares. 10. Approval of Counsel. The exercise of the Option and the issuance and delivery of shares of Common Stock pursuant thereto is subject to approval by the Company's counsel of all legal matters in connection therewith, including compliance with the requirements of the Securities Act and the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder, and the requirements of any stock exchange upon which the Common Stock may then be listed. 11. Resale of Common Stock. Before any sale or transfer of the Common Stock purchased upon exercise of the Option, the Director will deliver to the Company an opinion of counsel satisfactory to counsel for the Company to the effect that either (i) the Common Stock to be sold or transferred has been registered under the Securities Act and that there is in effect a current prospectus meeting the requirements of Subsection 10(a) of the Securities Act which is being or will be delivered to the purchaser or transferee at or prior to the time of delivery of the certificates evidencing the Common Stock to be sold or transferred, or (ii) such Common Stock may then be sold without violating Section 5 of the Securities Act. The Common Stock issued upon exercise of the Option shall bear the following legend if required by counsel for the Company: THE SHARES EVIDENCED BY THIS CERTIFICATE MAY NOT BE SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS THEY HAVE FIRST BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNLESS, IN THE OPINION OF COUNSEL FOR THE COMPANY, SUCH REGISTRATION IS NOT REQUIRED. 12. Reservation of Shares. The Company shall at all times during the term of the Option reserve and keep available a number of shares of the class of stock then subject to the Option sufficient to satisfy the requirements of this Agreement. 13. Limitation of Action. The Director and the Company each acknowledges that every right of action accruing to him or it, as the case may be, and arising out of or in connection with this Agreement against the Company or a subsidiary thereof, on the one hand, or against the Director, on the other hand, will, irrespective of the place where an action may be brought, cease and be barred by the expiration of three years from the date of the act or omission in respect of which such right of action arises. 14. Notices. Each notice relating to this Agreement shall be in writing and delivered in person or by certified mail to the proper address. All notices to the Company will be addressed to it at 500 Richardson Road, Hope Hull, Alabama 36043. All notices to the Director or other person then entitled to exercise the Option will be addressed to the Director or other person at the Director's address above specified. Anyone to whom a notice may be given under this Agreement may designate a new address by notice to that effect. 15. Benefits of Agreement. This Agreement will inure to the benefit of and be binding upon each successor and assign of the Company. All obligations imposed upon the Director and all rights granted to the Company under this Agreement will be binding upon the Director's heirs, legal representatives and successors. 16. Severability. In the event that any provision of this Agreement shall be deemed to be illegal or unenforceable, that illegality or unenforceability will not affect the validity and enforceability of the remaining legal and enforceable provisions hereof, which shall be construed as if the illegal or unenforceable provision had not been inserted. 17. Governing Law. This Agreement will be construed and governed in accordance with the laws of the State of Alabama. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed in its name by its President and its corporate seal to be hereunto affixed and attested by its Secretary and the Director has hereunto set his hand all as of the day, month and year first above written. ATTEST: MILTOPE GROUP INC. /s/ Edward F. Crowell By:/s/ James E. Matthews - ------------------------------- ----------------------------- Edward F. Crowell, Secretary James E. Matthews, President and Chief Executive Officer /s/ William L. Dickinson ----------------------------- William L. Dickinson EX-2 4 10 OPTION NO. 95-ISO- MILTOPE GROUP INC. 1995 Stock Option and Performance Award Plan INCENTIVE STOCK OPTION Granted To JAMES MATTHEWS Optionee 20,000 $3.188 - ------------------ ------------------------------ Number of Shares Price per Share (Fair Market Value on Date of Grant) DATE GRANTED: February 4, 1998 EXPIRATION DATE: February 3, 2008 ---------------- ---------------- INCENTIVE STOCK OPTION AGREEMENT AGREEMENT made as of this 4th day of February, 1998 between MILTOPE GROUP INC., a Delaware corporation (hereinafter referred to as the "Company"), and JAMES MATTHEWS, residing at 1568 Meriwether Circle, Montgomery, Alabama 36117 (hereinafter referred to as the "Employee"). W I T N E S S E T H: WHEREAS, the Company desires, in connection with the employment of the Employee and in accordance with its 1995 Stock Option and Performance Award Plan (the "Plan"), to provide the Employee with an opportunity to acquire Common Stock, $.01 par value (hereinafter referred to as "Common Stock"), of the Company on favorable terms and thereby increase his proprietary interest in the continued progress and success of the business of the Company; NOW, THEREFORE, in consideration of the premises, the mutual covenants herein set forth and other good and valuable consideration, the Company and the Employee hereby agree as follows: 1. Confirmation of Grant of Option. Pursuant to a determination by the Stock Option Committee of the Board of Directors of the Company authorized to administer the Plan, made on February 4, 1998 (the "Date of Grant") the Company, subject to the terms of the Plan and this Agreement, hereby confirms that the Employee has been granted as a matter of separate inducement and agreement, and in addition to and not in lieu of salary or other compensation for services, the right to purchase (hereinafter referred to as the "Option") an aggregate of 20,000 shares of Common Stock, subject to adjustment as provided in Section 9 hereof (such shares, as adjusted, shall hereinafter be referred to as the "Shares"). The Option is intended to qualify as an incentive stock option under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). 2. Purchase Price. The purchase price of shares of Common Stock covered by the Option will be $3.188 per share, being not less than 100% of the Fair Market Value of a share of Common Stock on the Date of Grant, subject to adjustment as provided in Section 9 hereof. 3. Exercise of Option. The Option shall be exercisable on the terms and conditions hereinafter set forth: (a) The Option shall become exercisable cumulatively as to the following amounts of the number of the number of Shares originally subject thereto (after giving effect to any adjustment pursuant to Section 9 hereon), on the dates indicated: (i) as to 5,000 Shares on or after February 4, 1999; (ii) as to 5,000 Shares on or after February 4, 2000; (iii) as to 5,000 Shares on or after February 4, 2001; and (iv) as to 5,000 Shares on or after February 4, 2002 (b) The Option may be exercised pursuant to the provisions of this Section 3, by notice and payment to the Company as provided in Sections 11 and 16 hereof. 4. Term of Option. The term of the Option shall be a period of ten (10) years from the Date of Grand, subject to earlier termination or cancellation as provided in this Agreement. This Option, to the extent unexercised, shall expire at the end of the term set forth in the immediately preceding sentence. The holder of the Option shall not have any rights to dividends or any other rights of a stockholder with respect to any shares of Common Stock subject to the Option until such shares shall have been issued to him (as evidenced by the appropriate entry on the books of a duly authorized transfer agent of the Company) provided that the date of issuance shall not be earlier than the Closing Date (hereinafter defined with respect to such shares pursuant to Section 11 hereof) upon purchase of such shares upon exercise of the Option. 5. Non-transferability of Option. The Option shall not be transferable otherwise than by will or by the laws of descent and distribution or pursuant to a domestic relations order, and the Option may be exercised during the lifetime of the Employee only by him. More particularly, but without limiting the generality of the foregoing, the Option may not be assigned, transferred (except as provided in the next preceding sentence) or otherwise disposed of, or pledged or hypothecated in any way, and shall not be subject to execution, attachment or other process. Any assignment, transfer, pledge, hypothecation or other disposition of the Option attempted contrary to the provisions of this Agreement, or any levy of execution, attachment or other process attempted upon the Option, will be null and void and without effect. Any attempt to make any such assignment, transfer, pledge, hypothecation or other disposition of the Option or any attempt to make any such levy of execution, attachment or other process will cause the Option to terminate immediately upon the happening of any such event; provided, however, that any such termination of the Option under the foregoing provisions of this Section 5 will not prejudice any rights or remedies which the Company or any Parent or Subsidiary may have under this Agreement or otherwise. 6. Exercise Upon Cessation of Employment. (a) If the Employee at any time ceases to be an employee of the Company and of any Parent or Subsidiary by reason of his discharge for Good Cause the Option shall forthwith terminate and the Employee shall forfeit all rights hereunder. If, however, the Employee for any other reason (other than disability or death) ceases to be such an employee, the Option may, subject to the provisions of Sections 5 and 8 hereof, be exercised by the Employee to the same extent the Employee would have been entitled under Section 3 hereof to exercise the Option on the day next preceding the date of such cessation of employment, at any time within three (3) months after such cessation of employment, at the end of which period the Option to the extent not then exercised, shall terminate and the Employee shall forfeit all rights hereunder, even if the Employee subsequently returns to the employ of the Company or any Parent or Subsidiary. In no event, however, may the Option be exercised after the expiration of the term provided in Section 4 hereof. (b) The Option shall not be affected by any change of duties or position of the Employee so long as he continues to be an employee of the Company or any subsidiary thereof. If the Employee is granted a temporary leave of absence, such leave of absence shall be deemed a continuation of his employment by the Company or any subsidiary thereof for the purpose of this Agreement, but only if and so long as the employing corporation consents thereto. 7. Exercise Upon Death or Disability. (a) If the Employee dies while he is employed by the Company or by any Parent or Subsidiary (or within three (3) months after his termination of employment other than for Good Cause), and on or after the first date upon which he would have been entitled to exercise the Option under the provisions of Section 3 hereof, the Option may, subject to the provisions of Sections 5 and 8 hereof, be exercised with respect to the shares of Common Stock as to which the deceased Employee had not exercised the Option at the time of his death (and only to the extent the Option was exercisable at the date of his death), by the estate of the Employee (or by the person or persons who acquire the right to exercise the Option by written designation of the Employee) at any time within the period ending one (1) year after the death of the Employee, at the end of which period the Option, to the extent not them exercised, shall terminate and the estate or other beneficiaries shall forfeit all rights hereunder. In no event, however, may the Option be exercised after the expiration of the term provided in Section 4 hereof. (b) In the event that the employment of the Employee by the Company and any Parent or Subsidiary is terminated by reason of the Disability of the Employee on or after the first date upon which he would have been entitled to exercise the Option under the provisions of Section 3 hereof, the Option may, subject to the provisions of Sections 5 and 8 hereof, be exercised with respect to the shares of Common Stock as to which he had not exercised the Option at the time of his Disability (and only to the extent the Option was exercisable at the date of such termination of employment) by the Employee at any time within the period ending one (1) year after the date of such termination of employment, at the end of which period the Option, to the extend not then exercised, shall terminate and the Employee shall forfeit all rights hereunder even if the Employee subsequently returns to the employ of the Company or any Parent or Subsidiary. In no event, however, may the Option be exercised after the expiration of the term provided in Section 4 hereof. 8. Limitation of Exercisabililty. To the extent the aggregate of the (a) Fair Market Value of Common Stock (determined as of the date of this Agreement) subject to purchase under this Option and (b) the fair market values (determined as of the appropriate date(s) of grant) of all other shares of stock subject to incentive stock options granted to the Employee by the Company or any Parent or Subsidiary, which are exercisable for the first time by any individual during any calendar year, exceed(s) one hundred thousand dollars ($100,000), such excess shares of stock shall not be deemed to be purchased pursuant to incentive stock options. The terms of the immediately preceding sentence shall be applied by taking options into account in the order in which they are granted. 9. Adjustments. In the event there is any change in the Common Stock of the Company by reason of any reorganization, recapitalization, stock split, stock dividend or otherwise, there shall be substituted for or added to each share of Common Stock theretofore appropriated or thereafter subject, or which may become subject, to this Option the number and kind of shares of stock or other securities into which each outstanding share of Common Stock shall be so changed or for which each such share shall be exchanged, or to which each such share be entitled, as the case may be, and the per share price thereof also shall be appropriately adjusted; provided, however, that no such adjustment shall be made so as to deem such modification, extension or renewal of the Option as the issuance of a new option under Section 424(h) of the Code, or so as to prevent the Company or any other corporation or subsidiary thereof, if the Employee shall become employed by such corporation by reason of the transaction in respect of which such adjustment is made, from being a corporation issuing or assuming the Option in a transaction to which Section 424(a) of the Code applies. 10. Registration. The shares of Common Stock subject hereto and issuable upon the exercise hereof may not be registered under the Securities Act of 1933, as amended, and, if required upon the request of counsel to the Company, the Employee will give a representation as to his investment intent with respect to such shares prior to their issuance as set forth in Section 11 hereof. The Company may register or qualify the shares covered by the Option for sale pursuant to the Securities Act of 1933, as amended, at any time prior to or after the exercise in whole or in part of the Option. 11. Method of Exercise of Option. (a) Subject to the terms and conditions of this Agreement, the Option shall be exercisable by notice (in the manner set forth in Exhibit A hereto) and payment to the Company in accordance with the procedure prescribed herein. Each such notice shall: (i) state the election to exercise the Option and the number of Shares in respect of which it is being exercised; (ii) contain a representation and agreement as to investment intent, if required by counsel to the Company with respect to such Shares, in form satisfactory to counsel for the Company; (iii) be signed by the Employee or the person or persons entitled to exercise the Option and, if the Option is being exercised by any person or persons other than the Employee, be accompanied by proof, satisfactory to counsel for the Company, of the right of such person or persons to exercise the Option; and (iv) be received by the Company on or before the date of the expiration of this Option. In the event the date of expiration of this Option falls on a day which is not a regular business day at the Company's executive office in Hope Hull, Alabama, then such written notice must be received at such office on or before the last regular business day prior to such date of expiration. (b) Upon receipt of such notice, the Company shall specify, by written notice to the Employee or to the person or persons exercising the Option, a date and time (such date and time being herein called the "Closing Date") and place for payment of the full purchase price of such Shares. The Closing Date shall not be more than fifteen days from the date the notice of exercise is received by the Company unless another date is agreed upon by the Company and the Employee or the person or persons exercising the Option or is required upon advice of counsel for the Company in order to meet the requirements of Section 12 hereof. (c) Payment of the purchase price of any shares of Common Stock, in respect of which the Option shall be exercised, shall be made by the Employee or such person or persons at the place specified by the Company on or before the Closing Date by delivering to the Company (i) a certified or bank cashier's check payable to the order of the Company, or (ii) properly endorsed certificates of shares of Common Stock (or certificates accompanied by an appropriate stock power) with signature guaranties by a bank or trust company or (iii) any combination of (i) and (ii). (d) The Option shall be deemed to have been exercised with respect to any particular shares of Common Stock if, and only if, the preceding provisions of this Section 11 and the provisions of Section 12 hereof shall have been complied with, in which event the Option shall be deemed to have been exercised on the date the notice of exercise of the Option was received by the Company. Anything in this Agreement to the contrary notwithstanding, any notice of exercise given pursuant to the provisions of this Section 11 shall be void and of no effect if all the preceding provisions of this Section 11 and the provisions of Section 1 shall not have been complied with. (e) The certificate or certificates for shares of Common Stock as to which the Option shall be exercised will be registered in the name of the Employee (or in the name of the Employee's estate or other beneficiary if the Option is exercised after the Employee's death), or if the Option is exercised by the Employee and if the Employee so requests in the notice exercising the Option, will be registered in the name of the Employee and another person jointly, with right of survivorship and will be delivered on the Closing Date to the Employee at the place specified for the closing, but only upon compliance with all of the provisions of this Agreement. (f) If the Employee fails to accept delivery of and pay for all or any part of the number of Shares specified in such notice upon tender or delivery thereof on the Closing Date, his right to exercise the Option with respect to such undelivered Shares may be terminated in the sold discretion of the Board of Directors of the Company. The Option may be exercised only with respect to full Shares. (g) The Company shall not be required to issue or delivery any certificate or certificates for shares of its Common Stock purchased upon the exercise of any part of this Option prior to the payment to the Company, upon its demand, of any amount requested by the Company for the purpose of satisfying its liability, if any, to withhold state or local income or earnings tax or any other applicable tax or assessment (plus interest or penalties thereon, if any, caused by a delay in making such payment) incurred by reason of the exercise of this Option or the transfer of shares thereupon. Such payment shall be made by the Employee in cash or, with the consent of the Company, by tendering to the Company shares of Common Stock equal in value to the amount of the required withholding. In the alternative, the Company may, at its option, satisfy such withholding requirements by withholding from the shares of Common Stock to be delivered to the Employee pursuant to an exercise of this Option a number of shares of Common Stock equal in value to the amount of the required withholding. 12. Approval of Counsel. The exercise of the Option and the issuance and delivery of shares of Common Stock pursuant thereto shall be subject to approval by the Company's counsel of all legal matters in connection therewith, including compliance with the requirements of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder, and the requirements of any stock exchange upon which the Common Stock may then be listed. 13. Resale of Common Stock. (a) If so requested by the Company, upon any sale or transfer of the Common Stock purchased upon exercise of the Option, the Employee shall deliver to the Company an opinion of counsel satisfactory to the Company to the effect that either (i) the Common Stock to be sold or transferred has been registered under the Securities Act of 1933, as amended and that there is in effect a current prospectus meeting the requirements of Section 10(a) of said Act which is being or will be delivered to the purchaser or transferee at or prior to the time of delivery of the certificates evidencing the Common Stock to be sold or transferred, or (ii) such Common Stock may then be sold without violating Section 5 of said Act. b) The Common Stock issued upon exercise of the Option shall bear the following legend if required by counsel for the Company: THE SHARES EVIDENCED BY THIS CERTIFICATE MAY NOT BE SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS THEY HAVE FIRST BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNLESS, IN THE OPINION OF COUNSEL FOR THE COMPANY, SUCH REGISTRATION IS NOT REQUIRED. 14. Reservation of Shares. The Company shall at all times during the term of the Option reserve and keep available such number of shares of the class of stock then subject to the Option as will be sufficient to satisfy the requirements of this Agreement. 15. Limitation of Action. The Employee and the Company each acknowledges that every right of action accruing to him or it, as the case may be, and arising out of or in connection with this Agreement against the Company or a Parent or Subsidiary, on the one hand, or against the Employee, on the other hand, shall, irrespective of the place where an action may be brought, cease and be barred by the expiration of three years from the date of the act or omission in respect of which such right of action arises. 16. Notices. Each notice relating to this Agreement shall be in writing and delivered in person or by certified mail to the proper address. All notices to the Company or the Committee shall be addressed to them at 500 Richardson Road South, Hope Hull, Alabama 36043, Attn: Secretary. All notices to the Employee shall be addressed to the Employee or such other person or persons at the Employee's address above specified. Anyone to whom a notice may be given under this Agreement may designate a new address by notice to that effect. 17. Benefits of Agreement. This Agreement shall inure to the benefit of and be binding upon each successor and assign of the Company. All obligations imposed upon the Employee and all rights granted to the Company under this Agreement shall be binding upon the Employee's heirs, legal representatives and successors. 18. Severability. In the event that any one or more provisions of this Agreement shall be deemed to be illegal or unenforceable, such illegality or unenforceability shall not affect the validity and enforceability of the remaining legal and enforceable provisions hereof, which shall be construed as if such illegal or unenforceable provision or provisions had not been inserted. 19. Governing Law. This Agreement will be construed and governed in accordance with the laws of the State of New York. 20. Disposition of Shares. By accepting this Agreement, the Employee agrees that in the event that he shall dispose (whether by sale, exchange, gift, or any like transfer) of any shares of Common Stock of the Company (to the extent such shares are deemed to be purchased pursuant to an incentive stock option) acquired by him pursuant hereto within two years of the date of grant of this Option or within one year after the acquisition of such shares pursuant hereto, he will notify the secretary of the Company no later than 15 days from the date of such disposition of the date or dates and the number of shares disposed of by him and the consideration received, if any, and, upon notification from the Company, promptly forward to the secretary of the Company any amount requested by the Company for the purpose of satisfying its liability, if any, to withhold federal, state or local income or earnings tax or any other applicable tax or assessment (plus interest or penalties thereon, if any, caused by delay in making such payment) incurred by reason of such disposition. 21. Acknowledge of Employee. The Employee represented and agrees that as of the date of grant of this Option, he does not own (within the meaning of Section 422(b)(6) of the Code) shares possessing more than 10% of the total combined voting power of all classes of shares of the Company or of any Parent or Subsidiary. 22. Employment. Nothing contained in this Agreement shall be construed as (a) a contract of employment between the Employee and the Company or any Parent or Subsidiary, (b) as a right of the Employee to be continued in the employ of the Company or any Parent or Subsidiary, or (c) as a limitation of the right of the Company or any Parent or Subsidiary to discharge the Employee at any time, with or without cause. 23. Definitions. Unless otherwise defined herein, all capitalized terms shall have the same definitions as set forth under the Plan. 24. Incorporation of Terms of Plan. This agreement shall be interpreted under, and subject to, all of the terms and provisions of the Plan, which are incorporated herein by reference. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed in its name by its President, its Chairman of the Board or one of its Vice Presidents and its corporate seal to be hereunto affixed and attested by its Secretary or one of its Assistant Secretaries and the Employee has hereunto set his hand all as of the date, month and year first above written. MILTOPE GROUP INC. By: /s/ George K. Webster -------------------------------- Name: George K. Webster Title: President and Chief Executive Officer /s/ James Matthews -------------------------------- James Matthews XXX-XX-XXXX -------------------------------- Social Security Number ATTEST: /s/ James E. Matthews - ----------------------------- James E. Matthews, Secretary EXHIBIT A INCENTIVE STOCK OPTION EXERCISE FORM Miltope Group Inc. 500 Richardson Road South Hope Hull, Alabama 36043 Attention: Secretary Dear Sirs: Pursuant to the provisions of the Incentive Stock Option Agreement dated as of February 4, 1998, whereby you have granted to me an incentive stock option to purchase 20,000 shares of Common Stock of Miltope Group Inc. (the "Company"), I hereby notify you that I elect to exercise my option to purchase [ ] of the shares covered by such option at the price specified therein. In full payment of the price for the shares being purchased hereby, I am delivering to you herewith (a) a certified or bank cashier's check payable to the order of the Company if the amount of $ ,* or (b) a certificate or certificates for [ ] shares of Common Stock of the Company, and which have a fair market value as of the date hereof of $ , and a certified bank cashier's check, payable to the order of the Company, in the amount of $ .** Any such stock certificate or certificates are endorsed, or accompanied by an appropriate stock power, to the order of the Company, with my signature guaranteed by a bank or trust company or by a member firm of the New York Stock Exchange. [I hereby acknowledge that I am purchasing these shares of Common Stock for investment purposed only and not for resale.] Very truly yours, ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- [Address] (For notices, reports, dividend checks and other communications to stockholders.) * $ of this amount is the purchase price of the shares, and the balance represents payment of withholding taxes as follows: State $ and Local $ . No withholding will be required in states and localities which follow Federal tax law. ** $ of this amount is at least equal to the current market value of one share of Common Stock of the Company, and the balance represents payment of withholding taxes as follows: State $ and Local $ . No withholding will be required in states and localities which follow Federal tax law. EX-3 5 5 OPTION NO. 95-ISO- MILTOPE GROUP INC. 1995 Stock Option and Performance Award Plan INCENTIVE STOCK OPTION Granted To James Matthews -------------- Optionee 10,000 $1.75 - ----------------- ----------------------------- Number of Shares Price per Share (Fair Market Value on Date of Grant) DATE GRANTED: August 19, 1998 EXPIRATION DATE: August 19, 2008 --------------- --------------- INCENTIVE STOCK OPTION AGREEMENT AGREEMENT made as of this 19th day of August 1998 between MILTOPE GROUP INC., a Delaware corporation (hereinafter referred to as the "Company"), and JAMES MATTHEWS residing at 1562 Meriwether Circle, Montgomery, Alabama 36117 (hereinafter referred to as the "Employee"). W I T N E S S E T H: WHEREAS, the Company desires, in connection with the employment of the Employee and in accordance with its 1995 Stock Option and Performance Award Plan (the "Plan"), to provide the Employee with an opportunity to acquire Common Stock, $.01 par value (hereinafter referred to as "Common Stock"), of the Company on favorable terms and thereby increase his proprietary interest in the continued progress and success of the business of the Company; NOW, THEREFORE, in consideration of the premises, the mutual covenants herein set forth and other good and valuable consideration, the Company and the Employee hereby agree as follows: 1. Confirmation of Grant of Option. Pursuant to a determination by the Stock Option Committee of the Board of Directors of the Company authorized to administer the Plan, made on August 19, 1998 (the "Date of Grant") the Company, subject to the terms of the Plan and this Agreement, hereby confirms that the Employee has been granted as a matter of separate inducement and agreement, and in addition to and not in lieu of salary or other compensation for services, the right to purchase (hereinafter referred to as the "Option") an aggregate of 10,000 shares of Common Stock, subject to adjustment as provided in Section 9 hereof (such shares, as adjusted, shall hereinafter be referred to as the "Shares"). The Option is intended to qualify as an incentive stock option under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). 2. Purchase Price. The purchase price of shares of Common Stock covered by the Option will be $1.75 per share, being not less than 100% of the Fair Market Value of a share of Common Stock on the Date of Grant, subject to adjustment as provided in Section 9 hereof. 3. Exercise of Option. The Option shall be exercisable on the terms and conditions hereinafter set forth: (a) The Option shall become exercisable cumulatively as to the following amounts of the number of the number of Shares originally subject thereto (after giving effect to any adjustment pursuant to Section 9 hereon), on the dates indicated: (i) as to 2,500 Shares on or after August 19, 1999; (ii) as to 2,500 Shares on or after August 19, 2000; (iii) as to 2,500 Shares on or after August 19, 2001; and (iv) as to 2,500 Shares on or after August 19, 2002 (b) The Option may be exercised pursuant to the provisions of this Section 3, by notice and payment to the Company as provided in Sections 11 and 16 hereof. 4. Terms of Option. The term of the Option shall be a period of ten (10) years from the Date of Grand, subject to earlier termination or cancellation as provided in this Agreement. This Option, to the extent unexercised, shall expire at the end of the term set forth in the immediately preceding sentence. The holder of the Option shall not have any rights to dividends or any other rights of a stockholder with respect to any shares of Common Stock subject to the Option until such shares shall have been issued to him (as evidenced by the appropriate entry on the books of a duly authorized transfer agent of the Company) provided that the date of issuance shall not be earlier than the Closing Date (hereinafter defined with respect to such shares pursuant to Section 11 hereof) upon purchase of such shares upon exercise of the Option. 5. Non-transferability of Option. The Option shall not be transferable otherwise than by will or by the laws of descent and distribution or pursuant to a domestic relations order, and the Option may be exercised during the lifetime of the Employee only by him. More particularly, but without limiting the generality of the foregoing, the Option may not be assigned, transferred (except as provided in the next preceding sentence) or otherwise disposed of, or pledged or hypothecated in any way, and shall not be subject to execution, attachment or other process. Any assignment, transfer, pledge, hypothecation or other disposition of the Option attempted contrary to the provisions of this Agreement, or any levy of execution, attachment or other process attempted upon the Option, will be null and void and without effect. Any attempt to make any such assignment, transfer, pledge, hypothecation or other disposition of the Option or any attempt to make any such levy of execution, attachment or other process will cause the Option to terminate immediately upon the happening of any such event; provided, however, that any such termination of the Option under the foregoing provisions of this Section 5 will not prejudice any rights or remedies which the Company or any Parent or Subsidiary may have under this Agreement or otherwise. 6. Exercise Upon Cessation of Employment. (a) If the Employee at any time ceases to be an employee of the Company and of any Parent or Subsidiary by reason of his discharge for Good Cause the Option shall forthwith terminate and the Employee shall forfeit all rights hereunder. If, however, the Employee for any other reason (other than disability or death) ceases to be such an employee, the Option may, subject to the provisions of Sections 5 and 8 hereof, be exercised by the Employee to the same extent the Employee would have been entitled under Section 3 hereof to exercise the Option on the day next preceding the date of such cessation of employment, at any time within three (3) months after such cessation of employment, at the end of which period the Option to the extent not then exercised, shall terminate and the Employee shall forfeit all rights hereunder, even if the Employee subsequently returns to the employ of the Company or any Parent or Subsidiary. In no event, however, may the Option be exercised after the expiration of the term provided in Section 4 hereof. (b) The Option shall not be affected by any change of duties or position of the Employee so long as he continues to be an employee of the Company or any subsidiary thereof. If the Employee is granted a temporary leave of absence, such leave of absence shall be deemed a continuation of his employment by the Company or any subsidiary thereof for the purpose of this Agreement, but only if and so long as the employing corporation consents thereto. 7. Exercise Upon Death or Disability. (a) If the Employee dies while he is employed by the Company or by any Parent or Subsidiary (or within three (3) months after his termination of employment other than for Good Cause), and on or after the first date upon which he would have been entitled to exercise the Option under the provisions of Section 3 hereof, the Option may, subject to the provisions of Sections 5 and 8 hereof, be exercised with respect to the shares of Common Stock as to which the deceased Employee had not exercised the Option at the time of his death (and only to the extent the Option was exercisable at the date of his death), by the estate of the Employee (or by the person or persons who acquire the right to exercise the Option by written designation of the Employee) at any time within the period ending one (1) year after the death of the Employee, at the end of which period the Option, to the extent not them exercised, shall terminate and the estate or other beneficiaries shall forfeit all rights hereunder. In no event, however, may the Option be exercised after the expiration of the term provided in Section 4 hereof. (b) In the event that the employment of the Employee by the Company and any Parent or Subsidiary is terminated by reason of the Disability of the Employee on or after the first date upon which he would have been entitled to exercise the Option under the provisions of Section 3 hereof, the Option may, subject to the provisions of Sections 5 and 8 hereof, be exercised with respect to the shares of Common Stock as to which he had not exercised the Option at the time of his Disability (and only to the extent the Option was exercisable at the date of such termination of employment) by the Employee at any time within the period ending one (1) year after the date of such termination of employment, at the end of which period the Option, to the extend not then exercised, shall terminate and the Employee shall forfeit all rights hereunder even if the Employee subsequently returns to the employ of the Company or any Parent or Subsidiary. In no event, however, may the Option be exercised after the expiration of the term provided in Section 4 hereof. 8. Limitation of Exercisabililty. To the extent the aggregate of the (a) Fair Market Value of Common Stock (determined as of the date of this Agreement) subject to purchase under this Option and (b) the fair market values (determined as of the appropriate date(s) of grant) of all other shares of stock subject to incentive stock options granted to the Employee by the Company or any Parent or Subsidiary, which are exercisable for the first time by any individual during any calendar year, exceed(s) one hundred thousand dollars ($100,000), such excess shares of stock shall not be deemed to be purchased pursuant to incentive stock options. The terms of the immediately preceding sentence shall be applied by taking options into account in the order in which they are granted. 9. Adjustments. In the event there is any change in the Common Stock of the Company by reason of any reorganization, recapitalization, stock split, stock dividend or otherwise, there shall be substituted for or added to each share of Common Stock theretofore appropriated or thereafter subject, or which may become subject, to this Option the number and kind of shares of stock or other securities into which each outstanding share of Common Stock shall be so changed or for which each such share shall be exchanged, or to which each such share be entitled, as the case may be, and the per share price thereof also shall be appropriately adjusted; provided, however, that no such adjustment shall be made so as to deem such modification, extension or renewal of the Option as the issuance of a new option under Section 424(h) of the Code, or so as to prevent the Company or any other corporation or subsidiary thereof, if the Employee shall become employed by such corporation by reason of the transaction in respect of which such adjustment is made, from being a corporation issuing or assuming the Option in a transaction to which Section 424(a) of the Code applies. 10. Registration. The shares of Common Stock subject hereto and issuable upon the exercise hereof may not be registered under the Securities Act of 1933, as amended, and, if required upon the request of counsel to the Company, the Employee will give a representation as to his investment intent with respect to such shares prior to their issuance as set forth in Section 11 hereof. The Company may register or qualify the shares covered by the Option for sale pursuant to the Securities Act of 1933, as amended, at any time prior to or after the exercise in whole or in part of the Option. 11. Method of Exercise of Option. (a) Subject to the terms and conditions of this Agreement, the Option shall be exercisable by notice (in the manner set forth in Exhibit A hereto) and payment to the Company in accordance with the procedure prescribed herein. Each such notice shall: (i) state the election to exercise the Option and the number of Shares in respect of which it is being exercised; (ii) contain a representation and agreement as to investment intent, if required by counsel to the Company with respect to such Shares, in form satisfactory to counsel for the Company; (iii) be signed by the Employee or the person or persons entitled to exercise the Option and, if the Option is being exercised by any person or persons other than the Employee, be accompanied by proof, satisfactory to counsel for the Company, of the right of such person or persons to exercise the Option; and (iv) be received by the Company on or before the date of the expiration of this Option. In the event the date of expiration of this Option falls on a day which is not a regular business day at the Company's executive office in Hope Hull, Alabama, then such written notice must be received at such office on or before the last regular business day prior to such date of expiration. (b) Upon receipt of such notice, the Company shall specify, by written notice to the Employee or to the person or persons exercising the Option, a date and time (such date and time being herein called the "Closing Date") and place for payment of the full purchase price of such Shares. The Closing Date shall not be more than fifteen days from the date the notice of exercise is received by the Company unless another date is agreed upon by the Company and the Employee or the person or persons exercising the Option or is required upon advice of counsel for the Company in order to meet the requirements of Section 12 hereof. (c) Payment of the purchase price of any shares of Common Stock, in respect of which the Option shall be exercised, shall be made by the Employee or such person or persons at the place specified by the Company on or before the Closing Date by delivering to the Company (i) a certified or bank cashier's check payable to the order of the Company, or (ii) properly endorsed certificates of shares of Common Stock (or certificates accompanied by an appropriate stock power) with signature guaranties by a bank or trust company or (iii) any combination of (i) and (ii). (d) The Option shall be deemed to have been exercised with respect to any particular shares of Common Stock if, and only if, the preceding provisions of this Section 11 and the provisions of Section 12 hereof shall have been complied with, in which event the Option shall be deemed to have been exercised on the date the notice of exercise of the Option was received by the Company. Anything in this Agreement to the contrary notwithstanding, any notice of exercise given pursuant to the provisions of this Section 11 shall be void and of no effect if all the preceding provisions of this Section 11 and the provisions of Section 1 shall not have been complied with. (e) The certificate or certificates for shares of Common Stock as to which the Option shall be exercised will be registered in the name of the Employee (or in the name of the Employee's estate or other beneficiary if the Option is exercised after the Employee's death), or if the Option is exercised by the Employee and if the Employee so requests in the notice exercising the Option, will be registered in the name of the Employee and another person jointly, with right of survivorship and will be delivered on the Closing Date to the Employee at the place specified for the closing, but only upon compliance with all of the provisions of this Agreement. (f) If the Employee fails to accept delivery of and pay for all or any part of the number of Shares specified in such notice upon tender or delivery thereof on the Closing Date, his right to exercise the Option with respect to such undelivered Shares may be terminated in the sold discretion of the Board of Directors of the Company. The Option may be exercised only with respect to full Shares. (g) The Company shall not be required to issue or delivery any certificate or certificates for shares of its Common Stock purchased upon the exercise of any part of this Option prior to the payment to the Company, upon its demand, of any amount requested by the Company for the purpose of satisfying its liability, if any, to withhold state or local income or earnings tax or any other applicable tax or assessment (plus interest or penalties thereon, if any, caused by a delay in making such payment) incurred by reason of the exercise of this Option or the transfer of shares thereupon. Such payment shall be made by the Employee in cash or, with the consent of the Company, by tendering to the Company shares of Common Stock equal in value to the amount of the required withholding. In the alternative, the Company may, at its option, satisfy such withholding requirements by withholding from the shares of Common Stock to be delivered to the Employee pursuant to an exercise of this Option a number of shares of Common Stock equal in value to the amount of the required withholding. 12. Approval of Counsel. The exercise of the Option and the issuance and delivery of shares of Common Stock pursuant thereto shall be subject to approval by the Company's counsel of all legal matters in connection therewith, including compliance with the requirements of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder, and the requirements of any stock exchange upon which the Common Stock may then be listed. 13. Resale of Common Stock. (a) If so requested by the Company, upon any sale or transfer of the Common Stock purchased upon exercise of the Option, the Employee shall deliver to the Company an opinion of counsel satisfactory to the Company to the effect that either (i) the Common Stock to be sold or transferred has been registered under the Securities Act of 1933, as amended and that there is in effect a current prospectus meeting the requirements of Section 10(a) of said Act which is being or will be delivered to the purchaser or transferee at or prior to the time of delivery of the certificates evidencing the Common Stock to be sold or transferred, or (ii) such Common Stock may then be sold without violating Section 5 of said Act. b) The Common Stock issued upon exercise of the Option shall bear the following legend if required by counsel for the Company: THE SHARES EVIDENCED BY THIS CERTIFICATE MAY NOT BE SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS THEY HAVE FIRST BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNLESS, IN THE OPINION OF COUNSEL FOR THE COMPANY, SUCH REGISTRATION IS NOT REQUIRED. 14. Reservation of Shares. The Company shall at all times during the term of the Option reserve and keep available such number of shares of the class of stock then subject to the Option as will be sufficient to satisfy the requirements of this Agreement. 15. Limitation of Action. The Employee and the Company each acknowledges that every right of action accruing to him or it, as the case may be, and arising out of or in connection with this Agreement against the Company or a Parent or Subsidiary, on the one hand, or against the Employee, on the other hand, shall, irrespective of the place where an action may be brought, cease and be barred by the expiration of three years from the date of the act or omission in respect of which such right of action arises. 16. Notices. Each notice relating to this Agreement shall be in writing and delivered in person or by certified mail to the proper address. All notices to the Company or the Committee shall be addressed to them at 500 Richardson Road South, Hope Hull, Alabama 36043, Attn: Secretary. All notices to the Employee shall be addressed to the Employee or such other person or persons at the Employee's address above specified. Anyone to whom a notice may be given under this Agreement may designate a new address by notice to that effect. 17. Benefits of Agreement. This Agreement shall inure to the benefit of and be binding upon each successor and assign of the Company. All obligations imposed upon the Employee and all rights granted to the Company under this Agreement shall be binding upon the Employee's heirs, legal representatives and successors. 18. Severability. In the event that any one or more provisions of this Agreement shall be deemed to be illegal or unenforceable, such illegality or unenforceability shall not affect the validity and enforceability of the remaining legal and enforceable provisions hereof, which shall be construed as if such illegal or unenforceable provision or provisions had not been inserted. 19. Governing Law. This Agreement will be construed and governed in accordance with the laws of the State of New York. 20. Disposition of Shares. By accepting this Agreement, the Employee agrees that in the event that he shall dispose (whether by sale, exchange, gift, or any like transfer) of any shares of Common Stock of the Company (to the extent such shares are deemed to be purchased pursuant to an incentive stock option) acquired by him pursuant hereto within two years of the date of grant of this Option or within one year after the acquisition of such shares pursuant hereto, he will notify the secretary of the Company no later than 15 days from the date of such disposition of the date or dates and the number of shares disposed of by him and the consideration received, if any, and, upon notification from the Company, promptly forward to the secretary of the Company any amount requested by the Company for the purpose of satisfying its liability, if any, to withhold federal, state or local income or earnings tax or any other applicable tax or assessment (plus interest or penalties thereon, if any, caused by delay in making such payment) incurred by reason of such disposition. 21. Acknowledge of Employee. The Employee represented and agrees that as of the date of grant of this Option, he does not own (within the meaning of Section 422(b)(6) of the Code) shares possessing more than 10% of the total combined voting power of all classes of shares of the Company or of any Parent or Subsidiary. 22. Employment. Nothing contained in this Agreement shall be construed as (a) a contract of employment between the Employee and the Company or any Parent or Subsidiary, (b) as a right of the Employee to be continued in the employ of the Company or any Parent or Subsidiary, or (c) as a limitation of the right of the Company or any Parent or Subsidiary to discharge the Employee at any time, with or without cause. 23. Definitions. Unless otherwise defined herein, all capitalized terms shall have the same definitions as set forth under the Plan. 24. Incorporation of Terms of Plan. This agreement shall be interpreted under, and subject to, all of the terms and provisions of the Plan, which are incorporated herein by reference. IN WITHESS WHEREOF, the Company has caused this Agreement to be executed in its name by its President, its Chairman of the Board or one of its Vice Presidents and its corporate seal to be hereunto affixed and attested by its Secretary or one of its Assistant Secretaries and the Employee has hereunto set his hand all as of the date, month and year first above written. MILTOPE GROUP INC. By: /s/ James E. Matthews -------------------------------- Name: James E. Matthews Title: President and Chief Executive Officer -------------------------------- James Matthews XXX-XX-XXXX -------------------------------- Social Security Number ATTEST: /s/ Ed Crowell - -------------------------------- Ed Crowell, Assistant Secretary EXHIBIT A INCENTIVE STOCK OPTION EXERCISE FORM Miltope Group Inc. 500 Richardson Road South Hope Hull, Alabama 36043 Attention: Secretary Dear Sirs: Pursuant to the provisions of the Incentive Stock Option Agreement dated as of August 19, 1998 whereby you have granted to me an incentive stock option to purchase 10,000 shares of Common Stock of Miltope Group Inc. (the "Company"), I hereby notify you that I elect to exercise my option to purchase [ ] of the shares covered by such option at the price specified therein. In full payment of the price for the shares being purchased hereby, I am delivering to you herewith (a) a certified or bank cashier's check payable to the order of the Company if the amount of $ ,* or (b) a certificate or certificates for [ ] shares of Common Stock of the Company, and which have a fair market value as of the date hereof of $ , and a certified bank cashier's check, payable to the order of the Company, in the amount of $ .** Any such stock certificate or certificates are endorsed, or accompanied by an appropriate stock power, to the order of the Company, with my signature guaranteed by a bank or trust company or by a member firm of the New York Stock Exchange. [I hereby acknowledge that I am purchasing these shares of Common Stock for investment purposed only and not for resale.] Very truly yours, ------------------------------- ------------------------------- ------------------------------- ------------------------------- [Address] (For notices, reports, dividend checks and other communications to stockholders.) * $ of this amount is the purchase price of the shares, and the balance represents payment of withholding taxes as follows: State $ and Local $ . No withholding will be required in states and localities which follow Federal tax law. ** $ of this amount is at least equal to the current market value of one share of Common Stock of the Company, and the balance represents payment of withholding taxes as follows: State $ and Local $ . No withholding will be required in states and localities which follow Federal tax law. EX-4 6 STOCK OPTION AGREEMENT AGREEMENT made as of this 17th day of September 1998 between MILTOPE GROUP INC., a Delaware corporation (the "Company"), and JERRY TUTTLE residing at 1468 Highwood Drive, McLean, Virginia 22101 (the "Director"). WHEREAS, the Company desires, in connection with the service of the Director on the Board of Directors of the Company, to provide the Director with an opportunity to acquire Common Stock, par value $.01 per share (the "Common Stock"), of the Company on favorable terms; NOW, THEREFORE, in consideration of the premises, the mutual covenants herein set forth and other good and valuable consideration, the Company and the Director hereby agree as follows: 1. Confirmation of Grant of Option. Pursuant to a determination by the Board of Directors of the Company made as of September 17, 1998 (the "Date of Grant"), the Company hereby confirms that the Director has been granted effective September 17, 1998 as a matter of separate inducement and agreement, and in addition to and not in lieu of salary or other compensation for services to be rendered by the Director, the right to purchase (the "Option") 11,764 shares of Common Stock, $.01 par value, of the Company (the "Shares"), subject to adjustment as provided in Section 7 hereof. 2. Purchase Price. The purchase price per share of the Shares will be $1.275 per share, subject to adjustment as provided in Section 7 hereof. 3. Exercise of Option. The Option may be exercised at any time during its term pursuant to the provisions of Sections 9 and 14 hereof. Except as provided in Section 6 hereof, the Option can only be exercised while the Director is a member of the Board of Directors of the Company or within one (1) year after the termination of the Director's services as a director of the Company. 4. Term of Option. The term of the Option shall be a period of ten (10) years from the Date of Grant, subject to earlier termination or cancellation as provided in this Agreement. The Option may not be exercised after the expiration of its term. The holder of the option will not have any rights to dividends or any other rights of a stockholder with respect to any share subject to the Option until it has been issued to him (as evidenced by the appropriate entry on the books of a duly authorized transfer agent of the Company). The date of issuance shall not be earlier than the Closing Date, as defined in Section 9 hereof. 5. Non-transferability of option. The Option is not transferable otherwise than by will or by the laws of descent and distribution, and the Option may be exercised during the lifetime of the Director only by him. More particularly, but without limiting the generality of the foregoing, the Option may not be assigned, transferred or otherwise disposed of, or pledged or hypothecated in any way (voluntarily or involuntarily), and is not subject to execution, attachment or other process. Any assignment, transfer, pledge, hypothecation or other disposition of the Option attempted contrary to the provisions of this Agreement, or any levy of execution, attachment or other process attempted upon the Option, will be null and void and without effect. Any attempt to make any such assignment, transfer, pledge, hypothecation or other disposition of the Option or any attempt to make any such levy of execution, attachment or other process will cause the Option to terminate immediately upon the happening of any such event if the Board of Directors of the Company, at any time, should, in its sole discretion, so elect, by written notice to the Director or to the person then entitled to exercise the Option; provided, however, that any such termination of the Option under the foregoing provisions of this Section 5 will not prejudice any rights or remedies which the Company or any subsidiary thereof may have under this Agreement or otherwise. 6. Exercise Upon Death. If the Director dies while still a member of the Board of Directors of the Company or within one (1) year after the Director's service as a director of the Company has terminated, the Option may be exercised to the extent the Director would have been entitled under Section 3 hereof to exercise the Option on the day next preceding the date of his death, by the estate of the deceased Director, or by any person who acquired the right to exercise the Option by bequest or inheritance or by reason of the death of the Director, at any time within six (6) months after his death, at the end of which period the Option shall terminate. Such period shall in no event extend the date of exercise of the Option beyond the term thereof as provided in Section 4. 7. Adjustments. In the event of a stock dividend, stock split, share combination, exchange of shares, recapitalization, merger, consolidation, acquisition or disposition of property or shares, reorganization, liquidation or other similar changes or transactions of or by the Company, the Board of Directors of the Company will make (or will undertake to have the Board of Directors of any corporation which merges with, or acquires the stock or assets of, the Company make) an adjustment of the number or class of shares then covered by the Option, or of the purchase price per share of the Shares, or both, as it in its sole discretion deems appropriate to give proper effect to the event. 8. Registration. The Company may register or qualify the Shares for sale pursuant to the Securities Act of 1933, as amended (the "Securities Act"), at any time prior to or after the exercise in whole or in part of the Option. 9. Method of Exercise of Option. The Option is exercisable by notice and payment to the Company in accordance with the procedure prescribed herein. Each such notice will: (a) State the election to exercise the Option and the number of shares in respect of which it is being exercised; (b) Contain a representation and agreement as to investment intent, if required by counsel to the Company with respect to such Shares, in form satisfactory to counsel for the Company; and (c) Be signed by the person entitled to exercise the Option and, if the Option is being exercised by any person other than the Director, be accompanied by proof, satisfactory to counsel for the Company, of the right of that person to exercise the Option. Upon receipt of such notice, the Company will specify, by written notice to the person exercising the Option, a date and time (the "Closing Date") and place for payment of the full purchase price of such Shares. The Closing Date will be not more than fifteen days from the date the notice of exercise is received by the Company unless another date is agreed upon by the Company and the person exercising the Option or is required upon advice of counsel for the Company in order to meet the requirements of Section 10 hereof. Payment of the purchase price will be made at the place specified by the Company on or before the Closing Date by delivering to the Company a certified or bank cashier's check payable to the order of the Company. The Option will be deemed to have been exercised with respect to any particular shares of Common Stock if, and only if, the preceding provisions of this Section 9 and the provisions of Section 10 hereof shall have been complied with, in which event the Option will be deemed to have been exercised on the Closing Date. Anything in this Agreement to the contrary notwithstanding, any notice of exercise given pursuant to the provisions of this Section 9 will be void and of no effect if all the preceding provisions of this Section 9 and the provisions of Section 10 have not been complied with. The certificate(s) for shares of Common Stock as to which the Option shall be exercised will be registered in the name of the person exercising the Option (or, if the Option is exercised by the Director and if the Director so requests in the notice exercising the Option, will be registered in the name of the Director and another person jointly, with right of survivorship) and will be delivered on the Closing Date to the person exercising the Option at the place specified for the closing, but only upon compliance with all of the provisions of this Agreement. If the Director fails to accept delivery of and pay for all or any part of the number of shares specified in the notice upon tender or delivery thereof on the Closing Date, his right to exercise the Option with respect to those undelivered shares may be terminated in the sole discretion of the Board of Directors of the Company. The Option may be exercised only with respect to full shares. 10. Approval of Counsel. The exercise of the Option and the issuance and delivery of shares of Common Stock pursuant thereto is subject to approval by the Company's counsel of all legal matters in connection therewith, including compliance with the requirements of the Securities Act and the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder, and the requirements of any stock exchange upon which the Common Stock may then be listed. 11. Resale of Common Stock. Before any sale or transfer of the Common Stock purchased upon exercise of the Option, the Director will deliver to the Company an opinion of counsel satisfactory to counsel for the Company to the effect that either (i) the Common Stock to be sold or transferred has been registered under the Securities Act and that there is in effect a current prospectus meeting the requirements of Subsection 10(a) of the Securities Act which is being or will be delivered to the purchaser or transferee at or prior to the time of delivery of the certificates evidencing the Common Stock to be sold or transferred, or (ii) such Common Stock may then be sold without violating Section 5 of the Securities Act. The Common Stock issued upon exercise of the Option shall bear the following legend if required by counsel for the Company: THE SHARES EVIDENCED BY THIS CERTIFICATE MAY NOT BE SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS THEY HAVE FIRST BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNLESS, IN THE OPINION OF COUNSEL FOR THE COMPANY, SUCH REGISTRATION IS NOT REQUIRED. 12. Reservation of Shares. The Company shall at all times during the term of the Option reserve and keep available a number of shares of the class of stock then subject to the Option sufficient to satisfy the requirements of this Agreement. 13. Limitation of Action. The Director and the Company each acknowledges that every right of action accruing to him or it, as the case may be, and arising out of or in connection with this Agreement against the Company or a subsidiary thereof, on the one hand, or against the Director, on the other hand, will, irrespective of the place where an action may be brought, cease and be barred by the expiration of three years from the date of the act or omission in respect of which such right of action arises. 14. Notices. Each notice relating to this Agreement shall be in writing and delivered in person or by certified mail to the proper address. All notices to the Company will be addressed to it at 500 Richardson Road, Hope Hull, Alabama 36043. All notices to the Director or other person then entitled to exercise the Option will be addressed to the Director or other person at the Director's address above specified. Anyone to whom a notice may be given under this Agreement may designate a new address by notice to that effect. 15. Benefits of Agreement. This Agreement will inure to the benefit of and be binding upon each successor and assign of the Company. All obligations imposed upon the Director and all rights granted to the Company under this Agreement will be binding upon the Director's heirs, legal representatives and successors. 16. Severability. In the event that any provision of this Agreement shall be deemed to be illegal or unenforceable, that illegality or unenforceability will not affect the validity and enforceability of the remaining legal and enforceable provisions hereof, which shall be construed as if the illegal or unenforceable provision had not been inserted. 17. Governing Law. This Agreement will be construed and governed in accordance with the laws of the State of Alabama. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed in its name by its President and its corporate seal to be hereunto affixed and attested by its Secretary and the Director has hereunto set his hand all as of the day, month and year first above written. ATTEST: MILTOPE GROUP INC. /s/ Edward F. Crowell By: /s/ James E. Matthews - ---------------------------- ----------------------------- Edward F. Crowell, Secretary James E.Matthews, President and Chief Executive Officer Jerry Tuttle EX-21 7 SUBSIDIARIES OF REGISTRANT SUBSIDIARIES OF MILTOPE GROUP INC. % Owned Direct or Name State ofIncorporation Indirect --------------------------------- --------------------- ----------------- Miltope Corporation Alabama 100% Miltope Business Products, Inc. New York 100% EX-23 8 INDEPENDENT AUDITORS CONSENT INDEPENDENT AUDITORS' CONSENT - ----------------------------- We consent to the incorporation by reference in Registration Statements No. 2-97977, No. 33-8245, No. 33-78744 and No. 33-65233 of Miltope Group Inc. on Forms S-8 and No. 33-33752 of Miltope Group Inc. on Form S-3 of our report dated February 19, 1999 (March 9, 1999 as to the waiver letter described in Note 5) appearing in this Annual Report on Form 10-K of Miltope Group Inc. for the year ended December 31, 1998. /s/ Deloitte & Touche LLP - --------------------------- Birmingham, Alabama March 30, 1999 -----END PRIVACY-ENHANCED MESSAGE-----