SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) _X_ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended __December 31, 1996__. OR ___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________ to ______________. Commission file number ____1-7203____. AYDIN CORPORATION _______________________________________________________ (Exact name of registrant as specified in its charter) Delaware 23-1686808 ________________________________ ___________________________ (State or other jurisdiction of (I.R.S. Employer incorporation or organization Identification No.) 700 DRESHER ROAD HORSHAM, PENNSYLVANIA 19044 _________________________________ __________________________ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (215) 657-7510 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered ______________________________ _________________________ Common Stock, $1 Par Value New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: NONE _________________ (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 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. _X_ The aggregate market value of 5,095,834 shares of Common Stock held by non-affiliates, computed using the closing price as of March 27, 1997, was $57,328,133. Number of shares of Common Stock outstanding as of March 28, 1997 5,173,400. DOCUMENTS INCORPORATED BY REFERENCE Portions of the following documents are incorporated by reference: - 1996 Annual Report to Stockholders of Aydin Corporation (hereinafter, "Annual Report") - Parts I and II - Proxy Statement of Aydin Corporation, dated March 27, 1997 (hereinafter,"Proxy Statement") - Part III INDEX TO FORM 10-K ---------------------------------------------------------- This index lists the requirements of Form 10-K and the page number in this Form 10-K (or in the Annual Report or the Proxy Statement) where each item can be found. PART I Item 1 Business . . . . . . . . . . . .10-K, pp. 2-5 Item 2 Properties . . . . . . . . . . .10-K, p. 6 Item 3 Legal Proceedings. . . . . . . .10-K, p. 6 Item 4 Submission of Matters to a Vote of Security Holders. . . . . . .10-K, p. 6 Executive Officers of the Registrant . . . . . . . . . . .10-K, pp. 6-7 PART II Item 5 Market for the Registrant's Common Equity and Related Stockholder Matters. . . . . . . . . . . . .Annual Report, p. 27 Inside back cover Item 6 Selected Financial Data. . . . .Annual Report, p. 27 Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operation . . . . . . . . . .Annual Report, p. 23 Item 8 Financial Statements and Supplementary Data . . . . . . .Annual Report, pp. 10-22, 26 Item 9 Changes In and Disagreements With Accountants on Accounting and Financial Disclosure . . . . . .Not Applicable PART III Item 10 Directors and Executive Officers of the Registrant . . . . . . . . . . Proxy Statement, pp. 3-5, 13 10-K, pp. 6-7 Item 11 Executive Compensation . . . . Proxy Statement, pp. 5-8, 10-12 Item 12 Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . Proxy Statement, p. 2-3 Item 13 Certain Relationships and Related Transactions . . . . . . . . . .10-K, p. 8 PART IV Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K . . . . . . . . . . . .10-K, pp. 9-10 Exhibits PART I ITEM 1. BUSINESS (a) General Development of Business Aydin Corporation (the "Company" or "Aydin") was incorporated under the laws of the State of Delaware in September, 1967. The Company consists domestically of three major operating and three smaller support divisions, and two foreign operating subsidiaries. The Company disposed of its 80% interest in its Argentine subsidiary on December 31, 1996 and now owns 19% of that company. The divisions and subsidiaries are profit centers each with engineering, manufacturing, marketing and accounting functions. (b) Financial Information About Industry Segments The Company operates predominantly in the electronics manufacturing industry. Therefore, no segment information is reported. (c) Narrative Description of Business The following table sets forth the percentage of the Company's total revenue contributed by each of its classes of products (among which overlapping does occur) for each of the last three years: 1996 1995 1994 ---- ---- ---- (1) Telecommunications 23 % 25 % 30 % (2) Airborne & Ground Data Acquisition and Avionics 40 34 29 (3) Computer Equipment and Software 24 23 22 (4) Radars, Radar Simulation, Integration and Modernization 1 6 5 (5) Command, Control and Communications Systems 12 12 14 ---- ---- ---- Totals 100 % 100 % 100 % As stated above, the Company operates predominantly in the electronics manufacturing industry, and all information set forth below is with respect to the Company's business as a whole. The Company designs, manufactures, and sells five classes of products as set forth above and as described below: (1) Telecommunications Aydin engineers, manufactures and sells microwave digital and analog transmission equipment and systems for commercial and military applications, which include wireless telephony communications equipment, cellular range extender, line-of-site (LOS) microwave radios, time division multiple access (TDMA) terminals for satellite earth stations and solid state amplifiers, portable communications terminals, troposcatter networks and wired network access products. Aydin also installs turnkey telecom systems. (2) Airborne and Ground Data Acquisition and Avionics Aydin provides airborne equipment and systems to gather critical information and to process, format and transmit to the ground through communication data links from a communications satellite, spacecraft, aircraft and/or missile. Aydin's terminals receive this data on the ground and analyze and distribute it for display, tracking and control. (page 2) (3) Computer Equipment and Software Aydin sells a line of commercial, high-resolution cathode ray tube (CRT) monitors ranging in size from 10 inches to 29 inches. Workstations are also offered, mostly for the process control industry. Aydin also offers ruggedized and TEMPEST-qualified versions of the same for military applications. Software is written by Aydin for commercial and military purposes for specific applications such as radar simulation, modernization and integration; command, control and communications; and air traffic control systems. (4) Radars, Radar Simulation, Integration and Modernization Aydin has developed several projects in radar simulation, radar integration and automation of manual radars. Modernization of previously designed radars is also done by Aydin. (5) Command, Control and Communications Systems Aydin provides turnkey command, control and communications (C3) systems with or without radars for defense systems, both fixed and mobile. The Company's products and systems are sold directly by Company sales personnel and manufacturers' representatives. Sales personnel for the Company are located in many cities across the United States as well as at key major military bases, with corporate marketing located in Horsham, PA and in the Washington, D.C. area. With respect to exports, sales efforts are conducted by its international subsidiaries, its international sales network and manufacturers' representatives in many countries. The Company maintains standard product lines and systems sold by catalog, although it generally does not maintain an inventory of finished goods. A significant portion of current sales is attributable to such standard products, modifications thereof, and turnkey communications systems using these products. Another portion of sales is attributable to special, made-to- order equipment based upon a customer's specific requirements. The Company's customers include U.S. and foreign communications and electronic and aerospace firms, electric utilities, regulated and unregulated telephone organizations, major transportation organizations, other industrial and financial concerns and process control companies, research laboratories, universities, large defense contractors, foreign governments, the U.S. Government through various agencies of the Department of Defense, and the National Aeronautics and Space Administration. A breakdown of sales for the last three years including sales to major customers who accounted for 10% or more of sales is as follows: 1996 1995 1994 ------------ ------------ ------------ U.S. Government Agencies (direct $ 38,728,000 $ 44,309,000 $ 42,015,000 and indirect), principally Department of Defense (1) Export and foreign sales including equipment sold to other U.S. companies for export (1) (2) (3) 47,495,000 58,059,000 75,166,000 U.S. commercial and industrial business 30,355,000 38,239,000 25,260,000 ------------ ------------ ------------ TOTAL NET SALES $116,578,000 $140,607,000 $142,441,000 ------------ ------------ ------------ ------------ ------------ ------------ <FN> (1) The U.S. Government, the Government of Turkey and CTI (Argentina) were the only customers to whom sales exceeded 10% of consolidated sales during any of the past three years. Sales to the Government of Turkey amounted to $15,116,000 in 1996, $16,549,000 in 1995, and $24,888,000 in 1994. Sales to CTI (Argentina) amounted to $15,739,000 in 1994. (page 3) (2) Includes foreign sales of $27,000,000 for 1996, $28,943,000 for 1995, and $37,167,000 for 1994. (3) A breakdown of total export and foreign sales by geographic area follows in section (d) below. Raw materials for the Company's business consist of manufactured components and parts. The Company's raw materials are presently available in adequate supply on the open market. The Company holds no material patents, trademarks, licenses, franchises or concessions. The Company's operations are not seasonal to any material extent. As stated above, although the Company maintains standard product lines and systems sold by catalog, it generally does not maintain a significant level of finished goods inventory. However, the Company maintains an adequate level of raw materials inventory so that it will be able to meet initial delivery requirements of customers. The Company has had no material difficulty in obtaining goods from suppliers. The Company does not provide rights to return its products, and generally does not provide extended payment terms to customers. The backlog of unfilled orders at December 31, 1996 was $84 million as compared to $106 million at December 31, 1995. Approximately 25% of the 1996 backlog is not reasonably expected to be filled within the current year. The backlog includes approximately $27 million for a command, control and communications project for the Government of Turkey for which most of the work is to be done over the next two years. This contract became effective in October, 1990. All contracts with the U.S. Government and some of the foreign governments are subject to cancellation at the convenience of the government. In the event a contract with the U.S. Government is so terminated, the Armed Services Procurement Regulations provide that the Company shall be reimbursed for expenses incurred and shall be entitled to reasonable profits. The greater portion of the Company's business is obtained by competitive bidding, while some is obtained through sole source negotiation. In the domestic marketplace, the Company competes with some major U.S. companies from time to time; however, some of the competition in the U.S. comes from companies which are similar in size or smaller than Aydin. In the international marketplace, Aydin competes with major companies in addition to U.S. firms. A number of such competitors are larger than Aydin with greater financial resources, while some are similar to or smaller than Aydin. Technical capability, reputation, price, ability to meet delivery schedules and reliability are the principal competitive factors. No single competitor offers the same range of products and systems as Aydin. Depending on the particular product itself and the requirements of the contract documents, the number of firms competing with Aydin generally ranges from one to ten. Estimated amounts spent during 1996, 1995, and 1994 on Company-sponsored research and development activities, and customer-sponsored research activities relating to the development of new products, services or techniques or the improvement of existing products, services or techniques are as follows: 1996 1995 1994 -------- -------- -------- Company-sponsored research and development on direct cost basis $8,315,000 $6,603,000 $5,159,000 Customer-sponsored research and development activities $2,081,000 $2,873,000 $4,859,000 The Company, along with others, is responsible for the cost of cleanup under an order of the State of California at a site leased by the Company prior to 1984. Cleanup of the site has been completed. Costs incurred to date and future expected monitoring costs amount to $9.7 million. Of the total amount, $3.1 (page 4) million are costs to be expended over the next thirty (30) years to monitor the cleanup. Those costs have been included in the accompanying consolidated balance sheet as liabilities discounted at 7% for the time value of money to the expected payment dates. Expected payments for the years following December 31, 1996 are $105,000 annually. In 1993 the Company reached settlement with three insurance carriers (with which the Company maintained environmental coverage on this site) for the payment of $6.7 million of costs. A court granted a declaratory judgement requiring the fourth carrier to pay cleanup costs in excess of the $6.7 million. That carrier is currently appealing that judgement. The amounts paid by the Company in excess of the $6.7 million recovered from the three insurance carriers, $1.5 million, plus the discounted future costs of monitoring the site, $1.1 million, have been recorded as Other Assets in the accompanying consolidated balance sheet at December 31, 1996. Management believes that it is probable that the Company will be successful in recovering these amounts from the insurer and that the resolution of this matter will not have an adverse affect on the financial condition or results of operations of the Company. The Company employs approximately 1,200 persons, with operations concentrated principally in the Philadelphia and San Jose areas. Employer-employee relations are considered to be satisfactory. (d) Financial Information About Foreign and Domestic Operations and Export Sales The Company had no significant foreign operations prior to 1991 although a $210 million contract from the Government of Turkey became effective in October, 1990 with approximately 35% of this contract being performed by the Company's Turkish subsidiary. Foreign assets included in the consolidated balance sheet amounted to $21.7 million, $25.6 million, and $25.2 million, at December 31, 1996, 1995, and 1994, respectively. Of these amounts, $2.5 million, $.4 million, and $6.7 million at December 31, 1996, 1995, and 1994, respectively, are cash and short- term investments of the Company's Turkish subsidiary consisting mainly of U.S. dollar denominated interest- bearing time deposits. Foreign sales and pretax income for 1996 amounted to $27.0 million and $.9 million respectively. Foreign sales and pretax income for 1995 amounted to $28.9 million and $5.4 million, respectively. Foreign sales and pretax income for 1994 amounted to $37.2 million and $6.7 million, respectively. The Company's domestic operations include sales derived from customers or projects located in areas of the world outside the United States. Export and foreign sales for 1996, 1995, and 1994 by geographic area are set forth below: 1996 1995 1994 ----------- ----------- ----------- Asia $ 4,259,000 $ 6,224,000 $ 6,788,000 Africa 3,203,000 4,003,000 2,553,000 Europe 28,452,000 35,360,000 41,465,000 North America 1,273,000 1,605,000 1,852,000 South America 9,735,000 10,604,000 22,125,000 Other 573,000 263,000 383,000 ----------- ----------- ----------- Total export and foreign sales $47,495,000 $58,059,000 $75,166,000 ----------- ----------- ----------- ----------- ----------- ----------- On a percentage basis, export and foreign sales (direct and indirect) accounted for approximately 41% of total sales in 1996, 41% of total sales in 1995, and 53% in 1994. A majority of such export and foreign sales were in the telecommunications field. Licenses are required from U.S. Government agencies for most of the Company's export products. The Company and its foreign subsidiaries may be adversely affected by certain risks generally associated with foreign contracts and operations, including ownership and control limitations, currency fluctuations, restrictions on repatriation of profits, difficulty in the enforcement of judgments, late delivery penalties, potential political or labor instability and general worldwide economic conditions. However, such factors have not had a material effect on the Company's operations to date, and management believes that the risks involved in such foreign business are no greater than the normal risks of any other portion of the Company's sales. The Company has generally been able to protect itself against foreign credit risks through contract provisions, advance payments and irrevocable letters of credit in its favor. However, it should be noted that foreign contracts are sometimes subject to foreign laws. (page 5) ITEM 2. PROPERTIES The Company's total plant capacity at December 31, 1996 is approximately 630,000 square feet of administrative and production facilities, 495,000 of which it owns and the balance of which it leases. All major leased properties are held under leases expiring between 1998 and 1999, most with renewal options. As part of the restructuring and consolidation, three Company-owned buildings (258,000 square feet), have been offered for sale. Two of these facilities are under contract for sale and an offer has been received on the third facility. The Company maintains its corporate headquarters in Horsham, Pennsylvania, and numerous sales offices within and outside the U.S. The administrative and production facilities occupied by the Company are well maintained and suitable for its operations, and include plant area, warehouse space, and management, engineering and clerical offices. The plants of each of the manufacturing operations generally contain machine shops, assembly areas, testing facilities and packing and shipping departments in addition to the engineering and laboratory areas. ITEM 3. LEGAL PROCEEDINGS On June 16, 1995, the Company filed a claim with Loral Defense Systems-Eagan (formerly Unisys Corporation), a subcontractor to the Company on the TMRC program with the Government of Turkey, in the sum of $19.04 million for losses sustained as a result of Loral's breach of the subcontract. On June 30, 1995, Loral filed a Demand For Arbitration with the American Arbitration Association claiming damages of $12.4 million for breach of contract by the Company. On July 12, 1995, the Company filed a revised claim of $32.8 million against Loral. The arbitration claims were put on hold pursuant to an interim settlement agreement dated October 3, 1995 between the parties until completion of the User Test in Turkey and the payment of $8.25 million by Aydin, which occurred March 13, 1996. On June 12, 1996, Loral filed an Amended Arbitration Demand, now claiming $18.4 million. On July 23, 1996, the Company filed its answer to the amended claim and filed its Amended Arbitration Counterclaim against Loral, demanding in excess of $65 million as damages resulting from Loral's intentional breach of the subcontract, and for Loral's failure to produce software in accordance with the subcontract specifications. The Company intends to vigorously prosecute its counterclaim. The Company believes that it has meritorious defenses and counterclaims to the claims of Loral. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of security holders during the Fourth Quarter of 1996. EXECUTIVE OFFICERS OF THE REGISTRANT The names, ages, year first elected as officer or appointed as general manager, positions and recent prior experience of all current executive officers of the Company as of March 27, 1997, are as follows: I. GARY BARD, CHAIRMAN, PRESIDENT AND C.E.O. 59. 1996. Chairman of the Board of Directors and Chief Executive Officer since May 6, 1996. President of the Company since October 8, 1996. Prior to that, Vice President and General Manager, Federal Systems Solutions Integration Division of Unisys Corporation, providing integration solutions to the federal, state and local government marketplace, since October 1995. Consultant on software development from February 1993 to October 1995. Chief Operating Officer of Open Software Foundation, from November 1992 to February 1993, and President of Integrated Systems Division of Computer Sciences Corporation, from July 1984 to November 1992. JOHN F. VANDERSLICE, EXECUTIVE VICE PRESIDENT 56. 1983. Executive Vice President of the Company and President of the Products Group (formerly the Vector and Controls Divisions) (manufactures airborne data communications products and color display terminals) since November 1982. Previously, he was Manager of Engineering (1969-1972), Operations Manager (1972-1973), and Vice President of Operations (1973-1982) of the Vector Division. (page 6) KLAUS D. OEBEL, VICE PRESIDENT 55. 1996. Vice President of the Company and President of the Communication Systems Group (formerly the Computer & Monitor and Telecom Divisions) (products and systems for commercial and military communication and control, radar intergration and modernization programs) since September 1996, having initially joined the Company as Director of Corporate Business Development in August 1996. Prior to joining the Company, he was President of Oebel Associates Inc., a consulting firm specializing in strategic market planning, restructuring and performance systems management, from October 1985 to August 1996. JAMES R. HENDERSON, VICE PRESIDENT 39. 1996. Vice President, Treasurer and Chief Financial Officer of the Company since July 1996. Prior to joining the Company, he held various accounting and financial positions with Unisys Corporation (services and computer manufacturing): Director of Financial Planning and Accounting (1989-1991), Controller of Defense Operations (1991-1993), Executive Assistance to the President of the Defense Group (1993-1994), Director of Operations for Unisys Services Division (1994-1995), and Controller of Unisys Outsourcing Division (1995- 1996). H. BARRY MASER, VICE PRESIDENT 60. 1996. Vice President of Business Development of the Company since November 1996. Prior to joining the Company, he was President of Lynbar Group, Inc., a manufacturing representative, business planning and market planning company (1981-1996). DEMIRHAN HAKIMOGLU, VICE PRESIDENT 58. 1992. Vice President of the Company. Mr. Hakimoglu was first elected Vice President in February 1991, and resigned that position in July 1991. He was re-elected Vice President in February 1992. He also served as Chairman of the Board and CEO of the Company's foreign subsidiary, Aydin Yazilim ve Elektronik Sanayi A.S. (software design, manufactures digital microwave radios, telcom equipment and systems), since July 1990. Prior to that, he served in various engineering and management positions with various divisions of the Company since 1968 (except for a two year period, 1978- 1980). THOMAS M. LOCASALE, VICE PRESIDENT 59. 1994. Vice President of the Company and Chief Scientist since August 1996. Prior to that, he was President of Aydin Telecom Division (manufactures digital wireless telephony equipment and systems) since October 1994. From September 1988 to October 1994, he was Executive Vice President of Aydin's Computer and Monitor Division (manufactures communication and air defense systems). Prior to the merger of the Computer and Monitor divisions in 1988, he was Executive Vice President of Monitor Systems Division (manufacturer of telemetry, data acquisition, network and satellite communication products) and held various engineering and management positions since May 1965. HERBERT WELBER, CONTROLLER AND ASSISTANT TREASURER 61. 1986. Controller and Assistant Treasurer of the Company since August 1986. Previously, he was Controller and Vice President of Controls Division (manufactures display terminals) since August 1981. Except for Messrs. Bard, Oebel, Henderson and Maser, each of the above officers was elected at the Annual Meeting of the Board of Directors on April 26, 1996. Mr. Bard was elected Chairman and Chief Executive Officer on May 6, 1996 to fill the vacancy created by the resignation of Ayhan Hakimoglu and elected President of the Company on October 8, 1996. Mr. Henderson was elected a Vice President of the Company on July 25, 1996. On October 25, 1996, Messrs. Oebel and Maser were elected Vice Presidents. Officers are elected each year after the Annual Meeting of Stockholders. Each serves subject to the discretion of the Board of Directors until his successor shall be elected or until his death, disqualification, resignation or removal in the manner provided in the Company's By-Laws. There are no family relationships among any executive officers of Aydin. (page 7) PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Incorporated by reference is the information under the heading, "Common Stock Prices" and "Stockholder and Dividend Information" on page 27 of the Annual Report. The Company has no present plans to pay any cash dividends. Future cash dividends, if any, will depend on business conditions. There are no restrictions that prevent the Company from paying future cash dividends, except that the Company's Board of Directors had determined in December 1992 that no cash dividend will be declared or paid for the foreseeable future, and except for maintaining compliance with certain covenants of a Credit Agreement for the funding of a standby Letter of Credit, as described more fully in Note D to the Financial Statements. ITEM 6. SELECTED FINANCIAL DATA Incorporated by reference is the information under the heading, "Selected Financial Data" on page 27 of the Annual Report. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Incorporated by reference is the information under the heading, "Management's Discussion and Analysis of Financial Condition and Results of Operations" on page 23 of the Annual Report. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Incorporated by reference are the Consolidated Financial Statements of Aydin Corporation and the related Notes to Consolidated Financial Statements, and Report of Independent Auditors on pages 10 to 22, inclusive, and the data under the heading, "Quarterly Financial Data" on page 27, of the Annual Report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Incorporated by reference is the information under the heading, "Election of Directors" on pages 3-5 of the Proxy Statement, the information under the heading, "Section 16(a) Beneficial Ownership Reporting Compliance" on page 13 of the Proxy Statement, and the information under the heading, "Executive Officers of the Registrant" on pages 6 and 7, Part I of this 10-K. ITEM 11. EXECUTIVE COMPENSATION Incorporated by reference is the information under the heading, "Compensation of Executive Officers", "Option Grants in Last Fiscal, "Aggregated Option Exercises and Fiscal Year- End Option Values", "Employment Contracts and Termination of Employment Arrangements", and "Compensation Committee Interlocks and Insider Participation" on pages 5-8 and 10-12 of the Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Incorporated by reference is the information under the headings, "Beneficial Ownership of Common Stock" and "Beneficial Ownership by Management" on pages 2 and 3 of the Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS None. (page 8) PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K The Company files as part of this report the following documents: (a) 1. Financial Statements The following is a list of the Consolidated Financial Statements of Aydin Corporation and Subsidiaries which have been incorporated by reference from the Annual Report as set forth in Item 8 - "Financial Statements and Supplementary Data": Consolidated Balance Sheets, as of December 31, 1996 and 1995. Consolidated Statements of Operations for the years ended December 31, 1996, 1995 and 1994. Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994. Notes to Consolidated Financial Statements. Report of Independent Auditors. 2. Schedules The following is a list of the Schedules of Aydin Corporation and Subsidiaries filed as part of this report: Schedule II - Valuation and Qualifying Accounts Report of Independent Auditors All other schedules not listed above are omitted because they are inapplicable or are not required. 3. Exhibits The following is a list of Exhibits filed as part of this report: 3(i) Restated Certificate of Incorporation (filed as Exhibit No. 3(i) to Registrant's Annual Report on Form 10-K for the year ended December 31, 1994 and incorporated herein by reference). 3(ii) By-Laws. 10.1 Employment Agreement, I. Gary Bard (filed as Exhibit No. 10.1 to Registrant Quarterly Report on Form 10-Q for the quarter ended September 28, 1996 and incorporated herein by reference). 10.2 Employment Agreement, Klaus D. Oebel (filed as Exhibit No. 10.2 to Registrant Quarterly Report on Form 10-Q for the quarter ended September 28, 1996 and incorporated herein by reference). 10.3 Employment Agreement, H. Barry Maser (filed as Exhibit No. 10.3 to Registrant Quarterly Report on Form 10-Q for the quarter ended September 28, 1996 and incorporated herein by reference). 10.4 Employment Agreement, James R. Henderson (filed as Exhibit No. 10.4 to Registrant Quarterly Report on Form 10-Q for the quarter ended September 28, 1996 and incorporated herein by reference). 10.5 The 1994 Incentive Stock Option Plan, as amended. 10.6 The 1996 Equity Incentive Plan, as amended. 10.7 Restricted Stock Agreement, Klaus D. Oebel, dated October 8, 1996. 10.8 Restricted Stock Agreement, H. Barry Maser, dated December 16, 1996. 10.9 Consulting Agreement, Ayhan Hakimoglu, dated May 1, 1996. (page 9) 10.10 Restrictive Covenant Agreement, Ayhan Hakimoglu, dated May 1, 1996. 10.11 Resignation Agreement, Donald S. Taylor, dated September 13, 1996. 13 Annual Report to Security Holders 21 Subsidiaries of Registrant 23 Consent of Independent Auditors 27 Financial Data Schedule (electronic filing only) 99 Independent Auditors' Report All other exhibits not listed above are omitted because they are inapplicable. (b) Reports on Form 8-K No reports on Form 8-K were filed during the Fourth Quarter of 1996. AYDIN CORPORATION SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS 1996, 1995, AND 1994 COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E DESCRIPTION Balance at ADDITIONS Deductions - Balance at Beginning Charged to Charged to Describe End of Period of Period Costs and Other Accounts Expenses - Describe Year 1996 _________ Deducted from asset accounts: Allowance for doubtful accounts $ 289,000 $1,061,000 $ 368,000 (1) $ 982,000 Raw materials inventory reserve 1,256,000 3,842,000 3,268,000 (2) 1,830,000 __________ __________ __________ __________ Totals $1,545,000 $4,903,000 $3,636,000 $2,812,000 Year 1995 _________ Deducted from asset accounts: Allowance for doubtful accounts $ 323,000 $ 19,000 $ 53,000 (1) $ 289,000 Raw materials inventory reserve 2,450,000 1,120,000 2,314,000 (2) 1,256,000 __________ __________ __________ __________ Totals $2,773,000 $1,139,000 $2,367,000 $1,545,000 Year 1994 _________ Deducted from asset accounts: Allowance for doubtful accounts $ 331,000 $ 43,000 $ 51,000 (1) $ 323,000 Raw materials inventory reserve 2,029,000 1,240,000 819,000 (2) 2,450,000 __________ __________ __________ __________ Totals $2,360,000 $1,283,000 $ 870,000 $2,773,000 <FN> (1) Uncollectible accounts written off, net of recoveries. (2) Obsolete inventory written off. (page 10) 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. Aydin Corporation Dated: __March 31, 1997__ By: ____/s/ Robert A. Clancy_____ Robert A. Clancy Secretary 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. By: ___/s/ I. Gary Bard _______ Dated: __March 28, 1997__ I. Gary Bard Chief Executive Officer, President and Chairman of the Board of Directors By: __/s/ John F. Vanderslice__ Dated: __March 17, 1997__ John F. Vanderslice Executive Vice President and Director By: __/s/ James R. Henderson___ Dated: __March 26, 1997__ James R. Henderson Vice President, Treasurer and Chief Financial Officer By: __/s/ Herbert Welber_______ Dated: __March 24, 1997__ Herbert Welber Controller and Assistant Treasurer Principal Accounting Officer By: __/s/ Nev A. Gokcen________ Dated: __March 18, 1997__ Nev A. Gokcen Director By: __/s/ Irwin L. Gross_______ Dated: __March 20, 1997__ Irwin L. Gross Director By: ___________________________ Dated: __________________ Gary Mozenter Director By: __/s/ Harry D. Train_______ Dated: __March 24, 1997__ Harry D. Train, II Director EXHIBIT INDEX Exhibit Description of Exhibit No. 3(i) Restated Certificate of Incorporation (filed as Exhibit No. 3(i) to Registrant's Annual Report on Form 10-K for the year ended December 31, 1994 and incorporated herein by reference). 3(ii) By-Laws. 10.1 Employment Agreement, I. Gary Bard (filed as Exhibit No. 10.1 to Registrant Quarterly Report on Form 10-Q for the quarter ended September 28, 1996 and incorporated herein by reference). 10.2 Employment Agreement, Klaus D. Oebel (filed as Exhibit No. 10.2 to Registrant Quarterly Report on Form 10-Q for the quarter ended September 28, 1996 and incorporated herein by reference). 10.3 Employment Agreement, H. Barry Maser (filed as Exhibit No. 10.3 to Registrant Quarterly Report on Form 10-Q for the quarter ended September 28, 1996 and incorporated herein by reference). 10.4 Employment Agreement, James R. Henderson (filed as Exhibit No. 10.4 to Registrant Quarterly Report on Form 10-Q for the quarter ended September 28, 1996 and incorporated herein by reference). 10.5 The 1994 Incentive Stock Option Plan, as amended. 10.6 The 1996 Equity Incentive Plan, as amended. 10.7 Restricted Stock Agreement, Klaus D. Oebel, dated October 8, 1996. 10.8 Restricted Stock Agreement, H. Barry Maser, dated December 16, 1996. 10.9 Consulting Argreement, Ayhan Hakimoglu, dated May 1, 1996. 10.10 Restrictive Covenant Agreement, Ayhan Hakimoglu, dated May 1, 1996. 10.11 Resignation Agreement, Donald S. Taylor, dated September 13, 1996. 13 Annual Report to Security Holders 21 Subsidiaries of Registrant 23 Consent of Independent Auditors, Grant Thornton LLP 27 Financial Data Schedule (electronic filing only) 99 Independent Auditors' Report, Grant Thornton LLP Exhibit 3(ii) AYDIN CORPORATION BY-LAWS (Last Amended February 27, 1997) ******* ARTICLE I OFFICERS Section 1. The registered office shall be in the City of Dover, County of Kent, State of Delaware. Section 2. The corporation may also have offices at such other places both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the corporation may require. ARTICLE II MEETINGS OF STOCKHOLDERS Section 1. All meetings of the stockholders for the election of Directors shall be held in the City of Fort Washington, State of Pennsylvania, at such place as may be fixed from time to time by the Board of Directors, or at such other place either within or without the State of Delaware as shall be designed from time to time by the Board of Directors and stated in the notice of the meeting. Meetings of stockholders for any other purpose may be held at such time and place, within or without the State of Delaware, as shall be stated in the notice of the meeting or in a duly executed waiver of notice thereof. Section 2. Annual meetings of stockholders shall be held on the third Thursday of April if not a legal holiday, and if a legal holiday, then on the next secular day following at 3:00 P.M. or at such other date and time as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting, at which they shall elect by a plurality vote a board of Directors, and transact such other business as may properly be brought before this meeting. Section 3. Written notice of the annual meeting stating the place, date and hour of the meeting shall be given to each stockholder entitled to vote at such meeting not less than ten nor more than fifty days before the date of the meeting. Section 4. The officer who has charge of the stock ledger of the corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. Section 5. Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by statute or by the certificate of incorporation, may be called by the Chairman of the Board and shall be called by the Chairman of the Board or Secretary at the request in writing of a majority of the Board of Directors, or at the request in writing of stockholders owning a majority in amount of the entire capital stock of the corporation issued and outstanding and entitled to vote. Such request shall state the purpose or purposes of the proposed meeting. Section 6. Written notice of a special meeting stating the place, date and hour of the meeting and the purpose or purposes for which the meeting is called, shall be given not less than ten nor more than fifty days before the date of the meeting, to each stockholder entitled to vote at such meeting. Section 7. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice. Section 8. The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meeting of the stockholders for the transaction of business except as otherwise provided by statute or by the certificate of incorporation. If, however, such quorum shall not be present or represented at any meeting of the stockholder, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented any business may be transaction which might have been transacted at the meeting as originally notified. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. Section 9. When a quorum is present at any meeting, the vote of the holder of a majority of the stock having voting power present in person or represented by proxy shall decide any question brought before such meeting, unless the question is one upon which by express provision of the statutes or of the certificate of incorporation, a different vote is required in which case such express provision shall govern and control the decision of such question. Section 10. Each stockholder shall at every meeting of the stockholders be entitled to one vote in person or by proxy for each share of the capital stock having voting power held by such stockholder, but no proxy shall be voted on after three years from its date, unless the proxy provides for a longer period. Section 11. Whenever the vote of stockholders at a meeting thereof is required or permitted to be taken for or in connection with any corporate action, by any provision of the statutes, the meeting and vote of stockholders may be dispensed with if all of the stockholder who would have been entitled to vote upon the action if such meeting were held shall consent in writing to such corporate action being taken; or if the certificate of incorporation authorizes the action to be taken with the written consent of the holders of less than all of the stock who would have been entitled to vote upon the action if a meeting were held, then on the written consent of the stockholders having not less than such percentage of the total number of votes as may be authorized in the certificate of incorporation; provided that in no case shall the written consent be by the holders of stock having less than the minimum percentage of the total vote required by statute for the proposed corporate action, and provided that prompt notice must be given to all stockholders of the taking of corporate action without a meeting and by less than unanimous written consent. ARTICLE III DIRECTORS Section 1. The number of Directors which shall constitute the whole Board shall be six (6). The Directors shall be elected at the annual meeting of the stockholders, except as provided in Section 2 of this Article, and each Director elected shall hold office until his successor is elected and qualified. Directors need not be stockholders. Section 2. Vacancies and newly created directorships resulting from any increase in the authorized number of Directors may be filled by a majority of the Directors then in office, though less than a quorum, or by a sole remaining director, and the Directors so chosen shall held office until the next annual election and until their successors are duly elected and shall qualify, unless sooner displaced. If their are no Directors in office, then an election of Directors may be held in the manner provided by statute. If, at the time of filling any vacancy or any newly created directorship, the Directors then in office shall constitute less than a majority of the whole board (as constituted immediately prior to any such increase), the Court of Chancery may, upon application of any stockholder or stockholders holding at least ten percent of the total number of the shares at the time outstanding having the right to vote for such Directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the Directors chosen by the Directors then in office. Section 3. The business of the corporation shall be managed by its Board of Directors which may exercise all such powers of the corporation and do all such lawful acts and things as are not by statute or by the Certificate of Incorporation or by these by-laws directed or required to be exercised or done by the stockholders. MEETING OF THE BOARD OF DIRECTORS Section 4. The Board of Directors of the corporation may hold meetings, both regular and special, either within or without the State of Delaware. Section 5. The first meeting of each newly elected Board of Directors shall be held at such time and place as shall be fixed by the vote of the stockholders at the annual meeting and no notice of such meeting shall be necessary to the newly elected Directors in order legally to constitute the meeting, provided a quorum shall be present. In the event of the failure of the stockholders to fix the time or place of such first meeting of the newly elected Board of Directors, or in the event such meeting is not held at the time and place so fixed by the stockholders, the meeting may be held at such time and place as shall be specified in a notice given as hereinafter provided for special meetings of the Board of Directors, or as shall be specified in a written waiver signed by all of the Directors. Section 6. Regular meetings of the Board of Directors may be held without notice at such time and at such place as shall from time to time be determined by the Board. Section 7. Special meetings of the Board may be called by the Chairman of the Board on one day's notice to each director, either personally, by telephone, by mail or by telegram; special meetings shall be called by the Chairman of the Board or Secretary in like manner and on like notice on the written request of two directors. Section 8. At all meetings of the Board, a majority of the directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by statute or by the certificate of incorporation. If a quorum shall not be present at any meeting of the Board of Directors the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. Section 9. Unless otherwise restricted by the certificate of incorporation or these by-laws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all members of the Board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or committee. COMMITTEES OF DIRECTORS Section 10. The Board of Directors may, by resolution passed by a majority of the whole board, designate one or more committees, each committee to consist of two or more of the directors of the corporation. The board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. Any such committee, to the extent provided in the resolution, shall have and may exercise the powers of the Board of Directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers which may require it; provided, however, that in the absence or disqualification of any member of such committee or committees, the member of members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the Board of Directors. Section 11. Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required. COMPENSATION OF DIRECTORS Section 12. The Directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at each meeting of the Board of Directors or a stated salary as Director. No such payment shall preclude any Director from serving the corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings. ARTICLE IV NOTICES Section 1. Whenever, under the provisions of the statutes or of the Certificate of Incorporation or of these by-laws, notice is required to be given to any Director or stockholder, it shall not be construed to mean personal notice, but such notice may be given in writing, by mail, addressed to such Director or stockholder, at his address as it appears on the records of the corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Notice to Directors may also be given by telegram, or by telephone. Section 2. Whenever any notice is required to be given under the provisions of the statutes or of the Certificate of Incorporation or of these by-laws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. ARTICLE V OFFICERS Section 1. The officers of the corporation shall be chosen by the Board of Directors and shall be a Chairman of the Board, a President, an Executive Vice President, a Secretary and a Treasurer. The Board of Directors may also choose additional Vice Presidents, and one or more Assistant Secretaries and Assistant Treasurers. Any number of offices may be held by the same person, unless the certificate of incorporation of these by-laws otherwise provide. Section 2. The Board of Directors at its first meeting after each annual meeting of stockholders shall choose a Chairman of the Board, a President, an Executive Vice President, a Secretary and a Treasurer, and may choose additional Vice Presidents, and one or more Assistant Secretaries and Assistant Treasurers. Section 3. The Board of Directors may appoint such other officers and agents as it shall deem necessary who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board. Section 4. The salaries of all officers and agents of the corporation shall be fixed by the Board of Directors. Section 5. The officers of the corporation shall hold office until their successors are chosen and qualified. Any officer elected or appointed by the Board of Directors may be removed at any time by the affirmative vote of a majority of the Board of Directors. Any vacancy occurring in any office of the corporation shall be filled by the Board of Directors. CHAIRMAN OF THE BOARD Section 6. The Chairman of the Board shall be the chief executive officer of the corporation and, subject to the control of the Board of Directors, shall have the general direction and supervision over the business and affairs of the corporation. He shall preside at all meetings of the stockholders and of the Board of Directors and shall be an ex officio member of all committees and shall see that all orders and resolutions of the Board of Directors are carried into effect. He shall participate in determining the policies to be followed by the corporation and shall perform such other duties as the Board of Directors shall from time to time request. THE PRESIDENT Section 7. The President shall undertake such duties as may be delegated to him by the Chairman of the Board and shall also have such other powers and duties as the Board of Directors may from time to time determine. In the absence of the Chairman of the Board or in the event of his inability or refusal to act, the President shall perform the duties of the Chairman of the Board, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Chairman of the Board. THE VICE PRESIDENTS Section 8. In the absence of the President or in the event of his inability or refusal to act, the Executive Vice President, (or in the event of the absence or inability of or refusal to act by the Executive Vice President and in the further event there be more than one Vice President, the Vice Presidents in the order designated, or in the absence of any designation, then in the order of their election) shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President. Such powers of and restrictions upon the President shall include the performance of the duties of the Chairman of the Board in the further event that the Chairman is absent or is unable or refuses to act. Vice Presidents shall perform such other duties and have such other powers as the Board or Directors may from time to time prescribe. THE SECRETARY AND ASSISTANT SECRETARY Section 9. The Secretary shall attend all meetings of the Board of Directors and all meetings of the stockholders and record all the proceedings of the meetings of the corporation and of the Board of Directors in a book to be kept for that purpose and shall perform like duties for the standing committees when required. He shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors or Chairman of the Board, under whose supervision he shall be. He shall have custody of the corporate seal of the corporation and he, or an Assistant Secretary, shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by his signature or by the signature of such Assistant Secretary. The Board of Directors may give general authority to any other officer to affix the seal of the corporation and to attest the affixing by his signature. Section 10. The Assistant Secretary, or if there be more than one, the Assistant Secretaries in the order determined by the Board of Directors (or if there is no such determination, then in the order of their election), shall, in the absence of the Secretary or in the event of his inability or refusal to act, perform the duties and exercise the powers of the Secretary and shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe. THE TREASURER AND ASSISTANT TREASURERS Section 11. The Treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts if receipts and disbursements in books belonging to the corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the corporation in such depositories as may be designated by the Board of Directors. Section 12. He shall disburse the funds of the corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the Chairman of the Board and the Board of Directors, at its regular meetings, or when the Board of Directors so requires, an account of all his transactions as Treasurer and of the financial conditions of the corporation. Section 13. If required by the Board of Directors, he shall give the corporation a bond (which shall be renewed every six years) in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of his office and for the restoration to the corporation, in case of his death, resignation, retirement or removal form office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the corporation. Section 14. The Assistant Treasurer, or if there shall be more than one, the Assistant Treasurers in the order determined by the Board of Directors (or if there be no such determination, then in the order of their election), shall, in the absence of the Treasurer or in the event of his inability or refusal to act, perform the duties and exercise the powers of the Treasurer and shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe. ARTICLE VI CERTIFICATES OF STOCK Section 1. Every holder of stock in the corporation shall be entitled to have a certificate, signed by, or in the name of the corporation by, the Chairman or Vice Chairman of the Board of Directors, the President or a Vice President and the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the corporation, certifying the number of shares owned by him in the corporation. Section 2. Where a certificate is countersigned (1) by a transfer agent other than the corporation or its employee, or, (2) by a registrar other than the corporation or its employee, the signatures of the officers of the corporation may be facsimiles. In case any officer who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer at the date of issue. LOST CERTIFICATES Section 3. The Board of Directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as it shall require and/or to give the corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost, stolen or destroyed. TRANSFERS OF STOCK Section 4. Upon surrender to the corporation or the transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. FIXING RECORD DATE Section 5. In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. REGISTERED STOCKHOLDERS Section 6. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. ARTICLE VII GENERAL PROVISIONS DIVIDENDS Section 1. Dividends upon the capital stock of the corporation, subject to the provisions of the Certificate of Incorporation, if any, may be declared by the Board of Directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the Certificate of Incorporation. Section 2. Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the Directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the Directors shall think conducive to the interest of the corporation, and the Directors may notify or abolish any such reserve in the manner in which it was created. ANNUAL REPORT Section 3. (a) The Board of Directors shall present at each annual meeting, and at any special meeting of the stockholders when called for by vote of the stockholders, a full and clear statement of the business and condition of the corporation. (b) On or before 120 days from the close of each fiscal year, the Board of Directors shall cause to be delivered to each stockholder of record an audited statement of financial condition of the corporation as at the close of such fiscal year, together with a statement of operations, including profit and loss for such fiscal year. For the purposes of subsection (b), it will be sufficient if such report is mailed in the ordinary course of business to those shareholder of record as at the date on which the record of shareholders has been taken for the purpose of the annual meeting, pursuant to Section 5 of ARTICLE VI of these by-laws. CHECKS Section 4. All checks or demands for money and notes of the corporation shall be signed by such officer or officers or such other person or persons as the Board of Directors may from time to time designate. FISCAL YEAR Section 5. The fiscal year of the corporation shall be fixed by resolution of the Board of Directors. SEAL Section 6. The corporate seal shall have inscribed thereon the name of the corporation, the year of its organization and the words "Corporate Seal, Delaware." The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. INDEMNIFICATION Section 7. (a) Directors, Officers and Employees of the Corporation. Every person now or hereafter serving as a Director, Officer or Employee of the Corporation shall be indemnified and held harmless by the corporation from and against any and all loss, cost, liability and expense that may be imposed upon or incurred by him in connection with or resulting from any claim, action, suit, or proceeding, civil or criminal, in which he may become involved, as a party or otherwise, by reason of his being or having been a director, officer or employee of the corporation, whether or not he continues to be such at the time such loss, cost, liability or expense shall have been imposed or incurred. As used herein, the term "loss, cost, liability and expense" shall include, but shall not be limited to, counsel fees and disbursements and amounts of judgments, fines or penalties against, and amounts paid in settlement by, any such director, officer or employee; provided, however that no such director, officer or employee shall be entitled to claim such indemnity: (1) with respect to any matter as to which there shall have been a final adjudication that he has committed or allowed some act or omission, (a) otherwise than in good faith in what he considers to be the best interests of the corporation, and (b) without reasonable cause to believe that such act or omission was proper and legal; or (2) in the event of a settlement of such claim, action, suit, or proceeding unless (a) the court having jurisdiction thereof shall have approved of such settlement with knowledge of the indemnity provided herein, or (b) a written opinion of independent legal counsel, selected by or in manner determined by the Board of Directors, shall have been rendered substantially concurrently with such settlement, to the effect that it was not probable that the matter as to which indemnification is being made would have resulted in a final adjudication as specified in clause (1) above and that the said loss, cost, liability or expense may properly be borne by the corporation. A conviction or judgment (whether based on a plea of guilty or nolo contendere or its equivalent, or after trial) in a criminal action, suit or proceeding shall not be deemed an adjudication that such director, officer or employee has committed or allowed some act or omission as hereinabove provided if independent legal counsel, selected as hereinabove set forth, shall substantially concurrently with such conviction or judgement give to the corporation a written opinion that such director, officer or employee was acting in good faith in what he considered to be the best interests of the corporation or was not without reasonable cause to believe that such act or omission was proper and legal. (b) Directors, Officers and Employees of Subsidiaries. Every person (including a director, officer or employee of the corporation) who at the request of the corporation acts as a director, officer or employee of any other corporation in which the corporation owns shares of stock or of which it is a creditor shall be indemnified to the same extent and subject to the same conditions that the directors, officers, and employees of the corporation are indemnified under the preceding paragraph, except that the amount of such loss, cost, liability or expense paid to any such director, officer or employee shall be reduced by and to the extent of any amounts which may be collected by him from such other corporation. (c) Miscellaneous. The provisions of this section shall cover claims, actions, suits and proceedings, civil or criminal, whether now pending or hereafter commenced and shall be retroactive to cover acts or omissions or alleged acts or omissions which heretofore have taken place. In the event of death of any person having a right of indemnification under the provisions of this section, such right shall inure to the benefit of his heirs, executors, administrators and personal representatives. If any part of this section should be found to be invalid or ineffective in any proceeding, the validity and effect of the remaining provisions shall not be affected. (d) Indemnification Not Exclusive. The foregoing right of indemnification shall not be deemed exclusive of any other right to which those indemnified may be entitled, and the corporation may provide additional indemnity and rights to its directors, officers or employees. ARTICLE VIII AMENDMENTS Section 1. These by-laws may be altered or repealed at any regular meeting of the stockholders or of the Board of Directors or at any special meeting of the stockholders or of the Board of Directors if notice of such alteration or repeal be contained in the notice of such special meeting. Exhibit 10.5 THE 1994 INCENTIVE STOCK OPTION PLAN OF AYDIN CORPORATION 150,000 Shares (Last amended, December 16, 1996) I. Purpose The purpose of this Plan is to advance the interests of the Corporation and its shareholders by strengthening the ability of the Corporation to attract and retain in its employ key individuals of training, experience and ability and to furnish additional incentive to officers and valued key employees upon whose judgement, initiative and efforts the successful conduct and development of its business largely depends, by encouraging them to purchase stock in the Corporation. II. Definitions As used in this Plan, "Corporation" means Aydin Corporation; "Board of Directors" means the Board of Directors of Aydin Corporation; "employee" includes officers and other key employees of the Corporation and its subsidiaries but excludes members of the Board of Directors who are not also officers or employees of the Corporation; "Stock Option Committee" (the "Committee") means the Board of Directors; "Common Stock" means the Corporation's Common Stock of the par value of $1.00 per share; "Code" means the Internal Revenue Code of 1986, as amended from time to time. III. Eligible Personnel A. All full-time salaried officers and key employees. B. An employee who has been granted an option may, if he is otherwise eligible, be granted an additional option or options. IV. Stock Option Committee A. Subject to the provisions of the Plan, the Committee shall administer the Plan. It shall have authority to construe and interpret the Plan, to define the terms used therein, to prescribe, amend and rescind rules and regulations for the administration of the Plan and to take such other action in the administration of the Plan as it shall deem proper. The interpretation by the Committee of any provision of the Plan or of any option agreement entered into hereunder shall be in accordance with Section 422 of the Code and Regulations issued thereunder as they may be amended from time to time, in order that rights granted hereunder and under said option agreements shall constitute "Incentive Stock Options" within the meaning of that Section. B. A majority of the members of the Committee shall constitute a quorum and make all determinations, take all actions and conduct all business. They shall keep minutes of their respective meetings. C. Any Committee action may be taken or determination made without a meeting if all members of the respective committee shall individually or collectively consent in writing to such action or determination. Such written consent or consents shall be filed with the minutes of the Corporation. D. All interpretations, determinations and actions by the respective committee shall be final, conclusive and binding upon all parties. E. No member of the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any option agreement. V. Granting of Options A. The Committee may at any time and from time to time grant options to eligible employees, to purchase shares of Common Stock of the Corporation under this Plan, and determine the specific employees to whom options may be granted, the number of shares to be subject to each option, the terms and provisions of the option agreements, and the time or times at which such options shall be granted. B. The date of grant shall be the date the Committee takes the necessary action to make the grant; provided, however, that if the minutes or appropriate resolutions of the Committee provide than an option is to be granted as of a date in the future, the date of grant shall be such future date. In any event, the optionee must be an employee on the date of the grant. C. No option shall be granted under this Plan after the close of business on December 31, 2003, but options theretofore granted may extend beyond that date. D. The options granted hereunder shall be "Incentive Stock Options" as that term is used in Section 422 of the Code. VI. Shares Subject to the Plan The total number of shares of Common Stock that may be purchased pursuant to options granted under this Plan shall not exceed 150,000 subject to adjustment as provided in Section IX and subject to amendment as provided in Section X. If any option outstanding hereunder shall expire or terminate for any reason without having been exercised in full, the unpurchased shares subject to the option shall again be available for the grant of options under this Plan. Upon the exercise of an option outstanding hereunder, the Corporation may reissue Common Stock held in its treasury or issue authorized but unissued Common Stock. VII. Terms of Options A. Each option granted under the Plan shall include the following provisions, or terms consistent with the following provisions: 1. The purchase price (option price) of the shares subject to option shall be not less than the fair market value of the stock on the day the option is granted. Such fair market value shall be established as the following, in order of descending preference: a. Mean between the highest and the lowest quoted selling prices of the stock on an exchange. b. Lacking a. above, the mean between the "bid" and "asked" prices as provided to the Company by a legitimate broker. c. Lacking a. or b. for the date of grant, the mean between the "bid" and "asked" prices for the most recent date quoted, as obtained for the Company by a legitimate broker. d. Lacking a., b. or c., the last established determinable price. 2. Except as provided in Section VIII herein, no option may be exercised unless the optionee is at the time of such exercise in the employ of the Corporation or of a subsidiary and shall have been continuously so employed since the granting of his option. For the purpose of the Plan, an employee who is on leave of absence or who is in the Armed Services or the civilian employment of the United States will be considered in the employ of the Corporation or its subsidiaries to the extent his employment would be treated as continuing intact under Sections 421 and 422 of the Code, and the Regulations thereunder, as amended, from time to time. 3. No option may be exercised after ten years from the date of its grant. Unless the option Agreement provides otherwise, any time after one year from the date of grant the employee may exercise his option in accordance with the following schedule: After: The optionee may purchase: One year from date of grant..................25% of the total. Two years from date of grant...An additional 25% of the total. Three years from date of grant.An additional 25% of the total. Four years from date of grant..An additional 25% of the total. 4. Upon each exercise of an option the purchase price shall be payable in full in cash, (or its equivalent acceptable to the Corporation), or Common Stock already owned by the employee, or a combination of cash and Common Stock. 5. No fractional shares shall be issued under this Plan or under any option granted hereunder, nor shall any cash payment be made in lieu thereof. 6. An option shall not be assignable or transferable by the employee to whom granted otherwise than by will or by the laws of descent and distribution, and may be exercised, during his lifetime, only by such employee. 7. No person shall have the rights and privileges of a shareholder with respect to shares subject to or purchased under an option until the date appearing on the certificates issued upon the exercise of the option. B. The aggregate fair market value (determined as of the date the option is granted) of the stock for which any employee may be granted options first exercisable in any calendar year under this Plan and all other "Incentive Stock Option Plans" of the Corporation or its subsidiaries, shall not exceed $100,000. C. No option under this Plan may be granted to an employee who, at the time the option is granted, owns stock possessing more than 10 percent of the total combined voting power of all classes of stock of the Corporation or of its subsidiaries, provided, however, this limitation shall not apply if such option is granted at an option price of at least 110 percent of the fair market value of the stock on the date of the grant and, by its terms, the option is not exercisable after the expiration of five years from the date of grant. D. Each option granted under this Plan may, but need not, include other terms and conditions not inconsistent with the provisions hereof, including a requirement that the optionee represent at the time of each exercise of option that the shares purchased are being acquired for investment and not for resale. E. Nothing in this Plan nor in any option granted hereunder shall confer any rights to continue in the employ of the Corporation or its subsidiaries or interfere in any way with the rights of the Corporation or any subsidiary to terminate the employee at any time. VIII. Termination of Employment or Death of Employee A. If the employment of an optionee is terminated for cause, or if he voluntarily quits, his option shall expire forthwith, but he may exercise any options that are exercisable as of the date of termination or voluntary quit provided payment for same is received within 30 days of the termination. Retirement, including Early Retirement, under any retirement plan of the Corporation or subsidiary is not deemed a voluntary quit. B. If the employment of an optionee terminates for any reason other than termination for cause, a voluntary quit, disability or death, the option shall expire three months thereafter unless by its terms it expires sooner. During said period, the option may be exercised in accordance with its terms but only for the number of shares with respect to which options could be exercised as of the date of termination of employment. C. If an optionee dies while he is employed by the Corporation or a subsidiary or within the three month period referred to in Section VIII(B) above or within the twelve month period referred to in Section VIII(D) below, during said period, the option may be exercised by his personal representatives or the persons to whom his rights under the option shall pass by will or the laws of descent and distribution in accordance with terms of the option but only for that number of shares with respect to which options could be exercised as of the date of death. Such exercisable option must be exercised within three months of death, unless, by its terms, it expires sooner. D. If the employment of an optionee terminates by reason of the optionee's "disability" (within the meaning of Section 22(e)(3) of the Code), the option shall expire 12 months thereafter unless by its terms it expires sooner. During said period, the option may be exercised in accordance with its terms but only for the number of shares with respect to which options could be exercised as of the date of termination of employment. E. Notwithstanding the above, an option may not be exercised after the expiration of ten years from the date the option is granted. IX. Adjustments Upon Changes in Capitalization In the event of any recapitalization, stock dividend, stock split, or combination affecting the stock subject to this Plan, or in the event of any merger, consolidation, or reorganization as a result of which the Corporation is the surviving corporation, the Committee will make appropriate adjustments in the aggregate number of kind of shares subject to the Plan, the number of shares that may be granted to any one employee, and the number of shares and the price per share subject to outstanding options provided that such options remain or constitute incentive stock options within the meaning of Section 422 of the Code. Any such determination of adjustment shall be final and conclusive upon the parties. In the event of the dissolution or liquidation of the Corporation, or in the event of a reorganization, merger, or consolidation of the Corporation with one or more corporations as a result of which the Corporation is not the surviving corporation, or in the event of a sale of substantially all of the property or stock of the Corporation to another corporation, the Plan shall terminate; and any option then outstanding hereunder shall terminate on the effective date of such transaction; provided, however, that in the event of any such transaction the Board of Directors may, but need not, modify all outstanding options so as to make all such options exercisable in full on a date sufficiently in advance of the effective date of such transaction to permit the shares acquired pursuant to any exercise of such options to be issued before the effective date of such transaction. X. Amendment and Termination A. The Board of Directors shall have the power, in its discretion, to amend, suspend or terminate this Plan at any time. The Board of Directors shall not have the power except as may be permitted in Section IX herein: 1. To change the class of employees eligible to receive options under the Plan; or 2. To increase the number of shares subject to the Plan in the aggregate unless such increase is submitted to the shareholders of the Corporation for their approval; or 3. To increase the number of shares subject to an option for any one individual; or 4. To reduce the option price below the fair market value of the stock (or below the 110% fair market value when required by Section VII (C) hereof) at the time the option was granted; or 5. To increase the maximum terms of options provided herein. B. The Board of Directors may, with the consent of an optionee, make such modifications of the terms and conditions of his option as it shall deem advisable. XI. Compliance with Rule 16b-3 The provisions of this Plan are intended to comply in all respects with the provisions of Rule 16b-3 under the Securities Exchange Act of 1934 and any amendments thereto, and, if this Plan shall not so comply, whether on the date of adoption or by reason of any later amendment to or interpretation of Rule 16b-3, the provisions of this Plan shall be deemed to be automatically amended so as to bring them into full compliance with such rule. XII. Effective Date of Plan This Plan shall become effective as of January 3, 1994 upon approval of the shareholders of the Corporation and shall terminate at the close of business on December 31, 2003. Exhibit 10.6 THE 1996 EQUITY INCENTIVE PLAN OF AYDIN CORPORATION 500,000 Shares (Last Amended December 16, 1996) 1. Purpose. The purpose of the Aydin Corporation 1996 Equity Incentive Plan (the "Plan") is to further the growth, development and financial success of Aydin Corporation and its subsidiaries by providing additional incentives to those officers and key employees who are responsible for the management of the business affairs of the Company, or its subsidiaries, which will enable them to participate directly in the growth of the capital stock of the Company. The Company intends that the Plan will facilitate securing, retaining and motivating management employees of high caliber and potential. To accomplish these purposes, the Plan provides a means whereby management employees may receive stock options ("Options") to purchase the Company's Common Stock. 2. Definitions. As used in this plan, "Corporation" or the "Company" means Aydin Corporation; "Board of Directors" means the Board of Directors of Aydin Corporation; "employee" includes directors, officers and other key employees of the Corporation and its subsidiaries; "Stock Option Committee" (the "Committee") means the Board of Directors; "Common Stock" means the Corporation's Common Stock of the par value of $1.00 per share; "Code" means the Internal Revenue Code of 1986, as amended from time to time. 3. Administration. The Plan shall be administered by the Committee who shall have full and final authority, in its sole discretion, to interpret the provisions of the Plan and to decide all questions of fact arising in its application; to determine the employees to whom Options shall be granted and the type, amount, size and terms of each such grant; to determine the time when Options shall be granted; and to make all other determinations necessary or advisable for the administration of the Plan. All decisions, determinations and interpretations of the Committee shall be final and binding on all optionees and all other holders of Options granted under the Plan. 4. Stock Subject to the Plan. Subject to Section 17 hereof, the shares that may be issued under the Plan shall not exceed in the aggregate 500,000 shares of Common Stock. Such shares may be authorized and unissued shares or shares issued and subsequently reacquired by the Company. Except as otherwise provided herein, any shares subject to an Option that for any reason expires or are terminated unexercised as to such shares shall again be available under the Plan. 5. Eligibility To Receive Options. Persons eligible to receive Options under the Plan shall be limited to those officers and other key employees of the Company, or any subsidiary of the Company (as defined in Section 425 of the Code), who are in positions in which their decisions, actions and counsel significantly impact upon the profitability and success of the Company, or any subsidiary of the Company. Directors of the Company who are not also officers or employees of the Company, or any subsidiary of the Company shall be eligible to participate in the Plan, provided that such persons shall not be eligible to receive grants of Incentive Stock Options, as such term is defined in Section 6 hereof. 6. Types of Options. Grants may be made at any time and from time to time by the Committee in the form of stock options to purchase shares of Common Stock. Options granted hereunder may be Options that are intended to qualify as incentive stock options within the meaning of Section 422 of the Code or any amendment or substitute thereto ("Incentive Stock Options") or Options that are not intended to so qualify ("Nonqualified Stock Options"). 7. Option Agreements. Options for the purchase of Common Stock shall be evidenced by written agreements in such form not inconsistent with the Plan as the Committee shall approve from time to time. The Options granted hereunder may be evidenced by a single agreement or by multiple agreements, as determined by the Committee in its sole discretion. Each option agreement shall contain in substance the following terms and conditions: (a) Type of Option. Each option agreement shall identify the Options represented thereby either as Incentive Stock Options or Nonqualified Stock Options, as the case may be. (b) Option Price. Each option agreement shall set forth the purchase price of the Common Stock purchasable upon the exercise of the Option evidenced thereby. Subject to the limitation set forth in Section 7(d)(ii) off the Plan, the purchase price of the Common Stock subject to an Incentive Stock Option shall be not less than 100% of the fair market value of such stock on the date the Option is granted, as determined by the Committee, but in no event less than the par value of such stock. The purchase price of the Common Stock subject to a Nonqualified Stock Option shall be not less than 100% of the fair market value of such stock on the date the Option is granted, as determined by the Committee. For this purpose, fair market value on any date shall be the mean between the highest and the lowest quoted selling prices of the stock on an exchange, or if the stock is not traded that day, the fair market value shall be as determined by the Committee pursuant to Section 422 of the Code. (c) Exercise Term. No option may be exercised after ten years from the date of its grant. Unless the option Agreement provides otherwise, any time after one year from the date of grant the employee may exercise his option in accordance with the following schedule: After: The optionee may purchase: One year from date of grant..................25% of the total. Two years from date of grant...An additional 25% of the total. Three years from date of grant.An additional 25% of the total. Four years from date of grant..An additional 25% of the total. The Committee shall have the power to permit an acceleration of previously established exercise terms, subject to the requirements set forth herein, upon such circumstances and subject to such terms and conditions as the Committee deems appropriate. (d) Incentive Stock Options. In the case of an Incentive Stock Option, each option agreement shall contain such other terms, conditions and provisions as the Committee determines to be necessary or desirable in order to qualify such Option as a tax-favored Option (within the meaning of Section 422 of the Code or any amendment or substitute thereto or regulation thereunder) including without limitation, each of the following except that any of these provisions may be omitted or modified if it is no longer required in order to have an Option qualify as a tax-favored Option within the meaning of Section 422 of the Code or any substitute therefor: (i) The aggregate fair market value (determined as of the date the Option is granted) of the Common Stock with respect to which Incentive Stock Options are first exercisable by any employee during any calendar year (under all plans of the Company) shall not exceed $100,000. (ii) No Incentive Stock Options shall be granted to any employee if at the time the Option is granted to the individual who owns stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or its subsidiaries unless at the time such Option is granted the Option price is at least 110% of the fair market value of the stock subject to the Option and, by its terms, the Option is not exercisable after the expiration of five years from the date of grant. (iii) No Incentive Stock Options shall be exercisable more than 30 days (or three months, in the case where the employee is placed on layoff, or one year, in the case of an employee who dies or becomes disabled within the meaning of Section 22(e)(3) of the Code or any substitute therefor) after termination of employment. (e) Substitution of Options. Options may be granted under the Plan from time to time in substitution for stock options held by employees of other corporations who are about to become, and who do concurrently with the grant of such options become, employees of the Company, or a subsidiary of the Company as a result of a merger or consolidation of the employing corporation with the Company, or a subsidiary of the Company, or the acquisition by the Company, or a subsidiary of the Company of the assets of the employing corporation, or the acquisition by the Company, or a subsidiary of the Company of stock of the employing corporation. The terms and conditions of the substitute options so granted may vary from the terms and conditions set forth in this Section 7 to such extent as the Committee at the time of grant may deem appropriate to conform, in whole or in part, to the provisions of the stock options in substitution for which they are granted. 8. Date of Grant. The date on which an Option shall be deemed to have been granted under the Plan shall be the date of the Committee's authorization of the Option or such later date as may be determined by the Committee at the time the Option is authorized. Notice of the determination shall be given to each individual to whom an Option is so granted within a reasonable time after the date of such grant. 9. Exercise and Payment for Shares. Options may be exercised in whole or in part, from time to time, by giving written notice of exercise to the Secretary of the Company, specifying the number of shares to be purchased, except that no Option may be exercised in whole or in part during the first twelve months after such Option is granted. The purchase price of the shares with respect to which an Option is exercised shall be payable in full with the notice of exercise in cash, Common Stock at fair market value, or a combination thereof. The fair market value of Stock so delivered shall be the mean of the high and the low prices on the principal exchange upon which the Stock is traded on the trading day immediately preceding the date of exercise. 10. Rights upon Termination of Employment. In the event that an optionee ceases to be an employee of the Company, or any subsidiary of the Company for any reason other than lay-off, death, or disability (within the meaning of Section 22(e)(3) of the Code or any substitute therefore), the optionee shall have the right to exercise the Option during its term within a period of 30 days (three months in the event of a lay-off) after such termination to the extent that the Option was exercisable at the time of termination. In the event that an optionee dies or becomes disabled prior to the expiration of his Option and without having fully exercised his Option, the optionee or his successor shall have the right to exercise the Option during its term within a period of one year after termination of employment due to death or disability to the extent that the Option was exercisable at the time of termination unless, by its terms, it expires sooner. 11. General Restrictions. Each Option granted under the Plan shall be subject to the requirement that if at any time the Committee shall determine that (i) the listing, registration or qualification of the shares of Common Stock subject or related thereto upon any securities exchange or under any state or federal law, or (ii) the consent or approval of any government regulatory body, or (iii) an agreement by the recipient of an Option with respect to the disposition of shares of Common Stock is necessary or desirable as a condition of or in connection with the granting of such Option or the issuance or purchase of shares of Common Stock thereunder, such Option shall not be consummated in whole or in part unless such listing, registration, qualification, consent, approval or agreement shall have been effected or obtained free of any conditions not acceptable to the Committee. 12. Rights of a Stockholder. The recipient of any Option under the Plan, unless otherwise provided by the Plan, shall have no rights as a stockholder unless and until certificates for shares of Common Stock are issued and delivered to him. 13. Right to Terminate Employment. Nothing contained in the Plan or in any option agreement entered into pursuant to the Plan shall confer upon any optionee the right to continue in the employment of the Company or any subsidiary of the Company or affect any right that the Company or any subsidiary of the Company may have to terminate the employment of such optionee. 14. Withholding. Whenever the Company proposes or is required to issue or transfer shares of Common Stock under the Plan, the Company shall have the right to require the recipient to remit to the Company an amount sufficient to satisfy any federal, state or local withholding tax requirements prior to the delivery of any certificate or certificates for such shares. If and to the extent authorized by the Committee in its sole discretion, an optionee may make an election, by means of a form of election to be prescribed by the Committee, to have shares of Common Stock that are acquired upon exercise of an Option withheld by the Company or to tender other shares of Common Stock or other securities of the Company owned by the optionee to the Company at the time of exercise of an Option to pay the amount of tax that would otherwise be required by law to be withheld by the Company as a result of any exercise of an Option. Any such election shall be irrevocable and shall be subject to termination by the Committee, in its sole discretion, at any time. Any securities so withheld or tendered will be valued by the Committee at the mean of the high and the low prices the Common Stock traded on the trading day immediately preceding the date exercised. 15. Non-Assignability. No Option under the Plan shall be assignable or transferable by the recipient thereof except by will or by the laws of descent and distribution. During the life of the recipient, such Option shall be exercisable only by such person or by such person's guardian or legal representative. 16. Non-Uniform Determinations. The Committee's determination under the Plan (including without limitation determinations of the persons to receive Options, the form, amount and timing of such grants, the terms and provisions of Options, and the agreements evidencing same) need not be uniform and may be made selectively among persons who receive, or are eligible to receive, grants of Options under the Plan whether or not such persons are similarly situated. 17. Adjustments. (a) Changes in Capitalization. Subject to any required action by the stockholders of the Company, the number of shares of Common Stock covered by each outstanding Option and the number of shares of Common Stock that have been authorized for issuance under the Plan but as to which no Options have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option, as well as the price per share of Common Stock covered by each such outstanding Option, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of issued shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Committee, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an Option. (b) Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, all outstanding Options will terminate immediately prior to the consummation of such proposed action, unless otherwise provided by the Committee. The Committee may, in the exercise of its sole discretion in such instances, declare that any Option shall terminate as of a date fixed by the Committee and give each Option holder the right to exercise his Option as to all or any part of the shares of Common Stock covered by the Option, including shares as to which the Option would not otherwise be exercisable. (c) Sale or Merger. In the event of a proposed sale of all or substantially all of the assets of the Company, or the merger of the Company with or into another corporation, the Committee, in the exercise of its sole discretion, may take such action as it deems desirable, including, but not limited to (i) causing an Option to be assumed or an equivalent option to be substituted by such successor corporation or a parent or subsidiary of such successor corporation, (ii) providing that each Option holder shall have the right to exercise his Option as to all of the shares of Common Stock covered by the Option, including shares as to which the Option would not otherwise be exercisable, or (iii) declare that an Option shall terminate at a date fixed by the Committee provided that the Option holder is given notice and opportunity to exercise his Option prior to such date. 18. Amendment. The Committee may terminate or amend the Plan at any time. The termination or any modification or amendment of the Plan shall not, without the consent of a participant, affect his rights under an Option previously granted. 19. Reservation of Shares. The Company, during the term of the Plan, will at all times reserve and keep available such number of shares as shall be sufficient to satisfy the requirement of the Plan. Inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any shares hereunder, shall relieve the Company of any liability for the failure to issue or sell such shares as to which such requisite authority shall not have been obtained. 20. Effect on Other Plans. Participation in the Plan shall not affect an employee's eligibility to participate in any other benefit or incentive plan of the Company or any subsidiary of the Company. Any Options granted pursuant to the Plan shall not be used in determining the benefits provided under any other plan of the Company or any subsidiary of the Company unless specifically provided. 21. Duration of the Plan. The Plan shall remain in effect until all Options granted under the Plan have been satisfied by the issuance of shares, but no Option shall be granted more than ten years after the date the Plan is adopted by the Company's Board of Directors. 22. Forfeiture for Dishonesty. Notwithstanding anything to the contrary in the Plan, if the Committee finds, by a majority vote, after full consideration of the facts presented on behalf of both the Company and any optionee, that the optionee has been engaged in fraud, embezzlement, theft, commission of a felony or dishonest conduct in the course of his employment or retention by the Company or any subsidiary of the Company that damaged the Company, or any subsidiary of the Company or that the optionee has disclosed confidential information of the Company or any subsidiary of the Company, the optionee shall forfeit all unexercised Options and all exercised Options under which the Company has not yet delivered the certificates. The decision of the Committee in interpreting and applying the provisions of this Section 22 shall be final. No decision of the Committee however, shall affect the finality of the discharge or termination of such optionee by the Company or any subsidiary of the Company in any manner. 23. No Prohibition on Corporate Action. No provision of the Plan shall be construed to prevent the Company or any officer or director thereof from taking any action deemed by the Company or such officer or director to be appropriate or in the Company's best interests whether or not such action could have an adverse effect on the Plan or any Options granted hereunder, and no optionee or optionee's estate, personal representative or beneficiary shall have any claim against the Company or any officer or director thereof as a result of the taking of such action. 24. Indemnification. With respect to the administration of the Plan, the Company shall indemnify each present and future member of the Committee and the Board of Directors against, and each member of the Committee and the Board of Directors shall be entitled without further action on their part to indemnity from the Company for, all expenses (including the amount of judgments and the amount of approved settlements made with a view to the curtailment of costs of litigation, other than amounts paid to the Company itself) reasonably incurred by them in connection with or arising out of, any action, suit or proceeding in which they may be involved by reason of they being or having been a member of the Committee or the Board of Directors, whether or not they continue to be such member at the time of incurring such expenses; provided, however, that such indemnity shall not include any expenses incurred by any such member of the Committee or the Board of Directors (i) in respect of matters as to which they shall be finally adjudged in any such action, suit or proceeding to have been guilty of gross negligence or willful misconduct in the performance of their duty as such member of the Committee or the Board of Directors: or (ii) in respect of any matter in which any settlement is affected for an amount in excess of the amount approved by the Company on the advice of its legal counsel; and provided further that no right of indemnification under the provisions set forth herein shall be available to or enforceable by any such member of the Committee or the Board of Directors unless, within 60 days after institution of any such action, suit or proceeding, they shall have offered the Company in writing the opportunity to handle and defend same at its own expense. The foregoing right of indemnification shall inure to the benefit of the heirs, executors or administrators of each such member of the Committee or the Board of Directors and shall be in addition to all other rights to which such member may be entitled as a matter of law, contract or otherwise. 25. Miscellaneous Provisions. (a) Compliance with Plan Provisions. No optionee or other person shall have any right with respect to the Plan, the Common Stock reserved for issuance under the Plan or in any Option until a written option agreement shall have been executed by the Company and the optionee and all the terms, conditions and provisions of the Plan and the Option applicable to such optionee (and each person claiming under or through him) have been met. (b) Approval of Counsel. In the discretion of the Committee, no shares of Common Stock, other securities or property of the Company or other forms of payment shall be issued hereunder with respect to any Option unless counsel for the Company shall be satisfied that such issuance will be in compliance with applicable federal, state, local and foreign legal, securities exchange and other applicable requirements. (c) Compliance with Rule 16b-3. To the extent that Rule 16b-3 under the Exchange Act applies to Options granted under the Plan, it is the intent of the Company that the Plan comply in all respects with the requirements of Rule 16b-3, that any ambiguities or inconsistencies in construction of the Plan be interpreted to give effect to such intention and that if the Plan shall not so comply, whether on the date of adoption or by reason of any later amendment to or interpretation of Rule 16b-3, the provisions of the Plan shall be deemed to be automatically amended so as to bring them into full compliance with such rule. (d) Effects of Acceptance of Option. By accepting any Option or other benefit under the Plan, each optionee and each person claiming under or through him shall be conclusively deemed to have indicated his acceptance and ratification of, and consent to, any action taken under the Plan by the Company, the Board of Directors, the Committee or its delegates. (e) Construction. The masculine pronoun shall include the feminine and neuter, and the singular shall include the plural, where the context so indicates. 26. Stockholder Approval. The exercise of any Option granted under the Plan shall be subject to the approval of the Plan by the affirmative vote of the holders of a majority of the outstanding shares of the Common Stock present, or represented, and entitled to vote at a meeting duly held. Exhibit 10.7 AYDIN CORPORATION RESTRICTED STOCK AGREEMENT THIS AGREEMENT, made on this 8th day of October, 1996, by and between AYDIN CORPORATION, a Delaware corporation (hereinafter called the "Company"), and KLAUS D. OEBEL (hereinafter called the "Employee"). WITNESSETH: WHEREAS, the Company and the Employee have agreed to certain terms and conditions of employment of the Employee as set forth in the Employment Agreement (the "Employment Agreement") dated August 22, 1996; and WHEREAS, the Employment Agreement provides for a one-time bonus for joining the Company of a restricted stock award (the "Award") of 10,000 shares of common stock of the Company (the "Common Stock") that will vest over a three-year period; and WHEREAS, the Board has authorized the granting of the Award conditioned upon the execution by the Company and the Employee of this Agreement, thereby allowing the Employee to acquire a proprietary interest in the Company in order that the Employee will have a further incentive for remaining with and increasing his efforts on behalf of the Company or one of its Affiliates; NOW THEREFORE, in consideration of the foregoing and of the mutual covenants hereinafter set forth and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. The Company, effective this date, hereby awards to the Employee as a separate incentive in connection with his employment and not in lieu of any salary or other compensation for his services, an Award covering 10,000 shares (the "Shares") of Common Stock on the terms and conditions set forth in this Agreement. 2. The Shares covered by the Award shall vest in three installments of 3,333, 3,333 and 3,334 Shares on the first, second and third anniversary, respectively, of the date of this Agreement as long as the Employee remains employed by the Company or one of its Affiliates until such dates. 3. Upon notification that the New York Stock Exchange has authorized listing of the Shares, a stock certificate evidencing the Shares shall be registered on the Company's books in the name of the Employee as of the date of this Agreement. Such certificate shall contain a legend restricting the transferability of such certificate and the Shares represented thereby, and referring to the terms and conditions approved by the Board and applicable to the Shares represented by the certificate (the "Restrictive Legend"). While the Shares are restricted and subject to the Delaware General Corporation Law, the Employee shall be entitled to all rights of a shareholder of the Company, including the right to vote the Shares and receive dividends and other distributions declared on the Shares. The Employee shall have the right to return the certificate to the Company at any time for cancellation and to receive a certificate without the Restrictive Legend representing the Shares that have vested as provided in Section 2 hereof and a balance certificate bearing the Restrictive Legend for those Shares, if any, that shall not have been vested at such time; provided, however, that certificates representing vested or unvested Shares shall also bear a restrictive legend restricting transferability if legal counsel for the Company deems such legend to be required under applicable securities laws. 4. If the employment of the Employee with the Company terminates for any reason during a vesting period, the Shares that have not vested shall be forfeited on the date of such termination of employment, except that for any portion of a vesting period that has elapsed through the date of such termination, the Employee shall receive a pro-rata portion of the Shares that would have been vested at the end of such period (the "Pro-Rata Shares") equal to the product of the Shares that are subject to vesting during such period (i.e., 3,333, 3,333 or 3,334 Shares as the case may be) multiplied by a fraction the numerator of which is the number of days that have elapsed during such vesting period through the date of termination and the denominator of which is 365. Upon termination of employment, the certificate(s) bearing the Restrictive Legend shall be returned to the Company for cancellation and a new certificate representing Shares that have vested as of the termination date for which the Restrictive Legend had not previously been removed and for the Pro-Rata Shares shall be issued to the Employee. The Employee may designate a beneficiary to receive the stock certificate representing the Shares that the Employee would have been entitled to receive under this Section 4 in the event that termination of employment of the Employee is due to his death. Each such beneficiary designation shall be in writing, making specific reference to this Agreement, and shall be addressed to the Company's Secretary and Corporate Counsel. The Employee has the right to change such beneficiary at will by delivering another written designation similar in form to the preceding designation to the Company's Secretary and Corporate Counsel. 5. The Company shall have the right to obtain and withhold from any payment or transfer of property under this Agreement the amount of taxes required by any government to be withheld or otherwise deducted and paid with respect to such payment or transfer. At its discretion, the Company may require the Employee as a condition to receiving any Shares pursuant to the Award to reimburse the Company for any such taxes required to be withheld by the Company and withhold any distribution or transfer of Shares in whole or in part until the Company is so reimbursed. In lieu thereof, the Company shall have the right to withhold from any other cash amount due or to become due from the Company to the Employee an amount equal to such taxes as required to be withheld by the Company to reimburse the Company for any such taxes or to retain and withhold a number of Shares having a market value no less than the amount of such taxes and to cancel (in whole or in part) any such Shares so withheld in order to reimburse the Company for any such taxes. Moreover, if the Employee elects, in accordance with Section 83(b) of the Internal Revenue Code of 1986, as amended, to recognize ordinary income upon the grant of the Award, the Company will require at the time of that election the Employee to reimburse the Company for the amount of taxes required by any government to be withheld or otherwise paid as a consequence of that election. 6. Any notice to be given to the Company under the terms of this Agreement shall be addressed to the Company, in care of its Secretary and Corporate Counsel, at 700 Dresher Road, P.O. Box 349, Horsham, Pennsylvania 19044, or at such other address as the Company may hereafter designate in writing. Any notice to be given to the Employee shall be addressed to the Employee at the Employee's home address of record as reflected in the Company's personnel files. Any such notice shall be deemed to have been duly given, if and when enclosed in a properly sealed envelope, addressed as aforesaid, registered or certified and deposited, postage and registry fee prepaid, in a United States post office. 7. Nothing herein contained shall affect the Employee's right to participate in and receive benefits under and in accordance with the then current provisions of any pension, insurance or other employee welfare plan or program of the Company or any Affiliate. 8. Except as otherwise herein provided, the Award herein granted and the rights and privileges conferred hereby shall not be transferred, assigned, pledged or hypothecated in any way (whether by operation of law or otherwise) and shall not be subject to sale under execution, attachment or similar process. 9. Subject to the limitation on the transferability contained herein, this Agreement shall be binding upon and inure to the benefit of the heirs, legatees, legal representatives, successors and assigns of the parties hereto. 10. The Board shall have the power to interpret this Agreement and to adopt such rules for the administration, interpretation and application of this Agreement as are consistent therewith and to interpret or revoke any such rules. All actions taken and all interpretations and determinations made by the Board in good faith shall be final and binding upon Employee, the Company and all other interested persons. No member of the Board shall be personally liable for any action, determination or interpretation made in good faith with respect to this Agreement. 11. In the event of changes in the capital stock of the Company by reason of stock dividends, split-ups or combinations of shares, reclassifications, mergers, consolidations, reorganizations or liquidations during the restriction period, any and all new, substituted or additional securities to which the Employee is entitled by reason of the ownership of the Award shall be subject immediately to the terms, conditions and restrictions of this Agreement. 12. In the event that any provision in this Agreement shall be held invalid or unenforceable, such provision shall be severable from, and such invalidity or unenforceability shall not be construed to have any effect on, the remaining provisions of this Agreement. 13. This Agreement shall be construed and enforced in accordance with the internal laws of the Commonwealth of Pennsylvania. 14. The Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute but one and the same instrument. 15. This Agreement may be amended or modified only by a written instrument executed by both the Company and the Employee. IN WITNESS WHEREOF, the parties have executed this Agreement, in duplicate, the day and year first above written. Attest: AYDIN CORPORATION __/s/ Robert A. Clancy___ By: ____/s/ I. Gary Bard____ Secretary Title: __Chairman & C.E.O.__ /s/ Klaus D. Oebel ______________________ Employee's Signature ______________________ Social Security Number Exhibit 10.8 AYDIN CORPORATION RESTRICTED STOCK AGREEMENT THIS AGREEMENT, made on this 16th day of December, 1996, by and between AYDIN CORPORATION, a Delaware corporation (hereinafter called the "Company"), and H. BARRY MASER (hereinafter called the "Employee"). WITNESSETH: WHEREAS, the Company and the Employee have agreed to certain terms and conditions of employment of the Employee as set forth in the Offer Letter (the "Employment Agreement") dated October 23, 1996; and WHEREAS, the Employment Agreement provides for a one-time bonus for joining the Company of a restricted stock award (the "Award") of 10,000 shares of common stock of the Company (the "Common Stock") that will vest over a four-year period; and WHEREAS, the Board has authorized the granting of the Award conditioned upon the execution by the Company and the Employee of this Agreement, thereby allowing the Employee to acquire a proprietary interest in the Company in order that the Employee will have a further incentive for remaining with and increasing his efforts on behalf of the Company or one of its Affiliates; NOW THEREFORE, in consideration of the foregoing and of the mutual covenants hereinafter set forth and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. The Company, effective this date, hereby awards to the Employee as a separate incentive in connection with his employment and not in lieu of any salary or other compensation for his services, an Award covering 10,000 shares (the "Shares") of Common Stock on the terms and conditions set forth in this Agreement. 2. The Shares covered by the Award shall vest in four installments of 2,500 Shares on the first, second, third and fourth anniversary, respectively, of the date of this Agreement as long as the Employee remains employed by the Company or one of its Affiliates until such dates. 3. Upon notification that the New York Stock Exchange has authorized listing of the Shares, a stock certificate evidencing the Shares shall be registered on the Company's books in the name of the Employee as of the date of this Agreement. Such certificate shall contain a legend restricting the transferability of such certificate and the Shares represented thereby, and referring to the terms and conditions approved by the Board and applicable to the Shares represented by the certificate (the "Restrictive Legend"). While the Shares are restricted and subject to the Delaware General Corporation Law, the Employee shall be entitled to all rights of a shareholder of the Company, including the right to vote the Shares and receive dividends and other distributions declared on the Shares. The Employee shall have the right to return the certificate to the Company at any time for cancellation and to receive a certificate without the Restrictive Legend representing the Shares that have vested as provided in Section 2 hereof and a balance certificate bearing the Restrictive Legend for those Shares, if any, that shall not have been vested at such time; provided, however, that certificates representing vested or unvested Shares shall also bear a restrictive legend restricting transferability if legal counsel for the Company deems such legend to be required under applicable securities laws. 4. If the employment of the Employee with the Company terminates for any reason during a vesting period, the Shares that have not vested shall be forfeited on the date of such termination of employment, except that for any portion of a vesting period that has elapsed through the date of such termination, the Employee shall receive a pro-rata portion of the Shares that would have been vested at the end of such period (the "Pro-Rata Shares") equal to the product of the Shares that are subject to vesting during such period (i.e., 2,500 Shares) multiplied by a fraction the numerator of which is the number of days that have elapsed during such vesting period through the date of termination and the denominator of which is 365. Upon termination of employment, the certificate(s) bearing the Restrictive Legend shall be returned to the Company for cancellation and a new certificate representing Shares that have vested as of the termination date for which the Restrictive Legend had not previously been removed and for the Pro-Rata Shares shall be issued to the Employee. The Employee may designate a beneficiary to receive the stock certificate representing the Shares that the Employee would have been entitled to receive under this Section 4 in the event that termination of employment of the Employee is due to his death. Each such beneficiary designation shall be in writing, making specific reference to this Agreement, and shall be addressed to the Company's Secretary and Corporate Counsel. The Employee has the right to change such beneficiary at will by delivering another written designation similar in form to the preceding designation to the Company's Secretary and Corporate Counsel. 5. The Company shall have the right to obtain and withhold from any payment or transfer of property under this Agreement the amount of taxes required by any government to be withheld or otherwise deducted and paid with respect to such payment or transfer. At its discretion, the Company may require the Employee as a condition to receiving any Shares pursuant to the Award to reimburse the Company for any such taxes required to be withheld by the Company and withhold any distribution or transfer of Shares in whole or in part until the Company is so reimbursed. In lieu thereof, the Company shall have the right to withhold from any other cash amount due or to become due from the Company to the Employee an amount equal to such taxes as required to be withheld by the Company to reimburse the Company for any such taxes or to retain and withhold a number of Shares having a market value no less than the amount of such taxes and to cancel (in whole or in part) any such Shares so withheld in order to reimburse the Company for any such taxes. Moreover, if the Employee elects, in accordance with Section 83(b) of the Internal Revenue Code of 1986, as amended, to recognize ordinary income upon the grant of the Award, the Company will require at the time of that election the Employee to reimburse the Company for the amount of taxes required by any government to be withheld or otherwise paid as a consequence of that election. 6. Any notice to be given to the Company under the terms of this Agreement shall be addressed to the Company, in care of its Secretary and Corporate Counsel, at 700 Dresher Road, P.O. Box 349, Horsham, Pennsylvania 19044, or at such other address as the Company may hereafter designate in writing. Any notice to be given to the Employee shall be addressed to the Employee at the Employee's home address of record as reflected in the Company's personnel files. Any such notice shall be deemed to have been duly given, if and when enclosed in a properly sealed envelope, addressed as aforesaid, registered or certified and deposited, postage and registry fee prepaid, in a United States post office. 7. Nothing herein contained shall affect the Employee's right to participate in and receive benefits under and in accordance with the then current provisions of any pension, insurance or other employee welfare plan or program of the Company or any Affiliate. 8. Except as otherwise herein provided, the Award herein granted and the rights and privileges conferred hereby shall not be transferred, assigned, pledged or hypothecated in any way (whether by operation of law or otherwise) and shall not be subject to sale under execution, attachment or similar process. 9. Subject to the limitation on the transferability contained herein, this Agreement shall be binding upon and inure to the benefit of the heirs, legatees, legal representatives, successors and assigns of the parties hereto. 10. The Board shall have the power to interpret this Agreement and to adopt such rules for the administration, interpretation and application of this Agreement as are consistent therewith and to interpret or revoke any such rules. All actions taken and all interpretations and determinations made by the Board in good faith shall be final and binding upon Employee, the Company and all other interested persons. No member of the Board shall be personally liable for any action, determination or interpretation made in good faith with respect to this Agreement. 11. In the event of changes in the capital stock of the Company by reason of stock dividends, split-ups or combinations of shares, reclassifications, mergers, consolidations, reorganizations or liquidations during the restriction period, any and all new, substituted or additional securities to which the Employee is entitled by reason of the ownership of the Award shall be subject immediately to the terms, conditions and restrictions of this Agreement. 12. In the event that any provision in this Agreement shall be held invalid or unenforceable, such provision shall be severable from, and such invalidity or unenforceability shall not be construed to have any effect on, the remaining provisions of this Agreement. 13. This Agreement shall be construed and enforced in accordance with the internal laws of the Commonwealth of Pennsylvania. 14. The Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute but one and the same instrument. 15. This Agreement may be amended or modified only by a written instrument executed by both the Company and the Employee. IN WITNESS WHEREOF, the parties have executed this Agreement, in duplicate, the day and year first above written. Attest: AYDIN CORPORATION __/s/ Robert A. Clancy___ By: ____/s/ I. Gary Bard____ Secretary Title: __Chairman & C.E.O.__ /s/ H. Barry Maser ______________________ Employee's Signature ______________________ Social Security Number Exhibit 10.9 CONSULTING AGREEMENT THIS CONSULTING AGREEMENT (this "Agreement") is made and effective as of May 1, 1996 by and between Aydin Corporation, a Delaware corporation with its principal executive offices located at 700 Dresher Road, Horsham, Pennsylvania 19044 (the "Company"), and Ayhan Hakimoglu, a Pennsylvania resident with an address at 431 Righters Mill Road, Narberth, Pennsylvania 19072 ("Consultant"). The definition of "Company" includes all of its subsidiaries. BACKGROUND The Company operates internationally in the following businesses: engineering and manufacturing of telecommunications equipment and systems, computer monitor and ruggedized workstations, and computer control systems with software for industrial and governmental applications (together with such businesses as the Company may enter during the Term, the "Business"). On the date Ayhan Hakimoglu may sell all of his capital stock of the Company to EA Industries, Inc. ("EA") and on the date he may resign as Chairman and Chief Executive Officer of the Company, this Consulting Agreement with the Company will be effective. In consideration of their mutual promises and covenants set forth herein, and intending to be legally bound hereby, Company and Consultant agree as follows: 1. Engagement. The Company hereby engages the Consultant and the Consultant hereby accepts such engagement on the terms and conditions hereinafter set forth. 2. Term. The term of this Agreement shall begin on the date hereof and shall terminate on April 30, 1999 (the "Term"), unless sooner terminated in accordance with Paragraph 6 hereof. 3. Duties. The Consultant is engaged hereunder as a consultant, on a part-time basis, to the Company reporting to the Chief Executive Officer. As such he shall do the following: (a) Consult with and assist the Company in developing, with senior management of the Company, and implementing through such senior management, strategic plans, both long and short term relating to obtaining contracts for the Company in Turkey. (b) Consistent with developed strategic plans, help the Company to identify and procure key employees or entities which will supplement the Company's management and other capabilities in the Business. (c) Assist the Company in the collection of amounts due to the Company arising from contracts performed for the Turkish government. The Consultant shall devote such of his business time, attention, energies and best efforts to the performance of his services hereunder and to the promotion of the business and interests of the Company and of any of its affiliated companies, as may be reasonably necessary to carry out his activities as described above, it being understood that Consultant need not spend any specific time in his activities. 4. Compensation. In consideration for the services to be rendered by Consultant hereunder and his obligations under paragraphs 6 and 7 hereof, Company shall pay to Consultant (a) the sum of one hundred fifty thousand dollars ($150,000) per annum payable in advance on or before May 3, 1996, May 1, 1997 and May 1, 1998; and (b) a fee payable in 90 days computed as follows: for any contract executed by the Company with the Turkish Government during the term of this Agreement, if the contract is secured by an irrevocable letter of credit in favor of the Company or by an advance cash payment to the Company (collectively the "Turkish LC"), the Consultant shall be paid a fee equal to 0.25% of such basic contract price representing the firm commitments (excluding options and conditional extra work) under such Turkish contract, and within ninety (90) days after payments under such contract the Consultant shall be paid a fee equal to 0.25% of such payments. These fees will continue to be paid to the Consultant after the term of this Agreement as performance continues under such Turkish contracts. 5. Expenses and Benefits. (a) The Company will reimburse the Consultant for all ordinary and reasonable expenses for office rental, secretarial expense and business travel incurred in connection with his performance of services hereunder; provided that the Company has approved of such expenses before they are incurred and upon presentation to the Company of an itemized account and written proof of such expenses. (b) The Company shall during the term of this Agreement, to the extent allowed by law without rendering the Company subject to the provisions of the Employee Retirement Income Security Act of 1974 ("ERISA") as the operator of a "multiemployer plan" (within the meaning of Section 3(37) of ERISA), continue to provide the Consultant with the automobile, life insurance and health insurance coverage benefits he is currently receiving or with comparable replacement benefits if the Company changes such plans. 6. Death of the Consultant. Except as required by law, in the event of the death of the Consultant during the term of this Agreement, this Agreement shall terminate effective as of the date of the Consultant's death, and the Company shall not have any further obligation or liability hereunder except that the Company shall pay to Consultant's designated beneficiary or, if none, his estate the portion, if any, of the Consultant's compensation for the period up to the Consultant's date of death which remains unpaid. 7. Non-disparagement. Except as required by law, during the Term, the Consultant shall not say, write or communicate anything which would be harmful, detrimental or injurious to, or otherwise disparage, the Company or EA or any of their current or future employees, managers, executives or directors, or the Company's or EA's name, reputation or business, to any entity or person in public or in private. The Consultant's communications to members of his family in private or to the Board of Directors or Officers of the Company as part of his performance in good faith under this Consulting Agreement shall not be deemed to violate the provisions of this Paragraph 7. 8. Non-interference. The Consultant shall not in any manner interfere with any current or future negotiations or transactions of any nature between the Company and EA or any of their respective affiliates.. 9. Notices. All notices, requests, demands, claims, and other communications hereunder shall be in writing. Any notice, request, demand, claim, or other communication hereunder shall be deemed duly given if (and then two business days after) it is sent by registered or certified mail, return receipt requested, postage prepaid, and addressed to the intended recipient as set forth below: If to Consultant: 431 Righters Mill Road Narberth, PA 19072 If to Company: 700 Dresher Road Horsham, Pennsylvania 19044 Attn: President Any party hereto may give any notice, request, demand, claim or other communication hereunder using any other means (including personal delivery, expedited courier, messenger service, telecopy, telex, ordinary mail, or electronic mail), but no such notice, request, demand, claim, or other communication shall be deemed to have been duly given unless and until it actually is received by the individual for whom it is intended. Any party hereto may change the address to which notices, requests, demands, claims, and other communications hereunder are to be delivered by giving the other parties hereto notice in the manner herein set forth. 10. Relationship of Parties. Consultant, in the performance of the foregoing consulting services, shall be deemed an independent contractor. Consultant shall have no right or authority to assume or create any obligations on behalf of the Company or to make any representations on its behalf. The Company shall not directly control or dictate the manner of performance of Consultant's obligations under this Agreement. 11. Governing Law. This Agreement shall be governed by and construed in accordance with the internal laws (and not the law of conflicts) of the State of Delaware. 12. Contents of Agreement; Amendment and Assignment. This Agreement sets forth the entire understanding between the parties hereto with respect to the subject matter hereof. This Agreement cannot be changed, modified or terminated except upon written amendment duly executed by the parties hereto. All of the terms and provisions of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective heirs, representatives, successors and assigns of the parties hereto, except that the duties and responsibilities of the Consultant hereunder are of a personal nature and shall not be assignable in whole or in part by him. IN WITNESS WHEREOF, this Agreement has been executed by the parties on the date first above written. CONSULTANT /s/ Ayhan Hakimoglu AYHAN HAKIMOGLU AYDIN CORPORATION By:/s/ John F. Vanderslice EXECUTIVE VICE PRESIDENT Exhibit 10.10 RESTRICTIVE COVENANT AGREEMENT THIS RESTRICTIVE COVENANT AGREEMENT (this "Agreement") is made and effective as of May 1, 1996 by and between Aydin Corporation, a Delaware corporation with its principal executive offices located at 700 Dresher Road, Horsham, Pennsylvania 19044 (the "Company"), and Ayhan Hakimoglu, a Pennsylvania resident with an address at 431 Righters Mill Road, Narberth, Pennsylvania 19072 ("Ayhan"). The definition of "Company" includes all of its subsidiaries. BACKGROUND The Company operates internationally in the following businesses: engineering and manufacturing of telecommunications equipment and systems, computer monitor and ruggedized workstations, and computer control systems with software for industrial and governmental applications (together with such businesses as the Company may enter during the Term, the "Business"). On the date Ayhan Hakimoglu may sell all of his capital stock of the Company to EA Industries, Inc. ("EA") and on the date he may resign as Chairman and Chief Executive Officer of the Company, this Restrictive Covenant Agreement with the Company will be effective. NOW, THEREFORE, in consideration of the Company's payments to Ayhan as provided in this Agreement and intending to be legally bound hereby, Ayhan and the Company agree, for a period commencing on the date hereof and ending on April 30, 1999 (the "Term") as follows: 1. Non-Disclosure. Ayhan recognizes and acknowledges that he will have access to certain confidential information of the Company and that such information constitutes valuable, special and unique property of the Company. Ayhan agrees that he will not, for any reason or purpose whatsoever, during or after the Term use, directly or indirectly, for his own benefit or the benefit of any other person, or disclose any of such confidential information to any party without express authorization of the Company, except as reasonably necessary in the performance of his duties hereunder. As used in this Paragraph 1, "Confidential Information" shall mean any information relating to the business or affairs of the Company as presently conducted or proposed to be conducted now or during the term of the Consulting Agreement, including but not limited to information relating to financial statements, client identities, potential clients, employees, suppliers, servicing methods, programs, strategies and information, analyses, profit margins, computer software, data, and documentation, trade secrets and confidential business information (including ideas, formulas, compositions, inventions (whether patentable or unpatentable and whether or not reduced to practice), know-how, manufacturing and production processes and techniques, research and development information, drawings, specifications, designs, plans, proposals, technical data, copyrightable works, financial, marketing, and business data, pricing and cost information, business and marketing plans), other proprietary rights, and copies and tangible embodiments thereof (in whatever form or medium) or other proprietary information used by the Company in connection with its business; provided, however, that Confidential Information shall not include any information which is in the public domain or becomes generally known in the industry through no wrongful act on the part of Ayhan. Ayhan acknowledges that the Confidential Information is vital, sensitive, confidential and proprietary to the Company. 2. Noncompetition. Ayhan agrees that during the Term he shall not, unless acting with the prior written consent of the Board of Directors of the Company (the "Board"), directly or indirectly: (a) solicit business from or perform services for, any person, company or other entity which at any time during the Term is a client or customer of the Company if such business or services are of the same general character as those engaged in or performed by the Company or supplied to the Company; (b) solicit for employment or in any other fashion hire any of the employees of the Company; (c) own an interest in, manage, operate, finance, join, control or participate in the ownership, management, operation, financing or control of, or be connected as an officer, director, employee, partner, principal, agent, representative, consultant or otherwise with any business or enterprise engaged in the Business; (d) use or willingly permit his name to be used in connection with, any business or enterprise engaged in the business of the same general character as the Business; (e) use the name of the Company or any name similar thereto, but nothing in this clause shall be deemed, by implication, to authorize or permit use of such name after expiration of the Term; provided, however, that this provision shall not be construed to preclude Ayhan from describing his position at the Company or from using the Company's name and his name on his resume or curriculum vitae or to prohibit the ownership by Ayhan of not more than 3% of any class of the outstanding equity securities of any corporation which is engaged in any of the foregoing businesses having a class of securities registered pursuant to the Securities Exchange Act of 1934. 3. Non-interference. Ayhan shall not in any manner interfere with any current or future negotiations or transactions of any nature between the Company and EA or any of their respective affiliates. 4. Consideration. In consideration of the undertaking of Ayhan contained in Paragraphs 1, 2 and 3 hereof, Company agrees to pay to Ayhan an aggregate sum of six hundred thousand ($600,000) dollars, payable in three equal annual installments of two hundred thousand ($200,000) dollars in advance on May 3, 1996, May 1, 1997 and May 1, 1998. 5. Equitable Relief; Survival. Ayhan acknowledges that the restrictions contained in Paragraphs 1, 2 and 3 hereof are, in view of the nature of the business of the Company, reasonable and necessary to protect the legitimate interests of the Company, and that any violation of any provisions of those Paragraphs will result in irreparable injury to the Company. Ayhan also acknowledges that the Company shall be entitled to temporary and permanent injunctive relief, without the necessity of proving actual damages, and to an equitable accounting of all earnings, profits and other benefits arising from any such violation, which rights shall be cumulative and in addition to any other rights or remedies to which the Company may be entitled. In the event of any such violation, the Company shall be entitled to commence an action for temporary and permanent injunctive relief and other equitable relief in any court of competent jurisdiction and Ayhan further irrevocably submits to the jurisdiction of any Delaware court or Federal court sitting in Delaware over any suit, action or proceeding arising out of or relating to Paragraphs 1, 2, or 3. Ayhan hereby waives, to the fullest extent permitted by law, any objection that he may now or hereafter have to such jurisdiction or to the venue of any such suit, action or proceeding brought in such a court and any claim that such suit, action or proceeding has been brought in any inconvenient forum. Effective service of process may be made upon Ayhan by mail under the notice provisions contained in Paragraph 8 hereof. 6. Remedies Cumulative; No Waiver. No remedy conferred upon the Company by this Agreement is intended to be exclusive or any other remedy, and each and every such remedy shall be cumulative and shall be in addition to any other remedy given hereunder or now or hereafter existing at law or in equity. No delay or omission by the Company in exercising any right, remedy or power hereunder or existing at law or in equity shall be construed as a waiver thereof, and any such right, remedy or power may be exercised by the Company from time to time and as often as may be deemed expedient or necessary by the Company in its sole discretion. 7. Enforceability. If any provision of this Agreement shall be invalid or unenforceable, in whole or in part, then such provision shall be deemed to be modified or restricted to the extent and in the manner necessary to render the same valid and enforceable, or shall be deemed excised from this Agreement, as the case may require, and this Agreement shall be construed and enforced to the maximum extent permitted by law, as if such provision had been originally incorporated herein as so modified or restricted, or as if such provision had not been originally incorporated herein, as the case may be. 8. Notices. All notices, requests, demands, claims, and other communications hereunder shall be in writing. Any notice, request, demand, claim, or other communication hereunder shall be deemed duly given if (and then two business days after) it is sent by registered or certified mail, return receipt requested, postage prepaid, and addressed to the intended recipient as set forth below: If to Ayhan: 431 Righters Mill Road Narberth, PA 19072 If to Company: 700 Dresher Road Horsham, Pennsylvania 19044 Attn: President Any party hereto may give any notice, request, demand, claim or other communication hereunder using any other means (including personal delivery, expedited courier, messenger service, telecopy, telex, ordinary mail, or electronic mail), but no such notice, request, demand, claim, or other communication shall be deemed to have been duly given unless and until it actually is received by the individual for whom it is intended. Any party hereto may change the address to which notices, requests, demands, claims, and other communications hereunder are to be delivered by giving the other parties hereto notice in the manner herein set forth. 9. Governing Law. This Agreement shall be governed by and construed in accordance with the internal laws (and not the law of conflicts) of the State of Delaware. 10. Contents of Agreement; Amendment and Assignment. This Agreement sets forth the entire understanding between the parties hereto with respect to the subject matter hereof. This Agreement cannot be changed, modified or terminated except upon written amendment duly executed by the parties hereto. All of the terms and provisions of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective heirs, representatives, successors and assigns of the parties hereto, except that the duties and responsibilities of Ayhan hereunder are of a personal nature and shall not be assignable in whole or in party by him. IN WITNESS WHEREOF, this Agreement has been executed by the parties on the date first above written. /s/ Ayhan Hakimoglu AYHAN HAKIMOGLU AYDIN CORPORATION By:/s/ Donald S. Taylor PRESIDENT Exhibit 10.11 AYDIN CORPORATION Telephone 700 Dresher Road (215) 657-7510 P.O. Box 349 FACSIMILE Horsham, PA 19044 (215) 657-3830 U.S.A. September 13, 1996 Dr. Donald S. Taylor 3 Country Lakes Drive Marlton, NJ 08053 Dear Dr. Taylor: The purpose of this letter is to confirm the agreement between Aydin Corporation ("the Company") and you concerning your resignation as President of the Company and a Member of the Board of Directors as follows: 1. You hereby confirm your resignation from the Board of Directors and as President of the Company as well as your resignation from all officerships, directorships and employment with all subsidiaries and affiliates of the Company (collectively, the "Companies"). 2. Subject to the terms and conditions of this agreement, the Company will pay you a salary continuation benefit and certain other benefits as outlined on Appendix A hereto. 3. The provisions of this agreement, and any payment provided hereunder, shall not reduce or increase any amounts otherwise payable, or affect your rights under, any benefit plan of the Company in accordance with the terms of any such plan. All payments to be made to you under this agreement shall be subject to required withholding of federal, state and local income and employment taxes. 4. In the event of your death prior to September 13, 1997, this agreement shall terminate effective as of the date of your death and none of the Companies shall have any further obligations or liability hereunder except that the Company shall pay to your estate the unpaid portion, if any, of your salary continuation benefit for the period up to your date of death. 5. (a) You recognize and acknowledge that you have certain confidential information about the Companies, the business activities of the Companies and entities related to the Companies and the ownership thereof and related entities, and that such information constitutes valuable, special and unique property of the Companies. You agree that you will not, for any reason or purpose whatsoever, during or after the term of this agreement, (i) disclose any of such confidential information to any person without the prior written approval of the Company or (ii) commit any act or become involved in any situation or occurrence which disparages the Companies or their products or services or which reflects unfavorably upon the reputation of the Companies or their officers or directors. (b) You agree with the Companies that pursuant to the Agreement, dated January 4, 1995, you will not directly or indirectly solicit any client, customer or employee of the Company. (c) You agree with the Companies that for a period of three (3) years from this date that you will not directly or indirectly compete with the Companies (i) as to any technology developed or identified by the Companies during the term of your employment and (ii) as to any programs developed of identified during the term of your employment. (d) You agree with the Companies that you will do nothing to circumvent the undertakings you have agreed to in paragraphs 5 (a), 5 (b) and 5(c). (e) You acknowledge that your compliance with your agreements in paragraphs 5(a), 5 (b) and 5(c) and 5(d) hereof is necessary to protect the good will and other proprietary interests of the Companies and that a breach of your agreements in paragraphs 5(a) or 5(b) or 5(c) or 5(d) hereof will result in irreparable and continuing damage to the Companies and their respective owners, for which there will be no adequate remedy at law, and you agree that, in the event of any breach of your agreements in paragraphs 5(a) or 5(b) or 5(c) or 5(d) hereof, the Companies and their respective successors and assigns shall be entitled to injunctive relief and to such other and further relief as may be proper, including the termination of the benefits specified on Appendix A hereto. 6. (a) In consideration of the execution of this agreement by you and the Company, you, on behalf of yourself and all persons claiming by, through and under you including, without limitation, each and every dependent, heir, executor and administrator, together with your agents, successors, assigns and legal representatives (collectively the "Taylor Parties"), hereby waive, remise, release, settle and forever discharge the Companies, their respective affiliates, parents, subsidiaries and divisions, and any current or former director, officer, agent, employee or stockholder of the Companies, together with their agents, successors, assigns and legal representatives (collectively the "Company Parties") from any and all claims, sums of money, fees, compensation, counterclaims, cross claims, rights, demands, losses, damages, trespasses, bonds, executions, liabilities, suits, actions and causes of action against the Company Parties and each of them that any of the Taylor Parties, jointly or severally, ever had, now has or may have, in law or in equity, of every nature or description, whether known or unknown, suspected or unsuspected, foreseen or unforeseen, actual or potential, which exist as of the date of this agreement in whole or in part as a result of any act or omission in connection with your employment with any of the Companies and your resignation from such employment, including, without limitation, by reason of specification, Title VII of the Civil Rights Act of 1964, as amended, the Pennsylvania Human Relations Act, the Age Discrimination in Employment Act, the Employee Retirement Income Security Act, as amended, the Fair Labor Standards Act, the Americans with Disabilities Act, any state statute or local ordinance similar to the foregoing federal acts, Pennsylvania wage payment law or other federal or state law, including any claim of alleged discrimination, defamation, slander, libel, invasion of privacy, breach of employment contract, breach of implied covenant of good faith and fair dealing, intentional or negligent infliction of emotional distress or wrongful discharge, up to the date of this agreement. This release of rights does not extend to claims that may arise after the date of this agreement. (b) In consideration of the execution of this agreement by you and the Company, the Company Parties (except as noted hereinafter) hereby waive, remise, release, settle and forever discharge you from any and all claims, sums of money, fees, compensation, counterclaims, cross claims, rights, demands, losses, damages, trespasses, bonds, executions, liabilities, suits, actions and causes of action against you that any of the Company Parties, jointly or severally, ever had, now has or may have, in law or in equity, of every nature or description, whether known or unknown, suspected or unsuspected, foreseen or unforeseen, actual or potential, which exist as of the date of this agreement or arise hereafter in whole or in part as a result of any act or omission committed from the beginning of time to the date of this agreement. This release does not run to any act committed by you during your employment in which you exceeded your authority as President of the Company or as a member of the Companies Board of Directors and such act results in a claim being made against the Companies. 7. The Companies deny any wrongdoing or liability whatsoever to you, and the execution of this agreement by the Company on behalf of the Companies does not constitute an admission of any liability whatsoever to you under statutory or common law. 8. You acknowledge that the Company advised you to consult with an attorney prior to executing this agreement. You further acknowledge that you have read this agreement and understand all of its terms and that your execution of this agreement has not been induced by any representations, statements, warranties or agreements other than those expressed or referred to herein. You acknowledge that you have executed this agreement knowingly and voluntarily, with full knowledge of its significance. 9. You acknowledge that the Company has advised you that you have 21 days from receipt of this agreement to consider it. In the event you sign this agreement before the expiration of the twenty-one day review period, you explicitly agree hereby to waive the opportunity to use the full review period. This agreement shall become effective seven days following the date of your signature. 10. This agreement sets forth the entire agreement between you and the Company and, except for the Agreement dated January 4, 1995, and the Restricted Stock Agreement dated January 3, 1995, supersedes all prior agreements or understandings between you and any of the Companies related to your employment by any of the Companies. 11. In case any one or more of the provisions contained herein shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this agreement but this agreement shall be construed as if such invalid, illegal or unenforceable provision or provisions had never been contained herein unless the deletion of such provision or provisions would result in such a material change as to cause performance of this agreement to be unreasonable. 12. This agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania. If the foregoing correctly sets forth our agreement, please sign the enclosed copy of this letter where indicated and return it to me. AYDIN CORPORATION By: /s/ I. Gary Bard I. Gary Bard Chairman of the Board & Chief Executive Officer Accepted and agreed to, intending to be legally bound hereby this 30 day of September, 1996: /s/ Donald S. Taylor Donald S. Taylor Witness: /s/ Gwendolyn Taylor APPENDIX A DONALD S. TAYLOR COMPENSATION AND BENEFIT OFFER 1. Continue salary at $3,000 per week until September 13, 1997. 2. Continued participation in Company medical and dental plans until March 13, 1997. 3. Company will pay you the 40% holdback on the first half 1996 bonus plan ($12,000) when the holdback is paid to all other Company employees. 4. The Company will pay you $12,167 as your pro-rata share of the Third Quarter bonus (through September 13, 1996) when the payments (60% and 40%) are made in the regular course to Company employees. 5. The Board of Directors will be requested to remove the restrictions imposed upon the grant to you of 10,000 shares of the Company's Common Stock, as specified in the Aydin Corporation Restricted Stock Agreement, dated January 3, 1995. 6. The Company will make available to you out placement services and office space for 6 months not to exceed $5,000. 7. You will have until October 14, 1996, to exercise all or any portion of your current stock option to purchase 17,500 shares of the Company Common Stock at $11.56 per share, pursuant to the terms of the Individual Non-Qualified Stock Option Agreement dated January 3, 1995. Exhibit 13 AYDIN ANNUAL REPORT 1996 THE COMPANY Aydin is a world class provider of products and systems for the acquisition and distribution of information over electronic communications media. The Company designs, engineers, manufactures, markets, distributes and installs technologically advanced communications products and systems. AYDIN's customers are military, space, government and commercial organizations around the world. AYDIN's products and systems include: airborne and ground telemetry products, displays, radios, microwave components, C3 systems (Command, Control and Communications), radar automation and integration systems, military communication systems and telecommunications infrastructure equipment and systems. AYDIN's offerings range from supplying basic components to providing turnkey systems. (page 1) TO MY FELLOW STOCKHOLDERS: As your new Chairman of the Board and Chief Executive Officer, I want to share with you my perspective on where we are now and where we are going. 1996 was a year of transition for AYDIN. Since I came on board in May, we have been restructuring and repositioning the Company. We are redirecting AYDIN from a business focused on government and defense contracts with modest potential for growth, to a company focused on communications, with a broader customer base and potential for greater growth. There was, and continues to be, a need to redefine our company and its corporate culture. We are in the process of converting from being technology directed to using technology to meet customers' needs. We are changing from being engineering driven to being market driven. We are moving from being a group of autonomous businesses, to being a single business operating as a team. We are committed to maximizing our key assets: a recognized and respected name in specialized markets, a reputation for excellence in the design and manufacture of high performance products, and a core group of high skilled technologists. FINANCIAL RESUTS. . . . . Our results in 1996 are clearly disappointing. Sales were down. Our cost structure was not consistent with the changing size and mix of our business. AYDIN's sales in 1996 were $116,578,000 versus $140,607,000 in 1995, a decrease of 17%. Our net loss was $14,780,000 versus a net income of $3,930,000 in 1995. Loss per share in 1996 was $2.88. AYDIN's sales were down for several reasons. We have stopped selling several products that were not profitable, and we sold one non-profitable product line. Our Systems Division did not win any large projects, reducing both sales and backlog in the systems area. (page 2) During the latter part of 1996, the Company made significant restructuring changes which helped us to realign our business structure to be consistent with our long term goals. We discontinued non-profitable product lines, stopped the development of products that no longer fit our business objectives, and reestimated the costs required to complete our major systems jobs, resulting in inventory write downs, severance and related charges. While all of these charges negatively impacted 1996 profits, they do improve our ability to operate profitably in 1997 and in the future. AYDIN had both marketing and financial accomplishments in 1996. We gained initial customer acceptance on two large projects: TMRC (Turkish Mobile Radar Complexes) and RIS (a NATO Radar Integration System). We built backlog for our new TDMA INTELSAT Earth Station Terminal and expect to build sales and backlog in 1997. Our asset management improved as we lowered unbilled revenue by $8,934,000 or 19%, and accounts receivable by $28,060,000 or 53%. We have dramatically improved cash provided from operating activities, generating a positive cash flow of $189,000 in 1996 versus a cash drain of $7,979,000 in 1995. AYDIN Vector maintained its long record of outstanding performance, maintaining growth and profitability. MOVING FORWARD . . . . AYDIN enters 1997 with an aggressive plan to improve growth and profitability. We have already begun to build a profitable foundation on which to expand our business. We simplified our organizational structure, helping us to better take advantage of our existing resources. AYDIN now has two main revenue producing organizations: Products Group and Communications Systems Group. Each of these groups is described in the following pages of this Annual Report to Stockholders. We have cut costs where possible and have several additional cost cutting efforts well underway. We anticipate annual savings of approximately $11,000,000 as a result of these actions. Specific actions taken include: - Restructuring our business into two primary divisions saving overhead. - Combining three manufacturing lines into a single facility, cutting overhead and creating the opportunity to reduce costs by increasing buying leverage. - Securing agreements of sale for two buildings and placing a third underutilized building on the market. - Selling the unprofitable High Power Amplifier product line. (page 3) [Photo] The AYDIN Management Team: (left to right) John F. Vanderslice (seated), James R. Henderson, Barry Maser, Gary Bard, Klaus D. Oebel MANAGEMENT CHANGES. . . . . The year 1996 was one of significant change in AYDIN's management team. In May, Ayhan Hakimoglu, AYDIN's founder, CEO and Chairman of the Board resigned. We thank him for his contributions over the years and wish him the best in his new endeavors. I succeeded him, but am no newcomer to AYDIN. I was a young manager when the Company started, and later a division president. I rejoined AYDIN with three decades of experience in high technology electronics and information systems as founder of Delta Data Systems and Division President at Computer Sciences Corporation. I helped these high technology businesses to achieve growth and profitability. I returned to AYDIN's Board of Directors two years ago and in May of this year was elected Chairman of the Board and appointed CEO. Immediately after my appointment, I set out to find additional leadership to guide our company into its new future. In July, Jim Henderson joined us as Chief Financial Officer. He brings to our team many years of successful experience in finance and financial controls at Unisys. In August, Klaus Oebel, with twenty-five years experience in international business development and strategic planning, became President of AYDIN Communication Systems Group and corporate Vice President. In November, Barry Maser joined us as Vice President of Business Development and International Sales. Barry's experience includes developing and running an international sales and marketing organization for Delta Data Systems as well as being the principal of a regional communications and computer peripheral products sales company. (page 4) One of AYDIN's outstanding performing divisions has been and will continue to be our Vector Products operation. Under the leadership of John Vanderslice it has shown growth, profits and has a significant market share in the avionics electronics business. As Executive Vice President of AYDIN and President of AYDIN Products, John completes a senior executive team that is committed to success. FUTURE GOALS. . . . . AYDIN's management is committed to achieving solid growth and returns. Our financial goals for 1997 are to ensure that all product lines are profitable, to increase sales and to grow backlog. We will continue our efforts to reduce costs. We will continue our efforts to improve the quantity and quality of sales. We will continue to seek new opportunities to maximize sales of developed products and expand our systems business. We will focus on sustaining and growing our core global defense business and our industrial and military display business. We have narrowed our focus in the systems business by only prosecuting opportunities in communications systems and in air defense and radar modernization projects. It is these opportunities that will utilize the know-how and skill we have gained in successfully executing programs like TMRC and RIS. We believe that using our related experience as a basis for selecting systems opportunities to bid, both improves our ability to win projects and allows us to deliver greater value to our customers. Our future efforts will be on building a telecommunications business where we can anticipate more rapid growth. The market for telephony equipment and systems is growing rapidly both in the United States and overseas. We see an opportunity for companies like AYDIN to provide complete information systems. Starting with basic telephony, we will be in a position to add information products, systems and services to take sources of data and provide useful information to users. Management's job in 1997 is to continue our efforts to position our Company to achieve our long range vision, and as a result, continue to add value to our stockholders. I close this letter with a personal thank you to each of you for your continuing confidence in AYDIN and for your support. /s/ I. Gary Bard I. Gary Bard Chairman of the Board, President and Chief Executive Officer (page 5) AYDIN PRODUCTS GROUP In line with the company's new market driven focus, AYDIN product divisions have been grouped to maximize the synergy of our people, products, systems and technical expertise. The airborne telemetry (AYDIN Vector) and ground telemetry product lines have been combined to form AYDIN Telemetry. AYDIN Displays, formerly AYDIN Controls, serves commercial, marine and military command and control and display markets. AYDIN Microwave includes microwave components and microwave radios for sophisticated commercial and military customers. AYDIN TELEMETRY AYDIN telemetry's airborne and avionics products gather and process critical information on board spacecraft, aircraft, missiles, guided weapons and ground vehicles. Data is recorded and/or transmitted by radio links to fixed or mobile receiving stations. AYDIN airborne and ground station products receive, analyze, distribute and display information collected. These products are ruggedized for extreme environments. AYDIN Telemetry products are used in defense and aerospace programs such as aircraft and weapons development, flight test and satellite communications for space agencies including NASA. AYDIN DISPLAYS AYDIN Displays provides a complete line of high-resolution color CRT monitors, flat panel displays, and work stations. Our display products are packaged to meet industrial, ruggedized and military environments. AYDIN displays are used on factory floors, especially in process control industries (chemicals, food and beverage, electric utilities); in ship board information centers; in military Command and Control Systems; in air traffic control centers and at NASA Mission Control. (page 6) AYDIN MICROWAVE AYDIN Microwave combines digital and analog microwave radios and microwave components for commercial and military applications. AYDIN digital radios incorporate modern modulation and coding techniques to efficiently handle North American and International data rates. The Company's data multiplexers and channel banks complement these radios. AYDIN Microwave provides thin and thick film RF (Radio Frequency) , microwave and digital micro-circuits. Our hybrid devices are suitable for use in extreme environments. They are used in commercial and military telecommunications products for satellite and microwave systems. AYDIN communications amplifiers have become a standard for performance and reliability in the telecommunications industry. AYDIN COMMUNICATIONS SYSTEMS GROUP Like our product divisions, the AYDIN systems divisions are grouped to better take advantage of our design, development and installation expertise. AYDIN Government Systems designs turnkey integrated systems for air defense, and command, control & communications applications. AYDIN Telecom provides products and systems for government and commercial users. (page 7) AYDIN GOVERNMENT SYSTEMS AYDIN's Government Systems specializes in providing turnkey air defense, C3 (Command, Control & Communications) and backbone communications systems. Our systems aid in: flight plan processing, data recording-reduction-playback, simulation & training; and air traffic control. In Turkey, AYDIN provides turnkey communications systems capability, including design, site survey, civil works, shelterization, test, installation and training. Our customers include NATO, defense agencies in the US and around the world, major aerospace corporations and private commercial businesses. Major projects currently include RIS (radar integration) for NATO countries and TMRC (Turkish Mobile Radar Complexes). Both projects integrate radar inputs, process the radar data and provide Command and Control information to system operators. AYDIN TELECOM AYDIN Telecom provides both digital and analog products and systems for telecommunications service providers and private network operators such as satellite networks, and railroad & utility communications. AYDIN also engineers, manufactures and sells telephone infrastructure equipment. Our product line includes network access, data compression and satellite earth station equipment. In cooperation with COMSAT Laboratories, AYDIN is currently marketing a second generation TDMA (Satellite Time Division Multiple Access) terminal for the INTELSAT satellite network. Aydin provides systems, products and services all along the information and communications spectrum. The company continues to keep pace with changing technology, serving an expanding world wide customer base. The company's focus is to help people communicate. AYDIN's products and systems help our customers manage the link between raw data and useful information. (page 8) FINANCIAL STATEMENTS (page 9) CONSOLIDATED STATEMENTS OF OPERATIONS Year Ended December 31, 1996 1995 1994 ---------------------------------------------- Net sales $116,578,000 $140,607,000 $142,441,000 ________________________________________________________________________________ Costs and expenses: Cost of sales 94,363,000 102,391,000 104,270,000 Selling, general, and administrative 29,833,000 25,660,000 26,080,000 Research and development 8,315,000 6,603,000 5,159,000 Interest expense, net 189,000 45,000 5,000 Restructuring costs 3,730,000 - - ________________________________________________________________________________ 136,430,000 134,699,000 135,514,000 ________________________________________________________________________________ Income (loss) before income taxes and minority interest (19,852,000) 5,908,000 6,927,000 Income tax provision (recovery) (4,979,000) 1,971,000 1,880,000 ________________________________________________________________________________ Income (loss) before minority interest (14,873,000) 3,937,000 5,047,000 Less minority interest (93,000) 7,000 - ________________________________________________________________________________ Net income (loss) $(14,780,000) $3,930,000 $5,047,000 ________________________________________________________________________________ ________________________________________________________________________________ Earnings (loss) per common and common equivalent share $ (2.88) $ .77 $ 1.01 ________________________________________________________________________________ ________________________________________________________________________________ See notes to consolidated financial statements (page 10) CONSOLIDATED BALANCE SHEETS December 31, 1996 1995 -------------------------------- Assets Current Assets Cash and cash equivalents: 1996-$1,584,000; 1995-$3,569,000 $ 5,495,000 $ 4,638,000 Restricted cash 7,571,000 11,672,000 Accounts receivable 25,156,000 53,216,000 Unbilled revenue 37,993,000 46,927,000 Inventories 16,415,000 22,780,000 Prepaid expenses 2,331,000 1,577,000 ________________________________________________________________________________ Total Current Assets 94,961,000 140,810,000 Property, Plant and Equipment, at cost, net of accumulated depreciation and amortization 22,739,000 25,624,000 Other assets 2,622,000 426,000 ________________________________________________________________________________ ________________________________________________________________________________ $120,322,000 $166,860,000 ________________________________________________________________________________ ________________________________________________________________________________ Liabilities and Stockholder's Equity Current Liabilities Current maturities of long-term debt $ - $ 342,000 Short-term bank debt 2,800,000 5,486,000 Accounts payable 14,865,000 29,222,000 Accrued liabilities: Compensation 3,836,000 3,405,000 Department of Justice settlement 119,000 2,064,000 Other 1,872,000 1,901,000 Advance payments and contract billings in excess of recognized revenue 2,278,000 2,843,000 Accrued and deferred income taxes 426,000 9,932,000 ________________________________________________________________________________ Total Current Liabilities 26,196,000 55,195,000 Long-Term Debt, less current maturities - 770,000 Other Liabilities 1,134,000 - Deferred Income Taxes 2,665,000 6,232,000 Minority Interest - 90,000 Stockholder's Equity Common stock, par value $1-authorized, 7,500,000 shares; issued and outstanding, 1996-5,133,400 shares; 1995-5,112,127 shares 5,133,000 5,112,000 Additional paid-in capital 2,436,000 2,188,000 Retained earnings 83,103,000 97,883,000 Foreign currency translation effects (345,000) (610,000) ________________________________________________________________________________ 90,327,000 104,573,000 ________________________________________________________________________________ $120,322,000 $166,860,000 ________________________________________________________________________________ ________________________________________________________________________________ See notes to consolidated financial statements (page 11) CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, 1996 1995 1994 ---------------------------------------------- Operating Activities Net income (loss) $ (14,780,000) $ 3,930,000 $ 5,047,000 Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities: Depreciation and amortization 3,008,000 3,032,000 4,101,000 Deferred income taxes (3,891,000) 833,000 (7,444,000) Minority interest (93,000) 7,000 - Gain on sale of facility (216,000) Changes in other operating assets and liabilities, net: Accounts receivable 28,060,000 (17,865,000) (1,826,000) Unbilled revenue 8,934,000 7,982,000 11,650,000 Advance payments and contract billings in excess of recognized revenue (565,000) (1,326,000) 2,606,000 Inventories 6,365,000 (2,216,000) (2,967,000) Prepaid expenses (754,000) (227,000) 120,000 Accounts payable (14,357,000) 2,167,000 5,324,000 Accrued liabilities (1,543,000) (3,230,000) (4,695,000) Other long-term liabilities 1,134,000 - - Accrued income taxes (9,182,000) (1,269,000) 10,800,000 Other non-current assets (2,196,000) - - Other 265,000 203,000 118,000 ________________________________________________________________________________ Cash provided (used) by operating activities 189,000 (7,979,000) 22,834,000 Investing Activities Proceeds from sale of facility 1,159,000 - - Purchase of property, plant, and equipment (1,066,000) (3,170,000) (4,377,000) ________________________________________________________________________________ Cash provided (used) by investing activities 93,000 (3,170,000) (4,377,000) Financing Activities Release of collateral on restricted cash 4,101,000 6,498,000 1,685,000 Principal payments on long-term debt (1,112,000) (839,000) (348,000) Purchase of treasury stock - (248,000) - Minority investment in consolidated subsidiary 3,000 83,000 (105,000) Proceeds from exercise of stock options 269,000 1,522,000 96,000 Net short-term borrowings (repayments) (2,686,000) (1,000,000) (15,039,000) ________________________________________________________________________________ Cash provided (used) by financing activities 575,000 6,016,000 (13,711,000) Increase (decrease) in cash and cash equivalents 857,000 (5,133,000) 4,746,000 Cash and cash equivalents at beginning of year 4,638,000 9,771,000 5,025,000 ________________________________________________________________________________ Cash and cash equivalents at end of year $ 5,495,000 $ 4,638,000 $ 9,771,000 ________________________________________________________________________________ ________________________________________________________________________________ See notes to consolidated financial statements (page 12) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A-LIQUIDITY, CASH FLOWS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Liquidity and Cash Flows: The Company has financed its operations over the past two years from internal cash sources because of the limited availability of outside cash borrowing sources. At December 31, 1996 there was $2.8 million of short-term cash borrowings outstanding with no current availability for further cash borrowings. Also at December 31, 1996 there was a letter of credit balance of $13.9 million issued against a $49 million advance payment received in 1990 in connection with a contract from the Government of Turkey. Offsetting the $13.9 million balance was $7.6 million of cash collateral. This letter of credit is currently being renewed in four month intervals or until it reaches zero, whichever comes first. The Company anticipates that the letter of credt will reach zero during the second half of 1998. Although there can be no assurance that this letter of credit will continue to be renewed, management is confident that the letter of credit will be renewed upon its current expiration and thereafter. The Company is currently seeking new banking arrangements on terms acceptable to the Company to supplement internally generated cash flows in meeting future potential operating requirements. The Company anticipates that its near-term cash requirements (in addition to renewed short-term financing requirements) can be financed through internally generated cash flows. Substantial amounts of cash flows are expected from certain of the Company's largest current long-term type contracts on which significant progress toward completion is expected in 1997. Performance in accordance with the contracts will permit the Company to bill and collect a significant portion of the $38 million of unbilled revenues at December 31, 1996 as well as additional amounts to be earned in 1997. However, if the Company is unable to meet delivery deadlines, cash flow will be negatively impacted. During 1996, management initiated a restructuring plan to consolidate operations and develop marketing strategies which are expected to increase sales and reduce operating costs. Full implementation of these operational changes is expected to take effect in 1997. As part of the restructuring and consolidation, three Company-owned buildings have been offered for sale. Two of these facilities are under contract for sale and an offer has been received on the third facility. Net proceeds from these sales are expected to generate approximately $10 million of available cash during 1997. There can be no assurances that the anticipated effects of management's restructuring, consolidation and other plans will result in the cash flows as expected and described above. Summary of Significant Accounting Policies: Principles of Consolidation The consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries. All significant inter-company transactions and balances are eliminated in consolidation. At December 31, 1996, the Company disposed of all but 19% of its prior 80% ownership in Aydin S.A. (Argentina). Accordingly, the assets and liabilities of Aydin S.A. are no longer included in the December 31, 1996 consolidated balance sheet but 80% of the operating results (a $600,000 net loss) are included in the Consolidated Statement of Operations. Contract Accounting Revenue on long-term type contracts in excess of $100,000 is recorded on the percentage-of-completion method. For such contracts, a portion of the total contract price is included in sales in the proportion that costs incurred to date bear to total estimated costs at completion. The impact of periodic revisions in costs and estimated profit is reflected in the accounting period in which the facts become known. (page 13) For all other contracts, revenue is recognized upon completion of the contract or upon shipment of identifiable units. The entire amount of ultimate losses estimated to be incurred upon completion of contracts is charged to income when such losses become known. Contract progress billings are based upon contract provisions for customer advance payments, contract costs incurred, and completion of specified contract objectives. Progress billing balances at December 31, 1996 and 1995 amounted to $4,649,000 and $6,152,000, respectively. Contract billings for partial shipments where product title passes to the customer are not considered progress billings. Progress billings are netted against unbilled revenue on the consolidated balance sheet. Contracts may provide for customer retainage of a portion of amounts billed until contract completion. All contract retainage of $687,000 at December 31, 1996 matures in 1997. Contract retainage is included on the consolidated balance sheet as part of accounts receivable. Substantially all of the unbilled revenue balance at December 31, 1996 of $37,993,000 is expected to be billed during 1997 although this is dependent upon the Company meeting performance milestones. Claims from a customer of approximately $1.0 million for work performed outside the scope of a contract for which the Company anticipates recovery were included in unbilled revenue at December 31, 1995. This claim was settled in 1997 with no negative impact on operations. Use of Estimates In preparing its financial statements in accordance with generally accepted accounting principles, management is required 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 financial statements and revenues and expense during the reported periods. Actual results could differ from those estimates. One such area where the use of estimates could have a significant impact on future results is estimated costs at completion and, in some cases, contract value on the company's larger long-term type contracts. During 1996, changes to these estimates on the Company's larger long-term type contracts had no significant aggregate impact, except for the TMRC contract with the Government of Turkey. For TMRC, there was a negative impact of approximately $5.7 million pre-tax resulting from revisions of contract values and estimates of costs to complete, of which $2.6 million represented negotiations with the customer which extended performance milestones. Other areas where use of estimates could have a significant impact on future results are inventory obsolescence reserves, accounts receivable bad debt reserves and warranties. Cash and Cash Equivalents The Company considers all highly-liquid investments with a maturity of three months or less when purchased to be cash equivalents. The Company's bank balances (including cash equivalents and short-term investments in commercial paper) in excess of the Federally insured limit ($100,000) per bank, amounted to $14.3 million at December 31, 1996. All of this cash is in high quality banks. Approximately $2.6 million of the Company's total cash balances at December 31, 1996 was in foreign banks. Restricted cash at December 31, 1996 and 1995 represents interest bearing cash collateral required to be maintained against letters of credit. Inventories Inventories are valued at the lower of cost or market. Cost is determined using the first-in, first-out(FIFO) and average cost method which approximates FIFO. (page 14) Depreciation and Amortization Depreciation is provided by the straight-line method over the estimated useful lives of the depreciable assets. Amortization of leasehold improvements under operating leases is provided over the terms of the related leases or the asset lives, if shorter. Buildings are depreciated over lives ranging up to 35 years. Machinery and equipment is depreciated over useful lives ranging from 3 to 5 years. Capitalized Software The Company wrote off approximately $1.2 million of capitalized software development costs related to telecommunication products in 1996, of which $586,000 had been capitalized at December 31, 1995 in accordance with FASB 86. The costs were written off in 1996 because the Company decided not to pursue this development for the future. At December 31, 1996 there were no remaining capitalized software development costs on the balance sheet. Advertising and Research and Development Costs The Company expenses advertising costs and research and development costs as incurred. Advertising costs were $441,000, $371,000 and $255,000 for 1996, 1995 and 1994, respectively. Income Taxes The Company accounts for income taxes on the liability method in accordance with Statement of Financial Accounting Standards (FAS) No. 109. Foreign Currency Translation In accordance with FAS No. 52, balance sheet accounts of the Company's United Kingdom and Argentina subsidiaries are translated from the local currency into U.S. dollars at year-end rates while income and expenses are translated at the weighted average exchange rate for the year. The resulting translation gains or losses are shown as a separate component of stockholders' equity. The translation effects of the Turkish subsidiary are reflected in the statements of operations as required by FAS No. 52 because of the high inflation in the Turkish economy. Pretax income includes foreign currency translation gains relating to the Turkish subsidiary of $274,000 for 1996 and $516,000 for 1995. Earnings (Loss) Per Share Earnings (loss) per share are based on the weighted average number of common shares outstanding plus shares issuable upon the assumed exercise of dilutive common stock options. The number of shares used in earnings per share calculations was 5,123,622 for 1996, 5,114,642 for 1995, and 4,998,701 for 1994. Warranty Costs The usual warranty period on the Company's contracts and products is one year, which is provided for in warranty accruals. NOTE B-INVENTORIES Inventories consist of: 1996 1995 --------------------------------- Raw materials $ 7,938,000 $ 11,581,000 Work in process 5,957,000 7,965,000 Finished product 2,520,000 3,234,000 ________________________________________________________________________________ $ 16,415,000 $ 22,780,000 ________________________________________________________________________________ ________________________________________________________________________________ (page 15) NOTE C-PROPERTY, PLANT, AND EQUIPMENT The Company's investment in property, plant, and equipment is shown below. The net book value at December 31, 1996 of land and buildings which are held for sale pursuant to the Company restructuring plans amounts to $8,682,000. 1996 1995 --------------------------------- Land $ 5,074,000 $ 5,264,000 Buildings 18,987,000 20,519,000 Machinery and equipment 57,939,000 58,896,000 ________________________________________________________________________________ 82,000,000 84,679,000 Less accumulated depreciation and amortization 59,261,000 59,055,000 ________________________________________________________________________________ $ 22,739,000 $ 25,624,000 ________________________________________________________________________________ ________________________________________________________________________________ Financial Accounting Standard No. 121, regarding the "Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be disposed of", became effective for 1996 with no resulting impact on income. NOTE D-CREDIT ARRANGEMENTS The Company has borrowing arrangements with certain banks aggregating $31.5 million at December 31, 1996 for short-term borrowings and letters of credit. At December 31, 1996 and 1995, $2.8 million and $5.5 million of cash borrowings were outstanding against the agreements, respectively. At December 31, 1996, $1.4 million remains available, principally for issuance of letters of credit. The Company is seeking new banking arrangements to cover its potential future operating needs on terms that are acceptable to the Company. In addition to the short-term cash borrowings outstanding under the lines of credit with banks at December 31, 1996, $27.3 million of letters of credit was also outstanding. The letters of credit have been issued to foreign entities principally to guarantee performance under contracts or the return of unearned advanced payments in the event that the Company's performance is not in accordance with its contracts. Of the amount of letters of credit outstanding, $13.9 million relates to the Company's contract with the Government of Turkey and extends to June 4, 1997 or until the contract is completed, whichever occurs first. Although the contract will not be completed by June 4, 1997, the letter of credit agreement is renewable every four months. Management expects the letters of credit to be renewed until the completion date of the contract which is expected during the second half of 1998, although there are no contractual assurances of renewal. Interest on cash borrowings accrues at the annual rate of 10%. Commission rates on letters of credit range from .5% to 2.0% The letters of credit and short-term borrowing agreements require various collateral to be maintained. At December 31, 1996, collateral held includes most of the Company-owned buildings, a security interest in personal and intellectual properties (excluding machinery and equipment) in the United States, and cash and/or short-term investments amounting to $7.6 million. In addition, certain financial covenants apply to these agreements as well as a limitation on the payment of dividends and/or the purchase of treasury stock to 50% of net income for the prior four fiscal quarters. (page 16) NOTE E-LONG-TERM DEBT All long-term debt was paid off during 1996. Long-term debt at December 31, 1995 consisted of the following: 1996 1995 --------------------------------- Variable-rate mortgage bearing interest at 70% of the prime rate (5.95% at December 31, 1995), quarterly principal payments of $55,000 plus interest through November 30, 1997 $ - $ 437,000 Variable-rate mortgage bearing interest at 70% of the prime rate (5.95% at December 31, 1995), quarterly principal payments of $31,000 plus interest through May 1, 2001 - 675,000 ________________________________________________________________________________ - 1,112,000 Less current maturities - 342,000 ________________________________________________________________________________ $ - $ 770,000 ________________________________________________________________________________ ________________________________________________________________________________ Interest expense for the years 1996, 1995, and 1994 amounted to $988,000, $1,243,000, and $1,142,000, respectively. Interest paid for the years 1996, 1995, and 1994 amounted to $1,416,733, $832,000, and $1,226,000, respectively. NOTE F-STOCKHOLDERS' EQUITY The changes in common stock, additional paid-in capital, treasury stock, retained earnings, and foreign currency translation effects during the years 1994, 1995, and 1996 were as follows: Foreign Common Additional Currency Stock Paid-In Treasury Retained Translation Par $1 Capital Stock Earnings Effects ----------------------------------------------------------------- Balance, January 1, 1994 (4,981,273 common shares) $ 4,981,000 $ 697,000 $ - $ 88,906,000 $(625,000) Issuance of 9,127 shares on exercise of stock options 9,000 87,000 Tax benefit related to shares acquired by employees under stock options 3,000 Foreign currency translation adjustment 112,000 Net income 5,047,000 ________________________________________________________________________________________________________ Balance, December 31, 1994 (4,990,400 common shares) 4,990,000 787,000 - 93,953,000 (513,000) Issuance of 136,716 shares on exercise of stock options 137,000 1,385,000 Tax benefit related to shares acquired by employees under stock options 249,000 Acquisition of 14,991 shares of treasury stock received from employees as payment for stock options exercises (248,000) Retirement of 14,991 treasury shares (15,000) (233,000) 248,000 Foreign currency translation adjustment (97,000) Net income 3,930,000 ________________________________________________________________________________________________________ Balance, December 31, 1995 (5,112,127 common shares) 5,112,000 2,188,000 - 97,883,000 (610,000) Issuance of 21,273 shares on exercise of stock options 21,000 237,000 Tax benefit related to shares acquired by employees under stock options 11,000 Foreign currency translation adjustment 265,000 Net loss (14,780,000) ______________________________________________________________________________________________________________ ______________________________________________________________________________________________________________ Balance, December 31, 1996 (5,133,400 common shares) $ 5,133,000 $ 2,436,000 $ - $ 83,103,000 $(345,000) ______________________________________________________________________________________________________________ ______________________________________________________________________________________________________________ NOTE G-STOCK OPTIONS Pursuant to stock option plans, the Company has granted certain officers, directors, and key employees options to purchase shares of its common stock. Options granted under the plans must have an option price determined by the Board of Directors, but in any event, not less than the fair market value of the stock on the date of grant. Generally, options become exercisable one-fourth annually beginning one year after grant, on a cumulative basis, and expire five years after grant. There is no charge to income with respect to stock options under the plans. A summary of the changes in options during 1994, 1995, and 1996 follows: Shares Weighted Average Shares Under Exercise Available Option Price for Option -------------------------------------------------- At January 1, 1994 323,293 $ 13.28 47,235 Options granted: Option plan 164,600 11.56 (164,600) Individual options 30,000 10.56 (30,000) Options exercised (9,127) 10.55 - Options cancelled (185,648) 15.27 185,648 Authorization of 1994 options - - 150,000 Cancellations of authorization - - (97,000) ________________________________________________________________________________ At December 31, 1994 323,118 $ 11.66 91,283 Options granted: Option plan 22,900 12.11 (22,900) Individual options 72,000 11.37 (72,000) Options exercised (136,716) 11.13 - Options (22,639 12.34 22,639 Authorization of individual options - - 72,000 ________________________________________________________________________________ At December 31, 1995 258,663 $12.02 91,022 Options granted: Option plan 378,000 10.39 (378,000) Options exercised (10,275) 12.69 - Options cancelled (113,300) 9.89 113,300 Authorization of 1996 options - - 500,000 Cancellations of authorization - - (70,000) ________________________________________________________________________________ At December 31, 1996 (59,487 exercisable) 513,088 $10.81 256,322 ________________________________________________________________________________ ________________________________________________________________________________ (page 18) These options, with an exercise price range of $10.16 to $15.34, expire on various dates beginning February 1998 and ending December 2001. The weighted average remaining contractual life is 4.27 years. The weighted average option price of shares exercisable at December 31, 1996 was $12.11. Financial Accounting Standard No. 123 regarding "Accounting for Stock-Based Compensation" became effective for 1996. The Company has chosen to disclose the impact of stock-based compensation in its notes and will not include such impact on its recorded earnings. Had compensation cost been determined based on the fair value of options at the grant dates consistent with the method of SFAS 123, the Company's net income (loss) and earnings (loss) per share would have been as follows: 1996 1995 -------------------------------------------------- Net income (loss) As reported $ (14,780,000) $ 3,930,000 Pro-forma $ (15,128,000) $ 3,855,000 Earnings (loss) per share As reported $ (2.88) $ .77 Pro-forma $ (2.95) $ .76 The fair value of each option grant is estimated on the date of grant using the Black-Sholes options-pricing model with the following weighted-average assumptions used for grants in 1996 and 1995, respectively: dividend yield of 0 percent for all years; expected volatility of 27.3 and 29.9 percent; risk-free interest rates of 6.23 and 7.60 percent; and expected lives of 5 years. NOTE H-TAXES ON INCOME The provision (recovery) for income taxes is shown below. The recoveries shown on the current lines for each year represent tax loss carrybacks to earlier years. Federal State Foreign Total -------------------------------------------------------- 1996 Current $(5,019,000) $ (3,000) $3,923,000 $(1,099,000) Deferred 21,000 (344,000) (3,568,000) (3,891,000) Charge equivalent to tax benefit related to shares acquired by employees under stock options 11,000 - - 11,000 ________________________________________________________________________________ $(4,987,000) $(347,000) $ 355,000 $(4,979,000) ________________________________________________________________________________ ________________________________________________________________________________ 1995 Current $ (877,000) $(130,000) $ 1,896,000 $ 889,000 Deferred 533,000 173,000 127,000 833,000 Charge equivalent to tax benefit related to shares acquired by employees under stock options 249,000 - - 249,000 ________________________________________________________________________________ $ (95,000) $ 43,000 $ 2,023,000 $ 1,971,000 ________________________________________________________________________________ ________________________________________________________________________________ 1994 Current $ 5,799,000 $ 973,000 $ 2,549,000 $ 9,321,000 Deferred (5,929,000) (1,418,000) (97,000) (7,444,000) Charge equivalent to tax benefit related to shares acquired by employees under stock options 2,000 1,000 - 3,000 ________________________________________________________________________________ $ (128,000) $ (444,000) $ 2,452,000 $ 1,880,000 ________________________________________________________________________________ ________________________________________________________________________________ (page 19) The components of deferred income tax balances follow. No valuation allowances were required. Year Ended December 31, 1996 1995 1994 -------------------------------------------- Contract accounting $ 2,271,000 $ 7,353,000 $ 7,169,000 Excess tax over book depreciation 2,755,000 2,811,000 2,765,000 Inventory valuation (829,000) (677,000) (1,141,000) State deferred taxes (211,000) (328,000) (269,000) Other, net 847,000 (435,000) (633,000) ________________________________________________________________________________ $ 4,833,000 $ 8,724,000 $ 7,891,000 ________________________________________________________________________________ ________________________________________________________________________________ A reconciliation between the federal statutory rate and the effective income tax rate (computed by dividing income taxes by income before income taxes and minority interest) is as follows: Year Ended December 31, 1996 1995 1994 --------------------------------- Federal statutory rate (34.0%) 34.0% 34.0% State income taxes net of federal tax benefit (.5) .5 (3.7) Benefit from nontaxable FSC income (1.0) (2.1) (7.1) Effects of higher foreign income taxes 4.5 1.3 2.5 Dividends of a foreign subsidiary 1.6 - - Other, net 4.3 (.3) 1.4 ________________________________________________________________________________ Effective income tax rate (25.1%) 33.4% 27.1% ________________________________________________________________________________ ________________________________________________________________________________ Income tax payments, net of refunds, amounted to $1,614,000 in 1995 and $6,989,000 in 1996. Income tax refunds, net of payments, amounted to $940,000 in 1994. As of December 31, 1996 there were no unpaid income taxes including interest owed to the IRS. The Company has not provided deferred income taxes on cumulative unremitted earnings of foreign subsidiaries amounting to $8.0 million because of the availability of foreign tax credits which would eliminate the U.S. tax liability related to the inclusion of the foreign earnings. During 1996, $1.0 million of dividends was received from the Company's Turkish subsidiary. Pre-tax income from foreign operations is shown under Note I below. NOTE I-NATURE OF OPERATIONS, EXPORT SALES, MAJOR CUSTOMERS, AND FOREIGN OPERATIONS The Company operates predominantly in the electronics manufacturing industry. Aydin designs, manufactures and markets a wide range of telecommunications equipment, defense electronic systems and computer equipment and software, which are sold worldwide. Aydin generates approximately one-half of its sales from standard products and systems and the balance of its sales from custom-designed systems and equipment based on customers' specific requirements. Aydin offers a broad range of products due to its ability to combine analog microwave engineering methods with digital techniques and software. (page 20) Export sales by geographic area are as follows: 1996 1995 1994 ----------------------------------------------- Asia $ 4,259,000 $ 6,224,000 $ 6,788,000 Africa 3,203,000 4,003,000 2,553,000 Europe 10,767,000 18,273,000 27,137,000 North America 1,273,000 1,605,000 1,852,000 South America 435,000 376,000 1,005,000 Other 573,000 263,000 384,000 ________________________________________________________________________________ Total export sales $20,510,000 30,744,000 $39,719,000 ________________________________________________________________________________ ________________________________________________________________________________ The U.S. Government, the Government of Turkey and CTI (Argentina) were the only customers to whom sales exceeded 10% of consolidated sales during any of the past three years. Sales to U.S. Government agencies, principally the Department of Defense, amounted to $38,728,000, $44,309,000 and $42,015,000 in 1996, 1995 and 1994, respectively. Sales to the Government of Turkey amounted to $15,116,000, $16,549,000 and $24,888,000 in 1996, 1995 and 1994, respectively. Sales to CTI (Argentina) amounted to $15,739,000 in 1994. Foreign assets included in the consolidated balance sheet amounted to $21.7 million, $25.6 million and $25.2 million at December 31, 1996, 1995 and 1994, respectively. Of these amounts, $2.5 million, $.4 million and $6.7 million, at December 31, 1996, 1995 and 1994, respectively, are cash and short-term investments of the Company's Turkish subsidiary consisting primarily of U.S. dollar denominated interest-bearing time deposits. Foreign sales and pretax income for 1996 was $27.0 million and $.9 million, respectively, of which substantially all of the income comes from the Company's Turkish subsidiary. Foreign sales and pretax income for 1995 amounted to $28.9 million and $5.4 million, respectively, of which substantially all of the income was from the Turkish subsidiary. Foreign sales and pretax income for 1994 amounted to $37.2 million and $6.7 million, respectively. On December 31, 1996, the company disposed of the Argentina subsidiary. Accordingly, these assets are excluded from the December 31, 1996 foreign assets totals. NOTE J-COMMITMENTS AND CONTINGENCIES The Company, along with others, is responsible for the costs of cleanup under an order of the State of California at a site leased by the Company prior to 1984. Cleanup of the site has been completed. Costs incurred to date and future expected monitoring costs amount to $9.7 million. Of the total amount, $3.1 million are costs to be expended over the next thirty (30) years to monitor the cleanup. Those costs have been included in the accompanying consolidated balance sheet as liabilities discounted at 7% for the time value of money to the expected payment dates. Expected payments for the years following December 31, 1996 are $105,000 annually. In 1993 the Company reached settlement with three insurance carriers (with which the Company maintained environmental coverage on this site) for the payment of $6.7 million of costs. A court granted a declaratory judgement requiring the fourth carrier to pay cleanup costs in excess of the $6.7 million. That carrier is currently appealing that judgement. Amounts paid by the Company in excess of the $6.7 million recovered from the three insurance carriers, $1.5 million, plus the discounted future costs of monitoring the site, $1.1 million, have been recorded as Other Assets in the accompanying consolidated balance sheet at December 31, 1996. Management believes that it is probable that the Company will be successful in recovering these amounts from the insurer and that the resolution of this matter will not have an adverse affect on the financial position or results of operations of the Company. (page 21) During 1995 a subcontractor to the Company in the TMRC program with the Government of Turkey filed a demand for arbitration alleging a breach of contract and equitable adjustment of $12.4 million. This claim was amended in 1996 and increased to $18.4 million. The Company has filed a claim against the subcontractor for an amount in excess of the subcontractor's claim. Based on discussions with its outside counsel, management believes that it has meritorious defenses and counterclaims and expects the outcome to have no material adverse impact on the Company's financial position. The IRS is currently conducting field examinations of certain years' income tax filings. Management does not believe there will be any adverse effect from these examinations on financial position or results of operations. The Company's fixed price U.S. Government contracts are subject to audit by the government and price redetermination under certain circumstances. NOTE K-RESTRUCTURING COSTS During the third quarter of 1996 the Company announced a plan to consolidate and restructure its domestic operations. The Company recorded a charge of $3.7 million in the third quarter for the restructuring of which approximately $1.5 million was for cash outlays and $2.2 million was for non-cash asset write-offs. The major charges consisted of: severance benefits for 150 terminated employees ($600,000); loss on sale of a product line ($500,000); inventory write-offs ($1,000,000) and capital equipment ($300,000) write-offs in connection with the cutback of product lines; and write-off of goodwill in connection with the sale of a product line ($400,000). The restructuring has proceeded through the fourth quarter as planned with only minor changes. At December 31, 1996, $586,000 of the $3.7 million remains accrued to complete the restructuring which is expected to be completed during the second quarter of 1997. (page 22) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section represents a review of the Company's consolidated financial condition and results of operations. In addition to historical information, this discussion and analysis contains forward-looking statements. The forward-looking statements contained herein are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management's analysis only as of the date hereof. The Company undertakes no obligation to publicly revise or update these forward-looking statements to reflect events and circumstances that arise after the date hereof. Liquidity and Sources of Capital The Company has financed its operations over the past two years from internal cash sources because of the limited availability of outside cash borrowing sources. At December 31, 1996 there was $2.8 million of short-term cash borrowings outstanding with no current availability for further cash borrowings. Also at December 31, 1996 there was a letter of credit balance of $13.9 million issued against a $49 million advance payment received in 1990 in connection with a contract from the Government of Turkey. Offsetting the $13.9 million balance was $7.6 million of cash collateral. This letter of credit is currently being renewed in four month intervals or until it reaches zero, whichever comes first. The Company anticipates that the letter of credit will reach zero during the second half of 1998. Although there can be no assurance that this letter of credit will continue to be renewed, management is confident that the letter of credit will be renewed upon its current expiration and thereafter. The Company is currently seeking new banking arrangements on terms acceptable to the Company to supplement internally generated cash flows in meeting future potential operating requirements. The Company anticipates that its near-term cash requirements (in addition to renewed short-term financing requirements) can be financed through internally generated cash flows. Substantial amounts of cash flows are expected from certain of the Company's largest current long-term type contracts on which significant progress toward completion is expected in 1997. Performance in accordance with the contracts will permit the Company to bill and collect a significant portion of the $38 million of unbilled revenues at December 31, 1996 as well as additional amounts to be earned in 1997. However, if the Company is unable to meet delivery deadlines, cash flow will be negatively impacted. During 1996, management initiated a restructuring plan to consolidate operations and develop marketing strategies which are expected to increase sales and reduce operating costs. Full implementation of these operational changes is expected to take effect in 1997. As part of the restructuring and consolidation, three Company-owned buildings have been offered for sale. Two of these facilities are under contract for sale and an offer has been received on the third facility. Net proceeds from these sales are expected to generate approximately $10 million of available cash during 1997. There can be no assurances that the anticipated effects of management's restructuring, consolidation and other plans will result in the cash flows as expected and described above. Cash provided by operations was $189,000 compared to a negative cash flow from operations of $8.0 million last year. Cash collected during 1996 was approximately $153 million compared to net sales of $117 million. The excess of collections versus sales is reflected as a $37 million reduction on the consolidated balance sheet at December 31, 1996 compared to 1995 in accounts receivable and unbilled revenue. Most of these decreases relate to two large contracts (TMRC and RIS). Further reductions in unbilled revenue of approximately $15 million are expected during 1997 on these two contracts, which should generate significant positive cash flow. The year 1996 included two significant uses of cash, one being approximately $7 million of payments to the IRS and the other was a $9 million payment to a TMRC software subcontractor. (page 23) Cash used by operations during 1995 was $8.0 million. The primary reason for the negative cash flow had been delays of in excess of one year in obtaining delivery from the software subcontractor of the software for the TMRC-C3 contract with the Government of Turkey. These delays had held up collection from the customer of approximately $26 million, of which approximately $8 million was payable to the software subcontractor. The software was accepted by the customer during 1996. The major component of the $8.0 million of cash used by operations during 1995 was a net increase of $9.9 million in the aggregate of accounts receivable and unbilled revenue of which $1.7 million related to the TMRC-C3 program and $8.2 million related to non-TMRC activity reflecting increased sales volume during 1995 in contracts other than TMRC. Results of Operations 1996 versus 1995 Net sales for 1996 of $117 million declined by 17% from 1995 sales of $141 million. Approximately $10 million of this decline was in the company's non-TMRC systems type business where no new large contracts were won during 1996 although the company has bid and is hopeful of winning at least one such large ($30 to $40 million) contract during the first half of 1997. In addition, sales (and pre-tax profits) on the TMRC contract for 1996 were negatively impacted by $5.7 million because of prior years' delays in reaching contract performance milestones which required increases in estimated costs at completion during 1996 and resulted in the customer imposing liquidated damages. Negotiations with the customer concluded in the third quarter of 1996 resulted in contract modifications which extended performance milestones and should have a positive effect on maintaining contract profitability. U.S. Government sales, although still depressed, increased slightly to 33% of total sales from 32% last year. Export and foreign sales were 41% of total sales in both 1996 and 1995. Domestic industrial (commercial) sales were 26% of total sales compared to 27% last year. Backlog at December 31, 1996 was approximately $84 million as compared to $106 million a year ago, a decline of $22 million. Most of this decline was from the TMRC backlog which declined by $14 million, from $41 million to $27 million. Probable production options are not included in these backlog numbers. Cost of sales as a percentage of sales was 80.9% in 1996 compared to 72.8% in 1995. Approximately 50% of the increase resulted from the 1996 negative TMRC sales impact referred to above. The balance of the increase results from a combination of (1) inventory write-offs caused by discontinued or de-emphasized product lines; and (2) a higher proportion of fixed overhead costs in relationship to the reduced 1996 sales. Selling, general and administrative (SG&A) expenses increased by $4,173,000 (16%) in 1996 to $29,833,000 because of certain unusual operating expenses incurred in 1996 which are part of SG&A. These included: (1) $1.3 million of costs related to the Argentine subsidiary for which we disposed of our majority interest during 1996; (2) $750,000 of proposal costs; and (3) $1 million of bad debts write-offs involving mostly foreign receivables. The balance of the increase was from increased selling costs in the telecommunications area, added corporate infrastructure costs and costs related to a potential business combination which was abandoned. Research and development costs increased by $1.7 million (26%) during 1996 because of expanded developments in telecommunications systems. (page 24) During the third quarter of 1996, the Company announced a plan to consolidate and restructure its domestic operations. The Company recorded a charge of $3.7 million in the third quarter for expected restructuring costs of which approximately $1.5 million was for cash outlays and $2.2 million for non-cash asset write-offs. The major components of the charge were: severance benefits for 150 terminated employees ($600,000); loss on sale of a product line ($500,000); inventory write-offs ($1,000,000) and capital equipment ($300,000) write-offs in connection with the discontinuation of product lines; and write off of goodwill associated with the sale of a product line ($400,000). The restructuring has proceeded throughout the remainder of 1996 as planned with no significant changes from the original plan. The Company anticipated annual cash savings of approximately $4.3 million as a result of lower labor and facility costs emanating from the restructuring. The original restructuring plan anticipated the termination of 150 employees. At December 31, 1996, 90 of these terminations had occured and termination benefits were paid to those individuals. The remainder of the terminations, and payment of the related termination benefits of $331,000, are expected to occur during the first half of 1997. Restructuring charges and their application during 1996 are as follows: Total Activity Amount in 1996 Remainder ----------------------------------------------- Employee termination benefits $ 600,000 $ 269,000 $ 331,000 Loss on sale of product line 500,000 500,000 - Inventory and equipment write-off 1,300,000 1,300,000 - Goodwill write-off 400,000 400,000 - Other costs 900,000 645,000 255,000 ________________________________________________________________________________ Totals $3,700,000 $3,114,000 $ 586,000 ________________________________________________________________________________ ________________________________________________________________________________ The effective income tax rate decreased to 25.1% for 1996 compared to 33.4% for 1995 primarily because the effects of higher foreign income taxes and dividends from a foreign subsidiary reduced the tax benefit from the U.S. losses. 1995 versus 1994 Net sales for 1995 declined by 1% from 1994. U.S. Government sales, although still depressed, increased to 32% of total sales from 29% in 1994. Export and foreign sales decreased to 41% of total sales from 53% in 1994 primarily because of lower sales of the Argentine subsidiary compared to 1994's unusually high level and a slow-down in sales on the TMRC-C3 contract. Domestic industrial sales increased to 27% of total sales from 18% in 1994 because of higher commercial color CRT monitors and telecommunication sales. Backlog at December 31, 1995 was approximately $106 million as compared to $134 million in 1994. The Company has additional production options not included in the above figures. The TMRC-C3 contract backlog amounted to $41 million and $52 million, respectively, at December 31, 1995 and 1994. Research and Development costs increased by $1.4 million (28%) during 1995 because of expanded development efforts in telecommunication systems. Additionally, $586,000 of software development costs related to the telecommunication R&D was capitalized during 1995 in accordance with Financial Accounting Standard 86. (page 25) REPORT OF INDEPENDENT AUDITORS Report of Grant Thornton LLP Independent Auditors Stockholders and Board of Directors Aydin Corporation We have audited the consolidated balance sheets of Aydin Corporation and subsidiaries as of December 31, 1996 and 1995 and the related consolidated statements of operations and cash flows for each of the three years in the period ended December 31, 1996. These consolidated 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, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Aydin Corporation and subsidiaries as of December 31, 1996 and 1995 and the consolidated results of their operations and their consolidated cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. /s/ Grant Thornton LLP Philadelphia, Pennsylvania March 7, 1997 (page 26) SELECTED FINANCIAL DATA ($000 omitted except for per share amounts) 1996* 1995 1994 1993 1992 ---------------------------------------------------- For the Year Net sales $116,578 $140,607 $142,441 $141,475 $145,221 Cost of sales 94,363 102,391 104,270 118,554 101,452 Income (loss) before income taxes and minority interest (19,852)* 5,908 6,927 (7,312) 12,281 Net income (loss) (14,780) 3,930 5,047 (4,967) 7,062 Earnings (loss) per share (2.88) .77 1.01 (1.00) 1.40 Cash dividend per share - - - - .5 Return on average stockholders equity (16%) 4% 5% (5%) 7% At Year End Total Assets $120,322 $166,860 $166,078 $169,721 $172,332 Working Capital 68,765 85,615 81,786 76,506 80,578 Long-term debt - 770 1,549 1,902 2,295 Stockholders' equity 90,327 104,573 99,217 93,959 98,421 Stockholders' equity per share 17.60 20.46 19.88 18.86 19.93 <FN> * Income (loss) before income taxes and minority interest includes a $3,730,000 restructuring charge in the third quarter. Quarterly Financial Data ($000 omitted except for per share amounts) 1st 2nd 3rd 4th Year ---------------------------------------------------- 1996 Net sales $ 36,283 $ 26,706 $ 25,249 $ 28,340 $116,578 Cost of sales 25,308 25,228 20,425 23,402 94,363 Income (loss) before income taxes and minority interest 1,441 (9,352) (7,756) (4,185) (19,852) Net income (loss) 963 (7,024) (5,467) (3,252) (14,780) Earnings (loss) per share .19 (1.37) (1.07) (.63) (2.88) 1995 Net sales $ 35,588 $ 36,494 $ 32,932 $ 35,593 $140,607 Cost of sales 25,937 26,661 24,014 25,779 102,391 Income before income taxes and minority interest 1,835 1,665 1,077 1,331 5,908 Net income 1,191 1,073 774 892 3,930 Earnings per share .24 .21 .15 .17 .77 Common Stock Prices 1996 High Low 1995 High Low - ------------------------------------ ------------------------------------- Fourth Quarter $11.0 $ 8.5 Fourth Quarter $17.75 $14.75 Third Quarter 13.75 9.75 Third Quarter 19.75 14.125 Second Quarter 17.5 13.0 Second Quarter 15.75 14.125 First Quarter 15.5 12.875 First Quarter 15.0 11.5 Stockholder and Dividend Information Aydin has approximately 6,000 stockholders of record and individual partipants in security position listings. Aydin has no present plans to pay any special cash dividends. (page 27) [FLYLEAF] AYDIN CORPORATE HEADQUARTERS Horsham, PA AYDIN PRODUCTS GROUP AYDIN TELEMETRY Newtown, PA Airborne Data Acquisition Equipment and Systems (Telemetry), Ground Data Receive & Processing, Transmitters, Transponders, Receivers, Power Amplifiers, Digital Recorders, Data Links, Avionics, Bus Products, Ground to Air UHF/VHF Transceivers & Multiplexers, Special Microcircuits AYDIN DISPLAYS Horsham, PA High Resolution Color Monitors, Flat Panels & Workstation Products Military Display Processors, Ruggedized Monitors & Workstations, SPECTRUM AUTOSYNC(R) Color Monitors, Color Display Terminals, Workstations, X-Terminals AYDIN MICROWAVE San Jose, CA; Newtown, PA Thin Film Solid State Amplifiers & Microwave Integrated Circuit Components for the Wireless Telecommunications OEM industry, Digital & Analog Microwave Radios AYDIN COMMUNICATIONS SYSTEMS GROUP AYDIN GOVERNMENT SYSTEMS Horsham, PA; San Jose, CA System Integration, Command, Control & Communications (C3), Air Traffic Control, Modernization and Integration of Radars, Troposcatter Terminals, Turnkey Communications Systems AYDIN TELECOM Horsham, PA Digital Wireless Telephony Equipment & Systems, Cell Extender, Network Access Equipment, Transcoders, Multiplexers, Telecom Systems, Microcell, DACS, Satellite Modems, Satellite TDMA Next Generation Equipment AYDIN GOVERNMENT SYSTEMS Belgium NATO Program Support OTHER AYDIN EUROPE LIMITED United Kingdom European Operations (All products, systems & support) AYDIN YAZILIM VE ELEKTRONIK SANAYI A.S. Turkey Software, Command, Control and Communications Systems (C3), Air Defense, Digital Microwave Radios, Air-to-Ground VHF and UHF Radios, Telecom Equipment & Systems, Computer Equipment & Systems, Display Terminals AYDIN ELECTRO FAB Croydon, PA Single-sided, Double-sided, & Multilayer Printed Circuit Boards AYDIN RAYTOR Montgomeryville, PA Precision Metal Fabrications AYDIN MOLDED DEVICES Rancho Dominguez, CA Vinyl Components [INSIDE BACK COVER] CORPORATE INFORMATION AND DIRECTORY Board of Directors I. Gary Bard Chairman of the Board AYDIN Dr. Nev A. Gokcen Retired. Former Thermodynamicist, Department of the Interior Bureau of Mines Irwin L. Gross Chairman of the Board EA Industries Admiral Harry D. Train, II United States Navy (Retired) Former Commander-In-Chief, US Atlantic Command. Manager, Hampton Roads Operations, Science Applications International Corporation John F. Vanderslice Executive Vice President, AYDIN President, AYDIN Products Group Corporate Officers I. Gary Bard (*) Chairman President and Chief Executive Officer John F. Vanderslice (*) Executive Vice President, AYDIN President, AYDIN Products Group James R. Henderson (*) Vice President Treasurer and Chief Financial Officer Klaus D. Oebel (*) Vice President President, AYDIN Communications Systems Group H. Barry Maser (*) Vice President of Business Development and International Sales Demirhan Hakimoglu (*) Vice President Chief Executive Officer, AYDIN Yazilim ve Elektronik Sanayi A.S., Turkey Thomas M. LoCasale (*) Vice President Chief Scientist Robert A. Clancy Secretary Herbert Welber (*) Controller Assistant Treasurer (*) Executive Officer Corporate Headquarters: AYDIN 700 Dresher Road Horsham, Pennsylvania 19044 Telephone (215) 657-7510 FAX: (215) 657-3830 Independent Auditors Grant Thornton, L.L.P. Philadelphia, Pennsylvania Registrar & Transfer Agent ChaseMellon Shareholder Services, L.L.C. Overpeck Centre 85 Challenger Road Ridgefield Park, New Jersey 07660 1-800-526-0801 Stock Data AYDIN shares (ticker symbol AYD) are traded on the New York Stock Exchange Form 10-K A copy of the AYDIN 1996 Annual Report on Form 10-K to the Securities and Exchange Commission is available without charge upon written request to: Investor Relations AYDIN 700 Dresher Road P.O. Box 349 Horsham, Pennsylvania 19044 (215) 657-7510 Annual Meeting Shareholders are invited to attend our annual meeting: Friday, April 25, 1997 at 3:00 pm AYDIN Corporate Headquarters 700 Dresher Road Horsham, Pennsylvania 19044 Get More Information Online Chat with the CEO and learn more about AYDIN on the Internet at: http://www.aydin.com Exhibit 21 SUBSIDIARIES OF REGISTRANT NAME (and name under which JURISDICTION PERCENTAGE they do business-same) OF INCORPORATION OWNED - -------------------------- ----------------- ---------- Aydin Europe Limited United Kingdom 100% Aydin, S.A. Argentina 19% Aydin Foreign Sales Limited Guam 100% Aydin Investments, Inc. Delaware 100% Aydin Yazilim ve Elektronik Sanayi A.S. Turkey 100% (1) <FN> - -------------- (1) Ninety nine (99%) percent of the 100% is owned by registrant's wholly owned subsidiary, Aydin Investments, Inc. Exhibit 23 CONSENT OF INDEPENDENT AUDITORS The Board of Directors Aydin Corporation: We consent to incorporation by reference in Registration Statement Numbers: 33-61537, 33-53549, 33-34863, 33-22016, 33- 14284, 2-97645, 2-93603, 2-77623, and 2-64093 on Form S-8 of Aydin Corporation of our reports dated March 7, 1997, relating to the consolidated balance sheet of Aydin Corporation and subsidiaries as of December 31, 1996 and the related consolidated statements of operations and cash flows, and related schedules for the year ended December 31, 1996, which reports appear in or incorporated by reference in the 1996 annual report on Form 10-K of Aydin Corporation. /s/ Grant Thornton LLP Grant Thornton LLP Philadelphia, Pennsylvania March 28, 1997 Exhibit 99 INDEPENDENT AUDITORS' REPORT Under date of March 7, 1997, we reported on the consolidated balance sheet of Aydin Corporation and subsidiaries as of December 31, 1996, and the related consolidated statements of operations and cash flows for the year ended December 31, 1996, as contained in the 1996 Annual Report to stockholders. These consolidated financial statements and our reports thereon are incorporated by reference in the annual report on Form 10-K for the year 1996. In connection with our audit of the aforementioned consolidated financial statements, we also have audited the related financial statement schedules as listed in the accompanying index. These financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statement schedules based on our audit. In our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respect, the information set forth therein. /s/ Grant Thornton LLP Grant Thornton LLP Philadelphia, Pennsylvania March 7, 1997