<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended December 31, 1994 Commission File Number 0-2324
AEROFLEX INCORPORATED
(Formerly ARX, Inc.)
(Exact name of Registrant as specified in its Charter)
DELAWARE 11-1974412
- - - - -------------------------------- ---------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
35 South Service Road, Plainview, N.Y. 11803
- - - - -------------------------------------- --------------
(Address of principal executive offices) (Zip Code)
(516) 694-6700
----------------------------------------------------------------
(Registrant's telephone number, including area code)
*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, and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of the latest practicable date.
February 7, 1995 11,744,119
- - - - ------------------------------------------------------------------------
(Date) (Number of Shares)
<PAGE> 2
AEROFLEX INCORPORATED
AND SUBSIDIARIES
INDEX
----------
PAGE
---------
<TABLE>
<S> <C>
PART I: FINANCIAL INFORMATION
---------------------
CONSOLIDATED BALANCE SHEETS
December 31, 1994 and June 30, 1994 3-4
CONSOLIDATED STATEMENTS OF OPERATIONS
Six Months Ended December 31, 1994 and 1993 5
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended December 31, 1994 and 1993 6
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended December 31, 1994 and 1993 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8-10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Six and Three Months Ended December 31, 1994 and 1993 11-13
PART II: OTHER INFORMATION
-----------------
ITEM 1 Legal Proceedings 14
ITEM 6 Exhibits and Reports on Form 8-K 14
SIGNATURES 15
</TABLE>
<PAGE> 3
AEROFLEX INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30,
1994 1994
----------------- ----------------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 12,261,000 $ 8,238,000
Current portion of invested cash 635,000 150,000
Accounts receivable less allowance
for doubtful accounts of $520,000
and $434,000 12,866,000 16,804,000
Inventories (Note 6) 14,755,000 14,087,000
Deferred income taxes 640,000 640,000
Prepaid expenses and other current assets 971,000 937,000
------------- ------------
TOTAL CURRENT ASSETS 42,128,000 40,856,000
Invested cash 697,000 1,356,000
Property, plant and equipment, at cost, net 13,212,000 13,180,000
Costs in excess of fair value of net assets
of businesses acquired, net 10,450,000 10,602,000
Net assets of discontinued operations
(Note 3) 1,902,000 2,403,000
Deferred income taxes 368,000 403,000
Other assets 2,591,000 2,216,000
-------------- -------------
$ 71,348,000 $ 71,016,000
============== ============
</TABLE>
[FN]
See notes to consolidated financial statements
<PAGE> 4
AEROFLEX INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(continued)
<TABLE>
<CAPTION>
December 31, June 30,
1994 1994
----------------- ---------------
(Unaudited) (Audited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt
(Note 4) $ 1,307,000 $ 820,000
Accounts payable 2,371,000 3,222,000
Accrued expenses and other current
liabilities 5,459,000 7,580,000
Income taxes payable 288,000 662,000
-------------- --------------
Total Current Liabilities 9,425,000 12,284,000
-------------- --------------
Long-term debt (Note 4) 6,807,000 7,588,000
-------------- --------------
Other long-term liabilities 1,774,000 1,573,000
-------------- --------------
7-1/2% Senior Subordinated Convertible
Debentures (Note 5) 10,000,000 10,000,000
-------------- --------------
Stockholders' equity
Preferred stock, par value $.10
per share; authorized 1,000,000 shares:
Series A Junior Participating Preferred
Stock, par value $.10 per share,
authorized 150,000 shares - -
Common stock, par value $.10 per share;
authorized 25,000,000 shares; issued
11,734,000 and 11,799,000 shares 1,174,000 1,180,000
Additional paid-in capital 56,002,000 56,116,000
Accumulated deficit (13,834,000) (17,633,000)
------------- ------------
43,342,000 39,663,000
Less: Treasury stock, at cost
(58,000 shares) - 92,000
------------- ------------
43,342,000 39,571,000
------------- ------------
$ 71,348,000 $ 71,016,000
============= ============
</TABLE>
[FN]
See notes to consolidated financial statements
<PAGE> 5
AEROFLEX INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Six Months Ended
December 31,
------------------------
1994 1993
------ ------
(Unaudited) (Unaudited)
<S> <C> <C>
Net Sales $ 29,848,000 $ 25,072,000
Cost of Sales 20,411,000 17,238,000
------------ -------------
Gross Profit 9,437,000 7,834,000
Selling, General and Administrative Costs 6,858,000 5,781,000
------------- -------------
Operating Income 2,579,000 2,053,000
------------- -------------
Other Income (Expense)
Life insurance proceeds (Note 9) 2,000,000 -
Interest expense (784,000) (789,000)
Interest and other income 324,000 109,000
------------- -------------
Total Other Income (Expense) 1,540,000 (680,000)
------------- -------------
Income From Continuing Operations
Before Income Taxes 4,119,000 1, 373,000
Provision for Income Taxes (Note 7) 320,000 272,000
------------- -------------
Income From Continuing Operations 3,799,000 1,101,000
Income From Discontinued Operations
(Note 3) - 187,000
-------------- -------------
Net Income $ 3,799,000 $1,288,000
============== =============
Income per Common Share
Primary
Continuing Operations $ .31 $ .12
Discontinued Operations - .02
----- -----
Net Income $ .31 $ .14
===== =====
Fully Diluted
Continuing Operations $ .30 $ .11
Discontinued Operations - .01
----- -----
Net Income $ .30 $ .12
===== =====
Weighted Average Number of Common
Shares Outstanding
Primary 12,339,000 9,382,000
========== ==========
Fully Diluted 14,135,000 12,209,000
========== ==========
</TABLE>
[FN]
See notes to consolidated financial statements
<PAGE> 6
AEROFLEX INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
December 31,
--------------------------
1994 1993
------ ------
(Unaudited) (Unaudited)
<S> <C> <C>
Net Sales $ 15,821,000 $ 13,371,000
Cost of Sales 10,769,000 9,246,000
------------ ------------
Gross Profit 5,052,000 4,125,000
Selling, General and Administrative Costs 3,537,000 2,886,000
------------ ------------
Operating Income 1,515,000 1,239,000
------------ ------------
Other Income (Expense)
Life insurance proceeds (Note 9) 2,000,000 -
Interest expense (397,000) (370,000)
Interest and other income 161,000 42,000
------------ ------------
Total Other Income (Expense) 1,764,000 (328,000)
------------ ------------
Income Before Income Taxes 3,279,000 911,000
Provision for Income Taxes (Note 7) 195,000 162,000
------------ ------------
Income From Continuing Operations 3,084,000 749,000
Income (Loss) From Discontinued
Operations (Note 3) - (2,086,000)
------------ ------------
Net Income (Loss) $ 3,084,000 $ (1,337,000)
============ ============
Net Income (Loss) per Common Share:
Primary
Continuing Operations $ .25 $ .08
Discontinued Operations - (.22)
------ ------
Net Income (Loss) $ .25 $(.14)
====== ======
Fully Diluted
Continuing Operations $ .23 $ .07
Discontinued Operations - (.17)
------ ------
Net Income (Loss) $ .23 $(.10)
====== ======
Weighted Average Number of Common
Shares Outstanding
Primary 12,325,000 9,770,000
========== ==========
Fully Diluted 14,103,000 12,238,000
========== ==========
</TABLE>
[FN]
See notes to consolidated financial statements
<PAGE> 7
AEROFLEX INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
Six Months Ended
December 31,
------------------------
1994 1993
------ ------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,799,000 $ 1,288,000
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Income from discontinued operations - (187,000)
Depreciation and amortization 1,561,000 1,384,000
Other 36,000 86,000
Change in operating assets and liabilities:
Decrease (increase) in accounts receivable 3,841,000 2,725,000
Decrease (increase) in inventories (668,000) (1,039,000)
Decrease (increase) in prepaid expenses and
other assets (595,000) (28,000)
Increase (decrease) in accounts payable, accrued
expenses and other long-term liabilities (2,771,000) (2,020,000)
Increase (decrease) in income taxes payable (374,000) (1,203,000)
Increase (decrease) in deferred income
taxes payable 35,000 (6,000)
------------- ------------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 4,864,000 1,000,000
------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash provided by (used in)
discontinued operations 501,000 5,610,000
Proceeds from sale of property, plant
and equipment 450,000 -
Decrease (increase) in invested cash 174,000 1,875,000
Capital expenditures (1,671,000) (617,000)
Other - 6,000
------------ -----------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES (546,000) 6,874,000
------------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under debt agreements 292,000 515,000
Net debt repayments (587,000) (8,286,000)
------------- -----------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES (295,000) (7,771,000)
------------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 4,023,000 103,000
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 8,238,000 360,000
------------- ------------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 12,261,000 $ 463,000
============ ===========
</TABLE>
[FN]
See notes to consolidated financial statements
<PAGE> 8
AEROFLEX INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The consolidated balance sheet of Aeroflex Incorporated and Subsidiaries
("the Company") as of December 31, 1994 and the related consolidated
statements of operations for the six and three months ended December 31,
1994 and 1993 and the statements of cash flows for the six months ended
December 31, 1994 and 1993 have been prepared by the Company and are
unaudited. In the opinion of management, all adjustments (which include
only normal recurring adjustments and the adjustments referred to in Note 3)
necessary to present fairly the financial position, results of operations and
cash flows at December 31, 1994 and for all periods presented have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been omitted. It is suggested that these consolidated
financial statements be read in conjunction with the financial statements and
notes thereto included in the Company's June 30, 1994 annual report to
shareholders. There have been no changes of significant accounting policies
since June 30, 1994.
Certain reclassifications have been made to previously reported financial
statements to conform to current classifications.
Results of operations for the six and three month periods are not necessarily
indicative of results of operations for the corresponding years.
2. Acquisition of Business
Effective January 1, 1994, the Company acquired substantially all of the net
operating assets of the microelectronics division of Marconi Circuit
Technology Corporation ("Circuit Tech") for $5,650,000 and assumed liabilities
of $3,115,000. The purchase price was allocated to the assets acquired based
upon the respective fair values as of the acquisition date. The purchase was
financed through borrowings under the Company's revolving line of credit
agreement. The acquired division's net sales of microelectronic products were
approximately $17,500,000 for the twelve months ended December 31, 1993.
Summarized below are the unaudited pro forma results of operations of the
Company as if Circuit Tech had been acquired at the beginning of the fiscal
periods presented:
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Six Months Three Months Pro Forma
Ended Ended Year Ended
December 31, December 31, June 30,
1993 1993 1994
--------------- -------------- -------------
(in thousands, except per share data)
<S> <C> <C> <C>
Net Sales $ 33,227 $ 17,230 $ 73,757
Income From Continuing Operations 954 180 5,703
Net Income 1,141 (1,906) 5,890
Earnings Per Share
Primary
Income From Continuing
Operations $ .10 $ .02 $ .54
Net Income (loss) .12 (.20) .56
Fully Diluted
Income From Continuing
Operations .10 .02 .48
Net Income (loss) .11 (.15) .50
</TABLE>
The pro forma financial information presented above is not necessarily
indicative of either the results of operations that would have occurred
had the acquisition taken place at the beginning of the periods presented or
of future operating results of the combined companies.
The acquisition has been accounted for as a purchase and, accordingly, the
acquired assets and liabilities assumed have been recorded at their estimated
fair values at the date of acquisition. The operating results of Circuit
Tech are included in the consolidated statements of operations from the
acquisition date.
3. Discontinued Operations
In September 1993, the Company entered into an agreement with the U.S. Air
Force in full settlement of claims against the U.S. Air Force on two
telecommunication contracts which were completed in 1992. The settlement
represents a final mutual release of all claims between the parties
relative to these two contracts. The settlement, together with other
unrelated settlements of claims and adjustments of previously recorded loss
reserves, resulted in an after tax gain of $2,295,000, which was included
in discontinued operations in the first quarter of fiscal 1994.
<PAGE> 9
In November 1993, the Company sold substantially all of the net operating
assets of its Huxley subsidiary for $5,550,000, including a $700,000 five
year subordinated secured note. Huxley is a manufacturer of specialized
envelopes for high-volume direct-mail users. The disposal is being accounted
for as a discontinued operation, and, accordingly, Huxley's operations and
the loss on disposal have been reported separately from continuing opera-
tions. Huxley's assets and liabilities have been reclassified on the balance
sheet from the historic classifications and combined under the caption "net
assets of discontinued operations".
4. Revolving Credit Agreements
As of April 11, 1994 the Company entered into a revised revolving credit
and term loan agreement with two banks which is secured by accounts
receivable, inventory, the Company's stockholdings in certain of its sub-
sidiaries and the Company's principal operating facility. The agreement
provides for a revolving credit line of $16,000,000 and a term loan of
$4,000,000, both of which expire on March 31, 1997. The interest rate
on borrowings under this agreement is at various rates depending upon
certain financial ratios, with the present rate substantially equivalent
to the prime rate (8.5% at December 31, 1994). The terms of the
agreement require compliance with certain covenants including minimum
consolidated working capital and tangible net worth, maintenance of certain
financial ratios, limitations on capital expenditures and lease commitments,
and prohibition of the payment of cash dividends. Management believes that
this revolving credit and term loan facility, coupled with cash to be
provided by future operations, will be sufficient for its working capital
requirements, capital expenditure needs, wind-down of discontinued opera-
tions and the servicing of its debt.
5. Senior Subordinated Convertible Debentures
In December 1992, the Company completed a sale of $6,870,000 of principal
amount of 7% Convertible Senior Subordinated Debentures to non-U.S. persons.
The debentures were convertible into the Company's common stock at a price
of $2.25 per share. All of the net proceeds from the debenture offering were
used to repay indebtedness under the revolving credit and term loan agree-
ment. In February 1994, the Company called for redemption all outstanding
debentures. Substantially all of the debentures were converted and the
balance, $8,000, was redeemed as of March 31, 1994.
During June 1994, the Company completed a sale of $10,000,000 of principal
amount of 7-1/2% Senior Subordinated Convertible Debentures to non-U.S.
persons. The debentures are due June 15, 2004 and are convertible into the
Company's common stock at a price of $5-5/8 per share. The net proceeds from
the offering were used initially to retire certain bank indebtedness and for
general working capital with excess proceeds placed in temporary short term
bank related investments.
6. Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1994 1994
-------------- -------------
<S> <C> <C>
Raw Materials $ 5,813,000 $ 5,706,000
Work in Process 6,391,000 5,800,000
Finished Goods 2,551,000 2,581,000
----------- -----------
$14,755,000 $14,087,000
=========== ===========
</TABLE>
<PAGE> 10
7. Income Taxes
At June 30, 1994 the Company had net operating loss carryforwards of
approximately $19,000,000 for Federal income tax purposes which expire
through 2006. The income tax provisions for the six and three months ended
December 31, 1994 and 1993 include benefits relating to the recognition of
unrealized and realized net operating loss carryforwards.
The Company is undergoing routine audits by various taxing authorities of
several of its U.S. Federal, state and local income tax returns covering
different periods from 1988 to 1993. In view of the Company's Puerto Rico
operations and the increased focus by the Internal Revenue Service on
profit allocations between U.S. and foreign related entities, deficiencies
could be proposed. Management believes that the probable outcome of these
various audits should not materially affect the consolidated financial
statements of the Company.
8. Contingencies
A subsidiary of the Company whose operations were discontinued in 1991, is
one of several defendants named in a personal injury action initiated in
August, 1994, by a group of plaintiffs. The complaint alleges, among other
things, that the plaintiffs suffered injuries from exposure to substances
contained in products sold by the subsidiary to one of its customers.
Considering its various defenses, together with its product liability
insurance, in the opinion of management of the Company, the outcome of the
action against its subsidiary will not have a materially adverse effect on
the Company's consolidated financial statements.
9. Life Insurance Proceeds
During the quarter ended December 31, 1994, the Company received
$2,000,000 of insurance proceeds on the death of the former Chairman.
<PAGE> 11
AEROFLEX INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Six Months Ended December 31, 1994 Compared to
Six Months Ended December 31, 1993
- - - - -----------------------------------------------
Net sales increased to $29,848,000 for the six months ended December 31,
1994 from $25,072,000 for the six months ended December 31, 1993. Income from
continuing operations increased to $3,799,000 for the six months ended December
31, 1994 from $1,101,000 for the comparable period in the prior year.
Net sales in the electronics segment increased to $22,985,000 for the six months
ended December 31, 1994 from $18,678,000 for the six months ended December 31,
1993 primarily as a result of the acquisition of the microelectronics division
of Marconi Circuit Technology Corporation in January 1994. Operating profits
increased by $648,000 as a result of the higher sales, partially offset by
increased selling, general and administrative costs.
Net sales in the shock and vibration segment increased to $6,863,000 for the
six months ended December 31, 1994 from $6,394,000 for the six months ended
December 31, 1993. The increase is primarily attributable to higher sales
volume of commercial and industrial isolators. Operating profits increased by
$4,000. The increase in volume was offset by an unfavorable change in the
product mix.
Cost of sales as a percentage of sales decreased to 68.4% from 68.8% between the
two periods. Selling general and administrative costs as a percentage of sales
decreased to 23.0% from 23.1%.
Interest expense decreased to $784,000 from $789,000. Decreased levels of
borrowings were offset by increased interest rates. Interest and other income
were greater by $215,000 as a result of the short term investments made with
the proceeds from the 7-1/2% debentures. The income tax provisions for the
six month periods ended December 31, 1994 and 1993 were less than the amounts
computed by applying the U.S. Federal income tax rate to income from continuing
operations before income taxes primarily as a result of the tax benefits of
loss carryforwards (both unrealized and realized) and the exemption of the
earnings of the Company's Puerto Rican subsidiary from U.S. Federal income
taxes, and, for the period ended December 31, 1994, because of the non-taxable
life insurance proceeds of $2,000,000.
<PAGE> 12
In September 1993, the Company entered into an agreement with the U.S. Air
Force in full settlement of claims against the U.S. Air Force for extra work,
delays and other out-of-scope costs on two telecommunication contracts which
were the primary reasons for T-CAS's loss in 1991. The settlement represents a
final mutual release of all claims between the parties relative to these two
contracts. The settlement, together with other unrelated settlements of claims
and adjustments of previously recorded loss reserves, resulted in an after tax
gain of $2,295,000, which was included in discontinued operations in the first
quarter of fiscal 1994.
In November 1993, the Company sold substantially all of the net operating
assets of its Huxley subsidiary. The disposal is being accounted for as a
discontinued operation, and, accordingly, Huxley's operations and the loss on
disposals, have been reported separately from continuing operations. This loss
of $2,108,000 represents a loss from Huxley's operations of $187,000 and a loss
on the disposal of $1,921,000.
Three Months Ended December 31,1994 Compared to
Three Months Ended December 31, 1993
- - - - ------------------------------------------------
Net sales increased to $15,821,000 for the three months ended December 31, 1994
from $13,371,000 for the three months ended December 31, 1993. Income from
continuing operations increased to $3,084,000 for the three months ended
December 31, 1994 from $749,000 for the comparable period in the prior year.
Net sales in the electronics segment increased to $12,345,000 for the three
months ended December 31, 1994 from $9,973,000 for the three months ended
December 31, 1993 primarily as a result of the acquisition of the micro-
electronics division of Marconi Circuit Technology Corporation in January 1994.
Operating profits increased by $379,000 as a result of the higher sales,
partially offset by increased selling, general and administrative costs.
Net sales in the shock and vibration segment increased to $3,476,000 for the
three months ended December 31, 1994 from $3,398,000 for the three months ended
December 31, 1993. The increase is primarily attributable to higher sales
volume of commercial and industrial isolators partially offset by lower sales
volume of military isolators. Operating profits decreased by $86,000 due to the
change in product mix.
Cost of sales as a percentage of sales decreased to 68.1% from 69.1% between the
two periods. Selling, general and administrative costs as a percentage of
sales increased to 22.4% from 21.6%.
<Page 13>
Interest expense increased to $397,000 from $370,000 due to increased interest
rates. Interest and other income were greater by $119,000 as a result of the
short term investments made with the proceeds from the 7-1/2% debentures. The
income tax provisions for the three month periods ended December 31, 1994 and
1993 were less than the amounts computed by applying the U.S. Federal income tax
rate to income from continuing operations before income taxes
primarily as a result of the tax benefits of loss carryforwards (both unrealized
and realized) and the exemption of the earnings of the Company's Puerto Rican
subsidiary from U.S. Federal income taxes, and, for the period ended December
31, 1994, because of the non-taxable life insurance proceeds of $2,000,000.
In November 1993, the Company sold substantially all of the net operating assets
ofits Huxley subsidiary. The disposal is being accounted for as a discontinued
operation, and, accordingly, Huxley's operations and the loss on disposal have
been reported separately from continuing operations. This loss, $2,086,000 for
the three months ended December 31, 1993, represents a loss from Huxley's
operations of $165,000 and a loss on the disposal of $1,921,000.
Financial Condition
The Company's working capital at December 31, 1994 was $32,703,000 as compared
to $28,572,000 at June 30, 1994. The current ratio increased to 4.5 to 1 from
3.3 to 1 at June 30, 1994.
Cash provided by operating activities was $4,864,000 for the six months ended
December 31, 1994 primarily due to the collection of receivables offset, in
part, by reductions in accrued expenses. Cash used by investing activities of
$546,000 was comprised primarily of capital expenditures partially offset by net
cash provided by discontinued operations. The net cash provided by operating
and investing activities for the six month period was used to reduce debt by
$295,000 and increase short-term investments by approximately $4,000,000.
Management believes that the revolving credit and term loan facility, coupled
with cash to be provided by future operations, will be sufficient for its
presently anticipated working capital requirements, capital expenditure needs,
wind-down of discontinued operations and the servicing of its debt.
As of April 11, 1994, the Company entered into a revised revolving credit and
term loan agreement with two banks which is secured by accounts receivable,
inventory, the Company's stockholdings in certain of its subsidiaries and the
Company's principal operating facility. The agreement provides for a revolving
credit line of $16,000,000 and a term loan of $4,000,000 both of which expire
on March 31, 1997. See Note 4 to the Consolidated Financial Statements.
During June 1994, the Company completed a sale of $10,000,000 of principal
amount of 7-1/2% Senior Subordinated Convertible Debentures to non-U.S. persons.
The debentures are due June 15, 2004 subject to prior sinking fund payments of
10%, 10%, 15% and 15% of the principal amount on September 15, 2000, 2001, 2002
and 2003, respectively. The debentures are convertible into the Company's
common stock at a price of $5-5/8 per share.
<PAGE> 14
In November 1993, the Company sold its Huxley subsidiary for $5,550,000,
including a $700,000 five year subordinated secured note. The net cash proceeds
from the sale were used to repay indebtedness under the revolving credit and
term loan agreement. In July, 1994, the $700,000 note was satisfied.
In January 1994, the Company acquired substantially all of the net operating
assets of the microelectronics division of Marconi Circuit Technology
Corporation for $5,650,000. The operations acquired have been consolidated with
the Company's wholly-owned subsidiary, Aeroflex Laboratories, Incorporated.
The acquired division's net sales of microelectronic products were approximately
$17,500,000 for the twelve months ended December 31, 1993.
A subsidiary of the Company whose operations were discontinued in 1991, is one
of several defendants named in a personal injury action initiated in August,
1994, by a group of plaintiffs. The complaint alleges, among other things, that
the plaintiffs suffered injuries from exposure to substances contained in
products sold by the subsidiary to one of its customers. Considering its
various defenses, together with its product liability insurance, in the opinion
of management of the Company, the outcome of the action against its subsidiary
will not have a materially adverse effect on the Company's consolidated
financial statements.
Management believes that potential reductions in military spending will not
materially affect its operations. Many of the programs the Company is involved
in are not expected to be curtailed.
At June 30, 1994, the Company had net operating loss carryforwards of
approximately $19,000,000 for Federal income tax purposes. The Company is
undergoing routine audits by various taxing authorities of several of its U.S.
Federal, state, and local income tax returns covering different periods from
1988 to 1993. In view of the Company's Puerto Rico operations and the increased
focus by the Internal Revenue Service on profit allocations between U.S. and
foreign related entities, deficiencies could be proposed. Management believes
that the probable outcome of these various audits should not materially affect
the consolidated financial statements of the Company.
<PAGE> 15
AEROFLEX INCORPORATED
AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Old Corp. (formerly Filtron Co., Inc.) a subsidiary of the Company whose
operations were discontinued in October 1991, was one of several
defendants named in a personal injury action instituted recently by
several plaintiffs in the Supreme Court of the State of New York, County
of Kings.
According to the allegations of the Amended Verified Complaint, the
plaintiffs, who are current or former employees of a company to whom Old
Corp. sold RFI filters/capacitors, and their wives, are seeking to
recover, respectively, directly and derivatively, on diverse theories of
negligence, strict liability and breach of warranty, for injuries
allegedly suffered from exposure to a liquid substance or material which
Old Corp. incorporated for a period of time in the RFI filters/capacitors
which it manufactured.
Without considering the merits of the action, in view of the nature of
the referenced transactions and based upon the existence of product
liability insurance covering Old Corp.'s operations during the relevant
period of time, the management of the Company does not believe that the
outcome of the action against its subsidiary would have a material
adverse effect on the Company's consolidated financial statements.
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
<PAGE> 16
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
10.1 Employment Agreement dated as of July 1, 1994 between the
Company and Harvey R. Blau.
10.2 Employment Agreement dated as of July 1, 1994 between the
Company and Michael Gorin.
10.3 Employment Agreement dated as of July 1, 1994 between the
Company and Leonard Borow.
11 Computation of Earnings per Common Share
99 Supplemental Executive Retirement Plan
(b) Reports on Form 8-K
None
<PAGE> 17
AEROFLEX INCORPORATED
AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AEROFLEX INCORPORATED
(REGISTRANT)
By: /s/ Michael Gorin
--------------------------
Michael Gorin
President and Chief Financial
Officer
February 7, 1995
<PAGE> 1
AEROFLEX INCORPORATED
AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
Six Months Three Months
Ended December 31, Ended December 31,
1994 1993 1994 1993
------ ------ ------ ------
<S> <C> <C> <C> <C>
COMPUTATION OF ADJUSTED
NET INCOME (LOSS):
Income from continuing
operations $ 3,799,000 $ 1,101,000 $ 3,084,000 $ 749,000
Discontinued operations - 187,000 - (2,086,000)
----------- ----------- ----------- ----------
Net income (loss) for
primary earnings
per common share 3,799,000 1,288,000 3,084,000 (1,337,000)
Add: Debenture interest
and amortization
expense, net of
income taxes 382,000 218,000 191,000 99,000
------------ ---------- ---------- ----------
Adjusted net income
(loss) for fully
diluted earnings
per common share $ 4,181,000 $1,506,000 $ 3,275,000 $(1,238,000)
============ =========== =========== ===========
COMPUTATION OF ADJUSTED
WEIGHTED AVERAGE
SHARES OUTSTANDING:
Weighted average shares
outstanding 11,737,000 8,996,000 11,734,000 9,251,000
Add: Effect of options
and warrants
outstanding 602,000 386,000 591,000 519,000
---------- --------- ---------- ---------
Weighted average shares
and common share
equivalents used for
computation of primary
earnings per common
share 12,339,000 9,382,000 12,325,000 9,770,000
Add: Effect of
additional options
and warrants
outstanding for
fully diluted
computation 18,000 89,000 - -
Add: Shares assumed
to be issued upon
conversion of
debentures 1,778,000 2,738,000 1,778,000 2,468,000
---------- ---------- ----------- ---------
Weighted average shares
and common share
equivalents used for
computation of fully
diluted earnings
per common share 14,135,000 12,209,000 14,103,000 12,238,000
========== ========== ========== ==========
EARNINGS PER COMMON SHARE
AND COMMON SHARE EQUIVALENT:
Primary:
Income from continuing
operations $ .31 $ .12 $ .25 $ .08
Discontinued operations - .02 - (.22)
----- ----- ----- -----
Net income (loss) $ .31 $ .14 $ .25 $(.14)
===== ===== ===== =====
Fully diluted:
Income from continuing
operations $ .30 $ .11 $ .23 $ .07
Discontinued operations - .01 - (.17)
----- ----- ----- -----
Net income (loss) $ .30 $ .12 $ .23 $(.10)
===== ===== ===== =====
</TABLE>
<PAGE> 1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, made and entered into as of July 1, 1994,
between Aeroflex Incorporated, a Delaware corporation, with its principal office
located at 35 South Service Road, Plainview, NY 11803 (together with its
successors and assigns permitted under this Agreement, the "Company"), and
Harvey R. Blau, who resides at 125 Wheatley Road, Old
Westbury, NY 11568 (the "Executive").
W I T N E S S E T H
WHEREAS, the Company has determined that it is in the best interests
of the Company and its shareholders to enter into an employment agreement
setting forth the obligations and duties of both the Company and the Executive
(this "Agreement"); and
WHEREAS, the Company wishes to assure itself of the continued services
of the Executive for the period hereinafter provided, and the Executive is
willing to be employed by the Company for said period, upon the terms and
conditions provided in this Agreement;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good and valuable consideration, the receipt of
which is mutually acknowledged, the Company and the Executive (individually a
"Party" and together the "Parties") agree as follows:
<PAGE> 2
1. DEFINITIONS.
(a) "Annual Bonus" shall mean the annual bonus to which the
Executive is entitled pursuant to Section 4 below.
(b) "Base Salary" shall mean the annual salary to which the
Executive is entitled pursuant to Section 3 below.
(c) "Beneficiary" shall mean the person or persons named by the
Executive pursuant to Section 22 below or, in the event that no such person is
named and survives the Executive, his estate.
(d) "Board" shall mean the Board of Directors of the Company.
(e) "Cause" shall mean:
(i) the Executive's conviction of a felony involving moral
turpitude,
(ii) the Executive's willful gross misconduct in carrying
out his duties under this Agreement, or
<PAGE> 3
(iii) a breach by the Executive of the provisions of
Section 10 or Section 11 below.
(f) "Change in Control" shall mean:
(i) a change in control as such term is presently defined in
Regulation 240.12b-2 under the Securities Exchange Act of 1934 ("Exchange
Act");
(ii) if during the Term of Employment any "person" (as such
term is used in Section 13(d) and 14(d) of the Exchange Act) other than the
Company or any person who on the date of this Agreement is a director or
officer of the Company, becomes the "beneficial owner" (as defined in Rule
13(d)-3 under the Exchange Act), directly or indirectly, of securities of the
Company representing 20% of the voting power of the Company's then outstanding
securities; or
(iii) if during the Term of Employment individuals who at the
beginning of such period constitute the Board cease for any reason other than
death, disability or retirement to constitute at least a majority thereof.
(g) "Compensation Committee" shall mean the Compensation
Committee of the Board.
<PAGE> 4
(h) "Disability" shall mean the illness or other mental or
physical disability of the Executive resulting in his failure to perform
substantially his duties under this Agreement for a period of six or more
consecutive months or an aggregate of nine months in any 12-month period.
(i) "Fiscal Year" shall mean the fiscal year of the Company,
which is the 12-month period beginning each July 1 and ending on the next
succeeding June 30.
(j) "Good Reason" shall mean:
(i) reduction in the Executive's Base Salary or Annual Bonus or
a change in the method of computing the Executive's Annual Bonus that adversely
affects said bonus,
(ii) the loss by the Executive of his position,
(iii) a significant diminution of the Executive's duties or
responsibilities or the assignment to him of duties or responsibilities
inconsistent with his position or title,
(iv) a material reduction in any plan or program of the Company
in which the Executive participates unless such reduction affects the senior
management of the Company generally or the discontinuance of any such plan or
program unless a comparable equivalent plan or program is substituted, or
(v) the Executive must, in carrying out his duties and
responsibilities under this Agreement, spend significant time outside Long
Island or New York City.
(k) "Spouse" shall mean, during the Term of Employment, the
woman who as of the relevant date is legally married to the Executive.
<PAGE> 5
(l) "Term of Employment" or "Term" shall mean the period
specified in Section 2(b) below.
2. TERM OF EMPLOYMENT, POSITIONS AND DUTIES.
(a) Employment of Executive. The Company hereby employs the
Executive, and the Executive hereby accepts employment with the Company, in the
position and with the duties and responsibilities set forth below, and upon
such other terms and conditions as are hereinafter stated.
(b) Term of Employment. The Term of Employment shall commence
on the date above written, and shall terminate on the fifth anniversary
subsequent to said date and, unless either Party gives written notice to the
other that it does not want the Term to continue, the Term of Employment
shall thereafter automatically extend for successive periods of one year.
(c) Title and Duties. Until the date of termination of his
employment hereunder, the Executive shall be employed as a senior executive
officer of the Company. If the Board so requests, the Executive shall
serve as a member of the board of a subsidiary or affiliate of the Company.
(d) Time and Effort. The Executive agrees, subject to the
provisions of Section 11, to devote such time and attention as he deems
appropriate and his best efforts and abilities to the affairs of the Company.
Nothing shall preclude the Executive from (i) serving on the boards of a
reasonable number of other corporations, trade associations and/or charitable
organizations, (ii) engaging in charitable activities and community affairs
or (iii) managing his personal investments and affairs; provided, however,
that such activities do not materially interfere with the proper performance
of his duties and responsibilities specified in Section 2(c) above.
<PAGE> 6
3. BASE SALARY.
(a) The Executive shall receive from the Company an initial
annual Base Salary, payable in accordance with the regular payroll practices
of the Company, of $200,000. During the Term of Employment, the Compensation
Committee shall review the Base Salary no less often than annually for increase
as of each July 1 beginning with July 1, 1995; provided, however, that
increases shall not be less than the increases in the Consumer Price Index
for the New York and Northeastern New Jersey Region, as published by the
United States Department of Labor, Bureau of Labor Statistics using June
1994 as the basedate, determined and payable as provided in Section 3(b)
below.
(b) The cost-of-living adjustment (COLA) with respect to the
Executive's Base Salary shall be made annually as follows:
The first calculation shall be made on or before August 1,
1995, with respect to the period July 1, 1994 through June 30, 1995 with a
lump-sum payment for the COLA being made as soon as practicable. The same
procedure shall be followed each year thereafter.
<PAGE> 7
If the Executive's employment shall terminate during any annual period
referred to in this Section 3(b), then the cost-of-living increment provided
for herein shall be prorated accordingly.
4. ANNUAL BONUS.
(a) Amount of Bonus. Each year during the Term of Employment,
theExecutive shall be eligible to receive an annual bonus equal to 3% of
the Company's consolidated pre-tax earnings for such Fiscal Year, but not
more than 200% of the Executive's then Base Salary. Annual consolidated
pre-tax earnings shall be computed without regard to any payments due under
this Section 4(a).
(b) Payment of Bonus. Any Annual Bonus, including any prorated
Annual Bonus payable under this Agreement, shall be paid to the Executive or
to his Beneficiary, as the case may be, upon receipt of audited accounts for
the Fiscal Year with respect to which it is awarded.
5. STOCK OPTIONS.
During the Term of Employment, the Executive shall be eligible to
receive stock option grants and similar awards under existing and future plans
or programs of the Company adopted and administered by the Compensation
Committee and approved by shareholders.
<PAGE> 8
6. EXPENSES AND EXPENSE REIMBURSEMENT.
During the Term of Employment, the Executive shall be entitled to
prompt reimbursement by the Company for all reasonable out-of-pocket expenses
incurred by him in performing services under this Agreement, upon his
submission of such accounts and records as may be required by Company policy.
7. PERQUISITES.
The Executive shall receive such Company-paid perquisites as are
customarily provided to senior executives of the Company, including but not
limited to:
(a) a car suitable to the Executive's position together with
the insurance, maintenance and garaging costs associated with such car,
(b) continuation of a split-dollar life insurance policy in
the amount of $250,000, and
(c) membership in a club of the Executive's choice.
<PAGE> 9
8. EMPLOYEE BENEFIT PLANS AND PROGRAMS.
The Executive shall participate in all employee benefit plans and
programs for which he is eligible and which are made available to the Company's
senior executives or to its employees generally, as such plans or programs may
be in effect from time to time, including, without limitation, pension and
other retirement plans, profit-sharing plans, savings and similar plans,
group life insurance, accidental death and dismemberment insurance, travel
accident insurance, hospitalization insurance, surgical insurance,
medical insurance, dental insurance, short-term and long-term disability
insurance, sick leave (including salary continuation arrangements), vacations,
holidays and any other employee benefit plans or programs that may be
sponsored by the Company from time to time, including any plans that supplement
the foregoing types of plans, whether funded or unfunded.
9. TERMINATION OF EMPLOYMENT.
(a) General. Except as otherwise provided in this Agreement,
in the event of termination of the Executive's employment under this Agreement,
he, his dependents or his Beneficiary, as may be the case, shall be entitled to
receive benefits under the Company's employee benefit plans described in
Section 8 above, in accordance with the applicable terms and conditions of
each plan, and reimbursement of any business expenses incurred by the
Executive but not yet paid to him.
<PAGE> 10
(b) Termination Due to Death. In the event that the Executive's
employment is terminated due to his death, for each year (and prorated for any
portion of a year) to the end of the Term, his Beneficiary shall be entitled to
the sum of 50% of the Executive's (A) Base Salary, at the rate in effect on
the date of his death, and (B) last previously awarded Annual Bonus, payable
in accordance with the Company's regular payroll practices.
(c) Termination Due to Disability. In the event of Disability,
the Company or the Executive may terminate the Executive's employment. If the
Executive's employment is terminated due to Disability, he shall be entitled
to the benefits described in 9(b) above.
(d) Termination by the Company for Cause. In the event that
the Executive's employment is terminated for Cause, he shall be entitled to:
(i) his Base Salary through the date of termination of his
employment for Cause, and
(ii) any Annual Bonus awarded but not yet paid to him.
The Executive shall be permitted to respond and defend himself
before the Board or a committee thereof within a reasonable time after written
notification of any proposed termination of his employment for Cause under
clauses (ii) and (iii) of Section 1(e) above.
<PAGE> 11
(e) Termination Without Cause.
(i) Termination Without Cause shall mean:
(A) termination of the Executive's employment by the
Company other than due to death or Disability or for Cause, or
(B) termination by the Executive for Good Reason.
(ii) The Executive may not terminate his employment for
Good Reason unless:
(A) he has delivered a written notice to the Board within
12 months of his having actual knowledge of one of the events, described in
Section 1(j) above, providing a basis for Good Reason, stating which one of
those events has occurred;
(B) within 30 days of the delivery of the notice, the
Company has not remedied such event and provided him with a written notice of
such remedy, and
(C) in the event the Company has not remedied such event as
provided in Clause (B) above, the Executive notifies the Company in writing
That he is terminating his employment.
The failure of the Executive to terminate for Good
Reason as to any one event described in Section 1(j) above shall not affect
his entitlement to terminate for Good Reason as to any other such event.
(iii) In the event of Termination Without Cause, the Executive
shall be entitled to, for three years following his termination:
(A) Base Salary at the rate in effect on the date of his
termination,
<PAGE> 12
(B) last previously awarded Annual Bonus, payable in
accordance with Company's regular payroll practices, and
(C) benefits under any employee benefit plans of the
Company in which he participated or, as to any plans in which his continued
participation is precluded, the after-tax cost to the Executive of
equivalent benefits.
(f) Termination Following Change in Control. In the event
there shall be a Change in Control of the Company or of any person directly
or indirectly presently controlling the Company, the Executive may, within
six months of his becoming aware of such event, terminate his employment
with the Company. Upon such termination, the Executive shall receive
immediately in a lump sum the benefit described in Section 9(e) above but in
no event an amount greater than is deductible under Section 280G of the
Internal Revenue Code of 1986, as amended, such amount to be determined by
the Company's independent auditors.
(g) Voluntary Termination by the Executive. The Executive
shall have the right, upon 90 days' written notice to the Company, voluntarily
to terminate his employment, in which event the Executive's entitlements shall
be the same as if he had been terminated by the Company for Cause, as provided
in Section 9(d) above.
(h) No Mitigation; No Offset. In the event of termination of
the Executive's employment under this Section 9, he shall be under no
obligation to seek other employment or to offset or repay any amounts that he
receives under this Agreement by any payments that he receives from a
subsequent employer.
<PAGE> 13
(i) Nature of Payments. Any amounts due under this Section 9
are in the nature of severance payments or liquidated damages or both, and
shall fully compensate the Executive and his dependents or Beneficiary, as
the case may be, for any and all direct damages and consequential damages that
any of them may suffer as a result of termination of the Executive's
employment, and they are not in the nature of a penalty.
10. CONFIDENTIAL INFORMATION.
(a) The Executive understands and hereby acknowledges that as
a result of his employment with the Company he will necessarily become
informed of and have access to certain valuable and confidential information
of the Company and any of its subsidiaries, joint ventures or affiliates,
including without limitation inventions, trade secrets, technical information,
know-how, plans, specifications, and identity of customers and suppliers, and
that such information even though it may be developed or otherwise acquired
by the Executive is the exclusive property of the Company to be held by the
Executive in trust and solely for the Company's benefit. Accordingly, the
Executive hereby agrees that he shall not at any time either during or
subsequent to his employment hereunder use, reveal, report, publish, transfer
or otherwise disclose to any person, corporation or other entity any of the
Company's confidential information without the prior written consent of the
Company, except to responsible officers and employees of the Company and other
<PAGE> 14
responsible persons who are in a contractual or fiduciary relationship with
the Company or who have a need for such information for purposes in the
interest of the Company and except for such information that legally and
legitimately is or becomes of general public knowledge from authorized
sources other than the Executive.
(b) Upon the termination of his employment with the Company
for any reason whatsoever, the Executive shall promptly deliver to the
Company all drawings, manuals, letters, notes, notebooks, reports and copies
thereof and all other materials including without limitation those of a
secret or confidential nature relating to the Company's business that are
in the Executive's possession or control.
11. COVENANT NOT TO COMPETE.
The Executive agrees that during the Term and for a period of two
years after termination of his employment with the Company for any reason, he
shall not, within 50 miles of any location at which the Company, at the time
of his termination of employment, is conducting its business (or in such
smaller area or for such lesser period as may be determined by a court of
competent jurisdiction to be a reasonable limitation on the competitive
activity of the Executive), directly or indirectly:
(a) engage in a competitive line of business to that carried
on by the Company either for his own account or with or for anyone else,
<PAGE> 15
(b) solicit or attempt to solicit business of any customers of
the Company for products or services the same or similar to those offered,
sold, produced or under development by the Company,
(c) otherwise divert or attempt to divert from the Company any
business whatsoever,
(d) solicit or attempt to solicit for any business endeavor any
employee of the Company,
(e) interfere with any business relationship between the Company
and any other person, or
(f) render any services as an officer, director, employee,
partner, consultant or otherwise to, or have any interest as a stockholder,
partner, lender or otherwise in, any person that is so engaged.
Notwithstanding anything to the contrary in this Section 11, the
provisions hereof shall not prevent the Executive from purchasing or owning
up to 5% of the voting securities of any corporation the stock of which is
publicly traded. The Executive's employment in any capacity by or with
Instrument Systems Corporation or Blau, Kramer, Wactlar & Lieberman, P.C.
or any successors thereto shall not be deemed a breach of this Section 11 or
of any other provision of this Agreement.
<PAGE> 16
12. INJUNCTIVE RELIEF.
The Parties specifically agree that any breach of any of the
provisions of Section 10 or Section 11 above shall constitute a material breach
of this Agreement. In the event of a breach or threatened breach by the
Executive of any of the provisions of Section 10 or Section 11 of this
Agreement, the Company shall be entitled to pursue any remedies available to
the Company at law or in equity, including, but not limited to, injunctive
relief.
13. WITHHOLDING TAXES.
All payments to the Executive or his Beneficiary shall be subject
to withholding on account of federal, state and local taxes as required by
law. If any payment hereunder is insufficient to provide the amount of such
taxes required to be withheld, the Company may withhold such taxes from any
other payment due the Executive or his Beneficiary. In the event that all
cash payments due the Executive are insufficient to provide the required
amount of such withholding taxes, the Executive or his Beneficiary, within
five days after written notice from the Company, shall pay to the Company
the amount of such withholding taxes in excess of all cash payments due the
Executive or his Beneficiary.
<PAGE> 17
14. INDEMNIFICATION.
The Company agrees to indemnify the Executive to the fullest extent
permitted by applicable law consistent with the Company's Certificate of
Incorporation and By-Laws as in effect on the effective date of this Agreement
with respect to any action or failure to act on his part while he was an
officer, director and/or employee (a) of the Company or any subsidiary
thereof or (b) of any other entity if his service with such entity was at the
request of the Company. This provision shall survive the termination of this
Agreement.
15. EFFECT OF AGREEMENT ON OTHER BENEFITS.
The existence of this Agreement shall not prohibit or restrict the
Executive's entitlement to participate fully in the executive compensation,
employee benefit and other plans or programs of the Company in which senior
executives are eligible to participate.
16. ASSIGNABILITY; BINDING NATURE.
This Agreement shall be binding upon and inure to the benefit of
the Parties and their respective successors, heirs (in the case of the
Executive) and assigns. No rights or obligations of the Company under this
Agreement may be assigned or transferred by the Company except that such
rights or obligations may be assigned or transferred pursuant to (a) a merger
or consolidation in which the Company is not the continuing entity or
(b) sale or liquidation of all or substantially all
<PAGE> 18
of the assets of the Company, provided that the assignee or transferee is the
successor to all or substantially all of the assets of the Company and such
assignee or transferee assumes the liabilities, obligations and duties of
the Company, as contained in this Agreement, either contractually or as a
matter of law. The Company further agrees that, in the event of a sale of
assets or liquidation as described in the preceding sentence, it will use its
best efforts to cause such assignee or transferee expressly to assume the
liabilities, obligations and duties of the Company hereunder. No obligations
of the Executive under this Agreement may be assigned or transferred by the
Executive.
17. REPRESENTATIONS.
The Parties respectively represent and warrant that each is fully
authorized and empowered to enter into this Agreement and that the performance
of its or his, as the case may be, obligations under this Agreement will not
violate any agreement between such Party and any other person, firm or
organization.
18. ENTIRE AGREEMENT.
Except to the extent otherwise provided herein, this Agreement
contains the entire understanding and agreement between the Parties concerning
the subject matter hereof and supersedes any prior agreements, whether written
or oral, between the Parties concerning the subject matter hereof.
<PAGE> 19
19. AMENDMENT OR WAIVER.
No provision in this Agreement may be amended unless such amendment
is agreed to in writing and signed by both the Executive and an authorized
officer of the Company other than the Executive. No waiver by either Party of
any breach by the other Party of any condition or provision contained in this
Agreement to be performed by such other Party shall be deemed a waiver of a
similar or dissimilar condition or provision at the same or any prior or
subsequent time. Any waiver must be in writing and signed by the Executive
or an authorized officer of the Company other than the Executive, as the case
may be.
20. SEVERABILITY.
In the event that any provision or portion of this Agreement shall
be determined to be invalid or unenforceable for any reason, in whole or in
part, the remaining provisions of this Agreement shall be unaffected thereby
and shall remain in full force and effect to the fullest extent permitted
by law.
21. SURVIVORSHIP.
The respective rights and obligations of the Parties hereunder
shall survive any termination of the Executive's employment with the Company
to the extent necessary to the intended preservation of such rights and
obligations as described in this Agreement.
<PAGE> 20
22. BENEFICIARIES/REFERENCES.
The Executive shall be entitled to select (and change, to the
extent permitted under any applicable law) a beneficiary or beneficiaries
to receive any compensation or benefit payable hereunder following the
Executive's death by giving the Company written notice thereof. In the
event of the Executive's death or of a judicial determination of his
incompetence, reference in this Agreement to the Executive shall be deemed
to refer to his beneficiary, and if the Executive shall not have designated
a beneficiary, his Spouse.
23. GOVERNING LAW/JURISDICTION.
This Agreement shall be governed by and construed and interpreted
in accordance with the laws of New York, without reference to principles of
conflict of laws.
24. RESOLUTION OF DISPUTES.
(a) Arbitration/Litigation. Any disputes arising under or in
connection with this Agreement shall be resolved, in the Executive's
discretion, either:
(i) by arbitration, to be held in New York City, in accordance
with the commercial rules and procedures of the American Arbitration
Association, or
(ii) by litigation; provided, however, that the venue of such
litigation shall be in the state of New York.
<PAGE> 21
(b) Costs. All costs, fees and expenses, including attorneys'
fees, of any arbitration or litigation in connection with this Agreement,
including, without limitation, attorney's fees of both the Executive and the
Company, shall be borne by, and be the obligation of, the Company unless
the Company shall substantially prevail, in which event the Executive shall be
required to pay the costs and expenses incurred by him relating to such
arbitration or litigation. The obligation of the Company under this Section 23
shall survive the termination for any reason of this Agreement (whether such
termination is by the Company, by the Executive, upon the expiration of this
Agreement or otherwise).
(c) Continuation of Payments. Pending the outcome or resolution
of any arbitration or litigation, the Company shall continue payment of all
amounts due the Executive under this Agreement without regard to any dispute.
25. NOTICES.
Any notice given to either Party shall be in writing and shall be
deemed to have been given when delivered either personally, by fax, by
overnight delivery service (such as Federal Express) or sent by certified or
registered mail, postage prepaid, return receipt requested, duly addressed
to the Party concerned at the address indicated below or to such changed
address as such Party may subsequently give such notice of.
<PAGE> 22
If to the Company or the Board:
Aeroflex Incorporated
35 South Service Road
Plainview, NY 11803
Attention: ____________________
FAX: (916) 258-6167
If to the Executive:
Harvey R. Blau
125 Wheatley Road
Old Westbury, NY 11568
26. HEADINGS.
The headings of the sections contained in this Agreement are for
convenience only and shall not be deemed to control or affect the meaning or
construction of any provision of this Agreement.
<PAGE> 23
27. COUNTERPARTS.
This Agreement may be executed in two or more counterparts.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as
of the date first written above.
Aeroflex Incorporated
Attest: _______________________ By ____________________________________
Witness: _______________________ ________________________________________
Harvey R. Blau
<PAGE> 1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, made and entered into as of July 1, 1994,
between Aeroflex Incorporated, a Delaware corporation, with its principal
office located at 35 South Service Road, Plainview, NY 11803 (together with
its successors and assigns permitted under this Agreement, the "Company"),
and Michael Gorin, who resides at 112B East Long Beach Road, Nissequogue, NY
11780 (the "Executive").
W I T N E S S E T H
WHEREAS, the Company has determined that it is in the best interests
of the Company and its shareholders to enter into an employment agreement
setting forth the obligations
and duties of both the Company and the Executive (this "Agreement"); and
WHEREAS, the Company wishes to assure itself of the continued services
of the Executive for the period hereinafter provided, and the Executive is
willing to be employed by the Company for said period, upon the terms and
conditions provided in this Agreement;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good and valuable consideration, the receipt of
which is mutually acknowledged, the Company and the Executive (individually a
"Party" and together the "Parties") agree as follows:
<PAGE> 2
1. DEFINITIONS.
(a) "Annual Bonus" shall mean the annual bonus to which the
Executive is entitled pursuant to Section 4 below.
(b) "Base Salary" shall mean the annual salary to which the
Executive is entitled pursuant to Section 3 below.
(c) "Beneficiary" shall mean the person or persons named by the
Executive pursuant to Section 22 below or, in the event that no such person is
named and survives the Executive, his estate.
(d) "Board" shall mean the Board of Directors of the Company.
(e) "Cause" shall mean:
(i) the Executive's conviction of a felony involving moral
turpitude,
(ii) the Executive's willful gross misconduct in carrying
out his duties under this Agreement, or
(iii) a breach by the Executive of the provisions of Section
10 or Section 11 below.
<PAGE> 3
(f) "Change in Control" shall mean:
(i) a change in control as such term is presently defined in
Regulation 240.12b-2 under the Securities Exchange Act of 1934 ("Exchange Act");
(ii) if during the Term of Employment any "person" (as such term
is used in Section 13(d) and 14(d) of the Exchange Act) other than the Company
or any person who on the date of this Agreement is a director or officer of the
Company, becomes the "beneficial owner" (as defined in Rule 13(d)-3 under the
Exchange Act), directly or indirectly, of securities of the Company representing
20% of the voting power of the Company's then outstanding securities; or
(iii) if during the Term of Employment individuals who at the
beginning of such period constitute the Board cease for any reason other than
death, disability or retirement to constitute at least a majority thereof.
(g) "Compensation Committee" shall mean the Compensation
Committee of the Board.
(h) "Disability" shall mean the illness or other mental or
physical disability of the Executive resulting in his failure to perform
substantially his duties under this Agreement for a period of six or more
consecutive months or an aggregate of nine months in any 12-month period.
<PAGE> 4
(i) "Fiscal Year" shall mean the fiscal year of the Company,
which is the 12-month period beginning each July 1 and ending on the next
succeeding June 30.
(j) "Good Reason" shall mean:
(i) reduction in the Executive's Base Salary or Annual Bonus or
a change in the method of computing the Executive's Annual Bonus that adversely
affects said bonus,
(ii) the loss by the Executive of his position,
(iii) a significant diminution of the Executive's duties or
responsibilities or the assignment to him of duties or responsibilities
inconsistent with his position or title,
(iv) a material reduction in any plan or program of the Company
in which the Executive participates unless such reduction affects the senior
management of the Company generally or the discontinuance of any such plan or
program unless a comparable equivalent plan or program is substituted, or
(v) the Executive must, in carrying out his duties and
responsibilities under this Agreement, spend significant time outside Long
Island or New York City.
(k) "Spouse" shall mean, during the Term of Employment, the
woman who as of the relevant date is legally married to the Executive.
(l) "Term of Employment" or "Term" shall mean the period
specified in Section 2(b) below.
<PAGE> 5
2. TERM OF EMPLOYMENT, POSITIONS AND DUTIES.
(a) Employment of Executive. The Company hereby employs the
Executive, and the Executive hereby accepts employment with the Company, in the
position and with the duties and responsibilities set forth below, and upon such
other terms and conditions as are hereinafter stated.
(b) Term of Employment. The Term of Employment shall commence on
the date above written, and shall terminate on the fifth anniversary subsequent
to said date and, unless either Party gives written notice to the other that it
does not want the Term to continue, the Term of Employment shall thereafter
automatically extend for successive periods of one year.
(c) Title and Duties. Until the date of termination of his
employment hereunder, the Executive shall be employed as a senior executive
officer of the Company. If the Board so requests, the Executive shall serve as
a member of the board of a subsidiary or affiliate of the Company.
(d) Time and Effort. The Executive agrees to devote his full
business time and attention and his best efforts and abilities to the affairs of
the Company. Nothing shall preclude the Executive from (i) serving on the
boards of a reasonable number of other corporations, trade associations
and/or charitable organizations, (ii) engaging in charitable activities and
community affairs or (iii) managing his personal investments and affairs;
provided, however, that such activities do not materially interfere with the
proper performance of his duties and responsibilities specified in Section
2(c) above.
<PAGE> 6
3. BASE SALARY.
(a) The Executive shall receive from the Company an initial
annual Base Salary, payable in accordance with the regular payroll practices of
the Company, of $250,000. During the Term of Employment, the Compensation
Committee shall review the Base Salary no less often than annually for increase
as of each July 1 beginning with July 1, 1995; provided, however, that increases
shall not be less than the increases in the Consumer Price Index for the New
York and Northeastern New Jersey Region, as published by the United States
Department of Labor, Bureau of Labor Statistics using June 1994 as the basedate,
determined and payable as provided in Section 3(b) below.
(b) The cost-of-living adjustment (COLA) with respect to the
Executive's Base Salary shall be made annually as follows:
The first calculation shall be made on or before August 1, 1995,
with respect to the period July 1, 1994 through June 30, 1995 with a lump-sum
payment for the COLA being made as soon as practicable. The same procedure
shall be followed each year thereafter. If the Executive's employment shall
terminate during any annual period referred to in this Section 3(b), then the
cost-of-living increment provided for herein shall be prorated accordingly.
<PAGE> 7
4. ANNUAL BONUS.
(a) Amount of Bonus. Each year during the Term of Employment,
th executive shall be eligible to receive an annual bonus equal to 3% of the
Company's consolidated pre-tax earnings for such Fiscal Year, but not more than
200% of the Executive's then Base Salary. Annual consolidated pre-tax earnings
shall be computed without regard to any payments due under this Section 4(a).
(b) Payment of Bonus. Any Annual Bonus, including any prorated
Annual Bonus payable under this Agreement, shall be paid to the Executive or to
his Beneficiary, as the case may be, upon receipt of audited accounts for the
Fiscal Year with respect to which it is awarded.
5. STOCK OPTIONS.
During the Term of Employment, the Executive shall be eligible to
receive stock option grants and similar awards under existing and future plans
or programs of the Company adopted and administered by the Compensation
Committee and approved by shareholders.
<PAGE> 8
6. EXPENSES AND EXPENSE REIMBURSEMENT.
During the Term of Employment, the Executive shall be entitled to
prompt reimbursement by the Company for all reasonable out-of-pocket expenses
incurred by him in performing services under this Agreement, upon his submission
of such accounts and records as may be required by Company policy.
7. PERQUISITES.
The Executive shall receive such Company-paid perquisites as are
customarily provided to senior executives of the Company, including but not
limited to:
(a) a car suitable to the Executive's position together with the
insurance, maintenance and garaging costs associated with such car, and
(b) continuation of a split-dollar life insurance policy in the
amount of $1,000,000, and
<PAGE> 9
8. EMPLOYEE BENEFIT PLANS AND PROGRAMS.
The Executive shall participate in all employee benefit plans and
programs for which he is eligible and which are made available to the Company's
senior executives or to its employees generally, as such plans or programs may
be in effect from time to time, including, without limitation, pension and other
retirement plans, profit-sharing plans, savings and similar plans, group life
insurance, accidental death and dismemberment insurance, travel accident
insurance, hospitalization insurance, surgical insurance, medical insurance,
dental insurance, short-term and long-term disability insurance, sick leave
(including salary continuation arrangements), vacations, holidays and any
other employee benefit plans or programs that may be sponsored by the Company
from time to time, including any plans that supplement the foregoing types of
plans, whether funded or unfunded.
9. TERMINATION OF EMPLOYMENT.
(a) General. Except as otherwise provided in this Agreement, in
the event of termination of the Executive's employment under this Agreement, he,
his dependents or his Beneficiary, as may be the case, shall be entitled to
receive benefits under the Company's employee benefit plans described in Section
8 above, in accordance with the applicable terms and conditions of each plan,
and reimbursement of any business expenses incurred by the Executive but not yet
paid to him.
(b) Termination Due to Death. In the event that the Executive's
employment is terminated due to his death, for each year (and prorated for any
portion of a year) to the end of the Term, his Beneficiary shall be entitled to
the sum of 50% of the Executive's (A) Base Salary, at the rate in effect on the
date of his death, and (B) last previously awarded Annual Bonus, payable in
accordance with the Company's regular payroll practices.
<PAGE> 10
(c) Termination Due to Disability. In the event of Disability,
the Company or the Executive may terminate the Executive's employment. If the
Executive's employment is terminated due to Disability, he shall be entitled to
the benefits described in 9(b) above.
(d) Termination by the Company for Cause. In the event that the
Executive's employment is terminated for Cause, he shall be entitled to:
(i) his Base Salary through the date of termination of his
employment for Cause, and
(ii) any Annual Bonus awarded but not yet paid to him.
The Executive shall be permitted to respond and defend himself
before the Board or a committee thereof within a reasonable time after written
notification of any proposed termination of his employment for Cause under
clauses (ii) and (iii) of Section 1(e) above.
<PAGE> 11
(e) Termination Without Cause.
(i) Termination Without Cause shall mean:
(A) termination of the Executive's employment by the Company
other than due to death or Disability or for Cause, or
(B) termination by the Executive for Good Reason.
(ii) The Executive may not terminate his employment for Good
Reason unless:
(A) he has delivered a written notice to the Board within
12 months of his having actual knowledge of one of the events, described in
Section 1(j) above, providing a basis for Good Reason, stating which one of
those events has occurred;
(B) within 30 days of the delivery of the notice, the
Company has not remedied such event and provided him with a written notice of
such remedy, and
(C) in the event the Company has not remedied such event as
provided in Clause (B) above, the Executive notifies the Company in writing that
he is terminating his employment.
The failure of the Executive to terminate for Good Reason
as to any one event described in Section 1(j) above shall not affect his
entitlement to terminate for Good Reason as to any other such event.
(iii) In the event of Termination Without Cause, the Executive
shall be entitled to, for three years following his termination:
<PAGE> 12
(A) Base Salary at the rate in effect on the date of his
termination,
(B) last previously awarded Annual Bonus, payable in
accordance with Company's regular payroll practices, and
(C) benefits under any employee benefit plans of the Company
in which he participated or, as to any plans in which his continued
participation is precluded, the after-tax cost to the Executive of equivalent
benefits.
(f) Termination Following Change in Control. In the event there
shall be a Change in Control of the Company or of any person directly or
indirectly presently controlling the Company, the Executive may, within six
months of his becoming aware of such event, terminate his employment with the
Company. Upon such termination, the Executive shall receive immediately
in a lump sum the benefit described in Section 9(e) above but in no event
an amount greater than is deductible under Section 280G of the Internal Revenue
Code of 1986, as amended, such amount to be determined by the Company's
independent auditors.
(g) Voluntary Termination by the Executive. The Executive shall
have the right, upon 90 days' written notice to the Company, voluntarily to
terminate his employment, in which event the Executive's entitlements shall be
the same as if he had been terminated by the Company for Cause, as provided in
Section 9(d) above.
<PAGE> 13
(h) No Mitigation; No Offset. In the event of termination of
the Executive's employment under this Section 9, he shall be under no obligation
to seek other employment or to offset or repay any amounts that he receives
under this Agreement by any payments that he receives from a subsequent
employer.
(i) Nature of Payments. Any amounts due under this Section 9 are
in the nature of severance payments or liquidated damages or both, and shall
fully compensate the Executive and his dependents or Beneficiary, as the case
may be, for any and all direct damages and consequential damages that any of
them may suffer as a result of termination of the Executive's employment, and
they are not in the nature of a penalty.
10. CONFIDENTIAL INFORMATION.
(a) The Executive understands and hereby acknowledges that as a
result of his employment with the Company he will necessarily become informed of
and have access to certain valuable and confidential information of the Company
and any of its subsidiaries, joint ventures or affiliates, including without
limitation inventions, trade secrets, technical information, know-how, plans,
specifications, and identity of customers and suppliers, and that such
information even though it may be developed or otherwise acquired by the
Executive is the exclusive property of the Company to be held by the Executive
in trust and solely for the Company's benefit. Accordingly, the Executive
hereby agrees that he shall not at any time either during or subsequent to his
employment hereunder use, reveal, report, publish, transfer or otherwise
disclose to any person, corporation or other entity any of the Company's
<PAGE> 14
confidential information without the prior written consent of the Company,
except to responsible officers and employees of the Company and other
responsible persons who are in a contractual or fiduciary relationship with
the Company or who have a need for such information for purposes in the interest
of the Company and except for such information that legally and legitimately is
or becomes of general public knowledge from authorized sources other than
the Executive.
(b) Upon the termination of his employment with the Company for
any reason whatsoever, the Executive shall promptly deliver to the Company all
drawings, manuals, letters, notes, notebooks, reports and copies thereof and all
other materials including without limitation those of a secret or confidential
nature relating to the Company's business that are in the Executive's
possession or control.
11. COVENANT NOT TO COMPETE.
The Executive agrees that during the Term and for a period of two
years after termination of his employment with the Company for any reason, he
shall not, within 50 miles of any location at which the Company, at the time of
his termination of employment, is conducting its business (or in such smaller
area or for such lesser period as may be determined by a court of competent
jurisdiction to be a reasonable limitation on the competitive activity of the
Executive), directly or indirectly:
(a) engage in a competitive line of business to that carried on
by the Company either for his own account or with or for anyone else,
<PAGE> 15
(b) solicit or attempt to solicit business of any customers
of the Company for products or services the same or similar to those offered,
sold, produced or under development by the Company,
(c) otherwise divert or attempt to divert from the Company
any business whatsoever,
(d) solicit or attempt to solicit for any business endeavor any
employee of the Company,
(e) interfere with any business relationship between the Company
and any other person, or
(f) render any services as an officer, director, employee,
partner, consultant or otherwise to, or have any interest as a stockholder,
partner, lender or otherwise in, any person that is so engaged.
Notwithstanding anything to the contrary in this Section 11, the
provisions hereof shall not prevent the Executive from purchasing or owning up
to 5% of the voting securities of any corporation the stock of which is publicly
traded.
12. INJUNCTIVE RELIEF.
The Parties specifically agree that any breach of any of the
provisions of Section 10 or Section 11 above shall constitute a material breach
of this Agreement. In the event of a breachor threatened breach by the
Executive of any of the provisions of Section 10 or Section 11 of this
Agreement, the Company shall be entitled to pursue any remedies available to
the Company at law or in equity, including, but not limited to, injunctive
relief.
<PAGE> 16
13. WITHHOLDING TAXES.
All payments to the Executive or his Beneficiary shall be subject to
withholding on account of federal, state and local taxes as required by law. If
any payment hereunder is insufficient to provide the amount of such taxes
required to be withheld, the Company may withhold such taxes from any other
payment due the Executive or his Beneficiary. In the event that all cash
payments due the Executive are insufficient to provide the required amount
of such withholding taxes, the Executive or his Beneficiary, within five days
after written notice from the Company, shall pay to the Company the amount of
such withholding taxes in excess of all cash payments due the Executive or
his Beneficiary.
14. INDEMNIFICATION.
The Company agrees to indemnify the Executive to the fullest extent
permitted by applicable law consistent with the Company's Certificate of
Incorporation and By-Laws as in effect on the effective date of this Agreement
with respect to any action or failure to act on his part while he was an
officer, director and/or employee (a) of the Company or any subsidiary thereof
or (b) of any other entity if his service with such entity was at the request of
the Company. This provision shall survive the termination of this Agreement.
<PAGE> 17
15. EFFECT OF AGREEMENT ON OTHER BENEFITS.
The existence of this Agreement shall not prohibit or restrict the
Executive's entitlement to participate fully in the executive compensation,
employee benefit and other plans or programs of the Company in which senior
executives are eligible to participate.
16. ASSIGNABILITY; BINDING NATURE.
This Agreement shall be binding upon and inure to the benefit of the
Parties and their respective successors, heirs (in the case of the Executive)
and assigns. No rights or obligations of the Company under this Agreement
may be assigned or transferred by the Company except that such rights or
obligations may be assigned or transferred pursuant to (a) a merger or
consolidation in which the Company is not the continuing entity or (b) sale or
liquidation of all or substantially all of the assets of the Company, provided
that the assignee or transferee is the successor to all or substantially all of
the assets of the Company and such assignee or transferee assumes the
liabilities, obligations and duties of the Company, as contained in this
Agreement, either contractually or as a matter of law. The Company further
agrees that, in the event of a sale of assets or liquidation as described in the
preceding sentence, it will use its best efforts to cause such assignee or
transferee expressly to assume the liabilities, obligations and duties of the
Company hereunder. No obligations of the Executive under this Agreement may be
assigned or transferred by the Executive.
<PAGE> 18
17. REPRESENTATIONS.
The Parties respectively represent and warrant that each is fully
authorized and empowered to enter into this Agreement and that the performance
of its or his, as the case may be, obligations under this Agreement will not
violate any agreement between such Party and any other person, firm or
organization.
18. ENTIRE AGREEMENT.
Except to the extent otherwise provided herein, this Agreement
contains the entire understanding and agreement between the Parties concerning
the subject matter hereof and supersedes any prior agreements, whether written
or oral, between the Parties concerning the subject matter hereof.
19. AMENDMENT OR WAIVER.
No provision in this Agreement may be amended unless such amendment
is agreed to in writing and signed by both the Executive and an authorized
officer of the Company other than the Executive. No waiver by either Party of
any breach by the other Party of any condition or provision contained in this
Agreement to be performed by such other Party shall be deemed a waiver of a
similar or dissimilar condition or provision at the same or any prior or
subsequent time. Any waiver must be in writing and signed by the Executive or
an authorized officer of the Company other than the Executive, as the case may
be.
<PAGE> 19
20. SEVERABILITY.
In the event that any provision or portion of this Agreement shall
be determined to be invalid or unenforceable for any reason, in whole or in
part, the remaining provisions of this Agreement shall be unaffected thereby and
shall remain in full force and effect to the fullest extent permitted by law.
21. SURVIVORSHIP.
The respective rights and obligations of the Parties hereunder shall
survive any termination of the Executive's employment with the Company to the
extent necessary to the intended preservation of such rights and obligations as
described in this Agreement.
22. BENEFICIARIES/REFERENCES.
The Executive shall be entitled to select (and change, to the extent
permitted under any applicable law) a beneficiary or beneficiaries to receive
any compensation or benefit payable hereunder following the Executive's death
by giving the Company written notice thereof. In the event of the Executive's
death or of a judicial determination of his incompetence, reference in this
Agreement to the Executive shall be deemed to refer to his beneficiary, and if
the Executive shall not have designated a beneficiary, his Spouse.
<PAGE> 20
23. GOVERNING LAW/JURISDICTION.
This Agreement shall be governed by and construed and interpreted in
accordance with the laws of New York, without reference to principles of
conflict of laws.
24. RESOLUTION OF DISPUTES.
(a) Arbitration/Litigation. Any disputes arising under or in
connection with this Agreement shall be resolved, in the Executive's discretion,
either:
(i) by arbitration, to be held in New York City, in accordance
with the commercial rules and procedures of the American Arbitration
Association, or
(ii) by litigation; provided, however, that the venue of such
litigation shall be in the state of New York.
(b) Costs. All costs, fees and expenses, including attorneys'
fees, of any arbitration or litigation in connection with this Agreement,
including, without limitation, attorney's fees of both the Executive and the
Company, shall be borne by, and be the obligation of, the Company unless the
Company shall substantially prevail, in which event the Executive shall
be required to pay the costs and expenses incurred by him relating to such
arbitration or litigation. The obligation of the Company under this Section 23
shall survive the termination for any reason of this Agreement (whether such
termination is by the Company, by the Executive, upon the expiration of
this Agreement or otherwise).
<PAGE> 21
(c) Continuation of Payments. Pending the outcome or resolution
of any arbitration or litigation, the Company shall continue payment of all
amounts due the Executive under this Agreement without regard to any dispute.
25. NOTICES.
Any notice given to either Party shall be in writing and shall be
deemed to have been given when delivered either personally, by fax, by
overnight delivery service (such as FederalExpress) or sent by certified or
registered mail, postage prepaid, return receipt requested, dulyaddressed to
the Party concerned at the address indicated below or to such changed address
as such Party may subsequently give such notice of.
If to the Company or the Board:
Aeroflex Incorporated
35 South Service Road
Plainview, NY 11803
Attention: ____________________
FAX: (916) 258-6167
<PAGE> 22
If to the Executive:
Michael Gorin
112B East Long Beach Road
Nissequogue, NY 11780
26. HEADINGS.
The headings of the sections contained in this Agreement are for
convenience only and shall not be deemed to control or affect the meaning or
construction of any provision of this Agreement.
27. COUNTERPARTS.
This Agreement may be executed in two or more counterparts.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as
of the date first written above.
Aeroflex Incorporated
Attest: _______________ By ____________________________________
Witness: _______________ ________________________________________
Michael Gorin
<PAGE> 1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, made and entered into as of July 1, 1994,
between Aeroflex Incorporated, a Delaware corporation, with its principal
office located at 35 South Service Road, Plainview, NY 11803 (together with
its successors and assigns permitted under this Agreement, the "Company"),
and Leonard Borow, who resides at 5 Lord Joes Landing, Northport, NY 11780
(the "Executive").
W I T N E S S E T H
WHEREAS, the Company has determined that it is in the best interests
of the Company and its shareholders to enter into an employment agreement
setting forth the obligations and duties of both the Company and the
Executive (this "Agreement"); and
WHEREAS, the Company wishes to assure itself of the continued services
of the Executive for the period hereinafter provided, and the Executive is
willing to be employed by the Company for said period, upon the terms and
conditions provided in this Agreement;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good and valuable consideration, the receipt of
which is mutually acknowledged, the Company and the Executive (individually a
"Party" and together the "Parties") agree as follows:
<PAGE> 2
1. DEFINITIONS.
(a) "Annual Bonus" shall mean the annual bonus to which the
Executive is entitled pursuant to Section 4 below.
(b) "Base Salary" shall mean the annual salary to which the
Executive is entitled pursuant to Section 3 below.
(c) "Beneficiary" shall mean the person or persons named by the
Executive pursuant to Section 22 below or, in the event that no such person is
named and survives the Executive, his estate.
(d) "Board" shall mean the Board of Directors of the Company.
(e) "Cause" shall mean:
(i) the Executive's conviction of a felony involving moral
turpitude,
(ii) the Executive's willful gross misconduct in carrying
out his duties under this Agreement, or
(iii) a breach by the Executive of the provisions of Section
10 or Section 11 below.
<PAGE> 3
(f) "Change in Control" shall mean:
(i) a change in control as such term is presently defined in
Regulation 240.12b-2 under the Securities Exchange Act of 1934 ("Exchange
Act");
(ii) if during the Term of Employment any "person" (as such
term is usedin Section 13(d) and 14(d) of the Exchange Act) other than the
Company or any person who on the date of this Agreement is a director or
officer of the Company, becomes the "beneficial owner" (as defined in
Rule 13(d)-3 under the Exchange Act), directly or indirectly, of securities of
the Company representing 20% of the voting power of the Company's then
outstanding securities; or
(iii) if during the Term of Employment individuals who at the
beginning of such period constitute the Board cease for any reason other than
death, disability or retirement to constitute at least a majority thereof.
(g) "Compensation Committee" shall mean the Compensation
Committee of the Board.
(h) "Disability" shall mean the illness or other mental or
physical disability of the Executive resulting in his failure to perform
substantially his duties under this Agreement for a period of six or more
consecutive months or an aggregate of nine months in any 12-month period.
(i) "Fiscal Year" shall mean the fiscal year of the Company,
which is the 12-month period beginning each July 1 and ending on the next
succeeding June 30.
<PAGE> 4
(j) "Good Reason" shall mean:
(i) reduction in the Executive's Base Salary or Annual Bonus or
a change in the method of computing the Executive's Annual Bonus that adversely
affects said bonus,
(ii) the loss by the Executive of his position,
(iii) a significant diminution of the Executive's duties or
responsibilities or the assignment to him of duties or responsibilities
inconsistent with his position or title,
(iv) a material reduction in any plan or program of the Company
in which the Executive participates unless such reduction affects the senior
management of the Company generally or the discontinuance of any such plan or
program unless a comparable equivalent plan or program is substituted, or
(v) the Executive must, in carrying out his duties and
responsibilities under this Agreement, spend significant time outside Long
Island or New York City.
(k) "Spouse" shall mean, during the Term of Employment, the
woman who as of the relevant date is legally married to the Executive.
(l) "Term of Employment" or "Term" shall mean the period
specified in Section 2(b) below.
<PAGE> 5
2. TERM OF EMPLOYMENT, POSITIONS AND DUTIES.
(a) Employment of Executive. The Company hereby employs the
Executive, and the Executive hereby accepts employment with the Company, in the
position and with the duties and responsibilities set forth below, and upon
such other terms and conditions as are hereinafter stated.
(b) Term of Employment. The Term of Employment shall commence
on the date above written, and shall terminate on the fifth anniversary
subsequent to said date and, unless either Party gives written notice to the
other that it does not want the Term to continue, the Term of Employment
shall thereafter automatically extend for successive periods of one year.
(c) Title and Duties. Until the date of termination of his
employment hereunder, the Executive shall be employed as a senior executive
officer of the Company. If the Board so requests, the Executive shall serve
as a member of the board of a subsidiary or affiliate of the Company.
(d) Time and Effort. The Executive agrees to devote his full
business time and attention and his best efforts and abilities to the affairs
of the Company. Nothing shall preclude the Executive from (i) serving on the
boards of a reasonable number of other corporations, trade associations
and/or charitable organizations, (ii) engaging in charitable activities and
community affairs or (iii) managing his personal investments and affairs;
provided, however, that such activities do not materially interfere with the
proper performance of his duties and responsibilities specified in Section
2(c) above.
<PAGE> 6
3. BASE SALARY.
(a) The Executive shall receive from the Company an initial
annual Base Salary, payable in accordance with the regular payroll practices of
the Company, of $250,000. During the Term of Employment, the Compensation
Committee shall review the Base Salary no less often than annually for
increase as of each July 1 beginning with July 1, 1995; provided, however,
that increases shall not be less than the increases in the Consumer Price
Index for the New York and Northeastern New Jersey Region, as published by the
United States Department of Labor, Bureau of Labor Statistics using June 1994
as the basedate, determined and payable as provided in Section 3(b) below.
(b) The cost-of-living adjustment (COLA) with respect to the
Executive's Base Salary shall be made annually as follows:
The first calculation shall be made on or before August 1,
1995, with respect to the period July 1, 1994 through June 30, 1995 with a
lump-sum payment for the COLA being made as soon as practicable. The same
procedure shall be followed each year thereafter. If the Executive's
employment shall terminate during any annual period referred to in this
Section 3(b), then the cost-of-living increment provided for herein shall be
prorated accordingly.
<PAGE> 7
4. ANNUAL BONUS.
(a) Amount of Bonus. Each year during the Term of Employment,
the Executive shall be eligible to receive an annual bonus equal to 3% of the
Company's consolidated pre-tax earnings for such Fiscal Year, but not more than
200% of the Executive's then Base Salary. Annual consolidated pre-tax earnings
shall be computed without regard to any payments due under this Section 4(a).
(b) Payment of Bonus. Any Annual Bonus, including any prorated
Annual Bonus payable under this Agreement, shall be paid to the Executive or
to his Beneficiary, as the case may be, upon receipt of audited accounts for
the Fiscal Year with respect to which it is awarded.
5. STOCK OPTIONS.
During the Term of Employment, the Executive shall be eligible to
receive stock option grants and similar awards under existing and future plans
or programs of the Company adopted and administered by the Compensation
Committee and approved by shareholders.
<PAGE> 8
6. EXPENSES AND EXPENSE REIMBURSEMENT.
During the Term of Employment, the Executive shall be entitled to
prompt reimbursement by the Company for all reasonable out-of-pocket expenses
incurred by him in performing services under this Agreement, upon his
submission of such accounts and records as may be required by Company policy.
7. PERQUISITES.
The Executive shall receive such Company-paid perquisites as are
customarily provided to senior executives of the Company, including but not
limited to:
(a) a car suitable to the Executive's position together with the
insurance, maintenance and garaging costs associated with such car, and
(b) continuation of a split-dollar life insurance policy in the
amount of $1,000,000, and
8. EMPLOYEE BENEFIT PLANS AND PROGRAMS.
The Executive shall participate in all employee benefit plans and
programs for which he is eligible and which are made available to the Company's
senior executives or to its employees generally, as such plans or programs may
<PAGE> 9
be in effect from time to time, including, without limitation, pension and
other retirement plans, profit-sharing plans, savings and similar plans,
group life insurance, accidental death and dismemberment insurance, travel
accident insurance, hospitalization insurance, surgical insurance, medical
insurance, dental insurance, short-term and long-term disability insurance,
sick leave (including salary continuation arrangements), vacations, holidays
and any other employee benefit plans or programs that may be sponsored by
the Company from time to time, including any plans that supplement the
foregoing types of plans, whether funded or unfunded.
9. TERMINATION OF EMPLOYMENT.
(a) General. Except as otherwise provided in this Agreement, in
the event of termination of the Executive's employment under this Agreement,
he, his dependents or his Beneficiary, as may be the case, shall be entitled to
receive benefits under the Company's employee benefit plans described in
Section 8 above, in accordance with the applicable terms and conditions of
each plan, and reimbursement of any business expenses incurred by the Executive
but not yet paid to him.
(b) Termination Due to Death. In the event that the Executive's
employment is terminated due to his death, for each year (and prorated for any
portion of a year) to the end of the Term, his Beneficiary shall be entitled to
the sum of 50% of the Executive's (A) Base Salary, at the rate in effect on
the date of his death, and (B) last previously awarded Annual Bonus, payable
in accordance with the Company's regular payroll practices.
<PAGE> 10
(c) Termination Due to Disability. In the event of Disability,
the Company or the Executive may terminate the Executive's employment. If the
Executive's employment is terminated due to Disability, he shall be entitled to
the benefits described in 9(b) above.
(d) Termination by the Company for Cause. In the event that the
Executive's employment is terminated for Cause, he shall be entitled to:
(i) his Base Salary through the date of termination of his
employment for Cause, and
(ii) any Annual Bonus awarded but not yet paid to him.
The Executive shall be permitted to respond and defend himself
before the Board or a committee thereof within a reasonable time after written
notification of any proposed termination of his employment for Cause under
clauses (ii) and (iii) of Section 1(e) above.
<PAGE> 11
(e) Termination Without Cause.
(i) Termination Without Cause shall mean:
(A) termination of the Executive's employment by the
Company other than due to death or Disability or for Cause, or
(B) termination by the Executive for Good Reason.
(ii) The Executive may not terminate his employment for Good
Reason unless:
(A) he has delivered a written notice to the Board within
12 months of his having actual knowledge of one of the events, described in
Section 1(j) above, providing a basis for Good Reason, stating which one of
those events has occurred;
(B) within 30 days of the delivery of the notice, the
Company has not remedied such event and provided him with a written notice of
such remedy, and
(C) in the event the Company has not remedied such event as
provided in Clause (B) above, the Executive notifies the Company in writing
that he is terminating his employment.
The failure of the Executive to terminate for Good
Reason as to any one event described in Section 1(j) above shall not affect his
entitlement to terminate for Good Reason as to any other such event.
(iii) In the event of Termination Without Cause, the Executive
shall be entitled to, for three years following his termination:
(A) Base Salary at the rate in effect on the date of his
termination,
<PAGE> 12
(B) last previously awarded Annual Bonus, payable in
accordance with Company's regular payroll practices, and
(C) benefits under any employee benefit plans of the
Company in which he participated or, as to any plans in which his continued
participation is precluded, the after-tax cost to the Executive of equivalent
benefits.
(f) Termination Following Change in Control. In the event there
shall be a Change in Control of the Company or of any person directly or
indirectly presently controlling the Company, the Executive may, within six
months of his becoming aware of such event, terminate his employment with the
Company. Upon such termination, the Executive shall receive immediately
in a lump sum the benefit described in Section 9(e) above but in no event an
amount greater than is deductible under Section 280G of the Internal Revenue
Code of 1986, as amended, such amount to be determined by the Company's
independent auditors.
(g) Voluntary Termination by the Executive. The Executive shall
have the right, upon 90 days' written notice to the Company, voluntarily to
terminate his employment, in which event the Executive's entitlements shall be
the same as if he had been terminated by the Company for Cause, as provided
in Section 9(d) above.
(h) No Mitigation; No Offset. In the event of termination of
the Executive's employment under this Section 9, he shall be under no
obligation to seek other employment or to offset or repay any amounts that
he receives under this Agreement by any payments that he receives from a
subsequent employer.
<PAGE> 13
(i) Nature of Payments. Any amounts due under this Section 9
are in the nature of severance payments or liquidated damages or both, and
shall fully compensate the Executive and his dependents or Beneficiary, as the
case may be, for any and all direct damages and consequential damages that
any of them may suffer as a result of termination of the Executive's
employment, and they are not in the nature of a penalty.
10. CONFIDENTIAL INFORMATION.
(a) The Executive understands and hereby acknowledges that as a
result of his employment with the Company he will necessarily become informed
of and have access to certain valuable and confidential information of the
Company and any of its subsidiaries, joint ventures or affiliates, including
without limitation inventions, trade secrets, technical information, know-how,
plans, specifications, and identity of customers and suppliers, and that such
information even though it may be developed or otherwise acquired by the
Executive is the exclusive property of the Company to be held by the
Executive in trust and solely for the Company's benefit. Accordingly,
the Executive hereby agrees that he shall not at any time either during or
subsequent to his employment hereunder use, reveal, report, publish,
transfer or otherwise disclose to any person, corporation or other entity
any of the Company's confidential information without the prior written
consent of the Company, except to responsible officers and employees of the
<PAGE> 14
Company and other responsible persons who are in a contractual or fiduciary
relationship with the Company or who have a need for such information for
purposes in the interest of the Company and except for such information that
legally and legitimately is or becomes of general public knowledge from
authorized sources other than the Executive.
(b) Upon the termination of his employment with the Company for
any reason whatsoever, the Executive shall promptly deliver to the Company all
drawings, manuals, letters, notes, notebooks, reports and copies thereof and
all other materials including without limitation those of a secret or
confidential nature relating to the Company's business that are in the
Executive's possession or control.
11. COVENANT NOT TO COMPETE.
The Executive agrees that during the Term and for a period of two
years after termination of his employment with the Company for any reason, he
shall not, within 50 miles of any location at which the Company, at the time of
his termination of employment, is conducting its business (or in such smaller
area or for such lesser period as may be determined by a court of competent
jurisdiction to be a reasonable limitation on the competitive activity of the
Executive), directly or indirectly:
(a) engage in a competitive line of business to that carried on
by the Company either for his own account or with or for anyone else,
<PAGE> 15
(b) solicit or attempt to solicit business of any customers of
the Company for products or services the same or similar to those offered,
sold, produced or under development by the Company,
(c) otherwise divert or attempt to divert from the Company any
business whatsoever,
(d) solicit or attempt to solicit for any business endeavor any
employee of the Company,
(e) interfere with any business relationship between the Company
and any other person, or
(f) render any services as an officer, director, employee,
partner, consultant or otherwise to, or have any interest as a stockholder,
partner, lender or otherwise in, any person that is so engaged.
Notwithstanding anything to the contrary in this Section 11, the
provisions hereof shall not prevent the Executive from purchasing or owning up
to 5% of the voting securities of any corporation the stock of which is
publicly traded.
12. INJUNCTIVE RELIEF.
The Parties specifically agree that any breach of any of the
provisions of Section 10 or Section 11 above shall constitute a material breach
of this Agreement. In the event of a breach or threatened breach by the
Executive of any of the provisions of Section 10 or Section 11 of this
Agreement, the Company shall be entitled to pursue any remedies available to
the Company at law or in equity, including, but not limited to, injunctive
relief.
<PAGE> 16
13. WITHHOLDING TAXES.
All payments to the Executive or his Beneficiary shall be subject
to withholding on account of federal, state and local taxes as required by law.
If any payment hereunder is insufficient to provide the amount of such taxes
required to be withheld, the Company may withhold such taxes from any other
payment due the Executive or his Beneficiary. In the event that all cash
payments due the Executive are insufficient to provide the required amount of
such withholding taxes, the Executive or his Beneficiary, within five days
after written notice from the Company, shall pay to the Company the amount
of such withholding taxes in excess of all cash payments due the Executive
or his Beneficiary.
14. INDEMNIFICATION.
The Company agrees to indemnify the Executive to the fullest extent
permitted by applicable law consistent with the Company's Certificate of
Incorporation and By-Laws as in effect on the effective date of this Agreement
with respect to any action or failure to act on his part while he was an
officer, director and/or employee (a) of the Company or any subsidiary thereof
or (b) of any other entity if his service with such entity was at the request
of the Company. This provision shall survive the termination of this
Agreement.
<PAGE> 17
15. EFFECT OF AGREEMENT ON OTHER BENEFITS.
The existence of this Agreement shall not prohibit or restrict the
Executive's entitlement to participate fully in the executive compensation,
employee benefit and other plans or programs of the Company in which senior
executives are eligible to participate.
16. ASSIGNABILITY; BINDING NATURE.
This Agreement shall be binding upon and inure to the benefit of
the Parties and their respective successors, heirs (in the case of the
Executive) and assigns. No rights or obligations of the Company under this
Agreement may be assigned or transferred by the Company except that such
rights or obligations may be assigned or transferred pursuant to (a) a merger
or consolidation in which the Company is not the continuing entity or (b) sale
or liquidation of all or substantially all of the assets of the Company,
provided that the assignee or transferee is the successor to all or
substantially all of the assets of the Company and such assignee or transferee
assumes the liabilities, obligations and duties of the Company, as contained in
this Agreement, either contractually or as a matter of law. The Company
further agrees that, in the event of a sale of assets or liquidation as
described in the preceding sentence, it will use its best efforts to cause such
assignee or transferee expressly to assume the liabilities, obligations and
duties of the Company hereunder. No obligations of the Executive under this
Agreement may be assigned or transferred by the Executive.
<PAGE> 18
17. REPRESENTATIONS.
The Parties respectively represent and warrant that each is fully
authorized and empowered to enter into this Agreement and that the performance
of its or his, as the case may be, obligations under this Agreement will not
violate any agreement between such Party and any other person, firm or
organization.
18. ENTIRE AGREEMENT.
Except to the extent otherwise provided herein, this Agreement
contains the entire understanding and agreement between the Parties concerning
the subject matter hereof and supersedes any prior agreements, whether written
or oral, between the Parties concerning the subject matter hereof.
19. AMENDMENT OR WAIVER.
No provision in this Agreement may be amended unless such amendment
is agreed to in writing and signed by both the Executive and an authorized
officer of the Company other than the Executive. No waiver by either Party of
any breach by the other Party of any condition or provision contained in this
Agreement to be performed by such other Party shall be deemed a waiver of a
similar or dissimilar condition or provision at the same or any prior or
subsequent time. Any waiver must be in writing and signed by the Executive
or an authorized officer of the Company other than the Executive, as the case
may be.
<PAGE> 19
20. SEVERABILITY.
In the event that any provision or portion of this Agreement shall
be determined to be invalid or unenforceable for any reason, in whole or in
part, the remaining provisions of this Agreement shall be unaffected thereby
and shall remain in full force and effect to the fullest extent permitted by
law.
21. SURVIVORSHIP.
The respective rights and obligations of the Parties hereunder
shall survive any termination of the Executive's employment with the Company to
the extent necessary to the intended preservation of such rights and
obligations as described in this Agreement.
22. BENEFICIARIES/REFERENCES.
The Executive shall be entitled to select (and change, to the
extent permitted under any applicable law) a beneficiary or beneficiaries to
receive any compensation or benefit payable hereunder following the Executive's
death by giving the Company written notice thereof. In the event of the
Executive's death or of a judicial determination of his incompetence, reference
in this Agreement to the Executive shall be deemed to refer to his beneficiary,
and if the Executive shall not have designated a beneficiary, his Spouse.
<PAGE> 20
23. GOVERNING LAW/JURISDICTION.
This Agreement shall be governed by and construed and interpreted
in accordance with the laws of New York, without reference to principles of
conflict of laws.
24. RESOLUTION OF DISPUTES.
(a) Arbitration/Litigation. Any disputes arising under or in
connection with this Agreement shall be resolved, in the Executive's
discretion, either:
(i) by arbitration, to be held in New York City, in accordance
with the commercial rules and procedures of the American Arbitration
Association, or
(ii) by litigation; provided, however, that the venue of such
litigation shall be in the state of New York.
(b) Costs. All costs, fees and expenses, including attorneys'
fees, of any arbitration or litigation in connection with this Agreement,
including, without limitation, attorney's fees of both the Executive and the
Company, shall be borne by, and be the obligation of, the Company unless the
Company shall substantially prevail, in which event the Executive shall be
required to pay the costs and expenses incurred by him relating to such
arbitration or litigation. The obligation of the Company under this
Section 23 shall survive the termination for any reason of this Agreement
(whether such termination is by the Company, by the Executive, upon the
expiration ofthis Agreement or otherwise).
<PAGE> 21
(c) Continuation of Payments. Pending the outcome or resolution
of any arbitration or litigation, the Company shall continue payment of all
amounts due the Executive under this Agreement without regard to any dispute.
25. NOTICES.
Any notice given to either Party shall be in writing and shall be
deemed to have been given when delivered either personally, by fax, by
overnight delivery service (such as Federal Express) or sent by certified or
registered mail, postage prepaid, return receipt requested, duly addressed
to the Party concerned at the address indicated below or to such changed
address as such Party may subsequently give such notice of.
If to the Company or the Board:
Aeroflex Incorporated
35 South Service Road
Plainview, NY 11803
Attention: ____________________
FAX: (916) 258-6167
If to the Executive:
Leonard Borow
5 Lord Joes Landing
Northport, NY 11768
26. HEADINGS.
The headings of the sections contained in this Agreement are for
convenience only and shall not be deemed to control or affect the meaning or
construction of any provision of this Agreement.
27. COUNTERPARTS.
This Agreement may be executed in two or more counterparts.
IN WITNESS WHEREOF, the undersigned have executed this Agreement
as of the date first written above.
Aeroflex Incorporated
Attest: _______________________ By ____________________________________
Witness: _______________________ ________________________________________
Leonard Borow
<PAGE> 1
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS.............................................. 1
1.1 Affiliate...................................... 1
1.2 Beneficiary.................................... 2
1.3 Board.......................................... 2
1.4 Code........................................... 2
1.5 Committee...................................... 2
1.6 Company........................................ 2
1.7 Disability and Disabled........................ 2
1.8 Early Retirement Date.......................... 3
1.9 Final Average Pay.............................. 4
1.10 Normal Retirement Date......................... 4
1.11 Participant.................................... 4
1.12 Service........................................ 4
1.13 Termination of Employment...................... 4
ARTICLE II
ELIGIBILITY.............................................. 5
2.1 In General..................................... 5
2.2 Initial Participants........................... 5
ARTICLE III
RETIREMENT BENEFITS...................................... 5
3.1 Normal Retirement Benefit...................... 5
3.2 Early Retirement Benefit....................... 5
3.3 Disability Retirement Benefit.................. 6
3.4 Change of Control.............................. 7
3.5 No Duplication................................. 8
ARTICLE IV
SURVIVOR BENEFITS........................................ 8
4.1 Post-Retirement Survivor Benefit............... 8
4.2 Pre-Retirement Survivor Benefit................ 9
ARTICLE V
CONDITIONS RELATED TO BENEFITS........................... 10
5.1 Administration of Plan......................... 10
5.2 Grantor Trust.................................. 10
5.3 No Right to Company Assets..................... 11
5.4 Forfeiture..................................... 11
5.5 No Employment Rights........................... 11
<PAGE> 2
5.6 Company's Rights to Terminate and Amend........ 12
5.7 Protective Provisions.......................... 12
5.8 No Right of Offset............................. 12
5.9 No Third Party Rights.......................... 13
ARTICLE VI
MISCELLANEOUS............................................ 13
6.1 Nonassignability............................... 13
6.2 Withholding.................................... 14
6.3 Gender and Number.............................. 14
6.4 Notice......................................... 14
6.5 Validity....................................... 15
6.6 Applicable Law................................. 15
<PAGE> 3
AEROFLEX INCORPORATED
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
The purpose of this Supplemental Executive
Retirement Plan (the "Plan") is to provide a further means
whereby Aeroflex Incorporated may attract, retain and
encourage the productive efforts of a select group of
officers and senior executives who render valuable services
to Aeroflex Incorporated and its subsidiaries, constituting
an important contribution toward Aeroflex Incorporated's
continued growth and success. The Plan provides lifetime
pension benefits to participants who qualify for such
benefits (generally described in Article III) and may also
provide benefits to a surviving named beneficiary following
a qualifying participant's death (generally described in
Article IV).
The Plan reads as follows:
ARTICLE I
DEFINITIONS
The following terms used in this Plan shall have
the designated meaning, unless a different meaning is
required by the context.
1.1 Affiliate. Any trade or business, whether or
not incorporated, which (a) at the time of reference (i)
controls, is controlled by or is under common control with
the Company within the meaning of Code section 414(b) or (c)
or (ii) is, together with the Company, a member of an
<PAGE> 4
affiliated service group within the meaning of Code section
414(m) or (b) is designated as an Affiliate by the Committee
(but only for such periods as the Committee shall prescribe
in such designation).
1.2 Beneficiary. The person or persons named by
a Participant as a beneficiary under the Plan in accordance
with procedures determined by the Committee, but only if
such person or persons survive the Participant. If no
beneficiary has been named by the Participant, such
Participant's Beneficiary shall be his spouse or, if none,
his estate.
1.3 Board. The Board of Directors of the
Company.
1.4 Code. The Internal Revenue Code of 1986, as
amended.
1.5 Committee. The Compensation Committee of the
Board or such other committee designated by the Board.
1.6 Company. Aeroflex Incorporated and its
successors.
1.7 Disability and Disabled. A Participant's
total inability to perform the customary duties of his
employment by reason of any medical or psychological illness
or condition which is expected to be permanent or of
indefinite duration, excluding any such illness or condition
which results from self-inflicted injury, alcoholism or drug
<PAGE> 5
abuse. Whether or not a Participant has incurred a
Disability or continues to be Disabled shall be determined
solely by the Committee in its discretion, on the basis of
evidence satisfactory to it.
1.8 Early Retirement Date. The date on which
both (a) the Participant has attained age fifty-five (55);
and (b) the sum of the Participant's age and years of
Service is equal to at least seventy (70). The Committee
may prescribe other age and service requirements for some or
all Participants.
1.9 Final Average Pay. The average monthly
compensation of a Participant for the three calendar years
of his last ten calendar years of Service during which he
received the largest total amount of compensation; provided,
that Service prior to January 1, 1994 shall be disregarded;
and provided, further, that if a Participant has less than
three calendar years of Service on or after January 1, 1994,
the average shall be taken over his total period of Service
on or after January 1, 1994. For this purpose a
Participant's "compensation" shall mean his total cash
compensation paid by the Company and its Affiliates as
reported on Form W-2 but excluding compensation derived from
stock options, stock appreciation rights and any other
stock-related incentive compensation; provided, that amounts
deferred at a Participant's election under a plan described
<PAGE> 6
in Code sections 125 and/or 401(k) and/or under any
nonqualified plan of deferred compensation shall be taken
into account as if actually paid to the Participant in the
year to which the deferral relates, and shall for purpose of
this Plan be excluded from compensation in the year in which
actually paid. If a Participant's Service includes an
approved period of unpaid leave of absence, he shall be
deemed to have received compensation during such period of
absence at his monthly rate of base compensation in effect
immediately prior to the start of such absence.
1.10 Normal Retirement Date. The date on which
the Participant attains age seventy (70).
1.11 Participant. An individual who has been
designated as a Participant pursuant to Article II.
1.12 Service. The number of months of each period
of employment with the Company and its Affiliates, any
predecessor company, any predecessor of an Affiliate and any
other company designated by the Committee. Leaves of
absence of not more than 24 months may be taken into account
as Service, to the extent provided by the Committee.
1.13 Termination of Employment. References
hereunder to a Participant's termination of employment, the
date a Participant's employment terminates and the like,
shall refer to the ceasing of the Participant's employment
<PAGE> 7
with the Company and all Affiliates for any reason,
including death.
ARTICLE II
ELIGIBILITY
2.1 In General. The Committee may at any time
and from time to time designate any officer or senior
executive of the Company or any Affiliate as a Plan
Participant.
2.2 Initial Participants. The individuals listed
on Schedule A are designated as Participants effective
January 1, 1994.
ARTICLE III
RETIREMENT BENEFITS
3.1 Normal Retirement Benefit. If a Partici-
pant's employment terminates on or after his Normal Retire-
ment Date, the Company will pay the Participant a monthly
benefit, starting on the first of the month after his
employment terminates and ending with the payment for the
month in which his death occurs. Such monthly benefit shall
be in an amount equal to fifty percent (50%) of his Final
Average Pay.
3.2 Early Retirement Benefit. If a Participant's
employment terminates on or after his Early Retirement Date
(and before his Normal Retirement Date), the Company will
<PAGE> 8
pay the Participant a monthly benefit starting on the first
of the month after his employment terminates and ending with
the payment for the month in which his death occurs. Such
monthly benefit shall be in an amount equal to (a) fifty
percent (50%) of his Final Average Pay, reduced by (b) 0.25%
for each month by which his retirement date precedes his
Normal Retirement Date.
3.3 Disability Retirement Benefit.
(a) If a Participant shall incur a
Disability while employed by the Company or any Affiliate,
the Company shall pay such Participant a monthly benefit
starting on the first day of the twelfth (12th) month after
his employment terminates and ending with the payment for
the month in which his death occurs. Such monthly benefit
shall be (a) fifty percent (50%) of his Final Average Pay,
reduced by (b) the amount of any disability benefits payable
under the Participant's employment agreement, if any.
(b) If a Participant who incurs a Disability
while employed by the Company or any Affiliate shall cease
to be Disabled, no benefits shall be paid on account of such
Disability with respect to periods after recovery from such
Disability. If such a recovered Participant shall
thereafter be employed (or reemployed) as an officer or
senior executive of the Company or any Affiliate, he shall
be entitled to participate in the Plan as if he had been
<PAGE> 9
employed throughout the period of his Disability and shall
be deemed to have received compensation during such period
of Disability at a rate equal to his rate of Final Average
Pay determined immediately prior to his Disability. The
benefit, if any, ultimately payable to or in behalf of such
a recovered Participant shall be determined without respect
to Disability benefits previously paid.
3.4 Change of Control. In the event that there
shall be a Change of Control of the Company or of any person
directly or indirectly controlling the Company on January 1,
1994, and the Participant terminates employment with the
Company in accordance with his employment agreement (or, if
the Participant is not covered by a written employment
agreement, within six months after the Change of Control),
whether or not the Participant has otherwise satisfied the
conditions for a benefit under Section 3.1, 3.2 or 3.3, the
Participant shall be entitled to receive a monthly benefit
starting on the first day of the month following his
termination of employment. The amount of such benefit shall
be fifty percent (50%) of the Participant's Final Average
Pay. For purposes of this Section 3.4, a "Change of
Control" means (a) a change in control as such term is
presently defined in Regulation 240.12b-2 under the
Securities Exchange Act of 1934 ("Exchange Act"); (b) if,
during the Participant's period of Service, any "person" (as
<PAGE> 10
such term is used in Section 13(d) and 14(d) of the Exchange
Act) other than the Company or any person who on January 1,
1994 is a director or officer of the Company, becomes the
"beneficial owner" (as defined in Rule 13(d)-3 under the
Exchange Act), directly or indirectly, of securities of the
Company representing 20% of the voting power of the
Company's then outstanding securities; or (c) if, during the
Participant's period of Service, individuals who at the
beginning of such period constitute the Board cease for any
reason other than death, disability or retirement to
constitute at least a majority thereof.
3.5 No Duplication. In no event shall benefits
become payable to any Participant under more than one
Section of this Article III.
ARTICLE IV
SURVIVOR BENEFITS
4.1 Post-Retirement Survivor Benefit. If a
Participant dies after payment of his benefits under
Article III has started or after incurring a Disability but
before the payment of benefits under Section 3.3 has
commenced, the Company shall pay a monthly benefit to the
Participant's Beneficiary, if any, starting on the first of
the month immediately following the month in which the
Participant dies and continuing until the sum of the
payments made under the Plan to the Participant and his
<PAGE> 11
Beneficiary equals one hundred twenty (120). Such monthly
benefit shall be in an amount equal to the monthly benefit
the Participant was receiving under the Plan prior to his
death (or, in the case of a Disabled Participant, the
monthly benefit the Participant would have been entitled to
receive had he survived until payments were to have begun
under Section 3.3).
4.2 Pre-Retirement Survivor Benefit. If (a) a
Participant dies while employed by the Company, (b) on the
date of such Participant's death the sum of his age and
years of Service is at least 70, and (c) the Participant
dies after attaining age 55, the Company shall pay a monthly
benefit to the Participant's Beneficiary, starting on the
first of the month immediately following the month in which
the Participant dies and continuing until the number of
payments made to the Beneficiary equals 120. The amount of
such benefit shall be fifty percent (50%) of the
Participant's Final Average Pay, reduced by 0.25% for each
month by which the Participant's death precedes his Normal
Retirement Date.
<PAGE> 12
ARTICLE V
CONDITIONS RELATED TO BENEFITS
5.1 Administration of Plan. The Committee shall
administer the Plan and shall have the sole and exclusive
authority to interpret, construe and apply its provisions.
The Committee shall have the power to establish, adopt and
revise such procedures, rules and regulations as it may deem
necessary or advisable for the administration of the Plan,
and the operation of the Committee's activities shall be by
vote or written consent of the majority of its members and
shall be final and binding. Members of the Committee shall
be eligible to participate in the Plan while serving on the
Committee, but a member of the Committee shall not vote or
act upon any matter which relates solely to such member in
his capacity as a Participant.
5.2 Grantor Trust. Prior to the occurrence of a
Change of Control, the Company may create a grantor trust
(within the meaning of Code section 671) in connection with
the adoption of this Plan to which it may from time to time
contribute amounts to accumulate a reserve against its
obligations hereunder. In the event of a Change of Control,
the Company shall contribute to such an irrevocable grantor
trust an amount determined by the Trustee to be equal to the
amount necessary to fully fund, at the time of the Change of
Control, all benefits reasonably expected to be paid under
<PAGE> 13
the Plan. Notwithstanding the creation of any such trust,
the benefits hereunder shall be a general obligation of the
Company. Payment of benefits from any such trust shall, to
that extent, discharge the Company's obligations under this
Plan. A Participant shall have only a contractual right as
a general creditor of the Company to the amounts, if any,
payable hereunder and such right shall not be secured by any
assets of the Company or any such trust.
5.3 No Right to Company Assets. Neither a Par-
ticipant nor any other person shall acquire by reason of the
Plan any right in or title to any assets, funds or property
of the Company whatsoever including, without limiting the
generality of the foregoing, any specific funds or assets
which the Company may set aside in anticipation of a
liability hereunder, nor in or to any policy or policies or
insurance on the life of a Participant owned by the Company.
5.4 Forfeiture. Except as provided in Sections
3.3 and 3.4, if a Participant terminates employment for any
reason other than death at a time when the Participant is
not eligible for benefits under Article III hereof, such
Participant shall irrevocably forfeit any and all rights to
any benefits hereunder.
5.5 No Employment Rights. Nothing herein shall
constitute a contract of continuing employment or in any
manner obligate the Company or any Affiliate to continue
<PAGE> 14
the service of a Participant, or obligate a Participant to
continue in the service of the Company or any Affiliate, and
nothing herein shall be construed as fixing or regulating
the compensation paid to a Participant.
5.6 Company's Rights to Terminate and Amend. The
Company reserves the right in its sole discretion at any
time to amend the Plan in any respect or terminate the Plan
by action of the Board. Notwithstanding the foregoing, no
such amendment or termination shall reduce the amount of the
benefit theretofore accrued by any Participant or change the
conditions required to be satisfied to receive payment of
such past accrued benefit (including contingent death
benefits) based on the provisions of the Plan as theretofore
in effect (in each case, unless the Participant expressly
consents thereto in writing).
5.7 Protective Provisions. The Participant shall
cooperate with the Company by furnishing any and all infor-
mation requested by the Company in order to facilitate the
payment of benefits hereunder.
5.8 No Right of Offset. If at any time any
payment is to be made hereunder, a Participant is indebted
to the Company or otherwise subject to a monetary claim by
the Company, the payments remaining to be paid on behalf of
the Participant shall nevertheless be paid without reduction
<PAGE> 15
by or setoff against the amount of such indebtedness or
claim.
5.9 No Third Party Rights. Nothing in this Plan
or any trust established pursuant to Section 5.2 hereof
shall be construed to create any rights hereunder in favor
any Beneficiary prior to the Participant's death or in favor
of any other person (other than the Company and any
Participant) or to limit the Company's right to amend or
terminate the Plan in any manner subject to the consent of
the Participant to the extent provided in Section 5.6
notwithstanding that such amendment or termination might
result in such person receiving no benefits under the Plan.
ARTICLE VI
MISCELLANEOUS
6.1 Nonassignability. No rights or payments
under this Plan shall be subject in any manner to anticipa-
tion, alienation, sale, transfer, assignment, pledge, encum-
brance or charge, whether voluntary or involuntary, and no
attempt so to anticipate, alienate, sell, transfer, assign,
pledge, encumber or charge the same shall be valid, nor
shall any such benefit or payment be in any way liable for
or subject to the debts, contracts, liabilities, engagements
or torts of any person entitled to such benefit or payment
or subject to levy, garnishment, attachment, execution or
other legal or equitable process. No part of the amounts
<PAGE> 16
payable shall, prior to actual payment, be subject to
seizure or sequestration for the payment of any debts, judg-
ments, alimony or separate maintenance owed by a Participant
or any other person, nor be transferable by operation of law
in the event of a Participant's or any other person's bank-
ruptcy or insolvency.
6.2 Withholding. To the extent required by law
the Company shall be entitled to withhold from any payments
due hereunder any federal, state and local taxes required to
be withheld in connection with such payment.
6.3 Gender and Number. Wherever appropriate
herein, the masculine shall mean the feminine and the singu-
lar shall mean the plural or vice versa.
6.4 Notice. Any notice required or permitted to
be made under the Plan shall be sufficient if in writing and
hand delivered, or sent by registered or certified mail, to
(a) in the case of notice to the Company or the Committee,
the principal office of the Company, directed to the atten-
tion of the General Counsel of the Company, and (b) in the
case of a Participant or the Participant's Beneficiary, the
Participant's (or such Beneficiary's mailing address main-
tained in the Company's personnel records). Such notice
shall be deemed given as of the date of delivery or, if
delivery is made by mail, as of the date shown on the post-
<PAGE> 17
mark or on the receipt for registration or certification.
6.5 Validity. In the event any provision of this
Plan is held invalid, void or unenforceable, the same shall
not affect, in any respect whatsoever, the validity of any
other provision of this Plan.
6.6 Applicable Law. This Plan shall be governed
and construed in accordance with the laws of the State of
New York.
IN WITNESS WHEREOF, the Company has caused this
AEROFLEX INCORPORATED, SUPPLEMENTAL EXECUTIVE RETIREMENT
PLAN to be executed by its duly authorized officers and its
corporate seal to be hereunto affixed on this 21 day of
December, 1994.
AEROFLEX INCORPORATED
By: /s/ Michael Gorin
________________________
Its President
Attest: /s/ Charles Badlato
---------------------
Assistant Secretary
<PAGE> 18
Schedule A
Plan Participants as of January 1, 1994:
Harvey R. Blau
Michael Gorin
Leonard Borow
Charles Badlato
