SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1998
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to______
Commission File No. 1-8037
Aeroflex Incorporated
(Exact name of registrant as specified in its charter)
Delaware 11-1974412
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
35 South Service Road, Plainview, New York 11803
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (516) 694-6700
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on
Title of Class Which Registered
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Common Stock, $.10 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ ].
State the aggregate market value of the voting stock held by non-affiliates
of the registrant. (The aggregate market value shall be computed by reference to
the price at which the stock was sold, or the average bid and asked prices of
such stock, as of a specified date within 60 days prior to the date of filing).
As of September 22, 1998 approximately $147,487,000.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date (applicable only to
corporate registrants). Common Stock, par value $.10 per share; outstanding as
of September 22, 1998 - 17,426,618 (excluding 39,159 shares held in treasury).
Documents incorporated by reference: Parts II and IV - The Annual Report to
Stockholders for the fiscal year ended June 30, 1998 to the extent specifically
identified or incorporated herein. Part III - Registrant's definitive proxy
statement to be filed pursuant to Regulation 14A of the Securities Act of 1934.
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PART I
ITEM ONE - BUSINESS
Aeroflex Incorporated, through its subsidiaries (collectively, unless the
context requires otherwise, referred to as the "Company" or "Aeroflex"),
utilizes its advanced design, engineering and manufacturing capabilities to
produce state-of-the-art microelectronic module, interconnect and testing
solutions used in communication applications for commercial and defense markets.
Its products are used in the satellite, wireless and wireline communications,
cable television ("CATV") and defense communications markets. With the
acquisition of MIC Technology in 1996 and the interconnect assets of Lucent
Technologies Inc. in 1997, the Company believes it is currently the largest
merchant supplier of thin film interconnect products. The Company also designs
and manufactures motion control systems, and shock and vibration isolation
systems used for commercial, industrial and defense applications. The Company's
major customers include Lockheed Martin Corporation, Hughes Electronics
Corporation, Motorola, Inc., Lucent Technologies, Inc., Raytheon Company and
Northrop Grumman Corporation. The Company currently acts as sole source supplier
under supply agreements with Lucent Technologies and Motorola's RF semiconductor
division for thin film interconnect products.
Operations are grouped into three segments: Microelectronics; Test,
Measurement and Other Electronics; and Isolator Products. These segments, their
products and the markets they serve are described below.
Microelectronics
Thin Film Circuits and Interconnects - (MIC Technology)
In March 1996, the Company acquired MIC Technology Corporation ("MIC")
which designs, develops, manufactures and sells passive thin film circuits and
interconnects. Its advanced microcircuit and interconnect technology is emerging
as a key technology for miniaturized, high frequency, high performance
electronic products for rapidly growing markets such as cellular/PCS and
microwave data links. It continues to be an essential technology in satellite
based communication hardware, CATV amplifiers and leading edge military
electronic products.
Thin film products allow dramatic reductions in the size and weight of
electronic circuits and provide superior electrical and thermal performance.
Growth in the use of thin film technology is expected to complement the advances
in semiconductor speed which have occurred in recent years. Thin film removes
limitations imposed by other interconnect technologies for high clock rate
digital circuits. In the digital, analog RF and microwave domains, thin film
allows the production of hybrid integrated circuits with lumped elements at
lower cost than full silicon or gallium arsenide (GaAs) integration while
retaining outstanding performance.
The Company serves both commercial and military markets. Commercial markets
include satellite, wireless and wireline communications, CATV, fiber optics and
digital Multi-Chip Modules ("MCMs"). Military markets include missile Transmit
and Receive ("T/R") modules, radar T/R modules and advanced Electronic Counter
Measures.
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In its most basic form, simple interconnect incorporates conductors,
resistors, plated vias and selective high conductivity traces for high-volume,
low-cost, DC, RF and microwave products, including applications such as standard
microwave amplifiers and oscillators, CATV circuitry, A/D converters and
high-power regulation. Advanced interconnect incorporates all passive elements
in solid-state form. Microstrip conductors, resistors, inductors, capacitors,
air-bridges and filled thermal vias are integrated on a single substrate.
Applications include high-performance, low-noise and power amplifiers for use in
commercial wireless products and avionics. To address digital circuit
requirements, high-density digital interconnect substrates offer single or
double-sided, controlled impedance signal routing. These substrates also offer
integrated resistors and solid thermal vias, if required, for improved
performance. Applications include Application Specific Integrated Circuits
("ASIC"), control circuits, high-density memory modules and digital switching
networks. By incorporating features of advanced interconnect and high-density
digital interconnect in a single design, the Company has created PIMIC -Mixed
Signal Interconnect to address the expanding use of mixed technologies. This
unique PIMIC process allows integration of analog and digital functionality for
use in leading-edge miniaturized military, satellite and commercial electronics.
In July 1997, MIC entered into a multi-year strategic agreement under which
MIC will supply Lucent Technologies with film integrated circuits which are used
in communications applications. In connection with this agreement, MIC purchased
equipment, inventory and licenses for advanced technologies from two of Lucent's
telecommunications components operations which significantly increases MIC's
manufacturing capacity and it is expected to enhance its capabilities.
Microelectronic Modules - (Circuit Technology)
Since 1974, the Company has been engaged in the design, manufacture and
sale of state-of-the-art microelectronic assemblies for the electronics
industry. In January 1994, the Company acquired substantially all of the net
operating assets of the microelectronics division of Marconi Circuit Technology
Corporation, which manufactures a wide variety of microelectronic assemblies.
This acquisition increased the range of products offered and enhanced the
Company's engineering capability.
Satellite
The Company has been designing and manufacturing hybrid and MCM
microelectronic circuits for space applications for over 15 years. The Company's
reputation and expertise in these areas results from significant experience
gained on Department of Defense ("DOD") and NASA programs such as MILSTAR, Space
Shuttle, LANDSAT and most recently, the Cassini probe to Saturn, as well as on
various classified programs. The Company's hybrids have been successfully
deployed on commercial programs such as DirecTV and IRIDIUM .
Multichip Modules
MCMs are a further advancement of hybrid microcircuit technology in which
large digital devices such as microprocessors, SRAM and EEPROM memories are
combined with multilayer ceramic packages to form complex digital systems or
subsystems. MCMs perform functions similar to hybrids, except the emphasis is on
miniaturizing and synthesizing digital functions such as microprocessor systems
and mass memories. The Company has been qualified on multiple MCM designs on
both the F-16 and F-22 Advanced Tactical Fighter, V-22, LAMPS, AWACS and AEGIS
Missile and is participating in pre-production and production contracts.
Application specific MCMs have significant market potential in avionics,
workstations, telecommunications and satellites.
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The Company has expanded its standard memory module product line with the
addition of approximately 50 new memory modules in the past four years. These
products, which consist of SRAM and Flash memory modules, take advantage of the
Company's MCM expertise. They are designed to be used for a wide range of
computer and general purpose circuit board applications.
Data-bus
The Data-bus product line has a particularly broad range of applications.
These microcircuits, which have been adopted by the United States Army, Navy and
Air Force as a standard interface, act as a digital data communication link
between various computer-based equipment. A new commercial Data-bus interface
was developed by Boeing for use on its 777 Aircraft. The Company has production
contracts for the interface and coupler modules which provide the data
communications protocol and interface for all of the electronic systems in each
777 Aircraft.
The Company's microcircuits are used on numerous avionic systems including
the F-14, F-15, F-16 and F-18 aircraft and the Tomahawk-cruise and AMRAAM
missiles. They are also qualified for possible use on upgrades to older
platforms. The Data-bus microcircuits are used in a wide variety of aerospace
and seaboard navigations, and communication systems.
Application Specific Modules
The Company manufactures hybrids for a customer's particular need that
cannot be fulfilled with a standard commercial product. This capability has
historically been utilized to service defense markets domestically and
internationally. The electronic content of the worldwide defense market is
growing as governments determine it is more economical to upgrade existing
aircraft and missiles than to build new aircraft and missiles. This customer
base is faced with continuous retrofits to upgrade the ability of aging
equipment. The Company benefits from upgrade programs by supplying hybrids and
MCMs for the C-130, F-16, F-18 and AWACS aircraft programs, as well as newer
programs such as JAVELIN and AMRAAM missiles.
Test, Measurement and Other Electronics
Instrumentation
Frequency Synthesizers - (Comstron)
In November 1989, the Company acquired Comstron Corporation which is now an
operating division of Aeroflex Laboratories Incorporated, a wholly-owned
subsidiary of Aeroflex. Comstron is a leader in radio frequency and microwave
technology used in the manufacture of fast switching frequency synthesizers,
signal generators and components. The Company's synthesizers operate in a broad
frequency range of 10MHz to 40GHz with excellent spectral purity. Their small
size and modular construction allow for easy systems configuration and
facilitation of repair. The Company, together with Hewlett Packard, helped
develop the Modular Measurement System standard which has been selected as the
architecture underlying the RF and microwave sections of a number of automated
test equipment ("ATE") systems, including CASS, the United States Navy's next
generation ATE. The CASS program is a high priority United States Navy
initiative designed to end the proliferation of unique ATE and related Test
Program Sets for United States Navy electronics. Historically, each individual
weapon system had its own testing system which required unique operator skills,
maintenance and scope of capabilities. The Company supplies the fast switching
frequency synthesizers, spread spectrum modulators and arbitrary waveform
generators for CASS. The Company's synthesizers also significantly improve the
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performance and reliability of existing radars. Additionally, the synthesizers
improve the performance of threat simulators, as well as radar cross section and
antenna measurement systems. In Fiscal 1998, the Company introduced its first
low-cost, fast switching, high-performance frequency synthesizer for commercial
ATE.
High-Speed Automatic Test Systems - (Lintek)
In January 1995, the Company acquired Lintek Inc. as a wholly-owned
subsidiary of Aeroflex. Aeroflex Lintek Corp., the successor to Lintek, Inc., is
a leading provider of high-speed instrumentation radar systems and antenna
measurement systems. Instrumentation radar systems are used to measure the radar
cross sections of aircraft and other objects using both scale models and actual
examples. These measurements are made in many diverse environments from factory
floor, to laboratory, to flight lines or aircraft carriers. In addition to the
radar system hardware, the Company has developed various analytical processing
and display algorithms to assist in the interpretation of the radar data.
Through expertise gained in high-speed data acquisition and display techniques
used in instrumentation radar products, the Company produces antenna measurement
systems used in the design, manufacturing and testing of all types of antennas.
In April 1998, Lintek was awarded a contract for next generation communication
satellite test equipment from Hughes Space and Communications. This testing
system combines Comstron's patented synthesizers with Lintek's proprietary
response measurement technology to more efficiently test satellite payloads both
on the ground and in space.
Motion Control Systems - (Aeroflex Laboratories)
Stabilization and Tracking Devices
The Company is engaged in the design, development and production of
stabilization tracking devices and systems, including pedestals. Pedestals,
through the continuous balancing action of gyroscopes and servo-mechanical
stabilizers operating in all three dimensions, enable equipment mounted on a
vehicle to remain almost perfectly balanced and motionless. The mounted
equipment can then automatically track or focus on a target as accurately as if
it were on solid ground despite the motion of the vehicle. The Company's
stabilization and tracking devices are used in reconnaissance and weapon firing
control systems and play an important role in high altitude aircraft as well as
in other aircraft, ships and ground vehicles which require precise, highly
stable mounting for cameras, antennae and lasers. In addition to military and
aerospace markets, the Company has delivered commercial units used to stabilize
airborne spectroscopy equipment for terrestrial mapping.
Magnetic Motors
The Company produces a variety of brushless DC motors. Brushless DC motors
differ from conventional DC motors and are well-suited for use under vacuum
conditions, such as outer space where lubricants needed to slow brushwear
dissipate rapidly. They are also well-suited for environments containing
volatile or explosive materials and gases and applications where clean operation
is critical. These motors are utilized in the Company's stabilization and
tracking systems and infra-red scanner modules, as well as other applications
where precise movement is required, such as for positioning antennae, optical
systems, mechanical vanes and valves.
Scanning Devices
Using its expertise gained in over 30 years of manufacturing infra-red
night vision scanners, the Company has developed and started production of the
next generation polygon rotary scanner for the United States Army's thermal
weapons sight, under contract to Hughes Electro-Optical Data Systems Group. This
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sight is a low cost, lightweight thermal imaging device that detects targets
based on thermal radiation contrasts with the background and is intended for use
on standard issue United States Army assault rifles and crew served weapons.
Additionally, the Company provides the Common Module Scanner used on the M-1
Tank, Bradley fighting vehicle and Comanche helicopter.
Isolator Products - (Aeroflex International, Vibration Mountings & Controls
and Korfund Dynamics)
The Company is engaged in the design, development, manufacture and sale of
shock and vibration isolation systems. These devices consist of helically-wound
steel wire rope contained between rugged metal retainer bars, which are used in
defense applications, and off-the-shelf rubber and spring shock, vibration and
noise control devices, which are used in commercial and industrial applications.
Purchasers of isolators are manufacturers or users of equipment sensitive to
shock and vibration who need to reduce shock/vibration to levels compatible with
equipment fragility to extend the useful life of this equipment. Markets for
isolation systems include defense, aerospace, geophysical exploration, aircraft,
communications, transportation and utilities.
Customers
The Company has hundreds of customers in the communications, satellite,
aerospace/defense, transportation and construction industries. Except for Lucent
Technologies, (15.5%), in fiscal 1998, and Lockheed Martin (13.3%) and Hughes
(11.7%), in fiscal 1997, no one customer accounted for more than 10% of the
Company's net sales. The Company is currently a party to three key strategic
agreements:
In July 1997, MIC entered into a strategic agreement under which MIC will
supply Lucent Technologies with film integrated circuits which are used in
communications applications. The agreement expires December 31, 2000 and is
subject to annual renewal options. In addition, MIC purchased automatic
manufacturing and test equipment, inventory and licenses for advanced
technologies from two of Lucent's microelectronic component operations which
significantly increases the Company's manufacturing capacity to produce film
integrated circuits and MCMs.
In February 1997, the Company entered into an outsourcing agreement with
the RF Semiconductor Division of Motorola under which the Company will supply
virtually all of Motorola's thin film interconnects for its RF semiconductor
product lines, supporting component applications in CATV, cellular/PCS and land
mobile communications. This agreement expires in February 1999 and is subject to
annual renewal options.
In July 1996, the Company entered into a multi-year Volume Purchase
Agreement with Hughes Electronics to supply microelectronic modules for use on
both commercial and military satellites, and missile systems.
Competition
In all phases of its operations, the Company competes in both performance
and price with companies, some of which are considerably larger, more
diversified and have greater financial resources and sales than the Company. In
the manufacture of microelectronics, the Company believes its primary
competitors are NTK, Texas Instruments and ILC/Data Devices Corp. In the
manufacture of instrument products, the Company believes its primary competitors
are Hewlett Packard and Scientific Atlanta. In the manufacture of motion control
products, the Company believes its primary competitors are MPC Products Corp.
and Schaeffer Magnetics Inc. In the manufacture of isolators, the Company
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believes its primary competitors are Barry Controls, Inc., Lord Kinematics and
Mason Industries. The Company also experiences significant competition from the
in-house capabilities of its current and potential customers. The Company
believes that in all of its operations it competes favorably in the principal
competitive areas of technology, performance, reliability, quality, customer
service and price. The Company believes that to remain competitive in the
future, it will need to invest significant financial resources in research and
development.
To the extent that the Company is engaged in government contracts, its
success or failure, to a large measure, is based upon its ability to compete
successfully for contracts and to complete them at a profit. Such government
business is necessarily affected by many factors such as variations in the
military requirements of the government and defense budget allocations.
Government Sales
Approximately 42% and 50% of the Company's sales for fiscal 1998 and 1997,
respectively, were to agencies of the United States Government or to prime
defense contractors or subcontractors of the United States Government. The
Company's overall dependence on the military has been declining due to the
acquisition of MIC, which is more commercially oriented, and a focusing of
resources towards developing standard products for the commercial markets. The
Company's defense contracts have been awarded either on a bid basis or after
negotiation. The contracts are primarily fixed price contracts, though the
Company also has defense contracts providing for cost plus fixed fee. The
Company's defense contracts contain customary provisions for termination at the
convenience of the government without cause. In the event of such termination,
the Company is entitled to reimbursement for its costs and to receive a
reasonable profit, if any, on the work done prior to termination. Revenues and
costs on government contracts are recognized based upon shipments or billings.
In certain product areas, the Company has suffered reductions in sales
volume due to cutbacks in the military budget. In other product areas, the
Company has experienced increased sales volume due to a realignment of
government spending towards upgrading existing systems instead of purchasing
completely new systems. The overall effect of the cutbacks and realignment has
not been material to the Company.
Marketing and Distribution
The Company uses a team-based sales approach to facilitate close management
by Company personnel of relationships at multiple levels of the customer's
organization, including management, engineering and purchasing personnel. The
Company's integrated sales approach involves a team consisting of a senior
executive, a business development specialist and members of the Company's
engineering department. In particular, the use of experienced engineering
personnel as part of the sales effort enables close technical collaboration with
the customer during the design and qualification phase of new communications
equipment which, the Company believes, is critical to the integration of its
product into its customer's equipment. The Company's executive officers are also
involved in all aspects of the Company's relationships with its major customers
and work closely with their senior management. In addition, the Company utilizes
manufacturers' representatives and independent sales representatives as needed.
Product Research and Development
The Company's research and development efforts primarily involve
engineering and design relating to the development of new products, the
improvement of existing products and/or the adaptation of such products to new
applications. The Company's efforts also include developing prototype components
to bid on specific programs. Several of the Company's officers and almost all of
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its engineers have been involved at varioustimes and to varying degrees in these
activities. Certain product development and similar costs are recoverable under
contractual arrangements and those that are not recoverable are expensed in the
year incurred. The costs of Company sponsored research activities were
approximately $5.2 million, $3.3 million and $1.3 million for fiscal 1998, 1997
and 1996, respectively. The increase from fiscal 1997 to fiscal 1998 was
primarily due to the costs for development of a new low-cost, high-speed, high
performance frequency synthesizer intended for commercial communication test
systems. The increase from fiscal 1996 to fiscal 1997 was primarily due to MIC
which was acquired in March 1996. Further, in connection with the Company's
purchase of MIC, the Company allocated $23.2 million of the purchase price to
in-process research and development. Since the research and development projects
had not reached technological feasibility, the $23.2 million was charged to
expense in fiscal 1996 in accordance with generally accepted accounting
principles.
Backlog
The Company includes in backlog firm purchase orders or contracts providing
for delivery of products and services. At June 30, 1998, the Company's order
backlog was approximately $80.1 million, approximately 85% of which was
scheduled to be delivered on or before June 30, 1999. Approximately 58% and 42%
of this backlog represents commercial and defense contracts, respectively.
Generally, government contracts are cancellable with payment to the Company of
amounts expended under the contract together with a reasonable profit, if any,
while commercial contracts are not cancellable.
At June 30, 1997, the Company's backlog of orders was approximately $53.3
million. Approximately 90% was scheduled to be delivered before June 30, 1998.
Approximately 65% of this backlog represented orders for military or national
defense purposes.
Manufacturing
The Company assembles, tests, packages and ships products at its
manufacturing facilities located in Farmingdale, Pearl River and Plainview, New
York; Richardson, Texas; Bloomingdale, New Jersey; Powell, Ohio; and Boca Raton,
Florida. The Company has been manufacturing products for defense programs for
many years in compliance with stringent military specifications. The Company's
microelectronic module manufacturing is certified to the status of Class "K"
(space qualified) of which the Company believes only seven other vendors are
currently certified. The Company believes it has been able to bring to the
commercial market the manufacturing quality and discipline it has demonstrated
in the defense market. For example, the Company's Plainview and Farmingdale
manufacturing plants are ISO-9001 certified, as well as certified to the more
stringent Boeing D1-9000 standard.
Historically, the volume of the Company's production requirements in the
defense market was not sufficient to justify the widespread implementation of
highly automated manufacturing processes. Over the last several years, the
Company has expanded the use of high volume manufacturing techniques for product
assembly and testing. Recently, the Company purchased film integrated circuit
automatic manufacturing and test equipment from Lucent Technologies, which the
Company believes was the largest volume manufacturer of thin film integrated
circuits, and the Company is currently expanding its Pearl River facility to
accommodate this equipment. After its completion, the Company believes the Pearl
River facility will have the capacity required to handle additional future
outsourcing by captive suppliers of thin film communications products and the
growing demand for communication interconnect products.
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Principal Materials
The principal materials used by the Company in manufacturing and assembling
its products are ceramic, magnetic materials, gold, steel, aluminum, rubber,
iron and copper. Many of the component parts used by the Company in its products
are also purchased, including semiconductors, transformers, amplifiers and
bearings. Although the Company has several sole source arrangements, all the
materials and components used by the Company, including those purchased from a
sole source, are readily available and are or can be purchased from time to time
in the open market. The Company has no long-term commitments for their purchase.
No supplier provides more than 10% of the Company's raw materials.
Patents and Trademarks
The Company owns several patents, patent licenses and trademarks. In order
to protect its intellectual property rights, the Company relies on a combination
of trade secret, copyright, patent and trademark laws and employee and
third-party nondisclosure agreements, as well as limiting access to and
distribution of proprietary information. While the Company considers that in the
aggregate its patents and trademarks are important in its operations, it does
not consider that one or any group of them is of such importance that
termination could materially affect its business.
Employees
As of June 30, 1998 the Company had 842 employees, of whom 422 were engaged
in a manufacturing capacity, and 420 were engaged in engineering, sales,
administrative or clerical positions. 238 employees of the Company are covered
by two collective bargaining agreements. The Company considers its employee
relations to be satisfactory.
Seasonality
Although the Company's business is not affected by seasonality,
historically its revenues and earnings increase sequentially from quarter to
quarter within a fiscal year, but the first quarter is less than the previous
year's fourth quarter.
Regulation
The Company's activities are subject to various environmental, health and
employee safety laws. The Company has expended resources, both financial and
managerial, to comply with applicable environmental, health and worker safety
laws in its operations and at its facilities and anticipates that it will
continue to do so in the future. The Company does not require any governmental
approval of its principal products or services. Compliance with environmental
laws has not historically had a material effect on the Company's capital
expenditures, earnings or competitive position, and the Company does not
anticipate that such compliance will have a material effect on the Company in
the future.
Because of its participation in the defense industry, the Company is
subject to audit from time to time for its compliance with government
regulations by various agencies, including the Defense Contract Audit Agency,
the Defense Investigative Service and the Defense Logistics Agency. These and
other governmental agencies may also, from time to time, conduct inquiries or
investigations that may cover a broad range of Company activity. Responding to
any such audits, inquiries or investigations may involve significant expense and
divert management attention. Also, an adverse finding in any such audit, inquiry
or investigation could involve penalties that may have a material adverse effect
on the Company's business, results of operations or financial condition.
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The Company believes that it is generally in compliance with all applicable
environmental, health and worker safety laws and governmental regulations.
Nevertheless, there can be no assurance that additional costs for compliance
will not be incurred in the future or that such costs will not be material.
Financial Information About Industry Segments
The sales and operating profits of each industry segment and the
identifiable assets attributable to each industry segment for each of the three
years in the period ended June 30, 1998 are set forth in Note 14 of Notes to
Consolidated Financial Statements.
ITEM TWO - PROPERTIES
The executive offices of the Company and the manufacturing facilities of
Aeroflex Laboratories Incorporated, a subsidiary of the Company, occupying an
aggregate of approximately 69,000 square feet, are located in premises which the
Company owns in Plainview, Long Island, New York.
Aeroflex Laboratories Incorporated also leases manufacturing facilities in
Farmingdale, Long Island, New York and Boca Raton, Florida of approximately
20,000 and 11,000 square feet, respectively. The annual rental of these
properties is approximately $116,000 and $81,000 respectively.
The Company's subsidiary, MIC Technology Corporation ("MIC"), acquired its
manufacturing facility in Pearl River, New York of approximately 63,000 square
feet in July 1998. MIC also leases a manufacturing facility of approximately
29,000 square feet in Richardson, Texas with an annual rent of approximately
$167,000.
The Company's subsidiary, Vibration Mountings and Controls, Inc., conducts
manufacturing operations at a plant located in Bloomingdale, New Jersey. The
plant, which the Company owns, consists of approximately 72,000 square feet.
The Company's subsidiary, Aeroflex Lintek Corp., occupies approximately
8,500 square feet of space in Powell, Ohio, with an annual rental of
approximately $54,000.
The Company believes that its facilities are adequate for its current and
presently foreseeable needs.
ITEM THREE - LEGAL PROCEEDINGS
Filtron Co. Inc., ("Filtron") a subsidiary of the Company whose operations
were discontinued in October 1991, was one of several defendants named in a
personal injury action initiated in 1994 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 Filtron
sold RFI filters/capacitors, and their dependents, 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 Filtron incorporated for a
period of time in the RFI filters/capacitors which it manufactured. The
plaintiffs are seeking damages which cumulatively may exceed $500 million.
This action is still in the early stages of discovery. Based upon available
information and 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.
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The Company is involved in various other routine legal matters. Management
believes the outcome of these matters will not have a material adverse effect on
the Company.
ITEM FOUR - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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PART II
ITEM FIVE - MARKET FOR THE COMPANY'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
(a) The Common Stock trades on the New York Stock Exchange under the symbol
ARX. The following table shows the quarterly range of the high and low closing
prices for the Common Stock, as reported by the National Quotation Bureau
Incorporated, for the calendar periods indicated.
Common Stock
High Low
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1996
First Quarter........................ $5.13 $3.50
Second Quarter....................... 6.63 4.38
Third Quarter ....................... 6.13 4.63
Fourth Quarter....................... 4.75 4.13
1997
First Quarter........................ 4.88 3.50
Second Quarter....................... 5.13 3.25
Third Quarter........................ 11.25 4.44
Fourth Quarter....................... 12.06 7.13
1998
First Quarter......................... 14.63 7.88
Second Quarter........................ 14.31 8.50
Third Quarter(through September 8).... 11.56 6.69
(b) As of September 8, 1998, there were approximately 1,150 record holders
of the Company's Common Stock.
(c) The Company has never declared or paid any cash dividends on its Common
Stock. There have been no stock dividends declared or paid by the Company on its
Common Stock during the past three years. The Company currently intends to
retain any future earnings for use in the operation and development of its
business and for acquisitions and, therefore, does not intend to declare or pay
any cash dividends on its Common Stock in the foreseeable future. In addition,
the Company's Revolving Credit Agreement, as amended, prohibits it from paying
cash dividends.
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ITEM SIX - SELECTED FINANCIAL DATA
(In thousands except percentages and per share data)
<TABLE>
<CAPTION>
Year ended June 30,
--------------------------------------------------------
1998 1997 1996 1995 1994
--------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Earnings Statement Data
- -----------------------
Net Sales...................... $118,861 $ 94,299 $ 74,367 $ 71,113 $ 65,602
Income (Loss) from
Continuing Operations........ 8,406 4,420 (17,420)(1)(2) 6,587(4)(5) 5,850(6)
Income from
Discontinued Operations...... - - - 462 187
Net Income (Loss).............. 8,406 4,420 (17,420) 7,049 6,037(6)
Income (Loss) from Continuing
Operations Per Common Share
and Common Share Equivalent
Basic...................... $ .57 $ .36 $(1.46)(1)(2)$ .56(4)(5) $ .59(6)
Diluted.................... .51 .34 (3) .52(4)(5) .50(6)
Net Income (Loss) Per Common
Share and Common Share
Equivalent
Basic...................... .57 .36 (1.46) .60 .61
Diluted.................... .51 .34 (3) .56 .52
Weighted Average Number of
Common Shares and Common
Share Equivalents Outstanding
Basic...................... 14,802 12,446 11,971 11,733 9,962
Diluted.................... 16,527 14,620 (3) 14,052 12,235
June 30,
--------------------------------------------------------
1998 1997 1996 1995 1994
--------------------------------------------------------
Balance Sheet Data
- ------------------
Working Capital................ $ 53,965 $ 25,872 $ 25,300 $ 31,721 $ 28,572
Total Assets................... 124,101 81,047 81,169 71,936 71,016
Long-term Debt
(including current portion).. 11,481 28,916 34,577 13,787 18,408
Stockholders' Equity........... 87,036 35,040 30,472 46,344 39,571
Other Statistics
- ----------------
After Tax Profit Margin (Loss)
(from continuing operations).. 7.1% 4.7% (23.4)%(1)(2) 9.3%(4)(5) 8.9%(6)
Return on Average Stockholders'
Equity (from continuing
operations).................. 13.8% 13.5% (45.4)%(1)(2) 15.3%(4)(5) 17.5%(6)
Stockholders' Equity
Per Share (7) $ 5.01 $ 2.81 $ 2.49 $ 3.95 $ 3.37
<FN>
(1) Includes $23.2 million ($1.94 per share) for the write-off of in-process
research and development acquired in connection with the purchase of MIC
Technology Corporation in March 1996.
(2) Includes a $437,000, net of tax, gain ($.04 per share) on the sale of
securities.
(3) As a result of the loss, all options, warrants and convertible debentures
are anti-dilutive.
(4) Includes $2.0 million ($.14 per diluted share and $.17 basic) of insurance
proceeds received on the death of the former chairman.
(5) Includes a $1.5 million, net of tax, restructuring charge ($.11 per diluted
share and $.13 basic) for the consolidation of the Company's Puerto Rican
operations into its domestic facilities.
(6) Includes an income tax benefit of $1.7 million, ($.14 per diluted share and
$.17 basic), relating to the recognition of a portion of the Company's
unrealized net operating loss carryforward in accordance with Statement of
Financial Accounting Standards No. 109.
(7) Calculated by dividing stockholders' equity, at the end of the year, by the
number of shares outstanding at the end of the year.
</FN>
</TABLE>
-13-
<PAGE>
ITEM SEVEN - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Aeroflex Incorporated, founded in 1937, utilizes its advanced design,
engineering and manufacturing capabilities to produce state-of-the-art
microelectronic, interconnect and testing solutions used in communication
applications for commercial and defense markets. Its products are used in
satellite, wireless and wireline communications, cable television ("CATV") and
defense communications markets. It also designs and manufactures motion control
systems and shock and vibration isolation systems used for commercial,
industrial and defense applications. The Company's operations are grouped into
three segments: Microelectronics; Test, Measurement and Other Electronics; and
Isolator Products. The Company's consolidated financial statements include the
accounts of Aeroflex Incorporated and its wholly-owned subsidiaries.
The Microelectronics segment has been engaged in the design, manufacture and
sale of state-of-the-art microelectronics for the electronics industry since
1974. In January 1994, the Company acquired substantially all of the net
operating assets of the microelectronics division of Marconi Circuit Technology
Corporation, which manufactures a wide variety of microelectronic assemblies. In
March 1996, the Company acquired MIC Technology Corporation ("MIC") which
designs, develops, manufactures and markets microelectronics products in the
form of passive thin film circuits and interconnects. Effective July 1, 1997,
MIC acquired certain equipment, inventory, licenses for technology and patents
of two of Lucent Technologies' telecommunications component units - multi-chip
modules and film integrated circuits. These units manufacture microelectronic
modules and interconnect products. The Company has also signed a multi-year
supply agreement to provide Lucent with film integrated circuits for use in the
telecommunications industry.
The Test, Measurement and Other Electronics segment consists of two
divisions: Instruments and Motion Control Products. The Instruments division
consists of: (i) Comstron , a leader in radio frequency and microwave technology
used in the manufacture of fast switching frequency signal generators and
components, which was acquired in November 1989 and is currently an operating
division of Aeroflex Laboratories Incorporated, a wholly-owned subsidiary of
Aeroflex; and (ii) Lintek, a leader in high speed instrumentation antenna
measurement systems and radar systems. The Motion Control Products division has
been engaged in the development and manufacture of electro-optical scanning
devices used in infra-red night vision systems since 1975. Additionally, it has
been engaged in the design, development and production of stabilization tracking
devices and systems and magnetic motors since 1961.
The Isolator Products segment has been engaged in the design, development,
manufacture and sale of severe service shock and vibration isolation systems
since 1961. These devices include a product line of helically wound steel wire
rope contained between rugged metal retainer bars which are used to store and
dissipate potentially destructive vibration and shock and are primarily used in
defense applications. In October 1983, the Company acquired Vibration Mountings
& Controls, Inc. (VMC), which manufactures a line of off-the-shelf rubber and
spring shock, vibration and structure borne noise control devices used in
commercial applications. In December 1986, the Company acquired the operating
assets of Korfund Dynamics Corporation (KDC), a manufacturer of an industrial
line of heavy duty spring and rubber shock mounts.
-14-
<PAGE>
Revenue is recognized based upon shipments or billings. The Company records
costs on its long-term contracts using percentage-of-completion accounting under
which costs are recognized on revenues in the same relation that total estimated
manufacturing costs bear to total contract value. Estimated costs at completion
are based upon engineering and production estimates. Provisions for estimated
losses or revisions in estimated profits on contracts-in-process are recorded in
the period in which such losses or revisions are first determined.
Approximately 42%, 50% and 65% of the Company's sales for fiscal 1998, 1997
and 1996, respectively, were to agencies of the United States Government or to
prime defense contractors or subcontractors of the United States Government. The
Company's overall dependence on the military has been declining due to the
acquisition of MIC, which is more commercially oriented, and a focusing of
resources towards developing standard products for the commercial markets. The
Company's government contracts have been awarded either on a bid basis or after
negotiation. The contracts are primarily fixed price contracts, though the
Company also has government contracts providing for cost plus fixed fee. The
Company's defense contracts contain customary provisions for termination at the
convenience of the government without cause. In the event of such termination,
the Company is entitled to reimbursement for its costs and to receive a
reasonable profit, if any, on the work done prior to termination.
Management believes that potential reductions in defense spending will not
materially affect its operations. In certain product areas, the Company has
suffered reductions in sales volume due to cutbacks in the military budget. In
other product areas, the Company has experienced increased sales volume due to a
realignment of government spending towards upgrading existing systems instead of
purchasing completely new systems. The overall effect of the cutbacks and
realignment has not been material to the Company.
The Company's product development efforts primarily involve engineering and
design relating to the development of new products, the improvement of existing
products or the adaption of such products to new applications. The Company's
efforts also include developing prototype components to bid on specific
programs. Some of the Company's development efforts are reimbursed under
contractual arrangements. Product development and similar costs not recoverable
under contractual arrangements are expensed in the period incurred.
In June 1997, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosure About
Segments of an Enterprise and Related Information," which is effective for
fiscal years beginning after December 15, 1997. This statement establishes
standards for reporting information about operating segments and related
disclosures about products and services, geographic areas and major customers.
The Company has not determined the impact that the adoption of this new
accounting standard will have on its consolidated financial statement
disclosures. The Company will adopt this standard effective July 1, 1998, as
required.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which is effective for fiscal years
beginning after June 15, 1999. This statement requires companies to record
derivatives on the balance sheet as assets or liabilities at their fair value.
In certain circumstances changes in the value of such derivatives may be
required to be recorded as gains or losses. Management believes that the impact
of this statement will not have a material effect on the Company's consolidated
financial statements.
-15-
<PAGE>
Market Risk
The Company is exposed to market risk related to changes in interest rates
and, to an immaterial extent, to foreign currency exchange rates. Most of the
Company's debt is at fixed rates of interest or at a variable rate with an
interest rate swap agreement to effectively make it a fixed rate of interest.
That debt which is subject to a floating rate of interest (30-day LIBOR) and is
not hedged by an interest rate swap amounts to approximately $5.6 million at
June 30, 1998. If market interest rates increase by 10 percent from levels at
June 30, 1998, the effect on the Company's results of operations would not be
material.
Year 2000 Compliance
Management has initiated a company-wide program and has developed a formal
plan of implementation to prepare the Company for the Year 2000. This includes
taking actions designed to ensure that the Company's information technology
("IT") systems, products and infrastructure are Year 2000 compliant and that its
customers, suppliers and service providers have taken similar action. The
Company is in the process of evaluating its internal issues - all of its IT
systems, products, equipment and other facilities systems - and modifying items
that are not compliant. With respect to its external issues customers, suppliers
and service providers - the Company is surveying them primarily through written
correspondence.
The Company expects to incur internal staff costs, as well as consulting and
other expenses, and believes the total costs to be incurred for all internal
Year 2000 compliance related projects will not have a material impact on the
Company's business, results of operations or financial condition. Management
expects to complete its investigation, remediation and contingency planning
activities for all mission critical systems and areas by December 31, 1998,
although there can be no assurance that it will. At this time, Management
believes that the Company does not have any internal mission critical Year 2000
issues that it cannot remedy. With respect to mission critical third parties, in
some instances the Company has protection under contracts and the Company
intends to create contingency plans to mitigate its exposure in the event such
third parties are not Year 2000 compliant. Despite its efforts to survey its
customers, suppliers and service providers, Management cannot be certain as to
the actual Year 2000 readiness of these third parties or the impact that any
non-compliance on their part may have on the Company's business, results of
operations or financial condition.
-16-
<PAGE>
Statement of Operations
The following table sets forth certain items from the Company's statement of
operations as a percentage of net sales and in dollars by segment for the
periods indicated:
<TABLE>
<CAPTION>
Year Ended June 30,
----------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net Sales 100.0% 100.0% 100.0%
Cost of Sales 65.0 66.9 68.7
------ ------ ------
Gross Profit 35.0 33.1 31.3
------ ------ ------
Operating Expenses:
Selling, General and
Administrative costs 18.1 19.3 19.0
Research and Development costs 4.4 3.5 1.6
Special Charge (1) - - 31.2
------ ------ ------
Total Operating Expenses 22.5 22.8 51.8
------ ------ ------
Operating Income (Loss) 12.5 10.3 (20.5)
Other Expense, net 1.4 3.0 1.2
------ ------ ------
Income (Loss) Before Income Taxes 11.1 7.3 (21.7)
Provision For Income Taxes 4.0 2.6 1.7
------ ------ ------
Net Income (Loss) 7.1% 4.7% (23.4)%
====== ====== ======
Business Segment Data (in thousands):
Year Ended June 30,
----------------------------
1998 1997 1996
---- ---- ----
Net Sales:
Microelectronics $ 74,263 $ 48,462 $28,414
Test, Measurement
and Other Electronics 25,685 28,144 30,109
Isolator Products 18,913 17,693 15,844
-------- -------- -------
Net Sales $118,861 $ 94,299 $74,367
======== ======== =======
Operating Profit (Loss):
Microelectronics $ 14,147 $ 6,644 $ 3,282
Test, Measurement
and Other Electronics 996 2,762 4,830
Isolator Products 3,063 2,844 2,150
General Corporate
Expenses (3,348) (2,514) (2,344)
-------- -------- -------
14,858 9,736 7,918
Special Charge (1) - - (23,200)
-------- -------- -------
Operating Profit (Loss) $ 14,858 $ 9,736 $(15,282)
======== ======== =======
<FN>
(1) Write-off of in-process research and development acquired in connection
with the purchase of MIC.
</FN>
</TABLE>
-17-
<PAGE>
Fiscal Year Ended June 30, 1998 Compared to Fiscal Year Ended June 30, 1997
Net Sales. Net sales increased 26.0% to $118.9 million in fiscal 1998 from
$94.3 million in fiscal 1997. Net sales in the Microelectronics segment
increased 53.2% to $74.3 million for fiscal 1998 from $48.5 million for fiscal
1997 due to increased sales volume in both thin film interconnects and
microelectronic modules. Sales of thin film interconnects increased primarily
due to the commencement of a strategic supply contract with Lucent Technologies
effective July 1, 1997. Net sales in the Test, Measurement and Other Electronics
segment decreased 8.7% to $25.7 million in fiscal 1998 from $28.1 million for
fiscal 1997 primarily as a result of reduced sales volume of frequency
synthesizers partially offset by increased sales of high speed instrumentation
test systems. Net sales in the Isolator Products segment increased 6.9% to $18.9
million for fiscal 1998 from $17.7 million for fiscal 1997 primarily due to
higher sales volume of industrial and commercial isolators.
Gross Profit. Cost of sales includes materials, direct labor and overhead
expenses such as engineering labor, fringe benefits, allocable occupancy costs,
depreciation and manufacturing supplies. Gross profit increased 33.3% to $41.6
million in fiscal 1998 from $31.2 million in fiscal 1997. Gross margin increased
to 35.0% in fiscal 1998 from 33.1% in fiscal 1997. This increase was primarily
as a result of increased margins in the Microelectronics segment reflecting the
greater efficiency of higher volume.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses consist of office and management salaries, fringe
benefits, commissions and advertising costs. Selling, general and administrative
expenses increased 18.5% to $21.5 million (18.1% of net sales) in fiscal 1998
from $18.2 million (19.3% of net sales) in fiscal 1997. The increase was
primarily due to labor related expenses including salaries for additional hires,
recruitment and relocation costs in connection with the Company's growth.
Research and Development Costs. Research and development costs consists of
material, engineering labor and allocated overhead. Company sponsored research
and development costs increased 57.7% to $5.2 million (4.4% of net sales) for
the year ended June 30, 1998 from $3.3 million (3.5% of net sales) for the year
ended June 30, 1997. This increase was primarily attributable to the costs for
development of a new low-cost, high speed, high performance frequency
synthesizer intended for commercial communication test systems.
Other Expense (Income). Other expense was $1.7 million in fiscal 1998
compared to $2.9 million in fiscal 1997. Net interest expense decreased 43.9% to
$1.6 million in fiscal 1998 from $2.9 million in fiscal 1997. The decrease in
net interest expense was primarily due to reduced levels of borrowings and
increased levels of cash equivalents due to the conversion of $10.0 million of
debentures and net proceeds of $31.3 million from stock issued in a public
offering. Other expense included $102,000 of debenture redemption costs in
fiscal 1998.
Provision for Income Taxes. Income taxes recorded by the Company increased
95.1% to $4.8 million (an effective income tax rate of 36.1%) in fiscal 1998
from $2.4 million (an effective income tax rate of 35.5%) in fiscal 1997. The
income tax provisions for the years ended June 30, 1998 and 1997 were different
from the amounts computed by applying the U.S. Federal income tax rate to income
before income taxes primarily due to state and local income taxes, and for the
year ended June 30, 1998, due to research and development credits.
-18-
<PAGE>
Fiscal Year Ended June 30, 1997 Compared to Fiscal Year Ended June 30, 1996
Net Sales. Net sales increased 26.8% to $94.3 million for fiscal 1997 from
$74.4 million in fiscal 1996. Net sales in the Microelectronics segment
increased 70.6% to $48.5 million for fiscal 1997 from $28.4 million for fiscal
1996 due to the acquisition of MIC in March 1996 and increased sales in the
existing product lines. MIC sales for fiscal 1997 and from acquisition until
June 30, 1996 were approximately $21.9 million and $6.2 million, respectively.
Net sales in the Test, Measurement and Other Electronics segment decreased 6.5%
to $28.1 million for fiscal 1997 from $30.1 million for fiscal 1996 primarily as
a result of reduced frequency synthesizer sales partially offset by increased
sales of stabilization and tracking devices. The reduction in frequency
synthesizer sales was due to the early completion of the current CASS contract
and the transition from custom to commercial markets. Net sales in the Isolator
Products segment increased 11.7% to $17.7 million for fiscal 1997 from $15.8
million for fiscal 1996. The increase reflects higher sales volume of industrial
and commercial isolators partially offset by decreased sales volume of military
isolators.
Gross Profit. Gross profit increased 33.9% to $31.2 million in fiscal 1997
from $23.3 million in fiscal 1996. Gross margin increased to 33.1% in fiscal
1997 from 31.3% in fiscal 1996. This increase was primarily as a result of
increased margins in the Microelectronics and Isolator Products segments
reflecting the greater efficiencies of higher volumes and because MIC generally
has higher margins than the balance of the Company.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 28.7% to $18.2 million (19.3% of net sales) in
fiscal 1997 from $14.1 million (19.0% of net sales) in fiscal 1996. This
increase was primarily as a result of the addition of MIC, which has a higher
selling, general and administrative cost structure than the balance of the
Company.
Research and Development Costs. Company sponsored research and development
costs increased 160.2% to $3.3 million (3.5% of net sales) for the year ended
June 30, 1997 from $1.3 million (1.6% of net sales) for the year ended June 30,
1996. This increase was primarily attributable to MIC which was acquired in
March 1996.
Special Charge. In connection with the Company's purchase of MIC, the
Company allocated $23.2 million of the purchase price to in-process research and
development. Since the research and development projects had not reached
technological feasibility, the $23.2 million was charged to expense in fiscal
1996 in accordance with generally accepted accounting principles.
Other Expense (Income). Other expense increased 233.4% to $2.9 million in
fiscal 1997 from $864,000 in fiscal 1996. Net interest expense increased 100.3%
to $2.9 million in fiscal 1997 from $1.4 million in fiscal 1996. The increase in
net interest expense was primarily due to the increased level of borrowings and
lower interest income on reduced cash amounts due to the purchase of MIC. Other
income decreased in fiscal 1997 due to a securities related gain in fiscal 1996.
Provision for Income Taxes. Income taxes recorded by the Company increased
91.1% to $2.4 million (an effective income tax rate of 35.5%) in fiscal 1997
from $1.3 million on a loss before income taxes of $16.1 million in fiscal 1996.
The income tax provisions for the years ended June 30, 1997 and 1996 were
different from amounts computed by applying the U.S. Federal income tax rate to
income before income taxes primarily due to state and local income taxes, and,
for the year ended June 30, 1996, because of the non-deductibility of the $23.2
million special charge and the tax benefits of loss carryforwards (both
unrealized and realized).
-19-
<PAGE>
Seasonality
Although the Company's business is not affected by seasonality,
historically its revenues and earnings increase sequentially from quarter to
quarter within a fiscal year, but the first quarter is less than the previous
year's fourth quarter.
Liquidity and Capital Resources
As of June 30, 1998, the Company had $54.0 million in working capital. The
current ratio was 3.3 to 1 at June 30, 1998. As of March 31, 1998, the Company
replaced a previous agreement with a revised revolving credit agreement with two
banks which is secured by substantially all of the Company's assets not
otherwise encumbered. The agreement provides for a revolving credit line of
$27.0 million which expires in March 2001. The interest rate on borrowings under
this agreement is at various rates depending upon certain financial ratios, with
the current rate substantially equivalent to the prime rate (8.5% at June 30,
1998). The terms of the agreement require compliance with certain covenants
including minimum consolidated tangible net worth and pre-tax earnings,
maintenance of certain financial ratios, limitations on capital expenditures and
indebtedness and prohibition of the payment of cash dividends. At June 30, 1998,
the outstanding borrowings under the revolving credit line were $4.7 million.
The Company has entered into an interest rate swap agreement for the $4.7
million then outstanding under the revolving credit line at 7.6% in order to
reduce the interest rate risk associated with these outstanding borrowings.
During June 1994, the Company completed a sale of $10.0 million principal
amount of 7-1/2% Senior Subordinated Convertible Debentures to non-U.S. persons.
On September 8, 1997, the Company called for the redemption of all of its
outstanding 7-1/2% Senior Subordinated Convertible Debentures at 104-1/2% of the
principal amount. The Debentures were convertible into the Company's Common
Stock at a price of $5-5/8 per share through October 6, 1997. All of the
principal amount was converted. In connection with the conversions, $599,000 of
deferred bond issuance costs were charged to additional paid-in capital.
Effective March 19, 1996, the Company acquired all of the outstanding stock
of MIC for approximately $36.0 million of cash, 300,000 shares of common stock
and warrants to purchase 400,000 shares of common stock (at exercise prices
ranging from $7.05 to $7.50 per share). The purchase price was paid with
available cash of $9.0 million and borrowings under the Company's bank loan
agreement of $27.0 million. MIC manufactures high frequency thin film circuits
and interconnects for miniaturized, high frequency, high performance electronic
products for growing commercial markets such as wireless communications, cable
communications, satellite based communications hardware and high technology
military electronics. The acquired company's net sales were approximately $25.0
million for its fiscal year ended October 31, 1995.
Effective July 1, 1997, the Company's subsidiary, MIC, acquired certain
equipment, inventory, licenses for technology and patents of two of Lucent
Technologies' telecommunications component units - multi-chip modules and film
integrated circuits - for approximately $4.4 million in cash. These units
manufacture microelectronic modules and interconnect products. The Company has
also signed a multi-year supply agreement to provide Lucent with film integrated
circuits for use in the telecommunications industry. The purchase price has been
allocated to the assets acquired, based on their fair values, and certain
obligations assumed relating to the various agreements.
-20-
<PAGE>
In fiscal 1998, the Company's operations provided cash of $13.7 million
from the continued profitability of the Company, collection of receivables and
an increase in current liabilities partially offset by an increase in
inventories. In fiscal 1998, the Company's investing activities used cash of
$15.0 million primarily for capital expenditures, including the renovation of
MIC's Pearl River facility and the purchase of equipment and inventory from
Lucent Technologies. In fiscal 1998, the Company's financing activities provided
cash of $25.1 million primarily from the public offering of stock and equipment
financing offset, in part, by debt payments.
In March 1998, the Company sold 2.6 million shares of its Common Stock in a
public offering for $31.3 million, net of an underwriting discount of $2.0
million and issuance costs of $496,000. Of these net proceeds, $9.6 million was
used to repay bank indebtedness. The balance of the net proceeds, which is
included in cash and cash equivalents, will be used for general corporate
purposes, including working capital, capital expenditures and facilities
expansion and may be used for potential acquisitions.
Management of the Company believes that internally generated funds and
available lines of credit will be sufficient for its working capital
requirements, capital expenditure needs and the servicing of its debt for at
least the next twelve months. At June 30, 1998, the Company's available unused
line of credit was approximately $20.0 million.
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 plaintiffs are seeking damages
which cumulatively may exceed $500 million. 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. This
action is in the early stages of discovery. Based upon available information and
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.
The Company is involved in various other routine legal matters. Management
believes the outcome of these matters will not have a materially adverse effect
on the Company's consolidated financial statements.
The Company is undergoing routine audits by various taxing authorities of
its state and local income tax returns covering periods from 1994 to 1996.
Management believes that the probable outcome of these various audits should not
materially affect the consolidated financial statements of the Company.
The Company's backlog of orders at June 30, 1998 and 1997 was $80.1 million
and $53.3 million, respectively.
Financial Information About Industry Segments
The sales and operating profits of each industry segment and the
identifiable assets attributable to each industry segment for each of the three
years in the period ended June 30, 1998 are set forth in Note 14 of Notes to
Consolidated Financial Statements.
-21-
<PAGE>
ITEM EIGHT - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data listed in the accompanying
Index to Financial Statements and Schedules is attached as part of this report.
ITEM NINE - DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
The information required by Part III is incorporated by reference to the
Company's definitive proxy statement in connection with its Annual Meeting of
Stockholders scheduled to be held in November 1998, to be filed with the
Securities and Exchange Commission within 120 days following the end of the
Company's fiscal year ended June 30, 1998.
PART IV
ITEM FOURTEEN - EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K
(a) See Index to Financial Statements at beginning of attached
financial statements.
(b) Reports on Form 8-K:
None
(c) Exhibits
3.1 Certificate of Incorporation, as amended.
3.2 By-Laws, as amended (Exhibit 3 to Quarterly Report on Form 10-Q for
the quarter ended March 31, 1998).
4.1 Third Amended and Restated Loan and Security Agreement dated as of
March 15, 1996 among the Registrant, certain of its subsidiaries,
Chemical Bank and NatWest Bank, N.A. (Exhibit 10 of Report on Form 8-K
dated March 19, 1996).
4.2 Second Amendment to the Third Amended and Restated Loan and Security
Agreement dated as of April 30, 1998 among the Registrant, certain of
its subsidiaries, The Chase Manhattan Bank (as successor to Chemical
Bank) and Fleet Bank, N.A. (as successor to NatWest Bank, N.A.)
10.1 1989 Non-Qualified Stock Option Plan, as amended (Exhibit 10.8 of
Annual Report on Form 10-K for the year ended June 30, 1990).
10.2 1994 Non-Qualified Stock Option Plan. (Exhibit 10.2 of Annual Report
on Form 10-K for the year ended June 30, 1994).
10.3 1994 Outside Directors Stock Option Plan. (Exhibit 10.3 of Annual
Report on Form 10-K for the year ended June 30, 1994).
-22-
<PAGE>
10.4 Amendment No. 1 to Employment Agreement between Aeroflex Incorporated
and Harvey R. Blau (Exhibit 10.1 to Report on Form 8-K dated May 17,
1997).
10.5 Amendment No. 1 to Employment Agreement between Aeroflex Incorporated
and Michael Gorin (Exhibit 10.2 to Report on Form 8-K dated May 17,
1997).
10.6 Amendment No. 1 to Employment Agreement between Aeroflex Incorporated
and Leonard Borow (Exhibit 10.3 to Report on Form 8-K dated May 17,
1997).
10.7 Deferred Compensation Agreement between Aeroflex Incorporated and
Harvey R. Blau (Exhibit 10.4 to Report on Form 8-K dated May 17,
1997).
10.8 Employment Agreement between Aeroflex Incorporated and Carl Caruso
(Exhibit 10.5 to Report on Form 8-K dated May 17, 1997).
10.9 1996 Stock Option Plan (Exhibit A to Definitive Schedule 14A filed
September 30, 1996).
10.10 1998 Stock Option Plan (Exhibit 10 to Quarterly Report on Form
10-Q for the quarter ended March 31, 1998).
10.11 Amendment No. 2 to Employment Agreement between Aeroflex Incorporated
and Harvey R. Blau.
10.12 Amendment No. 2 to Employment Agreement between Aeroflex
Incorporated and Michael Gorin.
10.13 Amendment No. 2 to Employment Agreement between Aeroflex Incorporated
and Leonard Borow.
22 The following is a list of the Company's subsidiaries:
State of
Name Incorporation
---- -------------
Aeroflex Laboratories Incorporated Delaware
Aeroflex Lintek Corp. Ohio
Aeroflex Systems Corp. Delaware
MIC Technology Corporation Texas
Vibration Mountings and Controls, Inc. New York
23 Consent of Independent Auditors
27 Financial Data Schedule
99 Additional Exhibit
The following undertakings are incorporated by reference into the Company's
Registration Statements on Form S-8 and Form S-3 (Registration Nos. 33-75496,
33-88868, 33-88878, 333-42399, 333-42405, 333- 15339, 333-21803 and 333-46689).
-23-
<PAGE>
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with respect to the plan or
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if
the registration statement is on Form S-3 or Form S-8, and the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed by the registrant pursuant to Section 13 or
Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by
reference in the registration statement.
(2) For the purpose of determining any liability under the Securities Act of
1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(f) (1) The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus to each employee to whom the prospectus is sent or
given a copy of the registrant's annual report to stockholders for its last
fiscal year, unless such employee otherwise has received a copy of such report,
in which case the registrant shall state in the prospectus that it will promptly
furnish, without charge, a copy of such report on written request of the
employee. If the last fiscal year of the registrant has ended within 120 days
prior to the use of the prospectus, the annual report of the registrant for the
preceding fiscal year may be so delivered, but within such 120 day period the
annual report for the last fiscal year will be furnished to each such employee.
(2) The undersigned registrant hereby undertakes to transmit or cause to be
transmitted to all employees participating in the plan who do not otherwise
receive such material as stockholders of the registrant, at the time and in the
manner such material is sent to its stockholders, copies of all reports, proxy
statements and other communications distributed to its stockholders generally.
-24-
<PAGE>
(3) Where interests in a plan are registered herewith, the undersigned
registrant and plan hereby undertake to transmit or cause to be transmitted
without charge, to any participant in the plan who makes a written request, a
copy of the then latest annual report of the plan filed pursuant to Section 15
(d) of the Securities Exchange Act of 1934 (Form 11-K). If such report is filed
separately on Form 11-K, such form shall be delivered upon written request. If
such report is filed as a part of the registrant's annual report on Form 10-K,
that entire report (excluding exhibits) shall be delivered upon written request.
If such report is filed as a part of the registrant's annual report to
stockholders delivered pursuant to paragraph (1) or (2) of this undertaking,
additional delivery shall not be required.
(4) If the registrant is a foreign private issuer, eligible to use Form 20-F,
then the registrant shall undertake to deliver or cause to be delivered with the
prospectus to each employee to whom the prospectus is sent or given, a copy of
the registrant's latest filing on Form 20-F in lieu of the annual report to
stockholders.
(i) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
-25-
<PAGE>
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on the 25th day of
September 1998.
Aeroflex Incorporated
By: /s/ Harvey R. Blau
------------------------
Harvey R. Blau, Chairman
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on September 25th, 1998 by the following persons in
the capacities indicated:
/s/ Harvey R. Blau
- ------------------------- Chairman of the Board
Harvey R. Blau (Chief Executive Officer)
/s/ Michael Gorin
- ------------------------- President and Director
Michael Gorin (Chief Financial Officer and
Principal Accounting Officer)
/s/ Leonard Borow
- ------------------------- Executive Vice President, Secretary
Leonard Borow and Director(Chief Operating Officer)
- ------------------------- Director
Paul Abecassis
/s/ Robert Bradley, Sr.
- ------------------------- Director
Robert Bradley, Sr.
/s/ Milton Brenner
- ------------------------- Director
Milton Brenner
/s/ Ernest E. Courchene, Jr.
- ------------------------- Director
Ernest E. Courchene, Jr.
/s/ Donald S. Jones
- ------------------------- Director
Donald S. Jones
/s/ Eugene Novikoff
- ------------------------- Director
Eugene Novikoff
/s/ John S. Patton
- ------------------------- Director
John S. Patton
-26-
<PAGE>
AEROFLEX INCORPORATED
AND SUBSIDIARIES
FINANCIAL STATEMENTS AND SCHEDULES
COMPRISING ITEM 8 OF ANNUAL REPORT ON FORM 10-K
TO SECURITIES AND EXCHANGE COMMISSION
AS OF JUNE 30, 1998 AND 1997
AND FOR THE YEARS
ENDED JUNE 30, 1998, 1997 AND 1996
<PAGE>
FINANCIAL STATEMENTS AND SCHEDULES
I N D E X
PAGE
----
ITEM FOURTEEN (a)
1. FINANCIAL STATEMENTS:
Independent auditors' report S-1
Consolidated financial statements:
Balance sheets - June 30, 1998 and 1997 S-2-3
Statements of operations - each of the three years
in the period ended June 30, 1998 S-4
Statements of stockholders' equity - each of the
three years in the period ended June 30, 1998 S-5
Statements of cash flows - each of the three years
in the period ended June 30, 1998 S-6
Notes (1-15) S-7-21
Quarterly financial data (unaudited) S-22
2. FINANCIAL STATEMENT SCHEDULES:
II - Valuation and qualifying accounts S-23
All other schedules have been omitted because they are inapplicable, not
required, or the information is included elsewhere in the financial statements
or notes thereto.
<PAGE>
Independent Auditors' Report
The Board of Directors and Stockholders of Aeroflex Incorporated
Plainview, New York
We have audited the accompanying consolidated balance sheets of Aeroflex
Incorporated and subsidiaries as of June 30, 1998 and 1997 and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the years in the three year period ended June 30, 1998. Our audits also
included the financial statement schedule listed in the Index at item 14(a)2.
These consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Aeroflex
Incorporated and subsidiaries as of June 30, 1998 and 1997 and the results of
their operations and their cash flows for each of the years in the three year
period ended June 30, 1998, in conformity with generally accepted accounting
principles. Also, in our opinion, the financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
KPMG PEAT MARWICK LLP
/s/ KPMG Peat Marwick LLP
Jericho, New York
August 13, 1998
S-1
<PAGE>
AEROFLEX INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
June 30,
------------------------
ASSETS 1998 1997
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents............................... $ 24,408 $ 600
Accounts receivable, less allowance for doubtful accounts
of $317 and $417 at June 30, 1998 and 1997,
respectively.......................................... 19,853 21,843
Inventories............................................. 29,851 20,319
Deferred income taxes................................... 1,861 2,043
Prepaid expenses and other current assets............... 1,197 812
-------- --------
Total current assets............................... 77,170 45,617
Property, plant and equipment, net........................ 26,994 14,487
Intangible assets acquired in connection with the purchase
of businesses, net of accumulated amortization of $1,993
and $1,224 at June 30, 1998 and 1997, respectively...... 7,578 8,046
Cost in excess of fair value of net assets of
businesses acquired, net of accumulated amortization
of $2,724 and $2,399 at June 30, 1998 and 1997,
respectively............................................ 9,827 9,903
Other assets.............................................. 2,532 2,994
-------- --------
Total assets.............................................. $124,101 $ 81,047
======== ========
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
S-2
<PAGE>
AEROFLEX INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
June 30,
---------------------
LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1997
---- ----
<S> <C> <C>
Current liabilities:
Current portion of long-term debt....................... $ 1,755 $ 4,247
Accounts payable........................................ 6,668 5,093
Accrued expenses and other current liabilities.......... 12,932 8,564
Income taxes payable.................................... 1,850 1,841
-------- --------
Total current liabilities.......................... 23,205 19,745
Long-term debt............................................ 9,726 14,688
Deferred income taxes..................................... 1,156 334
Other long-term liabilities............................... 2,978 1,259
Senior subordinated convertible debentures................ - 9,981
-------- -------
Total liabilities......................................... 37,065 46,007
-------- --------
Commitments and contingencies
Stockholders' equity:
Preferred Stock, par value $.10 per share; authorized 1,000
shares: Series A Junior Participating Preferred Stock, par
value $.10 per share; authorized 150 shares;
none issued........................................... - -
Common Stock, par value $.10 per share; authorized
25,000 shares; issued 17,378 and 12,658 shares at
June 30, 1998 and 1997, respectively.................. 1,738 1,266
Additional paid-in capital.............................. 100,481 58,110
Accumulated deficit..................................... (15,178) (23,584)
-------- --------
87,041 35,792
Less: Treasury stock, at cost (1 and 169 shares at
June 30, 1998 and 1997, respectively.................. 5 752
-------- --------
Total stockholders' equity................................ 87,036 35,040
-------- --------
Total liabilities and stockholders' equity................ $124,101 $ 81,047
======== ========
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
S-3
<PAGE>
AEROFLEX INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Years Ended June 30,
---------------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net sales................................ $118,861 $ 94,299 $ 74,367
Cost of sales........................... 77,286 63,109 51,070
-------- -------- ---------
Gross profit......................... 41,575 31,190 23,297
-------- -------- ---------
Operating costs:
Selling, general and administrative
costs................................ 21,545 18,175 14,119
Research and development costs........ 5,172 3,279 1,260
Special charge (note 2).............. - - 23,200
-------- -------- ---------
Total operating costs......... 26,717 21,454 38,579
-------- -------- ---------
Operating income (loss).................. 14,858 9,736 (15,282)
-------- -------- ---------
Other expense (income):
Interest expense....................... 2,011 2,974 1,939
Other expense (income) (including
interest income and dividends of
$389, $84 and $496)................... (309) (93) (1,075)
-------- -------- ---------
Total other expense (income)...... 1,702 2,881 864
-------- -------- ---------
Income (loss) before income taxes........ 13,156 6,855 (16,146)
Provision for income taxes............... 4,750 2,435 1,274
-------- -------- ---------
Net income (loss)........................ $ 8,406 $ 4,420 (17,420)
======== ======== =========
Income (loss) per common share and common
share equivalent:
Basic............................... $ .57 $ .36 $(1.46)
======== ======== =========
Diluted............................... $ .51 $ .34 *
======== ========
Weighted average number of common
shares and common share equivalents
outstanding:
Basic................................. 14,802 12,446 11,971
Diluted............................... 16,527 14,620 *
<FN>
*As a result of the loss, all options, warrants and convertible debentures are
anti-dilutive.
See notes to consolidated financial statements.
</FN>
</TABLE>
S-4
<PAGE>
AEROFLEX INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended June 30, 1998, 1997 and 1996
(In thousands)
<TABLE>
<CAPTION>
Common Stock Additional
------------ Paid-in Accumulated Treasury Stock
Total Shares Par Value Capital Deficit Shares Cost
----- ------ --------- ----------- ----------- ------ ----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, July 1, 1995............... $ 46,344 11,818 $ 1,182 $ 56,101 $ (10,584) 92 $ (355)
Stock issued upon
conversion of
debentures........................ 19 3 - 19 - - -
Treasury stock received
from the employee
stock ownership plan.............. (285) - - - - 56 (285)
Stock issued upon exercise
of stock options.................. 440 159 16 366 - (19) 58
Stock and warrants issued
to acquire business............... 1,074 300 30 1,044 - - -
Stock issued in connection
with bank refinancing............. 300 100 10 290 - - -
Net loss............................ (17,420) - - - (17,420) - -
------- ------- ------ ------- -------- ------- --------
Balance, June 30, 1996.............. 30,472 12,380 1,238 57,820 (28,004) 129 (582)
Stock issued upon exercise
of stock options.................. 586 278 28 290 - (69) 268
Purchase of treasury
stock............................. (438) - - - - 109 (438)
Net income.......................... 4,420 - - - 4,420 - -
------- ------- ------ ------- -------- ------- --------
Balance, June 30, 1997.............. 35,040 12,658 1,266 58,110 (23,584) 169 (752)
Stock issued in public offering..... 31,285 2,597 260 31,025 - - -
Stock issued upon exercise
of stock options and warrants..... 2,923 349 35 2,141 - (168) 747
Stock issued upon conversion
of debentures..................... 9,382 1,774 177 9,205 - - -
Net income.......................... 8,406 - - - 8,406 - -
------- ------- ------ --------- --------- -------- --------
Balance, June 30, 1998.............. $ 87,036 17,378 $ 1,738 $ 100,481 $ (15,178) 1 $ (5)
======= ======= ======= ========= ========= ======== ========
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
S-5
<PAGE>
AEROFLEX INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Years Ended June 30,
-----------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)............................................ $ 8,406 $ 4,420 $ (17,420)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Special charge........................................... - - 23,200
Depreciation and amortization............................ 4,884 4,322 3,091
Amortization of deferred gain............................ (588) - -
Gain on sale of securities............................... - - (533)
Deferred income taxes.................................... 1,004 (10) (461)
Other.................................................... (10) 57 (112)
Change in operating assets and liabilities, net of
effects from purchase of businesses:
Decrease (increase) in accounts receivable............... 1,975 1,421 (2,220)
Decrease (increase) in inventories....................... (8,397) (3,403) (2,654)
Decrease (increase) in prepaid
expenses and other assets.............................. (633) 879 (6)
Increase (decrease) in accounts
payable, accrued expenses and
other long-term liabilities............................ 5,374 375 434
Increase (decrease) in income taxes payable.............. 1,648 668 1,189
-------- -------- --------
Net cash provided by operating activities...................... 13,663 8,729 4,508
-------- -------- --------
Cash flows from investing activities:
Payment for purchase of businesses,
net of cash acquired....................................... (249) (162) (35,190)
Purchase of equipment, inventory and technology rights
from Lucent Technolgies.................................... (4,435) - -
Capital expenditures......................................... (10,613) (2,931) (1,687)
Proceeds from sale of property,
plant and equipment........................................ 209 16 2,318
Net proceeds from sale of securities......................... 110 81 1,242
-------- -------- --------
Net cash used in investing activities.......................... (14,978) (2,996) (33,317)
-------- -------- --------
Cash flows from financing activities:
Proceeds from issuance of common shares in public offering... 31,781 - -
Costs in connection with public offering..................... (496) - -
Borrowings under debt agreements............................. 6,231 58 27,250
Debt repayments.............................................. (13,685) (5,719) (9,210)
Bank debt financing costs.................................... - - (403)
Purchase of treasury stock................................... - (438) -
Proceeds from the exercise of stock options and warrants..... 1,292 305 503
-------- -------- --------
Net cash provided by (used in)
financing activities......................................... 25,123 (5,794) 18,140
-------- -------- --------
Net increase (decrease) in cash and
cash equivalents............................................. 23,808 (61) (10,669)
Cash and cash equivalents at beginning of period............... 600 661 11,330
-------- -------- --------
Cash and cash equivalents at end of period..................... $ 24,408 $ 600 $ 661
======== ======== ========
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
S-6
<PAGE>
AEROFLEX INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Principles and Policies
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Aeroflex Incorporated and its subsidiaries (the "Company"), all of which are
wholly-owned. All significant intercompany balances and transactions have
been eliminated.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires that management of the Company make a number
of estimates and assumptions relating to the reporting of assets and
liabilities and the disclosure of contingent assets and liabilities. Among
the more significant estimates included in the financial statements are the
estimated costs to complete contracts in process.
Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments having maturities of
three months or less at the date of acquisition to be cash equivalents.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market.
Inventories related to long-term contracts are recorded at cost less amounts
expensed under percentage-of- completion accounting.
Financial Instruments
The fair values of all financial instruments, other than long-term debt and
the convertible debentures (see Notes 7 and 8), approximate book values
because of the short maturity of these instruments.
Revenue and Cost Recognition on Contracts
Revenue is recognized based upon shipments or billings. The Company records
gross profit on its long-term contracts using percentage-of-completion
accounting under which costs are recognized on revenues in the same relation
that total estimated manufacturing costs bear to total contract value.
Estimated costs at completion are based upon engineering and production
estimates. Provisions for estimated losses or revisions in estimated profits
on contracts-in-process are recorded in the period in which such losses or
revisions are first determined.
Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated
depreciation computed on a straight-line basis over the estimated useful
lives of the related assets. Leasehold improvements are amortized over the
life of the lease or the estimated life of the asset, whichever is shorter.
Research and Development Costs
All research and development costs are charged to expense as incurred. See
Note 2 for a discussion of purchased in-process research and development.
S-7
<PAGE>
Intangible Assets
Intangible assets are recorded at cost, less accumulated amortization. The
excess of purchase price over the fair value of tangible assets acquired is
being amortized on a straight-line basis over periods ranging from 20 to 40
years except for certain costs allocated to existing technology, workforce
in-place, customer relationships and patents which are amortized over 13 to
15 years, the estimated remaining lives of the intangibles at the time they
were acquired by the Company. The Company periodically evaluates the
recoverability of the carrying value of its intangible assets and the related
amortization periods. The Company assesses the recoverability of unamortized
goodwill based on the undiscounted projected future earnings of the related
businesses. As of June 30, 1998, the cost in excess of fair value of net
assets of businesses acquired consists substantially of $8,398,000 related to
the 1989 acquisition of Comstron Corporation, a manufacturer of frequency
synthesizers, subsystems and components.
Long-Lived Assets
Effective July 1, 1996 the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of", which requires that
long-lived assets and certain identifiable intangibles to be held and used or
disposed of by an entity be reviewed for possible impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. The adoption of SFAS No. 121 did not have any impact on
the Company's consolidated financial position or results of operations.
Income (Loss) Per Share
For the year ended June 30, 1998, the Company has adopted SFAS No. 128
"Earnings Per Share." In accordance with SFAS No. 128, earnings per common
share ("Basic EPS") is computed by dividing net income by weighted average
common shares outstanding. Earnings per common share assuming dilution
("Diluted EPS") is computed by dividing net income plus a pro forma addback
of debenture interest by weighted average common shares outstanding plus
potential dilution from the conversion of debentures and the exercise of
stock options and warrants. Income (loss) per share amounts for prior periods
have been restated to conform to the provisions of SFAS No. 128.
Accounting for Stock-Based Compensation
The Company records compensation expense for employee and director stock
options only if the current market price of the underlying stock exceeds the
exercise price on the date of the grant. Effective July 1, 1996, the Company
adopted SFAS No. 123, "Accounting for Stock-Based Compensation." The Company
has elected not to implement the fair value based accounting method for
employee and director stock options, but instead has elected to disclose the
pro forma net earnings and pro forma earnings per share for employee and
director stock option grants made beginning in fiscal 1996 as if such method
had been used to account for stock-based compensation cost as described in
SFAS No. 123.
Income Taxes
In accordance with SFAS No. 109, "Accounting for Income Taxes", the Company
measures deferred tax assets and liabilities based upon the differences
between the financial accounting and tax bases of assets and liabilities.
Reclassifications
Reclassifications have been made to the 1997 and 1996 consolidated financial
statements to conform to the 1998 presentation.
S-8
<PAGE>
2.Acquisition of Businesses
MIC
Effective March 19, 1996, the Company acquired all of the outstanding stock
of MIC Technology Corporation ("MIC") for approximately $36,000,000 of cash,
300,000 shares of common stock and warrants to purchase 400,000 shares of
common stock (at exercise prices ranging from $7.05 to $7.50 per share). The
purchase price was paid with available cash of approximately $9,000,000 and
borrowings under the Company's bank loan agreement of approximately
$27,000,000. MIC manufactures high frequency thin film circuits and
interconnects for miniaturized, high frequency, high performance electronic
products for growing commercial markets such as wireless communications,
satellite based communications hardware and high technology military
electronics. The acquired company's net sales were approximately $25,000,000
for its fiscal year ended October 31, 1995.
The Company commissioned an independent asset valuation study of acquired
tangible and identifiable intangible assets to serve as a basis for
allocation of the purchase price. Based on this study, the Company allocated
the purchase price as follows:
<TABLE>
<CAPTION>
(In thousands)
--------------
<S> <C>
Net tangible assets....................... $ 6,190
Identifiable intangible assets............ 8,453
In-process research and development....... 23,200
--------
$ 37,843
========
</TABLE>
The identifiable intangible assets which include existing technology,
customer relationships and assembled work force are being amortized on a
straight-line basis over thirteen years based on the study described above.
The acquired in-process research and development was not considered to have
reached technological feasibility and, in accordance with generally accepted
accounting principles, the value of such was expensed in the third quarter of
fiscal 1996.
Summarized below are the unaudited pro forma results of operations of the
Company as if MIC had been acquired at the beginning of the fiscal period
presented.
<TABLE>
<CAPTION>
Pro Forma Year Ended
June 30, 1996
-------------------------------------
(In thousands, except per share data)
<S> <C>
Net sales........................ $ 90,097
Net loss......................... (19,392)
Loss per share
Basic.......................... $ (1.62)
Diluted........................ *
<FN>
* Due to the loss, all options, warrants and convertible debentures are
anti-dilutive.
</FN>
</TABLE>
The pro forma financial information presented above for the MIC acquisition
is not necessarily indicative of either the results of operations that would
have occurred had the acquisition taken place at the beginning of the period
presented or of future operating results of the combined companies.
S-9
<PAGE>
Lintek
In January 1995, the Company acquired substantially all of the net operating
assets of Lintek, Inc. ("Lintek") for $537,000 plus contingent consideration
based on the next five years' earnings to a maximum of an additional
$675,000. Additional consideration of $249,000, $162,000 and $63,000 was
earned as of December 31, 1997, 1996 and 1995 and paid in March 1998 and
February 1997 and 1996, respectively. Such amounts, and any further
contingent consideration earned, will be treated as cost in excess of fair
value of net assets acquired. Lintek designs, develops and manufactures
radar cross section and antenna pattern measurement systems for commercial
and military applications, as well as surface penetrating radars.
The acquisitions have been accounted for as purchases and, accordingly, the
acquired assets and liabilities assumed have been recorded at their
estimated fair values at the respective dates of acquisition. The operating
results of MIC and Lintek are included in the consolidated statements of
operations from the respective acquisition dates.
3. Acquisition of Assets From Lucent Technologies
Effective July 1, 1997, the Company's subsidiary, MIC, acquired certain
equipment, inventory, licenses for technology and patents of two of Lucent
Technologies' microelectronics components units - multi-chip modules and
film integrated circuits - for approximately $4,400,000 in cash. These units
manufacture microelectronic modules and interconnect products. The Company
has also signed a multi-year supply agreement to provide Lucent with film
integrated circuits for use in telecommunications applications. The purchase
price has been allocated to the assets acquired, based on their fair values,
and certain obligations assumed relating to the agreements.
4. Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
June 30,
------------------------
1998 1997
---------- ----------
(In thousands)
<S> <C> <C>
Raw materials.................... $ 12,012 $ 11,191
Work-in-process.................. 12,737 6,642
Finished goods................... 5,102 2,486
-------- --------
$ 29,851 $ 20,319
======== ========
</TABLE>
Inventories include contracts-in-process of $13,227,000 and $3,318,000 at
June 30, 1998 and 1997, respectively, which consist substantially of
unbilled material, labor and overhead costs that are or were expected to be
billed during the succeeding fiscal year.
5. Property, Plant and Equipment
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
June 30,
----------------------------
1998 1997
------------ --------------
(In thousands)
<S> <C> <C>
Land............................ $ 725 $ 725
Building and leasehold
improvements.................. 17,479 11,742
Machinery, equipment, tools
and dies...................... 29,285 19,583
Furniture and fixtures.......... 5,968 5,196
Assets recorded under
capital leases................ 2,334 2,392
Transportation equipment........ 115 85
--------- ---------
55,906 39,723
Less accumulated depreciation
and amortization.............. 28,912 25,236
--------- ---------
$ 26,994 $ 14,487
========= =========
</TABLE>
S-10
<PAGE>
Repairs and maintenance expense on property, plant and equipment was
$1,384,000, $1,131,000 and $481,000 for the years ended June 30, 1998, 1997
and 1996, respectively.
6.Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities include accrued salaries,
wages and other compensation of $4,311,000 and $2,874,000 at June 30, 1998
and 1997, respectively.
7.Long-Term Debt and Credit Arrangements Long-term debt consists of the
following:
<TABLE>
<CAPTION>
June 30,
------------------------
1998 1997
---------- ---------
(In thousands)
<S> <C> <C>
Revolving credit and term
loan agreement (a).......... $ 4,720 $ 17,150
Equipment loans (b)........... 5,624 -
Capitalized lease
obligations (c)............. 1,019 1,536
Other......................... 118 249
-------- --------
11,481 18,935
Less current maturities....... 1,755 4,247
-------- --------
$ 9,726 $ 14,688
======== ========
</TABLE>
Aggregate long-term debt as of June 30, 1998 matures in each fiscal year
as follows:
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
1999............... $ 1,755
2000............... 938
2001............... 5,591
2002............... 941
2003............... 1,681
Thereafter......... 575
--------
$ 11,481
========
</TABLE>
Interest paid was $2,099,000, $2,647,000 and $1,584,000 during the years
ended June 30, 1998, 1997 and 1996, respectively.
(a) As of March 31, 1998, the Company replaced a previous agreement with a
revised revolving credit agreement with two banks which is secured by
substantially all of the Company's assets. The agreement provides for a
revolving credit line of $27,000,000, which expires on March 31, 2001. 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 June 30, 1998). The Company has entered
into an interest rate swap agreement for the $4,720,000 then outstanding
under the revolving credit line at 7.6% in order to reduce the interest rate
risk associated with these outstanding borrowings. The Company paid a
facility fee of $20,000 and is required to pay a commitment fee of 1/4% per
annum of the average unused portion of the credit line.
The terms of the agreement require compliance with certain covenants
including minimum consolidated tangible net worth and pretax earnings,
maintenance of certain financial ratios, limitations on capital expenditures
and indebtedness and prohibition of the payment of cash dividends. In
connection with the purchase of certain materials for use in manufacturing,
the Company has a letter of credit facility of $2,000,000. At June 30, 1998,
the Company's available unused line of credit was approximately $20,000,000
after consideration of the letter of credit. The Company believes that the
carrying amount of this debt approximates fair value after considering the
interest rate swap agreement discussed above, since the interest rate is
effectively fixed at a rate commensurate with rates available to the Company
under similar terms.
S-11
<PAGE>
(b) During the year ended June 30, 1998, the Company entered into equipment
loans with two banks totaling $6,232,000. The loans are repayable monthly
through July 2004 and bear interest at a floating rate 200 basis points above
the 30-day London Interbank Offered Rate (7.6 and 7.7% at June 30, 1998). The
Company believes that the carrying amount of this debt approximates fair
value since the interest rate is variable and the margins are consistent with
those available to the Company under similar terms.
(c) The Company has various capitalized lease obligations with financial
institutions which have various terms through 2000 and interest rates ranging
from 7.1% to 9.5%.
8.Senior Subordinated Convertible Debentures
During June 1994, the Company completed a sale of $10,000,000 principal
amount of 7-1/2% Senior Subordinated Convertible Debentures to non-U.S.
persons. 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 until
ultimately used for the purchase of MIC. The debentures were convertible into
the Company's common stock at a price of $5.625 per share. On September 8,
1997, the Company called for the redemption of all outstanding 7-1/2% Senior
Subordinated Convertible Debentures at 104.5% of the principal amount. All of
the principal amount of the Company's 7-1/2% Senior Subordinated Convertible
Debentures was converted. In connection with the conversions, $599,000 of
deferred bond issuance costs were charged to additional paid-in capital.
9. Stockholders' Equity
(a) Common Stock Offering
In March 1998, the Company sold 2,597,000 shares of its Common Stock in a
public offering for $31,285,000, net of an underwriting discount of
$1,973,000 and issuance costs of $496,000. Of these net proceeds, $9,639,000
was used to repay bank indebtedness. The balance of the net proceeds, which
is included in cash and cash equivalents, will be used for general corporate
purposes, including working capital, capital expenditures and facilities
expansion and may be used for potential acquisitions.
(b) Stock Option Plans
Under the Company's stock option plans, options may be granted to purchase
shares of the Company's common stock exercisable at prices equal to the fair
market value on the date of grant. During 1990, the Company's shareholders
approved the Non-Qualified Stock Option Plan (the "NQSOP"). In December 1993,
the Board of Directors adopted the Outside Director Stock Option Plan (the
"Directors' Plan") which provides for options to non-employee directors,
which become exercisable in three installments and expire ten years from the
date of grant. The Directors' Plan, as amended, covers 500,000 shares of the
Company's Common Stock. In November 1994, the shareholders approved this plan
and the 1994 Non-Qualified Stock Option Plan (the "1994 Plan"). In November
1996, the shareholders approved the 1996 Stock Option Plan (the "1996 Plan").
In April 1998, the Board of Directors adopted the 1998 Stock Option Plan (the
"1998 Plan"). The NQSOP, the 1994 Plan, the 1996 Plan and the 1998 Plan
provide for options which become exercisable in one or more installments and
each covers 1,500,000 shares of the Company's Common Stock. Options under the
NQSOP and the 1994 Plan expire five years from the date of grant. Options
under the 1996 Plan and the 1998 Plan shall expire not later than ten years
from the date of grant.
The Company has also issued to employees, who are not executive officers,
options to purchase 275,000 shares of common stock exercisable at $4.00 per
share. Such grants were not covered by one of the above plans.
S-12
<PAGE>
Additional information with respect to the Company's stock options is as
follows:
<TABLE>
<CAPTION>
Weighted Shares
Average Under
Exercise Outstanding
Prices Options
---------- -------------
(In thousands)
<S> <C> <C>
Balance, July 1,
1995......... $3.11 2,592
Granted....... 3.93 960
Forfeited..... 2.98 (68)
Exercised..... 2.77 (191)
------
Balance, June 30,
1996......... 3.38 3,293
Granted....... 4.47 668
Forfeited..... 3.17 (71)
Exercised..... 2.04 (570)
------
Balance, June 30,
1997......... 3.83 3,320
Granted....... 9.94 1,043
Forfeited..... 3.65 (35)
Exercised..... 3.17 (436)
------
Balance, June 30,
1998......... $ 5.54 3,892
======
</TABLE>
Options to purchase 2,317,000, 2,168,000 and 2,092,000 shares were
exercisable at weighted average exercise prices of $3.90, $3.61 and $3.06 as
of June 30, 1998, 1997 and 1996, respectively.
The options outstanding as of June 30, 1998 are summarized in ranges as
follows:
<TABLE>
<CAPTION>
Options Outstanding
----------------------------------------------
Weighted Weighted
Range of Average Average
Exercise Exercise Options Remaining
Prices Price Outstanding Life
------------ -------- ----------- ---------
(In thousands)
<S> <C> <C> <C>
$2.00-$ 3.50 $2.85 305 0.3 years
$3.75-$ 5.38 4.07 2,552 4.0
$8.19-$13.44 9.98 1,035 9.4
-----
3,892
=====
</TABLE>
<TABLE>
<CAPTION>
Options Exercisable
------------------------------------------
Weighted
Range of Average
Exercise Exercise Options
Prices Price Exercisable
--------- --------- -----------
(In thousands)
<S> <C> <C>
$2.00-$ 3.50 $2.85 305
$3.75-$ 5.38 3.99 1,992
$8.19-$13.44 10.81 20
-----
2,317
=====
</TABLE>
S-13
<PAGE>
The per share weighted average fair value of stock options granted during
fiscal 1998, 1997 and 1996 was $7.39, $2.37 and $1.31, respectively, on the
date of grant using the Black Scholes option-pricing model with the following
weighted average assumptions: 1998 - expected dividend yield of 0%, risk free
interest rate of 5.8%, expected stock volatility of 80%, and an expected
option life of 7.4 years; 1997 - expected dividend yield of 0%, risk free
interest rate of 6.3%, expected stock volatility of 40%, and an expected
option life of 7.4 years; 1996 - expected dividend yield of 0%, risk free
interest rate of 5.4%, expected stock volatility of 30%, and an expected
option life of 4.3 years.
(c) Accounting for Stock-Based Compensation.
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation," which the Company adopted in
fiscal 1997. The Company has chosen not to implement the fair value based
accounting method for employee and director stock options, but has elected to
disclose the pro forma net income and earnings per share as if such method
had been used to account for stock-based compensation cost as described in
SFAS No. 123. The pro forma compensation cost before income taxes, based on
the fair value at the grant date for options granted only in fiscal years
1998, 1997 and 1996 was $2,021,000, $783,000 and $429,000 for the years ended
June 30, 1998, 1997 and 1996, respectively. The Company's net income (loss)
and net income (loss) per share using this pro forma compensation cost would
have been:
<TABLE>
<CAPTION>
Years Ended
-------------------------------------
(In thousands, except per share data)
June 30, 1996
--------------------------
As Reported Pro Forma
----------- ---------
<S> <C> <C>
Net Loss............... $(17,420) $(17,772)
Net Loss Per Share
- Basic............ $ (1.46) $(1.48)
- Diluted.......... * *
</TABLE>
<TABLE>
<CAPTION>
June 30, 1997
--------------------------
As Reported Pro Forma
----------- ---------
<S> <C> <C>
Net Income............. $ 4,420 $ 3,919
Net Income Per Share
-Basic............. $ 0.36 $ 0.31
-Diluted........... 0.34 0.30
</TABLE>
<TABLE>
<CAPTION>
June 30, 1998
--------------------------
As Reported Pro Forma
----------- ----------
<S> <C> <C>
Net Income............. $ 8,406 $ 7,112
Net Income Per Share
-Basic............. $ 0.57 $ 0.48
-Diluted........... $ 0.51 $ 0.44
</TABLE>
* As a result of the loss, all options, warrants and convertible
debentures are anti-dilutive.
Since the pro forma compensation cost reflects only options granted in fiscal
years 1998, 1997 and 1996, the full impact of calculating stock-based
compensation costs under SFAS No. 123 is not reflected in the pro forma net
income (loss) because compensation cost is recognized over the respective
vesting period and compensation cost for options granted prior to fiscal year
1996 was not reflected.
S-14
<PAGE>
(d) Shareholders' Rights Plan
In August 1988, the Company's Board of Directors approved a Shareholders'
Rights Plan which provided for rights which would have become exercisable
only in the event a person or group accumulated 20 percent or more of the
Company's common shares. The rights expired on August 30, 1998 and a new
Shareholders' Rights Plan was approved. See Note 15 for a discussion of this
new plan.
(e) Earnings Per Share
A reconciliation of the numerators and denominators of the Basic EPS and
Diluted EPS calculations is as follows:
<TABLE>
<CAPTION>
Years Ended June 30,
--------------------------------
1998 1997 1996
---- ---- ----
(In thousands, except per share data)
<S> <C> <C> <C>
Computation of Adjusted Net Income (Loss):
Net income (loss) for basic earnings per
common share............................. $ 8,406 $ 4,420 $(17,420)
=========
Add: Debenture interest and amortization
expense, net of income taxes............. 103 504 *
-------- --------
Adjusted net income for diluted
earnings per common share................ $ 8,509 $ 4,924 *
======== ========
Computation of Adjusted Weighted Average
Shares Outstanding:
Weighted average shares outstanding........ 14,802 12,446 11,971
=======
Add: Shares assumed to be issued upon
conversion of debentures................. 392 400 *
Add: Effect of dilutive options and
warrants outstanding..................... 1,333 1,774 *
-------- -------
Weighted average shares and common share
equivalents used for computation of
diluted earnings per common share........ 16,527 14,620 *
======== ========
Net Income (Loss) Per Common Share:
Basic.................................... $.57 $ .36 $(1.46)
======== ======== =======
Diluted.................................. $.51 $ .34 *
======== ========
-----------
<FN>
* As a result of the loss in fiscal 1996, all options, warrants and convertible
debentures are anti-dilutive.
</FN>
</TABLE>
Options to purchase 290,000 shares at an exercise price of $13.44 per share
were outstanding as of June 30, 1998 but were not included in the computation
of Diluted EPS because the exercise prices of these options were greater than
the average market price of the common shares.
S-15
<PAGE>
10. Income Taxes
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
Years Ended June 30,
----------------------------------------
1998 1997 1996
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Current:
Federal............... $ 3,178 $ 1,752 $ 1,166
State and local....... 568 693 569
------- ------- -------
3,746 2,445 1,735
------- ------- -------
Deferred:
Federal............... 932 404 (776)
State and local....... 72 (414) 201
U.S. Territory........ - - 114
------- ------- -------
1,004 (10) (461)
------- ------- -------
$ 4,750 $ 2,435 $ 1,274
======= ======= =======
</TABLE>
The provision for income taxes varies from the amount computed by applying
the U.S. Federal income tax rate to income (loss) before income taxes as a
result of the following:
<TABLE>
<CAPTION>
Years Ended June 30,
----------------------------------
1998 1997 1996
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Tax at statutory rate... $ 4,505 $ 2,331 $(5,490)
Non-deductible special
charge (Note 2)........ - - 7,888
Utilization of net
operating loss
carryforwards.......... - - (1,437)
State, local and U.S.
Territory income tax... 416 184 376
Research and Development
credit................. (250) - -
Other, net.............. 79 (80) (63)
--------- -------- --------
$ 4,750 $ 2,435 $ 1,274
========= ======== ========
</TABLE>
S-16
<PAGE>
Deferred tax assets and liabilities consist of:
<TABLE>
<CAPTION>
June 30,
---------------------------
1998 1997
---- ----
(In thousands)
<S> <C> <C>
Accounts receivable....................... $ 106 $ 148
Inventories............................... 1,671 1,676
Accrued expenses.......................... 84 219
-------- --------
Current assets.......................... 1,861 2,043
-------- --------
Other long-term liabilities............... 781 -
Capital loss carryforwards................ 2,493 2,684
Tax loss carryforwards.................... 238 1,737
Tax credit carryforwards.................. 3,737 3,477
Less valuation allowance.................. (3,379) (3,569)
-------- --------
Non-current assets...................... 3,870 4,329
-------- --------
Property, plant and equipment............. (1,848) (955)
Intangibles............................... (3,125) (3,654)
Other..................................... (53) (54)
-------- --------
Long-term liabilities................... (5,026) (4,663)
-------- --------
Net non-current liabilities............. (1,156) (334)
-------- --------
Total................................. $ 705 $ 1,709
======== ========
</TABLE>
In accordance with SFAS No. 109, the Company records a valuation allowance
against deferred tax assets if it is more likely than not that some or all of
the deferred tax asset will not be realized.
The Company is undergoing routine audits by various taxing authorities of its
state and local income tax returns covering periods from 1994 to 1996.
Management believes that the probable outcome of these various audits should
not materially affect the consolidated financial statements of the Company.
The Company made income tax payments of $2,123,000, $1,468,000 and $588,000
and received refunds of $26,000, $1,117,000 and $268,000 during the years
ended June 30, 1998, 1997 and 1996, respectively.
A tax benefit of $1,641,000 was credited to additional paid-in capital during
the year ended June 30, 1998 in connection with the exercise of stock options
and warrants.
11. Employment Contracts
In February 1997, the Company entered into employment agreements, as amended,
with certain of its officers for periods through December 31, 2002 with
annual remuneration ranging from $180,000 to $289,000, plus cost of living
adjustments and, in some cases, additional compensation based upon earnings
of the Company. Future aggregate minimum payments under these contracts are
$1,007,000 per year. In addition, these officers have the option to terminate
their employment agreements upon change in control of the Company, as
defined, and receive lump sum payments equal to three times annual
compensation, as defined, or, in one case, a lump sum payment equal to the
salary for the remainder of the term.
S-17
<PAGE>
12. Employee Benefit Plans
The Aeroflex Incorporated Employees' 401(k) Plan (the "ARX 401(k)") was
established pursuant to Section 401(k) of the Internal Revenue Code. All
employees of the Company and certain subsidiaries who are not members of a
collective bargaining agreement may participate in the ARX 401(k). Each
participant has the option to contribute a portion of his or her
compensation. For each of the 1998, 1997 and 1996 calendar years, the Board
of Directors has elected to provide an employer contribution, which vests
immediately, equal to 30% of employee contributions subject to certain
limitations. The ARX 401(k) expense for the fiscal years ended June 30, 1998,
1997 and 1996 was $298,000, $263,000 and $230,000, respectively.
Employees of MIC Technology, who are excluded from the ARX 401(k), are
eligible to participate in the MIC 401(k) Plan and MIC Profit Sharing Plan
(the "MIC Plans"). In addition to contributing a portion of his or her
compensation and receiving an employer contribution, eligible employees also
receive an allocation of a discretionary share of the MIC Technology profits.
The MIC Plans' expense was $512,000, $450,000 and $104,000 for the fiscal
years ended June 30, 1998 and 1997 and for the period from acquisition to
June 30, 1996, respectively.
Effective January 1, 1994, the Company established a Supplemental Executive
Retirement Plan (the "SERP") which provides retirement, death and disability
benefits to certain of its officers. The SERP expense for the fiscal years
ended June 30, 1998, 1997 and 1996 was $324,000, $300,000 and $217,000,
respectively. The assets of the SERP are held in a Rabbi Trust and amounted
to $744,000 and $386,000 at June 30, 1998 and 1997, respectively. The
accumulated benefit obligation was $1,695,000 and $1,259,000 at June 30, 1998
and 1997, respectively. No participants are currently receiving benefits.
13. Commitments and Contingencies
a. Operating Leases
Several of the Company's operating facilities and certain machinery and
equipment are leased under agreements expiring through 2005. The leases for
machinery and equipment generally contain options to purchase at the then
fair market value of the related leased assets.
Future minimum payments under operating leases as of June 30, 1998 are as
follows for the fiscal years:
<TABLE>
<CAPTION>
(In thousands)
--------------
<S> <C>
1999............... $ 1,404
2000............... 1,118
2001............... 1,046
2002............... 808
2003............... 760
Thereafter......... 402
-------
$ 5,538
=======
</TABLE>
These future minimum payments exclude payments under a lease of the Company's
Pearl River, New York facility which was terminated upon the Company's
purchase of the facility in July 1998 as further described in Note 15.
Rental expense was $1,869,000, $1,560,000 and $790,000 during the fiscal
years 1998, 1997 and 1996, respectively.
S-18
<PAGE>
b. Legal Matters
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 plaintiffs are seeking damages
which cumulatively exceed $500 million. 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. This
action is in the early stages of discovery. Based upon available information
and 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.
The Company is involved in various other routine legal matters. Management
believes the outcome of these matters will not have a materially adverse
effect on the Company's consolidated financial statements.
14. Business Segments
The Company's business segments and major products included in each segment,
are as follows:
Microelectronics: Isolator Products:
a)Microelectronic Modules a)Commercial spring and rubber isolators (VMC)
(Circuit Technology) b)Industrial spring and rubber isolators
b)Thin Film Interconnects (Korfund)
(MIC Technology) c)Military wire-rope isolators
(Aeroflex International)
Test, Measurement and
Other Electronics:
a)Instrument products
(Comstron and Lintek)
b)Motion Control Systems
- Scanning devices
- Stabilization and tracking
devices
- Magnetic devices
S-19
<PAGE>
The Company is a manufacturer of advanced technology systems and components
for commercial industry, government and defense contractors. Approximately
42%, 50% and 65% of the Company's sales for the fiscal years 1998, 1997 and
1996, respectively, were to agencies of the United States government or to
prime defense contractors or subcontractors of the United States government.
The only customers which constituted more than 10% of the Company's sales
during any year in the period presented were Lucent Technologies which
comprised 15.5% of sales in fiscal year 1998 and Lockheed Martin and Hughes
which comprised 13.3% and 11.7% of sales in fiscal year 1997, respectively.
<TABLE>
<CAPTION>
Years Ended June 30,
----------------------------------
1998 1997 1996
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Business Segment Data:
Net sales:
Microelectronics....................... $ 74,263 $ 48,462 $ 28,414
Test, Measurement and
Other Electronics.................... 25,685 28,144 30,109
Isolator Products...................... 18,913 17,693 15,844
--------- --------- ---------
Net sales............................ $ 118,861 $ 94,299 $ 74,367
========= ========= =========
Operating income (loss):
Microelectronics....................... $ 14,147 $ 6,644 $ 3,282
Test, Measurement and
Other Electronics.................... 996 2,762 4,830
Isolator Products...................... 3,063 2,844 2,150
General corporate expenses............. (3,348) (2,514) (2,344)
--------- --------- ---------
14,858 9,736 7,918
Special charge (1)..................... - - (23,200)
Interest expense....................... (2,011) (2,974) (1,939)
Other income, net...................... 309 93 1,075
--------- --------- ---------
Income (loss) before income taxes.... $ 13,156 $ 6,855 $(16,146)
========= ========= =========
Identifiable assets:
Microelectronics....................... $ 58,053 $ 37,741 $ 35,445
Test, Measurement and
Other Electronics.................... 27,522 28,603 31,354
Isolator Products...................... 10,163 9,700 9,752
Corporate.............................. 28,363 5,003 4,618
--------- --------- ---------
Total assets......................... $ 124,101 $ 81,047 $ 81,169
========= ========= =========
Capital expenditures:
Microelectronics....................... $ 8,792 $ 1,637 $ 766
Test, Measurement and
Other Electronics.................... 848 996 597
Isolator Products...................... 970 293 315
Corporate.............................. 3 5 9
--------- --------- ---------
Total capital expenditures........... $ 10,613 $ 2,931 $ 1,687
========= ========= =========
Depreciation and amortization
expense:
Microelectronics....................... $ 2,802 $ 2,230 $ 996
Test, Measurement and
Other Electronics.................... 1,553 1,528 1,530
Isolator Products...................... 500 532 535
Corporate.............................. 29 32 30
--------- --------- ---------
Total depreciation and
amortization........................ $ 4,884 $ 4,322 $ 3,091
========= ========= =========
<FN>
(1) The special charge for the write-off of in-process research and development
acquired in the purchase of MIC Technology is allocable fully to the
microelectronics segment.
</FN>
</TABLE>
S-20
<PAGE>
15. Subsequent Events
a. Purchase of MIC's Pearl River Facility
In July 1998, the Company purchased a previously leased operating facility in
Pearl River, New York for $2,500,000 in cash.
b. Shareholders' Rights Plan
On August 13, 1998, the Company's Board of Directors approved a Shareholders'
Rights Plan which provides for a dividend distribution of one right for each
share to holders of record of the Company's common stock on August 31, 1998 and
the issuance of one right for each share of common stock that shall be
subsequently issued. The rights will become exercisable only in the event a
person or group ("Acquiring Person") accumulates 15% or more of the Company's
common stock, or if an Acquiring Person announces an offer which would result
in it owning 15% or more of the common stock. The rights will expire on August
31, 2008. Each right will entitle the holder to buy one one-thousandth of a
share of Series A Junior Participating Preferred Stock, as amended, of the
Company at a price of $65. In addition, upon the occurrence of a merger or
other business combination, or the acquisition by an Acquiring Person of 50% or
more of the common stock, holders of the rights, other than the Acquiring
Person, will be entitled to purchase either common stock of the Company or
common stock of the Acquiring Person at half their respective market value.
The Company will be entitled to redeem the rights for $.01 per right at any
time prior to a person becoming an Acquiring Person.
S-21
<PAGE>
Quarterly Financial Data (Unaudited):
(In thousands except per share data)
<TABLE>
<CAPTION>
Quarter
------------------------------------------ Year Ended
1998 First Second Third Fourth June 30
---- --------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Sales $ 23,885 $ 29,325 $ 31,221 $ 34,430 $118,861
Gross Profit 8,212 9,919 10,883 12,561 41,575
Net Income $ 1,152 $ 1,686 $ 2,057 $ 3,511 $ 8,406
======== ======== ======== ======== ========
Income Per Share:
Basic $ .09 $ .12 $ .14 $ .20 $ .57
====== ====== ====== ====== ======
Diluted $ .08 $ .11 $ .13 $ .19 $ .51
====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
Quarter
------------------------------------------ Year Ended
1998 First Second Third Fourth June 30
---- ----------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Sales $ 19,061 $ 22,914 $ 22,937 $ 29,387 $ 94,299
Gross Profit 6,278 7,257 7,759 9,896 31,190
Net Income $ 651 $ 893 $ 917 $ 1,959 $ 4,420
-------- -------- -------- -------- --------
Income Per Share:
Basic $ .05 $ .07 $ .07 $ .16 $ .36
======== ======== ======== ======== ========
Diluted $ .05 $ .07 $ .07 $ .15 $ .34
======== ======== ======== ======== ========
</TABLE>
Since per share information is computed independently for each quarter and the
full year, based on the respective average number of common and common
equivalent shares outstanding, the sum of the quarterly per share amounts does
not necessarily equal the per share amounts for each year.
S-22
<PAGE>
AEROFLEX INCORPORATED
AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
Additions
----------------------
Charged
Balance at Charged to to other Balance at
beginning costs and accounts Deductions end of
Description of period expenses - describe - describe period
- ----------- ----------- ----------- -------- ----------- ----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED JUNE 30, 1998:
Allowance for doubtful
accounts $ 417 $ 15 $ - $ 115 (A) $ 317
====== ====== ====== ====== ======
Reserve for inventory
obsolescence $4,055 $ 150 $ - $ 613 (B) $3,592
====== ====== ====== ====== ======
YEAR ENDED JUNE 30, 1997:
Allowance for doubtful
accounts $ 354 $ 72 $ - $ 9 (A) $ 417
====== ====== ====== ====== ======
Reserve for inventory
obsolescence $4,260 $ 100 $ - $ 305 (B) $4,055
====== ====== ====== ====== ======
YEAR ENDED JUNE 30, 1996:
Allowance for doubtful
accounts $ 437 $ (55) $ - $ 28 (A) $ 354
====== ====== ====== ====== ======
Reserve for inventory
obsolescence $4,380 $ 497 $ - $ 617 (B $4,260
====== ====== ====== ====== ======
Note: (A) - Net write-offs of uncollectible amounts.
(B) - Write-off of inventory.
</TABLE>
S-23
<PAGE>
INDEPENDENT AUDITORS' CONSENT
Board of Directors
Aeroflex Incorporated:
We consent to incorporation by reference in the registration statements
(Nos. 33-75496, 33-88868, 33-88878, 333-42399 and 333-42405) on Form S-8 and
(Nos. 333-15339, 333-21803 and 333-46689) on Form S-3 of Aeroflex Incorporated
of our report dated August 13,1998, relating to the consolidated balance sheets
of Aeroflex Incorporated and subsidaries as of June 30, 1998 and 1997 and the
related consolidated statements of operations, stockholders' equity and cash
flows and related schedule for each of the years in the three-year period ended
June 30, 1998 which report appears in the June 30, 1998 annual report on Form
10-K of Aeroflex Incorporated.
/s/ KPMG Peat Marwick LLP
KPMG PEAT MARWICK LLP
Jericho, New York
September 25, 1998
PAGE 1
State of Delaware
Office of the Secretary of State
------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
INCORPORATION OF "AEROFLEX LABORATORIES INCORPORATED", FILED IN THIS OFFICE ON
THE THIRD DAY OF JANUARY, A.D. 1961, AT 10 O'CLOCK A.M.
[SEAL OMITTED]
/s/ Edward J. Freel
[SEAL OMITTED] -----------------------------------------
Edward J. Freel, Secretary of State
0561329 8100 AUTHENTICATION: 7276018
944200245 DATE: 10-20-94
<PAGE>
================================================================================
AEROFLEX LABORATORIES INCORPORATED
-----------------------
CERTIFICATE OF INCORPORATION
-----------------------
Incorporated under the laws
of the State of Delaware
================================================================================
<PAGE>
CERTIFICATE OF INCORPORATION
of
AEROFLEX LABORATORIES INCORPORATED
--------------------
We, the undersigned, for the purpose of associating to establish a
corporation for the transaction of the business and the promotion and conduct of
the objects and purposes hereinafter stated, under the provisions, and subject
to the requirements, of the laws of the State of Delaware (particularly Chapter
1 of Title 8 of the Delaware Code of 1953, known as the "General Corporation Law
of the State of Delaware", and the acts amendatory thereof, supplemental thereto
or substituted therefor), do make and file this Certificate of Incorporation in
writing and do hereby certify as follows:
FIRST: The name of the corporation (hereinafter called the
Corporation) is
AEROFLEX LABORATORIES INCORPORATED
SECOND: The respective names of the County and of the City within
the County in which the principal office of the Corporation is to be located in
the State of Delaware are the County of New Castle and the City of Wilmington.
The name of the resident agent of the Corporation is The Corporation Trust
Company.
<PAGE>
2
The street and number of said principal office and the address by
street and number of said resident agent is No. 100 West Tenth Street, in the
City of Wilmington, State of Delaware.
THIRD: The nature of the business of the Corporation and the objects
and purposes to be transacted, promoted or carried on by it, are as follows:
(a) To manufacture, process, prepare, design, develop, experiment
with, equip, remodel, construct, acquire, hold, use, operate, buy, sell,
lease, install, repair, service, import, export, trade and deal in and
with, and to grant, receive and exercise licenses, rights and privileges
in respect of the development, production, use and marketing of, any and
all equipment, machines, machinery, apparatus, instruments, fixtures,
appliances, devices and contrivances of any kind or nature whatsoever
which perform image-forming sensory functions in the field of aerial or
space reconnaissance, or which are used in any field for the control,
receipt, generation, transmission, conversion, amplification or use of
energy, power, light, signals or information or other data, whether based
upon, involving or applying principles of electricity, electronics,
mechanics, or otherwise, and any and all components, sub-assemblies,
parts, appurtenances and accessories thereof, and any and all other
products, materials and other things manufactured for use in or in
connection with or by the use of, or used or suitable for use in or in
connection with, the foregoing, and to engage in the performance of
services and other related activities in connection therewith;
(b) To make, manufacture, experiment with, develop, assemble, use,
repair, buy, sell, lease and otherwise deal in and with machines,
machinery, engines, motors, equipment, apparatus, instruments, fixtures,
appliances, devices and contrivances of any kind or nature whatsoever and
any parts, accessories or improvements of any thereof, of any kind
<PAGE>
3
or nature whatsoever, and any and all other goods, articles, materials,
wares and merchandise of any kind or nature whatsoever, and to engage and
participate in any industrial, manufacturing, mercantile, or trading
business of any kind or character whatsoever;
(c) To conduct and carry on any experimental and research work in
engineering and scientific fields, and to render to any person, firm,
association or corporation engaged in any lawful adventure, enterprise or
business, services of an engineering, scientific, business or technical
nature, or concerned with the management of any business program or the
production, sale, operation or servicing of any equipment, product or
article of any kind whatsoever;
(d) To acquire by purchase or otherwise, erect, construct, improve,
maintain, operate, equip, hold, own, improve, develop, manage, lease,
mortgage, create liens upon, sell, convey, or otherwise dispose of or turn
to account buildings, factories, plants, laboratories, offices, shops,
storehouses, tanks, buildings, roads, machinery, cars and other vehicles,
and works, structures, machines and apparatus of all kinds, and any and
all rights and privileges therein, in so far as the same may appertain to
or be useful in the conduct of the business of the Corporation;
(e) To develop, adopt, apply for, obtain, register, purchase, take
licenses in respect of or otherwise acquire, maintain, protect, hold, use,
own, exercise, develop, operate, introduce, sell and grant licenses or
other rights in respect of, and assign or otherwise dispose of or turn to
account, any inventions, devices, formulae, processes, improvements and
modifications thereof, patents, patent rights, concessions, copyrights and
distinctive marks and rights analogous thereto, trademarks and trade
names, including such thereof as may be covered by, used in connection
with, or secured or received under, the laws of the United States of
America or of any other jurisdiction;
<PAGE>
4
(f) To acquire by purchase, exchange, lease or otherwise, and to
own, hold, develop, operate, sell, assign, lease, transfer, convey,
exchange, mortgage, pledge or otherwise dispose of or encumber property,
real or personal, tangible or intangible, of any class or description,
wheresoever situated, and rights and privileges therein;
(g) To borrow or raise moneys for any of the purposes of the
Corporation, without limit as to amount; from time to time to issue and
sell, exchange, pledge or otherwise dispose of its own securities in such
amounts, on such terms and conditions, for such purposes and for such
consideration, now or hereafter permitted by the laws of the State of
Delaware and by this Certificate of Incorporation as the Board of
Directors of the Corporation (hereinafter called the Board of Directors)
may determine; and to secure such securities by mortgage upon, or the
pledge of, or the conveyance or assignment in trust of, the whole or any
part of the properties, assets, business and good will of the Corporation,
then owned or thereafter acquired;
(h) To acquire by purchase, exchange, lease or otherwise all, or any
part of, or any interest in, the properties, assets, business and good
will of any one or more persons, partnerships, syndicates, firms,
associations or corporations heretofore or hereafter engaged in any
business for which a corporation may now or hereafter be organized under
the laws of the State of Delaware; to pay for the same in cash, property
or its own or other securities; to hold, operate, reorganize, liquidate,
sell or in any manner dispose of the whole or any part thereof; and, in
connection therewith, to assume or guarantee performance of any
liabilities, obligations or contracts of such persons, partnerships,
syndicates, firms, associations or corporations, and to conduct the whole
or any part of any business thus acquired;
(i) To acquire by purchase, subscription, exchange or otherwise, to
hold, mortgage, pledge, sell, assign, transfer, exchange or otherwise
dispose of securities, and to pay therefor, in whole or in part, with cash
or other property, or with shares, bonds, debentures, notes or other
obligations,
<PAGE>
5
of the Corporation, or in any other lawful manner whatsoever; and, while
the owner or holder of any such securities, to possess and exercise in
respect thereof all the rights, powers and privileges of ownership,
including the right to vote thereon or consent in respect thereof for any
and all purposes; and, upon a distribution or division of the profits or
assets of the Corporation, to distribute any such securities; the term
"securities" as used herein to include, without limitation, shares of
stock, bonds, debentures, notes, mortgages or other evidences of
indebtedness, and certificates, receipts or other instruments representing
rights to receive, purchase or subscribe for the same, or representing any
other rights or interests therein or in any property or assets, created or
issued by any person, firm, association, corporation, or government or
subdivision thereof;
(j) To enter into, make, perform and carry out contracts and
agreements of every kind and description which may be necessary,
appropriate, convenient or advisable in carrying out the business of the
Corporation, with any person, corporation, association, partnership, firm,
trustee, syndicate, individual, government, state, municipality or other
governmental division or subdivision;
(k) To lend its uninvested funds from time to time to such extent,
to such persons, firms, associations, corporations, syndicates,
governments or subdivisions, instrumentalities or agencies thereof, and on
such terms and on such security, if any, as the Board of Directors may
determine;
(l) To endorse or guarantee the payment of principal, interest or
dividends upon, and to guarantee the performance of sinking fund or other
obligations of, any securities, and to guarantee the performance of any
contracts or other undertakings in which the Corporation may otherwise be
or become interested, in so far as may be permitted by law;
(m) To purchase, hold, cancel, reissue, sell, exchange, transfer or
otherwise deal in its own securities, from time to time, to such an extent
and in such manner and upon such terms as the Board of Directors may
determine; provided that the Corporation
<PAGE>
6
shall not use its funds or property for the purchase of its own shares of
capital stock when such use would cause any impairment of its capital,
except as otherwise permitted by law; and provided further that shares of
its own capital stock belonging to the Corporation shall not be voted upon
directly or indirectly;
(n) To organize or cause to be organized under the laws of the State
of Delaware, or of any other State of the United States of America, or of
the District of Columbia, or of any territory, dependency, colony or
possession of the United States of America, or of any foreign country, a
corporation or corporations for the purpose of transacting, promoting or
carrying on any of or all the objects or purposes for which the
Corporation is organized, and to dissolve, wind up, liquidate, merge or
consolidate any such corporation or corporations or to cause the same to
be dissolved, wound up, liquidated, merged or consolidated;
(o) To carry out all or any part of the foregoing purposes as
principal, factor, agent, contractor or otherwise, either alone or in
conjunction with any person, firm, association or other corporation and in
any part of the world;
(p) To conduct its business in any and all of its branches in the
State of Delaware, and in any and all other states, territories,
possessions, colonies and dependencies of the United States of America,
and in the District of Columbia, and in any and all foreign countries; to
have one or more offices within and without the State of Delaware; and to
carry on all and any of its operations and business without restriction or
limit as to amount; and
(q) To do any and all things necessary, suitable, convenient or
proper for, or in connection with, or incidental to, the accomplishment of
any of the purposes herein enumerated, or designed directly or indirectly
to promote the interests of the Corporation, or to enhance the value of
any of its properties or rights; and, in general, to do any and all things
and exercise any and all powers
<PAGE>
7
which it may now or hereafter be lawful for the Corporation to do or to
exercise under the laws of the State of Delaware; and to execute from time
to time such general or special powers of attorney, and to such person or
persons as the Board of Directors may approve, granting to such person or
persons such powers as the Board of Directors may deem proper, and to
revoke such powers of attorney as and when the Board of Directors may
desire.
It is the intention that the objects and purposes set forth in the
foregoing clauses of this Article THIRD shall not, unless otherwise specified
herein, be in any wise limited or restricted by reference to, or inference from,
the terms of any other clause of this or any other article in this Certificate
of Incorporation, but that the objects and purposes set forth in each of the
clauses of this Article shall be regarded as independent objects and purposes.
It is also the intention that said clauses shall be construed as
powers, as well as objects and purposes, and that the foregoing enumeration of
specific powers shall not be held to limit or restrict in any manner the general
powers of the Corporation, and, generally, that the Corporation shall be
authorized to do all things and exercise any and all powers, rights and
privileges which a corporation may now or hereafter be organized to do or
exercise under the General Corporation Law of the State of Delaware, or under
any act amendatory thereof, supplemental thereto or substituted therefor;
provided, however, that the Corporation shall not, in any state, district,
<PAGE>
8
territory, province, possession or country, carry on any business, or exercise
any powers, except to the extent that a similar corporation organized under the
laws of said state, district, territory, province, possession or country could
carry on such business or exercise such powers therein.
Notwithstanding any other provision of this Certificate of
Incorporation, the Corporation shall not have power or authority to issue bills,
notes or other evidences of debt for circulation as money, or to carry on the
business of receiving deposits of money or the business of buying gold or silver
bullion or foreign coins, or to engage in the business of banking or insurance,
or to carry on the business of constructing, maintaining or operating public
utilities in the State of Delaware.
FOURTH: The total number of shares of stock which the Corporation
shall have authority to issue is seven hundred fifty thousand (750,000), and the
par value of each of such shares shall be One Dollar ($1). All such shares shall
be of one class and shall be designated Common Stock.
The minimum amount of capital with which the Corporation shall
commence business is One thousand Dollars ($1,000).
FIFTH: The names and places of residence of each of the
incorporators are as follows:
<PAGE>
9
Name Place of Residence
---- ------------------
W.D. Ford 30 Sutton Place, New York 22, N.Y.
Robert V. Zener 415 East 80th St., New York 21, N.Y.
W.J. Schrenk, Jr. 34 East 62nd St., New York 21, N.Y.
SIXTH: The Corporation is to have perpetual existence.
SEVENTH: The private property of the stockholders of the Corporation
shall not be subject to the payment of corporate debts to any extent whatever.
EIGHTH: For the management of the business and for the conduct of
the affairs of the Corporation, and in further definition, limitation and
regulation of the powers of the Corporation and of its directors and
stockholders, it is further provided:
1. The number of directors of the Corporation shall be fixed by, or
in the manner provided in, its by-laws, but in no case shall the number be
less than three. A director need not be a stockholder. The election of
directors of the Corporation need not be by ballot unless the by-laws so
require. One-third of the directors (but not less than two) shall
constitute a quorum for the transaction of business, unless the by-laws
shall provide that a different number shall constitute a quorum, which in
no case shall be less
<PAGE>
10
than one-third of the total number of directors nor less than two
directors.
2. In furtherance and not in limitation of the powers conferred by
the laws of the State of Delaware, the Board of Directors is expressly
authorized and empowered:
(a) To make, alter, amend or repeal the by-laws of the
Corporation, in any manner not inconsistent with the laws of the
State of Delaware or the Certificate of Incorporation of the
Corporation, subject to the power of the stockholders of the
Corporation having voting power to alter, amend or repeal the
by-laws made by the Board of Directors;
(b) Subject to the applicable provisions of the by-laws then
in effect, to determine, from time to time, whether and to what
extent and at what times and places and under what conditions and
regulations the accounts and books and documents of the Corporation,
or any of them, shall be open to the inspection of stockholders; and
a stockholder shall not have any right to inspect any account or
book or document of the Corporation, except as conferred by the laws
of the
<PAGE>
11
State of Delaware, unless and until authorized so to do by
resolution of the Board of Directors or of the stockholders of the
Corporation;
(c) Without the assent or vote of the stockholders, to
authorize and issue, from time to time, obligations of the
Corporation, secured or unsecured, to include therein such
provisions as to redeemability, convertibility into shares of stock
of the Corporation or otherwise, and to authorize the mortgaging or
pledging, as security therefor, of any property, real or personal,
then owned or thereafter acquired by the Corporation, all as the
Board of Directors, in its sole discretion, may determine;
(d) To determine whether any, and, if any, what part, of the
annual net profits of the Corporation or of its net assets in excess
of its capital shall be declared in dividends and paid to the
stockholders, and to direct and determine the use and disposition of
any such annual net profits or net assets in excess of capital;
(e) To fix from time to time the amount of the profits of the
Corporation to be reserved as working capital or for any other
lawful purpose;
<PAGE>
12
(f) To establish bonus, profit-sharing, retirement or other
types of incentive or compensation plans for the officers and
employees (including officers and employees who are also directors)
of the Corporation and to determine the persons to participate in
any such plans and the amount of their respective participations;
and in connection with the acquisition of all or any part of the
property, assets, business and good will of any persons, firms,
associations or corporations, to assume, adopt or enter into any
such plans previously established by such persons, firms,
associations or corporations;
(g) To issue and sell or grant options for the purchase of
shares of stock of the Corporation or shares of stock of any other
corporation to officers and employees (including officers and
employees who are also directors) of the Corporation and its
subsidiaries for such consideration and on such terms and conditions
as the Board of Directors may from time to time determine;
(h) By resolution passed by a majority of the whole Board, to
designate one or more committees, each committee to consist of two
(2) or
<PAGE>
13
more of the directors of the Corporation, which to the extent
provided in said resolution or in the by-laws, shall have and may
exercise the powers of the Board of Directors in the management of
the business and affairs of the Corporation and may have power to
authorize the seal of the Corporation to be affixed to all papers
which may require it, such committee or committees to have such name
or names as may be stated in the by-laws or as may be determined
from time to time by resolution adopted by the Board of Directors;
and
(i) In addition to the powers and authorities hereinbefore and
by the laws of the State of Delaware expressly conferred upon the
Board of Directors, to exercise all such powers and do all such acts
and things as may be exercised or done by the Corporation, subject,
nevertheless, to the provisions of the laws of the State of
Delaware, of this Certificate of Incorporation and of the by-laws of
the Corporation.
3. Any director or officer elected or appointed by the stockholders
of the Corporation or by its Board
<PAGE>
14
of Directors may be removed at any time in such manner as shall be
provided in the by-laws of the Corporation.
4. In the absence of fraud, no contract or other transaction between
the Corporation any any other corporation, and no act of the Corporation,
shall in any way be invalidated or otherwise affected by the fact that any
one or more of the directors of the Corporation are pecuniarily or
otherwise interested in, or are directors or officers of, such other
corporation or have a pecuniary or other interest in such act. Any
director of the Corporation individually, or any firm or association of
which any director may be a member, may be a party to, or may be
pecuniarily or otherwise interested in, any contract or transaction of the
Corporation, provided that the fact that he individually or such firm or
association is such a party or so interested shall be disclosed or shall
have been known to the Board of Directors or a majority of the members
thereof who shall be present at any meeting of the Board of Directors at
which action upon any such contract or transaction shall be taken; and any
director of the Corporation who is also a director or officer of such
other corporation or who
<PAGE>
15
is so interested, may be counted in determining the existence of a quorum
at any meeting of the Board of Directors or of any committee thereof which
shall authorize any such contract or transaction, and may vote thereat to
authorize any such contract or transaction, with like force and effect as
if he were not such director or officer of such other corporation or not
so interested. Any director of the Corporation may vote upon any contract
or other transaction between the Corporation and any subsidiary or
affiliated corporation without regard to the fact that he is also a
director of such subsidiary or affiliated corporation.
Any contract, transaction or act of the Corporation, or of the Board
of Directors, or of any committee of the Board of Directors, which shall
be ratified by a majority of a quorum of the holders of Common Stock of
the Corporation entitled to vote at any annual meeting, or at any special
meeting called for such purpose, shall, in so far as permitted by law or
by this Certificate of Incorporation, be as valid and as binding as though
ratified by every such stockholder; provided, however, that any failure of
the stockholders to approve or ratify any such contract, transaction or
act, when and if submitted, shall not be deemed in any
<PAGE>
16
way to invalidate the same or deprive the Corporation, its directors,
officers or employees, of its or their right to proceed with such
contract, transaction or act.
5. Subject to any limitation in the by-laws then in effect, the
members of the Board of Directors shall be entitled to reasonable fees,
salaries, or other compensation for their services and to reimbursement
for their expenses as such members. Nothing contained herein shall
preclude any director from serving the Corporation, or any subsidiary or
affiliated corporation, in any other capacity and receiving proper
compensation therefor.
NINTH: The stockholders and the Board of Directors shall have the
power, if the by-laws so provide, to hold their respective meetings outside of
the State of Delaware, and, except as otherwise required by law, the corporate
records, books, documents and papers of the Corporation may be kept outside of
the State of Delaware.
TENTH: The Company reserves the right from time to time to amend,
alter, change, add to or repeal any provisions contained in this Certificate of
Incorporation in any manner now or hereafter prescribed by law, and all rights
and powers at any time conferred upon stockholders, directors
<PAGE>
17
and officers of the Corporation by this Certificate of Incorporation or any
amendment thereof are subject to the provisions of this Article TENTH.
IN WITNESS WHEREOF, we, the undersigned, being all of the
incorporators hereinabove named, do hereby further certify that the facts
hereinabove stated are truly set forth, and accordingly have hereunto set our
respective hands and seals this 30th day of December, 1960.
/s/ W. D. Ford [L.S.]
----------------------
/s/ Robert V. Zener [L.S.]
----------------------
/s/ W. J. Schrenk, Jr. [L.S.]
----------------------
<PAGE>
STATE OF NEW YORK, )
) ss.:
COUNTY OF NEW YORK, )
BE IT REMEMBERED that on the 30th day of December, 1960, personally
appeared before me, Mark D. Geraghty, a Notary Public in and for the County and
State aforesaid, W. D. Ford, Robert V. Zener and W. J. Schrenk, Jr., all the
incorporators who signed the foregoing Certificate of Incorporation, known to me
personally to be such, and I having made known to them and to each of them the
contents of said Certificate of Incorporation, they did severally acknowledge
the same to be the act and deed of the signers, respectively, and that the facts
therein stated are truly set forth.
GIVEN under my hand and seal of office the day and year aforesaid.
/s/ Mark D. Geraghty
---------------------------------
Notary Public
MARK D. GERAGHTY MARK D. GERAGHTY
NOTARY PUBLIC Notary Public, State of New York
STATE OF NEW YORK No. 60-6490510
Qualified in Westchester County
Cert. filed in New York Co. Clerk
Term Expires March 30, 1962
<PAGE>
PAGE 1
State of Delaware
Office of the Secretary of State
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT
OF "AEROFLEX LABORATORIES INCORPORATED", FILED IN THIS OFFICE ON THE FOURTH DAY
OF MAY, A.D. 1961, AT 10 O'CLOCK A.M.
[SEAL OMITTED]
/s/ Edward J. Freel
[SEAL OMITTED] -----------------------------------------
Edward J. Freel, Secretary of State
0561329 8100 AUTHENTICATION: 7276019
944200245 DATE: 10-20-94
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
BEFORE PAYMENT OF CAPITAL
OF
AEROFLEX LABORATORIES INCORPORATED
We, the undersigned, being all the incorporators of Aeroflex
Laboratories Incorporated, a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware
DO HEREBY CERTIFY:
FIRST: That Article FOURTH of the Certificate of Incorporation be,
and it hereby is, amended by adding thereto a third paragraph to read as
follows:
"At all elections of directors of the Corporation each
stockholder shall be entitled to as many votes as shall equal the
number of votes which (except for this provision as to cumulative
voting) he would be entitled to cast for the election of directors
with respect to his shares of stock multiplied by the number of
directors to be elected. He may cast all of such votes for a single
director or may distribute them among the number to be voted for,
or any two or more of them as he may see fit."
SECOND: That a new Article be, and it hereby is, added at the end of
the Certificate of Incorporation to read as follows:
"ELEVENTH: No holder of stock of the Corporation shall, as
such holder, have any right to purchase or subscribe for any shares
of stock of the Corporation of any class, now or hereafter
authorized, or any obligations or instruments which the Corporation
may issue or sell that shall be convertible into or exchangeable for
or entitle the holders
<PAGE>
thereof to subscribe for or purchase any shares of stock of the
Corporation of any class, now or hereafter authorized, other than
such right, if any, as the Board of Directors in its discretion may
determine."
THIRD: That no part of the capital of said Corporation has been
paid,
IN WITNESS WHEREOF, we have signed this Certificate this 3rd, day of
May, 1961.
/s/ William D. Ford
----------------------
/s/ Robert V. Zener
----------------------
/s/ W. J. Schrenk, Jr.
----------------------
-2-
<PAGE>
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
BE IT REMEMBERED that on this 3rd day of May, A.D. 1961, personally
came before me ANTHONY MAGGIO a Notary Public for the State of New York, W. D.
Ford, Robert V. Zener and W. J. Schrenk, Jr., all of the incorporators of the
foregoing corporation, known to me personally to be such and severally
acknowledged the said amended certificate to be the act and deed of the signers
respectively, and that the facts therein stated are truly set forth.
GIVEN under my hand and seal of office the day and year aforesaid.
/s/ Anthony Maggio
------------------------------------
Notary Public
ANTHONY MAGGIO ANTHONY MAGGIO
NOTARY PUBLIC Notary Public, State of New York
STATE OF NEW YORK No. 41-2469000
Qualified in Queens County
Certificate filed in New York County
Commission Expires March 30, 1963
-3-
<PAGE>
PAGE 1
State of Delaware
Office of the Secretary of State
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT
OF "AEROFLEX LABORATORIES INCORPORATED", FILED IN THIS OFFICE ON THE SECOND DAY
OF MARCH, A.D. 1976, AT 10 O'CLOCK A.M.
[SEAL OMITTED]
/s/ Edward J. Freel
[SEAL OMITTED] -----------------------------------
Edward J. Freel, Secretary of State
0561329 8100 AUTHENTICATION: 7276020
944200245 DATE: 10-20-94
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
AEROFLEX LABORATORIES INCORPORATED
*****
AEROFLEX LABORATORIES INCORPORATED, a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware, DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of AEROFLEX
LABORATORIES INCORPORATED, resolutions were duly adopted setting forth a
proposed amendment to the Certificate of Incorporation of said corporation,
declaring said amendment to be advisable and calling a meeting of the
stockholders of said corporation for consideration thereof. The resolution
setting forth the amendment is as follows:
RESOLVED, that the Certificate of Incorporation of this corporation
be amended by changing the Article thereof numbered "FOURTH" so that, as
amended, said Article shall be and read as follows:
"FOURTH: The total number of shares of stock which the Corporation
shall have authority to issue is one million two hundred fifty thousand
(1,250,000) and the par value or each of such shares shall be Ten Cents
($.10). All such shares shall be of one class and shall be designated
Common stock.
<PAGE>
At all elections of directors of the Corporation, each stockholder
shall be entitled to as many votes as shall equal the number of votes
which (except for this provision as to cumulative voting) he would be
entitled to cast for the election of directors with respect to his shares
of stock multiplied by the number of directors to be elected. He may cast
all of such votes for a single director or may distribute them among the
number to be voted for, or any two or more of them as he may see fit."
SECOND: That thereafter, pursuant to resolution of its Board of
Directors, a special meeting of the stockholders corporation was duly called and
held, upon notice in accordance with Section 222 of the General Corporation Law
of the State of Delaware, at which meeting the necessary number of shares
required by statute were voted in favor of the amendment.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
FOURTH: That a Certificate of Reduction of capital pursuant to
Section 244 (c) of the General Corporation Law of the State of Delaware is being
filed with this Certificate of Incorporation.
IN WITNESS WHEREOF, said AEROFLEX LABORATORIES INCORPORATED has
caused this Certificate to be signed by MILTON BRENNER, its President, and
attested by MICHAEL L. EVANS, Secretary, this 26th day of February, 1976.
AEROFLEX LABORATORIES INCORPORATED
CORPORATE SEAL By /s/ Milton Brenner
-------------------------
Milton Brenner, President
ATTEST:
By: /s/ Michael L. Evans
---------------------------
Michael L. Evans, Secretary
-2-
<PAGE>
PAGE 1
State of Delaware
Office of the Secretary of State
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT
OF "AEROFLEX LABORATORIES INCORPORATED", FILED IN THIS OFFICE ON THE
TWENTY-FIRST DAY OF NOVEMBER, A.D. 1980, AT 10:30 O'CLOCK A.M.
[SEAL OMITTED]
/s/ Edward J. Freel
[SEAL OMITTED] -----------------------------------
Edward J. Freel, Secretary of State
0561329 8100 AUTHENTICATION: 7276021
944200245 DATE: 10-20-94
<PAGE>
CERTIFICATE OF AMENDMENT
OF THE CERTIFICATE OF INCORPORATION OF
AEROFLEX LABORATORIES INCORPORATED
********
AEROFLEX LABORATORIES INCORPORATED, a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware, DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of AEROFLEX
LABORATORIES INCORPORATED, resolutions were adopted setting forth a proposed
amendment to the Certificate of Incorporation of said corporation, declaring
said amendment to be advisable and calling a meeting of the stockholders of said
corporation for consideration thereof.
SECOND: That thereafter, pursuant to resolution of its Board of
Directors, the Annual Meeting of Stockholders of said corporation was duly
called and held, upon notice in accordance with Section 222 of the General
Corporation Law of the State of Delaware at which meeting the necessary number
of shares as required by statute were voted in favor of the following amendment:
RESOLVED, that the Certificate of Incorporation of this corporation
be amended by changing the "first paragraph" of the Article thereof
numbered "FOURTH" so that, as amended said paragraph shall be and
read as follows:
"FOURTH: The total number of shares of stock which the
Corporation shall have authority to issue is Four Million Two
Hundred and Fifty Thousand (4,250,000) shares, of which Three
Million Two Hundred Fifty Thousand (3,250,000) shares shall be
shares of Common Stock of the
<PAGE>
par value of Ten Cents ($.10) per share and One Million (1,000,000)
shares shall be shares of Preferred Stock of the par value of Ten
Cents ($.10) per share. The Preferred Stock may be issued in series
and the number, designation, relative rights, preferences and
limitations of shares of each series of Preferred Stock, $.10 per
share par value shall be fixed by the Board of Directors."
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, said AEROFLEX LABORATORIES INCORPORATED has
caused this certificate to be signed by Milton Brenner, its President and
attested by Harvey R. Blau its Secretary, this 24th day of November, 1980.
AEROFLEX LABORATORIES INCORPORATED
By: /s/ Milton Brenner
------------------------------
Milton Brenner, President
ATTEST:
/s/ Harvey R. Blau
- -------------------------
Harvey R. Blau, Secretary
<PAGE>
PAGE 1
State of Delaware
Office of the Secretary of State
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT
OF "AEROFLEX LABORATORIES INCORPORATED", FILED IN THIS OFFICE ON THE EIGHTH DAY
OF APRIL, A.D. 1983, AT 10 O'CLOCK A.M.
[SEAL OMITTED]
/s/ Edward J. Freel
[SEAL OMITTED] -----------------------------------
Edward J. Freel, Secretary of State
0561329 8100 AUTHENTICATION: 7276022
944200245 DATE: 10-20-94
<PAGE>
CERTIFICATE OF AMENDMENT
OF THE CERTIFICATE OF INCORPORATION OF
AEROFLEX LABORATORIES INCORPORATED
******
AEROFLEX LABORATORIES INCORPORATED, a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of AEROFLEX
LABORATORIES INCORPORATED, resolutions were adopted setting forth a proposed
amendment to the Certificate of Incorporation of said corporation, declaring
said amendment to be advisable and calling a meeting of the stockholders of the
corporation for consideration thereof.
SECOND: That thereafter, pursuant to resolution of its Board of Directors,
the Annual Meeting of Stockholders of said corporation was duly called and held,
upon notice in accordance with Section 222 of the General Corporation Law of the
State of Delaware at which meeting the necessary number of shares as required by
statute were voted in favor of the following amendment:
RESOLVED, that the Certificate of Incorporation of this corporation be
amended by changing the "first paragraph" of the Article thereof numbered
"FOURTH" so that, as amended said paragraph shall be and read as follows:
<PAGE>
"FOURTH: The total number of shares of all classes of stock, which
the corporation shall have the authority to issue is SIX MILLION
(6,000,000) shares, of which FIVE MILLION (5,000,000) shares shall be
shares of Common Stock of the par value of Ten Cents ($.10) per share and
ONE MILLION (1,000,000) shares shall be shares of Preferred Stock of the
par value of Ten Cents ($.10) per share. The Preferred Stock may be issued
in series and the number, designation, relative rights, preferences and
limitations of shares of each series of Preferred Stock, Ten Cents ($.10)
per share par value shall be fixed by the Board of Directors."
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, said AEROFLEX LABORATORIES INCORPORATED has caused
this certificate to be signed by Milton Brenner, its President and attested by
Robert Ramistella, its Secretary, this 7th day of April, 1983.
AEROFLEX LABORATORIES INCORPORATED
By: /s/ Milton Brenner
------------------------------
Milton Brenner, President
ATTEST:
/s/ Robert Ramistella
- ----------------------------
Robert Ramistella, Secretary
<PAGE>
PAGE 1
State of Delaware
Office of the Secretary of State
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT
OF "AEROFLEX LABORATORIES INCORPORATED", FILED IN THIS OFFICE ON THE
TWENTY-THIRD DAY OF NOVEMBER, A.D. 1983, AT 10 O'CLOCK A.M.
[SEAL OMITTED]
/s/ Edward J. Freel
[SEAL OMITTED] -----------------------------------
Edward J. Freel, Secretary of State
0561329 8100 AUTHENTICATION: 7276023
944200245 DATE: 10-20-94
<PAGE>
CERTIFICATE OF AMENDMENT
OF THE CERTIFICATE OF INCORPORATION OF
AEROFLEX LABORATORIES INCORPORATED
********
AEROFLEX LABORATORIES INCORPORATED, a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of AEROFLEX
LABORATORIES INCORPORATED, resolutions were adopted setting forth a proposed
amendment to the Certificate of Incorporation of said corporation, declaring
said amendment to be advisable and calling a meeting of the stockholders of the
corporation for consideration thereof.
SECOND: That thereafter, pursuant to resolution of its Board of Directors,
the Annual Meeting of Stockholders of said corporation was duly called and held,
upon notice in accordance with Section 222 of the General Corporation Law of the
State of Delaware at which meeting the necessary number of shares as required by
statute were voted in favor of the following amendment:
<PAGE>
RESOLVED, that the Certificate of Incorporation of this corporation be
amended by changing the first paragraph of the Article thereof numbered
"FOURTH" so that, as amended, said paragraph shall be and read as follows:
"FOURTH: The total number of shares of all classes of stock which the
corporation shall have the authority to issue is SIXTEEN MILLION
(16,000,000) shares, of which FIFTEEN MILLION (15,000,000) shares shall be
shares of Common Stock of the par value of Ten Cents ($.10) per share and
ONE MILLION (1,000,000) shares shall be shares of Preferred Stock of the
par value of Ten Cents ($.10) per share. The Preferred Stock may be issued
in series and the number, designation, relative rights, preferences and
limitations of shares of each series of Preferred Stock, Ten Cents ($.10)
per share par value shall be fixed by the Board of Directors."
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, said AEROFLEX LABORATORIES INCORPORATED has caused
this certificate to be signed by Milton Brenner, its President and attested by
Frank DiMaio, its Secretary, this 11th day of November, 1983.
AEROFLEX LABORATORIES INCORPORATED
By: /s/ Milton Brenner
------------------------------
Milton Brenner, President
ATTEST:
/s/ Frank DiMaio
- -----------------------
Frank DiMaio, Secretary
<PAGE>
PAGE 1
State of Delaware
Office of the Secretary of State
------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT
OF "AEROFLEX LABORATORIES INCORPORATED", CHANGING ITS NAME FROM "AEROFLEX
LABORATORIES INCORPORATED" TO "ARX, INC.", FILED IN THIS OFFICE ON THE THIRTIETH
DAY OF OCTOBER, A.D. 1985, AT 10 O'CLOCK A.M.
[SEAL OMITTED]
/s/ Edward J. Freel
[SEAL OMITTED] -----------------------------------
Edward J. Freel, Secretary of State
0561329 8100 AUTHENTICATION: 7276024
944200245 DATE: 10-20-94
<PAGE>
CERTIFICATE OF AMENDMENT OF THE
CERTIFICATE OF INCORPORATION OF
AEROFLEX LABORATORIES INCORPORATED
* * * * * * *
AEROFLEX LABORATORIES INCORPORATED, a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of AEROFLEX
LABORATORIES INCORPORATED, resolutions were adopted setting forth proposed
amendments to the Certificate of Incorporation of said corporation, declaring
said amendment to be advisable and calling a meeting of the stockholders of the
corporation for consideration thereof.
SECOND: That thereafter, pursuant to resolution of its Board of Directors,
the Annual Meeting of Stockholders of said corporation was duly called and held,
upon notice in accordance with Section 222 of the General Corporation Law of the
State of Delaware at which meeting the necessary number of shares as required by
statute were voted in favor of the following amendments:
RESOLVED, that the Certificate of Incorporation of this corporation be
amended by changing the Article thereof numbered "FIRST" so that, as
amended, said Article shall be and read as follows:
<PAGE>
"FIRST: The name of the corporation is ARX, Inc."
and it was further
RESOLVED, that the Certificate of Incorporation be further amended by
deleting the following from Article "FOURTH":
"At all elections of directors of the Corporation, each stockholder
shall be entitled to as many votes as shall equal the number of votes
which (except for this provision as to cumulative voting) he would be
entitled to cast for the election of directors with respect to his shares
of stock multiplied by the number of directors to be elected. He may cast
all of such votes for a single director or may distribute them among the
number to be voted for, or any two or more of them as he may see fit."
and it was further
RESOLVED, that the Certificate of Incorporation be further amended by
adding Article TWELFTH to read as follows:
"TWELFTH: The vote of stockholders of the Corporation required to
approve any Business Combination shall be as set forth in this Article
TWELFTH. The term "Business Combination" shall have the meaning ascribed
to it in (a)(B) of this Article; each other capitalized term used in this
Article shall have the meaning ascribed to it in (c) of this Article.
(a)(A) In addition to any affirmative vote required by law or
this Certificate of Incorporation and except as otherwise expressly
provided in (b) of this Article TWELFTH:
(1) any merger or consolidation of the Corporation or
any Subsidiary with (i) any Interested Stockholder or (ii) any other
corporation or entity (whether or not itself is an Interested
Stockholder) which is, or after each merger or consolidation would
be, an Affiliate of an Interested Stockholder; or
-2-
<PAGE>
(2) any sale, lease, exchange, mortgage, pledge,
transfer, or other disposition (in one transaction or a series of
transactions) to or with any Interested Stockholder or any Affiliate
of any Interested Stockholder of assets of the Corporation or any
Subsidiary having an aggregate Fair Market Value of $5,000,000 or
more; or
(3) the issuance or transfer by the Corporation or any
Subsidiary (in one transaction or a series of transactions) of any
securities of any Affiliate or any Interested Stockholder in
exchange for cash, securities or other property (or a combination
thereof) having an aggregate Fair Market Value of $5,000,000 or
more, other than the issuance of securities upon the conversion of
convertible securities of the Corporation or any Subsidiary which
were were not acquired by such Interested Stockholder (or such
Affiliate) from the Corporation or a Subsidiary; or
(4) the adoption of any plan or proposal for the
liquidation or dissolution of the Corporation proposed by or on
behalf of an Interested Stockholder or any Affiliate of any
Interested Stockholder; or
(5) any reclassification of securities (including any
reverse stock split), or recapitalization of the Corporation, or any
merger or consolidation of the Corporation with any of its
Subsidiaries or any other transaction (whether or not with or into
or otherwise involving an Interested Stockholder) which in any such
case has the effect, directly or indirectly, of increasing the
proportionate share of the outstanding shares of any class or series
of stock or securities convertible into the stock of the Corporation
or any subsidiary which is directly or indirectly beneficially owned
by any Interested Stockholder or any affiliate of any Interested
Stockholder;
-3-
<PAGE>
shall not be consummated without the affirmative vote of the holders
of at least 80 percent of the combined voting power of the then
outstanding shares of stock of all classes and series of the
Corporation entitled to vote generally in the election of directors
("Voting Stock"), in each case voting together as a single class.
Such affirmative vote shall be required notwithstanding the fact
that no vote may be required, or that a lesser percentage may be
specified, by law or by this Certificate of Incorporation or in any
agreement with any national securities exchange or otherwise.
(B) The term "Business Combination" as used in this
Article TWELFTH shall mean any transaction that is referred to in
any one or more clauses (1) through (5) of (a)(A) of this Article
TWELFTH.
(b) The provisions of (a) of this Article TWELFTH shall not be
applicable to any Business Combination in respect of which all of
the conditions specified in either of the following paragraphs (A)
and (B) are met, and such Business Combination shall require only
such affirmative vote as is required by law and any other provision
of the Certificate of Incorporation;
(A) such Business Combination shall have been approved
by a majority of the Disinterested Directors, or
(B) each of the six conditions specified in the
following clauses (1) through (6) shall have been met:
(1) the aggregate amount of the cash and the Fair
Market Value as of the date of the consummation of the
Business Combination (the "Consummation Date") of any
consideration other than cash to be received by holders of
Common Stock in such Business Combination shall be at least
equal to the higher of the following:
(i) (if applicable) the highest per share
price (including any brokerage commissions, transfer
taxes and soliciting dealers' fees) paid in order to
acquire any shares of Common Stock beneficially owned by
-4-
<PAGE>
the Interested Stockholder which were acquired
beneficially by such Interested Stockholder (x) within
the two-year period immediately prior to the
Announcement Date or (y) in the transaction in which it
became an Interested Stockholder, whichever is higher;
or
(ii) the Fair Market Value per share of
Common Stock on the Announcement Date or on the date on
which the Interested Stockholder became an Interested
Stockholder (the Determination Date), whichever is
higher; and
(2) the aggregate amount of the cash and the Fair
Market Value as of the Consummation Date of any consideration
other than cash to be received per share by holders of shares
of any other class or series of Voting Stock shall be at least
equal to the highest of the following (it being intended that
the requirements of this clause (B)(2) shall be required to be
met with respect to each class and series of such outstanding
Voting Stock, whether or not the Interested Stockholder
beneficially owns any shares of a particular class or series
of Voting Stock):
(i) (if applicable) the highest per share
price (including any brokerage commissions, transfer
taxes and soliciting dealers' fees) paid in order to
acquire any shares of such class or series of voting
stock beneficially owned by the Interested Stockholder,
which were acquired beneficially by such Interested
Stockholder (x) within the two-year period immediately
prior to the Announcement Date or (y) in the transaction
in which it became an Interested Stockholder, whichever
is higher;
(ii) (if applicable) the highest
preferential amount per share to which the holders of
shares of such class or series of Voting Stock are
entitled in the event of any voluntary or involuntary
liquidation, dissolution or winding up of the
Corporation; and
-5-
<PAGE>
(iii) the Fair Market Value per share of
such class or series of Voting Stock on the Announcement
Date or the Determination Date, whichever is higher; and
(3) the consideration to be received by holders of
a particular class or series of outstanding Voting Stock
(including Common Stock) shall be in cash or in the same form
as were previously paid in order to acquire beneficially
shares of such class or series of Voting Stock that are
beneficially owned by the Interested Stockholder and, if the
Interested Stockholder beneficially owns shares of any class
or series of Voting Stock that were acquired with varying
forms of consideration, the form of consideration to be
received by holders of such class or series of Voting Stock
shall be either cash or the form used to acquire beneficially
the largest number of shares of such class or series of Voting
Stock beneficially acquired prior to the Announcement Date;
and
(4) after such Interested Stockholder has become
an Interested Stockholder and prior to the consummation of
such Business Combination:
(i) except as approved by a majority of the
Disinterested Directors, there shall have been no
failure to declare and pay at the regular dates therefor
the full amount of any dividends (whether or not
cumulative) payable on any class or series of stock
having a preference over the Common Stock as to
dividends or upon liquidation.
(ii) there shall have been (x) no reduction
in the annual rate of dividends paid on the Common Stock
(except as necessary to reflect any subdivision of the
Common Stock), except as approved by a majority of the
Disinterested Directors and (y) an increase in such
annual rate of dividends (as necessary to prevent any
such reduction) in the event of any reclassification
(including any reverse stock split) recapitalization,
reorganization or any similar transaction which has the
effect of reducing the number of outstanding shares of
the Common Stock, unless the failure so to increase such
annual rate was approved by a majority of the
Disinterested Directors; and
-6-
<PAGE>
(iii) such Interested Stockholder shall not
have become the beneficial owner of any additional
shares of Voting Stock except as part of the transaction
in which it became an Interested Stockholder; and
(5) after such Interested Stockholder has become
an Interested Stockholder, such Interested Stockholder shall
not have received the benefit, directly or indirectly (except
proportionately as a stockholder), of any loans, advances,
guarantees, pledges or other financial assistance or tax
credits or other tax advantages provided by the Corporation,
whether in anticipation of or in connection with such Business
Combination or otherwise; and
(6) a proxy or information statement describing
the proposed Business Combination and complying with the
requirements of the Securities Exchange Act of 1934 and the
rules and regulations thereunder (or any subsequent provisions
replacing such Act, rules or regulations) shall be mailed to
public stockholders of the Corporation at least 30 days prior
to the consummation of such Business Combination (whether or
not such proxy or information statement is required to be
mailed pursuant to such Act or subsequent provisions).
(c) For the purposes of this Article TWELFTH:
(A) A "person" shall mean any individual, firm or
corporation or other entity.
(B) "Interested Stockholder" shall mean any person
(other than the Corporation or any Subsidiary) who or which:
(1) is the beneficial owner, directly or
indirectly, of more than 10 percent of the combined voting
power of the then outstanding shares of Voting Stock; or
(2) is an Affiliate of the Interested Stockholder
and at any time within the two-year period immediately prior
to the date in question was the beneficial owner, directly or
indirectly, of 10 percent or more of the combined voting power
of the then outstanding shares of Voting Stock, or
-7-
<PAGE>
(3) is an assignee of or has otherwise succeeded
to the beneficial ownership of any shares of Voting Stock that
were at any time within the two-year period immediately prior
to the date in question beneficially owned by an Interested
Stockholder, if such assignment or succession shall have
occurred in the course of a transaction or series of
transactions not involving a public offering within the
meaning of the Securities Act of 1933.
(C) A person shall be a "beneficial owner" of any Voting
Stock:
(1) which such person or any of its Affiliates or
Associates beneficially owns, directly or indirectly; or
(2) which such person or any of its Affiliates or
Associates has (a) the right to acquire (whether such right is
exercisable immediately or only after the passage of time),
pursuant to any agreement, arrangement or understanding or
upon the exercise of conversion rights, exchange rights,
warrants or options, or otherwise, or (b) the right to vote or
direct the vote pursuant to any agreement, arrangement or
understanding; or
(3) which are beneficially owned, directly or
indirectly, by any other person with which such person or any
of its Affiliates or Associates has any agreement, arrangement
or understanding for the purpose of acquiring, holding, voting
or disposing of any shares of Voting Stock.
(D) For the purposes of determining whether a person is
an Interested Stockholder pursuant to (c)(B) of this Article
TWELFTH, the number of shares of Voting Stock deemed to be
outstanding shall include shares owned through application of (c)(C)
of this Article but shall not include any other shares of Voting
Stock that may be issuable pursuant to any agreement, arrangement or
understanding, or upon exercise of conversion rights, warrants or
options, or otherwise.
-8-
<PAGE>
(E) "Affiliate" and "Associate" shall have the
respective meanings ascribed to such terms in Rule 12b-2 of the
General Rules and Regulations under the Securities Exchange Act of
1934, as in effect on September 1, 1985.
(F) "Subsidiary" means any corporation more than 50
percent of whose outstanding stock having ordinary voting power in
the election of directors is owned, directly or indirectly, by the
Corporation or by a Subsidiary or by the Corporation and one or more
Subsidiaries, provided, however, that for the purposes of the
definition of Interested Stockholders set forth in (c)(B) of this
Article TWELFTH, the term "Subsidiary" shall mean only a corporation
of which a majority of each class or equity security is owned,
directly or indirectly, by the Corporation.
(G) "Disinterested Director" means any member of the
Board of Directors of the Corporation who is unaffiliated with, and
not a nominee of, the Interested Stockholder and was a member of the
Board prior to the time that the Interested Stockholder became an
Interested Stockholder, and any successor of a Disinterested
Director who is unaffiliated with, and not a nominee of, the
Interested Stockholder and who is recommended to succeed a
Disinterested Director by a majority of Disinterested Directors then
on the Board of Directors.
(H) "Fair Market Value" means: (1) in the case of stock,
the highest closing sale price during the 30-day period immediately
preceding the date in question of a share of such stock in the
Composite Tape for New York Stock Exchange Listed Stocks, or, if
such stock is not quoted on the Composite Tape, on the New York
Stock Exchange, or, if such stock is not listed on any such
exchange, the highest closing sales price or bid quotation with
respect to a share of such stock during the 30-day period preceding
the date in question on the National Association of Securities
Dealers, Inc. Automated Quotations System or any system then in use,
or if no such quotations are available, the fair market value on the
date in question of a share of stock as determined by a majority of
the Disinterested Directors in good faith; and (2) in the case of
stock of any class or series which is not traded on any United
States registered securities exchange nor in the over-the-counter
market or in the case of property other than cash or stock, the fair
market value of such property on the date in question as determined
by a majority of the Disinterested Directors in good faith.
-9-
<PAGE>
(I) In the event of any Business Combination in which
the Corporation survives, the phrase "other consideration to be
received" as used in (b)(B)(1) and (2) of this Article TWELFTH shall
include the shares of Common Stock and/or the shares of any other
class of outstanding Voting Stock retained by the holders of such
shares.
(J) "Announcement Date" means the date of first public
announcement of the proposed Business Combination.
(K) "Determination Date" means the date on which the
Interested Stockholder became an Interested Stockholder.
(d) A majority of the Disinterested Directors of the
Corporation shall have the power and duty to determine, on the basis
of information known to them after reasonable inquiry, all facts
necessary to determine compliance with this Article TWELFTH,
including, without limitation (A) whether a person is an Interested
Stockholder, (B) the number of shares of Voting Stock beneficially
owned by any person, (C) whether a person is an Affiliate or
Associate of another person, (D) whether the requirements of (b) of
this Article TWELFTH have been met with respect to any Business
Combination, and (E) whether the assets which are the subject of any
Business Combination have, or the consideration to be received for
the issuance or transfer of securities by the Corporation or any
Subsidiary in any Business Combination has, an aggregate Fair Market
Value of $5,000,000 or more. The good faith determination of a
majority of the Disinterested Directors on such matters shall be
conclusive and binding for all purposes of this Article TWELFTH.
(e) Nothing contained in this Article TWELFTH shall be
construed to relieve any Interested Stockholder from any fiduciary
obligation imposed by law.
(f) Notwithstanding anything contained in this Certificate of
Incorporation to the contrary, the affirmative vote of the holders
of at least 50% of the voting power of the Voting Stock, voting
together as a single class, shall be required to alter, amend, or
repeal this Article TWELFTH or to adopt any provision Inconsistent
therewith."
-10-
<PAGE>
and it was further
RESOLVED, that the Certificate of Incorporation be further amended
by adding Article "THIRTEENTH" to read as follows:
"THIRTEENTH: Advance notice of stockholder nominations for the
election of Directors shall be given in the manner provided in the
By-Laws of the Corporation."
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, said AEROFLEX LABORATORIES INCORPORATED has
caused this certificate to be signed by Milton Brenner, its President and
attested by Frank DiMaio, its Secretary-Treasurer, this 29th day of October,
1985.
AEROFLEX LABORATORIES INCORPORATED
By: /s/ Milton Brenner
-----------------------------------
Milton Brenner, President
ATTEST:
/s/ Frank DiMaio
- ---------------------------------------
Frank DiMaio, Secretary-Treasurer
<PAGE>
PAGE 1
State of Delaware
Office of the Secretary of State
------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT
OF "ARX, INC.", FILED IN THIS OFFICE ON THE EIGHTH DAY OF DECEMBER, A.D. 1986,
AT 10 O'CLOCK A.M.
[SEAL OMITTED]
/s/ Edward J. Freel
[SEAL OMITTED] -----------------------------------
Edward J. Freel, Secretary of State
0561329 8100 AUTHENTICATION: 7276025
944200245 DATE: 10-20-94
<PAGE>
CERTIFICATE OF AMENDMENT OF THE
CERTIFICATE OF INCORPORATION OF
ARX, INC.
ARX, INC., a corporation organized and existing under and by virtue of the
General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of ARX, INC.,
resolutions were adopted setting forth a proposed amendment to the Certificate
of Incorporation of said corporation, declaring said amendment to be advisable
and calling a meeting of the stockholders of the corporation for consideration
thereof.
SECOND: That thereafter, pursuant to resolution of its Board of Directors,
the Annual Meeting of Stockholders of said corporation was duly called and held,
upon notice in accordance with Section 222 of the General Corporation Law of the
State of Delaware at which meeting the necessary number of shares as required by
statute were voted in favor of the following amendment:
RESOLVED, that the Certificate of Incorporation of this corporation be
amended by adding Article "FOURTEENTH" so that, as amended, said Article
shall be and read as follows:
<PAGE>
"FOURTEENTH: To the extent permitted by Section 102(b)(7) of the
Delaware General Corporation Law, as the same may be supplemented and
amended, no director of the corporation shall be personally liable to the
corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director; provided the foregoing shall not eliminate
or limit the liability of such director (i) for any breach of such
director's duty of loyalty to the corporation or its stockholders, (ii)
for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the
General Corporation Law, or (iv) for any transaction from which such
director derived an improper personal benefit."
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, said ARX, INC. has caused this certificate to be
signed by Arthur J. Hendler, its Executive Vice President and attested by
Richard Carey, its Secretary, this 1st day of December, 1986.
ARX, INC.
By: /s/ Arthur J Hendler
-------------------------------------
Arthur J. Hendler
Executive Vice President
ATTEST:
/s/ Richard Carey
- ---------------------------------
Richard Carey, Secretary
<PAGE>
PAGE 1
State of Delaware
Office of the Secretary of State
------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
DESIGNATION OF "ARX, INC.", FILED IN THIS OFFICE ON THE TWENTY-THIRD DAY OF
AUGUST, A.D. 1988, AT 10 O'CLOCK A.M.
[SEAL OMITTED]
/s/ Edward J. Freel
[SEAL OMITTED] -----------------------------------
Edward J. Freel, Secretary of State
0561329 8100 AUTHENTICATION: 7276026
944200245 DATE: 10-20-94
<PAGE>
CERTIFICATE OF DESIGNATION
OF
ARX, INC.
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
(UNDER SECTION 151(g) OF THE GENERAL CORPORATION LAW)
* * * * *
ARX, INC., a corporation organized and existing under and by virtue
of the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY:
That at a meeting of the Board of Directors of ARX, Inc. the
following resolution was duly adopted creating a series of 150,000 shares of
Preferred Stock, designated as Series A Junior Participating Preferred Stock.
RESOLVED, that pursuant to the authority granted to and vested in
the Board of Directors of this Corporation in accordance with the
provisions of the Certificate of Incorporation, as amended, a series of
Series A Junior Participating Preferred Stock, of the Corporation be, and
it hereby is created, and that the designation and amount thereof and the
relative rights, preferences and limitations thereof are as follows:
(1) Designation and Amount.
There is hereby established a series of Preferred Stock, par value
$.10 per share, of the Corporation, which shall be designated as the "Series A
Junior Participating Preferred Stock." The number of shares constituting such
series shall be 150,000.
(2) Dividends and Distributions.
(A) Subject to any prior and superior rights of the holders of any
series of Preferred Stock ranking prior and superior to the shares of Series A
Junior Participating Preferred Stock with respect to dividends that may be
authorized
1
<PAGE>
by the Certificate of Incorporation, as amended, the holders of shares of Series
A Junior Participating Preferred Stock shall be entitled prior to the payment of
any dividends on shares ranking junior to the Series A Junior Participating
Preferred Stock to receive, when, as and if declared by the Board of Directors
out of funds legally available for the purpose, quarterly dividends payable in
cash on the last day of March, June, September and December in each year (each
such date being referred to herein as a "Quarterly Dividend Payment Date"),
commencing on the first Quarterly Dividend Payment Date after the first issuance
of a share or fraction of a share of Series A Junior Participating Preferred
Stock, in an amount per share (rounded to the nearest cent) equal to the greater
of (a)$1.00 or (b) subject to the provision for adjustment hereinafter set
forth, 100 times the aggregate per share amount of all cash dividends, and 100
times the aggregate per share amount (payable in kind) of all non-cash dividends
or other distributions other than a dividend payable in shares of Common Stock
or a subdivision of the outstanding shares of Common Stock (by reclassification
or otherwise), declared on the Common Stock, $.10 par value, of the Corporation
(the "Common Stock") since the immediately preceding Quarterly Dividend Payment
Date, or, with respect to the first Quarterly Dividend Payment Date, since the
first issuance of any share or fraction of a share of Series A Junior
Participating Preferred Stock. In the event the Corporation shall at any time
after August 19, 1988 (the "Rights Dividend Declaration Date") (i) declare any
dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the
outstanding Common Stock, or (iii) combine the outstanding Common Stock into a
smaller number of shares, then in each such case the amount to which holders of
shares of Series A Junior Participating Preferred Stock were entitled
immediately prior to such event under clause (b) of the preceding sentence shall
be adjusted by multiplying such amount by a fraction the numerator of which is
the number of shares of Common Stock outstanding immediately after such event
and the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution on the
Series A Junior Participating Preferred Stock as provided in subparagraph (A)
above immediately after it declares a dividend or distribution on the Common
Stock (other than a dividend payable in shares of Common Stock); provided that,
in the event no dividend or distribution shall have been declared on the Common
Stock during the period between any Quarterly Dividend Payment Date and the next
subsequent Quarterly Dividend Payment Date, a dividend of $1.00 per share on
2
<PAGE>
the Series A Junior Participating Preferred Stock shall nevertheless be payable
on such subsequent Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series A Junior Participating Preferred Stock from the Quarterly
Dividend Payment Date next preceding the date of issue of such shares of Series
A Junior Participating Preferred Stock, unless the date of issue of such shares
is prior to the record date for the first Quarterly Dividend Payment Date, in
which case dividends on such shares shall begin to accrue from the date of issue
of such shares, or unless the date of issue is a Quarterly Dividend Payment Date
or is a date after the record date for the determination of holders of shares of
Series A Junior Participating Preferred Stock entitled to receive a quarterly
dividend and before such Quarterly Dividend Payment Date, in either of which
events such dividends shall begin to accrue and be cumulative from such
Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear
interest. Dividends paid on the shares of Series A Junior Participating
Preferred Stock in an amount less than the total amount of such dividends at the
time accrued and payable on such shares shall be allocated pro rata on a share-
by-share basis among all such shares at the time outstanding. The Board of
Directors may fix a record date for the determination of holders of shares of
Series A Junior Participating Preferred Stock entitled to receive payment of a
dividend or distribution declared thereon, which record date shall be no more
than 30 days prior to the date fixed for the payment thereof.
(3) Voting Rights.
The holders of shares of Series A Junior Participating Preferred
Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth,
each share of Series A Junior Participating Preferred Stock shall entitle the
holder thereof to 100 votes on all matters voted on at a meeting of the
shareholders of the Corporation. In the event the Corporation shall at any time
after the Rights Declaration Date (i) declare any dividend on Common Stock
payable in shares of Common Stock, or (ii) subdivide the outstanding Common
Stock, or (iii) combine the outstanding Common Stock into a smaller number of
shares, then in each such case the number of votes per share to which holders of
shares of Series A Junior Participating Preferred Stock were entitled
immediately prior to such event shall be adjusted by multiplying such number by
a fraction the numerator of which is
3
<PAGE>
the number of shares of Common Stack outstanding immediately after such event
and the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(B) Except as otherwise provided herein or by law, the holders of
shares of Series A Junior Participating Preferred Stock and the holders of
shares of Common Stock shall vote together as one voting group on all matters
voted on at a meeting of shareholders of the Corporation.
(C) (i) If at any time dividends on any Series A Junior
Participating Preferred Stock shall be in arrears in an amount equal to six (6)
quarterly dividends thereon, the occurrence of such contingency shall mark the
beginning of a period (herein called a "default period") which shall extend
until such time when all accrued and unpaid dividends for all previous quarterly
dividend periods and for the currently quarterly dividend period on all shares
of Series A Junior Participating Preferred Stock then outstanding shall have
been declared and paid or set apart for payment. During each default period, all
holders of Preferred Stock (including holders of the Series A Junior
Participating Preferred Stock) with dividends in arrears in an amount equal to
six (6) quarterly dividends thereon, voting as a class, irrespective of series,
shall have the right to elect two (2) Directors.
(ii) During any default period, such voting right of the holders of
Series A Junior Participating Preferred Stock may be exercised initially
at a special meeting called pursuant to subparagraph (C)(iii) of this
paragraph (3) or at any annual meeting of stockholders and thereafter at
annual meetings of stockholders, provided that neither such voting right
nor the right of the holders of any other series of Preferred Stock, if
any, to increase, in certain cases, the authorized number of Directors
shall be exercised unless the holders of ten percent (10%) in number of
shares of Preferred Stock outstanding shall be present in person or by
proxy. The absence of a quorum of the holders of Common Stock shall not
affect the exercise by the holders of Preferred Stock of such voting
right. At any meeting at which the holders of Preferred Stock shall
exercise such voting right initially during an existing default period,
they shall have the right, voting as a class, to elect Directors to fill
such vacancies, if any, in the Board of Directors as may then exist up to
two (2) Directors or, if such right is exercised at an annual meeting, to
elect two (2)
4
<PAGE>
Directors. If the number which may be so elected at any special meeting
does not amount to the required number, the holders of the Preferred Stock
shall have the right to make such increase in the number of Directors as
shall be necessary to permit the election by them of the required number.
After the holders of the Preferred Stock shall have exercised their right
to elect Directors in any default period and during the continuance of
such period, the number of Directors shall not be increased or decreased
except by vote of the holders of Preferred Stock as herein provided or
pursuant to the rights of any equity securities ranking senior to or pari
passu with the Series A Junior Participating Preferred Stock.
(iii) Unless the holders of Preferred Stock shall, during an
existing default period, have previously exercised their right to elect
Directors, the Board of Directors may order, or any shareholders or
shareholders owning in the aggregate not less than ten percent (10%) of
the total number of shares of Preferred Stock outstanding, irrespective of
series, may request, the calling of a special meeting of the holders of
Preferred Stock, which meeting shall thereupon be called by the President,
a Vice President or the Secretary of the Corporation. The only matter
which may be voted on at such meeting shall be the election of Directors.
Notice of such meeting and of any annual meeting at which holders of
Preferred Stock are entitled to vote pursuant to this subparagraph
(C)(iii) shall be given to each holder of record of Preferred Stock by
mailing a copy of such notice to him at his last address as the same
appears on the books of the Corporation. Such meeting shall be called for
a time not earlier than 20 days and not later than 60 days after such
order or request or in default of the calling of such meeting within 60
days after such order or request, such meeting may be called on similar
notice by any stockholders or shareholders owning in the aggregate not
less than ten percent (10%) of the total number of shares of Preferred
Stock outstanding. Notwithstanding the provisions of this subparagraph
(C)(iii), no such special meeting shall be called during the period within
60 days immediately preceding the date fixed for the next annual meeting
of the shareholders.
(iv) In any default period, the holders of Common Stock, and other
classes of stock of the Corporation if applicable, shall continue to be
entitled to elect the whole number of Directors until the holders of
Preferred
5
<PAGE>
Stock shall have exercised their right to elect two (2) Directors voting
as a class, after the exercise of which right, (x) the Directors so
elected by the holders of Preferred Stock shall continue in office until
their successors shall have been elected by such holders or until the
expiration of the default period and (y) any vacancy in the Board of
Directors may (except as provided in subparagraph (C)(ii) of this
Paragraph (3)) be filled by vote of a majority of the remaining Directors
theretofore elected by the holders of the class of stock which elected the
Director whose office shall have become vacant. References in this
paragraph (C) to Directors elected by the holders of a particular class of
stock shall include Directors elected by such Directors to fill vacancies
as provided in clause (y) of the foregoing sentence.
(v) Immediately upon the expiration of a default period (x) the
right of the holders of Preferred Stock as a class to elect Directors
shall cease, (y) the term of any Directors elected by the holders of
Preferred Stock as a class shall terminate, and (z) the number of
Directors shall be such number as may be provided for in the Restated
Certificate of Incorporation or By--Laws irrespective of any increase made
pursuant to the provisions of subparagraph (C)(ii) of this Paragraph (3)
(such number being subject, however, to change thereafter in any manner
provided by law or in the certificate of incorporation or by-laws). Any
vacancies in the Board of Directors effected by the provisions of clauses
(y) and (z) in the preceding sentence may be filled by a majority of the
remaining Directors.
(D) Except as set forth herein, holders of Series A Junior
Participating Preferred Stock shall have no special voting rights and their
consent shall not be required (except to the extent they are entitled to vote
with holders of Common Stock as set forth herein) for taking any corporate
action.
(4) Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or distributions
payable on the Series A Junior Participating Preferred Stock as provided in
Paragraph (2) are in arrears, thereafter and until all accrued and unpaid
dividends and distributions, whether or not declared, on shares of Series A
Junior Participating Preferred Stock outstanding shall have been paid in full,
the Corporation shall not
6
<PAGE>
(i) declare or pay dividends on, make any other distributions on, or
redeem or purchase or otherwise acquire for consideration any shares of
stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Junior Participating Preferred
Stock;
(ii) declare or pay dividends on or make any other distributions on
any shares or stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Junior
Participating Preferred Stock, except dividends paid ratably on the Series
A Junior Participating Preferred Stock and all such parity stock on which
dividends are payable or in arrears in proportion to the total amounts to
which the holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for consideration
shares of any stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Junior
Participating Preferred Stock, provided that the Corporation may at any
time redeem, purchase or otherwise acquire shares of any such parity stock
in exchange for shares of any stock of the corporation ranking junior
(either as to dividends or upon dissolution, liquidation or winding up) to
the Series A Junior Participating Preferred Stock;
(iv) purchase or otherwise acquire for consideration any shares of
Series A Junior Participating Preferred Stock or any shares of stock
ranking on a parity with the Series A Junior Participating Preferred
Stock, except in accordance with a purchase offer made in writing or by
publication (as determined by the Board of Directors) to all holders of
such shares upon such terms as the Board of Directors, after consideration
of the respective annual dividend rates and other relative rights and
preferences of the respective series and classes, shall determine in good
faith will result in fair and equitable treatment among the respective
series or classes.
(B) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of
stock of the Corporation unless the Corporation could, under subparagraph (A) of
this Paragraph (4), purchase or otherwise acquire such shares at such time and
in such manner.
7
<PAGE>
(5) Reacquired Shares.
Any shares of Series A Junior Participating Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and cancelled promptly after the acquisition thereof. All such
shares shall upon their cancellation become authorized but unissued shares of
Preferred Stock and may be reissued as part of a new series of Preferred Stock
to be created by resolution or resolutions of the Board of Directors, subject to
the conditions and restrictions on issuance set forth herein.
(6) Liquidation, Dissolution or Winding Up.
(A) Upon any liquidation, dissolution or winding up of the
Corporation, no distribution shall be made to the holders of shares of stock
ranking junior (either as to dividends or upon liquidation, dissolution or
winding up) to the Series A Junior Participating Preferred Stock unless, prior
thereto, the holders of shares of Series A Junior Participating Preferred Stock
shall have received $2,500 per share, plus an amount equal to accrued and unpaid
dividends and distributions thereon, whether or not declared, to the date of
such payment (the "Series A Junior Participating Liquidation Preference").
Following the payment of the full amount of the Series A Junior Participating
Liquidation Preference, no additional distributions shall be made to the holders
of shares of Series A Junior Participating Preferred Stock unless, prior
thereto, the holders of shares of Common Stock shall have received an amount per
share (the "Common Adjustment") equal to the quotient obtained by dividing (i)
the Series A Junior Participating Liquidation Preference by (ii) 100 (as
appropriately adjusted as set forth in subparagraph (C) below to reflect such
events as stocks splits, stock dividends and recapitalizations with respect to
the Common Stock) (such number in clause (ii), the "Adjustment Number").
Following the payment of the full amount of the Series A Junior Participating
Liquidation Preference and the Common Adjustment in respect of all outstanding
shares of Series A Junior Participating Preferred Stock and Common Stock,
respectively, holders of Series A Junior Participating Preferred Stock and
holders of shares of Common Stock shall receive their ratable and proportionate
share of the remaining assets to be distributed in the ratio of the Adjustment
Number to 1 with respect to such Preferred Stock and Common Stock, on a per
share basis, respectively.
(B) In the event, however, that there are not sufficient assets
available to permit payment in full of the
8
<PAGE>
Series A Junior Participating Liquidation Preference and the liquidation
preferences of all other series of Preferred Stock, if any, which rank on a
parity with the Series A Junior Participating Preferred Stock, then such
remaining assets shall be distributed ratably to the holders of such parity
shares in proportion to their respective liquidation preferences. In the event,
however, that there are not sufficient assets available to permit payment in
full of the Common Adjustment, then such remaining assets shall be distributed
ratably to the holders of Common Stock.
(C) In the event the Corporation shall at any time after the Rights
Dividend Declaration Date (i) declare any dividend on Common Stock payable in
shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii)
combine the outstanding Common Stock into a smaller number of shares, then in
each such case the Adjustment Number in effect immediately prior to such event
shall be adjusted by multiplying such Adjustment Number by a fraction the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
(7) Merger, Consolidation, etc.
In case the Corporation shall enter into any merger, consolidation,
combination or other transaction in which the shares of Common Stock are
exchanged or changed into other stock or securities, cash and/or any other
property, then in any such case each share of Series A Junior Participating
Preferred Stock shall at the same time be similarly exchanged or changed in an
amount per share (subject to the provision for adjustment hereinafter set forth)
equal to 100 times the aggregate amount of stock, securities, cash and/or any
other property (payable in kind), as the case may be, into which or for which
each share of Common Stock is changed or exchanged. in the event the Corporation
shall at any time after the Rights Dividend Declaration Date (i) declare any
dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the
outstanding Common Stock, or (iii) combine the outstanding Common Stock into a
smaller number of shares, then in each such case the amount set forth in the
preceding sentence with respect to the exchange or change of shares of Series A
Junior Participating Preferred Stock shall be adjusted by multiplying such
amount by a fraction the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of which is
the number of shares of
9
<PAGE>
Common Stock that were outstanding immediately prior to such event.
(8) Redemption.
The shares of Series A Junior Participating Preferred Stock shall
not be redeemable.
(9) Ranking.
The Series A Junior Participating Preferred Stock shall rank junior
to all other series of the Corporation's Preferred Stock as to the payment of
dividends and other distribution of assets, unless, in accordance with
authorization in the Certificate of Incorporation, as amended, and any
Certificate of Designation, the terms of any such series shall provide
otherwise.
(10) Amendment.
The Certificate of Incorporation of the Corporation, as amended,
including the Certificate of Designation establishing the rights and preferences
of the Series A Junior Participating Preferred Stock shall not be further
amended in any manner which would alter or change the powers, references or
special rights of the Series A Junior Participating Preferred Stock so as to
affect them adversely without the affirmative vote of the holders of a majority
of the outstanding shares of Series A Junior Participating Preferred Stock,
voting separately as one voting group.
(11) Fractional Shares.
Series A Junior Participating Preferred Stock may be issued in
fractions of a share which shall entitle the holder, in proportion to such
holder's fractional shares, to exercise voting rights, receive dividends,
participate in distributions and to have the benefit of all other rights of
holders of Series A Junior Participating Preferred Stock.
10
<PAGE>
IN WITNESS WHEREOF, this Certificate of Designation is executed on
behalf of the Corporation by its Vice President-Finance and attested by its
Secretary this 23rd day of August, 1988.
ARX, INC.
By /s/ Michael Gorin
----------------------
Vice President-Finance
Attest:
By /s/ Richard Carey
- ----------------------
Secretary
11
<PAGE>
PAGE 1
State of Delaware
Office of the Secretary of State
------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT
OF "ARX, INC.", FILED IN THIS OFFICE ON THE FOURTH DAY OF NOVEMBER, A.D. 1988,
AT 10 O'CLOCK A.M.
[SEAL OMITTED]
/s/ Edward J. Freel
[SEAL OMITTED] -----------------------------------
Edward J. Freel, Secretary of State
0561329 8100 AUTHENTICATION: 7276027
944200245 DATE: 10-20-94
<PAGE>
CERTIFICATE OF AMENDMENT
OF THE CERTIFICATE OF INCORPORATION OF
ARX, INC.
ARX, INC., a corporation organized and existing under and by virtue
of the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of ARX, INC.,
resolutions were adopted setting forth a proposed amendment to the Certificate
of Incorporation of said corporation, declaring said amendment to be advisable
and calling a meeting of the stockholders of the corporation for consideration
thereof.
SECOND: That thereafter, pursuant to resolution of the Board of
Directors, the Annual Meeting of Stockholders of said Corporation was duly
called and held, upon notice in accordance with Section 222 of the General
Corporation Law of the State of Delaware at which meeting the necessary number
of shares as required by statute were voted in favor of the following amendment:
<PAGE>
RESOLVED, that the Certificate of Incorporation of this Corporation
be amended by adding ARTICLE "FIFTEENTH" to read as follows:
"FIFTEENTH: No action required to be taken or which may be
taken at any annual or special meeting of stockholders of the
corporation may be taken without a meeting, and the power of
stockholders to consent in writing to the taking of any action is
specifically denied.
Notwithstanding anything contained in this Certificate of
Incorporation to the contrary, the affirmative vote of the holders
of not less than 80% of the outstanding shares of capital stock of
the corporation entitled to vote generally in the election of
directors (considered for this purpose as one class) shall be
required to amend, alter, change or repeal this Article FIFTEENTH or
to adopt any provision inconsistent herewith."
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, said ARX, INC. has caused this certificate to be
signed by Michael Gorin, its President and Richard Carey, its Secretary, this
27th day of October, 1988.
ARX, INC.
By:/s/ Michael Gorin
-----------------------
Michael Gorin
President
ATTEST:
/s/ Richard Carey
- -------------------------
Richard Carey, Secretary
<PAGE>
PAGE 1
State of Delaware
Office of the Secretary of State
------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT
OF "ARX, INC.", FILED IN THIS OFFICE ON THE TWENTY-THIRD DAY OF NOVEMBER, A.D.
1992, AT 10 O'CLOCK A.M.
[SEAL OMITTED]
/s/ Edward J. Freel
[SEAL OMITTED] -----------------------------------
Edward J. Freel, Secretary of State
0561329 8100 AUTHENTICATION: 7276027
944200245 DATE: 10-20-94
<PAGE>
CERTIFICATE OF AMENDMENT
OF THE CERTIFICATE OF INCORPORATION OF
ARX, INC.
ARX, INC., a corporation organized and existing under and by virtue
of the Central Corporation Law of the State of Delaware, DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of ARX, INC.,
resolutions were adopted setting forth a proposed amendment to the Certificate
of Incorporation of said corporation, declaring said amendment to be advisable
and calling a meeting of the stockholders of the corporation for consideration
thereof.
SECOND: That thereafter, pursuant to resolution of its Board of
Directors, the Annual Meeting of Stockholders of said corporation was duly
called and held, upon notice in accordance with section 222 of the General
Corporation Law of the State of Delaware at which meeting the necessary number
of shares as required by statute were voted in favor of the following amendment:
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 10:00 AM 11/23/1992
722328033 - 561329
<PAGE>
RESOLVED, that the certificate of incorporation be amended by
changing the Article thereof numbered "FOURTH" so that, as amended,
said Article shall be and read as follows:
"FOURTH: The total number of shares of all classes of stock
which the corporation shall have the authority to issue is TWENTY
SIX MILLION (26,000,000) shares, of which TWENTY FIVE MILLION
(25,000,000) shares shall be shares of Common Stock of the par value
of Ten Cents ($.10) per share and ONE MILLION (1,000,000) shares
shall be shares of Preferred Stock of the par value of Ten Cents
($.10) per share. The Preferred Stock may be issued in series and
the number, designation, relative rights, preferences and
limitations of shares of each series of Preferred Stock, Ten Cents
($.10) per share par value shall be fixed by the Board of
Directors."
THIRD: That said amendment was duly adopted in accordance with the
provisions of section 242 of the General Corporation Law of the
State of Delaware.
IN WITNESS WHEREOF, said ARX, INC. has caused this certificate to be
signed by MICHAEL GORIN, its President and attested by RICHARD G. SATIN, its
Secretary, this 11th day of November, 1992.
ARX, INC.
By:/s/ Michael Gorin
------------------------
MICHAEL GORIN, PRESIDENT
ATTEST:
/s/ Richard G. Satin
- ----------------------------
RICHARD G. SATIN
SECRETARY
<PAGE>
PAGE 1
State of Delaware
Office of the Secretary of State
------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT
OF "ARX, INC.", CHANGING ITS NAME FROM "ARX, INC." TO "AEROFLEX INCORPORATED"
FILED IN THIS OFFICE ON THE NINTH DAY OF NOVEMBER, A.D. 1994, AT 12 O'CLOCK
P.M.
[SEAL OMITTED]
/s/ Edward J. Freel
[SEAL OMITTED] -----------------------------------
Edward J. Freel, Secretary of State
0561329 8100 AUTHENTICATION: 7295908
944215514 DATE: 11-09-94
<PAGE>
CERTIFICATE OF AMENDMENT OF THE
CERTIFICATE OF INCORPORATION OF
ARX, INC
*********
ARX, Inc., corporation organized and existing under and by virtue of the
General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of ARX, Inc,
resolutions were adopted setting forth a proposed amendment to the Certificate
of Incorporation of said corporation, declaring said amendment to be advisable
and calling a meeting of the stockholders of the corporation for consideration
thereof.
SECOND: That thereafter, pursuant to resolution of its Board of Directors,
the Annual Meeting of Stockholders of said corporation was duly called and held,
upon notice in accordance with Section 222 of the General Corporation Law of the
State of Delaware at which meeting the necessary number of shares as required by
statute were voted in favor of the following amendment:
RESOLVED, that the Certificate of Incorporation of this Corporation be
amended by changing the Article thereof numbered "FIRST" so that, as
amended, said Article shall be and read as follows:
"FIRST: The name of the corporation is:
AEROFLEX INCORPORATED"
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law.
IN WITNESS WHEREOF, said ARX, Inc. has caused this certificate to be
signed by Michael Gorin, its President and attested by Leonard Borow, its
Secretary, this 9th day of November, 1994.
ARX, INC.
By:/s/ Michael Gorin
------------------------
Michael Gorin, President
ATTEST:
/s/ Leonard Borow
- ------------------------
Leonard Borow, Secretary
<PAGE>
State of Delaware
Office of the Secretary of State
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
DESIGNATION OF "AEROFLEX INCORPORATED", FILED IN THIS OFFICE ON THE THIRTY-FIRST
DAY OF AUGUST, A.D., 1998, AT 8:30 O'CLOCK A.M.
A FILED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE
COUNTY RECORDER OF DEEDS.
[SEAL OMITTED]
/s/ Edward J. Freel
-----------------------------------
[SEAL OMITTED] Edward J. Freel, Secretary of State
0561329 8100 AUTHENTICATION: 9279902
981340007 DATE: 8-31-98
<PAGE>
AMENDED
CERTIFICATE OF DESIGNATION
of
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
of
AEROFLEX INCORPORATED
(Pursuant to Section 151 of the
Delaware General Corporation Law)
- --------------------------------------------------------------------------------
Aeroflex Incorporated, a corporation organized and existing under the
General Corporation Law of the State of Delaware (hereinafter called the
"Corporation"), hereby certifies that the following resolution was adopted by
the Board of Directors of the Corporation as required by Section 151 of the
General Corporation Law at a meeting duly called and held on August 13, 1998:
RESOLVED, that pursuant to the authority granted to and vested in the
Board of Directors of this Corporation (hereinafter called the "Board of
Directors" or the "Board") in accordance with the provisions of the Certificate
of Incorporation, as amended, the Board of Directors hereby amends, effective as
of August 31, 1998, the Certificate of Designation establishing the Series A
Junior Participating Preferred Stock, filed on August 23, 1988 (the
"Certificate") by amending and restating the designation and number of shares,
and the relative rights, preferences, and limitations of such Series A Junior
Participating Preferred Stock, no shares of which have been issued, as follows:
Series A Junior Participating Preferred Stock:
Section 1. Designation and Amount. The shares of such series shall be
designated as "Series A Junior Participating Preferred Stock" (the "Series A
Preferred Stock") and the number of shares constituting the Series A Preferred
Stock shall be 25,000. Such number of shares may be increased or decreased by
resolution of the Board of Directors; provided, that no decrease shall reduce
the number of shares of Series A Preferred Stock to a number less than the
number of shares then outstanding plus the number of shares reserved for
issuance upon the exercise of outstanding options, rights or warrants or upon
the conversion of any outstanding securities issued by the Corporation
convertible into Series A Preferred Stock.
<PAGE>
Section 2. Dividends and Distributions.
(A) Subject to the rights of the holders of any shares of any series
of Preferred Stock, par value $.10 per share (the "Preferred Stock"), of
the Corporation (or any similar stock) ranking prior and superior to the
Series A Preferred Stock with respect to dividends, the holders of shares
of Series A Preferred Stock, in preference to the holders of Common Stock,
par value $.10 per share (the "Common Stock"), of the Corporation, and of
any other junior stock, shall be entitled to receive, when, as and if
declared by the Board of Directors out of funds legally available for the
purpose, quarterly dividends payable in cash on the first day of March,
June, September and December in each year (each such date being referred to
herein as a "Quarterly Dividend Payment Date"), commencing on the first
Quarterly Dividend Payment Date after the first issuance of a share or
fraction of a share of Series A Preferred Stock, in an amount per share
(rounded to the nearest cent) equal to the greater of (a) $1 or (b) subject
to the provision for adjustment hereinafter set forth, 1,000 times the
aggregate per share amount of all cash dividends, and 1,000 times the
aggregate per share amount (payable in kind) of all non-cash dividends or
other distributions, other than a dividend payable in shares of Common
Stock or a subdivision of the outstanding shares of Common Stock (by
reclassification or otherwise), declared on the Common Stock since the
immediately preceding Quarterly Dividend Payment Date or, with respect to
the first Quarterly Dividend Payment Date, since the first issuance of any
share or fraction of a share of Series A Preferred Stock. In the event the
Corporation shall at any time after the date hereof declare or pay any
dividend on the Common Stock payable in shares of Common Stock, or effect a
subdivision or combination or consolidation of the outstanding shares of
Common Stock (by reclassification or otherwise than by payment of a
dividend in shares of Common Stock) into a greater or lesser number of
shares of Common Stock, then in each such case the amount to which holders
of shares of Series A Preferred Stock were entitled immediately prior to
such event under clause (b) of the preceding sentence shall be adjusted by
multiplying such amount by a fraction, the numerator of which is the number
of shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution on the
Series A Preferred Stock as provided in paragraph (A) of this Section
immediately after it declares a dividend or distribution on the Common
Stock (other than a dividend payable in shares of Common Stock); provided
that, in the event no dividend or distribution shall have been declared on
the Common Stock during the period between any Quarterly Dividend Payment
Date and the next subsequent Quarterly Dividend Payment Date, a dividend of
$1 per share on the Series A Preferred Stock shall nevertheless be payable
on such subsequent Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series A Preferred Stock from the Quarterly Dividend Payment Date
next preceding the date of issue of such shares, unless the date of issue
of such shares is prior to the record date for the first Quarterly Dividend
<PAGE>
Payment Date, in which case dividends on such shares shall begin to accrue
from the date of issue of such shares, or unless the date of issue is a
Quarterly Dividend Payment Date or is a date after the record date for the
determination of holders of shares of Series A Preferred Stock entitled to
receive a quarterly dividend and before such Quarterly Dividend Payment
Date, in either of which events such dividends shall begin to accrue and be
cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid
dividends shall not bear interest. Dividends paid on the shares of Series A
Preferred Stock in an amount less than the total amount of such dividends
at the time accrued and payable on such shares shall be allocated pro rata
on a share-by-share basis among all such shares at the time outstanding.
The Board of Directors may fix a record date for the determination of
holders of shares of Series A Preferred Stock entitled to receive payment
of a dividend or distribution declared thereon, which record date shall be
not more than 60 days prior to the date fixed for the payment thereof.
Section 3. Voting Rights. The holders of shares of Series A Preferred Stock
shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth,
each share of Series A Preferred Stock shall entitle the holder thereof to
1,000 votes on all matters submitted to a vote of the stockholders of the
Corporation. In the event the Corporation shall at any time after the date
hereof declare or pay any dividend on the Common Stock payable in shares of
Common Stock, or effect a subdivision or combination or consolidation of
the outstanding shares of Common Stock (by reclassification or otherwise
than by payment of a dividend in shares of Common Stock) into a greater or
lesser number of shares of Common Stock, then in each such case the number
of votes per share to which holders of shares of Series A Preferred Stock
were entitled immediately prior to such event shall be adjusted by
multiplying such number by a fraction, the numerator of which is the number
of shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(B) Except as otherwise provided herein, in any other Certificate of
Designation creating a series of Preferred Stock or any similar stock, or
by law, the holders of shares of Series A Preferred Stock and the holders
of shares of Common Stock and any other capital stock of the Corporation
having general voting rights shall vote together as one class on all
matters submitted to a vote of stockholders of the Corporation.
(C) Except as set forth herein, or as otherwise provided by law,
holders of Series A Preferred Stock shall have no special voting rights and
their consent shall not be required (except to the extent they are entitled
to vote with holders of Common Stock as set forth herein) for taking any
corporate action.
<PAGE>
Section 4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or distributions
payable on the Series A Preferred Stock as provided in Section 2 are in
arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of Series A Preferred
Stock outstanding shall have been paid in full, the Corporation shall not:
(i) declare or pay dividends, or make any other distributions, on
any shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Preferred
Stock;
(ii) declare or pay dividends, or make any other distributions, on
any shares of stock ranking on a parity (either as to dividends or
upon liquidation, dissolution or winding up) with the Series A
Preferred Stock, except dividends paid ratably on the Series A
Preferred Stock and all such parity stock on which dividends are
payable or in arrears in proportion to the total amounts to which the
holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for consideration
shares of any stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Preferred
Stock, provided that the Corporation may at any time redeem, purchase
or otherwise acquire shares of any such junior stock in exchange for
shares of any stock of the Corporation ranking junior (either as to
dividends or upon dissolution, liquidation or winding up) to the
Series A Preferred Stock; or
(iv) redeem or purchase or otherwise acquire for consideration any
shares of Series A Preferred Stock, or any shares of stock ranking on
a parity with the Series A Preferred Stock, except in accordance with
a purchase offer made in writing or by publication (as determined by
the Board of Directors) to all holders of such shares upon such terms
as the Board of Directors, after consideration of the respective
annual dividend rates and other relative rights and preferences of the
respective series and classes, shall determine in good faith will
result in fair and equitable treatment among the respective series or
classes.
(B) The Corporation shall not permit any subsidiary of the Corporation
to purchase or otherwise acquire for consideration any shares of stock of
the Corporation unless the Corporation could, under paragraph (A) of this
Section 4, purchase or otherwise acquire such shares at such time and in
such manner.
Section 5. Reacquired Shares. Any shares of Series A Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and cancelled promptly after the acquisition thereof. All such
shares shall upon their cancellation become authorized but unissued shares of
Preferred Stock and may be reissued as part of a new series of Preferred Stock
subject to the conditions and restrictions on issuance set forth herein, in the
Certificate of Incorporation, as amended, or in any other Certificate of
Designation creating a series of Preferred Stock or any similar stock or as
otherwise required by law.
<PAGE>
Section 6. Liquidation, Dissolution or Winding Up. Upon any
liquidation, dissolution or winding up of the Corporation, no distribution shall
be made (1) to the holders of shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Series A
Preferred Stock unless, prior thereto, the holders of shares of Series A
Preferred Stock shall have received $1,000 per share, plus an amount equal to
accrued and unpaid dividends and distributions thereon, whether or not declared,
to the date of such payment, provided that the holders of shares of Series A
Preferred Stock shall be entitled to receive an aggregate amount per share,
subject to the provision for adjustment hereinafter set forth, equal to 1,000
times the aggregate amount to be distributed per share to holders of shares of
Common Stock, or (2) to the holders of shares of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or winding up) with the
Series A Preferred Stock, except distributions made ratably on the Series A
Preferred Stock and all such parity stock in proportion to the total amounts to
which the holders of all such shares are entitled upon such liquidation,
dissolution or winding up. In the event the Corporation shall at any time after
the date hereof declare or pay any dividend on the Common Stock payable in
shares of Common Stock, or effect a subdivision or combination or consolidation
of the outstanding shares of Common Stock (by reclassification or otherwise than
by payment of a dividend in shares of Common Stock) into a greater or lesser
number of shares of Common Stock, then in each such case the aggregate amount to
which holders of shares of Series A Preferred Stock were entitled immediately
prior to such event under the proviso in clause (1) of the preceding sentence
shall be adjusted by multiplying such amount by a fraction the numerator of
which is the number of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Common Stock that
were outstading immediately prior to such event.
Section 7. Consolidation, Merger, etc. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction in which
the shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case each share of
Series A Preferred Stock shall at the same time be similarly exchanged or
changed into an amount per share, subject to the provision for adjustment
hereinafter set forth, equal to 1,000 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of Common Stock is changed or exchanged.
In the event the Corporation shall at any time after the date hereof declare or
pay any dividend on the Common Stock payable in shares of Common Stock, or
effect a subdivision or combination or consolidation of the outstanding shares
of Common Stock (by reclassification or otherwise than by payment of a dividend
in shares of Common Stock) into a greater or lesser number of shares of Common
Stock, then in each such case the amount set forth in the preceding sentence
with respect to the exchange or change of shares of Series A Preferred Stock
shall be adjusted by multiplying such amount by a fraction, the numerator of
which is the number of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Common Stock that
were outstanding immediately prior to such event.
<PAGE>
Section 8. No Redemption. The shares of Series A Preferred Stock shall not
be redeemable.
Section 9. Rank. The Series A Preferred Stock shall rank, with respect to
the payment of dividends and the distribution of assets, junior to all series of
any other class of the Corporation's Preferred Stock.
Section 10. Amendment. The Certificate of Incorporation of the Corporation,
as amended, shall not be amended in any manner which would materially alter or
change the powers, preferences or special rights of the Series A Preferred Stock
so as to affect them adversely without the affirmative vote of the holders of at
least two-thirds of the outstanding shares of Series A Preferred Stock, voting
together as a single class.
IN WITNESS WHEREOF, this Amended Certificate of Designation is executed on
behalf of the Corporation by its President and attested by its Treasurer and
Assistant Secretary this 31st day of August, 1998.
/s/ Michael Gorin
--------------------------------------
Name: Michael Gorin
Title: President
Attest:
/s/ Charles Badlato
- ----------------------------------------
Name: Charles Badlato
Title: Treasurer and Assistant Secretary
SECOND AMENDMENT
TO
THIRD AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
Introduction
------------
This Second Amendment to Third Amended and Restated Loan and Security
Agreement, dated as of April 30, 1998 (this "Amendment"), is an agreement by and
among Aeroflex Incorporated, a Delaware corporation formerly known as ARX, Inc.,
and currently having an address at 35 South Service Road, Plainview, New York
11803 ("Aeroflex"), Aeroflex Laboratories Incorporated, a Delaware corporation
currently having an address at 35 South Service Road, Plainview, New York 11803
("Laboratories"), Aeroflex International Inc., a Delaware corporation currently
having an address at 35 South Service Road, Plainview, New York 11803
("International"), Aeroflex Lintek Corp., an Ohio corporation currently having
an address at 60 Grace Drive South, Powell, Ohio 43065 ("Lintek"), Aeroflex
Systems Corp., a Delaware corporation currently having an address at 35 South
Service Road, Plainview, New York 11803 ("Systems"), Aeroflex Acquisition Corp.,
a Texas corporation currently having an address at 35 South Service Road,
Plainview, New York 11803 ("Acquisition"), Comstron International, S.A.R.L., a
French corporation currently having an address at 4 Centre Administratif Des #7,
MARES, 78990, Elancourt, France ("Comstron"), MIC Technology Corporation, a
Texas corporation currently having an address at 797 Turnpike Street, North
Andover, Massachusetts 01845 ("MIC"), MIC Technology S.A.R.L. (a\k\a S.A.R.L.
MIC Technology and S.A.R.L. MIC Technologie), a French corporation currently
having an address at 15, Rue Boudeville, Thibaud Center, 31100 Toulouse, France
("MICSARL"), and Vibration Mountings and Controls, Inc., a New York corporation
currently having an address at 113 Main Street, Box 37, Bloomingdale, New Jersey
07403 ("Vibrations") (Aeroflex, Laboratories, International, Lintek, Systems,
Acquisition, Comstron, MIC, MICSARL and Vibrations may be referred to
individually, a "Borrower", and collectively, the "Borrowers"), The Chase
Manhattan Bank, a New York state banking corporation formerly known as Chemical
Bank and currently having an address at 7600 Jericho Turnpike, Suite 306,
Woodbury, New York 11797 ("Chase"), Fleet Bank, N.A., as successor to (by merger
with) NatWest Bank N.A. (f/k/a National Westminster Bank USA), a national
banking association currently having an address at 300 Broad Hollow Road,
Melville, New York 11747 ("Fleet", and together with Chase, individually a
"Bank" and collectively the "Banks"), and Fleet Bank, N.A., as Administrator, as
successor to (by merger with) NatWest Bank N.A. (f/k/a National Westminster Bank
USA), a national banking association currently having an address at 300 Broad
Hollow Road, Melville, New York 11747 (the "Administrator").
Recitals
--------
The Borrowers, the Banks and the Administrator are parties to a Third
Amended and Restated Loan and Security Agreement dated as of March 15, 1996, as
amended by the First Amendment to Third Amended and Restated Loan and Security
Agreement dated as of July 1, 1997, among the Borrowers, the Banks and the
Administrator (as amended, the "Existing Loan Agreement"), pursuant to which the
Banks made a $16,000,000.00 term loan and established a $22,000,000.00 committed
revolving credit facility (under which committed facility up to $2,000,000.00
was available as letters of credit), which committed facility is subject to
borrowing base limitations. Capitalized terms used and not otherwise defined or
amended in this Amendment shall have the meanings respectively assigned to them
in the Existing Loan Agreement.
The Borrowers have requested that the Bank increase the committed
revolving credit facility from $22,000,000.00 to $27,000,000.00, extend its
maturity until March 31, 2001, and generally lower the interest rate on the
Revolving Credit Loans. The Borrowers have requested that the Bank increase the
Letter of Credit sublimit from $2,000,000.00 to $3,000,000.00 and generally
reduce the letter of credit fees. The Borrowers also have requested that certain
of the financial covenants and definitions be changed to take into account the
effects of the proposed transaction and certain changed circumstances.
The Borrowers (and in particular MIC) are entering into the Pearl
River Project (as hereinafter defined). The Borrowers have requested that they
be permitted to borrow under the Commitment on a temporary basis to fund the
Pearl River Project, which may require up to $3,000,000.00 more than currently
permitted under the Borrowing Base, which over advance will expire on the first
to occur of November 30, 1998, or the closing of the Pearl River Financing (as
hereinafter defined).
The Borrowers have requested that the Banks enter into this Amendment
in order to approve and reflect the foregoing, and the Banks have agreed to do
so, all upon the terms and provisions and subject to the conditions hereinafter
set forth.
<PAGE>
Agreement
In consideration of the foregoing and the mutual covenants and
agreements hereinafter set forth, the parties hereto hereby agree as follows:
Section 1. Amendment to Existing Loan Agreement. The Existing Loan
Agreement is hereby amended effective as of March 31, 1998, except as otherwise
specified to be effective on or as of another date:
(A) In Section 1.01 of the Existing Loan Agreement, the definitions of
"Agreement", "Applicable Base Margin Rate", "Applicable Euro Margin Rate",
"Borrowing Base", "Commitment", "Consolidated Available Earnings", "Consolidated
Quick Ratio", "Loan" and "Loans", "Maturity Date", "Note" and "Notes" ,
"Obligations", "Other Debt", Plainview Mortgage", "Revolving Credit Note" and
"Revolving Credit Notes", and "Revolving Credit Period", are hereby deleted in
their entirety, and the following new definitions are hereby inserted in their
respective places:
"Agreement" shall mean this Third Amended and Restated Loan and
Security Agreement, together with all schedules and exhibits hereto, as
amended by the First Loan Amendment and the Second Loan Amendment, and as
the same may be supplemented, modified, amended or restated from time to
time in the manner provided herein.
"Applicable Base Margin Rate" shall mean the fluctuating rate of
interest per annum equal to the rate set forth below for the Revolving
Credit Loans corresponding to the Applicable Pricing Level then applicable:
<TABLE>
<CAPTION>
Applicable Pricing Level: Level 1 Level 2 Level 3 Level 4
------- ------- ------- -------
<S> <C> <C> <C> <C>
Applicable Base Margin Rate
for Revolving Credit Loans: 0.00% 0.00% 0.00% 0.00%
</TABLE>
The Applicable Base Margin Rate shall change from time to time
simultaneously with each change in the Applicable Pricing Level.
"Applicable Euro Margin Rate" shall mean the fluctuating rate of
interest per annum equal to the rate set forth below for the Revolving
Credit Loans corresponding to the Applicable Pricing Level then applicable:
<TABLE>
<CAPTION>
Applicable Pricing Level: Level 1 Level 2 Level 3 Level 4
------- ------- ------- -------
<S> <C> <C> <C> <C>
Applicable Euro Margin Rate
for Revolving Credit Loans: 1.00% 1.50% 2.00% 2.00%
</TABLE>
The Applicable Euro Margin Rate shall change from time to time
simultaneously with each change in the Applicable Pricing Level; provided,
however, that the Applicable Euro Margin Rate for Revolving Credit Loans
shall be no less than 1.50% per annum for the first $4,720,000.00 in
Revolving Credit Loans until such time as those Loans (which were the
former "Term Loans") have been repaid in full with the proceeds of the
Plainview Mortgage Loans.
"Borrowing Base" shall mean the amount determined as of a particular
date equal to the sum of: (a) the sum of: (i) 85% of the gross book value
of all Eligible Receivables of the Borrowers then outstanding; (ii) 25% of
the net book value of all Eligible Inventory (other than Eligible Gold
Inventory and Eligible Lucent Inventory) of the Borrowers at the time
(i.e., the gross value of such inventory, determined at the lower of cost
or market, less any and all reserves for obsolescence, damage, theft and
<PAGE>
the like); and (iii) 85% of the net book value of all Eligible Gold
Inventory and Eligible Lucent Inventory of the Borrowers at the time (i.e.,
the gross value of such inventory, determined at the lower of cost or
market, less any and all reserves for obsolescence, damage, theft and the
like); provided that no more than $5,400,000.00 of the net book value of
the Eligible Lucent Inventory shall be included in the clause (iii)
computation; provided further that the Administrator (with the consent of
the Majority Banks) at any time and from time to time may modify or add
categories of eligibility or ineligibility in order to reflect the
composition of and the Borrowers' experience with its Eligible Receivables,
Eligible Inventory, Eligible Lucent Inventory and Eligible Gold Inventory;
and provided further that if the Administrator at any time determines any
such method of valuation overstates the actual fair market value at the
time, the Administrator may recalculate those values to fair market value;
minus (b) until such time as payment of the Earn-out Amount, if any, and
the Excess Cash Flow Initial Payment, if any, have been made, the greater
of (but not more than $4,000,000.00) (A) the Earn-out Accrual, or (B) the
Excess Cash Flow Initial Payment accrued (and not paid) to the date of
determination; plus (c) $3,000,000.00 until the first to occur of November
30, 1998, or funding under the Pearl River Financing. The Administrator may
determine the Borrowing Base at any time and from time to time, which may
(but need not) be based upon the Borrowers' periodic report on the form of
Borrowing Base Certificate required under Section 5.02(f) of this
Agreement.
"Commitment" shall mean the commitment to make revolving credit loans
to the Borrowers by the Banks, collectively, in the aggregate principal
amount outstanding at any one time not to exceed the remainder of (i)
$27,000,000.00 minus (ii) the sum of all voluntary reductions made under
Section 2.01(d) hereof (but with the commitment of any particular Bank
limited solely to its respective Committed Share of the Commitment), as
such amount may be further reduced from time to time or terminated pursuant
to the terms of this Agreement.
"Consolidated Available Earnings" shall mean, for any period, the sum
of (a) the Consolidated EBIT of the Borrowers for such period, plus (b) the
consolidated depreciation and amortization of the Borrowers included in
such Consolidated EBIT for such period, including (without limitation) the
amortization of goodwill and other non-cash charges, and minus (c) the
aggregate capital expenditures of the Borrowers during such period
(excluding (i) capital expenditures funded with Other Debt, and (ii) up to
$6,000,000.00 in aggregate capital expenditures of the Borrowers on the
Pearl River Project prior to December 31, 1998, but only if the Pearl River
Financing L/C Commitment is in effect by no later than June 30, 1998), all
as determined on a consolidated basis in accordance with GAAP.
"Consolidated Quick Ratio" shall mean, as at any date of
determination, the ratio of (a) the unencumbered consolidated current
assets of the Borrowers at such date consisting of cash, marketable
securities, accounts receivable, Eligible Lucent Inventory and raw gold
inventory (treating as unencumbered for this purpose those assets and
properties that are subject only to the security interests of the
Administrator for the benefit of all of the Banks), to (b) the consolidated
current liabilities of the Borrowers at such date (excluding from current
liabilities for this purpose the current portion of long term debt), all as
determined on a consolidated basis in accordance with GAAP.
"Loan" and "Loans" shall respectively mean any and all principal
amounts outstanding from time to time (including future advances) in
respect of the Revolving Credit Loans, the Letter of Credit Advances and
all other amounts advanced from time to time to or on behalf of any one or
more of the Borrowers by the Administrator, the Banks or their respective
designees pursuant to this Agreement or any other Loan Instrument.
"Maturity Date" shall mean the earliest of (a) March 31, 2001, with
respect to the Revolving Credit Loans and all other Obligations, (b) with
respect to the Revolving Credit Loans, the date on which the Commitment
shall have been reduced permanently to zero, and (c) with respect to all
Obligations the date on which the maturity of the Obligations shall have
been accelerated pursuant to Section 8.02 hereof.
"Note" and "Notes" shall respectively mean any one or more of the
Revolving Credit Notes.
"Obligations" as of any date shall mean the Borrowers' obligation (i)
to repay the balance of the Loans then outstanding, including accrued and
unpaid interest thereon (including, without limitation, any and all
interest and other amounts accrued during the pendency of any bankruptcy,
insolvency, receivership or other similar proceedings, irrespective of
<PAGE>
whether such interest and other amounts are allowed or allowable as claims
in such proceedings), (ii) to pay or otherwise satisfy all of the other
amounts to be paid and obligations to be performed or otherwise satisfied
by the Borrowers (whether jointly or severally) under this Agreement and
the other Loan Instruments, (iii) to pay or otherwise perform or satisfy
all of the other amounts to be paid and obligations to be performed or
otherwise satisfied by any Borrower under any interest rate protection,
foreign currency exchange, or other interest or exchange rate swap or
hedging agreement or arrangement with either Bank or any of their
respective affiliates, and (iv) to pay or otherwise satisfy any and all
overdrafts of the Borrower honored by either Bank (in its sole and absolute
discretion).
"Other Debt" shall mean (a) purchase money indebtedness incurred in
the purchase of equipment in the ordinary course of business so long as
each is secured only by the equipment purchased (excluding any Loans used
for such purposes), (b) indebtedness secured by equipment and similar
tangible assets and properties (other than Collateral) refinanced in the
ordinary course of business so long as the net book value of the assets and
properties so pledged does not exceed 200% of the amount of such
indebtedness, and (c) obligations arising under leases, whether or not
constituting indebtedness under GAAP, excluding, however, (i) leases (A) of
real property or (B) having aggregate rental payments for the initial term
(discounted to present value) of less than $100,000 for any lease (with
multiple equipment schedules constituting a single lease) or series of
related leases, (ii) any refinancing of any Lucent Equipment Financing
permitted under Section 6.02(a) hereof, and (iii) the Pearl River Financing
in an amount not to exceed $8,630,000.00 pursuant to approved Pearl River
Financing Documents.
"Plainview Mortgage" shall mean the Mortgage, Assignment of Rents and
Security Agreement dated as of April 30, 1998, from Aeroflex, as mortgagor,
to the Plainview Mortgage Administrator, as mortgagee (for the benefit of
all of the Plainview Mortgage Banks), respecting Aeroflex's Plainview
facility, as the same may be supplemented, modified, amended or restated
from time to time in the manner provided therein.
"Revolving Credit Note" and "Revolving Credit Notes" shall
respectively mean any one or more of the Fourth Amended and Restated
Revolving Promissory Notes dated as of April 30, 1998, issued by the
Borrowers severally to each of the Banks to evidence its Pro Rata Share of
the Revolving Credit Loans (as referenced in Section 2.03(a) hereof), as
each may be modified, amended or restated from time to time in the manner
provided therein.
"Revolving Credit Period" shall mean that period commencing on the
Effective Date and terminating on the earlier of (a) March 31, 2001, or (b)
the Maturity Date.
(B) In Section 1.01 of the Existing Loan Agreement, the following new
definitions of "Eligible Lucent Inventory", "Pearl River Financing", "Pearl
River Financing Authority", "Pearl River Financing Document" and "Pearl River
Financing Documents", "Pearl River Financing L/C", "Pearl River Financing L/C
Commitment", "Pearl River Project", "Plainview Mortgage Administrator",
"Plainview Mortgage Agreement", "Plainview Mortgage Banks", "Plainview Mortgage
Loans", "Plainview Mortgage Loan Document" and "Plainview Mortgage Loan
Documents", "Plainview Mortgage Note" and "Plainview Mortgage Notes", "Second
Loan Amendment", "Third Restated Revolving Note" and "Third Restated Revolving
Notes", and "Year 2000 Compatible" are hereby inserted in their respective
proper alphabetical positions without the deletion or modification of any other
material:
"Eligible Lucent Inventory" shall mean all Eligible Inventory
consisting of finished goods manufactured pursuant to the Lucent Supply
Agreement.
"Pearl River Financing" shall mean the industrial development bond
financing to MIC from the Pearl River Financing Authority secured by a
mortgage on the Pearl River Project and secured and enhanced by the Pearl
River Financing L/C.
"Pearl River Financing Authority" shall mean the County of Rockland
(New York) Industrial Development Agency or any successor.
"Pearl River Financing Document" and "Pearl River Financing Documents"
shall respectively mean any one or more of the bonds issued to evidence and
bond purchase agreement, indenture and other agreements executed to govern
the Pearl River Project Financing, the mortgages encumbering the Pearl
River Project executed by MIC to support the Pearl River Financing and/or
the Pearl River L/C, the Pearl River Financing L/C Commitment, the Pearl
<PAGE>
River Financing L/C and related application(s) and reimbursement
agreement(s), and the guaranties executed by Aeroflex respecting the Pearl
River Financing or Pearl River Financing L/C, and any and all waivers,
consents, agreements, instruments and other documents executed by the
requisite person(s) pursuant to or in connection with any of the foregoing;
in each case whether now or hereafter existing, and as each may be
supplemented, modified, amended or restated from time to time.
"Pearl River Financing L/C" shall mean the letter(s) of credit issued
by the institutional lender(s) to support the Pearl River Financing, as the
same may be supplemented, modified, amended, restated or replaced from time
to time in the manner provided therein.
"Pearl River Financing L/C Commitment" shall mean the commitment
letter issued by an institutional lender to MIC committing to provide a
Pearl River Financing L/C in an aggregate face amount of not less than
U.S.$5,000,000.
"Pearl River Project" shall mean the acquisition and improvement of
MIC's facility in Pearl River, New York (which MIC currently rents).
"Plainview Mortgage Administrator" shall mean the "Administrator"
under (and as defined in) the Plainview Mortgage Agreement.
"Plainview Mortgage Agreement" shall mean the Mortgage Loan Agreement
among Aeroflex, the Plainview Mortgage Banks and the Plainview Mortgage
Administrator to be dated as of April 30, 1998 (or such other date as may
be chosen by the parties thereunder), together with all schedules and
exhibits thereto, as the same may be supplemented, modified, amended or
restated from time to time in the manner provided therein .
"Plainview Mortgage Banks" shall mean the "Banks" under (and as
defined in) the Plainview Mortgage Agreement.
"Plainview Mortgage Loans" shall mean any and all principal amounts of
the "Term Loans" outstanding under (and as defined in) the Plainview
Mortgage Agreement from time to time (including future advances) and all
other amounts advanced from time to time to or on behalf of any one or more
of the Borrowers by the Plainview Mortgage Administrator, the Plainview
Mortgage Banks or their respective designees pursuant to the Plainview
Mortgage Agreement or any other Plainview Mortgage Loan Document.
"Plainview Mortgage Loan Document" and "Plainview Mortgage Loan
Documents" shall respectively mean any one or more of the Plainview
Mortgage Agreement, the Plainview Mortgage Notes, the Plainview Mortgage,
and the various other mortgages, assignments, instruments and other
documents creating or evidencing any interest of the Administrator or any
other Bank in any collateral securing or intended to secure anyone's
obligations under any of the foregoing, and all waivers, consents,
agreements, reports, statements, certificates, schedules and other
documents executed by the requisite person(s) pursuant to or in connection
with any of the foregoing and accepted or delivered by the Plainview
Mortgage Administrator (with the consent of the "Requisite Banks"
thereunder, as and if required) (whether prior to, on or from time to time
after the "Effective Date" thereunder), as each may be supplemented,
modified, amended or restated from time to time in the manner provided
therein.
"Plainview Mortgage Note" and "Plainview Mortgage Notes" shall
respectively mean any one or more of the Mortgage Notes dated as of April
30, 1998, issued by Aeroflex severally to each of the Plainview Mortgage
Banks to evidence its "Pro Rata Share" of the Plainview Mortgage Loans (as
referenced in the Plainview Mortgage Agreement, as each may be modified,
amended or restated from time to time in the manner provided therein.
"Second Loan Amendment" shall mean the Second Amendment to Third
Amended and Restated Loan and Security Agreement dated as of April 30,
1998, between the Borrower and the Bank.
<PAGE>
"Third Restated Revolving Note" and "Third Restated Revolving Notes"
shall respectively mean any one or more of the Third Amended and Restated
Revolving Promissory Notes dated as of March 15, 1996, issued by the
Borrowers severally (i) to Chase in the original principal amount of
U.S.$8,800,000.00, and (ii) to Fleet in the original principal amount of
U.S.$13,200,000.00, which notes were issued to amend, extend, restate and
completely replace the Existing Revolving Notes.
"Year 2000 Compatible" shall mean that the referenced computer or
other hardware or software of the reference person (a) will not
malfunction, cease to function, generate incorrect date dependent or
related data or produce incorrect results on or after January 1, 2000 or
2001, (b) applies formulae, calculates, displays, exports, imports,
manages, manipulates, operates, provides, processes, recognizes, sorts, and
stores all dates and date dependent or related user or interface data,
fields, functionalities and values (i) in four-digit year date format
(whether "date" or "year" data field or otherwise), (ii) that properly,
fully and correctly identifies any year (including, without limitation, the
century thereof) and computes any period, value or result (including,
without limitation, those spanning the end of any century or millennium),
and (iii) without any error, in each case (A) without the necessity of any
human intervention or system modification and (B) whether such dates occur
on or after January 1, 2000 or 2001, and whether or not such dates are
intermixed with or compared to (in calculations or otherwise) dates
occurring in the years of or before 1999 or 1899, and (c) will properly
interface with other hardware and software of the referenced person without
rendering any of them less Year 2000 Compatible or otherwise less
functional.
(B) In Section 1.01 of the Existing Loan Agreement, the definitions of
"Applicable Commitment Fee Rate", "Term Loan", "Term Loans", "Term Note", and
"Term Notes" are hereby deleted in their entirety.
(C) The text of Section 2.02 of the Existing Loan Agreement is hereby
deleted in its entirety and replaced with the phrase [Intentionally Deleted
Pursuant to the Second Loan Amendment].
(D) In Section 2.03 of the Existing Loan Agreement, subsections (a),
(b), and (c) are hereby deleted in their entirety, and the following new
subsections are hereby inserted in their respective places:
(a) The obligation of the Borrowers to repay the Revolving Credit
Loans, together with interest thereon, shall be evidenced by a Fourth
Amended and Restated Revolving Promissory Note issued by the Borrowers to
each Bank in the form of Exhibit A to the Second Loan Amendment in the
amount of such Bank's Committed Share of the Commitment and dated as of
April 30, 1998.
(b) [Intentionally Deleted Pursuant to the Second Loan Amendment]
(c) The Revolving Credit Notes have been issued to amend, extend,
restate and completely replace the Third Restated Revolving Notes, to
evidence all amounts outstanding under the Third Restated Revolving Notes,
all amounts outstanding under the former Term Loans as converted to
Revolving Credit Loans pursuant to Section 1(E) of the Second Loan
Amendment, and to evidence any further advances or readvances of the
Revolving Credit Loans. Although issued in substitution for and restatement
and replacement of the Third Restated Revolving Notes, the Revolving Credit
Notes shall not be deemed to have been issued in payment, satisfaction,
cancellation or novation of the Third Restated Revolving Notes. The Banks
shall be entitled to retain the Third Restated Revolving Notes until all of
the Obligations have been fully paid and satisfied, after which time the
Third Restated Revolving Notes shall be returned to the Borrower at the
same time as the Revolving Credit Notes, unless some other time or manner
of delivery shall be provided by any other written agreement between the
Borrower and the Banks. Promptly following the Effective Date, each Bank
shall legend the Third Restated Revolving Note issued to it as follows:
"This Note is one of the Third Restated Revolving Notes that has been
superseded by the Fourth Amended and Restated Revolving Promissory
Notes of the Borrowers dated as of March 31, 1998, which amended,
restated and completely replaced this Note and the other Third
Restated Revolving Notes and evidences the indebtedness formerly
evidenced by this Note and the other Third Restated Revolving Notes,
but which shall not be deemed or construed to be issued in payment,
satisfaction, cancellation or novation of this Note or any other Third
Restated Revolving Notes. Reference should be made to such new Notes
for all purposes, as the terms and provisions of this Note have no
further independent force or effect."
<PAGE>
(E) The $4,720,000.00 in Term Loans outstanding on April 30, 1998, are
hereby converted into Revolving Credit Loans ($2,832,000.00 from Fleet and
$1,888,000.00 from Chase), to be evidenced by the Revolving Credit Notes and
governed as Revolving Credit Loans by the Loan Agreement and other Loan
Instruments. There will be no further Term Loans under the Loan Agreement. In
addition, the Banks have agreed to eliminate certain mandatory prepayments of
the Revolving Credit Loans, effective as of April 30, 1998. Accordingly, in
Section 2.05 of the Existing Loan Agreement, subsections (d), (e) and (f) are
hereby deleted in their entirety and replaced with the phrase [Intentionally
Deleted Pursuant to the Second Loan Amendment].
(F) In Section 2.05 of the Existing Loan Agreement, subsection (c) is
hereby deleted in its entirety, and the following new subsection is hereby
inserted in its place:
(c) The Borrowers shall repay the principal balances then outstanding
under the Revolving Credit Loans in full on the Maturity Date.
(G) In Section 2.06 of the Existing Loan Agreement, subsection (a) is
hereby deleted in its entirety, and the following new subsection is hereby
inserted in its place:
(a) The Borrowers shall pay to the Banks sharing in the Revolving
Credit Loans on the last Business Day of each March, June, September and
December of each year during the Revolving Credit Period, and on the last
day of the Revolving Credit Period, in arrears, a fee (computed on the
basis of the actual number of days elapsed and a year of 360 days)
respecting the availability of the Commitment (the "Commitment Fee") equal
to (i) the Applicable Commitment Fee Rate per annum prior to April 1, 1998,
and (ii) one quarter of one percent (0.25%) per annum thereafter, of the
average daily unadvanced portion of the Commitment during the then most
recently concluded calendar quarter or portion thereof (with the Letters of
Credit Amount being considered an advance under the Commitment); provided,
however, that in making any such calculation the first $4,720,000.00 in
Revolving Credit Loans shall be treated as "unadvanced" (even though
actually outstanding) until such time as those Loans (which were the former
"Term Loans") have been repaid in full with the proceeds of the Plainview
Mortgage Loans.
(H) Effective as of March 19, 1998, in Section 2.07 of the Existing
Loan Agreement, subsections (a) and (e) are hereby deleted in their entirety and
the following new subsections are hereby inserted in their respective places:
(a) Upon the terms and provisions and subject to the conditions
contained in this Agreement, in lieu of a cash advance under the Commitment
the Administrator (the "Fronting Bank") in its discretion may issue or
cause the issuance of Letters of Credit from time to time upon the request
of the Borrowers up to a cumulative maximum face amount (whether or not
advanced) not to exceed $3,000,000.00 in order to secure the debts or
obligations of the Borrowers; provided that the Fronting Bank's agreement
to consider the issuance of Letters of Credit shall terminate on the first
to occur of the Maturity Date and the expiration of the Revolving Credit
Period; and provided further that the Fronting Bank shall not consider the
issuance of any Letter of Credit if (to the actual knowledge of the
Fronting Bank) the face amount of the Letter of Credit to be issued plus
the sum of the Letters of Credit Amount and the principal balance
outstanding under the Revolving Credit Loans together would exceed the
lesser of the Commitment or the Borrowing Base.
(e) The Borrowers shall pay to the Administrator (for the benefit of
all of the Banks) on each of the anniversaries of the issuance of each
outstanding Letter of Credit, in advance, a fee respecting each Letter of
Credit (the "Letter of Credit Fee") for the year commencing with that date
(computed on the basis of the actual number of days in such year and a year
of 360 days) equal to (i) two percent (2%) per annum prior to March 19,
1998, and (ii) one and one-half percent (1.50%) per annum thereafter, of
the unadvanced face amount thereof, with such amount being determined as of
the Business Day immediately preceding the quarterly payment date; provided
that the Borrowers shall pay that fee on the Issuance Date, in advance, for
the forthcoming year; and provided further that the minimum fee for any
Letter of Credit shall be the greater of (i) one-half percent (0.50%) of
the face amount or (ii) $1,000.00, irrespective of any smaller amount or
<PAGE>
shorter expiry. The Borrowers also shall pay to the Fronting Bank any and
all customary fees (other than the Letter of Credit Fee), commissions
and/or charges of the Fronting Bank for any increase, extension, renewal,
amendment or transfer of the Letter of Credit. The Borrowers also shall pay
to the Fronting Bank any fees or other charges of any other issuer or any
participant, correspondent, confirming bank, custodian or designee of the
Fronting Bank or other issuer involved with the Letter of Credit.
(I) In Section 3.05 of the Existing Loan Agreement, the following new
sentence is hereby inserted at the conclusion thereof without the deletion or
modification of any other material.
All of the computer and other hardware and software of owned or used by the
Borrowers, and to the knowledge of the Borrowers (after due inquire) all
persons furnishing any material accounting, portfolio, payroll or other
services to or on behalf of any Borrower utilizing computer and other
hardware and software in the provision of such services, (1) are Year 2000
Compatible or (2) will be Year 2000 Compatible by no later than June 30,
1999, through expenditures that would not reasonably be likely to be
material in the aggregate or result in any Event of Default.
(J) In Section 5.02 of the Existing Loan Agreement, subsection (f) is
hereby deleted in its entirety, and the following new subsection is hereby
inserted in its place:
(f) as soon as available, and in any event within 25 days after the end of
each calendar quarter if the Loans do not exceed $5,000,000.00, or
within 25 days after the end of each calendar month
if the Loans equal or exceed $5,000,000.00, (i) an operating statement
for the month and year-to-date just ended, compared to budget (which
may be delivered within 45 days after the end of any fiscal quarter
instead of within 25 days), (ii) a receivables aging with respect to
the month (as applicable) just ended, and (iii) a Borrowing Base
Certificate substantially in the form of Exhibit D-II hereto setting
forth the Borrowing Base as at the end of such month, provided that
the Borrowing Base Certificate may be requested as frequently as
weekly or monthly, with each of the foregoing being certified by the
President and the chief financial officer of Aeroflex (who shall have
read this Agreement and made an examination sufficient in the opinion
of the signers to make informed statements therein);
(K) In Section 5.02 of the Existing Loan Agreement, subsection (i) is
hereby deleted in its entirety, and the following new subsection is hereby
inserted in its place:
(i) as soon as available, and in any event within 90 days after the
commencement of each fiscal year of the Borrowers, a consolidated and
consolidating annual budget and projections for the Borrowers for the
forthcoming fiscal year (projected quarterly), including consolidated
and consolidating cash flows of the Borrowers projected quarterly,
certified by the chief financial officer of Aeroflex;
(L) In Section 6.01 of the Existing Loan Agreement, subsections (b),
(e) and (g) are hereby deleted in their entirety, and the following new sections
are hereby inserted in their respective places:
(b) The Borrowers shall not cause, suffer or permit their Consolidated
Effective Leverage Ratio to exceed: (i) 2.00:1 at the Effective Date, or at
any time thereafter through June 29, 1999, and (ii) 1.75:1 at June 30,
1999, or at any time thereafter.
(e) The Borrowers shall not permit their Consolidated Quick Ratio to
be less than 1.00:1 at any time.
(g) The Borrowers shall not directly or indirectly make, incur or
permit their consolidated capital expenditures to exceed: (i) $7,500,000.00
for their fiscal year ending June 30, 1997; (ii) $9,500,000.00 (exclusive
of up to $4,500,000.00 in capital expenditures related to the Lucent
Transactions) for their fiscal year ending June 30, 1998; and (iii)
$7,500,000.00 for any fiscal year thereafter; all as determined on a
consolidated basis in accordance with GAAP; provided, however, that the
Borrowers may incur up to $6,000,000.00 in total additional capital
expenditures for the Pearl River Project so long as the Pearl River
<PAGE>
Financing L/C Commitment is in effect by June 30, 1998, which permitted
total additional capital expenditures may be incurred in (and apportioned
among) their fiscal years ending June 30, 1998, and 1999.
(M) In section 6.02 of the Existing Loan Agreement, subsection (a) is
hereby deleted in its entirety, and the following new subsection is hereby
inserted in its respective place:
(a) No Borrower shall directly or indirectly create, incur, assume,
permit to exist, increase, renew or extend any indebtedness on its part,
including commitments, lines of credit and other credit availabilities, or
apply for or offer or agree to do any of the foregoing, except that the
Borrowers may incur or permit to exist: (i) indebtedness owed to the
Administrator or the Banks under any of the Loan Instruments; (ii)
indebtedness incurred as permitted as Other Debt under subsection (b) of
this Section, provided that the Borrowers may continue such indebtedness,
but without any increase, once incurred as so permitted; (iii) loans or
advances from one Borrower to another Borrower; (iv) the indebtedness
outstanding under the Debentures, the Plainview Bond Documents and the
Equipment Finance Documents, including any renewal or extension thereof,
but excluding any increase therein; (v) any indebtedness incurred under any
new Subordinated Debt Documents approved by the Majority Banks as provided
in Section 6.13 hereof so long as no Event of Default or Default then
exists or would result therefrom, with the various financial measurements
and covenants set forth in Section 6.01 of this Agreement being
recalculated on a pro forma basis (from the then most recent quarterly or
subsequent pro forma calculations) to include the effects of the proposed
subordinated indebtedness, provided that the Borrowers may continue such
indebtedness, but without any increase, once incurred as so permitted; (vi)
any indebtedness incurred under any new Pearl River Financing Documents
approved by the Majority Banks as provided in Section 6.16 hereof so long
as no Event of Default or Default then exists or would result therefrom,
with the various financial measurements and covenants set forth in Section
6.01 of this Agreement being recalculated on a pro forma basis (from the
then most recent quarterly or subsequent pro forma calculations) to include
the effects of the proposed Pearl River Financing; provided that the
Borrowers may continue such indebtedness, but without any increase, once
incurred as so permitted; (vii) the Plainview Mortgage Loan; and (viii) the
existing indebtedness listed in Schedule 3.09(a) hereto, including any
renewal or extension thereof, but excluding any increase therein or the
continuation of any indebtedness being retired with the proceeds of the
Loans.
(N) In section 6.03 of the Existing Loan Agreement, subsection (a) is
hereby deleted in its entirety, and the following new subsection is hereby
inserted in its respective place:
Section 6.03. Guaranties. No Borrower shall directly or indirectly
make, create, incur, assume, permit to exist, increase, renew or extend any
guaranty on its part of any indebtedness or other obligation of any other
person, or offer or agree to do so, except for: (a) any guaranty of
indebtedness or other obligations owed to the Administrator or the Banks
under any of the Loan Instruments; (b) those guaranties listed in Schedule
3.09(b) hereto, excluding, however, any increase therein or renewal or
extension thereof; (c) the guaranties under the Equipment Finance
Documents, including any renewal or extension thereof, but excluding any
increase in the guarantied obligations; (d) any guaranty by any Borrower of
the Pearl River Financing permitted under Section 6.16 hereof; (e) the
endorsement of negotiable instruments for collection or deposit in the
ordinary course of each Borrower's business; or (f) any guaranty of the
indebtedness or other obligations of any Borrower if the guarantor thereof
would have been permitted to have incurred the indebtedness or other
obligation directly and transferred the proceeds or other assets and
properties to such Borrower under this Agreement and the other Loan
Instruments.
(O) In Article VI of the Existing Loan Agreement, the following new
Section is hereby inserted at the conclusion thereof without the deletion or
modification of any material:
Section 6.16. Modification of the Pearl River Financing Documents,
Etc. No Borrower shall directly or indirectly enter into any original or
new Pearl River Financing Document, or agree to, or cause, suffer or
permit, any supplement to or any waiver (of its rights), modification,
amendment or restatement of any term or provision of any Pearl River
Financing Document from those approved by the Banks, or offer or agree to
do any of the foregoing, without the prior written consent of the Majority
Banks; provided that the Majority Banks shall not unreasonably withhold
their consent respecting any new Pearl River Financing Documents for new
<PAGE>
indebtedness. The inclusion of supplements, modifications, restatements and
the like in the various definitions of the Pearl River Financing Documents
is not intended, and shall not be deemed or construed, to be permission for
or acceptance of any of the foregoing by the Majority Banks. In any event
(without limiting the discretion of any Bank), (i) no Borrower shall cause,
suffer or permit any of the obligations of any Borrower under any Pearl
River Financing Document (A) to prohibit or restrict access by the
Administrator to any Collateral located at the Pearl River Project, which
access shall be confirmed by the lender(s) thereunder, (B) to be secured by
or place any restrictions on the removal of any Collateral, or (C) to be
supported by any guaranty from Aeroflex or any other Borrower that is
secured or less than fully subordinated (in the judgment of the Majority
Banks) to the prior payment and satisfaction of the Obligations, (ii) the
Pearl River Financing Documents shall provide for (A) notice of any default
thereunder to the Banks, (B) an opportunity during the 30-day period
following receipt of such notice to voluntarily cure such default (in the
discretion of the Banks), and (C) the other rights and remedies customarily
afforded a senior lender, (iii) the Pearl River Financing shall provide for
bond financing of at least 10 years at commercially prevailing industrial
development bond rates, with funding subject only to the execution and
delivery of a "first mortgage" (subject to the normal non-debt
encumbrances), the issuance and delivery of the Pearl River Financing L/C
and the other usual mortgage loan conditions precedent, and (iv) the Pearl
River Financing L/C Commitment shall provide for a standby letter of credit
of not less than $5,000,000.00 in aggregate face amount that will not
expire for at least two years after issuance, with issuance subject only to
the execution and delivery of the usual application(s) and reimbursement
agreement(s) and the "second mortgage" (if any) securing MIC's
reimbursement obligations and the other usual closing conditions.
(N) In section 8.01 of the Existing Loan Agreement, subsection (f) is
hereby deleted in its entirety, and the following new subsection is hereby
inserted in its place:
(f) any "Event of Default" shall occur under (and as defined in) the
Plainview Mortgage Agreement, Plainview Mortgage Notes or Plainview
Mortgage, whether in whole or in part, or any principal payment thereunder
(in whole or in part) shall be accelerated or otherwise become due or
payable prior to the scheduled payment date; any "Event of Default" (or
similarly defined term) shall occur under (and as defined in) any Pearl
River Financing Document, whether in whole or in part, or any principal
payment thereunder (in whole or in part) shall be accelerated or otherwise
become due or payable prior to the scheduled payment date; or any "Event of
Default", whether in whole or in part, shall occur under (and as defined
in) the Indenture or any other Subordinated Debt Document, or any principal
payment (in whole or in part) under any Subordinated Debt Document shall be
accelerated or otherwise become due or prepayable (whether directly or
through any trust deposit) prior to the scheduled payment date (including,
without limitation, the imposition or inception of any obligation to make
any payment of "Accelerated Redemption Obligations" under (and as defined
in) Section 3.07 of the Indenture or make any deposit under Section 4.10 of
the Indenture);
Section 2. Acknowledgment of Outstanding Loans. The Borrowers hereby
jointly and severally acknowledge, certify and agree that: (a) pursuant to the
Existing Loan Agreement, the Banks have made loans on a term basis to the
Borrowers, none of which are outstanding as of the date of this Amendment after
the conversion made in Section 1(E), and the Banks have made Revolving Credit
Loans to the Borrowers that are outstanding as of the date of this Amendment in
the aggregate principal amount of $4,720,000.00 (after such conversion); and (b)
the obligations of the Borrowers to repay those loans (with interest) to the
Bank and to perform or otherwise satisfy its other Obligations, as well as the
security interests in the Collateral granted by the Borrowers to the
Administrator (for the benefit of all of the Banks), under the Existing Loan
Agreement and other Loan Instruments (i) each remain and shall continue in full
force and effect, both before and after giving effect to this Amendment, (ii)
are not subject as of the date of this Amendment to any defense, counterclaim,
setoff, right of recoupment, abatement, reduction or other claim or
determination, and (iii) are and shall continue to be governed by the terms and
provisions of the Existing Loan Agreement and other Loan Instruments as
supplemented, modified and amended by this Amendment.
Section 3. Bringdown of Representations, Etc. As of the date of this
Amendment, both prior to and after giving effect to any requested Advance in
connection herewith and the provisions of this Amendment: (a) the
representations and warranties of each of the Borrowers set forth in the
Agreement and other Loan Instruments (as to any Advance Date and Letter of
Credit Issuance Date are true and correct in all material respects with the same
effect as though those representations and warranties had been made on and as of
the date hereof, subject, however, to any updated information respecting any
<PAGE>
event(s) occurring after the Effective Date affecting any of the representations
contained in Sections 3.04, 3.06 and 3.11 hereof and specifically disclosed in
any signed notice or bringdown, indebtedness or guaranty certificate required
hereunder and delivered to and accepted by the Administrator (with the consent
of the Requisite Banks, as and if required) on or prior to the date hereof,
although it is acknowledged and agreed that neither such delivery nor such
acceptance shall constitute a waiver of or consent to any event so disclosed;
(b) no Event of Default or Default has occurred and is continuing, excluding,
however, those events subject to an express written waiver or consent from the
Administrator (with the consent of the Requisite Banks, as and if required), if
any; (c) the information set forth in the Secretary's or Officer's Certificate
most recently delivered to the Administrator or the Banks respecting (among
other things) the authorizing resolutions, organizational and governing
documents and the incumbency of the officers of each of the Borrowers is true
and complete in all material respects as if those certificates had been
delivered on and as of the date hereof; (d) there are no actions, suits or
proceedings pending or, to the best knowledge of the undersigned, threatened or
contemplated by any person for the liquidation or dissolution of any Borrower or
otherwise threatening their respective existences or challenging or calling into
question the power or authority of any Borrower to execute or deliver any Loan
Instrument to which it is or will be a party or to perform any of its
obligations thereunder; and (e) the Obligations of the Borrowers under the
Agreement, Note and other Loan Instruments (i) are not subject as of the date of
this Certificate to any defense, counterclaim, setoff, right of recoupment,
abatement, reduction or other claim or determination against the Administrator,
any Bank or any other person and (ii) remain and are currently in full force and
effect, enforceable against them in accordance with their respective terms and
provisions.
Section 4. Amendment Fee and Additional Documents. As a condition
precedent to the effectiveness of this Amendment, the Borrowers: (a) shall pay
an amendment fee of $12,000.00 to Fleet and $8,000.00 to Chase in respect of
this Amendment; (b) shall cause the execution and delivery of this Amendment;
and (c) shall deliver such other instruments and other documents (i) as may be
required by this Amendment or listed in the final version of the Checklist of
Closing Documents delivered to the Borrower on or before the date this Amendment
becomes effective, and (ii) as the Administrator or the Banks may request to
effect this Amendment. Each instrument and document shall be in such form and
substance as may be acceptable to the Majority Banks in their discretion.
Section 5. Counterparts. This Amendment may be signed in two or more
counterpart copies of the entire document or of signature pages to the document,
each of which may be executed by one or more of the parties hereto, but all of
which, when taken together, shall constitute a single agreement binding upon all
of the parties hereto.
Section 6. Governing Law, Etc. This Amendment is a Loan Instrument and
shall be governed by and construed in accordance with the applicable terms and
provisions of Articles VIII, IX and X of the Existing Loan Agreement as amended
hereby, which terms and provisions are incorporated herein by reference.
[END OF PAGE]
<PAGE>
Section 7. Agreement to Continue as Amended. The Existing Loan
Agreement and the other Loan Instruments, as supplemented, modified and amended
by this Amendment, shall remain and continue in full force and effect after the
date hereof.
In Witness Whereof, the parties hereto have executed and delivered
this Amendment as of the date first written above.
Aeroflex Incorporated (f/k/a ARX, Inc.)
By: /s/ Charles T. Badlato
Charles T. Badlato, Assistant Secretary
Aeroflex Laboratories Incorporated
By: /s/ Charles T. Badlato
Charles T. Badlato, Assistant Secretary
Aeroflex International Inc.
By: /s/ Charles T. Badlato
Charles T. Badlato, Assistant Secretary
Aeroflex Lintek Corp.
By: /s/ Charles T. Badlato
Charles T. Badlato, Assistant Secretary
Aeroflex Systems Corp.
By: /s/ Charles T. Badlato
Charles T. Badlato, Assistant Secretary
Aeroflex Acquisition Corp.
By: /s/ Charles T. Badlato
Charles T. Badlato, Assistant Secretary
Comstron International, S.A.R.L.
By: /s/ Charles T. Badlato
Charles T. Badlato, Assistant Secretary
MIC Technology Corporation
By: /s/ Charles T. Badlato
Charles T. Badlato, Assistant Secretary
[SIGNATURES CONTINUED]
<PAGE>
MIC Technology S.A.R.L.
By: /s/ Charles T. Badlato
Charles T. Badlato, Assistant Secretary
Vibration Mountings and Controls, Inc.
By: /s/ Charles T. Badlato
Charles T. Badlato, Assistant Secretary
The Chase Manhattan Bank
By: /s/ Barbara G. Bertschi
Barbara G. Bertschi, Vice President
Fleet Bank, N.A.
By: /s/ Christopher Mendelsohn
Christopher Mendelsohn, Vice President
Fleet Bank, N.A.,
as Administrator
By: /s/ Christopher Mendelsohn
Christopher Mendelsohn, Vice President
<PAGE>
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On this 17th day of July in the year 1998 before me, the undersigned,
a Notary Public in and for said State, personally appeared Charles T. Badlato,
personally known to me or proved to me on the basis of satisfactory evidence to
be the individual whose name is subscribed to the within instrument and
acknowledged to me that he/she executed the same in his/her capacity as
Assistant Secretary, and that by his/her signature on the instrument, the person
upon behalf of which the individual acted (i.e., Aeroflex Incorporated) executed
the instrument.
/s/ Catherine M. Menza
Notary Public, State of New York
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On this 17th day of July in the year 1998 before me, the undersigned,
a Notary Public in and for said State, personally appeared Charles T. Badlato,
personally known to me or proved to me on the basis of satisfactory evidence to
be the individual whose name is subscribed to the within instrument and
acknowledged to me that he/she executed the same in his/her capacity as
Assistant Secretary, and that by his/her signature on the instrument, the person
upon behalf of which the individual acted (i.e., Aeroflex Laboratories
Incorporated) executed the instrument.
/s/ Catherine M. Menza
Notary Public, State of New York
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On this 17th day of July in the year 1998 before me, the undersigned,
a Notary Public in and for said State, personally appeared Charles T. Badlato,
personally known to me or proved to me on the basis of satisfactory evidence to
be the individual whose name is subscribed to the within instrument and
acknowledged to me that he/she executed the same in his/her capacity as
Assistant Secretary, and that by his/her signature on the instrument, the person
upon behalf of which the individual acted (i.e., Aeroflex International Inc.)
executed the instrument.
/s/ Catherine M. Menza
Notary Public, State of New York
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On this 17th day of July in the year 1998 before me, the undersigned,
a Notary Public in and for said State, personally appeared Charles T. Badlato,
personally known to me or proved to me on the basis of satisfactory evidence to
be the individual whose name is subscribed to the within instrument and
acknowledged to me that he/she executed the same in his/her capacity as
Assistant Secretary, and that by his/her signature on the instrument, the person
upon behalf of which the individual acted (i.e., Aeroflex Lintek Corp.) executed
the instrument.
/s/ Catherine M. Menza
Notary Public, State of New York
<PAGE>
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On this 17th day of July in the year 1998 before me, the undersigned,
a Notary Public in and for said State, personally appeared Charles T. Badlato,
personally known to me or proved to me on the basis of satisfactory evidence to
be the individual whose name is subscribed to the within instrument and
acknowledged to me that he/she executed the same in his/her capacity as
Assistant Secretary, and that by his/her signature on the instrument, the person
upon behalf of which the individual acted (i.e., Aeroflex Systems Corp.)
executed the instrument.
/s/ Catherine M. Menza
Notary Public, State of New York
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On this 17th day of July in the year 1998 before me, the undersigned,
a Notary Public in and for said State, personally appeared Charles T. Badlato,
personally known to me or proved to me on the basis of satisfactory evidence to
be the individual whose name is subscribed to the within instrument and
acknowledged to me that he/she executed the same in his/her capacity as
Assistant Secretary, and that by his/her signature on the instrument, the person
upon behalf of which the individual acted (i.e., Aeroflex Acquisition Corp.)
executed the instrument.
/s/ Catherine M. Menza
Notary Public, State of New York
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On this 17th day of July in the year 1998 before me, the undersigned,
a Notary Public in and for said State, personally appeared Charles T. Badlato,
personally known to me or proved to me on the basis of satisfactory evidence to
be the individual whose name is subscribed to the within instrument and
acknowledged to me that he/she executed the same in his/her capacity as
Assistant Secretary, and that by his/her signature on the instrument, the person
upon behalf of which the individual acted (i.e., Comstron International,
S.A.R.L.) executed the instrument.
/s/ Catherine M. Menza
Notary Public, State of New York
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On this 17th day of July in the year 1998 before me, the undersigned,
a Notary Public in and for said State, personally appeared Charles T. Badlato,
personally known to me or proved to me on the basis of satisfactory evidence to
be the individual whose name is subscribed to the within instrument and
acknowledged to me that he/she executed the same in his/her capacity as
Assistant Secretary, and that by his/her signature on the instrument, the person
upon behalf of which the individual acted (i.e., MIC Technology Corporation)
executed the instrument.
/s/ Catherine M. Menza
Notary Public, State of New York
<PAGE>
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On this 17th day of July in the year 1998 before me, the undersigned,
a Notary Public in and for said State, personally appeared Charles T. Badlato,
personally known to me or proved to me on the basis of satisfactory evidence to
be the individual whose name is subscribed to the within instrument and
acknowledged to me that he/she executed the same in his/her capacity as
Assistant Secretary, and that by his/her signature on the instrument, the person
upon behalf of which the individual acted (i.e., MIC Technology S.A.R.L.)
executed the instrument.
/s/ Catherine M. Menza
Notary Public, State of New York
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On this 17th day of July in the year 1998 before me, the undersigned,
a Notary Public in and for said State, personally appeared Charles T. Badlato,
personally known to me or proved to me on the basis of satisfactory evidence to
be the individual whose name is subscribed to the within instrument and
acknowledged to me that he/she executed the same in his/her capacity as
Assistant Secretary, and that by his/her signature on the instrument, the person
upon behalf of which the individual acted (i.e., Vibration Mountings and
Controls, Inc.) executed the instrument.
/s/ Catherine M. Menza
Notary Public, State of New York
<PAGE>
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On this 15th day of July in the year 1998 before me, the undersigned,
a Notary Public in and for said State, personally appeared Barbara G. Bertschi,
personally known to me or proved to me on the basis of satisfactory evidence to
be the individual whose name is subscribed to the within instrument and
acknowledged to me that he/she executed the same in his/her capacity as Vice
President, and that by his/her signature on the instrument, the person upon
behalf of which the individual acted (i.e., The Chase Manhattan Bank) executed
the instrument.
/s/ John K. Budzyker
Notary Public, State of New York
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On this 16th day of July in the year 1998 before me, the undersigned,
a Notary Public in and for said State, personally appeared Christopher
Mendelsohn, personally known to me or proved to me on the basis of satisfactory
evidence to be the individual whose name is subscribed to the within instrument
and acknowledged to me that he/she executed the same in his/her capacity as Vice
President, and that by his/her signature on the instrument, the person upon
behalf of which the individual acted (i.e., Fleet Bank, N.A.)
executed the instrument.
/s/ Charlotte E. Moore
Notary Public, State of New York
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On this 16th day of July in the year 1998 before me, the undersigned,
a Notary Public in and for said State, personally appeared Christopher
Mendelsohn, personally known to me or proved to me on the basis of satisfactory
evidence to be the individual whose name is subscribed to the within instrument
and acknowledged to me that he/she executed the same in his/her capacity as Vice
President, and that by his/her signature on the instrument, the person upon
behalf of which the individual acted (i.e., Fleet Bank, N.A., as Administrator)
executed the instrument.
/s/ Charlotte E. Moore
Notary Public, State of New York
<PAGE>
EXHIBIT A
TO
SECOND AMENDMENT
TO
THIRD AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
FOURTH AMENDED AND RESTATED REVOLVING PROMISSORY NOTE
$___________ Jericho, New York
Dated as of April 30, 1998
FOR VALUE RECEIVED, Aeroflex Incorporated (f/k/a ARX, Inc.), Aeroflex
Laboratories Incorporated, Aeroflex International Inc., Aeroflex Lintek Corp.,
Aeroflex Systems Corp., Aeroflex Acquisition Corp., Comstron International,
S.A.R.L., MIC Technology Corporation, MIC Technology S.A.R.L. and Vibration
Mountings and Controls, Inc. (individually, a "Borrower", and collectively, the
"Borrowers"), jointly and severally promise to pay to the order of [NAME OF
BANK], at [BANK ADDRESS], or at such other place as may be designated in writing
by the holder of this Note, the principal sum of DOLLARS ($__________), or so
much thereof as may be advanced and outstanding, with interest thereon, to be
computed on each advance from the date of its disbursement, all as provided in
that certain Third Amended and Restated Loan and Security Agreement dated as of
March 15, 1996, among the Borrowers, Fleet Bank N.A., as Administrator (the
"Administrator"), the holder of this Note and the other Banks identified therein
(as the same may be supplemented, modified, amended or restated from time to
time in the manner provided therein, the "Loan Agreement"). Capitalized terms
used and not otherwise defined in this Note shall have the meanings respectively
assigned to them in the Loan Agreement.
This Note is one of the Revolving Credit Notes and one of the Notes
referred to in the Loan Agreement. Principal and interest shall be due and
payable as provided in the Loan Agreement, and all of the terms and provisions
of the Loan Agreement, including (without limitation) provision for prepayment
and acceleration of maturity, are incorporated herein by reference and made a
part hereof. This Note is secured by certain collateral pledged by the Borrowers
to the Administrator pursuant to the Loan Agreement.
This Note is one of the Revolving Credit Notes issued by the Borrowers in
order to amend, extend and completely replace the Third Restated Revolving
Credit Notes to evidence the indebtedness outstanding under the Third Restated
Revolving Credit Notes and to be a substitute and replacement for the Third
Restated Revolving Credit Notes, but the Revolving Credit Notes are not intended
and shall not be deemed or construed to be a payment, satisfaction, cancellation
or violation of such indebtedness.
Presentment for payment, notice of dishonor, protest and notice of protest
are hereby waived by each Borrower. This Note is made and delivered in the State
of New York, where all advances and repayments shall be made, and shall be
construed in accordance with and governed by the applicable laws pertaining in
such State. This Note may not be changed or terminated orally, and in any event
may not be changed without the written consent of the holder hereof.
Aeroflex Incorporated (f/k/a ARX, Inc.)
By:_________________________________________
Charles T. Badlato, Assistant Secretary
Aeroflex Laboratories Incorporated
By:_________________________________________
Charles T. Badlato, Assistant Secretary
[SIGNATURES CONTINUED]
<PAGE>
Aeroflex International Inc.
By:_________________________________________
Charles T. Badlato, Assistant Secretary
Aeroflex Lintek Corp.
By:_________________________________________
Charles T. Badlato, Assistant Secretary
Aeroflex Systems Corp.
By:_________________________________________
Charles T. Badlato, Assistant Secretary
Aeroflex Acquisition Corp.
By:_________________________________________
Charles T. Badlato, Assistant Secretary
Comstron International, S.A.R.L.
By:_________________________________________
Charles T. Badlato, Assistant Secretary
MIC Technology Corporation
By:_________________________________________
Charles T. Badlato, Assistant Secretary
MIC Technology S.A.R.L.
By:_________________________________________
Charles T. Badlato, Assistant Secretary
Vibration Mountings and Controls, Inc.
By:_________________________________________
Charles T. Badlato, Assistant Secretary
<PAGE>
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On this _____ day of July in the year 1998 before me, the undersigned,
a Notary Public in and for said State, personally appeared Charles T. Badlato,
personally known to me or proved to me on the basis of satisfactory evidence to
be the individual whose name is subscribed to the within instrument and
acknowledged to me that he/she executed the same in his/her capacity as
Assistant Secretary, and that by his/her signature on the instrument, the person
upon behalf of which the individual acted (i.e., Aeroflex Incorporated) executed
the instrument.
_____________________________________________
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On this _____ day of July in the year 1998 before me, the undersigned,
a Notary Public in and for said State, personally appeared Charles T. Badlato,
personally known to me or proved to me on the basis of satisfactory evidence to
be the individual whose name is subscribed to the within instrument and
acknowledged to me that he/she executed the same in his/her capacity as
Assistant Secretary, and that by his/her signature on the instrument, the person
upon behalf of which the individual acted (i.e., Aeroflex Laboratories
Incorporated) executed the instrument.
_____________________________________________
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On this _____ day of July in the year 1998 before me, the undersigned,
a Notary Public in and for said State, personally appeared Charles T. Badlato,
personally known to me or proved to me on the basis of satisfactory evidence to
be the individual whose name is subscribed to the within instrument and
acknowledged to me that he/she executed the same in his/her capacity as
Assistant Secretary, and that by his/her signature on the instrument, the person
upon behalf of which the individual acted (i.e., Aeroflex International Inc.)
executed the instrument.
_____________________________________________
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On this _____ day of July in the year 1998 before me, the undersigned,
a Notary Public in and for said State, personally appeared Charles T. Badlato,
personally known to me or proved to me on the basis of satisfactory evidence to
be the individual whose name is subscribed to the within instrument and
acknowledged to me that he/she executed the same in his/her capacity as
Assistant Secretary, and that by his/her signature on the instrument, the person
upon behalf of which the individual acted (i.e., Aeroflex Lintek Corp.) executed
the instrument.
_____________________________________________
<PAGE>
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On this _____ day of July in the year 1998 before me, the undersigned,
a Notary Public in and for said State, personally appeared Charles T. Badlato,
personally known to me or proved to me on the basis of satisfactory evidence to
be the individual whose name is subscribed to the within instrument and
acknowledged to me that he/she executed the same in his/her capacity as
Assistant Secretary, and that by his/her signature on the instrument, the person
upon behalf of which the individual acted (i.e., Aeroflex Systems Corp.)
executed the instrument.
_____________________________________________
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On this _____ day of July in the year 1998 before me, the undersigned,
a Notary Public in and for said State, personally appeared Charles T. Badlato,
personally known to me or proved to me on the basis of satisfactory evidence to
be the individual whose name is subscribed to the within instrument and
acknowledged to me that he/she executed the same in his/her capacity as
Assistant Secretary, and that by his/her signature on the instrument, the person
upon behalf of which the individual acted (i.e., Aeroflex Acquisition Corp.)
executed the instrument.
_____________________________________________
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On this _____ day of July in the year 1998 before me, the undersigned,
a Notary Public in and for said State, personally appeared Charles T. Badlato,
personally known to me or proved to me on the basis of satisfactory evidence to
be the individual whose name is subscribed to the within instrument and
acknowledged to me that he/she executed the same in his/her capacity as
Assistant Secretary, and that by his/her signature on the instrument, the person
upon behalf of which the individual acted (i.e., Comstron International,
S.A.R.L.) executed the instrument.
_____________________________________________
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On this _____ day of July in the year 1998 before me, the undersigned,
a Notary Public in and for said State, personally appeared Charles T. Badlato,
personally known to me or proved to me on the basis of satisfactory evidence to
be the individual whose name is subscribed to the within instrument and
acknowledged to me that he/she executed the same in his/her capacity as
Assistant Secretary, and that by his/her signature on the instrument, the person
upon behalf of which the individual acted (i.e., MIC Technology Corporation)
executed the instrument.
_____________________________________________
<PAGE>
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On this _____ day of July in the year 1998 before me, the undersigned,
a Notary Public in and for said State, personally appeared Charles T. Badlato,
personally known to me or proved to me on the basis of satisfactory evidence to
be the individual whose name is subscribed to the within instrument and
acknowledged to me that he/she executed the same in his/her capacity as
Assistant Secretary, and that by his/her signature on the instrument, the person
upon behalf of which the individual acted (i.e., MIC Technology S.A.R.L.)
executed the instrument.
_____________________________________________
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On this _____ day of July in the year 1998 before me, the undersigned,
a Notary Public in and for said State, personally appeared Charles T. Badlato,
personally known to me or proved to me on the basis of satisfactory evidence to
be the individual whose name is subscribed to the within instrument and
acknowledged to me that he/she executed the same in his/her capacity as
Assistant Secretary, and that by his/her signature on the instrument, the person
upon behalf of which the individual acted (i.e., Vibration Mountings and
Controls, Inc.) executed the instrument.
_____________________________________________
Amendment No. 2
to
Employment Agreement
This Amendment No. 2 dated as of July 1, 1998 to the Employment Agreement
(the "Employment Agreement") dated as of July 1, 1994 between Aeroflex
Incorporated, a Delaware corporation, with its principal office located at 35
South Service Road, Plainview, NY 11803 (the "Company") and Harvey R. Blau, who
resides at 125 Wheatley Road, Old Westbury, NY 11568 (the "Executive").
WHEREAS, the Company and the Executive entered into the Employment
Agreement and now desire to modify certain of the terms and provisions thereof;
NOW, THEREFORE, it is agreed as follows:
1. The Employment Agreement is hereby amended as follows:
(a) Section 3(a) of the Employment Agreement is hereby amended and restated
as follows:
"(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 $275,000. 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,
1998; 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 1998 as
the basedate, determined and payable as provided in Section 3(b)
below."
2. All capitalized terms used herein, unless otherwise defined herein, are
used herein as defined in the Employment Agreement. Except as expressly provided
herein, all terms and provisions of the Employment Agreement shall remain in
full force and effect.
IN WITNESS WHEREOF, the undersigned have hereunto set their hands as of the
date first above written.
AEROFLEX INCORPORATED
By: /s/ Charles Badlato
---------------------------
Name: Charles Badlato
Title: Treasurer
/s/ Harvey R. Blau
---------------------------
Harvey R. Blau
Amendment No. 2
to
Employment Agreement
This Amendment No. 2 dated as of July 1, 1998 to the Employment Agreement
(the "Employment Agreement") dated as of July 1, 1994 between Aeroflex
Incorporated, a Delaware corporation, with its principal office located at 35
South Service Road, Plainview, NY 11803 (the "Company") and Michael Gorin, who
resides at 112B East Long Beach Road, Nissequogue, NY 11780 (the "Executive").
WHEREAS, the Company and the Executive entered into the Employment
Agreement and now desire to modify certain of the terms and provisions thereof;
NOW, THEREFORE, it is agreed as follows:
1. The Employment Agreement is hereby amended as follows:
(a) Section 3(a) of the Employment Agreement is hereby amended and restated
as follows:
"(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 $350,000. 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,
1998; 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 1998 as
the basedate, determined and payable as provided in Section 3(b)
below."
2. All capitalized terms used herein, unless otherwise defined herein, are
used herein as defined in the Employment Agreement. Except as expressly provided
herein, all terms and provisions of the Employment Agreement shall remain in
full force and effect.
IN WITNESS WHEREOF, the undersigned have hereunto set their hands as of the
date first above written.
AEROFLEX INCORPORATED
By: /s/ Charles Badlato
---------------------------
Name: Charles Badlato
Title: Treasurer
/s/ Michael Gorin
----------------------------
Michael Gorin
Amendment No. 2
to
Employment Agreement
This Amendment No. 2 dated as of July 1, 1998 to the Employment Agreement
(the "Employment Agreement") dated as of July 1, 1994 between Aeroflex
Incorporated, a Delaware corporation, with its principal office located at 35
South Service Road, Plainview, NY 11803 (the "Company") and Leonard Borow, who
resides at 125 Rodeo Drive, Oyster Bay Cove, NY 11791 (the "Executive").
WHEREAS, the Company and the Executive entered into the Employment
Agreement and now desire to modify certain of the terms and provisions thereof;
NOW, THEREFORE, it is agreed as follows:
1. The Employment Agreement is hereby amended as follows:
(a) Section 3(a) of the Employment Agreement is hereby amended and restated
as follows:
"(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 $350,000. 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,
1998; 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 1998 as
the basedate, determined and payable as provided in Section 3(b)
below."
2. All capitalized terms used herein, unless otherwise defined herein, are
used herein as defined in the Employment Agreement. Except as expressly provided
herein, all terms and provisions of the Employment Agreement shall remain in
full force and effect.
IN WITNESS WHEREOF, the undersigned have hereunto set their hands as of the
date first above written.
AEROFLEX INCORPORATED
By: /s/ Charles Badlato
---------------------------
Name: Charles Badlato
Title: Treasurer
/s/ Leonard Borow
-----------------------------
Leonard Borow
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
consolidated financial statements for the year ended June 30, 1998 and is
qualified in its entirety by reference to such statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> JUN-30-1998
<CASH> 24,408,000
<SECURITIES> 0
<RECEIVABLES> 20,170,000
<ALLOWANCES> 317,000
<INVENTORY> 29,851,000
<CURRENT-ASSETS> 77,170,000
<PP&E> 55,906,000
<DEPRECIATION> 28,912,000
<TOTAL-ASSETS> 124,101,000
<CURRENT-LIABILITIES> 23,205,000
<BONDS> 0
0
0
<COMMON> 1,738,000
<OTHER-SE> 85,298,000
<TOTAL-LIABILITY-AND-EQUITY> 124,101,000
<SALES> 118,861,000
<TOTAL-REVENUES> 118,861,000
<CGS> 77,286,000
<TOTAL-COSTS> 104,003,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,011,000
<INCOME-PRETAX> 13,156,000
<INCOME-TAX> 4,750,000
<INCOME-CONTINUING> 8,406,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,406,000
<EPS-PRIMARY> .57
<EPS-DILUTED> .51
</TABLE>
